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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-K
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2005, or
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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) |
Registrants 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 |
Title of each class |
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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 is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act.
Yes No ü
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Exchange Act.
Yes No ü
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 ü No
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
Registrants 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. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in Rule 12b-2 of the Act.
Large accelerated
filer ü Accelerated
filer Non-accelerated
filer
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2 of the
Exchange Act).
Yes No ü
The aggregate market value of the registrants voting and
non-voting common equity held by non-affiliates of the
registrant on June 30, 2005 (the last business day of
the most recently completed second fiscal quarter) was
approximately $774 million.
As of March 1, 2006, the registrant had outstanding
128,006,167 shares of common stock.
Document Incorporated by Reference*
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Document |
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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. |
INDEX
PART I
ITEM 1. BUSINESS
The Companys Business
Visteon Corporation (Visteon or the
Company) 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, with regional headquarters in Kerpen,
Germany and Shanghai, China, a workforce of over 49,000
employees and a network of manufacturing sites, technical
centers, sales offices and joint ventures located in every major
region of the world.
The Company was incorporated in Delaware in January 2000 as a
wholly-owned subsidiary of Ford Motor Company (Ford
or Ford Motor Company). Subsequently, Ford
transferred the assets and liabilities comprising its automotive
components and systems business to Visteon. The Company
separated from Ford on June 28, 2000 when all of the
Companys common stock was distributed by Ford to its
shareholders.
ACH Transactions
In September 2005, the Company transferred 23 of its North
American facilities and certain other related assets and
liabilities (the Business) to Automotive Components
Holdings, LLC (ACH), an indirect, wholly-owned
subsidiary of the Company, and its subsidiaries. Subsequently,
on October 1, 2005, the Company sold to Ford all of
the capital stock of the parent company of ACH in exchange for
Fords payment to the Company of approximately
$300 million, as well as the forgiveness of certain other
postretirement employee benefit (OPEB) liabilities
and other obligations relating to hourly employees associated
with the Business, as well as the assumption of certain other
liabilities (together, the ACH Transactions). The
Business accounted for approximately $6.1 billion of the
Companys total sales for 2005, the majority being products
sold to Ford. Also, the transferred facilities included all of
the Companys plants that leased hourly workers covered by
Fords master agreement with the UAW.
The ACH Transactions addressed certain strategic and structural
challenges of the business. The Company expects additional
restructuring activities and business improvement actions will
be needed in the foreseeable future for the Company to achieve
sustainable success in an increasingly challenging environment.
The Company has identified additional facilities that require
significant focus and restructuring necessary to improve the
financial results of these operations.
To effectuate the ACH Transactions, the Company entered into
agreements dated as of September 12, 2005, with Ford
(Master Agreement, Visteon A Transaction Agreement
and Visteon B Purchase Agreement) and with
Automotive Components Holdings, Inc. (Holdings)
(Contribution Agreement). In addition, Visteon entered into the
following agreements in connection with the closing of the ACH
Transactions.
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Warrant and Stockholder Agreement. On
October 1, 2005, the Company issued to Ford a warrant
(the Warrant) to purchase 25 million
shares of the Companys common stock at an exercise price
equal to $6.90 per share. The stockholder agreement
provides for certain registration rights with respect to the
shares of common stock underlying the Warrant and contains
restrictions on the transfer of the Warrant and the underlying
shares of common stock. |
1
ITEM 1. BUSINESS (Continued)
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Escrow Agreement. Pursuant to the Escrow Agreement, dated
as of October 1, 2005 (the Escrow
Agreement), among the Company, Ford and Deutsche Bank
Trust Company Americas, as escrow agent, Ford paid
$400 million into an escrow account for use by the Company
to restructure its businesses. The Escrow Agreement provides
that the Company will be reimbursed from the escrow account for
the first $250 million of reimbursable restructuring costs
as defined in the Escrow Agreement, and up to one half of the
next $300 million of such costs. In addition, any residual
amounts in the escrow account after December 31, 2012 would
be paid to the Company, except in the event of a change of
control of the Company as defined in the Escrow Agreement,
and in which event residual amounts, if any remain, would be
paid to Ford. |
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Reimbursement Agreement. Pursuant to the Reimbursement
Agreement, dated as of October 1, 2005 (the
Reimbursement Agreement), between the Company and
Ford, Ford has agreed to reimburse the Company for up to
$150 million of separation costs associated with those
Company salaried employees who are leased to ACH, and whose
services are no longer required by ACH or a subsequent buyer
(Employee Restructuring Costs). The Reimbursement
Agreement provides that Ford will reimburse the Company for the
first $50 million of Employee Restructuring Costs, and up
to one half of the next $200 million of such costs. In
addition, any unused amounts under the Reimbursement Agreement
as of the earlier of December 31, 2009 or the date on which
there are no longer any Company salaried employees leased to
ACH, would be used to further fund the escrow account
established pursuant to the Escrow Agreement. |
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Master Services Agreement. Pursuant to the Master
Services Agreement, dated as of September 30, 2005
(the Master Services Agreement), between the Company
and ACH, the Company will provide certain information technology
and other transitional services (e.g., human resources and
accounting services) to ACH. The services will be provided at a
rate approximately equal to the Companys cost until such
time as the services are no longer required by ACH but not later
than December 31, 2008. ACH may elect to continue to obtain
services for up to an additional 12 month period at cost
plus a 5% mark-up. In the event that a component of the Business
is sold to a third party, services will be provided by the
Company for up to 24 months after each such sale, as
requested by the buyer, on additional terms. Subject to certain
limitations, ACH may terminate the Master Services Agreement
prior to the expiration of its term upon 30 days prior
written notice to the Company. |
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Visteon Salaried Employee Lease Agreement. Pursuant to
the Visteon Salaried Employee Lease Agreement, effective as of
October 1, 2005 (the Salaried Employee Lease
Agreement), between the Company and ACH, the Company will
provide ACH with the services of Company salaried employees to
enable ACH to continue to conduct the Business. The Company will
lease salaried employees and provide agency employees to ACH at
a rate approximately equal to the Companys cost until
December 31, 2009, unless the parties agree to an earlier
termination date. The term may be extended at ACHs option
for an additional 12 month period ending December 31,
2010, during which period ACH will reimburse the Company for its
costs plus a mark-up of
5% (excluding certain taxes). Upon a sale or transfer of all or
a part of the Business, the Company, ACH and the buyer will
mutually agree upon terms for transitioning leased employees to
the buyer, and the Company will provide human resource services
to the buyer for up to 24 months pursuant to the Master
Services Agreement, or under similar terms and conditions after
the termination of that agreement. Leased employees who do not
receive offers of comparable employment from the buyer will be
eligible for severance benefits, certain costs of which may be
reimbursed to the Company by Ford under the terms of the
Reimbursement Agreement. |
2
ITEM 1. BUSINESS (Continued)
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Visteon Hourly Employee Lease Agreement. Pursuant to the
Visteon Hourly Employee Lease Agreement, effective as of
October 1, 2005, between the Company and ACH, the
Company will provide ACH with the services of (a) any new
hourly employees hired under the terms of the Master Visteon-UAW
Collective Bargaining Agreement dated June 29, 2000
and the Supplemental Agreement dated as of May 4, 2004
and (b) hourly employees covered by the UAW Local
#1216-Visteon
Corporation Regional Assembly and Manufacturing LLC, Bellevue
Plant, Labor Agreement. The services will be provided at a rate
approximately equal to the Companys cost until the
termination of employment of all of the leased employees or
earlier agreement of the parties. In the event of a sale or
transfer of all or part of the Business to a third party, the
Company and ACH will agree on the disposition of the leased
employees, subject to UAW consent, and the Company will provide
human resource services to the buyer under the terms of the
Master Services Agreement, described above, for up to
24 months. |
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Salaried Employee Lease Agreement. On October 1,
2005, the Company and Ford entered into a salaried employee
lease agreement that is substantially similar to the Salaried
Employee Lease Agreement described above, providing for the
lease to Ford of certain salaried employees employed at, or
principally supporting, the plants located in Rawsonville,
Michigan and Sterling Heights, Michigan from the date each such
plant is transferred by ACH to Ford until
January 1, 2006. |
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Hourly Employee Conversion Agreement. Pursuant to the
Hourly Employee Conversion Agreement, dated as of
October 1, 2005, between the Company and Ford, the
parties have transferred Company hourly employees subject to the
Companys collective bargaining agreement with the UAW to
Ford under the terms of the Master Ford-UAW Collective
Bargaining Agreement. |
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Visteon Salaried Employee Transition Agreement. The
Visteon Salaried Employee Transition Agreement, dated as of
October 1, 2005 (the Employee Transition
Agreement), between the Company and Ford, provides that,
in the event that ACH transfers its plants located in
Rawsonville, Michigan and/or Sterling Heights, Michigan to Ford,
the salaried employees employed at such plants or principally
supporting those plants will become Ford salaried employees.
These plants were transferred by ACH to Ford effective
January 1, 2006. |
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Employee Transition Agreement Amendment. On
October 1, 2005, the Company and Ford entered into an
amendment to the Amended and Restated Employee Transition
Agreement, dated as of December 19, 2003, pursuant to
which Ford released the Company from its obligations to
reimburse Ford for the cost of providing postretirement employee
health and life benefits, and its pre-funding obligations with
respect to such benefits associated with certain employees who
are eligible or who may become eligible to retire under the Ford
General Retirement Plan, and Ford has agreed to reimburse the
Company for one half the cost of certain OPEB and pension
expenses associated with leased employees who retire as a result
of a sale, closure or exit of an ACH operation. |
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Purchase and Supply Agreements. On September 30,
2005, the Company entered into two Purchase and Supply
Agreements with ACH which set forth the supply obligations,
pricing and related matters for certain parts, components and
systems that are manufactured by one party and supplied to the
other. On October 1, 2005, the Company entered into a
Purchase and Supply Agreement, dated as of
October 1, 2005, with Ford which sets forth the supply
obligations, pricing and related matters for certain parts,
components and systems that are manufactured by the Company and
supplied to Ford. |
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ITEM 1. BUSINESS (Continued)
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IP and Software Agreements. On
September 30, 2005, the Company entered into the
Intellectual Property Contribution Agreement with Visteon Global
Technologies, Inc. (VGTI), Holdings and ACH, and the
Software License and Contribution Agreement with VGTI and
Holdings. On October 1, 2005, the Company entered into
an Intellectual Property License Agreement with VGTI and Ford.
These agreements allocate certain intellectual property rights
among the parties associated with transferring the Business to
ACH. |
Pursuant to the ACH Transactions, the Company and Ford
terminated certain existing commercial agreements, including the
Funding Agreement, dated as of March 10, 2005, as
amended; the Master Equipment Bailment Agreement, dated as of
March 10, 2005, as amended; the Purchase and Supply
Agreement, dated as of December 19, 2003; and the 2003
Relationship Agreement, dated as of December 19, 2003;
as well as the Amended and Restated Hourly Employee Assignment
Agreement, dated as of April 1, 2000, as amended and
restated as of December 19, 2003.
Organization and Operating Structure
In late 2005, the Company announced a new operating structure to
manage the business following the ACH Transactions. This
operating structure is comprised of the following global product
groups: Climate, Electronics, Interiors and Other. These general
product groups have financial and operating responsibility over
the design, development and manufacture of the Companys
product portfolio. Regional customer groups are responsible for
the marketing, sales and service of the Companys product
portfolio to its customer base. Certain functions such as
procurement, information technology and other administrative
activities are managed on a global basis with regional
deployment.
The Company is currently in the process of realigning systems
and reporting structures to facilitate financial reporting under
the revised organizational structure. Although the Company
expects to change its reporting segments as described above in
early 2006, such realignment was not complete at
December 31, 2005 and accordingly the Company did not
meet the criteria to change its reportable segments under
Statement of Financial Accounting Standards No. 131
(SFAS 131) Disclosures about Segments of
an Enterprise and Related Information. However, pursuant
to the ACH Transactions, the Company established and commenced
operations of Visteon Services, a centralized administrative
function to monitor and facilitate transactions with ACH for the
costs of leased employees and other services provided to ACH by
the Company. As the activities of Visteon Services do not share
similar economic characteristics with the Companys other
business operations, the Company has provided separate
disclosure of these operations as of December 31, 2005.
The Companys reportable segments as of
December 31, 2005 are as follows:
Automotive Operations The Companys Automotive
Operations supply automotive systems, modules and components on
a global basis for product offerings related to climate control,
interior, exterior, powertrain, chassis and electronics. For a
more detailed description of the Companys products, see
The Companys Products below. The Automotive
Operations segment accounted for approximately 97% of the
Companys 2005, 2004 and 2003 total net sales.
Glass Operations The Companys
Glass Operations supply automotive glass products to Ford
and various aftermarket customers, and float glass for
commercial architectural and automotive applications. The
Glass Operations segment accounted for approximately 2%, 3%
and 3% of the Companys 2005, 2004 and 2003 total net
sales, respectively.
4
ITEM 1. BUSINESS (Continued)
Services Operations The Companys Services
Operations supply leased personnel and transition services as
required by certain agreements entered into by the Company with
ACH as a part of the ACH Transactions. Pursuant to the Master
Services Agreement and the Salaried Employee Lease Agreement the
Company agreed to provide ACH with certain information
technology, personnel and other services to enable ACH to
conduct its business. Services to ACH are provided at a rate
approximately equal to the Companys cost until such time
the services are no longer required by ACH or the expiration of
the related agreement. The Service segment accounted for
approximately 1% of the Companys total net sales in 2005.
Further information relating to the Companys reportable
segments can be found in Item 8, Financial Statements
and Supplementary Data of this Annual Report on
Form 10-K
(Note 18, Segment Information, of the
Companys consolidated financial statements).
The Companys Industry
The Company is a leading global supplier of a range of
integrated 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. 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. Additional significant
factors and trends in the automotive industry include:
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Shift in North American Original Equipment Manufacturer
(OEM) Market Share 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. The Company also
believes, however, that this trend also creates 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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OEM Pricing Pressures Because vehicle manufacturers
are under increasing competitive intensity, they must rapidly
adjust to changing consumer preferences in order to
differentiate their vehicles to maintain and grow their market
share. These market pressures inhibit the ability of vehicle
manufacturers to significantly increase vehicle prices, leading
vehicle manufacturers to intensify their cost-reduction efforts
with their suppliers. In particular, vehicle manufacturers are
increasingly searching for lower cost sources of components and
systems and are establishing global benchmark pricing. |
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OEM Financial Position In light of market share and
end consumer pricing trends, certain vehicle manufacturers,
particularly in North America and Europe, report significant
financial challenges driven by excess production capacity and
high fixed cost structures. These vehicle manufacturers continue
to implement actions to further reduce capacity and streamline
cost structures while investing in new technologies and vehicle
platforms. Vehicle manufacturers continue to look to the supply
base to assume additional design, development and service
responsibilities for products providing capable suppliers the
opportunity to further their commercial position in the
OEMs to the supply chain. |
5
ITEM 1. BUSINESS (Continued)
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Commodity and Materials Costs The supply of certain
commodities used in the production of automotive parts,
primarily ferrous and non-ferrous metals, resins and energy,
continues to be constrained resulting in increased costs. Such
constraints and/or disruptions in supply are likely to continue
to pressure the Companys operating results. |
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Supplier Consolidation and Financial Position The
number of automotive suppliers worldwide has been declining due
to continued industry consolidation. In the U.S., declining
sales volumes of certain domestic automakers combined with high
material and labor costs has adversely impacted the financial
condition of several domestic automotive suppliers, resulting in
several significant supplier bankruptcies. Automotive suppliers
must continue to focus on diversifying their customer base,
developing innovative products at competitive prices and
following their customers as they expand globally. |
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Globalization 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. |
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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. |
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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 and features 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. Also, consumer preferences for
in-vehicle communication, navigation and entertainment
capabilities and features continue to drive increased
electronics content. |
The Companys Business Strategy
By leveraging the Companys extensive experience,
innovative technology and geographic strengths, the Company aims
to grow its leading positions in its key climate, interiors and
electronics product groups and improve margins, long-term
operating profitability and cash flows. To achieve these goals
and respond to industry factors and trends, the Company is
working to improve the performance of base operations, reduce
overhead costs, and restructure underperforming and
non-strategic operations, as more fully described below.
Improving Base Operations
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Focused product portfolio The global automotive
parts industry is highly competitive; 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, the Company reexamined its broad product
portfolio to identify its key growth products considered core to
its future success. Based on this assessment, the Company
identified interiors, climate and electronics (including
lighting) as its key growth products. The Company believes there
are opportunities to capitalize on the continuing demand for
additional electronics integration and associated products with
its product portfolio and technical capabilities. |
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ITEM 1. BUSINESS (Continued)
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Customer and geographic diversification The Company
is well positioned globally, with a diverse customer base.
Although Ford remains the Companys largest customer, the
Company has been steadily diversifying its sales with growing
OEMs. Following the ACH Transactions, the Companys
regional sales mix has become more balanced, with a greater
percentage of product sales outside of North America. |
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Achieving cost efficiencies The Company continues to
take actions to lower its manufacturing costs by increasing its
focus on production utilization and related investment, closure
and consolidation of facilities and relocation of production to
lower cost environments to take further advantage of its global
manufacturing footprint. The Company has consolidated its
regional purchasing activities into a global commodity driven
organization to provide increased spending leverage and to
further standardize its production and related material
purchases. The Company has increased its focus and financial
discipline in the evaluation of and bidding on new customer
programs to improve operating margins, as well as taking actions
to address lower margin customer programs. |
Reduce Overhead Costs
To further improve the Companys administrative and
engineering costs, the Company has taken actions to implement
more competitive benefits and compensation programs for its
employees, build and redesign its engineering capability in more
competitive cost locations, and re-examine its current
third-party supplier arrangements for purchased services
Three-Year Improvement Plan
In January 2006, the Company announced a three-year improvement
plan that involves the restructuring of certain underperforming
and non-strategic plants and businesses to improve operating and
financial performance and other cost reduction efforts.
Currently, this plan is expected to affect up to 23 facilities.
The majority of the cash expenses for this plan are expected to
be funded by the $400 million escrow account established
pursuant to the ACH Transactions.
The Companys Products
When working with a customer, the Companys goal is to
understand the design intent and brand image for each vehicle
and leverage the Companys extensive experience and
innovative technology to deliver products that enable the
customer to differentiate the vehicle. The Company supports its
components, systems and modules with a full-range of styling,
design, testing and manufacturing capabilities, including
just-in-time and
in-sequence delivery.
The following discussion describes the major product lines
within the Automotive Operations segment that the Company
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 18, Segment
Information, of the Companys consolidated financial
statements.
7
ITEM 1. BUSINESS (Continued)
Interior Products & Systems
The Company is one of the leading global suppliers of cockpit
modules, instrument panels, door and console modules and
interior trim components.
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Interior Product Lines |
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Description |
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Cockpit Modules
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The Companys 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. Customers are provided with a complete
array of services including advanced engineering and
computer-aided design, styling concepts and modeling and
in-sequence delivery of manufactured parts. The Companys
Cockpit Modules incorporate its 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. |
Door Modules
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The Company provides a wide range of door trim panels and
modules as well as a variety of interior trim products. |
Console Modules
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The Companys 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. |
Exterior Products & Systems
The Company can provide exterior packages that deliver high
quality and functionality to the automotive customer.
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Exterior Product Lines |
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Description |
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Lighting
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The Company 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. The Companys expertise
in lighting enables a breadth of technology using a range of
lighting sources including Light Emitting Diode
(LED), High Intensity Discharge (HID)
and Halogen-based systems. |
Climate Control Products & Systems
The Company 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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Climate Control Product Lines |
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Description |
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Climate Systems
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The Company designs and manufactures fully integrated heating,
ventilation and air conditioning (HVAC) systems. The
Companys 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. |
Powertrain Cooling Systems
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Cooling functionality and thermal management for the
vehicles powertrain system (engine and transmission) is
provided by powertrain cooling-related technologies. |
8
ITEM 1. BUSINESS (Continued)
Electronic Products & Systems
The Company is one of the leading global suppliers of advanced
in-vehicle entertainment, driver information, wireless
communication, safety and security electronics technologies and
products.
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Electronic Product Lines |
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Description |
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Audio Systems
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The Company produces a wide range of audio systems and
components, ranging from base radio head units to integrated
premium audio systems and amplifiers. Examples of the
Companys latest electronics products include digital and
satellite radios, HD
Radiotm
broadcast tuners and premium systems for audiophile
enthusiasts. The Companys
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. |
Driver Information Systems
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The Company designs and manufacturers a wide range of displays,
from analog-electronic to high-impact instrument clusters that
incorporate LED displays. |
Infotainment Information, Entertainment and
Multimedia
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The Company 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. |
Other Products & Systems
The Company designs and manufactures an array of chassis-related
products, from driveline systems for popular all-wheel drive
vehicles to steering and suspension systems, as well as
powertrain products and systems, which are designed to provide
the automotive customer with solutions that enhance powertrain
performance, fuel economy and emissions control.
The Companys Customers
The Company sells its products primarily to global vehicle
manufacturers as well as to other suppliers and assemblers. In
addition, it sells products for use as aftermarket and service
parts to automotive original equipment manufacturers and others
for resale through their own independent distribution networks.
Vehicle Manufacturers
The Company sells to all of the worlds largest vehicle
manufacturers including Ford, General Motors, Toyota,
DaimlerChrysler, Honda, Volkswagen, Renault, Nissan, Hyundai,
Peugeot, Mazda and BMW. Ford is the Companys largest
customer, and product sales to Ford, including those sales to
Auto Alliance International, a joint venture between Ford and
Mazda, accounted for approximately 62% of its 2005 total product
sales. Customers other than Ford include Mazda, of which Ford
owns a 33.4% equity interest. No other customer accounted for
more than 6% of 2005 total product sales.
9
ITEM 1. BUSINESS (Continued)
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. The Company has agreed to
provide specific average productivity price reductions to its
largest customer, Ford, for most North America sales through
2008. The Company has an aggressive cost reduction program that
focuses on reducing its 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
certain commodities used in the manufacture of the
companys products.
Aftermarket
The Company sells 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 2005, the Company had
aftermarket sales of $1.1 billion, representing 6% of its
total sales. The Company currently sells 60% of these products
to the independent aftermarket and 40% to Fords
aftermarket sales organization. In 2005, aftermarket sales of
its glass products were $92 million, representing 1% of its
total product sales and 9% of its total aftermarket sales.
The Companys Competition
The Company conducts its 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.
A summary of the Companys primary independent competitors
by reportable segment as of and for the year ended
December 31, 2005 is provided below.
Automotive Operations The Companys principal
competitors in the Automotive Operations segment included the
following: American Axle & Manufacturing Holdings,
Inc.; Behr GmbH & Co. KG; Robert Bosch GmbH; Dana
Corporation; Delphi Corporation; Denso Corporation; Faurecia
Group; Hella KGaA Hueck & Co.; Johnson Controls, Inc.;
Lear Corporation; Magna International Inc.; Siemens VDO
Automotive AG; TRW Automotive Holdings Corp.; and Valéo S.A.
Glass Operations The Companys principal
competitors in the Glass Operations segment included the
following: Asahi Glass Co., Ltd.; AFG Industries, Inc.;
Guardian Industries Corp.; Pilkington plc; and PPG Industries,
Inc.
10
ITEM 1. BUSINESS (Continued)
The Companys Sales Backlog
Anticipated net sales for 2006 through 2008 from new and
replacement programs, less net sales from phased-out and
canceled programs are approximately $1.5 billion. The
Companys estimate of anticipated net sales may be impacted
by various assumptions, including vehicle production levels on
new and replacement programs, customer price reductions, foreign
exchange rates and the timing of program launches. In addition,
the Company typically enters into agreements with its customers
at the beginning of a vehicles life for the fulfillment of
a customers purchasing requirements for the entire
production life of the vehicle. Although instances of early
termination have historically been rare, these agreements
generally may be terminated by our customers at any time.
Therefore, our anticipated net sales information does not
reflect firm orders or firm commitments. See Risk
Factors contained in Item 1A below.
11
ITEM 1. BUSINESS (Continued)
The Companys International Operations
Financial information about sales and net property by major
geographic area can be found in Note 18, Segment
Information, of the Companys consolidated financial
statements. The attendant risks of the Companys
international operations are primarily related to currency
fluctuations, changes in local economic and political
conditions, and changes in laws and regulations. The following
table sets forth the Companys net sales and net property
and equipment by geographic region as a percentage of total net
sales and total net property and equipment, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Property | |
|
|
Net Sales | |
|
and Equipment | |
|
|
| |
|
| |
|
|
Year Ended December 31 | |
|
December 31 | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Geographic region:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
58 |
% |
|
|
64 |
% |
|
|
67 |
% |
|
|
34 |
% |
|
|
53 |
% |
|
Mexico
|
|
|
2 |
% |
|
|
2 |
% |
|
|
3 |
% |
|
|
5 |
% |
|
|
4 |
% |
|
Canada
|
|
|
1 |
% |
|
|
1 |
% |
|
|
1 |
% |
|
|
1 |
% |
|
|
1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total North America
|
|
|
61 |
% |
|
|
67 |
% |
|
|
71 |
% |
|
|
40 |
% |
|
|
58 |
% |
|
|
Germany
|
|
|
4 |
% |
|
|
3 |
% |
|
|
3 |
% |
|
|
6 |
% |
|
|
6 |
% |
|
France
|
|
|
6 |
% |
|
|
5 |
% |
|
|
3 |
% |
|
|
7 |
% |
|
|
4 |
% |
|
United Kingdom
|
|
|
3 |
% |
|
|
3 |
% |
|
|
3 |
% |
|
|
3 |
% |
|
|
6 |
% |
|
Portugal
|
|
|
3 |
% |
|
|
3 |
% |
|
|
3 |
% |
|
|
4 |
% |
|
|
3 |
% |
|
Spain
|
|
|
3 |
% |
|
|
3 |
% |
|
|
2 |
% |
|
|
4 |
% |
|
|
2 |
% |
|
Czech Republic
|
|
|
3 |
% |
|
|
2 |
% |
|
|
1 |
% |
|
|
6 |
% |
|
|
4 |
% |
|
Hungary
|
|
|
1 |
% |
|
|
1 |
% |
|
|
1 |
% |
|
|
3 |
% |
|
|
2 |
% |
|
Other Europe
|
|
|
1 |
% |
|
|
1 |
% |
|
|
1 |
% |
|
|
1 |
% |
|
|
1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Europe
|
|
|
24 |
% |
|
|
21 |
% |
|
|
17 |
% |
|
|
34 |
% |
|
|
28 |
% |
|
|
Korea
|
|
|
8 |
% |
|
|
6 |
% |
|
|
6 |
% |
|
|
14 |
% |
|
|
7 |
% |
|
China
|
|
|
1 |
% |
|
|
1 |
% |
|
|
1 |
% |
|
|
2 |
% |
|
|
1 |
% |
|
India
|
|
|
1 |
% |
|
|
1 |
% |
|
|
1 |
% |
|
|
3 |
% |
|
|
2 |
% |
|
Japan
|
|
|
1 |
% |
|
|
1 |
% |
|
|
1 |
% |
|
|
2 |
% |
|
|
1 |
% |
|
Other Asia
|
|
|
1 |
% |
|
|
1 |
% |
|
|
1 |
% |
|
|
1 |
% |
|
|
1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Asia
|
|
|
12 |
% |
|
|
10 |
% |
|
|
10 |
% |
|
|
22 |
% |
|
|
12 |
% |
|
|
South America
|
|
|
3 |
% |
|
|
2 |
% |
|
|
2 |
% |
|
|
4 |
% |
|
|
2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seasonality of the Companys Business
The Companys business is moderately seasonal because its
largest North American customers typically halt operations for
approximately two weeks in July for model year changeovers and
approximately one week in December during the winter holidays.
Customers in Europe historically shut down vehicle production
during a portion of August and one week in December. In
addition, third quarter automotive production traditionally is
lower as new models enter production. Accordingly, the
Companys third and fourth quarter results may reflect
these trends. Refer to Note 19, Summary Quarterly
Financial Data to the Companys consolidated
financial statements included in Item 8 of this Annual
Report on Form 10-K.
12
ITEM 1. BUSINESS (Continued)
The Companys Workforce and Employee Relations
The Companys workforce as of December 31, 2005
included approximately 49,575 persons, of which approximately
17,075 were salaried employees and 32,500 were hourly workers.
As of December 31, 2005, the Company leased
approximately 4,200 employees to ACH under the terms of the
Salaried Employee Lease Agreement.
A substantial number of the Companys hourly workforce in
the U.S. are represented by unions and operate under collective
bargaining agreements. In connection with the ACH Transactions,
the Company terminated its lease from Ford of its UAW master
agreement hourly workforce. Many of the Companys European
and Mexican 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. The Company constantly works to
establish and maintain positive, cooperative relations with its
unions around the world and believes that its relationships with
unionized employees are satisfactory. There have been no
significant work stoppages in the past four 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.
The Companys Product Research and Development
The Companys research and development efforts are intended
to maintain its leadership position in the industry and provide
the Company with a competitive edge as it seeks additional
business with new and existing customers. Total research and
development expenditures were approximately $804 million in
2005, $896 million in 2004 and $913 million in 2003.
The Company also works with technology development partners,
including customers, to develop technological capabilities and
system enhancements.
The Companys Intellectual Property
The Company 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 the Companys 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 the Company that its business would be materially
affected by the expiration or termination thereof. The
Companys 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.
The Company also views its name and mark as significant to its
business as a whole. In addition, the Company 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)
The Companys Raw Materials and Suppliers
Raw materials used by the Company in the manufacture of its
products primarily include steel, aluminum, resins, precious
metals, urethane chemicals and electronics components. All of
the materials used are generally readily available from numerous
sources. Although the Company does not anticipate significant
interruption in the supply of raw materials, the cost of
ensuring this continued supply of certain raw materials, in
particular steel, aluminum and resins, has risen dramatically.
This increase has had an adverse impact on the Companys
results of operations and will continue to adversely affect
results of operations unless the Companys customers share
in these increased costs. To date, the Company has not been able
to fully recover these costs from all of its customers, and the
Company cannot provide assurance that it will be able to recover
those costs in the future.
Impact of Environmental Regulations on the Company
The Company 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. The Company 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.
At the time of spin-off, the Company and Ford agreed on a
division of liability for, and responsibility for management and
remediation of, environmental claims existing at that time, and,
further, that the Company would assume all liabilities for
existing and future claims relating to sites that were
transferred to it and its operation of those sites, including
off-site disposal, except as otherwise specifically retained by
Ford in the master transfer agreement. In connection with the
ACH Transactions, Ford agreed to re-assume these liabilities to
the extent they arise from the ownership or operation prior to
the spin-off of the locations transferred to ACH (excluding any
increase in costs attributable to the exacerbation of such
liability by the Company or its affiliates).
The Company is aware of contamination at some of its properties
and relating to various third-party superfund sites at which the
Company or its predecessor has been named as a potentially
responsible party. It is in various stages of investigation and
cleanup at these sites. At December 31, 2005, the
Company had recorded a reserve of approximately $9 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
the Companys control and which may change dramatically.
Accordingly, although the Company believes its reserve is
adequate based on current information, the Company cannot assure
you that its eventual environmental investigation and cleanup
costs and liabilities will not exceed the amount of its current
reserve.
During 2005, the Company did not make any material capital
expenditures relating primarily to environmental compliance.
14
ITEM 1. BUSINESS (Continued)
The Companys Website and Access to Available
Information
The Companys current and periodic reports filed with the
Securities and Exchange Commission, including amendments to
those reports, may be obtained through its internet website at
www.visteon.com free of charge as soon as reasonably practicable
after the Company files these reports with the SEC. A copy of
the Companys code of business conduct and ethics for
directors, officers and employees of Visteon and its
subsidiaries, entitled Ethics and Integrity Policy,
the Corporate Governance Guidelines adopted by the
Companys Board of Directors and the charters of each
committee of the Board of Directors are available on the
Companys website at www.visteon.com. You may also request
a printed copy of the foregoing documents by contacting the
Companys 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 1A. RISK FACTORS
The risks and uncertainties described below are not the only
ones facing the Company. Additional risks and uncertainties,
including those not presently known or that the Company believes
to be immaterial, also may adversely affect the Companys
results of operations and financial condition. Should any such
risks and uncertainties develop into actual events, these
developments could have material adverse effects on the
Companys business and financial results.
A decline in automotive sales could reduce the
Companys sales and harm its operations.
Demand for the Companys products is directly related to
automotive vehicle production. Automotive sales and production
can be affected by general economic conditions, such as
employment levels and trends, fuel prices and interest rates,
labor relations issues, regulatory requirements, trade
agreements and other factors. Automotive industry conditions in
North America and Europe continue to be challenging. In North
America, the domestic automotive industry is characterized by
significant overcapacity, fierce competition, high fixed cost
structures and significant employee pension and health care
obligations for the domestic automakers. Domestic automakers
continue to report market share loss to other vehicle
manufacturers resulting in lower annual production volumes and
the need to further address their production capacity and cost
structure. Similarly, in Europe the market is highly fragmented
and certain automakers continue to report lower annual sales
volumes. Any decline in automotive production levels of its
current and future customers could reduce the Companys
sales and harm its results of operations and financial condition.
Further, certain automakers, particularly in North America and
Europe, report significant financial challenges due to the
factors described above. These automakers continue to implement
actions to further reduce capacity and streamline their cost
structure while at the same time investing in new technologies
and vehicle platforms. In the United States, two of the largest
automakers, General Motors Corporation and Ford Motor Company,
have announced restructuring plans aimed at realigning their
cost structure in light of current and projected market share
and production volumes for the North American market. A
significant element of these cost reduction actions include the
negotiation with and participation of the respective unionized
workforces in addressing legacy costs related to health care,
pensions, wages and other employee benefits. The results and
effects of these actions and related negotiations are uncertain
and, accordingly, could have a material adverse affect on the
Companys results of operations and financial condition.
The Company is highly dependent on Ford. Ford is currently
undergoing a restructuring plan and further decreases in
Fords vehicle production volume would adversely affect the
Companys results.
Ford is the Companys largest customer and accounted for
approximately 62% of total product sales in 2005, 70% of total
product sales in 2004 and 76% of total product sales in 2003.
Although the Company has made progress in diversifying its
customer base with other automakers, and has further reduced its
sales concentration with Ford as a result of the completion of
the ACH Transactions in the latter half of 2005, Ford will
continue to be the Companys largest customer for the
foreseeable future. Further, Ford has recently announced a
restructuring plan and may ultimately restructure its operations
in a way that could be adverse to the Companys interests.
As in the past, any change in Fords vehicle production
volume will have a significant impact on the Companys
sales volume.
The Company currently leases approximately 4,200 salaried
employees to ACH, a company controlled by Ford, and has an
agreement with Ford to reimburse the Company for up to
$150 million of the costs related to separating any of the
leased employees should they be returned to us for any reason.
In the event that Ford was unable or unwilling to fulfill its
obligations under this agreement, the Company could be adversely
affected.
16
ITEM 1A. RISK FACTORS (Continued)
The discontinuation of, the loss of business with respect
to, or a lack of commercial success of a particular vehicle
model for which the Company is a significant supplier could
affect our estimates of product sales backlog.
Although the Company has purchase orders from many of its
customers, these purchase orders generally provide for the
supply of a customers annual requirements for a particular
model and assembly plant and are renewable on a
year-to-year basis,
rather than for the purchase of a specific quantity of products.
Therefore, the discontinuation, loss of business with respect
to, or a lack of commercial success, of a particular vehicle
model for which the Company is a significant supplier could
reduce the Companys sales and affect its estimates of
product sales backlog.
Escalating pricing pressures from the Companys
customers may adversely affect our business.
Downward pricing pressures by automotive manufacturers has been
a characteristic of the automotive industry in recent years.
Virtually all automakers have aggressive price reduction
initiatives and objectives each year with their suppliers, and
such actions are expected to continue in the future.
Accordingly, suppliers must be able to reduce their operating
costs in order to maintain profitability. The Company has taken
steps to reduce its operating costs to offset customer price
reductions, in addition to other actions designed to resist such
reductions; however, price reductions have impacted our sales
and profit margins and are expected to do so in the future. If
the Company is unable to offset customer price reductions in the
future through improved operating efficiencies, new
manufacturing processes, sourcing alternatives and other cost
reduction initiatives, our results of operations and financial
condition would be adversely affected.
The automotive supplier environment in which we operate
continues to evolve and be uncertain.
In recent years, the competitive environment among suppliers to
the global automotive manufacturers has changed significantly as
these manufacturers have sought to outsource more vehicular
components, modules and systems. In addition, the number of
suppliers worldwide has been declining due to continued
consolidation. In the United States, declining sales volumes of
certain domestic automakers combined with high material and
labor costs has adversely impacted the financial condition of
several domestic automotive suppliers, including resulting in
several significant supplier bankruptcies. The Company expects
to respond to these developments by continuing to diversify its
customer base through the continued development of innovative
products at competitive prices as well as through strategic
alliances, joint ventures, acquisitions and divestitures.
However, there is no assurance that the Companys efforts
will be successful or that competitors with lower cost
structures and better access to liquidity sources will not
significantly impact our business, results of operations and
financial condition.
Severe inflationary pressures impacting ferrous and
non-ferrous metals and petroleum-based commodities may adversely
affect the Companys profitability and the profitability of
the Companys Tier 2 and Tier 3 supply
base.
The automotive supply industry has recently experienced
significant inflationary pressures, primarily in ferrous and
non-ferrous metals and petroleum-based commodities, such as
resins. These inflationary pressures have placed significant
operational and financial burdens on automotive suppliers at all
levels, and are expected to continue for the foreseeable future.
Generally, it has been difficult to pass on, in total, the
increased costs of commodities used in the manufacture of the
Companys products to its customers. In addition, the
Companys need to maintain a continued supply of raw
materials and/or components has made it difficult to resist
price increases and surcharges imposed by its suppliers.
17
ITEM 1A. RISK FACTORS (Continued)
Further, this inflationary pressure, combined with other
factors, has adversely impacted the financial condition of
several domestic automotive suppliers, including resulting in
several significant supplier bankruptcies. Because the Company
purchases various types of equipment, raw materials and
component parts from suppliers, we may be materially and
adversely affected by the failure of those suppliers to perform
as expected. This non-performance may consist of delivery
delays, failures caused by production issues or delivery of
non-conforming products, or supplier insolvency or bankruptcy.
Consequently, the Companys efforts to continue to mitigate
the effects of these inflationary pressures may be insufficient
if conditions were to worsen, resulting in a negative impact on
the Companys financial results.
The Company could be adversely affected if we experience
shortages of components from our suppliers.
In an effort to manage and reduce the costs of purchased goods
and services, the Company, like many suppliers and automakers,
has been consolidating its supply base. As a result, the Company
is dependent on single or limited sources of supply for certain
of components used in the manufacture of our products. The
Company selects its suppliers based on total value (including
price, delivery and quality), taking into consideration their
production capacities and financial condition, and we expect
that they will be able to support our needs. However, there can
be no assurance that strong demand, capacity limitations or
other problems experienced by the Companys suppliers will
not result in occasional shortages or delays in their supply of
components to us. If the Company was to experience a significant
or prolonged shortage of critical components from any of its
suppliers, particularly those who are sole sources, and could
not procure the components from other sources, the Company would
be unable to meet its production schedules for some of its key
products and to ship such products to its customers in timely
fashion, which would adversely affect its sales, margins and
customer relations.
Work stoppages or similar difficulties could significantly
disrupt the Companys operations.
A work stoppage at one or more of the Companys
manufacturing and assembly facilities could have material
adverse effects on the business. Also, if one or more of the
Companys customers were to experience a work stoppage,
that customer would likely halt or limit purchases of our
products which could result in the shut down of the related
manufacturing facilities. Further, because the automotive
industry relies heavily on
just-in-time delivery
of components during the assembly and manufacture of vehicles, a
significant disruption in the supply of a key component due to a
work stoppage at one of the Companys suppliers or any
other supplier could have the same consequences, and
accordingly, have a material adverse effect on the
Companys financial results.
18
ITEM 1A. RISK FACTORS (Continued)
The Company has a history of significant losses; the
Company is in the process of implementing a three-year
improvement plan but may be unable to successfully improve its
performance or attain profitability.
The Company incurred net losses of $270 million,
$1,536 million and $1,229 million for 2005, 2004
and 2003, respectively. The Companys ability to improve
its financial performance and return to profitability is
dependent on its ability to implement its three-year improvement
plan, and realize the benefits of such plan. The Company expects
to fund the majority of the cash restructuring costs
contemplated by its three-year plan with reimbursements from the
$400 million escrow account established by Ford upon the
completion of the ACH Transactions. However, it is possible that
actual cash restructuring costs could vary significantly from
the Companys initial projections as the plan progresses,
which could result in unexpected costs in future periods that
may be in excess of amounts available from the escrow account,
which could have an adverse impact on the Companys
financial results. Further, the Company cannot provide
assurances that it will realize the expected benefits in the
time periods projected, or at all, from its restructuring
actions, or that such actions will improve its financial
performance or return the Company to profitability in the near
term or at all. In addition, a majority of the Companys
hourly workforce is unionized. Labor contracts with these unions
can significantly restrict the Companys ability to close
plants and divest unprofitable, noncompetitive businesses as
well as limit its ability to change local work rules and
practices at a number of the Companys facilities,
constraining the implementation of cost-saving measures. These
restrictions and limitations could have adverse effects on our
results of operations and competitive position and could slow or
alter the Companys improvement plans.
Moreover, the Company recorded asset impairment charges of
$1,511 million, $314 million and $436 million in
2005, 2004 and 2003, respectively, to adjust the carrying
value of the Companys property and equipment to its
estimated fair value. Additional asset impairment charges in the
future may result in the event that the Company does not achieve
its internal financial plans, and such charges could materially
affect the Companys results of operations and financial
condition in the period(s) recognized. In addition, the Company
cannot provide assurance that it will be able to recover its
remaining net deferred tax assets which is dependent upon
achieving future taxable income in certain foreign
jurisdictions. Failure to achieve our taxable income targets may
change the Companys assessment of the recoverability of
its remaining net deferred tax assets and would likely result in
an increase in the valuation allowance in the applicable period.
Any increase in the valuation allowance would result in
additional income tax expense, would reduce stockholders
equity and could have a significant impact on the Companys
earnings going forward.
Sources of financing may not be available to the Company
in the amount or terms required.
The Company has secured credit facilities that mature in June
2007. These facilities require the Company to attain a specified
financial ratio as of the end of each quarter; specifically, a
ratio of consolidated total debt to consolidated EBITDA, as such
terms are defined in the facilities.
