UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2005, 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)

Registrant’s telephone number, including area code: (800)-VISTEON

          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 whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes  ü    No       

          Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes         No  ü  

          As of November 14, 2005, the Registrant had outstanding 128,743,368 shares of common stock, par value $1.00 per share.

Exhibit index located on page number 62.

VISTEON CORPORATION AND SUBSIDIARIES

PART I. FINANCIAL INFORMATION

CONSOLIDATED STATEMENT OF OPERATIONS

For the Periods Ended September 30, 2005 and 2004

(in millions, except per share amounts)

The accompanying notes are part of the financial statements.

VISTEON CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

(in millions)

The accompanying notes are part of the financial statements.

VISTEON CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

For the Periods Ended September 30, 2005 and 2004

(in millions)

The accompanying notes are part of the financial statements.

VISTEON CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

(unaudited)

      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 Amendment No. 1 to Visteon’s Annual Report on Form 10-K/ A (“2004 Form 10-K/ A”), for the fiscal year ended December 31, 2004 as filed with the Securities and Exchange Commission (“SEC”) on November 22, 2005.

      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 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. 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. For a more detailed description of these restatements, see Note 2, “Restatement of Financial Statements,” to the audited consolidated financial statements contained in the 2004 Form 10-K/ A.

      As a result of the restatement, previously reported net loss increased by $15 million ($0.12 per share) and $18 million ($0.15 per share) for the third quarter and first nine months ended September 30, 2004, respectively.

VISTEON CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS — (Continued)

(unaudited)

      The following summarizes the impact of these accounting corrections on Visteon’s previously reported net loss as reported in the Annual Report on Form 10-K for the fiscal year ended December 31, 2004 as filed with the SEC on March 16, 2005. These accounting corrections impacted previously reported costs of sales and income tax expense on the consolidated statement of operations.

VISTEON CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS — (Continued)

(unaudited)

      The following is a summary of the impact of these accounting corrections on Visteon’s previously issued consolidated statement of operations and consolidated balance sheet. These accounting corrections had no impact on Visteon’s consolidated statement of cash flows.

CONSOLIDATED STATEMENT OF OPERATIONS

(in millions, except per share amounts)

VISTEON CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS — (Continued)

(unaudited)

CONSOLIDATED BALANCE SHEET

(in millions)

      Certain amounts in Notes 4, 5, 6, 10, 13, and 14 have been restated to reflect the restatement accounting corrections described above.

VISTEON CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS — (Continued)

(unaudited)

Funding 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 were not required to be paid to Visteon until after March 31, 2005; (b) to accelerate the payment terms for certain U.S. 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 certain wages by 23.75% that Visteon is currently obligated to reimburse Ford with respect to Visteon-assigned Ford-UAW hourly employees that work at Visteon facilities, beginning with the pay period commencing February 21, 2005; 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.

      During the first nine months of 2005, costs of sales were reduced by $170 million as a result of the funding agreement’s impact on labor costs for Visteon-assigned Ford-UAW hourly employees. That reduction was comprised of $175 million in reduced labor charges from Ford and a one-time reduction of $17 million in previously established vacation accruals and was offset by $17 million of asset write-offs and $5 million from reduced inventory valuations. Cash flows provided by operating activities for the first nine months of 2005 were favorably impacted by the reduced wage reimbursements to Ford and by the acceleration of payment terms from Ford under the funding agreement.

      On May 24, 2005, Visteon and Ford entered into an amendment to the funding agreement. This amendment further accelerates the payment terms for certain U.S. payables to Visteon arising on or after June 1, 2005 to (i) an average of 18 days for the period from June 1, 2005 through July 31, 2005; (ii) an average of 22 days for the period from August 1, 2005 through December 31, 2005; and (iii) an average of 26 days for the period from January 1, 2006 until termination of the agreement. This agreement was terminated in connection with the closing of the transactions discussed below.

