Visteon Reports Improved Second Quarter Earnings Second Quarter
Highlights * Net income of $31 million reflects $198 million
improvement over second quarter 2003 * Revenue hits $4.9 billion,
up $257 million from a year ago * Non-Ford revenue of $1.4 billion,
up 35% from a year ago * Year-over-year improvement in cash flow
from operations DEARBORN, Mich., July 22 /PRNewswire-FirstCall/ --
Visteon Corporation (NYSE:VC) today reported second quarter 2004
net income of $31 million, or $0.24 per share. These results are an
improvement of $198 million, or $1.57 per share, compared to a net
loss of $167 million, or $1.33 per share, in the second quarter
2003. Second quarter results include after-tax special charges of
$3 million in 2004 and $170 million in 2003. (Logo:
http://www.newscom.com/cgi-bin/prnh/20001201/DEF008LOGO ) Visteon
reported income before income taxes of $55 million for the second
quarter 2004, included in these results were pre-tax special
charges of $5 million and $11 million pre-tax expense related to
debt extinguishment. In the second quarter of 2003, Visteon
reported a loss before income taxes of $256 million including $266
million of pre-tax special charges. Revenue for the second quarter
2004 was $4.9 billion, up $257 million from second quarter 2003.
The increase, compared to a year ago, reflects primarily growth in
non-Ford revenue and favorable currency translation, partially
offset by lower Ford North American production volumes, the exit of
Visteon's seating operations and price reductions to customers.
Non-Ford revenue totaled $1.4 billion for the quarter, up 35% or
$358 million compared to the second quarter 2003. Non-Ford revenue
in the second quarter represents 28 percent of total sales, a six
percentage point improvement from a year ago. "We're pleased with
our second quarter results, especially the continued
diversification of our customer base," said Mike Johnston, Visteon
chief executive officer and president. "Our performance to the
customer in terms of cost, quality and delivery remains our highest
priority and has helped us win new business in all major regions of
the world. We will be aggressive in the continuation of our
cost-reduction and process improvement actions in the second half
to ensure our competitive position in the marketplace." Visteon's
net income improved compared to a year ago reflecting the impact of
lower special charges, increased new business, improved operating
and material efficiencies, and decreased post-retirement health and
life insurance expenses, offset by customer price reductions and
lower North American Ford production volumes. Net income was also
impacted by debt extinguishment costs of $7 million after tax
related to a portion of Visteon's public debt securities. First
Half Results First half revenue totaled $9.8 billion, increasing
$525 million from a year ago. Ford revenue decreased $185 million
to $7.1 billion for the first half of 2004, reflecting lower Ford
North American production, the exit of the Chesterfield seating
operations and price reductions granted to Ford, partially offset
by favorable currency, increased European production and
incremental business with Ford. Non-Ford revenue increased $710
million, or 35 percent to $2.7 billion, due primarily to increased
business with non-Ford customers. For the first six months of 2004,
Visteon recorded net income of $61 million or $0.48 per share,
including $10 million, or $0.08 per share of special charges. For
the first six months of 2003, Visteon reported a net loss of $182
million, or $1.45 per share, included in these results were special
charges of $190 million, or $1.51 per share. Income before taxes
was $111 million for the six months of 2004, including $16 million
of pre-tax special charges and $11 million of pre-tax expense
related to debt extinguishments. For the first half of 2003,
Visteon reported a loss before income taxes of $275 million,