Because the Companys financial performance is impacted by
various economic, financial and industry factors, the Company
cannot say with certainty whether it will satisfy the covenants
under these facilities in the future. Non-compliance with these
covenants would constitute an event of default, allowing the
lenders to accelerate the repayment of any borrowings
outstanding under the facilities. While no assurance can be
given, the Company believes that it would be able to
successfully negotiate amended covenants or obtain waivers if an
event of default were imminent. Any default under our credit
facilities may result in defaults under our other debt
instruments. The Companys business, results of operations
and financial condition could be adversely affected if it were
unable to successfully negotiate amended covenants or obtain
waivers on acceptable terms.
19
ITEM 1A. RISK FACTORS (Continued)
The Companys working capital requirements and cash
provided by operating activities can vary greatly from quarter
to quarter and from year to year, depending in part on the
level, variability and timing of our customers worldwide
vehicle production and the payment terms with our customers and
suppliers. Despite the Companys expected improved
performance for 2006, we cannot provide assurance that it will
be able to satisfy its capital expenditure requirements during
2006 or subsequent years, or during any particular quarter, from
cash provided by operating activities. If the Companys
working capital needs and capital expenditure requirements
exceed its cash flows from operations, cash balances and
borrowings, the Company may need to raise additional capital,
which may not be available to us on satisfactory terms and in
adequate amounts. For a discussion of these and other factors
affecting the Companys liquidity, refer to
Managements Discussion and Analysis of Financial
Condition and Results of Operations Liquidity and
Capital Resources.
The Companys business is highly dependent upon the ability
to access the credit and capital markets. Access to, and the
costs of borrowing in, these markets depend in part on the
Companys credit ratings, which are currently
below-investment grade. There can be no assurance that the
Companys credit ratings will not decline further in the
future. Further downgrades of our ratings would increase our
costs of borrowing again and could imperil our liquidity.
The Companys pension and other postretirement
employee benefits expense and underfunding levels of our pension
plans could materially increase.
Substantially all of the Companys employees participate in
defined benefit pension plans or retirement/termination
indemnity plans. The Company has previously experienced declines
in interest rates and pension asset values. Future declines in
interest rates or the market values of the securities held by
the plans, or certain other changes, could materially increase
the underfunded status of our plans and affect the level and
timing of required contributions in 2006 and beyond. A material
increase in the underfunded status of the plans could
significantly increase pension expenses and reduce the
Companys profitability.
The Company also sponsors other postretirement employee benefit
(OPEB) plans that cover many of our U.S. and certain
non-U.S. employees
and provide for benefits to eligible employees and dependents
upon retirement. The Company funds its OPEB obligations on a
pay-as-you-go basis; accordingly, the related plans have no
assets. We are subject to increased OPEB cash outlays and costs
due to, among other factors, rising health care costs. Increases
in the expected cost of health care in excess of our assumptions
could increase our actuarially determined liability and related
OPEB expense along with future cash outlays.
The Companys expected annual effective tax rate
could be volatile and materially change as a result of changes
in mix of earnings and other factors.
Changes in the Companys debt and capital structure, among
other items, may impact its effective tax rate. Our overall
effective tax rate is equal to consolidated tax expense as a
percentage of consolidated earnings before tax. However, tax
expense and benefits are not recognized on a global basis but
rather on a jurisdictional basis. The Company is in a position
whereby losses incurred in certain tax jurisdictions provide no
current financial statement benefit. In addition, certain
jurisdictions have statutory rates greater than or less than the
United States statutory rate. As such, changes in the mix of
earnings between jurisdictions could have a significant impact
on the Companys overall effective tax rate in future
periods. Changes in tax law and rates could also have a
significant impact on the Companys overall effective rate
in future periods.
20
ITEM 1A. RISK FACTORS (Continued)
The Companys ability to effectively operate could be
impaired if we fail to attract and retain key personnel.
The Companys ability to operate its business and implement
its strategies effectively depends, in part, on the efforts of
its executive officers and other key employees. In addition, the
Companys future success will depend on, among other
factors, the ability to attract and retain qualified personnel,
particularly engineers and other employees with critical
expertise and skills that support our key customers and
products. The loss of the services of any of our key employees
or the failure to attract or retain other qualified personnel
could have a material adverse effect on the Companys
business.
The Companys international operations, including our
Asian joint ventures, are subject to various risks that could
adversely affect the Companys business, results of
operations and financial condition.
The Company has operating facilities, and conducts a significant
portion of its business, outside the United States. The Company
has invested significantly in joint ventures with other parties
to conduct business in South Korea, China and elsewhere in Asia.
Our ability to repatriate funds from these joint ventures
depends not only upon their uncertain cash flows and profits,
but also upon the terms of our particular agreements with the
Companys joint venture partners and maintenance of the
legal and political status quo. We risk expropriation in
China and the instability that would accompany civil unrest or
armed conflict within the Asian region. More generally, the
Companys Asian joint ventures and other foreign
investments could be adversely affected by changes in the
political, economic and financial environments in host
countries, including fluctuations in exchange rates, political
instability, changes in foreign laws and regulations (or new
interpretations of existing laws and regulations) and changes in
trade policies, import and export restrictions and tariffs,
taxes and exchange controls. Any one of these factors could have
an adverse effect on the Companys business, results of
operations and financial condition. In addition, the
Companys consolidated financial statements are denominated
in U.S. dollars and require translation adjustments, which
can be significant, for purposes of reporting results from, and
the financial condition of, our foreign investments.
Warranty claims, product liability claims and product
recalls could harm the Companys business, results of
operations and financial condition.
The Company faces inherent business risk of exposure to warranty
and product liability claims in the event that our products fail
to perform as expected or such failure of our products results,
or is alleged to result, in bodily injury or property damage (or
both). In addition, if any of our designed products are or are
alleged to be defective, then we may be required to participate
in a recall of them. As suppliers become more integrally
involved in the vehicle design process and assume more of the
vehicle assembly functions, automakers are increasingly
expecting them to warrant their products and are increasingly
looking to them for contributions when faced with product
liability claims or recalls. A successful warranty or product
liability claim against the Company in excess of its available
insurance coverage and established reserves, or a requirement
that the Company participate in a product recall, would have
adverse effects, that could be material, on our business,
results of operations and financial condition.
21
ITEM 1A. RISK FACTORS (Continued)
The Company is involved from time to time in legal
proceedings and commercial or contractual disputes, which could
have an adverse effect on its business, results of operations
and financial position.
The Company is involved in legal proceedings and commercial or
contractual disputes that, from time to time, are significant.
These are typically claims that arise in the normal course of
business including, without limitation, commercial or
contractual disputes, including disputes with our suppliers,
intellectual property matters, personal injury claims and
employment matters. In addition, the Company, certain directors,
officers and employees have been named in lawsuits alleging
violations of the federal securities laws, ERISA and fiduciary
obligations. No assurances can be given that such proceedings
and claims will not have a material adverse impact on the
Companys profitability and financial position.
The Company could be adversely impacted by environmental
laws and regulations.
The Companys operations are subject to U.S. and
non-U.S. environmental
laws and regulations governing emissions to air; discharges to
water; the generation, handling, storage, transportation,
treatment and disposal of waste materials; and the cleanup of
contaminated properties. Currently, environmental costs with
respect to former, existing or subsequently acquired operations
are not material, but there is no assurance that the Company
will not be adversely impacted by such costs, liabilities or
claims in the future either under present laws and regulations
or those that may be adopted or imposed in the future.
Developments or assertions by or against the Company
relating to intellectual property rights could materially impact
its business.
The Company owns significant intellectual property, including a
large number of patents, trademarks, copyrights and trade
secrets, and is involved in numerous licensing arrangements. The
Companys intellectual property plays an important role in
maintaining our competitive position in a number of the markets
served. Developments or assertions by or against the Company
relating to intellectual property rights could materially impact
the business. Significant technological developments by others
also could materially and adversely affect our business and
results of operations.
The Companys business and results of operations
could be affected adversely by terrorism.
Terrorist-sponsored attacks, both foreign and domestic, could
have adverse effects on the Companys business and results
of operations. These attacks could accelerate or exacerbate
other automotive industry risks such as those described above
and also have the potential to interfere with our business by
disrupting our supply chains and the delivery of our products to
customers.
22
ITEM 1A. RISK FACTORS (Continued)
Management has concluded that the Company did not maintain
effective internal control over financial reporting as of
December 31, 2005 because of the existence of a material
weakness in the Companys internal control over financial
reporting. The failure to remediate this material weakness, or
any control deficiencies that the Company may discover in the
future, could adversely affect the Companys ability to
report its financial condition and results of operations
accurately and on a timely basis. As a result, our business,
operating results and liquidity could be harmed.
As disclosed in the Companys Annual Report on
Form 10-K/ A for
2004 and in its Quarterly Reports on
Form 10-Q for each
of the first three quarters of 2005, managements
assessment of the Companys internal controls over
financial reporting identified several material weaknesses.
These material weaknesses led to the restatement of the
Companys previously issued consolidated financial
statements for fiscal years 2002 through 2004 and resulted in an
adverse opinion by our independent registered public accounting
firm on the effectiveness of the Companys internal control
over financial reporting. Although the Company made progress in
executing its remediation plans during 2005, including the
remediation of two material weaknesses, as of December 31,
2005, management has concluded that the Company did not maintain
effective internal control over financial reporting due to a
remaining material weakness in internal controls. Please see
Item 9A Controls and Procedures for more
information regarding the material weakness.
If the Company is unable to remediate the remaining material
weakness, and other control deficiencies currently identified or
identified in the future, and otherwise continue to improve its
internal control, the Companys ability to report its
financial results on a timely and accurate basis could be
adversely affected, which could result in a loss of investor
confidence in its financial reports or have a material adverse
affect on the Companys ability to operate our business or
access sources of liquidity. Furthermore, because of the
inherent limitations of any system of internal control over
financial reporting, including the possibility of human error,
the circumvention or overriding of controls or fraud, even
effective internal control over financial reporting may not
prevent or detect all misstatements.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
The Companys principal executive offices are located in
Van Buren Township, Michigan. The Company also maintains
regional headquarters in Kerpen, Germany and Shanghai, China.
The Company and its joint ventures maintain 55 technical
facilities/sales offices and 128 manufacturing facilities
in 27 countries throughout the world, of which
approximately 80 facilities are owned in fee simple and
102 are leased. In some locations, the Company has combined
a manufacturing facility, technical center and/or customer
service center and sales office at a single multi-purpose site.
Although the Company believes that its facilities are suitable
and adequate, and have sufficient productive capacity to meet
its present needs, additional facilities may be needed to meet
future needs in growth products and regions. The majority of its
facilities are operating at normal levels based on their
respective capacities except those facilities that are in the
process of being closed.
23
ITEM 2. PROPERTIES (Continued)
The following table shows the approximate total square footage
of its principal owned and leased manufacturing facilities by
region as of December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total | |
|
|
Number of | |
|
Manufacturing | |
|
|
Manufacturing | |
|
Square | |
Region |
|
Facilities | |
|
Footage | |
|
|
| |
|
| |
|
|
|
|
(In Millions) | |
North America
|
|
|
40 |
|
|
|
11.6 |
|
Europe
|
|
|
44 |
|
|
|
11.1 |
|
South America
|
|
|
7 |
|
|
|
1.1 |
|
Asia-Pacific
|
|
|
37 |
|
|
|
7.5 |
|
|
|
|
|
|
|
|
|
|
|
128 |
|
|
|
31.3 |
|
|
|
|
|
|
|
|
ITEM 3. LEGAL PROCEEDINGS
Securities and Related Matters In February
2005, a shareholder lawsuit was filed in the U.S. District
Court for the Eastern District of Michigan against the Company
and certain current and former officers of the Company. In July
2005, the Public Employees Retirement System of
Mississippi was appointed as lead plaintiff in this matter. In
September 2005, the lead plaintiff filed an amended complaint,
which alleges, among other things, that the Company and its
independent registered public accounting firm,
PricewaterhouseCoopers LLP, 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 plaintiff
seeks to represent a class consisting of purchasers of the
Companys securities during the period between
June 28, 2000 and January 31, 2005. Class
action status has not yet been certified in this litigation. In
December 2005, the defendants moved to dismiss the amended
complaint for failure to state a claim. Oral argument on that
motion is scheduled for April 2006.
In March 2005, a number of current and former directors and
officers were named as defendants in two shareholder derivative
suits pending in the State of Michigan Circuit Court for the
County of Wayne. As is customary in derivative suits, the
Company has been named as a defendant in these actions. As a
nominal defendant, the Company is not liable for any damages in
these suits nor is any specific relief sought against the
Company. The complaints allege that, among other things, the
individual defendants breached their fiduciary duties of good
faith and loyalty and aided and abetted such breaches during the
period between January 23, 2004 and
January 31, 2005 in connection with the Companys
conduct concerning, among other things, the matters alleged in
the securities class action discussed immediately above. The
derivative matters have been stayed pending resolution of
defendants motion to dismiss the securities matter pending in
the Eastern District of Michigan.
24
ITEM 3. LEGAL PROCEEDINGS
(Continued)
In March and April 2005, the Company and a number of current and
former employees, officers and directors were named as
defendants in three class action lawsuits brought under the
Employee Retirement Income Security Act (ERISA) in
the U.S. District Court for the Eastern District of
Michigan. In September 2005, the plaintiffs filed an amended and
consolidated complaint, which generally alleges that the
defendants breached their fiduciary duties under ERISA during
the class period by, among other things, continuing to offer the
Company stock as an investment alternative under the Visteon
Investment Plan (and the Visteon Savings Plan for Hourly
Employees, together the Plans), failing to disclose
complete and accurate information regarding the prudence of
investing in the Visteon stock, failing to monitor the actions
of certain of the defendants, and failing to avoid conflicts of
interest or promptly resolve them. These ERISA claims are
predicated upon factual allegations similar to those raised in
the derivative and securities class actions described
immediately above. The consolidated complaint was brought on
behalf of a named plaintiff and a putative class consisting of
all participants or beneficiaries of the Plans whose accounts
included Visteon stock at any time from July 20, 2001
through May 25, 2005. Class action status has not yet
been certified in this litigation. In November 2005, the
defendants moved to dismiss the consolidated amended complaint
on various grounds. Oral argument on that motion is scheduled
for March 2006.
The Company and its current and former directors and officers
intend to contest the foregoing lawsuits vigorously. However, at
this time the Company is not able to predict with certainty the
final outcome of each of the foregoing lawsuits or its potential
exposure with respect to each such lawsuit. In the event of an
unfavorable resolution of any of these matters, the
Companys financial results and cash flows in one or more
periods could be materially affected to the extent any such loss
is not covered by insurance or applicable reserves.
Other Matters Various other legal actions,
governmental investigations and proceedings and claims are
pending or may be instituted or asserted in the future against
the Company, including those arising out of alleged defects in
the Companys 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 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 the Company for matters
discussed in the immediately foregoing paragraph where losses
are deemed probable and reasonably estimable. It is possible,
however, that some of the matters discussed in the foregoing
paragraph could be decided unfavorably to the Company and could
require the Company to pay damages or make other expenditures in
amounts, or a range of amounts, that cannot be estimated at
December 31, 2005 and that are in excess of
established reserves. The Company 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 the Companys financial condition, results of
operations or cash flows, although such an outcome is possible.
25
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 the Company. All ages are as of
March 1, 2006:
|
|
|
|
|
|
|
Name |
|
Age | |
|
Position |
|
|
| |
|
|
Michael F. Johnston
|
|
|
58 |
|
|
Chairman and Chief Executive Officer |
Donald J. Stebbins
|
|
|
48 |
|
|
President and Chief Operating Officer |
James F. Palmer
|
|
|
56 |
|
|
Executive Vice President and Chief Financial Officer |
Heinz Pfannschmidt
|
|
|
58 |
|
|
Executive Vice President and President, Europe and South America
Customer Group |
Lorie J. Buckingham
|
|
|
48 |
|
|
Senior Vice President and Chief Information Officer |
John Donofrio
|
|
|
44 |
|
|
Senior Vice President and General Counsel |
John F. Kill
|
|
|
56 |
|
|
Senior Vice President and President, North America Customer
Group and Global Advanced Product Development |
Robert H. Marcin
|
|
|
60 |
|
|
Senior Vice President, Leadership Assessment |
Robert Pallash
|
|
|
54 |
|
|
Senior Vice President and President, Asia Customer Group |
Joel Coque
|
|
|
53 |
|
|
Vice President, Interiors Product Group |
Joy M. Greenway
|
|
|
45 |
|
|
Vice President, Climate Product Group |
Jonathan K. Maples
|
|
|
48 |
|
|
Vice President, Global Purchasing and Visteon Services |
Steve Meszaros
|
|
|
42 |
|
|
Vice President, Electronics Product Group |
William G. Quigley III
|
|
|
44 |
|
|
Vice President, Corporate Controller and Chief Accounting Officer |
Michael F. Johnston has been Visteons Chairman
of the Board and Chief Executive Officer since June 2005, and a
member of the Board of Directors since May 2002. Prior to that,
he was Chief Executive Officer and President since July 2004,
and President and Chief Operating Officer since joining the
company 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 Controls 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.
Donald J. Stebbins has been Visteons President
and Chief Operating Officer since joining the Company in May
2005. Before joining Visteon, Mr. Stebbins served as
President and Chief Operating Officer of operations in Europe,
Asia and Africa for Lear Corporation since August 2004 and prior
to that he was President and Chief Operating Officer of
Lears operations in the Americas since September 2001.
James F. Palmer has been Visteons Executive Vice
President and Chief Financial Officer since joining the Company
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.
26
ITEM 4A. EXECUTIVE OFFICERS OF VISTEON
(Continued)
Heinz Pfannschmidt has been Visteons Executive Vice
President and President, Europe and South America Customer Group
since August 2005. Prior to that, he served as Executive
Vice President and President, Europe and South America of
Visteon since July 2004, and Vice President and President,
Europe and South America since joining the company in
November 2001. Before joining Visteon, 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 Visteons 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 joining the company in 2001.
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.
John Donofrio has been Visteons Senior Vice President and
General Counsel since joining the Company in June 2005.
Before joining Visteon, he was Vice President and General
Counsel, Honeywell Aerospace of Honeywell International since
2000, where he also served as Vice President and Deputy General
Counsel of Honeywell International from 1996 2005.
Prior to that he was a Partner at Kirkland & Ellis LLP.
John F. Kill has been Visteons Senior Vice President and
President, North America Customer Group and Global Advanced
Product Development since August 2005. Prior to that, he
served as Senior Vice President of Product Development since
July 2004, and Vice President of 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 Visteons Senior Vice
President, Leadership Assessment since December 2005. Prior
to that, he served as Senior Vice President, Corporate Relations
since January 2003 and Senior Vice President of Human
Resources since the Companys formation in
January 2000. Before that, he was Executive
Director Labor Affairs for Ford and Fords
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.
Robert C. Pallash has been Visteons Senior Vice
President and President, Asia Customer Group since
August 2005. Prior to that, he was Vice President and
President, Asia-Pacific since July 2004, and Vice
President, Asia Pacific since joining the Company in
September 2001. Before joining Visteon, Mr. Pallash
served as president of TRW Automotive Japan since 1999, and
president of Lucas Varity Japan prior thereto.
Joel Coque has been Visteons Vice President,
Interiors Product Group since August 2005. Prior to that,
he was Vice President and General Manager of Visteons PSA
Peugeot-Citroën and Renault/Nissan customer business groups
since 2001. Mr. Coque joined Visteon in July 1999 as
Managing Director of Interior Systems for Europe and South
America. Prior to that, he served as the Managing Director of
Plastic Omniums Automotive Interiors Division.
Joy M. Greenway has been Visteons Vice
President, Climate Product Group since August 2005. Prior
to that, she was Director, Powertrain since March 2002, and
Director of Visteons Ford truck customer business group
since April 2001. She joined Visteon in 2000 as Director of
Fuel Storage and Delivery Strategic Business Unit.
27
ITEM 4A. EXECUTIVE OFFICERS OF VISTEON
(Continued)
Jonathan K. Maples has been Vice President, Global
Purchasing and Visteon Services since January 2006. Prior
to that, he has served as Vice President and General Manager of
Ford North American Customer Group, and Vice President of
Quality and Materials Management since joining the Company in
November 2001. Before joining Visteon, 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.
Steve Meszaros has been Visteons Vice President,
Electronics Product Group since August 2005. Prior to that,
he was Managing Director, China Operations and General Manager,
Yanfeng Visteon since February 2001. Prior to that, he was
based in Europe, where he was responsible for Visteons
interior systems business in the United Kingdom and Germany
since 1999.
William G. Quigley III has been Visteons
Vice President, Corporate Controller and Chief Accounting
Officer since joining the company in December 2004. Before
joining Visteon, he was the Vice President and
Controller Chief Accounting Officer of Federal-Mogul
Corporation since June 2001. Federal-Mogul filed a
voluntary petition for reorganization under Chapter 11 of
the United States Bankruptcy Code on
October 11, 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 VISTEONS COMMON STOCK AND
RELATED SHAREHOLDER MATTERS
The Companys common stock is listed on the New York Stock
Exchange in the United States under the symbol VC.
As of March 1, 2006, the Company had
128,006,167 shares of its common stock $1.00 par value
outstanding, which were owned by 108,440 shareholders of
record. The table below shows the high and low sales prices for
the Companys common stock as reported by the New York
Stock Exchange, and the dividends the Company paid per share of
common stock for each quarterly period for the last two years.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
|
| |
|
|
First | |
|
Second | |
|
Third | |
|
Fourth | |
|
|
Quarter | |
|
Quarter | |
|
Quarter | |
|
Quarter | |
|
|
| |
|
| |
|
| |
|
| |
Common stock price per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$ |
9.40 |
|
|
$ |
7.87 |
|
|
$ |
10.86 |
|
|
$ |
9.98 |
|
|
Low
|
|
$ |
5.67 |
|
|
$ |
3.40 |
|
|
$ |
6.34 |
|
|
$ |
5.99 |
|
Dividends per share
|
|
$ |
0.00 |
|
|
$ |
0.00 |
|
|
$ |
0.00 |
|
|
$ |
0.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
|
| |
|
|
First | |
|
Second | |
|
Third | |
|
Fourth | |
|
|
Quarter | |
|
Quarter | |
|
Quarter | |
|
Quarter | |
|
|
| |
|
| |
|
| |
|
| |
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 |
|
28
|
|
ITEM 5. |
MARKET FOR VISTEONS COMMON STOCK AND RELATED
SHAREHOLDER MATTERS (Continued) |
On February 9, 2005, the Companys Board of
Directors suspended the Companys quarterly cash dividend
on its common stock. The Board evaluates the Companys
dividend policy based on all relevant factors. The
Companys credit agreements limit the amount of cash
payments for dividends that may be made. The ability of the
Companys subsidiaries to transfer assets is subject to
various restrictions, including regulatory requirements and
governmental restraints. Refer to Note 7,
Non-Consolidated
Affiliates, to the Companys consolidated financial
statements included in Item 8 of this Annual Report on
Form 10-K.
The following table summarizes information relating to purchases
made by or on behalf of the Company, or an affiliated purchaser,
of shares of Visteon common stock during the fourth quarter of
2005.
Issuer Purchases of Equity Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number | |
|
Maximum Number | |
|
|
|
|
|
|
of Shares (or Units) | |
|
(or Approximate Dollar | |
|
|
Total | |
|
Average | |
|
Purchased as Part | |
|
Value) of Shares (or | |
|
|
Number of | |
|
Price Paid | |
|
of Publicly | |
|
Units) that May Yet Be | |
|
|
Shares (or Units) | |
|
per Share | |
|
Announced Plans | |
|
Purchased Under the | |
Period |
|
Purchased (1) | |
|
(or Unit) | |
|
or Programs | |
|
Plans or Programs | |
|
|
| |
|
| |
|
| |
|
| |
October 1, 2005 to October 31, 2005
|
|
|
3,036 |
|
|
$ |
7.88 |
|
|
|
|
|
|
|
|
|
November 1, 2005 to November 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 1, 2005 to December 31, 2005
|
|
|
1,783 |
|
|
$ |
7.00 |
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,819 |
|
|
$ |
7.55 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
This column includes only shares surrendered to the Company by
employees to satisfy tax withholding obligations in connection
with the vesting of restricted share awards made pursuant to the
Visteon Corporation 2004 Incentive Plan. |
29
ITEM 6. SELECTED FINANCIAL DATA
The following table presents information from the Companys
consolidated financial statements for the five years ended
December 31, 2005. This information should be read in
conjunction with Managements Discussion and Analysis
of Financial Condition and Results of Operations and
Financial Statements and Supplemental Data.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in Millions, Except Per Share Amounts and | |
|
|
Percentages) | |
Consolidated Statement of Operations Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$ |
16,976 |
|
|
$ |
18,657 |
|
|
$ |
17,660 |
|
|
$ |
18,395 |
|
|
$ |
17,843 |
|
Cost of sales and selling, general and administrative expenses
|
|
|
17,368 |
|
|
|
18,749 |
|
|
|
18,096 |
|
|
|
18,296 |
|
|
|
17,763 |
|
Restructuring expenses
|
|
|
46 |
|
|
|
82 |
|
|
|
300 |
|
|
|
195 |
|
|
|
192 |
|
Reimbursement from Escrow Account
|
|
|
51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of long-lived assets
|
|
|
1,511 |
|
|
|
314 |
|
|
|
436 |
|
|
|
28 |
|
|
|
|
|
Gain on ACH Transactions
|
|
|
1,832 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
132 |
|
|
|
96 |
|
|
|
77 |
|
|
|
80 |
|
|
|
76 |
|
Equity in net income of non-consolidated affiliates
|
|
|
25 |
|
|
|
45 |
|
|
|
55 |
|
|
|
44 |
|
|
|
24 |
|
Provision (benefit) for income taxes
|
|
|
64 |
|
|
|
962 |
|
|
|
6 |
|
|
|
(74 |
) |
|
|
(70 |
) |
Minority interests in consolidated subsidiaries
|
|
|
33 |
|
|
|
35 |
|
|
|
29 |
|
|
|
28 |
|
|
|
21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss before change in accounting
|
|
|
(270 |
) |
|
|
(1,536 |
) |
|
|
(1,229 |
) |
|
|
(114 |
) |
|
|
(115 |
) |
Cumulative effect of change in accounting, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(265 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(270 |
) |
|
$ |
(1,536 |
) |
|
$ |
(1,229 |
) |
|
$ |
(379 |
) |
|
$ |
(115 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted before cumulative effect of change in
accounting
|
|
$ |
(2.14 |
) |
|
$ |
(12.26 |
) |
|
$ |
(9.77 |
) |
|
$ |
(0.90 |
) |
|
$ |
(0.89 |
) |
Cumulative effect of change in accounting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.07 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$ |
(2.14 |
) |
|
$ |
(12.26 |
) |
|
$ |
(9.77 |
) |
|
$ |
(2.97 |
) |
|
$ |
(0.89 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends per share
|
|
$ |
|
|
|
$ |
0.24 |
|
|
$ |
0.24 |
|
|
$ |
0.24 |
|
|
$ |
0.24 |
|
Consolidated Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
6,736 |
|
|
$ |
10,292 |
|
|
$ |
11,024 |
|
|
$ |
11,240 |
|
|
$ |
11,254 |
|
Total debt
|
|
$ |
1,994 |
|
|
$ |
2,021 |
|
|
$ |
1,818 |
|
|
$ |
1,691 |
|
|
$ |
1,922 |
|
Total (deficit)/ equity
|
|
$ |
(48 |
) |
|
$ |
320 |
|
|
$ |
1,812 |
|
|
$ |
2,977 |
|
|
$ |
3,355 |
|
Other Financial Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided from operating activities
|
|
$ |
417 |
|
|
$ |
418 |
|
|
$ |
363 |
|
|
$ |
1,103 |
|
|
$ |
440 |
|
Cash used by investing activities
|
|
$ |
(231 |
) |
|
$ |
(782 |
) |
|
$ |
(781 |
) |
|
$ |
(609 |
) |
|
$ |
(747 |
) |
Cash (used by) provided from financing activities
|
|
$ |
(51 |
) |
|
$ |
135 |
|
|
$ |
128 |
|
|
$ |
(338 |
) |
|
$ |
(75 |
) |
Depreciation and amortization
|
|
$ |
595 |
|
|
$ |
685 |
|
|
$ |
677 |
|
|
$ |
633 |
|
|
$ |
667 |
|
Capital expenditures, including capital leases
|
|
$ |
613 |
|
|
$ |
845 |
|
|
$ |
872 |
|
|
$ |
725 |
|
|
$ |
756 |
|
After-tax return on:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
|
(1.4 |
)% |
|
|
(8.0 |
)% |
|
|
(6.8 |
)% |
|
|
(0.5 |
)% |
|
|
(0.5 |
)% |
|
Average assets
|
|
|
(2.8 |
)% |
|
|
(14.1 |
)% |
|
|
(10.8 |
)% |
|
|
(0.8 |
)% |
|
|
(0.8 |
)% |
30
|
|
ITEM 7. |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS |
This section summarizes significant factors affecting the
Companys consolidated operating results, financial
condition and liquidity for the three-year period ended
December 31, 2005. This section should be read in
conjunction with the Companys consolidated financial
statements and related notes appearing elsewhere in this report.
The Companys Business
Visteon Corporation (Visteon or the
Company) 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, with regional headquarters in Kerpen,
Germany and Shanghai, China, a workforce of over 49,000
employees and a network of manufacturing sites, technical
centers, sales offices and joint ventures located in every major
region of the world.
The Company was incorporated in Delaware in January 2000 as a
wholly-owned subsidiary of Ford Motor Company (Ford
or Ford Motor Company). Subsequently, Ford
transferred the assets and liabilities comprising its automotive
components and systems business to Visteon. The Company
separated from Ford on June 28, 2000 when all of the
Companys common stock was distributed by Ford to its
shareholders.
ACH Transactions
On May 24, 2005, the Company and Ford entered into a
non-binding Memorandum of Understanding (MOU),
setting forth a framework for the transfer of 23 North American
facilities and related assets and liabilities (the
Business) to a Ford-controlled entity. In September
2005, the Company and Ford entered into several definitive
agreements and the Company completed the transfer of the
Business to Automotive Components Holdings, LLC
(ACH), an indirect, wholly-owned subsidiary of the
Company, pursuant to the terms of various agreements described
below.
Following the signing of the MOU and at June 30, 2005,
the Company classified the manufacturing facilities and
associated assets, including inventory, machinery, equipment and
tooling, to be sold as held for sale. The
liabilities to be assumed or forgiven by Ford pursuant to the
ACH Transactions, including employee liabilities and
postemployment benefits payable to Ford, were classified as
Liabilities associated with assets held for sale in
the Companys consolidated balance sheet following the
signing of the MOU. 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 Companys
Automotive Operations recorded a non-cash impairment charge 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 and management estimates.
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 Fords payment to the Company of
approximately $300 million, 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 (together, the
ACH Transactions).
Additionally, on October 1, 2005, Ford acquired from
the Company warrants to acquire 25 million shares of the
Companys common stock and agreed to provide funds to be
used in the Companys further restructuring.
31
|
|
ITEM 7. |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued) |
The Business accounted for approximately $6.1 billion of
the Companys total sales for 2005, the majority being
products sold to Ford. Also, the transferred facilities included
all of the Companys plants that leased hourly workers
covered by Fords master agreement with the UAW. The ACH
Transactions addressed certain strategic and structural
challenges of the business, although the Company expects
additional restructuring activities and business improvement
actions will be needed in the foreseeable future for the Company
to achieve sustainable success in an increasingly challenging
environment.
Pursuant to the ACH Transactions, the Company and Ford
terminated certain existing commercial agreements, including the
Funding Agreement, dated as of March 10, 2005, as
amended; the Master Equipment Bailment Agreement, dated as of
March 10, 2005, as amended; the Purchase and Supply
Agreement, dated as of December 19, 2003; and the 2003
Relationship Agreement, dated as of December 19, 2003,
as well as the Amended and Restated Hourly Employee Assignment
Agreement, dated as of April 1, 2000, as amended and
restated as of December 19, 2003.
Organization and Operating Structure
In late 2005 the Company announced a new operating structure to
manage the business on a go-forward basis. This operating
structure is comprised of the following global product groups:
Climate, Electronics, Interiors and Other. These global product
groups have financial and operating responsibility over the
design, development and manufacture of the Companys
product portfolio. Regional customer groups are responsible for
the marketing, sales and service of the Companys product
portfolio to its customer base. Certain functions such as
procurement, information technology and other administrative
activities are managed on a global basis with regional
deployment.
The Company is currently in the process of realigning systems
and reporting structures to facilitate financial reporting under
the revised organizational structure. Such realignment was not
complete at December 31, 2005 and accordingly the
Company did not meet the criteria to change its reportable
segments under Statement of Financial Accounting Standards
No. 131 (SFAS 131) Disclosures about
Segments of an Enterprise and Related Information.
However, pursuant to the ACH Transactions, the Company
established and commenced operations of Visteon Services, a
centralized administrative function to monitor and facilitate
transactions with ACH for leased employees and other services
provided to ACH by the Company. As the activities of Visteon
Services do not share similar economic characteristics with the
Companys other business operations, the Company has
provided separate disclosure of these operations as of
December 31, 2005.
The Companys reportable segments as of
December 31, 2005 are as follows:
Automotive Operations The Companys Automotive
Operations supply automotive systems, modules and components on
a global basis for product offerings related to climate control,
interior, exterior, powertrain, chassis and electronics. For a
more detailed description of the Companys products, see
The Companys Products above. The Automotive
Operations segment accounted for approximately 97% of the
Companys 2005, 2004 and 2003 total net sales.
Glass Operations The Companys
Glass Operations supply automotive glass products to Ford
and various aftermarket customers, and float glass for
commercial architectural and automotive applications. The
Glass Operations segment accounted for approximately 2%, 3%
and 3% of the Companys 2005, 2004 and 2003 total net
sales, respectively.
32
|
|
ITEM 7. |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued) |
Services Operations The Companys Services
Operations supply leased personnel and transition services as
required by certain agreements entered into by the Company with
ACH as a part of the ACH Transactions. Pursuant to the Master
Services Agreement and the Salaried Employee Lease Agreement the
Company agreed to provide ACH with certain information
technology, personnel and other services to enable ACH to
conduct its business. Services to ACH are provided at a rate
approximately equal to the Companys cost until such time
the services are no longer required by ACH or the expiration of
the related agreement. The Service segment accounted for
approximately 1% of the Companys total net sales in 2005.
Further information relating to the Companys reportable
segments can be found in Item 8, Financial Statements
and Supplementary Data of this Annual Report on
Form 10-K
(Note 18, Segment Information, of the
Companys consolidated financial statements).
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, the Company
is taking actions to support its key operating strategies of
improving base operations, reducing overhead costs and
implementing other improvement action plans.
Improving Base Operations
|
|
|
Focused product portfolio 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, the Company reexamined its broad product
portfolio to identify its key growth products considered core to
its future success. Based on this assessment, the Company
identified interiors, climate and electronics (including
lighting) as its key growth products. The Company believes there
are opportunities to capitalize on the continuing demand for
additional electronics integration and safety-related products
with its product portfolio and technical capabilities. |
|
|
Customer and geographic diversification The Company
is well positioned globally, with a diverse customer base.
Although Ford remains the Companys largest customer, the
Company has been steadily diversifying its sales with growing
OEMs. Following the ACH Transactions, the Companys
regional sales mix has become more balanced, with a greater
percentage of product sales outside of North America. |
|
|
Achieving cost efficiencies The Company continues to
take actions to lower its manufacturing costs by increasing its
focus on production utilization and related investment, closure
and consolidation of facilities and relocation of production to
lower cost environments to take further advantage of its global
manufacturing footprint. The Company has consolidated its
regional purchasing activities into a global commodity driven
organization to provide increased spending leverage and to
further standardize its production and related material buy. The
Company has increased its focus and financial discipline in the
evaluation of and bidding on new customer programs to improve
operating margins, as well as taking actions to address lower
margin customer programs. |
Reduce Overhead Costs
To further improve the Companys administrative and
engineering costs, the Company has taken actions to implement
more competitive benefits and compensation programs for its
employees, build and relocate its engineering capability in more
competitive cost locations, and re-examine its current
third-party supplier arrangements for purchased services.
33
|
|
ITEM 7. |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued) |
Three-Year Improvement Plan
In January 2006, the Company announced a three-year improvement
plan that involves the restructuring of certain underperforming
and non-strategic plants and businesses to improve operating and
financial performance and other cost reduction efforts.
Currently, this plan is expected to affect up to 23 facilities.
The majority of the cash expenses for this plan are expected to
be funded by the $400 million escrow account established
pursuant to the ACH Transactions.
Critical Accounting Estimates
The accompanying consolidated financial statements in
Item 8 of this annual report on
Form 10-K have
been prepared in conformity with accounting principles generally
accepted in the United States and, accordingly, the
Companys accounting policies have been disclosed in
Note 2 to the consolidated financial statements. The
Company considers accounting estimates to be critical accounting
policies when:
|
|
|
The estimates involve matters that are highly uncertain at the
time the accounting estimate is made; and |
|
|
Different estimates or changes to estimates could have a
material impact on the reported financial position, changes in
financial condition, or results of operations. |
When more than one accounting principle, or the method of its
application, is generally accepted, management selects the
principle or method that it considers to be the most appropriate
given the specific circumstances. Application of these
accounting principles requires the Companys management to
make estimates about the future resolution of existing
uncertainties. Estimates are typically based upon historical
experience, current trends, contractual documentation, and other
information, as appropriate. Due to the inherent uncertainty
involving estimates, actual results reported in the future may
differ from those estimates. In preparing these financial
statements, management has made its best estimates and judgments
of the amounts and disclosures included in the financial
statements, giving due regard to materiality.
Pension Plans and Other Postretirement Employee Benefit
Plans
Using appropriate actuarial methods and assumptions, the
Companys defined benefit pension plans are accounted for
in accordance with Statement of Financial Accounting Standards
No. 87 (SFAS 87), Employers
Accounting for Pensions, non-pension postretirement
employee benefits are accounted for in accordance with Statement
of Financial Accounting Standards No. 106
(SFAS 106), Employers Accounting
for Postretirement Benefits Other Than Pensions,
disability, early retirement and other postretirement employee
benefits are accounted for in accordance with Statement of
Financial Accounting Standards No. 112
(SFAS 112), Employer Accounting for
Postemployment Benefits.
The determination of the Companys obligation and expense
for its pension and other postretirement employee benefits, such
as retiree health care and life insurance, is dependent on the
Companys selection of certain assumptions used by
actuaries in calculating such amounts. Selected assumptions are
described in Note 10 to the Companys consolidated
financial statements, which is incorporated herein by reference,
including the discount rate, expected long-term rate of return
on plan assets and rates of increase in compensation and health
care costs.
34
|
|
ITEM 7. |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued) |
Actual results that differ from assumptions used are accumulated
and amortized over future periods and, accordingly, generally
affect recognized expense and the recorded obligation in future
periods. Therefore, assumptions used to calculate benefit
obligations as of the September 30 annual measurement date
directly impact the expense to be recognized in future periods.
The primary assumptions affecting the Companys accounting
for employee benefits under SFAS Nos. 87, 106 and 112 as of
December 31, 2005 are as follows:
|
|
|
Long-term rate of return on plan assets: The expected
long-term rate of return is used to calculate net periodic
pension cost. The required use of the expected long-term rate of
return on plan assets may result in recognized returns that are
greater or less than the actual returns on those plan assets in
any given year. Over time, however, the expected long-term rate
of return on plan assets is designed to approximate actual
earned long-term returns. The expected long-term rate of return
for pension assets has been chosen based on various inputs,
including long-term historical returns for the different asset
classes held by the Companys trusts and its asset
allocation, as well as inputs from internal and external sources
regarding capital market returns, inflation and other variables.
In determining its pension expense, the Company is using
long-term rates of return on plan assets ranging from 3.0% to
11.0% outside the U.S. and 8.5% in the U.S. |
|
|
|
Actual returns on U.S. pension assets for 2005, 2004
and 2003 were 14%, 13% and 20%, respectively, compared to the
expected rate of return assumption of 9% for each of those
years. The Companys 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. |
|
|
|
Discount rate: The discount rate is used to calculate
pension and postretirement employee obligations. Discount rate
assumptions used to account for pension and non-pension
postretirement employee benefit plans reflect the rates
available on high-quality, fixed-income debt instruments on
September 30 of each year. In determining its pension and
other benefit obligations, the Company used discount rates
ranging from 2.0% to 11.0% worldwide. |
|
|
|
The U.S. discount rate is chosen based on market rates for
a hypothetical portfolio of high-quality corporate bonds rated
Aa or better with maturities closely matched to the timing of
projected benefit payments for each plan at its
September 30 measurement date. The discount rate
assumptions for year end 2005 were a weighted average of 5.70%
and 4.90% for U.S. and
non-U.S. pension
plans, respectively and 5.70% for postretirement employee health
care and life insurance plans. In accordance with accounting
principles generally accepted in the U.S., actual results that
differ from the Companys assumptions are accumulated and
amortized over future periods and, therefore, generally affect
the Companys recognized expense and recorded obligation in
such future periods. |
|
|
|
Health care cost trend: For postretirement employee
health care plan accounting, the Company reviews external data
and Company specific historical trends for health care costs to
determine the health care cost trend rate assumptions. In
determining its projected benefit obligation, the Company used
health care cost trend rates of 9.8%, declining to an ultimate
trend rate of 5.0% in 2010, for postretirement employee health
care plans. |
35
|
|
ITEM 7. |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued) |
While the Company believes that these assumptions are
appropriate, significant differences in actual experience or
significant changes in these assumptions may materially affect
the Companys pension and other postretirement employee
benefit obligations and its future expense. The following table
illustrates the sensitivity to a change in certain assumptions
for Company sponsored U.S. and
non-U.S. pension
plans on its 2005 funded status and 2006 pre-tax pension expense
(certain salaried employees are covered by a Ford sponsored
plan):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact on | |
|
|
|
Impact on | |
|
|
|
|
U.S. 2006 | |
|
Impact on | |
|
Non-U.S. 2006 | |
|
Impact on | |
|
|
Pre-tax Pension | |
|
U.S. Plan 2005 | |
|
Pre-tax Pension | |
|
Non-U.S. Plan 2005 | |
|
|
Expense | |
|
Funded Status | |
|
Expense | |
|
Funded Status | |
|
|
| |
|
| |
|
| |
|
| |
25 basis point decrease in discount
rate(a)
|
|
|
+$7 million |
|
|
|
-$56 million |
|
|
|
+$8 million |
|
|
|
-$66 million |
|
25 basis point increase in discount
rate(a)
|
|
|
-$6 million |
|
|
|
+$54 million |
|
|
|
-$10 million |
|
|
|
+$63 million |
|
25 basis point decrease in expected return on
assets(a)
|
|
|
+$2 million |
|
|
|
|
|
|
|
+$2 million |
|
|
|
|
|
25 basis point increase in expected return on
assets(a)
|
|
|
-$2 million |
|
|
|
|
|
|
|
-$2 million |
|
|
|
|
|
|
|
|
(a) |
|
Assumes all other assumptions are held constant. |
The following table illustrates the sensitivity to a change in
the discount rate assumption related to Visteon sponsored
postretirement employee health care and life insurance plans
expense (certain salaried employees are covered by a Ford
sponsored plan):
|
|
|
|
|
|
|
|
|
|
|
Impact on 2006 | |
|
Impact on Visteon | |
|
|
Pre-tax OPEB | |
|
Sponsored Plan 2005 | |
|
|
Expense | |
|
Funded Status | |
|
|
| |
|
| |
25 basis point decrease in discount
rate(a)
|
|
|
+$2 million |
|
|
|
-$25 million |
|
25 basis point increase in discount
rate(a)
|
|
|
-$2 million |
|
|
|
+$24 million |
|
|
|
|
(a) |
|
Assumes all other assumptions are held constant. |
The following table illustrates the sensitivity to a change in
the assumed health care trend rate related to Visteon sponsored
postretirement employee health expense (certain salaried
employees are covered by a Ford sponsored plan):
|
|
|
|
|
|
|
|
|
Total Service and | |
|
|
|
|
Interest Cost | |
|
APBO |
|
|
| |
|
|
100 basis point increase in health care trend
rate(a)
|
|
|
+$12 million |
|
|
+$97 million |
100 basis point decrease in health care trend
rate(a)
|
|
|
-$10 million |
|
|
-$80 million |
|
|
|
(a) |
|
Assumes all other assumptions are held constant. |
The Companys OPEB payable to Ford includes the financial
obligation the Company has to Ford for the cost of providing
selected health care and life insurance benefits to certain
Visteon salaried employees who retire after
May 24, 2005. The health care and life insurance costs
for these employees are calculated using Fords assumptions.