Master Equipment Bailment Agreement

      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 to be held by Visteon, which are primarily used to produce components for Ford at certain of the Visteon plants in which Visteon-assigned Ford-UAW employees work. The agreement covers (a) certain capital expenditure project commitments made by Visteon before January 1, 2005, where less than one-half of the full amount of the project cost was paid by Visteon as of January 1, 2005; and (b) capital expenditures for equipment where the expenditure has not yet been committed by Visteon and which is subsequently approved by Ford. To the extent approved capital expenditures are related to the modification of existing equipment, title of the modified equipment would transfer to Ford.

VISTEON CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS — (Continued)

(unaudited)

      During the first nine months of 2005, Visteon recognized a charge in costs of sales of about $17 million related to capitalized costs of $27 million for projects that were less than one-half complete which will be transferred to a Ford-controlled entity. The loss primarily represents costs incurred and capitalized by Visteon at December 31, 2004 associated with these projects. Cash proceeds of $10 million from these sales were received during the second quarter of 2005.

      On May 24, 2005, Visteon and Ford entered into an amendment of the master equipment bailment agreement, effective as of May 1, 2005, under which Ford agreed to pay third-party suppliers for certain machinery, equipment, tooling, fixtures and related assets that are used to produce certain components for Ford at the remaining Visteon plants in which Visteon-assigned Ford-UAW employees work not previously covered under the original March 10, 2005 agreement. This agreement was terminated in connection with the closing of the transactions discussed below.

Sale of North American Facilities

      On May 24, 2005, Visteon and Ford entered into a non-binding Memorandum of Understanding (“MOU”), setting forth a framework for the transfer of twenty-three North American facilities and related assets (the “Business”) to a Ford controlled entity. In September 2005, Visteon and Ford entered into several definitive agreements and Visteon completed the transfer of the Business to Automotive Components Holdings, LLC (“ACH”), an indirect, wholly-owned subsidiary of Visteon, and its subsidiaries.

      Following the signing of the MOU and at September 30, 2005, Visteon has classified the manufacturing facilities and associated assets, including inventory, machinery, equipment and tooling, as well as associated liabilities including postretirement benefits, to be sold as “held for sale”. Statement of Financial Accounting Standards No. 144 (“SFAS 144”), “Accounting for the Impairment or Disposal of Long-Lived Assets,” requires long-lived assets that are considered “held for sale” to be measured at the lower of their carrying value or fair value less cost to sell and future depreciation of such assets is ceased. During the second quarter of 2005, the Automotive Operations recorded a pre-tax non-cash impairment of $920 million to write-down those assets considered “held for sale” to their aggregate estimated fair value less cost to sell. Fair values were determined primarily based on prices for similar groups of assets determined by third-party valuation firms.

SUBSEQUENT EVENT

Sale of North American Facilities

      On October 1, 2005, Ford acquired from Visteon all of the issued and outstanding shares of common stock of the parent of ACH in exchange for Ford’s payment to Visteon of approximately $311 million (subject to post-closing adjustment), as well as the forgiveness of certain other postretirement employee benefit (“OPEB”) liabilities and other obligations relating to hourly employees associated with the Business, and the assumption of certain other liabilities with respect to the Business.

VISTEON CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS — (Continued)

(unaudited)

Depreciation and Amortization

      Depreciation and amortization expenses are summarized as follows:

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. Visteon reports its share of their net income in the line “Equity in net income of affiliated companies” on the Consolidated Statement of Operations.

Accounts Receivable

      The allowance for doubtful accounts was $80 million at September 30, 2005 and $44 million at December 31, 2004. 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. The September 30, 2005 allowance includes a provision related to the bankruptcy of a customer in the U.S. and Europe.

VISTEON CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS — (Continued)

(unaudited)

Assets Held for Sale and Liabilities Associated with Assets Held for Sale

      Visteon has classified certain assets and liabilities as “assets held for sale” and “liabilities associated with assets held for sale” following the signing of the MOU as described in Note 3, “Arrangements with Ford and its Affiliates.” Included in the balance sheet at September 30, 2005 are assets held for sale of $952 million and liabilities associated with assets held for sale of $2,676 million. The assets held for sale and liabilities associated with assets held for sale are as follows:

Income Taxes

      Visteon’s provision for income taxes in interim periods is computed by applying an estimated annual effective tax rate against income (loss) before income taxes, excluding related equity in net income of affiliated companies, for the period. Effective tax rates vary from period to period as separate calculations are performed for those countries where Visteon’s operations are profitable and whose results continue to be tax-effected and for those countries where full deferred tax valuation allowances exist and are maintained.

