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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-K/A
(Amendment No. 1)
(Mark One)
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2004, or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
Commission file number 1-15827
VISTEON CORPORATION
(Exact name of Registrant as specified in its charter)
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Delaware
(State of incorporation) |
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38-3519512
(I.R.S. employer
identification no.) |
One Village Center Drive,
Van Buren Township, Michigan
(Address of principal executive offices) |
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48111
(Zip code) |
Registrant’s telephone number, including area code:
(800)-VISTEON
Securities registered pursuant to Section 12(b) of the
Act:
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Name of each exchange on |
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which registered |
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Common Stock, par value $1.00 per share |
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New York Stock Exchange |
Indicate
by check mark whether the Registrant: (1) has filed all
reports required to be filed by
Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such
reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes No ü
Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant’s knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any
amendment to this
Form 10-K. þ
Indicate by check mark whether the
Registrant is an accelerated filer (as defined in Exchange Act
Rule 12b-2).
Yes ü No
The aggregate market value of the
registrant’s voting and non-voting common equity held by
non-affiliates of the registrant on June 30, 2004 (the last
business day of the most recently completed second fiscal
quarter) was approximately $1,512 million.
As of November 14, 2005, the
registrant had outstanding 128,743,368 shares of common
stock.
Document Incorporated by Reference*
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Where Incorporated |
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Proxy Statement
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Part III (Items 10,
11, 12, 13 and 14) |
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As stated under various Items of this Report, only certain
specified portions of such document are incorporated by
reference in this Report. |
EXPLANATORY NOTE
This Amendment No. 1 on Form 10-K/A
(“Form 10-K/A”) to our Annual Report on
Form 10-K for the year ended December 31, 2004,
initially filed with the Securities and Exchange Commission (the
“SEC”) on March 16, 2005 (the “Original
Filing”), is being filed to reflect restatements of our
consolidated balance sheet at December 31, 2004
and 2003; and our consolidated statement of operations,
consolidated statement of cash flows and consolidated statement
of stockholders’ equity for each of the three years in the
period ended December 31, 2004, and the notes and
schedule of valuation and qualifying accounts related thereto.
On May 10, 2005, Visteon announced that the Audit
Committee of the Board of Directors had initiated an independent
review of the accounting for certain transactions originating in
the company’s North American purchasing activity as a
result of errors identified by management during the course of
preparing Visteon’s Quarterly Report on Form 10-Q for
the first quarter of 2005. The errors related to the accrual for
freight, raw materials and other supplier costs originating in
North America that relate to prior periods. The Audit Committee
engaged outside counsel to advise it regarding the review. Based
upon the completion of this review and other procedures
performed by management, the Audit Committee and management
concluded that the aforementioned financial statements require
restatement. In addition, as previously described in
Visteon’s Current Report on Form 8-K dated
October 21, 2005, the Audit Committee’s
independent review also determined that many of the accounting
errors resulted principally from improper conduct on the part of
two former, non-executive finance employees responsible for the
accounting oversight of these matters. The restatements pertain
to the following matters:
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Visteon is making corrections to record freight costs that
should have been recorded in periods prior to
December 31, 2004. The impact of the correction of
these errors increased net loss by approximately $8 million
($0.06 per share), $24 million
($0.19 per share) and $5 million
($0.04 per share) for the years ended
December 31, 2004, 2003 and 2002,
respectively. |
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Visteon is making corrections to record raw material cost
increases that should have been recorded in periods prior to
December 31, 2004. The impact of the correction of
these errors increased net loss by approximately
$26 million ($0.21 per share) for the year ended
December 31, 2004, reduced net loss by approximately
$3 million ($0.02 per share) for the year ended
December 31, 2003, and increased net loss by
approximately $6 million ($0.05 per share) for the
year ended December 31, 2002. |
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Visteon is making corrections to record other supplier costs
that should have been recorded in periods prior to
December 31, 2004. The impact of the correction of
these errors increased net loss by approximately $6 million
($0.05 per share) and $1 million ($0.01 per
share) for the years ended December 31, 2004 and 2003,
respectively, and had no impact on net loss for the year ended
December 31, 2002. |
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Visteon is making a correction for income taxes related to
various foreign affiliates that should have been recognized
in 2004. The impact of this correction reduced net loss by
approximately $3 million ($0.02 per share) for
the year ended December 31, 2004. |
1
For a more detailed description of these restatements, see
Note 2, “Restatement of Financial Statements” to
the accompanying consolidated financial statements and the
section entitled “Restatement” in Management’s
Discussion and Analysis of Financial Condition and Results of
Operations contained in this Form 10-K/A. The decision to
restate Visteon’s consolidated financial statements was
previously announced in a press release that was filed with the
SEC as part of a Current Report on Form 8-K of Visteon
dated October 21, 2005.
Although this Form 10-K/A sets forth the Original Filing in
its entirety, this Form 10-K/A only amends and restates
Item 1 of Part I, Items 6, 7, 8 and 9A of
Part II and Exhibit 12.1 of Item 15 of
Part IV of the Original Filing, in each case, solely as a
result of, and to reflect, the restatement, and no other
information in the Original Filing is amended hereby. The
foregoing items have not been updated to reflect other events
occurring after the Original Filing or to modify or update those
disclosures affected by subsequent events. In addition, pursuant
to the rules of the SEC, Item 15 of Part IV of the
Original Filing has been amended to contain the consent of our
independent registered public accounting firm and
currently-dated certifications from our Chief Executive Officer
and Chief Financial Officer, as required by Sections 302
and 906 of the Sarbanes-Oxley Act of 2002. The consent of the
independent registered public accounting firm and the
certifications of our Chief Executive Officer and Chief
Financial Officer are attached to this Form 10-K/A as
Exhibits 23.1, 31.1, 31.2, 32.1 and 32.2, respectively.
Except for the foregoing amended information, this
Form 10-K/A continues to describe conditions as of the date
of the Original Filing, and we have not updated the disclosures
contained herein to reflect events that occurred at a later
date. Other events occurring after the filing of the Original
Filing or other disclosures necessary to reflect subsequent
events have been or will be addressed in either our Quarterly
Reports on Form 10-Q for the quarterly periods ended
March 31, 2005, June 30, 2005 or
September 30, 2005 which are being filed concurrently with
the filing of this Form 10-K/A, or other reports filed with
the SEC subsequent to the date of this filing.
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TABLE OF CONTENTS
PART I
ITEM 1. BUSINESS
Overview
Visteon Corporation is a leading global supplier of
automotive systems, modules and components to global vehicle
manufacturers and the automotive aftermarket. Headquartered in
Van Buren Township, Michigan, we have global capabilities, with
regional headquarters in Kerpen, Germany; Shanghai, China; and
São Paulo, Brazil. We have a workforce of
approximately 70,200 and a network of manufacturing sites,
technical centers, sales offices and joint ventures located in
every major region of the world.
Visteon operates in two business segments: Automotive Operations
and Glass Operations.
Automotive Operations: Visteon is a leading global
supplier of automotive systems, modules and components in the
following product areas: climate control, interior, exterior,
powertrain, chassis and electronics. Our products are featured
on vehicles built by many leading automotive manufacturers,
including Ford Motor Company, General Motors, Toyota,
DaimlerChrysler, Volkswagen, Honda, Renault, Nissan, Hyundai,
Peugeot, Mazda and BMW. The Automotive Operations segment
accounted for 97% of our 2004 total sales.
Glass Operations: Our Glass Operations segment
designs, produces and distributes automotive glass products for
Ford and aftermarket customers, and float glass for commercial
architectural and automotive applications.
Visteon was incorporated in Delaware in January 2000 as a
wholly-owned subsidiary of Ford. Ford subsequently transferred
to Visteon the assets and liabilities comprising its automotive
components and systems business. Visteon separated from Ford on
June 28, 2000 when all of the common stock of Visteon
was distributed by Ford to its shareholders.
Financial Information About Business Segments
Business segment financial information can be found on
pages 116-118 of this Annual Report on Form 10-K/A
(Note 20, “Segment Information,” of our
consolidated financial statements).
Automotive Parts Industry
The automotive parts industry provides systems, modules and
components to vehicle manufacturers for the manufacture of new
vehicles, as well as to the aftermarket for use as replacement
and enhancement parts. Historically, large vehicle manufacturers
operated internal divisions to provide a wide range of component
parts for their vehicles. More recently, vehicle manufacturers
have moved toward a competitive sourcing process for automotive
parts, including increased purchases from independent suppliers,
as they seek lower-priced and/or higher-technology products.
Demand for aftermarket products tends to increase when vehicle
owners retain their vehicles longer, as these vehicles generally
have a greater need for repairs.
Industry Trends. The following key trends have been
affecting the automotive parts industry over the past several
years:
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Ongoing Industry Consolidation. The number of automotive
parts suppliers worldwide has been declining due to industry
consolidation and closings. Suppliers are shifting production to
locations with more flexible work rules and practices, acquiring
complementary technologies, building stronger customer
relationships, and following their customers as they expand
globally. Visteon is responding by improving its focus on its
key growth product areas. Visteon believes that it can continue
to strengthen its competencies so that it can improve its
leadership position in these core products. |
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ITEM 1. BUSINESS — (Continued)
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Increasing Competitive Intensity and Market Pressures on
Vehicle Manufacturers. Because vehicle manufacturers are
under increasing competitive intensity, they must rapidly adjust
to changing consumer preferences in order to differentiate their
vehicles. This has resulted in the acceleration in vehicle
development and increased reliance upon parts suppliers, such as
Visteon, with significant design, engineering, research and
development, and assembly abilities. These market pressures
inhibit the ability of vehicle manufacturers to significantly
increase vehicle prices, leading vehicle manufacturers to
intensify their cost-reduction efforts on their suppliers. In
particular, vehicle manufacturers are increasingly searching for
lower cost sources of components and systems, primarily in the
Asia-Pacific region, and are establishing global benchmark
pricing. Thus, automotive suppliers such as Visteon must
continue to manage their supply chains globally and leverage
low-cost functions to reduce costs without sacrificing quality. |
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Globalization of Suppliers. To serve multiple markets
more efficiently, vehicle manufacturers are assembling vehicle
platforms globally. With this globalization, vehicle
manufacturers are increasingly interested in buying components
and systems from suppliers that can serve multiple markets,
address local consumer preferences, control design costs and
minimize import tariffs in local markets. Visteon’s
presence in 24 countries, on six continents, positions it
to meet this need. In addition, foreign vehicle manufacturers
continue to gain market share at the expense of the domestic
vehicle manufacturers. Many of these foreign vehicle
manufacturers have strong existing relationships with
foreign-based suppliers. This has increased the competitive
pressure on domestic suppliers like Visteon. We also believe,
however, that this trend could create growth opportunities for
domestic suppliers, such as Visteon, with innovative and
competitively priced technologies as foreign vehicle
manufacturers increasingly establish additional local
manufacturing and assembly facilities in North America and seek
additional ways to differentiate their product offerings. |
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Demand for Safety-related and Environmentally-friendly
Products. Consumers are increasingly interested in products
and technologies that make them feel safer and more secure.
Vehicle manufacturers and many governmental regulators are
requiring more safety-related and environmentally-friendly
products. This demand, coupled with advances in technology, have
led to a number of new product opportunities for Visteon’s
strong innovation capabilities, such as advanced front lighting
systems, driver-information technologies, emissions controls,
improved fuel economy and recyclable materials. In addition,
Visteon can support the technology needs of advanced systems,
such as environmentally-focused power systems, which could
revolutionize the automotive industry. |
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Increasing Electronics Integration and Technological
Content. Electronics integration, which typically involves
replacing bulky mechanical components with electronic ones
and/or adding new electrical functions to the vehicle, allows
vehicle manufacturers improved control over vehicle weight,
costs and functionality. Integrated electronic solutions help
auto manufacturers improve fuel economy through weight reduction
and reduce emissions through improved air and engine control
systems. In addition, Visteon is combining its leadership
position in automotive supply with leaders in non-automotive
electronics to offer vehicle manufacturers integrated
technologies that meet key consumer and regulatory needs. |
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ITEM 1. BUSINESS — (Continued)
Products
When working with a customer, our goal is to understand the
design intent and brand image for each vehicle and leverage our
extensive experience and innovative technology to deliver
products that enable the customer to differentiate the vehicle.
We support our components, systems and modules with a full-range
of styling, design, testing and manufacturing capabilities,
including just-in-time and in-sequence delivery.
The global automotive parts industry is highly competitive and
winning and maintaining new business requires suppliers to
rapidly produce new and innovative products on a
cost-competitive basis. Because of the heavy capital and
engineering investment needed to maintain this competitiveness,
Visteon reexamined its broad product portfolio to identify its
key growth products considered core to its future success. This
assessment was based on a review of a number of factors,
including:
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Our understanding of market trends and the changing requirements
of vehicle manufacturers and end-consumer preferences |
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Our current portfolio of product technologies and capabilities
and expected future advancements |
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Our operating cost structure, manufacturing capability and
geographic presence |
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Our ability to gain and retain profitable new business with our
customers |
Based on this assessment the company identified interiors,
climate and electronics, including lighting, as its key growth
products.
The following discussion describes the major product groups
within each segment that Visteon produces or offers as of the
date of this report. Financial information relating to sales
attributable to each of these product groups can be found in
Note 20, “Segment Information,” of our
consolidated financial statements.
Automotive Operations
Chassis Products & Systems. Visteon
designs and manufactures a wide array of chassis-related
products, from driveline systems for popular all-wheel drive
vehicles to steering and suspension systems.
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Description |
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Driveline Systems
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Visteon produces all of the major components for an all-wheel
drive system. Major products include: front and rear independent
suspension and solid-beam axles, Propshafts, Halfshafts, and
Power Transfer Units. Visteon’s Slip-in-Tube Propshaft is
an example of our exclusive technology that reduces weight,
improves noise, vibration and harshness (NVH) and performance in
the event of sudden impact. |
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Steering Systems/ Steering Columns
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Visteon designs and produces hydraulic power assisted steering
systems, rack and pinion steering gears and recirculating ball
nut steering gears. |
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Suspension Systems/ Misc. Components
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Visteon’s suspension products include corner and suspension
modules, brake hubs and rotors, knuckles and spindles, in a
variety of materials, and stabilizer bars. |
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Catalytic Converters
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Visteon designs and manufactures catalytic converters. |
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ITEM 1. BUSINESS — (Continued)
Interior Products & Systems. Visteon is
one of the leading global suppliers of cockpit modules,
instrument panels, door and console modules and interior trim
components.
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Description |
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Cockpit Modules
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Visteon’s Cockpit Modules incorporate the latest in driver
information, entertainment, vehicle controls and climate control
features and package a variety of structural, electronic and
safety components. We provide our customers with a complete
array of services including advanced engineering and
computer-aided design, styling concepts and modeling and
in-sequence delivery of manufactured parts. Visteon’s
Cockpit Modules incorporate our Instrument Panels which consist
of a substrate and the optional assembly of structure, ducts,
registers, passenger airbag system (integrated or conventional),
finished panels and the glove box assembly. |
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Door Modules
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Visteon provides a wide range of door trim panels and modules as
well as a variety of interior trim products. |
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Console Modules
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Visteon’s consoles deliver flexible and versatile storage
options to the consumer. The modules are interchangeable units
and offer consumers a wide range of storage options that can be
tailored to their individual needs. |
Climate Control Products & Systems.
Visteon is one of the leading global suppliers in the design and
manufacturing of components, modules and systems that provide
automotive heating, ventilation and air conditioning and
powertrain cooling.
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Description |
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Climate Systems
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Visteon designs and manufactures fully integrated heating,
ventilation and air conditioning (HVAC) systems. Visteon’s
proprietary analytical tools and systems integration expertise
enables the development of climate-oriented components,
subsystems and vehicle-level systems. Products contained in this
area include: Heat Exchangers, Climate Controls, Compressors,
and Fluid Transport Systems. |
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Powertrain Cooling Systems
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Cooling functionality and thermal management for the
vehicle’s powertrain system (engine and transmission) is
provided by powertrain cooling-related technologies. |
Powertrain Products & Systems. Visteon
offers innovative designs in engine management, fuel storage and
delivery and electrical conversion systems. These systems are
designed to provide the automotive customer with solutions that
enhance powertrain performance, fuel economy and emissions
control.
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Description |
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Powertrain Electronics and Engine Induction Systems
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Visteon has a complete line of products for vehicle engine and
powertrain management, including the Powertrain Control Module.
Visteon’s diverse line of sophisticated powertrain products
are designed to deliver improved fuel economy and reduced
emissions while enhancing performance. These products include:
Engine and Air Induction Systems, Torque Enhancement Systems,
Intake Manifolds, Long Life Filtration Systems, Fuel Injectors
and Rails, Mechanical and Electronic Throttle Bodies and
Ignition Coils. |
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Starters, Alternators and Wiper Washer
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Visteon offers a wide range of alternators and starters to meet
differing needs of the automotive customer. In addition, Visteon
is working to develop technologies that meet future
higher-voltage vehicle architectures (including integrated
starter-generators). |
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Fuel Delivery
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Visteon manufactures systems and components to support low
emissions vehicles. The principal products in these systems are
plastic blow-molded and thermoformed Fuel Tanks, Fuel Pumps and
Fuel Delivery Modules and Carbon Canisters. |
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ITEM 1. BUSINESS — (Continued)
Electronic Products & Systems. Visteon is
one of the leading global suppliers of high-tech in-vehicle
entertainment, driver information, wireless communication,
safety and security electronics.
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Description |
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Audio Systems
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Visteon produces a wide range of audio systems and components,
ranging from base radio head units to integrated premium audio
systems and amplifiers. Examples of Visteon’s latest
electronics products include digital and satellite radios, HD
Radiotm
broadcast tuners, premium systems for audiophile
enthusiasts and advanced Bluetooth®-enabled modules that
incorporate Visteon Voice
Technologytm
capability. Visteon’s MACH® Digital
Signal Processing (DSP) is an integrated technology designed to
improve audio performance for entertainment systems and can
support branded audio solutions such as Boston Acoustics and
Sony. |
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Driver Information Systems
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Visteon designs and manufacturers a wide range of displays, from
analog-electronic to high-impact instrument clusters that
incorporate Light Emitting Diode (LED) displays. |
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Infotainment — Information, Entertainment and
Multimedia
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Visteon has developed numerous products to assist driving and
provide in- vehicle entertainment. A sampling of these
technologies include: MACH® Voice Link Technology, Adaptive
Cruise Control and a range of Family Entertainment Systems
designed to support a variety of applications and various
vehicle segments |
Exterior Products & Systems. Visteon can
provide exterior packages that deliver high quality and
functionality to the automotive customer.
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Description |
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Lighting
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Visteon designs and builds a wide variety of headlamps
(projector, reflector or Advanced Front Lighting Systems), Rear
Combination Lamps, Center High-Mounted Stop Lamps (CHMSL) and
Fog Lamps. Visteon’s expertise in lighting enables a
breadth of technology using a range of lighting sources
including LED, High Intensity Discharge (HID) and Halogen-based
systems. |
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Bumpers
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Visteon offers bumper systems, fascias and assemblies and
valance panels. |
Glass Operations
Our Glass Operations segment designs, produces, and
distributes automotive glass products for Ford and aftermarket
customers, and float glass for commercial architectural and
automotive applications. Glass Operations accounted for
about $520 million, or 3%, of our 2004 total sales.
Customers
Visteon sells its products primarily to global vehicle
manufacturers as well as to other suppliers and assemblers. In
addition, we sell products for use as aftermarket and service
parts to automotive original equipment manufacturers and others
for resale through their own independent distribution networks.
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ITEM 1. BUSINESS — (Continued)
Vehicle Manufacturers
Visteon sells to all of the world’s largest vehicle
manufacturers including Ford, General Motors, Toyota,
DaimlerChrysler, Honda, Volkswagen, Renault, Nissan, Hyundai,
Peugeot, Mazda and BMW. Ford is our largest customer, and our
sales to Ford, including those sales to Auto Alliance
International, a joint venture between Ford and Mazda, accounted
for about 70% of our 2004 total sales. Customers other than Ford
include Mazda, of which Ford owns a 33.4% equity interest. Our
top five customers other than Ford accounted for approximately
13% of our total 2004 sales.
Price reductions are typically negotiated on an annual basis
between suppliers and vehicle manufacturers. Such reductions are
intended to take into account expected annual reductions in the
overall cost to the supplier of providing products and services
to the customer, through such factors as overall increases in
manufacturing productivity, material cost reductions, and
design-related cost improvements. We have agreed to provide
specific average productivity price reductions to our largest
customer, Ford, for North America sales through 2007. Visteon
has an aggressive cost reduction program that focuses on
reducing our total costs, which are intended to offset these
customer price reductions, but there can be no assurance that
such cost reduction efforts will be sufficient to do so,
especially considering recent increases in the costs of steel
and resins.
Aftermarket
We sell products to the worldwide aftermarket as replacement
parts or as customized products, such as body appearance
packages and in-car entertainment systems, for current
production and older vehicles. In 2004, we had aftermarket sales
of $1,041 million, representing 6% of our total sales. We
currently sell 54% of these products to the independent
aftermarket and 46% to Ford’s Automotive Consumer Service
Group, the principal aftermarket sales organization of Ford. In
2004, aftermarket sales of our glass products were
$109 million, representing 1% of our total sales and 11% of
our total aftermarket sales.
Arrangements with Ford and its Affiliates
In connection with Visteon’s separation from Ford in 2000,
Visteon and Ford entered into a series of agreements outlining
the terms of the separation and the relationship between Visteon
and Ford on an ongoing basis. In December 2003, Visteon and
Ford entered into a series of agreements that modify or replace
several of the agreements referred to above. On
March 10, 2005, Visteon also entered into a funding
agreement and a master equipment bailment agreement with Ford,
as described below, which, among other things, modify certain
provisions of the Hourly Employee Assignment Agreement and
Purchase and Supply Agreement described below. The following
summary of certain of these agreements is qualified in all
respects by the actual terms of the respective agreements.
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ITEM 1. BUSINESS — (Continued)
Master Transfer Agreement. The master transfer agreement,
effective as of April 1, 2000, and other related
agreements, provided for Ford to transfer to Visteon and/or its
subsidiaries, all assets used exclusively by Visteon, including
but not limited to real property interests, personal property
and ownership interests in subsidiaries and joint ventures. In
addition, Visteon and Ford agreed to a division of liabilities
relating to the assets contributed and the Visteon business,
including liabilities related to product liability, warranty,
recall, environmental, intellectual property claims and other
general litigation claims. Specifically, Visteon and Ford agreed
on a division of responsibility for product liability, warranty
and recall matters as follows: (a) Ford will retain
liability for all product liability, warranty or recall claims
that involve parts made or sold by Visteon for 1996 or earlier
model year Ford vehicles; (b) Visteon is liable for all
product liability, warranty or recall claims that involve parts
made or sold by Visteon for 1997 or later model year Ford
vehicles in accordance with Ford’s global standard purchase
order terms as applied to other Tier 1 suppliers; and
(c) Visteon has assumed all responsibility for product
liability, warranty or recall claims relating to parts made or
sold by Visteon to any non-Ford customers. Also, Visteon and
Ford agreed on a division of responsibility for liabilities
associated with claims that Visteon’s products infringe or
otherwise violate the intellectual property interests of others
as follows: (a) Ford will retain liability for such claims
related to Visteon’s products sold or supplied to Ford or
its subsidiaries on or prior to July 31, 1999;
(b) Visteon has assumed liability for such claims related
to Visteon’s products sold or supplied to Ford or its
subsidiaries after July 31, 1999 to the same extent as
other Tier 1 suppliers would be liable if they had supplied
such parts, components or systems to Ford; and (c) Visteon
has assumed liability for such claims related to Visteon’s
products sold to third parties at any time. With respect to
environmental matters, please see “Environmental
Matters,” below.
Master Separation Agreement. Ford has provided a number
of transitional services to Visteon pursuant to the master
separation agreement and related arrangements, including
information technology, human resources, accounting, customs,
product development technology and real estate services. Visteon
agreed to pay Ford amounts which reflected its fully accounted
cost for these services, including a reasonable allocation of
internal overhead costs, as well as any direct costs incurred
from outside suppliers. Except for certain information
technology services, Ford’s obligation to provide these
services pursuant to the master separation agreement expired in
June 2002. Visteon and Ford have subsequently entered into
new arrangements covering some of these services. Please see
Note 14, “Arrangements with Ford and its
Affiliates,” of our consolidated financial statements, for
information regarding the amounts that have been assessed for
services rendered by Ford under the master separation agreement.
During 2003, Visteon began the process of creating a separate IT
environment, including the separation of certain of Ford’s
IT systems that had been utilized by Visteon. During
December 2003, Visteon and Ford agreed on matters designed
to facilitate the separation process, including Ford’s
agreement to provide certain limited information technology
support services and Ford’s agreement to share a portion of
the costs associated with the separation process. The parties
have agreed also to the mutual release of claims related to IT
activities since their separation. The first phase of this
transition was completed in October 2003, and the second
phase was completed in April 2004. The migration of all
remaining applications from Ford’s IT systems is expected
to be completed in early 2005.
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ITEM 1. BUSINESS — (Continued)
Hourly Employee Assignment Agreement. The hourly employee
assignment agreement, as amended and restated as of
December 19, 2003, sets forth a number of rights and
obligations with respect to the United States hourly employees
of Ford who are covered by Ford-UAW master collective bargaining
agreements and are assigned to work for Visteon. Under this
agreement, Visteon exercises day-to-day supervision over the
covered individuals and reimburses Ford for the wage, benefit
and other costs incurred by Ford related to these individuals.
This includes amounts for profit sharing based on Ford’s
profits, which is capped at $2,040 per worker. This cap
excludes amounts that may be payable on account of employer
payroll taxes or the portion of any profit sharing payment that
may be attributable to Visteon’s profits. About
$12 million, $4 million and $4 million of profit
sharing expense was recognized in 2004, 2003 and 2002,
respectively. The funding agreement entered into with Ford on
March 10, 2005 suspends any profit sharing payment for
2005. For further information, see “Workforce” set
forth below.
The amended and restated hourly employee assignment agreement
also significantly reduced Visteon’s obligation to
reimburse Ford for the Other Post Employment Benefits
(“OPEB”) SFAS 106 liability (the “OPEB
Liability”) related to pre-separation service of Ford
hourly employees assigned to work at Visteon, and the time
period for funding Visteon’s post-separation OPEB Liability
to Ford for hourly employees assigned to work at Visteon was
extended from 2020 to December 31, 2049. Visteon
completed during 2004 the transfer of assets and obligations
relating to the pensions and other benefits for those hourly
employees of Visteon who become hourly employees of Ford as of
December 22, 2003. See “Workforce” set forth
below. Finally, the agreement provides for an agreed upon method
for the transfer of benefit obligations for Visteon-assigned
Ford-UAW hourly employees who return to Ford after service at
Visteon. For further information, see “Item 7.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations — Pension and Postretirement
Benefits” set forth below.
Purchase and Supply Agreement. During the fourth quarter
2003, Visteon and Ford terminated the purchase and supply
agreement and related pricing letter agreement that were entered
into at or around the time of the separation and entered into a
new purchase and supply agreement, dated as of
December 19, 2003. This agreement governs general
commercial matters relating to the supply of components in North
America by Visteon to Ford, primarily relating to sourcing and
pricing obligations.
Pursuant to this purchase and supply agreement, Visteon and Ford
have agreed to continue to honor the terms and conditions of all
existing agreements regarding the purchase and sale of currently
sourced components. In addition, Ford has agreed to include
Visteon on its list of suppliers receiving requests for
quotations, design competitions and advanced technology
development activities with respect to the sourcing of new
business unless “good cause” or “other good
business reasons” (each as defined in the agreement) exists
to exclude Visteon. If Visteon is excluded from the list of
suppliers receiving a request for quote for certain replacement
new business because of other good business reasons, then Ford
will compensate Visteon on account of such exclusion based on
lost profits due to the discontinued sourcing of such
components, as calculated in accordance with terms of the
agreement. Where Visteon has been asked to quote on new
business, consistent with commitments made to the UAW and
Visteon to “look to Visteon first,” such new business
will be awarded to Visteon if Visteon’s quote is
“competitive” (as defined in the agreement). Also, as
a condition to sourcing Visteon with respect to most new
components, Visteon must develop a competitive gap closure plan
that identifies opportunities to reduce prices on the same or
similar components currently sourced to Visteon to competitive
levels, which plans are not intended to reduce Visteon’s
margins. Otherwise, Ford will treat Visteon in the same manner
as it treats its other Tier 1 suppliers with respect to
Ford’s general sourcing policies and practices relating to
new business, including new purchasing and sourcing initiatives.
10
ITEM 1. BUSINESS — (Continued)
Ford may terminate or not renew its purchase obligations
relating to a given component (each, a “Purchase
Order”) in accordance with the terms of such Purchase
Order, on account of “excusable delay” (as defined in
the agreement), program cancellation, for good cause or for
other good business reasons. If a Purchase Order is terminated
or not renewed for good cause, there is no adjustment to the
productivity price down percentages. If during the term of any
Purchase Order, Ford elects to terminate or not renew a Purchase
Order for other good business reasons, then Ford will compensate
Visteon based on lost profits due to the discontinued sourcing
of such components, as calculated in accordance with terms of
the agreement. If during the term of any Purchase Order, Ford
elects to terminate or not renew a Purchase Order because of
program cancellation or excusable delay, then the terms of the
applicable Purchase Order will govern the right to notification,
remediation and compensation, if any.
Visteon also agreed to provide, beginning January 1, 2004
and on each January 1 thereafter through 2007, specified
productivity price reductions for all components supplied to
Ford in North America. Visteon and Ford have also agreed to
negotiate in good faith price changes on supplied components
resulting from design changes to such components.
During the period from January 1, 2004 through
December 31, 2007, Ford has agreed to pay to Visteon
an amount based on the cost differential between wages paid to
Ford-UAW workers, at efficient manning levels, and workers at
Tier 1 suppliers, with respect to new business sourced to
Visteon at plants covered by the Ford-UAW master collective
bargaining agreement. Through December 31, 2007, Ford
agrees to reimburse Visteon for wages relating to Ford-UAW
workers assigned to Visteon who are placed in the Guaranteed
Employment Number (“GEN”) program, as set forth in the
Ford-UAW master collective bargaining agreement, as a result of
Ford’s decision to exclude Visteon from the list of
suppliers receiving a request for quote on new business or
terminate or not renew a Purchase Order because of other good
business reasons. Visteon has received no payments related to
either the cost differential or the GEN program as of
December 31, 2004.
Finally, Ford has agreed to reimburse Visteon for up to one-half
of any capital investment spending on production facilities and
equipment made by Visteon during the period from January 1,
2004 through December 31, 2007 to the extent related
to the production of certain uncompetitive commodities for Ford.
Because this reimbursement is calculated on the basis that the
capital investment will be amortized over a period of seven
years utilizing the production volumes of the applicable
components, Visteon may not be reimbursed the full amount in the
event that the sourcing program were cancelled or modified by
Ford during such period. Visteon has received no payments
related to this agreement as of December 31, 2004.
Ford also agreed to accelerate the payment terms for certain
payables to Visteon through 2006. As described further below,
Ford has agreed to additional acceleration of payment terms for
certain payables to Visteon through at least 2005.
2003 Relationship Agreement. Visteon and Ford also
entered into a 2003 relationship agreement, dated as of
December 19, 2003, which provides, among other things,
for the establishment of a joint governance council. The
governance council is intended to provide a forum in which
senior members of the Ford and Visteon leadership teams can
monitor the Ford-Visteon relationship on a global basis. Visteon
and Ford also agreed to resolve certain outstanding commercial
matters between the parties.
11
ITEM 1. BUSINESS — (Continued)
Funding Agreement and Master Equipment Bailment
Agreement. On March 10, 2005, Visteon and Ford
entered into a funding agreement, effective as of
March 1, 2005, under which Ford has agreed (a) to
accelerate the payment on or prior to March 31, 2005
of not less than $120 million of payables that are
currently not required to be paid to Visteon until after
March 31, 2005; (b) to accelerate the payment
terms for certain payables to Visteon arising on or after
April 1, 2005 from an average of 33 days after
the date of sale to an average of 26 days; (c) to
reduce the amount of wages that Visteon is currently obligated
to reimburse Ford with respect to Visteon-assigned Ford-UAW
hourly employees that work at Visteon facilities, which Visteon
expects will result in reduced expenses and in cash savings of
approximately $25 million per month; and (d) to
release Visteon from its obligation to reimburse Ford for Ford
profit sharing payments with respect to Visteon-assigned
Ford-UAW hourly employees that accrue in 2005. Under the funding
agreement, Visteon has agreed to (a) continue to provide an
uninterrupted supply of components to Ford in accordance with
applicable purchase orders and to continue to comply with its
other contractual agreements with Ford and the UAW, including
continuing to use its best efforts to quote competitive prices
for new business to be produced for Ford at certain of
Visteon’s plants located in North America; (b) not to
request reimbursement from Ford for any material cost surcharges
for any component that is produced for Ford at certain of
Visteon’s plants located in North America, and
(c) that, except with respect to sales of inventory or the
disposal of obsolete equipment in the ordinary course of
business, Visteon will not sell, close or otherwise dispose of
any of the assets at certain of Visteon’s plants located in
North America, without Ford’s consent.
Also on March 10, 2005, Ford and Visteon entered into
a master equipment bailment agreement, effective as of
January 1, 2005, pursuant to which Ford has agreed to
pay third-party suppliers for certain machinery, equipment,
tooling and fixtures and related assets, which may be acquired
during the term of the agreement, which are primarily used to
produce components for Ford at some of Visteon’s plants
located in North America. This agreement is expected to reduce
Visteon’s 2005 capital expenditures by approximately
$150 million. Either Ford or Visteon may terminate the
funding agreement or the master bailment agreement at anytime
after January 1, 2006 upon 10 business days’
notice or upon the occurrence of certain customary events of
default, including the uncured default in the performance by a
party of its obligations under the agreement or under certain
other agreements between the parties.
Competition
We conduct our business in a complex and highly competitive
industry. The global automotive parts industry principally
involves the supply of systems, modules and components to
vehicle manufacturers for the manufacture of new vehicles.
Additionally, suppliers provide components to other suppliers
for use in their product offerings and to the aftermarket for
use as replacement or enhancement parts for older vehicles. As
the supplier industry continues to consolidate, the overall
number of competitors has decreased and the automotive parts
industry remains extremely competitive. Vehicle manufacturers
rigorously evaluate suppliers on the basis of product quality,
price competitiveness, technical expertise and development
capability, new product innovation, reliability and timeliness
of delivery, product design capability, leanness of facilities,
operational flexibility, customer service and overall
management. Many of our competitors have lower cost structures,
particularly with respect to wages and benefits, than Visteon.
Our overall product portfolio is extremely broad by industry
standards. Very few other Tier 1 suppliers compete across
the full range of our product areas. Visteon does have
significant competition in each of its market segments; the most
significant competitors by segment are listed below.
12
ITEM 1. BUSINESS — (Continued)
Automotive Operations. Our principal competitors in the
Automotive Operations segment include the following: American
Axle & Manufacturing Holdings, Inc.; Behr
GmbH & Co. KG; Robert Bosch GmbH; Dana Corporation;
Delphi Corporation; Denso Corporation; Faurecia Group; Johnson
Controls, Inc.; Lear Corporation; Magna International Inc.;
Siemens VDO Automotive AG; TRW Automotive Holdings Corp.; and
Valéo S.A.
Glass Operations. Our principal competitors in the
Glass Operations segment include the following: Asahi
Glass Co., Ltd.; AFG Industries, Inc.; Guardian Industries
Corp.; Pilkington plc; and PPG Industries, Inc.
International
Financial information about sales and net property by major
geographic area can be found on page 117 of this Annual
Report on Form 10-K/A (Note 20, “Segment
Information,” of our consolidated financial statements).
Seasonality
Our business is moderately seasonal because our largest North
American customers typically halt operations for about two weeks
in July for model year changeovers and about one week in
December during the winter holidays. In addition, third quarter
automotive production traditionally is lower as new models enter
production. Accordingly, our third and fourth quarter results
may reflect these trends.
Product Research and Development
Visteon’s research and development efforts are intended to
maintain our leadership position in the industry and provide us
with a competitive edge as we seek additional business with new
and existing customers. Total research and development
expenditures were approximately $896 million in 2004,
$913 million in 2003 and $911 million in 2002. Visteon
also works with technology development partners, including
customers, to develop technological capabilities and system
enhancements.
Intellectual Property
Visteon owns significant intellectual property, including a
large number of patents, copyrights, proprietary tools and
technologies and trade secrets, and is involved in numerous
licensing arrangements. Although Visteon’s intellectual
property plays an important role in maintaining its competitive
position, no single patent, copyright, proprietary tool or
technology, trade secret or license, or group of related
patents, copyrights, proprietary tools or technologies, trade
secrets or licenses, is, in the opinion of management, of such
value to Visteon that its business would be materially affected
by the expiration or termination thereof. Visteon’s general
policy is to apply for patents on an ongoing basis, in
appropriate countries, on its patentable developments which are
considered to have business significance.
Visteon also views its name and mark as significant to its
business as a whole. In addition, Visteon holds rights in a
number of other trade names and marks applicable to certain of
its businesses and products that it views as important to such
businesses and products.
13
ITEM 1. BUSINESS — (Continued)
Raw Materials
Raw materials used by Visteon in the manufacture of our products
primarily include steel, aluminum, resins, precious metals and
urethane chemicals. All of the materials used are generally
readily available from numerous sources except precious metals.
Precious metals (for catalytic converter production) are
purchased from Ford, and Ford assumes the risk of assuring
supply and accepts market price risk. Although we do not
anticipate significant interruption in the supply of raw
materials, the cost of ensuring this continued supply of certain
raw materials, in particular steel and resins, has risen
dramatically recently. This increase has had an adverse impact
on our results of operations and will continue to adversely
affect our results of operations unless our customers share in
these increased costs. To date, we have not been able to fully
recover these costs from our customers, and we cannot assure you
that we will be able to recover those costs in the future.
Workforce
Visteon’s workforce as of December 31, 2004
included approximately 70,200 persons, of which
approximately 17,100 were salaried employees and 53,100 were
hourly workers.
Of the hourly workforce, approximately 18,600 were workers
assigned to 15 U.S. manufacturing facilities covered
by master collective bargaining agreements with the United Auto
Workers union (“UAW”). These workers include
approximately 17,700 employees of Ford who, pursuant to an
agreement between Visteon and Ford, have been indefinitely
assigned to work at Visteon’s facilities. Visteon has
agreed to reimburse Ford for the wage, benefit and other costs
incurred by Ford related to these workers. On March 10,
2005, Ford and Visteon entered into a funding agreement which,
among other things, reduces this reimbursement obligation,
beginning with the pay period commencing February 21, 2005
through at least December 31, 2005. In addition, as part of
the current Ford-UAW master collective bargaining agreement,
Ford has agreed to offer transfers to Ford-UAW workers assigned
to Visteon facilities to positions at Ford facilities as they
become available. The present Ford-UAW master collective
bargaining agreement expires in September 2007. Although we
have the right to participate in future negotiations as well as
the planning and strategy development concerning the terms of,
and issues arising under, the current and future Ford-UAW
collective bargaining agreements, Ford reserves the right to
handle such matters if a joint course of action cannot be agreed
upon. In May 2004, Visteon and the UAW entered into a
seven-year supplement to their master collective bargaining
agreement, which provides for wage and benefit levels for most
new hires in covered facilities that are significantly below
those in place for Ford-UAW workers.
In Europe, all Ford employees (both hourly and salaried) working
in Visteon facilities at the time of the spin-off became Visteon
employees. In the spin-off agreement, it was agreed that Visteon
would provide these employees with wages, benefits and other
terms of employment that closely reflect those provided by Ford
to its employees in the respective countries. Many of our
European employees are members of industrial trade unions and
confederations within their respective countries. Many of these
organizations operate under collective contracts that are not
specific to any one employer.
14
ITEM 1. BUSINESS — (Continued)
We constantly work to establish and maintain positive,
cooperative relations with our unions around the world and we
believe that our relationships with unionized employees are
satisfactory. There have been no significant work stoppages in
the past three years, except for a brief work stoppage by
employees represented by the IUE-CWA Local 907 at a
manufacturing facility located in Bedford, Indiana during
June 2004.
Environmental Matters
Visteon is subject to the requirements of federal, state, local
and foreign environmental and occupational safety and health
laws and regulations. These include laws regulating air
emissions, water discharge and waste management. Visteon is also
subject to environmental laws requiring the investigation and
cleanup of environmental contamination at properties it
presently owns or operates and at third-party disposal or
treatment facilities to which these sites send or arranged to
send hazardous waste. Further, in connection with our spin-off
from Ford, Visteon and Ford have generally agreed that Visteon
would assume all liabilities for existing and future claims
relating to sites that were transferred to us and our operation
of those sites, including off-site disposal, except as otherwise
specifically retained by Ford in the master transfer agreement.
At the time of spin-off, Visteon and Ford also agreed on a
division of liability for, and responsibility for management and
remediation of, environmental claims existing at that time.
We are aware of contamination at some of our properties. We also
have agreed to an allocation of liability with Ford relating to
various third-party superfund sites at which Visteon and/or Ford
has been named as a potentially responsible party. We are in
various stages of investigation and cleanup at these sites. At
December 31, 2004, Visteon had recorded a reserve of
approximately $17 million for this environmental
investigation and cleanup. However, estimating liabilities for
environmental investigation and cleanup is complex and dependent
upon a number of factors beyond our control and which may change
dramatically. Accordingly, although we believe our reserves to
be adequate based on current information, we cannot assure you
that our eventual environmental investigation and cleanup costs
and liabilities will not exceed the amount of our current
reserve. During 2004, we did not incur any material capital
expenditures relating primarily to environmental compliance.
Available Information
Our current and periodic reports filed with the Securities and
Exchange Commission, including amendments to those reports, may
be obtained through our internet website at www.visteon.com free
of charge as soon as reasonably practicable after we file these
reports with the SEC. A copy of our code of business conduct and
ethics for directors, officers and employees of Visteon and its
subsidiaries, entitled “A Pledge of Integrity,” the
Corporate Governance Guidelines adopted by Visteon’s Board
of Directors and the charters of each committee of the Board of
Directors are available on our website at www.visteon.com. You
may also request a printed copy of the foregoing documents by
contacting our Shareholder Relations department in writing at
One Village Center Drive, Van Buren Township, MI 48111; by phone
(877) 367-6092; or via email at vcstock@visteon.com.
15
ITEM 2. PROPERTIES
Our principal executive offices are currently located in Van
Buren Township, Michigan. We also maintain regional headquarters
in Kerpen, Germany; in Shanghai, China; and in São Paulo,
Brazil.
We and our joint ventures maintain 71 technical
facilities/sales offices and 136 plants in
24 countries throughout the world, of which approximately
125 facilities are owned in fee simple and 75 are leased.
The following table shows the approximate total square footage
of our principal owned and leased manufacturing facilities by
region as of December 31, 2004:
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
Total | |
| |
|
Number of | |
|
Manufacturing | |
| |
|
Manufacturing | |
|
Sites’ Square | |
| Region |
|
Sites | |
|
Footage | |
| |
|
| |
|
| |
| |
|
|
|
(in millions) | |
|
North America
|
|
|
61 |
|
|
|
27.6 |
|
|
Europe
|
|
|
43 |
|
|
|
12.7 |
|
|
South America
|
|
|
7 |
|
|
|
0.8 |
|
|
Asia-Pacific
|
|
|
25 |
|
|
|
7.3 |
|
| |
|
|
|
|
|
|
| |
Total
|
|
|
136 |
|
|
|
48.4 |
|
| |
|
|
|
|
|
|
In some locations, we have combined a manufacturing facility,
technical center and/or customer service center and sales office
at a single multi-purpose site. The following table shows the
approximate number of various types of facilities by region and
segment as of December 31, 2004:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Customer | |
| |
|
Manufacturing | |
|
Technical | |
|
Centers and | |
| Region |
|
Sites | |
|
Centers | |
|
Sales Offices | |
| |
|
| |
|
| |
|
| |
|
North America
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Automotive Operations
|
|
|
57 |
|
|
|
23 |
|
|
|
4 |
|
| |
Glass Operations
|
|
|
4 |
|
|
|
3 |
|
|
|
— |
|
|
Europe
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Automotive Operations
|
|
|
43 |
|
|
|
13 |
|
|
|
14 |
|
| |
Glass Operations
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
South America
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Automotive Operations
|
|
|
7 |
|
|
|
— |
|
|
|
— |
|
| |
Glass Operations
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Asia-Pacific
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Automotive Operations
|
|
|
25 |
|
|
|
8 |
|
|
|
6 |
|
| |
Glass Operations
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Totals
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total Automotive Operations
|
|
|
132 |
|
|
|
44 |
|
|
|
24 |
|
| |
Total Glass Operations
|
|
|
4 |
|
|
|
3 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Total Visteon
|
|
|
136 |
|
|
|
47 |
|
|
|
24 |
|
| |
|
|
|
|
|
|
|
|
|
Although we believe that our facilities are suitable and
adequate, and have sufficient productive capacity to meet our
present needs, additional facilities will be needed to meet
future needs in growth products and regions. The majority of our
facilities are operating at normal levels based on their
respective capacities except those facilities that are in the
process of being closed.
16
ITEM 3. LEGAL PROCEEDINGS
In February 2005, a shareholder lawsuit was filed in the
U.S. District Court for the Eastern District of Michigan
against Visteon and Messrs. Pestillo, Johnston, Coulson and
Palmer and Ms. Minor, each a current or former officer of
the company. The lawsuit alleges, among other things, that
Visteon made misleading statements of material fact or omitted
to state material facts necessary in order to make the
statements made, in light of the circumstances under which they
were made, not misleading. The named individual plaintiff seeks
to represent a class consisting of purchasers of Visteon’s
securities during the period between January 23, 2004
and January 31, 2005. Class action status has not yet
been certified in this litigation. Visteon is in the process of
evaluating the claims in this lawsuit, and Visteon and its
current and former officers intend to contest the lawsuit
vigorously. The lawsuit is in a very preliminary stage and at
this time, management is unable to assess the impact this
litigation may have on its results of operations and financial
position.