Effective October 1, 2005 and in connection with the
ACH Transactions, Ford relieved the Company of all liabilities
totaling $2.2 billion for the postretirement employee
health care and life insurance related obligations for
Visteon-assigned Ford-UAW employees and retirees and for
salaried retirees who retired prior to May 24, 2005.
36
|
|
ITEM 7. |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued) |
Impairment of Long-Lived Assets and Certain Identifiable
Intangibles
Statement of Financial Accounting Standards No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets (SFAS 144) requires that
long-lived assets and intangible assets subject to amortization
are reviewed for impairment when certain indicators of
impairment are present. Impairment exists if estimated future
undiscounted cash flows associated with long-lived assets are
not sufficient to recover the carrying value of such assets.
Generally, when impairment exists the long-lived assets are
adjusted to their respective fair values.
In assessing long-lived assets for an impairment loss, assets
are grouped with other assets and liabilities at the lowest
level for which identifiable cash flows are largely independent
of the cash flows of other assets and liabilities. Asset
grouping requires a significant amount of judgment. Accordingly,
facts and circumstances will influence how asset groups are
determined for impairment testing. In assessing long-lived
assets for impairment, management considered the Companys
product line portfolio, customers and related commercial
agreements, labor agreements and other factors in grouping
assets and liabilities at the lowest level for which
identifiable cash flows are largely independent. Additionally,
in determining fair value of long-lived assets, management uses
appraisals, management estimates or discounted cash flow
calculations.
Product Warranty and Recall
The Company accrues for warranty obligations for products sold
based on management estimates, with support from the
Companys sales, engineering, quality and legal functions,
of the amount that eventually will be required to settle such
obligations. This accrual is based on several factors, including
contractual arrangements, past experience, current claims,
production changes, industry developments and various other
considerations.
The Company 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
the Companys determination of the potential for such
actions. The Company accrues for recall claims for products sold
based on management estimates, with support from the
Companys engineering, quality and legal functions. Amounts
accrued are based upon managements best estimate of the
amount that will ultimately be required to settle such claims.
Environmental Matters
The Company 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. The Company 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.
At the time of spin-off, the Company and Ford agreed on a
division of liability for, and responsibility for management and
remediation of, environmental claims existing at that time, and,
further, that the Company would assume all liabilities for
existing and future claims relating to sites that were
transferred to it and its operation of those sites, including
off-site disposal, except as otherwise specifically retained by
Ford in the master transfer agreement. In connection with the
ACH Transactions, Ford agreed to re-assume these liabilities to
the extent they arise from the ownership or operation prior to
the spin-off of the locations transferred to ACH (excluding any
increase in costs attributable to the exacerbation of such
liability by the Company or its affiliates).
37
|
|
ITEM 7. |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued) |
The Company is aware of contamination at some of its properties
and relating to various third-party superfund sites at which the
Company or its predecessor has been named as a potentially
responsible party. It is in various stages of investigation and
cleanup at these sites. At December 31, 2005, the
Company had recorded a reserve of approximately $9 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
the Companys control and which may change dramatically.
Accordingly, although the Company believes its reserve is
adequate based on current information, the Company cannot assure
you that its eventual environmental investigation and cleanup
costs and liabilities will not exceed the amount of its current
reserve.
Income Taxes
The Company accounts for income taxes in accordance with
SFAS No. 109, Accounting for Income Taxes.
Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss
and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The Company
records a valuation allowance on deferred tax assets by tax
jurisdiction when it is more likely than not that such assets
will not be realized. Management judgment is required in
determining the Companys valuation allowance on deferred
tax assets. Deferred taxes have been provided for the net effect
of repatriating earnings from consolidated foreign subsidiaries.
38
|
|
ITEM 7. |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued) |
Results of Operations
2005 Compared with 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales | |
|
Gross Margin | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
Change | |
|
2005 | |
|
2004 | |
|
Change | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in Millions) | |
Automotive
|
|
$ |
16,417 |
|
|
$ |
18,137 |
|
|
$ |
(1,720 |
) |
|
$ |
568 |
|
|
$ |
879 |
|
|
$ |
(311 |
) |
Glass
|
|
|
395 |
|
|
|
520 |
|
|
|
(125 |
) |
|
|
(15 |
) |
|
|
9 |
|
|
|
(24 |
) |
Services
|
|
|
164 |
|
|
|
|
|
|
|
164 |
|
|
|
1 |
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
16,976 |
|
|
$ |
18,657 |
|
|
$ |
(1,681 |
) |
|
$ |
554 |
|
|
$ |
888 |
|
|
$ |
(334 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
Automotive Operations sales were $16.4 billion in 2005,
compared with $18.1 billion in 2004, representing a
decrease of $1.7 billion or 9%. The ACH Transactions
resulted in a decrease of $1.9 billion, which was partially
offset by an increase in non-Ford sales of $810 million and
favorable foreign currency of $360 million. Sales were
further decreased due primarily to lower Ford North America
production volume and unfavorable vehicle mix of
$620 million and customer price reductions.
Sales for Glass Operations were $395 million in 2005,
compared with $520 million in 2004, representing a decrease
of $125 million or 24%. Substantially all of this decrease
was attributable to the ACH Transactions.
Sales for Services Operations were $164 million in 2005,
related to information technology, engineering, administrative
and other business support services provided by the Company at
cost, under the terms of various agreements, to ACH in the
fourth quarter of 2005.
Gross Margin
Gross margin for the Companys Automotive Operations was
$568 million in 2005 compared with $879 million in
2004, representing a decrease of $311 million or 35%. Lower
Ford North America production volumes and unfavorable vehicle
mix reduced 2005 gross margin by $422 million. The net
effect of the Ford funding agreement, master equipment bailment
agreement and the ACH Transactions increased gross margin by
approximately $110 million in 2005 as compared to 2004.
Cost reduction activities, net of raw material cost increases,
employee wage and benefit increases and other cost increases,
were more than offset by customer price reductions resulting in
a further reduction in gross margin of $35 million.
Finally, the 2005 gross margin comparison was negatively
impacted by a non-recurring $49 million benefit recorded in
2004 resulting from the favorable settlement of a product recall
claim with a customer.
Gross margin for the Companys Glass Operations
decreased by $24 million in 2005 compared to 2004.
Substantially all of this decrease was attributable to the
effect of the ACH Transactions and customer price reductions.
39
|
|
ITEM 7. |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued) |
Selling, General and Administrative Expenses
Selling, general and administrative expenses for 2005 were
$946 million, $34 million lower as compared with 2004.
Under the terms of various agreements between the Company and
ACH, expenses previously classified as selling, general and
administrative expenses incurred to support the business of ACH
are now classified as costs of sales in the consolidated
financial statements. The decrease in selling, general and
administrative expenses reflects approximately $50 million
of expenses incurred in support of ACH included in costs of
sales in the fourth quarter of 2005. Further, net cost reduction
activities of approximately $20 million were offset by
approximately $30 million in bad debt expense related to
the bankruptcy of a customer in the second quarter of 2005 and
foreign currency of $10 million.
Gain on ACH Transactions
On October 1, 2005, Ford acquired from the Company all
of the issued and outstanding shares of common stock of ACH in
exchange for approximately $300 million (less the amount
due in repayment of the $250 million loan made by Ford to
the Company on September 19, 2005 and other amounts),
as well as the forgiveness of certain 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.
The following table summarizes the impact of the ACH
Transactions as of the October 1, 2005 transaction
closing date:
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets, Liabilities | |
|
|
|
|
and Other | |
|
Gain on ACH | |
|
|
Consideration | |
|
Transactions for | |
|
|
as of | |
|
the Year Ended | |
|
|
October 1, 2005 | |
|
December 31, 2005 | |
|
|
| |
|
| |
|
|
(Dollars in Millions) | |
Assets transferred to ACH
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
$ |
(299 |
) |
|
|
|
|
|
Property and equipment
|
|
|
(578 |
) |
|
|
|
|
|
Prepaid and other assets
|
|
|
(75 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(952 |
) |
Proceeds from divestiture of ACH
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
299 |
|
|
|
|
|
|
Forgiveness of indebtedness:
|
|
|
|
|
|
|
|
|
|
|
OPEB liabilities
|
|
|
2,164 |
|
|
|
|
|
|
|
Employee fringe benefits
|
|
|
260 |
|
|
|
|
|
|
|
Other liabilities
|
|
|
241 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,964 |
|
Stock warrants issued to Ford
|
|
|
(127 |
) |
|
|
|
|
Other consideration
|
|
|
(53 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(180 |
) |
|
|
|
|
|
|
|
Gain on ACH Transactions
|
|
|
|
|
|
$ |
1,832 |
|
|
|
|
|
|
|
|
Interest
Net interest expense increased by $36 million from
$96 million in 2004 to $132 million in 2005. The
increase resulted from higher market interest rates on
outstanding debt in 2005 as compared to 2004.
40
|
|
ITEM 7. |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued) |
2004 Compared with 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales | |
|
Gross Margin | |
|
|
| |
|
| |
|
|
2004 | |
|
2003 | |
|
Change | |
|
2004 | |
|
2003 | |
|
Change | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in Millions) | |
Automotive
|
|
$ |
18,137 |
|
|
$ |
17,097 |
|
|
$ |
1,040 |
|
|
$ |
879 |
|
|
$ |
530 |
|
|
$ |
349 |
|
Glass
|
|
|
520 |
|
|
|
563 |
|
|
|
(43 |
) |
|
|
9 |
|
|
|
22 |
|
|
|
(13 |
) |
Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
18,657 |
|
|
$ |
17,660 |
|
|
$ |
997 |
|
|
$ |
888 |
|
|
$ |
552 |
|
|
$ |
336 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
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 higher non-Ford
sales of $1.5 billion and approximately $500 million
of favorable foreign currency. In addition, the non-recurrence
of a $150 million
lump-sum settlement
with Ford in 2003 for pricing in North America and higher Ford
European vehicle production volumes were offset partially by the
impact of lower Ford North American vehicle production volume of
approximately $600 million, the loss of sales from the exit
of the Companys seating operations in 2003 of
approximately $250 million, and customer 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 approximately $40 million and customer price
reductions.
Gross Margin
Gross margin for Automotive Operations was $879 million in
2004 compared with $530 million in 2003, an increase of
$349 million. Although sales volumes, net of foreign
currency, improved year over year, the Companys gross
margin was negatively impacted by both unfavorable customer mix,
reflecting lower Ford North America vehicle production volume,
and product mix. Gross margin increased by approximately
$170 million as a result of cost reduction activities, net
of customer price reductions, raw material cost increases and
employee wage and benefit increases. In addition, foreign
currency increased gross margin by approximately
$60 million. The improvement in gross margin in 2004 also
reflects a reduction in costs of sales of $59 million for
one-time UAW contract ratification costs in 2003, a reduction to
product recall accruals of $49 million in 2004 resulting
from the favorable settlement of a claim with a customer, and a
$25 million benefit from the exit of the Companys
seating operations in 2003.
Gross margin for Glass Operations was $9 million in
2004 compared with $22 million in 2003. The decrease
reflects lower Ford North American vehicle production volume and
customer price reductions, offset partially by one-time UAW
contract ratification costs of $5 million in 2003.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for 2004 were
$980 million, $8 million lower as compared with 2003.
The decrease reflects net cost reduction efforts of
$52 million and reduced information technology
infrastructure costs of $34 million, partially offset by
foreign currency of $30 million. The 2004 selling, general
and administrative expenses comparison was negatively impacted
by a one-time reimbursement from Ford of $48 million for
information technology costs incurred by the Company for system
separation activities in 2003.
41
|
|
ITEM 7. |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued) |
Interest
Net interest expense and debt extinguishment costs of
$96 million in 2004 increased by $19 million from
2003, reflecting $11 million of debt extinguishment costs
and higher average outstanding debt levels in the U.S.
Restructuring Activities
The Company has undertaken various restructuring activities to
achieve strategic objectives, including the reduction of
operating costs. Restructuring activities include, but are not
limited to, plant closures, production relocation,
administrative realignment and consolidation of available
capacity and resources.
Management expects to finance these restructuring programs
through cash reimbursement from an escrow account established
pursuant to the ACH Transactions, from cash generated from its
ongoing operations, or through cash available under its existing
debt agreements, subject to the terms of applicable covenants.
Management does not expect that the execution of these programs
will have a significant adverse impact on its liquidity position.
Escrow Agreement
Pursuant to the Escrow Agreement, dated as of
October 1, 2005, among the Company, Ford and Deutsche
Bank Trust Company Americas, Ford paid $400 million into an
escrow account for use by the Company to restructure its
businesses. The Escrow Agreement provides that the Company will
be reimbursed from the escrow account for the first
$250 million of reimbursable restructuring costs, as
defined in the Escrow Agreement, and up to one half of the next
$300 million of such costs. Through
December 31, 2005, the Company recorded reimbursements
of $51 million and had received payment of $24 million
in reimbursement from the escrow account. The $51 million
is included in operating income in the consolidated statement of
operations, while the unpaid amount of $27 million was
included in accounts receivable in the consolidated balance
sheet as of December 31, 2005.
42
|
|
ITEM 7. |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued) |
Restructuring Reserves
The following is a summary of the Companys consolidated
restructuring reserves and related activity for the years ended
December 31, 2005, 2004 and 2003, respectively.
Substantially all of the Companys restructuring expenses
are related to severance and related employee costs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive | |
|
Glass | |
|
|
|
|
Operations | |
|
Operations | |
|
Total | |
|
|
| |
|
| |
|
| |
|
|
(Dollars in Millions) | |
December 31, 2002 reserve balances
|
|
$ |
36 |
|
|
$ |
1 |
|
|
$ |
37 |
|
|
Expenses
|
|
|
308 |
|
|
|
1 |
|
|
|
309 |
|
|
Adjustments
|
|
|
(8 |
) |
|
|
(1 |
) |
|
|
(9 |
) |
|
Utilization
|
|
|
(152 |
) |
|
|
(1 |
) |
|
|
(153 |
) |
|
Foreign exchange translation
|
|
|
5 |
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
December 31, 2003 reserve balances
|
|
|
189 |
|
|
|
|
|
|
|
189 |
|
|
Expenses
|
|
|
96 |
|
|
|
4 |
|
|
|
100 |
|
|
Adjustments
|
|
|
(18 |
) |
|
|
|
|
|
|
(18 |
) |
|
Utilization
|
|
|
(149 |
) |
|
|
(1 |
) |
|
|
(150 |
) |
|
Foreign exchange translation
|
|
|
1 |
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
December 31, 2004 reserve balances
|
|
|
119 |
|
|
|
3 |
|
|
|
122 |
|
|
Expenses
|
|
|
48 |
|
|
|
|
|
|
|
48 |
|
|
Adjustments
|
|
|
(63 |
) |
|
|
|
|
|
|
(63 |
) |
|
Utilization
|
|
|
(90 |
) |
|
|
(3 |
) |
|
|
(93 |
) |
|
Foreign exchange translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005 reserve balances
|
|
$ |
14 |
|
|
$ |
|
|
|
$ |
14 |
|
|
|
|
|
|
|
|
|
|
|
The restructuring reserve balance of $14 million at
December 31, 2005 is classified in current accrued
liabilities on the consolidated balance sheet. The
December 31, 2004, reserve balance of
$122 million includes $71 million which is classified
as current accrued liabilities and $51 million which is
classified as long-term other liabilities on the consolidated
balance sheet. The Company currently anticipates that the
restructuring activities to which all of the above charges
relate will be substantially completed by the end of 2006.
Utilization for 2005 of $93 million includes
$66 million mainly for severance pay and $27 million
related to pension and other postretirement employee benefits.
Utilization for 2004 of $150 million includes
$129 million for severance and $21 million related to
pension and other postretirement employee benefits. Utilization
for 2003 of $153 million includes $127 million for
severance pay and $26 million related to pension and other
postretirement employee benefits.
Estimates of restructuring charges are based on information
available at the time such charges are recorded. In general,
management anticipates that restructuring activities will be
completed within a timeframe such that significant changes to
the plan are not likely. Due to the inherent uncertainty
involved in estimating restructuring expenses, actual amounts
paid for such activities may differ from amounts initially
estimated. The Company adjusted approximately $63 million,
$18 million and $9 million of previously recorded
reserves in 2005, 2004 and 2003, respectively.
43
|
|
ITEM 7. |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued) |
2005 Restructuring Actions During 2005,
significant restructuring activities included the following
actions:
|
|
|
$13 million for severance and employee related costs
associated with the closure of certain North American Automotive
Operations facilities located in the U.S., Mexico and Puerto
Rico. The Company recorded a $7 million OPEB curtailment
loss reflecting a reduction of expected years of future service
for plan participants. The Company also recorded $6 million
of severance charges which affected approximately 100 salaried
employees and 400 hourly employees. Remaining reserves of
approximately $6 million related to this program are
recorded in other current liabilities as of
December 31, 2005. |
|
|
$14 million of severance and employee related costs
associated with programs offered at various Mexican and European
facilities affecting approximately 700 salaried and hourly
positions. Remaining reserves of approximately $8 million
related to these programs are recorded in other current
liabilities as of December 31, 2005. |
|
|
$13 million for a pension curtailment loss related to a
non-U.S. pension
plan. The curtailment loss reflects a reduction of expected
future years of service for plan participants expected to
transfer employment from a Company manufacturing facility to a
Ford facility. |
|
|
$7 million related to the continuation of a voluntary
termination incentive program offered during the fourth quarter
of 2004 to eligible U.S. salaried employees. 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 voluntarily
elected to participate in this program, including 35 employees
during the first quarter of 2005. As of
December 31, 2005, substantially all of the employees
had terminated their employment. |
|
|
Previously recorded restructuring reserves of $61 million
were adjusted as the Company was relieved, pursuant to the ACH
Transactions, from fulfilling the remaining obligations to Ford
for the transfer of seat production from the Companys
Chesterfield, Michigan operation to another supplier. |
2004 Restructuring Actions During 2004,
significant restructuring activities included the following
actions:
|
|
|
Severance costs of $51 million related to a voluntary
termination incentive program offered to eligible
U.S. salaried employees. Terms of the program required the
effective termination date to be no later than
March 31, 2005, unless otherwise mutually agreed. As
of December 31, 2004, 374 employees voluntarily elected to
participate in this program. As of June 30, 2005,
substantially all of the employees had terminated their
employment. Reserves related to this activity of approximately
$34 million were outstanding as of
December 31, 2004. |
|
|
European plan for growth charges are comprised of
$13 million of severance and employee-related costs for the
separation of approximately 50 hourly employees located at
the Companys plants in Europe through the continuation of
a voluntary retirement and separation program. Reserves related
to this activity of approximately $6 million were
outstanding as of December 31, 2004. |
|
|
The Company offered an early retirement incentive to eligible
Visteon-assigned Ford-UAW employees to voluntarily retire or to
return to a Ford facility. Approximately 500 employees elected
to retire early at a cost of $18 million and approximately
210 employees have agreed to return to a Ford facility at a cost
of $7 million. As of December 31, 2004, substantially
all of the employees had terminated their employment. |
44
|
|
ITEM 7. |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued) |
|
|
|
$11 million of severance related to the involuntary
separation of approximately 200 employees as a result of the
closure of the Companys La Verpilliere, France,
manufacturing facility. This program was substantially completed
as of December 31, 2004. |
|
|
Adjustment of previously recorded liabilities totaling
$15 million related to the Chesterfield, MI agreement
reached with Ford during 2003. A determination of the net costs
that the Company was responsible to reimburse Ford under this
agreement was completed pursuant to a final actuarial valuation
received in the fourth quarter of 2004. The final actuarially
determined obligation resulted in a $15 million reduction
in previously established accruals. |
2003 Restructuring Actions During 2003,
significant restructuring activities included the following
actions:
|
|
|
$88 million of severance and employee-related costs
associated with the Companys European plan for growth.
These restructuring charges are related to the separation of
approximately 960 hourly and salaried employees at various
plants in Europe, primarily located in Germany and the U.K.
Reserves related to this activity of approximately
$30 million and $2 million were outstanding as of
December 31, 2003 and 2004, respectively. |
|
|
$37 million comprised of severance and employee-related
costs for an involuntary program to separate approximately
365 hourly and salaried employees in the U.S. and Mexico.
Reserves related to this activity of approximately
$12 million were outstanding as of
December 31, 2003. |
|
|
$174 million of severance and employee-related costs
pursuant to an agreement with Ford to transfer seat production
located in Chesterfield, Michigan, to another supplier. Reserves
related to this activity of approximately $144 million and
$67 million were outstanding as of
December 31, 2003 and 2004, respectively. |
|
|
Adjustment of previously recorded restructuring liabilities of
$9 million as a result of lower actual costs to complete
the closure of the Markham, Ontario facility than originally
estimated. |
Impairment of Long-Lived Assets
The Company recorded asset impairment losses of
$1,511 million, $314 million and $436 million for
the years ended December 31, 2005, 2004 and 2003,
respectively, to adjust certain long-lived assets to their
estimated fair values.
2005 Impairment Charges
During the fourth quarter of 2005 and following the closing of
the ACH Transactions on October 1, 2005, the
Companys Automotive Operations recorded an impairment
charge of $335 million to reduce the net book value of
certain long-lived assets considered to be held for
use to their estimated fair value. The impairment
assessment was performed pursuant to impairment indicators,
including lower than anticipated current and near term future
production volumes and the related impact on the Companys
current and projected operating results and cash flows. Fair
values were determined primarily based on prices for similar
groups of assets determined by
third-party valuation
firms and management estimates.
45
|
|
ITEM 7. |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued) |
Following the signing of the MOU and at June 30, 2005,
the Company classified the manufacturing facilities and
associated assets, including inventory, machinery, equipment and
tooling to be sold as held for sale. The liabilities
to be assumed or forgiven by Ford pursuant to the ACH
Transactions, including employee liabilities and postretirement
employee benefits payable to Ford were classified as
Liabilities associated with assets held for sale in
the Companys consolidated balance sheet following the
signing of the MOU. 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 Companys
Automotive Operations recorded an impairment charge 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 and management estimates.
During the second quarter of 2005, the Automotive Operations
recorded an impairment charge of $256 million to reduce the
net book value of certain long-lived assets considered to be
held for use to their estimated fair value. The
impairment assessment was performed pursuant to impairment
indicators including lower than anticipated current and near
term future production volumes and the related impact on the
Companys projected operating results and cash flows. Fair
values were determined primarily based on prices for similar
groups of assets determined by third-party valuation firms and
management estimates.
2004 Impairment Charges
During the third quarter of 2004, the Automotive Operations
recorded an impairment charge of $314 million to reduce the
net book value of certain long-lived assets to their estimated
fair value. This impairment was based on an assessment by
product line asset group of the recoverability of the
Companys long-lived assets. The assessment was performed
based upon impairment indicators including the impact of lower
than anticipated current and near term future Ford North
American production volumes and the related impact on the
Companys projected operating results and cash flows. Fair
values were determined primarily based on prices for similar
groups of assets determined by a third-party valuation firm and
management estimates.
2003 Impairment Charges
During the fourth quarter of 2003, the Automotive Operations
recorded an impairment charge of $407 million to reduce the
net book value of certain long-lived assets to their estimated
fair value. This impairment assessment was based upon impairment
indicators including a decrease in the production levels of the
Companys major customers and the anticipated impact of the
Ford 2003 agreements. Fair values were determined primarily
based on prices for similar groups of assets determined by a
third-party valuation firm and management estimates.
The Companys Automotive Operations recorded an impairment
charge of $25 million related to certain seating-related
fixed assets, for which an agreement was reached with Ford to
transfer production located in Chesterfield, Michigan, to
another supplier. The Company measured the impairment loss
associated with these assets by comparing the carrying value of
these fixed assets to the expected proceeds from disposal of the
assets after completion of remaining production commitments.
46
|
|
ITEM 7. |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued) |
The Companys Automotive Operations also recorded an
impairment charge of $4 million related to certain coiled
spring and stamping fixed assets located at the Companys
Monroe, Michigan, plant. Production activities were discontinued
and the future undiscounted cash flows associated with these
assets were less than the related carrying values. The Company
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.
Income Taxes
The Companys 2005 income tax provision of $64 million
reflects income tax expense related to those countries where the
Company is profitable, accrued withholding taxes, certain
non-recurring and other discrete tax items and the inability to
record a tax benefit for pre-tax losses in the U.S. and certain
foreign countries. Non-recurring and other discrete tax items
recorded in 2005 resulted in a net benefit of $31 million.
This includes a benefit of $28 million, reflecting
primarily a reduction in income tax reserves corresponding with
the conclusion of U.S. Federal income tax audits for
2002, 2003 and certain pre-spin periods, as well as a net
benefit of $3 million 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
income tax reserves for prior year tax exposures.
The 2004 provision of $962 million includes a charge of
$871 million recorded during the third quarter to establish
additional valuation allowances against the Companys
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, partially
offset by the reduction of related tax reserves of
$77 million. The Companys provision for income taxes
for 2004 also includes a benefit of $42 million recorded in
the fourth quarter to reduce its deferred tax asset valuation
allowance to offset a related reduction in the net deferred tax
asset. This reduction in the 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.
Liquidity and Capital Resources
The Companys cash and liquidity needs are impacted by the
level, variability, and timing of its customers worldwide
vehicle production, which varies based on economic conditions
and market shares in major markets. The Companys
intra-year needs are impacted by seasonal effects in the
industry, such as the shutdown of operations for two weeks in
July, the subsequent
ramp-up of new model
production and the additional one-week shutdown in December by
its primary North American customers. These seasonal effects
normally require use of liquidity resources during the first and
third quarters. Further, as the Companys operating
profitability has become more concentrated with its foreign
subsidiaries and joint ventures, the Companys cash balance
located outside the U.S. is expected to increase. As of
December 31, 2005 approximately 60% of the
Companys cash balance is located in jurisdictions outside
of the U.S. The Companys ability to efficiently
access cash balances in foreign jurisdictions is subject to
local regulatory and statutory requirements.
During 2005, the Companys credit rating and outlook were
downgraded as discussed further below. Accordingly, the
Companys access to liquidity has become significantly less
reliable and more costly.
47
|
|
ITEM 7. |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued) |
Committed and Uncommitted Liquidity Sources
The Company has the following committed and uncommitted sources
of liquidity as of December 31, 2005.
|
|
|
Cash The Companys consolidated balance sheet
reflects cash of $865 million as of
December 31, 2005. Cash required to meet capital
expenditure needs, excluding capital leases, in 2005 was
$585 million. Cash requirements for capital expenditures
were lower than historical levels in 2005 due to various
agreements with Ford and the completion of the ACH Transactions.
The Companys credit agreements contain limits on annual
capital expenditures, limiting 2006 capital expenditures to
$500 million. |
|
|
Long-Term Debt The Company had $1,509 million
of outstanding long-term debt at December 31, 2005.
This debt includes $701 million of notes bearing interest
at 8.25% due August 1, 2010, $442 million of notes
bearing interest at 7.00% due March 10, 2014,
$241 million of the five-year term loan related to the
Companys facilities consolidation in Southeastern Michigan
due June 25, 2007, and $125 million of various
other, primarily
non-U.S.
affiliate long-term debt instruments with various maturities. |
|
|
Financing Arrangements The Company has credit line
arrangements with various banks throughout the world. As of
December 31, 2005, the Company had $321 million
of available borrowings under the $772 million five-year
revolving credit facility after a reduction for
$104 million of obligations under letters of credit and
$347 million drawn. In addition, as of
December 31, 2005, the Company had approximately
$425 million of available borrowings under other committed
and uncommitted facilities. Borrowings under certain credit
agreements are secured by a first-priority lien on substantially
all tangible and intangible assets of the Company and most of
its domestic subsidiaries, as well as 65% of the stock of many
first tier foreign subsidiaries. |
|
|
|
On January 9, 2006, the Company closed on a new
secured $350 million
18-month term loan,
which will expire on June 20, 2007, to replace the
Companys $300 million secured short-term credit
agreement that expired on December 15, 2005. The
18-month term loan was
made a part of the Companys existing five-year revolving
credit facility agreement resulting in $1,122 million
available to the Company under this agreement. Also at this
time, the terms and conditions of the five-year term loan and
five-year revolving credit facility were modified to align
various covenants with the Companys restructuring
initiatives and to make changes to the consolidated leverage
ratios. |
|
|
|
Receivables Securitization Facilities and Other Liquidity
Sources During 2005, the Company terminated its
U.S. receivables securitization facility and increased the
capacity and sale of non-Ford receivables in Europe. At
December 31, 2005 the European securitization programs
provided for receivable sales of up to 80 million euro,
renewable annually, and 20 million euro, subsequently
terminated during the first quarter of 2006. As of
December 31, 2005, the Company had sold
99 million euro ($117 million). The company also
initiated a smaller program in Asia in the first quarter of 2005
of up to 1.5 billion Japanese yen receivable sales of which
830 million Japanese yen ($7 million) were sold as of
December 31, 2005. |
48
|
|
ITEM 7. |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued) |
|
|
|
Escrow and Reimbursement Agreements On
October 3, 2005 and in connection with the ACH
Transactions, Ford paid $400 million into an escrow account
for use by the Company to restructure its businesses. The Escrow
Agreement provides that the Company will be reimbursed from the
escrow account for the first $250 million of reimbursable
restructuring costs, and up to one half of the next
$300 million of such additional costs. Through
December 31, 2005, the Company had received payment of
$24 million under the Escrow Agreement. Ford has also
agreed to reimburse the Company for up to $150 million of
separation costs associated with those Visteon salaried
employees who are assigned to work at ACH and whose services are
no longer required by ACH or a subsequent buyer. The
Reimbursement Agreement provides that Ford will reimburse the
Company for the first $50 million of reimbursable
restructuring costs, and up to one half of the next
$200 million of such additional costs. |
Covenants and Restrictions
The Company is subject to various covenants and restrictions on
its borrowings as further discussed in Note 9 to the
Companys consolidated financial statements. The
Companys primary credit agreements currently contain
certain affirmative and negative covenants including a covenant
not to exceed a certain leverage ratio of consolidated total
debt to consolidated EBITDA (as defined in the Credit
Agreements) of 4.75 for the quarters ending
Dec. 31, 2005 and March 31, 2006; 5.25 for
the quarter ending June 30, 2006; 4.25 for the quarter
ending Sept. 30, 2006; 3.00 for the quarter ending
Dec. 31, 2006; 2.75 for the quarter ending
March 31, 2007; and 2.50 thereafter. In addition, the
credit agreements limit the amount of capital expenditures and
cash payments for dividends that the Company may make. The
ability of the Companys subsidiaries to transfer assets is
subject to various restrictions, including regulatory
requirements and governmental restraints.
At December 31, 2005, the Company was in compliance
with applicable covenants and restrictions, as amended, although
there can be no assurance that the Company will remain in
compliance with such covenants in the future. If the Company was
to violate a financial covenant and not obtain a waiver, the
credit agreements could be terminated and amounts outstanding
would be accelerated. The Company can provide no assurance that,
in such event, that it would have access to sufficient liquidity
resources to repay such amounts.
Credit Ratings
Moodys current corporate rating is B2 and SGL rating is 3.
The rating on senior unsecured debt is B3. The latest rating
action by the agency was moving the outlook to negative on
January 18, 2006. S&P current corporate rating is B+
and rates the Companys short term liquidity as B-2. The
agency currently has a negative outlook on the rating.
Fitchs current rating on the Companys senior secured
debt is BB with a negative outlook.
The Companys access to liquidity has become significantly
less reliable and more costly as a result of rating agency
actions, and any further downgrade in the Companys credit
ratings could further 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.
49
|
|
ITEM 7. |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued) |
Other Liquidity Considerations
The Company 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 2006. However, liquidity from internal or
external sources to meet these obligations is dependent on a
number of factors, including availability and accessibility of
cash balances, credit ratings, industry economic factors, and
the availability of the capital markets. In addition, because
the Company was not timely in making its SEC filings in 2005, it
is 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, the Company is unable to use
its presently effective shelf registration statement to sell
securities in the public market without first obtaining a waiver
from the SEC. The Company 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
the Company.
Cash Flows
Operating Activities Cash provided from
operating activities during 2005 totaled $417 million,
compared with cash provided from operating activities of
$418 million for the same period in 2004. This is largely
attributable to the acceleration of Ford North American
receivable terms during 2005 from 33 days to 22 days,
lower inventory levels, non-recurrence of Ford
productivity-related payments in 2004 related to 2003, and
discontinuation of the Ford supplier early pay program in 2004,
offset partially by the net cash outflow associated with the
run-off of retained receivables and payables of the business
that transferred as part of the ACH Transactions, changes in
Ford payment terms in Europe, and a higher net loss, as adjusted
for non-cash items.
Investing Activities Cash used in investing
activities was $231 million during 2005, compared with
$782 million for 2004. The Companys capital
expenditures excluding capital leases in 2005 totaled
$585 million, compared with $827 million for the same
period in 2004, reflecting cash flows associated with various
agreements with Ford in 2005 and the substantial completion of
facilities consolidation in 2004. Investments in four new
non-consolidated affiliates located in China and one new
non-consolidated affiliate in India were $21 million. In
the third quarter of 2005, the Company received a deposit of
$311 million from Ford related to the ACH Transactions, and
refunded $12 million in the fourth quarter to Ford after
final determination of the value of the transferred inventory
was completed. Proceeds from asset and land disposals were
$76 million. The credit agreements limit the amount of
capital expenditures the Company may make.
Financing Activities Cash used by financing
activities totaled $51 million in the 2005, compared with
$135 million provided from financing activities in the same
period in 2004. The cash used in 2005 reflects primarily the
retirement of the remaining $250 million of
7.95% notes due on August 1, 2005, termination of
the General Electric Capital Corporation (GECC)
program, and reductions in other consolidated subsidiary debt,
partially offset by draws of $347 million under the
five-year revolving credit facility. The Company received a
$250 million loan from Ford on
September 19, 2005, which was repaid on
September 30, 2005. The cash proceeds in 2004 reflect the
net increase in debt of $200 million due to the March 2004
issuance of debt securities offset partially by the April 2004
repurchase of certain existing notes, maturing short-term
commercial paper obligations, dividend payments, and reductions
in other debt. In February 2005, the Board of Directors elected
to cease the payment of the quarterly dividend of $0.06 per
share of common stock. The credit agreements limit the amount of
cash payments for dividends the Company may make.
50
|
|
ITEM 7. |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued) |
Contractual Obligations
The following table summarizes the Companys expected cash
outflows resulting from long-term obligations existing as of
December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total | |
|
2006 | |
|
2007-2008 | |
|
2009-2010 | |
|
2011 and After | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in Millions) | |
Debt
|
|
$ |
1,994 |
|
|
$ |
485 |
|
|
$ |
296 |
|
|
$ |
701 |
|
|
$ |
512 |
|
Unconditional purchase
obligations(a)
|
|
|
1,748 |
|
|
|
296 |
|
|
|
629 |
|
|
|
422 |
|
|
|
401 |
|
Interest payments on long-term
debt(b)
|
|
|
693 |
|
|
|
125 |
|
|
|
232 |
|
|
|
187 |
|
|
|
149 |
|
Capital expenditures
|
|
|
253 |
|
|
|
223 |
|
|
|
30 |
|
|
|
|
|
|
|
|
|
Operating leases
|
|
|
203 |
|
|
|
50 |
|
|
|
79 |
|
|
|
54 |
|
|
|
20 |
|
Postretirement funding
commitments(c)
|
|
|
156 |
|
|
|
2 |
|
|
|
10 |
|
|
|
17 |
|
|
|
127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$ |
5,047 |
|
|
$ |
1,181 |
|
|
$ |
1,276 |
|
|
$ |
1,381 |
|
|
$ |
1,209 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
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, the Company outsourced
most of its IT needs on a global basis. The service charges
under the outsourcing agreement are expected to aggregate
approximately $2 billion during the ten-year initial term
of the agreement, subject to decreases and increases in the
service charges based on the Companys actual consumption
of services to meet its then current business needs. The
outsourcing agreement may be terminated also for the
Companys business convenience after its second full year
under the agreement for a scheduled termination fee. |
|
(b) |
|
Payments include the impact of interest rate swaps, and do not
assume the replenishment of retired debt. |
|
(c) |
|
Postretirement funding commitments include the estimated
liability to Ford for postretirement employee health care and
life insurance benefits of certain salaried employees as
discussed in Note 10 of the consolidated financial
statements, which is incorporated by reference herein. Funding
for the trust begins in 2011 and is also included in the table
above. |
The Company has guaranteed approximately $136 million of
debt capacity held by consolidated subsidiaries and
$84 million for lifetime lease payments held by
consolidated subsidiaries. In addition, the Company has
guaranteed Tier 2 suppliers debt and lease
obligations and other third-party service providers
obligations of up to $20 million, at
December 31, 2005, to ensure the continued supply of
essential parts.
FORWARD-LOOKING STATEMENTS
Certain statements contained or incorporated in this Annual
Report on
Form 10-K which
are not statements of historical fact constitute
Forward-Looking Statements within the meaning of the
Private Securities Litigation Reform Act of 1995 (the
Reform Act). Forward-looking statements give current
expectations or forecasts of future events. Words such as
anticipate, expect, intend,
plan, believe, seek,
estimate and other words and terms of similar
meaning in connection with discussions of future operating or
financial performance signify forward-looking statements. These
statements reflect our current views with respect to future
events and are based on assumptions and estimates, which are
subject to risks and uncertainties including those discussed in
Item 1A under the heading Risk Factors and
elsewhere in this report. Accordingly, you should not place
undue reliance on these forward-looking statements. Also, these
forward-looking statements represent our estimates and
assumptions only as of the date of this report. We do not intend
to update any of these forward-looking statements to reflect
circumstances or events that occur after the statement is made.
We qualify all of our forward-looking statements by these
cautionary statements.
51
|
|
ITEM 7. |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued) |
You should understand that various factors, in addition to those
discussed elsewhere in this document, could affect our future
results and could cause results to differ materially from those
expressed in such forward-looking statements, including:
|
|
|
Visteons ability to satisfy its future capital and
liquidity requirements; Visteons 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 Visteons credit ratings (which have declined in the
past and could decline further in the future); Visteons
ability to comply with financial covenants applicable to it; and
the continuation of acceptable supplier payment terms. |
|
|
Visteons 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. |
|
|
Visteons ability to access funds generated by its foreign
subsidiaries and joint ventures on a timely and cost effective
basis. |
|
|
Changes in the operations (including products, product planning
and part sourcing), financial condition, results of operations
or market share of Visteons customers, particularly its
largest customer, Ford. |
|
|
Changes in vehicle production volume of our customers in the
markets where we operate, and in particular changes in
Fords North American and European vehicle production
volumes and platform mix. |
|
|
Visteons ability to profitably win new business from
customers other than Ford and to maintain current business with,
and win future business from, Ford, and, Visteons ability
to realize expected sales and profits from new business. |
|
|
Increases in commodity costs or disruptions in the supply of
commodities, including steel, resins, aluminum, copper, fuel and
natural gas. |
|
|
Visteons 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
actions; and to recover engineering and tooling costs. |
|
|
Visteons 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. |
|
|
Visteons ability to streamline and focus its product
portfolio; and to sustain technological competitiveness. |
|
|
Restrictions in labor contracts with unions that restrict
Visteons ability to close plants, divest unprofitable,
noncompetitive businesses, change local work rules and practices
at a number of facilities and implement cost-saving measures. |
|
|
The costs and timing of facility closures or dispositions,
business or product realignments, or similar restructuring
actions, including potential impairment or other charges related
to the implementation of these actions or other adverse industry
conditions and contingent liabilities. |
|
|
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. |
|
|
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. |
52
|
|
ITEM 7. |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued) |
|
|
|
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. |
|
|
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. |
|
|
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 Visteons products or assets. |
|
|
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. |
|
|
The cyclical and seasonal nature of the automotive industry. |
|
|
Visteons 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. |
|
|
Visteons 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. |
|
|
Visteons ability to provide various employee and
transition services to Automotive Components Holdings, LLC in
accordance with the terms of existing agreements between the
parties, as well as Visteons ability to recover the costs
of such services. |
|
|
Visteons ability to quickly and adequately remediate
material weaknesses and other control deficiencies in its
internal control over financial reporting. |
|
|
Other factors, risks and uncertainties detailed from time to
time in the Companys Securities and Exchange Commission
filings. |
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
The Company is exposed to market risks from changes in currency
exchange rates, interest rates and certain commodity prices. To
manage these risks, the Company uses a combination of fixed
price contracts with suppliers, cost sourcing arrangements with
customers and financial derivatives. The Company maintains 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
The Companys 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,
foreign currency denominated supplier payments, debt and other
payables, subsidiary dividends and investments in subsidiaries.
The Companys on-going solution is to reduce the exposure
through operating actions.
53
|
|
ITEM 7A. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK (Continued) |
The Companys primary foreign exchange operating exposures
include the Korean won, Mexican peso, euro and Czech koruna.
Because of the mix between the Companys costs and revenues
in various regions, operating results are exposed generally to
weakening of the euro and to strengthening of the Korean won,
Mexican peso, and Czech koruna. For transactions in these
currencies, the Company utilizes a strategy of partial coverage.