VISTEON CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS — (Continued)

(unaudited)

      For the third quarter and first nine months of 2005, Visteon recorded provisions of $21 million and $41 million, respectively, as compared with provisions of $963 million and $983 million, respectively, for the third quarter and first nine months of 2004. Visteon’s provision for income taxes for the third quarter and first nine months of 2005 reflects the inability to record a tax benefit for pre-tax losses in the U.S. and certain foreign countries, where full valuation allowances against our deferred tax assets have been maintained since the third quarter of 2004. The provision for the third quarter and first nine months of 2005 reflects primarily income tax expense related to those countries where Visteon is profitable and whose results continue to be tax-effected, accrued withholding taxes, and certain non-recurring and other discrete tax items.

      In the third quarter of 2005, the $3 million tax benefit related to favorable currency exchange rate movements was largely offset by other non-recurring and discrete tax provision items in the quarter. Visteon’s provision for income taxes of $963 million for the third quarter of 2004 includes a charge of $931 million to write-down our net deferred tax assets, as of the beginning of the third quarter, in the U.S. and certain foreign countries. This charge is comprised of $948 million related to deferred tax assets as of the beginning of the year and $60 million for income tax benefits recorded during the first half of 2004, offset by the reduction of related tax reserves of $77 million.

      Non-recurring and other discrete tax items recorded in the first nine months of 2005 resulted in a net benefit of $37 million. This includes the items described above, as well as a benefit of $29 million, reflecting primarily a reduction in our income tax reserves corresponding with the conclusion of U.S. Federal income tax audits for 2003, 2002 and certain pre-spin periods recorded in the second quarter of 2005, and a net benefit of $8 million recorded in the first quarter of 2005, consisting primarily of benefits related to a change in the estimated benefit associated with tax losses in Canada and the favorable resolution of tax matters in Mexico, offset by net provisions recorded primarily to increase our income tax reserves for prior year tax exposures. The first nine months of 2004 includes a charge of $871 million related to additional valuation allowances established against Visteon’s deferred tax assets in the U.S. and certain foreign countries. This charge is comprised of $948 million related to deferred tax assets as of the beginning of the year, offset by the reduction of related tax reserves of $77 million. Visteon’s results for the first nine months of 2004 reflect no income tax benefits for current year losses in the U.S. and other affected countries.

      The need to maintain valuation allowances against deferred tax assets in the U.S. and other affected countries will continue to cause variability in the quarterly and annual effective tax rates. Visteon will maintain full valuation allowances against deferred tax assets in the U.S. and applicable foreign countries until sufficient positive evidence exists to reduce or eliminate them.

VISTEON CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS — (Continued)

(unaudited)

Liquidity

      Visteon believes that cash flow from operations, combined with access to external liquidity sources, will be sufficient to fund capital spending, debt maturities and other cash obligations in 2005. However, liquidity from internal or external sources to meet these obligations is dependent on a number of factors, including availability of cash balances, credit ratings, industry economic factors, and the availability of the capital markets. In addition, because Visteon was not timely in its SEC filings in 2005, we are currently ineligible to use Forms S-2 and S-3 to register securities until all required reports under the Securities Exchange Act of 1934 have been timely filed for 12 months prior to the filing of a registration statement for those securities. Accordingly, we are unable to use our presently effective shelf registration statement to sell securities in the public market without first obtaining a waiver from the SEC. We do not believe this will have a material impact on our liquidity as we have access to bank facilities and other capital market alternatives; however, Visteon can provide no assurance that, if needed, additional liquidity will be available at the times or in the amounts needed, or on terms and conditions acceptable to Visteon. At September 30, 2005, Visteon was in compliance with the covenants contained in its credit agreements, although there can be no assurance that Visteon will remain in compliance with such covenants in the future. If we were to violate a financial covenant and not obtain a waiver, the credit agreements could be terminated and amounts outstanding would be accelerated. We can provide no assurance that, in such event, we would have access to sufficient liquidity resources to repay such amounts.