Except as described above, we are involved in routine litigation
incidental to the conduct of our business. Except as described
above, we do not believe that any litigation to which we are
currently a party would, if determined adversely to us, have a
material adverse effect on our financial condition, results of
operations or cash flows, although such an outcome is possible.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
None.
ITEM 4A. EXECUTIVE OFFICERS OF VISTEON
The following table shows information about the executive
officers of Visteon. All ages are as of March 1, 2005:
| |
|
|
|
|
|
|
| Name |
|
Age | |
|
Position |
| |
|
| |
|
|
|
Peter J. Pestillo
|
|
|
66 |
|
|
Chairman of the Board
|
|
Michael F. Johnston
|
|
|
57 |
|
|
Director, President and Chief Executive Officer
|
|
James C. Orchard
|
|
|
54 |
|
|
Executive Vice President and President, North America
|
|
James F. Palmer
|
|
|
55 |
|
|
Executive Vice President and Chief Financial Officer
|
|
Heinz Pfannschmidt
|
|
|
57 |
|
|
Executive Vice President and President, Europe and South America
|
|
Lorie J. Buckingham
|
|
|
47 |
|
|
Senior Vice President and Chief Information Officer
|
|
Stacy L. Fox
|
|
|
51 |
|
|
Senior Vice President, General Counsel and Secretary
|
|
John F. Kill
|
|
|
55 |
|
|
Senior Vice President Product Development
|
|
Robert H. Marcin
|
|
|
59 |
|
|
Senior Vice President, Corporate Relations
|
|
Thomas A. Burke
|
|
|
47 |
|
|
Vice President, North America Manufacturing Operations
|
|
Jonathan K. Maples
|
|
|
47 |
|
|
Vice President and General Manager
|
|
Robert Pallash
|
|
|
53 |
|
|
Vice President and President, Asia-Pacific
|
|
William G. Quigley III
|
|
|
43 |
|
|
Vice President, Corporate Controller and Chief Accounting Officer
|
Peter J. Pestillo has been Visteon’s Chairman of the Board
since Visteon’s formation in January 2000, and until
July 2004, he had also served as Visteon’s Chief
Executive Officer. Before that, Mr. Pestillo had been the
Vice Chairman and Chief of Staff of Ford, and previously
Ford’s Executive Vice President, Corporate Relations.
Mr. Pestillo had been, prior to Visteon spin-off in
June 2000, a Ford employee since 1980. Mr. Pestillo is
also a director of Sentry Insurance.
17
ITEM 4A. EXECUTIVE OFFICERS OF VISTEON —
(Continued)
Michael F. Johnston has been Visteon’s Chief Executive
Officer and President since July 2004, and a member of the
Board of Directors since May 2002. Prior to that, he was
President and Chief Operating Officer of Visteon since joining
Visteon in September 2000. Before joining Visteon,
Mr. Johnston served as President, e-business for Johnson
Controls, Inc., and previously as President — North
America and Asia of Johnson Control’s Automotive Systems
Group, and as President of its automotive interior systems and
battery operations. Mr. Johnston is also a director of
Flowserve Corporation and Whirlpool Corporation.
James C. Orchard has been Executive Vice President of
Visteon since August 2001, where he has also served as
President, North America since July 2004, and was President,
North America and Asia from August 2001 to July 2004. Prior to
August 2001, Mr. Orchard was the Chief Executive Officer,
ZF Group North America and South America, and a member of
the ZF Board of Management.
James F. Palmer has been Visteon’s Executive Vice
President and Chief Financial Officer since joining Visteon in
June 2004. Until February 2004, he was Senior Vice President of
The Boeing Company, where he also served as President of Boeing
Capital Corporation from November 2000 to November 2003, and
President of the Boeing Shared Services Group prior thereto.
Heinz Pfannschmidt has been Executive Vice President and
President, Europe and South America of Visteon since July 2004,
and prior to that he served as Vice President and President,
Europe and South America since joining Visteon in November 2001.
Before that, he was President and Chief Executive Officer of TRW
Automotive Electronics Worldwide, and a member of the TRW
Executive Committee, since September 1999, and Managing Director
of Europe, Inflatable Restraint Systems of TRW Automotive prior
thereto.
Lorie J. Buckingham has been Senior Vice President and
Chief Information Officer of Visteon since July 2004. Prior to
that she was Vice President and Chief Information Officer since
2002, and she also served as Director of Global Software
Solutions since she joined Visteon in 2000. Before joining
Visteon, Ms. Buckingham was the Chief Information Officer
for Zonetrader.com, and from 1993 to 1999 she worked at Union
Carbide Corporation where she served as the Director of
Enterprise Information Technology Solutions.
Stacy L. Fox has been Senior Vice President, General
Counsel and Secretary of Visteon since Visteon’s formation
in January 2000. Before that, she was Group Vice President and
General Counsel of the Automotive Systems Group of Johnson
Controls, Inc. Ms. Fox will resign from her positions with
Visteon effective as of March 31, 2005.
John F. Kill has been Senior Vice President Product
Development of Visteon since July 2004, and prior to that he was
Vice President Product Development since January 2001.
Mr. Kill has also served as Operations Director of the
Climate Control Division since 1999, and served as the European
Operations Director from 1997 to 1999. Mr. Kill began his
career with Ford Motor Company in 1971, and has held various
engineering and management positions.
Robert H. Marcin has been Visteon’s Senior Vice
President, Corporate Relations since January 2003 and, prior to
that, he served as Visteon’s Senior Vice President of Human
Resources since Visteon’s formation in January 2000. Before
that, he was Executive Director — Labor Affairs for
Ford and Ford’s Director, U.S. Union Affairs.
Mr. Marcin had been, prior to the Visteon spin-off in June
2000, an employee of Ford or its subsidiaries since 1973.
18
ITEM 4A. EXECUTIVE OFFICERS OF VISTEON —
(Continued)
Thomas A. Burke has been Vice President, North America
Manufacturing of Visteon since November 2002, and prior to that
he was Vice President of North America and Asia Operations since
November 2002 and Vice President of Europe and South America
Manufacturing Operations since 2001. Mr. Burke has also
served as Visteon’s Director of Engineering for its Ford
Account; and as Director of Climate Control Systems for Europe,
South America and India, until 1996. Mr. Burke joined Ford
Motor Company in 1983, and he has held a number of engineering,
manufacturing and management positions, including appointments
in North America and Mexico for Ford’s Climate Control
division.
Jonathan K. Maples has been Vice President and General
Manager of Ford North American Customer Business Group, and
prior to that he was Vice President of Quality and Materials
Management since joining Visteon in November 2001. Before that,
he was Executive Vice President of Business Services for MSX
International since May 2000. Mr. Maples was Vice President
of Operations and Vice President of Supplier Management for
DaimlerChrysler Corporation prior thereto.
Robert C. Pallash has been Vice President and President,
Asia-Pacific since July 2004, and prior to that he was Vice
President, Asia Pacific since joining Visteon in September 2001.
Before that, Mr. Pallash served as president of TRW
Automotive Japan since 1999, and president of Lucas Varity Japan
prior thereto.
William G. Quigley III has been Visteon’s Vice
President, Corporate Controller and Chief Accounting Officer
since December 2004. Before that, he was the Vice President and
Controller — Chief Accounting Officer of Federal-Mogul
Corporation since June 2001. Mr. Quigley was previously
Finance Director — Americas and Asia Pacific of
Federal-Mogul since July 2000, and Finance Director —
Aftermarket Business Operations of Federal-Mogul prior thereto.
PART II
|
|
| ITEM 5. |
MARKET FOR VISTEON’S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS |
Our common stock is listed on the New York Stock Exchange in the
United States under the symbol “VC.” As of
March 1, 2005, Visteon had 128,678,345 shares of its
common stock $1.00 par value outstanding, which were owned
by 113,754 stockholders of record. The table below shows the
high and low sales prices for our common stock as reported by
the New York Stock Exchange, and the dividends we paid per share
of common stock for each quarterly period for the last two years.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
| |
|
| |
| |
|
First | |
|
Second | |
|
Third | |
|
Fourth | |
| |
|
Quarter | |
|
Quarter | |
|
Quarter | |
|
Quarter | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(in millions) | |
|
Common stock price per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
High
|
|
$ |
12.35 |
|
|
$ |
12.15 |
|
|
$ |
11.45 |
|
|
$ |
9.91 |
|
| |
Low
|
|
$ |
8.91 |
|
|
$ |
9.46 |
|
|
$ |
7.78 |
|
|
$ |
6.61 |
|
|
Dividends per share
|
|
$ |
0.06 |
|
|
$ |
0.06 |
|
|
$ |
0.06 |
|
|
$ |
0.06 |
|
19
|
|
| ITEM 5. |
MARKET FOR VISTEON’S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS — (Continued) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2003 | |
| |
|
| |
| |
|
First | |
|
Second | |
|
Third | |
|
Fourth | |
| |
|
Quarter | |
|
Quarter | |
|
Quarter | |
|
Quarter | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(in millions) | |
|
Common stock price per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
High
|
|
$ |
7.38 |
|
|
$ |
7.25 |
|
|
$ |
7.09 |
|
|
$ |
10.43 |
|
| |
Low
|
|
$ |
5.60 |
|
|
$ |
5.96 |
|
|
$ |
5.86 |
|
|
$ |
6.30 |
|
|
Dividends per share
|
|
$ |
0.06 |
|
|
$ |
0.06 |
|
|
$ |
0.06 |
|
|
$ |
0.06 |
|
On February 9, 2005, Visteon’s Board of Directors
suspended the company’s quarterly cash dividend on its
common stock. The Board evaluates the company’s dividend
policy quarterly based on all relevant factors.
|
|
| ITEM 6. |
SELECTED FINANCIAL DATA |
The following selected consolidated financial data has been
restated to reflect adjustments to the Original Filing for
accounting corrections related to freight, raw material costs,
other supplier costs and income tax matters that are further
discussed in “Explanatory Note” in the forepart of
this Form 10-K/A and in Note 2, “Restatement of
Financial Statements,” to our consolidated financial
statements included in this Form 10-K/A.
The following selected consolidated financial data reflect our
financial condition, results of operations and cash flows, with
2000 including activity both before and after our spin-off from
Ford on June 28, 2000. Activity prior to our spin-off
reflects the results of operations and cash flows of the
businesses that were considered part of the Visteon business of
Ford.
The selected consolidated financial data should be read in
conjunction with, and are qualified by reference to,
“Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations” and the
consolidated financial statements and accompanying notes
included elsewhere in this report. The consolidated statement of
operations, cash flow and balance sheet data, set forth below
for 2004, 2003, 2002 and 2001, have been derived from our
audited financial statements.
The following financial information may not reflect what our
results of operations, financial condition and cash flows would
have been had we operated as a separate, stand-alone entity
during the periods presented or what our results of operations,
financial condition and cash flows will be in the future.
The following selected consolidated financial data for 2003,
2002, 2001 and 2000 was restated in the Original Filing to
reflect a change in the method of determining the cost of
production inventories for U.S. locations from the last-in,
first-out (“LIFO”) method to the first-in, first-out
(“FIFO”) method as further discussed in Note 17,
“Accounting Changes,” to our consolidated financial
statements included in this Form 10-K/A.
20
ITEM 6. SELECTED FINANCIAL DATA —
(Continued)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001(1) | |
|
2000 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
Restated | |
|
Restated | |
|
Restated | |
|
Restated | |
|
Restated | |
| |
|
(in millions, except per share amounts and percentages) | |
|
Statement of Operations Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Ford and affiliates
|
|
$ |
13,015 |
|
|
$ |
13,475 |
|
|
$ |
14,779 |
|
|
$ |
14,656 |
|
|
$ |
16,448 |
|
| |
Other customers
|
|
|
5,642 |
|
|
|
4,185 |
|
|
|
3,616 |
|
|
|
3,187 |
|
|
|
3,019 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total sales
|
|
|
18,657 |
|
|
|
17,660 |
|
|
|
18,395 |
|
|
|
17,843 |
|
|
|
19,467 |
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Costs of sales
|
|
|
18,151 |
|
|
|
17,824 |
|
|
|
17,626 |
|
|
|
17,100 |
|
|
|
18,163 |
|
| |
Selling, administrative and other expenses
|
|
|
994 |
|
|
|
1,008 |
|
|
|
893 |
|
|
|
855 |
|
|
|
897 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total costs and expenses
|
|
|
19,145 |
|
|
|
18,832 |
|
|
|
18,519 |
|
|
|
17,955 |
|
|
|
19,060 |
|
|
Operating income (loss)
|
|
|
(488 |
) |
|
|
(1,172 |
) |
|
|
(124 |
) |
|
|
(112 |
) |
|
|
407 |
|
|
Interest income
|
|
|
19 |
|
|
|
17 |
|
|
|
23 |
|
|
|
55 |
|
|
|
109 |
|
|
Debt extinguishment cost
|
|
|
11 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Interest expense
|
|
|
104 |
|
|
|
94 |
|
|
|
103 |
|
|
|
131 |
|
|
|
167 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Net interest expense and debt extinguishment cost
|
|
|
(96 |
) |
|
|
(77 |
) |
|
|
(80 |
) |
|
|
(76 |
) |
|
|
(58 |
) |
|
Equity in net income of affiliated companies
|
|
|
45 |
|
|
|
55 |
|
|
|
44 |
|
|
|
24 |
|
|
|
56 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes, minority interests and change
in accounting
|
|
|
(539 |
) |
|
|
(1,194 |
) |
|
|
(160 |
) |
|
|
(164 |
) |
|
|
405 |
|
|
Provision (benefit) for income taxes
|
|
|
962 |
|
|
|
6 |
|
|
|
(74 |
) |
|
|
(70 |
) |
|
|
131 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before minority interests and change in accounting
|
|
|
(1,501 |
) |
|
|
(1,200 |
) |
|
|
(86 |
) |
|
|
(94 |
) |
|
|
274 |
|
|
Minority interests in net income of subsidiaries
|
|
|
35 |
|
|
|
29 |
|
|
|
28 |
|
|
|
21 |
|
|
|
26 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before change in accounting
|
|
|
(1,536 |
) |
|
|
(1,229 |
) |
|
|
(114 |
) |
|
|
(115 |
) |
|
|
248 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of change in accounting, net of tax
|
|
|
— |
|
|
|
— |
|
|
|
(265 |
) |
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
(1,536 |
) |
|
$ |
(1,229 |
) |
|
$ |
(379 |
) |
|
$ |
(115 |
) |
|
$ |
248 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic and diluted before cumulative effect of change in
accounting
|
|
$ |
(12.26 |
) |
|
$ |
(9.77 |
) |
|
$ |
(0.90 |
) |
|
$ |
(0.89 |
) |
|
$ |
1.91 |
|
| |
Cumulative effect of change in accounting
|
|
|
— |
|
|
|
— |
|
|
|
(2.07 |
) |
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Basic and diluted
|
|
$ |
(12.26 |
) |
|
$ |
(9.77 |
) |
|
$ |
(2.97 |
) |
|
$ |
(0.89 |
) |
|
$ |
1.91 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends per share
|
|
$ |
0.24 |
|
|
$ |
0.24 |
|
|
$ |
0.24 |
|
|
$ |
0.24 |
|
|
$ |
0.12 |
|
|
Effect of change in accounting for inventory costs:
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net income (loss)
|
|
|
|
|
|
$ |
36 |
|
|
$ |
(6 |
) |
|
$ |
3 |
|
|
$ |
(12 |
) |
| |
Earnings (loss) per share:
|
|
|
|
|
|
$ |
0.29 |
|
|
$ |
(0.04 |
) |
|
$ |
0.02 |
|
|
$ |
(0.09 |
) |
|
Statement of Cash Flows Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in) operating activities
|
|
$ |
418 |
|
|
$ |
363 |
|
|
$ |
1,103 |
|
|
$ |
440 |
|
|
$ |
(523 |
) |
|
Cash (used in) investing activities
|
|
|
(782 |
) |
|
|
(781 |
) |
|
|
(609 |
) |
|
|
(747 |
) |
|
|
(845 |
) |
|
Cash provided by (used in) financing activities
|
|
|
135 |
|
|
|
128 |
|
|
|
(338 |
) |
|
|
(75 |
) |
|
|
924 |
|
|
Balance Sheet Data, end of period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
10,292 |
|
|
$ |
11,024 |
|
|
$ |
11,240 |
|
|
$ |
11,254 |
|
|
$ |
11,462 |
|
|
Total debt
|
|
|
2,021 |
|
|
|
1,818 |
|
|
|
1,691 |
|
|
|
1,922 |
|
|
|
2,019 |
|
|
Total
equity(3)
|
|
|
320 |
|
|
|
1,812 |
|
|
|
2,977 |
|
|
|
3,355 |
|
|
|
3,529 |
|
|
Other Financial Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$ |
685 |
|
|
$ |
677 |
|
|
$ |
633 |
|
|
$ |
667 |
|
|
$ |
676 |
|
|
Capital expenditures
|
|
|
845 |
|
|
|
872 |
|
|
|
725 |
|
|
|
756 |
|
|
|
796 |
|
|
After-tax return on:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Sales
|
|
|
(8.0 |
)% |
|
|
(6.8 |
)% |
|
|
(0.5 |
)% |
|
|
(0.5 |
)% |
|
|
1.4% |
|
| |
Average assets
|
|
|
(14.1 |
)% |
|
|
(10.8 |
)% |
|
|
(0.8 |
)% |
|
|
(0.8 |
)% |
|
|
2.3% |
|
|
|
| (1) |
Restatement resulted in a reduction of net loss by approximately
$4 million attributable to the correction of freight costs
as more fully described in Note 2, “Restatement of
Financial Statements” to the accompanying audited
consolidated financial statements. |
| |
| (2) |
The selected consolidated financial data was restated in the
Original Filing to reflect Visteon’s change in the method
of determining the cost of production inventory for
U.S. locations from the last-in, first-out
(“LIFO”) method to the first-in, first-out
(“FIFO”) method. |
| |
| (3) |
Restatement resulted in a cumulative decrease to
stockholder’s equity at January 1, 2000 of
$21 million. |
21
|
|
| ITEM 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND |
RESULTS
OF OPERATIONS
This section summarizes significant factors affecting
Visteon’s consolidated operating results, financial
condition and liquidity for the three-year period ended
December 31, 2004. This section should be read in
conjunction with Visteon’s consolidated financial
statements and related notes appearing elsewhere in this report.
Restatement
Visteon has restated its previously issued consolidated
financial statements for 2002 through 2004 for accounting
corrections related to freight, raw material costs, other
supplier costs and income tax matters. In addition, all
financial information presented was restated in the Original
Filing to reflect Visteon’s change, during the fourth
quarter of 2004, in the method of determining the cost of
production inventory for U.S. locations from the LIFO
method to the FIFO method.
As a result of the restatement, previously reported net loss
increased by $37 million, $22 million and
$11 million for the years ended
December 31, 2004, 2003 and 2002, respectively. The
restatement increased previously reported net loss
per share by $0.30, $0.18 and $0.09 for the
years ended December 31, 2004, 2003
and 2002, respectively. Further information on the nature
and impact of these accounting corrections provided in
Note 2, “Restatement of Financial Statements,” to
our consolidated financial statements included elsewhere in this
Form 10-K/A.
Overview
Visteon is a leading global supplier of automotive systems,
modules and components. We sell our products primarily to global
vehicle manufacturers, and also sell to the worldwide
aftermarket for replacement and vehicle appearance enhancement
parts. Ford established Visteon as a wholly-owned subsidiary in
January 2000, and subsequently transferred to Visteon the
assets and liabilities comprising Ford’s automotive
components and systems business. Ford completed its spin-off of
Visteon on June 28, 2000. We operate in two business
segments: Automotive Operations and Glass Operations.
The global automotive parts industry is a highly competitive
industry. Suppliers must rapidly develop new and innovative
technologies and respond to increasing cost and pricing
pressures. In order to respond to these challenges, we are
taking actions to support our key operating strategies of
improving customer and geographic diversification, focusing our
product portfolio and reducing costs.
Customer and Geographic Diversification. For the full
year 2004, non-Ford sales reached $5.6 billion, up
35 percent over 2003, and represented 30 percent of
total sales. A majority of these sales were outside of North
America. In addition, our sales to all customers, including
Ford, for 2004 outside of the United States increased by
nearly $1 billion compared with 2003. We continue to
expand our technical and manufacturing presence in growth
regions that we believe will strengthen our competitive position
and provide further opportunities to diversify our customer base.
Product Focus. As discussed further above, Visteon
recently reexamined its broad product portfolio and identified
interiors, climate, and electronics, including lighting, as its
key growth products that will be core to its future. These
products have been a significant source of non-Ford sales growth
in the last year, as well as recent new business wins, and
Visteon is taking actions to further focus capital investment
and product development and engineering resources with respect
to these key products.
22
|
|
| ITEM 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND |
RESULTS
OF OPERATIONS — (Continued)
Cost Reduction Efforts. During 2004, we reduced our North
American headcount by approximately 2,500 people through
flow backs of Ford-UAW workers, special incentive programs for
U.S. salaried and hourly workers, and attrition. In 2004,
we also improved operational efficiencies, including material
and manufacturing cost, and largely completed infrastructure
improvement projects, such as IT systems and facilities
consolidation.
Despite these efforts, our net loss for 2004 increased to
$1.5 billion, from $1.2 billion for 2003. After-tax
special charges totaled $1.263 billion for 2004, compared
with $933 million in 2003.
North America continues to be our primary sales market,
with the United States representing the largest portion of that
market. Ford accounted for approximately 70% of our 2004
total sales, and about 82% of our 2004 North America
sales. This market continues to be extremely price competitive
with continued expectations from the OEM’s for year over
year price reductions on existing products. In order to retain
current business as well as to be competitively positioned for
future new business opportunities, we must continually identify
and implement product innovation and cost reduction activities
to fund annual price concessions to our customers. Our
U.S. cost structure is significantly higher than many of
our competitors due, in part, to the hourly labor and benefits
reimbursement arrangement with Ford. Furthermore, our ability to
close plants, divest unprofitable, non-competitive businesses,
and change local work rules and practices is limited by this
arrangement and other labor contracts. These factors, together
with continuing declines in Ford’s North America production
volumes and significant increases in the cost of raw materials
used in the manufacture of our products highlight the need to
make strategic and structural changes to our business in the
U.S. in order to achieve a sustainable and competitive
business. On March 10, 2005, Visteon reached
agreements with Ford that, at least during 2005, will reduce our
labor costs, reduce the level of funding otherwise needed for
planned capital expenditures, and accelerate payment terms from
Ford. These agreements may be terminated on or after
January 1, 2006. We are currently in discussions with
Ford regarding other necessary strategic and structural changes,
as well as other matters that will allow Visteon to achieve a
sustainable and competitive business model. Although we cannot
predict with certainty whether these discussions will be
concluded on a basis satisfactory to Visteon, certain of the
actions under consideration could result in a significant impact
to our operating results in the period they occur. Further,
there can be no assurance that we will reach an agreement with
Ford or take other actions that will address all of the
strategic or structural challenges facing our U.S. business.
23
|
|
| ITEM 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND |
RESULTS
OF OPERATIONS — (Continued)
Restructuring, Dispositions and Special Charges
The table below presents special charges related to
restructuring initiatives and other actions during the past
three years:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Automotive | |
|
Glass | |
|
Total | |
| |
|
Operations | |
|
Operations | |
|
Visteon | |
| |
|
| |
|
| |
|
| |
| |
|
(in millions) | |
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special Charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Loss related to third quarter asset impairment charges
|
|
$ |
(314 |
) |
|
$ |
— |
|
|
$ |
(314 |
) |
| |
U.S. Salaried voluntary separation related
|
|
|
(48 |
) |
|
|
(3 |
) |
|
|
(51 |
) |
| |
U.S. Hourly early retirement incentive and other related
|
|
|
(24 |
) |
|
|
(1 |
) |
|
|
(25 |
) |
| |
Plant closure related
|
|
|
(11 |
) |
|
|
— |
|
|
|
(11 |
) |
| |
European Plan for Growth
|
|
|
(9 |
) |
|
|
— |
|
|
|
(9 |
) |
| |
Adjustment to prior year’s expense
|
|
|
14 |
|
|
|
— |
|
|
|
14 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Total 2004 special charges, before taxes
|
|
$ |
(392 |
) |
|
$ |
(4 |
) |
|
$ |
(396 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
Special charges above, after taxes
|
|
$ |
(388 |
) |
|
$ |
(4 |
) |
|
$ |
(392 |
) |
| |
Deferred tax valuation allowance
|
|
|
(827 |
) |
|
|
(44 |
) |
|
|
(871 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
Total 2004 special charges, after taxes
|
|
$ |
(1,215 |
) |
|
$ |
(48 |
) |
|
$ |
(1,263 |
) |
| |
|
|
|
|
|
|
|
|
|
|
2003 (Restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special Charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Loss related to fourth quarter asset impairment charges
|
|
$ |
(407 |
) |
|
$ |
— |
|
|
$ |
(407 |
) |
| |
Exit of Seating Operations
|
|
|
(217 |
) |
|
|
— |
|
|
|
(217 |
) |
| |
European Plan for Growth
|
|
|
(82 |
) |
|
|
— |
|
|
|
(82 |
) |
| |
Restructuring and other actions
|
|
|
(48 |
) |
|
|
— |
|
|
|
(48 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
Total 2003 special charges, before taxes
|
|
$ |
(754 |
) |
|
$ |
— |
|
|
$ |
(754 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
Special charges above, after taxes
|
|
$ |
(484 |
) |
|
$ |
— |
|
|
$ |
(484 |
) |
| |
Deferred tax asset valuation allowance
|
|
|
(444 |
) |
|
|
(5 |
) |
|
|
(449 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
Total 2003 special charges, after taxes
|
|
$ |
(928 |
) |
|
$ |
(5 |
) |
|
$ |
(933 |
) |
| |
|
|
|
|
|
|
|
|
|
|
2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special Charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Exit of Markham Restraint Electronics and other first quarter
actions
|
|
$ |
(95 |
) |
|
$ |
— |
|
|
$ |
(95 |
) |
| |
U.S. salaried special early retirement program
|
|
|
(66 |
) |
|
|
(5 |
) |
|
|
(71 |
) |
| |
European Plan for Growth
|
|
|
(40 |
) |
|
|
— |
|
|
|
(40 |
) |
| |
Loss on sale of restraint electronics business
|
|
|
(26 |
) |
|
|
— |
|
|
|
(26 |
) |
| |
Other restructuring (including adjustments to prior year’s
expense)
|
|
|
6 |
|
|
|
3 |
|
|
|
9 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Total 2002 special charges, before taxes
|
|
$ |
(221 |
) |
|
$ |
(2 |
) |
|
$ |
(223 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
Special charges above, after taxes
|
|
$ |
(141 |
) |
|
$ |
(1 |
) |
|
$ |
(142 |
) |
| |
Effect of change in accounting, net of tax
|
|
|
(265 |
) |
|
|
— |
|
|
|
(265 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
Total 2002 special charges, after taxes
|
|
$ |
(406 |
) |
|
$ |
(1 |
) |
|
$ |
(407 |
) |
| |
|
|
|
|
|
|
|
|
|
24
|
|
| ITEM 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND |
RESULTS
OF OPERATIONS — (Continued)
2004 Special Charges
During the third quarter of 2004, the Automotive Operations
recorded a pre-tax, non-cash impairment write-down of
$314 million in costs of sales to reduce the net book value
of certain long-lived assets. This write-down was based on an
assessment by product line asset group, completed in the third
quarter of 2004, of the recoverability of our long-lived assets
in light of the challenging environment in which we operate, and
included consideration of lower than anticipated current and
near term future year Ford North American production volume and
the related impact on our future operating projections. Assets
are considered impaired if the book value is greater than the
undiscounted cash flows expected from the use of the asset. As a
result of this analysis the assets of the steering systems
product group were impaired. The write-down was approximately
$249 million in North America and $65 million in
Europe and was determined on a “held for use” basis.
Fair values were determined primarily based on prices for
similar groups of assets determined by a third-party valuation
firm.
U.S. Salaried voluntary separation charges of
$51 million are related to incentive programs offered
during the fourth quarter of 2004 to eligible salaried Visteon
employees to voluntarily separate employment. About
400 employees elected to terminate employment by
March 31, 2005.
Early retirement incentive and other charges of $25 million
are related to incentive programs offered during the third
quarter of 2004 to eligible Visteon-assigned Ford-UAW employees
to voluntarily retire or to relocate in order to return to a
Ford facility. About 500 employees elected to retire early
at a cost of $18 million and about 210 employees have
agreed to return to a Ford facility at a cost of $7 million.
Plant closure charges of $11 million are related to the
involuntary separation of up to about 200 employees as a result
of the closure of our La Verpilliere, France, manufacturing
facility. This program has been substantially completed as of
December 31, 2004. European Plan for Growth charges
are comprised of $9 million related to the separation of
about 50 hourly employees located at Visteon’s plants
in Europe through a continuation of a special voluntary
retirement and separation program started in 2002.
In 2004, net accrued liability adjustments of $14 million
relating to prior year’s actions were credited to costs of
sales, including $15 million related to costs to complete
the transfer of seat production located in Chesterfield,
Michigan, to another supplier.
In 2004, Visteon recorded a non-cash charge of $871 million
to establish full valuation allowances against our net deferred
tax assets in the U.S. and certain foreign countries. This
charge was comprised of $948 million related to deferred
tax assets as of the beginning of the year, offset partially by
a reduction of related tax reserves, previously included in
other liabilities, of $77 million. The charge is discussed
in more detail later in “Critical Accounting Policies”
and in Note 7 of our consolidated financial statements.
Special charges before taxes for 2004 of $396 million
consist of $314 million of non-cash charges and
$82 million of charges which will be settled in cash.
25
|
|
| ITEM 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND |
RESULTS
OF OPERATIONS — (Continued)
2003 Special Charges
During fourth quarter 2003, Visteon recorded a pre-tax, non-cash
impairment write-down of $407 million ($260 million
after-tax) in costs of sales to reduce the net book value of
certain assets associated with six product groups. This
write-down was based on an assessment by product-line asset
group, completed in fourth quarter 2003, of the recoverability
of our long-lived assets in light of the challenging environment
in which we operate, and as a part of our business planning
process for 2004 and beyond.
During the second quarter of 2003, Visteon finalized an
agreement with Ford Motor Company to transfer seat production
located in Chesterfield, Michigan, to another supplier. As part
of this agreement, about 1,470 Visteon-assigned Ford-UAW
employees working at the Chesterfield, Michigan, facility
transferred to Ford, and Visteon agreed to be responsible to
reimburse Ford for the actual net costs of transferring seating
production through June 2004, including costs related to Ford
hourly employee voluntary retirement and separation programs
that Ford was expected to implement, offset by certain cost
savings expected to be realized by Ford.
For the full year 2003, we incurred pre-tax charges of
$82 million related to the European Plan for Growth. Other
special charges in 2003 resulted in pre-tax charges of
$48 million, $20 million of which was charged to
selling, administrative and other expenses.
During fourth quarter 2003, Visteon recorded a non-cash charge
of $449 million to establish valuation allowances against
our deferred tax assets as of the end of the year, as discussed
later under “Critical Accounting Policies” and in
Note 7 of our consolidated financial statements.
Of the $754 million in 2003 pre-tax special charges
described above, $436 million were non-cash,
$292 million were cash charges including amounts related to
the exit of seating operations, and $26 million were
related to special pension and other postretirement benefits.
2002 Special Charges
During 2002, Visteon recorded net pre-tax charges of
$223 million related to a number of restructuring and other
actions and the sale of the restraint electronics business, as
described in Note 16 of our consolidated financial
statements, which is incorporated herein by reference. In
addition, Visteon adopted Statement of Financial Accounting
Standards No. 142, “Goodwill and Other Intangible
Assets.” With this change in accounting, Visteon recorded a
non-cash write-off for the entire value of goodwill of
$363 million before taxes ($265 million after taxes),
as described in Note 17 of our consolidated financial
statements, which is incorporated herein by reference. Of the
$223 million in pre-tax charges described above,
$54 million were non-cash related and the remainder were
cash charges.
Other
Cash payments related to special charges, including those
related to the transfer of the North American seating operations
and for severance and special pension benefits, were
$171 million and $162 million for 2004 and 2003,
respectively.
26
|
|
| ITEM 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND |
RESULTS
OF OPERATIONS — (Continued)
Results of Operations
2004 Compared with 2003
Sales for each of our segments for 2004 and 2003 are
summarized in the following table:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended | |
|
|
| |
|
December 31, | |
|
2004 | |
| |
|
| |
|
over/(under) | |
| |
|
2004 | |
|
2003 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
| |
|
(in millions) | |
|
Automotive Operations
|
|
$ |
18,137 |
|
|
$ |
17,097 |
|
|
$ |
1,040 |
|
|
Glass Operations
|
|
|
520 |
|
|
|
563 |
|
|
|
(43 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
Total Sales
|
|
$ |
18,657 |
|
|
$ |
17,660 |
|
|
$ |
997 |
|
| |
|
|
|
|
|
|
|
|
|
|
Memo: Sales to non-Ford customers
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Amount
|
|
$ |
5,642 |
|
|
$ |
4,185 |
|
|
$ |
1,457 |
|
| |
Percentage of total sales
|
|
|
30 |
% |
|
|
24 |
% |
|
|
6 |
pts |
Sales for Automotive Operations were $18.1 billion in 2004,
compared with $17.1 billion in 2003, an increase of
$1.0 billion or 6%. This increase reflects primarily higher
non-Ford sales of $1,493 million, including
$234 million of favorable currency changes. In addition,
favorable currency changes of $258 million for Ford sales,
the non-recurrence of a $150 million lump settlement with
Ford in 2003 for pricing in North America, and higher Ford
European volumes were offset partially by the impact of lower
Ford North American production volume of about
$600 million, the loss of sales from the exit of seating
operations of $246 million, and price reductions.
Sales for Glass Operations were $520 million in 2004,
compared with $563 million in 2003, a decrease of
$43 million or 8%, resulting primarily from lower
non-Ford sales of $36 million and price reductions.
Costs of Sales for 2004 were $18.2 billion, up
$327 million compared with 2003. Costs of sales include
primarily material, labor, manufacturing overhead and other
costs, such as product development costs. Results were affected
by special charges which were $396 million in 2004 and
$754 million in 2003. The 2004 special charges included
$314 million for the impairment of steering systems assets.
The 2003 special charges included $407 million for the
impairment of assets associated with six product groups and
$217 million related to the exit of our seating business.
Increased costs of sales also reflects higher net variable costs
of about $1 billion associated with higher global
production volumes, including new business, increased costs from
currency fluctuations of $426 million and raw material cost
increases in certain commodity groups. These factors were
partially offset by the elimination of costs of
$270 million resulting from the exit of our seating
operations (without consideration of related special charges),
favorable cost performance of $479 million, including
reduced other postretirement benefit expense, and the
non-recurrence of UAW contract ratification costs of
$64 million in 2003. Costs of sales in 2004 also reflects a
reduction to product recall accruals of $49 million in 2004
as a result of settling a product recall claim.
Selling, administrative and other expenses for 2004 were
$994 million, $14 million lower compared with 2003.
The decrease reflects efficiencies and spending controls of
$52 million, and reduced Information Technology
(“IT”) incremental infrastructure costs of
$34 million offset partially by currency fluctuations of
$30 million and the non-recurrence of $48 million
received from Ford for IT costs in 2003. Special charges
included in this line item were $14 million for 2004 and
$20 million for 2003.
27
|
|
| ITEM 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND |
RESULTS
OF OPERATIONS — (Continued)
Net interest expense and debt extinguishment cost of
$96 million in 2004 increased by $19 million from
2003, reflecting $11 million of debt extinguishment costs
from the Tender Offer (as described below) and higher
U.S. debt levels.
Equity in net income of affiliated companies was
$45 million in 2004, compared with $55 million in
2003, with the decrease related primarily to our affiliates in
Asia.
Income (loss) before income taxes and minority interests,
including and excluding special charges, is the primary
profitability measure used by our chief operating decision
makers. The following table shows income (loss) before income
taxes for 2004 and 2003, for each of our segments:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended | |
|
|
| |
|
December 31, | |
|
2004 | |
| |
|
| |
|
over/(under) | |
| |
|
2004 | |
|
2003 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
| |
|
Restated | |
|
Restated | |
|
|
| |
|
|
|
(in millions) | |
|
|
|
Automotive Operations
|
|
$ |
(523 |
) |
|
$ |
(1,187 |
) |
|
$ |
664 |
|
|
Glass Operations
|
|
|
(16 |
) |
|
|
(7 |
) |
|
|
(9 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
Total
|
|
$ |
(539 |
) |
|
$ |
(1,194 |
) |
|
$ |
655 |
|
| |
|
|
|
|
|
|
|
|
|
|
Memo:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Special charges included above
|
|
$ |
(396 |
) |
|
$ |
(754 |
) |
|
$ |
358 |
|
Automotive Operations’ 2004 loss before income taxes was
$523 million compared with a loss of $1,187 million
for 2003. Results were affected by pre-tax special charges which
decreased by $362 million. The 2004 special charges
included $314 million for the impairment of steering
systems assets and $48 million for costs associated with a
voluntary termination program in North America. The 2003
special charges included $407 million for the impairment of
assets associated with six product groups and
$217 million related to the exit of our seating business.
The improvement in the full year results also reflects the
non-recurrence of 2003’s UAW contract ratification costs of
$59 million, a reduction to product recall accruals of
$49 million in 2004 as a result of settling a product
recall claim, and the exit of our seating operations of
$25 million (excluding special charges). Favorable cost
performance, net of reduced prices to our customers, raw
material cost increases, fuel cost increases, and wage and
benefit economic increases (despite our reduced other
postretirement benefit costs) was about $392 million. These
factors were offset partially by lower Ford vehicle production
volume in North America.
Loss before income taxes for Glass Operations in 2004 was
$16 million compared with a loss of $7 million before
taxes for 2003, reflecting primarily lower Ford North American
production volume, customer price reductions and increased
special charges, offset partially by the non-recurrence of
2003’s UAW contract ratification costs of
$5 million.
28
|
|
| ITEM 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND |
RESULTS
OF OPERATIONS — (Continued)
Provision for income taxes was $962 million for
2004, compared with $6 million for 2003. The 2004 provision
includes a charge of $871 million recorded during the third
quarter to establish full valuation allowances against our net
deferred tax assets in the U.S. and certain foreign countries.
This charge was comprised of $948 million related to
deferred tax assets as of the beginning of the year, offset
partially by a reduction of related tax reserves of
$77 million. This charge is discussed in more detail in
Note 7 to our consolidated financial statements.
Visteon’s provision for income taxes for 2004 includes a
benefit of $42 million recorded in the fourth quarter to
reduce our deferred tax asset valuation allowance to offset a
related reduction in our net deferred tax asset. This reduction
in our net deferred tax asset was the result of certain
U.S. tax adjustments related primarily to foreign currency
movements that were recorded through other comprehensive income
during the fourth quarter. In addition, Visteon’s provision
for income taxes for 2004 includes $133 million of income
tax expense primarily related to foreign countries where
Visteon’s operations are profitable and whose results
continue to be tax-effected. The 2003 provision includes a
charge of $449 million recorded during the fourth quarter
2003 to establish partial valuation allowances against the net
deferred tax assets in the U.S. and full valuation allowances
for certain foreign countries as of the end of 2003, as
discussed later under “Critical Accounting Policies”
and in Note 7 to our consolidated financial statements.
Minority interests in net income of subsidiaries were
$35 million in 2004 compared with $29 million in 2003.
Minority interest amounts are related primarily to
Halla Climate Control Corporation headquartered in Korea,
in which we have a 70% ownership interest.
Net income (loss) for 2004 and 2003 are shown in the
following table for each of our segments:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended | |
|
|
| |
|
December 31, | |
|
2004 | |
| |
|
| |
|
(under) | |
| |
|
2004 | |
|
2003 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
| |
|
Restated | |
|
Restated | |
|
|
| |
|
|
|
(in millions) | |
|
|
|
Automotive Operations
|
|
$ |
(1,476 |
) |
|
$ |
(1,222 |
) |
|
$ |
(254 |
) |
|
Glass Operations
|
|
|
(60 |
) |
|
|
(7 |
) |
|
|
(53 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
Total
|
|
$ |
(1,536 |
) |
|
$ |
(1,229 |
) |
|
$ |
(307 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Memo:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Special charges included above
|
|
$ |
(1,263 |
) |
|
$ |
(933 |
) |
|
$ |
(330 |
) |
Visteon reported a net loss for 2004 of $1.5 billion
compared with $1.2 billion for 2003. The higher net loss
was significantly affected by increased special charges after
taxes which were $1,263 million and $933 million for
2004 and 2003, respectively. Net income was also impacted by the
factors described previously in income (loss) before income
taxes.
29
|
|
| ITEM 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND |
RESULTS
OF OPERATIONS — (Continued)
Results of Operations
2003 Compared with 2002
Sales for each of our segments for 2003 and 2002 are
summarized in the following table:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended | |
|
|
| |
|
December 31, | |
|
2003 | |
| |
|
| |
|
over/(under) | |
| |
|
2003 | |
|
2002 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(in millions) | |
|
Automotive Operations
|
|
$ |
17,097 |
|
|
$ |
17,797 |
|
|
$ |
(700 |
) |
|
Glass Operations
|
|
|
563 |
|
|
|
598 |
|
|
|
(35 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
Total Sales
|
|
$ |
17,660 |
|
|
$ |
18,395 |
|
|
$ |
(735 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Memo: Sales to non-Ford customers
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Amount
|
|
$ |
4,185 |
|
|
$ |
3,616 |
|
|
$ |
569 |
|
| |
Percentage of total sales
|
|
|
24 |
% |
|
|
20 |
% |
|
|
4 |
pts |
Sales for Automotive Operations were $17.1 billion in 2003,
compared with $17.8 billion in 2002, a decrease of
$700 million or 4%. This decrease reflects lower sales of
$1,295 million resulting primarily from a decline in Ford
worldwide vehicle production, exit of our seating operations of
$251 million, and $150 million lump sum payments to
Ford for pricing in North America, offset partially by favorable
currency changes of $611 million and new business to both
Ford and non-Ford customers. Sales for Automotive Operations
were affected also by lower sales associated with precious
metals purchased under sourcing arrangements directed by Ford
and price reductions.
Sales for Glass Operations were $563 million in 2003,
compared with $598 million in 2002, a decrease of
$35 million or 6%, resulting primarily from lower Ford
North American production volume.
Costs of Sales for 2003 were $17.8 billion, up
$198 million compared with 2002. Costs of sales include
primarily material, labor, manufacturing overhead and other
costs, such as product development costs. The increase reflects
a $534 million increase in special charges, currency
fluctuations of $569 million, costs associated with the
labor agreement reached with the UAW of $64 million
(contract ratification lump sum payment), and higher costs to
launch business with new customers. These increases were offset
partially by lower variable costs of $923 million resulting
primarily from a decline in Ford worldwide vehicle production,
net material cost reductions, and manufacturing efficiencies.
The exit of our seating operations in June 2003 reduced
costs an additional $293 million.
Selling, administrative and other expenses for 2003 were
$1,008 million, $115 million higher compared with
2002. The increase reflects primarily incremental IT actions of
$88 million, net of $48 million received from Ford.
Costs associated with such incremental IT actions continued into
mid-2004. Special charges included in this line item were
$20 million for 2003, representing a $3 million
decrease from 2002.
Net interest expense and debt extinguishment cost of
$77 million in 2003 was down $3 million from 2002,
reflecting lower average debt balances and lower average
interest rates.
Equity in net income of affiliated companies was
$55 million in 2003, compared with $44 million in
2002, with the increase related primarily to our affiliates in
Asia.
30
|
|
| ITEM 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND |
RESULTS
OF OPERATIONS — (Continued)
Income (loss) before income taxes, minority interests and
change in accounting, including and excluding special
charges, is the primary profitability measure used by our chief
operating decision makers. The following table shows income
(loss) before income taxes for 2003 and 2002, for each of our
segments:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended | |
|
|
| |
|
December 31, | |
|
2003 | |
| |
|
| |
|
(under) | |
| |
|
2003 | |
|
2002 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
Restated | |
|
Restated | |
|
|
| |
|
(in millions) | |
|
Automotive Operations
|
|
$ |
(1,187 |
) |
|
$ |
(181 |
) |
|
$ |
(1,006 |
) |
|
Glass Operations
|
|
|
(7 |
) |
|
|
21 |
|
|
|
(28 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
Total
|
|
$ |
(1,194 |
) |
|
$ |
(160 |
) |
|
$ |
(1,034 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Memo:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Special charges included above
|
|
$ |
(754 |
) |
|
$ |
(223 |
) |
|
$ |
(531 |
) |
Automotive Operations’ 2003 loss before income taxes was
$1,187 million compared with a loss of $181 million
for 2002. Special charges before taxes in 2003 were up
$531 million from 2002. The increased loss also reflects
lower vehicle production volume, UAW contract ratification
costs, and higher IT costs of $373 million,
$59 million and $88 million, respectively. 2003
results include a loss of $25 million from seating
operations that were exited June 23, 2003. Seating
operations’ losses were $98 million in 2002. Results
were affected also by new business and favorable cost
performance, offset partially by price reductions.
Loss before income taxes for Glass Operations in 2003 was
$7 million compared with income of $21 million before
taxes for 2002, reflecting primarily lower Ford North American
production volume and UAW contract ratification costs.
Provision (benefit) for income taxes was a provision of
$6 million for 2003, compared with a benefit of
$(74) million for 2002. The 2003 provision includes a
charge of $449 million recorded during the fourth quarter
2003 to establish partial valuation allowances against the net
deferred tax assets in the U.S. and full valuation allowances
for certain foreign countries as of the end of the year, as
discussed later under “Critical Accounting Policies”
and in Note 7 to our consolidated financial statements.
Minority interests in net income of subsidiaries was
$29 million in 2003, compared with $28 million in
2002. Minority interest amounts are related primarily to Halla
Climate Control Corporation headquartered in Korea, in which we
have a 70% ownership interest.