As of December 31, 2005, the Companys coverage
for projected transactions in these currencies was approximately
41% for 2006.
As of December 31, 2005 and
December 31, 2004, the net fair value of foreign
currency forward and option contracts was an asset of
$9 million and an asset of $18 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 $62 million and $72 million as
of December 31, 2005 and 2004, 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 the Companys financial
derivatives. It is also important to note that gains and losses
indicated in the sensitivity analysis would generally be offset
by gains and losses on the underlying exposures being hedged.
Interest Rate Risk
The Company uses interest rate swaps to manage interest rate
risk. These swaps effectively convert a portion of the
Companys fixed rate debt into variable rate debt. During
the first quarter of 2005, the Company terminated interest rate
swaps with a notional amount of $200 million related to the
8.25% notes due August 1, 2010, which reduced the
notional amount of interest rate swaps to $350 million.
Approximately 45% of the Companys borrowings were
effectively on a fixed rate basis as of both
December 31, 2005 and December 31, 2004.
As of December 31, 2005 and 2004, the net fair value
of interest rate swaps was a liability of $15 million and
an asset of $2 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
$10 million and $16 million as of
December 31, 2005 and December 31, 2004,
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 as of
December 31, 2005 and 2004. This analysis may
overstate the adverse impact on net interest expense because of
the short-term nature of the Companys interest bearing
investments.
Commodity Risk
The Companys exposure to market risks from changes in the
price of steel products, plastic resins, and diesel fuel are not
hedged due to a lack of acceptable hedging instruments in the
market. The Companys exposures to price changes in these
commodities and non-ferrous metals are attempted to be addressed
through negotiations with the Companys suppliers and
customers, although there can be no assurance that the Company
will not have to absorb any or all price increases and/or
surcharges. When and if acceptable hedging instruments are
available in the market, management will determine at that time
if financial hedging is appropriate, depending upon the
Companys exposure level at that time, the effectiveness of
the financial hedge and other factors.
54
|
|
ITEM 7A. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK (Continued) |
In the second quarter of 2005, the Company discontinued hedge
accounting treatment for natural gas and copper forward
contracts. Discontinuance of hedge accounting for hedges on
transactions that were not expected to occur resulted in the
reclassification of a gain of approximately $8 million from
Accumulated other comprehensive income (loss) to net
income (loss). These forward contracts were subsequently
terminated during the third quarter of 2005. Since completion of
the ACH Transactions on October 1, 2005, the
Companys exposure to market risks from changes in the
price of natural gas and copper has been substantially reduced.
55
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
Index to Consolidated Financial Statements
|
|
|
|
|
|
|
Page No. | |
|
|
| |
Report of Independent Registered Public Accounting Firm
|
|
|
57 |
|
Consolidated Statements of Operations for the years ended
December 31, 2005, 2004 and 2003
|
|
|
60 |
|
Consolidated Balance Sheets at December 31, 2005 and 2004
|
|
|
61 |
|
Consolidated Statements of Cash Flows for the years ended
December 31, 2005, 2004 and 2003
|
|
|
62 |
|
Consolidated Statements of Shareholders (Deficit)/ Equity
for the years ended December 31, 2005, 2004 and 2003
|
|
|
63 |
|
Notes to Consolidated Financial Statements
|
|
|
64 |
|
56
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA (Continued)
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
Visteon Corporation
We have completed integrated audits of Visteon
Corporations 2005 and 2004 consolidated financial
statements and of its internal control over financial reporting
as of December 31, 2005 and an audit of its 2003
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
In our opinion, the consolidated financial statements listed in
the accompanying index present fairly, in all material respects,
the financial position of Visteon Corporation and its
subsidiaries at December 31, 2005 and 2004, and the results
of their operations and their cash flows for each of the three
years in the period ended December 31, 2005 in conformity
with accounting principles generally accepted in the United
States of America. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements 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.
Internal control over financial reporting
Also, we have audited managements assessment, included in
Managements 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, 2005, because of the effect of
the material weakness relating to accounting for freight, raw
material and other supplier costs and period-end accruals and
payables 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
Companys 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 managements assessment and on the effectiveness of the
Companys internal control over financial reporting based
on our audit.
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 managements 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.
57
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA (Continued)
A companys 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 companys
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
companys 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 weakness has been identified and included in
managements assessment. As of December 31, 2005,
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 and
payables originating in its North American purchasing function.
Specifically, controls to ensure that accruals and payables for
freight, raw materials and other supplier costs were
appropriately supported and reviewed did not operate effectively
to ensure that costs were recorded in the correct period and
that period-end accruals and payables were complete and
accurate, and did not prevent or detect the improper conduct by
two former, non-executive employees. Further, the Company did
not have effective controls designed and in place over
information received from its third-party freight administrator,
and the monitoring of supplier negotiations and ongoing contract
compliance, to identify and record costs in the correct period
and ensure that related period-end accruals and payables were
complete and accurate. This control deficiency, and the related
misconduct, resulted in accounting errors which required
restatement of the Companys 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. Additionally,
this control deficiency could result in a misstatement of
freight, raw material and other supplier costs and related
period-end accruals and payables that would result in a material
misstatement to annual or interim financial statements that
would not be prevented or detected. This material weakness was
considered in determining the nature, timing, and extent of
audit tests applied in our audit of the 2005 consolidated
financial statements, and our opinion regarding the
effectiveness of the Companys internal control over
financial reporting does not affect our opinion on those
consolidated financial statements.
58
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA (Continued)
In our opinion, managements assessment that Visteon
Corporation did not maintain effective internal control over
financial reporting as of December 31, 2005, 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 weakness 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, 2005, based on
criteria established in Internal Control
Integrated Framework issued by the COSO.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Detroit, Michigan
March 16, 2006
59
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA (Continued)
VISTEON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(Dollars in Millions, Except Per | |
|
|
Share Amounts) | |
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
$ |
16,812 |
|
|
$ |
18,657 |
|
|
$ |
17,660 |
|
|
Services
|
|
|
164 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,976 |
|
|
|
18,657 |
|
|
|
17,660 |
|
Cost of sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
|
16,259 |
|
|
|
17,769 |
|
|
|
17,108 |
|
|
Services
|
|
|
163 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,422 |
|
|
|
17,769 |
|
|
|
17,108 |
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
554 |
|
|
|
888 |
|
|
|
552 |
|
|
Selling, general and administrative expenses
|
|
|
946 |
|
|
|
980 |
|
|
|
988 |
|
Restructuring expenses
|
|
|
46 |
|
|
|
82 |
|
|
|
300 |
|
Reimbursement from Escrow Account
|
|
|
51 |
|
|
|
|
|
|
|
|
|
Impairment of long-lived assets
|
|
|
1,511 |
|
|
|
314 |
|
|
|
436 |
|
Gain on ACH Transactions
|
|
|
1,832 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(66 |
) |
|
|
(488 |
) |
|
|
(1,172 |
) |
|
Interest expense
|
|
|
156 |
|
|
|
104 |
|
|
|
94 |
|
Interest income
|
|
|
24 |
|
|
|
19 |
|
|
|
17 |
|
Debt extinguishment costs
|
|
|
|
|
|
|
11 |
|
|
|
|
|
Equity in net income of non-consolidated affiliates
|
|
|
25 |
|
|
|
45 |
|
|
|
55 |
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes and minority interests in
consolidated subsidiaries
|
|
|
(173 |
) |
|
|
(539 |
) |
|
|
(1,194 |
) |
|
Provision for income taxes
|
|
|
64 |
|
|
|
962 |
|
|
|
6 |
|
Minority interests in consolidated subsidiaries
|
|
|
33 |
|
|
|
35 |
|
|
|
29 |
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(270 |
) |
|
$ |
(1,536 |
) |
|
$ |
(1,229 |
) |
|
|
|
|
|
|
|
|
|
|
Per Share Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
|
$ |
(2.14 |
) |
|
$ |
(12.26 |
) |
|
$ |
(9.77 |
) |
Cash dividends per share
|
|
$ |
|
|
|
$ |
0.24 |
|
|
$ |
0.24 |
|
See accompanying notes to the consolidated financial statements.
60
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA (Continued)
VISTEON CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
December 31 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(Dollars in Millions) | |
ASSETS |
|
Cash and cash equivalents
|
|
$ |
865 |
|
|
$ |
752 |
|
Accounts receivable, net
|
|
|
1,738 |
|
|
|
2,540 |
|
Inventories, net
|
|
|
537 |
|
|
|
889 |
|
Prepaid expenses and other current assets
|
|
|
205 |
|
|
|
249 |
|
|
|
|
|
|
|
|
Total current assets
|
|
|
3,345 |
|
|
|
4,430 |
|
|
Equity in net assets of non-consolidated affiliates
|
|
|
226 |
|
|
|
227 |
|
Property and equipment, net
|
|
|
2,973 |
|
|
|
5,303 |
|
Other assets
|
|
|
192 |
|
|
|
332 |
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
6,736 |
|
|
$ |
10,292 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS (DEFICIT)/ EQUITY |
|
Short-term debt, including current portion of long-term debt
|
|
$ |
485 |
|
|
$ |
508 |
|
Accounts payable
|
|
|
1,803 |
|
|
|
2,493 |
|
Employee benefits, including pensions
|
|
|
233 |
|
|
|
341 |
|
Accrued expenses and other current liabilities
|
|
|
438 |
|
|
|
580 |
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
2,959 |
|
|
|
3,922 |
|
|
Long-term debt
|
|
|
1,509 |
|
|
|
1,513 |
|
Postretirement benefits other than pensions
|
|
|
724 |
|
|
|
639 |
|
Postretirement benefits payable to Ford Motor Company
|
|
|
154 |
|
|
|
2,135 |
|
Employee benefits, including pensions
|
|
|
647 |
|
|
|
751 |
|
Deferred income taxes
|
|
|
175 |
|
|
|
287 |
|
Other liabilities
|
|
|
382 |
|
|
|
516 |
|
Minority interests in consolidated subsidiaries
|
|
|
234 |
|
|
|
209 |
|
|
Shareholders (deficit)/ equity
|
|
|
|
|
|
|
|
|
|
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, 129 million and
130 million shares outstanding, respectively)
|
|
|
131 |
|
|
|
131 |
|
|
Stock warrants
|
|
|
127 |
|
|
|
|
|
|
Additional paid-in capital
|
|
|
3,396 |
|
|
|
3,380 |
|
|
Accumulated deficit
|
|
|
(3,440 |
) |
|
|
(3,170 |
) |
|
Accumulated other comprehensive (loss) income
|
|
|
(234 |
) |
|
|
5 |
|
|
Other
|
|
|
(28 |
) |
|
|
(26 |
) |
|
|
|
|
|
|
|
Total shareholders (deficit)/ equity
|
|
|
(48 |
) |
|
|
320 |
|
|
|
|
|
|
|
|
Total liabilities and shareholders (deficit)/ equity
|
|
$ |
6,736 |
|
|
$ |
10,292 |
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
61
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA (Continued)
VISTEON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(Dollars in Millions) | |
Cash provided from (used by) operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(270 |
) |
|
$ |
(1,536 |
) |
|
$ |
(1,229 |
) |
Adjustments to reconcile net loss to net cash provided from
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on ACH Transactions
|
|
|
(1,832 |
) |
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
595 |
|
|
|
685 |
|
|
|
677 |
|
|
Impairment of long-lived assets
|
|
|
1,511 |
|
|
|
314 |
|
|
|
436 |
|
|
Equity in net income of non-consolidated affiliates, net of
dividends remitted
|
|
|
23 |
|
|
|
(2 |
) |
|
|
(20 |
) |
|
Other non-cash items
|
|
|
44 |
|
|
|
40 |
|
|
|
45 |
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
684 |
|
|
|
(52 |
) |
|
|
(23 |
) |
|
Inventories
|
|
|
34 |
|
|
|
3 |
|
|
|
140 |
|
|
Accounts payable
|
|
|
(593 |
) |
|
|
82 |
|
|
|
(57 |
) |
|
Postretirement benefits other than pensions
|
|
|
227 |
|
|
|
180 |
|
|
|
400 |
|
|
Income taxes deferred and payable, net
|
|
|
(40 |
) |
|
|
869 |
|
|
|
(72 |
) |
|
Other assets and other liabilities
|
|
|
34 |
|
|
|
(165 |
) |
|
|
66 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided from operating activities
|
|
|
417 |
|
|
|
418 |
|
|
|
363 |
|
Cash provided from (used by) investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(585 |
) |
|
|
(827 |
) |
|
|
(872 |
) |
Acquisitions and investments in joint ventures, net
|
|
|
(21 |
) |
|
|
|
|
|
|
(4 |
) |
Net cash proceeds from ACH Transactions
|
|
|
299 |
|
|
|
|
|
|
|
|
|
Purchases of securities
|
|
|
|
|
|
|
|
|
|
|
(48 |
) |
Sales and maturities of securities, net
|
|
|
|
|
|
|
11 |
|
|
|
118 |
|
Other, including proceeds from asset disposals
|
|
|
76 |
|
|
|
34 |
|
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
Net cash used by investing activities
|
|
|
(231 |
) |
|
|
(782 |
) |
|
|
(781 |
) |
Cash provided from (used by) financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper repayments, net
|
|
|
|
|
|
|
(81 |
) |
|
|
(85 |
) |
Other short-term debt, net
|
|
|
239 |
|
|
|
(20 |
) |
|
|
55 |
|
Proceeds from issuance of other debt, net of issuance costs
|
|
|
50 |
|
|
|
576 |
|
|
|
238 |
|
Maturity/ repurchase of unsecured debt securities
|
|
|
(250 |
) |
|
|
(269 |
) |
|
|
|
|
Principal payments on other debt
|
|
|
(69 |
) |
|
|
(32 |
) |
|
|
(121 |
) |
Treasury stock activity
|
|
|
(2 |
) |
|
|
(11 |
) |
|
|
(5 |
) |
Cash dividends
|
|
|
|
|
|
|
(30 |
) |
|
|
(30 |
) |
Other, including book overdrafts
|
|
|
(19 |
) |
|
|
2 |
|
|
|
76 |
|
|
|
|
|
|
|
|
|
|
|
Net cash (used by) provided from financing activities
|
|
|
(51 |
) |
|
|
135 |
|
|
|
128 |
|
Effect of exchange rate changes on cash
|
|
|
(22 |
) |
|
|
28 |
|
|
|
39 |
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and equivalents
|
|
|
113 |
|
|
|
(201 |
) |
|
|
(251 |
) |
Cash and equivalents at beginning of year
|
|
|
752 |
|
|
|
953 |
|
|
|
1,204 |
|
|
|
|
|
|
|
|
|
|
|
Cash and equivalents at end of year
|
|
$ |
865 |
|
|
$ |
752 |
|
|
$ |
953 |
|
|
|
|
|
|
|
|
|
|
|
Cash paid for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$ |
164 |
|
|
$ |
105 |
|
|
$ |
94 |
|
Income taxes paid, net of refunds
|
|
$ |
104 |
|
|
$ |
101 |
|
|
$ |
89 |
|
See accompanying notes to the consolidated financial statements.
62
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA (Continued)
VISTEON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS
(DEFICIT)/EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other | |
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated | |
|
| |
|
|
|
|
|
|
|
|
Additional | |
|
|
|
Other | |
|
|
|
Unearned | |
|
|
|
|
Common | |
|
Stock | |
|
Paid-In | |
|
Accumulated | |
|
Comprehensive | |
|
Treasury | |
|
Stock | |
|
|
|
|
Stock | |
|
Warrants | |
|
Capital | |
|
Deficit | |
|
Income (Loss) | |
|
Stock | |
|
Compensation | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in Millions) | |
Balance at January 1, 2003
|
|
$ |
131 |
|
|
$ |
|
|
|
$ |
3,368 |
|
|
$ |
(345 |
) |
|
$ |
(144 |
) |
|
$ |
(18 |
) |
|
$ |
(15 |
) |
|
$ |
2,977 |
|
Comprehensive income (loss), net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,229 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,229 |
) |
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
163 |
|
|
|
|
|
|
|
|
|
|
|
163 |
|
|
Minimum pension liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(89 |
) |
|
|
|
|
|
|
|
|
|
|
(89 |
) |
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,139 |
) |
Treasury stock activity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2003
|
|
$ |
131 |
|
|
$ |
|
|
|
$ |
3,358 |
|
|
$ |
(1,604 |
) |
|
$ |
(54 |
) |
|
$ |
(1 |
) |
|
$ |
(18 |
) |
|
$ |
1,812 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss), net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,536 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,536 |
) |
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
102 |
|
|
|
|
|
|
|
|
|
|
|
102 |
|
|
Minimum pension liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(52 |
) |
|
|
|
|
|
|
|
|
|
|
(52 |
) |
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,477 |
) |
Treasury stock activity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004
|
|
$ |
131 |
|
|
$ |
|
|
|
$ |
3,380 |
|
|
$ |
(3,170 |
) |
|
$ |
5 |
|
|
$ |
(17 |
) |
|
$ |
(9 |
) |
|
$ |
320 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss), net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(270 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(270 |
) |
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(154 |
) |
|
|
|
|
|
|
|
|
|
|
(154 |
) |
|
Minimum pension liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(64 |
) |
|
|
|
|
|
|
|
|
|
|
(64 |
) |
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21 |
) |
|
|
|
|
|
|
|
|
|
|
(21 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(509 |
) |
Stock warrants
|
|
|
|
|
|
|
127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
127 |
|
Treasury stock activity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
|
(2 |
) |
Shares issued for stock options exercised
|
|
|
|
|
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
3 |
|
Amortization and adjustment of deferred stock-based
compensation, net
|
|
|
|
|
|
|
|
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
(13 |
) |
|
|
8 |
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005
|
|
$ |
131 |
|
|
$ |
127 |
|
|
$ |
3,396 |
|
|
$ |
(3,440 |
) |
|
$ |
(234 |
) |
|
$ |
(27 |
) |
|
$ |
(1 |
) |
|
$ |
(48 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
63
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA (Continued)
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
NOTE 1. |
Description of Business and Company Background |
Visteon Corporation (the Company or
Visteon) is a leading global supplier of automotive
systems, modules and components. The Company sells products
primarily to global vehicle manufacturers, and also sells to the
worldwide aftermarket for replacement and vehicle appearance
enhancement parts. The Company has operations in most geographic
areas, principally including the United States, Mexico, Canada,
Germany, United Kingdom, France, Spain, Portugal, Poland, Korea,
China and India.
The Company became an independent company when Ford Motor
Company and affiliates (including Auto Alliance International, a
joint venture between Ford and Mazda) (Ford or
Ford Motor Company), established the Company as a
wholly-owned subsidiary in January 2000 and subsequently
transferred to the Company the assets and liabilities comprising
Fords automotive components and systems business. Ford
completed its spin-off of the Company on
June 28, 2000. Prior to incorporation, the Company
operated as Fords automotive components and systems
business.
During the year ended December 31, 2005, the Company
and Ford entered into a series of significant agreements,
described as follows:
Funding Agreement
On March 10, 2005, the Company and Ford entered into a
funding agreement, effective as of March 1, 2005,
under which Ford had 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 the Company until after March 31, 2005; (b) to
accelerate the payment terms for certain U.S. payables to
the Company 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 reimbursement by 23.75% for
wages that the Company was obligated to pay Ford with respect to
Visteon-assigned Ford-UAW hourly employees that worked at the
Companys facilities, beginning with the pay period
commencing February 21, 2005; and (d) to release
the Company from its obligation to reimburse Ford for any Ford
profit sharing payments with respect to Visteon-assigned
Ford-UAW hourly employees that accrue in 2005.
On May 24, 2005, the Company and Ford entered into an
amendment to the funding agreement. This amendment further
accelerated the payment terms for certain U.S. payables to
the Company 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.
During the first nine months of 2005, cost of sales were reduced
by $170 million as a result of the funding agreements
impact on labor costs for Visteon-assigned Ford-UAW hourly
employees and the master equipment bailment agreement with Ford.
That reduction was comprised of $175 million in reduced
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.
64
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE 1. Description of Business and Company
Background (Continued)
Master Equipment Bailment Agreement
Also on March 10, 2005, Ford and the Company entered
into a master equipment bailment agreement, effective as of
January 1, 2005, pursuant to which Ford agreed to pay
third-party suppliers for certain machinery, equipment, tooling
and fixtures and related assets to be held by the Company that
were acquired during the term of the agreement, which were
primarily used to produce components for Ford at certain of the
Companys plants in which Visteon-assigned Ford-UAW
employees work. The agreement covered (a) certain capital
expenditure project commitments made by the Company before
January 1, 2005, where less than one-half of the full
amount of the project cost was paid by the Company as of
January 1, 2005; and (b) capital expenditures for
equipment where the expenditure had not yet been committed by
the Company and which was subsequently approved by Ford. To the
extent approved capital expenditures were related to the
modification of existing equipment, title of the modified
equipment transferred to Ford.
On May 24, 2005, the Company and Ford entered into an
amendment of the master equipment bailment agreement, effective
as of May 1, 2005. Under this agreement, Ford agreed
to pay third-party
suppliers for certain machinery, equipment, tooling, fixtures
and related assets not previously covered under the original
March 10, 2005 agreement that were used to produce
certain components for Ford at the remaining Visteon plants in
which Visteon-assigned Ford-UAW employees work. This agreement
was terminated in connection with the closing of the
transactions discussed below.
During the first nine months of 2005, the Company recognized a
charge in cost of sales of approximately $17 million
related to capitalized costs of $27 million for projects
less than one-half complete that were transferred to a
Ford-controlled entity. The loss primarily represents costs
incurred and capitalized by the Company at
December 31, 2004 associated with these projects. Cash
proceeds of $10 million from these sales were received
during the second quarter of 2005.
ACH Transactions
On May 24, 2005, the Company and Ford entered into a
non-binding Memorandum of Understanding (MOU),
setting forth a framework for the transfer of 23 North American
facilities and related assets and liabilities (the
Business) to a Ford-controlled entity. In September
2005, the Company and Ford entered into several definitive
agreements and the Company completed the transfer of the
Business to Automotive Components Holdings, LLC
(ACH), an indirect, wholly-owned subsidiary of the
Company, pursuant to the terms of various agreements described
below.
Following the signing of the MOU and at June 30, 2005,
the Company classified the manufacturing facilities and
associated assets, including inventory, machinery, equipment and
tooling, to be sold as held for sale. The
liabilities to be assumed or forgiven by Ford pursuant to the
ACH Transactions, including employee liabilities and
postemployment benefits payable to Ford, were classified as
Liabilities associated with assets held for sale in
the Companys consolidated balance sheet following the
signing of the MOU. 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 Companys
Automotive Operations recorded a non-cash impairment charge 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 and management estimates.
65
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE 1. Description of Business and Company
Background (Continued)
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 Fords payment to the Company of
approximately $300 million, 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 (together, the
ACH Transactions). The ACH Transactions also
provided for the termination of the Hourly Employee Assignment
Agreement and complete relief to the Company of all liabilities
relating to
Visteon-assigned Ford
UAW hourly employees. Previously deferred amounts relating to
the 2003 forgiveness of debt, accounted for pursuant to
Statement of Financial Accounting Standards No. 15
(SFAS 15), Accounting by Debtors and
Creditors for Troubled Debt Restructurings were released
to income concurrent with the ACH Transactions and have been
included in the Gain on ACH Transactions.
Additionally, on October 1, 2005, Ford acquired from the
Company warrants to acquire 25 million shares of the
Companys common stock and agreed to provide funds to be
used in the Companys further restructuring.
Pursuant to the ACH Transactions, the Company and Ford
terminated certain existing commercial agreements, including the
Funding Agreement, dated as of March 10, 2005, as
amended; the Master Equipment Bailment Agreement, dated as of
March 10, 2005, as amended; the Purchase and Supply
Agreement, dated as of December 19, 2003; and the 2003
Relationship Agreement, dated as of December 19, 2003;
as well as the Amended and Restated Hourly Employee Assignment
Agreement, dated as of April 1, 2000, as amended and
restated as of December 19, 2003.
To effectuate the ACH Transactions, the Company entered into
agreements dated as of September 12, 2005, with Ford
(Master Agreement, Visteon A Transaction Agreement
and Visteon B Purchase Agreement) and with
Automotive Components Holdings, Inc. (Holdings)
(Contribution Agreement). In addition, Visteon entered into the
following agreements in connection with the closing of the ACH
Transactions.
|
|
|
Warrant and Stockholder Agreement. On
October 1, 2005, the Company issued to Ford a warrant
(the Warrant) to purchase 25 million
shares of the Companys common stock at an exercise price
equal to $6.90 per share. The stockholder agreement
provides for certain registration rights with respect to the
shares of common stock underlying the Warrant and contains
restrictions on the transfer of the Warrant and the underlying
shares of common stock. |
|
|
Escrow Agreement. Pursuant to the Escrow Agreement, dated
as of October 1, 2005 (the Escrow
Agreement), among the Company, Ford and Deutsche Bank
Trust Company Americas, as escrow agent, Ford paid
$400 million into an escrow account for use by the Company
to restructure its businesses. The Escrow Agreement provides
that the Company will be reimbursed from the escrow account for
the first $250 million of reimbursable restructuring costs
as defined in the Escrow Agreement, and up to one half of the
next $300 million of such costs. In addition, any residual
amounts in the escrow account after December 31, 2012 would
be paid to the Company, except in the event of a change of
control of the Company as defined in the Escrow Agreement,
and in which event residual amounts, if any remain, would be
paid to Ford. |
66
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE 1. Description of Business and Company
Background (Continued)
|
|
|
Reimbursement Agreement. Pursuant to the Reimbursement
Agreement, dated as of October 1, 2005 (the
Reimbursement Agreement), between the Company and
Ford, Ford has agreed to reimburse the Company for up to
$150 million of separation costs associated with those
Company salaried employees who are leased to ACH, and whose
services are no longer required by ACH or a subsequent buyer
(Employee Restructuring Costs). The Reimbursement
Agreement provides that Ford will reimburse the Company for the
first $50 million of Employee Restructuring Costs, and up
to one half of the next $200 million of such costs. In
addition, any unused amounts under the Reimbursement Agreement
as of the earlier of December 31, 2009 or the date on which
there are no longer any Company salaried employees leased to
ACH, would be transferred to the escrow account established
pursuant to the Escrow Agreement. |
|
|
Master Services Agreement. Pursuant to the Master
Services Agreement, dated as of September 30, 2005
(the Master Services Agreement), between the Company
and ACH, the Company will provide certain information technology
and other transitional services (e.g., human resources and
accounting services) to ACH. The services will be provided at a
rate approximately equal to the Companys cost until such
time as the services are no longer required by ACH but not later
than December 31, 2008. ACH may elect to continue to obtain
services for up to an additional 12 month period at cost
plus a 5% mark-up. In the event that a component of the Business
is sold to a third party, services will be provided by the
Company for up to 24 months after each such sale, as
requested by the buyer, on additional terms. Subject to certain
limitations, ACH may terminate the Master Services Agreement
prior to the expiration of its term upon 30 days prior
written notice to the Company. |
|
|
Visteon Salaried Employee Lease Agreement. Pursuant to
the Visteon Salaried Employee Lease Agreement, effective as of
October 1, 2005 (the Salaried Employee Lease
Agreement), between the Company and ACH, the Company will
provide ACH with the services of Company salaried employees to
enable ACH to continue to conduct the Business. The Company will
lease salaried employees and provide agency employees to ACH at
a rate approximately equal to the Companys cost until
December 31, 2009, unless the parties agree to an earlier
termination date. The term may be extended at ACHs option
for an additional 12 month period ending December 31,
2010, during which period ACH will reimburse the Company for its
costs plus a mark-up of
5% (excluding certain taxes). Upon a sale or transfer of
all or a part of the Business, the Company, ACH and the buyer
will mutually agree upon terms for transitioning leased
employees to the buyer, and the Company will provide human
resource services to the buyer for up to 24 months pursuant
to the Master Services Agreement, or under similar terms and
conditions after the termination of that agreement. Leased
employees who do not receive offers of comparable employment
from the buyer will be eligible for severance benefits, certain
costs of which may be reimbursed to the Company by Ford under
the terms of the Reimbursement Agreement. |
67
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE 1. Description of Business and Company
Background (Continued)
|
|
|
Visteon Hourly Employee Lease Agreement. Pursuant to the
Visteon Hourly Employee Lease Agreement, effective as of
October 1, 2005, between the Company and ACH, the
Company will provide ACH with the services of (a) any new
hourly employees hired under the terms of the Master Visteon-UAW
Collective Bargaining Agreement dated June 29, 2000
and the Supplemental Agreement dated as of May 4, 2004
and (b) hourly employees covered by the UAW
Local #1216-Visteon
Corporation Regional Assembly and Manufacturing LLC, Bellevue
Plant, Labor Agreement. The services will be provided at a rate
approximately equal to the Companys cost until the
termination of employment of all of the leased employees or
earlier agreement of the parties. In the event of a sale or
transfer of all or part of the Business to a third party, the
Company and ACH will agree on the disposition of the leased
employees, subject to UAW consent, and the Company will provide
human resource services to the buyer under the terms of the
Master Services Agreement, described above, for up to
24 months. |
|
|
Salaried Employee Lease Agreement. On
October 1, 2005, the Company and Ford entered into a
salaried employee lease agreement that is substantially similar
to the Salaried Employee Lease Agreement described above,
providing for the lease to Ford of certain salaried employees
employed at, or principally supporting, the plants located in
Rawsonville, Michigan and Sterling Heights, Michigan from the
date each such plant is transferred by ACH to Ford until
January 1, 2006. |
|
|
Hourly Employee Conversion Agreement. Pursuant to the
Hourly Employee Conversion Agreement, dated as of
October 1, 2005, between the Company and Ford, the
parties have transferred Company hourly employees subject to the
Companys collective bargaining agreement with the UAW to
Ford under the terms of the Master Ford-UAW Collective
Bargaining Agreement. |
|
|
Visteon Salaried Employee Transition Agreement. The
Visteon Salaried Employee Transition Agreement, dated as of
October 1, 2005 (the Employee Transition
Agreement), between the Company and Ford, provides that,
in the event that ACH transfers its plants located in
Rawsonville, Michigan and/or Sterling Heights, Michigan to Ford,
the salaried employees employed at such plants or principally
supporting those plants will become Ford salaried employees.
These plants were transferred by ACH to Ford effective
January 1, 2006. |
|
|
Employee Transition Agreement Amendment. On
October 1, 2005, the Company and Ford entered into an
amendment to the Amended and Restated Employee Transition
Agreement, dated as of December 19, 2003, pursuant to
which Ford released the Company from its obligations to
reimburse Ford for the cost of providing postretirement employee
health and life benefits, and its pre-funding obligations with
respect to such benefits associated with certain employees who
are eligible or who may become eligible to retire under the Ford
General Retirement Plan, and Ford has agreed to reimburse the
Company for one half the cost of certain OPEB and pension
expenses associated with leased employees who retire as a result
of a sale, closure or exit of an ACH operation. |
|
|
Purchase and Supply Agreements. On
September 30, 2005, the Company entered into two
Purchase and Supply Agreements with ACH which set forth the
supply obligations, pricing and related matters for certain
parts, components and systems that are manufactured by one party
and supplied to the other. On October 1, 2005, the
Company entered into a Purchase and Supply Agreement, dated as
of October 1, 2005, with Ford which sets forth the
supply obligations, pricing and related matters for certain
parts, components and systems that are manufactured by the
Company and supplied to Ford. |
68
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE 1. Description of Business and Company
Background (Continued)
|
|
|
IP and Software Agreements. On
September 30, 2005, the Company entered into the
Intellectual Property Contribution Agreement with Visteon Global
Technologies, Inc. (VGTI), Holdings and ACH, and the
Software License and Contribution Agreement with VGTI and
Holdings. On October 1, 2005, the Company entered into
an Intellectual Property License Agreement with VGTI and Ford.
These agreements allocate certain intellectual property rights
among the parties associated with transferring the Business to
ACH. |
Pursuant to the ACH Transactions, the Company and Ford
terminated certain existing commercial agreements, including the
Funding Agreement, dated as of March 10, 2005, as
amended; the Master Equipment Bailment Agreement, dated as of
March 10, 2005, as amended; the Purchase and Supply
Agreement, dated as of December 19, 2003; and the 2003
Relationship Agreement, dated as of December 19, 2003;
as well as the Amended and Restated Hourly Employee Assignment
Agreement, dated as of April 1, 2000, as amended and
restated as of December 19, 2003.
The following table summarizes the impact of the ACH
Transactions as of the October 1, 2005 transaction
closing date:
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets, Liabilities | |
|
Gain on ACH | |
|
|
and Other | |
|
Transactions For | |
|
|
Consideration as | |
|
the Year Ended | |
|
|
of October 1, 2005 | |
|
December 31, 2005 | |
|
|
| |
|
| |
|
|
(Dollars in Millions) | |
Assets transferred to ACH
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
$ |
(299 |
) |
|
|
|
|
|
Property and equipment
|
|
|
(578 |
) |
|
|
|
|
|
Prepaid and other assets
|
|
|
(75 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(952 |
) |
Proceeds from divestiture of ACH
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
299 |
|
|
|
|
|
|
Forgiveness of indebtedness:
|
|
|
|
|
|
|
|
|
|
|
OPEB liabilities
|
|
|
2,164 |
|
|
|
|
|
|
|
Employee fringe benefits
|
|
|
260 |
|
|
|
|
|
|
|
Other liabilities
|
|
|
241 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,964 |
|
Stock warrants issued to Ford
|
|
|
(127 |
) |
|
|
|
|
Other consideration
|
|
|
(53 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(180 |
) |
|
|
|
|
|
|
|
Gain on ACH Transactions
|
|
|
|
|
|
$ |
1,832 |
|
|
|
|
|
|
|
|
69
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE 1. Description of Business and Company
Background (Continued)
In connection with the previously discussed arrangements with
Ford, the Company continues to transact a significant amount of
ongoing commercial activity with Ford. Product sales, services
revenues, accounts receivable and postretirement employee
benefits due to Ford comprise certain significant account
balances arising from ongoing commercial relations with Ford and
are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(Dollars in Millions) | |
Product sales
|
|
$ |
10,395 |
|
|
$ |
13,015 |
|
|
$ |
13,475 |
|
Services revenues
|
|
$ |
164 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(Dollars in Millions) | |
Accounts receivable, net
|
|
$ |
618 |
|
|
$ |
1,255 |
|
|
$ |
1,175 |
|
Postretirement employee benefits
|
|
$ |
156 |
|
|
$ |
2,179 |
|
|
$ |
2,090 |
|
|
|
NOTE 2. |
Basis of Presentation and Summary of Significant Accounting
Policies |
The Companys financial statements have been prepared in
conformity with accounting principles generally accepted in the
United States (GAAP), consistently applied.
Principles of Consolidation: The consolidated financial
statements include the accounts of the Company and all
subsidiaries that are more than 50% owned and over which the
Company exercises control. Investments in affiliates of 50% or
less but greater than 20% are accounted for using the equity
method. The consolidated financial statements also include the
accounts of certain entities in which the Company holds a
controlling interest based on exposure to economic risks and
potential rewards (variable interests) for which it is the
primary beneficiary.
In connection with Financial Accounting Standards Board
Interpretation No. 46 (revised)
(FIN 46(R)), Consolidation of Variable
Interest Entities, the Company consolidates certain
variable interest entities, as follows:
|
|
|
From June 30, 2002, a variable interest entity owned
by an affiliate of a bank is included in the Companys
consolidated financial statements. This entity was established
in early 2002 to build a leased facility for the Company to
centralize customer support functions, research and development
and administrative operations. Construction of the facility was
substantially completed in 2004. |
|
|
GCM/ Visteon Automotive Systems, LLC and MIG-Visteon Automotive
Systems, LLC are joint ventures each 49% owned by the Company or
its subsidiaries, that supply integrated cockpit modules and
systems. Consolidation of these entities was based on an
assessment of the amount of equity investment at risk, the
subordinated financial support provided by the Company, and that
substantially all of the joint ventures operations are
performed on behalf of the Company. |
The effect of consolidation of variable interest entities on the
Companys results of operations or financial position as of
December 31, 2005 was not significant as substantially
all of the joint ventures liabilities and costs are
related to activity with the Company. As of
December 31, 2005, these variable interest entities
have total assets of $310 million and total liabilities of
$346 million.
70
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE 2. Basis of Presentation and Summary of
Significant Accounting Policies (Continued)
Vitro Flex, S.A. de C.V. (Vitro Flex), a Mexican
corporation, is a joint venture 38% owned by the Company or its
subsidiaries. Vitro Flex manufactures and supplies tempered and
laminated glass for use in automotive vehicles. Vitro Flex is
considered a variable interest entity, however the Company is
not the primary beneficiary of this entity and does not
consolidate this entity. The Companys equity investment in
Vitro Flex as of December 31, 2005 approximates
$19 million.
Reclassifications: Certain prior year amounts have been
reclassified to conform to current year presentation.
Use of Estimates: The preparation of the financial
statements in conformity with GAAP requires management to make
estimates, judgments and assumptions that affect amounts
reported herein. Management believes that such estimates,
judgments and assumptions are reasonable and appropriate.
However, due to the inherent uncertainty involved, actual
results may differ from those based upon managements
estimates, judgments and assumptions.
Foreign Currency Translation: Assets and liabilities of
the Companys
non-U.S. businesses
generally are translated to U.S. Dollars at
end-of-period exchange
rates. The effects of this translation for the Company are
reported in other comprehensive income. Remeasurement of assets
and liabilities of the Companys
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 the Companys
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
gains of $2 million in 2005 and losses of $4 million
in 2004 resulting from the remeasurement of certain deferred
foreign tax liabilities are included within income taxes. Net
transaction gains and losses, as described above, decreased net
loss by $9 million and $11 million in 2005 and 2004,
respectively, and increased net loss by $26 million in 2003.
Revenue Recognition: Sales are recognized when there is
evidence of a sales agreement, the delivery of goods or services
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 the Companys customer
has directed the sourcing of certain raw materials or components
used in the manufacture of the final product.
Cash and Equivalents: The Company 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.
Accounts Receivable and Allowance for Doubtful Accounts:
Accounts receivable are stated at historical value, which
approximates fair value. The Company does not generally require
collateral for its accounts receivable.
71
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE 2. Basis of Presentation and Summary of
Significant Accounting Policies (Continued)
Accounts receivable are reduced by an allowance for amounts that
may be uncollectible in the future. This estimated allowance is
determined by considering factors such as length of time
accounts are past due, historical experience of write-offs, and
customers financial condition. If not reserved through
specific examination procedures, the Companys general
policy for uncollectible accounts is to reserve based upon the
aging categories of accounts receivable. Past due status is
based upon the invoice date of the original amounts outstanding.
Included in selling, general and administrative
(SG&A) expenses are amounts for estimated
uncollectible accounts receivable of $45 million,
$22 million and $24 million for the years ended
December 31, 2005, 2004 and 2003. The allowance for
doubtful accounts was $77 million and $44 million at
December 31, 2005 and 2004, respectively.
Inventories: Inventories are stated at the lower of cost,
determined on a
first-in, first-out
(FIFO) basis, or market. Inventories are reduced by
an allowance for excess and obsolete inventories based on
managements review of on-hand inventories compared to
historical and estimated future sales and usage.
Product Tooling: Product tooling is special purpose
tooling that is limited to the manufacture of a specific part or
parts of the same basic design. Product tooling includes molds,
dies and other tools used in production of such parts. Emerging
Issue Task Force Issue No. 99-5, Accounting for
Pre-Production Costs
Related to Long-Term Supply Arrangements generally
requires that non-reimbursable design and development costs for
products to be sold under long-term supply arrangements be
expensed as incurred and costs incurred for molds, dies and
other tools that will be owned by the Company and used in
producing the products under long-term supply arrangements be
capitalized and amortized over the shorter of the expected
useful life of the assets or the term of the supply arrangement.
Unbilled receivables related to production tools in progress,
which will not be owned by the Company and for which there is a
contractual agreement for reimbursement from the customer, were
approximately $68 million and $135 million at
December 31, 2005 and 2004, respectively. Tooling
owned by the Company is capitalized as property and equipment,
and amortized to cost of sales over its estimated economic life,
generally not exceeding six years.
Restructuring: The Company defines restructuring expense
to include costs directly associated with exit or disposal
activities accounted for in accordance with Statement of
Financial Accounting Standards No. 146
(SFAS 146), Accounting for Costs
Associated with Exit or Disposal Activities, employee
severance costs incurred as a result of an exit or disposal
activity or a fundamental realignment accounted for in
accordance with Statement of Financial Accounting Standards
No. 88 (SFAS 88), Employers
Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits and Statement
of Financial Accounting Standards No. 112
(SFAS 112), Employers Accounting
for Postemployment Benefits and pension and other
postretirement employee benefit costs incurred as a result of an
exit or disposal activity or a fundamental realignment accounted
for in accordance with Statement of Financial Accounting
Standard No. 87 (SFAS 87),
Employers Accounting for Pensions and
Statement of Accounting Standard No. 106
(SFAS 106), Employers Accounting
for Postretirement Benefits Other than Pensions.
Long-Lived Assets and Certain Identifiable Intangibles:
Long-lived assets, such as property and equipment and
definite-lived intangible assets, are stated at cost or fair
value for impaired assets. Depreciation and amortization is
computed principally by the straight-line method for financial
reporting purposes and by accelerated methods for income tax
purposes in certain jurisdictions.
72
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE 2. Basis of Presentation and Summary of
Significant Accounting Policies (Continued)
Asset impairment charges are recorded for long-lived assets and
intangible assets subject to amortization when events and
circumstances indicate that such assets may be impaired and the
undiscounted net cash flows estimated to be generated by those
assets are less than their carrying amounts. If estimated future
undiscounted cash flows are not sufficient to recover the
carrying value of the assets, an impairment charge is recorded
for the amount by which the carrying value of the assets exceed
its fair value. Fair value is determined using appraisals,
management estimates or discounted cash flow calculations. Asset
impairment charges of $1,511 million, $314 million and
$436 million were recorded for the years ended
December 31, 2005, 2004 and 2003, respectively.
Capitalized Software Costs: Certain costs incurred in the
acquisition or development of software for internal use are
capitalized in accordance with Statement of Position
No. 98-1 Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use.
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 approximately $112 million and $114 million at
December 31, 2005 and 2004, respectively. Related
amortization expense was approximately $39 million,
$38 million and $39 million for the years ended
December 31, 2005, 2004 and 2003, respectively.
Amortization expense of approximately $39 million is
expected for 2006, 2007 and 2008, and is expected to
decrease to $26 million for 2009 and 2010.
Pensions and Other Postretirement Employee Benefits:
Pensions and other postretirement employee benefit costs and
related liabilities and assets are dependent upon assumptions
used in calculating such amounts. These assumptions include
discount rates, health care cost trends, expected returns on
plan assets, and other factors. In accordance with GAAP, actual
results that differ from the assumptions used are accumulated
and amortized over future periods, and accordingly, generally
affect recognized expense and the recorded obligation in future
periods.