Long-Lived Assets

      Visteon continues to assess 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. If conditions 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.

VISTEON CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS — (Continued)

(unaudited)

      In December 2004, the Financial Accounting Standards Board (“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. SFAS 123(R) is required to be adopted as of the beginning of the first annual period that begins after June 15, 2005. Visteon is currently evaluating the impact of the requirements of SFAS 123(R) on its consolidated financial statements, but does not expect the impact to have a material effect, as 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.” In addition any stock options granted prior to January 1, 2003 will be fully vested at the time of adoption. SFAS 123(R) specifies that an award is vested when the employee’s retention of the award is no longer contingent on providing subsequent service (the “non-substantive vesting period approach”). Currently, Visteon grants stock options and stock appreciation rights which allow the employee to continue to vest in the award after retirement without providing additional service. Compensation expense for these awards is recognized over the vesting period. The impact of applying the non-substantive vesting period approach for retirement eligible employees under SFAS 123(R) compared to Visteon’s current methodology of expensing over the vesting period would not have a material effect on its results of operations for the third quarter and first nine months ended September 30, 2005.

      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 net loss per share would have changed to the pro forma amounts indicated below:

VISTEON CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS — (Continued)

(unaudited)

NOTE 5. Stock-Based Awards — (Continued)

      During the first quarter of 2005, Visteon granted under the Visteon Corporation 2004 Incentive Plan and the Visteon Corporation Employees Equity Incentive Plan about 4.3 million stock appreciation rights (“SARs”), 2.7 million restricted stock units (“RSUs”), and 2.0 million stock options. Stock options and SARs granted 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, expire five years after the date on which they were granted and 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. SARs granted 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. RSUs granted consist of units valued based upon the fair market value of Visteon common stock and are settled in cash upon vesting after a designated period of time, which is generally three years.

      In addition, treasury stock increased $10 million during the first nine months of 2005 primarily from the forfeiture of about 700,000 shares of restricted stock awards, originally granted in 2002, that did not vest as certain performance goals were not achieved.

First Nine Months 2005 Actions

      Visteon recorded in costs of sales $11 million and $1,194 million of pre-tax special charges in the third quarter and first nine months of 2005, respectively, as summarized below:

      During the third quarter of 2005, Visteon recorded a pre-tax special charge of $11 million in costs of sales ($11 million after-tax) for non-U.S. prior service pension costs to reflect a reduction of expected future years of service for some plan participants.

VISTEON CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS — (Continued)

(unaudited)

      During the second quarter of 2005, the Automotive Operations recorded a pre-tax, non-cash impairment of $256 million, to reduce the net book value of certain long-lived assets. This impairment was based on an assessment by product line asset group completed in the second quarter of 2005, excluding those assets considered held for sale, of the recoverability of our long-lived assets in light of the challenging environment in which we operate. The assessment considered the impact of lower than anticipated current and near term future year 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 located in the U.K, Germany, Poland and Brazil related to two product groupings were considered impaired: driveline and engine/air fuel systems. The write-down was determined on a “held for use” basis. Fair values were determined primarily based on prices for similar groups of assets determined by third-party valuation firms.

      During the first quarter of 2005, Visteon recorded pre-tax special charges of $7 million in costs of sales ($7 million after-tax) related to a continuation of an incentive program offered during the fourth quarter of 2004 to eligible U.S. salaried employees to voluntarily separate employment. Terms of the program required the effective termination date to be no later than March 31, 2005, unless otherwise mutually agreed. Through March 31, 2005, 409 employees have voluntarily elected to participate in this program, comprised of 374 employees during the fourth quarter of 2004 and 35 employees during the first quarter of 2005. As of June 30, 2005, substantially all of the employees have terminated their employment.

First Nine Months 2004 Actions

      Visteon recorded in costs of sales $336 million and $355 million of pre-tax special charges in the third quarter and first nine months of 2004, respectively, as summarized below:

VISTEON CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS — (Continued)

(unaudited)

      During the third quarter of 2004, the Automotive Operations recorded a pre-tax, non-cash impairment of $314 million in costs of sales to reduce the net book value of certain long-lived assets. This impairment 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. The assessment included consideration of lower than anticipated 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 impairment was approximately $249 million in North American 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.