31
|
|
| ITEM 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND |
RESULTS
OF OPERATIONS — (Continued)
Net (loss) for 2003 and 2002 are shown in the following
table for each of our segments:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended | |
|
|
| |
|
December 31, | |
|
2003 | |
| |
|
| |
|
over/(under) | |
| |
|
2003 | |
|
2002 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
Restated | |
|
Restated | |
|
|
| |
|
(in millions) | |
|
Automotive Operations
|
|
$ |
(1,222 |
) |
|
$ |
(394 |
) |
|
$ |
(828 |
) |
|
Glass Operations
|
|
|
(7 |
) |
|
|
15 |
|
|
|
(22 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
Total
|
|
$ |
(1,229 |
) |
|
$ |
(379 |
) |
|
$ |
(850 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Memo:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Special charges included above
|
|
$ |
(933 |
) |
|
$ |
(142 |
) |
|
$ |
(791 |
) |
| |
Goodwill impairment
|
|
|
— |
|
|
|
(265 |
) |
|
|
265 |
|
Visteon reported a net loss for 2003 of $1.2 billion
compared with $379 million for 2002 because of the factors
described previously in income (loss) before income taxes.
Special charges after taxes were $933 million and
$407 million for 2003 and 2002, respectively.
Liquidity and Capital Resources
Overview
Visteon’s objective is to finance its worldwide business
with cash from operations, supplemented by a combination of
liquidity sources, including but not limited to cash and cash
investments, securitization and sales of receivables, committed
and uncommitted bank facilities, leasing arrangements, and the
issuance of securities. These sources are used also to fund
working capital needs, which are highly variable during the year
because of changing customer production schedules.
Visteon’s cash and liquidity needs are impacted by the
level, variability, and timing of our customers’ worldwide
vehicle production, which varies based on economic conditions
and market shares in major markets. Our intra-year needs are
impacted also by seasonal effects in the industry, such as the
shutdown of operations for about two weeks in July, the
subsequent ramp-up of new model production and the additional
one-week shutdown in December by our primary North American
customers. These seasonal effects normally require use of
liquidity resources during the first and third quarters.
Visteon’s balance sheet reflects cash and marketable
securities of $752 million and total debt of
$2,021 million at December 31, 2004, compared
with cash and marketable securities of $956 million and
total debt of $1,818 million at
December 31, 2003. The decline in cash and marketable
securities is due to increased operating losses, capital
spending including spending for Visteon’s facilities
consolidation, an increase in trade working capital related to
higher sales levels at year end, and restructuring cash
payments, offset partially by higher debt. As our operating
profitability has become more concentrated with our foreign
subsidiaries and joint ventures, our cash balance located
outside the U.S. has grown. Approximately one-third of
Visteon’s cash and marketable securities at
December 31, 2004 were held in the U.S., compared with
one-half of cash and marketable securities residing in the
U.S. at December 31, 2003. Visteon’s ability
to move cash among our operating locations is subject to the
operating needs of each location as well as restrictions imposed
by local laws.
32
|
|
| ITEM 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND |
RESULTS
OF OPERATIONS — (Continued)
Visteon’s ratio of total debt to total capital, which
consists of total debt plus total stockholders’ equity, was
86% at December 31, 2004 and 50% at
December 31, 2003, and increased primarily because of
the increase in net loss reported during the period.
Primarily due to the impact on profitability of lower production
at Ford and raw material costs, cash flows from operations were
less than capital expenditures in 2004. Although capital
expenditures in 2005 are expected to be lower than in 2004, raw
material costs are expected to be higher and could adversely
affect operating results if not offset by recovery actions. If
cash flow from operations is not sufficient to fund capital
spending in 2005, we expect to have access to liquidity to
supplement such spending, including but not limited to cash
balances, short-term borrowings under the Credit Facilities,
receivables-based programs and other asset-backed financing.
Access to capital markets is possible, but may be limited or may
be on terms that are less attractive than obtained in the past.
Although Visteon is highly leveraged, it may become necessary to
incur additional debt to ensure adequate liquidity during 2005.
In addition, if the profitability of North American operations
does not improve, Visteon’s access to unsecured debt may be
restricted forcing it to rely more heavily on secured debt and
asset-backed programs. Considering the impact of the Ford
funding agreement further described below, and our access to the
credit markets, albeit at more restrictive terms and conditions
and in lessor amounts than in the past, Visteon currently
expects to have sufficient sources of liquidity to meet our
operating and other needs for 2005. However, because of the
uncertainty regarding economic and market conditions, as well
the ultimate outcome of our discussions with Ford, there can be
no assurance that sufficient liquidity from internal or external
sources will be available at the times or in the amounts
required.
As a result of expected increases in raw material costs,
anticipated lower production volumes from key customers
including Ford, and our continued unfavorable U.S. cost
structure that results, in part, due to the hourly labor
benefits agreement that we operate under with Ford, Visteon
intends to implement in 2005 a number of actions to conserve
cash and reduce costs. These actions will include attempting to
accelerate collection of accounts receivables, reducing overtime
for employees not directly related to satisfying customer
commitments, postponing some non-safety related construction
projects at our corporate headquarters and delaying program
spending.
33
|
|
| ITEM 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND |
RESULTS
OF OPERATIONS — (Continued)
On March 10, 2005, Visteon and Ford entered into a
funding agreement, effective as of March 1, 2005,
under which Ford has agreed (a) to accelerate the payment
on or prior to March 31, 2005 of not less than
$120 million of payables that are currently not required to
be paid to Visteon until after March 31, 2005;
(b) to accelerate the payment terms for certain payables to
Visteon arising on or after April 1, 2005 from an average
of 33 days after the date of sale to an average of
26 days; (c) to reduce the amount of wages that
Visteon is currently obligated to reimburse Ford with respect to
Visteon-assigned Ford-UAW hourly employees that work at Visteon
facilities, which Visteon expects will result in reduced
expenses and in cash savings of approximately $25 million
per month; and (d) to release Visteon from its obligation
to reimburse Ford for Ford profit sharing payments with respect
to Visteon-assigned Ford-UAW hourly employees that accrue in
2005. Under the funding agreement, Visteon has agreed to
(a) continue to provide an uninterrupted supply of
components to Ford in accordance with applicable purchase orders
and to continue to comply with its other contractual agreements
with Ford and the UAW, including continuing to use its best
efforts to quote competitive prices for new business to be
produced for Ford at certain of Visteon’s plants located in
North America; (b) not to request reimbursement from Ford
for any material cost surcharges for any component that is
produced for Ford at certain of Visteon’s plants located in
North America, and (c) that, except with respect to sales
of inventory or the disposal of obsolete equipment in the
ordinary course of business, Visteon will not sell, close or
otherwise dispose of any of the assets at certain of
Visteon’s plants located in North America, without
Ford’s consent.
Also on March 10, 2005, Ford and Visteon entered into
a master equipment bailment agreement, effective as of
January 1, 2005, pursuant to which Ford has agreed to
pay third-party suppliers for certain machinery, equipment,
tooling and fixtures and related assets, which may be acquired
during the term of the agreement, which are primarily used to
produce components for Ford at some of Visteon’s plants
located in North America. This agreement is expected to reduce
Visteon’s 2005 capital expenditures by approximately
$150 million. Either Ford or Visteon may terminate the
funding agreement or the master bailment agreement at anytime
after January 1, 2006 upon 10 business days’
notice or upon the occurrence of certain customary events of
default, including the uncured default in the performance by a
party of its obligations under the agreement or under certain
other agreements between the parties. We are currently in
discussions with Ford regarding other necessary strategic and
structural changes, that will allow Visteon to achieve a
sustainable and competitive business model. However, we cannot
predict the impact such discussions or any related actions may
have on our results of operations or financial condition.
Further, there can be no assurance that we will reach an
agreement with Ford or take other actions that will address all
of the strategic or structural challenges facing our
U.S. business.
On February 9, 2005, the Visteon Board of Directors
elected to suspend the payment of its usual quarterly dividend
of $0.06 per share of Visteon common stock. The Board will
evaluate Visteon’s dividend policy on a quarterly basis
based on all relevant factors.
Financing Arrangements
On March 10, 2004, Visteon completed a public offering
(the “Notes Sale”) of unsecured fixed-rate 7.00%
term debt securities totaling $450 million in aggregate
principal amount due in March 2014. Proceeds from the
Notes Sale were used for a debt retirement and for general
corporate purposes. Concurrent with the Notes Sale, Visteon
announced an offer (the “Tender Offer”) to purchase
for cash up to $250 million aggregate principal amount of
our 7.95% notes due in August 2005. The Tender Offer
expired on April 2, 2004, and $250 million of these
notes were retired on April 6, 2004.
34
|
|
| ITEM 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND |
RESULTS
OF OPERATIONS — (Continued)
In March 2004, Visteon established a revolving accounts
receivable securitization facility (the “facility”) in
the U.S. The facility allows for the sale of a portion of
non-Ford U.S. trade receivables to a wholly-owned
consolidated special purpose entity, Visteon Receivables LLC
(“VRL”), which may then sell an undivided interest in
the receivables to an asset-backed multi-seller conduit which is
unrelated to Visteon or VRL. At December 31, 2004, VRL
had sold a $55 million undivided interest in a pool of
$240 million of net receivables. The facility has been
extended to March 29, 2006 and is extendable annually
through March 2008 through mutual agreement of both parties. At
March 1, 2005 the maximum amount of undivided
interests that VRL could sell to the conduit was approximately
$70 million, although this maximum amount could be lower in
the event that Visteon’s credit ratings were to be reduced.
We are exploring a securitization program that would involve all
or a portion of our U.S. and Canadian Ford receivables.
In Europe, Visteon has an agreement to sell up to
euro 60 million in trade receivables to a bank. As of
December 31, 2004 and December 31, 2003,
Visteon has sold euro 19 million ($26 million)
and euro 12 million ($15 million), respectively,
of trade receivables under this agreement. The facility expires
in March 2006 and is renewable in one-year increments. The
facility can be terminated by either party with 15 days
notice; therefore we cannot provide any assurances that this
facility will be available or utilized in the future.
Visteon has financing arrangements with a syndicate of
third-party lenders that provide contractually committed,
unsecured credit facilities in an aggregate maximum amount of
$1,590 million (the “Credit Facilities”). The
Credit Facilities include a 364-day revolving credit line in the
amount of $565 million, which expires June 2005, a
five-year revolving credit line in the amount of
$775 million which expires June 2007, and a delayed-draw
term loan in the amount of $250 million expiring in 2007,
which is used primarily to finance new construction for our
facilities consolidation in Southeast Michigan. Borrowings under
the Credit Facilities bear interest based on a variable rate
interest option selected at the time of borrowing and
Visteon’s credit rating. Except for the construction
related facility, Visteon and its subsidiaries may use the
Credit Facilities for any and all general corporate purposes at
the discretion of management. As of December 31, 2004,
there were no outstanding borrowings under the 364-day or 5-year
facilities, although $100 million of obligations under
stand-by letters of credit have been issued against the 5-year
facility. As of December 31, 2004, Visteon had
borrowed $223 million against the delayed-draw term loan
facility.
The Credit Facilities contain various affirmative and negative
covenants, including limited cross default provisions, a
negative financial covenant, a limitation on sale and leaseback
transactions, as well as other customary provisions. The cross
default provisions of the Credit Facilities could be triggered
by an uncured default by Visteon in the payment of the principal
of or interest on any borrowing of Visteon of at least
$5 million. Visteon was in compliance with all covenants as
of December 31, 2004. If the profitability of
Visteon’s operations deteriorates, however, it could be
difficult for Visteon to continue to comply with its financial
covenants. Visteon’s failure to comply with these covenants
could have a material adverse effect on its access to capital
markets and could require more reliance on asset-backed
financing.
35
|
|
| ITEM 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND |
RESULTS
OF OPERATIONS — (Continued)
Pursuant to the negative financial covenant, Visteon may not
exceed a leverage ratio of consolidated total debt to
consolidated earnings before interest, taxes, deprecation and
amortization (“EBITDA”) for the trailing four quarters
of 3.5 to 1. Consolidated total debt is defined as the aggregate
principal amount of all indebtedness of Visteon and its
subsidiaries minus all amounts of cash and cash equivalents.
Consolidated EBITDA is defined as Visteon’s consolidated
net income plus the sum of income tax expense, interest expense,
amortization or write-off of debt discount and debt issuance
costs, depreciation and amortization expense, any non-recurring
expenses or losses, and adjusting for any gain or loss from a
discontinued operation, or other material acquisition or
disposition. At December 31, 2004, Visteon was in
compliance with this covenant.
If the negative financial covenant were violated and not cured
within 30 days, availability of the credit lines could be
withdrawn, and repayment of the delayed-draw term loan could be
accelerated. In this event, or if Visteon were unable to renew
the facilities upon scheduled expiration, Visteon would seek to
replace the Credit Facilities with other credit facilities or
secured borrowings, although we cannot provide assurance that
sufficient replacement sources would be available.
The Credit Facilities also contain a limitation stating that the
value of assets financed through sale/leasebacks is limited to
15% of consolidated total assets as of the last quarter end
(consolidated total assets is defined as all amounts that would,
in conformity with GAAP, be set forth opposite the caption
“total assets” (or any like caption) on a consolidated
balance sheet of Visteon and its subsidiaries at such date).
With respect to the bond indenture, sale/leasebacks are limited
to 15% of consolidated net tangible assets (consolidated net
tangible assets is defined as all amounts that would, in
conformity with GAAP, be set forth opposite the caption
“total assets” (or any like caption) on a consolidated
balance sheet of Visteon and its consolidated subsidiaries less
(a) all current liabilities and (b) goodwill, trade
names, patents, unamortized debt discounts, organization
expenses and other like intangibles of Visteon and its
consolidated subsidiaries). In addition, our indentures related
to our unsecured debt securities contain cross default
provisions which could be triggered by a default by Visteon or a
significant subsidiary in its obligation to pay a principal or
interest payment of $25 million or more.
Visteon also has bilateral financing arrangements with three
banks providing a total of $75 million of revolving credit
that contain similar covenants to those contained in the Credit
Facilities and which expire in June 2006. At
December 31, 2004, there were no outstanding
borrowings under these bilateral arrangements, although
$50 million of obligations under stand-by letters of credit
have been issued against these arrangements.
At December 31, 2004, Visteon had no commercial paper
outstanding, compared with $81 million outstanding at
December 31, 2003. Moody’s short-term credit
rating for Visteon is NP (Not Prime) while S&P’s
short-term credit rating is WR (Withdrawn). These short-term
credit ratings have significantly restricted Visteon’s
access to the commercial paper market. Consequently, commercial
paper is not relied upon as a source of short-term liquidity.
36
|
|
| ITEM 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND |
RESULTS
OF OPERATIONS — (Continued)
Visteon has maintained a trade payables program through General
Electric Capital Corporation (“GECC”), subject to
periodic review, that provides financial flexibility to Visteon
and its suppliers. When a supplier participates in the program,
GECC pays the supplier the amount due from Visteon in advance of
the original due date. In exchange for the earlier payment, our
suppliers accept a discounted payment. Visteon pays GECC the
full amount. Approximately $69 million and
$100 million was outstanding to GECC under this program at
December 31, 2004 and December 31, 2003,
respectively, which is included in our reported debt balance.
The 2004 balance is supported by standby letters of credit. At
December 31, 2004, the maximum advance payment allowed
was $95 million. As part of the same program with GECC,
Visteon is allowed to defer payment to GECC for a period of up
to 30 days. As of December 31, 2004, Visteon had
not exercised the deferral option of the program. Although this
agreement with GECC is scheduled to expire in
December 2005, Visteon has notified participating suppliers
of its intention to exit the program beginning in
March 2005, which may result in changes to the commercial
agreements with those suppliers that could adversely affect our
liquidity.
At December 31, 2003, Visteon participated in the Ford
Supplier Early Pay program in which our receivables were reduced
and our cash balances were increased. Visteon stopped
participating in this program in the first quarter of 2004 and
Ford is no longer offering this program to Visteon. At
December 31, 2003, our receivables had been reduced by
$75 million due to this program.
Visteon uses interest rate swaps to manage its interest rate
risk. These swaps effectively convert a portion of
Visteon’s fixed rate debt into variable rate debt, and as a
result, approximately 45% of Visteon’s borrowings are
effectively on a fixed rate basis, while the remainder are
subject to changes in short-term interest rates.
Credit Ratings
Visteon’s long-term credit rating with Standard &
Poor’s (“S&P”) is BB+; with Moody’s it
is Ba2, and with Fitch it is BB. On February 1, 2005, Fitch
downgraded Visteon from BB+ to BB, and on February 18, 2005
Moody’s downgraded Visteon from Ba1 to Ba2. Visteon has
been on Negative Watch with all three agencies since the third
quarter of 2004. Visteon’s access to liquidity has become
less reliable and more costly as a result of recent rating
agency actions, and any further downgrade in Visteon’s
credit ratings could reduce its access to capital, increase the
costs of future borrowings, and increase the possibility of more
restrictive terms and conditions contained in any new or
replacement financing arrangements or commercial agreements or
payment terms with suppliers.
37
|
|
| ITEM 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND |
RESULTS
OF OPERATIONS — (Continued)
Cash Requirements
The following table summarizes our expected cash outflows
resulting from long-term obligations existing as of
December 31, 2004:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total | |
|
2005 | |
|
2006-2007 | |
|
2008-2009 | |
|
2010 and after | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(in millions) | |
|
Postretirement funding commitments
(a)
|
|
$ |
2,179 |
|
|
$ |
44 |
|
|
$ |
262 |
|
|
$ |
309 |
|
|
$ |
1,564 |
|
|
Unconditional purchase obligations
(b)
|
|
|
2,243 |
|
|
|
369 |
|
|
|
664 |
|
|
|
551 |
|
|
|
659 |
|
|
Debt
|
|
|
2,021 |
|
|
|
508 |
|
|
|
280 |
|
|
|
4 |
|
|
|
1,229 |
|
|
Interest payments on long-term debt
(c)
|
|
|
655 |
|
|
|
102 |
|
|
|
203 |
|
|
|
177 |
|
|
|
173 |
|
|
Capital expenditures
|
|
|
376 |
|
|
|
319 |
|
|
|
57 |
|
|
|
— |
|
|
|
— |
|
|
Operating leases
|
|
|
271 |
|
|
|
53 |
|
|
|
84 |
|
|
|
64 |
|
|
|
70 |
|
|
North American seating
operations(d)
|
|
|
205 |
|
|
|
21 |
|
|
|
21 |
|
|
|
21 |
|
|
|
142 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total contractual obligations
|
|
$ |
7,950 |
|
|
$ |
1,416 |
|
|
$ |
1,571 |
|
|
$ |
1,126 |
|
|
$ |
3,837 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Postretirement funding commitments include estimated liability
to Ford for postretirement health care and life insurance
benefits of the Visteon-assigned Ford-UAW employees and certain
salaried employees as discussed in Note 9 of our
consolidated financial statements, which is incorporated by
reference herein. Funding for the Voluntary Employees’
Beneficiary Association begins in 2006 and is also included in
the table above. |
| |
|
(b) |
|
Unconditional purchase obligation amounts exclude purchase
obligations related to inventory purchases in the ordinary
course of business. The obligations include amounts related
primarily to a 10-year information technology agreement entered
into with IBM in January 2003. Pursuant to this agreement, we
outsourced most of our IT needs on a global basis. The service
charges under the outsourcing agreement are expected to
aggregate about $2 billion during the ten-year initial term
of the agreement, subject to decreases and increases in the
service charges based on Visteon’s actual consumption of
services to meet our then current business needs. The
outsourcing agreement may be terminated also for Visteon’s
business convenience after our second full year under the
agreement for a scheduled termination fee. |
| |
|
(c) |
|
Payments include the impact of interest rate swaps, and do not
assume the replenishment of retired debt. |
| |
|
(d) |
|
Represents amounts payable to Ford related to our June 2003 exit
from the North American seating operations, which is discussed
further in Note 16 of our consolidated financial
statements, which is incorporated by reference herein. |
We have guaranteed about $166 million of debt capacity held
by consolidated subsidiaries, $97 million for lifetime
lease payments held by consolidated subsidiaries and
$22 million of debt capacity held by unconsolidated joint
ventures. In addition, we have guaranteed Tier 2
suppliers’ debt and lease obligations and other third-party
service providers’ obligations of up to $20 million,
at December 31, 2004, to ensure the continued supply
of essential parts.
Pension and Postretirement Benefits
Employees and retirees participate in various pension,
healthcare and life insurance benefit plans sponsored by Visteon
and Visteon subsidiaries. Benefit plan liabilities and related
asset transfers between Visteon and Ford in connection with our
separation from Ford are covered by various employee benefit
agreements.
38
|
|
| ITEM 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND |
RESULTS
OF OPERATIONS — (Continued)
Arrangements with Ford
In accordance with the separation-related agreements, in the
U.S., Ford retained the pension-related past service obligations
for those transferred salaried employees that met certain age
and years of service requirements at the date of the separation
from Ford. Visteon-assigned Ford-UAW employees participate in
the Ford-UAW Retirement Plan, sponsored by Ford. By agreement,
Visteon compensates Ford for the pension expense incurred by
Ford related to Visteon-assigned Ford-UAW hourly employees. In
the U.S., Visteon has a financial obligation for the cost of
providing selected healthcare and life insurance benefits to its
employees, as well as an obligation to reimburse Ford for
Visteon-assigned Ford-UAW employees who retire after
July 1, 2000. Ford retained the financial obligation
and related prepayments for pension and postretirement
healthcare and life insurance benefits to its employees who
retired on or before July 1, 2000.
During the fourth quarter of 2003, the separation-related
agreements were amended and restated. Under the terms of the
amended and restated agreements, Ford agreed to assume
responsibility for approximately $1,646 million of amounts
previously owed by Visteon to Ford for postretirement health and
life insurance benefits earned by the Visteon-assigned Ford-UAW
employees during the period prior to the separation. These
amended and restated agreements effectively reduced the
liability to Ford for postretirement benefits, as well as,
future expense for such benefits and lengthened the required
Voluntary Employees’ Beneficiary Association
(“VEBA”) funding terms. The annual VEBA funding
requirement, beginning in 2006, will be determined based upon
amortization of the unfunded liabilities at the beginning of
each period, plus amortization of annual expense. Based upon
estimates of the unfunded liabilities and the related expense,
the first required annual payment to the VEBA will be about
$115 million (which includes about $35 million to
cover benefit payments) in 2006 reduced from $535 million
based on the prior agreement. In December 2000, Visteon
pre-funded a portion of this obligation by contributing
$25 million to a VEBA. The fair value of the VEBA assets as
of December 31, 2004 was $24 million, and is
included in other non-current assets in the accompanying balance
sheet. Refer to Note 9 to the consolidated financial
statements for further details on the amended and restated
agreements and discussion of the accounting treatment.
Visteon Pension Plans
The Visteon plans’ worldwide funded position is slightly
better than it was a year ago on a percentage basis. Strong
asset returns along with world-wide contributions offset the
effect of lower discount rates. For the plan year ended
September 30, 2004 (the measurement date for our
pension funds) our U.S. portfolio returned 13%. The
U.S. pension plan investment strategy, asset allocations
and expected contributions for 2005 are discussed in Note 9
to our consolidated financial statements, incorporated herein by
reference.
39
|
|
| ITEM 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND |
RESULTS
OF OPERATIONS — (Continued)
Legislation
The Medicare Prescription Drug, Improvement and Modernization
Act of 2003 was signed into law on December 8, 2003.
This legislation provides for a federal subsidy beginning in
2006 to sponsors of retiree health care benefit plans that
provide a benefit at least actuarially equivalent to the benefit
established by the law. Visteon’s plans generally provide
retiree drug benefits that exceed the value of the benefit that
will be provided by Medicare Part D, and we have concluded
that our plans are actuarially equivalent, pending further
definition of the criteria used to determine equivalence. This
subsidy reduced the benefit obligation for Visteon plans by
$87 million as of March 31, 2004, and will be
recognized through reduced retiree health care expense over the
related employee future service lives, of which $12 million
has been recognized as of December 31, 2004. The
Medicare Act of 2003 also affected the allocation to Visteon of
the Ford postretirement health care and life insurance benefit
obligation and expense for the Visteon-assigned Ford-UAW
employees and certain salaried employees, resulting in a
reduction to 2004 expense of about $25 million.
Cash Flows
Operating Activities
Cash provided by operating activities during 2004 totaled
$418 million, compared with cash provided by operating
activities of $363 million for the same period in 2003. The
increase is primarily related to lower operating losses, offset
partially by increases in trade working capital related
primarily to higher sales volumes and non-recurrence of one-time
improvements in 2003 due to changes in certain supplier payment
terms. Cash provided from the utilization of our
receivables-based programs was $66 million and
$5 million during 2004 and 2003, respectively. Cash
payments related to special charges, including those for
severance and special pension benefits, were $171 million
and $162 million during 2004 and 2003, respectively.
Investing Activities
Cash used in investing activities was $782 million during
2004, compared with $781 million for the same period in
2003. Visteon’s capital expenditures in 2004 totaled
$827 million, compared with $872 million for the same
period in 2003. Visteon’s capital spending in each of 2003
and 2004 included spending to fund new construction for
consolidation of operations in Southeast Michigan and also to
fund IT infrastructure transition and improvements. Visteon
anticipates that the facilities’ consolidation will allow
us to centralize customer support functions, research and
development, and selected business operations. During 2004,
Visteon sold $11 million of marketable securities, compared
with net sales of securities of $70 million in the same
period last year. Other investing cash flows are comprised
mainly of proceeds from the sale of fixed assets.
Financing Activities
Cash provided by financing activities totaled $135 million
in 2004, compared with $128 million in the same period in
2003. Financing activities in 2004 include a net increase in
debt of $200 million due to the March Notes Sale and
April Tender Offer, offset partially by reductions in short term
debt and other debt.
On February 9, 2005, the Visteon Board of Directors
elected to suspend the payment of its usual quarterly dividend
of $0.06 per share of common stock. The Board evaluates
Visteon’s dividend policy quarterly based on all relevant
factors.
40
|
|
| ITEM 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND |
RESULTS
OF OPERATIONS — (Continued)
Critical Accounting Policies
A summary of Visteon’s accounting policies is described in
Note 3 to our consolidated financial statements, which is
incorporated herein by reference. Critical accounting policies
are those that are both most important to the portrayal of a
company’s financial condition and results, and require
management’s most difficult, subjective or complex
judgments. Our critical accounting policies are considered the
following:
Employee Retirement Benefits
The determination of our obligation and expense for
Visteon’s pension and other postretirement benefits, such
as retiree healthcare and life insurance, is dependent on our
selection of certain assumptions used by actuaries in
calculating such amounts. Those assumptions are described in
Note 9 of our consolidated financial statements, which is
incorporated herein by reference, and include, among others, the
discount rate, expected long-term rate of return on plan assets
and rates of increase in compensation and healthcare costs. The
expected long-term rate of return for pension assets has been
chosen based on historical returns for the different asset
classes held by our trusts and our asset allocation. The
discount rate is chosen based on market rates for high-quality
corporate bonds with maturities closely matched to the timing of
projected benefit payments at our September 30 measurement
date. The U.S. discount rate assumption for year end 2004
was a weighted average of 6.1%. In accordance with accounting
principles generally accepted in the United States of America,
actual results that differ from our assumptions are accumulated
and amortized over future periods and, therefore, generally
affect our recognized expense and recorded obligation in such
future periods. Our market-related value of pension assets
reflects changes in the fair value of assets over a five-year
period, with a one-third weighting to the most recent year. For
postretirement health care and life insurance, as shown in
Note 9 of our consolidated financial statements, we
extended the time period needed for the health care cost trend
rate to reach the ultimate rate from 2009 to 2010. While we
believe that our assumptions are appropriate, significant
differences in our actual experience or significant changes in
our assumptions may materially affect our pension and other
postretirement obligations and our future expense.
The following table illustrates the sensitivity to a change in
certain assumptions for Visteon sponsored U.S. pension
plans on our funded status and pre-tax pension expense
(Visteon-assigned Ford-UAW employees and certain salaried
employees are covered by Ford sponsored plans):
| |
|
|
|
|
|
|
|
|
| |
|
|
|
Impact on Visteon | |
| |
|
|
|
sponsored | |
| |
|
Impact on 2005 pre-tax | |
|
U.S. Plan 2004 | |
| 25 basis point change in assumption(a) |
|
pension expense | |
|
funded status | |
| |
|
| |
|
| |
|
decrease in discount rate
|
|
|
+ $6 million |
|
|
|
- $48 million |
|
|
increase in discount rate
|
|
|
- $6 million |
|
|
|
+ $48 million |
|
|
decrease in expected return on assets
|
|
|
+ $2 million |
|
|
|
|
|
|
increase in expected return on assets
|
|
|
- $2 million |
|
|
|
|
|
|
|
| (a) |
Assumes all other assumptions are held constant. |
41
|
|
| ITEM 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND |
RESULTS
OF OPERATIONS — (Continued)
The following table illustrates the sensitivity to a change in
the discount rate assumption related to Visteon sponsored
U.S. postretirement healthcare and life insurance plans
expense (Visteon-assigned Ford-UAW employees and certain
salaried employees are covered by Ford sponsored plans):
| |
|
|
|
|
|
|
|
|
| |
|
|
|
Impact on Visteon | |
| 25 basis point change in |
|
Impact on 2005 pre-tax | |
|
sponsored U.S. Plan 2004 | |
| assumption(a) |
|
OPEB expense | |
|
funded status | |
| |
|
| |
|
| |
|
decrease in discount rate
|
|
|
+ $6 million |
|
|
|
- $44 million |
|
|
increase in discount rate
|
|
|
- $6 million |
|
|
|
+ $44 million |
|
|
|
| (a) |
Assumes all other assumptions are held constant. |
Visteon’s postretirement benefits payable to Ford includes
the financial obligation Visteon has to Ford for the cost of
providing selected health care and life insurance benefits to
Visteon-assigned Ford-UAW hourly employees and certain Visteon
salaried employees who retire after July 1, 2000. The
health care and pension costs for these employees are calculated
using Ford’s assumptions, which are disclosed in
Note 9 of our consolidated financial statements. The annual
funding requirements related to these employees are discussed
further in the section “Pension and Postretirement
Benefits.”
Impairment of Long-Lived Assets and Certain Identifiable
Intangibles
Visteon evaluates long-lived assets to be held and used and
long-lived assets to be disposed of for potential impairment at
the product line level whenever events or changes in business
circumstances indicate that the carrying value of the assets may
not be fully recoverable or that the useful lives of these
assets are no longer appropriate. Asset groupings at the product
line level is considered the lowest level of identifiable cash
flows which are largely independent as the December 2003
Ford agreements contractually provide Visteon greater
flexibility to make product level decisions, including decisions
related to selling or exiting certain businesses. Visteon
considers projected future undiscounted cash flows, trends and
other circumstances in making such estimates and evaluations.
While we believe that our estimates of future cash flows are
reasonable, different assumptions regarding such factors as
future automotive production volumes (primarily for Ford),
selling price changes, labor cost changes, material cost
changes, productivity and other cost savings and capital
expenditures could significantly affect our evaluations.
During the third quarter of 2004, the Automotive Operations
recorded a pre-tax, non-cash impairment write-down of
$314 million in costs of sales to reduce the net book value
of certain long-lived assets. This write-down was based on an
assessment by product line asset group, completed in the third
quarter of 2004, of the recoverability of our long-lived assets
in light of the challenging environment in which we operate, and
included consideration of lower than anticipated current and
near term future year Ford North American production volumes and
the related impact on our future operating projections. Assets
are considered impaired if the book value is greater than the
undiscounted cash flows expected from the use of the asset. As a
result of this analysis the assets of the steering systems
product group were impaired. The write-down was approximately
$249 million in North America and $65 million in
Europe and was determined on a “held for use” basis.
Fair values were determined primarily based on prices for
similar groups of assets determined by a third-party valuation
firm.
42
|
|
| ITEM 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND |
RESULTS
OF OPERATIONS — (Continued)
During the fourth quarter of 2003, Visteon recorded a pre-tax,
non-cash impairment write-down of $407 million in costs of
sales to reduce the net book value of certain long-lived assets.
This write-down was based on an assessment by product line asset
group, completed in the fourth quarter of 2003, of the
recoverability of our long-lived assets in light of the
challenging environment in which we operate and as part of our
business planning process for 2004 and beyond. This assessment
included considering the substantial change in the production
levels of Visteon’s major customer and the related impact
on our future operating projections, as well as the anticipated
impact of the recently completed Ford agreements. As a result of
this analysis the assets of six product groupings were impaired:
bumpers, fuel tanks, starters and alternators, steering columns,
suspension systems and wiper/washer. The write-down was
approximately $300 million in North America and
$100 million in Europe and was determined on a “held
for use” basis. Fair values were determined primarily based
on prices for similar groups of assets determined by a
third-party valuation firm.
Deferred Income Taxes
Deferred income taxes are provided for temporary differences
between amounts of assets and liabilities for financial
reporting purposes and the basis of such assets and liabilities
as measured by tax laws and regulations, as well as net
operating loss, tax credit and other carryforwards. Statement of
Financial Accounting Standards No. 109
(“SFAS 109”), “Accounting for Income
Taxes,” requires that deferred tax assets be reduced by a
valuation allowance if, based on all available evidence, it is
considered more likely than not that some portion or all of the
recorded deferred tax assets will not be realized in future
periods. This assessment requires significant judgment, and in
making this evaluation, Visteon considers all available positive
and negative evidence, including past results, the existence of
cumulative losses in recent periods, and our forecast of taxable
income for the current year and future years.
During the third quarter of 2004, Visteon recorded a non-cash
charge of $871 million to establish full valuation
allowances against our net deferred tax assets in the U.S. and
certain foreign countries. This charge was comprised of
$948 million of deferred tax assets as of the beginning of
the year, offset partially by a reduction of related tax
reserves, previously included in other liabilities, of
$77 million.
In assessing the need for additional valuation allowances during
the third quarter of 2004, Visteon considered the impact on our
2004 operating results from Ford’s lower than expected
North American production estimates for the fourth quarter and
full year 2004, as well as increased steel and fuel costs, which
we have not been able to recover fully, and delays in the
benefits that were expected to be achieved from labor
strategies, such as flowbacks and plant-level operating
agreements. In light of these developments, we determined that
Visteon would likely not achieve its forecast of 2004 taxable
earnings in the U.S. We concluded, in light of this
negative evidence and the uncertainty as to the timing of when
we would be able to generate the necessary level of taxable
earnings to recover our net deferred tax assets in the U.S.,
that a full valuation allowance against these deferred tax
assets was required in the third quarter of 2004. Additionally,
we concluded that additional valuation allowances were required
for deferred tax assets in certain other foreign countries where
recoverability was also considered uncertain. In reviewing our
results for the fourth quarter of 2004 and our forward-year
outlook, we concluded that there were no further changes to our
previous assessments as to the realizability of our deferred tax
assets.
43
|
|
| ITEM 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND |
RESULTS
OF OPERATIONS — (Continued)
Visteon’s provision for income taxes for 2004 includes a
benefit of $42 million recorded in the fourth quarter to
reduce our deferred tax asset valuation allowance to offset a
related reduction in our net deferred tax assets. This reduction
in our net deferred tax assets was the result of certain
U.S. tax adjustments related primarily to foreign currency
movements that were recorded through other comprehensive income
during the fourth quarter. In addition, Visteon’s provision
for income taxes for 2004 includes $133 million of income
tax expense primarily related to foreign countries whose results
continue to be tax-effected due to their ongoing profitability.
As more fully described in Note 7 to our consolidated
financial statements, at December 31, 2004,
Visteon’s consolidated balance sheet reflects a net
deferred tax liability of $133 million after valuation
allowances.
During the fourth quarter 2003, Visteon recorded a non-cash
charge of $449 million to establish partial valuation
allowances against our deferred tax assets in the U.S. and full
valuation reserves for certain foreign countries as of the end
of 2003. As more fully described in Note 7 to our
consolidated financial statements, at
December 31, 2003, Visteon’s consolidated balance
sheet reflects a net deferred tax asset of $860 million
after valuation allowances.
Going forward, the need to maintain valuation allowances against
our deferred tax assets in the U.S. and other affected countries
will cause variability in our quarterly and annual effective tax
rates. Visteon will maintain full valuation allowances against
our deferred tax assets in the U.S. and applicable foreign
countries, which include the U.K. and Germany, until sufficient
positive evidence exists to reduce or eliminate them.
Revenue Recognition
Sales are recognized when there is evidence of a sales
agreement, the delivery of goods has occurred, the sales price
is fixed or determinable and collectibility is reasonably
assured, generally upon shipment of product to customers and
transfer of title under standard commercial terms. Significant
retroactive price adjustments are estimated by management based
upon an assessment of the ultimate outcome of customer
negotiations and are recognized in the period when such amounts
become probable. Sales are recognized based on the gross amount
billed to a customer for those products in which Visteon’s
customer has directed the sourcing of certain raw materials or
components used in the manufacture of the final product.
44
|
|
| ITEM 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND |
RESULTS
OF OPERATIONS — (Continued)
Product Recalls
Product recall accruals are made related to our potential
financial participation in our customers’ actions to
provide remedies related primarily to safety concerns as a
result of actual or threatened regulatory or court actions or
Visteon’s determination of the potential for such actions.
Our reserves for product recalls include the expected costs to
be incurred by Visteon related to these actions. As part of our
spin-off from Ford, Visteon and Ford agreed on a division of
liabilities including liabilities related to product recalls.
Visteon and Ford agreed on a division of responsibility for
recall matters as follows: (a) Ford will retain liability
for all recall claims that involve parts made or sold by Visteon
for 1996 or earlier model year Ford vehicles, (b) Visteon
is liable for all recall claims that involve parts made or sold
by Visteon for 1997 or later model year Ford vehicles in
accordance with Ford’s global standard purchase order terms
as applied to other Tier 1 suppliers, and (c) Visteon
has assumed all responsibility for recall claims relating to
parts made or sold by Visteon to any non-Ford customers. Visteon
accrues for recall claims for products sold based on management
estimates, with support from our sales, engineering, quality and
legal activities, of the amount that eventually will be required
to settle such claims. This accrual, which is reviewed in detail
on a regular basis, is based on several factors, including the
terms of Visteon’s master transfer agreement with Ford,
past experience, current claims, industry developments and
various other considerations. Additionally, costs of sales in
2004 were reduced by $49 million related to an adjustment
made to a product recall accrual as a result of settling a
product recall claim.
New Accounting Standards and Accounting Changes
In December 2004, the FASB issued Statement of Financial
Accounting Standards No. 123 (Revised 2004)
(“SFAS 123-R”), “Share-Based Payments.”
This revised statement requires the fair-value based method to
be used and eliminates the alternative use of the intrinsic
value method. Requirements of SFAS 123-R are effective as
of the beginning of the first annual interim period that begins
after June 15, 2005. Visteon does not expect the
requirements of SFAS 123-R to have a material effect on
Visteon’s results of operations as, starting
January 1, 2003, Visteon began expensing the fair
value of stock-based awards, including stock options, granted to
employees pursuant to the original provisions of SFAS 123.
In November 2004, the FASB issued Statement of Financial
Accounting Standards No. 151 (“SFAS 151”),
“Inventory Costs — an amendment of ARB
No. 43, Chapter 4.” This statement clarifies the
accounting for abnormal amounts of idle facility expense,
freight, handling costs, and wasted material (spoilage). This
Statement requires that those items be recognized as
current-period charges regardless of whether they meet the
criterion of “so abnormal.” In addition, this
Statement requires that allocation of fixed production overheads
to the costs of conversion be based on the normal capacity of
the production facilities. The provisions of this statement will
be effective for inventory costs incurred during fiscal years
beginning after June 15, 2005. Visteon has not
determined the effect of SFAS 151.
45
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| ITEM 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND |
RESULTS
OF OPERATIONS — (Continued)
In December 2003, the FASB issued revised Interpretation
No. 46 (“FIN 46-R”) “Consolidation of
Variable Interest Entities.” Until this interpretation, a
company generally included another entity in its consolidated
financial statements only if it controlled the entity through
voting interests. FIN 46-R requires a variable interest
entity to be consolidated by a company if that company is
subject to a majority of the risk of loss from the variable
interest entity’s activities or entitled to receive a
majority of the entity’s residual returns. Application of
FIN 46-R was required during the fourth quarter of 2003 for
interests in structures that are commonly referred to as
special-purpose entities and for all other types of variable
interest entities in the first quarter of 2004. The effect of
applying the consolidation provisions of FIN 46-R on
Visteon’s results of operations or financial position as of
December 31, 2004 was not significant.
In December 2003, the FASB issued Statement of Financial
Accounting Standards No. 132 (revised 2003)
(“SFAS 132-R”), “Employers’ Disclosures
about Pensions and Other Postretirement Benefits.” This
revised statement expands financial statement disclosures for
defined benefit plans related to plan assets, investment
policies, future benefit payments and plan contributions.
Certain disclosure requirements of SFAS 132-R were
effective for the year ended December 31, 2003.
Additional annual and interim disclosure requirements were
effective during the year ended December 31, 2004.
Cautionary Statement regarding Forward-Looking Information
This report contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995.
Words such as “anticipate,” “expect,”
“intend,” “plan,” “believe,”
“seek,” “outlook” and “estimate”
as well as similar words and phrases signify forward-looking
statements. Visteon’s forward-looking statements are not
guarantees of future results and conditions and important
factors, risks and uncertainties may cause our actual results to
differ materially from those expressed in our forward-looking
statements, including, but not limited to, the following:
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• |
Visteon’s ability to satisfy its future capital and
liquidity requirements; Visteon’s ability to access the
credit and capital markets at the times and in the amounts
needed and on terms acceptable to Visteon, which is influenced
by Visteon’s credit ratings (which have declined in the
past and could decline further in the future); Visteon’s
ability to comply with financial covenants applicable to it; and
the continuation of acceptable supplier payment terms. |
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• |
Visteon’s ability to satisfy its pension and other
post-employment benefit obligations, and to retire outstanding
debt and satisfy other contractual commitments, all at the
levels and times planned by management. |
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• |
Visteon’s ability to access funds generated by its foreign
subsidiaries and joint ventures on a timely and cost effective
basis. |
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• |
Visteon’s dependence on Ford, and our ability to make
necessary strategic and structural changes to our
U.S. business to achieve a sustainable and competitive
business, including immediately addressing the cost structure of
our legacy operations in a highly competitive and challenging
market. |
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• |
Visteon’s ability to reach an acceptable agreement with
Ford that implements strategic and structural changes necessary
to achieve a sustainable and competitive business. |
46
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| ITEM 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND |
RESULTS
OF OPERATIONS — (Continued)
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• |
Changes in vehicle production volume of our customers in the
markets where we operate, and in particular changes in
Ford’s North American vehicle production volume and
platform mix. |
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• |
Changes in the operations (including products, product planning
and part sourcing), financial condition, results of operations
or market share of Visteon’s customers, particularly its
largest customer, Ford. |
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• |
Visteon’s ability to profitably win new business from
customers other than Ford and to maintain current business with,
and win future business from, Ford, and, Visteon’s ability
to realize expected sales and profits from new business. |
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• |
Increases in commodity costs or disruptions in the supply of
commodities, including steel, resins, fuel and natural gas. |
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• |
Visteon’s ability to generate cost savings to offset or
exceed agreed upon price reductions or price reductions to win
additional business and, in general, improve its operating
performance; to achieve the benefits of its restructuring
activities;and to recover engineering and tooling costs. |
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• |
Visteon’s ability to compete favorably with automotive
parts suppliers with lower cost structures and greater ability
to rationalize operations; and to exit non-performing businesses
on satisfactory terms, particularly due to limited flexibility
under existing labor agreements. |
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• |
Visteon’s ability to streamline and focus its product
portfolio; and to sustain technological competitiveness. |
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Visteon’s ability to reduce its cost structure by, among
other things, reducing the number of Ford-UAW workers assigned
to work at Visteon locations. |
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• |
Restrictions in labor contracts with unions, and with the UAW in
particular, that significantly restrict Visteon’s ability
to close plants, divest unprofitable, noncompetitive businesses,
change local work rules and practices at a number of facilities
and implement cost-saving measures. |
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• |
Significant changes in the competitive environment in the major
markets where Visteon procures materials, components or supplies
or where its products are manufactured, distributed or sold. |
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• |
Legal and administrative proceedings, investigations and claims,
including shareholder class actions, SEC inquiries, product
liability, warranty, environmental and safety claims, and any
recalls of products manufactured or sold by Visteon. |
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• |
Changes in economic conditions, currency exchange rates, changes
in foreign laws, regulations or trade policies or political
stability in foreign countries where Visteon procures materials,
components or supplies or where its products are manufactured,
distributed or sold. |
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• |
Shortages of materials or interruptions in transportation
systems, labor strikes, work stoppages or other interruptions to
or difficulties in the employment of labor in the major markets
where Visteon purchases materials, components or supplies to
manufacture its products or where its products are manufactured,
distributed or sold. |
47
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| ITEM 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND |
RESULTS
OF OPERATIONS — (Continued)
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• |
Changes in laws, regulations, policies or other activities of
governments, agencies and similar organizations, domestic and
foreign, that may tax or otherwise increase the cost of, or
otherwise affect, the manufacture, licensing, distribution,
sale, ownership or use of Visteon’s products or assets. |
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• |
Possible terrorist attacks or acts of war, which could
exacerbate other risks such as slowed vehicle production,
interruptions in the transportation system, or fuel prices and
supply. |
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• |
The cyclical and seasonal nature of the automotive industry. |
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• |
Visteon’s ability to comply with environmental, safety and
other regulations applicable to it and any increase in the
requirements, responsibilities and associated expenses and
expenditures of these regulations. |
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• |
Visteon’s ability to protect its intellectual property
rights, and to respond to changes in technology and
technological risks and to claims by others that Visteon
infringes their intellectual property rights. |
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• |
Delays in completing Visteon’s transition to an information
technology environment that is separate from Ford’s
environment and Visteon’s ability to transition to new
information technology systems and applications, which could
have an effect on Visteon’s internal control over financial
reporting. |
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• |
Other factors, risks and uncertainties detailed from time to
time in Visteon’s Securities and Exchange Commission
filings. |
These risks and uncertainties are not the only ones facing
Visteon. Additional risks and uncertainties not presently known
to Visteon or currently believed to be immaterial also may
adversely affect Visteon. Any risks and uncertainties that
develop into actual events could have material adverse effects
on Visteon’s business, financial condition and results of
operations. For these reasons, do not place undue reliance on
our forward-looking statements. Visteon does not intend or
assume any obligation to update any of these forward-looking
statements.