including $297 million of pre-tax special charges. The increase
reflects lower pre-tax charges of $281 million, increased profits
from new business, lower employee retirement benefit and selling
and administrative expenses, partially offset by other wage and raw
material cost increases and expenses related to debt
extinguishment. Cash and Liquidity Visteon ended the quarter with
$1 billion in cash and marketable securities. Cash flow from
operations was $247 million for the second quarter and $352 million
for the first half of the year, which reflects an improvement of
$223 million and $463 million, respectively, compared to the same
periods last year. Increased profits and the company's continued
focus on working capital were major contributors to this
improvement. Capital expenditures were $172 million for the second
quarter and $370 million for the first half of the year. This
compares to $222 million for the second quarter and $403 million
for the first half of 2003. Quarter-end debt outstanding was $1.9
billion. Visteon's debt-to-capital ratio was 51 percent. Third
Quarter and Full Year 2004 Outlook Visteon's revenue for third
quarter 2004 is projected to be in the range of $4.0 to $4.1
billion, up from $3.9 billion in 2003, reflecting primarily
non-Ford revenue growth. Visteon expects a third quarter net loss
of $90 million to $105 million, or $0.70 to $0.80 per share. Full
year revenue is expected to be between $18.6 billion and $18.8
billion in 2004. Non-Ford revenue is expected to increase more than
$1.0 billion from year ago levels. Visteon expects net income of
$75 to $110 million for full-year 2004, or $0.60 to $0.90 per
share. Full year 2004 projected results include anticipated pre-tax
special charges of approximately $50 million. Visteon expects cash
flow from operations to be modestly higher than capital spending
for the full year. Visteon's third quarter and full year 2004
estimates are based on third quarter Ford North American production
of 755,000 units and full year production of 3.65 million units. A
number of factors including a decline in actual or projected
production volumes for these or future periods could affect our
assessment regarding the recoverability of our deferred tax assets
and result in a further write-down, which would increase income tax
expense (non-cash charge) and reduce net income significantly in
the applicable period. Quarterly Conference Call Scheduled at 10
a.m. EDT Today A conference call will be hosted today, Thursday,
July 22, at 10 a.m. EDT to discuss Visteon's second quarter results
in further detail, as well as other related matters. To participate
in the conference call, callers in the U.S. should dial
888-452-7086 and callers outside of the U.S. should dial
706-643-3752. Please call in approximately 10 minutes before the
start of the conference. For a replay of the conference, those in
the U.S. should dial 800-642-1687; outside the U.S., callers should
dial 706-645-9291. The pass code to access the replay is 8526120.
The replay will be available for one week. Visteon will provide a
broadcast of the quarterly meeting for the general public via a
live audio web cast. The conference call, along with the financial
results press release, presentation material and other supplemental
information, can be accessed through Visteon's web site at
http://www.visteon.com/earnings . Visteon Corporation is a leading
full-service supplier that delivers consumer-driven technology
solutions to automotive manufacturers worldwide and through
multiple channels within the global automotive aftermarket. Visteon
has approximately 72,000 employees and a global delivery system of
more than 200 technical, manufacturing, sales and service
facilities located in 25 countries. This press release contains
forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Words such as
"anticipate," "estimate," "expect," "projects," "outlook" and
similar words and phrases signify forward-looking statements.
Forward-looking statements are not guarantees of future results and
conditions but rather are subject to various factors, risks and
uncertainties which could cause our results to differ materially
from those expressed in these forward-looking statements. These
factors, risks and uncertainties include the automotive vehicle
production volumes and schedules of our customers, the effect of
pension and other post-employment benefit obligations, our ability
to recover our remaining deferred tax asset, the need to recognize
restructuring and other special items, as well as those factors
identified in our filings with the Securities and Exchange
Commission (including our Annual Report on Form 10-K for the
year-ended December 31, 2003). We assume no obligation to update
these forward-looking statements. VISTEON CORPORATION AND
SUBSIDIARIES SUPPLEMENTAL DATA (unaudited) (in millions, except per
share amounts and percentages) 2004 over/(under) 2004 2003 Second
First Second First Quarter Half Quarter Half Sales Ford and
affiliates $3,491 $7,128 $(101) $(185) Other customers 1,379 2,714
358 710 Total sales $4,870 $9,842 $257 $525 Depreciation and
amortization Depreciation $142 $282 $(2) $(2) Amortization 26 52 1
4 Total depreciation and amortization $168 $334 $(1) $2 Selling,
administrative and other expenses $236 $499 $(3) $18 Income before
income taxes $55 $111 $311 $386 Net income $31 $61 $198 $243 Net
income per share Basic $0.25 $0.49 $1.58 $1.94 Diluted 0.24 0.48
1.57 1.93 Average shares outstanding Basic 125.2 125.2 (0.5) (0.7)
Diluted 128.4 128.4 2.7 2.5 Special charges (1) Included in costs
of sales $5 $16 $(261) $(276) Included in selling, administrative
and other expenses - - - (5) Total pre-tax special charges $5 $16
$(261) $(281) Special charges above, after-tax $3 $10 $(167) $(180)
Special charges per share, based on average diluted shares
outstanding above $0.03 $0.08 $(1.32) $(1.43) Effective tax rate
32% 35% (4) pts (1) pts Capital expenditures $172 $370 $(50) $(33)
Cash provided by operating activities $247 $352 $223 $463 Cash and
borrowing (compared to December 2003 year-end) Cash and marketable
securities $1,010 $54 Borrowing 1,930 112 ------ 1 - Special
charges related to restructuring and other actions are discussed
further in Note 4. VISTEON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME For the Periods Ended June 30,
2004 and 2003 (in millions, except per share amounts) Second
Quarter First Half 2004 2003 2004 2003 (unaudited) Sales Ford and
affiliates $3,491 $3,592 $7,128 $7,313 Other customers 1,379 1,021
2,714 2,004 Total sales 4,870 4,613 9,842 9,317 Costs and expenses
(Notes 2 and 4) Costs of sales 4,567 4,625 9,212 9,102 Selling,
administrative and other expenses 236 239 499 481 Total costs and
expenses 4,803 4,864 9,711 9,583 Operating income (loss) 67 (251)
131 (266) Interest income 5 4 9 8 Debt extinguishment cost (Note 7)
11 - 11 - Interest expense 24 24 47 47 Net interest expense and
debt extinguishment cost (30) (20) (49) (39) Equity in net income
of affiliated companies (Note 2) 18 15 29 30 Income (loss) before
income taxes and minority interests 55 (256) 111 (275) Provision
(benefit) for income taxes (Note 2) 12 (98) 29 (110) Income (loss)
before minority interests 43 (158) 82 (165) Minority interests in
net income of subsidiaries 12 9 21 17 Net income (loss) $31 $(167)
$61 $(182) Income (loss) per share (Note 8) Basic $0.25 $(1.33)
$0.49 $(1.45) Diluted 0.24 (1.33) 0.48 (1.45) Cash dividends per
share $0.06 $0.06 $0.12 $0.12 The accompanying notes are part of
the financial statements. VISTEON CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (in millions) June 30, December 31, 2004
2003 (unaudited) Assets Cash and cash equivalents $1,009 $953
Marketable securities 1 3 Total cash and marketable securities
1,010 956 Accounts receivable - Ford and affiliates 1,511 1,198
Accounts receivable - other customers (Note 6) 1,150 1,164 Total
receivables, net (Note 2) 2,661 2,362 Inventories (Note 11) 834 761
Deferred income taxes (Note 2) 163 163 Prepaid expenses and other
current assets (Note 2) 271 168 Total current assets 4,939 4,410
Equity in net assets of affiliated companies 208 215 Net property
5,369 5,369 Deferred income taxes (Note 2) 708 700 Other assets 238
270 Total assets $11,462 $10,964 Liabilities and Stockholders'
Equity Trade payables $2,449 $2,270 Accrued liabilities 1,023 924
Income taxes payable (Note 2) 48 27 Debt payable within one year
(Note 7) 244 351 Total current liabilities 3,764 3,572 Long-term
debt (Note 7) 1,686 1,467 Postretirement benefits other than
pensions 543 469 Postretirement benefits payable to Ford 2,097
2,090 Other liabilities 1,540 1,508 Total liabilities 9,630 9,106
Stockholders' equity Capital stock 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 3,297
3,288 Accumulated other comprehensive loss (Note 12) (90) (21)
Other (31) (19) Accumulated deficit (1,475) (1,521) Total
stockholders' equity 1,832 1,858 Total liabilities and
stockholders' equity $11,462 $10,964 The accompanying notes are
part of the financial statements. VISTEON CORPORATION AND
SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS For the
Periods Ended June 30, 2004 and 2003 (in millions) First Half 2004
2003 (unaudited) Cash and cash equivalents at January 1 $953 $1,204
Cash flows provided by (used in) operating activities 352 (111)
Cash flows from investing activities Capital expenditures (370)
(403) Purchases of securities - (48) Sales and maturities of
securities 3 118 Other 10 13 Net cash used in investing activities
(357) (320) Cash flows from financing activities Commercial paper
repayments, net (81) (65) Other short-term debt, net (19) 43
Proceeds from issuance of other debt, net of issuance costs 522 161
Repurchase of unsecured debt securities (Note 7) (269) - Principal
payments on other debt (19) (64) Purchase of treasury stock (11)
(5) Cash dividends (16) (16) Other, including book overdrafts (38)
2 Net cash provided by financing activities 69 56 Effect of
exchange rate changes on cash (8) 19 Net increase (decrease) in
cash and cash equivalents 56 (356) Cash and cash equivalents at
June 30 $1,009 $848 The accompanying notes are part of the
financial statements. VISTEON CORPORATION AND SUBSIDIARIES NOTES TO
FINANCIAL STATEMENTS (unaudited) NOTE 1. Financial Statements The
financial data presented herein are unaudited, but in the opinion
of management reflect those adjustments, including normal recurring
adjustments, necessary for a fair statement of such information.
Results for interim periods should not be considered indicative of
results for a full year. Reference should be made to the
consolidated financial statements and accompanying notes included
in Visteon's Annual Report on Form 10-K for the year ended December
31, 2003, as filed with the Securities and Exchange Commission on
February 13, 2004. Certain amounts for prior periods were
reclassified to conform with present period 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. NOTE 2. Selected
Costs, Income and Other Information Depreciation and Amortization
Depreciation and amortization expenses are summarized as follows:
Second Quarter First Half 2004 2003 2004 2003 (in millions)
Depreciation $142 $144 $282 $284 Amortization 26 25 52 48 Total
$168 $169 $334 $332 Investments in Affiliates The following table
presents summarized financial data for those affiliates accounted
for under the equity method. The amounts represent 100% of the
results of operations of these affiliates. Our share of their net
income is reported in the line "Equity in net income of affiliated
companies" on the Consolidated Statement of Income. Second Quarter
First Half 2004 2003 2004 2003 (in millions) Net sales $453 $334
$787 $625 Gross profit 87 70 148 137 Net income 35 30 56 60
Accounts Receivable The allowance for doubtful accounts was $34
million at June 30, 2004 and $35 million at December 31, 2003.
Prepaid Expenses and Other Current Assets Prepaid expenses and
other current assets include $190 million and $96 million of
European value added and other tax receivables at June 30, 2004 and
December 31, 2003, respectively. Income Taxes Visteon's provision
(benefit) for income taxes, which is computed based upon income
(loss) before income taxes excluding equity in net income of
affiliated companies, reflects an effective tax rate of 32% for the
second quarter and 35% for the first half of 2004, compared with
36% for both the second quarter and the first half of 2003. The
rate in the first half of 2004 was impacted adversely by not
recording the tax benefit related to losses in certain foreign
jurisdictions where full valuation allowances are maintained and
was impacted favorably by certain tax adjustments related to prior
periods, including adjustments related to Visteon's 2003 Federal
income tax return, which was filed in May 2004, and the resolution
of a foreign tax audit during the first quarter of 2004. The
realization of Visteon's remaining net deferred tax asset of about
$870 million is dependent on achieving our forecast of 2004 taxable
income in the U.S. and maintaining our forward year outlook.
Visteon has concluded that the estimates and underlying assumptions
concerning the realization of our remaining net deferred tax assets
are appropriate at this time. However, the ability to achieve our
2004 forecasted earnings in the U.S. could be impacted by a number
of factors, including lower than expected Ford North American
volumes in the second half of the year. Visteon will continue to
monitor closely the forecast and actual results for the remainder
of 2004. If, during a subsequent period, there is an adverse change
in our current year U.S. forecast or forward-year outlook, we will
update our assessment of the recoverability of our deferred tax
assets and reduce them further as needed. Such a write-down would
result in additional income tax expense and reduce net income
significantly in the applicable period. NOTE 3. Stock-Based Awards
Starting January 1, 2003, Visteon began expensing the fair value of
stock- based awards granted to employees pursuant to Statement of
Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting
for Stock-Based Compensation." This standard 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
income (loss) and income (loss) per share would have changed to the
pro forma amounts indicated below: Second Quarter First Half 2004
2003 2004 2003 (in millions, except per share amounts) Net income
(loss), as reported $31 $(167) $61 $(182) Add: Stock-based employee
compensation expense included in reported net income (loss), net of
related tax effects 4 3 6 4 Deduct: Total stock-based employee
compensation expense determined under fair value based method for
all awards, net of related tax effects (5) (7) (9) (10) Pro forma
net income (loss) $30 $(171) $58 $(188) Income (loss) per share: As
reported: Basic $0.25 $(1.33) $0.49 $(1.45) Diluted 0.24 (1.33)
0.48 (1.45) Pro forma: Basic $0.24 $(1.36) $0.46 $(1.49) Diluted
0.24 (1.36) 0.45 (1.49) Shareholder approval was obtained in May
2004 for the Visteon Corporation 2004 Incentive Plan, as amended
and restated (the "Incentive Plan"). The Incentive Plan was
originally adopted effective as of June 28, 2000 as the 2000
Incentive Plan, and approved by shareholders on May 9, 2001. The
amended and restated Incentive Plan includes changes to increase
the maximum number of shares of common stock that may be issued by
1.8 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. NOTE 4. Special Charges First Half 2004 Actions Visteon
recorded in costs of sales $5 million and $16 million of pre-tax
special charges in the second quarter and first half of 2004,
respectively, as summarized below: Second Quarter First Half
Pre-tax After-tax Pre-Tax After-tax (in millions) Restructuring and
other charges: Plant closure related $5 $3 $10 $6 European Plan for
Growth related - - 6 4 Total special charges $5 $3 $16 $10 Plant
closure charges are related to the involuntary separation of up to
220 employees as a result of the planned closure of our La
Verpilliere, France manufacturing facility by the end of 2004. The
involuntary separations of the employees at the La Verpilliere
facility are expected to occur during the second half of 2004.
European Plan for Growth charges are comprised of $6 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. First
Half 2003 Actions Visteon recorded in operating results $266
million and $297 million of pre-tax special charges in the second
quarter and first half of 2003, respectively, as summarized below:
Second Quarter First Half Pre-tax After-tax Pre-Tax After-tax (in
millions) Restructuring and other charges: European Plan for Growth
related $45 $28 $48 $31 North American salaried related - - 18 11
Other actions 4 3 14 9 Total restructuring and other charges 49 31
80 51 Loss related to seating operations 217 139 217 139 Total
special charges $266 $170 $297 $190 European Plan for Growth
charges of $48 million are comprised of $42 million related to the
involuntary separation of 675 hourly employees located in Germany
and $6 million related to the separation of about 128 hourly
employees located at Visteon's plants in Europe through a
continuation of a special voluntary retirement and separation
program started in 2002. North American salaried charges of $18
million are related to the involuntary separation of about 135 U.S.