      Early retirement incentive and other related charges during the third quarter of 2004 related to incentive programs offered 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 about 200 employees from the closure of our La Verpilliere, France manufacturing facility in 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 the third quarter of 2004, accrued liabilities of $3 million relating to prior year’s actions were credited to costs of sales, including $2 million related to costs to complete the transfer of the seat production located in Chesterfield, Michigan, to another supplier.

Reserve Activity

      Reserve balances, excluding those related to seating operations, are included in current accrued liabilities on the accompanying balance sheet.

VISTEON CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS — (Continued)

(unaudited)

      Utilization in the first nine months of 2005 includes $39 million related to the U.S. salaried voluntary separation program, comprised of $36 million in cash payments and $3 million incurred related to special pension and other postretirement benefits. Reserves related to the U.S. salaried voluntary separation program were $2 million and $34 million at September 30, 2005 and December 31, 2004, respectively. In addition, utilization includes $11 million incurred for non-U.S. prior service pension costs and $15 million of cash payments related to other actions.

      Separately, during the first nine months of 2005, Visteon paid Ford about $15 million of previously accrued amounts ($205 million at December 31, 2004) related to an agreement entered into in 2003 to reimburse Ford for the actual net costs of transferring seating production, including costs related to Ford hourly employee voluntary retirement and separation programs that Ford implemented as well as postretirement health care liabilities associated with hourly employee transfers.

VISTEON CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS — (Continued)

(unaudited)

      Visteon’s retirement plans’ expense for the third quarter and first nine months of 2005 and 2004, respectively, are summarized as follows:

VISTEON CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS — (Continued)

(unaudited)

      During the first nine months of 2005, contributions to Visteon U.S. retirement plans and postretirement health care and life insurance plans were $33 million and $24 million, respectively, and contributions to non-U.S. retirement plans were $45 million. Visteon presently anticipates additional contributions to its U.S. retirement plans and postretirement health care and life insurance plans of $8 million and $18 million, respectively, in 2005 for a total of $41 million and $42 million, respectively. Visteon also anticipates additional 2005 contributions to non-U.S. retirement plans of $15 million for a total of $60 million.

      During June 2005, Visteon approved changes to its U.S. salaried postretirement health care and life insurance plans which will become effective June 1, 2007. Employees who retire after that date will not be provided life insurance benefits, but will have access to company-sponsored health care at group rates if they elect to pay the related health care premium cost. Visteon will provide credits to offset a portion of the health care premium cost for those employees that retire from Visteon with hire dates on or before June 30, 2005 that attained the age of 45 by July 1, 2005. Credits accumulate at the rate of $3,000 per year plus an interest factor, and are further increased at retirement by a factor of $750 multiplied by the employee’s combined years of service and age. These changes are estimated to result in a reduction in the related accumulated plan benefit obligation of $336 million at June 30, 2005, of which approximately $1 million was recognized in September 2005 and the remainder will be amortized beginning in October 2005 as a reduction of postretirement benefit expense over the estimated average remaining employee service lives of approximately 14 years for the Visteon Corporate Plan and 10 years for the Visteon Systems Salaried Plan.

      During the third quarter of 2005, Visteon recorded a pre-tax special charge of $11 million in costs of sales ($11 million after-tax) for non-U.S. prior service pension costs to reflect a reduction of expected future years of service for some plan participants.

United States

      During 2004, Visteon established a revolving accounts receivable securitization facility in the United States (“facility”). Under this facility, 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.

      During the first nine months of 2005, gross proceeds from new securitizations were $237 million; and collections and repayments to the conduit were $237 million. At September 30, 2005 and December 31, 2004, the undivided interest sold was $55 million. The retained interest of $208 million and $178 million at September 30, 2005 and December 31, 2004, respectively, is included in accounts receivable — other customers on the Consolidated Balance Sheet. For the first nine months of 2005, the loss on sale of receivables was about $1 million.