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| ITEM 7A. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Visteon is exposed to market risks from changes in currency
exchange rates, interest rates and certain commodity prices. To
reduce Visteon’s exposure to these risks, we use a
combination of cost sourcing arrangements with customers and
suppliers and financial derivatives. We maintain risk management
controls to monitor the risks and the related hedging.
Derivative positions are examined using analytical techniques
such as market value and sensitivity analysis. Derivative
instruments are not used for speculative purposes, as per
clearly defined risk management policies.
Foreign Currency Risk
Visteon’s net cash inflows and outflows exposed to the risk
of changes in exchange rates arise from the sale of products in
countries other than the manufacturing source, payments to
suppliers in currencies other than what the product is sold for
and from financing transactions with subsidiaries.
Visteon’s on-going solution is to reduce the exposure
through operating actions. We use foreign exchange forward
contracts to manage a portion of our exposure.
48
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| ITEM 7A. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK — (Continued) |
Visteon’s primary foreign exchange exposure includes the
Mexican peso, euro, Canadian dollar and Czech koruna.
Because of the mix between our costs and our sales in various
regions, we are exposed generally to weakening of the euro and
to strengthening of the Mexican peso, Canadian dollar and
Czech koruna. For transactions in these currencies, Visteon
utilizes a strategy of partial coverage. As of
December 31, 2004, our coverage for projected net
inflows/outflows of these currencies was about 45% for 2005.
As of December 31, 2004 and 2003, the net fair value
of financial instruments with exposure to currency risk was an
asset of $18 million and a liability of $10 million,
respectively. The hypothetical pre-tax gain or loss in fair
value from a 10% favorable or adverse change in quoted currency
exchange rates would be approximately $72 million and
$81 million as of December 31, 2004 and 2003,
respectively. These estimated changes assume a parallel shift in
all currency exchange rates and include the gain or loss on
financial instruments used to hedge loans to subsidiaries.
Because exchange rates typically do not all move in the same
direction, the estimate may overstate the impact of changing
exchange rates on the net fair value of our financial
derivatives. It is important to note that gains and losses
indicated in the sensitivity analysis would be offset by gains
and losses on the underlying exposures being hedged.
Interest Rate Risk
As of December 31, 2004 and 2003, the net fair value
of interest rate swaps was an asset of $2 million and
$15 million, respectively. The potential loss in fair value
of these swaps from a hypothetical 50 basis point adverse
change in interest rates would be approximately $16 million
and $10 million as of December 31, 2004 and 2003,
respectively. The annual increase in pre-tax interest expense
from a hypothetical 50 basis point adverse change in
variable interest rates (including the impact of interest rate
swaps) would be approximately $6 million and
$5 million as of December 31, 2004 and 2003,
respectively. This analysis may overstate the adverse impact on
net interest expense because of the short-term nature of our
interest bearing investments.
Commodity Risk
Steel products and plastics resins are purchased for various
uses but are not hedged due to the lack of acceptable hedging
instruments in the market. Visteon’s exposures to steel and
resin price changes are attempted to be addressed through
negotiations with our suppliers and our customers although there
can be no assurance that Visteon will not have to absorb any or
all price increases and/or surcharges. Steel material surcharges
in 2004 were significant, and we expect increased raw material
cost pressure for steel and resins. When and if acceptable
hedging instruments for steel and plastics resins are available
in the market, management will determine at that time if
financial hedging is appropriate, depending upon Visteon’s
exposure level at that time, the effectiveness of the financial
hedge and other factors.
Visteon is exposed to market risks from changes in the price of
non-ferrous metals. Visteon’s exposure to non-ferrous
metals is primarily related to the aluminum and copper content
of some products. In the case of copper, Visteon reduces its
short-term exposure to changes in prices through the use of
financial derivatives. As of December 31, 2004 and
2003, the net fair value of copper derivatives was an asset of
$4 million and $2 million, respectively, and the
potential loss in fair value from a 10% adverse change in quoted
prices would be $1 million and $2 million,
respectively.
49
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| ITEM 7A. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK — (Continued) |
Natural gas is a commodity Visteon uses in its manufacturing
processing, related primarily to glass production, as well as
for heating our facilities. Uncertainty in both supply and
demand for this commodity has led to price instability over the
last three years. As of December 31, 2004, Visteon has
locked in pricing on about 65% of its projected usage for 2005,
through financial derivatives. As of December 31, 2004
and 2003, the net fair value of natural gas derivatives was an
asset of $5 million and $9 million, respectively. The
potential loss in fair value of these derivative contracts from
a 10% adverse change in quoted prices would be approximately
$6 million and $5 million at
December 31, 2004 and 2003, respectively.
Ford accepts all market price risk for purchases of precious
metals (for catalytic converter production). As a result, we
presently do not enter into financial derivatives to hedge these
potential exposures.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
Our consolidated financial statements, the accompanying notes
and the report of independent registered public accounting firm
that are filed as part of this Report are listed under
Item 15, “Exhibits and Financial Statement
Schedules,” and are set forth on pages 62 through 121
of this Annual Report on Form 10-K/A.
Selected quarterly financial data for us and our consolidated
subsidiaries for 2004 and 2003 are presented in Note 21 of
our consolidated financial statements on page 118-120 of
this Annual Report on Form 10-K/A.
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| ITEM 9. |
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE |
None.
ITEM 9A. CONTROLS AND PROCEDURES
(a) Disclosure Controls and Procedures
Visteon maintains disclosure controls and procedures that are
designed to ensure that information required to be disclosed in
reports Visteon files or submits under the Securities Exchange
Act of 1934, as amended (the “Securities Exchange
Act”), is recorded, processed, summarized, and reported
within the time periods specified in the SEC’s rules and
forms, and that such information is accumulated and communicated
to Visteon’s management, including its Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow
timely decisions regarding required disclosure.
50
ITEM 9A. CONTROLS AND
PROCEDURES — (Continued)
As required by Rule 13a-15 under the Securities Exchange
Act, in connection with the preparation and filing of each the
Original Filing and the Form 10-K/A, Visteon carried out an
evaluation, under the supervision and with the participation of
Visteon’s Disclosure Committee and management, including
the Chief Executive Officer and the Chief Financial Officer, of
the effectiveness of the design and operation of our disclosure
controls and procedures as of December 31, 2004. Based
upon these evaluations as of December 31, 2004, the
Chief Executive Officer and the Chief Financial Officer
concluded that our disclosure controls and procedures were not
effective for the reasons discussed below related to the
weaknesses in our internal control over financial reporting. To
address the control weaknesses described below, Visteon
performed additional analysis and other post-closing procedures
to ensure our consolidated financial statements are prepared in
accordance with generally accepted accounting principles.
Accordingly, management believes that the consolidated financial
statements included in this report fairly present, in all
material respects, our financial condition, results of
operations and cash flows for the periods presented.
On May 10, 2005, Visteon announced that its Audit Committee
was conducting an independent review of the accounting for
certain transactions originating in Visteon’s North
American purchasing activity. Based on the results of the
review, which were discussed in our Current Report on
Form 8-K dated October 21, 2005, we are restating our
previously issued consolidated financial statements for 2002,
2003 and 2004, primarily for accounting corrections related to
the timing of the recognition of costs and the adequacy of
period-end accruals for freight, raw material costs and other
supplier costs. Refer to Note 2 to the consolidated
financial statements for further information regarding this
restatement. In addition, the Audit Committee determined, among
other things, that many of the accounting errors were
principally the result of improper conduct on the part of two
former, non-executive finance employees responsible for these
matters.
(b) Management’s Report on Internal Control over
Financial Reporting (As Restated)
The management of Visteon is responsible for establishing and
maintaining adequate internal control over financial reporting.
Visteon’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of the
company’s financial statements for external purposes in
accordance with generally accepted accounting principles in the
United States of America.
Management of Visteon has assessed the effectiveness of the
company’s internal control over financial reporting as of
December 31, 2004. In making this assessment,
Visteon’s management used the criteria established in
“Internal Control — Integrated Framework”
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).
A material weakness is a control deficiency, or combination of
control deficiencies, that results in there being more than a
remote likelihood that a material misstatement of the annual or
interim financial statements will not be prevented or detected.
Management’s assessment identified the following material
weaknesses in the company’s internal control over financial
reporting as of December 31, 2004.
51
ITEM 9A. CONTROLS AND
PROCEDURES — (Continued)
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(1) |
Accounting for Employee Postretirement Health Care
Benefits |
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Visteon did not maintain effective controls over the accounting
for amendments to U.S. postretirement health care benefit plans.
Specifically, controls to determine that such amendments were
reviewed and all necessary actions were implemented, including
communications to affected employees, prior to recognizing the
accounting treatment in Visteon’s consolidated financial
statements, were not effective. This control deficiency resulted
in an adjustment to our fourth quarter 2004 financial results,
and resulted in the restatement of Visteon’s consolidated
financial statements for 2002 and 2003 and for the first, second
and third quarters of 2004. |
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The requirement of Statement of Financial Accounting Standards
No. 106, “Employers’ Accounting for
Postretirement Benefits Other Than Pensions”
(“SFAS No. 106”), to communicate changes in
eligibility requirements to employees for postretirement health
care benefits prior to reflecting an accounting treatment change
was not satisfied. Effective in January 2002, Visteon amended
its retiree health care benefits plan for certain of its
U.S. employees. Effective in January 2004, a Visteon
wholly owned subsidiary amended its retiree health care benefits
plan for its employees. These amendments changed the eligibility
requirements for participants in the plan. As a result of these
amendments, which were not communicated to affected employees,
Visteon changed the expense attribution periods, which
eliminated cost accruals for younger employees and increased
accrual rates for older participating employees. |
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The errors resulting from this control deficiency impacted cost
of sales and selling, administrative and other expenses in
Visteon’s consolidated statement of operations and
postretirement benefits other than pensions liability and
stockholders’ equity in Visteon’s consolidated balance
sheets for the respective periods. The impact of the correction
of these errors was to increase the net loss by approximately
$24 million, $32 million and $12 million for the
first nine months of 2004, and the years ended December 31,
2003 and 2002, respectively. These errors also impacted the
disclosure of healthcare and life insurance benefit expenses and
liabilities included in Visteon’s consolidated financial
statements for the respective periods. Additionally, this
control deficiency could result in a misstatement to the
aforementioned accounts that would result in a material
misstatement to annual or interim financial statements. |
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(2) |
Accounting for Costs Incurred for Tools Used in Production |
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Visteon did not maintain effective controls to ensure that there
was appropriate support and documentation of either ownership or
an enforceable agreement for reimbursement of expenditures at
the time of the initial recording of incurred tooling costs.
Further, controls over periodic review, assessment and timely
resolution of tooling costs, related aged accounts receivable
balances and potential overruns to customer-authorized
reimbursement levels were not effective. This control deficiency
resulted in the misstatement of Visteon’s consolidated
financial statements for each of the years 2000 through 2003 and
the second and third quarters of 2004 because of costs that
either should have been expensed as incurred or capitalized and
amortized to expense over the terms of the related supply
agreement. |
52
ITEM 9A. CONTROLS AND
PROCEDURES — (Continued)
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The errors resulting from this control deficiency impacted cost
of sales in Visteon’s consolidated statement of operations
and accounts receivable, net property, and stockholders’
equity in Visteon’s consolidated balance sheets for the
respective periods. The errors relating to 2001, 2002, 2003 and
for the first nine months of 2004 were corrected in connection
with the restatement of financial statements for the respective
periods. The impact of the correction of these errors was to
increase the net loss by approximately $2 million,
$10 million, $3 million and $5 million for the
first nine months of 2004, and for the years ended
December 31, 2003, 2002 and 2001, respectively.
Additionally, this control deficiency could result in a
misstatement to the aforementioned accounts that would result in
a material misstatement to annual or interim financial
statements. |
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(3) |
Accounting for Freight, Raw Material and Other Supplier Costs
and Related Period-End Accruals at our North American Purchasing
Function |
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Visteon did not maintain effective controls over the complete
and accurate recording of freight, raw material and other
supplier costs and related period-end accruals at its North
American purchasing function. Specifically, controls to ensure
that accruals for freight, raw materials and other supplier
costs were appropriately supported and adequately reviewed:
(i) did not operate effectively to ensure that such costs
were recorded in the correct period and that period end accruals
were complete and accurate; and (ii) did not prevent or
detect the improper conduct by two former, non-executive
employees. In addition, the Company did not have effective
controls designed and in place over: (i) the information
received from its third-party freight administrator to
completely and accurately record freight costs and related
period-end accruals; (ii) the monitoring of supplier
negotiations to ensure that resulting price changes were
identified and recorded in a timely manner; and
(iii) ongoing supplier contract compliance to ensure that
raw material costs and related period-end accruals were complete
and accurate. This control deficiency and the related improper
conduct resulted in accounting errors which required restatement
of the Company’s 2004, 2003 and 2002 annual consolidated
financial statements, the 2004 interim consolidated financial
statements, and adjustments to the consolidated financial
statements for the first quarter 2005. The impact of the
correction of these errors was to increase net loss by
$40 million, $22 million and $11 million for the
years ended December 31, 2004, 2003 and 2002, respectively,
and to decrease net loss by $58 million for the quarter
ended March 31, 2005. Additionally, this control deficiency
could result in a misstatement of freight, raw material and
other supplier costs and related period-end accruals that would
result in a material misstatement to annual or interim financial
statements that would not be prevented or detected. |
Because of the material weaknesses described above, the
company’s management concluded that the company did not
maintain effective control over financial reporting as of
December 31, 2004 based on the criteria in “Internal
Control — Integrated Framework” issued by the
COSO.
Management had previously concluded that the Company did not
maintain effective internal control over financial reporting as
of December 31, 2004 because of the material weaknesses
described in (1) and (2) above. In connection with the
restatement of the Company’s consolidated financial
statements described in Note 2 to the consolidated
financial statements, management has also determined that the
material weaknesses described in (3) above, also existed as
of December 31, 2004. Accordingly, management has restated
this Report on Internal Control over Financial Reporting to
include this additional material weakness.
Management’s assessment of the effectiveness of
Visteon’s internal control over financial reporting as of
December 31, 2004 has been audited by
PricewaterhouseCoopers LLP, an independent registered public
accounting firm, as stated in their report which appears herein.
53
ITEM 9A. CONTROLS AND
PROCEDURES — (Continued)
(c) Remediation Efforts to Address Material
Weaknesses
Management has formulated remediation plans and has initiated,
and in certain cases, implemented actions designed to address
each of the material weaknesses in internal control over
financial reporting described above.
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(1) |
Accounting for Employee Postretirement Health Care
Benefits |
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In the second and third quarters of 2005, Visteon implemented
additional controls to ensure that all necessary actions
required to effect changes in the accounting for Visteon’s
employee postretirement health care benefits have been completed
prior to recognizing such changes in Visteon’s financial
records. These controls include formal employee communication
procedures and specific identification, assignment and required
inter-departmental coordination of employees responsible for the
planning and implementation of employee benefit changes and the
related accounting and recording of such changes. In the second
quarter 2005, Visteon amended its employee postretirement health
care plans for certain of its U.S. salaried employees; the
controls described above were applied to this amendment. |
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(2) |
Accounting for Costs Incurred for Tools Used in Production |
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During the nine months ended September 30, 2005, Visteon
implemented additional controls over the accounting for costs
incurred for tools used in production including the evaluation
and adjustment of existing policies and procedures, training of
employees responsible for the accounting for these transactions,
and the identification of specific determinants, and required
documentation, of rights and obligations and related valuation
of tooling costs incurred. Additionally, Visteon has implemented
additional monitoring controls to include a complete and timely
review of recorded tooling amounts, including review of aged
unbilled items. |
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(3) |
Accounting for Freight, Raw Material and Other Supplier Costs
and Related Period-End Accruals at our North American Purchasing
Function |
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During the third quarter of 2005, Visteon implemented additional
controls to identify and evaluate potential liabilities related
to activities with its North American suppliers. Such controls
include the establishment of processes to assess and account for
supplier negotiations and on-going contract administration and
to estimate and record freight costs as incurred. The two former
non-executive finance employees responsible for these matters
are no longer employed by the Company. |
(d) Changes in Internal Control Over Financial
Reporting
There have been no changes in Visteon’s internal control
over financial reporting during the fiscal quarter ended
December 31, 2004 that have materially affected, or are
reasonably likely to materially affect, Visteon’s internal
control over financial reporting.
As discussed further in Visteon’s Current Report on
Form 8-K dated October 6, 2005, Visteon transferred
twenty-three of its North American facilities and related assets
to Automotive Components Holdings, LLC (“ACH”) on
September 30, 2005, and, on October 1, 2005, Ford
acquired from Visteon all of the issued and outstanding shares
of common stock of the parent of ACH. Various process changes
and controls are being implemented in the fourth quarter of 2005
to ensure financial transactions between Visteon and ACH are
identified and separately reported.
54
ITEM 9B. OTHER INFORMATION
On March 10, 2005, the Organization and Compensation
Committee (the “Compensation Committee”) of the Board
of Directors of Visteon approved the performance criteria and
relative weighting of each criterion that will be used to
determine awards to eligible employees pursuant to the annual
incentive program for the 2005 fiscal year (the “2005
Annual Incentive”) and the long-term incentive program for
the 2005-2007 performance period (the “2005-2007 Long-Term
Incentive”), each in accordance with the terms of the
Visteon Corporation 2004 Incentive Plan (the “Incentive
Plan”).
Pursuant to the 2005 Annual Incentive, certain key employees are
eligible to receive a cash bonus based on Visteon’s
financial performance relative to a target profit before tax
metric and a target free cash flow metric. 75% of each eligible
employee’s award will be based on the profit before tax
metric and 25% will be based on the free cash flow metric. The
following table sets forth the 2005 Annual Incentive opportunity
for those current executive officers of Visteon that are
expected to appear as the “named executive officers”
in Visteon’s 2005 proxy statement (the “Named
Executives”):
| |
|
|
|
|
|
| |
|
Target | |
| |
|
2005 Annual Incentive Award as | |
| Name and Position |
|
a Percentage of Base Salary(1) | |
| |
|
| |
|
Michael F. Johnston
|
|
|
110% |
|
| |
President and Chief Executive Officer |
|
|
|
|
|
James C. Orchard
|
|
|
70% |
|
| |
Executive Vice President and President, North America |
|
|
|
|
|
James F. Palmer
|
|
|
70% |
|
| |
Executive Vice President and Chief Financial Officer |
|
|
|
|
|
Dr. Heinz Pfannschmidt
|
|
|
65% |
|
| |
Executive Vice President and President, Europe & South
America |
|
|
|
|
|
|
| (1) |
Payments will be based on the base salary of the recipient as of
December 31, 2005. Final payments may be adjusted based on
the recipient’s achievement of individual performance
goals. There is no maximum limit on the amount that may be paid
in respect of a 2005 Annual Incentive award, except that the
Incentive Plan limits the amount payable in respect of all
performance cash awards to any Named Executive during a calendar
year to $10 million. |
55
ITEM 9B. OTHER
INFORMATION — (Continued)
The 2005-2007 Long-Term Incentive is comprised of several
components designed to retain key employees and to further align
the interests of employees with Visteon’s long-term
business objectives and the interests of stockholders. For
officers of Visteon, 25% of their total 2005-2007 Long-Term
Incentive opportunity is awarded in the form of stock options
and an additional 25% of the total is awarded in the form of
restricted stock units. As a result, on March 10, 2005,
Visteon granted stock options, with an exercise price equal to
the fair market value of Visteon’s common stock on such
date and vesting ratably over three years, and restricted stock
units, which will be paid in cash following the conclusion of
the three-year performance period based on the fair market value
of Visteon’s common stock on such date, to each of the
Named Executives. In addition, 25% of the total 2005-2007
Long-Term Incentive opportunity is awarded in the form of a cash
bonus that will be paid to eligible employees in three
approximately equal installments in each of 2006, 2007 and 2008
so long as such employees continue to be employees in good
standing on such dates. 12.5% of the total 2005-2007 Long-Term
Incentive opportunity is awarded in the form of a cash bonus
based on Visteon’s financial performance relative to a
target return on assets metric at the end of the 2005-2007
performance period. Finally, 12.5% of the total 2005-2007
Long-Term Incentive opportunity is awarded in the form of a cash
bonus based on Visteon’s performance relative to a target
product quality metric at the end of the 2005-2007 performance
period. The following table sets forth the total 2005-2007
Long-Term Incentive opportunity for the Named Executives:
| |
|
|
|
|
|
| |
|
Target | |
| |
|
2005-2007 Long-Term Incentive Award | |
| Name and Position |
|
as a Percentage of Base Salary(1) | |
| |
|
| |
|
Michael F. Johnston
|
|
|
550% |
|
| |
President and Chief Executive Officer |
|
|
|
|
|
James C. Orchard
|
|
|
215% |
|
| |
Executive Vice President and President, North America |
|
|
|
|
|
James F. Palmer
|
|
|
300% |
|
| |
Executive Vice President and Chief Financial Officer |
|
|
|
|
|
Dr. Heinz Pfannschmidt
|
|
|
190% |
|
| |
Executive Vice President and President, Europe & South
America |
|
|
|
|
|
|
| (1) |
Cash payments will be based on the base salary of the recipient
as of December 31 of the fiscal year preceding payment. There is
no maximum limit on the amount that may be paid in respect of
the performance-based cash bonus components of a 2005-2007
Long-Term Incentive award, except that the Incentive Plan limits
the amount payable in respect of all performance cash awards to
any Named Executive during a calendar year to $10 million. |
In addition, on March 10, 2005, Visteon entered into a
Resignation Agreement (the “Resignation Agreement”)
and Consulting Agreement (the “Consulting Agreement”)
with Stacy L. Fox, Senior Vice President, General Counsel
and Secretary of Visteon. The Resignation Agreement provides for
the terms of Ms. Fox’s resignation from regular
employment with Visteon and its affiliates effective as of
March 31, 2005. Pursuant to the Resignation Agreement,
Visteon will pay Ms. Fox a severance payment of
$1.36 million and accelerate the vesting date relating to
43,000 shares of restricted stock previously awarded to
Ms. Fox under the Incentive Plan. The foregoing payment and
acceleration are in lieu of any other incentive compensation
amounts or bonus previously awarded to Ms. Fox that have
not been paid. Ms. Fox also agreed to release any claims
she may have against Visteon or its affiliates and agents,
continue to maintain the confidentiality of Visteon’s
information and refrain from soliciting or hiring employees of
Visteon or its subsidiaries.
56
ITEM 9B. OTHER
INFORMATION — (Continued)
Pursuant to the Consulting Agreement, Ms. Fox has agreed to
provide consulting services and other assistance as may be
required or requested by Visteon’s executives, attorneys
and/or other representatives, up to a maximum of 160 hours per
month. Ms. Fox will receive a retainer of $40,000 per month
(which will be reduced by amounts Ms. Fox earns from other
employment during the term of the agreement), as well as
reimbursement for travel and business expenses reasonably
incurred. The term of the agreement commences on April 1,
2005 and continues until December 31, 2005, except that the
agreement may be terminated by Ms. Fox at any time upon at
least 15 days’ notice (including upon the commencement
of certain other full-time positions), or by Visteon for cause
(as defined in the Consulting Agreement).
The terms of the Resignation Agreement and the Consulting
Agreement were approved by the Compensation Committee. Pursuant
to the Resignation Agreement, all prior agreements between
Visteon and Ms. Fox, whether oral or written, are being
terminated effective as of Ms. Fox’s resignation,
except for certain stock option award agreements and
arrangements under Visteon’s Pension Plan, Investment Plan
and Deferred Compensation Plan. The description of the
above-referenced documents does not purport to be complete and
is qualified in its entirety by reference to the complete text
of the documents referred to above, copies of which are filed as
Exhibits 10.36 and 10.37 hereto and incorporated herein by
reference.
57
PART III
|
|
| ITEM 10. |
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT |
Except as set forth herein, the information required by
Item 10 regarding our directors is incorporated by
reference from the information under the captions
“Item 1. Election of Directors,” “Corporate
Governance — Committees” and
“Section 16(a) Beneficial Ownership Reporting
Compliance” in our 2005 Proxy Statement. The information
required by Item 10 regarding our executive officers
appears as Item 4A under Part I of this Annual Report
on Form 10-K/A.
Visteon has adopted a code of ethics, as such phrase is defined
in Item 406 of Regulation S-K, that applies to all
directors, officers and employees of Visteon and its
subsidiaries, including the Chairman, the President and Chief
Executive Officer, the Executive Vice President and Chief
Financial Officer and the Vice President and Chief Accounting
Officer. The code, entitled “A Pledge of
Integrity,” is available on our website
at www.visteon.com.
|
|
| ITEM 11. |
EXECUTIVE COMPENSATION |
The information required by Item 11 is incorporated by
reference from the information under the captions
“Item 1. Election of Directors,”
“Organization and Compensation Committee Report on
Executive Compensation,” “Executive Compensation”
and “Stock Performance Graph” in our 2005 Proxy
Statement.
58
|
|
| ITEM 12. |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
The information required by Item 12 is incorporated by
reference from the information under the caption
“Stockholdings” in our 2005 Proxy Statement.
The following table summarizes information as of
December 31, 2004 relating to our equity compensation
plans pursuant to which grants of stock options, stock
appreciation rights, stock rights, restricted stock, restricted
stock units and other rights to acquire shares of our common
stock may be made from time to time.
Equity Compensation Plan Information
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Number of Securities | |
| |
|
|
|
|
|
Remaining Available for | |
| |
|
Number of Securities | |
|
Weighted-Average | |
|
Future Issuance Under | |
| |
|
to Be Issued Upon | |
|
Exercise Price of | |
|
Equity Compensation | |
| |
|
Exercise of | |
|
Outstanding | |
|
Plans (excluding | |
| |
|
Outstanding Options, | |
|
Options, Warrants | |
|
securities reflected in | |
| |
|
Warrants and Rights | |
|
and Rights | |
|
column(a)) | |
| Plan Category |
|
(a)(1) | |
|
(b) | |
|
(c)(2) | |
| |
|
| |
|
| |
|
| |
|
Equity compensation plans approved by security holders
|
|
|
14,167,424 |
|
|
$ |
11.24 |
|
|
|
1,976,655 |
|
|
Equity compensation plans not approved by security holders
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
14,167,424 |
|
|
|
|
|
|
|
1,976,655 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| (1) |
Excludes 4,179,803 unvested shares of restricted common
stock issued pursuant to the Visteon Corporation 2004
Incentive Plan. Also excludes stock appreciation rights and
restricted stock units issued pursuant to the
Visteon Corporation 2004 Incentive Plan and Employees
Equity Incentive Plan that by their terms may only be settled in
cash. |
| |
| (2) |
Excludes an indefinite number of securities that may be awarded
under the Visteon Corporation Restricted Stock Plan for
Non-Employee Directors. Such Plan provides for an annual,
automatic grant of 3,000 restricted shares or stock units
to each non-employee director of Visteon. There is no maximum
number of securities that may be issued under this Plan,
however, the Plan will terminate on May 9, 2011 unless
earlier terminated by the Board of Directors. This Plan was
approved by stockholders on May 9, 2001. |
|
|
| ITEM 13. |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS |
None.
|
|
| ITEM 14. |
PRINCIPAL ACCOUNTANT FEES AND SERVICES |
The information required by Item 14 is incorporated by
reference from the information under the captions “Audit
Fees” and “Audit Committee Pre-Approval Processes and
Policies” in our 2005 Proxy Statement.
59
PART IV
|
|
| ITEM 15. |
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
| |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Page No. | |
| |
|
|
|
|
|
| |
|
(a)
|
|
1. |
|
Consolidated Financial Statements
|
|
|
|
|
| |
|
|
|
Report of Independent Registered Public Accounting Firm
|
|
|
62 |
|
| |
|
|
|
Consolidated Statement of Operations for the years ended
December 31, 2004, 2003 and 2002 — Restated
|
|
|
66 |
|
| |
|
|
|
Consolidated Balance Sheet at December 31, 2004 and
2003 — Restated
|
|
|
67 |
|
| |
|
|
|
Consolidated Statement of Cash Flows for the years ended
December 31, 2004, 2003 and 2002 — Restated
|
|
|
68 |
|
| |
|
|
|
Consolidated Statement of Stockholders’ Equity for the
years ended December 31, 2004, 2003 and
2002 — Restated
|
|
|
69 |
|
| |
|
|
|
Notes to Financial Statements — Restated
|
|
|
70 |
|
| |
|
2. |
|
Financial Statement Schedule
|
|
|
|
|
| |
|
|
|
Schedule of Valuation and Qualifying Accounts —
Restated
|
|
|
121 |
|
| |
|
3. |
|
Exhibits
|
|
|
|
|
| |
|
|
|
Refer to the “Exhibit Index” on
pages 122-126 of this report
|
|
|
|
|
60
SIGNATURES
Pursuant to the requirements of Section 13 of the
Securities Exchange Act of 1934, Visteon Corporation has
duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
|
|
|
| |
By: |
/s/ Michael F. Johnston*
|
Date: November 22, 2005
Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed below on November 22,
2005, by the following persons on behalf of
Visteon Corporation and in the capacities indicated.
| |
|
|
| Signature |
|
Title |
| |
|
|
| |
/s/ Michael F.
Johnston*
Michael
F. Johnston |
|
Chairman of the Board and Chief Executive Officer (Principal
Executive Officer)
|
| |
/s/ James F. Palmer
James
F. Palmer |
|
Executive Vice President and Chief Financial Officer (Principal
Financial Officer)
|
| |
/s/ William G.
Quigley III*
William
G. Quigley III |
|
Vice President, Corporate Controller and Chief Accounting
Officer (Principal Accounting Officer)
|
| |
/s/ Marla C.
Gottschalk*
Marla
C. Gottschalk |
|
Director
|
| |
/s/ William H.
Gray, III*
William
H. Gray, III |
|
Director
|
| |
/s/ Patricia L.
Higgins*
Patricia
L. Higgins |
|
Director
|
| |
/s/ Karl J. Krapek*
Karl
J. Krapek |
|
Director
|
| |
/s/ Charles L.
Schaffer*
Charles
L. Schaffer |
|
Director
|
| |
/s/ James D. Thornton*
James
D. Thornton |
|
Director
|
| |
/s/ Kenneth B. Woodrow*
Kenneth
B. Woodrow |
|
Director
|
| |
*By: /s/ James F.
Palmer
James
F. Palmer
Attorney-in-Fact |
|
|
61
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Visteon Corporation
We have completed an integrated audit of Visteon
Corporation’s 2004 consolidated financial statements and of
its internal control over financial reporting as of
December 31, 2004 and audits of its 2003 and 2002
consolidated financial statements in accordance with the
standards of the Public Company Accounting Oversight Board
(United States). Our opinions, based on our audits, are
presented below.
Consolidated financial statements and financial statement
schedule
In our opinion, the consolidated financial statements listed in
the index appearing under Item 15(a)(1) present fairly, in
all material respects, the financial position of Visteon
Corporation and its subsidiaries at December 31, 2004 and
2003, and the results of their operations and their cash flows
for each of the three years in the period ended
December 31, 2004 in conformity with accounting principles
generally accepted in the United States of America. In addition,
in our opinion, the financial statement schedule listed in the
index appearing under Item 15(a)(2) presents fairly, in all
material respects, the information set forth therein when read
in conjunction with the related consolidated financial
statements. These financial statements and financial statement
schedule are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on
our audits. We conducted our audits of these statements in
accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit of financial statements includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
As discussed in Note 17 to the consolidated financial
statements, during 2004 the Company changed its method of
determining the cost of certain inventories from the last-in,
first-out method to the first-in, first-out method. The
consolidated financial statements presented for 2003 and 2002
have been adjusted to give retroactive effect to the change. In
addition, as discussed in Note 17 to the consolidated
financial statements, the Company changed its method of
accounting for goodwill resulting from its adoption of Statement
of Financial Accounting Standards No. 142, “Goodwill
and Other Intangible Assets”, effective January 1,
2002.
As discussed in Note 2 to the consolidated financial
statements, the Company restated its 2004, 2003 and 2002
consolidated financial statements.
Internal control over financial reporting
Also, we have audited management’s assessment, included in
Management’s Report on Internal Control over Financial
Reporting appearing under Item 9A, that Visteon Corporation
did not maintain effective internal control over financial
reporting as of December 31, 2004, because of the effect of
the material weaknesses relating to accounting for:
(1) employee postretirement health care benefits;
(2) costs incurred for tools used in production; and
(3) freight, raw material and other supplier costs and
related period-end accruals in its North American purchasing
function, based on criteria established in Internal
Control — Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO). The Company’s management is responsible for
maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control
over financial reporting. Our responsibility is to express
opinions on management’s assessment and on the
effectiveness of the Company’s internal control over
financial reporting based on our audit.
62
We conducted our audit of internal control over financial
reporting in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over
financial reporting was maintained in all material respects. An
audit of internal control over financial reporting includes
obtaining an understanding of internal control over financial
reporting, evaluating management’s assessment, testing and
evaluating the design and operating effectiveness of internal
control, and performing such other procedures as we consider
necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinions.
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
A material weakness is a control deficiency, or combination of
control deficiencies, that results in more than a remote
likelihood that a material misstatement of the annual or interim
financial statements will not be prevented or detected. The
following material weaknesses have been identified and included
in management’s assessment as of December 31, 2004:
|
|
| (1) |
Accounting for Employee Postretirement Health Care
Benefits |
|
|
| |
The Company did not maintain effective controls over the
accounting for amendments to U.S. postretirement health care
benefit plans. Specifically, controls to determine that such
amendments were reviewed and all necessary actions were
implemented, including communications to affected employees,
prior to recognizing the accounting treatment in Visteon’s
consolidated financial statements, were not effective. This
control deficiency resulted in an adjustment to Visteon’s
fourth quarter 2004 financial results, and resulted in the
restatement of Visteon’s consolidated financial statements
for 2002 and 2003 and for the first, second and third quarters
of 2004. |
| |
| |
The requirement of Statement of Financial Accounting Standards
No. 106, “Employers’ Accounting for
Postretirement Benefits Other Than Pensions”
(“SFAS No. 106”), to communicate changes in
eligibility requirements to certain employees for postretirement
health care benefits prior to reflecting an accounting treatment
change was not satisfied. Effective in January 2002, Visteon
amended its retiree health care benefits plan for certain of its
U.S. employees. Effective in January 2004, a Visteon wholly
owned subsidiary amended its retiree health care benefits plan
for its employees. These amendments changed the eligibility
requirements for participants in the plan. As a result of these
amendments, which were not communicated to affected employees,
Visteon changed the expense attribution periods, which
eliminated cost accruals for certain employees and increased
accrual rates for other participating employees. |
63
|
|
| |
The errors resulting from this control deficiency impacted cost
of sales and selling, administrative and other expenses in
Visteon’s consolidated statement of operations and
postretirement benefits other than pensions liability and
stockholders’ equity in Visteon’s consolidated balance
sheets for the respective periods. The impact of the correction
of these errors was to increase the net loss by approximately
$24 million, $32 million and $12 million for the
first nine months of 2004, and the years ended December 31,
2003 and 2002, respectively. These errors also impacted the
disclosure of healthcare and life insurance benefit expenses and
liabilities included in Visteon’s consolidated financial
statements for the respective periods. Additionally, this
control deficiency could result in a misstatement to the
aforementioned accounts that would result in a material
misstatement to annual or interim financial statements. |
|
|
| (2) |
Accounting for Costs Incurred for Tools Used in Production |
|
|
| |
The Company did not maintain effective controls to ensure that
there was appropriate support and documentation of either
ownership or an enforceable agreement for reimbursement of
expenditures at the time of the initial recording of incurred
tooling costs. Further, controls over periodic review,
assessment and timely resolution of tooling costs, related aged
accounts receivable balances and potential overruns to
customer-authorized reimbursement levels were not effective.
This control deficiency resulted in the misstatement of
Visteon’s consolidated financial statements for each of the
years 2000 through 2003 and the second and third quarters of
2004 because of costs that either should have been expensed as
incurred or capitalized and amortized to expense over the terms
of the related supply agreement. |
| |
| |
The errors resulting from this control deficiency impacted cost
of sales in Visteon’s consolidated statement of operations
and accounts receivable, net property, and stockholders’
equity in Visteon’s consolidated balance sheets for the
respective periods. The errors relating to 2001, 2002, 2003 and
for the first nine months of 2004 were corrected in connection
with the restatement of financial statements for the respective
periods. The impact of the correction of these errors was to
increase the net loss by approximately $2 million,
$10 million, $3 million, and $5 million for the
first nine months of 2004 and for the years ended
December 31, 2003, 2002 and 2001, respectively.
Additionally, this control deficiency could result in a
misstatement to the aforementioned accounts that would result in
a material misstatement to annual or interim financial
statements. |
64
|
|
| (3) |
Accounting for Freight, Raw Material and Other Supplier Costs
and Related Period-End Accruals at its North American Purchasing
Function |
|
|
| |
The Company did not maintain effective controls over the
complete and accurate recording of freight, raw material and
other supplier costs and related period-end accruals at its
North American purchasing function. Specifically, controls to
ensure that accruals for freight, raw materials and other
supplier costs were appropriately supported and adequately
reviewed: (i) did not operate effectively to ensure that
such costs were recorded in the correct period and that period
end accruals were complete and accurate; and (ii) did not
prevent or detect the improper conduct by two former,
non-executive employees. In addition, the Company did not have
effective controls designed and in place over: (i) the
information received from its third-party freight administrator
to completely and accurately record freight costs and related
period-end accruals; (ii) the monitoring of supplier
negotiations to ensure that resulting price changes were
identified and recorded in a timely manner; and
(iii) ongoing supplier contract compliance to ensure that
raw material costs and related period-end accruals were complete
and accurate. This control deficiency and the related improper
conduct resulted in accounting errors which required restatement
of the Company’s 2004, 2003 and 2002 annual consolidated
financial statements, the 2004 interim consolidated financial
statements, and adjustments to the consolidated financial
statements for the first quarter 2005. The impact of the
correction of these errors was to increase net loss by
approximately $40 million, $22 million and
$11 million for the years ended December 31, 2004,
2003 and 2002, respectively, and to decrease net loss by
$58 million for the quarter ended March 31, 2005.
Additionally, this control deficiency could result in a
misstatement of freight, raw material and other supplier costs
and related period-end accruals that would result in a material
misstatement to annual or interim financial statements that
would not be prevented or detected. |
These material weaknesses were considered in determining the
nature, timing, and extent of audit tests applied in our audit
of the 2004 consolidated financial statements, and our opinion
regarding the effectiveness of the Company’s internal
control over financial reporting does not affect our opinion on
those financial statements.
In our opinion, management’s assessment that Visteon
Corporation did not maintain effective internal control over
financial reporting as of December 31, 2004, is fairly
stated, in all material respects, based on criteria established
in Internal Control — Integrated Framework
issued by the COSO. Also, in our opinion, because of the
effect of the material weaknesses described above on the
achievement of the objectives of the control criteria, Visteon
Corporation has not maintained effective internal control over
financial reporting as of December 31, 2004, based on
criteria established in Internal Control —
Integrated Framework issued by the COSO.
Management and we previously concluded that the Company did not
maintain effective internal control over financial reporting as
of December 31, 2004 because of the material weaknesses
described in (1) and (2) above. In connection with the
restatement of the Company’s consolidated financial
statements described in Note 2 to the consolidated
financial statements, management has determined that the
material weakness described in (3) above, also existed as
of December 31, 2004. Accordingly, Management’s Report
on Internal Control over Financial Reporting and our opinion on
the effectiveness of internal control over financial reporting
have been restated to include this additional material weakness.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Detroit, Michigan
March 16, 2005, except for the restatement described in
Note 2 to the consolidated financial statements and the
matter described in the penultimate paragraph of
Management’s Report on Internal Control over Financial
Reporting, as to which the date is November 22, 2005
65
VISTEON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the Years Ended | |
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
Restated | |
|
Restated | |
|
Restated | |
| |
|
(in millions, except | |
| |
|
per share amounts) | |
|
Sales (Notes 3 and 14)
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Ford and affiliates
|
|
$ |
13,015 |
|
|
$ |
13,475 |
|
|
$ |
14,779 |
|
| |
Other customers
|
|
|
5,642 |
|
|
|
4,185 |
|
|
|
3,616 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Total sales
|
|
|
18,657 |
|
|
|
17,660 |
|
|
|
18,395 |
|
|
Costs and expenses (Notes 3, 14 and 16)
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Costs of sales
|
|
|
18,151 |
|
|
|
17,824 |
|
|
|
17,626 |
|
| |
Selling, administrative and other expenses
|
|
|
994 |
|
|
|
1,008 |
|
|
|
893 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Total costs and expenses
|
|
|
19,145 |
|
|
|
18,832 |
|
|
|
18,519 |
|
|
Operating (loss)
|
|
|
(488 |
) |
|
|
(1,172 |
) |
|
|
(124 |
) |
|
Interest income
|
|
|
19 |
|
|
|
17 |
|
|
|
23 |
|
|
Debt extinguishment cost (Note 10)
|
|
|
11 |
|
|
|
— |
|
|
|
— |
|
|
Interest expense
|
|
|
104 |
|
|
|
94 |
|
|
|
103 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Net interest expense and debt extinguishment cost
|
|
|
(96 |
) |
|
|
(77 |
) |
|
|
(80 |
) |
|
Equity in net income of affiliated companies (Note 3)
|
|
|
45 |
|
|
|
55 |
|
|
|
44 |
|
| |
|
|
|
|
|
|
|
|
|
|
(Loss) before income taxes, minority interests and change in
accounting
|
|
|
(539 |
) |
|
|
(1,194 |
) |
|
|
(160 |
) |
|
Provision (benefit) for income taxes (Note 7)
|
|
|
962 |
|
|
|
6 |
|
|
|
(74 |
) |
| |
|
|
|
|
|
|
|
|
|
|
(Loss) before minority interests and change in accounting
|
|
|
(1,501 |
) |
|
|
(1,200 |
) |
|
|
(86 |
) |
|
Minority interests in net income of subsidiaries
|
|
|
35 |
|
|
|
29 |
|
|
|
28 |
|
| |
|
|
|
|
|
|
|
|
|
|
(Loss) before change in accounting
|
|
|
(1,536 |
) |
|
|
(1,229 |
) |
|
|
(114 |
) |
|
Cumulative effect of change in accounting, net of tax
(Note 17)
|
|
|
— |
|
|
|
— |
|
|
|
(265 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Net (loss)
|
|
$ |
(1,536 |
) |
|
$ |
(1,229 |
) |
|
$ |
(379 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Basic and diluted (loss) per share (Note 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Before cumulative effect of change in accounting
|
|
$ |
(12.26 |
) |
|
$ |
(9.77 |
) |
|
$ |
(0.90 |
) |
| |
Cumulative effect of change in accounting
|
|
|
— |
|
|
|
— |
|
|
|
(2.07 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
Basic and diluted
|
|
$ |
(12.26 |
) |
|
$ |
(9.77 |
) |
|
$ |
(2.97 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Cash dividends per share
|
|
$ |
0.24 |
|
|
$ |
0.24 |
|
|
$ |
0.24 |
|
The accompanying notes are part of the financial statements.
66
VISTEON CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
| |
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
Restated | |
|
Restated | |
| |
|
(in millions) | |
|
Assets |
|
Cash and cash equivalents
|
|
$ |
752 |
|
|
$ |
953 |
|
|
Marketable securities
|
|
|
— |
|
|
|
3 |
|
| |
|
|
|
|
|
|
| |
Total cash and marketable securities
|
|
|
752 |
|
|
|
956 |
|
|
Accounts receivable – Ford and affiliates
|
|
|
1,255 |
|
|
|
1,175 |
|
|
Accounts receivable – other customers
|
|
|
1,285 |
|
|
|
1,185 |
|
| |
|
|
|
|
|
|
| |
Total receivables, net (Notes 3 and 4)
|
|
|
2,540 |
|
|
|
2,360 |
|
|
Inventories (Note 5)
|
|
|
889 |
|
|
|
852 |
|
|
Deferred income taxes (Note 7)
|
|
|
37 |
|
|
|
163 |
|
|
Prepaid expenses and other current assets
|
|
|
212 |
|
|
|
143 |
|
| |
|
|
|
|
|
|
| |
Total current assets
|
|
|
4,430 |
|
|
|
4,474 |
|
|
Equity in net assets of affiliated companies
|
|
|
227 |
|
|
|
215 |
|
|
Net property (Note 6)
|
|
|
5,303 |
|
|
|
5,365 |
|
|
Deferred income taxes (Note 7)
|
|
|
129 |
|
|
|
700 |
|
|
Other assets
|
|
|
203 |
|
|
|
270 |
|
| |
|
|
|
|
|
|
| |
Total assets
|
|
$ |
10,292 |
|
|
$ |
11,024 |
|
| |
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
Trade payables
|
|
$ |
2,493 |
|
|
$ |
2,320 |
|
|
Accrued liabilities (Note 8)
|
|
|
894 |
|
|
|
930 |
|
|
Income taxes payable
|
|
|
27 |
|
|
|
31 |
|
|
Debt payable within one year (Note 10)
|
|
|
508 |
|
|
|
351 |
|
| |
|
|
|
|
|
|
| |
Total current liabilities
|
|
|
3,922 |
|
|
|
3,632 |
|
|
Long-term debt (Note 10)
|
|
|
1,513 |
|
|
|
1,467 |
|
|
Postretirement benefits other than pensions (Note 9)
|
|
|
639 |
|
|
|
515 |
|
|
Postretirement benefits payable to Ford (Note 9)
|
|
|
2,135 |
|
|
|
2,090 |
|
|
Deferred income taxes (Note 7)
|
|
|
287 |
|
|
|
3 |
|
|
Other liabilities (Note 8)
|
|
|
1,476 |
|
|
|
1,505 |
|
| |
|
|
|
|
|
|
| |
Total liabilities
|
|
|
9,972 |
|
|
|
9,212 |
|
|
Stockholders’ equity
|
|
|
|
|
|
|
|
|
|
Capital stock (Note 11)
|
|
|
|
|
|
|
|
|
| |
Preferred stock, par value $1.00, 50 million shares
authorized, none outstanding
|
|
|
— |
|
|
|
— |
|
| |
Common stock, par value $1.00, 500 million shares
authorized, 131 million shares issued, 130 million and
131 million shares outstanding, respectively
|
|
|
131 |
|
|
|
131 |
|
|
Capital in excess of par value of stock
|
|
|
3,380 |
|
|
|
3,358 |
|
|
Accumulated other comprehensive income (loss)
|
|
|
5 |
|
|
|
(54 |
) |
|
Other
|
|
|
(26 |
) |
|
|
(19 |
) |
|
Accumulated deficit
|
|
|
(3,170 |
) |
|
|
(1,604 |
) |
| |
|
|
|
|
|
|
| |
Total stockholders’ equity
|
|
|
320 |
|
|
|
1,812 |
|
| |
|
|
|
|
|
|
| |
Total liabilities and stockholders’ equity
|
|
$ |
10,292 |
|
|
$ |
11,024 |
|
| |
|
|
|
|
|
|
The accompanying notes are part of the financial statements.
67
VISTEON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the Years Ended | |
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
Restated | |
|
Restated | |
|
Restated | |
| |
|
(in millions) | |
|
Cash and cash equivalents at January 1
|
|
$ |
953 |
|
|
$ |
1,204 |
|
|
$ |
1,024 |
|
|
Cash flows provided by operating activities (Note 18)
|
|
|
418 |
|
|
|
363 |
|
|
|
1,103 |
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Capital expenditures
|
|
|
(827 |
) |
|
|
(872 |
) |
|
|
(725 |
) |
| |
Acquisitions and investments in joint ventures, net
|
|
|
— |
|
|
|
(4 |
) |
|
|
— |
|
| |
Purchases of securities
|
|
|
— |
|
|
|
(48 |
) |
|
|
(508 |
) |
| |
Sales and maturities of securities
|
|
|
11 |
|
|
|
118 |
|
|
|
588 |
|
| |
Other
|
|
|
34 |
|
|
|
25 |
|
|
|
36 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Net cash used in investing activities
|
|
|
(782 |
) |
|
|
(781 |
) |
|
|
(609 |
) |
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Commercial paper (repayments), net
|
|
|
(81 |
) |
|
|
(85 |
) |
|
|
(194 |
) |
| |
Other short-term debt, net
|
|
|
(20 |
) |
|
|
55 |
|
|
|
45 |
|
| |
Proceeds from issuance of other debt, net of issuance costs
|
|
|
576 |
|
|
|
238 |
|
|
|
115 |
|
| |
Repurchase of unsecured debt securities (Note 10)
|
|
|
(269 |
) |
|
|
— |
|
|
|
— |
|
| |
Principal payments on other debt
|
|
|
(32 |
) |
|
|
(121 |
) |
|
|
(245 |
) |
| |
Purchase of treasury stock
|
|
|
(11 |
) |
|
|
(5 |
) |
|
|
(24 |
) |
| |
Cash dividends
|
|
|
(31 |
) |
|
|
(31 |
) |
|
|
(31 |
) |
| |
Other, including book overdrafts
|
|
|
3 |
|
|
|
77 |
|
|
|
(4 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
Net cash provided by (used in) financing activities
|
|
|
135 |
|
|
|
128 |
|
|
|
(338 |
) |
|
Effect of exchange rate changes on cash
|
|
|
28 |
|
|
|
39 |
|
|
|
24 |
|
| |
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(201 |
) |
|
|
(251 |
) |
|
|
180 |
|
| |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at December 31
|
|
$ |
752 |
|
|
$ |
953 |
|
|
$ |
1,204 |
|
| |
|
|
|
|
|
|
|
|
|
The accompanying notes are part of the financial statements.
68
VISTEON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
Earnings | |
|
|
|
|
| |
|
|
|
|
|
Capital | |
|
Retained for | |
|
|
|
Other | |
| |
|
|
|
In | |
|
Use in | |
|
Accumulated | |
|
| |
| |
|
Common Stock | |
|
Excess | |
|
Business | |
|
Other | |
|
|
|
Unearned | |
|
|
| |
|
| |
|
of Par | |
|
(Accumulated | |
|
Comprehensive | |
|
Treasury | |
|
Stock | |
|
|
| |
|
Shares | |
|
Amount | |
|
Value | |
|
Deficit) | |
|
Income (Loss) | |
|
Stock | |
|
Compensation | |
|
Total | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(in millions) | |
|
Year Ended December 31, 2002 (Restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
|
131 |
|
|
$ |
131 |
|
|
$ |
3,381 |
|
|
$ |
65 |
|
|
$ |
(197 |
) |
|
$ |
(9 |
) |
|
$ |
(16 |
) |
|
$ |
3,355 |
|
|
Comprehensive (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(379 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(379 |
) |
| |
Other comprehensive income (Note 12)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53 |
|
|
|
|
|
|
|
|
|
|
|
53 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Comprehensive (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(326 |
) |
|
Purchase of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24 |
) |
|
|
|
|
|
|
(24 |
) |
|
Deferred stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16 |
|
|
|
(16 |
) |
|
|
— |
|
|
Amortization and adjustment of deferred stock- based
compensation, net
|
|
|
|
|
|
|
|
|
|
|
(13 |
) |
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
17 |
|
|
|
3 |
|
|
Cash dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(31 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(31 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
|
131 |
|
|
$ |
131 |
|
|
$ |
3,368 |
|
|
$ |
(345 |
) |
|
$ |
(144 |
) |
|
$ |
(18 |
) |
|
$ |
(15 |
) |
|
$ |
2,977 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2003 (Restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
|
131 |
|
|
$ |
131 |
|
|
$ |
3,368 |
|
|
$ |
(345 |
) |
|
$ |
(144 |
) |
|
$ |
(18 |
) |
|
$ |
(15 |
) |
|
$ |
2,977 |
|
|
Comprehensive (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,229 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,229 |
) |
| |
Other comprehensive income (Note 12)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90 |
|
|
|
|
|
|
|
|
|
|
|
90 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Comprehensive (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,139 |
) |
|
Purchase of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5 |
) |
|
|
|
|
|
|
(5 |
) |
|
Deferred stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
20 |
|
|
|
(16 |
) |
|
|
— |
|
|
Amortization and adjustment of deferred stock- based
compensation, net
|
|
|
|
|
|
|
|
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
13 |
|
|
|
9 |
|
|
Cash dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(30 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(30 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
|
131 |
|
|
$ |
131 |
|
|
$ |
3,358 |
|
|
$ |
(1,604 |
) |
|
$ |
(54 |
) |
|
$ |
(1 |
) |
|
$ |
(18 |
) |
|
$ |
1,812 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2004 (Restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
|
131 |
|
|
$ |
131 |
|
|
$ |
3,358 |
|
|
$ |
(1,604 |
) |
|
$ |
(54 |
) |
|
$ |
(1 |
) |
|
$ |
(18 |
) |
|
$ |
1,812 |
|
|
Comprehensive (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,536 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,536 |
) |
| |
Other comprehensive income (Note 12)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59 |
|
|
|
|
|
|
|
|
|
|
|
59 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Comprehensive (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,477 |
) |
|
Purchase of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11 |
) |
|
|
|
|
|
|
(11 |
) |
|
Deferred stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
(2 |
) |
|
|
— |
|
|
Shares Issued for stock options exercised
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
4 |
|
|
Amortization and adjustment of deferred stock- based
compensation, net
|
|
|
|
|
|
|
|
|
|
|
23 |
|
|
|
|
|
|
|
|
|
|
|
(12 |
) |
|
|
11 |
|
|
|
22 |
|
|
Cash dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(30 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(30 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
|
131 |
|
|
$ |
131 |
|
|
$ |
3,380 |
|
|
$ |
(3,170 |
) |
|
$ |
5 |
|
|
$ |
(17 |
) |
|
$ |
(9 |
) |
|
$ |
320 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are part of the financial statements.
69
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
|
|
| NOTE 1. |
Background and Basis of Presentation |
Visteon Corporation (“Visteon”) is a leading
global supplier of automotive systems, modules and components.
Visteon sells products primarily to global vehicle
manufacturers, and also sells to the worldwide aftermarket for
replacement and vehicle appearance enhancement parts. Visteon
became an independent company when Ford Motor Company
(“Ford”) established Visteon as a wholly-owned
subsidiary in January 2000 and subsequently transferred to
Visteon the assets and liabilities comprising Ford’s
automotive components and systems business. Ford completed its
spin-off of Visteon on June 28, 2000 (the
“spin-off”). Prior to incorporation, Visteon operated
as Ford’s automotive components and systems business.
Visteon and Ford have entered into a series of agreements
outlining the business relationship between the two companies
following the spin-off which are further discussed in
Note 14 of our consolidated financial statements.
Use of estimates and assumptions as determined by management are
required in the preparation of financial statements in
conformity with accounting principles generally accepted in the
United States of America. Actual results could differ from those
estimates and assumptions. Certain amounts for prior periods
were reclassified to conform with present period presentation.
|
|
| NOTE 2. |
Restatement of Financial Statements |
In May 2005, Visteon’s Audit Committee initiated an
independent review of the accounting for certain transactions
originating in the company’s North American purchasing
activity as a result of errors identified by management during
the course of preparing Visteon’s Quarterly Report on
Form 10-Q for the first quarter of 2005. As reported in
Visteon’s Current Reports on Form 8-K dated
August 1, 2005 and October 21, 2005, the Audit
Committee’s independent review determined that the accrual
for freight, raw materials and other supplier costs originating
in North America recorded in periods after
December 31, 2004 should have been recorded in prior
periods, and that many of these accounting errors resulted
principally from improper conduct on the part of two former,
non-executive finance employees responsible for the accounting
oversight of these matters.
Based in part on the foregoing, Visteon has restated its
previously issued consolidated financial statements for 2002
through 2004, for accounting corrections related to freight, raw
material costs, other supplier costs and income taxes matters.
As a result of the restatement, previously reported net loss
increased by $37 million, $22 million and
$11 million for the years ended
December 31, 2004, 2003 and 2002, respectively. The
restatement increased previously reported loss per share by
$0.30, $0.18 and $0.09 for the years ended
December 31, 2004, 2003 and 2002, respectively.
70
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
|
|
| NOTE 2. |
Restatement of Financial
Statements — (Continued) |
The following table summarizes the impact of these accounting
corrections to Visteon’s previously reported net loss as
reported in its 2004 Annual Report on Form 10-K as filed on
March 16, 2005. These accounting corrections impacted
previously reported costs of sales and income tax expense on the
statement of operations.
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(in millions) | |
|
Net (loss), as previously reported
|
|
$ |
(1,499 |
) |
|
$ |
(1,207 |
) |
|
$ |
(368 |
) |
|
Accounting corrections for freight costs (pre-tax)(1)
|
|
|
(8 |
) |
|
|
(11 |
) |
|
|
(9 |
) |
|
Accounting corrections for raw material costs (pre-tax)(2)
|
|
|
(26 |
) |
|
|
6 |
|
|
|
(9 |
) |
|
Accounting corrections for other supplier costs (pre-tax)(3)
|
|
|
(6 |
) |
|
|
(1 |
) |
|
|
— |
|
|
Tax impact of above(4)
|
|
|
— |
|
|
|
(16 |
) |
|
|
7 |
|
|
Accounting correction for income taxes(5)
|
|
|
3 |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
Net (loss), as restated
|
|
$ |
(1,536 |
) |
|
$ |
(1,229 |
) |
|
$ |
(379 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
| (1) |
Represents corrections to record freight costs incurred for
services provided that were not properly accrued in the period
such services were performed. The impact of the correction of
these errors increased net loss by approximately $8 million
($0.06 per share), $24 million
($0.19 per share) and $5 million
($0.04 per share) for the years ended
December 31, 2004, 2003 and 2002, respectively. |
| |
| (2) |
Represents corrections to record raw material cost increases
that were not properly accrued in the period such increases were
incurred. The impact of the correction of these errors increased
net loss by approximately $26 million ($0.21 per
share) for the year ended December 31, 2004, reduced
net loss by approximately $3 million
($0.02 per share) for the year ended
December 31, 2003 and increased net loss by
approximately $6 million ($0.05 per share) for
the year ended December 31, 2002. |
| |
| (3) |
Represents corrections to record other supplier costs that
should have been accrued in periods prior to
December 31, 2004. The impact of the correction of
these errors increased net loss by approximately $6 million
($0.05 per share) and $1 million
($0.01 per share), for the years ended
December 31, 2004 and 2003, respectively and had no
impact on net loss for the year ended
December 31, 2002. |
| |
| (4) |
Represents the deferred tax impact of the pre-tax accounting
corrections described above. The 2003 amount includes an
additional $18 million of tax expense to adjust the
deferred tax valuation allowance in the fourth quarter of 2003
for the cumulative impact on deferred tax assets of pre-tax
accounting corrections. |
| |
| (5) |
Represents a correction for income taxes related to various
foreign affiliates that should have been recognized in 2004. The
impact of this correction reduced net loss by approximately
$3 million ($0.02 per share) for the year ended
December 31, 2004. |
71
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
|
|
| NOTE 2. |
Restatement of Financial
Statements — (Continued) |
The following is a summary of the impact of these accounting
corrections on Visteon’s consolidated statement of
operations, consolidated balance sheet and consolidated
statement of cash flows as previously reported in the 2004
Annual Report on Form 10-K as filed on March 16, 2005.
CONSOLIDATED STATEMENT OF OPERATIONS
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
As | |
|
|
|
As | |
|
|
|
As | |
|
|
| |
|
Previously | |
|
As | |
|
Previously | |
|
As | |
|
Previously | |
|
As | |
| |
|
Reported | |
|
Restated | |
|
Reported | |
|
Restated | |
|
Reported | |
|
Restated | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(in millions, except per share amounts) | |
|
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford and affiliates
|
|
$ |
13,015 |
|
|
$ |
13,015 |
|
|
$ |
13,475 |
|
|
$ |
13,475 |
|
|
$ |
14,779 |
|
|
$ |
14,779 |
|
|
Other customers
|
|
|
5,642 |
|
|
|
5,642 |
|
|
|
4,185 |
|
|
|
4,185 |
|
|
|
3,616 |
|
|
|
3,616 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Total sales
|
|
|
18,657 |
|
|
|
18,657 |
|
|
|
17,660 |
|
|
|
17,660 |
|
|
|
18,395 |
|
|
|
18,395 |
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Costs of sales
|
|
|
18,111 |
|
|
|
18,151 |
|
|
|
17,818 |
|
|
|
17,824 |
|
|
|
17,608 |
|
|
|
17,626 |
|
| |
Selling, administrative and other expenses
|
|
|
994 |
|
|
|
994 |
|
|
|
1,008 |
|
|
|
1,008 |
|
|
|
893 |
|
|
|
893 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Total costs and expenses
|
|
|
19,105 |
|
|
|
19,145 |
|
|
|
18,826 |
|
|
|
18,832 |
|
|
|
18,501 |
|
|
|
18,519 |
|
|
Operating (loss)
|
|
|
(448 |
) |
|
|
(488 |
) |
|
|
(1,166 |
) |
|
|
(1,172 |
) |
|
|
(106 |
) |
|
|
(124 |
) |
|
Interest income
|
|
|
19 |
|
|
|
19 |
|
|
|
17 |
|
|
|
17 |
|
|
|
23 |
|
|
|
23 |
|
|
Debt extinguishment costs
|
|
|
11 |
|
|
|
11 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Interest expense
|
|
|
104 |
|
|
|
104 |
|
|
|
94 |
|
|
|
94 |
|
|
|
103 |
|
|
|
103 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Net interest expense
|
|
|
(96 |
) |
|
|
(96 |
) |
|
|
(77 |
) |
|
|
(77 |
) |
|
|
(80 |
) |
|
|
(80 |
) |
|
Equity in net income of affiliated companies
|
|
|
45 |
|
|
|
45 |
|
|
|
55 |
|
|
|
55 |
|
|
|
44 |
|
|
|
44 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) before income taxes, minority interests and change in
accounting
|
|
|
(499 |
) |
|
|
(539 |
) |
|
|
(1,188 |
) |
|
|
(1,194 |
) |
|
|
(142 |
) |
|
|
(160 |
) |
|
Provision (benefit) for income taxes
|
|
|
965 |
|
|
|
962 |
|
|
|
(10 |
) |
|
|
6 |
|
|
|
(67 |
) |
|
|
(74 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) before minority interests and change in accounting
|
|
|
(1,464 |
) |
|
|
(1,501 |
) |
|
|
(1,178 |
) |
|
|
(1,200 |
) |
|
|
(75 |
) |
|
|
(86 |
) |
| |
Minority interest in net income of subsidiaries
|
|
|
35 |
|
|
|
35 |
|
|
|
29 |
|
|
|
29 |
|
|
|
28 |
|
|
|
28 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) before change in accounting
|
|
|
(1,499 |
) |
|
|
(1,536 |
) |
|
|
(1,207 |
) |
|
|
(1,229 |
) |
|
|
(103 |
) |
|
|
(114 |
) |
|
Cumulative effect of change in accounting, net of tax
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(265 |
) |
|
|
(265 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss)
|
|
$ |
(1,499 |
) |
|
$ |
(1,536 |
) |
|
$ |
(1,207 |
) |
|
$ |
(1,229 |
) |
|
$ |
(368 |
) |
|
$ |
(379 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Before cumulative effect of change in accounting
|
|
$ |
(11.96 |
) |
|
$ |
(12.26 |
) |
|
$ |
(9.59 |
) |
|
$ |
(9.77 |
) |
|
$ |
(0.81 |
) |
|
$ |
(0.90 |
) |
| |
Cumulative effect of change in accounting
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2.07 |
) |
|
|
(2.07 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Basic and diluted
|
|
$ |
(11.96 |
) |
|
$ |
(12.26 |
) |
|
$ |
(9.59 |
) |
|
$ |
(9.77 |
) |
|
$ |
(2.88 |
) |
|
$ |
(2.97 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
|
|
| NOTE 2. |
Restatement of Financial
Statements — (Continued) |
CONSOLIDATED BALANCE SHEET
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
|
December 31, | |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
As | |
|
|
|
As | |
|
|
| |
|
Previously | |
|
As | |
|
Previously | |
|
As | |
| |
|
Reported | |
|
Restated | |
|
Reported | |
|
Restated | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(in millions) | |
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
752 |
|
|
$ |
752 |
|
|
$ |
953 |
|
|
$ |
953 |
|
|
Marketable securities
|
|
|
— |
|
|
|
— |
|
|
|
3 |
|
|
|
3 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total cash and marketable securities
|
|
|
752 |
|
|
|
752 |
|
|
|
956 |
|
|
|
956 |
|
|
Accounts receivable – Ford and affiliates
|
|
|
1,255 |
|
|
|
1,255 |
|
|
|
1,175 |
|
|
|
1,175 |
|
|
Accounts receivable – other customers
|
|
|
1,285 |
|
|
|
1,285 |
|
|
|
1,185 |
|
|
|
1,185 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total receivables
|
|
|
2,540 |
|
|
|
2,540 |
|
|
|
2,360 |
|
|
|
2,360 |
|
|
Inventories
|
|
|
889 |
|
|
|
889 |
|
|
|
852 |
|
|
|
852 |
|
|
Deferred income taxes
|
|
|
51 |
|
|
|
37 |
|
|
|
163 |
|
|
|
163 |
|
|
Prepaid expenses and other current assets
|
|
|
212 |
|
|
|
212 |
|
|
|
143 |
|
|
|
143 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total current assets
|
|
|
4,444 |
|
|
|
4,430 |
|
|
|
4,474 |
|
|
|
4,474 |
|
|
Equity in net assets of affiliated companies
|
|
|
227 |
|
|
|
227 |
|
|
|
215 |
|
|
|
215 |
|
|
Net property
|
|
|
5,303 |
|
|
|
5,303 |
|
|
|
5,365 |
|
|
|
5,365 |
|
|
Deferred income taxes
|
|
|
132 |
|
|
|
129 |
|
|
|
700 |
|
|
|
700 |
|
|
Other assets
|
|
|
203 |
|
|
|
203 |
|
|
|
270 |
|
|
|
270 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total assets
|
|
$ |
10,309 |
|
|
$ |
10,292 |
|
|
$ |
11,024 |
|
|
$ |
11,024 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade payables
|
|
$ |
2,403 |
|
|
$ |
2,493 |
|
|
$ |
2,270 |
|
|
$ |
2,320 |
|
|
Accrued liabilities
|
|
|
894 |
|
|
|
894 |
|
|
|
930 |
|
|
|
930 |
|
|
Income taxes payable
|
|
|
38 |
|
|
|
27 |
|
|
|
31 |
|
|
|
31 |
|
|
Debt payable within one year
|
|
|
508 |
|
|
|
508 |
|
|
|
351 |
|
|
|
351 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total current liabilities
|
|
|
3,843 |
|
|
|
3,922 |
|
|
|
3,582 |
|
|
|
3,632 |
|
|
Long-term debt
|
|
|
1,513 |
|
|
|
1,513 |
|
|
|
1,467 |
|
|
|
1,467 |
|
|
Postretirement benefits other than pensions
|
|
|
639 |
|
|
|
639 |
|
|
|
515 |
|
|
|
515 |
|
|
Postretirement benefits payable to Ford
|
|
|
2,135 |
|
|
|
2,135 |
|
|
|
2,090 |
|
|
|
2,090 |
|
|
Deferred income taxes
|
|
|
296 |
|
|
|
287 |
|
|
|
3 |
|
|
|
3 |
|
|
Other liabilities
|
|
|
1,476 |
|
|
|
1,476 |
|
|
|
1,505 |
|
|
|
1,505 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total liabilities
|
|
|
9,902 |
|
|
|
9,972 |
|
|
|
9,162 |
|
|
|
9,212 |
|
|
Stockholders’ equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital stock
|
|
|
131 |
|
|
|
131 |
|
|
|
131 |
|
|
|
131 |
|
|
Capital in excess of par value of stock
|
|
|
3,380 |
|
|
|
3,380 |
|
|
|
3,358 |
|
|
|
3,358 |
|
|
Accumulated other comprehensive (loss)
|
|
|
5 |
|
|
|
5 |
|
|
|
(54 |
) |
|
|
(54 |
) |
|
Other
|
|
|
(26 |
) |
|
|
(26 |
) |
|
|
(19 |
) |
|
|
(19 |
) |
|
Accumulated deficit
|
|
|
(3,083 |
) |
|
|
(3,170 |
) |
|
|
(1,554 |
) |
|
|
(1,604 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total stockholders’ equity
|
|
|
407 |
|
|
|
320 |
|
|
|
1,862 |
|
|
|
1,812 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total liabilities and stockholders’ equity
|
|
$ |
10,309 |
|
|
$ |
10,292 |
|
|
$ |
11,024 |
|
|
$ |
11,024 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
73
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
|
|
| NOTE 2. |
Restatement of Financial
Statements — (Continued) |
CONSOLIDATED STATEMENT OF CASH FLOWS
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
As | |
|
|
|
As | |
|
|
|
As | |
|
|
| |
|
Previously | |
|
As | |
|
Previously | |
|
As | |
|
Previously | |
|
As | |
| |
|
Reported | |
|
Restated | |
|
Reported | |
|
Restated | |
|
Reported | |
|
Restated | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(in millions) | |
|
Cash and cash equivalents at January 1
|
|
$ |
953 |
|
|
$ |
953 |
|
|
$ |
1,204 |
|
|
$ |
1,204 |
|
|
$ |
1,024 |
|
|
$ |
1,024 |
|
|
Cash flows provided by operating activities
|
|
|
418 |
|
|
|
418 |
|
|
|
363 |
|
|
|
363 |
|
|
|
1,103 |
|
|
|
1,103 |
|
|
Cash flows used in investing activities
|
|
|
(782 |
) |
|
|
(782 |
) |
|
|
(781 |
) |
|
|
(781 |
) |
|
|
(609 |
) |
|
|
(609 |
) |
|
Cash flows provided by (used in) financing activities
|
|
|
135 |
|
|
|
135 |
|
|
|
128 |
|
|
|
128 |
|
|
|
(338 |
) |
|
|
(338 |
) |
|
Effect of exchange rate changes in cash
|
|
|
28 |
|
|
|
28 |
|
|
|
39 |
|
|
|
39 |
|
|
|
24 |
|
|
|
24 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(201 |
) |
|
|
(201 |
) |
|
|
(251 |
) |
|
|
(251 |
) |
|
|
180 |
|
|
|
180 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at December 31
|
|
$ |
752 |
|
|
$ |
752 |
|
|
$ |
953 |
|
|
$ |
953 |
|
|
$ |
1,204 |
|
|
$ |
1,204 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Refer to Note 21 for a summary of the impact of the
restatement on the 2004 and 2003 quarterly information. In
addition, certain amounts in Notes 3, 7, 12, 16, 18
and 20 have been restated to reflect the restatement accounting
corrections described above.
Refer to Note 17 for detail regarding the 2004 change
in the method of determining the cost of production inventory
for U.S. locations from the last-in, first-out
(“LIFO”) to the first-in, first-out (“FIFO”)
method.
|
|
| NOTE 3. |
Accounting Policies |
Principles of Consolidation
The consolidated financial statements include the accounts of
the company and its majority-owned subsidiaries and certain
variable interest entities discussed below. Companies that are
20% to 50% owned by Visteon, other than those variable interest
entities discussed below, are accounted for on an equity basis.
Intra-Visteon transactions have been eliminated in consolidation.
74
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
|
|
| NOTE 3. |
Accounting Policies — (Continued) |
Variable Interest Entities
In December 2003, the FASB issued revised Interpretation
No. 46 (“FIN 46-R”) “Consolidation of
Variable Interest Entities.” Until this interpretation, a
company generally included another entity in its consolidated
financial statements only if it controlled the entity through
voting interests. FIN 46-R requires a variable interest
entity to be consolidated by a company if that company is
subject to a majority of the risk of loss from the variable
interest entity’s activities or entitled to receive a
majority of the entity’s residual returns. Application of
FIN 46-R was required during the fourth quarter of 2003 for
interests in structures that are commonly referred to as
special-purpose entities and for all other types of variable
interest entities in the first quarter of 2004. The effect of
applying the consolidation provisions of FIN 46-R on
Visteon’s results of operations or financial position as of
December 31, 2004 was not significant.
From June 30, 2002, a variable interest entity owned by an
affiliate of a bank is included in Visteon’s consolidated
financial statements. This entity was established in early 2002
to build a leased facility for Visteon to centralize customer
support functions, research and development and administrative
operations. Construction of the facility was substantially
completed in 2004. As of December 31, 2004, this
variable interest entity has total assets of $241 million
and total liabilities of $255 million.
As a result of the application of FIN 46-R, from
January 1, 2004, the consolidated financial statements
include the accounts of Lextron-Visteon Automotive Systems, LLC
and MIG-Visteon Automotive Systems, LLC, both joint ventures 49%
owned by Visteon or its subsidiaries, that supply integrated
cockpit modules and other modules and systems to Nissan.
Consolidation of these entities was based on an assessment of
the amount of equity investment at risk, the subordinated
financial support provided by Visteon, and that Visteon supplies
the joint ventures’ inventory. The effect of consolidation
on Visteon’s results of operations or financial position as
of December 31, 2004 was not significant as
substantially all of the joint ventures’ liabilities and
costs are related to activity with Visteon. As of
December 31, 2004, these variable interest entities
have total assets of $81 million and total liabilities of
$91 million.
Vitro Flex, S.A. de C.V., a Mexican corporation, is a joint
venture 38% owned by Visteon or its subsidiaries, since
spin-off. Vitro Flex manufactures and supplies tempered and
laminated glass for use in automotive vehicles. Vitro Flex is
considered a variable interest entity under FIN 46-R,
however Visteon is not the primary beneficiary of this entity
and does not consolidate this entity. In addition to
Visteon’s equity investment of about $20 million at
December 31, 2004, Visteon’s maximum exposure
would include costs that would be incurred if Visteon failed to
provide, though 2008, sales orders and/or other
competitively-priced business opportunities meeting certain
average annual levels (currently about $71 million on an
annual basis), mainly based on the venture’s manufacturing
capacity. As of December 31, 2004, total assets of
this joint venture were about $85 million.
75
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
|
|
| NOTE 3. |
Accounting Policies — (Continued) |
Revenue Recognition
Sales are recognized when there is evidence of a sales
agreement, the delivery of goods has occurred, the sales price
is fixed or determinable and collectibility is reasonably
assured, generally upon shipment of product to customers and
transfer of title under standard commercial terms. Significant
retroactive price adjustments are recognized in the period when
such amounts become probable. Sales are recognized based on the
gross amount billed to a customer for those products in which
Visteon’s customer has directed the sourcing of certain raw
materials or components used in the manufacture of the final
product.
Guarantees and Product Warranty
In November 2002, the FASB issued Interpretation No. 45
(“FIN 45”), “Guarantor’s Accounting and
Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others.” FIN 45
clarifies that at the time a company issues a guarantee, the
company must recognize an initial liability for the fair value,
or market value, of the obligations it assumes under that
guarantee. Financial guarantees are further described in
Note 10 of our consolidated financial statements.
Visteon accrues for warranty obligations for products sold based
on management estimates, with support from our sales,
engineering, quality and legal activities, of the amount that
eventually will be required to settle such obligations. This
accrual, which is reviewed in detail on a regular basis, is
based on several factors, including contractual arrangements,
past experience, current claims, production changes, industry
developments and various other considerations. The following
table presents a reconciliation of changes in the product
warranty claims liability for the selected periods:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(in millions) | |
|
Beginning balance
|
|
$ |
22 |
|
|
$ |
17 |
|
|
$ |
20 |
|
|
Accruals for products shipped
|
|
|
33 |
|
|
|
25 |
|
|
|
16 |
|
|
Accruals for pre-existing warranties (including changes in
estimates)
|
|
|
14 |
|
|
|
(3 |
) |
|
|
— |
|
|
Settlements
|
|
|
(28 |
) |
|
|
(17 |
) |
|
|
(19 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$ |
41 |
|
|
$ |
22 |
|
|
$ |
17 |
|
| |
|
|
|
|
|
|
|
|
|
Visteon enters into agreements that contain indemnification
provisions in the normal course of business for which the risks
are considered nominal and impracticable to estimate.
Product Recalls
Visteon accrues for product recall claims related to potential
financial participation in customers’ actions to provide
remedies related primarily to safety concerns as a result of
actual or threatened regulatory or court actions or
Visteon’s determination of the potential for such actions.
Visteon accrues for recall claims for products sold based on
management estimates, with support from our sales, engineering,
quality and legal activities, of the amount that eventually will
be required to settle such claims. This accrual, which is
reviewed in detail on a regular basis, is based on several
factors, including contractual arrangements, past experience,
current claims, industry developments and various other
considerations. Costs of Sales in the third quarter of 2004 were
reduced by $49 million related to an adjustment made to
product recall accruals as a result of settling a product recall
claim.
76
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
|
|
| NOTE 3. |
Accounting Policies — (Continued) |
Other Costs
Advertising and sales promotion costs are expensed as incurred.
Advertising costs were $13 million in 2004,
$15 million in 2003 and $17 million in 2002.
Research and development costs are expensed as incurred and were
$896 million in 2004, $913 million in 2003 and
$911 million in 2002.
Pre-production design and development costs that are
non-reimbursable relating to long-term supply arrangements are
expensed as incurred.
Related Party Transaction
A member of Visteon’s Board of Directors was the Chief
Executive Officer of a supplier of contract staffing services to
Visteon. Visteon’s payments to this supplier were
approximately $81 million and $115 million in 2003 and
2002, respectively. This individual ceased to be an employee or
officer of this supplier in December 2003.
(Loss) Per Share of Common Stock
Basic (loss) per share of common stock is calculated by dividing
net (loss) by the average number of shares of common stock
outstanding during the applicable period, adjusted for
restricted stock. The calculation of diluted (loss) per share
takes into account the effect of dilutive potential common
stock, such as stock options, and contingently returnable
shares, such as restricted stock. Basic and diluted (loss) per
share were calculated using the following numbers of shares:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(average shares in millions) | |
|
Common shares outstanding
|
|
|
129.6 |
|
|
|
130.4 |
|
|
|
130.3 |
|
|
Less: Restricted stock outstanding
|
|
|
(4.3 |
) |
|
|
(4.6 |
) |
|
|
(2.6 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
Basic shares
|
|
|
125.3 |
|
|
|
125.8 |
|
|
|
127.7 |
|
|
Net dilutive effect of restricted stock and stock options
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
Diluted shares
|
|
|
125.3 |
|
|
|
125.8 |
|
|
|
127.7 |
|
| |
|
|
|
|
|
|
|
|
|
For 2004, 2003 and 2002, potential common stock of about
3,145,000 shares, 1,020,000 shares and
606,000 shares, respectively, are excluded from the
calculation of diluted (loss) per share because the effect of
including them would have been antidilutive due to the losses
incurred during those periods. In addition, options to
purchase 8,730,000 shares of common stock at exercise
prices ranging from $10 per share to $22 per share
were outstanding for 2004 but were not included in the
computation of diluted (loss) per share because the
options’ exercise price was greater than the average market
price of the common shares. The options expire at various dates
between 2009 and 2012.
77
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
|
|
| NOTE 3. |
Accounting Policies — (Continued) |
Derivative Financial Instruments
Visteon has operations in every major region of the world and is
exposed to a variety of market risks, including the effects of
changes in foreign currency exchange rates, interest rates and
commodity prices. These financial exposures are monitored by
Visteon as an integral part of the overall risk management
program, which recognizes the unpredictability of financial
markets and seeks to reduce the potentially adverse effect on
the company’s results. The company uses derivative
financial instruments, including forward contracts, swaps and
options, to manage the exposures in exchange rates, interest
rates and commodity prices. All derivative financial instruments
are classified as “held for purposes other than
trading.” Visteon policy specifically prohibits the use of
leveraged derivatives or use of any derivatives for speculative
purposes.
Visteon’s primary foreign currency exposures, in terms of
net corporate exposure, are in the Mexican peso, euro, Canadian
dollar, and Czech Koruna. Visteon uses derivative instruments to
hedge expected future cash flows in foreign currencies and firm
commitments. Visteon has entered into interest rate swaps to
manage its interest rate risk. As a result of these swaps,
approximately 45% of Visteon’s borrowings at
December 31, 2004 are on a fixed rate basis, with the
balance on a variable rate basis, subject to changes in
short-term interest rates. Visteon’s primary
commodity-price exposures are steel, plastic resins, aluminum,
copper and natural gas, which are managed largely through
negotiations with suppliers and customers, and in part through
derivative financial instruments and negotiations with suppliers
and customers.
The criteria used to determine whether hedge accounting
treatment is appropriate are the designation of the hedge to an
underlying exposure, reduction of overall risk and correlation
between the changes in the value of the derivative instrument
and the underlying exposure. Gains and losses on cash flow
hedges initially are reported as a component of other
comprehensive income (outside earnings) and subsequently
reclassified into earnings when the forecasted transaction
affects earnings. Gains and losses on interest rate swaps (fair
value hedges) are recorded in long-term debt (see Note 15
of our consolidated financial statements). All other derivative
gains and losses are recognized in costs of sales. Except for
interest rate swaps, these derivatives usually mature in two
years or less, consistent with the underlying transactions. The
effect of changes in exchange rates, interest rates and
commodity prices are not fully offset by gains or losses on
derivatives, because Visteon’s exposure to these changes
are not fully hedged.
Foreign Currency Translation
Assets and liabilities of Visteon’s
non-U.S. businesses generally are translated to
U.S. Dollars at end-of-period exchange rates. The effects
of this translation for Visteon are reported in other
comprehensive income. Remeasurement of assets and liabilities of
Visteon’s non-U.S. businesses that use the
U.S. Dollar as their functional currency are included in
income as transaction gains and losses. Income statement
elements of Visteon’s non-U.S. businesses are
translated to U.S. Dollars at average-period exchange rates
and are recognized as part of sales, costs and expenses. Also
included in income are gains and losses arising from
transactions denominated in a currency other than the functional
currency of the business involved. In addition, transaction
losses of $4 million in 2004 resulting from the
remeasurement of certain deferred foreign tax liabilities are
included within income tax expense. Net transaction gains and
losses, as described above, decreased net loss $11 million
in 2004 and increased net loss $26 million and
$14 million in 2003 and 2002, respectively.
78
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
|
|
| NOTE 3. |
Accounting Policies — (Continued) |
Cash and Cash Equivalents
Visteon considers all highly liquid investments purchased with a
maturity of three months or less, including short-term time
deposits and government agency and corporate obligations, to be
cash equivalents.
Marketable Securities
Marketable securities are classified as available-for-sale. The
fair value of substantially all securities is determined by
quoted market prices. The estimated fair value of securities,
for which there are no quoted market prices, is based on similar
types of securities that are traded in the market. Book value
approximates fair value for all securities.
Accounts Receivable
The allowance for doubtful accounts was $44 million and
$35 million at December 31, 2004 and 2003,
respectively. The allowance for doubtful accounts is determined
considering factors such as length of time accounts are past
due, historical experience of write-offs, and our
customers’ financial condition. Accounts receivable are
written-off when they become uncollectible. Unbilled receivables
related to production tools in progress, which will not be owned
by Visteon and for which there is an agreement for contractual
reimbursement, were about $135 million and
$215 million at December 31, 2004 and 2003,
respectively.
Inventories
Inventories are stated at the lower of cost, determined on a
first-in, first-out (“FIFO”) basis, or market.
Investments in Affiliates
The following table presents summarized financial data for those
affiliates accounted for under the equity method, including
YanFeng Visteon Automotive Trim Systems Co., Ltd. in which
Visteon has a 50% ownership interest. The amounts represent 100%
of the assets, liabilities, equity and results of operations of
these affiliates. Our share of their net assets and net income
is reported in the lines “Equity in net assets of
affiliated companies” on the Consolidated Balance Sheet and
“Equity in net income of affiliated companies” on the
Consolidated Statement of Operations.
| |
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
(in millions) | |
|
Current assets
|
|
$ |
485 |
|
|
$ |
571 |
|
|
Other assets
|
|
|
391 |
|
|
|
345 |
|
| |
|
|
|
|
|
|
| |
Total assets
|
|
$ |
876 |
|
|
$ |
916 |
|
| |
|
|
|
|
|
|
|
Current liabilities
|
|
$ |
354 |
|
|
$ |
328 |
|
|
Other liabilities
|
|
|
64 |
|
|
|
85 |
|
|
Stockholders’ equity
|
|
|
458 |
|
|
|
503 |
|
| |
|
|
|
|
|
|
| |
Total liabilities and stockholders’ equity
|
|
$ |
876 |
|
|
$ |
916 |
|
| |
|
|
|
|
|
|
79
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
|
|
| NOTE 3. |
Accounting Policies — (Continued) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(in millions) | |
|
Net sales
|
|
$ |
1,426 |
|
|
$ |
1,462 |
|
|
$ |
973 |
|
|
Gross profit
|
|
|
252 |
|
|
|
368 |
|
|
|
217 |
|
|
Net income
|
|
|
90 |
|
|
|
111 |
|
|
|
93 |
|
Included in Visteon’s accumulated deficit are undistributed
earnings of affiliates accounted for under the equity method,
which are estimated to be about $150 million at
December 31, 2004. Visteon’s ability to move cash
among unconsolidated and consolidated operating locations is
subject to the operating needs of each location as well as
restrictions imposed by local laws.
Capitalized Software Costs
Significant costs incurred in the acquisition or development of
software for internal use are capitalized. Costs incurred prior
to the final selection of software and costs not qualifying for
capitalization are charged to expense. Capitalized internal
software costs include primarily external direct costs and
payroll and payroll related costs. Capitalized software costs
are amortized using the straight-line method over estimated
useful lives generally ranging from 3 to 8 years. The
net book value of capitalized software costs was about
$114 million and $108 million at
December 31, 2004 and 2003, respectively. Related
amortization expense was about $38 million and
$39 million in 2004 and 2003, respectively.
Impairment of Long-Lived Assets and Certain Identifiable
Intangibles
Visteon evaluates long-lived assets to be held and used and
long-lived assets to be disposed of for potential impairment at
the product line level whenever events or changes in business
circumstances indicate that the carrying value of the assets may
not be fully recoverable or that the useful lives of these
assets are no longer appropriate. Visteon continues to assess
the recoverability of long-lived assets in light of the
challenging environment in which we operate and as part of our
business planning process. If conditions, including the results
of any discussions with Ford, indicate that any of these assets
are impaired, impairment charges will be required, although we
cannot predict the timing or range of amounts, if any, which may
result. Visteon considers projected future undiscounted cash
flows, trends and other circumstances in making such estimates
and evaluations. While we believe that our estimates of future
cash flows are reasonable, different assumptions regarding such
factors as future automotive production volumes (primarily for
Ford), selling price changes, labor cost changes, material cost
changes, productivity and other cost savings and capital
expenditures could significantly affect our evaluations. Asset
impairment charges recorded during 2004 and 2003 are discussed
further in Note 16 of our consolidated financial statements.
Goodwill
Visteon adopted Financial Accounting Standards No. 142
(“SFAS 142”), “Goodwill and Other Intangible
Assets,” effective January 1, 2002. SFAS 142
no longer permits amortization of goodwill and establishes a new
method of testing goodwill for impairment by using a fair-value
based approach. See Note 17 of our consolidated financial
statements for further description related to this accounting
change.
80
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
|
|
| NOTE 3. |
Accounting Policies — (Continued) |
Postemployment Benefits
Visteon accounts for certain severance benefits to former or
inactive employees after employment but before retirement when
it is probable that a liability has been incurred, and the
amount can be reasonably estimated.
Stock-Based Awards
In December 2004, the FASB issued Statement of Financial
Accounting Standards No. 123 (Revised 2004)
(“SFAS 123-R”), “Share-Based Payments.”
This revised statement requires the fair-value based method to
be used and eliminates the alternative use of the intrinsic
value method. Requirements of SFAS 123-R are effective as
of the beginning of the first annual interim period that begins
after June 15, 2005. Visteon does not expect the
requirements of SFAS 123-R to have a material effect on its
results of operations, as starting January 1, 2003,
Visteon began expensing the fair value of stock-based awards
granted to employees pursuant to the original provisions of
Statement of Financial Accounting Standards No. 123
(“SFAS 123”), “Accounting for Stock-Based
Compensation.” SFAS 123 was adopted on a prospective
method basis for stock-based awards granted, modified or settled
after December 31, 2002. For stock options and
restricted stock awards granted prior to
January 1, 2003, Visteon measures compensation cost
using the intrinsic value method. If compensation cost for all
stock-based awards had been determined based on the estimated
fair value of stock options and the fair value set at the date
of grant for restricted stock awards, in accordance with the
provisions of SFAS 123, Visteon’s reported net (loss)
and (loss) per share would have changed to the pro forma
amounts indicated below:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
Restated | |
|
Restated | |
|
Restated | |
| |
|
(in millions, except per share | |
| |
|
amounts) | |
|
Net (loss), as reported
|
|
$ |
(1,536 |
) |
|
$ |
(1,229 |
) |
|
$ |
(379 |
) |
|
Add: Stock-based employee compensation expense included in
reported net (loss), net of related tax effects
|
|
|
18 |
|
|
|
9 |
|
|
|
4 |
|
|
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards, net of
related tax effects
|
|
|
(27 |
) |
|
|
(18 |
) |
|
|
(15 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
Pro forma net (loss)
|
|
$ |
(1,545 |
) |
|
$ |
(1,238 |
) |
|
$ |
(390 |
) |
| |
|
|
|
|
|
|
|
|
|
|
(Loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic and diluted — as reported
|
|
$ |
(12.26 |
) |
|
$ |
(9.77 |
) |
|
$ |
(2.97 |
) |
| |
Basic and diluted — pro forma
|
|
$ |
(12.33 |
) |
|
$ |
(9.84 |
) |
|
$ |
(3.05 |
) |
81
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
|
|
| NOTE 3. |
Accounting Policies — (Continued) |
The following is a summary of the fair values and assumptions
used under a Black-Scholes option-pricing model for stock
options granted in 2004, 2003 and 2002:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Fair Values
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average fair value of stock options granted
|
|
$ |
3.32 |
|
|
$ |
2.34 |
|
|
$ |
6.27 |
|
|
Weighted Average Assumptions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free interest rate
|
|
|
4.1 |
% |
|
|
3.0 |
% |
|
|
4.8 |
% |
|
Expected life (years)
|
|
|
5.0 |
|
|
|
5.0 |
|
|
|
6.0 |
|
|
Volatility
|
|
|
40.8 |
% |
|
|
43.2 |
% |
|
|
51.6 |
% |
|
Dividend yield
|
|
|
2.6 |
% |
|
|
1.9 |
% |
|
|
1.8 |
% |
See Note 11 of our consolidated financial statements for
further information related to stock-based awards.
|
|
| NOTE 4. |
Asset Securitization |
United States
In the first quarter of 2004, Visteon established a revolving
accounts receivable securitization facility in the United States
(“facility agreement”). Under this facility agreement,
Visteon can sell a portion of its U.S. trade receivables
from customers other than Ford to Visteon Receivables LLC
(“VRL”), a wholly-owned consolidated special purpose
entity. VRL may then sell, on a non-recourse basis (subject to
certain limited exceptions), an undivided interest in the
receivables to an asset-backed, multi-seller commercial paper
conduit, which is unrelated to Visteon or VRL. The conduit
typically finances the purchases through the issuance of
commercial paper, with back-up purchase commitments from the
conduit’s financial institution. As of
December 31, 2004 the amount of undivided interests
that VRL could sell to the conduit was about $66 million.
The sale of the undivided interest in the receivables from VRL
to the conduit is accounted for as a sale under the provisions
of Statement of Financial Accounting Standards No. 140,
“Accounting for the Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities.” When VRL sells
an undivided interest to the conduit, VRL retains the remaining
undivided interest. The carrying value of the remaining
undivided interests approximates the fair market value of these
receivables. The value of the undivided interest sold to the
conduit is excluded from our consolidated balance sheet and
reduces our accounts receivable balance. Visteon continues to
perform the collection and administrative functions related to
the accounts receivable. The facility has been extended to
March 29, 2006 and can be extended annually through March
2008 based upon the mutual agreement of the parties.
Additionally, the agreement contains financial covenants similar
to our unsecured revolving credit facilities, and a mechanism
which considers changes in Visteon’s credit ratings in
determining the maximum amount of undivided interests that VRL
could sell to the conduit.
82
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
|
|
| NOTE 4. |
Asset Securitization — (Continued) |
At the time VRL sells the undivided interest to the conduit, the
sale is recorded at fair market value with the difference
between the carrying amount and fair value of the assets sold
included in operating income as a loss on sale. This difference
between carrying value and fair value is principally the
estimated discount inherent in the facility agreement, which
reflects the borrowing costs as well as fees and expenses of the
conduit, and the length of time the receivables are expected to
be outstanding. For the year ended December 31, 2004,
gross proceeds from new securitizations were $235 million;
collections and repayments to the conduit were
$180 million, resulting in net proceeds of
$55 million. The retained interest at
December 31, 2004 of $178 million is included in
Accounts receivable — other customers on the
Consolidated Balance Sheet. The loss on the sale of receivables
was about $1 million and customer delinquencies were less
than $1 million for 2004.
Europe
As of December 31, 2004 and 2003, Visteon has sold
euro 19 million ($26 million) and
euro 12 million ($15 million), respectively, of
trade receivables without recourse, under a European sale of
receivables agreement with a bank which is renewable on an
annual basis. This agreement currently provides for the sale of
up to euro 60 million in trade receivables until
March 31, 2006.
| |
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
(in millions) | |
|
Raw materials, work-in-process and supplies
|
|
$ |
621 |
|
|
$ |
573 |
|
|
Finished products
|
|
|
268 |
|
|
|
279 |
|
| |
|
|
|
|
|
|
| |
Total inventories
|
|
$ |
889 |
|
|
$ |
852 |
|
| |
|
|
|
|
|
|
During 2004, Visteon changed the method of determining the cost
of production inventory for U.S. inventories from the
last-in, first-out method to the first-in first-out method
described further in Note 17 of our consolidated financial
statements.
|
|
| NOTE 6. |
Net Property, Depreciation and Amortization |
| |
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
(in millions) | |
|
Land
|
|
$ |
160 |
|
|
$ |
122 |
|
|
Buildings and land improvements
|
|
|
1,898 |
|
|
|
1,549 |
|
|
Machinery, equipment and other
|
|
|
8,031 |
|
|
|
8,308 |
|
|
Construction in progress
|
|
|
303 |
|
|
|
428 |
|
| |
|
|
|
|
|
|
| |
Total land, plant and equipment
|
|
|
10,392 |
|
|
|
10,407 |
|
|
Accumulated depreciation
|
|
|
(5,368 |
) |
|
|
(5,398 |
) |
| |
|
|
|
|
|
|
| |
Net land, plant and equipment
|
|
|
5,024 |
|
|
|
5,009 |
|
|
Special tools, net of amortization
|
|
|
279 |
|
|
|
356 |
|
| |
|
|
|
|
|
|
|
Net property
|
|
$ |
5,303 |
|
|
$ |
5,365 |
|
| |
|
|
|
|
|
|
83
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
|
|
| NOTE 6. |
Net Property, Depreciation and
Amortization — (Continued) |
Property, equipment and special tools are depreciated
principally using the straight-line method of depreciation over
the estimated useful life of the asset. On average, buildings
and land improvements are depreciated based on a 30-year life;
machinery and equipment are depreciated based on a 14-year life.
Special tools are amortized using the straight-line method over
periods of time representing the estimated life of those tools,
with the majority of tools amortized over five years.
Depreciation and amortization expenses, which do not include
asset impairment charges, are summarized as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(in millions) | |
|
Depreciation
|
|
$ |
580 |
|
|
$ |
572 |
|
|
$ |
551 |
|
|
Amortization
|
|
|
105 |
|
|
|
105 |
|
|
|
82 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Total
|
|
$ |
685 |
|
|
$ |
677 |
|
|
$ |
633 |
|
| |
|
|
|
|
|
|
|
|
|
At December 31, 2004, Visteon had the following
minimum rental commitments under non-cancelable operating leases
(in millions): 2005 — $53; 2006 — $45;
2007 — $39; 2008 — $34; 2009 —
$30; thereafter — $70. Rent expense was
$92 million in 2004, $86 million in 2003 and
$90 million in 2002.
Maintenance, repairs and rearrangement costs are expensed as
incurred. Expenditures that increase the value or productive
capacity of assets are capitalized. Pre-production costs related
to new facilities are expensed as incurred.
Income (loss) before income taxes, minority interests and change
in accounting, excluding equity in net income of affiliated
companies, was as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
Restated | |
|
Restated | |
|
Restated | |
| |
|
(in millions) | |
|
U.S.
|
|
$ |
(755 |
) |
|
$ |
(1,205 |
) |
|
$ |
(153 |
) |
|
Non-U.S.
|
|
|
171 |
|
|
|
(44 |
) |
|
|
(51 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
Total income (loss) before income taxes
|
|
$ |
(584 |
) |
|
$ |
(1,249 |
) |
|
$ |
(204 |
) |
| |
|
|
|
|
|
|
|
|
|
84
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
|
|
| NOTE 7. |
Income Taxes — (Continued) |
The provision (benefit) for income taxes was calculated as
follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
Restated | |
|
Restated | |
|
Restated | |
| |
|
(in millions) | |
|
Current tax provision (benefit)
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
U.S. federal
|
|
$ |
(2 |
) |
|
$ |
— |
|
|
$ |
(1 |
) |
| |
Non-U.S.
|
|
|
91 |
|
|
|
89 |
|
|
|
76 |
|
| |
U.S. state and local
|
|
|
— |
|
|
|
1 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Total current
|
|
|
89 |
|
|
|
90 |
|
|
|
75 |
|
| |
|
|
|
|
|
|
|
|
|
|
Deferred tax provision (benefit)
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
U.S. federal
|
|
|
740 |
|
|
|
(280 |
) |
|
|
(71 |
) |
| |
Non-U.S.
|
|
|
71 |
|
|
|
216 |
|
|
|
(73 |
) |
| |
U.S. state and local
|
|
|
62 |
|
|
|
(20 |
) |
|
|
(5 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
Total deferred
|
|
|
873 |
|
|
|
(84 |
) |
|
|
(149 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
Total provision (benefit)
|
|
$ |
962 |
|
|
$ |
6 |
|
|
$ |
(74 |
)* |
| |
|
|
|
|
|
|
|
|
|
|
|
| * |
2002 excludes effect of change in accounting for goodwill. |
A reconciliation of the provision (benefit) for income taxes
compared with amounts at the U.S. statutory tax rate is
shown below:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
Restated | |
|
Restated | |
|
Restated | |
|
Tax provision (benefit) at U.S. statutory rate of 35%
|
|
|
(35 |
)% |
|
|
(35 |
)% |
|
|
(35 |
)% |
|
Effect of:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Foreign earnings taxed at different rates
|
|
|
(6 |
) |
|
|
— |
|
|
|
— |
|
| |
Residual U.S. and withholding taxes on foreign earnings
|
|
|
13 |
|
|
|
— |
|
|
|
— |
|
| |
State and local income taxes
|
|
|
(3 |
) |
|
|
(2 |
) |
|
|
(2 |
) |
| |
U.S. research tax credits
|
|
|
(6 |
) |
|
|
(1 |
) |
|
|
(5 |
) |
| |
Tax reserve adjustments
|
|
|
(14 |
) |
|
|
— |
|
|
|
— |
|
| |
Benefits related to U.S. exports
|
|
|
(2 |
) |
|
|
(1 |
) |
|
|
(4 |
) |
| |
Change in valuation allowance
|
|
|
220 |
|
|
|
37 |
|
|
|
10 |
|
| |
Other
|
|
|
(2 |
) |
|
|
3 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Provision (benefit) for income taxes
|
|
|
165 |
% |
|
|
1 |
% |
|
|
(36 |
)%* |
| |
|
|
|
|
|
|
|
|
|
|
|
| * |
2002 excludes effect of change in accounting for goodwill. |
Deferred income taxes are provided for temporary differences
between amounts of assets and liabilities for financial
reporting purposes and the basis of such assets and liabilities
as measured by tax laws and regulations, as well as net
operating loss, tax credit and other carryforwards.
Additionally, deferred taxes have been provided for the net
effect of repatriating earnings from consolidated foreign
subsidiaries. U.S. Statement of Financial Accounting
Standards No. 109 (“SFAS 109”),
“Accounting for Income Taxes,” requires that deferred
tax assets be reduced by a valuation allowance if, based on all
available evidence, it is considered more likely than not that
some portion or all of the recorded deferred tax assets will not
be realized in future periods.
85
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
|
|
| NOTE 7. |
Income Taxes — (Continued) |
The components of deferred income tax assets and liabilities at
December 31 were as follows:
| |
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
Restated | |
|
Restated | |
| |
|
(in millions) | |
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
| |
Employee benefit plans
|
|
$ |
1,249 |
|
|
$ |
1,197 |
|
| |
Capitalized expenditures for tax reporting
|
|
|
276 |
|
|
|
319 |
|
| |
Net operating losses and carryforwards
|
|
|
721 |
|
|
|
281 |
|
| |
All other
|
|
|
451 |
|
|
|
364 |
|
| |
|
|
|
|
|
|
| |
|
Subtotal
|
|
|
2,697 |
|
|
|
2,161 |
|
| |
Valuation allowance
|
|
|
(1,949 |
) |
|
|
(508 |
) |
| |
|
|
|
|
|
|
| |
|
Total deferred tax assets
|
|
|
748 |
|
|
|
1,653 |
|
| |
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
| |
Depreciation and amortization
|
|
|
476 |
|
|
|
590 |
|
| |
All other
|
|
|
405 |
|
|
|
203 |
|
| |
|
|
|
|
|
|
| |
|
Total deferred tax liabilities
|
|
|
881 |
|
|
|
793 |
|
| |
|
|
|
|
|
|
|
Net deferred tax (liabilities) assets
|
|
$ |
(133 |
) |
|
$ |
860 |
|
| |
|
|
|
|
|
|
The anticipated tax benefit of non-U.S. net operating loss
and other carryforwards is $354 million at
December 31, 2004. These losses have carryforward
periods ranging from 5 years to indefinite. The anticipated
tax benefit of U.S. net operating loss and capital loss
carryforwards is $108 million at
December 31, 2004. These losses will begin to expire
in 2009. U.S. foreign tax credit carryforwards are
$155 million at December 31, 2004. These credits
will begin to expire in 2011. U.S. research tax credits
carryforwards are $104 million at
December 31, 2004. These credits will begin to expire
in 2020.
During the third quarter of 2004, Visteon recorded a non-cash
charge of $871 million to establish full valuation
allowances against our net deferred tax assets in the U.S. and
certain foreign countries. This charge was comprised of
$948 million of deferred tax assets as of the beginning of
the year, offset partially by the reduction of related tax
reserves, previously included in other liabilities, of
$77 million. Visteon’s provision for income taxes for
2004 includes a benefit of $42 million recorded in the
fourth quarter to reduce our deferred tax asset valuation
allowance to offset a related reduction in our net deferred tax
asset. This reduction in our net deferred tax asset was the
result of certain U.S. tax adjustments related primarily to
foreign currency movements that were recorded through other
comprehensive income during the fourth quarter. In addition,
Visteon’s provision for income taxes for 2004 includes
$133 million of income tax expense primarily related to
foreign countries whose results continue to be tax-effected due
to their ongoing profitability. As of the end of 2004, valuation
allowances totaling $1,949 million have been recorded
against Visteon’s deferred tax assets. Of this amount,
$1,602 million relates to Visteon’s deferred tax
assets in the U.S., including amounts related to foreign
affiliates that are treated as pass-through entities for
U.S. tax purposes, and $347 million relates to net
operating loss carryforwards and other deferred tax assets in
certain foreign jurisdictions, where recovery of the
carryforwards or assets is unlikely.
86
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
|
|
| NOTE 7. |
Income Taxes — (Continued) |
In assessing the need for additional valuation allowances during
the third quarter of 2004, Visteon considered the impact on our
2004 operating results from Ford’s lower than expected
North American production estimates for the fourth quarter and
full year 2004, as well as increased steel and fuel costs, which
Visteon has not been able to recover fully, and delays in the
benefits that were expected to be achieved from labor
strategies, such as flowbacks and plant-level operating
agreements. In light of these developments, Visteon determined
that it would likely not achieve its forecast of 2004 taxable
earnings in the U.S. Visteon concluded, in light of this
negative evidence and the uncertainty as to the timing of when
it would be able to generate the necessary level of
U.S. taxable earnings to recover its net deferred tax
assets in the U.S., that a full valuation allowance against
these deferred tax assets was required in the third quarter of
2004. Additionally, we concluded that additional valuation
allowances were required for deferred tax assets in certain
other foreign countries where recoverability was also considered
uncertain. In reviewing our results for the fourth quarter of
2004 and forward-year outlook, we concluded that there were no
further changes to our previous assessments as to the
realizability of our deferred tax assets.
During the fourth quarter 2003, Visteon recorded a non-cash
charge of $449 million to establish partial valuation
allowances against our net deferred tax assets in the U.S. and
full valuation allowances for certain foreign countries as of
the end of 2003. As of December 31, 2003, a valuation
allowance totaling $508 million was recorded against
Visteon’s deferred tax assets. Of this amount,
$141 million relates to net operating loss carryforwards
and other deferred tax assets in certain foreign jurisdictions,
and $367 million relates to a portion of Visteon’s
U.S. deferred tax assets, including amounts related to
foreign affiliates that are treated as pass-through entities for
U.S. tax purposes, where recovery of the carryforwards or
assets is unlikely.
Going forward, the need to maintain valuation allowances against
deferred tax assets in the U.S. and other affected countries
will cause variability in Visteon’s effective tax rate.
Visteon will maintain full valuation allowances against our
deferred tax assets in the U.S. and applicable foreign
countries, which include the U.K. and Germany, until sufficient
positive evidence exists to reduce or eliminate them.
During the fourth quarter of 2004, two U.S. tax bills, the
Working Families Tax Relief Act of 2004 (“Relief Act”)
and the American Jobs Creation Act of 2004 (“Jobs
Act”), were signed into law. The Relief Act provides for
the retroactive extension of the Federal research tax credit to
December 31, 2005; the credit had expired on June 30,
2004. During the fourth quarter of 2004, Visteon adjusted its
income tax provision to reflect a full year’s research tax
credit. Because of the existence of deferred tax valuation
allowances in the U.S., however, there was no impact on
Visteon’s fourth quarter or full year 2004 income tax
provision. The Jobs Act provides a deduction for qualified
domestic production activities, which will be phased in from
2005 through 2010. In return, the Jobs Act provides for a
two-year phase-out, beginning in 2005, of the extra-territorial
income exclusion (“ETI”) for foreign sales that was
viewed to be inconsistent with international trade protocols by
the European Union. The Jobs Act also included a number of other
provisions, including an extension of the foreign tax credit
carryforward period, a temporary dividends-received deduction
for certain foreign dividends, alternative minimum tax reform,
and other foreign tax reform provisions designed to improve the
global competitiveness of U.S. companies. These provisions
had no impact on Visteon’s income tax expense for 2004, and
they are expected to have only a minimal impact in 2005, because
of the existence of deferred tax valuation allowances in the U.S.
87
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
Current Liabilities
Included in accrued liabilities at December 31 were the
following:
| |
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
(in millions) | |
|
Employee benefits, including pensions
|
|
$ |
341 |
|
|
$ |
386 |
|
|
Salaries, wages and employer taxes
|
|
|
120 |
|
|
|
104 |
|
|
Postretirement benefits other than pensions
|
|
|
83 |
|
|
|
73 |
|
|
Restructuring related (Note 16)
|
|
|
55 |
|
|
|
45 |
|
|
Interest
|
|
|
43 |
|
|
|
37 |
|
|
Other
|
|
|
252 |
|
|
|
285 |
|
| |
|
|
|
|
|
|
| |
Total accrued liabilities
|
|
$ |
894 |
|
|
$ |
930 |
|
| |
|
|
|
|
|
|
Noncurrent Liabilities
Included in other noncurrent liabilities at December 31
were the following:
| |
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
(in millions) | |
|
Employee benefits, including pensions
|
|
$ |
751 |
|
|
$ |
668 |
|
|
Minority interests in net assets of subsidiaries
|
|
|
209 |
|
|
|
156 |
|
|
Seating operations related payable to Ford (Note 16)
|
|
|
184 |
|
|
|
206 |
|
|
Other
|
|
|
332 |
|
|
|
475 |
|
| |
|
|
|
|
|
|
| |
Total other liabilities
|
|
$ |
1,476 |
|
|
$ |
1,505 |
|
| |
|
|
|
|
|
|
Other current and noncurrent liabilities include amounts related
to product warranty, product recall and accruals for taxes
related to prior years.
|
|
| NOTE 9. |
Employee Retirement Benefits |
Visteon Sponsored Plans
Employee Retirement Plans
In the U.S., Visteon hourly employees represented by the UAW and
other collective bargaining groups earn noncontributory benefits
based on employee service. Visteon U.S. salaried employees earn
similar noncontributory benefits as well as contributory
benefits related to pay and service. In accordance with the
separation agreements, Ford retained the past service
obligations for those transferred salaried employees who were
eligible to retire in 2000 as well as those whose combined age
and years of service was at least 60 at the date of the
separation from Ford. For all other transferred salaried
employees, Visteon assumed the pension obligations as well as
assets with a fair value at least equal to the related projected
benefit obligation at the date of the separation from Ford but
no less than the amount required to be transferred under
applicable laws and regulations. Certain of the
non-U.S. subsidiaries sponsor separate plans that provide
similar types of benefits to their employees. For these
non-U.S. plans, Visteon has assumed all plan benefit
obligations for Visteon employees as well as assets that
approximated the benefit obligations for funded plans at the
separation date.
88
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
|
|
| NOTE 9. |
Employee Retirement Benefits — (Continued) |
In general, Visteon’s plans are funded with the exception
of certain supplemental benefit plans for executives and a plan
in Germany. Visteon’s policy for funded plans is to
contribute annually, at a minimum, amounts required by
applicable law, regulation or union agreement.
Most U.S. salaried employees are eligible to participate in
a defined contribution plan (Visteon Investment Plan) by
contributing a portion of their compensation, which was
partially matched by Visteon. Matching contributions were
suspended effective January 1, 2002.
Postretirement Health Care and Life Insurance Benefits
In the U.S., Visteon has a financial obligation for the cost of
providing selected postretirement health care and life insurance
benefits to its employees under Visteon sponsored plans.
The Medicare Prescription Drug, Improvement and Modernization
Act of 2003 (“Medicare Act of 2003”) was signed into
law on December 8, 2003. This legislation provides for
a federal subsidy beginning in 2006 to sponsors of retiree
health care benefit plans that provide a benefit at least
actuarially equivalent to the benefit established by the law.
Visteon’s plans generally provide retiree drug benefits
that exceed the value of the benefit that will be provided by
Medicare Part D, and we have concluded that our plans are
actuarially equivalent, pending further definition of the
criteria used to determine equivalence. This subsidy reduced the
benefit obligation for Visteon plans by $87 million as of
March 31, 2004, and will be recognized through reduced
retiree health care expense over the related employee future
service lives, of which $12 million has been recognized as
of December 31, 2004.
Ford Sponsored Plans
Employee Retirement Plans
Visteon-assigned Ford-UAW employees (about 17,700 active
employees at December 31, 2004) participate in the
Ford-UAW Retirement Plan, sponsored by Ford. By agreement,
Visteon compensates Ford for the related pension expense. The
amount of compensation is disclosed in the table below on the
“expense for Visteon-assigned Ford-UAW and certain salaried
employees” line, and is calculated by Ford on a
SFAS 87 basis using Ford’s pension assumptions.
Postretirement Health Care and Life Insurance Benefits
In addition to pension, under the terms of the Hourly Employee
Assignment Agreement (the “Agreement”), Ford charges
Visteon for a portion of the cost of such retiree health care
and life insurance benefits that are provided by Ford to
Visteon-assigned Ford-UAW employees who retire after
July 1, 2000. The estimated cost for these benefits is
accrued over periods of employee service on an actuarially
determined basis. The amounts charged by Ford related to the
Visteon-assigned Ford-UAW employees are determined by
Ford’s actuaries, computed in accordance with Ford’s
SFAS 106 methodologies and actuarial assumptions, and are
included in the accompanying balance sheet as postretirement
benefits payable to Ford.
89
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
|
|
| NOTE 9. |
Employee Retirement Benefits — (Continued) |
During the fourth quarter of 2003, the Agreement was amended and
restated. Under the terms of the amended and restated agreement,
Ford agreed to assume responsibility for approximately
$1,646 million of amounts previously owed by Visteon to
Ford for postretirement health and life insurance benefits
earned by the Visteon-assigned Ford-UAW employees during the
period prior to the separation. Ford agreed also to assume
responsibility for future accretion on the $1,646 million
amount at the appropriate SFAS 106 discount rate (6.25% at
December 31, 2003). Visteon had previously recorded
the $1,646 million liability in accordance with the
original terms of the Agreement. Visteon continues to be
responsible to Ford for changes in this liability that result
from changes in actuarial assumptions, changes in salaries and
Visteon early retirement incentive plans.
In accordance with SFAS 15, “Accounting by Debtors and
Creditors for Troubled Debt Restructurings,” Visteon did
not record any immediate gain or loss relating to this amendment
because future accretion and contingently payable amounts with
respect to the restructured obligation are expected to exceed
the amount currently recorded by Visteon. The amounts ultimately
due are contingent upon future health and retirement benefit
costs to be charged to Visteon by Ford with respect to the
Visteon-assigned Ford-UAW employees. A portion of the yearly
expense charged by Ford will be offset as charged by the release
of the contingently payable amount ($1,138 million at
December 31, 2003) and the remainder will reduce
future accretion charges over the life of the obligation
($508 million at December 31, 2003).
Under the terms of the revised Agreements with Ford, Visteon is
required to fund a portion of actual costs of these benefits as
incurred by Ford for the Visteon-assigned Ford-UAW employees
through 2005 and certain salaried employees through 2010. In
addition, Visteon has agreed to contribute funds to a Voluntary
Employees’ Beneficiary Association (“VEBA”) trust
to fund postretirement health care and life insurance benefits
to be provided by Ford related to the post-spin service of
Visteon-assigned Ford-UAW hourly employees as well as many
transferred salaried employees. The required VEBA funding is
over a 44-year period beginning in 2006 for the Visteon-assigned
Ford-UAW hourly employees, and over a 39-year period beginning
in 2011 for those salaried employees. The annual funding
requirement during these periods will be determined based upon
amortization of the unfunded liabilities at the beginning of
each period, plus amortization of annual expense. Based upon
estimates of the unfunded liabilities and the related expense,
the first required annual payment to the VEBA will be about
$115 million (which includes about $35 million to
cover benefit payments) in 2006. In December 2000, Visteon
pre-funded a portion of this obligation by contributing
$25 million to a VEBA. The fair value of the VEBA assets as
of December 31, 2004 and 2003 was $24 million and
$28 million, respectively, and is included in other
non-current assets in the accompanying balance sheet.
90
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
|
|
| NOTE 9. |
Employee Retirement Benefits — (Continued) |
The benefit obligation and net amount recognized in the balance
sheet for the postretirement health care and life insurance
benefits payable to Ford relating to participation by the
Visteon-assigned Ford-UAW and certain salaried employees was as
follows:
| |
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
(in millions) | |
|
Obligation for benefits to Visteon-assigned Ford-UAW and
salaried employees
|
|
$ |
3,935 |
|
|
$ |
3,292 |
|
|
Reimbursable amount assumed by Ford
|
|
|
(1,701 |
) |
|
|
(1,646 |
) |
|
Unamortized losses/other associated with the obligation
|
|
|
(1,598 |
) |
|
|
(1,202 |
) |
|
Deferred amounts:
|
|
|
|
|
|
|
|
|
| |
Contingently payable
|
|
|
1,476 |
|
|
|
1,138 |
|
| |
To reduce future accretion
|
|
|
67 |
|
|
|
508 |
|
| |
|
|
|
|
|
|
| |
|
Postretirement benefits payable to Ford
|
|
$ |
2,179 |
|
|
$ |
2,090 |
|
| |
|
|
|
|
|
|
Visteon recognizes postretirement benefit expense based on an
allocation of the Ford postretirement healthcare and life
insurance benefit expense for the Visteon-assigned Ford-UAW
employees and certain salaried employees. The assumptions used
by Ford to measure its obligation and expense for those benefits
are as follows as of December 31:
| |
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Discount rate
|
|
|
5.75 |
% |
|
|
6.25 |
% |
|
Initial health care cost trend rate
|
|
|
9.00 |
% |
|
|
9.00 |
% |
|
Ultimate health care cost trend rate
|
|
|
5.00 |
% |
|
|
5.00 |
% |
|
Year that the rate reaches the ultimate trend rate
|
|
|
2011 |
|
|
|
2010 |
|
91
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
|
|
| NOTE 9. |
Employee Retirement Benefits — (Continued) |
The Medicare Act of 2003 also affected the allocation to Visteon
of the Ford postretirement health care and life insurance
benefit obligation and expense for the Visteon-assigned Ford-UAW
employees and certain salaried employees, resulting in a
reduction to 2004 expense of about $25 million as shown in
the following table.
Tables of Expense and Obligations
Visteon’s expense for retirement benefits was as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Retirement Plans | |
|
|
|
|
|
|
| |
|
| |
|
|
| |
|
|
|
|
|
Health Care and Life | |
| |
|
U.S. Plans | |
|
Non-U.S. Plans | |
|
Insurance Benefits | |
| |
|
| |
|
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(in millions, except percentages) | |
|
Costs Recognized in Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$ |
55 |
|
|
$ |
53 |
|
|
$ |
47 |
|
|
$ |
32 |
|
|
$ |
32 |
|
|
$ |
27 |
|
|
$ |
42 |
|
|
$ |
37 |
|
|
$ |
36 |
|
|
Interest cost
|
|
|
66 |
|
|
|
59 |
|
|
|
55 |
|
|
|
62 |
|
|
|
52 |
|
|
|
40 |
|
|
|
61 |
|
|
|
51 |
|
|
|
62 |
|
|
Expected return on plan assets
|
|
|
(63 |
) |
|
|
(56 |
) |
|
|
(64 |
) |
|
|
(63 |
) |
|
|
(54 |
) |
|
|
(48 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Amortization of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Transition (asset) obligation
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
Plan amendments
|
|
|
10 |
|
|
|
10 |
|
|
|
8 |
|
|
|
9 |
|
|
|
10 |
|
|
|
6 |
|
|
|
— |
|
|
|
— |
|
|
|
(7 |
) |
| |
(Gains) losses and other
|
|
|
4 |
|
|
|
— |
|
|
|
(2 |
) |
|
|
2 |
|
|
|
1 |
|
|
|
(4 |
) |
|
|
21 |
|
|
|
10 |
|
|
|
5 |
|
|
Special termination benefits
|
|
|
— |
|
|
|
2 |
|
|
|
30 |
|
|
|
10 |
|
|
|
20 |
|
|
|
4 |
|
|
|
— |
|
|
|
4 |
|
|
|
15 |
|
|
Curtailments
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
45 |
|
|
|
— |
|
|
|
— |
|
|
|
1 |
|
|
Settlements
|
|
|
— |
|
|
|
1 |
|
|
|
— |
|
|
|
(1 |
) |
|
|
2 |
|
|
|
— |
|
|
|
(1 |
) |
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Visteon sponsored plan net pension/postretirement expense
|
|
|
72 |
|
|
|
69 |
|
|
|
74 |
|
|
|
52 |
|
|
|
64 |
|
|
|
71 |
|
|
|
123 |
|
|
|
102 |
|
|
|
112 |
|
|
Expense for Visteon-assigned Ford- UAW and certain salaried
employees
|
|
|
129 |
|
|
|
172 |
|
|
|
62 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
131 |
|
|
|
323 |
|
|
|
224 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Net pension/ postretirement expense
|
|
$ |
201 |
|
|
$ |
241 |
|
|
$ |
136 |
|
|
$ |
52 |
|
|
$ |
64 |
|
|
$ |
71 |
|
|
$ |
254 |
|
|
$ |
425 |
|
|
$ |
336 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Assumptions — cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate for expense
|
|
|
6.10 |
% |
|
|
6.75 |
% |
|
|
7.50 |
% |
|
|
5.60 |
% |
|
|
5.75 |
% |
|
|
6.00 |
% |
|
|
6.10 |
% |
|
|
6.75 |
% |
|
|
7.25 |
% |
|
Assumed long-term rate of return on assets
|
|
|
9.00 |
% |
|
|
9.00 |
% |
|
|
9.50 |
% |
|
|
7.70 |
% |
|
|
8.25 |
% |
|
|
9.00 |
% |
|
|
— |
|
|
|
6.00 |
% |
|
|
6.00 |
% |
|
Initial health care cost trend rate
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
11.00 |
% |
|
|
10.44 |
% |
|
|
9.45 |
% |
|
Ultimate health care cost trend rate
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
5.00 |
% |
|
|
5.00 |
% |
|
|
5.00 |
% |
|
Year that the rate reaches the ultimate trend rate
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2009 |
|
|
|
2008 |
|
|
|
2008 |
|
Increasing the assumed health care cost trend rates by one
percentage point is estimated to increase the Visteon sponsored
plans’ aggregate service and interest cost components of
Visteon sponsored plan net postretirement benefit expense for
2004 by about $25 million and the accumulated
postretirement benefit obligation at December 31, 2004
by about $205 million. A decrease of one percentage point
would reduce service and interest costs by $21 million and
decrease the December 31, 2004 obligation by about
$163 million.
92
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
|
|
| NOTE 9. |
Employee Retirement Benefits — (Continued) |
The status of the Visteon plans as of their most recent
measurement dates was as follows (status of Visteon portion of
Ford plans included previously):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Retirement Plans | |
|
|
| |
|
| |
|
Health Care and | |
| |
|
|
|
|
|
Life Insurance | |
| |
|
U.S. Plans | |
|
Non-U.S. Plans | |
|
Benefits | |
| |
|
| |
|
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2004 | |
|
2003 | |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(in millions, except percentages) | |
|
Change in Benefit Obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation — beginning
|
|
$ |
1,053 |
|
|
$ |
851 |
|
|
$ |
1,123 |
|
|
$ |
866 |
|
|
$ |
1,130 |
|
|
$ |
753 |
|
|
Service cost
|
|
|
55 |
|
|
|
53 |
|
|
|
32 |
|
|
|
32 |
|
|
|
42 |
|
|
|
37 |
|
|
Interest cost
|
|
|
66 |
|
|
|
59 |
|
|
|
62 |
|
|
|
52 |
|
|
|
61 |
|
|
|
51 |
|
|
Amendments/other
|
|
|
11 |
|
|
|
8 |
|
|
|
(25 |
) |
|
|
19 |
|
|
|
(22 |
) |
|
|
1 |
|
|
Actuarial (gain) loss
|
|
|
4 |
|
|
|
89 |
|
|
|
22 |
|
|
|
39 |
|
|
|
(58 |
) |
|
|
313 |
|
|
Special termination benefits
|
|
|
— |
|
|
|
33 |
|
|
|
13 |
|
|
|
15 |
|
|
|
— |
|
|
|
— |
|
|
Curtailment
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(12 |
) |
|
|
— |
|
|
|
— |
|
|
Settlements
|
|
|
— |
|
|
|
(1 |
) |
|
|
(2 |
) |
|
|
1 |
|
|
|
(4 |
) |
|
|
— |
|
|
Foreign exchange translation
|
|
|
— |
|
|
|
— |
|
|
|
91 |
|
|
|
150 |
|
|
|
— |
|
|
|
1 |
|
|
Benefits paid
|
|
|
(45 |
) |
|
|
(39 |
) |
|
|
(37 |
) |
|
|
(39 |
) |
|
|
(34 |
) |
|
|
(26 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Benefit obligation — ending
|
|
$ |
1,144 |
|
|
$ |
1,053 |
|
|
$ |
1,279 |
|
|
$ |
1,123 |
|
|
$ |
1,115 |
|
|
$ |
1,130 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Plan Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan assets — beginning
|
|
$ |
671 |
|
|
$ |
562 |
|
|
$ |
635 |
|
|
$ |
451 |
|
|
$ |
— |
|
|
$ |
— |
|
|
Actual return on plan assets
|
|
|
88 |
|
|
|
107 |
|
|
|
51 |
|
|
|
49 |
|
|
|
— |
|
|
|
— |
|
|
Sponsor contributions
|
|
|
63 |
|
|
|
37 |
|
|
|
67 |
|
|
|
76 |
|
|
|
34 |
|
|
|
25 |
|
|
Participant contributions
|
|
|
8 |
|
|
|
8 |
|
|
|
11 |
|
|
|
15 |
|
|
|
— |
|
|
|
1 |
|
|
Foreign exchange translation
|
|
|
— |
|
|
|
— |
|
|
|
54 |
|
|
|
83 |
|
|
|
— |
|
|
|
— |
|
|
Benefits paid/other
|
|
|
(49 |
) |
|
|
(43 |
) |
|
|
(62 |
) |
|
|
(39 |
) |
|
|
(34 |
) |
|
|
(26 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Plan assets — ending
|
|
$ |
781 |
|
|
$ |
671 |
|
|
$ |
756 |
|
|
$ |
635 |
|
|
$ |
— |
|
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded Status of the Plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan assets (less than) benefit obligations
|
|
$ |
(363 |
) |
|
$ |
(382 |
) |
|
$ |
(523 |
) |
|
$ |
(488 |
) |
|
$ |
(1,115 |
) |
|
$ |
(1,130 |
) |
|
Contributions between measurement and end of fiscal year
|
|
|
1 |
|
|
|
6 |
|
|
|
15 |
|
|
|
23 |
|
|
|
15 |
|
|
|
14 |
|
|
Special termination benefits between measurement and end of
fiscal year
|
|
|
— |
|
|
|
— |
|
|
|
(2 |
) |
|
|
(5 |
) |
|
|
— |
|
|
|
— |
|
|
Unrecognized:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net (gains) losses
|
|
|
132 |
|
|
|
153 |
|
|
|
330 |
|
|
|
274 |
|
|
|
438 |
|
|
|
520 |
|
| |
Prior service cost/other
|
|
|
52 |
|
|
|
59 |
|
|
|
85 |
|
|
|
115 |
|
|
|
(16 |
) |
|
|
8 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net amount recognized
|
|
$ |
(178 |
) |
|
$ |
(164 |
) |
|
$ |
(95 |
) |
|
$ |
(81 |
) |
|
$ |
(678 |
) |
|
$ |
(588 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount Recognized in Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid assets
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
8 |
|
|
$ |
18 |
|
|
$ |
— |
|
|
$ |
— |
|
|
Accrued liabilities
|
|
|
(314 |
) |
|
|
(315 |
) |
|
|
(329 |
) |
|
|
(275 |
) |
|
|
(678 |
) |
|
|
(588 |
) |
|
Intangible assets
|
|
|
47 |
|
|
|
54 |
|
|
|
73 |
|
|
|
83 |
|
|
|
— |
|
|
|
— |
|
|
Deferred income taxes
|
|
|
30 |
|
|
|
30 |
|
|
|
2 |
|
|
|
2 |
|
|
|
— |
|
|
|
— |
|
|
Accumulated other comprehensive income
|
|
|
59 |
|
|
|
67 |
|
|
|
151 |
|
|
|
91 |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net amount recognized
|
|
$ |
(178 |
) |
|
$ |
(164 |
) |
|
$ |
(95 |
) |
|
$ |
(81 |
) |
|
$ |
(678 |
) |
|
$ |
(588 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Assumptions — Benefit
Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
6.10 |
% |
|
|
6.10% |
|
|
|
5.50 |
% |
|
|
5.60 |
% |
|
|
6.10 |
% |
|
|
6.10 |
% |
|
Expected rate of return on assets
|
|
|
9.00 |
% |
|
|
9.00% |
|
|
|
7.50 |
% |
|
|
7.70 |
% |
|
|
— |
|
|
|
— |
|
|
Rate of increase in compensation
|
|
|
4.00 |
% |
|
|
4.00% |
|
|
|
3.60 |
% |
|
|
3.70 |
% |
|
|
— |
|
|
|
— |
|
|
Initial health care cost trend rate
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
11.00 |
% |
|
|
11.00 |
% |
|
Ultimate health care cost trend rate
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
5.00 |
% |
|
|
5.00 |
% |
|
Year that the rate reaches the ultimate trend rate
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2010 |
|
|
|
2009 |
|
|
Measurement date
|
|
|
9/30 |
|
|
|
9/30 |
|
|
|
9/30 |
|
|
|
9/30 |
|
|
|
9/30 |
|
|
|
9/30 |
|
93
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
|
|
| NOTE 9. |
Employee Retirement Benefits — (Continued) |
The accumulated benefit obligation for all defined benefit
pension plans was $2,068 million and $1,821 million at
the 2004 and 2003 measurement dates.
The projected benefit obligation, accumulated benefit obligation
and fair value of plan assets for employee retirement plans with
accumulated benefit obligations in excess of plan assets were
$2,215 million, $1,933 million and
$1,358 million, respectively, for 2004 and
$1,944 million, $1,670 million and
$1,117 million, respectively, for 2003.
Contributions
During 2005, Visteon’s expected contributions to Visteon
U.S. retirement plans and postretirement health care and
life insurance plans are $45 million and $33 million,
respectively. Visteon’s expected 2005 contributions to
non-U.S. retirement plans is $45 million. These are
expected contributions and may be revised during 2005.
Estimated Future Benefit Payments
The following benefit payments, which reflect expected future
service, as appropriate, are expected to be paid by the Visteon
plans; expected receipts from the Medicare Prescription Drug Act
subsidy are also included below:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Retiree Health and | |
| |
|
|
|
Life | |
| |
|
Pension | |
|
| |
| |
|
Benefits | |
|
|
|
Medicare | |
| |
|
| |
|
Gross | |
|
Subsidy | |
| |
|
U.S. | |
|
Non-U.S. | |
|
Payments | |
|
Receipts | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(in millions) | |
|
2005
|
|
$ |
48 |
|
|
$ |
129 |
|
|
$ |
33 |
|
|
$ |
— |
|
|
2006
|
|
|
49 |
|
|
|
29 |
|
|
|
38 |
|
|
|
3 |
|
|
2007
|
|
|
50 |
|
|
|
29 |
|
|
|
41 |
|
|
|
3 |
|
|
2008
|
|
|
52 |
|
|
|
29 |
|
|
|
45 |
|
|
|
3 |
|
|
2009
|
|
|
53 |
|
|
|
30 |
|
|
|
49 |
|
|
|
4 |
|
|
Years 2010 — 2014
|
|
|
284 |
|
|
|
165 |
|
|
|
317 |
|
|
|
24 |
|
Non-U.S. pension benefit payments of $129 million in
2005 from Visteon plans includes the anticipated effect of
settling pension obligations related to our Markham, Ontario
facility which was closed in 2002.
Plan Assets and Investment Strategy
Visteon’s retirement plan asset allocation at
September 30, 2004 and 2003 and target allocation for
2005 are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
U.S. | |
|
Non-U.S. | |
| |
|
| |
|
| |
| |
|
|
|
Percentage of | |
|
|
|
Percentage of | |
| |
|
Target | |
|
Plan Assets | |
|
Target | |
|
Plan Asset | |
| |
|
Allocation | |
|
| |
|
Allocation | |
|
| |
| |
|
2005 | |
|
2004 | |
|
2003 | |
|
2005 | |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Equity securities
|
|
|
70 |
% |
|
|
71 |
% |
|
|
69 |
% |
|
|
55 |
% |
|
|
57 |
% |
|
|
56 |
% |
|
Debt securities
|
|
|
30 |
|
|
|
29 |
|
|
|
31 |
|
|
|
45 |
|
|
|
43 |
|
|
|
44 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total
|
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
94
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
|
|
| NOTE 9. |
Employee Retirement Benefits — (Continued) |
The plans’ expected long-term rates of return are primarily
based on historical returns of similarly diversified portfolios.
In addition, third-party data regarding expected asset class
returns and projected inflation is considered.
Given the relatively long horizon of Visteon’s aggregate
obligations, its investment strategy is to improve the funded
status of it U.S. and Non-U.S. plans over time without
exposure to excessive asset value volatility. Visteon manages
this risk primarily by maintaining each plan’s actual asset
allocation between equity and fixed income securities within a
specified range of its target asset allocation. In addition,
Visteon ensures that diversification across various investment
subcategories within each plan are also maintained within
specified ranges.
Substantially all of Visteon’s pension assets are managed
by outside investment managers and held in trust by third-party
custodians. The selection and oversight of these outside service
providers is the responsibility of Investment Committees and
their advisors. The selection of specific securities is at the
discretion of the investment manager and is subject to the
provisions set forth by written investment management agreements
and related policy guidelines regarding permissible investments,
risk management practices and the use of derivative securities.
Investment in debt or equity securities related to
Visteon Corporation or any of its affiliates is prohibited.
Derivative securities may be used by investment managers as
efficient substitutes for traditional securities, to reduce
portfolio risks, or to hedge identifiable economic exposures.
The use of derivative securities to create economic leverage to
engage in unrelated speculation is expressly prohibited. Visteon
staff or its outside consultants verify compliance with these
provisions at least quarterly.
Debt at December 31, including the fair market value of
related interest rate swaps, was as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Weighted | |
|
|
|
|
| |
|
|
|
Average | |
|
|
| |
|
Maturity | |
|
Interest Rate | |
|
Book Value | |
| |
|
| |
|
| |
|
| |
| |
|
|
|
2004 | |
|
2003 | |
|
2004 | |
|
2003 | |
| |
|
|
|
| |
|
| |
|
| |
|
| |
| |
|
|
|
|
|
|
|
(in millions) | |
|
Debt payable within one year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Commercial paper
|
|
|
|
|
|
|
— |
|
|
|
2.0 |
% |
|
$ |
— |
|
|
$ |
81 |
|
| |
Other – short-term
|
|
|
|
|
|
|
3.3 |
% |
|
|
3.1 |
% |
|
|
221 |
|
|
|
234 |
|
| |
7.95% notes due August 1, 2005
|
|
|
|
|
|
|
7.8 |
% |
|
|
— |
|
|
|
253 |
|
|
|
— |
|
| |
Current portion of long-term debt
|
|
|
|
|
|
|
3.6 |
% |
|
|
2.6 |
% |
|
|
34 |
|
|
|
36 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total debt payable within one year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
508 |
|
|
|
351 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
8.25% notes due August 1, 2010
|
|
|
2010 |
|
|
|
6.2 |
% |
|
|
6.7 |
% |
|
|
707 |
|
|
|
716 |
|
| |
7.00% notes due March 10, 2014
|
|
|
2014 |
|
|
|
5.6 |
% |
|
|
— |
|
|
|
446 |
|
|
|
— |
|
| |
7.95% notes due August 1, 2005
|
|
|
|
|
|
|
— |
|
|
|
6.5 |
% |
|
|
— |
|
|
|
518 |
|
| |
Term loan due June 25, 2007
|
|
|
2007 |
|
|
|
3.0 |
% |
|
|
2.5 |
% |
|
|
223 |
|
|
|
104 |
|
| |
Other
|
|
|
2006-2025 |
|
|
|
3.2 |
% |
|
|
2.8 |
% |
|
|
137 |
|
|
|
129 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total long-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,513 |
|
|
|
1,467 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,021 |
|
|
$ |
1,818 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
|
|
| NOTE 10. |
Debt — (Continued) |
On March 10, 2004, Visteon completed a public offering of
unsecured fixed-rate term debt securities totaling
$450 million with a maturity of ten years. The securities
bear interest at a stated rate of 7.00%, with interest payable
semi-annually on March 10 and September 10, beginning
on September 10, 2004. The securities rank equally
with Visteon’s existing and future unsecured fixed-rate
term debt securities and senior to any future subordinated debt.
The unsecured term debt securities agreement contains certain
restrictions, including, among others, a limitation relating to
liens and sale-leaseback transactions, as defined in the
agreement. In the opinion of management, Visteon was in
compliance with all of these restrictions. In addition, an
interest rate swap has been entered into for a portion of this
debt ($225 million). This swap effectively converts the
securities from fixed interest rate to variable interest rate
instruments.
On April 6, 2004, Visteon repurchased
$250 million of our existing 7.95% five-year notes maturing
on August 1, 2005. In the second quarter of 2004,
Visteon recorded a pre-tax debt extinguishment charge of
$11 million, consisting of redemption premiums and
transaction costs ($19 million), offset partially by the
accelerated recognition of gains from interest rate swaps
associated with the repurchased debt ($8 million).
Interest rate swaps have been entered into for a portion of the
unsecured term debt securities maturing on
August 1, 2005, and a portion of the debt securities
maturing on August 1, 2010. These swaps effectively
convert the securities from fixed interest rate to variable
interest rate instruments, as further described in Note 15
of our consolidated financial statements. The weighted average
interest rates as presented include the effects of interest rate
swaps. The unsecured term debt securities agreement contains
certain restrictions including, among others, a limitation
relating to liens and sale lease-back transactions, as defined
in the agreement. In the opinion of management, Visteon was in
compliance with all of these restrictions.
Under Visteon’s commercial paper program, $81 million
was outstanding at December 31, 2003, with a weighted
average remaining maturity of 16 days at
December 31, 2003. No commercial paper amounts were
outstanding at December 31, 2004.
Visteon has maintained a trade payables program through General
Electric Capital Corporation (“GECC”), subject to
periodic review, that provides financial flexibility to Visteon
and its suppliers. When a supplier participates in the program,
GECC pays the supplier the amount due from Visteon in advance of
the original due date. In exchange for the earlier payment, our
suppliers accept a discounted payment. Visteon pays GECC the
full amount. Approximately $69 million and
$100 million was outstanding to GECC under this program at
December 31, 2004 and 2003, respectively, which is
included in our reported debt balance. The 2004 balance is
partially supported by standby letters of credit. At
December 31, 2004, the maximum advance payment allowed
was $95 million. As part of the same program with GECC,
Visteon is allowed to defer payment to GECC for a period of up
to 30 days. As of December 31, 2004, Visteon had
not exercised the deferral option of the program. Although this
agreement with GECC is scheduled to expire in
December 2005, Visteon has notified participating suppliers
of its intention to exit the program beginning in
March 2005.
96
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
|
|
| NOTE 10. |
Debt — (Continued) |
Visteon has financing arrangements with a syndicate of
third-party lenders that provide contractually committed,
unsecured revolving credit facilities (the “Credit
Facilities”). Our 364-day revolving credit facility, in the
amount of $565 million, expires in June 2005. In
addition to our 364-day revolving facility, we continue to have
a revolving credit facility in the amount of $775 million
that expires in June 2007. The Credit Facilities also
provide for a delayed draw term loan in the amount of
$250 million, expiring in 2007, which was used primarily to
finance new construction for facilities consolidation in
Southeast Michigan. Borrowings under the Credit Facilities bear
interest based on a variable rate interest option selected at
the time of borrowing. The Credit Facilities contain certain
affirmative and negative covenants including a covenant not to
exceed a certain leverage ratio of consolidated EBITDA (as
defined in the agreement) of 3.5 to 1.
As of December 31, 2004, Visteon has made draws
totaling $223 million against the delayed draw term loan.
As of December 31, 2004, there were no borrowings
outstanding under either of the revolving credit facilities and
there were about $100 million of obligations under standby
letters of credit under the June 2007 credit facility.
Visteon has additional debt arrangements with respect to a
number of its non-U.S. operations, a portion of which are
payable in non-U.S. currencies.
Although Visteon is highly leveraged it may become necessary to
incur additional debt to ensure adequate liquidity during 2005.
Considering the impact of the Ford funding agreement and master
equipment bailment agreement as more fully described in
Note 22, and our access to the credit markets, albeit at
more restrictive terms and conditions and in lessor amounts than
in the past, Visteon currently expects to have sufficient
sources of liquidity to meet our operating and other needs for
2005. However, because of the uncertainty regarding economic and
market conditions, as well as the outcome of our discussions
with Ford, there can be no assurance that sufficient liquidity
from internal or external sources will be available at the time
or in the amounts required.
We have guaranteed about $166 million of debt capacity held
by consolidated subsidiaries, $97 million for lifetime
lease payments held by consolidated subsidiaries and
$22 million of debt capacity held by unconsolidated joint
ventures. In addition, we have guaranteed Tier 2
suppliers’ debt and lease obligations and other third-party
service providers’ obligations of up to $20 million,
at December 31, 2004, to ensure the continued supply
of essential parts.
Debt, including capital lease obligations, at
December 31, 2004, included maturities as follows (in
millions): 2005 — $508; 2006 — $35;
2007 — $245; 2008 — $2; 2009 — $2;
thereafter — $1,229.
|
|
| NOTE 11. |
Capital Stock and Stock Award Plans |
Visteon was incorporated in Delaware in January 2000 with an
initial capitalization of 10,000 shares of $1.00 par
value common stock authorized and 1,000 shares of common
stock outstanding. Through an amendment to its certificate of
incorporation, the number of common shares authorized and
outstanding was increased to 500 million and
130 million, respectively. In addition, 50 million
shares of preferred stock, par value $1.00 per share, were
authorized, none of which have been issued. Treasury stock is
carried at an average cost basis, is purchased for employee
benefit plans, and consists of about 1.4 million shares at
December 31, 2004.
97
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
|
|
| NOTE 11. |
Capital Stock and Stock Award
Plans — (Continued) |
Incentive Plans
The Visteon Corporation 2004 Incentive Plan (“2004
Incentive Plan”), which is administered by the Organization
and Compensation Committee of the Board of Directors, provides
for the grant of incentive and nonqualified stock options, stock
appreciation rights, performance stock rights, restricted stock,
restricted stock units and stock and various other rights based
on common stock. The 2004 Incentive Plan was originally adopted
effective as of June 28, 2000 as the 2000 Incentive Plan.
The amended and restated 2004 Incentive Plan, which was approved
by shareholders in May 2004, includes changes to increase
the maximum number of shares of common stock that may be issued
by 1.8 million shares from 13.0 million shares to
14.8 million shares and to change the maximum term of an
option or stock appreciation right awarded under the plan after
the effective date of the amendment to five years from ten
years. At December 31, 2004, there were about
1,456,000 shares of common stock available for grant under
the 2004 Incentive Plan.
The Visteon Corporation Employees Equity Incentive Plan
(“EEIP”), which was approved by shareholders, is
administered by the Organization and Compensation Committee of
the Board of Directors, provides for the grant of nonqualified
stock options, stock appreciation rights, performance stock
rights and stock, and various other rights based on stock. The
total number of shares of common stock subject to awards under
the EEIP is 6.5 million shares of common stock and the
maximum term of an option or stock appreciation right awarded
under the plan is ten years. At December 31, 2004,
there were about 521,000 shares of common stock available
for grant under the EEIP.
The Visteon Corporation Restricted Stock Plan for
Non-Employee Directors provides for the grant of restricted
stock to non-employee directors. In addition, the shareholders
approved in 2004 the Visteon Corporation Non-Employee
Director Stock Unit Plan which provides for the grant of
restricted stock units to non-employee directors.
Stock Options and Stock Appreciation Rights
Stock options and stock appreciation rights (“SARs”)
granted under the 2004 Incentive Plan or the EEIP have an
exercise price equal to the average of the highest and lowest
prices at which Visteon common stock was traded on the New York
Stock Exchange on the date of grant. Stock options and SARs that
have been granted become exercisable one-third after one year
from the date of grant, an additional one-third after two years
and in full after three years. Stock options and SARs granted
under the 2004 Incentive Plan after December 31, 2003,
will expire five years after the date on which they were
granted. Stock options granted under the EEIP plan, and those
granted prior to January 1, 2004 under the 2004
Incentive Plan, expire 10 years after the date on which
they were granted. SARs granted under the 2004 Incentive Plan
entitle the participant to receive a cash amount equal to the
appreciation in the underlying share of common stock, which is
equal to the difference in fair market value of Visteon common
stock on the date the SAR is granted and the fair market value
of Visteon common stock on the date the SAR is exercised.
98
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
|
|
| NOTE 11. |
Capital Stock and Stock Award
Plans — (Continued) |
Effective at the date of spin-off and subject to shareholder
approval, Visteon granted under the 2000 Incentive Plan to some
employees about 2 million stock options with an exercise
price equal to the average of the highest and lowest prices at
which Visteon common stock was traded on the New York Stock
Exchange on that date. Shareholder approval was obtained in May
2001 for the grant of these stock options. The difference
between the exercise price and the average price of Visteon
common stock on the date of shareholder approval was recognized
as compensation expense over the vesting period. Compensation
expense related to stock options and SARs, including the effect
of expensing the fair value of stock-based awards to employees
pursuant to SFAS 123 discussed further in Note 3 of
our consolidated financial statements, was $5 million,
$5 million and $3 million in 2004, 2003 and 2002,
respectively.
Information concerning stock options and SARs is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Stock | |
|
|
| |
|
|
|
Appreciation | |
|
Weighted Average | |
| |
|
Option Shares | |
|
Rights | |
|
Exercise Price | |
| |
|
| |
|
| |
|
| |
| |
|
(in thousands) | |
|
(in thousands) | |
|
|
|
Outstanding at December 31, 2001
|
|
|
4,932 |
|
|
|
— |
|
|
$ |
15.74 |
|
|
Granted
|
|
|
3,491 |
|
|
|
— |
|
|
|
13.45 |
|
|
Exercised
|
|
|
(24 |
) |
|
|
— |
|
|
|
11.96 |
|
|
Terminated
|
|
|
(494 |
) |
|
|
— |
|
|
|
15.10 |
|
| |
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2002
|
|
|
7,905 |
|
|
|
— |
|
|
$ |
14.78 |
|
|
Granted
|
|
|
6,226 |
|
|
|
— |
|
|
|
6.62 |
|
|
Terminated
|
|
|
(489 |
) |
|
|
— |
|
|
|
11.41 |
|
| |
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2003
|
|
|
13,642 |
|
|
|
— |
|
|
$ |
11.22 |
|
|
Granted
|
|
|
1,385 |
|
|
|
2,155 |
|
|
|
9.96 |
|
|
Exercised
|
|
|
(383 |
) |
|
|
— |
|
|
|
6.64 |
|
|
Terminated
|
|
|
(476 |
) |
|
|
(44 |
) |
|
|
10.60 |
|
| |
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2004
|
|
|
14,168 |
|
|
|
2,111 |
|
|
$ |
11.07 |
|
|
Less: Outstanding but not exercisable at
December 31, 2004
|
|
|
6,166 |
|
|
|
2,111 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2004
|
|
|
8,002 |
|
|
|
— |
|
|
$ |
13.34 |
|
| |
|
|
|
|
|
|
|
|
|
The following is a summary of the range of exercise prices for
stock options and SARs that are outstanding and exercisable at
December 31, 2004:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Options and SARs Outstanding | |
|
Options and SARs Exercisable | |
| |
|
| |
|
| |
| |
|
|
|
Weighted | |
|
Weighted | |
|
|
|
Weighted | |
| Range of |
|
Number | |
|
Average | |
|
Average | |
|
Number | |
|
Average | |
| Exercise Prices |
|
Outstanding | |
|
Remaining Life | |
|
Exercise Price | |
|
Exercisable | |
|
Exercise Price | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(in thousands) | |
|
(in years) | |
|
|
|
(in thousands) | |
|
|
|
$ 5.00 - $ 7.00
|
|
|
5,377 |
|
|
|
8.1 |
|
|
$ |
6.63 |
|
|
|
1,571 |
|
|
$ |
6.63 |
|
|
7.01 - 12.00
|
|
|
3,490 |
|
|
|
4.4 |
|
|
|
9.92 |
|
|
|
54 |
|
|
|
8.00 |
|
|
12.01 - 17.00
|
|
|
4,876 |
|
|
|
6.5 |
|
|
|
13.43 |
|
|
|
3,841 |
|
|
|
13.39 |
|
|
17.01 - 22.00
|
|
|
2,536 |
|
|
|
6.3 |
|
|
|
17.53 |
|
|
|
2,536 |
|
|
|
17.53 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
16,279 |
|
|
|
|
|
|
|
|
|
|
|
8,002 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
|
|
| NOTE 11. |
Capital Stock and Stock Award
Plans — (Continued) |
Restricted Stock and Restricted Stock Units
Under the 2004 Incentive Plan, Visteon has granted restricted
stock awards and restricted stock units (“RSUs”) to
certain employees. Restricted stock awards and RSUs vest after a
designated period of time, which is generally three to five
years, or upon the achievement of applicable performance goals
at the completion of a performance period, which is generally
three years. Performance goals are related to return on
equity or return on assets and quality measures. Compensation
expense related to performance-based restricted stock awards is
recognized over the performance period based upon an estimate of
the likelihood of achieving the performance goals and also
reflects changes in the price of Visteon common stock. RSUs
granted consist of units valued based upon the fair market value
of Visteon common stock and are settled in cash. Restricted
stock awards issued to the Visteon’s Board of Directors
vest on the third anniversary of the date of the grant.
Restricted stock units issued under the Non-Employee Director
Stock Unit Plan vest immediately, and are distributed after the
participant terminates service as a non-employee director of
Visteon. Dividends paid on restricted stock were about
$1 million in each of 2004, 2003 and 2002, and are treated
as compensation expense. Compensation expense related to
restricted stock awards and RSUs, excluding that related to
dividends, was $13 million, $9 million and
$3 million in 2004, 2003 and 2002, respectively.
Information concerning restricted stock awards and RSUs is as
follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Weighted | |
| |
|
Restricted | |
|
Restricted | |
|
Average | |
| |
|
Stock Shares | |
|
Stock Units | |
|
Price | |
| |
|
| |
|
| |
|
| |
| |
|
(in thousands) | |
|
(in thousands) | |
|
|
|
Outstanding at December 31, 2001
|
|
|
1,649 |
|
|
|
— |
|
|
$ |
17.38 |
|
|
Granted
|
|
|
1,345 |
|
|
|
— |
|
|
|
13.20 |
|
|
Lapsed
|
|
|
(79 |
) |
|
|
— |
|
|
|
17.46 |
|
|
Terminated
|
|
|
(201 |
) |
|
|
— |
|
|
|
16.26 |
|
| |
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2002
|
|
|
2,714 |
|
|
|
— |
|
|
$ |
15.39 |
|
|
Granted
|
|
|
2,567 |
|
|
|
— |
|
|
|
6.62 |
|
|
Lapsed
|
|
|
(26 |
) |
|
|
— |
|
|
|
17.46 |
|
|
Terminated
|
|
|
(234 |
) |
|
|
— |
|
|
|
9.10 |
|
| |
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2003
|
|
|
5,021 |
|
|
|
— |
|
|
$ |
11.20 |
|
|
Granted
|
|
|
199 |
|
|
|
2,429 |
|
|
|
10.16 |
|
|
Lapsed
|
|
|
(251 |
) |
|
|
— |
|
|
|
16.48 |
|
|
Terminated
|
|
|
(789 |
) |
|
|
(69 |
) |
|
|
14.29 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Outstanding at December 31, 2004
|
|
|
4,180 |
|
|
|
2,360 |
|
|
$ |
10.17 |
|
| |
|
|
|
|
|
|
|
|
|
100
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
|
|
| NOTE 12. |
Comprehensive (Loss) |
Comprehensive (loss) is summarized as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
Restated | |
|
Restated | |
|
Restated | |
| |
|
(in millions) | |
|
Net (loss)
|
|
$ |
(1,536 |
) |
|
$ |
(1,229 |
) |
|
$ |
(379 |
) |
|
Change in foreign currency translation adjustments, net of tax
|
|
|
102 |
|
|
|
163 |
|
|
|
132 |
|
|
Change in minimum pension liability, net of tax
|
|
|
(52 |
) |
|
|
(89 |
) |
|
|
(67 |
) |
|
Other
|
|
|
9 |
|
|
|
16 |
|
|
|
(12 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
Total comprehensive (loss)
|
|
$ |
(1,477 |
) |
|
$ |
(1,139 |
) |
|
$ |
(326 |
) |
| |
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss) is comprised of
the following:
| |
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
(in millions) | |
|
Foreign currency translation adjustments, net of tax
|
|
$ |
199 |
|
|
$ |
97 |
|
|
Realized and unrealized gains on derivatives, net of tax
|
|
|
16 |
|
|
|
8 |
|
|
Unrealized loss on marketable securities, net of tax
|
|
|
— |
|
|
|
(1 |
) |
|
Minimum pension liability, net of tax
|
|
|
(210 |
) |
|
|
(158 |
) |
| |
|
|
|
|
|
|
| |
Total accumulated other comprehensive income (loss)
|
|
$ |
5 |
|
|
$ |
(54 |
) |
| |
|
|
|
|
|
|
|
|
| NOTE 13. |
Litigation and Claims |
In February 2005, a shareholder lawsuit was filed in the
U.S. District Court for the Eastern District of Michigan
against Visteon and Messrs. Pestillo, Johnston, Coulson and
Palmer and Ms. Minor, each a current or former officer of
the company. The lawsuit alleges, among other things, that
Visteon made misleading statements of material fact or omitted
to state material facts necessary in order to make the
statements made, in light of the circumstances under which they
were made, not misleading. The named individual plaintiff seeks
to represent a class consisting of purchasers of Visteon’s
securities during the period between January 23, 2004
and January 31, 2005. Class action status has not yet
been certified in this litigation. Visteon is in the process of
evaluating the claims in this lawsuit, and Visteon and its
current and former officers intend to contest the lawsuit
vigorously. The lawsuit is in a very preliminary stage and at
this time, management is unable to assess the impact this
litigation may have on its results of operations and financial
position.
Various other legal actions, governmental investigations and
proceedings and claims are pending or may be instituted or
asserted in the future against Visteon, including those arising
out of alleged defects in Visteon’s products; governmental
regulations relating to safety; employment-related matters;
customer, supplier and other contractual relationships;
intellectual property rights; product warranties; product
recalls; and environmental matters. Some of the foregoing
matters involve or may involve compensatory, punitive or
antitrust or other treble damage claims in very large amounts,
or demands for recall campaigns, environmental remediation
programs, sanctions, or other relief which, if granted, would
require very large expenditures.
101
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
|
|
| NOTE 13. |
Litigation and Claims — (Continued) |
Litigation is subject to many uncertainties, and the outcome of
individual litigated matters is not predictable with assurance.
Reserves have been established by Visteon for matters discussed
in the foregoing paragraph where losses are deemed probable;
these reserves are adjusted periodically to reflect estimates of
ultimate probable outcomes. It is reasonably possible, however,
that some of the matters discussed in the foregoing paragraph
for which reserves have not been established could be decided
unfavorably to Visteon and could require Visteon to pay damages
or make other expenditures in amounts, or a range of amounts,
that cannot be estimated at December 31, 2004. Visteon
does not reasonably expect, except as otherwise described
herein, based on its analysis, that any adverse outcome from
such matters would have a material effect on our financial
condition, results of operations or cash flows, although such an
outcome is possible.
|
|
| NOTE 14. |
Arrangements with Ford and its Affiliates |
Sales from Ford and its affiliates, which include sales to Auto
Alliance International, a joint venture between Ford and Mazda,
approximated 70% in 2004, 76% in 2003 and 80% in 2002 of total
sales.
Visteon and Ford have entered into a series of agreements
outlining the terms of the separation and the relationship
between Visteon and Ford on an ongoing basis. In December 2003,
Visteon and Ford entered into a series of agreements that modify
or replace several of the agreements. On March 10, 2005,
Visteon also entered into a funding agreement and a master
equipment bailment agreement with Ford, as further described in
Note 22. The following summary of certain of these
agreements is qualified in all respects by the actual terms of
the respective agreements.
Master Transfer Agreement
The master transfer agreement, effective as of April 1,
2000, and other related agreements, provided for Ford to
transfer to Visteon and/or its subsidiaries, all assets used
exclusively by Visteon, including but not limited to real
property interests, personal property and ownership interests in
subsidiaries and joint ventures. In addition, Visteon and Ford
agreed to a division of liabilities relating to the assets
contributed and the Visteon business, including liabilities
related to product liability, warranty, recall, environmental,
intellectual property claims and other general litigation
claims. Specifically, Visteon and Ford agreed on a division of
responsibility for product liability, warranty and recall
matters as follows: (a) Ford will retain liability for all
product liability, warranty or recall claims that involve parts
made or sold by Visteon for 1996 or earlier model year Ford
vehicles; (b) Visteon is liable for all product liability,
warranty or recall claims that involve parts made or sold by
Visteon for 1997 or later model year Ford vehicles in accordance
with Ford’s global standard purchase order terms as applied
to other Tier 1 suppliers; and (c) Visteon has assumed
all responsibility for product liability, warranty or recall
claims relating to parts made or sold by Visteon to any non-Ford
customers.
102
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
|
|
| NOTE 14. |
Arrangements with Ford and its
Affiliates — (Continued) |
Also, Visteon and Ford agreed on a division of responsibility
for liabilities associated with claims that Visteon’s
products infringe or otherwise violate the intellectual property
interests of others as follows: (a) Ford will retain
liability for such claims related to Visteon’s products
sold or supplied to Ford or its subsidiaries on or prior to
July 31, 1999; (b) Visteon has assumed liability for
such claims related to Visteon’s products sold or supplied
to Ford or its subsidiaries after July 31, 1999 to the same
extent as other Tier 1 suppliers would be liable if they
had supplied such parts, components or systems to Ford; and
(c) Visteon has assumed liability for such claims related
to Visteon’s products sold to third parties at any time.
Supply Agreement and Pricing Letter Agreement
The supply agreement entered into in connection with
Visteon’s separation from Ford provided that Visteon’s
existing purchase orders with Ford as of
January 1, 2000 would generally remain in effect at
least through the end of 2003, subject to Ford’s right to
terminate any particular purchase order for quality or other
reasons. The pricing letter also required productivity price
adjustment in each of 2000, 2001, 2002 and 2003 to reflect
competitive price reductions obtained each year by Ford from its
other Tier 1 suppliers, and provided, until May 31,
2003, Visteon the right of last refusal to meet competitive
terms, including price, technology, service and design, on
replacement products that (1) we produce in North America,
Europe and Mexico (for Mexican production intended for export to
the U.S. only) and (2) we supplied to Ford on
January 1, 2000. Although the right of last refusal
did not apply to Ford’s Volvo or Jaguar brand vehicles or
to Mazda Motor Corporation’s vehicles, Ford had agreed to
use reasonable efforts to provide us with similar opportunities
to bid for business with respect to these vehicles.
During the fourth quarter 2003, Visteon and Ford terminated the
original purchase and supply agreement and related pricing
letter agreement that were entered into at or around the time of
the separation and entered into a new purchase and supply
agreement, dated as of December 19, 2003. This agreement
governs general commercial matters relating to the supply of
components in North America by Visteon to Ford, primarily
relating to sourcing and pricing obligations.
Visteon and Ford have agreed to continue to honor the terms and
conditions of all existing agreements regarding the purchase and
sale of currently sourced components. In addition, Ford has
agreed to include Visteon on its list of suppliers receiving
requests for quotations, design competitions and advanced
technology development activities with respect to the sourcing
of new business unless “good cause” or “other
good business reasons” (each as defined in the agreement)
exist to exclude Visteon. If Visteon is excluded from the list
of suppliers receiving a request for quote for certain
replacement new business because of other good business reasons,
then Ford will compensate Visteon on account of such exclusion
based on lost profits due to the discontinued sourcing of such
components, as calculated in accordance with terms of the
agreement. Where Visteon has been asked to quote on new
business, consistent with commitments made to the UAW and
Visteon to “look to Visteon first,” such new business
will be awarded to Visteon if Visteon’s quote is
“competitive” (as defined in the agreement). Also, as
a condition to sourcing Visteon with respect to most new
components, Visteon must develop a competitive gap closure plan
that identifies opportunities to reduce prices on the same or
similar components currently sourced to Visteon to competitive
levels, which plans are not intended to reduce Visteon’s
margins. Otherwise, Ford will treat Visteon in the same manner
as it treats its other Tier 1 suppliers with respect to
Ford’s general sourcing policies and practices relating to
new business, including new purchasing and sourcing initiatives.
103
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
|
|
| NOTE 14. |
Arrangements with Ford and its
Affiliates — (Continued) |
Ford may terminate or not renew its purchase obligations
relating to a given component (each, a “Purchase
Order”) in accordance with the terms of such Purchase
Order, on account of “excusable delay” (as defined in
the agreement), program cancellation, for good cause or for
other good business reasons. If a Purchase Order is terminated
or not renewed for good cause, there is no adjustment to the
productivity price down percentages. If during the term of any
Purchase Order, Ford elects to terminate or not renew a Purchase
Order for other good business reasons, then Ford will compensate
Visteon based on lost profits due to the discontinued sourcing
of such components, as calculated in accordance with terms of
the agreement. If during the term of any Purchase Order, Ford
elects to terminate or not renew a Purchase Order because of
program cancellation or excusable delay, then the terms of the
applicable Purchase Order will govern the right to notification,
remediation and compensation, if any.
Furthermore, Visteon has agreed to pay Ford $150 million in
lieu of additional productivity price reductions on components
supplied by Visteon in North America during 2003, which amount
was recognized in 2003 and paid in three equal installments
commencing December 31, 2003 and ending on March 1,
2004. Visteon also agreed to provide beginning
January 1, 2004 and on each January 1 thereafter
through 2007 specified productivity price reductions for all
components supplied to Ford in North America. Visteon and Ford
have also agreed to negotiate in good faith price changes on
supplied components resulting from design changes to such
components.
During the period from January 1, 2004 through
December 31, 2007, Ford has agreed to pay to Visteon an
amount based on the cost differential between wages paid to
Ford-UAW workers, at efficient manning levels, and workers at
Tier 1 suppliers, with respect to new business sourced to
Visteon at plants covered by the Ford-UAW master collective
bargaining agreement. Through December 31, 2007, Ford
agrees to reimburse Visteon for wages relating to Ford-UAW
workers assigned to Visteon who are placed in the Guaranteed
Employment Number (“GEN”) program, as set forth in the
Ford-UAW master collective bargaining agreement, as a result of
Ford’s decision to exclude Visteon from the list of
suppliers receiving a request for quote on new business or
terminate or not renew a Purchase Order because of other good
business reasons. Visteon has received no payments related to
the either cost differential or the GEN program as of
December 31, 2004.
Finally, Ford has agreed to reimburse Visteon for up to one-half
of any capital investment spending on production facilities and
equipment made by Visteon during the period from
January 1, 2004 through December 31, 2007 to the
extent related to the production of certain uncompetitive
commodities for Ford. Because this reimbursement is calculated
on the basis that the capital investment will be amortized over
a period of seven years utilizing the production volumes of the
applicable components, Visteon may not be reimbursed the full
amount in the event that the sourcing programs were cancelled or
modified by Ford during such period. Visteon has received no
payments related this agreement as of
December 31, 2004. Ford also agreed to accelerate the
payment terms for certain payables to Visteon through 2006.
104
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
|
|
| NOTE 14. |
Arrangements with Ford and its
Affiliates — (Continued) |
Master Separation Agreement
Ford has provided a number of transitional services to Visteon
pursuant to the master separation agreement and related
arrangements, including information technology, human resources,
accounting, customs, product development technology and real
estate services. Visteon agreed to pay Ford amounts which
reflected its fully accounted cost for these services, including
a reasonable allocation of internal overhead costs, as well as
any direct costs incurred from outside suppliers. Except for
certain information technology services, Ford’s obligation
to provide these services pursuant to the master separation
agreement expired in June 2002. Assessments for these services
totaled approximately $52 million for the first half of
2002. Visteon and Ford have subsequently entered into new
arrangements covering some of these services.
Further, during 2003, Visteon began the process of creating a
separate IT environment, including the separation of certain of
Ford’s IT systems that had been utilized by Visteon. During
December 2003, Visteon and Ford agreed on matters designed to
facilitate the separation process, including the provision by
Ford of certain limited information technology support services,
and for Ford to share a portion (up to $100 million) of the
costs associated with such process. During 2003,
$74 million was recognized by Visteon through a reduction
in selling, administrative and other expenses and capital
expenditures. Ford incurred additional expenses in 2004 for
which Visteon was not charged, with a final settlement expected
in 2005. The parties have agreed also to the mutual release of
all claims related to IT activities since the separation.
Hourly Employee Assignment Agreement
The hourly employee assignment agreement, as amended and
restated as of December 19, 2003, sets forth a number
of rights and obligations with respect to the United States
hourly employees of Ford who are covered by Ford-UAW master
collective bargaining agreements and are assigned to work for
Visteon. Under this agreement, Visteon exercises day-to-day
supervision over the covered individuals and reimburses Ford for
the wage, benefit and other costs incurred by Ford related to
these individuals. This includes amounts for profit sharing
based on Ford’s profits, which is capped at $2,040 per
worker. This cap excludes amounts that may be payable on account
of employer payroll taxes or the portion of any profit sharing
payment that may be attributable to Visteon’s profits.
About $12 million, $4 million and $4 million of
profit sharing expense was recognized in 2004, 2003 and 2002,
respectively.
The amended and restated hourly employee assignment agreement
also significantly reduced Visteon’s obligation to
reimburse Ford for the Other Post Employment Benefits
(“OPEB”) SFAS 106 liability (the “OPEB
Liability”) related to pre-separation service of Ford
hourly employees assigned to work at Visteon and that the time
period for funding Visteon’s post-separation OPEB Liability
to Ford for hourly employees assigned to work at Visteon be
extended from 2020 to December 31, 2049, which is discussed
further in Note 9 of our consolidated financial statements.
Visteon has agreed to transfer assets and obligations relating
to the pensions and other benefits for those hourly employees of
Visteon who become hourly employees of Ford as of
December 22, 2003. Finally, the agreement provides for an
agreed upon method for the transfer of benefit obligations for
Visteon-assigned Ford-UAW employees who return to Ford after
service at Visteon.
105
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
|
|
| NOTE 15. |
Financial Instruments |
Fair Value of Financial Instruments
Estimated fair value amounts have been determined using
available market information and various valuation methods
depending on the type of instrument. In evaluating the fair
value information, considerable judgment is required to
interpret the market data used to develop the estimates. The use
of different market assumptions and/or different valuation
techniques may have a material effect on the estimated fair
value amounts. Further, it should be noted that fair value at a
particular point in time gives no indication of future gain or
loss, or what the dimensions of that gain or loss are likely to
be.
The fair value of debt excluding related interest rate swaps was
about $2,064 million at December 31, 2004, based
on quoted market prices or current rates for similar debt with
the same credit ratings and remaining maturities, compared with
book value of $2,013 million. The fair value of debt
excluding related interest rate swaps was about
$1,910 million at December 31, 2003, compared
with book value of $1,783 million. The notional amount of
these interest rate swaps was $550 million and
$540 million, respectively, at December 31, 2004
and 2003. The fair market value of the interest rate swaps was
an asset of $2 million and $15 million at
December 31, 2004 and 2003, respectively, with an
offsetting amount recorded in long-term debt.
The fair value of foreign currency instruments was estimated
using current market rates provided by outside quotation
services. The notional amount of foreign currency instruments in
equivalent U.S. dollars was $1,832 million and
$1,107 million at December 31, 2004 and 2003,
respectively. The notional amount represents the contract
amount, not the amount at risk. The fair value of Visteon’s
foreign currency instruments was an asset of $18 million
and a liability of $10 million at
December 31, 2004 and 2003, respectively.
The notional amount of commodity derivatives was
$71 million and $54 million at
December 31, 2004 and 2003, respectively. The fair
market value of commodity derivatives was an asset of
$9 million and $11 million at December 31, 2004
and 2003, respectively.
It is anticipated that approximately $16 million of
deferred net gains, net of tax, will be reclassified from
accumulated other comprehensive income to earnings in 2005 as
the anticipated underlying transactions occur.
Concentration of Credit Risk
Financial instruments, including cash equivalents, marketable
securities, derivative contracts and accounts receivable, expose
us to counterparty credit risk for non-performance. Our
counterparties for cash equivalents, marketable securities and
derivative contracts are banks and financial institutions that
meet our requirement of high credit standing. Our counterparties
for derivative contracts are substantial investment and
commercial banks with significant experience using such
derivatives. We manage our credit risk through policies
requiring minimum credit standing and limiting credit exposure
to any one counterparty, and through monitoring counterparty
credit risks. Our concentration of credit risk related to
derivative contracts at December 31, 2004, was not
significant.
With the exception of accounts receivable from Ford and its
affiliates, Visteon’s credit risk with any individual
customer does not exceed ten percent of total accounts
receivable at December 31, 2004. Management
periodically performs credit evaluations of its customers and
generally does not require collateral.
106
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
NOTE 16. Special Charges
2004 Actions
Visteon recorded pre-tax special charges of $396 million
and after-tax special charges of $1,263 million, with
$382 million in costs of sales and $14 million in
selling, administrative and other expenses, as summarized below:
| |
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
| |
|
| |
| |
|
Pre-tax | |
|
After-tax | |
| |
|
| |
|
| |
| |
|
(in millions) | |
|
Restructuring and other charges:
|
|
|
|
|
|
|
|
|
| |
U.S. Salaried voluntary separation related
|
|
$ |
51 |
|
|
$ |
51 |
|
| |
U.S. Hourly early retirement incentive and other related
|
|
|
25 |
|
|
|
25 |
|
| |
Plant closure related
|
|
|
11 |
|
|
|
7 |
|
| |
European Plan for Growth related
|
|
|
9 |
|
|
|
9 |
|
| |
Adjustments to prior year’s expenses
|
|
|
1 |
|
|
|
1 |
|
| |
|
|
|
|
|
|
| |
|
Total restructuring and other charges
|
|
|
97 |
|
|
|
93 |
|
|
Loss related to asset impairment charges
|
|
|
314 |
|
|
|
314 |
|
|
Adjustments related to seating operations
|
|
|
(15 |
) |
|
|
(15 |
) |
|
Deferred tax valuation allowance (Note 7)
|
|
|
— |
|
|
|
871 |
|
| |
|
|
|
|
|
|
| |
|
Total special charges
|
|
$ |
396 |
|
|
$ |
1,263 |
|
| |
|
|
|
|
|
|
Restructuring and Other Charges
U.S. salaried voluntary separation charges are related to
incentive programs offered during the fourth quarter of 2004 to
eligible salaried Visteon employees to voluntarily separate
employment. About 400 employees elected to terminate employment
by March 31, 2005.
Early retirement incentive and other charges are related to
incentive programs offered during the third quarter of 2004 to
eligible Visteon-assigned Ford-UAW employees to voluntarily
retire or to relocate in order to return to a Ford facility.
About 500 employees elected to retire early at a cost of
$18 million and about 210 employees have agreed to return
to a Ford facility at a cost of $7 million.
Plant closure charges are related to the involuntary separation
of up to about 200 employees as a result of the closure of
our La Verpilliere, France, manufacturing facility. This
program has been substantially completed as of
December 31, 2004. European Plan for Growth charges
are comprised of $9 million related to the separation of
about 50 hourly employees located at Visteon’s plants
in Europe through a continuation of a special voluntary
retirement and separation program started in 2002.
In 2004, net accrued liability adjustments of $14 million
relating to prior year’s actions were credited to costs of
sales, including $15 million related to costs to complete
the transfer of seat production located in Chesterfield,
Michigan, to another supplier, as discussed further in this note.
107
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
NOTE 16. Special
Charges — (Continued)
Asset Impairment Charge
During the third quarter of 2004, the Automotive Operations
recorded a pre-tax, non-cash impairment write-down of
$314 million in costs of sales to reduce the net book value
of certain long-lived assets. This write-down was based on an
assessment by product line asset group, completed in the third
quarter of 2004, of the recoverability of our long-lived assets
in light of the challenging environment in which we operate, and
included considering the impact of lower than anticipated
current and near term future year Ford North American production
volumes and the related impact on our future operating
projections. Assets are considered impaired if the book value is
greater than the undiscounted cash flows expected from the use
of the asset. As a result of this analysis the assets of the
steering systems product group were impaired. The write-down was
approximately $249 million in North America and
$65 million in Europe and was determined on a “held
for use” basis. Fair values were determined primarily based
on prices for similar groups of assets determined by a
third-party valuation firm.
2003 Actions
Visteon recorded pre-tax special charges of $754 million
and after-tax special charges of $933 million, with
$734 million in costs of sales and $20 million in
selling, administrative and other expenses, as summarized below:
| |
|
|
|
|
|
|
|
|
|
|
| |
|
2003 | |
| |
|
| |
| |
|
Pre-tax | |
|
After-tax | |
| |
|
| |
|
| |
| |
|
Restated | |
| |
|
(in millions) | |
|
Restructuring and other charges:
|
|
|
|
|
|
|
|
|
| |
2003 actions
|
|
$ |
139 |
|
|
$ |
91 |
|
| |
Adjustments to prior year’s expenses
|
|
|
(9 |
) |
|
|
(6 |
) |
| |
|
|
|
|
|
|
| |
|
Total restructuring and other charges
|
|
|
130 |
|
|
|
85 |
|
|
Loss related to fourth quarter asset impairment charges
|
|
|
407 |
|
|
|
260 |
|
|
Loss related to seating operations*
|
|
|
217 |
|
|
|
139 |
|
|
Deferred tax valuation allowance (Note 7)
|
|
|
— |
|
|
|
449 |
|
| |
|
|
|
|
|
|
|
Total special charges
|
|
$ |
754 |
|
|
$ |
933 |
|
| |
|
|
|
|
|
|
|
|
|
| |
* |
2003 amounts include $18 million related operating losses
from the North American seating operation between the effective
date of the exit agreements (April 1, 2003) and the
date the agreements were finalized (June 23, 2003). |
Restructuring and Other Charges
In the fourth quarter of 2003, Visteon recorded pre-tax charges
of $48 million comprised of $14 million related to an
involuntary program to separate about
110 U.S. salaried employees, $7 million related
to a program started in the second quarter of 2003 to
involuntary separate hourly employees located in Germany,
$8 million related to the involuntary separation of about
44 salaried employees in Germany, $11 million related
to the separation of about 100 hourly employees located at
Visteon’s plants in Europe through a continuation of
special voluntary retirement and separation program started in
2002 and $8 million related to other minor actions. The
separation of the 110 U.S. salaried employees took
place at various times in 2004; all other actions were
substantially completed during the fourth quarter of 2003.
108
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
NOTE 16. Special
Charges — (Continued)
In the third quarter of 2003, Visteon recorded pre-tax charges
of $11 million comprised of $7 million related to a
program started in the second quarter of 2003 to involuntarily
separate hourly employees located in Germany, $1 million
related to the separation of about 13 hourly employees
located at Visteon’s plants in Europe through a
continuation of a special voluntary retirement and separation
program started in 2002 and $3 million related to other
minor actions.
In the second quarter of 2003, Visteon recorded pre-tax charges
of $49 million, comprised of $42 million related to
the involuntary separation of 675 hourly employees located
in Germany, $3 million related to the separation of about
93 hourly employees located at Visteon’s plants in
Europe through a continuation of a special voluntary retirement
and separation program started in 2002 and $4 million
related to other minor actions.
In the first quarter of 2003, Visteon recorded pre-tax charges
of $31 million which includes $27 million related to
the involuntary separation of about 135 U.S. salaried
employees, the separation of about 35 hourly employees
located at Visteon’s plants in Europe through a
continuation of a special voluntary retirement and separation
program started in 2002 and the elimination of about
120 manufacturing positions in Mexico and other minor
actions. Included in the $31 million pre-tax charge are
$4 million of non-cash charges related to the write-down of
a group of coiled spring and stamping equipment at our Monroe,
Michigan, plant for which production activities were
discontinued and the future undiscounted cash flows are less
than the carrying value of these fixed assets held for use.
Visteon measured the impairment loss by comparing the carrying
value of these fixed assets to the expected proceeds from
disposal of the assets after completion of remaining production
commitments.
In addition, accrued restructuring liabilities relating to prior
year’s restructuring actions of $9 million were
credited to costs of sales in the third quarter of 2003,
primarily as a result of reduced costs to complete the closure
of the Markham, Ontario facility and the related employee
separations.
Asset Impairment Charge
During the fourth quarter of 2003, the Automotive Operations
recorded a pre-tax, non-cash impairment write-down of
$407 million ($260 million after-tax) in costs of
sales to reduce the net book value of certain long-lived assets.
This write-down was based on an assessment by product line asset
group, completed in the fourth quarter of 2003, of the
recoverability of our long-lived assets in light of the
challenging environment in which we operate and as part of our
business planning process for 2004 and beyond. This assessment
included considering the substantial change in the production
levels of Visteon’s major customers and the related impact
on our future operating projections, as well as the anticipated
impact of the recently completed Ford 2003 agreements.
Assets are considered impaired if the book value is greater than
the undiscounted cash flows expected from the use of the asset.
As a result of this analysis the assets of six product groupings
were impaired: bumpers, fuel tanks, starters and alternators,
steering columns, suspension systems, and wiper/washer. The
write-down was approximately $300 million in North America
and $100 million in Europe and was determined on a
“held for use” basis. Fair values were determined
primarily based on prices for similar groups of assets
determined by a third-party valuation firm.
109
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
NOTE 16. Special
Charges — (Continued)
Seating Operations
During the second quarter of 2003, Visteon finalized an
agreement with Ford to transfer seat production located in
Chesterfield, Michigan, to another supplier. As part of this
agreement, about 1,470 Visteon-assigned Ford-UAW employees
working at the Chesterfield, Michigan, facility transferred to
Ford, and Visteon agreed to be responsible to reimburse Ford for
the actual net costs of transferring seating production through
June 2004, including costs related to Ford hourly employee
voluntary retirement and separation programs that Ford is
expected to implement, offset by certain cost savings expected
to be realized by Ford. In addition, Visteon and the new
supplier entered into a transitional services agreement under
which Visteon would be reimbursed for certain engineering and
other services.
Included in costs of sales and our operating results for 2003 is
$217 million related to the seating operations consisting
of:
|
|
|
| |
• |
$114 million of payments to be made to Ford for the
estimated costs of separating approximately 650 hourly
Ford-UAW employees under Ford employee retirement and separation
programs expected to be implemented by Ford during the
transition process; |
| |
| |
• |
$60 million of net other contractually-committed cost
payments to be made to Ford; |
| |
| |
• |
$25 million non-cash charge related to certain
seating-related fixed assets, for which production activities
will be discontinued and the future undiscounted cash flows are
less than the carrying value of these fixed assets held for use.
Visteon measured the impairment loss by comparing the carrying
value of these fixed assets to the expected proceeds from
disposal of the assets after completion of remaining production
commitments. |
| |
| |
• |
$18 million related to operating losses incurred between
the effective date of the agreements (April 1, 2003)
and the date the agreements were finalized
(June 23, 2003). |
The ultimate costs and cash payments related to this agreement
depended on several factors including the actual net costs
incurred during the seating production transition phase that
concluded around June 2004, and the ultimate actual costs
incurred related to the relocation, re-deployment and/or
employment termination of the 1,470 Visteon-assigned Ford-UAW
employees and the savings achieved by Ford (as defined in the
agreement) resulting from resourcing production that served as
an offset to the transition costs. A determination of the net
costs that Visteon is responsible to reimburse Ford under this
agreement was completed in the third quarter of 2004, subject to
the final actuarial valuation received in the fourth quarter of
2004, and resulted in a $2 million and $13 million
reduction in previously established accruals and a credit to
costs of sales in the third quarter of 2004 and fourth quarter
of 2004, respectively. Visteon paid Ford about $62 million
in 2004 and $30 million in 2003 under this agreement; of
the remaining amounts payable of $67 million, about
$16 million is expected to be paid in 2005 and the balance
to be paid in equal installments over nine years with interest.
110
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
NOTE 16. Special
Charges — (Continued)
The original Hourly Employee Assignment Agreement between
Visteon and Ford, entered into in connection with our separation
from Ford, provided a mechanism for determining a cash
settlement amount for postretirement health and life insurance
benefits associated with Visteon-assigned Ford-UAW employees
that transfer to Ford. Under this original agreement, Ford would
assume the retiree health and life benefits for such employees
and Visteon would reimburse Ford an amount equal to the
SFAS 106 actuarially determined accumulated projected
benefit obligation that was transferred to Ford. The agreement
also provided that if the reimbursement related to such
transfers exceeds $10 million per year, then Visteon has
the option to pay $10 million in the first year and pay the
balance in succeeding years in annual installments of at least
$5 million until the obligation is satisfied, with
outstanding amounts bearing interest based on a variable rate
equal to the 90-day Treasury Bill rate. During the second
quarter of 2003, Visteon reclassified approximately
$148 million in postretirement benefits payable to Ford as
an accrued liability based on the estimated SFAS 106
actuarially determined accumulated projected benefit obligation
associated with the 1,470 Visteon-assigned Ford-UAW employees
working at the Chesterfield, Michigan facility that were
transferred to Ford. This amount will be adjusted in the future
based upon final actuarial valuation results. At
December 31, 2004 and 2003, about $133 million
and $138 million, respectively, of this obligation is
classified in the line “Other Liabilities” on the
Consolidated Balance Sheet with the remainder in current accrued
liabilities.
2002 Actions
Visteon recorded pre-tax special charges of $223 million
and after-tax special charges of $407 million during 2002.
After-tax special charges include a non-cash write-off for the
entire value of goodwill of $265 million, net of tax,
related to Visteon’s adoption of Financial Accounting
Standards No. 142, “Goodwill and Other Intangible
Assets”, as described in Note 17 of our consolidate
financial statements.
Visteon recorded pre-tax charges of $95 million related to
various first quarter of 2002 actions, including the separation
of 820 employees at Markham, Ontario, as a result of
Visteon’s decision to move nearly all of the non-restraint
electronics business to facilities in Mexico, the elimination of
about 215 engineering positions in the United States to reduce
research and development costs, the closure of our Visteon
Technologies facility in California and the related
discontinuation of support for our aftermarket navigation
systems product line, the closure of our Leatherworks facility
in Michigan and the elimination of about 240 manufacturing
positions in Mexico.
Visteon recorded pre-tax charges of $71 million
($48 million in costs of sales and $23 million in
selling, administrative and other expenses) related to the
separation of about 308 U.S. salaried employees through a
special voluntary early retirement and separation program.
Visteon recorded pre-tax charges in costs of sales of
$40 million related to restructuring manufacturing
operations in the UK, Germany and France. Of this charge,
$24 million is related to the separation of about
338 hourly employees located at Visteon’s plants in
Europe through a special voluntary retirement and separation
program. The remaining $16 million is a non-cash impairment
charge related to a group of machinery and equipment in Europe
for which production activities will be discontinued and the
future undiscounted cash flows are less than the carrying value
of the assets held for use. Visteon measured the impairment loss
by comparing the carrying value of these fixed assets to the
expected proceeds from disposal of the assets after completion
of remaining production commitments.
111
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
NOTE 16. Special
Charges — (Continued)
Effective April 1, 2002, Visteon completed the sale of its
restraint electronics business to Autoliv, Inc. for
$25 million, resulting in a pre-tax charge of
$26 million recorded in costs of sales. The sale includes
Visteon’s North American and European order book of
approximately $150 million in annual sales to Ford and its
affiliates, and associated manufacturing operations in Markham,
Ontario, as well as related assets and liabilities. As part of
the sale, approximately 280 employees from Markham and
about 95 engineers from Dearborn, Michigan, transferred to
Autoliv.
Visteon recorded pre-tax charges of $3 million were
recorded related to the elimination of about 189 manufacturing
positions in Brazil and other minor actions. In addition,
accrued restructuring liabilities relating to prior year
restructuring plans of $12 million were credited to costs
of sales in 2002 reflecting a change in estimated costs to
complete these activities.
112
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
NOTE 16. Special
Charges — (Continued)
Reserve Activity
Reserve balances, excluding those related to seating operations,
of $55 million and $45 million at
December 31, 2004 and 2003, respectively, are included
in current accrued liabilities on the accompanying balance
sheets. The December 31, 2004, reserve balance of
$55 million includes $11 million related to 2003
restructuring activities. Visteon currently anticipates that the
restructuring activities to which all of the above charges
relate will be substantially completed by the end of 2005.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Automotive Operations | |
|
Glass Operations | |
| |
|
| |
|
| |
| |
|
Employee-Related | |
|
Other | |
|
Employee-Related | |
|
Total | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(in millions) | |
|
December 31, 2001 reserve balances
|
|
$ |
17 |
|
|
$ |
— |
|
|
$ |
6 |
|
|
$ |
23 |
|
| |
First quarter 2002 actions
|
|
|
81 |
|
|
|
14 |
|
|
|
— |
|
|
|
95 |
|
| |
Third quarter 2002 actions
|
|
|
10 |
|
|
|
16 |
|
|
|
— |
|
|
|
26 |
|
| |
Fourth quarter 2002 actions
|
|
|
83 |
|
|
|
— |
|
|
|
5 |
|
|
|
88 |
|
| |
Adjustments to prior years expenses
|
|
|
(9 |
) |
|
|
— |
|
|
|
(3 |
) |
|
|
(12 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total net expense
|
|
|
165 |
|
|
|
30 |
|
|
|
2 |
|
|
|
197 |
|
| |
Utilization
|
|
|
(147 |
) |
|
|
(30 |
) |
|
|
(7 |
) |
|
|
(184 |
) |
| |
Foreign exchange translation
|
|
|
1 |
|
|
|
— |
|
|
|
— |
|
|
|
1 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2002 reserve balances
|
|
$ |
36 |
|
|
$ |
— |
|
|
$ |
1 |
|
|
$ |
37 |
|
| |
First quarter 2003 actions
|
|
|
26 |
|
|
|
4 |
|
|
|
1 |
|
|
|
31 |
|
| |
Second quarter 2003 actions
|
|
|
49 |
|
|
|
— |
|
|
|
— |
|
|
|
49 |
|
| |
Third quarter 2003 actions
|
|
|
11 |
|
|
|
— |
|
|
|
— |
|
|
|
11 |
|
| |
Fourth quarter 2003 actions
|
|
|
48 |
|
|
|
— |
|
|
|
— |
|
|
|
48 |
|
| |
Adjustments to prior years expenses
|
|
|
(8 |
) |
|
|
— |
|
|
|
(1 |
) |
|
|
(9 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total net expense – Restated
|
|
|
126 |
|
|
|
4 |
|
|
|
— |
|
|
|
130 |
|
| |
Utilization – Restated
|
|
|
(122 |
) |
|
|
(4 |
) |
|
|
(1 |
) |
|
|
(127 |
) |
| |
Foreign exchange translation
|
|
|
5 |
|
|
|
— |
|
|
|
— |
|
|
|
5 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2003 reserve balances
|
|
$ |
45 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
45 |
|
| |
First quarter 2004 actions – Restated
|
|
|
14 |
|
|
|
— |
|
|
|
— |
|
|
|
14 |
|
| |
Second quarter 2004 actions
|
|
|
5 |
|
|
|
— |
|
|
|
— |
|
|
|
5 |
|
| |
Third quarter 2004 actions
|
|
|
24 |
|
|
|
— |
|
|
|
1 |
|
|
|
25 |
|
| |
Fourth quarter 2004 actions
|
|
|
49 |
|
|
|
— |
|
|
|
3 |
|
|
|
52 |
|
| |
Adjustments to prior years expenses
|
|
|
1 |
|
|
|
— |
|
|
|
— |
|
|
|
1 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total net expense
|
|
|
93 |
|
|
|
— |
|
|
|
4 |
|
|
|
97 |
|
| |
Utilization
|
|
|
(87 |
) |
|
|
— |
|
|
|
(1 |
) |
|
|
(88 |
) |
| |
Foreign exchange translation
|
|
|
1 |
|
|
|
— |
|
|
|
— |
|
|
|
1 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2004 reserve balances
|
|
$ |
52 |
|
|
$ |
— |
|
|
$ |
3 |
|
|
$ |
55 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Utilization for 2004 of $88 million includes
$67 million mainly for severance pay and $21 million
related to special pension and other postretirement benefits.
Utilization for 2003 of $127 million includes
$97 million of cash payments mainly for severance pay,
$26 million incurred related to special pension and other
postretirement benefits and $4 million related to the
non-cash write-down of certain plant assets.
113
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
|
|
| NOTE 17. |
Accounting Changes |
During the fourth quarter of 2004, Visteon changed the method of
determining the cost of production inventory for
U.S. locations from the last-in, first-out
(“LIFO”) method to the first-in, first-out
(“FIFO”) method. Prior to the fourth quarter of 2004,
production inventories in the U.S. were valued
substantially using the LIFO method. Visteon believes the FIFO
method of inventory costing provides more meaningful information
to investors and conforms all inventories to the same FIFO
basis. As a result, all inventories are now stated at the lower
of cost, determined on a FIFO basis, or market. In accordance
with Accounting Principles Board Opinion No. 20,
“Accounting Changes”, a change from the LIFO method of
inventory costing to another method is considered a change in
accounting principle that should be applied by retroactively
restating all prior periods. This change decreased the
2003 net loss by $36 million ($0.29 per share),
which includes a $34 million reduction to the fourth
quarter of 2003 non-cash charge which established a valuation
allowance against our net deferred tax assets in the U.S.; and
increased 2002 net loss by $6 million ($0.04 per
share). The change in accounting from LIFO to FIFO resulted in a
cumulative increase to stockholders equity at
January 1, 2002 of $61 million.
Effective January 1, 2002, Visteon adopted Financial
Accounting Standards No. 142 (“SFAS 142”),
“Goodwill and Other Intangible Assets.” SFAS 142
no longer permits amortization of goodwill and establishes a new
method of testing goodwill for impairment by using a fair-value
based approach. Goodwill was related primarily to the
acquisition of the interiors division of Compagnie Plastic
Omnium and the increase of Visteon’s ownership in Halla
Climate Corporation to 70% by purchasing an additional 35%, both
of which occurred in 1999.
SFAS 142 requires goodwill to be evaluated for possible
impairment as of January 1, 2002, and periodically
thereafter, using a fair-value approach. An initial test for
goodwill impairment using a fair-value approach was performed
for the Automotive Operations reporting unit by comparing the
estimated fair value of our Automotive Operations reporting unit
to its net book value. Visteon’s stock market
capitalization, as well as market multiples and other factors,
were used as the basis for determining the fair value of the
Automotive Operations reporting unit. Because the fair value of
the Automotive Operations reporting unit was considered less
than its net book value, Visteon recorded an impairment loss on
goodwill of $363 million ($265 million after-tax) as a
cumulative effect of change in accounting principle in the first
quarter of 2002. The pre-tax impairment loss consists of
$357 million of net goodwill as of December 31, 2001,
and $6 million reclassified to goodwill related to certain
acquired intangible assets, as required by SFAS 142.
114
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
The reconciliation of net (loss) to cash flows provided by
operating activities is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
Restated | |
|
Restated | |
|
Restated | |
| |
|
(in millions) | |
|
Net (loss)
|
|
$ |
(1,536 |
) |
|
$ |
(1,229 |
) |
|
$ |
(379 |
) |
|
Adjustment to reconcile net (loss) to cash flows from operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cumulative effect of change in accounting, net of tax
|
|
|
— |
|
|
|
— |
|
|
|
265 |
|
| |
Depreciation and amortization
|
|
|
685 |
|
|
|
677 |
|
|
|
633 |
|
| |
Asset impairment charges
|
|
|
314 |
|
|
|
436 |
|
|
|
— |
|
| |
Loss on divestitures
|
|
|
— |
|
|
|
— |
|
|
|
26 |
|
| |
Earnings of affiliated companies in excess of dividends remitted
|
|
|
(2 |
) |
|
|
(20 |
) |
|
|
(28 |
) |
| |
Deferred income taxes
|
|
|
873 |
|
|
|
(84 |
) |
|
|
(158 |
) |
| |
Sale of receivables
|
|
|
66 |
|
|
|
5 |
|
|
|
10 |
|
| |
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Decrease (increase) in accounts receivable and other current
assets
|
|
|
(173 |
) |
|
|
(37 |
) |
|
|
280 |
|
| |
|
Decrease in inventory
|
|
|
3 |
|
|
|
140 |
|
|
|
85 |
|
| |
|
Increase (decrease) in accounts payable, accrued and other
liabilities
|
|
|
(57 |
) |
|
|
(2 |
) |
|
|
67 |
|
| |
|
Increase in postretirement benefits other than pensions
|
|
|
180 |
|
|
|
400 |
|
|
|
279 |
|
| |
Other
|
|
|
65 |
|
|
|
77 |
|
|
|
23 |
|
| |
|
|
|
|
|
|
|
|
|
|
Cash flows provided by operating activities
|
|
$ |
418 |
|
|
$ |
363 |
|
|
$ |
1,103 |
|
| |
|
|
|
|
|
|
|
|
|
Cash paid for interest and income taxes was as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(in millions) | |
|
Interest
|
|
$ |
105 |
|
|
$ |
94 |
|
|
$ |
120 |
|
|
Income taxes
|
|
|
101 |
|
|
|
89 |
|
|
|
92 |
|
|
|
| NOTE 19. |
Information Technology Agreement |
Prior to January 2003 and since our separation from Ford, Ford
had provided us with and charged us for many of our information
technology needs. In January 2003, we entered into a 10-year
outsourcing agreement with International Business Machines
(“IBM”) pursuant to which we outsource most of our IT
needs on a global basis, including mainframe support services,
data centers, customer support centers, application development
and maintenance, data network management, desktop support,
disaster recovery and web hosting. The service charges under the
outsourcing agreement are expected to aggregate about
$2 billion during the ten year initial term of the
agreement, subject to decreases and increases in the service
charges based on Visteon’s actual consumption of services
to meet its then current business needs. The outsourcing
agreement may also be terminated for Visteon’s business
convenience after our second full year under the agreement for a
scheduled termination fee. Associated charges were about
$280 million in 2004.
115
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
NOTE 20. Segment Information
Financial Accounting Standards No. 131, “Disclosures
about Segments of an Enterprise and Related Information,”
establishes standards for reporting information about operating
segments in annual financial statements and requires reporting
selected information about operating segments in interim
financial reports. It also establishes standards for related
disclosures about products and services and geographic
operations.
Operating segments are defined as components of an enterprise
about which separate financial information is available that is
evaluated regularly by the chief operating decision-makers, or a
decision-making group, in deciding how to allocate resources and
in assessing performance. Visteon’s chief operating
decision-making group is comprised of the Chairman and Chief
Executive Officer and several other senior executives.
Visteon’s organization is focused on customer business
groups, and supported by centralized product development,
manufacturing and administrative functions. Consistent with this
organization, Visteon’s reportable operating segments are
Automotive Operations and Glass Operations. Automotive
Operations provides various automotive systems and components
mainly to OEM customers; Glass Operations supplies
architectural and flat glass to a broad customer base, including
OEMs.
The accounting policies for the operating segments are the same
as those described in Note 3, “Accounting
Policies,” of our consolidated financial statements. Income
(loss) before income taxes is the primary profitability measure
used by our chief operating decision-makers, both including and
excluding the effects of special charges. Special charges are
discussed further in Notes 7, 16 and 17 of our consolidated
financial statements. Financial information for the reportable
operating segments is summarized as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Automotive | |
|
Glass | |
|
Total | |
| |
|
Operations | |
|
Operations | |
|
Visteon | |
| |
|
| |
|
| |
|
| |
| |
|
(in millions) | |
|
2004 – Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$ |
18,137 |
|
|
$ |
520 |
|
|
$ |
18,657 |
|
|
(Loss) before income taxes and minority interests
|
|
|
(523 |
) |
|
|
(16 |
) |
|
|
(539 |
) |
|
Net (loss)
|
|
|
(1,476 |
) |
|
|
(60 |
) |
|
|
(1,536 |
) |
|
Special charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Before taxes
|
|
|
(392 |
) |
|
|
(4 |
) |
|
|
(396 |
) |
| |
After taxes
|
|
|
(1,215 |
) |
|
|
(48 |
) |
|
|
(1,263 |
) |
|
Depreciation/amortization
|
|
|
681 |
|
|
|
4 |
|
|
|
685 |
|
|
Capital expenditures, including capital leases
|
|
|
833 |
|
|
|
12 |
|
|
|
845 |
|
|
Unconsolidated affiliates:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Equity in net income
|
|
|
40 |
|
|
|
5 |
|
|
|
45 |
|
| |
Investments in
|
|
|
207 |
|
|
|
20 |
|
|
|
227 |
|
|
Total assets, end of period
|
|
|
10,021 |
|
|
|
271 |
|
|
|
10,292 |
|
116
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
NOTE 20. Segment
Information — (Continued)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Automotive | |
|
Glass | |
|
Total | |
| |
|
Operations | |
|
Operations | |
|
Visteon | |
| |
|
| |
|
| |
|
| |
| |
|
(in millions) | |
|
2003 – Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$ |
17,097 |
|
|
$ |
563 |
|
|
$ |
17,660 |
|
|
(Loss) before income taxes and minority interests
|
|
|
(1,187 |
) |
|
|
(7 |
) |
|
|
(1,194 |
) |
|
Net (loss)
|
|
|
(1,222 |
) |
|
|
(7 |
) |
|
|
(1,229 |
) |
|
Special charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Before taxes
|
|
|
(754 |
) |
|
|
— |
|
|
|
(754 |
) |
| |
After taxes
|
|
|
(928 |
) |
|
|
(5 |
) |
|
|
(933 |
) |
|
Depreciation/amortization
|
|
|
670 |
|
|
|
7 |
|
|
|
677 |
|
|
Capital expenditures
|
|
|
863 |
|
|
|
9 |
|
|
|
872 |
|
|
Unconsolidated affiliates:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Equity in net income
|
|
|
51 |
|
|
|
4 |
|
|
|
55 |
|
| |
Investments in
|
|
|
195 |
|
|
|
20 |
|
|
|
215 |
|
|
Total assets, end of period
|
|
|
10,725 |
|
|
|
299 |
|
|
|
11,024 |
|
|
2002 – Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$ |
17,797 |
|
|
$ |
598 |
|
|
$ |
18,395 |
|
|
Income (loss) before income taxes and minority interests
|
|
|
(181 |
) |
|
|
21 |
|
|
|
(160 |
) |
|
Cumulative effect of change in accounting, net of tax
|
|
|
(265 |
) |
|
|
— |
|
|
|
(265 |
) |
|
Net income (loss)
|
|
|
(394 |
) |
|
|
15 |
|
|
|
(379 |
) |
|
Special charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Before taxes
|
|
|
(221 |
) |
|
|
(2 |
) |
|
|
(223 |
) |
| |
After taxes, excluding change in accounting
|
|
|
(141 |
) |
|
|
(1 |
) |
|
|
(142 |
) |
|
Depreciation/amortization
|
|
|
627 |
|
|
|
6 |
|
|
|
633 |
|
|
Capital expenditures
|
|
|
718 |
|
|
|
7 |
|
|
|
725 |
|
|
Unconsolidated affiliates:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Equity in net income
|
|
|
39 |
|
|
|
5 |
|
|
|
44 |
|
| |
Investments in
|
|
|
171 |
|
|
|
20 |
|
|
|
191 |
|
|
Total assets, end of period
|
|
|
10,954 |
|
|
|
286 |
|
|
|
11,240 |
|
Visteon’s major geographic areas are the United States,
Europe and Asia Pacific. Other geographic areas (primarily
Canada, Mexico and South America) individually are not material.
Financial information segregated by geographic area is as
follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Total | |
| Geographic Areas |
|
United States | |
|
Europe | |
|
Asia-Pacific | |
|
All Other | |
|
Visteon | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(in millions) | |
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$ |
11,868 |
|
|
$ |
3,915 |
|
|
$ |
1,744 |
|
|
$ |
1,130 |
|
|
$ |
18,657 |
|
|
Net property
|
|
|
2,835 |
|
|
|
1,540 |
|
|
|
556 |
|
|
|
372 |
|
|
|
5,303 |
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$ |
11,852 |
|
|
$ |
3,209 |
|
|
$ |
1,454 |
|
|
$ |
1,145 |
|
|
$ |
17,660 |
|
|
Net property
|
|
|
3,001 |
|
|
|
1,503 |
|
|
|
442 |
|
|
|
419 |
|
|
|
5,365 |
|
|
2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$ |
13,093 |
|
|
$ |
2,878 |
|
|
$ |
1,249 |
|
|
$ |
1,175 |
|
|
$ |
18,395 |
|
|
Net property
|
|
|
3,196 |
|
|
|
1,409 |
|
|
|
407 |
|
|
|
436 |
|
|
|
5,448 |
|
117
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
NOTE 20. Segment
Information — (Continued)
Visteon’s sales by group of similar products are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Product Groups |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(in millions) | |
|
Automotive Operations Chassis Products & Systems
|
|
$ |
4,477 |
|
|
$ |
4,390 |
|
|
$ |
4,544 |
|
| |
Interior Products & Systems
|
|
|
3,974 |
|
|
|
3,653 |
|
|
|
3,982 |
|
| |
Climate Control Products & Systems
|
|
|
4,317 |
|
|
|
3,848 |
|
|
|
3,786 |
|
| |
Powertrain Products & Systems
|
|
|
3,328 |
|
|
|
3,144 |
|
|
|
3,320 |
|
| |
Electronic Products & Systems
|
|
|
1,961 |
|
|
|
2,091 |
|
|
|
2,233 |
|
| |
Exterior Products & Systems
|
|
|
881 |
|
|
|
801 |
|
|
|
814 |
|
| |
Eliminations
|
|
|
(801 |
) |
|
|
(830 |
) |
|
|
(882 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
Total Automotive Operations
|
|
|
18,137 |
|
|
|
17,097 |
|
|
|
17,797 |
|
|
Glass Operations
|
|
|
520 |
|
|
|
563 |
|
|
|
598 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Total Visteon
|
|
$ |
18,657 |
|
|
$ |
17,660 |
|
|
$ |
18,395 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| NOTE 21. |
Summary Quarterly Financial Data (Unaudited) |
The following tables present the restated and the previously
reported summary quarterly financial data.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 — Restated | |
|
2003 — Restated | |
| |
|
| |
|
| |
| |
|
First | |
|
Second | |
|
Third | |
|
Fourth | |
|
First | |
|
Second | |
|
Third | |
|
Fourth | |
| |
|
Quarter | |
|
Quarter | |
|
Quarter | |
|
Quarter | |
|
Quarter | |
|
Quarter | |
|
Quarter | |
|
Quarter | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(in millions, except per share amounts) | |
|
Sales
|
|
$ |
4,972 |
|
|
$ |
4,870 |
|
|
$ |
4,136 |
|
|
$ |
4,679 |
|
|
$ |
4,704 |
|
|
$ |
4,613 |
|
|
$ |
3,884 |
|
|
$ |
4,459 |
|
|
Gross margin*
|
|
|
317 |
|
|
|
288 |
|
|
|
(230 |
) |
|
|
131 |
|
|
|
225 |
|
|
|
(8 |
) |
|
|
(14 |
) |
|
|
(367 |
) |
|
Operating income (loss)
|
|
|
52 |
|
|
|
50 |
|
|
|
(455 |
) |
|
|
(135 |
) |
|
|
(19 |
) |
|
|
(248 |
) |
|
|
(278 |
) |
|
|
(627 |
) |
|
Income (loss) before income taxes and minority interests
|
|
|
44 |
|
|
|
38 |
|
|
|
(469 |
) |
|
|
(152 |
) |
|
|
(23 |
) |
|
|
(253 |
) |
|
|
(285 |
) |
|
|
(633 |
) |
|
Net income (loss)
|
|
|
21 |
|
|
|
20 |
|
|
|
(1,439 |
) |
|
|
(138 |
) |
|
|
(17 |
) |
|
|
(165 |
) |
|
|
(181 |
) |
|
|
(866 |
) |
|
Earnings (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic
|
|
$ |
0.17 |
|
|
$ |
0.16 |
|
|
$ |
(11.48 |
) |
|
$ |
(1.10 |
) |
|
$ |
(0.13 |
) |
|
$ |
(1.31 |
) |
|
$ |
(1.44 |
) |
|
$ |
(6.89 |
) |
| |
Diluted
|
|
$ |
0.16 |
|
|
$ |
0.16 |
|
|
$ |
(11.48 |
) |
|
$ |
(1.10 |
) |
|
$ |
(0.13 |
) |
|
$ |
(1.31 |
) |
|
$ |
(1.44 |
) |
|
$ |
(6.89 |
) |
|
|
|
| |
* |
Gross margin as presented is calculated as sales less costs of
sales. |
118
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
|
|
| NOTE 21. |
Summary Quarterly Financial Data
(Unaudited) — (Continued) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 — Previously Reported | |
|
2003 — Previously Reported | |
| |
|
| |
|
| |
| |
|
First | |
|
Second | |
|
Third | |
|
Fourth | |
|
First | |
|
Second | |
|
Third | |
|
Fourth | |
| |
|
Quarter | |
|
Quarter | |
|
Quarter | |
|
Quarter | |
|
Quarter | |
|
Quarter | |
|
Quarter | |
|
Quarter | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(in millions, except per share amounts) | |
|
Sales
|
|
$ |
4,972 |
|
|
$ |
4,870 |
|
|
$ |
4,136 |
|
|
$ |
4,679 |
|
|
$ |
4,704 |
|
|
$ |
4,613 |
|
|
$ |
3,884 |
|
|
$ |
4,459 |
|
|
Gross margin*
|
|
|
316 |
|
|
|
294 |
|
|
|
(220 |
) |
|
|
156 |
|
|
|
223 |
|
|
|
(19 |
) |
|
|
(3 |
) |
|
|
(359 |
) |
|
Operating income
(loss)
|
|
|
51 |
|
|
|
56 |
|
|
|
(445 |
) |
|
|
(110 |
) |
|
|
(21 |
) |
|
|
(259 |
) |
|
|
(267 |
) |
|
|
(619 |
) |
|
Income (loss) before income taxes and minority interests
|
|
|
43 |
|
|
|
44 |
|
|
|
(459 |
) |
|
|
(127 |
) |
|
|
(25 |
) |
|
|
(264 |
) |
|
|
(274 |
) |
|
|
(625 |
) |
|
Net income (loss)
|
|
|
20 |
|
|
|
24 |
|
|
|
(1,424 |
) |
|
|
(119 |
) |
|
|
(19 |
) |
|
|
(172 |
) |
|
|
(174 |
) |
|
|
(842 |
) |
|
Earnings (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic
|
|
$ |
0.16 |
|
|
$ |
0.19 |
|
|
$ |
(11.36 |
) |
|
$ |
(0.95 |
) |
|
$ |
(0.15 |
) |
|
$ |
(1.37 |
) |
|
$ |
(1.38 |
) |
|
$ |
(6.70 |
) |
| |
Diluted
|
|
$ |
0.16 |
|
|
$ |
0.19 |
|
|
$ |
(11.36 |
) |
|
$ |
(0.95 |
) |
|
$ |
(0.15 |
) |
|
$ |
(1.37 |
) |
|
$ |
(1.38 |
) |
|
$ |
(6.70 |
) |
|
|
|
| |
* |
Gross margin as presented is calculated as sales less costs of
sales. |
The following table summarizes the impact of the accounting
corrections described in Note 2 of our consolidated
financial statements to Visteon’s previously reported net
income (loss) for each quarter in 2004 and 2003.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
First | |
|
Second | |
|
Third | |
|
Fourth | |
|
First | |
|
Second | |
|
Third | |
|
Fourth | |
| |
|
Quarter | |
|
Quarter | |
|
Quarter | |
|
Quarter | |
|
Quarter | |
|
Quarter | |
|
Quarter | |
|
Quarter | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Net income (loss), as previously reported
|
|
$ |
20 |
|
|
$ |
24 |
|
|
$ |
(1,424 |
) |
|
$ |
(119 |
) |
|
$ |
(19 |
) |
|
$ |
(172 |
) |
|
$ |
(174 |
) |
|
$ |
(842 |
) |
|
Accounting corrections for freight costs (pre-tax)
|
|
|
3 |
|
|
|
1 |
|
|
|
(1 |
) |
|
|
(11 |
) |
|
|
2 |
|
|
|
7 |
|
|
|
(13 |
) |
|
|
(7 |
) |
|
Accounting corrections for raw material costs (pre-tax)
|
|
|
(1 |
) |
|
|
(6 |
) |
|
|
(9 |
) |
|
|
(10 |
) |
|
|
1 |
|
|
|
3 |
|
|
|
2 |
|
|
|
— |
|
|
Accounting corrections for other supplier costs (pre-tax)
|
|
|
(1 |
) |
|
|
(1 |
) |
|
|
— |
|
|
|
(4 |
) |
|
|
(1 |
) |
|
|
1 |
|
|
|
— |
|
|
|
(1 |
) |
|
Tax impact of above
|
|
|
— |
|
|
|
2 |
|
|
|
(2 |
) |
|
|
— |
|
|
|
— |
|
|
|
(4 |
) |
|
|
4 |
|
|
|
(16 |
) |
|
Accounting correction for income taxes
|
|
|
— |
|
|
|
— |
|
|
|
(3 |
) |
|
|
6 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net income (loss), as restated
|
|
$ |
21 |
|
|
$ |
20 |
|
|
$ |
(1,439 |
) |
|
$ |
(138 |
) |
|
$ |
(17 |
) |
|
$ |
(165 |
) |
|
$ |
(181 |
) |
|
$ |
(866 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
119
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
|
|
| NOTE 21. |
Summary Quarterly Financial Data
(Unaudited) — (Continued) |
As discussed further in Note 16 of our consolidated
financial statements, Visteon recorded pre-tax charges of
$14 million, $5 million, $336 million and
$41 million in the first quarter, second quarter, third
quarter and fourth quarter of 2004, respectively, related to
asset impairment charges, exit of the North American seating
operations, restructuring and other actions. Results for the
third quarter of 2004 include income tax expense of
$871 million related to recording deferred income tax
valuation allowances, which are discussed further in Note 7
of our consolidated financial statements.
As discussed further in Note 16 of our consolidated
financial statements, Visteon recorded pre-tax charges of
$31 million, $266 million, $2 million and
$455 million in the first quarter, second quarter, third
quarter and fourth quarter of 2003, respectively, related to
asset impairment charges, exit of the North American seating
operations, restructuring and other actions. Results for the
fourth quarter of 2003 include income tax expense of
$449 million related to recording income tax valuation
allowances, which are discussed further in Note 7 of our
consolidated financial statements.
|
|
| NOTE 22. |
Subsequent Event |
On March 10, 2005, Visteon and Ford entered into a funding
agreement, effective as of March 1, 2005, under which Ford
has agreed (a) to accelerate the payment on or prior to
March 31, 2005 of not less than $120 million of
payables that are currently not required to be paid to Visteon
until after March 31, 2005; (b) to accelerate the
payment terms for certain payables to Visteon arising on or
after April 1, 2005 from an average of 33 days after
the date of sale to an average of 26 days; (c) to
reduce the amount of wages that Visteon is currently obligated
to reimburse Ford with respect to Visteon-assigned Ford-UAW
hourly employees that work at Visteon facilities, which Visteon
expects will result in reduced expenses and in cash savings of
approximately $25 million per month; and (d) to
release Visteon from its obligation to reimburse Ford for Ford
profit sharing payments with respect to Visteon-assigned
Ford-UAW hourly employees that accrue in 2005.
Under the funding agreement, Visteon has agreed to
(a) continue to provide an uninterrupted supply of
components to Ford in accordance with applicable purchase orders
and to continue to comply with its other contractual agreements
with Ford and the UAW, including continuing to use its best
efforts to quote competitive prices for new business to be
produced for Ford at certain of Visteon’s plants located in
North America; (b) not to request reimbursement from Ford
for any material cost surcharges for any component that is
produced for Ford at certain of Visteon’s plants located in
North America, and (c) that, except with respect to sales
of inventory or the disposal of obsolete equipment in the
ordinary course of business, Visteon will not sell, close or
otherwise dispose of any of the assets at certain of
Visteon’s plants located in North America, without
Ford’s consent.
Also on March 10, 2005, Ford and Visteon entered into a
master equipment bailment agreement, effective as of
January 1, 2005, pursuant to which Ford has agreed to
pay third-party suppliers for certain machinery, equipment,
tooling and fixtures and related assets, which may be acquired
during the term of the agreement, which are primarily used to
produce components for Ford at some of Visteon’s plants
located in North America.
Each of the above agreements may be terminated by Visteon or
Ford at anytime on or after January 1, 2006 upon 10
business days’ notice or upon the occurrence of certain
customary events of default.
120
VISTEON CORPORATION AND SUBSIDIARIES
SCHEDULE II — VALUATION AND QUALIFYING
ACCOUNTS
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Balance at | |
|
Additions | |
|
|
|
|
|
Balance | |
| |
|
Beginning | |
|
Charged to | |
|
|
|
|
|
at End | |
| |
|
of Year | |
|
Income | |
|
Deductions(a) | |
|
Other(b) | |
|
of Year | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(in millions) | |
|
Year Ended December 31, 2004: (Restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Allowance for doubtful accounts
|
|
$ |
35 |
|
|
$ |
22 |
|
|
$ |
(13 |
) |
|
$ |
— |
|
|
$ |
44 |
|
| |
Valuation allowance for deferred taxes
|
|
|
508 |
|
|
|
1,282 |
|
|
|
— |
|
|
|
159 |
|
|
|
1,949 |
|
|
Year Ended December 31, 2003: (Restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Allowance for doubtful accounts
|
|
$ |
24 |
|
|
$ |
24 |
|
|
$ |
(13 |
) |
|
$ |
— |
|
|
$ |
35 |
|
| |
Valuation Allowance for deferred taxes
|
|
|
21 |
|
|
|
457 |
|
|
|
— |
|
|
|
30 |
|
|
|
508 |
|
|
Year Ended December 31, 2002:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Allowance for doubtful accounts
|
|
$ |
19 |
|
|
$ |
13 |
|
|
$ |
(8 |
) |
|
$ |
— |
|
|
$ |
24 |
|
| |
Valuation allowance for deferred taxes
|
|
|
— |
|
|
|
21 |
|
|
|
— |
|
|
|
— |
|
|
|
21 |
|
|
|
|
|
(a) |
|
Deductions represent uncollectible accounts charged off, net of
recoveries. |
| |
|
(b) |
|
Other represents adjustments recorded through other
comprehensive income. The amount for 2004 also includes tax
return true-up adjustments that impacted deferred taxes and the
related valuation allowances. |
121
EXHIBIT INDEX
| |
|
|
|
|
| Exhibit |
|
|
| Number |
|
Exhibit Name |
| |
|
|
| |
3.1 |
|
|
Amended and Restated Certificate of Incorporation of Visteon
Corporation (“Visteon”) is incorporated herein by
reference to Exhibit 3.1 to the Quarterly Report on
Form 10-Q of Visteon dated July 24, 2000. |
| |
3.2 |
|
|
Amended and Restated By-laws of Visteon as in effect on the date
hereof is incorporated herein by reference to Exhibit 3.2
to the Quarterly Report on Form 10-Q of Visteon dated
November 14, 2001. |
| |
4.1 |
|
|
Amended and Restated Indenture dated as of
March 10, 2004 between Visteon and J.P. Morgan
Trust Company, as Trustee, is incorporated herein by reference
to Exhibit 4.01 to the Current Report on Form 8-K of
Visteon dated March 3, 2004 (filed as of
March 19, 2004). |
| |
4.2 |
|
|
Supplemental Indenture dated as of March 10, 2004 between
Visteon and J.P. Morgan Trust Company, as Trustee, is
incorporated herein by reference to Exhibit 4.02 to the
Current Report on Form 8-K of Visteon dated
March 3, 2004 (filed as of March 19, 2004). |
| |
4.3 |
|
|
Form of Common Stock Certificate of Visteon is incorporated
herein by reference to Exhibit 4.1 to Amendment No. 1
to the Registration Statement on Form 10 of Visteon dated
May 19, 2000. |
| |
10.1 |
|
|
Master Transfer Agreement dated as of March 30, 2000
between Visteon and Ford Motor Company (“Ford”) is
incorporated herein by reference to Exhibit 10.2 to the
Registration Statement on Form S-1 of Visteon dated
June 2, 2000 (File No. 333-38388). |
| |
10.2 |
|
|
Purchase and Supply Agreement dated as of December 19, 2003
between Visteon and Ford is incorporated herein by reference to
Exhibit 10.2 to the Annual Report on Form 10-K of
Visteon for the period ended December 31, 2003. |
| |
10.3 |
|
|
2003 Relationship Agreement dated December 19, 2003
between Visteon and Ford is incorporated herein by reference to
Exhibit 10.3 to the Annual Report on Form 10-K of
Visteon for the period ended December 31, 2003. |
| |
10.4 |
|
|
Master Separation Agreement dated as of June 1, 2000
between Visteon and Ford is incorporated herein by reference to
Exhibit 10.4 to Amendment No. 1 to the Registration
Statement on Form S-1 of Visteon dated
June 6, 2000 (File No. 333-38388). |
| |
10.5 |
|
|
Aftermarket Relationship Agreement dated as of
January 1, 2000 between Visteon and the Automotive
Consumer Services Group of Ford is incorporated herein by
reference to Exhibit 10.5 to Amendment No. 1 to the
Registration Statement on Form 10 of Visteon dated
May 19, 2000. |
| |
10.6 |
|
|
Amended and Restated Hourly Employee Assignment Agreement dated
as of April 1, 2000, as amended and restated as of
December 19, 2003, between Visteon and Ford is incorporated
herein by reference to Exhibit 10.6 to the Annual Report on
Form 10-K of Visteon for the period ended
December 31, 2003. |
| |
10.7 |
|
|
Amended and Restated Employee Transition Agreement dated as of
April 1, 2000, as amended and restated as of
December 19, 2003, between Visteon and Ford is
incorporated herein by reference to Exhibit 10.7 to the
Annual Report on Form 10-K of Visteon for the period ended
December 31, 2003. |
| |
10.8 |
|
|
Tax Sharing Agreement dated as of June 1, 2000 between
Visteon and Ford is incorporated herein by reference to
Exhibit 10.8 to the Registration Statement on Form S-1
of Visteon dated June 2, 2000 (File
No. 333-38388). |
122
| |
|
|
|
|
| Exhibit |
|
|
| Number |
|
Exhibit Name |
| |
|
|
| |
10.9 |
|
|
Visteon Corporation 2004 Incentive Plan, as amended and
restated, is incorporated herein by reference to Appendix B
to the Proxy Statement of Visteon dated
March 30, 2004.* |
| |
10.9.1 |
|
|
Form of Terms and Conditions of Nonqualified Stock Options is
incorporated herein by reference to Exhibit 10.9.1 to the
Quarterly Report on Form 10-Q of Visteon dated
November 4, 2004.* |
| |
10.9.2 |
|
|
Form of Terms and Conditions of Restricted Stock Grants is
incorporated herein by reference to Exhibit 10.9.2 to the
Quarterly Report on Form 10-Q of Visteon dated
November 4, 2004.* |
| |
10.9.3 |
|
|
Form of Terms and Conditions of Restricted Stock Units is
incorporated herein by reference to Exhibit 10.9.3 to the
Quarterly Report on Form 10-Q of Visteon dated
November 4, 2004.* |
| |
10.9.4 |
|
|
Form of Terms and Conditions of Stock Appreciation Rights is
incorporated herein by reference to Exhibit 10.9.4 to the
Quarterly Report on Form 10-Q of Visteon dated
November 4, 2004.* |
| |
10.10 |
|
|
Form of Revised Change in Control Agreement is incorporated
herein by reference to Exhibit 10.10 to the Annual Report
on Form 10-K of Visteon for the period ended
December 31, 2000.* |
| |
10.10.1 |
|
|
Schedule identifying substantially identical agreements to
Revised Change in Control Agreement constituting
Exhibit 10.10 hereto entered into by Visteon with
Messrs. Pestillo, Johnston, Orchard, Palmer, Pfannschmidt,
Chatterjee and Marcin, and Ms. Fox is incorporated herein
by reference to Exhibit 10.10.1 to the Quarterly Report on
Form 10-Q of Visteon dated November 4, 2004.* |
| |
10.11 |
|
|
Issuing and Paying Agency Agreement dated as of
June 5, 2000 between Visteon and The Chase Manhattan
Bank is incorporated herein by reference to Exhibit 10.11
to the Quarterly Report on Form 10-Q of Visteon dated
July 24, 2000. |
| |
10.12 |
|
|
Corporate Commercial Paper — Master Note dated
June 1, 2000 is incorporated herein by reference to
Exhibit 10.12 to the Quarterly Report on Form 10-Q of
Visteon dated July 24, 2000. |
| |
10.13 |
|
|
Letter Loan Agreement dated as of June 12, 2000 from
The Chase Manhattan Bank is incorporated herein by reference to
Exhibit 10.13 to the Quarterly Report on Form 10-Q of
Visteon dated July 24, 2000. |
| |
10.14 |
|
|
Visteon Corporation Deferred Compensation Plan for
Non-Employee Directors, as amended, is incorporated herein by
reference to Exhibit 10.14 to the Annual Report on
Form 10-K of Visteon for the period ended
December 31, 2003.* |
| |
10.15 |
|
|
Visteon Corporation Restricted Stock Plan for Non-Employee
Directors, as amended, is incorporated herein by reference to
Exhibit 10.15 to the Annual Report on Form 10-K of
Visteon for the period ended December 31, 2003.* |
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10.16 |
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Visteon Corporation Deferred Compensation Plan, as amended,
is incorporated herein by reference to Exhibit 10.16 to the
Annual Report on Form 10-K of Visteon for the period ended
December 31, 2002.* |
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10.17 |
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Visteon Corporation Savings Parity Plan is incorporated
herein by reference to Exhibit 10.17 to the Annual Report
on Form 10-K of Visteon for the period ended
December 31, 2002.* |
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10.18 |
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Visteon Corporation Pension Parity Plan, as amended through
February 9, 2005, is incorporated herein by reference to
Exhibit 10.4 to the Current Report on Form 8-K of
Visteon dated February 9, 2005.* |
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10.19 |
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Visteon Corporation Supplemental Executive Retirement Plan,
as amended through February 9, 2005, is incorporated
herein by reference to Exhibit 10.2 to the Current Report
on Form 8-K of Visteon dated February 9, 2005.* |
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10.20 |
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Executive Employment Agreement dated as of September 15,
2000 between Visteon and Michael F. Johnston is incorporated
herein by reference to Exhibit 10.20 to the Annual Report
on Form 10-K for the period ended
December 31, 2001.* |
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10.21 |
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Service Agreement dated as of November 1, 2001 between
Visteon International Business Development, Inc., a wholly-owned
subsidiary of Visteon, and Dr. Heinz Pfannschmidt is
incorporated herein by reference to Exhibit 10.21 to the
Annual Report on Form 10-K of Visteon for the period ended
December 31, 2002.* |
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10.22 |
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Visteon Corporation Executive Separation Allowance Plan, as
amended through February 9, 2005, is incorporated
herein by reference to Exhibit 10.3 to the Current Report
on Form 8-K of Visteon dated February 9, 2005.* |
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10.23 |
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Trust Agreement dated as of February 7, 2003
between Visteon and The Northern Trust Company establishing a
grantor trust for purposes of paying amounts to certain
executive officers under the plans constituting
Exhibits 10.14, 10.16, 10.17, 10.18, 10.19 and 10.22 hereto
is incorporated herein by reference to Exhibit 10.23 to the
Annual Report on Form 10-K of Visteon for the period ended
December 31, 2002.* |
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10.24 |
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Five-Year Revolving Loan Credit Agreement dated as of
June 20, 2002 among Visteon, the several banks and
other financial institutions or entities from time to time
parties to the agreement, JPMorgan Chase Bank, as administrative
agent, and Bank of America N.A., as syndication agent, is
incorporated herein by reference to Exhibit 10.24 to the
Annual Report on Form 10-K of Visteon for the period ended
December 31, 2002. |
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10.24.1 |
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First Amendment, dated as of December 16, 2004, to and
under the Five-Year Revolving Loan Credit Agreement dated
as of June 20, 2002 among Visteon, the several banks and
other financial institutions or entities from time to time
parties to the agreement, JPMorgan Chase Bank, as administrative
agent, and Bank of America N.A., as syndication agent, is
incorporated herein by reference to Exhibit 10.24.1 to the
Annual Report on Form 10-K of Visteon for the period ended
December 31, 2004. |
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10.25 |
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364-Day Credit Agreement dated as of June 18, 2004
among Visteon, the several banks and other financial
institutions or entities from time to time parties to the
agreement, JPMorgan Chase Bank, as administrative agent, and
Citibank, N.A., as syndication agent, is incorporated herein by
reference to Exhibit 10.25 to the Quarterly Report on
Form 10-Q of Visteon dated July 30, 2004. |
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10.26 |
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Five-Year Term Loan Credit Agreement dated as of
June 25, 2002 among Visteon, the several banks and other
financial institutions or entities from time to time parties to
the agreement, JPMorgan Chase Bank, as administrative agent, and
Bank of America N.A., as syndication agent, is incorporated
herein by reference to Exhibit 10.26 to the Annual Report
on Form 10-K of Visteon for the period ended
December 31, 2002. |
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10.27 |
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Pension Plan Agreement effective as of
November 1, 2001 between Visteon Holdings GmbH, a
wholly-owned subsidiary of Visteon, and Dr. Heinz
Pfannschmidt is incorporated herein by reference to
Exhibit 10.27 to the Quarterly Report on Form 10-Q of
Visteon dated May 7, 2003.* |
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10.28 |
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Hourly Employee Conversion Agreement dated as of
December 22, 2003 between Visteon and Ford is
incorporated herein by reference to Exhibit 10.28 to the
Annual Report on Form 10-K of Visteon for the period ended
December 31, 2003. |
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10.29 |
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Employment Agreement effective as of January 1, 2004
between Visteon and Daniel R. Coulson is incorporated
herein by reference to Exhibit 10.29 to the Annual Report
on Form 10-K of Visteon for the period ended
December 31, 2003.* |
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10.30 |
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Visteon Corporation Non-Employee Director Stock Unit Plan
is incorporated herein by reference to Appendix C to the
Proxy Statement of Visteon dated March 30, 2004.* |
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10.31 |
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Employment Agreement dated as of June 2, 2004 between
Visteon and James F. Palmer is incorporated herein by
reference to Exhibit 10.31 to the Quarterly Report on
Form 10-Q of Visteon dated July 30, 2004.* |
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10.32 |
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Visteon Executive Severance Plan is incorporated herein by
reference to Exhibit 10.1 to the Current Report on
Form 8-K of Visteon dated February 9, 2005.* |
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10.33 |
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Form of Executive Retiree Health Care Agreement is incorporated
herein by reference to Exhibit 10.28 to the Current Report
on Form 8-K of Visteon dated December 9, 2004.* |
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10.33.1 |
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|
Schedule identifying substantially identical agreements to
Executive Retiree Health Care Agreement constituting
Exhibit 10.33 hereto entered into by Visteon with
Messrs. Johnston, Orchard and Palmer, is incorporated
herein by reference to Exhibit 10.33.1 to the Annual Report
on Form 10-K of Visteon for the period ended
December 31, 2004.* |
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10.34 |
|
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Funding Agreement, dated as of March 10, 2005, between
Visteon and Ford is incorporated herein by reference to
Exhibit 10.1 to the Current Report on Form 8-K of
Visteon dated March 10, 2005. |
| |
10.35 |
|
|
Master Equipment Bailment Agreement, dated as of March 10,
2005, between Visteon and Ford is incorporated herein by
reference to Exhibit 10.2 to the Current Report on
Form 8-K of Visteon dated March 10, 2005. |
| |
10.36 |
|
|
Resignation Agreement, dated as of March 10, 2005, between
Visteon and Stacy L. Fox, is incorporated herein by
reference to Exhibit 10.36 to the Annual Report on
Form 10-K of Visteon for the period ended
December 31, 2004.* |
| |
10.37 |
|
|
Consulting Agreement, dated as of March 10, 2005, between
Visteon and Stacy L. Fox, is incorporated herein by
reference to Exhibit 10.37 to the Annual Report on
Form 10-K of Visteon for the period ended
December 31, 2004.* |
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12.1 |
|
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Statement re: Computation of Ratios. |
| |
18.1 |
|
|
Letter of Independent Registered Public Accounting Firm,
PricewaterhouseCoopers LLP, regarding Change in Accounting
Principles, is incorporated herein by reference to
Exhibit 18.1 to the Annual Report on Form 10-K of
Visteon for the period ended December 31, 2004. |
| |
21.1 |
|
|
Subsidiaries of Visteon, is incorporated herein by reference to
Exhibit 21.1 to the Annual Report on Form 10-K of
Visteon for the period ended December 31, 2004. |
| |
23.1 |
|
|
Consent of Independent Registered Public Accounting Firm,
PricewaterhouseCoopers LLP. |
| |
24.1 |
|
|
Powers of Attorney relating to execution of this Annual Report
on Form 10-K/A is incorporated herein by reference to
Exhibit 24.1 to the Annual Report on Form 10-K of
Visteon for the period ended December 31, 2004. |
| |
31.1 |
|
|
Rule 13a-14(a) Certification of Chief Executive Officer
dated November 22, 2005. |
| |
31.2 |
|
|
Rule 13a-14(a) Certification of Chief Financial Officer
dated November 22, 2005. |
| |
32.1 |
|
|
Section 1350 Certification of Chief Executive Officer dated
November 22, 2005. |
125
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Exhibit Name |
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32.2 |
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Section 1350 Certification of Chief Financial Officer dated
November 22, 2005. |
|
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| † |
Portions of this exhibit have been redacted pursuant to a
confidential treatment request filed with the Secretary of the
Securities and Exchange Commission pursuant to Rule 24b-2
under the Securities Exchange Act of 1934, as amended. The
redacted material was filed separately with the Securities and
Exchange Commission. |
|
|
| * |
Indicates that exhibit is a management contract or compensatory
plan or arrangement. |
In lieu of filing certain instruments with respect to long-term
debt of the kind described in Item 601(b)(4) of
Regulation S-K, Visteon agrees to furnish a copy of such
instruments to the Securities and Exchange Commission upon
request.
126