salaried employees. Other actions of $14 million include the
elimination of about 120 manufacturing positions in Mexico and $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 were less than the carrying value of these
fixed assets held for use. Of the $80 million of pre-tax
restructuring and other charges described above, $5 million was
recorded in selling, administrative and other expenses in the first
quarter of 2003 and the remainder in costs of sales. 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 is expected to implement, offset by
certain cost savings expected to be realized by Ford. Included in
costs of sales and our operating results for the second quarter of
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 and
relocation 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; and * $18 million related to operating losses incurred
between the effective date of the agreement (April 1, 2003) and the
date the agreements were finalized (June 23, 2003). The ultimate
costs and cash payments related to this agreement depend on several
factors including the actual net costs incurred during the seating
production transition phase. The most critical factors that impact
this are 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 will serve as an offset to the transition costs.
The final determination of the net costs incurred by Ford related
to this agreement is expected to be completed by the end of 2004,
which may result in an adjustment to the previously established
accruals and related expense. Visteon paid Ford about $37 million
in the first half of 2004 and about $30 million in 2003 related to
this agreement. Reserve Activity Reserve balances of $35 million
and $45 million at June 30, 2004 and December 31, 2003,
respectively, are included in current accrued liabilities on the
accompanying balance sheets. The June 30, 2004 reserve balance
includes $21 million related primarily to 2003 restructuring
activities. Visteon currently anticipates that the restructuring
activities to which all of the above charges relate will be
substantially complete by the end of 2004. Automotive Total
Operations Visteon (in millions) December 31, 2003 reserve balance
$45 $45 First quarter 2004 actions: Included in costs of sales 11
11 Second quarter 2004 actions: Included in costs of sales 5 5
Total expense 16 16 Utilization (26) (26) June 30, 2004 reserve
balance $35 $35 Utilization in the first half of 2004 of $26
million was primarily related to severance pay. Other Actions As
previously announced, Visteon intends to move a portion of the
operations at the Bedford, Indiana facility to another Visteon
manufacturing facility, which will result in a reduction over time
in workforce at the Bedford plant. Reductions are expected to be
achieved through voluntary separation programs, with associated
charges incurred and recorded as those programs are implemented. In
addition, Visteon intends to implement programs to offer eligible
Visteon-assigned Ford-UAW employees incentives to voluntarily
retire. Costs associated with these actions, which could aggregate
up to $25 million, would be recorded as the programs are
implemented. NOTE 5. Employee Retirement Benefits Visteon's
retirement plans' expense for the second quarter and first half of
2004 and 2003, respectively, are summarized as follows: Retirement
Plans Health Care and Life U.S. Plans Non-U.S. Plans Insurance
Benefits 2004 2003 2004 2003 2004 2003 (in millions) Second Quarter
Service cost $14 $14 $9 $8 $9 $6 Interest cost 16 15 16 13 12 11
Expected return on plan assets (16) (14) (16) (14) - - Amortization
of: Plan amendments 3 3 2 3 (5) (1) (Gains) losses and other 1 - 1
- 6 2 Special termination benefits - - - 3 - - Expense for Visteon-
assigned Ford-UAW and certain salaried employees 27 104 - - 38 94
Net pension/ postretirement expense $45 $122 $12 $13 $60 $112 First
Half Service cost $28 $27 $18 $16 $18 $13 Interest cost 33 30 33 26
25 22 Expected return on plan assets (32) (28) (31) (27) - -
Amortization of: Plan amendments 5 5 5 5 (10) (3) (Gains) losses
and other 2 - 1 - 14 5 Special termination benefits - - - 10 - -
Expense for Visteon- assigned Ford-UAW and certain salaried
employees 58 125 - - 75 177 Net pension/ postretirement expense $94
$159 $26 $30 $122 $214 The expense amount for Visteon-assigned
Ford-UAW employees included in the table above for the second
quarter and first half of 2003 includes pension expense of $85
million and retiree health care and life insurance expense of $17
million related to the transfer of the Chesterfield, Michigan seat
production as discussed further in Note 4. As of June 30, 2004,
contributions to U.S. retirement plans and postretirement health
care and life insurance plans were $71 million and $24 million,
respectively, including payments to Ford of $53 million and $15
million, respectively. Visteon presently anticipates contributing
an additional $109 million to U.S. retirement plans in 2004 for a
total of $180 million, including additional payments to Ford of $54
million for a total of $107 million. The Medicare 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 healthcare 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 is estimated to reduce
the benefit obligation for Visteon plans by $95 million as of June
30, 2004, and will be recognized through reduced retiree healthcare
expense over the related employee future service lives. NOTE 6.
Asset Securitization United States In the first quarter of 2004,
Visteon established a $100 million 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 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. 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 will reduce our accounts receivable
balance. Visteon continues to perform the collection and
administrative functions related to the accounts receivable. The
facility expires in March 2005 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. 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. In the second quarter of 2004, VRL made
an initial sale of a $45 million undivided interest in about $265
million of total receivables. The retained interest at June 30,
2004 of $220 million is included in Accounts receivable - other
customers on the Consolidated Balance Sheet. The loss on sale was
less than $1 million for the first half of 2004. Europe As of June
30, 2004 and December 31, 2003, Visteon has sold euro 37 million
($45 million) and euro 12 million ($15 million), respectively, of
trade receivables under a European sale of receivables agreement
with a bank. This agreement provides for the sale of up to euro 40
million in trade receivables. NOTE 7. Debt Debt at June 30, 2004
and December 31, 2003, including the fair market value of related
interest rate swaps, was as follows: June 30, December 31, 2004
2003 (in millions) Debt payable within one year Commercial paper $-
$81 Other - short-term 214 234 Current portion of long-term debt 30
36 Total debt payable within one year 244 351 Long-term debt 8.25%
notes due August 1, 2010 695 716 7.00% notes due March 10, 2014 438
- 7.95% notes due August 1, 2005 256 518 Term loan due June 25,
2007 173 104 Other 124 129 Total long-term debt 1,686 1,467 Total
debt $1,930 $1,818 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). Visteon has financing arrangements
with a syndicate of third-party lenders that provide contractually
committed, unsecured revolving credit facilities (the "Credit
Facilities"). During the second quarter of 2004, the 364-day
revolving Credit Facility in the amount of $565 million was
renewed, which now expires in June 2005. In addition to the 364-day
revolving facility, Visteon continues to have a five-year 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 is 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 net debt to EBITDA (excluding
special charges and other items) of 3.5 to 1. Visteon has been in
compliance with all covenants since the inception of the Credit
Facilities. NOTE 8. Income (Loss) Per Share of Common Stock Basic
income (loss) per share of common stock is calculated by dividing
reported net income (loss) by the average number of shares of
common stock outstanding during the applicable period, adjusted for
restricted stock. The calculation of diluted income (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. Second Quarter First Half 2004 2003 2004
2003 (in millions, except per share amounts) Numerator: Net income
(loss) $31 $(167) $61 $(182) Denominator: Average common stock
outstanding 129.5 130.7 129.7 130.2 Less: Average restricted stock
outstanding (4.3) (5.0) (4.5) (4.3) Basic shares 125.2 125.7 125.2
125.9 Net dilutive effect of restricted stock and stock options 3.2
- 3.2 - Diluted shares 128.4 125.7 128.4 125.9 Income (loss) per
share: Basic $0.25 $(1.33) $0.49 $(1.45) Diluted $0.24 $(1.33)
$0.48 $(1.45) For the second quarter and first half of 2003
potential common stock of about 713,000 shares and 613,000 shares,
respectively, are excluded, as the effect would have been
antidilutive due to the losses incurred during those periods.
Options to purchase 7,693,000 shares of common stock at exercise
prices ranging from $11 per share to $22 per share were outstanding
during the first half of 2004 but were not included in the
computation of diluted EPS 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. NOTE 9.
Variable Interest Entities In December 2003, the FASB issued
revised Interpretation No. 46 ("FIN 46") "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
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
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. As a result of the application of FIN
46, 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 June 30, 2004 was not significant as substantially
all of the joint ventures' liabilities and costs are related to
activity with Visteon. 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 is planned
to be completed in 2004 at a cost of about $250 million, with
initial occupancy starting in mid-2004. As of June 30, 2004, this
entity has incurred about $183 million in expenditures related to
this facility. NOTE 10. Product Warranty A reconciliation of
changes in the product warranty liability is summarized as follows:
First Half 2004 (in millions) Beginning balance $22 Accruals for
products shipped 13 Accruals related to pre-existing warranties
(including changes in estimates) 9 Settlements (10) Ending balance
$34 NOTE 11. Inventories Inventories are summarized as follows:
June 30, December 31, 2004 2003 (in millions) Raw materials,
work-in-process and supplies $572 $518 Finished products 262 243
Total inventories $834 $761 U.S. inventories $475 $436 The
components of inventory at December 31, 2003 have been conformed to
present period presentation to reclassify finished products
inventory at several plant locations. NOTE 12. Comprehensive Income
(Loss) Comprehensive income (loss) is summarized as follows: Second
Quarter First Half 2004 2003 2004 2003 (in millions) Net income
(loss) $31 $(167) $61 $(182) Change in foreign currency translation
adjustments, net of tax (44) 64 (71) 85 Other - 10 2 17 Total
comprehensive loss $(13) $(93) $(8) $(80) Accumulated other
comprehensive loss is comprised of the following: June 30, December
31, 2004 2003 (in millions) Foreign currency translation
adjustments, net of tax $59 $130 Realized and unrealized gains on
derivatives, net of tax 9 8 Unrealized loss on marketable
securities, net of tax - (1) Minimum pension liability, net of tax
(158) (158) Total accumulated other comprehensive loss $(90) $(21)
NOTE 13. Segment Information Visteon's reportable operating
segments are Automotive Operations and Glass Operations. Financial
information for the reportable operating segments is summarized as
follows: Automotive Glass Total Operations Operations Visteon (in
millions) Second Quarter 2004: Sales $4,733 $137 $4,870 Income
before taxes 52 3 55 Net income 29 2 31 Special charges before
taxes 5 - 5 Special charges after taxes 3 - 3 Total assets, end of
period 11,208 254 11,462 2003: Sales $4,459 $154 $4,613 Income
(loss) before taxes (263) 7 (256) Net income (loss) (172) 5 (167)
Special charges before taxes 266 - 266 Special charges after taxes
170 - 170 Total assets, end of period 11,316 286 11,602 First Half
2004: Sales $9,566 $276 $9,842 Income before taxes 99 12 111 Net
income 53 8 61 Special charges before taxes 16 - 16 Special charges
after taxes 10 - 10 Total assets, end of period 11,208 254 11,462
2003: Sales $9,010 $307 $9,317 Income (loss) before taxes (286) 11
(275) Net income (loss) (190) 8 (182) Special charges before taxes
296 1 297 Special charges after taxes 189 1 190 Total assets, end
of period 11,316 286 11,602 NOTE 14. Litigation and Claims Various
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. 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 June 30, 2004. Visteon does
not reasonably expect, 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.
http://www.newscom.com/cgi-bin/prnh/20001201/DEF008LOGO DATASOURCE:
Visteon Corporation CONTACT: Media Inquiries: Kimberly A. Welch,
+1-313-755-3537, , Investor Inquiries: Derek Fiebig,
+1-313-755-3699, , or Chris Collins, +1-313-755-3357, , all of
Visteon Corporation Web site: http://www.visteon.com/
http://www.visteon.com/earnings
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