VISTEON CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS — (Continued)

(unaudited)

NOTE 8. Asset Securitization — (Continued)

      The facility was extended during the first quarter of 2005 to expire in March 2006, and can be extended annually through March 2008 based upon the mutual agreement of the parties. The agreement contains financial covenants similar to Visteon’s 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. The April 2005 reductions in Visteon’s credit ratings would have effectively reduced the maximum amount of undivided interest that VRL could sell to the conduit to zero; however, Visteon has obtained a waiver to this credit rating reduction effective through December 15, 2005, pursuant to which the maximum amount of undivided interests that VRL can sell to the conduit at September 30, 2005 is about $71 million.

Europe

      As of September 30, 2005 and December 31, 2004, Visteon has sold euro 52 million ($62 million) and euro 19 million ($26 million), respectively, of trade receivables without recourse, under European sale of receivables agreements that are renewable on an annual basis with certain banks. These agreements currently provide for the sale of up to euro 80 million in trade receivables.

Asia

      As of September 30, 2005, Visteon has sold Japanese yen 671 million ($6 million) of trade receivables, without recourse, under a Japanese sale of receivables agreement that is renewable on an annual basis. The agreement currently provides for the sale of up to Japanese yen 1.5 billion in trade receivables.

      Debt, including the fair market value of related interest rate swaps, was as follows:

VISTEON CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS — (Continued)

(unaudited)

Credit Facility Agreements

      During the first quarter of 2005, Visteon’s primary bank credit agreements were (i) the 364-Day Credit Agreement, dated as of June 18, 2004 (the “364-Day Credit Agreement”), (ii) the Five-Year Term Loan Credit Agreement, dated as of June 25, 2002 (the “Term Loan Credit Agreement”), and (iii) the Five-Year Revolving Loan Credit Agreement, dated as of June 20, 2002 (the “Five-Year Credit Agreement”). In May 2005, Visteon entered into amendments and waivers to each of these credit agreements to extend the deadline for Visteon to deliver its first quarter 2005 financial statements until July 29, 2005, which was subsequently amended as discussed below, and change the Eurocurrency margin to 250 bps for the 364-Day Credit Agreement and Five-Year Credit Agreement and to 275 bps for the Term Loan Credit Agreement. On June 19, 2005, the 364-Day Credit Agreement expired.

      On June 24, 2005, Visteon entered into a $300 million short-term secured revolving credit agreement (the “Short-Term Credit Agreement”) with a syndicate of financial institutions, and entered into amendments and restatements (the “Amendments”, and together with the Short-Term Credit Agreement, the “Credit Agreements”) to the Five-Year Credit Agreement and the Term Loan Credit Agreement to conform certain provisions of such agreements to provisions of the Short-Term Credit Agreement. The Short-Term Credit Agreement will expire on December 15, 2005. Further, the Credit Agreements provided that Visteon has until December 10, 2005 to provide quarterly financial statements for each of the periods ended March 31, 2005, June 30, 2005, and September 30, 2005, which Visteon fulfilled by filing these financial statements in November 2005. In light of the upcoming expiration of the Short-Term Credit Agreement in December 2005, Visteon is exploring its financing alternatives.

      Borrowings under the Credit Agreements bear interest at variable rates equal to, at our election, (i) 3.50% plus the higher of (a) the prime rate or (b) the federal funds rate plus 50 bps, or (ii) a Eurocurrency rate plus 4.50%. Visteon elects the basis of the interest rate at the time of each borrowing. Visteon also pays a commitment fee of 50 bps in arrears on the average undrawn amount of the facility each quarter.