Product Warranty: The Company accrues for warranty
obligations for products sold based on management estimates,
with support from its sales, engineering, quality and legal
functions, of the amount that eventually will be required to
settle such obligations. This accrual is based on several
factors, including contractual arrangements, past experience,
current claims, production changes, industry developments and
various other considerations.
Product Recall: The Company 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 the Companys determination of the
potential for such actions. The Company accrues for recall
claims for products sold based on management estimates, with
support from the Companys engineering, quality and legal
functions. Amounts accrued are based upon managements best
estimate of the amount that will ultimately be required to
settle such claims.
Environmental Costs: Costs related to environmental
assessments and remediation efforts at operating facilities,
previously owned or operated facilities, and Superfund or other
waste site locations are accrued when it is probable that a
liability has been incurred and the amount of that liability can
be reasonably estimated. Estimated costs are recorded at
undiscounted amounts, based on experience and assessments, and
are regularly evaluated. The liabilities are recorded in other
current liabilities and other long-term liabilities in the
Companys consolidated balance sheets.
Debt Issuance Costs: The costs related to the issuance of
long-term debt are deferred and amortized into interest expense
over the life of each debt issue. Deferred amounts associated
with debt extinguished prior to maturity are expensed.
73
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE 2. Basis of Presentation and Summary of
Significant Accounting Policies (Continued)
Other Costs: Advertising and sales promotion costs,
repair and maintenance costs, research and development costs,
and pre-production operating costs are expensed as incurred.
Research and development expenses include salary and related
employee benefits, contractor fees, information technology,
occupancy, telecommunications and depreciation. Advertising
costs were $12 million in 2005, $13 million in 2004
and $15 million in 2003. Research and development costs
were $804 million in 2005, $896 million in 2004 and
$913 million in 2003. Shipping and handling costs are
recorded in the Companys statements of operations as cost
of sales.
Income Taxes: The Company accounts for income taxes in
accordance with SFAS No. 109, Accounting for
Income Taxes. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between financial statement carrying amounts of
existing assets and liabilities and their respective tax bases
and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.
The Company records a valuation allowance on deferred tax assets
by tax jurisdiction when it is more likely than not that such
assets will not be realized. Management judgment is required in
determining the Companys valuation allowance on deferred
tax assets. Deferred taxes have been provided for the net effect
of repatriating earnings from consolidated foreign subsidiaries.
Related-Party Transactions: A former member of the
Companys Board of Directors was the Chief Executive
Officer of a supplier of contract staffing services to the
Company. The Companys payments to this supplier were
approximately $81 million in 2003. This individual ceased
to be an employee or officer of this supplier in December 2003,
and ceased to be a director in 2004.
Derivative Financial Instruments: The Company uses
derivative financial instruments, including forward contracts,
swaps and options, to manage exposures to changes in commodity
prices, exchange rates and interest rates. All derivative
financial instruments are classified as held for purposes
other than trading. The Companys policy specifically
prohibits the use of derivatives for speculative purposes.
Stock-Based Compensation: Effective
January 1, 2003 the Company 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 the 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, the
Company measures compensation cost using the intrinsic value
method.
74
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE 2. Basis of Presentation and Summary of
Significant Accounting Policies (Continued)
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, the
Companys reported net loss and loss per share would have
changed to the pro forma amounts indicated below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(Dollars in Millions, Except Per | |
|
|
Share Amounts) | |
Net loss, as reported
|
|
$ |
(270 |
) |
|
$ |
(1,536 |
) |
|
$ |
(1,229 |
) |
Add: Stock-based employee compensation expense included in
reported net loss, net of related tax effects
|
|
|
20 |
|
|
|
18 |
|
|
|
9 |
|
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards, net of
related tax effects
|
|
|
(21 |
) |
|
|
(27 |
) |
|
|
(18 |
) |
|
|
|
|
|
|
|
|
|
|
Pro forma net loss
|
|
$ |
(271 |
) |
|
$ |
(1,545 |
) |
|
$ |
(1,238 |
) |
|
|
|
|
|
|
|
|
|
|
Net loss per share
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$ |
(2.14 |
) |
|
$ |
(12.26 |
) |
|
$ |
(9.77 |
) |
Pro forma:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$ |
(2.15 |
) |
|
$ |
(12.33 |
) |
|
$ |
(9.84 |
) |
Recent Accounting Pronouncements: In March 2005, the FASB
issued Interpretation No. 47 (FIN 47),
Accounting for Conditional Asset Retirement
Obligations, an interpretation of Statement of Financial
Accounting Standards No. 143 (SFAS 143),
Accounting for Asset Retirement Obligations.
FIN 47 clarifies that the term conditional asset
retirement obligation as used in SFAS 143 represents
a legal obligation to perform asset retirement activities in
which the timing and/or method of settlement are conditional on
a future event. FIN 47 requires an entity to recognize a
liability for the fair value of a conditional asset retirement
obligation when incurred if the liabilitys fair value can
be reasonably estimated. The Company has identified certain
conditional asset retirement obligations primarily related to
asbestos abatement costs. The Company adopted the provisions of
FIN 47 effective December 31, 2005 and the impact
was not material to the Companys financial position or
results of operations.
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. SFAS 123(R) is required to be
adopted as of the beginning of the first annual interim period
that begins after June 15, 2005. The Company is
currently evaluating the impact of the requirements of
SFAS 123(R) on its consolidated financial statements.
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. SFAS 151 is effective for
inventory costs incurred during fiscal years beginning after
June 15, 2005. The Company has not yet determined the
effect the adoption of SFAS 151 will have on either its
results of operations or financial position.
75
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 3. |
Restructuring Activities |
The Company has undertaken various restructuring activities to
achieve strategic objectives, including the reduction of
operating costs. Restructuring activities include, but are not
limited to, plant closures, production relocation,
administrative realignment and consolidation of available
capacity and resources.
Management expects to finance restructuring programs through
cash reimbursement from an escrow account established pursuant
to the ACH Transactions, from cash generated from its ongoing
operations, or through cash available under its existing debt
agreements, subject to the terms of applicable covenants.
Management does not expect that the execution of these programs
will have a significant adverse impact on its liquidity position.
Escrow Agreement
Pursuant to the Escrow Agreement, dated as of
October 1, 2005, among the Company, Ford and Deutsche
Bank Trust Company Americas, Ford paid $400 million into an
escrow account for use by the Company to restructure its
businesses. The Escrow Agreement provides that the Company will
be reimbursed from the escrow account for the first
$250 million of reimbursable restructuring costs, as
defined in the Escrow Agreement, and up to one half of the next
$300 million of such costs. Through
December 31, 2005, the Company recorded reimbursements
of $51 million and had received payment of $24 million
in reimbursement from the escrow account. The $51 million
is included in operating income in the consolidated statement of
operations, while the unpaid amount of $27 million was
included in accounts receivable in the consolidated balance
sheet as of December 31, 2005.
76
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE 3. Restructuring Activities
(Continued)
Restructuring Reserves
The following is a summary of the Companys consolidated
restructuring reserves and related activity for the years ended
December 31, 2005, 2004 and 2003, respectively.
Substantially all of the Companys restructuring expenses
are related to severance and related employee costs. Pension and
OPEB curtailment costs are considered utilized and are
transferred to the appropriate liability amounts in the period
accrued.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive | |
|
Glass | |
|
|
|
|
Operations | |
|
Operations | |
|
Total | |
|
|
| |
|
| |
|
| |
|
|
(Dollars in Millions) | |
December 31, 2002 reserve balances
|
|
$ |
36 |
|
|
$ |
1 |
|
|
$ |
37 |
|
|
Expenses
|
|
|
308 |
|
|
|
1 |
|
|
|
309 |
|
|
Adjustments
|
|
|
(8 |
) |
|
|
(1 |
) |
|
|
(9 |
) |
|
Utilization
|
|
|
(152 |
) |
|
|
(1 |
) |
|
|
(153 |
) |
|
Foreign exchange translation
|
|
|
5 |
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
December 31, 2003 reserve balances
|
|
|
189 |
|
|
|
|
|
|
|
189 |
|
|
Expenses
|
|
|
96 |
|
|
|
4 |
|
|
|
100 |
|
|
Adjustments
|
|
|
(18 |
) |
|
|
|
|
|
|
(18 |
) |
|
Utilization
|
|
|
(149 |
) |
|
|
(1 |
) |
|
|
(150 |
) |
|
Foreign exchange translation
|
|
|
1 |
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
December 31, 2004 reserve balances
|
|
|
119 |
|
|
|
3 |
|
|
|
122 |
|
|
Expenses
|
|
|
48 |
|
|
|
|
|
|
|
48 |
|
|
Adjustments
|
|
|
(63 |
) |
|
|
|
|
|
|
(63 |
) |
|
Utilization
|
|
|
(90 |
) |
|
|
(3 |
) |
|
|
(93 |
) |
|
Foreign exchange translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005 reserve balances
|
|
$ |
14 |
|
|
$ |
|
|
|
$ |
14 |
|
|
|
|
|
|
|
|
|
|
|
The restructuring reserve balance of $14 million at
December 31, 2005 is classified in current accrued
liabilities on the consolidated balance sheet. The
December 31, 2004, reserve balance of
$122 million includes $71 million which is classified
as current accrued liabilities and $51 million which is
classified as long-term other liabilities on the consolidated
balance sheet. The Company currently anticipates that the
restructuring activities to which all of the above charges
relate will be substantially completed by the end of 2006.
Utilization for 2005 of $93 million includes
$66 million mainly for severance pay and $27 million
related to pension and other postretirement employee benefits.
Utilization for 2004 of $150 million includes
$129 million for severance and $21 million related to
pension and other postretirement employee benefits. Utilization
for 2003 of $153 million includes $127 million for
severance pay and $26 million related to pension and other
postretirement employee benefits.
Estimates of restructuring charges are based on information
available at the time such charges are recorded. In general,
management anticipates that restructuring activities will be
completed within a timeframe such that significant changes to
the plan are not likely. Due to the inherent uncertainty
involved in estimating restructuring expenses, actual amounts
paid for such activities may differ from amounts initially
estimated. The Company adjusted approximately $63 million,
$18 million and $9 million of previously recorded
reserves in 2005, 2004 and 2003, respectively.
77
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE 3. Restructuring Activities
(Continued)
2005 Restructuring Actions During 2005,
significant restructuring activities included the following
actions:
|
|
|
$13 million for severance and employee related costs
associated with the closure of certain North American Automotive
Operations facilities located in the U.S., Mexico and Puerto
Rico. The Company recorded a $7 million OPEB curtailment
loss reflecting a reduction of expected years of future service
for plan participants. The Company also recorded $6 million
of severance charges which affected approximately 100 salaried
employees and 400 hourly employees. Remaining reserves of
approximately $6 million related to this program are
recorded in other current liabilities as of
December 31, 2005. |
|
|
$14 million of severance and employee related costs
associated with programs offered at various Mexican and European
facilities affecting approximately 700 salaried and hourly
positions. Remaining reserves of approximately $8 million
related to these programs are recorded in other current
liabilities as of December 31, 2005. |
|
|
$13 million for a pension curtailment loss related to a
non-U.S. pension
plan. The curtailment loss reflects a reduction of expected
future years of service for plan participants expected to
transfer employment from a Company manufacturing facility to a
Ford facility. |
|
|
$7 million related to the continuation of a voluntary
termination incentive program offered during the fourth quarter
of 2004 to eligible U.S. salaried employees. 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 voluntarily
elected to participate in this program, including 35 employees
during the first quarter of 2005. As of
December 31, 2005, substantially all of the employees
had terminated their employment. |
|
|
Previously recorded restructuring reserves of $61 million
were adjusted as the Company was relieved, pursuant to the ACH
Transactions, from fulfilling the remaining obligations to Ford
for the transfer of seat production from the Companys
Chesterfield, Michigan operation to another supplier. |
2004 Restructuring Actions During 2004,
significant restructuring activities included the following
actions:
|
|
|
Severance costs of $51 million related to a voluntary
termination incentive program offered to eligible
U.S. salaried employees. Terms of the program required the
effective termination date to be no later than
March 31, 2005, unless otherwise mutually agreed. As
of December 31, 2004, 374 employees voluntarily elected to
participate in this program. As of June 30, 2005,
substantially all of the employees had terminated their
employment. Reserves related to this activity of approximately
$34 million were outstanding as of
December 31, 2004. |
|
|
European plan for growth charges are comprised of
$13 million of severance and employee-related costs for the
separation of approximately 50 hourly employees located at
the Companys plants in Europe through the continuation of
a voluntary retirement and separation program. Reserves related
to this activity of approximately $6 million were
outstanding as of December 31, 2004. |
78
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE 3. Restructuring Activities
(Continued)
|
|
|
The Company offered an early retirement incentive to eligible
Visteon-assigned Ford-UAW employees to voluntarily retire or to
return to a Ford facility. Approximately 500 employees elected
to retire early at a cost of $18 million and approximately
210 employees have agreed to return to a Ford facility at a cost
of $7 million. As of December 31, 2004, substantially
all of the employees had terminated their employment. |
|
|
$11 million of severance related to the involuntary
separation of approximately 200 employees as a result of the
closure of the Companys La Verpilliere, France,
manufacturing facility. This program was substantially completed
as of December 31, 2004. |
|
|
Adjustment of previously recorded liabilities totaling
$15 million related to the Chesterfield, MI agreement
reached with Ford during 2003. A determination of the net costs
that the Company was responsible to reimburse Ford under this
agreement was completed pursuant to a final actuarial valuation
received in the fourth quarter of 2004. The final actuarially
determined obligation resulted in a $15 million reduction
in previously established accruals. |
2003 Restructuring Actions During 2003,
significant restructuring activities included the following
actions:
|
|
|
$88 million of severance and employee-related costs
associated with the Companys European plan for growth.
These restructuring charges are related to the separation of
approximately 960 hourly and salaried employees at various
plants in Europe, primarily located in Germany and the U.K.
Reserves related to this activity of approximately
$30 million and $2 million were outstanding as of
December 31, 2003 and 2004, respectively. |
|
|
$37 million comprised of severance and employee-related
costs for an involuntary program to separate approximately
365 hourly and salaried employees in the U.S. and Mexico.
Reserves related to this activity of approximately
$12 million were outstanding as of
December 31, 2003. |
|
|
$174 million of severance and employee-related costs
pursuant to an agreement with Ford to transfer seat production
located in Chesterfield, Michigan, to another supplier. Reserves
related to this activity of approximately $144 million and
$67 million were outstanding as of
December 31, 2003 and 2004, respectively. |
|
|
Adjustment of previously recorded restructuring liabilities of
$9 million as a result of lower actual costs to complete
the closure of the Markham, Ontario facility than originally
estimated. |
|
|
NOTE 4. |
Impairment of Long-Lived Assets |
Statement of Financial Accounting Standards No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets (SFAS 144) requires that
long-lived assets and intangible assets subject to amortization
are reviewed for impairment when certain indicators of
impairment are present. Impairment exists if estimated future
undiscounted cash flows associated with long-lived assets are
not sufficient to recover the carrying value of such assets.
Generally, when impairment exists the long-lived assets are
adjusted to their respective fair values.
79
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE 4. Impairment of Long-Lived Assets
(Continued)
In assessing long-lived assets for an impairment loss, assets
are grouped with other assets and liabilities at the lowest
level for which identifiable cash flows are largely independent
of the cash flows of other assets and liabilities. Asset
grouping requires a significant amount of judgment. Accordingly,
facts and circumstances will influence how asset groups are
determined for impairment testing. In assessing long-lived
assets for impairment, management considered the Companys
product line portfolio, customers and related commercial
agreements, labor agreements and other factors in grouping
assets and liabilities at the lowest level for which
identifiable cash flows are largely independent. The Company
considers projected future undiscounted cash flows, trends and
other factors in its assessment of whether impairment conditions
exist. While the Company believes that its estimates of future
cash flows are reasonable, different assumptions regarding such
factors as future automotive production volumes, customer
pricing, economics and productivity and cost saving initiatives,
could significantly affect its estimates. In determining fair
value of long-lived assets, management uses appraisals,
management estimates or discounted cash flow calculations.
Based on the criteria of SFAS 144 the Company recorded
asset impairment charges of $1,511 million,
$314 million and $436 million for the years ended
December 31, 2005, 2004 and 2003, respectively,
to adjust certain long-lived assets to their estimated fair
values.
2005 Impairment Charges
During the fourth quarter of 2005 and following the closing of
the ACH Transactions on October 1, 2005, the
Companys Automotive Operations recorded an impairment
charge of $335 million to reduce the net book value of
certain long-lived assets considered to be held for
use to their estimated fair value. The impairment
assessment was performed pursuant to impairment indicators
including lower than anticipated current and near term future
production volumes and the related impact on the Companys
current and projected operating results and cash flows.
Following the signing of the MOU and at June 30, 2005,
the Company classified the manufacturing facilities and
associated assets, including inventory, machinery, equipment and
tooling to be sold as held for sale. The liabilities
to be assumed or forgiven by Ford pursuant to the ACH
Transactions, including employee liabilities and postretirement
employee benefits payable to Ford were classified as
Liabilities associated with assets held for sale in
the Companys consolidated balance sheet following the
signing of the MOU. 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 Companys
Automotive Operations recorded a non-cash impairment charge of
$920 million to write-down those assets considered
held for sale to their aggregate estimated fair
value less cost to sell.
During the second quarter of 2005, the Automotive Operations
recorded an impairment charge of $256 million to reduce the
net book value of certain long-lived assets considered to be
held for use to their estimated fair value. The
impairment assessment was performed pursuant to impairment
indicators including lower than anticipated current and near
term future production volumes and the related impact on the
Companys projected operating results and cash flows.
80
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE 4. Impairment of Long-Lived Assets
(Continued)
2004 Impairment Charges
During the third quarter of 2004, the Automotive Operations
recorded an impairment charge of $314 million to reduce the
net book value of certain long-lived assets to their estimated
fair value. This impairment was based on an assessment by
product line asset group of the recoverability of the
Companys long-lived assets. The assessment was performed
based upon impairment indicators including the impact of lower
than anticipated current and near term future Ford North
American production volumes and the related impact on the
Companys projected operating results and cash flows.
2003 Impairment Charges
During the fourth quarter of 2003, the Automotive Operations
recorded an impairment charge of $407 million to reduce the
net book value of certain long-lived assets to their estimated
fair value. This impairment assessment was based upon impairment
indicators including a decrease in the production levels of the
Companys major customers and the anticipated impact of the
Ford 2003 agreements.
The Companys Automotive Operations recorded an impairment
charge of $25 million related to certain seating-related
fixed assets, for which an agreement was reached with Ford to
transfer production located in Chesterfield, Michigan, to
another supplier. The Company measured the impairment loss
associated with these assets by comparing the carrying value of
these fixed assets to the expected proceeds from disposal of the
assets after completion of remaining production commitments.
The Companys Automotive Operations also recorded an
impairment charge of $4 million related to certain coiled
spring and stamping fixed assets located at the Companys
Monroe, Michigan, plant. Production activities were discontinued
and the future undiscounted cash flows associated with these
assets were less than the related carrying values. The Company
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.
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(Dollars in Millions) | |
Raw materials and work-in-process
|
|
$ |
396 |
|
|
$ |
684 |
|
Finished products
|
|
|
178 |
|
|
|
282 |
|
|
|
|
|
|
|
|
|
|
|
574 |
|
|
|
966 |
|
Valuation reserves
|
|
|
(37 |
) |
|
|
(77 |
) |
|
|
|
|
|
|
|
|
|
$ |
537 |
|
|
$ |
889 |
|
|
|
|
|
|
|
|
81
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE 5. Inventories (Continued)
During 2004, the Company changed its inventory costing method
for U.S. inventories from the
last-in, first-out
(LIFO) method to the
first-in first-out
(FIFO) method. As a result, all of the
Companys inventories are stated at the lower of cost,
determined on a FIFO basis, or market. 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 the Companys 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 shareholders
equity at January 1, 2002 of $61 million.
|
|
NOTE 6. |
Property and Equipment |
Net property and equipment consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
December 31 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(Dollars in Millions) | |
Land
|
|
$ |
113 |
|
|
$ |
160 |
|
Buildings and improvements
|
|
|
1,148 |
|
|
|
1,898 |
|
Machinery, equipment and other
|
|
|
3,492 |
|
|
|
8,031 |
|
Construction in progress
|
|
|
200 |
|
|
|
303 |
|
|
|
|
|
|
|
|
|
Total property and equipment
|
|
|
4,953 |
|
|
|
10,392 |
|
Accumulated depreciation
|
|
|
(2,140 |
) |
|
|
(5,368 |
) |
|
|
|
|
|
|
|
|
|
|
2,813 |
|
|
|
5,024 |
|
Special tools, net of amortization
|
|
|
160 |
|
|
|
279 |
|
|
|
|
|
|
|
|
Net property and equipment
|
|
$ |
2,973 |
|
|
$ |
5,303 |
|
|
|
|
|
|
|
|
Property and equipment is depreciated principally using the
straight-line method of depreciation over the estimated useful
life of the asset. On average, buildings and improvements are
depreciated based on a
30-year life; machinery
and equipment are generally 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(Dollars in Millions) | |
Depreciation
|
|
$ |
508 |
|
|
$ |
580 |
|
|
$ |
572 |
|
Amortization
|
|
|
87 |
|
|
|
105 |
|
|
|
105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
595 |
|
|
$ |
685 |
|
|
$ |
677 |
|
|
|
|
|
|
|
|
|
|
|
82
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 7. |
Non-Consolidated Affiliates |
The following table presents summarized financial data for
non-consolidated affiliates accounted for under the equity
method. The amounts represent 100% of the assets, liabilities,
equity and results of operations of all non-consolidated
affiliates.
|
|
|
|
|
|
|
|
|
|
|
|
December 31 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(Dollars in Millions) | |
Current assets
|
|
$ |
629 |
|
|
$ |
485 |
|
Other assets
|
|
|
453 |
|
|
|
391 |
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
1,082 |
|
|
$ |
876 |
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$ |
559 |
|
|
$ |
354 |
|
Other liabilities
|
|
|
62 |
|
|
|
64 |
|
Shareholders equity
|
|
|
461 |
|
|
|
458 |
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$ |
1,082 |
|
|
$ |
876 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(Dollars in Millions) | |
Net sales
|
|
$ |
1,552 |
|
|
$ |
1,426 |
|
|
$ |
1,462 |
|
Gross margin
|
|
|
230 |
|
|
|
252 |
|
|
|
368 |
|
Net income
|
|
|
51 |
|
|
|
90 |
|
|
|
111 |
|
The Companys share of net assets and net income is
reported in the consolidated financial statements as
Equity in net assets of non-consolidated affiliates
on the consolidated balance sheets and Equity in net
income of non-consolidated affiliates on the consolidated
statements of operations. These amounts include the
Companys 50% interest in YanFeng Visteon Automotive Trim
Systems Co., Ltd., which comprises the majority of such balances.
Included in the Companys accumulated deficit is
undistributed income of non-consolidated affiliates accounted
for under the equity method of approximately $130 million
and $150 million at December 31, 2005 and 2004,
respectively. The Companys ability to move cash among
consolidated and non-consolidated operating locations is subject
to the operating needs of each location as well as restrictions
imposed by local jurisdictions. Restricted net assets related to
the Companys consolidated and non-consolidated
subsidiaries are approximately $50 million and
$226 million, respectively as of
December 31, 2005. Restricted net assets of
consolidated subsidiaries are attributable to the Companys
operations in China, where certain regulatory requirements and
governmental restraints result in significant restrictions on
the Companys consolidated subsidiaries ability to transfer
funds to the Company.
83
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Accrued expenses and other current liabilities consisted of the
following:
|
|
|
|
|
|
|
|
|
|
|
December 31 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(Dollars in Millions) | |
Salaries, wages and employer taxes
|
|
$ |
83 |
|
|
$ |
120 |
|
Interest
|
|
|
46 |
|
|
|
43 |
|
Postretirement employee benefits other than pensions
|
|
|
42 |
|
|
|
83 |
|
Product recall
|
|
|
39 |
|
|
|
26 |
|
Product warranty
|
|
|
35 |
|
|
|
21 |
|
Income taxes payable
|
|
|
23 |
|
|
|
27 |
|
Restructuring reserves
|
|
|
14 |
|
|
|
71 |
|
Other
|
|
|
156 |
|
|
|
189 |
|
|
|
|
|
|
|
|
|
|
$ |
438 |
|
|
$ |
580 |
|
|
|
|
|
|
|
|
Long-term other liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(Dollars in Millions) | |
Non income tax liabilities
|
|
$ |
131 |
|
|
$ |
143 |
|
Product recall
|
|
|
39 |
|
|
|
27 |
|
Product warranty
|
|
|
35 |
|
|
|
20 |
|
Seating operations related payable to Ford
|
|
|
|
|
|
|
184 |
|
Other
|
|
|
177 |
|
|
|
142 |
|
|
|
|
|
|
|
|
|
|
$ |
382 |
|
|
$ |
516 |
|
|
|
|
|
|
|
|
During the second quarter of 2003, the Company finalized an
agreement with Ford to transfer seat production located in
Chesterfield, Michigan, to another supplier. In connection with
this agreement, 1,470 Visteon-assigned Ford-UAW employees
working at the Chesterfield, Michigan facility were transferred
to Ford. Accordingly, the Company reclassified approximately
$148 million in postretirement employee benefit obligations
to an accrued liability. Under terms of this arrangement, the
Company paid Ford approximately $15 million in 2005,
$72 million in 2004 and $30 million in 2003,
respectively. Effective October 1, 2005, and in
connection with the ACH Transactions, the amount outstanding and
payable to Ford under this arrangement was relieved.
84
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company had $485 million and $1,509 million of
outstanding short-term debt and long-term debt, respectively, at
December 31, 2005. Short-term debt and long-term debt
at December 31, including the fair market value of related
interest rate swaps, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted | |
|
|
|
|
|
|
|
|
Average | |
|
|
|
|
|
|
Interest Rate | |
|
Book Value | |
|
|
|
|
| |
|
| |
|
|
Maturity | |
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
|
|
(Dollars in Millions) | |
Short-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Five-year revolving credit facility
|
|
|
|
|
|
|
8.5 |
% |
|
|
|
|
|
$ |
347 |
|
|
$ |
|
|
|
7.95% notes due August 1, 2005
|
|
|
|
|
|
|
8.0 |
% |
|
|
7.9 |
% |
|
|
|
|
|
|
253 |
|
|
Other short-term
|
|
|
|
|
|
|
5.8 |
% |
|
|
3.3 |
% |
|
|
107 |
|
|
|
221 |
|
|
Current portion of long-term debt
|
|
|
|
|
|
|
4.3 |
% |
|
|
3.6 |
% |
|
|
31 |
|
|
|
34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
485 |
|
|
|
508 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Five-year term loan due June 25, 2007
|
|
|
2007 |
|
|
|
6.3 |
% |
|
|
3.0 |
% |
|
|
241 |
|
|
|
223 |
|
|
8.25% notes due August 1, 2010
|
|
|
2010 |
|
|
|
8.1 |
% |
|
|
6.5 |
% |
|
|
701 |
|
|
|
707 |
|
|
7.00% notes due March 10, 2014
|
|
|
2014 |
|
|
|
6.5 |
% |
|
|
5.9 |
% |
|
|
442 |
|
|
|
446 |
|
|
Other
|
|
|
2007-2025 |
|
|
|
4.9 |
% |
|
|
3.2 |
% |
|
|
125 |
|
|
|
137 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,509 |
|
|
|
1,513 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,994 |
|
|
$ |
2,021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Five-year revolving credit facility and term loan
The Company has financing arrangements with a syndicate of
third-party lenders that provide a contractually committed,
secured revolving credit facility and term loan (the
Credit Agreements). The Credit Agreements include a
five-year revolving loan credit facility (the Five-Year
Revolving Credit Facility) in the amount of
$772 million, dated as of June 20, 2002 and a
five-year delayed draw term loan (the Five-Year Term
Loan) in the amount of $241 million, dated
June 25, 2002, which was used primarily to finance new
construction for facilities consolidation in Southeast Michigan.
As of December 31, 2005, the Company had
$347 million outstanding under the Five-Year Revolving
Credit Facility and $241 million drawn against the
Five-Year Term Loan. The commitment level on the Five-Year
Revolving Credit Facility was reduced from $775 million to
$772 million under the terms of the Credit Agreements. The
commitment level of the Five-Year Term Loan was reduced from
$250 million to the $241 million drawn at
December 31, 2005, the commitment termination date
established in the agreement. The Company also had approximately
$104 million of obligations under standby letters of credit
which reduce the amount the Company may draw under the Five-Year
Revolving Credit Facility.
85
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE 9. Debt (Continued)
In June 2005, the Credit Agreements were amended. Such
amendments included, but were not limited to, a first-priority
lien on substantially all tangible and intangible assets of the
Company and most of its domestic subsidiaries, including,
without limitation, intellectual property, U.S. accounts
receivable, U.S. inventory, material owned real and
personal property, all intercompany debt, all of the capital
stock of nearly all direct and indirect domestic subsidiaries,
as well as 65% of the stock of many first tier foreign
subsidiaries. Subject to limited exceptions, each of the
Companys direct and indirect, existing and future,
domestic subsidiaries acts as guarantor for the Credit
Agreements. Subject to the satisfaction of certain conditions,
certain foreign subsidiaries of the Company may be designated by
the Company as borrowers for which the Company will act as
guarantor.
On January 9, 2006, the Company closed on a new
18-month secured term
loan (the 18-Month Term Loan) in the amount of
$350 million, which expires in June 2007, to replace the
Companys $300 million secured short-term revolving
credit agreement that expired on December 15, 2005.
The 18-Month Term Loan was made a part of the Companys
existing Five-Year Revolving Credit Facility agreement,
resulting in $1,122 million available to the Company under
this agreement. Also at this time, the terms and conditions of
the Credit Agreements were modified to align various covenants
with the Companys restructuring initiatives and to make
changes to the consolidated leverage ratios. Borrowings under
the Credit Agreements bear interest based on a variable rate
interest option selected at the time of borrowing. The Credit
Agreements contain certain affirmative and negative covenants
including a covenant not to exceed a certain leverage ratio of
consolidated total debt to consolidated EBITDA (as defined in
the Credit Agreements) of 4.75 for the quarters ending
Dec. 31, 2005 and March 31, 2006; 5.25 for
the quarter ending June 30, 2006; 4.25 for the quarter
ending Sept. 30, 2006; 3.00 for the quarter ending
Dec. 31, 2006; 2.75 for the quarter ending
March 31, 2007; and 2.50 thereafter. In addition, the
Credit Agreements limit the amount of capital expenditures and
cash dividend payments. The Company was in compliance with
applicable covenants and restrictions, as amended, as of
December 31, 2005.
7.95% notes due August 1, 2005
On April 6, 2004, the Company repurchased
$250 million of its existing 7.95% five-year notes
scheduled to mature on August 1, 2005. In the second
quarter of 2004, the Company 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, the Company
borrowed $450 million under the Five-Year Revolving Credit
Facility to fund the remaining $250 million of
7.95% notes that were due on August 1, 2005, 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 the
Company received a $311 million deposit from Ford as
consideration for inventory of the transferred business, net of
other amounts.
86
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE 9. Debt (Continued)
8.25% notes due August 1, 2010
On August 3, 2000, the Company completed a public
offering of unsecured fixed rate term debt securities totaling
$1.2 billion with maturities of 5 and 10 years. The
offering included $500 million of securities maturing on
August 1, 2005 and $700 million of securities maturing
on August 1, 2010. The securities bear interest at a stated
rate of 8.25%, with interest payable semi-annually on February 1
and August 1, beginning on February 1, 2001. 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. The Company was in compliance with applicable
restrictions as of December 31, 2005.
7.00% notes due March 10, 2014
On March 10, 2004, the Company 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 the
Companys 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. The Company was in compliance with applicable
restrictions as of December 31, 2005.
Interest rate swaps
Interest rate swaps have been entered into for a portion of the
8.25% notes due August 1, 2010 ($125 million) and
for a portion of the 7.00% notes due March 10, 2014
($225 million). These swaps effectively convert this
portion of the securities from fixed interest rate to variable
interest rate (fixed-for-variable) instruments. The
weighted average interest rates as presented in the table above
include the effects of interest rate swaps.
The Companys fixed-for-variable swap agreements have been
formally designated as fair value hedges. The effect of marking
these contracts to market has been recorded in the
Companys consolidated balance sheets as a direct
adjustment to underlying debt. The adjustment does not affect
the results of operations unless the contract is terminated, in
which case the resulting cash flow is offset by a valuation
adjustment of the underlying debt that is amortized to interest
expense over the remaining life of the debt.
Other debt
The Company has additional debt arrangements of approximately
$138 million and $125 million in short-term and
long-term debt, respectively, relating primarily to a number of
its
non-U.S. operations,
a portion of which are payable in
non-U.S. currencies
including, but not limited to the euro, Thai baht, Korean won,
and Brazilian real.
87
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE 9. Debt (Continued)
Prior to April 2005, the Company had maintained a trade payables
program through General Electric Capital Corporation
(GECC) that provided financial flexibility to the
Company and its suppliers. When a supplier participated in the
program, GECC paid the supplier the amount due from the Company
in advance of the original due date. In exchange for the earlier
payment, the Companys suppliers accepted a discounted
payment. The Company paid GECC the full amount. Approximately
$69 million was outstanding to GECC under this program at
December 31, 2004. Amounts outstanding under this
program were supported by a stand-by letter of credit and were
reported in short-term debt in the consolidated balance sheets.
The Company terminated the program in April 2005.
|
|
NOTE 10. |
Employee Retirement Benefits |
Visteon Sponsored Plans
Employee Retirement Plans
In the U.S., the Companys hourly employees represented by
the UAW and other collective bargaining groups earn
noncontributory benefits based on employee service. The
Companys 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, the Company 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,
the Company has assumed all plan benefit obligations for the
Company employees as well as assets that approximated the
benefit obligations for funded plans at the separation date.
In general, the Companys plans are funded with the
exception of certain supplemental benefit plans for executives
and certain
non-U.S. plans,
primarily in Germany. The Companys 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 the Company. Matching contributions were
suspended effective January 1, 2002 and will be
reinstated on July 1, 2006.
In December 2005, the Company approved changes to the
U.S. Salaried pension plans which will become effective
July 1, 2006. Service accruals for the current pension
benefit will cease as of June 30, 2006 and the pension
plan will no longer provide early retirement supplements to
participants who retire after July 1, 2006. A cash
balance benefit will accrue for service earned after
June 30, 2006.
Postretirement Employee Health Care and Life Insurance
Benefits
In the U.S., the Company has a financial obligation for the cost
of providing selected postretirement health care and life
insurance benefits to its employees under Company sponsored
plans.
88
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE 10. Employee Retirement Benefits
(Continued)
During June 2005, the Company approved changes to the
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. The Company will provide credits to
offset a portion of the health care premium cost for employees
who retire from the Company 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
employees combined years of service and age. These changes
resulted in a reduction to the accumulated postretirement
benefit obligation (APBO) of $336 million at
June 30, 2005, of which approximately $9 million
was recognized in 2005 and the remainder will be amortized as a
reduction of postretirement employee 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. Service
cost accruals were also reduced by $7 million in the fourth
quarter 2005 as a result of these changes.
Also during 2005, the Company negotiated changes to hourly
postretirement employee health care and life insurance plans
which resulted in a reduction to the APBO of $135 million
which will be amortized as a reduction of postretirement
employee benefit expense over the estimated average remaining
employee service lives of approximately 12 years.
Ford Sponsored Plans
Employee Retirement Plans
Prior to the ACH Transactions, Visteon-assigned Ford-UAW
employees participated in the Ford-UAW Retirement Plan,
sponsored by Ford, and the Company reimbursed Ford for the
related pension expense. Effective October 1, 2005 and
in connection with the ACH Transactions, Ford has assumed all
wage and benefit accruals for Ford-UAW employees, and there will
be no further reimbursement to Ford from the Company related to
these employees.
Postretirement Employee Health Care and Life Insurance
Benefits
Also prior to the ACH Transactions, under the terms of the
Hourly Employee Assignment Agreement (the
Agreement), Ford charged the Company for a portion
of the cost of retiree health care and life insurance benefits
that are provided by Ford to the Visteon-assigned Ford-UAW
employees who retire after July 1, 2000. The estimated
cost for these benefits was accrued over periods of employee
service on an actuarially determined basis. The amounts charged
by Ford related to the Visteon-assigned Ford-UAW employees were
determined by Fords actuaries, computed in accordance with
Fords SFAS 106 methodologies and actuarial
assumptions.
89
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE 10. 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 the Company to
Ford for postretirement employee 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). In
accordance with the terms of the Agreement, the Company was
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, the Company was required to contribute funds to a
Voluntary Employees Beneficiary Association
(VEBA) to fund postretirement employee health care
and life insurance benefits to be provided by Ford related to
the Ford-UAW employees. The funding was to have been over a
44-year period
beginning in 2006. In accordance with Statement of Financial
Accounting Standards No. 15 (SFAS 15),
Accounting by Debtors and Creditors for Troubled Debt
Restructurings, the Company 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 were expected to exceed the amount
recorded by the Company. The amounts ultimately due were
contingent upon future health and retirement benefit costs that
were to be charged to the Company by Ford with respect to the
Visteon-assigned Ford-UAW hourly employees.
Effective October 1, 2005 and in connection with the
ACH Transactions, Ford relieved the Company of all liabilities
totaling approximately $2.2 billion for postretirement
health care and life insurance related obligations for
Visteon-assigned Ford-UAW employees and retirees and for
salaried retirees who retired prior to May 24, 2005.
In addition, the Company transferred the VEBA and related assets
of approximately $25 million to Ford. This further relief
was also accounted for in accordance with SFAS 15. Because
there are no contingently payable amounts relating to this
obligation as of October 1, 2005, amounts currently
forgiven and previously deferred amounts were released to income
and have been included in the Gain on ACH
Transactions in the accompanying 2005 consolidated
statement of operations.
Ford will continue to charge the Company for the expense of
postretirement health care and life insurance benefits that are
provided by Ford to certain Company salaried employees who
retire after May 24, 2005. The Company is required to
fund the actual costs of these benefits as incurred by Ford for
the salaried retirees through 2010. In addition, the Company has
agreed to contribute funds to a trust to fund postretirement
health care and life insurance benefits to be provided by Ford
related to these salaried employees and retirees. The required
funding is over a
39-year period
beginning in 2011. The annual funding requirement during this
period will be determined annually based upon amortization of
the unfunded liabilities at year-end 2010 plus amortization of
annual expense.
90
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE 10. Employee Retirement Benefits
(Continued)
The benefit obligations below reflect the salaried plan changes
announced by Ford in December 2005 and the effect of the
ACH Transactions and are based upon Fords assumptions. The
current and long-term benefit obligations and total net amount
recognized in the balance sheets 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 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(Dollars in Millions) | |
Obligation for benefits to Visteon-assigned Ford-UAW and
salaried employees
|
|
$ |
88 |
|
|
$ |
3,935 |
|
Reimbursable amount assumed by Ford
|
|
|
|
|
|
|
(1,701 |
) |
Unamortized gains/(losses) and other associated with the
obligation
|
|
|
68 |
|
|
|
(1,598 |
) |
Deferred amounts:
|
|
|
|
|
|
|
|
|
|
Contingently payable
|
|
|
|
|
|
|
1,476 |
|
|
To reduce future accretion
|
|
|
|
|
|
|
67 |
|
|
|
|
|
|
|
|
|
|
Postretirement employee benefits payable to Ford
|
|
$ |
156 |
|
|
$ |
2,179 |
|
|
|
|
|
|
|
|
91
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE 10. Employee Retirement Benefits
(Continued)
Benefit Expenses
The Companys expense for retirement benefits was as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement Plans | |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Health Care and Life | |
|
|
U.S. Plans | |
|
Non-U.S. Plans | |
|
Insurance Benefits | |
|
|
| |
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2005 | |
|
2004 | |
|
2003 | |
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in Millions, Except Percentages) | |
Costs Recognized in Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$ |
62 |
|
|
$ |
55 |
|
|
$ |
53 |
|
|
$ |
32 |
|
|
$ |
32 |
|
|
$ |
32 |
|
|
$ |
38 |
|
|
$ |
42 |
|
|
$ |
37 |
|
Interest cost
|
|
|
72 |
|
|
|
66 |
|
|
|
59 |
|
|
|
66 |
|
|
|
62 |
|
|
|
52 |
|
|
|
65 |
|
|
|
61 |
|
|
|
51 |
|
Expected return on plan assets
|
|
|
(68 |
) |
|
|
(63 |
) |
|
|
(56 |
) |
|
|
(61 |
) |
|
|
(63 |
) |
|
|
(54 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transition obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan amendments
|
|
|
9 |
|
|
|
10 |
|
|
|
10 |
|
|
|
7 |
|
|
|
9 |
|
|
|
10 |
|
|
|
(15 |
) |
|
|
|
|
|
|
|
|
|
Losses and other
|
|
|
7 |
|
|
|
4 |
|
|
|
|
|
|
|
7 |
|
|
|
2 |
|
|
|
1 |
|
|
|
29 |
|
|
|
21 |
|
|
|
10 |
|
Special termination benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Curtailments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
Settlements
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
(1 |
) |
|
|
2 |
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Visteon sponsored plan net pension/postretirement expense
|
|
|
82 |
|
|
|
72 |
|
|
|
67 |
|
|
|
52 |
|
|
|
49 |
|
|
|
44 |
|
|
|
116 |
|
|
|
123 |
|
|
|
98 |
|
Expense for Visteon-assigned Ford- UAW and certain salaried
employees
|
|
|
85 |
|
|
|
111 |
|
|
|
172 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
168 |
|
|
|
131 |
|
|
|
323 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee retirement benefit expenses excluding restructuring
|
|
$ |
167 |
|
|
$ |
183 |
|
|
$ |
239 |
|
|
$ |
52 |
|
|
$ |
49 |
|
|
$ |
44 |
|
|
$ |
284 |
|
|
$ |
254 |
|
|
$ |
421 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special termination benefits
|
|
$ |
|
|
|
$ |
|
|
|
$ |
2 |
|
|
$ |
4 |
|
|
$ |
3 |
|
|
$ |
20 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
4 |
|
Curtailments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
7 |
|
|
|
|
|
|
|
|
|
Other
|
|
|
3 |
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total employee retirement benefit related restructuring expenses
|
|
$ |
3 |
|
|
$ |
18 |
|
|
$ |
2 |
|
|
$ |
17 |
|
|
$ |
3 |
|
|
$ |
20 |
|
|
$ |
7 |
|
|
$ |
|
|
|
$ |
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Assumptions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate for expense
|
|
|
6.10 |
% |
|
|
6.10 |
% |
|
|
6.75 |
% |
|
|
5.50 |
% |
|
|
5.60 |
% |
|
|
5.75 |
% |
|
|
5.80 |
% |
|
|
6.10 |
% |
|
|
6.75 |
% |
Assumed long-term rate of return on assets
|
|
|
9.00 |
% |
|
|
9.00 |
% |
|
|
9.00 |
% |
|
|
7.50 |
% |
|
|
7.70 |
% |
|
|
8.25 |
% |
|
|
|
|
|
|
|
|
|
|
6.00 |
% |
Initial health care cost trend rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11.00 |
% |
|
|
11.00 |
% |
|
|
10.44 |
% |
Ultimate health care cost trend rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.00 |
% |
|
|
5.00 |
% |
|
|
5.00 |
% |
Year ultimate health care cost trend rate reached
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
|
2009 |
|
|
|
2008 |
|
92
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE 10. Employee Retirement Benefits
(Continued)
Retirement Benefit Related Restructuring Expenses
In addition to retirement benefit expenses, the Company
recognized retirement benefit-related restructuring charges
totaling $27 million reflecting a $7 million OPEB
curtailment loss related to the Puerto Rico facility, a
$3 million pension loss related to the continuation of the
voluntary termination incentive program in the U.S., and
$13 million curtailment loss and $4 million in special
termination benefits related to certain
non-U.S. pensions
in 2005. During 2004, the retirement benefit-related
restructuring charges totaled $21 million reflecting
$18 million for the voluntary termination incentive program
in the U.S. and special termination benefits of $3 million
in Europe. In 2003, the retirement benefit-related restructuring
charges totaled $26 million reflecting U.S. special
termination benefits of $2 million and $4 million for
the pension and OPEB plans, respectively, and special
termination benefits of $20 million in Europe.
Assumed Health Care Trend Rate Sensitivity
The following table illustrates the sensitivity to a change in
the assumed health care trend rate related to Visteon sponsored
postretirement employee health care plan expense (certain
salaried employees are covered by a Ford sponsored plan):
|
|
|
|
|
|
|
|
|
|
|
Total Service and | |
|
|
|
|
Interest Cost | |
|
APBO | |
|
|
| |
|
| |
100 basis point increase in health care cost trend rates
(a)
|
|
+$12 million |
|
|
+$97 million |
|
100 basis point decrease in health care cost trend rates
(a)
|
|
-$10 million |
|
|
-$80 million |
|
|
|
|
(a) |
|
Assumes all other assumptions are held constant. |
93
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE 10. Employee Retirement Benefits
(Continued)
Benefit Obligations
The status of the Company plans as of their most recent
measurement dates was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement Plans | |
|
|
|
|
| |
|
Health Care and | |
|
|
|
|
|
|
Life Insurance | |
|
|
U.S. Plans | |
|
Non-U.S. Plans | |
|
Benefits | |
|
|
| |
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in Millions, Except Percentages) | |
Change in Benefit Obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation beginning
|
|
$ |
1,144 |
|
|
$ |
1,053 |
|
|
$ |
1,279 |
|
|
$ |
1,123 |
|
|
$ |
1,115 |
|
|
$ |
1,130 |
|
Service cost
|
|
|
62 |
|
|
|
55 |
|
|
|
32 |
|
|
|
32 |
|
|
|
38 |
|
|
|
42 |
|
Interest cost
|
|
|
72 |
|
|
|
66 |
|
|
|
66 |
|
|
|
62 |
|
|
|
65 |
|
|
|
61 |
|
Participant contributions
|
|
|
7 |
|
|
|
8 |
|
|
|
11 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
Amendments/other
|
|
|
12 |
|
|
|
3 |
|
|
|
(1 |
) |
|
|
(36 |
) |
|
|
(457 |
) |
|
|
(22 |
) |
Actuarial (gain) loss
|
|
|
61 |
|
|
|
4 |
|
|
|
166 |
|
|
|
22 |
|
|
|
35 |
|
|
|
(58 |
) |
Special termination benefits
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
13 |
|
|
|
|
|
|
|
|
|
Curtailment
|
|
|
|
|
|
|
|
|
|
|
(36 |
) |
|
|
|
|
|
|
(15 |
) |
|
|
|
|
Settlements
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
(4 |
) |
Foreign exchange translation
|
|
|
|
|
|
|
|
|
|
|
(130 |
) |
|
|
91 |
|
|
|
|
|
|
|
|
|
Benefits paid
|
|
|
(49 |
) |
|
|
(45 |
) |
|
|
(41 |
) |
|
|
(37 |
) |
|
|
(39 |
) |
|
|
(34 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation ending
|
|
$ |
1,309 |
|
|
$ |
1,144 |
|
|
$ |
1,349 |
|
|
$ |
1,279 |
|
|
$ |
742 |
|
|
$ |
1,115 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Plan Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan assets beginning
|
|
$ |
781 |
|
|
$ |
671 |
|
|
$ |
756 |
|
|
$ |
635 |
|
|
$ |
|
|
|
$ |
|
|
Actual return on plan assets
|
|
|
110 |
|
|
|
88 |
|
|
|
105 |
|
|
|
51 |
|
|
|
|
|
|
|
|
|
Sponsor contributions
|
|
|
35 |
|
|
|
63 |
|
|
|
58 |
|
|
|
67 |
|
|
|
39 |
|
|
|
34 |
|
Participant contributions
|
|
|
7 |
|
|
|
8 |
|
|
|
11 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
Foreign exchange translation
|
|
|
|
|
|
|
|
|
|
|
(71 |
) |
|
|
54 |
|
|
|
|
|
|
|
|
|
Benefits paid/other
|
|
|
(44 |
) |
|
|
(49 |
) |
|
|
(42 |
) |
|
|
(62 |
) |
|
|
(39 |
) |
|
|
(34 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan assets ending
|
|
$ |
889 |
|
|
$ |
781 |
|
|
$ |
817 |
|
|
$ |
756 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded Status of the Plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan assets (less than) benefit obligations
|
|
$ |
(420 |
) |
|
$ |
(363 |
) |
|
$ |
(532 |
) |
|
$ |
(523 |
) |
|
$ |
(742 |
) |
|
$ |
(1,115 |
) |
Contributions between measurement and end of fiscal year
|
|
|
9 |
|
|
|
1 |
|
|
|
13 |
|
|
|
15 |
|
|
|
14 |
|
|
|
15 |
|
Special termination benefits between measurement and end of
fiscal year
|
|
|
|
|
|
|
|
|
|
|
(2 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
|
|
Unrecognized:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net losses
|
|
|
150 |
|
|
|
132 |
|
|
|
373 |
|
|
|
330 |
|
|
|
427 |
|
|
|
438 |
|
|
Prior service cost/other
|
|
|
43 |
|
|
|
52 |
|
|
|
59 |
|
|
|
85 |
|
|
|
(463 |
) |
|
|
(16 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(218 |
) |
|
$ |
(178 |
) |
|
$ |
(89 |
) |
|
$ |
(95 |
) |
|
$ |
(764 |
) |
|
$ |
(678 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount Recognized in Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid assets
|
|
$ |
|
|
|
$ |
|
|
|
$ |
14 |
|
|
$ |
8 |
|
|
$ |
|
|
|
$ |
|
|
Accrued liabilities
|
|
|
(340 |
) |
|
|
(314 |
) |
|
|
(378 |
) |
|
|
(329 |
) |
|
|
(764 |
) |
|
|
(678 |
) |
Intangible assets
|
|
|
38 |
|
|
|
47 |
|
|
|
50 |
|
|
|
73 |
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
30 |
|
|
|
30 |
|
|
|
5 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income
|
|
|
54 |
|
|
|
59 |
|
|
|
220 |
|
|
|
151 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(218 |
) |
|
$ |
(178 |
) |
|
$ |
(89 |
) |
|
$ |
(95 |
) |
|
$ |
(764 |
) |
|
$ |
(678 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Assumptions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
5.70 |
% |
|
|
6.10 |
% |
|
|
4.90 |
% |
|
|
5.50 |
% |
|
|
5.70 |
% |
|
|
6.10 |
% |
Expected rate of return on assets
|
|
|
8.50 |
% |
|
|
9.00 |
% |
|
|
6.70 |
% |
|
|
7.50 |
% |
|
|
|
|
|
|
|
|
Rate of increase in compensation
|
|
|
4.00 |
% |
|
|
4.00 |
% |
|
|
3.00 |
% |
|
|
3.60 |
% |
|
|
|
|
|
|
|
|
Initial health care cost trend rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.80 |
% |
|
|
11.00 |
% |
Ultimate health care cost trend rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.00 |
% |
|
|
5.00 |
% |
Year ultimate health care cost trend rate reached
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
|
2010 |
|
Measurement date
|
|
|
9/30 |
|
|
|
9/30 |
|
|
|
9/30 |
|
|
|
9/30 |
|
|
|
9/30 |
|
|
|
9/30 |
|
94
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE 10. Employee Retirement Benefits
(Continued)
The accumulated benefit obligation for all defined benefit
pension plans was $2,340 million and $2,068 million at
the 2005 and 2004 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
$2,634 million, $2,324 million and
$1,684 million, respectively, for 2005 and
$2,215 million, $1,933 million and
$1,358 million, respectively, for 2004.
Contributions
During 2006, the Companys expected contributions to its
U.S. retirement plans and postretirement employee health
care and life insurance plans are $83 million and
$34 million, respectively. The Companys expected 2006
contributions to
non-U.S. retirement
plans is $84 million. These are expected contributions and
may be revised during 2006.
Estimated Future Benefit Payments
The following benefit payments, which reflect expected future
service, as appropriate, are expected to be paid by the Company
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 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in Millions) | |
2006
|
|
$ |
55 |
|
|
$ |
157 |
|
|
$ |
37 |
|
|
$ |
3 |
|
2007
|
|
|
54 |
|
|
|
34 |
|
|
|
39 |
|
|
|
3 |
|
2008
|
|
|
56 |
|
|
|
34 |
|
|
|
42 |
|
|
|
4 |
|
2009
|
|
|
58 |
|
|
|
35 |
|
|
|
44 |
|
|
|
4 |
|
2010
|
|
|
61 |
|
|
|
36 |
|
|
|
47 |
|
|
|
4 |
|
Years 2011 2015
|
|
|
363 |
|
|
|
197 |
|
|
|
260 |
|
|
|
26 |
|
Non-U.S. pension
benefit payments of $157 million in 2006 from the Company
plans includes the anticipated effect of settling pension
obligations related to the Companys Markham, Ontario
facility which was closed in 2002.
Plan Assets and Investment Strategy
The Companys retirement plan asset allocation at
September 30, 2005 and 2004 and target allocation for
2006 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. | |
|
Non-U.S. | |
|
|
| |
|
| |
|
|
Target | |
|
Percentage of | |
|
Target | |
|
Percentage of | |
|
|
Allocation | |
|
Plan Assets | |
|
Allocation | |
|
Plan Assets | |
|
|
| |
|
| |
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
2004 | |
|
2006 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Equity securities
|
|
|
70 |
% |
|
|
71 |
% |
|
|
71 |
% |
|
|
55 |
% |
|
|
57 |
% |
|
|
57 |
% |
Debt securities
|
|
|
30 |
|
|
|
29 |
|
|
|
29 |
|
|
|
45 |
|
|
|
43 |
|
|
|
43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE 10. Employee Retirement Benefits
(Continued)
The expected long-term rate of return for pension assets has
been chosen based on various inputs, including long-term
historical returns for the different asset classes held by the
Companys trusts and its asset allocation, as well as
inputs from internal and external sources regarding capital
market returns, inflation and other variables.
Given the relatively long horizon of the Companys
aggregate obligations, its investment strategy is to improve the
funded status of its U.S. and
Non-U.S. plans
over time without exposure to excessive asset value volatility.
The Company manages this risk primarily by maintaining each
plans actual asset allocation between equity and fixed
income securities within a specified range of its target asset
allocation. In addition, the Company ensures that
diversification across various investment subcategories within
each plan are also maintained within specified ranges.
Substantially all of the Companys 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 the Company 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. The Company staff or its outside consultants verify
compliance with these provisions at least quarterly.
Income (loss) before income taxes and minority interests in
consolidated subsidiaries, excluding equity in net income of
non-consolidated affiliates, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(Dollars in Millions) | |
U.S.
|
|
$ |
116 |
|
|
$ |
(755 |
) |
|
$ |
(1,205 |
) |
Non-U.S.
|
|
|
(314 |
) |
|
|
171 |
|
|
|
(44 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total loss before income taxes
|
|
$ |
(198 |
) |
|
$ |
(584 |
) |
|
$ |
(1,249 |
) |
|
|
|
|
|
|
|
|
|
|
96
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE 11. Income Taxes (Continued)
The provision (benefit) for income taxes was calculated as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(Dollars in Millions) | |
Current tax provision (benefit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
$ |
(26 |
) |
|
$ |
(2 |
) |
|
$ |
|
|
|
Non-U.S.
|
|
|
111 |
|
|
|
91 |
|
|
|
89 |
|
|
U.S. state and local
|
|
|
(2 |
) |
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
83 |
|
|
|
89 |
|
|
|
90 |
|
|
|
|
|
|
|
|
|
|
|
Deferred tax provision (benefit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
|
|
|
|
|
740 |
|
|
|
(280 |
) |
|
Non-U.S.
|
|
|
(19 |
) |
|
|
71 |
|
|
|
216 |
|
|
U.S. state and local
|
|
|
|
|
|
|
62 |
|
|
|
(20 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
(19 |
) |
|
|
873 |
|
|
|
(84 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Total provision
|
|
$ |
64 |
|
|
$ |
962 |
|
|
$ |
6 |
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of the provision for income taxes compared with
amounts at the U.S. statutory tax rate is shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Tax provision at U.S. statutory rate of 35%
|
|
|
(35 |
)% |
|
|
(35 |
)% |
|
|
(35 |
)% |
Effect of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of foreign operations, including withholding taxes
|
|
|
21 |
|
|
|
7 |
|
|
|
|
|
|
State and local income taxes
|
|
|
(1 |
) |
|
|
(3 |
) |
|
|
(2 |
) |
|
U.S. research tax credits
|
|
|
(9 |
) |
|
|
(6 |
) |
|
|
(1 |
) |
|
Tax reserve adjustments
|
|
|
(14 |
) |
|
|
(14 |
) |
|
|
|
|
|
Benefits related to U.S. exports
|
|
|
(1 |
) |
|
|
(2 |
) |
|
|
(1 |
) |
|
Change in valuation allowance
|
|
|
75 |
|
|
|
220 |
|
|
|
37 |
|
|
Medicare subsidy
|
|
|
(3 |
) |
|
|
(1 |
) |
|
|
|
|
|
Other
|
|
|
(1 |
) |
|
|
(1 |
) |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
32 |
% |
|
|
165 |
% |
|
|
1 |
% |
|
|
|
|
|
|
|
|
|
|
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. 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.
97
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE 11. Income Taxes (Continued)
The components of deferred income tax assets and liabilities at
December 31 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(Dollars in Millions) | |
Deferred tax assets
|
|
|
|
|
|
|
|
|
|
Employee benefit plans
|
|
$ |
456 |
|
|
$ |
1,249 |
|
|
Capitalized expenditures for tax reporting
|
|
|
239 |
|
|
|
276 |
|
|
Net operating losses and carryforwards
|
|
|
1,191 |
|
|
|
721 |
|
|
All other
|
|
|
513 |
|
|
|
451 |
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
2,399 |
|
|
|
2,697 |
|
|
Valuation allowance
|
|
|
(1,961 |
) |
|
|
(1,949 |
) |
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
438 |
|
|
|
748 |
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
65 |
|
|
|
476 |
|
|
All other
|
|
|
479 |
|
|
|
405 |
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
544 |
|
|
|
881 |
|
|
|
|
|
|
|
|
Net deferred tax (liabilities)
|
|
$ |
(106 |
) |
|
$ |
(133 |
) |
|
|
|
|
|
|
|
The anticipated tax benefit of
non-U.S. net
operating loss and other carryforwards is $449 million at
December 31, 2005. 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 $367 million at
December 31, 2005. These losses will begin to expire
in 2009. U.S. foreign tax credit carryforwards are
$254 million at December 31, 2005. These credits
will begin to expire in 2011. U.S. research tax credits
carryforwards are $121 million at
December 31, 2005. These credits will begin to expire
in 2020.
As of the end of 2005, valuation allowances totaling
$1,961 million have been recorded against the
Companys deferred tax assets. Of this amount,
$1,495 million relates to the Companys 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 $466 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.
The Companys 2005 provision of $64 million reflects
income tax expense related to those countries where the Company
is profitable, accrued withholding taxes, certain non-recurring
and other discrete tax items, and the inability to record a tax
benefit for pre-tax losses in the U.S. and certain foreign
countries. Non-recurring and other discrete tax items recorded
in 2005 resulted in a net benefit of $31 million. This
includes a benefit of $28 million, reflecting primarily a
reduction in income tax reserves corresponding with the
conclusion of U.S. Federal income tax audits for
2002, 2003 and certain pre-spin periods, as well as a net
benefit of $3 million 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
income tax reserves for prior year tax exposures.
98
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE 11. Income Taxes (Continued)
The 2004 provision of $962 million includes a charge of
$871 million recorded during the third quarter to establish
additional valuation allowances against the Companys
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, partially
offset by the reduction of related tax reserves of
$77 million. The Companys provision for income taxes
for 2004 also includes a benefit of $42 million recorded in
the fourth quarter to reduce its deferred tax asset valuation
allowance to offset a related reduction in the net deferred tax
asset. This reduction in the 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.
Going forward, the need to maintain valuation allowances against
deferred tax assets in the U.S. and other affected countries
will cause variability in the Companys effective tax rate.
The Company will maintain full valuation allowances against
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.
|
|
NOTE 12. |
Shareholders (Deficit)/ Equity |
Accumulated other comprehensive (loss) income is comprised of
the following:
|
|
|
|
|
|
|
|
|
|
|
|
December 31 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(Dollars in Millions) | |
Foreign currency translation adjustments
|
|
$ |
45 |
|
|
$ |
199 |
|
Minimum pension liability
|
|
|
(274 |
) |
|
|
(210 |
) |
Realized and unrealized gains (losses) on derivatives and other
|
|
|
(5 |
) |
|
|
16 |
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive (loss) income
|
|
$ |
(234 |
) |
|
$ |
5 |
|
|
|
|
|
|
|
|
In conjunction with the October 1, 2005 ACH
Transactions, the Company granted warrants to Ford for the
purchase of 25 million shares of the Companys common
stock at an exercise price of $6.90. The warrants allow for
either cash or share settlement at the sole discretion of the
Company, and may be exercised at any time after
October 1, 2006 and before the expiration date on
October 1, 2013. The warrants are valued at
$127 million using a Black-Scholes pricing model, adjusted
for the estimated impact on fair value of the restrictions
relating to the warrants, and are recorded as permanent equity
in the Companys consolidated balance sheets.
Treasury stock is carried at an average cost basis, is purchased
for employee benefit plans, and consists of approximately
2.2 million shares at December 31, 2005. In addition,
treasury stock, included in the consolidated statements of
shareholders (deficit)/ equity increased $10 million
during 2005 primarily from the forfeiture of approximately
700,000 shares or restricted stock awards, originally
granted in 2002, that did not vest as certain performance goals
were not achieved and is offset by a decrease in unearned
compensation.
99
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 13. |
Stock-Based Compensation |
The Visteon Corporation 2004 Incentive Plan (2004
Incentive Plan) was approved by shareholders, is
administered by the Organization and Compensation Committee of
the Board of Directors and 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 total number of shares of common stock subject to awards
under the 2004 Incentive Plan is 14.8 million shares.
During the first quarter of 2005, the Company granted under the
2004 Incentive Plan approximately 4.3 million stock
appreciation rights, 2.7 million restricted stock units and
2.0 million stock options. At December 31, 2005,
there were approximately 860,000 shares of common stock
available for grant under the 2004 Incentive Plan.
The Visteon Corporation Employees Equity Incentive Plan
(EEIP) was approved by shareholders, is administered
by the Organization and Compensation Committee of the Board of
Directors and 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. At December 31, 2005, there
were approximately 842,000 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, during 2004 the
shareholders approved 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 granted under the
aforementioned plans have an exercise price equal to the average
of the highest and lowest prices at which the Companys
common stock was traded on the New York Stock Exchange on the
date of grant and become exercisable on a ratable basis over a
three year vesting period. Stock options and stock appreciation
rights granted under the 2004 Incentive Plan after
December 31, 2003 expire five years following the
grant date. Stock options granted under the EEIP, and those
granted prior to January 1, 2004 under the 2004
Incentive Plan, expire 10 years after the grant date.
Stock options are settled through the issuance of underlying
shares upon exercise. Accordingly, such amount is recorded in
the Companys consolidated balance sheets under the caption
Additional paid in capital. Stock appreciation
rights are settled in cash and accordingly result in the
recognition of a liability representing the vested portion of
the obligation.
Compensation expense related to stock appreciation rights is
measured based upon fair value using the underlying market price
of the Companys common stock as of the end of each
reporting period, while compensation expense related to stock
options is based upon fair value determined through use of a
Black-Scholes valuation model. Compensation expense related to
stock options and stock appreciation rights was $6 million,
$5 million and $5 million in 2005, 2004 and 2003,
respectively.
100
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE 13. Stock-Based Compensation
(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 2005, 2004 and 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Fair Values
|
|
|
|
|
|
|
|
|
|
|
|
|
Average fair value of stock options granted
|
|
$ |
2.51 |
|
|
$ |
3.32 |
|
|
$ |
2.34 |
|
Weighted Average Assumptions
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free interest rate
|
|
|
4.0 |
% |
|
|
4.1 |
% |
|
|
3.0 |
% |
Expected life (years)
|
|
|
4.0 |
|
|
|
5.0 |
|
|
|
5.0 |
|
Volatility
|
|
|
44.3 |
% |
|
|
40.8 |
% |
|
|
43.2 |
% |
Dividend yield
|
|
|
0.0 |
% |
|
|
2.6 |
% |
|
|
1.9 |
% |
Information concerning stock options and stock appreciation
rights is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock | |
|
|
|
|
|
|
Appreciation | |
|
Weighted Average | |
|
|
Option Shares | |
|
Rights | |
|
Exercise Price | |
|
|
| |
|
| |
|
| |
|
|
(In Thousands) | |
|
(In Thousands) | |
|
|
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 |
|
Granted
|
|
|
2,567 |
|
|
|
4,408 |
|
|
|
6.34 |
|
Exercised
|
|
|
(442 |
) |
|
|
(2 |
) |
|
|
6.64 |
|
Terminated
|
|
|
(1,279 |
) |
|
|
(414 |
) |
|
|
9.28 |
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2005
|
|
|
15,014 |
|
|
|
6,103 |
|
|
$ |
9.74 |
|
Less: Outstanding but not exercisable at
December 31, 2005
|
|
|
(4,856 |
) |
|
|
(5,481 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2005
|
|
|
10,158 |
|
|
|
622 |
|
|
$ |
12.23 |
|
|
|
|
|
|
|
|
|
|
|
The following is a summary of the range of exercise prices for
stock options and stock appreciation rights that are outstanding
and exercisable at December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options and SARs Outstanding | |
|
Options and SARs Exercisable | |
|
|
| |
|
| |
|
|
|
|
Weighted | |
|
Weighted | |
|
|
|
Weighted | |
|
|
Number | |
|
Average | |
|
Average | |
|
Number | |
|
Average | |
Range of Exercise Prices |
|
Outstanding | |
|
Remaining Life | |
|
Exercise Price | |
|
Exercisable | |
|
Exercise Price | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In Thousands) | |
|
(In Years) | |
|
|
|
(In Thousands) | |
|
|
$ 5.00 - $ 7.00
|
|
|
10,941 |
|
|
|
5.4 |
|
|
$ |
6.41 |
|
|
|
2,870 |
|
|
$ |
6.63 |
|
7.01 - 12.00
|
|
|
3,162 |
|
|
|
3.5 |
|
|
|
9.94 |
|
|
|
896 |
|
|
|
9.83 |
|
12.01 - 17.00
|
|
|
4,621 |
|
|
|
5.5 |
|
|
|
13.43 |
|
|
|
4,621 |
|
|
|
13.43 |
|
17.01 - 22.00
|
|
|
2,393 |
|
|
|
5.3 |
|
|
|
17.54 |
|
|
|
2,393 |
|
|
|
17.54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,117 |
|
|
|
|
|
|
|
|
|
|
|
10,780 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE 13. Stock-Based Compensation
(Continued)
Restricted Stock Awards and Restricted Stock Units
Restricted stock awards and restricted stock units granted under
the aforementioned plans vest after a designated period of time
(time-based), which is generally three to five
years, or upon the achievement of certain performance goals
(performance-based) at the completion of a
performance period, which is generally three years. Compensation
expense related to time-based restricted stock awards and units
is recorded ratably over the vesting period, while compensation
expense related to performance-based restricted stock awards is
recognized ratably over the performance period based upon an
estimate of the likelihood of achieving the performance goals.
Compensation expense is measured based upon the underlying
market price of the Companys common stock and includes the
amount of any dividends paid. Restricted stock issued under the
Non-Employee Director Stock Unit Plan vests immediately, and is
distributed after the participant terminates service as a
non-employee director of the Company.
Restricted stock awards are settled through the issuance of
underlying shares upon vesting. Accordingly, such amount is
recorded in the Companys consolidated balance sheets under
the caption Other equity. Restricted stock units are
settled in cash and accordingly result in the recognition of a
liability representing the vested portion of the obligation. The
current portion of such liability is recorded in the
Companys consolidated balance sheets under the caption
Accrued expenses and other current liabilities and
the long-term portion of such liability is recorded under the
caption Other liabilities.
Compensation expense related to restricted stock awards is
measured based on fair value using the average of the highest
and lowest market price of the Companys common stock on
the date of grant, while compensation expense related to
restricted stock units is based on fair value using the
underlying market price of the Companys common stock as of
the end of each reporting period. Compensation expense related
to restricted stock awards and restricted stock units, excluding
that related to dividends, was $14 million,
$13 million and $9 million in 2005, 2004 and
2003, respectively. No dividends were paid in 2005 and
approximately $1 million were paid in each of 2004 and 2003.
Information concerning restricted stock awards and restricted
stock units is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted | |
|
|
Restricted | |
|
Restricted | |
|
Average | |
|
|
Stock Awards | |
|
Stock Units | |
|
Price | |
|
|
| |
|
| |
|
| |
|
|
(In Thousands) | |
|
(In Thousands) | |
|
|
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 |
|
|
Granted
|
|
|
6 |
|
|
|
3,779 |
|
|
|
6.96 |
|
|
Lapsed
|
|
|
(949 |
) |
|
|
(8 |
) |
|
|
15.47 |
|
|
Terminated
|
|
|
(1,020 |
) |
|
|
(532 |
) |
|
|
10.57 |
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2005
|
|
|
2,217 |
|
|
|
5,599 |
|
|
$ |
7.89 |
|
|
|
|
|
|
|
|
|
|
|
102
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE 13. Stock-Based Compensation
(Continued)
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. SFAS 123(R) is required to be
adopted as of the beginning of the first annual interim period
that begins after June 15, 2005. The Company is
currently evaluating the impact of the requirements of
SFAS 123(R) on its consolidated financial statements.
|
|
NOTE 14. |
Net (Loss) Income Per Share |
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 stock warrants, and
contingently returnable shares, such as restricted stock.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(Dollars in Millions, Except Per | |
|
|
Share Amounts) | |
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(270 |
) |
|
$ |
(1,536 |
) |
|
$ |
(1,229 |
) |
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common stock outstanding
|
|
|
128.6 |
|
|
|
129.6 |
|
|
|
130.4 |
|
|
Less: Average restricted stock outstanding
|
|
|
(2.6 |
) |
|
|
(4.3 |
) |
|
|
(4.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Basic shares
|
|
|
126.0 |
|
|
|
125.3 |
|
|
|
125.8 |
|
|
Net dilutive effect of restricted stock and stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted shares
|
|
|
126.0 |
|
|
|
125.3 |
|
|
|
125.8 |
|
|
|
|
|
|
|
|
|
|
|
Net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$ |
(2.14 |
) |
|
$ |
(12.26 |
) |
|
$ |
(9.77 |
) |
For 2005, 2004 and 2003, potential common stock of
approximately 2.8 million shares, 3.1 million shares
and 1.0 million shares, respectively, are excluded from the
calculation of diluted loss per share because the effect of
including them would have been antidilutive. In addition,
options to purchase 8.2 million shares of common stock
at exercise prices ranging from $7 per share to
$22 per share were outstanding for 2005 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.
103
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 15. |
Asset Securitization |
United States
In December 2005, the Company terminated its revolving accounts
receivable securitization facility in the United States
(facility agreement). Formerly, under this facility
agreement, the Company could sell a portion of its
U.S. account receivables from customers other than Ford to
Visteon Receivables LLC (VRL), a wholly-owned
consolidated special purpose entity. VRL may then have sold, 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 the
Company or VRL. The conduit typically financed the purchases
through the issuance of commercial paper, with
back-up purchase
commitments from the conduits financial institution. The
sale of the undivided interest in the receivables from VRL to
the conduit was 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 sold
an undivided interest to the conduit, VRL retained the remaining
undivided interest. The carrying value of the remaining
undivided interests approximated the fair market value of these
receivables. The value of the undivided interest sold to the
conduit was excluded from the Companys consolidated
balance sheets and reduced the accounts receivable balances. The
Company performed the collection and administrative functions
related to the accounts receivable.
At the time VRL sold the undivided interest to the conduit, the
sale was 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 was principally the
estimated discount inherent in the facility agreement, which
reflected the borrowing costs as well as fees and expenses of
the conduit, and the length of time the receivables were
expected to be outstanding. Gross proceeds from new
securitizations were $237 million and $235 million
during the years ended December 31, 2005 and
December 31, 2004, respectively. Collections and
repayments to the conduit were $292 million and
$180 million during the years ended
December 31, 2005 and December 31, 2004,
respectively. This resulted in net payments and net proceeds of
$55 million for each of the years ended
December 31, 2005 and December 31, 2004. The
retained interest at December 31, 2004 of $178 million
was included in Accounts receivable on the
consolidated balance sheets. With the facility termination
December 15, 2005, there was no retained interest at
December 31, 2005. Losses on the sale of these
receivables was approximately $1 million for each of the
years ended December 31, 2005 and 2004 and are
included under the caption Selling, general and
administrative expenses in the Companys consolidated
statements of operations.
Europe
As of December 31, 2005 and 2004, the Company has sold
99 million euro ($117 million) and 19 million
euro ($26 million), respectively, of account receivables
without recourse, under a European sale of receivables agreement
with two banks. The agreements provide for the sale of accounts
receivable up to 80 million euro until
July 31, 2006, renewable on an annual basis and for
the sale of accounts receivable up to 20 million euro.
During the first quarter of 2006 the 20 million euro
facility was terminated. Losses on these receivable sales were
approximately $2 million for the year ended
December 31, 2005 and, $1 million for each of the
years ended December 31, 2004 and 2003, and are
included under the caption Interest expense in the
Companys consolidated statements of operations.
104
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE 15. Asset Securitization
(Continued)
Asia
As of December 31, 2005, the Company has sold
830 million yen Japanese ($7 million) of account
receivables, without recourse, under a Japanese sale of
receivables agreement initiated in the first quarter of 2005
that is renewable on an annual basis. The agreement currently
provides for the sale of up to 1.5 billion Japanese yen in
accounts receivable. Losses on these receivable sales were
immaterial for the year ended December 31, 2005.
|
|
NOTE 16. |
Financial Instruments |
Derivative Instruments
The Company follows Statement of Financial Accounting Standards
No. 133 (SFAS 133), Accounting for
Derivative Instruments and Hedging Activities, in
accounting for financial instruments. Under SFAS 133 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 a highly effective
relationship between the hedging instrument and the hedged item
or transaction. To determine if a highly effective relationship
exists between the hedging instrument and the hedged item, an
effectiveness test is performed at the inception of the hedge
and at each reporting period thereafter, throughout the period
that the hedge is designated. Any amounts determined to be
ineffective are recorded currently in results of operations.
Derivative instruments that are designated and qualify as a
hedge to changes in fair value of an underlying are reflected as
other assets or liabilities in the Companys consolidated
balance sheets. Changes in the fair value of these derivative
instruments are recorded in cost of sales and generally offset a
gain or loss on the underlying. Derivatives not designated as a
hedge are adjusted to fair value through operating results.
Derivative instruments that are designated and qualify as a cash
flow hedge of an underlying or forecasted transaction are
reflected as other assets or liabilities in the Companys
consolidated balance sheets. Changes in the fair value of these
derivative instruments are initially recorded as a component of
other comprehensive income (loss) and reclassified to the
consolidated statement of operations when the hedged
transactions affect results of operations. A gain or loss on the
derivative in excess of the cumulative change in the present
value of future cash flows of the hedged item is recognized in
operating results during the period of change. Derivatives not
designated as a hedge are adjusted to fair value through
operating results.
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.
105
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE 16. Financial Instruments
(Continued)
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 $808 million and
$1,832 million at December 31, 2005 and 2004,
respectively. The notional amount represents the contract
amount, not the amount at risk. The fair value of the
Companys foreign currency instruments was an asset of
$9 million and $18 million at
December 31, 2005 and 2004, respectively. The gains
and losses on derivatives qualifying as cash flow hedges are
recorded in other comprehensive income to the extent that hedges
are effective until the underlying transactions are recognized
in results of operations. In 2006, a pre-tax gain of
approximately $6 million is expected to be reclassified
from other comprehensive income to results of operations as the
anticipated underlying transactions occur.
As of December 31, 2005, the Company had interest rate
swaps designated as a hedge of the fair value of a portion of
fixed-rate notes maturing on August 1, 2010 and
March 10, 2014. The fair value of the swaps and the hedged
portion of the debt are recorded in the Companys
consolidated balance sheets.
During the first quarter of 2005, the Company 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 are deferred as part of the underlying
debt and amortized as a reduction in interest expense over the
remaining term of the debt.
The fair value of debt excluding related interest rate swaps was
approximately $1,787 million at
December 31, 2005, based on quoted market prices or
current rates for similar debt with the same credit ratings and
remaining maturities, compared with book value of
$2,001 million. The fair value of debt excluding related
interest rate swaps was approximately $2,064 million at
December 31, 2004, compared with book value of
$2,013 million. The notional amount of these interest rate
swaps was $350 million and $550 million, respectively,
at December 31, 2005 and 2004. The fair market value
of the interest rate swaps was a liability of $15 million
and an asset of $2 million at December 31, 2005
and 2004, respectively, with an offsetting amount recorded in
long-term debt.
Subsequent to the ACH Transactions, the Companys exposure
to market risks from changes in the price of natural gas and
copper were substantially reduced. In the second quarter of
2005, the Company discontinued hedge accounting treatment for
natural gas and copper forward contracts. Discontinuance of
hedge accounting for hedges on transactions that were not
expected to occur resulted in the recognition of a gain of
approximately $8 million in results of operations. These
forward contracts were terminated during the third quarter of
2005. The notional amount of commodity derivatives was
$71 million at December 31, 2004. The fair market
value of commodity derivatives was an asset of $9 million
at December 31, 2004.
Other Financial Instruments
Based on their short-term nature the Company believes fair value
of other financial instruments approximates recorded book value.
106
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE 16. Financial Instruments
(Continued)
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. The
Companys counterparties for cash equivalents, marketable
securities and derivative contracts are banks and financial
institutions that meet the Companys requirement of high
credit standing. The Companys counterparties for
derivative contracts are substantial investment and commercial
banks with significant experience using such derivatives. The
Company manages its credit risk through policies requiring
minimum credit standing and limiting credit exposure to any one
counterparty, and through monitoring counterparty credit risks.
The Companys concentration of credit risk related to
derivative contracts at December 31, 2005, was not
significant.
With the exception of accounts receivable from Ford and its
affiliates, the Companys credit risk with any individual
customer does not exceed ten percent of total accounts
receivable at December 31, 2005. Management
periodically performs credit evaluations of its customers and
generally does not require collateral.
|
|
NOTE 17. |
Commitments and Contingencies |
Commitments
Information Technology Agreement
Prior to January 2003 and since the Companys separation
from Ford, Ford had provided the Company with and charged the
Company for many of the Companys information technology
needs. In January 2003, the Company entered into a
10-year outsourcing
agreement with International Business Machines (IBM)
pursuant to which the Company outsources most of its 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 approximately
$2 billion during the ten year initial term of the
agreement, subject to decreases and increases in the service
charges based on the Companys actual consumption of
services to meet its then current business needs. The
outsourcing agreement may also be terminated for the
Companys business convenience after its second full year
under the agreement for a scheduled termination fee. Associated
charges were approximately $240 million and
$280 million in 2005 and 2004, respectively.
Operating Leases
At December 31, 2005, the Company had the following
minimum rental commitments under non-cancelable operating leases
(in millions): 2006 $50; 2007 $45;
2008 $34; 2009 $31; 2010
$23; thereafter $20. Rent expense was
$80 million in 2005; $92 million in 2004, and
$86 million in 2003.
Debt
Debt, including capital lease obligations, at
December 31, 2005, included maturities as follows
(in millions): 2006 $485; 2007
$265; 2008 $31; 2009 $5;
2010 $696; thereafter $512.
107
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE 17. Commitments and Contingencies
(Continued)
Guarantees
The Company has guaranteed approximately $136 million of
debt capacity held by consolidated subsidiaries, and
$84 million for lifetime lease payments held by
consolidated subsidiaries. In addition, the Company has
guaranteed Tier 2 suppliers debt and lease
obligations and other third-party service providers
obligations of up to $20 million, at
December 31, 2005, to ensure the continued supply of
essential parts.
Vitro Flex is a joint venture 38% owned by the Company or its
subsidiaries. Vitro Flex manufactures and supplies tempered and
laminated glass for use in automotive vehicles. Pursuant to the
joint venture agreement the Company is required to provide,
though 2008, sales orders and/or other competitively-priced
business opportunities meeting certain average annual levels,
mainly based on the ventures manufacturing capacity.
Pursuant to the ACH Transactions substantially all of the
Companys Glass Operations were transferred to ACH.
Accordingly, the Company can no longer affect sales order
volumes to Vitro Flex. In addition to the Companys equity
investment of $19 million, the Company has exposure to the
after tax cash effect for shortfalls to agreed upon average
annual sales levels pursuant to the joint venture agreement.
Contingencies
Litigation and Claims
In February 2005, a shareholder lawsuit was filed in the
U.S. District Court for the Eastern District of Michigan
against the Company and certain current and former officers of
the Company. In July 2005, the Public Employees
Retirement System of Mississippi was appointed as lead plaintiff
in this matter. In September 2005, the lead plaintiff filed an
amended complaint, which alleges, among other things, that the
Company and its independent registered public accounting firm,
PricewaterhouseCoopers LLP, 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 plaintiff
seeks to represent a class consisting of purchasers of the
Companys securities during the period between
June 28, 2000 and January 31, 2005. Class
action status has not yet been certified in this litigation. In
December 2005, defendants moved to dismiss the amended complaint
for failure to state a claim. Oral argument on that motion is
scheduled for April 2006.
In March 2005, a number of current and former directors and
officers were named as defendants in two shareholder derivative
suits pending in the State of Michigan Circuit Court for the
County of Wayne. As is customary in derivative suits, the
Company has been named as a defendant in these actions. As a
nominal defendant, the Company is not liable for any damages in
these suits nor is any specific relief sought against the
Company. The complaints allege that, among other things, the
individual defendants breached their fiduciary duties of good
faith and loyalty and aided and abetted such breaches during the
period between January 23, 2004 and
January 31, 2005 in connection with the Companys
conduct concerning, among other things, the matters alleged in
the securities class action discussed immediately above. The
derivative matters have been stayed pending resolution of
defendants motion to dismiss the Securities matter pending in
the Eastern District of Michigan.
108
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE 17. Commitments and Contingencies
(Continued)
In March and April 2005, the Company and a number of current and
former employees, officers and directors were named as
defendants in three class action lawsuits brought under the
Employee Retirement Income Security Act (ERISA) in
the U.S. District Court for the Eastern District of
Michigan. In September 2005, the plaintiffs filed an amended and
consolidated complaint, which generally alleges that the
defendants breached their fiduciary duties under ERISA during
the class period by, among other things, continuing to offer
Visteon stock as an investment alternative under the Visteon
Investment Plan (and the Visteon Savings Plan for Hourly
Employees, together the Plans), failing to disclose
complete and accurate information regarding the prudence of
investing in Visteon stock, failing to monitor the actions of
certain of the defendants, and failing to avoid conflicts of
interest or promptly resolve them. These ERISA claims are
predicated upon factual allegations similar to those raised in
the derivative and securities class actions described
immediately above. The consolidated complaint was brought on
behalf of a named plaintiff and a putative class consisting of
all participants or beneficiaries of the Plans whose accounts
included Visteon stock at any time from July 20, 2001
through May 25, 2005. Class action status has not yet
been certified in this litigation. In November 2005, the
defendants moved to dismiss the consolidated amended complaint
on various grounds. Oral argument on that motion is scheduled
for March 2006.
The Company and its current and former directors and officers
intend to contest the foregoing lawsuits vigorously. However, at
this time the Company is not able to predict with certainty the
final outcome of each of the foregoing lawsuits or its potential
exposure with respect to each such lawsuit. In the event of an
unfavorable resolution of any of these matters, the
Companys earnings and cash flows in one or more periods
could be materially affected to the extent any such loss is not
covered by insurance or applicable reserves.
Product Warranty
The Company accrues for warranty obligations for products sold
based on management estimates, with support from the
Companys sales, engineering, quality and legal functions,
of the amount that eventually will be required to settle such
obligations. This accrual is based on several factors, including
contractual arrangements, past experience, current claims,
production changes, industry developments and various other
considerations. The following table provides a reconciliation of
changes in the product warranty claims liability for the
selected periods:
|
|
|
|
|
|
|
|
|
|
|
December 31 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(Dollars in Millions) | |
Beginning balance
|
|
$ |
41 |
|
|
$ |
22 |
|
Accruals for products shipped
|
|
|
40 |
|
|
|
33 |
|
Changes in estimates
|
|
|
20 |
|
|
|
14 |
|
Settlements
|
|
|
(31 |
) |
|
|
(28 |
) |
|
|
|
|
|
|
|
Ending balance
|
|
$ |
70 |
|
|
$ |
41 |
|
|
|
|
|
|
|
|
109
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE 17. Commitments and Contingencies
(Continued)
Product Recall
The Company 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
the Companys determination of the potential for such
actions. The Company accrues for recall claims for products sold
based on management estimates, with support from the
Companys engineering, quality and legal functions. Amounts
accrued are based upon managements best estimate of the
amount that will ultimately be required to settle such claims.
The following table provides a reconciliation of changes in the
product recall liability for the selected periods:
|
|
|
|
|
|
|
|
|
|
|
December 31 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(Dollars in Millions) | |
Beginning balance
|
|
$ |
53 |
|
|
$ |
99 |
|
Accruals for products shipped
|
|
|
21 |
|
|
|
21 |
|
Changes in estimates
|
|
|
5 |
|
|
|
(60 |
) |
Settlements
|
|
|
(1 |
) |
|
|
(7 |
) |
|
|
|
|
|
|
|
Ending balance
|
|
$ |
78 |
|
|
$ |
53 |
|
|
|
|
|
|
|
|
Environmental Matters
Costs related to environmental assessments and remediation
efforts at operating facilities, previously owned or operated
facilities, and Superfund or other waste site locations are
accrued when it is probable that a liability has been incurred
and the amount of that liability can be reasonably estimated.
Estimated costs are recorded at undiscounted amounts, based on
experience and assessments, and are regularly evaluated. The
liabilities are recorded in other current liabilities and other
long-term liabilities in the consolidated balance sheets.
The Company 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. The Company 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.
At the time of spin-off, the Company and Ford agreed on a
division of liability for, and responsibility for management and
remediation of, environmental claims existing at that time, and,
further, that the Company would assume all liabilities for
existing and future claims relating to sites that were
transferred to it and its operation of those sites, including
off-site disposal, except as otherwise specifically retained by
Ford in the master transfer agreement. In connection with the
ACH Transactions, Ford agreed to re-assume these liabilities to
the extent they arise from the ownership or operation prior to
the spin-off of the locations transferred to ACH (excluding any
increase in costs attributable to the exacerbation of such
liability by the Company or its affiliates).
110
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE 17. Commitments and Contingencies
(Continued)
The Company is aware of contamination at some of its properties
and relating to various third-party superfund sites at which the
Company or its predecessor has been named as a potentially
responsible party. It is in various stages of investigation and
cleanup at these sites. At December 31, 2005, the
Company had recorded a reserve of approximately $9 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
the Companys control and which may change dramatically.
Accordingly, although the Company believes its reserve is
adequate based on current information, the Company cannot assure
you that its eventual environmental investigation and cleanup
costs and liabilities will not exceed the amount of its current
reserve.
Other Contingent Matters
Various other legal actions, governmental investigations and
proceedings and claims are pending or may be instituted or
asserted in the future against the Company, including those
arising out of alleged defects in the Companys 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 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.
Contingencies are subject to many uncertainties, and the outcome
of individual litigated matters is not predictable with
assurance. Reserves have been established by the Company for
matters discussed in the immediately foregoing paragraph where
losses are deemed probable and reasonably estimable. It is
possible, however, that some of the matters discussed in the
foregoing paragraph could be decided unfavorably to the Company
and could require the Company to pay damages or make other
expenditures in amounts, or a range of amounts, that cannot be
estimated at December 31, 2005 and that are in excess
of established reserves. The Company 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 the Companys financial condition, results of
operations or cash flows, although such an outcome is possible.
The Company enters into agreements that contain indemnification
provisions in the normal course of business for which the risks
are considered nominal and impracticable to estimate.
|
|
NOTE 18. |
Segment Information |
Statement of Financial Accounting Standards No. 131
(SFAS 131), Disclosures about Segments of
an Enterprise and Related Information, requires the
Company to disclose certain financial and descriptive
information about its reportable segments. Reportable segments
are defined as components of an enterprise for which discrete
financial information is available that is evaluated regularly
by the chief operating decision-maker, or a decision-making
group, in deciding the allocation of resources and in assessing
performance.
111
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE 18. Segment Information
(Continued)
In late 2005 the Company announced a new operating structure to
manage the business post the ACH Transactions, on a go-forward
basis. This operating structure is comprised of the following
global product groups; Climate, Electronics, Interiors and
Other. These global product groups have financial and operating
responsibility over the design, development and manufacture of
the Companys product portfolio. Regional customer groups
are responsible for the marketing, sales and service of the
Companys product portfolio to its customer base. Certain
functions such as procurement, information technology and other
administrative activities are managed on a global basis with
regional deployment.
The Company is currently in the process of realigning systems
and reporting structures to facilitate financial reporting under
the revised organizational structure. Such realignment was not
complete at December 31, 2005 and accordingly the
Company did not meet the criteria to change its reportable
segments under Statement of Financial Accounting Standards
No. 131 (SFAS 131) Disclosures about
Segments of an Enterprise and Related Information. The
Company expects to revise its reportable segments in the first
quarter of 2006. However, pursuant to the ACH Transactions, the
Company established and commenced operations of Visteon
Services, a centralized administrative function to monitor and
facilitate transactions with ACH for the costs of leased
employees and other services provided to ACH by the Company. As
the activities of Visteon Services do not share similar economic
characteristics with the Companys other business
operations, the Company has provided separate disclosure of
these operations as of December 31, 2005.
The Companys reportable segments as of
December 31, 2005 are as follows:
Automotive Operations The Companys Automotive
Operations supply automotive systems, modules and components on
a global basis for product offerings related to climate control,
interior, exterior, powertrain, chassis and electronics. For a
more detailed description of the Companys products, see
Products below. The Automotive Operations segment
accounted for approximately 97% of the Companys
2005, 2004 and 2003 total net sales.
Glass Operations The Companys
Glass Operations supply automotive glass products to Ford
and various aftermarket customers, and float glass for
commercial architectural and automotive applications. The
Glass Operations segment accounted for approximately 2%, 3%
and 3% of the Companys 2005, 2004 and 2003 total net
sales, respectively.
Services Operations The Companys Services
Operations supply leased personnel and transition services as
required by certain agreements entered into by the Company with
ACH as a part of the ACH Transactions. Pursuant to the Master
Services Agreement and the Salaried Employee Lease Agreement the
Company agreed to provide ACH with certain information
technology and other services to enable ACH to conduct its
business. Services to ACH are provided at a rate approximately
equal to the Companys cost until such time the services
are no longer required by ACH or the expiration of the related
agreement. The Services Operations segment accounted for
approximately 1% of the Companys total net sales in 2005.
112
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE 18. Segment Information
(Continued)
The accounting policies for the reportable segments are the same
as those described in the Note 2 to the Companys
consolidated financial statements. Key financial measures of
income (loss) before income taxes and minority interests and
total assets reviewed by the Companys chief operating
decision maker are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Income | |
|
|
Net Sales | |
|
Taxes and Minority Interests | |
|
|
| |
|
| |
|
|
Year Ended December 31 | |
|
Year Ended December 31 | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in Millions) | |
Automotive Operations
|
|
$ |
16,417 |
|
|
$ |
18,137 |
|
|
$ |
17,097 |
|
|
$ |
(143 |
) |
|
$ |
(523 |
) |
|
$ |
(1,187 |
) |
Glass Operations
|
|
|
395 |
|
|
|
520 |
|
|
|
563 |
|
|
|
(31 |
) |
|
|
(16 |
) |
|
|
(7 |
) |
Service Operations
|
|
|
164 |
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
16,976 |
|
|
$ |
18,657 |
|
|
$ |
17,660 |
|
|
$ |
(173 |
) |
|
$ |
(539 |
) |
|
$ |
(1,194 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company recorded sales of $10,559 million,
$13,015 million and $13,475 million to Ford Motor
Company during the years ended
December 31, 2005, 2004 and 2003, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures, | |
|
Depreciation and | |
|
|
Total Assets | |
|
Including Capital Leases | |
|
Amortization | |
|
|
| |
|
| |
|
| |
|
|
December 31 | |
|
Year Ended December 31 | |
|
Year Ended December 31 | |
|
|
| |
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2005 | |
|
2004 | |
|
2003 | |
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in Millions) | |
Automotive Operations
|
|
$ |
6,714 |
|
|
$ |
10,021 |
|
|
$ |
10,725 |
|
|
$ |
611 |
|
|
$ |
833 |
|
|
$ |
863 |
|
|
$ |
593 |
|
|
$ |
681 |
|
|
$ |
670 |
|
Glass Operations
|
|
|
19 |
|
|
|
271 |
|
|
|
299 |
|
|
|
2 |
|
|
|
12 |
|
|
|
9 |
|
|
|
2 |
|
|
|
4 |
|
|
|
7 |
|
Service Operations
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
6,736 |
|
|
$ |
10,292 |
|
|
$ |
11,024 |
|
|
$ |
613 |
|
|
$ |
845 |
|
|
$ |
872 |
|
|
$ |
595 |
|
|
$ |
685 |
|
|
$ |
677 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in income (loss) before income taxes and minority
interests for Automotive Operations are restructuring and asset
impairment charges of $1,557 million, $392 million and
$736 million for 2005, 2004 and 2003, respectively.
Similarly, restructuring charges for Glass Operations were
$4 million in 2004.
113
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE 18. Segment Information
(Continued)
Financial information segregated by geographic region is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Property | |
|
|
Net Sales | |
|
and Equipment | |
|
|
| |
|
| |
|
|
Year Ended December 31 | |
|
December 31 | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in Millions) | |
Geographic region:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$ |
9,821 |
|
|
$ |
11,868 |
|
|
$ |
11,852 |
|
|
$ |
1,008 |
|
|
$ |
2,835 |
|
|
Mexico
|
|
|
259 |
|
|
|
447 |
|
|
|
512 |
|
|
|
141 |
|
|
|
189 |
|
|
Canada
|
|
|
139 |
|
|
|
199 |
|
|
|
189 |
|
|
|
39 |
|
|
|
39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total North America
|
|
|
10,219 |
|
|
|
12,514 |
|
|
|
12,553 |
|
|
|
1,188 |
|
|
|
3,063 |
|
|
Germany
|
|
|
734 |
|
|
|
636 |
|
|
|
562 |
|
|
|
167 |
|
|
|
329 |
|
|
France
|
|
|
960 |
|
|
|
892 |
|
|
|
570 |
|
|
|
214 |
|
|
|
236 |
|
|
United Kingdom
|
|
|
579 |
|
|
|
638 |
|
|
|
608 |
|
|
|
100 |
|
|
|
320 |
|
|
Portugal
|
|
|
593 |
|
|
|
582 |
|
|
|
505 |
|
|
|
127 |
|
|
|
159 |
|
|
Spain
|
|
|
602 |
|
|
|
485 |
|
|
|
410 |
|
|
|
106 |
|
|
|
117 |
|
|
Czech Republic
|
|
|
421 |
|
|
|
362 |
|
|
|
271 |
|
|
|
175 |
|
|
|
193 |
|
|
Hungary
|
|
|
207 |
|
|
|
190 |
|
|
|
188 |
|
|
|
97 |
|
|
|
103 |
|
|
Other Europe
|
|
|
117 |
|
|
|
130 |
|
|
|
95 |
|
|
|
43 |
|
|
|
78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Europe
|
|
|
4,213 |
|
|
|
3,915 |
|
|
|
3,209 |
|
|
|
1,029 |
|
|
|
1,535 |
|
|
Korea
|
|
|
1,388 |
|
|
|
1,178 |
|
|
|
994 |
|
|
|
407 |
|
|
|
350 |
|
|
China
|
|
|
75 |
|
|
|
48 |
|
|
|
66 |
|
|
|
62 |
|
|
|
26 |
|
|
India
|
|
|
203 |
|
|
|
179 |
|
|
|
114 |
|
|
|
77 |
|
|
|
85 |
|
|
Japan
|
|
|
208 |
|
|
|
230 |
|
|
|
208 |
|
|
|
52 |
|
|
|
62 |
|
|
Other Asia
|
|
|
155 |
|
|
|
109 |
|
|
|
72 |
|
|
|
38 |
|
|
|
38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Asia
|
|
|
2,029 |
|
|
|
1,744 |
|
|
|
1,454 |
|
|
|
636 |
|
|
|
561 |
|
|
South America
|
|
|
491 |
|
|
|
451 |
|
|
|
413 |
|
|
|
116 |
|
|
|
140 |
|
|
All Other
|
|
|
24 |
|
|
|
33 |
|
|
|
31 |
|
|
|
4 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
16,976 |
|
|
$ |
18,657 |
|
|
$ |
17,660 |
|
|
$ |
2,973 |
|
|
$ |
5,303 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys sales by group of similar products are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products |
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(Dollars in Millions) | |
Automotive Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chassis Products & Systems
|
|
$ |
3,298 |
|
|
$ |
4,477 |
|
|
$ |
4,390 |
|
|
Interior Products & Systems
|
|
|
3,891 |
|
|
|
3,974 |
|
|
|
3,653 |
|
|
Climate Control Products & Systems
|
|
|
4,291 |
|
|
|
4,317 |
|
|
|
3,848 |
|
|
Powertrain Products & Systems
|
|
|
2,799 |
|
|
|
3,328 |
|
|
|
3,144 |
|
|
Electronic Products & Systems
|
|
|
1,984 |
|
|
|
1,961 |
|
|
|
2,091 |
|
|
Exterior Products & Systems
|
|
|
768 |
|
|
|
881 |
|
|
|
801 |
|
|
Eliminations and other
|
|
|
(614 |
) |
|
|
(801 |
) |
|
|
(830 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total Automotive Operations
|
|
|
16,417 |
|
|
|
18,137 |
|
|
|
17,097 |
|
Glass Operations
|
|
|
395 |
|
|
|
520 |
|
|
|
563 |
|
Service Operations
|
|
|
164 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
16,976 |
|
|
$ |
18,657 |
|
|
$ |
17,660 |
|
|
|
|
|
|
|
|
|
|
|
114
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 19. |
Summary Quarterly Financial Data (Unaudited) |
The following tables present summary quarterly financial data.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
First | |
|
Second | |
|
Third | |
|
Fourth | |
|
First | |
|
Second | |
|
Third | |
|
Fourth | |
|
|
Quarter | |
|
Quarter | |
|
Quarter | |
|
Quarter | |
|
Quarter | |
|
Quarter | |
|
Quarter | |
|
Quarter | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in Millions, Except Per Share Amounts) | |
Net sales
|
|
$ |
4,987 |
|
|
$ |
5,003 |
|
|
$ |
4,121 |
|
|
$ |
2,865 |
|
|
$ |
4,972 |
|
|
$ |
4,870 |
|
|
$ |
4,136 |
|
|
$ |
4,679 |
|
Gross margin
|
|
|
147 |
|
|
|
243 |
|
|
|
100 |
|
|
|
64 |
|
|
|
331 |
|
|
|
293 |
|
|
|
106 |
|
|
|
158 |
|
Operating income (loss)
|
|
|
(110 |
) |
|
|
(1,207 |
) |
|
|
(150 |
) |
|
|
1,401 |
|
|
|
52 |
|
|
|
50 |
|
|
|
(455 |
) |
|
|
(135 |
) |
Income (loss) before income taxes and minority interest in
consolidated subsidiaries
|
|
|
(133 |
) |
|
|
(1,230 |
) |
|
|
(180 |
) |
|
|
1,370 |
|
|
|
44 |
|
|
|
38 |
|
|
|
(469 |
) |
|
|
(152 |
) |
Net income (loss)
|
|
|
(163 |
) |
|
|
(1,238 |
) |
|
|
(207 |
) |
|
|
1,338 |
|
|
|
21 |
|
|
|
20 |
|
|
|
(1,439 |
) |
|
|
(138 |
) |
Income (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
(1.30 |
) |
|
$ |
(9.85 |
) |
|
$ |
(1.64 |
) |
|
$ |
10.58 |
|
|
$ |
0.17 |
|
|
$ |
0.16 |
|
|
$ |
(11.48 |
) |
|
$ |
(1.10 |
) |
|
Diluted
|
|
$ |
(1.30 |
) |
|
$ |
(9.85 |
) |
|
$ |
(1.64 |
) |
|
$ |
10.25 |
|
|
$ |
0.16 |
|
|
$ |
0.16 |
|
|
$ |
(11.48 |
) |
|
$ |
(1.10 |
) |
As discussed further in Notes 3 and 4 to the Companys
consolidated financial statements, the Company recorded pre-tax
charges of $7 million, $1,176 million,
$11 million and $363 million in the first quarter,
second quarter, third quarter and fourth quarter of 2005,
respectively, related to asset impairment charges and
restructuring actions. The company recorded $1,832 million
related to the gain on ACH Transactions during the fourth
quarter of 2005.
As discussed further in Notes 3 and 4 to the Companys
consolidated financial statements, the Company 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, restructuring and other actions.
|
|
NOTE 20. |
Subsequent Events |
Effective January 1, 2006 Ford acquired two plants
from ACH, which are located in Rawsonville, Michigan and
Sterling Heights, Michigan. In connection with this transaction
and the Salaried Employee Lease Agreement certain salaried
employees of the Company were transferred to Ford along with
related postretirement employee health care and life insurance
benefits. The Company expects to record approximately
$20 million related to the relief of the OPEB obligation to
Ford in the first quarter of 2006 and approximately
$40 million of a curtailment gain related to the relief of
the Visteon OPEB plan benefit obligation in the second quarter
of 2006.
115
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE 20. Subsequent Events
(Continued)
On January 11, 2006, the Company announced a
three-year improvement plan that involves certain
underperforming and non-strategic plants and businesses and is
designed to improve operating performance and achieve cost
reductions. This plan is expected to affect up to 23 facilities
with costs expected to include severance and employee benefit
costs, contract termination costs, production transfer costs and
asset impairment costs associated with affected asset groupings.
During the fourth quarter of 2005 the Company recorded
$28 million of severance and other restructuring costs
related to this improvement plan. Additionally, during the
fourth quarter of 2005 the Company recorded a non-cash
impairment charge of $335 million to adjust certain lived
long-lived assets to their estimated fair values. A significant
amount of this impairment charge relates to product lines
manufactured at facilities that are subject to the
Companys three-year improvement plan.
The Company currently estimates that the cumulative costs
associated with this three-year improvement plan will be
approximately $650 million, offset by approximately
$350 million of escrow account reimbursement. However, the
timing and amount of these costs are likely to change as the
details of the plan are finalized over the plan period.
116
|
|
ITEM 9. |
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE |
None.
|
|
ITEM 9A. |
CONTROLS AND PROCEDURES |
Disclosure Controls and Procedures
Visteon maintains disclosure controls and procedures that are
designed to ensure that information required to be disclosed in
reports the Company files with the SEC under the Securities
Exchange Act of 1934 is recorded, processed, summarized, and
reported within the time periods specified in the SECs
rules and forms, and that such information is accumulated and
communicated to the Companys management, including its
Chief Executive Officer (CEO) and Chief Financial Officer
(CFO), as appropriate, to allow timely decisions regarding
required disclosure.
Visteon carried out an evaluation, under the supervision and
with the participation of management, including the CEO and CFO,
of the effectiveness of the design and operation of the
Companys disclosure controls and procedures as of
December 31, 2005. Based upon that evaluation, the CEO
and CFO concluded that the Companys disclosure controls
and procedures were not effective because of the existence of a
material weakness in the Companys internal control over
financial reporting as described below. Notwithstanding the
material weakness described below, management has concluded that
the consolidated financial statements included in this Annual
Report on
Form 10-K fairly
present, in all material respects, the Companys financial
position, results of operations and cash flows for the periods
presented.
Managements Report on Internal Control over Financial
Reporting
The Companys management is responsible for establishing
and maintaining adequate internal control over financial
reporting, as such term is defined in
Rule 13a-15(f)
under the Securities Exchange Act of 1934. Under the supervision
and with the participation of the Companys CEO and CFO,
management conducted an assessment of the effectiveness of the
Companys internal control over financial reporting as of
December 31, 2005. In making this assessment,
management used the criteria established in the framework
entitled Internal Control Integrated
Framework, issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
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 policies and procedures may deteriorate.
Management concluded that the Company did not maintain effective
internal control over financial reporting as of
December 31, 2005 because of the existence of a
material weakness in the Companys internal control over
financial reporting as described below. 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.
117
ITEM 9A. CONTROLS AND PROCEDURES
(Continued)
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 and
payables originating in its North American purchasing function.
Specifically, controls to ensure that accruals and payables for
freight, raw materials and other supplier costs were
appropriately supported and reviewed did not operate effectively
to ensure that costs were recorded in the correct period and
that period-end accruals and payables were complete and
accurate, and did not prevent or detect the improper conduct by
two former, non-executive employees. Further, the Company did
not have effective controls designed and in place over
information received from its third-party freight administrator,
and the monitoring of supplier negotiations and ongoing contract
compliance, to identify and record costs in the correct period
and ensure that related period-end accruals and payables were
complete and accurate. This control deficiency, and the related
misconduct, resulted in accounting errors which required
restatement of the Companys 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. Additionally,
this control deficiency could result in a misstatement of
freight, raw material and other supplier costs and related
period-end accruals and payables that would result in a material
misstatement to annual or interim financial statements that
would not be prevented or detected.
Managements assessment of the effectiveness of the
Companys internal control over financial reporting as of
December 31, 2005 has been audited by
PricewaterhouseCoopers LLP, an independent registered public
accounting firm, as stated in their report which is included
herein.
Remediation Efforts to Address Material Weakness in Internal
Control over Financial Reporting
During the third and fourth quarters of 2005, the Company
implemented additional controls to identify liabilities related
to activities with its North American suppliers, and to ensure
that costs are recorded in the correct period and that related
period-end accruals and payables are complete and accurate.
These controls included the implementation of policies and
procedures to identify, assess and account for supplier
activities and contracts and to estimate and record costs as
incurred. Further, additional procedures have been implemented
to ensure that period-end accruals and payables are complete and
accurate. The Company continues to monitor and evaluate the
operating effectiveness of these controls.
Changes in Internal Control over Financial Reporting
Other than remediation efforts to address the material weakness
in the Companys internal control over financial reporting
and other changes as described below, there were no changes in
the quarter ended December 31, 2005 that have
materially effected, or are reasonably likely to materially
effect, the Companys internal control over financial
reporting.
Accounting for Employee Postretirement Health Care
Benefits
The Company implemented additional controls to ensure that all
necessary actions required to effect changes in the accounting
for employee postretirement health care benefits have been
completed prior to recognizing such changes in the 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. During 2005,
the Company amended its employee postretirement health care
plans for certain of its U.S. salaried employees; the
controls described above were applied to this amendment. During
the fourth quarter of 2005, the Company completed its testing
and concluded that these newly implemented controls were
effective and therefore this material weakness as of
December 31, 2004 disclosed in the Companys 2004
Annual Report on
Form 10-K/A has
been remediated.
118
ITEM 9A. CONTROLS AND PROCEDURES
(Continued)
Accounting for Costs Incurred for Tools Used in Production
The Company 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 and recording of tooling costs incurred.
Additionally, the Company has implemented additional monitoring
controls to include a complete and timely review of recorded
tooling amounts, including review of aged unbilled items. During
the fourth quarter of 2005, the Company completed its testing
and concluded that these newly implemented controls were
effective and therefore this material weakness as of
December 31, 2004 disclosed in the Companys 2004
Annual Report on
Form 10-K/A has
been remediated.
Services Provided to ACH
During the fourth quarter of 2005, the Company implemented
controls to give effect to the creation of the Companys
Services Operations and to perform accounting, financial
reporting and other services under the terms of various
agreements between the Company and ACH utilizing the
Companys existing business systems. These controls consist
of employee training and education, development and
implementation of policies and procedures, modification of the
Companys existing business transaction and reporting
systems, as well as other monitoring procedures to ensure that
the respective financial records accurately reflect the
underlying transactions of the Company and ACH.
ITEM 9B. OTHER INFORMATION
None.
119
PART III
|
|
ITEM 10. |
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT |
Except as set forth herein, the information required by
Item 10 regarding its 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 its 2006 Proxy Statement. The information
required by Item 10 regarding its executive officers
appears as Item 4A under Part I of this Annual Report
on Form 10-K.
The Company 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 the
Company and its subsidiaries, including the Chairman and Chief
Executive Officer, the Executive Vice President and Chief
Financial Officer and the Vice President and Chief Accounting
Officer. The code, entitled Ethics and Integrity
Policy, is available on the Companys 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 its 2006 Proxy
Statement.
|
|
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 Stock
Ownership in its 2006 Proxy Statement.
The following table summarizes information as of
December 31, 2005 relating to its 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 its common
stock may be made from time to time.
Equity Compensation Plan Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities | |
|
|
Number of Securities | |
|
|
|
Remaining Available for | |
|
|
to be Issued Upon | |
|
Weighted-Average | |
|
Future Issuance Under | |
|
|
Exercise of | |
|
Exercise Price of | |
|
Equity Compensation | |
|
|
Outstanding Options, | |
|
Outstanding | |
|
Plans (excluding | |
|
|
Warrants and Rights | |
|
Options, Warrants | |
|
securities reflected in | |
Plan Category |
|
(a)(1) | |
|
and Rights (b) | |
|
column(a)) (c)(2) | |
|
|
| |
|
| |
|
| |
Equity compensation plans approved by security holders
|
|
|
15,014,139 |
|
|
$ |
10.68 |
|
|
|
1,702,334 |
|
Equity compensation plans not approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
15,014,139 |
|
|
|
|
|
|
|
1,702,334 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Excludes 2,216,711 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 the Company. 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. |
120
|
|
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 Process and
Policies in its 2006 Proxy Statement.
PART IV
|
|
ITEM 15. |
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
(a) The following documents are
filed as part of this report:
1. Financial Statements
See Index to Consolidated Financial Statements in
Part II, Item 8 hereof.
2. Financial Statement
Schedules
Report of Independent Registered Public Accounting Firm on
Financial Statement Schedules.
Schedule I Condensed Financial Information of the
Company
Schedule II Valuation and Qualifying Accounts
All other financial statement schedules are omitted because they
are not required or applicable under instructions contained in
Regulation S-X or
because the information called for is shown in the financial
statements and notes thereto.
3. Exhibits
The exhibits listed on the Exhibit Index on
pages 129 134 are filed with this Annual Report on
Form 10-K or incorporated by reference as set forth therein.
(b) The exhibits listed on the
Exhibit Index on pages 129 134 are
filed with this Annual Report on Form 10-K or incorporated
by reference as set forth therein.
121
Report of Independent Registered Public Accounting Firm on
Financial Statement Schedules
To the Board of Directors and Shareholders
Visteon Corporation
Our audits of the consolidated financial statements, of
managements assessment of the effectiveness of internal
control over financial reporting and of the effectiveness of
internal control over financial reporting referred to in our
report dated March 16, 2006 appearing in this Annual Report
on Form 10-K of
Visteon Corporation also included an audit of the financial
statement schedules listed in Item 15(a)(2) of this
Form 10-K. In our
opinion, these financial statement schedules present fairly, in
all material respects, the information set forth therein when
read in conjunction with the related consolidated financial
statements.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Detroit, Michigan
March 16, 2006
122
VISTEON CORPORATION AND SUBSIDIARIES
SCHEDULE I CONDENSED FINANCIAL INFORMATION
OF THE PARENT COMPANY
CONDENSED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(Dollars in Millions) | |
Net sales
|
|
$ |
7,636 |
|
|
$ |
10,653 |
|
|
$ |
10,358 |
|
Cost of sales
|
|
|
9,832 |
|
|
|
12,191 |
|
|
|
12,438 |
|
Other expenses
|
|
|
782 |
|
|
|
768 |
|
|
|
781 |
|
Gain on ACH Transactions
|
|
|
1,922 |
|
|
|
|
|
|
|
|
|
Equity in net income of consolidated subsidiaries and non-
consolidated affiliates
|
|
|
758 |
|
|
|
1,556 |
|
|
|
1,558 |
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(298 |
) |
|
|
(750 |
) |
|
|
(1,303 |
) |
Provision (benefit) for income taxes
|
|
|
(28 |
) |
|
|
786 |
|
|
|
(74 |
) |
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(270 |
) |
|
$ |
(1,536 |
) |
|
$ |
(1,229 |
) |
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed financial information of the
parent company.
123
VISTEON CORPORATION AND SUBSIDIARIES
SCHEDULE I CONDENSED FINANCIAL INFORMATION
OF THE PARENT COMPANY
CONDENSED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
December 31 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(Dollars in Millions) | |
ASSETS |
Cash and cash equivalents
|
|
$ |
314 |
|
|
$ |
212 |
|
Accounts receivable, net
|
|
|
108 |
|
|
|
674 |
|
Due from consolidated subsidiaries
|
|
|
1,282 |
|
|
|
1,434 |
|
Inventories, net
|
|
|
34 |
|
|
|
359 |
|
Equity in net assets of consolidated subsidiaries and
non-consolidated affiliates
|
|
|
6,163 |
|
|
|
8,353 |
|
Property and equipment, net
|
|
|
273 |
|
|
|
1,829 |
|
Other assets
|
|
|
29 |
|
|
|
43 |
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
8,203 |
|
|
$ |
12,904 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS (DEFICIT)/ EQUITY |
Accounts payable and other
|
|
$ |
850 |
|
|
$ |
2,295 |
|
Debt
|
|
|
1,510 |
|
|
|
1,496 |
|
Due to consolidated subsidiaries
|
|
|
5,351 |
|
|
|
6,269 |
|
Employee benefits including pension and postretirement benefits
|
|
|
540 |
|
|
|
2,524 |
|
Shareholders (deficit)/equity
|
|
|
|
|
|
|
|
|
|
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, 129 million and
130 million shares outstanding, respectively)
|
|
|
131 |
|
|
|
131 |
|
|
Stock warrants
|
|
|
127 |
|
|
|
|
|
|
Additional paid in capital
|
|
|
3,396 |
|
|
|
3,380 |
|
|
Accumulated other comprehensive loss and other
|
|
|
(262 |
) |
|
|
(21 |
) |
|
Accumulated deficit
|
|
|
(3,440 |
) |
|
|
(3,170 |
) |
|
|
|
|
|
|
|
Total shareholders (deficit)/equity
|
|
|
(48 |
) |
|
|
320 |
|
|
|
|
|
|
|
|
Total liabilities and shareholders (deficit)/equity
|
|
$ |
8,203 |
|
|
$ |
12,904 |
|
|
|
|
|
|
|
|
See accompanying notes to condensed financial information of the
parent company.
124
VISTEON CORPORATION AND SUBSIDIARIES
SCHEDULE I CONDENSED FINANCIAL INFORMATION
OF THE PARENT COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(Dollars in Millions) | |
Net cash (used by) provided from operating activities
|
|
$ |
(139 |
) |
|
$ |
140 |
|
|
$ |
(114 |
) |
|
Cash provided from (used by) investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(86 |
) |
|
|
(280 |
) |
|
|
(352 |
) |
Net cash proceeds from ACH transactions
|
|
|
296 |
|
|
|
|
|
|
|
|
|
Purchase of securities
|
|
|
|
|
|
|
|
|
|
|
(48 |
) |
Sales and maturities of securities, net
|
|
|
|
|
|
|
11 |
|
|
|
118 |
|
Other, including proceeds from asset disposals
|
|
|
12 |
|
|
|
16 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided from (used by) investing activities
|
|
|
222 |
|
|
|
(253 |
) |
|
|
(275 |
) |
|
Cash provided from (used by) financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper repayments, net
|
|
|
|
|
|
|
(81 |
) |
|
|
(85 |
) |
Other short-term debt, net
|
|
|
278 |
|
|
|
(32 |
) |
|
|
55 |
|
Proceeds from issuance of other debt, net of issuance costs
|
|
|
|
|
|
|
444 |
|
|
|
|
|
Maturity / repurchase of unsecured debt securities
|
|
|
(250 |
) |
|
|
(269 |
) |
|
|
|
|
Principal payments on other debt
|
|
|
(8 |
) |
|
|
(2 |
) |
|
|
|
|
Treasury stock activity
|
|
|
(2 |
) |
|
|
(11 |
) |
|
|
(5 |
) |
Cash dividends
|
|
|
|
|
|
|
(30 |
) |
|
|
(30 |
) |
Other, including book overdrafts
|
|
|
1 |
|
|
|
(5 |
) |
|
|
79 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided from financing activities
|
|
|
19 |
|
|
|
14 |
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
102 |
|
|
|
(99 |
) |
|
|
(375 |
) |
Cash and equivalents at beginning of year
|
|
|
212 |
|
|
|
311 |
|
|
|
686 |
|
|
|
|
|
|
|
|
|
|
|
Cash and equivalents at end of year
|
|
$ |
314 |
|
|
$ |
212 |
|
|
$ |
311 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends received from consolidated subsidiaries
|
|
$ |
97 |
|
|
$ |
4 |
|
|
$ |
4 |
|
|
Cash dividends received from non-consolidated affiliates
|
|
$ |
2 |
|
|
$ |
5 |
|
|
$ |
5 |
|
See accompanying notes to condensed financial information of the
parent company.
125
VISTEON CORPORATION AND SUBSIDIARIES
SCHEDULE I CONDENSED FINANCIAL INFORMATION OF THE
PARENT COMPANY
NOTES TO CONDENSED FINANCIAL INFORMATION OF THE PARENT
COMPANY
Note 1. Basis of
Presentation
The accompanying condensed financial statements include the
accounts of Visteon Corporation (the Parent Company)
and, on an equity basis its subsidiaries and affiliates. These
financial statements should be read in conjunction with the
consolidated financial statements and the accompanying notes
thereto of Visteon Corporation and Subsidiaries (the
Company).
Sale of North American Facilities
On May 24, 2005, the Company and Ford Motor Company
(Ford) entered into a non-binding Memorandum of
Understanding (MOU), setting forth a framework for
the transfer of 23 North American facilities and related assets
and liabilities (the Business) to a Ford-controlled
entity. In September 2005, the Company and Ford entered
into several definitive agreements and the Company completed the
transfer of the Business to Automotive Components Holdings, LLC
(ACH), an indirect, wholly-owned subsidiary of the
Company.
Following the signing of the MOU and at June 30, 2005, the
Company classified the manufacturing facilities and associated
assets, including inventory, machinery, equipment and tooling,
to be sold as held for sale. The liabilities to be
assumed or forgiven by Ford pursuant to the ACH Transactions,
including employee liabilities and postemployment benefits
payable to Ford, were classified as Liabilities associated
with assets held for sale in the Companys
consolidated balance sheet following the signing of the MOU.
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 Companys Automotive
Operations recorded an impairment charge of $920 million to
write-down those assets considered held for sale to
their aggregate estimated fair value less cost to sell.
On October 1, 2005, Ford acquired from the Company all
of the issued and outstanding shares of common stock of the
parent of ACH in exchange for Fords payment to the Company
of approximately $300 million, 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 (together, the ACH Transactions).
126
VISTEON CORPORATION AND SUBSIDIARIES
SCHEDULE I CONDENSED FINANCIAL INFORMATION OF THE
PARENT COMPANY
NOTES TO CONDENSED FINANCIAL INFORMATION OF THE PARENT
COMPANY
Note 2. Debt
Short and long-term debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted | |
|
|
|
|
|
|
|
|
Average | |
|
|
|
|
Maturity | |
|
Interest Rate | |
|
Book Value | |
|
|
| |
|
| |
|
| |
|
|
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
|
|
(Dollars in Millions) | |
Short-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Five-year revolving credit facility
|
|
|
|
|
|
|
8.5 |
% |
|
|
|
|
|
$ |
347 |
|
|
$ |
|
|
|
7.95% notes due August 1, 2005
|
|
|
|
|
|
|
8.0 |
% |
|
|
7.9 |
% |
|
|
|
|
|
|
253 |
|
|
Other short-term
|
|
|
|
|
|
|
|
|
|
|
2.8 |
% |
|
|
|
|
|
|
69 |
|
|
Current portion of long-term debt
|
|
|
|
|
|
|
7.6 |
% |
|
|
4.2 |
% |
|
|
7 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
354 |
|
|
|
326 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.25% notes due August 1, 2010
|
|
|
2010 |
|
|
|
8.1 |
% |
|
|
6.5 |
% |
|
|
701 |
|
|
|
707 |
|
|
7.00% notes due March 10, 2014
|
|
|
2014 |
|
|
|
6.5 |
% |
|
|
5.9 |
% |
|
|
442 |
|
|
|
446 |
|
|
Other
|
|
|
2007-2025 |
|
|
|
7.6 |
% |
|
|
2.6 |
% |
|
|
13 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,156 |
|
|
|
1,170 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,510 |
|
|
$ |
1,496 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate annual maturities of debt, including capital lease
obligations at December 31, 2005, were as follows (in
millions): 2006 $354; 2007 $8;
2008 $5; 2009 $4;
2010 $695; thereafter $444.
127
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 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in Millions) | |
Year Ended December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$ |
44 |
|
|
$ |
45 |
|
|
$ |
(12 |
) |
|
$ |
|
|
|
$ |
77 |
|
|
Valuation allowance for deferred taxes
|
|
|
1,949 |
|
|
|
149 |
|
|
|
|
|
|
|
(137 |
) |
|
|
1,961 |
|
Year Ended December 31, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$ |
35 |
|
|
$ |
22 |
|
|
$ |
(13 |
) |
|
$ |
|
|
|
$ |
44 |
|
|
Valuation allowance for deferred taxes
|
|
|
508 |
|
|
|
1,282 |
|
|
|
|
|
|
|
159 |
|
|
|
1,949 |
|
Year Ended December 31, 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$ |
24 |
|
|
$ |
24 |
|
|
$ |
(13 |
) |
|
$ |
|
|
|
$ |
35 |
|
|
Valuation allowance for deferred taxes
|
|
|
21 |
|
|
|
457 |
|
|
|
|
|
|
|
30 |
|
|
|
508 |
|
|
|
|
(a) |
|
Deductions represent uncollectible accounts charged off, net of
recoveries. |
|
(b) |
|
Other represents adjustments recorded through other
comprehensive income. Other also includes adjustments to the
Companys U.S. residual tax liability on assumed
repatriation of foreign earnings and tax return
true-up adjustments,
both of which impact deferred taxes and the related valuation
allowances. |
128
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. |
|
4.4 |
|
|
Form of Warrant Certificate of Visteon is incorporated herein by
reference to Exhibit 4.1 to the Current Report on
Form 8-K of Visteon dated September 16, 2005. |
|
4.5 |
|
|
Form of Stockholder Agreement, dated as of
October 1, 2005, between Visteon and Ford Motor
Company (Ford) is incorporated herein by reference
to Exhibit 4.2 to the Current Report on Form 8-K of
Visteon dated September 16, 2005. |
|
10.1 |
|
|
Master Transfer Agreement dated as of March 30, 2000
between Visteon and 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 |
|
|
Reserved. |
|
10.3 |
|
|
Reserved. |
|
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 |
|
|
Reserved. |
|
10.6 |
|
|
Reserved. |
|
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. |
|
10.7.1 |
|
|
Amendment Number Two, effective as of October 1, 2005,
to Amended and Restated Employee Transition Agreement, dated as
of April 1, 2000 and restated as of
December 19, 2003, between Visteon and Ford is
incorporated herein by reference to Exhibit 10.15 to the
Current Report on Form 8-K of Visteon dated
October 6, 2005. |
|
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). |
|
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.* |
129
|
|
|
|
|
Exhibit |
|
|
Number |
|
Exhibit Name |
|
|
|
|
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. Johnston, Stebbins, Palmer, Pfannschmidt, Donofrio
and Quigley.* |
|
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.* |
|
10.14.1 |
|
|
Amendments to the Visteon Corporation Deferred Compensation Plan
for Non-Employee Directors, effective as of
December 14, 2005.* |
|
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.* |
|
10.15.1 |
|
|
Amendments to the Visteon Corporation Restricted Stock Plan for
Non-Employee Directors, effective as of
January 1, 2005.* |
|
10.16 |
|
|
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.* |
|
10.16.1 |
|
|
Amendments to the Visteon Corporation Deferred Compensation
Plan, effective as of December 23, 2005.* |
|
10.17 |
|
|
Employment Agreement dated as of December 7, 2004
between Visteon and William G. Quigley III.* |
|
10.18 |
|
|
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 15, 2005.* |
130
|
|
|
|
|
Exhibit |
|
|
Number |
|
Exhibit Name |
|
|
|
|
10.18.1 |
|
|
Amendments to the Visteon Corporation Pension Parity Plan,
effective as of January 1, 2005.* |
|
10.19 |
|
|
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 15, 2005.* |
|
10.19.1 |
|
|
Amendments to the Visteon Corporation Supplemental Executive
Retirement Plan, effective as of January 1, 2005.* |
|
10.20 |
|
|
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.* |
|
10.21 |
|
|
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.* |
|
10.22 |
|
|
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 15, 2005.* |
|
10.22.1 |
|
|
Amendments to the Visteon Corporation Executive Separation
Allowance Plan, effective as of January 1, 2005.* |
|
10.23 |
|
|
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, 10.16.1, 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.* |
|
10.24 |
|
|
Second Amended and Restated Credit Agreement, dated as of
January 9, 2006, among Visteon, the several banks and
other financial institutions or entities from time to time party
thereto, JPMorgan Chase Bank, N.A., as administrative agent, and
Citicorp USA, Inc., as syndication agent, is incorporated herein
by reference to Exhibit 10.1 to the Current Report on
Form 8-K of Visteon dated January 13, 2006. |
|
10.25 |
|
|
Credit Agreement, dated as of June 24, 2005, among
Visteon, the several banks and other financial institutions or
entities from time to time party thereto, JPMorgan Chase Bank,
N.A., as administrative agent, Citicorp USA, Inc., as
syndication agent, and Credit Suisse, Cayman Islands Branch,
Deutsche Bank Securities Inc. and Sumitomo Mitsui Banking
Corporation, as documentation agents, is incorporated herein by
reference to Exhibit 10.2 to the Current Report on
Form 8-K of Visteon dated June 30, 2005. |
|
10.26 |
|
|
Amended and Restated Five-Year Term Loan Credit Agreement,
dated as of June 24, 2005, among Visteon, Oasis
Holdings Statutory Trust, the several banks and other financial
institutions or entities from time to time party thereto,
JPMorgan Chase Bank, N.A., as administrative agent, and Citicorp
USA, Inc., as syndication agent, is incorporated herein by
reference to Exhibit 10.3 to the Current Report on
Form 8-K of Visteon dated June 30, 2005. |
|
10.26.1 |
|
|
First Amendment, dated as of January 9, 2006, to the
Amended and Restated Five-Year Term Loan Credit Agreement,
dated as of June 24, 2005, among Visteon, Oasis
Holdings Statutory Trust, the several banks and other financial
institutions or entities from time to time party thereto,
JPMorgan Chase Bank, N.A., as administrative agent, and Citicorp
USA, Inc., as syndication agent, is incorporated herein by
reference to Exhibit 10.2 to the Current Report on
Form 8-K of Visteon dated January 13, 2006. |
131
|
|
|
|
|
Exhibit |
|
|
Number |
|
Exhibit Name |
|
|
|
|
10.27 |
|
|
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.* |
|
10.28 |
|
|
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. |
|
10.29 |
|
|
Letter Agreement, effective as of May 23, 2005,
between Visteon and Mr. Donald J. Stebbins is
incorporated herein by reference to Exhibit 10.1 to the
Current Report on Form 8-K of Visteon dated
May 23, 2005.* |
|
10.30 |
|
|
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.* |
|
10.30.1 |
|
|
Amendments to the Visteon Corporation Non-Employee Director
Stock Unit Plan, effective as of December 14, 2005 and
February 9, 2006.* |
|
10.31 |
|
|
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.* |
|
10.32 |
|
|
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 15, 2005.* |
|
10.33 |
|
|
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.* |
|
10.33.1 |
|
|
Schedule identifying substantially identical agreements to
Executive Retiree Health Care Agreement constituting
Exhibit 10.33 hereto entered into by Visteon with
Messrs. Johnston, Stebbins and Palmer.* |
|
10.34 |
|
|
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. |
|
10.34.1 |
|
|
Amendment, effective as of May 24, 2005, to the
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 May 25, 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. |
|
10.35.1 |
|
|
Amendment, effective as of May 1, 2005, to the 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 May 25, 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.* |
|
10.38 |
|
|
Contribution Agreement, dated as of
September 12, 2005, between Visteon and VHF Holdings,
Inc. is incorporated herein by reference to Exhibit 10.2 to
the Current Report on Form 8-K of Visteon dated
September 16, 2005. |
132
|
|
|
|
|
Exhibit |
|
|
Number |
|
Exhibit Name |
|
|
|
|
10.39 |
|
|
Visteon A Transaction Agreement, dated as of
September 12, 2005, between Visteon and Ford is
incorporated herein by reference to Exhibit 10.3 to the
Current Report on Form 8-K of Visteon dated
September 16, 2005. |
|
10.40 |
|
|
Visteon B Purchase Agreement, dated as of
September 12, 2005, between Visteon and Ford is
incorporated herein by reference to Exhibit 10.4 to the
Current Report on Form 8-K of Visteon dated
September 16, 2005. |
|
10.41 |
|
|
Escrow Agreement, dated as of October 1, 2005, among
Visteon, Ford and Deutsche Bank Trust Company Americas, as
escrow agent, is incorporated herein by reference to
Exhibit 10.11 to the Current Report on Form 8-K of
Visteon dated October 6, 2005. |
|
10.42 |
|
|
Reimbursement Agreement, dated as of October 1, 2005,
between Visteon and Ford is incorporated herein by reference to
Exhibit 10.12 to the Current Report on Form 8-K of
Visteon dated October 6, 2005. |
|
10.43 |
|
|
Master Services Agreement, dated as of
September 30, 2005, between Visteon and Automotive
Components Holdings, LLC is incorporated herein by reference to
Exhibit 10.1 to the Current Report on Form 8-K of
Visteon dated October 6, 2005. |
|
10.44 |
|
|
Visteon Hourly Employee Lease Agreement, effective as of
October 1, 2005, between Visteon and Automotive
Components Holdings, LLC is incorporated herein by reference to
Exhibit 10.2 to the Current Report on Form 8-K of
Visteon dated October 6, 2005. |
|
10.45 |
|
|
Visteon Hourly Employee Conversion Agreement, dated effective as
of October 1, 2005, between Visteon and Ford is
incorporated herein by reference to Exhibit 10.9 to the
Current Report on Form 8-K of Visteon dated
October 6, 2005. |
|
10.46 |
|
|
Visteon Salaried Employee Lease Agreement, effective as of
October 1, 2005, between Visteon and Automotive
Components Holdings, LLC is incorporated herein by reference to
Exhibit 10.3 to the Current Report on Form 8-K of
Visteon dated October 6, 2005. |
|
10.47 |
|
|
Visteon Salaried Employee Lease Agreement (Rawsonville/
Sterling), dated as of October 1, 2005, between
Visteon and Ford is incorporated herein by reference to
Exhibit 10.8 to the Current Report on Form 8-K of
Visteon dated October 6, 2005. |
|
10.48 |
|
|
Visteon Salaried Employee Transition Agreement, dated effective
as of October 1, 2005, between Visteon and Ford is
incorporated herein by reference to Exhibit 10.10 to the
Current Report on Form 8-K of Visteon dated
October 6, 2005. |
|
10.49 |
|
|
Purchase and Supply Agreement, dated as of
September 30, 2005, between Visteon (as seller) and
Automotive Components Holdings, LLC (as buyer) is incorporated
herein by reference to Exhibit 10.4 to the Current Report
on Form 8-K of Visteon dated October 6, 2005.
|
|
10.50 |
|
|
Purchase and Supply Agreement, dated as of
September 30, 2005, between Automotive Components
Holdings, LLC (as seller) and Visteon (as buyer) is incorporated
herein by reference to Exhibit 10.5 to the Current Report
on Form 8-K of Visteon dated October 6, 2005.
|
|
10.51 |
|
|
Purchase and Supply Agreement, dated as of
October 1, 2005, between Visteon (as seller) and Ford
(as buyer) is incorporated herein by reference to
Exhibit 10.13 to the Current Report on Form 8-K of
Visteon dated October 6, 2005. |
|
10.52 |
|
|
Intellectual Property Contribution Agreement, dated as of
September 30, 2005, among Visteon, Visteon Global
Technologies, Inc., Automotive Components Holdings, Inc. and
Automotive Components Holdings, LLC is incorporated herein by
reference to Exhibit 10.6 to the Current Report on
Form 8-K of Visteon dated October 6, 2005. |
133
|
|
|
|
|
Exhibit |
|
|
Number |
|
Exhibit Name |
|
|
|
|
10.53 |
|
|
Software License and Contribution Agreement, dated as of
September 30, 2005, among Visteon, Visteon Global
Technologies, Inc. and Automotive Components Holdings, Inc. is
incorporated herein by reference to Exhibit 10.7 to the
Current Report on Form 8-K of Visteon dated
October 6, 2005. |
|
10.54 |
|
|
Intellectual Property License Agreement, dated as of
October 1, 2005, among Visteon, Visteon Global
Technologies, Inc. and Ford is incorporated herein by reference
to Exhibit 10.14 to the Current Report on Form 8-K of
Visteon dated October 6, 2005. |
|
10.55 |
|
|
Form of Secured Promissory Note of Visteon, as issued on
September 19, 2005, is incorporated herein by
reference to Exhibit 10.5 to the Current Report on
Form 8-K of Visteon dated September 16, 2005. |
|
10.56 |
|
|
Master Agreement, dated as of September 12, 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 September 16, 2005. |
|
12.1 |
|
|
Statement re: Computation of Ratios. |
|
14.1 |
|
|
Visteon Corporation Ethics and Integrity Policy, as
amended effective September 23, 2005 (code of business
conduct and ethics) is incorporated herein by reference to
Exhibit 14.1 to the Current Report on Form 8-K of
Visteon dated September 28, 2005. |
|
21.1 |
|
|
Subsidiaries of Visteon. |
|
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. |
|
31.1 |
|
|
Rule 13a-14(a) Certification of Chief Executive Officer
dated March 16, 2006. |
|
31.2 |
|
|
Rule 13a-14(a) Certification of Chief Financial Officer
dated March 16, 2006. |
|
32.1 |
|
|
Section 1350 Certification of Chief Executive Officer dated
March 16, 2006. |
|
32.2 |
|
|
Section 1350 Certification of Chief Financial Officer dated
March 16, 2006. |
|
|
|
|
|
Portions of these exhibits have been redacted pursuant to
confidential treatment requests 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.
134
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: March 16, 2006
Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed below on
March 16, 2006, 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/ John
Donofrio
John Donofrio
Attorney-in-Fact |
|
|
135
EXHIBIT 10.10.1
Schedule identifying substantially identical agreements, between Visteon
Corporation ("Visteon") and each of the persons named below, to the Revised
Change in Control Agreement constituting Exhibit 10.10 to the Annual Report on
Form 10-K of Visteon for the fiscal year ended December 31, 2005.
Name
----
Michael F. Johnston
Donald J. Stebbins
James F. Palmer
Dr. Heinz Pfannschmidt
John Donofrio
William G. Quigley III
EXHIBIT 10.14.1
AMENDMENTS TO
VISTEON CORPORATION
DEFERRED COMPENSATION PLAN FOR
NON-EMPLOYEE DIRECTORS (THE "DIRECTORS' DEFERRED COMPENSATION PLAN")
As approved by the Board of Directors on December 14, 2005, the first
sentence of Section 7(a) of the Directors' Deferred Compensation Plan shall be
amended to read as follows:
Distribution of a Participant's vested Account shall be made or commence to
be made on the later of (i) on or about January 15 of the calendar year
following the calendar year in which, or (ii) the first day of the seventh
month following the date on which, the Participant terminates service as an
Outside Director of the Company, in the form or forms elected by the
Participant.
As approved by the Board of Directors on December 14, 2005, the first
sentence of Section 7(a) 2 of the Directors' Deferred Compensation Plan shall be
amended to read as follows:
If the Participant has elected the installment distribution option, the
first installment will be paid on the later of (i) on or about the January
15 of the calendar year following the calendar year in which, or (ii) the
first day of the seventh month following the date on which, the Participant
terminates service as an Outside Director, and each subsequent installment
will be paid on or about January 15 of each succeeding year during the
installment period.
EXHIBIT 10.15.1
AMENDMENTS TO
VISTEON CORPORATION
RESTRICTED STOCK PLAN FOR
NON-EMPLOYEE DIRECTORS (THE "RESTRICTED STOCK PLAN")
As approved by the Board of Directors on December 14, 2005, the first
sentence of Section 5(b) of the Restricted Stock Plan shall be amended to read
as follows:
Effective from and after January 1, 2005, a validly executed election shall
become effective with respect to grants made on Annual Meeting Dates that
occur after the December 31st following the date on which the Participant's
election is received and accepted by the Administrative Committee, or as
soon thereafter as practicable.
As approved by the Board of Directors on December 14, 2005, the second
sentence of Section 5(c) of the Restricted Stock Plan shall be amended to read
as follows:
Effective from and after January 1, 2005, a validly executed revised
election shall become effective with respect to grants made on Annual
Meeting Dates that occur after the December 31st following the date on
which the Participant's election is received and accepted by the
Administrative Committee, or as soon thereafter as practicable.
EXHIBIT 10.16.1
AMENDMENT TO
VISTEON CORPORATION
DEFERRED COMPENSATION PLAN (THE "PLAN")
The Plan is hereby amended effective as of December 23, 2005 to permanently
suspend all future distributions under the Plan.
Exhibit 10.17
(VISTEON(R) LOGO) Robert H. Marcin Visteon Corporation
Senior Vice President One Village Center Drive
Corporate Relations Van Buren Twp., MI 48111
USA
Tel 734-710-7120
Fax 734-710-7122
SEE THE POSSIBILITIES(R)
November 22, 2004
Mr. William G. Quigley III
Re: Employment as Vice President,
Corporate Controller and Chief Accounting Officer
I wanted to take this opportunity to welcome you aboard. This memo, which
supercedes all prior agreements and understandings, establishes the terms that
will apply to your employment, which shall be effective as of December 30, 2004.
1. DUTIES. You will be employed as "Vice President, Corporate Controller and
Chief Accounting Officer" with duties and responsibilities which the
Company, acting through its Board of Directors, Chief Executive Officer,
Chief Financial Officer or their assignee, in its sole discretion believes
are appropriate to your skills, training and experience. You will perform
such assigned duties by devoting full time, due care, loyalty and your best
efforts, and complying with all applicable laws and the requirements of the
Company's policies and procedures on employee conduct, including but not
limited to the Ethics and no-harassment policies.
2. COMPENSATION.
a. Annual Base Salary. Your annual base salary will be $350,000, subject
to adjustment in accordance with the Company's normal procedures.
b. Sign-on Bonus. You will receive a cash bonus, which is payable (i)
$175,000 on or within 30 days after the effective date of hire, and
(ii) $175,000 on or within 30 days of April 1, 2005, and each such
installment shall not be subject to any vesting requirement.
William G. Quigley III
Employment as V.P., Corporate Controller and Chief Accounting Officer
November 22, 2004
c. Special Stock-Related Benefits Under Company Incentive Plan. Subject
to the terms of the Visteon Corporation 2004 Incentive Plan, and in
accordance with the terms of an authorized award agreement that will
be separately provided to you, you will become entitled to the
benefits in this section, if at all, only when the applicable vesting
requirement(s) has been met. The Special Stock-Related Benefits are as
follows:
i. Restricted stock units (25,000 units), which shall become vested
only upon the third anniversary of your hire date, provided that
your Visteon employment is continuous during this period. The
cash value of the stock units in this subsection becomes payable
on or shortly after the vesting date; and
ii. Stock options (20,000 options) which shall vest in three equal
parts upon the 1st, 2nd, and 3rd anniversaries, respectively, of
your hire date, provided that your Visteon employment is
continuous from your hire date through each of the vesting
periods.
d. Other Benefits. The following benefits shall be provided to you
consistent with the terms of the company's plans.
i. The Short Term Incentive Opportunity will provide you an
opportunity to receive up to 55% of your base salary annually,
with a guaranteed payment of $210,000 for 2005, payable in April
2006, provided that your Visteon employment is continuous through
December 31, 2005.
ii. Subject to the terms of the Visteon Corporation 2004 Incentive
Plan and in accordance with the terms of an award agreement that
will be separately provided to you, you will receive a Long Term
Incentive Opportunity for the 2005-2007 performance period of up
to 150% of your base salary.
iii. Under the Visteon Corporation Supplemental Executive Retirement
Plan, Visteon will credit you with two years of service for every
year of actual service with Visteon, up to five years of actual
service.
iv. Under the Company's plans, you will also receive health and
welfare benefits, vehicle allowance, perquisites, relocation
assistance, holidays and vacation
Page 2 of 5
William G. Quigley III
Employment as V.P., Corporate Controller and Chief Accounting Officer
November 22, 2004
eligibility, and other benefits to which comparable
executive-level participants are entitled.
3. AT WILL EMPLOYMENT. Your employment is "at will." Either you or Visteon can
terminate the employment relationship at any time, for any reason. Thus,
even though some provisions in this agreement contemplate the possibility
that the parties may maintain an employment relationship for three or more
years, neither party is obligated to continue the employment relationship
for three years or any other duration of time.
4. COMPENSATION TERMINATION. You will not be due any compensation, bonuses, or
benefits at the time of your termination or thereafter, except to the
extent provided for below.
a. If Visteon terminates your employment for cause, it will only be
obligated to provide you with the following benefits: (1) payment of
the cash Sign-On Bonus referenced in section 2.b above, but only to
the extent that each installment amount has not yet been paid; and
(ii) special Stock-Related Benefits referenced in Section 2.c above,
to the extent payable in accordance with the terms of the Visteon
Corporation 2004 Incentive Plan and your award agreement (including
the vesting requirements described herein).
b. If Visteon terminates your employment without cause prior to the first
anniversary of your hire date, your benefits will be limited to the
following: (i) payment of the cash Sign-On Bonus referenced in section
2.b above, but only to the extent that each installment amount has not
yet been paid; and (ii) a cash separation payment in an amount that is
the greater of either 12 months of base salary or an amount calculated
in accordance with any executive separation program of the company as
may then be in effect.
c. If Visteon terminates your employment without cause after the first
anniversary of your hire date but prior to the third anniversary of
your hire date, your benefits will be limited to the following: (i)
retention of the cash Sign-On Bonus referenced in section 2.b above;
(ii) a cash separation payment in an amount equal to 12 months of your
base salary; and (iii) an additional cash separation payment in the
amount of $175,000; provided, however, that if Visteon terminates your
employment during this period
Page 3 of 5
William G. Quigley III
Employment as V.P., Corporate Controller and Chief Accounting Officer
November 22, 2004
subsequent to a promotion in your title, responsibilities and/or
level, your benefits will be limited to a cash separation payment, if
any, in an amount as calculated in accordance with any executive
separation program of the company as may then be in effect.
d. If Visteon terminates your employment without cause on or after the
third anniversary of your hire date, your benefits will be limited to
the Special Stock-Related Benefits referenced in Section 2.c above, to
the extent payable in accordance with the terms of the Visteon
Corporation 2004 Incentive Plan and your award agreement (including
the vesting requirements described herein), and, to the extent
otherwise eligible, such benefits that may be payable or provided
under any executive separation program of the company as may then be
in effect.
e. If you voluntarily resign your employment at any time, your benefits
will be limited to the following: (i) payment of the cash Sign-On
Bonus referenced in section 2.b above, but only to the extent that
each installment amount has not yet been paid; and (ii) special
Stock-Related Benefits referenced in Section 2.c above to the extent
payable in accordance with the terms of the Visteon Corporation 2004
Incentive Plan and your award agreement (including the vesting
requirements described herein).
For purposes of this agreement, "cause" includes, but is not limited to,
misrepresentations, omissions or falsification during the hiring process;
undisclosed financial or accounting improprieties prior to joining the Company
or at any other time; theft; dishonesty; fraud; gross negligence; gross
dereliction of duty; misconduct injurious to the company; financial
improprieties of any kind; serious violation of the law; or violation of the
Company's policies and procedures on employee conduct.
5. EFFECT ON OTHER AGREEMENTS OR OBLIGATIONS. Notwithstanding, the foregoing
provisions and sections of this memorandum, this memorandum does not
supercede or modify any of the benefits to which you might become entitled
under the Change in Control Agreement between you and the Company.
This memorandum also does not supercede or modify any confidentiality,
noncompete, nonsolicitation, or nondisclosure obligations, whether such
obligations are expressly agreed to or
Page 4 of 5
William G. Quigley III
Employment as V.P., Corporate Controller and Chief Accounting Officer
November 22, 2004
implied by the law.
We are excited about your decision to join our company. We believe our team can
accomplish great things together.
VISTEON CORPORATION
By: /s/ Robert H. Marcin
------------------------------------
Robert H. Marcin
Sr. Vice President,
Corporate Relations
November 22, 2004
Agreed and Accepted
/s/ William G. Quigley III
- -------------------------------------
William G. Quigley III
Date: December 7, 2004
Page 5 of 5
EXHIBIT 10.18.1
AMENDMENTS TO
VISTEON CORPORATION
PENSION PARITY PLAN (THE "PPP")
Effective January 1, 2005, the second sentence of Subsection 3.01(b) of the
PPP is hereby amended to read as follows:
The Pension Parity Benefit shall be paid by the Participating Employer as
follows: a lump sum payment, equal to seven months of Pension Parity
Benefit payments, shall be made on the first day of the seventh month
following the Participant's termination of employment, or as soon
thereafter as practicable; thereafter, the Pension Parity Benefit shall be
paid to the person receiving payment of the corresponding benefit under the
Retirement Plan with each payment being made, as nearly as practicable, at
the same time as the corresponding benefit from the Retirement Plan, but no
sooner than the first day of the seventh month following the Participant's
termination of employment.
Effective January 1, 2005, Section 3.01 of the PPP is amended to add
Subsection (d) to read as follows:
(d) Notwithstanding subparagraph (b) above, the Company may permit a
Participant during the calendar year 2005 to elect to partially terminate
participation and receive an immediate distribution (in 2005) of six months
of Pension Parity Benefit payments. Remaining payments with respect to a
Participant who makes such an election with the consent of the Company
shall be made to the person receiving payment of the corresponding benefit
under the Retirement Plan with each payment being made, as nearly as
practicable, at the same time as the corresponding benefit from the
Retirement Plan, but no sooner than the first day of the seventh month
following the Participant's termination of employment.
EXHIBIT 10.19.1
AMENDMENTS TO
VISTEON CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN (THE "SERP")
Effective January 1, 2005, Section 2.04 of the SERP is hereby amended to
read as follows:
(a) Subject to the earning-out conditions set forth in Article VI,
supplemental benefits, in the amount determined under Section 2.03, shall
be payable out of the Company's general funds as follows: a lump sum
payment, equal to seven months of supplemental benefits, shall be made on
the first day of the seventh month following the Participant's termination
of employment after satisfying the eligibility requirements set forth in
Section 2.01, or as soon thereafter as practicable; thereafter,
supplemental benefits shall be paid monthly, commencing on the first day of
the eighth month following the Participant's termination of employment.
Payments to a Participant hereunder shall cease at the end of the month in
which the Participant dies. There is no pre-retirement or post-retirement
death benefit payable under this Article II following the death of the
Participant.
(b) Notwithstanding subparagraph (a) above, the Company may permit a
Participant during the calendar year 2005 to elect to partially terminate
participation and receive an immediate distribution (in 2005) of six months
of supplemental benefit payments. Remaining supplemental benefit payments
to a Participant who makes such an election with the consent of the Company
shall be made monthly, commencing on the first day of the seventh month
following the Participant's termination of employment.
Effective January 1, 2005, Section 3.04 of the SERP is amended to read as
follows:
(a) The Participant's monthly supplemental benefit shall be paid by
the Participating Employer as follows: a lump sum payment, equal to seven
months of supplemental benefits, shall be made on the first day of the
seventh month following the Participant's termination of employment or as
soon thereafter as practicable; thereafter, the supplemental benefit shall
be paid to the person receiving payment of the corresponding benefit under
the BalancePlus Program with each payment being made, as nearly as
practicable, at the same time as the corresponding benefit from the
BalancePlus Program, but no sooner than the first day of the seventh month
following the Participant's termination of employment. The interest rates,
mortality factors, annuity conversion factors, early commencement
reductions, assumptions for converting from one form of benefit to another,
and all other actuarial conversion and adjustment factors, shall be the
same as those applicable in calculating the Participant's actual annuity
benefit under the BalancePlus Program.
(b) Notwithstanding subparagraph (a) above, the Company may permit a
Participant during the calendar year 2005 to elect to partially terminate
participation and receive an immediate distribution (in 2005) of six months
of supplemental benefit payments. Remaining supplemental benefit payments
to a Participant who makes such an election with the consent of the Company
shall be made to the person receiving payment of the corresponding benefit
under the BalancePlus Program with each payment being made, as nearly as
practicable, at the same time as the corresponding benefit from the
BalancePlus Program, but no sooner than the first day of the seventh month
following the Participant's termination of employment.
Effective January 1, 2005, subparagraph (a) of Section 4.03 of the SERP is
amended to read as follows:
(a) Subject to the earning-out conditions set forth in Article IV,
Conditional Annuities, in the amount determined under Section 4.02, shall
be payable out of the Company's general funds monthly beginning on the
first day of the month when Participant's retirement benefit under any
Retirement Plan or under the Company's Executive Separation Allowance Plan
begins, but not sooner than the seventh month following the Participant's
termination of employment. If Conditional Annuity payments otherwise
payable are delayed pursuant to this paragraph, a lump sum equal to the
delayed payments shall be paid on the first day of the seventh month
following the Participant's termination of employment after satisfying the
eligibility requirements set forth in Section 2.01, or as soon thereafter
as practicable, and remaining Conditional Annuity payments shall be paid
monthly, commencing on the first day of the seventh month following the
Participant's termination of employment. Except as provided in Section
4.04, payments with respect to a Participant hereunder shall cease at the
end of the month in which the Participant dies.
Effective January 1, 2005, Section 4.03 of the SERP is amended to add
subparagraph (c) to read as follows:
(c) Notwithstanding subparagraph (a) above, the Company may permit a
Participant during the calendar year 2005 to elect to partially terminate
participation and receive an immediate distribution (in 2005) of six months
of Conditional Annuity payments. Remaining Conditional Annuity payments to
a Participant who makes such an election with the consent of the Company
shall be made monthly in accordance with subparagraph (a) above, but
commencing no sooner than the first day of the seventh month following the
Participant's termination of employment.
2
Subparagraph 5.01(c) of the SERP is amended to read as follows:
(c) The supplemental benefit under subsection (a) above shall be paid
as follows: a lump sum payment, equal to seven months of supplemental
benefit payments, shall be made on the first day of the seventh month
following the Participant's termination of employment, or as soon
thereafter as practicable; thereafter, the supplemental benefit shall be
paid in the same form and for the same duration as is paid the
Participant's benefit under the General Retirement Plan of Ford Motor
Company, but no sooner than the first day of the seventh month following
the Participant's termination of employment. Notwithstanding the foregoing,
the Company may permit a Participant during the calendar year 2005 to elect
to partially terminate participation and receive an immediate distribution
(in 2005) of six months of supplemental benefit payments. Remaining
supplemental benefit payments to a Participant who makes such an election
with the consent of the Company shall be made monthly, commencing on the
first day of the seventh month following the Participant's termination of
employment. The supplemental benefit under subsection (b) above shall be
paid in accordance with Article II of this Plan as if the benefit had been
initially calculated under that Article.
Subparagraph (b) of Section 5.02 of the SERP is hereby amended to read as
follows:
The additional benefit shall be paid at the same time and in the same form
as the Participant's benefit under the Visteon Corporation Pension Parity
Plan is paid, and shall be subject to all of the other terms of the
conditions of the Visteon Pension Plan and the Visteon Corporation Pension
Parity Plan as if the additional benefit were actually accrued under such
plans.
3
EXHIBIT 10.22.1
AMENDMENTS TO
VISTEON CORPORATION
EXECUTIVE SEPARATION ALLOWANCE PLAN (THE "ESAP")
Effective January 1, 2005, the first sentence of Section 4 of the ESAP is
hereby amended to read as follows:
Executive Separation Allowance payments, in the net amount determined in
accordance with Section 3B above, shall be paid as follows: a lump sum
payment, equal to seven months of allowance payments, shall be made on the
first day of the seventh month following the Participant's termination of
employment, or as soon thereafter as practicable; thereafter, commencing on
the first day of the eighth month following the Participant's termination
of employment, allowance payments shall be made monthly.
Effective January 1, 2005, the ESAP is hereby amended to add a paragraph to
the end of Section 4 to read as follows:
Anything herein contained to the contrary notwithstanding, the Company may
permit a Participant during the calendar year 2005 to elect to partially
terminate participation and receive an immediate distribution (in 2005) of
six months of allowance payments. Remaining allowance payments to a
Participant who makes such an election with the consent of the Company
shall be made monthly, commencing on the first day of the seventh month
following the Participant's termination of employment.
EXHIBIT 10.30.1
AMENDMENTS TO
VISTEON CORPORATION
NON-EMPLOYEE DIRECTOR STOCK UNIT PLAN (THE "STOCK UNIT PLAN")
As approved by the Board of Directors on December 14, 2005, the first
sentence of Section 6(a) of the Stock Unit Plan shall be amended to read as
follows:
Distribution of a Participant's vested Account shall be made or commence to
be made on the later of (i) on or about January 15 of the calendar year
following the calendar year in which, or (ii) the first day of the seventh
month following the date on which, the Participant terminates service as an
Outside Director of the Company, in the form or forms elected by the
Participant.
As approved by the Board of Directors on December 14, 2005, the first
sentence of Section 6(a) 2 of the Stock Unit Plan shall be amended to read as
follows:
If the Participant has elected the installment distribution option, the
first installment will be paid on the later of (i) on or about the January
15 of the calendar year following the calendar year in which, or (ii) the
first day of the seventh month following the date on which, the Participant
terminates service as an Outside Director, and each subsequent installment
will be paid on or about January 15 of each succeeding year during the
installment period.
As approved by the Board of Directors on February 9, 2006, the second
sentence of Section 10 shall be amended to read as follows:
For purposes of this Section 10, the term "Change in Control" means the
occurrence of any one of the following events:
(a) any Person is or becomes the Beneficial Owner, directly or
indirectly, of securities of the Company (not including in the
securities beneficially owned by such Person any securities
acquired directly from the Company or its Affiliates)
representing 40% or more of the combined voting power of the
Company's then outstanding securities, excluding any Person who
becomes such a Beneficial Owner in connection with a transaction
described in clause (A) of paragraph (iii) below;
(b) within any twelve (12) month period, the following individuals
cease for any reason to constitute a majority of the number of
directors then serving: individuals who, on the effective date of
this Plan, constitute the Board and any new director (other than
a director whose initial assumption of office is in connection
with an actual or threatened election contest, including but not
limited to a consent solicitation,
relating to the election of directors of the Company) whose
appointment or election by the Board or nomination for election
by the Company's stockholders was approved or recommended by a
vote of at least two-thirds (2/3) of the directors then still in
office who either were directors on the date hereof or whose
appointment, election or nomination for election was previously
so approved or recommended;
(c) there is consummated a merger or consolidation of the Company or
any direct or indirect subsidiary of the Company with any other
corporation, other than (A) a merger or consolidation which
results in the directors of the Company immediately prior to such
merger or consolidation continuing to constitute at least a
majority of the board of directors of the Company, the surviving
entity or any parent thereof or (B) a merger or consolidation
effected to implement a recapitalization of the Company (or
similar transaction) in which no Person is or becomes the
Beneficial Owner, directly or indirectly, of securities of the
Company (not including in the securities Beneficially Owned by
such Person any securities acquired directly from the Company or
its Affiliates) representing 40% or more of the combined voting
power of the Company's then outstanding securities;
(d) the stockholders of the Company approve a plan of complete
liquidation or dissolution of the Company or there is consummated
an agreement for the sale or disposition by the Company of more
than 50% of the Company's assets, other than a sale or
disposition by the Company of more than 50% of the Company's
assets to an entity, at least 50% of the combined voting power of
the voting securities of which are owned by stockholders of the
Company in substantially the same proportions as their ownership
of the Company immediately prior to such sale; or
(e) any other event that the Administrative Committee, in its sole
discretion, determines to be a Change in Control for purposes of
this Plan.
(f) Notwithstanding the foregoing, a "Change in Control" shall not be
deemed to have occurred by virtue of the consummation of any
transaction or series of integrated transactions immediately
following which the record holders of the common stock of the
Company immediately prior to such transaction or series of
transactions continue to have substantially the same
proportionate ownership in an entity which owns all or
substantially all of the assets of the Company immediately
following such transaction or series of transactions.
2
EXHIBIT 10.33.1
Schedule identifying substantially identical agreements, between Visteon
Corporation ("Visteon") and each of the persons named below, to Executive
Retiree Health Care Agreement constituting Exhibit 10.33 to the Annual Report on
Form 10-K of Visteon for the fiscal year ended December 31, 2005.
Name
----
Michael F. Johnston
Donald J. Stebbins
James F. Palmer
EXHIBIT 12.1
Visteon Corporation and Subsidiaries
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(in millions)
For the Years Ended December 31,
---------------------------------------
2005 2004 2003 2002 2001
----- ----- ------- ----- -----
Earnings
Income/(loss) before income taxes, minority interest and
change in accounting $(173) $(539) $(1,194) $(160) $(164)
Earnings of non-consolidated affiliates (25) (45) (55) (44) (24)
Cash dividends received from non-consolidated affiliates 48 42 35 16 12
Fixed charges 185 140 126 139 174
Capitalized interest, net of amortization 4 1 3 1 (2)
----- ----- ------- ----- -----
Earnings $ 39 $(401) $(1,085) $ (48) $ (4)
===== ===== ======= ===== =====
Fixed Charges
Interest and related charges on debt $ 158 $ 109 $ 97 $ 109 $ 139
Portion of rental expense representative of the
interest factor 27 31 29 30 35
----- ----- ------- ----- -----
Fixed charges $ 185 $ 140 $ 126 $ 139 $ 174
===== ===== ======= ===== =====
Ratios
Ratio of earnings to fixed charges* N/A N/A N/A N/A N/A
- ----------
* For the years ended December 31, 2005, 2004, 2003, 2002 and 2001, fixed
charges exceed earnings by $146 million, $541 million, $1,211 million, $187
million and $178 million, respectively, resulting in a ratio of less than
one.
.
.
.
Exhibit 21.1
SUBSIDIARIES OF VISTEON CORPORATION AS OF DECEMBER 31, 2005 *
Organization Jurisdiction
- ------------ ------------
Atlantic Automotive Components, L.L.C. Michigan, U.S.A.
Visteon Receivables, LLC Delaware, U.S.A.
SunGlas, LLC Delaware, U.S.A.
Visteon Climate Control Systems Limited Delaware, U.S.A.
Visteon Domestic Holdings, LLC Delaware, U.S.A.
Halla Climate Systems Alabama Corp. Delaware, U.S.A.
LTD Parts, Incorporated Tennessee,U.S.A.
Visteon Technologies, LLC Delaware, U.S.A.
VC Regional Assembly & Manufacturing, LLC Delaware, U.S.A.
Visteon Export Services, Inc. Barbados
Visteon Global Technologies, Inc. Michigan, U.S.A.
Visteon Holdings GmbH Germany
Visteon Deutschland GmbH Germany
Infinitive Speech Systems Corp. Delaware, U.S.A.
Infinitive Speech Systems U.K. Limited England
Visteon International Holdings, Inc. Delaware, U.S.A.
Visteon-Autopal s.r.o. Czech Republic
Brasil Holdings Ltda. Brazil
Visteon Sistemas Automotivos Ltda. Brazil
Duck Yang Industry Co., Ltd. Korea
Halla Climate Control Corporation Korea
Visteon Interiors Korea Limited Korea
Visteon Asia Pacific, Inc. China
Visteon International Trading (Shanghai) Co., Ltd. China
Jiangxi Fuchang Climate Systems, Ltd. China
Visteon Climate Control (Beijing) Co., Ltd. China
Visteon Climate Control(Chongqing) Co., Ltd. China
Halla Climate Control (Dalian) Co., Ltd. China
Visteon Amazonas Ltda. Brazil
Visteon S.A. Argentina
Visteon Asia Holdings, Inc. Delaware, U.S.A.
Visteon Japan, Ltd. Japan
Visteon Automotive Holdings, LLC Delaware, U.S.A.
Grupo Visteon, S.de R.L. de C.V. Mexico
Aeropuerto Sistemas Automotrices S.de R.L de C.V. Mexico
Altec Electronica Chihuahua, S.A. de C.V. Mexico
Autovidrio S.A. de C.V. Mexico
Carplastic S.A. de C.V. Mexico
Climate Systems Mexicana, S.A. de C.V. Mexico
Coclisa S.A. de C.V. Mexico
Lamosa S.A. de C.V. Mexico
Visteon Automotive Systems India Private Limited India
Visteon Powertrain Control Systems India Private Ltd. India
Climate Systems India Limited India
Visteon Canada, Inc. Canada
Halla Climate Control Canada Inc. Canada
Halla Climate Control (Portugal) Ar Condicionado, LDA Portugal
Visteon Caribbean, Inc. Puerto Rico
Visteon European Holdings Corporation Delaware, U.S.A.
Visteon Holdings Espana SI Spain
Cadiz Electronica, S.A. Spain
Visteon Sistemas Interiores Espana, S.L. Spain
Visteon Holdings France SAS France
Visteon Ardennes Industries SAS France
Visteon Software Technologies SAS France
Visteon Holdings Italia, s.r.l. Italy
Visteon Interior Systems Italia SpA Italy
Visteon Interior Systems Holdings France SAS France
Visteon Systemes Interieurs SAS France
Reydel Limited United Kingdom
Visteon Hungary Kft Hungary
Visteon-Nichirin-Czech s.r.o Czech Republic
Visteon Philippines, Inc. Philippines
Visteon Poland S.A. Poland
Visteon Portugesa, Ltd. Bermuda
Visteon International Holding (BVI) Limited British Vir. Isles
Visteon Slovakia S.r.o. Slovakia
Visteon South Africa (Pty) Limited South Africa
Visteon (Thailand) Limited Thailand
Halla Climate Control (Thailand) Company Limited Thailand
Visteon Automotive Components Production Industry
and Commerce AS Turkey
Visteon UK Limited England
Visteon Global Treasury, Inc. Delaware, U.S.A.
Visteon LA Holdings Corp. Delaware, U.S.A.
Visteon International Business Development, Inc. Delaware, U.S.A.
Visteon Systems, LLC Delaware, U.S.A.
Visteon AC Holdings Corp. Delaware, U.S.A.
8 Other U.S. Subsidiaries
6 Other Non-U.S. Subsidiaries
* Subsidiaries not shown by name in the above list, if considered in the
aggregate as a single subsidiary, would not constitute a significant
subsidiary.
EXHIBIT 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-3 (No. 333-85406) and S-8 (Nos. 333-39756, 333-39758,
333-40202, 333-87794, and 333-115463) of Visteon Corporation of our report dated
March 16, 2006 relating to the financial statements, management's assessment of
the effectiveness of internal control over financial reporting and the
effectiveness of internal control over financial reporting, which appears in
this Form 10-K. We also consent to the incorporation by reference of our report
dated March 16, 2006 relating to the financial statement schedules, which
appears in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
Detroit, Michigan
March 16, 2006
Exhibit 24.1
VISTEON CORPORATION
Certificate of Secretary
The undersigned, Heidi A. Sepanik, Secretary of VISTEON CORPORATION, a
Delaware corporation (the "Company"), DOES HEREBY CERTIFY that the following
resolutions were adopted by unanimous written consent of the Board of Directors
of the Company as of March 9, 2006, and that the same are in full force and
effect:
"RESOLVED, that preparation of the Annual Report on Form 10-K of the
Company for the year ended December 31, 2005, (the "10-K Report"), including
exhibits and other documents, to be filed with the Securities and Exchange
Commission (the "Commission") under the Securities Exchange Act of 1934, as
amended, be and hereby is in all respects authorized and approved; that the
draft 10-K Report be and hereby is approved in all respects; that the directors
and appropriate officers of the Company, and each of them, be and hereby are
authorized to sign and execute in their own behalf, or in the name and on behalf
of the Company, or both, as the case may be, the 10-K Report, and any and all
amendments thereto, with such changes therein as such directors and officers may
deem necessary, appropriate or desirable, as conclusively evidenced by their
execution thereof; and that the appropriate officers of the Company, and each of
them, be and hereby are authorized to cause the 10-K Report and any such
amendments, so executed, to be filed with the Commission.
"RESOLVED, that each officer and director who may be required to sign and
execute the 10-K Report or any amendment thereto or document in connection
therewith (whether in the name and on behalf of the Company, or as an officer or
director of the Company, or otherwise), be and hereby is authorized to execute a
power of attorney appointing J. F. Palmer, W. G. Quigley and J. Donofrio, and
each of them, severally, his or her true and lawful attorney or attorneys to
sign in his or her name, place and stead in any such capacity the 10-K Report
and any and all amendments thereto and documents in connection therewith, and to
file the same with the Commission, each of said attorneys to have power to act
with or without the other, and to have full power and authority to do and
perform in the name and on behalf of each of said officers and directors who
shall have executed such power of attorney, every act whatsoever which such
attorneys, or any of them, may deem necessary, appropriate or desirable to be
done in connection therewith as fully and to all intents and purposes as such
officers or directors might or could do in person."
WITNESS my hand as of this 10th day of March, 2006.
/s/ Heidi A. Sepanik
----------------------------------------
Heidi A. Sepanik
Secretary
(SEAL)
POWER OF ATTORNEY WITH RESPECT TO
ANNUAL REPORT ON FORM 10-K OF
VISTEON CORPORATION FOR
THE YEAR ENDED DECEMBER 31, 2005
Each of the undersigned, a director or officer of VISTEON CORPORATION,
appoints each of J. F. Palmer, W. G. Quigley III, and J. Donofrio as his or her
true and lawful attorney and agent to do any and all acts and things and execute
any and all instruments which the attorney and agent may deem necessary or
advisable in order to enable VISTEON CORPORATION to comply with the Securities
Exchange Act of 1934, and any requirements of the Securities and Exchange
Commission, in connection with the Annual Report on Form 10-K of VISTEON
CORPORATION for the year ended December 31, 2005, and any and all amendments
thereto, including, but not limited to, power and authority to sign his or her
name (whether on behalf of VISTEON CORPORATION, or as a director or officer of
VISTEON CORPORATION, or by attesting the seal of VISTEON CORPORATION, or
otherwise) to such instruments and to such Annual Report and any amendments
thereto, and to file them with the Securities and Exchange Commission. The
undersigned ratifies and confirms all that any of the attorneys and agents shall
do or cause to be done by virtue hereof. Any one of the attorneys and agents
shall have, and may exercise, all the powers conferred by this instrument.
Each of the undersigned has signed his or her name as of the 9th day of
February, 2006.
/s/ Michael F. Johnston /s/ Charles L. Schaffer
- ------------------------------------- ----------------------------------------
Michael F. Johnston Charles L. Schaffer
/s/ Marla C. Gottschalk /s/ James D. Thornton
- ------------------------------------- ----------------------------------------
Marla C. Gottschalk James D. Thornton
/s/ William H. Gray, III /s/ Kenneth B. Woodrow
- ------------------------------------- ----------------------------------------
William H. Gray, III Kenneth B. Woodrow
/s/ Patricia L. Higgins
- ------------------------------------- ----------------------------------------
Patricia L. Higgins James F. Palmer
/s/ Karl J. Krapek /s/ William G. Quigley III
- ------------------------------------- ----------------------------------------
Karl J. Krapek William G. Quigley IIII
EXHIBIT 31.1
CERTIFICATION PURSUANT TO EXCHANGE ACT RULE 13A-14(A)
I, MICHAEL F. JOHNSTON, CERTIFY THAT:
1. I have reviewed this Annual Report on Form 10-K of Visteon Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b) designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, 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;
c) evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: March 16, 2006
/s/ Michael F. Johnston
------------------------------------
Michael F. Johnston
Chairman and Chief Executive Officer
(Principal Executive Officer)
EXHIBIT 31.2
CERTIFICATION PURSUANT TO EXCHANGE ACT RULE 13A-14(A)
I, JAMES F. PALMER, CERTIFY THAT:
1. I have reviewed this Annual Report on Form 10-K of Visteon Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f))for the registrant and have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b) designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, 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;
c) evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: March 16, 2006
/s/ James F. Palmer
----------------------------------------
James F. Palmer
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AND EXCHANGE ACT RULE 13a-14(b)
Solely for the purposes of complying with 18 U.S.C. Section 1350 and Rule
13a-14(b) under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), I, the undersigned Chairman and Chief Executive Officer of Visteon
Corporation (the "Company"), hereby certify, based on my knowledge, that the
Annual Report on Form 10-K of the Company for the fiscal year ended December 31,
2005 (the "Report") fully complies with the requirements of Section 13(a) of the
Exchange Act and that information contained in the Report fairly presents, in
all material respects, the financial condition and results of operations of the
Company.
/s/Michael F. Johnston
- -------------------------------------
Michael F. Johnston
March 16, 2006
EXHIBIT 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AND EXCHANGE ACT RULE 13a-14(b)
Solely for the purposes of complying with 18 U.S.C. Section 1350 and Rule
13a-14(b) under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), I, the undersigned Executive Vice President and Chief Financial Officer
of Visteon Corporation (the "Company"), hereby certify, based on my knowledge,
that the Annual Report on Form 10-K of the Company for the fiscal year ended
December 31, 2005 (the "Report") fully complies with the requirements of Section
13(a) of the Exchange Act of 1934 and that information contained in the Report
fairly presents, in all material respects, the financial condition and results
of operations of the Company.
/s/James F. Palmer
- -------------------------------------
James F. Palmer
March 16, 2006