VISTEON CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS — (Continued)

(unaudited)

      The Credit Agreements contain, among other things, conditions precedent, covenants, representations and warranties and events of default customary for facilities of this type. Such covenants include the requirement to use the proceeds of certain subsidiary or asset sales, additional indebtedness and sale-leaseback transactions to reduce unused commitments and prepay or cash collateralize extensions of credit, certain restrictions on the incurrence of indebtedness, liens, acquisitions and other investments, mergers, consolidations, liquidations and dissolutions, sales of assets, dividends and other repayments in respect of capital stock, voluntary prepayments of other indebtedness, capital expenditures, transactions with affiliates, sale-leaseback transactions, changes in fiscal year, hedging arrangements, negative pledge clauses, subsidiary distributions and the activities of a certain holding company subsidiary, subject to certain exceptions. The Credit Agreements also contain financial covenants based on consolidated leverage ratios, which are tested at each quarter-end using the ratio of (a) Consolidated Total Debt to (b) Consolidated Earnings before Interest, Taxes, Depreciation and Amortization (“EBITDA”), excluding, most notably, permitted non-recurring expenses or losses and income or gains (each as defined in the Short-Term Credit Agreement). The above mentioned ratio cannot exceed 5.00 to 1 for the quarter ended September 30, 2005, 4.20 to 1 for the quarter ended December 31, 2005, 3.50 to 1 for the quarter ended March 31, 2006, 3.25 to 1 for the quarter ended June 30, 2006, 3.00 to 1 for the quarter ended September 30, 2006, and 2.50 to 1 for the quarter ended December 31, 2006 and thereafter. Visteon was in compliance with this covenant as of September 30, 2005.

      As of September 30, 2005, there were about $113 million of obligations under letters of credit under the 5-year revolving portion of the Credit Agreements. In addition, about $12 million in debt issue costs were incurred through the second quarter of 2005 and will be amortized pro-rata over the remaining life of the Credit Agreements.

7.95% notes due August 1, 2005

      On April 6, 2004, Visteon repurchased $250 million of the 7.95% notes that were due 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). On August 1, 2005, Visteon retired the remaining $250 million of 7.95% notes that were due on August 1, 2005. Visteon borrowed $450 million under the Credit Agreements to fund the $250 million maturity and for general working capital requirements. A portion of this borrowing was repaid upon receipt of a $250 million loan from Ford on September 19, 2005. The Ford loan was repaid on September 30, 2005, at which time Visteon received a $311 million deposit as consideration for inventory of the transferred business, net of other amounts.

      During the first quarter of 2005, Visteon terminated interest rate swaps with a notional amount of $200 million related to the 8.25% notes due August 1, 2010 and received $7 million in cash. The fair value of the interest rate swaps at termination was deferred as part of the underlying debt balance and amortized as a reduction in interest expense over the remaining term of the debt.

VISTEON CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS — (Continued)

(unaudited)

      Basic net loss per share of common stock is calculated by dividing reported net loss by the average number of shares of common stock outstanding during the applicable period, adjusted for restricted stock. The calculation of diluted net 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.

      For the third quarter and first nine months of 2005 and 2004, potential common stock of about 3,284,000 shares, 3,410,000 shares, 2,331,000 shares and 3,238,000 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 the periods. In addition, during the first nine months of 2005 and 2004, options to purchase about 8,259,000 shares of common stock and about 8,732,000 shares of common stock, respectively, at exercise prices ranging from about $9 per share to $22 per share and $10 per share to $22 per share, respectively, and which expire at various dates between 2009 and 2012, were outstanding 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.

VISTEON CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS — (Continued)

(unaudited)

      A reconciliation of changes in the product warranty liability is summarized as follows:

      Financial statement amounts for 2004 have been restated 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 during the fourth quarter of 2004. This change had no significant impact on Visteon’s results of operations for the first nine months of 2004. Inventories are summarized as follows:

      As of September 30, 2005, inventories shown above are net of inventories included in assets held for sale of $299 million as further described in Note 4, “Selected Costs, Income and Other Information.”

      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), and is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. Visteon has not determined the effect the adoption of SFAS 151 will have on either its results of operations or financial position.

VISTEON CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS — (Continued)

(unaudited)

      Comprehensive loss is summarized as follows:

      Accumulated other comprehensive (loss) income is comprised of the following:

VISTEON CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS — (Continued)

(unaudited)

      Visteon’s reportable operating segments are Automotive Operations and Glass Operations. Visteon will be reassessing its reportable operating segments in the fourth quarter of 2005 as a result of the organizational changes in connection with the Ford transactions. Financial information for the reportable operating segments is summarized as follows: