UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549

FORM 10-K/A
(Amendment No. 1)

(Mark One)

x

þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2003,2004, or

o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                  to                  

Commission file number 1-15827

VISTEON CORPORATION
(Exact name of Registrant as specified in its charter)
   
Delaware
(State of incorporation)		 38-3519512
(I.R.S. employer
identification no.)
One Village Center Drive,
Van Buren Township, Michigan
(Address of principal executive offices)		 48111
(Zip code)

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

Securities registered pursuant to Section 12(b) of the Act:
   
Name of each exchange on
Title of each classwhich registered
Common Stock, par value $1.00 per share New York Stock Exchange

     Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  No  ü    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 Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  oþ

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

Yes  ü    No      

    The aggregate market value of the registrant’s voting and non-voting common equity held by non-affiliates of the registrant on June 30, 20032004 (the last business day of the most recently completed second fiscal quarter) was approximately $853$1,512 million.

    As of March 1,November 14, 2005, the registrant had outstanding 128,678,345128,743,368 shares of common stock.

Document Incorporated by Reference*

   
DocumentWhere Incorporated
Proxy Statement Part III (Items 10,
11, 12, 13 and 14)

* As stated under various Items of this Report, only certain specified portions of such document are incorporated by reference in this Report.

TABLE OF CONTENTS

PART I
ITEM 2. PROPERTIES
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
PART II
ITEM 5. MARKET FOR VISTEON’S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Restructuring, Dispositions and Special Charges
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
ITEM 9A. CONTROLS AND PROCEDURES
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF VISTEON
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
PART IV
SIGNATURES
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
CONSOLIDATED STATEMENT OF OPERATIONS
CONSOLIDATED BALANCE SHEET
CONSOLIDATED STATEMENT OF CASH FLOWS
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
NOTES TO FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF OPERATIONS
CONSOLIDATED BALANCE SHEET
CONSOLIDATED STATEMENT OF CASH FLOWS
Principles of Consolidation
Variable Interest Entities
Revenue Recognition
Guarantees and Product Warranty
U.S. Plan Assets and Investment Strategy
U.S. Contributions
Medicare Legislation
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
Statement re: Computation of Ratios
Consent of Independent Accounts, PricewaterhouseCoopers LLP
Powers of Attorney
Rule 13a-14(a) Certification of Chief Executive Officer
Rule 13a-14(a) Certification of Chief Financial Officer
Section 1350 Certification of Chief Executive Officer
Section 1350 Certification of Chief Financial Officer

EXPLANATORY NOTE

This Amendment No. 1 on Form 10-K/A (“Form 10-K/A”) to our Annual Report on Form 10-K for the year ended December 31, 2003,2004, initially filed with the Securities and Exchange Commission (the “SEC”) on February 13, 2004March 16, 2005 (the “Original Filing”), is being filed to reflect restatements of our consolidated balance sheetssheet at December 31, 20032004 and 2002;2003; and our consolidated statement of operations, consolidated statement of cash flows and consolidated statement of stockholders’ equity for each of the three years in the period ended December 31, 2003,2004, and the notes and schedule of valuation and qualifying accounts related thereto. The restatements primarily pertain to

      On May 10, 2005, Visteon announced that the following mattersAudit Committee of the Board of Directors had initiated an independent review of the accounting for certain transactions originating in the company’s North American purchasing activity as a result of errors identified by management during the course of preparing Visteon’s 2004Quarterly Report on Form 10-Q for the first quarter of 2005. The errors related to the accrual for freight, raw materials and other supplier costs originating in North America that relate to prior periods. The Audit Committee engaged outside counsel to advise it regarding the review. Based upon the completion of this review and other procedures performed by management, the Audit Committee and management concluded that the aforementioned financial statements:statements require restatement. In addition, as previously described in Visteon’s Current Report on Form 8-K dated October 21, 2005, the Audit Committee’s independent review also determined that many of the accounting errors resulted principally from improper conduct on the part of two former, non-executive finance employees responsible for the accounting oversight of these matters. The restatements pertain to the following matters:

 • Effective in January 2002, Visteon amended its retiree health care benefits plan for certain of its U.S. employees. This amendment changed the eligibility requirements for participants in the plan, and, as a result, Visteon changed the expense attribution periods. We have determinedis making corrections to record freight costs that these changes in eligibility requirements were not properly communicated to affected employees, and, therefore, the revision to the expense attribution periods, which resulted in expense reductions, should not have been made.recorded in periods prior to December 31, 2004. The impact of the correction of these errors increased net loss by approximately $32$8 million ($0.250.06 per share), $24 million ($0.19 per share) and $12$5 million ($0.100.04 per share), for the years ended December 31, 2004, 2003 and 2002, respectively.
 • Visteon is making corrections for certain tooling costs originally recorded as receivables. Costs incurred for Visteon-owned tooling used in productionto record raw material cost increases that should have been adjustedrecorded in periods prior to reflect such costs as long-term assets and to provide related amortization expense. Non-reimbursable costs incurred to develop customer-owned tooling have been expensed in the periods such costs were incurred.December 31, 2004. The impact of the correction of these errors increased net loss by approximately $10$26 million ($0.080.21 per share), for the year ended December 31, 2004, reduced net loss by approximately $3 million ($0.02 per share) and $5 million ($0.03 per share), for the yearsyear ended December 31, 2003, 2002 and 2001, respectively.
increased net loss by approximately $6 million ($0.05 per share) for the year ended December 31, 2002.
 
 • Visteon is making corrections for certain volume related rebates, received from numerous capital equipment suppliers for purchases, which were originally recognized as a reduction to expense. Costs incurred for capital equipmentrecord other supplier costs that should have been adjustedrecorded in periods prior to reflect such discounts as a reduction to long-term assets and to adjust related depreciation and amortization expense.December 31, 2004. The impact of the correction of these errors increased net loss by approximately $7$6 million ($0.05 per share) for the year ended December 31, 2003.
• Visteon is making corrections for an inventory costing error during 2000 at one of Visteon’s U.S. plants, which had the effect of reducing costs of sales in 2000 and increasing costs of sales in 2001 and 2002. The impact of the correction of this error decreased net loss by approximately $6 million ($0.04 per share) and $2$1 million ($0.01 per share) for the years ended December 31, 20022004 and 2001, respectively. There was2003, respectively, and had no cumulative impact to results of operationson net loss for the three year period ended December 31, 2002.
 • During the review of our annual United Kingdom pension valuations, we identified unrecorded pension expenses incurred asVisteon is making a result of special termination benefits provided under Visteon’s European Plancorrection for Growth program.income taxes related to various foreign affiliates that should have been recognized in 2004. The impact of thethis correction of these errors increasedreduced net loss by approximately $5$3 million ($0.040.02 per share) for the year ended December 31, 2003.
• Visteon also identified unrecorded postretirement health care expenses at one of Visteon’s foreign locations. The impact of the correction of these errors on net income was approximately $1 million ($0.01 per share) and $1 million ($0.01 per share), for the years ended December 31, 2002 and 2001, respectively.
2004.

1

• Visteon is correcting the amount and timing of the recognition of certain tax adjustments made during the periods. As Visteon expects to repatriate earnings of foreign subsidiaries, adjustments were made to provide for the tax effects of foreign currency movements against the U.S. dollar. These adjustments also impacted the timing of the recognition of deferred tax asset valuation allowances in the fourth quarter of 2003 and the third quarter of 2004. Further, Visteon recognized an additional valuation allowance for certain deferred tax assets that had previously been misclassified and not considered in Visteon’s 2003 deferred tax assessment. The impact of the correction of these errors decreased net loss by approximately $24 million ($0.19 per share) for the year ended December 31, 2003.

For a more detailed description of these restatements, see Note 2, “Restatement of Financial Statements” to the accompanying audited consolidated financial statements and the section entitled “Restatement” in Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in this Form 10-K/A. The decision to restate Visteon’s consolidated financial statements was previously announced in a press release that was filed with the SEC as part of a Current Report on Form 8-K of Visteon dated January 31,October 21, 2005.

Although this Form 10-K/A sets forth the Original Filing in its entirety, this Form 10-K/A only amends and restates Item 1 of Part I, Items 6, 7, 8 and 9A of Part II and Exhibit 12.1 of Item 15 of Part IV of the Original Filing, in each case, solely as a result of, and to reflect, the restatement, and no other information in the Original Filing is amended hereby. The foregoing items have not been updated to reflect other events occurring after the Original Filing or to modify or update those disclosures affected by subsequent events. In addition, pursuant to the rules of the SEC, Item 15 of Part IV of the Original Filing has been amended to contain the consent of our independent registered public accounting firm and currently-dated certifications from our Chief Executive Officer and Chief Financial Officer, as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002. The consent of the independent registered public accounting firm and the certifications of our Chief Executive Officer and Chief Financial Officer are attached to this Form 10-K/A as Exhibits 23.1, 31.1, 31.2, 32.1 and 32.2, respectively.

Except for the foregoing amended information, this Form 10-K/A continues to describe conditions as of the date of the Original Filing, and we have not updated the disclosures contained herein to reflect events that occurred at a later date. Other events occurring after the filing of the Original Filing or other disclosures necessary to reflect subsequent events have been or will be addressed in either our amended Quarterly Reports on Form 10-Q/A10-Q for the quarterly periods ended March 31, 2004,2005, June 30, 2004 and/2005 or September 30, 2004,2005 which are being filed concurrently with the filing of this Form 10-K/A, or by our Annual Report on Form 10-K for the year ended December 31, 2004, when filed, or other reports filed with the SEC subsequent to the date of this filing.

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TABLE OF CONTENTS

EXPLANATORY NOTE
PART I
ITEM 1. BUSINESS
ITEM 2. PROPERTIES
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 4A. EXECUTIVE OFFICERS OF VISTEON
PART II
ITEM 5. MARKET FOR VISTEON’S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9B. OTHER INFORMATION
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
SIGNATURES
EXHIBIT INDEX
Statement re: Computation of Ratios
Consent of Independent Registered Public Accounting Firm
Section 302 Certification of Chief Executive Officer
Section 302 Certification of Chief Financial Officer
Section 906 Certification of Chief Executive Officer
Section 906 Certification of Chief Financial Officer

PART I

ITEM 1. BUSINESS

Overview

      Visteon Corporation is a leading global supplier of automotive systems, modules and components to global vehicle manufacturers and the automotive aftermarket. Headquartered in Dearborn,Van Buren Township, Michigan, we have global capabilities, with regional headquarters in Kerpen, Germany; Shanghai, China; and São Paulo, Brazil. We have a workforce of approximately 72,00070,200 and a network of manufacturing sites, technical centers, sales offices and joint ventures located in every major region of the world.

      Visteon operates in two business segments: Automotive Operations and Glass Operations.

     Automotive Operations:Visteon is a leading global supplier of automotive systems, modules and components in the following product areas: climate control, interior, exterior, powertrain, chassis and electronics. Our products are featured on vehicles built by many leading automotive manufacturers, including Ford Motor Company, General Motors, Toyota, DaimlerChrysler, Volkswagen, Honda, Renault, Nissan, Hyundai, Peugeot, Mazda and BMW. The Automotive Operations segment accounted for 97% of our 20032004 total sales.

     Glass Operations:Our Glass Operations segment designs, produces and distributes automotive glass products for Ford and aftermarket customers, and float glass for commercial architectural and automotive applications.

      Visteon was incorporated in Delaware in January 2000 as a wholly-owned subsidiary of Ford. Ford subsequently transferred to Visteon the assets and liabilities comprising its automotive components and systems business. Visteon separated from Ford on June 28, 2000 when all of the common stock of Visteon was distributed by Ford to its shareholders.

Financial Information About Business Segments

Business segment financial information can be found on pages 97-99116-118 of this Annual Report on Form 10-K10-K/A (Note 18,20, “Segment Information,” of our consolidated financial statements).

Automotive Parts Industry

      The automotive parts industry provides systems, modules and components to vehicle manufacturers for the manufacture of new vehicles, as well as to the aftermarket for use as replacement and enhancement parts. Historically, large vehicle manufacturers operated internal divisions to provide a wide range of component parts for their vehicles. More recently, vehicle manufacturers have moved toward a competitive sourcing process for automotive parts, including increased purchases from independent suppliers, as they seek lower-priced and/or higher-technology products. Demand for aftermarket products tends to increase when vehicle owners retain their vehicles longer, as these vehicles generally have a greater need for repairs.

     Industry Trends.The following key trends have been affecting the automotive parts industry over the past several years:

 • Ongoing Industry Consolidation. The number of automotive parts suppliers worldwide has been declining due to industry consolidation and closings. Suppliers are shifting production to locations with more flexible work rules and practices, acquiring complementary technologies, building stronger customer relationships, and following their customers as they expand globally. Visteon is responding by improving its focus on its key growth product areas. Visteon believes that it can continue to strengthen its competencies so that it can improve its leadership position in these core products.

3

ITEM 1. BUSINESS — (Continued)
• Increasing Competitive Intensity and Market Pressures on Vehicle Manufacturers. Because vehicle manufacturers are under increasing competitive intensity, they must rapidly adjust to changing consumer preferences in order to differentiate their vehicles. This has resulted in the acceleration in vehicle development and increased reliance upon parts suppliers, such as Visteon, with significant design, engineering, research and development, and assembly abilities. These market pressures inhibit the ability of vehicle manufacturers to significantly increase vehicle prices, leading vehicle manufacturers to intensify their cost-reduction efforts on their suppliers. In particular, vehicle manufacturers are increasingly searching for lower cost sources of components and systems, primarily in the Asia-Pacific region, and are establishing global benchmark pricing. Thus, automotive suppliers such as Visteon must continue to manage their supply chains globally and leverage low-cost functions to reduce costs without sacrificing quality.
• Globalization of Suppliers. To serve multiple markets more efficiently, vehicle manufacturers are assembling vehicle platforms globally. With this globalization, vehicle manufacturers are increasingly interested in buying components and systems from suppliers that can serve multiple markets, address local consumer preferences, control design costs and minimize import tariffs in local markets. Visteon’s presence in 24 countries, on six continents, positions it to meet this need. In addition, foreign vehicle manufacturers continue to gain market share at the expense of the domestic vehicle manufacturers. Many of these foreign vehicle manufacturers have strong existing relationships with foreign-based suppliers. This has increased the competitive pressure on domestic suppliers like Visteon. We also believe, however, that this trend could create growth opportunities for domestic suppliers, such as Visteon, with innovative and competitively priced technologies as foreign vehicle manufacturers increasingly establish additional local manufacturing and assembly facilities in North America and seek additional ways to differentiate their product offerings.
• Demand for Safety-related and Environmentally-friendly Products. Consumers are increasingly interested in products and technologies that make them feel safer and more secure. Vehicle manufacturers and many governmental regulators are requiring more safety-related and environmentally-friendly products. This demand, coupled with advances in technology, have led to a number of new product opportunities for Visteon’s strong innovation capabilities, such as advanced front lighting systems, driver-information technologies, emissions controls, improved fuel economy and recyclable materials. In addition, Visteon can support the technology needs of advanced systems, such as environmentally-focused power systems, which could revolutionize the automotive industry.

3

ITEM 1. BUSINESS — (Continued)

 • Increasing Electronics Integration and Technological Content. Electronics integration, which typically involves replacing bulky mechanical components with electronic ones and/or adding new electrical functions to the vehicle, allows vehicle manufacturers improved control over vehicle weight, costs and functionality. Integrated electronic solutions help auto manufacturers improve fuel economy through weight reduction and reduce emissions through improved air and engine control systems. In addition, Visteon is combining its leadership position in automotive supply with leaders in non-automotive electronics to offer vehicle manufacturers integrated technologies that meet key consumer and regulatory needs.
• Globalization of Suppliers.To serve multiple markets more efficiently, vehicle manufacturers are assembling vehicle platforms globally. With this globalization, vehicle manufacturers are increasingly interested in global suppliers that can better serve multiple markets, address local consumer preferences, control design costs and minimize import tariffs in local markets. Visteon’s presence in more than 200 facilities, in 25 countries, on six continents positions it to meet this need.
• Ongoing Industry Consolidation.The worldwide automotive parts industry is consolidating as suppliers seek to achieve operating synergies through business combinations. Suppliers are shifting production to locations with more flexible work rules and practices, acquiring complementary technologies, building stronger customer relationships, and following their customers as they expand globally. Visteon’s ability to provide vehicle manufacturers with single-point sourcing of integrated systems and modules on a global basis has improved its ability to respond to this consolidation.
• Design of Several Model Derivatives Off of a Single Vehicle Platform. Vehicle manufacturers are designing and producing several vehicle models off of a single vehicle platform. With this method, vehicle manufacturers will vary the design of some components to create the different vehicle models and standardize other components across the platform, helping to reduce the overall cost of design and manufacture of each model. Suppliers such as Visteon, with its broad product line of innovative new systems, are well positioned to assist vehicle manufacturers in differentiating their vehicle models.
• Increased Competitive Intensity and Market Pressures on Vehicle Manufacturers.Because vehicle manufacturers are under increasing pressure to adjust to changing consumer preferences and to incorporate technological advances, they are shortening product development times. These shorter development times allow vehicle manufacturers to effectively introduce vehicles and features that match prevailing consumer preferences. To simplify the vehicle design and assembly processes and reduce their costs, vehicle manufacturers are experimenting with opportunities for their suppliers to provide fully engineered, pre-assembled systems rather than individual components. By offering sophisticated systems and modules rather than individual components, automotive suppliers such as Visteon are well positioned to capture value from the design, engineering, research and development, and assembly functions vehicle manufacturers are increasingly looking to outsource.

4

ITEM 1. BUSINESS — (Continued)

Products

      When working with a customer, our goal is to understand the design intent and brand image for each vehicle and leverage our extensive experience and innovative technology to deliver products that enable the customer to differentiate the vehicle. We support our components, systems and modules with a full-range of styling, design, testing and manufacturing capabilities, including just-in-time and in-sequence delivery.

      The global automotive parts industry is highly competitive and winning and maintaining new business requires suppliers to rapidly produce new and innovative products on a cost-competitive basis. Because of the heavy capital and engineering investment needed to maintain this competitiveness, Visteon reexamined its broad product portfolio to identify its key growth products considered core to its future success. This assessment was based on a review of a number of factors, including:
• Our understanding of market trends and the changing requirements of vehicle manufacturers and end-consumer preferences
• Our current portfolio of product technologies and capabilities and expected future advancements
• Our operating cost structure, manufacturing capability and geographic presence
• Our ability to gain and retain profitable new business with our customers
      Based on this assessment the company identified interiors, climate and electronics, including lighting, as its key growth products.
      The following discussion describes the major product groups within each segment.segment that Visteon produces or offers as of the date of this report. Financial information relating to sales attributable to each of these product groups can be found in Note 18,20, “Segment Information,” of our consolidated financial statements.

Automotive Operations

     Chassis Products & Systems.Visteon designs and manufactures a wide array of chassis-related products, from driveline systems for popular all-wheel drive vehicles to steering and suspension systems.
   
Chassis Product LinesDescription
Driveline Systems Visteon produces all of the major components for an all-wheel drive system. Major products includeinclude: front and rear independent suspension and solid-beam axles, propshafts, halfshafts,Propshafts, Halfshafts, and power transfer units.Power Transfer Units. Visteon’s slip-in-tube propshaftSlip-in-Tube Propshaft is an example of our exclusive technology that reduces weight, and improves noise, vibration and harshness (“NVH”)(NVH) and vehicle crash performance.performance in the event of sudden impact.
Steering Systems/Steering Columns Visteon designs and produces hydraulic power assisted steering systems, rack and pinion steering gears and recirculating ball nut steering gears, and power steering pumps. We have also developed electric power assisted steering (“EPAS”) systems, which use electric motors rather than conventional hydraulics.gears.
Suspension Systems/Misc. Components Visteon’s suspension products include corner and suspension modules, brake hubs and rotors, knuckles and spindles, in a variety of materials, and stabilizer bars.
Catalytic Converters Visteon designs and manufactures catalytic converters and other exhaust system products.converters.

5

ITEM 1. BUSINESS — (Continued)
     Interior Products & Systems.Visteon is one of the leading global suppliers of cockpit systems,modules, instrument panels, door and console modules and interior trim and console modules.components.
   
Interior Product LinesDescription
Cockpit SystemsModules Visteon’s cockpitsCockpit Modules incorporate the latest in driver information, entertainment, vehicle controls and climate control features and package a variety of structural, electronic and safety components. We provide our customers with a complete array of services including advanced engineering and computer aidedcomputer-aided design, styling concepts and modeling and in-sequence delivery of manufactured parts. Visteon’s cockpit systemsCockpit Modules incorporate our instrument panelsInstrument 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/Trim/Door Modules & Seat Systems Visteon provides a wide range of door trim panels and modules as well as a variety of interior trim products.
Console Modules Visteon’s console modules expand the functionality of today’s console offerings, deliveringconsoles 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.

5

ITEM 1. BUSINESS — (Continued)

     Climate Control Products & Systems.Visteon is one of the leading global suppliers in the design and manufacturing of components, modules and systems that provide automotive heating, ventilation and air conditioning and powertrain cooling.

   
Climate Control Product LinesDescription
HVACClimate Systems Visteon designs and manufactures fully integrated heating, ventilation and air conditioning (HVAC) systems. Visteon’s proprietary analytical tools and powertrain cooling systems consistingintegration expertise enables the development of heat exchangers, air handling modules, heaterclimate-oriented components, subsystems and A/ C controls, compressors,vehicle-level systems. Products contained in this area include: Heat Exchangers, Climate Controls, Compressors, and front end modules. Heat exchangers provide the mechanism of heat transfer for automotive air conditioning and powertrain cooling systems. Included in the offering are radiators, condensers, evaporator and heater cores, integrated heat exchangers, cooling modules and intercoolers. Visteon’s air handling modules heat and cool air and distribute it throughout the passenger cabin. Visteon designs and manufactures mechanical and electronic A/ C and heater controls. These controls allow passengers to select various air temperature, speed and distribution combinations for optimal comfort. Compressors pump refrigerant through the air conditioning systems. Compressor technologies include fixed and variable displacement swashplate designs, as well as fixed and variable capacity scroll designs. The front end module integrates structural, exterior cooling, electrical and lighting components and subsystems in order to achieve improvements in packaging and vehicle thermal and front-end structure performance.Fluid Transport Systems.
Powertrain Cooling Systems Cooling functionality and thermal management for the vehiclevehicle’s powertrain system (engine and transmission) is provided by powertrain cooling.cooling-related technologies.

     Powertrain Products & Systems.Visteon offers innovative designs in engine management, fuel storage and delivery and electrical conversion systems. These systems which are designed to provide the automotive customer with solutions that enhance powertrain performance, fuel economy and emissions control.
   
Powertrain Product LinesDescription
Powertrain Electronics Ignition,and Engine Air/Fuel Systems, Air Induction Systems and other Powertrain Visteon has a complete line of products for vehicle engine and powertrain management, including the powertrain control module.Powertrain Control Module. Visteon’s diverse line of sophisticated powertrain products are designed to deliver improved fuel economy and reduced emissions while enhancing performance. These products include air charging assembliesinclude: Engine and air induction systems, torque enhancement systems, intake manifolds, long life filtration systems, fuel injectorsAir Induction Systems, Torque Enhancement Systems, Intake Manifolds, Long Life Filtration Systems, Fuel Injectors and rails, mechanicalRails, Mechanical and electronic throttle bodies,Electronic Throttle Bodies and ignition coils.Ignition Coils.
Starters, Alternators and Wiper Washer Visteon offers a wide range of alternators and starters to meet differing needs of the automotive customer. In addition, Visteon is working to develop technologies that meet future higher-voltage vehicle architectures (including integrated starter-generators).
Fuel Tanks, Fuel Delivery and Carbon Canisters Visteon manufactures systems and components to support low emissions vehicles. The principal products in these systems are plastic blow-molded and thermoformed fuel tanks, fuel pumpsFuel Tanks, Fuel Pumps and delivery modules,Fuel Delivery Modules and fuel vapor storage systems.Carbon Canisters.

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ITEM 1. BUSINESS — (Continued)

     Electronic Products & Systems.Visteon is one of the leading global suppliers of high-tech in-vehicle entertainment, driver information, wireless communication, safety and security electronics.
   
Electronic Product LinesDescription
Audio Systems Visteon produces a wide range of audio systems and components, includingranging from base radio head units to integrated cassette/ CD/ MP3 radiospremium audio systems and amplifiers. Examples of Visteon’s latest electronics products include digital and satellite radios, HD Radiotmbroadcast tuners, premium systems for audiophile systemsenthusiasts and advanced bluetooth interfaceBluetooth®-enabled modules integrated withthat incorporate Visteon Voice Technologytmcapability. Visteon’s MACH® digital signal processing (“DSP”)Digital Signal Processing (DSP) is an integrated technology providing improveddesigned to improve audio performance for entertainment systems and can support branded audio systemssolutions such as Boston Acoustics and Sony.
Driver Information Systems Visteon designs and buildsmanufacturers a wide range of displays, from analog electronicanalog-electronic to high impacthigh-impact instrument clusters and light emitting diode (“LED”)that incorporate Light Emitting Diode (LED) displays.
Integrated ElectronicsInfotainment — Information, Entertainment and Infotainment SystemsMultimedia Visteon has developed numerous products to assist driving and enhance safety. These include Visteonprovide in- vehicle entertainment. A sampling of these technologies include: MACH® Voice Link Technology,™, adaptive cruise control, anti-theft systems, remote keyless entry systems Adaptive Cruise Control and tire pressure monitoring. Visteon is working with United States Departmenta range of Transportation (“USDOT”)Family Entertainment Systems designed to develop lane departure warning systems. Visteon delivers in-vehicle entertainment that provides consumers with DVDsupport a variety of applications and wireless headphone systems capable of interacting with other plug and play multimedia.various vehicle segments

     Exterior Products & Systems.Visteon can provide exterior packages that deliver high quality and functionality to the automotive customer.
   
Exterior Product LinesDescription
Lighting Visteon designs and builds a wide variety of headlamps rear lamps, high-mount stop lamps(projector, reflector or Advanced Front Lighting Systems), Rear Combination Lamps, Center High-Mounted Stop Lamps (CHMSL) and foglampsFog Lamps. Visteon’s expertise in lighting enables a breadth of technology using leading edge technologies such asa range of lighting sources including LED, HID, AFSHigh Intensity Discharge (HID) and projector headlamps.Halogen-based systems.
Bumpers Visteon offers bumper systems, fascias and assemblies and valance panels.

Glass Operations

Our Glass Operations segment designs, produces, and distributes automotive glass products for Ford and aftermarket customers, and float glass for commercial architectural and automotive applications. Glass Operations accounted for about $563$520 million, or 3%, of our 20032004 total sales. The following table provides a description of the Glass Operations segment product lines:
Glass Product LinesDescription
GlassProducts include windshields, backlites, moonroofs and side windows. Capabilities include glass design, development and manufacturing. Aftermarket replacement glass products are distributed under the Carlite® brand name. Visteon also produces float glass for commercial architectural and automotive markets. Architectural glass is distributed under the Versalux® brand name.

Customers

      Visteon sells its products primarily to global vehicle manufacturers.manufacturers as well as to other suppliers and assemblers. In addition, we sell products for use as aftermarket and service parts to automotive original equipment manufacturers and others for resale through their own independent distribution networks.

7

ITEM 1. BUSINESS — (Continued)

Vehicle Manufacturers

      Visteon sells to all of the world’s largest vehicle manufacturers including Ford, General Motors, Toyota, DaimlerChrysler, Honda, Volkswagen, Renault, Nissan, Hyundai, Peugeot, Mazda and BMW. Ford is our largest customer, and our sales to Ford, including those sales to Auto Alliance International, a joint venture between Ford and Mazda, accounted for about 76%70% of our 20032004 total sales. Customers other than Ford include Mazda, of which Ford owns a 33.4% equity interest. Our top five customers other than Ford accounted for approximately 10%13% of our total 2003 sales, which includes certain sales to Mazda Motor Corporation, of which Ford owns a 33.4% equity interest.

2004 sales.

      Price reductions are typically negotiated on an annual basis between suppliers and vehicle manufacturers. Such reductions are intended to take into account expected annual reductions in the overall cost to the supplier of providing products and services to the customer, through such factors as overall increases in manufacturing productivity, material cost reductions, and design-related cost improvements. We have agreed to provide specific average productivity price reductions to our largest customer, Ford, for North AmericanAmerica sales through 2007. Visteon has an aggressive cost reduction program that focuses on reducing our total costs, which are intended to offset these customer price reductions, but there can be no assurance that such cost reduction efforts will be sufficient to do so.

so, especially considering recent increases in the costs of steel and resins.

Aftermarket

      We sell products to the worldwide aftermarket as replacement parts or as customized products, such as body appearance packages and in-car entertainment systems, for current production and older vehicles. In 2003, our2004, we had aftermarket sales were $992of $1,041 million, representing 6% of our total sales. We currently sell 58%54% of these products to the independent aftermarket and 42%46% to Ford’s Automotive Consumer Service Group, the principal aftermarket sales organization of Ford. In 2003,2004, aftermarket sales of our glass products were $155$109 million, representing 1% of our total sales and 16%11% of our total aftermarket sales.

Arrangements with Ford and its Affiliates

      In connection with Visteon’s separation from Ford in 2000, Visteon and Ford entered into a series of agreements outlining the terms of the separation and the relationship between Visteon and Ford on an ongoing basis. In December 2003, Visteon and Ford entered into a series of agreements that modify or replace several of the agreements referred to above. On March 10, 2005, Visteon also entered into a funding agreement and a master equipment bailment agreement with Ford, as described below, which, among other things, modify certain provisions of the Hourly Employee Assignment Agreement and Purchase and Supply Agreement described below. The following summary of certain of these agreements is qualified in all respects by the actual terms of the respective agreements.

8

ITEM 1. BUSINESS — (Continued)

     Master Transfer Agreement.The master transfer agreement, effective as of April 1, 2000, and other related agreements, provided for Ford to transfer to Visteon and/or its subsidiaries, all assets used exclusively by Visteon, including but not limited to real property interests, personal property and ownership interests in subsidiaries and joint ventures. In addition, Visteon and Ford agreed to a division of liabilities relating to the assets contributed and the Visteon business, including liabilities related to product liability, warranty, recall, environmental, intellectual property claims and other general litigation claims. Specifically, Visteon and Ford agreed on a division of responsibility for product liability, warranty and recall matters as follows: (a) Ford will retain liability for all product liability, warranty or recall claims that involve parts made or sold by Visteon for 1996 or earlier model year Ford vehicles; (b) Visteon is liable for all product liability, warranty or recall claims that involve parts made or sold by Visteon for 1997 or later model year Ford vehicles in accordance with Ford’s global standard purchase order terms as applied to other Tier 1 suppliers; and (c) Visteon has assumed all responsibility for product liability, warranty or recall claims relating to parts made or sold by Visteon to any non-Ford customers. Also, Visteon and Ford agreed on a division of responsibility for liabilities associated with claims that Visteon’s products infringe or otherwise violate the intellectual property interests of others as follows: (a) Ford will retain liability for such claims related to Visteon’s products sold or supplied to Ford or its subsidiaries on or prior to July 31, 1999; (b) Visteon has assumed liability for such claims related to Visteon’s products sold or supplied to Ford or its subsidiaries after July 31, 1999 to the same extent as other Tier 1 suppliers would be liable if they had supplied such parts, components or systems to Ford; and (c) Visteon has assumed liability for such claims related to Visteon’s products sold to third parties at any time. With respect to environmental matters, please see “Environmental Matters,” below.

     Master Separation Agreement.Ford has provided a number of transitional services to Visteon pursuant to the master separation agreement and related arrangements, including information technology, human resources, accounting, customs, product development technology and real estate services. Visteon agreed to pay Ford amounts which reflected its fully accounted cost for these services, including a reasonable allocation of internal overhead costs, as well as any direct costs incurred from outside suppliers. Except for certain information technology services, Ford’s obligation to provide these services pursuant to the master separation agreement expired in June 2002. Visteon and Ford have subsequently entered into new arrangements covering some of these services. Please see Note 12,14, “Arrangements with Ford and its Affiliates,” of our consolidated financial statements, for information regarding the amounts that have been assessed for services rendered by Ford under the master separation agreement. During 2003, Visteon began the process of creating a separate IT environment, including the separation of certain of Ford’s IT systems that had been utilized by Visteon. During December 2003, Visteon and Ford agreed on matters designed to facilitate the separation process, including Ford’s agreement to provide certain limited information technology support services and Ford’s agreement to share a portion of the costcosts associated with the separation process. The parties have agreed also to the mutual release of claims related to IT activities since their separation. The first phase of this transition was completed in October 2003, and the second phase was completed in April 2004. The migration of all remaining applications from Ford’s IT systems is expected to be completed in early 2005.

9

ITEM 1. BUSINESS — (Continued)

     Hourly Employee Assignment Agreement.The hourly employee assignment agreement, as amended and restated as of December 19, 2003, sets forth a number of rights and obligations with respect to the United States hourly employees of Ford who are covered by Ford-UAW master collective bargaining agreements and are assigned to work for Visteon. Under this agreement, Visteon exercises day-to-day supervision over the covered individuals and reimburses Ford for the wage, benefit and other costs incurred by Ford related to these individuals. This includes amounts for profit sharing based on Ford’s profits, which is capped at $2,040 per worker. This cap excludes amounts that may be payable on account of employer payroll taxes or the portion of any profit sharing payment that may be attributable to Visteon’s profits. About $12 million, $4 million and $4 million of profit sharing expense was recognized in each of2004, 2003 and 2002, and norespectively. The funding agreement entered into with Ford on March 10, 2005 suspends any profit sharing expense was recognized in 2001.payment for 2005. For further information, see “Workforce” set forth below.

      The amended and restated hourly employee assignment agreement also provides that at December 31, 2003significantly reduced Visteon’s obligation to reimburse Ford for the Other Post Employment Benefits (“OPEB”) SFAS 106 liability (the “OPEB Liability”) related to pre-separation service of Ford hourly employees assigned to work at Visteon, has been significantly reduced, and that the time period for funding Visteon’s post-separation OPEB Liability to Ford for hourly employees assigned to work at Visteon bewas extended from 2020 to December 31, 2049. Visteon has agreed tocompleted during 2004 the transfer of assets and obligations relating to the pensions and other benefits for those hourly employees of Visteon who become hourly employees of Ford as of December 22, 2003. See “Workforce” set forth below. Finally, the agreement provides for an agreed upon method for the transfer of benefit obligations for Visteon-assigned Ford-UAW hourly employees who return to Ford after service at Visteon. For further information, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Pension and Postretirement Benefits” set forth below.

     Purchase and Supply Agreement. During the fourth quarter 2003, Visteon and Ford terminated the purchase and supply agreement and related pricing letter agreement that were entered into at or around the time of the separation and entered into a new purchase and supply agreement, dated as of December 19, 2003. This agreement governs general commercial matters relating to the supply of components in North America by Visteon to Ford, primarily relating to sourcing and pricing obligations.

      Pursuant to this purchase and supply agreement, Visteon and Ford have agreed to continue to honor the terms and conditions of all existing agreements regarding the purchase and sale of currently sourced components. In addition, Ford has agreed to include Visteon on its list of suppliers receiving requests for quotations, design competitions and advanced technology development activities with respect to the sourcing of new business unless “good cause” or “other good business reasons” (each as defined in the agreement) exists to exclude Visteon. If Visteon is excluded from the list of suppliers receiving a request for quote for certain replacement new business because of other good business reasons, then Ford will compensate Visteon on account of such exclusion based on lost profits due to the discontinued sourcing of such components, as calculated in accordance with terms of the agreement. Where Visteon has been asked to quote on new business, consistent with commitments made to the UAW and Visteon to “look to Visteon first,” such new business will be awarded to Visteon if Visteon’s quote is “competitive” (as defined in the agreement). Also, as a condition to sourcing Visteon with respect to most new components, Visteon must develop a competitive gap closure plan that identifies opportunities to reduce prices on the same or similar components currently sourced to Visteon to competitive levels, which plans are not intended to reduce Visteon’s margins. Otherwise, Ford will treat Visteon in the same manner as it treats its other Tier 1 suppliers with respect to Ford’s general sourcing policies and practices relating to new business, including new purchasing and sourcing initiatives.

10

ITEM 1. BUSINESS — (Continued)

      Ford may terminate or not renew its purchase obligations relating to a given component (each, a “Purchase Order”) in accordance with the terms of such Purchase Order, on account of “excusable delay” (as defined in the agreement), program cancellation, for good cause or for other good business reasons. If a Purchase Order is terminated or not renewed for good cause, then there will beis no adjustment to the productivity price down percentages. If during the term of any Purchase Order, Ford elects to terminate or not renew a Purchase Order for other good business reasons, then Ford will compensate Visteon based on lost profits due to the discontinued sourcing of such components, as calculated in accordance with terms of the agreement. If during the term of any Purchase Order, Ford elects to terminate or not renew a Purchase Order because of program cancellation or excusable delay, then the terms of the applicable Purchase Order will govern the right to notification, remediation and compensation, if any.

     Furthermore,

      Visteon hasalso agreed to pay Ford $150 million in lieu of additional productivity price reductions on components supplied by Visteon in North America during 2003, which amount is to be paid in three equal installments commencing no later than December 31, 2003 and ending on or before March 1, 2004. Visteon also will provide, specified productivity price reductions for all components supplied to Ford beginning January 1, 2004 and on each January 1 thereafter through 2007.2007, specified productivity price reductions for all components supplied to Ford in North America. Visteon and Ford have also agreed to negotiate in good faith price changes on supplied components resulting from design changes to such components.

      During the period from January 1, 2004 through December 31, 2007, Ford has agreed to pay to Visteon an amount based on the cost differential between wages paid to Ford-UAW workers, at efficient manning levels, and workers at Tier 1 suppliers, with respect to new business sourced to Visteon at plants covered by the Ford-UAW master collective bargaining agreement. Through December 31, 2007, Ford agrees to reimburse Visteon for wages relating to Ford-UAW workers assigned to Visteon who are placed in the Guaranteed Employment Number (GEN)(“GEN”) program, as set forth in the Ford-UAW master collective bargaining agreement, as a result of Ford’s decision to exclude Visteon from the list of suppliers receiving a request for quote on new business or terminate or not renew a Purchase Order because of other good business reasons.

Visteon has received no payments related to either the cost differential or the GEN program as of December 31, 2004.

      Finally, Ford has agreed to reimburse Visteon for up to one-half of any capital investment spending on production facilities and equipment made by Visteon during the period from January 1, 2004 through December 31, 2007 to the extent related to the production of certain uncompetitive commodities for Ford. Because this reimbursement is calculated on the basis that the capital investment will be amortized over a period of seven years utilizing the production volumes of the applicable components, Visteon may not be reimbursed the full amount in the event that the sourcing program were cancelled or modified by Ford during such period. Visteon has received no payments related to this agreement as of December 31, 2004. Ford has also agreed to accelerate the payment terms for certain payables to Visteon through 2006.

As described further below, Ford has agreed to additional acceleration of payment terms for certain payables to Visteon through at least 2005.

     2003 Relationship Agreement.Visteon and Ford also entered into a 2003 relationship agreement, dated as of December 19, 2003, which provides, among other things, for the establishment of a joint governance council. The governance council is intended to provide a forum in which senior members of the Ford and Visteon leadership teams can monitor the Ford-Visteon relationship on a global basis. Visteon and Ford also agreed to resolve certain outstanding commercial matters between the parties.

11

ITEM 1. BUSINESS — (Continued)

Funding Agreement and Master Equipment Bailment Agreement. On March 10, 2005, Visteon and Ford entered into a funding agreement, effective as of March 1, 2005, under which Ford has agreed (a) to accelerate the payment on or prior to March 31, 2005 of not less than $120 million of payables that are currently not required to be paid to Visteon until after March 31, 2005; (b) to accelerate the payment terms for certain payables to Visteon arising on or after April 1, 2005 from an average of 33 days after the date of sale to an average of 26 days; (c) to reduce the amount of wages that Visteon is currently obligated to reimburse Ford with respect to Visteon-assigned Ford-UAW hourly employees that work at Visteon facilities, which Visteon expects will result in reduced expenses and in cash savings of approximately $25 million per month; and (d) to release Visteon from its obligation to reimburse Ford for Ford profit sharing payments with respect to Visteon-assigned Ford-UAW hourly employees that accrue in 2005. Under the funding agreement, Visteon has agreed to (a) continue to provide an uninterrupted supply of components to Ford in accordance with applicable purchase orders and to continue to comply with its other contractual agreements with Ford and the UAW, including continuing to use its best efforts to quote competitive prices for new business to be produced for Ford at certain of Visteon’s plants located in North America; (b) not to request reimbursement from Ford for any material cost surcharges for any component that is produced for Ford at certain of Visteon’s plants located in North America, and (c) that, except with respect to sales of inventory or the disposal of obsolete equipment in the ordinary course of business, Visteon will not sell, close or otherwise dispose of any of the assets at certain of Visteon’s plants located in North America, without Ford’s consent.
      Also on March 10, 2005, Ford and Visteon entered into a master equipment bailment agreement, effective as of January 1, 2005, pursuant to which Ford has agreed to pay third-party suppliers for certain machinery, equipment, tooling and fixtures and related assets, which may be acquired during the term of the agreement, which are primarily used to produce components for Ford at some of Visteon’s plants located in North America. This agreement is expected to reduce Visteon’s 2005 capital expenditures by approximately $150 million. Either Ford or Visteon may terminate the funding agreement or the master bailment agreement at anytime after January 1, 2006 upon 10 business days’ notice or upon the occurrence of certain customary events of default, including the uncured default in the performance by a party of its obligations under the agreement or under certain other agreements between the parties.
Competition

      We conduct our business in a complex and highly competitive industry. The global automotive parts industry principally involves the supply of systems, modules and components to vehicle manufacturers for the manufacture of new vehicles. Additionally, suppliers provide components to other suppliers for use in their product offerings and to the aftermarket for use as replacement or enhancement parts for older vehicles. As the supplier industry continues to consolidate, the overall number of competitors has decreased and the automotive parts industry remains extremely competitive. Vehicle manufacturers rigorously evaluate suppliers on the basis of product quality, price competitiveness, technical expertise and development capability, new product innovation, reliability and timeliness of delivery, product design capability, leanness of facilities, operational flexibility, customer service and overall management. Many of our competitors have lower cost structures, particularly with respect to wages and benefits, than our company.

Visteon.

      Our overall product portfolio is extremely broad by industry standards. Very few other Tier 1 suppliers compete across the full range of our product areas. Visteon does have significant competition in each of its market segments; the most significant competitors by segment are listed below.

12

ITEM 1. BUSINESS — (Continued)
     Automotive Operations.Our principal competitors in the Automotive Operations segment include the following: American Axle & Manufacturing Holdings, Inc.; Behr GmbH & Co. KG; Robert Bosch GmbH; Dana Corporation; Delphi Corporation; Denso Corporation; Faurecia Group; Johnson Controls, Inc.; Lear Corporation; Magna International Inc.; Siemens VDO Automotive AG; TRW Automotive Holdings Corp.; and Valéo S.A.

     Glass Operations.Our principal competitors in the Glass Operations segment include the following: Asahi Glass Co., Ltd.; AFG Industries, Inc.; Guardian Industries Corp.; Pilkington plc; and PPG Industries, Inc.

International

Financial information about sales and net property by major geographic area can be found on page 99117 of this Annual Report on Form 10-K10-K/A (Note 18,20, “Segment Information,” of our consolidated financial statements).

Seasonality

Seasonality

      Our business is moderately seasonal because our largest North American customers typically halt operations for about two weeks in July for model year changeovers and about one week in December during the winter holidays. In addition, third quarter automotive production traditionally is lower as new models enter production. Accordingly, our third and fourth quarter results may reflect these trends.

Product Research and Development

Visteon’s research and development efforts are intended to maintain our leadership position in the industry and provide us with a competitive edge as we seek additional business with new and existing customers. Total research and development expenditures were approximately $896 million in 2004, $913 million in 2003 and $911 million in 2002 and $1,037 million in 2001. We have realigned resources to focus on our growth businesses and discontinued work on products where revenues and margins were not in line with investments.2002. Visteon also works with technology development partners, including customers, to develop technological capabilities and system enhancements.

12

ITEM 1. BUSINESS — (Continued)

Intellectual Property

      Visteon owns significant intellectual property, including a large number of patents, copyrights, proprietary tools and technologies and trade secrets, and is involved in numerous licensing arrangements. Although Visteon’s intellectual property plays an important role in maintaining its competitive position, no single patent, copyright, proprietary tool or technology, trade secret or license, or group of related patents, copyrights, proprietary tools or technologies, trade secrets or licenses, is, in the opinion of management, of such value to Visteon that its business would be materially affected by the expiration or termination thereof. The company’sVisteon’s general policy is to apply for patents on an ongoing basis, in the United States and appropriate other countries, on its significant patentable developments.

developments which are considered to have business significance.

      Visteon also views its name and mark as significant to its business as a whole. In addition, the company ownsVisteon holds rights in a number of other trade names and marks applicable to certain of its businesses and products that it views as important to such businesses and products.

13

ITEM 1. BUSINESS — (Continued)
Raw Materials

      Raw materials used by Visteon in the manufacture of our products primarily include steel, aluminum, resins, precious metals and urethane chemicals. All of the materials used are generally readily available from numerous sources except precious metals. Precious metals (for catalytic converter production) are purchased from Ford, and Ford assumes the risk of assuring supply and accepts market price risk. WeAlthough we do not anticipate significant interruption in the supply of raw materials, that would have a materialthe cost of ensuring this continued supply of certain raw materials, in particular steel and resins, has risen dramatically recently. This increase has had an adverse impact on our business.

results of operations and will continue to adversely affect our results of operations unless our customers share in these increased costs. To date, we have not been able to fully recover these costs from our customers, and we cannot assure you that we will be able to recover those costs in the future.

Workforce

      Visteon’s workforce as of December 31, 20032004 included approximately 72,00070,200 persons, of which approximately 17,100 were salaried employees and 54,90053,100 were hourly workers.

      Of the hourly workforce, approximately 19,800 are Ford employees18,600 were workers assigned to 15 U.S. manufacturing facilities covered under the Ford-UAWby master collective bargaining agreement. Pursuantagreements with the United Auto Workers union (“UAW”). These workers include approximately 17,700 employees of Ford who, pursuant to an hourly employee assignment agreement as amended and restated, between Visteon and Ford, Ford hashave been indefinitely assigned these Ford-UAW workers to work at Visteon facilities, andVisteon’s facilities. Visteon has agreed to reimburse Ford for the wage, benefit and other costs incurred by Ford related to these workers. Further, effective as of December 22, 2003, approximately 600 hourly employees of Visteon who worked in UAW-represented facilities of Visteon at the effective date but were covered by a separate collective bargaining agreement between the UAWOn March 10, 2005, Ford and Visteon have been converted to Ford-UAW employees and designated as Visteon-assigned workers underentered into a funding agreement which, among other things, reduces this reimbursement obligation, beginning with the hourly employee assignment agreement.pay period commencing February 21, 2005 through at least December 31, 2005. In addition, as part of the current Ford-UAW master collective bargaining agreement, Ford has agreed to offer transfers to Ford-UAW workers assigned to Visteon facilities to positions at Ford facilities as they become available and to prohibit the transfer of Ford-UAW workers to positions at Visteon facilities.available. The present Ford-UAW master collective bargaining agreement expires in September 2007. Although we have the right to participate in future negotiations as well as the planning and strategy development concerning the terms of, and issues arising under, the current and future Ford-UAW collective bargaining agreements, Ford reserves the right to handle such matters if a joint course of action cannot be agreed upon.

13

ITEM 1. BUSINESS — (Continued)

     Visteon, Ford and the UAW have also entered into a memorandum of understanding, which provides, among other things, that In May 2004, Visteon and the UAW will enterentered into a newseven-year supplement to their master collective bargaining agreement, covering employees hired by Visteon at its UAW-represented facilities in the future and that the parties will enter into discussions for the purpose of negotiating a supplement to such new Visteon-UAW collective bargaining agreement thatwhich provides for competitive wage and benefit levels for such future hires. We expect to conclude negotiations of this supplement during the first quarter of 2004; however, we cannot anticipate at this time the expected impactmost new hires in covered facilities that this new arrangement may have on our results of operations or financial condition. Further,are significantly below those in the event the parties are unable to agree to the terms of the supplement, the Visteon-UAW collective bargaining agreement will mirror theplace for Ford-UAW collective bargaining agreement.

workers.

      In Europe, all Ford employees (both hourly and salaried) working in Visteon facilities at the time of the spin-off became Visteon employees. In the spin-off agreement, with the employee representatives, it was agreed that during their employment and retirement, Visteon would provide these employees with wages, benefits and other terms of employment that closely reflect those provided by Ford to its employees in the respective countries. The majorityMany of our European employees are members of industrial trade unions and confederations within their respective countries. Many of these organizations operate under collective contracts that are not specific to any one employer. Visteon’s national agreement with the British trade unions will expire in November 2004. Visteon’s collective agreement with the German trade unions expired on December 31, 2003; negotiations for a new agreement are continuing.

14

ITEM 1. BUSINESS — (Continued)
      We constantly work to establish and maintain positive, cooperative relations with our unions around the world and we believe that our relationships with unionized employees to beare satisfactory. There have been no significant work stoppages in the past three years.

years, except for a brief work stoppage by employees represented by the IUE-CWA Local 907 at a manufacturing facility located in Bedford, Indiana during June 2004.

Environmental Matters

      Visteon is subject to the requirements of federal, state, local and foreign environmental and occupational safety and health laws and regulations. These include laws regulating air emissions, water discharge and waste management. Visteon is also subject to environmental laws requiring the investigation and cleanup of environmental contamination at properties it presently owns or operates and at third-party disposal or treatment facilities to which these sites send or arranged to send hazardous waste. Further, in connection with our spin-off from Ford, Visteon and Ford have generally agreed that Visteon would assume all liabilities for existing and future claims relating to sites that were transferred to us and our operation of those sites, including off-site disposal, except as otherwise specifically retained by Ford in the master transfer agreement. At the time of spin-off, Visteon and Ford also agreed on a division of liability for, and responsibility for management and remediation of, environmental claims existing at that time.

      We are aware of contamination at some of our properties andproperties. We also have agreed to an allocation of liability with Ford relating to various third-party superfund sites at which Visteon and/or Ford has been named as a potentially responsible party. We are in various stages of investigation and cleanup at these sites. At December 31, 2003,2004, Visteon had recorded a reserve of approximately $13$17 million for this environmental investigation and cleanup. However, estimating liabilities for environmental investigation and cleanup is complex and dependent upon a number of factors beyond our control and which may change dramatically. Accordingly, although we believe our reserves to be adequate based on current information, we cannot assure you that our eventual environmental investigation and cleanup costs and liabilities will not exceed the amount of our current reserve. During 2003,2004, we did not incur any material capital expenditures relating primarily to environmental compliance.

14

ITEM 1. BUSINESS — (Continued)

Available Information

      Our current and periodic reports filed with the Securities and Exchange Commission, including amendments to those reports, may be obtained through our internet website at www.visteon.com free of charge as soon as reasonably practicable after we file these reports with the SEC. A copy of our code of business conduct and ethics for directors, officers and employees of the CompanyVisteon and its subsidiaries, entitled “A Pledge of Integrity,” the Corporate Governance Guidelines adopted by Visteon’s Board of Directors and the charters of each committee of the Board of Directors are available on our website at www.visteon.com. You may also request a printed copy of the foregoing documents by contacting our Shareholder Relations department in writing at One Village Center Drive, Van Buren Township, MI 4811148111; by phone (877) 367-6092; or via email at vcstock@visteon.com.

15

ITEM 2. PROPERTIES

      Our principal executive offices are currently located in Dearborn, Michigan. We expect to relocate our principal executive offices, as well as several other facilities located in Southeast Michigan, to Van Buren Township, Michigan during 2004.Michigan. We also maintain regional headquarters in Kerpen, Germany; in Shanghai, China; and in São Paulo, Brazil.

We and our joint ventures maintain 6971 technical facilities/sales offices and 135136 plants in 2524 countries throughout the world, of which approximately 94125 facilities are owned in fee simple and 10975 are leased. The following table shows the approximate total square footage of our principal owned and leased manufacturing facilities by region as of December 31, 2003:2004:
                  
Total    Total
Number ofManufacturing  Number of Manufacturing
ManufacturingSites Square  Manufacturing Sites’ Square
RegionRegionSitesFootageRegion Sites Footage
     
(in millions)    (in millions)
North AmericaNorth America 60 29.7 North America  61  27.6 
EuropeEurope 44 13.1 Europe  43  12.7 
South AmericaSouth America 7 0.8 South America  7  0.8 
Asia-PacificAsia-Pacific 24 6.4 Asia-Pacific  25  7.3 
 
 
       
Total 135 50.0 Total  136  48.4 
 
 
       

In some locations, we have combined a manufacturing facility, technical center and/or customer service center and sales office at a single multi-purpose site. The following table shows the approximate number of various types of facilities by region and segment as of December 31, 2003:2004:
                    
Customer      Customer
ManufacturingTechnicalCenters and  Manufacturing Technical Centers and
RegionRegionSitesCentersSales OfficesRegion Sites Centers Sales Offices
       
North AmericaNorth America North America          
Automotive Operations 56 25 4 Automotive Operations  57  23  4 
Glass Operations 4 1 2 Glass Operations  4  3  — 
EuropeEurope Europe          
Automotive Operations 44 9 15 Automotive Operations  43  13  14 
Glass Operations — — — Glass Operations  —  —  — 
South AmericaSouth America South America          
Automotive Operations 7 — — Automotive Operations  7  —  — 
Glass Operations — — — Glass Operations  —  —  — 
Asia-PacificAsia-Pacific Asia-Pacific          
Automotive Operations 24 8 5 Automotive Operations  25  8  6 
Glass Operations — — — Glass Operations  —  —  — 
TotalsTotals Totals          
Total Automotive Operations 131 42 24 Total Automotive Operations  132  44  24 
Total Glass Operations 4 1 2 Total Glass Operations  4  3  — 
 
 
 
         
 Total company 135 43 26  Total Visteon  136  47  24 
 
 
 
         

     We

      Although we believe that our facilities are suitable and adequate, and have sufficient productive capacity to meet our present needs.needs, additional facilities will be needed to meet future needs in growth products and regions. The majority of our facilities are operating at normal levels based on their respective capacities except those facilities that are in the process of being closed or transferred.closed.

16

ITEM 3. LEGAL PROCEEDINGS

     We

      In February 2005, a shareholder lawsuit was filed in the U.S. District Court for the Eastern District of Michigan against Visteon and Messrs. Pestillo, Johnston, Coulson and Palmer and Ms. Minor, each a current or former officer of the company. The lawsuit alleges, among other things, that Visteon made misleading statements of material fact or omitted to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading. The named individual plaintiff seeks to represent a class consisting of purchasers of Visteon’s securities during the period between January 23, 2004 and January 31, 2005. Class action status has not yet been certified in this litigation. Visteon is in the process of evaluating the claims in this lawsuit, and Visteon and its current and former officers intend to contest the lawsuit vigorously. The lawsuit is in a very preliminary stage and at this time, management is unable to assess the impact this litigation may have on its results of operations and financial position.
      Except as described above, we are involved in routine litigation incidental to the conduct of our business. WeExcept as described above, we do not believe that any litigation to which we are currently a party would, if determined adversely to us, have a material adverse effect on our financial condition, results of operations or cash flows, although such an outcome is possible.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
      None.
ITEM 4A. EXECUTIVE OFFICERS OF VISTEON

ITEM 4A. EXECUTIVE OFFICERS OF VISTEON
The following table shows information about the executive officers of our company.Visteon. All ages are as of FebruaryMarch 1, 2004:2005:
       
NameAgeAgePosition
Position
Peter J. Pestillo  6566  Chairman of the Board and Chief Executive Officer
Michael F. Johnston  5657  Director, President and Chief OperatingExecutive Officer
Daniel R. CoulsonJames C. Orchard  6054Executive Vice President and President, North America
James F. Palmer55  Executive Vice President and Chief Financial Officer
James C. OrchardHeinz Pfannschmidt  5357  Executive Vice President and President, NorthEurope and South America and Asia
Anjan ChatterjeeLorie J. Buckingham  5247  Senior Vice President Strategy and Business PlanningChief Information Officer
Stacy L. Fox  5051  Senior Vice President, General Counsel and Secretary
John F. Kill55Senior Vice President Product Development
Robert H. Marcin  5859  Senior Vice President, Corporate Relations
Thomas A. Burke  4647  Vice President, North America and Asia Manufacturing
Lorie J. Buckingham46Vice President and Chief Information Officer
John F. Kill54Vice President of Product Development Operations
Jonathan K. Maples  4647  Vice President of Quality and Materials ManagementGeneral Manager
Heinz PfannschmidtRobert Pallash  5653  Vice President and President, EuropeAsia-Pacific
William G. Quigley III43Vice President, Corporate Controller and South AmericaChief Accounting Officer

      Peter J. Pestillo has been Visteon’s Chairman of the Board and Chief Executive Officer since the company’sVisteon’s formation in January 2000.2000, and until July 2004, he had also served as Visteon’s Chief Executive Officer. Before that, Mr. Pestillo had been the Vice Chairman and Chief of Staff of Ford, and previously Ford’s Executive Vice President, Corporate Relations. Mr. Pestillo had been, prior to the Visteon spin-off in June 2000, a Ford employee since 1980. Mr. Pestillo is also a director of Rouge Industries, Inc. and Sentry Insurance.

17

ITEM 4A. EXECUTIVE OFFICERS OF VISTEON — (Continued)
      Michael F. Johnston has been Visteon’s Chief Executive Officer and President since July 2004, and a member of the Board of Directors since May 2002. Prior to that, he was President and Chief Operating Officer of Visteon since joining Visteon in September 2000 and was elected to the company’s Board of Directors in May 2002.2000. Before that,joining Visteon, Mr. Johnston had beenserved as President, e-business for Johnson Controls, Inc., and previously President-Northas President — North America and Asia of Johnson Control’s Automotive Systems Group, and as President of its automotive interior systems and battery operations. Mr. Johnston is also a director of Flowserve Corporation and Whirlpool Corporation.

     Daniel R. Coulson has been Executive Vice President and Chief Financial Officer of Visteon since the company’s formation in January 2000. Before that, he was Ford’s Director of Accounting. Mr. Coulson had been, prior to the Visteon spin-off in June 2000, a Ford employee since 1965.

      James C. Orchard has been Executive Vice President of Visteon since August 2001, where he has also served as President, North America since July 2004, and was President, North America and Asia of Visteon sincefrom August 2001. Before that,2001 to July 2004. Prior to August 2001, Mr. Orchard had beenwas the Chief Executive Officer, ZF Group North America and South America, and a member of the ZF Board of Management.

     Anjan Chatterjee

      James F. Palmer has been Visteon’s Executive Vice President and Chief Financial Officer since joining Visteon in June 2004. Until February 2004, he was Senior Vice President of The Boeing Company, where he also served as President of Boeing Capital Corporation from November 2000 to November 2003, and President of the Boeing Shared Services Group prior thereto.
      Heinz Pfannschmidt has been Executive Vice President and President, Europe and South America of Visteon since July 2004, and prior to that he served as Vice President and President, Europe and South America since joining Visteon in November 2001. Before that, he was President and Chief Executive Officer of TRW Automotive Electronics Worldwide, and a member of the TRW Executive Committee, since September 1999, and Managing Director of Europe, Inflatable Restraint Systems of TRW Automotive prior thereto.
      Lorie J. Buckingham has been Senior Vice President Strategy and Business PlanningChief Information Officer of Visteon since joining Visteon in August 2003.July 2004. Prior to that Mr. Chatterjeeshe was director, North American automotive sectorVice President and head of the Detroit office at McKinseyChief Information Officer since 2002, and Company. Mr. Chatterjee hasshe also served as a partnerDirector of Global Software Solutions since she joined Visteon in 2000. Before joining Visteon, Ms. Buckingham was the Chief Information Officer for Zonetrader.com, and from 1993 to 1999 she worked at A.T. Kearney inUnion Carbide Corporation where she served as the automotive, electronics, and technology areas.

17

ITEM 4A. EXECUTIVE OFFICERS OF VISTEON — (Continued)

Director of Enterprise Information Technology Solutions.

      Stacy L. Fox has been Senior Vice President, General Counsel and Secretary of Visteon since the company’sVisteon’s formation in January 2000. Before that, she was Group Vice President and General Counsel of the Automotive Systems Group of Johnson Controls, Inc.

Ms. Fox will resign from her positions with Visteon effective as of March 31, 2005.

      John F. Kill has been Senior Vice President Product Development of Visteon since July 2004, and prior to that he was Vice President Product Development since January 2001. Mr. Kill has also served as Operations Director of the Climate Control Division since 1999, and served as the European Operations Director from 1997 to 1999. Mr. Kill began his career with Ford Motor Company in 1971, and has held various engineering and management positions.
      Robert H. Marcin has been Visteon’s Senior Vice President, Corporate Relations since January 2003 and, prior to that, he served as the company’sVisteon’s Senior Vice President of Human Resources since the company’sVisteon’s formation in January 2000. Before that, he was Executive Director — Labor Affairs for Ford and Ford’s Director, U.S. Union Affairs. Mr. Marcin had been, prior to the Visteon spin-off in June 2000, an employee of Ford or its subsidiaries since 1973.

18

ITEM 4A. EXECUTIVE OFFICERS OF VISTEON — (Continued)
      Thomas A. Burke has been Vice President, North America and Asia Manufacturing of Visteon since November 2002, and prior to that he was Vice President of North America and Asia Operations since November 2002 and Vice President of Europe and South America Manufacturing Operations.Operations since 2001. Mr. Burke has also served the company as Visteon’s Director of Engineering for Visteon’sits Ford Account; and as Director of Climate Control Systems for Europe, South America and India, until 1996. Mr. Burke joined Ford Motor Company in 1983, and he has held a number of engineering, manufacturing and management positions, including appointments in North America and Mexico for Ford’s Climate Control division.

     Lorie J. Buckingham

      Jonathan K. Maples has been Vice President and Chief Information OfficerGeneral Manager of Visteon since 2002,Ford North American Customer Business Group, and prior to that she served as Director of Global Software Solutions since she joined the company in 2000. Before joining Visteon, Ms. Buckingham was the Chief Information Officer for Zonetrader.com, and from 1993 to 1999 she worked at Union Carbide Corporation where she served as the Director of Enterprise Information Technology Solutions.

     John F. Kill has been Vice President of Product Development of Visteon since January 2001. Prior to that he was Operations Director of the Climate Control Division since 1999, and served as the European Operations Director from 1997-1999. Mr. Kill began his career with Ford Motor Company in 1971, and has held various engineering and management positions.

     Jonathan K. Maples has been Vice President of Quality and Materials Management since joining Visteon in November 2001. Prior toBefore that, he was Executive Vice President of Business Services for MSX International a position he held since May 2000. He has also served asMr. Maples was Vice President of Operations and Vice President of Supplier Management for DaimlerChrysler Corporation prior thereto.

     Heinz Pfannschmidt

      Robert C. Pallash has been Vice President and President, EuropeAsia-Pacific since July 2004, and South Americaprior to that he was Vice President, Asia Pacific since joining Visteon in September 2001. Before that, Mr. Pallash served as president of VisteonTRW Automotive Japan since November 2001.1999, and president of Lucas Varity Japan prior thereto.
      William G. Quigley III has been Visteon’s Vice President, Corporate Controller and Chief Accounting Officer since December 2004. Before that, he was the Vice President and Controller — Chief ExecutiveAccounting Officer of TRW Automotive Electronics Worldwide,Federal-Mogul Corporation since June 2001. Mr. Quigley was previously Finance Director — Americas and a memberAsia Pacific of the TRW Executive Committee,Federal-Mogul since September 1999,July 2000, and ManagingFinance Director — Aftermarket Business Operations of Europe, Inflatable Restraint Systems of TRW AutomotiveFederal-Mogul prior thereto.

18

PART II

ITEM 5. MARKET FOR VISTEON’S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

Our common stock is listed on the New York Stock Exchange in the United States under the symbol “VC.” As of January 30, 2004,March 1, 2005, Visteon had 130,469,809128,678,345 shares of its common stock $1.00 par value outstanding, which were owned by 120,062113,754 stockholders of record. The table below shows the high and low sales prices for our common stock as reported by the New York Stock Exchange, and the dividends we paid per share of common stock for each quarterly period for the last two years.
                  
2003
FirstSecondThirdFourth
QuarterQuarterQuarterQuarter
Common stock price per share                
 High $7.38  $7.25  $7.09  $10.43 
 Low $5.60  $5.96  $5.86  $6.30 
Dividends per share of common stock $0.06  $0.06  $0.06  $0.06 
                    
 2004
2002   
  First Second Third Fourth
FirstSecondThirdFourth  Quarter Quarter Quarter Quarter
QuarterQuarterQuarterQuarter         
  (in millions)
Common stock price per shareCommon stock price per share             Common stock price per share             
High $16.55 $16.25 $13.58 $8.95 High $12.35 $12.15 $11.45 $9.91 
Low $12.09 $13.64 $9.47 $6.57 Low $8.91 $9.46 $7.78 $6.61 
Dividends per share of common stock $0.06 $0.06 $0.06 $0.06 
Dividends per shareDividends per share $0.06 $0.06 $0.06 $0.06 

     In May 2003, we issued a total19

ITEM 5. MARKET FOR VISTEON’S COMMON STOCK AND RELATED STOCKHOLDER MATTERS — (Continued)

                  
  2003
   
  First Second Third Fourth
  Quarter Quarter Quarter Quarter
         
  (in millions)
Common stock price per share                
 High $7.38  $7.25  $7.09  $10.43 
 Low $5.60  $5.96  $5.86  $6.30 
Dividends per share $0.06  $0.06  $0.06  $0.06 
      On February 9, 2005, Visteon’s Board of 6,000 restricted shares ofDirectors suspended the company’s quarterly cash dividend on its common stock to two of our non-employee directors pursuant tostock. The Board evaluates the terms of the Visteon Corporation Restricted Stock Plan for Non-Employee Directors. Such issuances were exempt from registration under the Securities Act of 1933, as amended, as a transaction not involving a public offering under Section 4(2).

company’s dividend policy quarterly based on all relevant factors.

ITEM 6. SELECTED FINANCIAL DATA
ITEM 6. SELECTED FINANCIAL DATA

The following selected consolidated financial data has been restated to reflect adjustments to the Original Filing for accounting corrections related to freight, raw material costs, other supplier costs and income tax matters that are further discussed in “Explanatory Note” in the forepart of this Form 10-K/A and in Note 2, “Restatement of Financial Statements,” to our consolidated financial statements included in this Form 10-K/A.

      The following selected consolidated financial data reflect our financial condition, results of operations and cash flows, with 2000 including activity both before and after our spin-off from Ford on June 28, 2000. Selected consolidated financial data for the periodsActivity prior to our spin-off reflectreflects the historical financial condition, results of operations and cash flows of the businesses that were considered part of the Visteon business of Ford during each respective period. The historical consolidated statement of operations data set forth below for periods prior to our spin-off do not reflect many significant changes that occurred in the operations and funding of our company as a result of our spin-off from Ford.

      The selected consolidated financial data should be read in conjunction with, and are qualified by reference to, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and accompanying notes included elsewhere in this report. The consolidated statement of operations, cash flow and balance sheet data, set forth below for 2004, 2003, 2002 and 2001, have been derived from our audited financial statements. Certain amounts for prior periods were reclassified to conform with present period presentation.

      The following financial information may not reflect what our results of operations, financial condition and cash flows would have been had we operated as a separate, stand-alone entity during the periods presented or what our results of operations, financial condition and cash flows will be in the future.
      The following selected consolidated financial data for 2003, 2002, 2001 and 2000 was restated in the Original Filing to reflect a change in the method of determining the cost of production inventories for U.S. locations from the last-in, first-out (“LIFO”) method to the first-in, first-out (“FIFO”) method as further discussed in Note 17, “Accounting Changes,” to our consolidated financial statements included in this Form 10-K/A.

1920

ITEM 6. SELECTED FINANCIAL DATA — (Continued)
                 
20032002200120001999
              
 2004 2003 2002 2001(1) 2000
(Restated, except 1999 amounts)           
 Restated Restated Restated Restated Restated
(in millions, except per share amounts and percentages)  (in millions, except per share amounts and percentages)
Statement of Operations Data
Statement of Operations Data
                
Statement of Operations Data
                
SalesSales                Sales                
Ford and affiliates $13,475 $14,779 $14,656 $16,448 $17,105 Ford and affiliates $13,015 $13,475 $14,779 $14,656 $16,448 
Other customers  4,185  3,616  3,187  3,019  2,261 Other customers  5,642  4,185  3,616  3,187  3,019 
 
 
 
 
 
             
 Total sales  17,660  18,395  17,843  19,467  19,366  Total sales  18,657  17,660  18,395  17,843  19,467 
Costs and expensesCosts and expenses                Costs and expenses                
Costs of sales  17,821  17,599  17,111  18,144  17,380 Costs of sales  18,151  17,824  17,626  17,100  18,163 
Selling, administrative and other expenses  1,008  893  855  897  797 Selling, administrative and other expenses  994  1,008  893  855  897 
 
 
 
 
 
             
 Total costs and expenses  18,829  18,492  17,966  19,041  18,177  Total costs and expenses  19,145  18,832  18,519  17,955  19,060 
Operating income (loss)Operating income (loss)  (1,169)  (97)  (123)  426  1,189 Operating income (loss)  (488)  (1,172)  (124)  (112)  407 
Interest incomeInterest income  17  23  55  109  79 Interest income  19  17  23  55  109 
Debt extinguishment costDebt extinguishment cost  11  —  —  —  — 
Interest expenseInterest expense  94  103  131  167  143 Interest expense  104  94  103  131  167 
 
 
 
 
 
             
 Net interest expense  (77)  (80)  (76)  (58)  (64) Net interest expense and debt extinguishment cost  (96)  (77)  (80)  (76)  (58)
Equity in net income of affiliated companiesEquity in net income of affiliated companies  55  44  24  56  47 Equity in net income of affiliated companies  45  55  44  24  56 
 
 
 
 
 
             
Income (loss) before income taxes, minority interests and change in accountingIncome (loss) before income taxes, minority interests and change in accounting  (1,191)  (133)  (175)  424  1,172 Income (loss) before income taxes, minority interests and change in accounting  (539)  (1,194)  (160)  (164)  405 
Provision (benefit) for income taxesProvision (benefit) for income taxes  23  (64)  (74)  138  422 Provision (benefit) for income taxes  962  6  (74)  (70)  131 
 
 
 
 
 
             
Income (loss) before minority interests and change in accountingIncome (loss) before minority interests and change in accounting  (1,214)  (69)  (101)  286  750 Income (loss) before minority interests and change in accounting  (1,501)  (1,200)  (86)  (94)  274 
Minority interests in net income of subsidiariesMinority interests in net income of subsidiaries  29  28  21  26  15 Minority interests in net income of subsidiaries  35  29  28  21  26 
 
 
 
 
 
             
Income (loss) before change in accountingIncome (loss) before change in accounting  (1,243)  (97)  (122)  260  735 Income (loss) before change in accounting  (1,536)  (1,229)  (114)  (115)  248 
           
Cumulative effect of change in accounting, net of taxCumulative effect of change in accounting, net of tax  —  (265)  —  —  — Cumulative effect of change in accounting, net of tax  —  —  (265)  —  — 
 
 
 
 
 
             
Net income (loss)Net income (loss) $(1,243) $(362) $(122) $260 $735 Net income (loss) $(1,536) $(1,229) $(379) $(115) $248 
 
 
 
 
 
             
Earnings (loss) per share:Earnings (loss) per share:                Earnings (loss) per share:                
Basic and diluted before cumulative effect of change in accounting (based on 130,000,000 shares outstanding for periods prior to our spin-off) $(9.88) $(0.77) $(0.94) $2.00 $5.65 Basic and diluted before cumulative effect of change in accounting $(12.26) $(9.77) $(0.90) $(0.89) $1.91 
Cumulative effect of change in accounting  —  (2.07)  —  —  — Cumulative effect of change in accounting  —  —  (2.07)  —  — 
 
 
 
 
 
             
 Basic and diluted $(9.88) $(2.84) $(0.94) $2.00 $5.65  Basic and diluted $(12.26) $(9.77) $(2.97) $(0.89) $1.91 
 
 
 
 
 
             
Cash dividends per shareCash dividends per share $0.24 $0.24 $0.24 $0.12  — Cash dividends per share $0.24 $0.24 $0.24 $0.24 $0.12 
Effect of change in accounting for inventory costs:(2)
Effect of change in accounting for inventory costs:(2)
                
Net income (loss)    $36 $(6) $3 $(12)
Earnings (loss) per share:    $0.29 $(0.04) $0.02 $(0.09)
Statement of Cash Flows Data
Statement of Cash Flows Data
                
Statement of Cash Flows Data
                
Cash provided by (used in) operating activitiesCash provided by (used in) operating activities $363 $1,103 $440 $(523) $2,482 Cash provided by (used in) operating activities $418 $363 $1,103 $440 $(523)
Cash (used in) investing activitiesCash (used in) investing activities  (781)  (609)  (747)  (845)  (1,453)Cash (used in) investing activities  (782)  (781)  (609)  (747)  (845)
Cash provided by (used in) financing activitiesCash provided by (used in) financing activities  128  (338)  (75)  924  290 Cash provided by (used in) financing activities  135  128  (338)  (75)  924 
Balance Sheet Data, end of period
Balance Sheet Data, end of period
                
Balance Sheet Data, end of period
                
Total assetsTotal assets $10,933 $11,169 $11,184 $11,393 $12,542 Total assets $10,292 $11,024 $11,240 $11,254 $11,462 
Total debtTotal debt  1,818  1,691  1,922  2,019  2,319 Total debt  2,021  1,818  1,691  1,922  2,019 
Total equity  1,771  2,950  3,311  3,492  1,499 
Total equity(3)
Total equity(3)
  320  1,812  2,977  3,355  3,529 
Other Financial Data
Other Financial Data
                
Other Financial Data
                
Depreciation and amortizationDepreciation and amortization $677 $633 $667 $676 $651 Depreciation and amortization $685 $677 $633 $667 $676 
Capital expendituresCapital expenditures  872  725  756  796  876 Capital expenditures  845  872  725  756  796 
After tax return on:                
After-tax return on:After-tax return on:                
Sales  (6.9)%  (0.4)%  (0.6)%  1.5%  3.9%Sales  (8.0)%  (6.8)%  (0.5)%  (0.5)%  1.4% 
Average assets  (11.0)%  (0.6)%  (0.9)%  2.4%  6.8%Average assets  (14.1)%  (10.8)%  (0.8)%  (0.8)%  2.3% 
(1) Restatement resulted in a reduction of net loss by approximately $4 million attributable to the correction of freight costs as more fully described in Note 2, “Restatement of Financial Statements” to the accompanying audited consolidated financial statements.
(2) The selected consolidated financial data was restated in the Original Filing to reflect Visteon’s change in the method of determining the cost of production inventory for U.S. locations from the last-in, first-out (“LIFO”) method to the first-in, first-out (“FIFO”) method.
(3) Restatement resulted in a cumulative decrease to stockholder’s equity at January 1, 2000 of $21 million.

2021

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

RESTATEMENT

Visteon has restated its previously issued consolidated financial statements for 2001 through 2003, primarily for accounting corrections related to postretirement health care and pension costs, tooling costs, capital equipment costs, inventory costing and income taxes.

As a result of the restatement net loss increased $30 million for the year ended December 31, 2003, $10 million for the year ended December 31, 2002 and $4 million for the year ended December 31, 2001. The restatement increased reported net loss per share by $0.23 for the year ended December 31, 2003; increased reported net loss per share by $0.09 for the year ended December 31, 2002; and increased reported net loss per share by $0.03 for the year ended December 31, 2001.

Further information on the nature and impact of these adjustments is provided in Note 2, “Restatement of Financial Statements” to our consolidated financial statements included elsewhere in this Form 10-K/A.

This section summarizes significant factors affecting the company’sVisteon’s consolidated operating results, financial condition and liquidity for the three-year period ended December 31, 2003.2004. This section should be read in conjunction with the company’sVisteon’s consolidated financial statements and related notes appearing elsewhere in this report.

Restatement

      Visteon has restated its previously issued consolidated financial statements for 2002 through 2004 for accounting corrections related to freight, raw material costs, other supplier costs and income tax matters. In addition, all financial information presented was restated in the Original Filing to reflect Visteon’s change, during the fourth quarter of 2004, in the method of determining the cost of production inventory for U.S. locations from the LIFO method to the FIFO method.
      As a result of the restatement, previously reported net loss increased by $37 million, $22 million and $11 million for the years ended December 31, 2004, 2003 and 2002, respectively. The restatement increased previously reported net loss per share by $0.30, $0.18 and $0.09 for the years ended December 31, 2004, 2003 and 2002, respectively. Further information on the nature and impact of these accounting corrections provided in Note 2, “Restatement of Financial Statements,” to our consolidated financial statements included elsewhere in this Form 10-K/A.
Overview

      Visteon is a leading global supplier of automotive systems, modules and components. We sell our products primarily to global vehicle manufacturers, and also sell to the worldwide aftermarket for replacement and vehicle appearance enhancement parts. Ford established Visteon as a wholly-owned subsidiary in January 2000, and subsequently transferred to Visteon the assets and liabilities comprising Ford’s automotive components and systems business. Ford completed its spin-off of Visteon on June 28, 2000. We operate in two business segments: Automotive Operations and Glass Operations.

The global automotive parts industry experiencedis a modest increase in worldwidehighly competitive industry. Suppliers must rapidly develop new and innovative technologies and respond to increasing cost and pricing pressures. In order to respond to these challenges, we are taking actions to support our key operating strategies of improving customer and geographic diversification, focusing our product portfolio and reducing costs.
Customer and Geographic Diversification. For the full year 2004, non-Ford sales reached $5.6 billion, up 35 percent over 2003, and production volumes in 2003 over 2002. However, our largest customer, Ford, saw itsrepresented 30 percent of total sales. A majority of these sales and production volumes decrease mainly in itswere outside of North American markets from 4.1 million units in 2002 to 3.7 million units in 2003. Our 2003 sales of $17.7 billion were down 4% from 2002. This decline was associated with lower Ford production, offset partially by a 16% increase inAmerica. In addition, our sales to non-Fordall customers, including Ford, for 2004 outside of $4.2 billion. Revenue from Ford and its affiliates totaled 76% of Visteon’s sales in 2003the United States increased by nearly $1 billion compared with 80%2003. We continue to expand our technical and manufacturing presence in 2002. Becausegrowth regions that we believe will strengthen our competitive position and provide further opportunities to diversify our customer base.
Product Focus. As discussed further above, Visteon recently reexamined its broad product portfolio and identified interiors, climate, and electronics, including lighting, as its key growth products that will be core to its future. These products have been a significant source of our heavy involvementnon-Ford sales growth in Ford’sthe last year, as well as recent new business wins, and Visteon is taking actions to further focus capital investment and product development and engineering resources with respect to these key products.

22

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

                RESULTS OF OPERATIONS — (Continued)
Cost Reduction Efforts. During 2004, we reduced our North American operations,headcount by approximately 2,500 people through flow backs of Ford-UAW workers, special incentive programs for U.S. salaried and hourly workers, and attrition. In 2004, we also improved operational efficiencies, including material and manufacturing cost, and largely completed infrastructure improvement projects, such as IT systems and facilities consolidation.
      Despite these efforts, our net loss for 2004 increased to $1.5 billion, from $1.2 billion for 2003. After-tax special charges totaled $1.263 billion for 2004, compared with $933 million in 2003.
      North America continues to be our primary sales market, with the United States representing the largest portion of that market. We expect Ford accounted for approximately 70% of our 2004 total sales, and about 82% of our 2004 North America sales. This market continues to be extremely price competitive with continued expectations from the OEM’s for year over year price reductions on existing products. In order to retain current business as well as to be competitively positioned for future new business opportunities, we must continually identify and implement product innovation and cost reduction activities to fund annual price concessions to our customers. Our U.S. cost structure is significantly higher than many of our competitors due, in part, to the hourly labor and benefits reimbursement arrangement with Ford. Furthermore, our ability to close plants, divest unprofitable, non-competitive businesses, and change local work rules and practices is limited by this arrangement and other labor contracts. These factors, together with continuing declines in Ford’s North America production volumes and significant increases in the cost of raw materials used in the manufacture of our products highlight the need to remain relatively stablemake strategic and structural changes to our business in 2004the U.S. in order to achieve a sustainable and competitive business. On March 10, 2005, Visteon reached agreements with Ford that, at least during 2005, will reduce our non-Ford saleslabor costs, reduce the level of funding otherwise needed for planned capital expenditures, and accelerate payment terms from Ford. These agreements may be terminated on or after January 1, 2006. We are currently in discussions with Ford regarding other necessary strategic and structural changes, as well as other matters that will allow Visteon to continueachieve a sustainable and competitive business model. Although we cannot predict with certainty whether these discussions will be concluded on a basis satisfactory to grow steadily overVisteon, certain of the next several years.

A number of factors contributedactions under consideration could result in a significant impact to a 2003 net loss of $1.2 billion, declining further from a 2002 net loss of $362 million. We recorded significant after-tax special charges totaling $949 million during 2003, which were almost double the amount recorded in 2002. These special charges are discussed in detail below. Further, our operating performance was adversely affected primarily by lower Ford production volumes, price reductions given to our customers, and costly infrastructure improvements. On the positive side, we continued to experience improved contribution as a result of new business, particularly from our operationsresults in the Asia-Pacific region.

period they occur. Further, there can be no assurance that we will reach an agreement with Ford or take other actions that will address all of the strategic or structural challenges facing our U.S. business.

2123

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS — (Continued)

2003 was also marked by several major events that are expected to help our performance in the future. First, Visteon and Ford entered into a series of agreements designed to address structural issues arising from the separation in 2000 and restructure their ongoing commercial relationship. These agreements are discussed above under “Item 1. Business — Arrangements with Ford and its Affiliates.” Next, we reached agreement with Ford and other parties that permitted us to exit from our unprofitable seating operations in Chesterfield, Michigan. Finally, Ford and the UAW implemented a new four-year master collective bargaining agreement, which covers a significant portion of Visteon’s hourly workforce, and negotiations are underway on an agreement that would provide for more competitive wages and benefits for future Visteon hourly workers. These events are discussed further below.

At December 31, 2003, our cash and marketable securities balance was $956 million and our debt-to-capital ratio was 51%, compared with $1.3 billion and 36%, respectively, at year-end 2002. This and our liquidity position are discussed further below.

22

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS — (Continued)

Restructuring, Dispositions and Special Charges

The table below presents special charges related to restructuring initiatives and other actions during the past three years:
              
 Automotive Glass Total
 Operations Operations Visteon
      
 (in millions)
2004
2004
          
Special Charges:
Special Charges:
          
Loss related to third quarter asset impairment charges $(314) $— $(314)
U.S. Salaried voluntary separation related  (48)  (3)  (51)
U.S. Hourly early retirement incentive and other related  (24)  (1)  (25)
Plant closure related  (11)  —  (11)
European Plan for Growth  (9)  —  (9)
Adjustment to prior year’s expense  14  —  14 
       
 Total 2004 special charges, before taxes $(392) $(4) $(396)
                     
AutomotiveGlassTotalSpecial charges above, after taxes $(388) $(4) $(392)
OperationsOperationsVisteonDeferred tax valuation allowance  (827)  (44)  (871)
        
 Total 2004 special charges, after taxes $(1,215) $(48) $(1,263)
(in millions)        
2003 (Restated)
2003 (Restated)
          
2003 (Restated)
          
Special Charges:
Special Charges:
          
Special Charges:
          
4th Quarter Asset Impairment $(407) $— $(407)Loss related to fourth quarter asset impairment charges $(407) $— $(407)
Exit of Seating Operations  (217)  —  (217)Exit of Seating Operations  (217)  —  (217)
European Plan for Growth  (82)  —  (82)European Plan for Growth  (82)  —  (82)
Restructuring and other actions  (48)  —  (48)Restructuring and other actions  (48)  —  (48)
 
 
 
         
 Total 2003 special charges, before taxes $(754) $— $(754) Total 2003 special charges, before taxes $(754) $— $(754)
 
 
 
         
Special charges above, after taxes $(484) $— $(484)Special charges above, after taxes $(484) $— $(484)
Deferred tax asset valuation allowance  (460)  (5)  (465)Deferred tax asset valuation allowance  (444)  (5)  (449)
 
 
 
         
 Total 2003 special charges, after taxes $(944) $(5) $(949) Total 2003 special charges, after taxes $(928) $(5) $(933)
 
 
 
         
2002
2002
          
2002
          
Special Charges:
Special Charges:
          
Special Charges:
          
Exit of Markham Restraint Electronics and other 1st Quarter actions $(95) $— $(95)Exit of Markham Restraint Electronics and other first quarter actions $(95) $— $(95)
U.S. salaried special early retirement program  (66)  (5)  (71)U.S. salaried special early retirement program  (66)  (5)  (71)
European Plan for Growth  (40)  —  (40)European Plan for Growth  (40)  —  (40)
Loss on sale of restraint electronics business  (26)  —  (26)Loss on sale of restraint electronics business  (26)  —  (26)
Other restructuring (including adjustments to prior year’s expense)  6  3  9 Other restructuring (including adjustments to prior year’s expense)  6  3  9 
 
 
 
         
 Total 2002 special charges, before taxes $(221) $(2) $(223) Total 2002 special charges, before taxes $(221) $(2) $(223)
 
 
 
         
Special charges above, after taxes $(141) $(1) $(142)Special charges above, after taxes $(141) $(1) $(142)
Effect of change in accounting, net of tax  (265)  —  (265)Effect of change in accounting, net of tax  (265)  —  (265)
 
 
 
         
 Total 2002 special charges, after taxes $(406) $(1) $(407) Total 2002 special charges, after taxes $(406) $(1) $(407)
 
 
 
         
2001
          
Special Charges:
          
Salaried restructuring $(132) $(14) $(146)
Glass Operations restructuring charges  —  (34)  (34)
European plant consolidations and other  (10)  (2)  (12)
 
 
 
 
 Total 2001 special charges, before taxes $(142) $(50) $(192)
 
 
 
 
 Total 2001 special charges, after taxes $(90) $(31) $(121)
 
 
 
 

24

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

                RESULTS OF OPERATIONS — (Continued)
2004 Special Charges
      During the third quarter of 2004, the Automotive Operations recorded a pre-tax, non-cash impairment write-down of $314 million in costs of sales to reduce the net book value of certain long-lived assets. This write-down was based on an assessment by product line asset group, completed in the third quarter of 2004, of the recoverability of our long-lived assets in light of the challenging environment in which we operate, and included consideration of lower than anticipated current and near term future year Ford North American production volume and the related impact on our future operating projections. Assets are considered impaired if the book value is greater than the undiscounted cash flows expected from the use of the asset. As a result of this analysis the assets of the steering systems product group were impaired. The write-down was approximately $249 million in North America and $65 million in Europe and was determined on a “held for use” basis. Fair values were determined primarily based on prices for similar groups of assets determined by a third-party valuation firm.
      U.S. Salaried voluntary separation charges of $51 million are related to incentive programs offered during the fourth quarter of 2004 to eligible salaried Visteon employees to voluntarily separate employment. About 400 employees elected to terminate employment by March 31, 2005.
      Early retirement incentive and other charges of $25 million are related to incentive programs offered during the third quarter of 2004 to eligible Visteon-assigned Ford-UAW employees to voluntarily retire or to relocate in order to return to a Ford facility. About 500 employees elected to retire early at a cost of $18 million and about 210 employees have agreed to return to a Ford facility at a cost of $7 million.
      Plant closure charges of $11 million are related to the involuntary separation of up to about 200 employees as a result of the closure of our La Verpilliere, France, manufacturing facility. This program has been substantially completed as of December 31, 2004. European Plan for Growth charges are comprised of $9 million related to the separation of about 50 hourly employees located at Visteon’s plants in Europe through a continuation of a special voluntary retirement and separation program started in 2002.
      In 2004, net accrued liability adjustments of $14 million relating to prior year’s actions were credited to costs of sales, including $15 million related to costs to complete the transfer of seat production located in Chesterfield, Michigan, to another supplier.
      In 2004, Visteon recorded a non-cash charge of $871 million to establish full valuation allowances against our net deferred tax assets in the U.S. and certain foreign countries. This charge was comprised of $948 million related to deferred tax assets as of the beginning of the year, offset partially by a reduction of related tax reserves, previously included in other liabilities, of $77 million. The charge is discussed in more detail later in “Critical Accounting Policies” and in Note 7 of our consolidated financial statements.
      Special charges before taxes for 2004 of $396 million consist of $314 million of non-cash charges and $82 million of charges which will be settled in cash.

25

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

                RESULTS OF OPERATIONS — (Continued)
2003 Special Charges
      During fourth quarter 2003, Visteon recorded a pre-tax, non-cash impairment write-down of $407 million ($260 million after-tax) in costs of sales to reduce the net book value of certain assets associated with six product groups. This write-down was based on an assessment by product-line asset group, completed in fourth quarter 2003, of the recoverability of our long-lived assets in light of the challenging environment in which we operate, and as a part of our business planning process for 2004 and beyond.

23

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS — (Continued)

      During the second quarter of 2003, Visteon finalized an agreement with Ford Motor Company to transfer seat production located in Chesterfield, Michigan, to another supplier. As part of this agreement, about 1,470 Visteon-assigned Ford-UAW employees working at the Chesterfield, Michigan, facility transferred to Ford, and Visteon agreed to be responsible to reimburse Ford for the actual net costs of transferring seating production through June 2004, including costs related to Ford hourly employee voluntary retirement and separation programs that Ford was expected to implement, offset by certain cost savings expected to be realized by Ford. The ultimate costs and cash payments related to this agreement depend on several factors, including the actual costs incurred related to the relocation, re-deployment and/or employment termination of the 1,470 Visteon-assigned Ford-UAW employees working at the Chesterfield facility, and the savings achieved by Ford (as defined in the agreement) resulting from resourcing production that will serve as an offset to the transition costs. We expect an average payback of a little more than two years.

     During fourth quarter 2003, Visteon recorded a non-cash charge of $465 million to increase the valuation allowance for deferred tax assets, as described later under “Critical Accounting Policies” and in Note 6 of our consolidated financial statements.

      For the full year 2003, we incurred pre-tax charges of $82 million related to the European Plan for Growth. When completed in 2004, the European Plan for Growth is expected to result in annual savings of $100 million before taxes. Savings in 2002 and 2003 combined has been over $50 million. Restructuring and other actionsOther special charges in 2003 resulted in pre-tax charges of $48 million, $20 million of which was charged to selling, administrative and other expenses.
      During fourth quarter 2003, Visteon recorded a non-cash charge of $449 million to establish valuation allowances against our deferred tax assets as of the end of the year, as discussed later under “Critical Accounting Policies” and in Note 7 of our consolidated financial statements.
      Of the $754 million in 2003 pre-tax special charges described above, $436 million were non-cash, $292 million were cash charges including amounts related to the exit of seating operations, and $26 million were related to special pension and other postretirement benefits.

2002 Special Charges
      During 2002, Visteon recorded net pre-tax charges of $223 million related to a number of restructuring and other actions and the sale of the restraint electronics business, as described in Note 1216 of our consolidated financial statements, which is incorporated herein by reference. In addition, the companyVisteon adopted Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets.” With this change in accounting, Visteon recorded a non-cash write-off for the entire value of goodwill of $363 million before taxes ($265 million after taxes), as described in Note 1517 of our consolidated financial statements, which is incorporated herein by reference. Of the $223 million in pre-tax charges described above, $54 million were non-cash related and the remainder were cash charges.

     During 2001, Visteon recorded net pre-tax

Other
      Cash payments related to special charges, of $192 million associated primarily with salaried workforce restructuring andincluding those related to the special voluntary retirement and separation program offered to hourly employees located at Visteon’s Nashville plant, as described in Note 14 of our consolidated financial statements, which is incorporated herein by reference. Of the $192 million in pre-tax charges recorded in 2001, $5 million were non-cash related and the remainder were cash charges.

     In 2004, we anticipate continued implementation of restructuring actions including the continuationtransfer of the European PlanNorth American seating operations and for Growth. We expect that the charges associated with these items will be substantially lower than in 2003. In addition, we are constantly evaluating the possibility of partnerships, sales or closings involving under-performing businesses. However, there can be no assurance that a transaction or other arrangement favorable to Visteon will occur in the near term or at all.severance and special pension benefits, were $171 million and $162 million for 2004 and 2003, respectively.

2426

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS — (Continued)

Results of Operations
2004 Compared with 2003
Salesfor each of our segments for 2004 and 2003 are summarized in the following table:
              
  Year Ended  
  December 31, 2004
    over/(under)
  2004 2003 2003
       
  (in millions)
Automotive Operations $18,137  $17,097  $1,040 
Glass Operations  520   563   (43)
          
 Total Sales $18,657  $17,660  $997 
          
Memo: Sales to non-Ford customers            
 Amount $5,642  $4,185  $1,457 
 Percentage of total sales  30%  24%  6  pts
      Sales for Automotive Operations were $18.1 billion in 2004, compared with $17.1 billion in 2003, an increase of $1.0 billion or 6%. This increase reflects primarily higher non-Ford sales of $1,493 million, including $234 million of favorable currency changes. In addition, favorable currency changes of $258 million for Ford sales, the non-recurrence of a $150 million lump settlement with Ford in 2003 for pricing in North America, and higher Ford European volumes were offset partially by the impact of lower Ford North American production volume of about $600 million, the loss of sales from the exit of seating operations of $246 million, and price reductions.
      Sales for Glass Operations were $520 million in 2004, compared with $563 million in 2003, a decrease of $43 million or 8%, resulting primarily from lower non-Ford sales of $36 million and price reductions.
Costs of Salesfor 2004 were $18.2 billion, up $327 million compared with 2003. Costs of sales include primarily material, labor, manufacturing overhead and other costs, such as product development costs. Results were affected by special charges which were $396 million in 2004 and $754 million in 2003. The 2004 special charges included $314 million for the impairment of steering systems assets. The 2003 special charges included $407 million for the impairment of assets associated with six product groups and $217 million related to the exit of our seating business.
      Increased costs of sales also reflects higher net variable costs of about $1 billion associated with higher global production volumes, including new business, increased costs from currency fluctuations of $426 million and raw material cost increases in certain commodity groups. These factors were partially offset by the elimination of costs of $270 million resulting from the exit of our seating operations (without consideration of related special charges), favorable cost performance of $479 million, including reduced other postretirement benefit expense, and the non-recurrence of UAW contract ratification costs of $64 million in 2003. Costs of sales in 2004 also reflects a reduction to product recall accruals of $49 million in 2004 as a result of settling a product recall claim.
Selling, administrative and other expensesfor 2004 were $994 million, $14 million lower compared with 2003. The decrease reflects efficiencies and spending controls of $52 million, and reduced Information Technology (“IT”) incremental infrastructure costs of $34 million offset partially by currency fluctuations of $30 million and the non-recurrence of $48 million received from Ford for IT costs in 2003. Special charges included in this line item were $14 million for 2004 and $20 million for 2003.

27

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

                RESULTS OF OPERATIONS — (Continued)
Net interest expense and debt extinguishment costof $96 million in 2004 increased by $19 million from 2003, reflecting $11 million of debt extinguishment costs from the Tender Offer (as described below) and higher U.S. debt levels.
Equity in net income of affiliated companieswas $45 million in 2004, compared with $55 million in 2003, with the decrease related primarily to our affiliates in Asia.
Income (loss) before income taxes and minority interests,including and excluding special charges, is the primary profitability measure used by our chief operating decision makers. The following table shows income (loss) before income taxes for 2004 and 2003, for each of our segments:
              
  Year Ended  
  December 31, 2004
    over/(under)
  2004 2003 2003
       
  Restated Restated  
    (in millions)  
Automotive Operations $(523) $(1,187) $664 
Glass Operations  (16)  (7)  (9)
          
 Total $(539) $(1,194) $655 
          
Memo:            
 Special charges included above $(396) $(754) $358 
      Automotive Operations’ 2004 loss before income taxes was $523 million compared with a loss of $1,187 million for 2003. Results were affected by pre-tax special charges which decreased by $362 million. The 2004 special charges included $314 million for the impairment of steering systems assets and $48 million for costs associated with a voluntary termination program in North America. The 2003 special charges included $407 million for the impairment of assets associated with six product groups and $217 million related to the exit of our seating business.
      The improvement in the full year results also reflects the non-recurrence of 2003’s UAW contract ratification costs of $59 million, a reduction to product recall accruals of $49 million in 2004 as a result of settling a product recall claim, and the exit of our seating operations of $25 million (excluding special charges). Favorable cost performance, net of reduced prices to our customers, raw material cost increases, fuel cost increases, and wage and benefit economic increases (despite our reduced other postretirement benefit costs) was about $392 million. These factors were offset partially by lower Ford vehicle production volume in North America.
      Loss before income taxes for Glass Operations in 2004 was $16 million compared with a loss of $7 million before taxes for 2003, reflecting primarily lower Ford North American production volume, customer price reductions and increased special charges, offset partially by the non-recurrence of 2003’s UAW contract ratification costs of $5 million.

28

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

                RESULTS OF OPERATIONS — (Continued)
Provision for income taxeswas $962 million for 2004, compared with $6 million for 2003. The 2004 provision includes a charge of $871 million recorded during the third quarter to establish full valuation allowances against our net deferred tax assets in the U.S. and certain foreign countries. This charge was comprised of $948 million related to deferred tax assets as of the beginning of the year, offset partially by a reduction of related tax reserves of $77 million. This charge is discussed in more detail in Note 7 to our consolidated financial statements. Visteon’s provision for income taxes for 2004 includes a benefit of $42 million recorded in the fourth quarter to reduce our deferred tax asset valuation allowance to offset a related reduction in our net deferred tax asset. This reduction in our net deferred tax asset was the result of certain U.S. tax adjustments related primarily to foreign currency movements that were recorded through other comprehensive income during the fourth quarter. In addition, Visteon’s provision for income taxes for 2004 includes $133 million of income tax expense primarily related to foreign countries where Visteon’s operations are profitable and whose results continue to be tax-effected. The 2003 provision includes a charge of $449 million recorded during the fourth quarter 2003 to establish partial valuation allowances against the net deferred tax assets in the U.S. and full valuation allowances for certain foreign countries as of the end of 2003, as discussed later under “Critical Accounting Policies” and in Note 7 to our consolidated financial statements.
Minority interests in net income of subsidiarieswere $35 million in 2004 compared with $29 million in 2003. Minority interest amounts are related primarily to Halla Climate Control Corporation headquartered in Korea, in which we have a 70% ownership interest.
Net income (loss)for 2004 and 2003 are shown in the following table for each of our segments:
              
  Year Ended  
  December 31, 2004
    (under)
  2004 2003 2003
       
  Restated Restated  
    (in millions)  
Automotive Operations $(1,476) $(1,222) $(254)
Glass Operations  (60)  (7)  (53)
          
 Total $(1,536) $(1,229) $(307)
          
Memo:            
 Special charges included above $(1,263) $(933) $(330)
      Visteon reported a net loss for 2004 of $1.5 billion compared with $1.2 billion for 2003. The higher net loss was significantly affected by increased special charges after taxes which were $1,263 million and $933 million for 2004 and 2003, respectively. Net income was also impacted by the factors described previously in income (loss) before income taxes.

29

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

                RESULTS OF OPERATIONS — (Continued)
Results of Operations
2003 Compared with 2002

     Salesfor each of our segments for 2003 and 2002 are summarized in the following table:
           
Year Ended           
December 31,2003  Year Ended  
over/(under)  December 31, 2003
200320022002    over/(under)
  2003 2002 2002
      
(in millions)  (in millions)
Automotive OperationsAutomotive Operations $17,097 $17,797 $(700)Automotive Operations $17,097 $17,797 $(700)
Glass OperationsGlass Operations  563  598  (35)Glass Operations  563  598  (35)
 
 
 
         
Total sales $17,660 $18,395 $(735)Total Sales $17,660 $18,395 $(735)
 
 
 
         
Memo: Sales to non-Ford customers
Amount		 $4,185 $3,616 $569 
Memo: Sales to non-Ford customersMemo: Sales to non-Ford customers          
Percentage of total sales  24%  20%  4  ptsAmount $4,185 $3,616 $569 
Percentage of total sales  24%  20%  4 pts

      Sales for Automotive Operations were $17.1 billion in 2003, compared with $17.8 billion in 2002, a decrease of $700 million or 4%. This decrease reflects lower sales of $1,295 million resulting primarily from a decline in Ford worldwide vehicle production, exit of our seating operations of $251 million, and $150 million lump sum payments to Ford for pricing in North America, offset partially by favorable currency changes of $611 million and new business to both Ford and non-Ford customers. Sales for Automotive Operations were affected also by lower sales associated with precious metals purchased under sourcing arrangements directed by Ford and price reductions.

Sales for Glass Operations were $563 million in 2003, compared with $598 million in 2002, a decrease of $35 million or 6%, resulting primarily from lower Ford North American production volume.

     Costs of Salesfor 2003 were $17.8 billion, up $222$198 million compared with 2002. Costs of sales includesinclude primarily material, labor, manufacturing overhead and other costs, such as product development costs. The increase reflects a $534 million increase in special charges, currency fluctuations of $569 million, costs associated with the labor agreement reached with the UAW of $64 million (contract ratification lump sum payment), and higher costs to launch business with new customers. These increases were offset partially by lower variable costs of $923 million resulting primarily from a decline in Ford worldwide vehicle production, net material cost reductions, and manufacturing efficiencies. The exit of our seating operations in June 2003 reduced costs an additional $293 million.

     Selling, administrative and other expensesfor 2003 were $1,008 million, $115 million higher compared with 2002. The increase reflects primarily incremental Information Technology (“IT”)IT actions of $88 million, net of $48 million received from Ford. Costs associated with such incremental IT actions are expected to continuecontinued into mid-2004. Special charges included in this line item were $20 million for 2003, representing a $3 million decrease from 2002.

     Net interest expense and debt extinguishment costof $77 million in 2003 was down $3 million from 2002, reflecting lower average debt balances and lower average interest rates.

     Equity in net income of affiliated companieswas $55 million in 2003, compared with $44 million in 2002, with the increase related primarily to our affiliates in Asia.Asia.

2530

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS — (Continued)

     Income (loss) before income taxes, minority interests and change in accounting,including and excluding special charges, is the primary profitability measure used by our chief operating decision makers. The following table shows income (loss) before income taxes for 2003 and 2002, for each of our segments:
           
Year Ended             
December 31,2003  Year Ended  
(under)  December 31, 2003
200320022002    (under)
  2003 2002 2002
      
(Restated)  Restated Restated  
(in millions)  (in millions)
Automotive OperationsAutomotive Operations $(1,182) $(153) $(1,029)Automotive Operations $(1,187) $(181) $(1,006)
Glass OperationsGlass Operations  (9)  20  (29)Glass Operations  (7)  21  (28)
 
 
 
         
Total $(1,191) $(133) $(1,058)Total $(1,194) $(160) $(1,034)
 
 
 
         
Memo:Memo:          Memo:          
Special charges included above $(754) $(223) $(531)Special charges included above $(754) $(223) $(531)

Automotive Operations’ 2003 loss before income taxes was $1,182$1,187 million compared with a loss of $153$181 million for 2002. Special charges before taxes in 2003 were up $531 million from 2002. The increased loss also reflects lower vehicle production volume, UAW contract ratification costs, and higher IT costs of $373 million, $59 million and $88 million, respectively. 2003 results include a loss of $25 million from seating operations that were exited June 23, 2003. Seating operations’ losses were $98 million in 2002. Results were affected also by new business and favorable cost performance, offset partially by price reductions.

Loss before income taxes for Glass Operations in 2003 was $9$7 million compared with income of $20$21 million before taxes for 2002, reflecting primarily lower Ford North American production volume and UAW contract ratification costs.

     Provision (Benefit)(benefit) for income taxesrepresents an effective tax ratewas a provision of 2%$6 million for 2003, compared with (36)%a benefit of $(74) million for 2002. The change in effective tax rate was caused by2003 provision includes a charge of $449 million recorded during the recording of additionalfourth quarter 2003 to establish partial valuation allowances against ourthe net deferred tax assets in the U.S. and full valuation allowances for certain foreign countries as of the end of the year, as discussed later under “Critical Accounting Policies” and in Note 6 of7 to our consolidated financial statements.

     Minority interests in net income of subsidiarieswas $29 million in 2003, compared with $28 million in 2002. Minority interest amounts are related primarily to our 70% ownership interest in Halla Climate Control Corporation locatedheadquartered in Korea.Korea, in which we have a 70% ownership interest.

31

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

                RESULTS OF OPERATIONS — (Continued)
Net income (loss)for 2003 and 2002 are shown in the following table for each of our segments:
           
Year Ended             
December 31,2003  Year Ended  
(under)  December 31, 2003
200320022002    over/(under)
  2003 2002 2002
      
(Restated)  Restated Restated  
(in millions)  (in millions)
Automotive OperationsAutomotive Operations $(1,234) $(376) $(858)Automotive Operations $(1,222) $(394) $(828)
Glass OperationsGlass Operations  (9)  14  (23)Glass Operations  (7)  15  (22)
 
 
 
         
Total $(1,243) $(362) $(881)Total $(1,229) $(379) $(850)
 
 
 
         
Memo:Memo:          Memo:          
Special charges included above $(949) $(142) $(807)Special charges included above $(933) $(142) $(791)
Goodwill Impairment  —  (265)  (265)Goodwill impairment  —  (265)  265 

26

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS — (Continued)

Visteon reported a net loss for 2003 of $1.2 billion compared with $362$379 million for 2002 because of the factors described previously in income (loss) before income taxes. Special charges after taxes were $949$933 million and $407 million for 2003 and 2002, respectively.

Results of Operations

2002 Compared with 2001

Salesfor each of our segments for 2002 and 2001 are summarized in the following table:

              
Year Ended
December 31,2002
over/(under)
200220012001
(in millions)
Automotive Operations $17,797  $17,222  $575 
Glass Operations  598   621   (23)
  
  
  
 
 Total sales $18,395  $17,843  $552 
  
  
  
 
Memo: Sales to non-Ford customers            
 Amount $3,616  $3,187  $429 
 Percentage of total sales  20%  18%  2 pts

     Sales for Automotive Operations were $17.8 billion in 2002, compared with $17.2 billion in 2001, an increase of $575 million or 3%. Increased sales for Automotive Operations reflect primarily new business, increased sales of $146 million resulting from increased Ford worldwide vehicle production, and currency fluctuations of $118 million. Sales from Automotive Operations were affected also by lower sales associated with precious metals purchased under sourcing arrangements directed by Ford, and price reductions.

Sales for Glass Operations were $598 million in 2002, compared with $621 million in 2001, a decrease of $23 million or 4%. Reduced sales for Glass Operations reflect lower commercial and aftermarket volume and price reductions, offset partially by stronger Ford North American production volume.

Costs of Salesfor 2002 were $17.6 billion, $488 million higher compared with 2001. The increase in 2002 reflects primarily new business, $104 million increase resulting from higher vehicle production volume, and currency fluctuation of $64 million. Costs of sales were affected also by increased new business offset partially by net material cost reductions and manufacturing efficiencies. Special charges included in costs of sales were $200 million in 2002 and $150 million in 2001.

Selling, administrative and other expensesfor 2002 were $893 million, compared with $855 million in 2001. The increase of $38 million reflects primarily higher selling expenses (up $26 million). Special charges were lower in 2002, totaling $23 million in 2002 and $42 million in 2001.

Net interest expenseof $80 million for 2002 was up from $76 million in 2001, reflecting lower interest rates received on average cash balances.

Equity in net income of affiliated companieswas $44 million in 2002, compared with $24 million in 2001, with the increase related primarily to our affiliates in Asia.

27

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS — (Continued)

Income (loss) before income taxes, minority interests and change in accountingis shown in the following table for 2002 and 2001 for each of our segments:

              
Year Ended
December 31,2002
over/(under)
200220012001
(Restated)
(in millions)
Automotive Operations $(153) $(116) $(37)
Glass Operations  20   (59)  79 
  
  
  
 
 Total $(133) $(175) $42 
  
  
  
 
Memo:            
 Special charges included above: $(223) $(192) $(31)

Automotive Operations’ 2002 loss before taxes was $153 million compared with $116 million for the same period in 2001. The increased loss is more than explained by higher special charges. Results were favorably affected by new business and cost performance, offset partially by price reductions.

Income before income taxes for Glass Operations was $20 million in 2002, compared with a loss of $59 million for 2001. The improvement reflects primarily lower special charges and cost reductions, offset partially by price reductions to customers.

(Benefit) for income taxesrepresents an effective tax rate of (36)% for 2002, compared with (37)% for 2001.

Minority interests in net income of subsidiarieswas $28 million in 2002, compared with $21 million in 2001. Minority interest amounts are related primarily to our 70% ownership interest in Halla Climate Control Corporation located in Korea.

Net income (loss)for 2002 and 2001 are shown in the following table for each of our segments:

              
Year Ended
December 31,2002
over/(under)
200220012001
(Restated)
(in millions)
Automotive Operations $(376) $(87) $(289)
Glass Operations  14   (35)  49 
  
  
  
 
 Total $(362) $(122) $(240)
  
  
  
 
Memo:            
 Special charges included above $(142) $(121) $(21)
 Goodwill Impairment  (265)  —   (265)

Visteon reported a net loss of $362 million for 2002, compared with a net loss of $122 million for 2001 because of the factors described in the income (loss) before income taxes section. Special charges after taxes were $142 million and $121 million in 2002 and 2001, respectively. Goodwill impairment after taxes was $265 million in 2002.

28

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS — (Continued)

Liquidity and Capital Resources

Overview

Visteon’s funding objective is to finance its worldwide business with cash from operations, supplemented when required by a combination of liquidity sources, including but not limited to cash and cash investments, securitization and sales of receivables, programs, and committed and uncommitted bank facilities, leasing arrangements, and debt issuance.the issuance of securities. These sources are used also to fund working capital needs, which are highly variable during the year because of changing customer production schedules.
      Visteon’s cash and liquidity needs are impacted by the level, variability, and timing of our customers’ worldwide vehicle production, which varies based on economic conditions and market shares in major markets. Our intra-year needs are impacted also by seasonal effects in the industry, such as the shutdown of operations for about two weeks in July, the subsequent ramp-up of new model production and the additional one-week shutdown in December by our primary North American customers. These seasonal effects normally require use of liquidity resources during the first and third quarters.

Our

      Visteon’s balance sheet reflects cash and marketable securities of $752 million and total debt of $2,021 million at December 31, 2004, compared with cash and marketable securities of $956 million and total debt of about $1.8 billion$1,818 million at December 31, 2003, compared with2003. The decline in cash and marketable securities is due to increased operating losses, capital spending including spending for Visteon’s facilities consolidation, an increase in trade working capital related to higher sales levels at year end, and restructuring cash payments, offset partially by higher debt. As our operating profitability has become more concentrated with our foreign subsidiaries and joint ventures, our cash balance located outside the U.S. has grown. Approximately one-third of about $1.3 billion and total debt of about $1.7 billion at December 31, 2002. Net debt, defined as the amount by which total debt exceeds totalVisteon’s cash and marketable securities was $862 million at December 31, 2003, and $413 million at December 31, 2002. The change2004 were held in both ourthe U.S., compared with one-half of cash and marketable securities and net debt resulted primarily from capital expendituresresiding in excessthe U.S. at December 31, 2003. Visteon’s ability to move cash among our operating locations is subject to the operating needs of cash providedeach location as well as restrictions imposed by operating activities. Ourlocal laws.

32

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

                RESULTS OF OPERATIONS — (Continued)
      Visteon’s ratio of total debt to total capital, which consists of total debt plus total stockholders’ equity, was 51%86% at December 31, 2004 and 50% at December 31, 2003, and 36% at December 31, 2002, and increased primarily because of the increase in net lossesloss reported during the period.
      Primarily due to the impact on profitability of lower production at Ford and raw material costs, cash flows from operations were less than capital expenditures in 2004. Although capital expenditures in 2005 are expected to be lower than in 2004, raw material costs are expected to be higher and could adversely affect operating results if not offset by recovery actions. If cash flow from operations is not sufficient to fund capital spending in 2005, we expect to have access to liquidity to supplement such spending, including but not limited to cash balances, short-term borrowings under the Credit Facilities, receivables-based programs and other asset-backed financing. Access to capital markets is possible, but may be limited or may be on terms that are less attractive than obtained in the past. Although Visteon is highly leveraged, it may become necessary to incur additional debt to ensure adequate liquidity during 2005. In addition, if the profitability of North American operations does not improve, Visteon’s access to unsecured debt may be restricted forcing it to rely more heavily on secured debt and asset-backed programs. Considering the impact of the Ford funding agreement further described below, and our access to the credit markets, albeit at more restrictive terms and conditions and in lessor amounts than in the past, Visteon currently expects to have sufficient sources of liquidity to meet our operating and other needs for 2005. However, because of the uncertainty regarding economic and market conditions, as described above.well the ultimate outcome of our discussions with Ford, there can be no assurance that sufficient liquidity from internal or external sources will be available at the times or in the amounts required.
      As a result of expected increases in raw material costs, anticipated lower production volumes from key customers including Ford, and our continued unfavorable U.S. cost structure that results, in part, due to the hourly labor benefits agreement that we operate under with Ford, Visteon intends to implement in 2005 a number of actions to conserve cash and reduce costs. These actions will include attempting to accelerate collection of accounts receivables, reducing overtime for employees not directly related to satisfying customer commitments, postponing some non-safety related construction projects at our corporate headquarters and delaying program spending.

33

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

                RESULTS OF OPERATIONS — (Continued)
      On March 10, 2005, Visteon and Ford entered into a funding agreement, effective as of March 1, 2005, under which Ford has agreed (a) to accelerate the payment on or prior to March 31, 2005 of not less than $120 million of payables that are currently not required to be paid to Visteon until after March 31, 2005; (b) to accelerate the payment terms for certain payables to Visteon arising on or after April 1, 2005 from an average of 33 days after the date of sale to an average of 26 days; (c) to reduce the amount of wages that Visteon is currently obligated to reimburse Ford with respect to Visteon-assigned Ford-UAW hourly employees that work at Visteon facilities, which Visteon expects will result in reduced expenses and in cash savings of approximately $25 million per month; and (d) to release Visteon from its obligation to reimburse Ford for Ford profit sharing payments with respect to Visteon-assigned Ford-UAW hourly employees that accrue in 2005. Under the funding agreement, Visteon has agreed to (a) continue to provide an uninterrupted supply of components to Ford in accordance with applicable purchase orders and to continue to comply with its other contractual agreements with Ford and the UAW, including continuing to use its best efforts to quote competitive prices for new business to be produced for Ford at certain of Visteon’s plants located in North America; (b) not to request reimbursement from Ford for any material cost surcharges for any component that is produced for Ford at certain of Visteon’s plants located in North America, and (c) that, except with respect to sales of inventory or the disposal of obsolete equipment in the ordinary course of business, Visteon will not sell, close or otherwise dispose of any of the assets at certain of Visteon’s plants located in North America, without Ford’s consent.
      Also on March 10, 2005, Ford and Visteon entered into a master equipment bailment agreement, effective as of January 1, 2005, pursuant to which Ford has agreed to pay third-party suppliers for certain machinery, equipment, tooling and fixtures and related assets, which may be acquired during the term of the agreement, which are primarily used to produce components for Ford at some of Visteon’s plants located in North America. This agreement is expected to reduce Visteon’s 2005 capital expenditures by approximately $150 million. Either Ford or Visteon may terminate the funding agreement or the master bailment agreement at anytime after January 1, 2006 upon 10 business days’ notice or upon the occurrence of certain customary events of default, including the uncured default in the performance by a party of its obligations under the agreement or under certain other agreements between the parties. We are currently in discussions with Ford regarding other necessary strategic and structural changes, that will allow Visteon to achieve a sustainable and competitive business model. However, we cannot predict the impact such discussions or any related actions may have on our results of operations or financial condition. Further, there can be no assurance that we will reach an agreement with Ford or take other actions that will address all of the strategic or structural challenges facing our U.S. business.
      On February 9, 2005, the Visteon Board of Directors elected to suspend the payment of its usual quarterly dividend of $0.06 per share of Visteon common stock. The Board will evaluate Visteon’s dividend policy on a quarterly basis based on all relevant factors.
Financing Arrangements
      On March 10, 2004, Visteon completed a public offering (the “Notes Sale”) of unsecured fixed-rate 7.00% term debt securities totaling $450 million in aggregate principal amount due in March 2014. Proceeds from the Notes Sale were used for a debt retirement and for general corporate purposes. Concurrent with the Notes Sale, Visteon announced an offer (the “Tender Offer”) to purchase for cash up to $250 million aggregate principal amount of our 7.95% notes due in August 2005. The Tender Offer expired on April 2, 2004, and $250 million of these notes were retired on April 6, 2004.

34

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

                RESULTS OF OPERATIONS — (Continued)
      In March 2004, Visteon established a revolving accounts receivable securitization facility (the “facility”) in the U.S. The facility allows for the sale of a portion of non-Ford U.S. trade receivables to a wholly-owned consolidated special purpose entity, Visteon Receivables LLC (“VRL”), which may then sell an undivided interest in the receivables to an asset-backed multi-seller conduit which is unrelated to Visteon or VRL. At December 31, 2004, VRL had sold a $55 million undivided interest in a pool of $240 million of net receivables. The facility has been extended to March 29, 2006 and is extendable annually through March 2008 through mutual agreement of both parties. At March 1, 2005 the maximum amount of undivided interests that VRL could sell to the conduit was approximately $70 million, although this maximum amount could be lower in the event that Visteon’s credit ratings were to be reduced. We are exploring a securitization program that would involve all or a portion of our U.S. and Canadian Ford receivables.
      In Europe, Visteon has an agreement to sell up to euro 60 million in trade receivables to a bank. As of December 31, 2004 and December 31, 2003, Visteon has sold euro 19 million ($26 million) and euro 12 million ($15 million), respectively, of trade receivables under this agreement. The facility expires in March 2006 and is renewable in one-year increments. The facility can be terminated by either party with 15 days notice; therefore we cannot provide any assurances that this facility will be available or utilized in the future.
      Visteon has financing arrangements providing contractually committed, unsecured revolving credit facilities with a syndicate of third-party lenders providing for a maximum of $1,580 million inthat provide contractually committed, unsecured credit facilities in an aggregate maximum amount of $1,590 million (the “Credit Facilities”). The terms of the Credit Facilities provide forinclude a 364-day revolving credit line in the amount of $555$565 million, which expires June 2004, and2005, a five-year revolving credit line in the amount of $775 million which expires June 2007. The Credit Facilities also provide for2007, and a five-year, delayed-draw term loan in the amount of $250 million expiring in 2007, which will beis used primarily to finance new construction for our facilities consolidation in Southeast Michigan. AtBorrowings under the Credit Facilities bear interest based on a variable rate interest option selected at the time of borrowing and Visteon’s credit rating. Except for the construction related facility, Visteon and its subsidiaries may use the Credit Facilities for any and all general corporate purposes at the discretion of management. As of December 31, 2003,2004, there were no outstanding borrowings outstanding under the 364-day facility or the five-year facility, there were $445-year facilities, although $100 million of obligations under standbystand-by letters of credit underhave been issued against the five-year facility, and $1045-year facility. As of December 31, 2004, Visteon had borrowed $223 million borrowed against the delayed-draw term loan.loan facility.
      The Credit Facilities contain certainvarious affirmative and negative covenants, including limited cross default provisions, a negative financial covenant, not to exceed a leverage ratiolimitation on sale and leaseback transactions, as well as other customary provisions. The cross default provisions of net debt to EBITDA (adjusted and excluding special charges) of 3.5 to 1. Increasesthe Credit Facilities could be triggered by an uncured default by Visteon in the ratiopayment of net debt to EBITDA can occur during quarters following seasonal shutdown periods, when cash usage increases. In the opinionprincipal of management,or interest on any borrowing of Visteon has beenof at least $5 million. Visteon was in compliance with all covenants since the inception of the Credit Facilities. During 2004, we expect to be in compliance although there can be no assurance that this will be the case.

     Visteon has maintained a commercial paper program utilizing the Credit Facilities as backup. As of December 31, 2003, we had $81 million outstanding under our commercial paper program compared2004. If the profitability of Visteon’s operations deteriorates, however, it could be difficult for Visteon to continue to comply with $166 million at December 31, 2002. In the event the availability of commercial paper is reduced further or eliminated, our revolving credit lines provideits financial covenants. Visteon’s failure to comply with these covenants could have a backup source for funding.material adverse effect on its access to capital markets and could require more reliance on asset-backed financing.

2935

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS — (Continued)
      Pursuant to the negative financial covenant, Visteon may not exceed a leverage ratio of consolidated total debt to consolidated earnings before interest, taxes, deprecation and amortization (“EBITDA”) for the trailing four quarters of 3.5 to 1. Consolidated total debt is defined as the aggregate principal amount of all indebtedness of Visteon and its subsidiaries minus all amounts of cash and cash equivalents. Consolidated EBITDA is defined as Visteon’s consolidated net income plus the sum of income tax expense, interest expense, amortization or write-off of debt discount and debt issuance costs, depreciation and amortization expense, any non-recurring expenses or losses, and adjusting for any gain or loss from a discontinued operation, or other material acquisition or disposition. At December 31, 2004, Visteon was in compliance with this covenant.
      If the negative financial covenant were violated and not cured within 30 days, availability of the credit lines could be withdrawn, and repayment of the delayed-draw term loan could be accelerated. In this event, or if Visteon were unable to renew the facilities upon scheduled expiration, Visteon would seek to replace the Credit Facilities with other credit facilities or secured borrowings, although we cannot provide assurance that sufficient replacement sources would be available.
      The Credit Facilities also contain a limitation stating that the value of assets financed through sale/leasebacks is limited to 15% of consolidated total assets as of the last quarter end (consolidated total assets is defined as all amounts that would, in conformity with GAAP, be set forth opposite the caption “total assets” (or any like caption) on a consolidated balance sheet of Visteon and its subsidiaries at such date). With respect to the bond indenture, sale/leasebacks are limited to 15% of consolidated net tangible assets (consolidated net tangible assets is defined as all amounts that would, in conformity with GAAP, be set forth opposite the caption “total assets” (or any like caption) on a consolidated balance sheet of Visteon and its consolidated subsidiaries less (a) all current liabilities and (b) goodwill, trade names, patents, unamortized debt discounts, organization expenses and other like intangibles of Visteon and its consolidated subsidiaries). In addition, our indentures related to our unsecured debt securities contain cross default provisions which could be triggered by a default by Visteon or a significant subsidiary in its obligation to pay a principal or interest payment of $25 million or more.
      Visteon also has bilateral financing arrangements with three banks providing a total of $75 million of revolving credit that contain similar covenants to those contained in the Credit Facilities and which expire in June 2006. At December 31, 2004, there were no outstanding borrowings under these bilateral arrangements, although $50 million of obligations under stand-by letters of credit have been issued against these arrangements.
      At December 31, 2004, Visteon had no commercial paper outstanding, compared with $81 million outstanding at December 31, 2003. Moody’s short-term credit rating for Visteon is NP (Not Prime) while S&P’s short-term credit rating is WR (Withdrawn). These short-term credit ratings have significantly restricted Visteon’s access to the commercial paper market. Consequently, commercial paper is not relied upon as a source of short-term liquidity.

36

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

                RESULTS OF OPERATIONS — (Continued)
      Visteon maintainshas maintained a trade payables program through General Electric Capital Corporation (“GECC”), subject to periodic review, that provides financial flexibility to Visteon and its suppliers. When a supplier participates in the program, GECC pays the supplier the amount due from Visteon in advance of the original due date. In exchange for the earlier payment, our suppliers accept a discounted payment. Visteon pays GECC the full amount. Approximately $100$69 million and $45$100 million classified as short-term debt, was outstanding to GECC under this program at December 31, 2004 and December 31, 2003, and 2002, respectively. Previously, amounts due GECC were classified as trade payables. Debt, trade payables and related cash flow amounts for prior periods were reclassified to conform with present period presentation.respectively, which is included in our reported debt balance. The 2004 balance is supported by standby letters of credit. At December 31, 2004, the maximum advance payment allowed was $95 million. As part of the same program with GECC, Visteon is allowed to defer payment to GECC for a period of up to 30 days. AtAs of December 31, 2003,2004, Visteon had not exercised the deferral option of the program.

     In addition, Although this agreement with GECC is scheduled to expire in December 2005, Visteon participateshas notified participating suppliers of its intention to exit the program beginning in a trade payablesMarch 2005, which may result in changes to the commercial agreements with those suppliers that could adversely affect our liquidity.

      At December 31, 2003, Visteon participated in the Ford Supplier Early Pay program offered by one of our customers. When we participate,in which our receivables arewere reduced and our cash balances arewere increased. OurVisteon stopped participating in this program in the first quarter of 2004 and Ford is no longer offering this program to Visteon. At December 31, 2003, our receivables werehad been reduced by $75 million and $25 million at December 31, 2003 and 2002, respectively as a result ofdue to this program.

      Visteon has entered intouses interest rate swaps to manage ourits interest rate risk. These swaps effectively convert a portion of Visteon’s fixed rate debt into variable rate debt, and as a result, approximately 40%45% of Visteon’s borrowings are effectively on a fixed rate basis, while the remainder isare subject to changes in short-term interest rates. As interest rates have fallen, Visteon’s interest rate swaps contributed favorably to reduce interest expense in 2003.

Credit Ratings

     Our

      Visteon’s long-term credit rating with Standard & Poor’s (“S&P”) is BB+; with Moody’s it is Ba1,Ba2, and with Fitch it is BBB-. Both S&PBB. On February 1, 2005, Fitch downgraded Visteon from BB+ to BB, and on February 18, 2005 Moody’s do not rate our short-term credit while Fitch rates us F3. Both S&P and Moody’s have covereddowngraded Visteon from Ba1 to Ba2. Visteon has been on Negative Watch with all three agencies since June 2000, and Fitch initiated coverage on June 11, 2003. In December 2003, both S&P and Moody’s reduced their credit rating and placed us on Stable Outlook. Despite the recent downgrade by S&P and Moody’s, we continue to havethird quarter of 2004. Visteon’s access to sufficient liquidity and believe we will continue to have access, to meet ongoing operating requirements although that access ishas become less reliable and could be more costly than it was previously. Asas a result of recent rating agency actions, and any further downgrade in Visteon’s credit ratings could reduce its access to capital, increase the costs of future borrowings, and increase the possibility of more restrictive terms and conditions contained in any new or replacement financing arrangements or commercial paper availability is reducedagreements or eliminated, we would utilize alternative sources of liquidity, including those discussed above and receivables-based funding sources available to us.payment terms with suppliers.

3037

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS — (Continued)

Cash Requirements

The following table summarizes our expected cash outflows resulting from long-term obligations existing as of December 31, 2003:2004:
                      
2009
Total20042005-20062007-2008and after
(in millions)
Unconditional purchase obligations(a) $2,265  $324  $558  $498  $885 
Postretirement funding commitments(b)  2,090   38   166   257   1,629 
Debt  1,818   351   565   117   785 
North American seating operations(c)  292   86   24   24   158 
Operating leases  232   53   64   45   70 
  
  
  
  
  
 
 Total contractual obligations $6,697  $852  $1,377  $941  $3,527 
  
  
  
  
  
 
                      
  Total 2005 2006-2007 2008-2009 2010 and after
           
  (in millions)
Postretirement funding commitments(a)
 $2,179  $44  $262  $309  $1,564 
Unconditional purchase obligations(b)
  2,243   369   664   551   659 
Debt  2,021   508   280   4   1,229 
Interest payments on long-term debt(c)
  655   102   203   177   173 
Capital expenditures  376   319   57   —   — 
Operating leases  271   53   84   64   70 
North American seating operations(d)
  205   21   21   21   142 
                
 Total contractual obligations $7,950  $1,416  $1,571  $1,126  $3,837 
                

(a)Postretirement funding commitments include estimated liability to Ford for postretirement health care and life insurance benefits of the Visteon-assigned Ford-UAW employees and certain salaried employees as discussed in Note 9 of our consolidated financial statements, which is incorporated by reference herein. Funding for the Voluntary Employees’ Beneficiary Association begins in 2006 and is also included in the table above.
(b)Unconditional purchase obligation amounts exclude purchase obligations related to inventory property, plant and equipment purchases in the ordinary course of business. The obligations include amounts related primarily to a 10-year information technology agreement entered into with IBM in January 2003. Pursuant to this agreement, we outsourced most of our IT needs on a global basis. The service charges under the outsourcing agreement are expected to aggregate about $2 billion during the ten-year initial term of the agreement, subject to decreases and increases in the service charges based on Visteon’s actual consumption of services to meet our then current business needs. The outsourcing agreement may be terminated also for Visteon’s business convenience after our second full year under the agreement for a scheduled termination fee.

(b) Postretirement funding commitments include estimated liability to Ford for postretirement health care and life insurance benefits of the Visteon-assigned Ford-UAW employees and certain salaried employees as discussed in Note 8 of our consolidated financial statements, which is incorporated by reference herein. Funding for the Voluntary Employees’ Beneficiary Association begins in 2006 and is also included in the table above.

(c)Payments include the impact of interest rate swaps, and do not assume the replenishment of retired debt.
(d)Represents amounts payable to Ford related to our June 2003 exit from the North American seating operations, which is discussed further in Note 1416 of our consolidated financial statements, which is incorporated by reference herein.

We have guaranteed also about $24$166 million of borrowingsdebt capacity held by consolidated subsidiaries, $97 million for lifetime lease payments held by consolidated subsidiaries and $22 million of debt capacity held by unconsolidated joint ventures and have extended loans of about $3 million to unconsolidated joint ventures as of December 31, 2003.ventures. In addition, we have guaranteed Tier 2 suppliers’ debt and lease obligations and other third-party service providers’ obligations of about $16up to $20 million, at December 31, 20032004, to ensure the continued supply of essential parts.

Cash required to meet capital expenditure needs increased in 2003 to $872 million and was higher than historic levels as described below (Cash Flows — Investing Activities). Our cash and liquidity needs also are impacted by the level, variability and timing of our customers’ worldwide vehicle production, which varies based on economic conditions and market shares in major markets. Our intra-year needs are impacted also by seasonal effects in the industry, such as the shutdown of operations for about two weeks in July, the subsequent ramp-up of new model production and the additional one-week shutdown in December by our primary North American customers. These seasonal effects normally require use of liquidity resources during the first and third quarters. Additionally, creation of a separate IT environment during 2003, as stated below in Item 9A Controls and Procedures, could have an impact on timing of collection of payments from Ford.

31

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS — (Continued)

     We expect improved performance for 2004 will result in cash from operating activities exceeding capital expenditure requirements, although this may not be the case during specific quarters. Based on our present assessment of future customer production levels over a two-year time horizon, we believe we can meet general and seasonal cash needs using cash flows from operations, cash balances and borrowings, if needed. We also believe we can supplement these sources with access to the capital markets on satisfactory terms and in adequate amounts, if needed, although there can be no assurance that this will be the case.

Pension and Postretirement Benefits

      Employees and retirees participate in various pension, healthcare and life insurance benefit plans sponsored by Visteon and Visteon subsidiaries. Benefit plan liabilities and related asset transfers between Visteon and Ford in connection with our separation from Ford are covered by various employee benefit agreements.

38

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

                RESULTS OF OPERATIONS — (Continued)
Arrangements with Ford

      In accordance with the separation-related agreements, in the U.S., Ford retained the pension-related past service obligations for those transferred salaried employees that met certain age and years of service requirements at the date of the separation from Ford. Visteon-assigned Ford-UAW employees participate in the Ford-UAW Retirement Plan, sponsored by Ford. By agreement, Visteon compensates Ford for the pension expense incurred by Ford related to Visteon-assigned Ford-UAW hourly employees. In the U.S., Visteon has a financial obligation for the cost of providing selected healthcare and life insurance benefits to its employees, as well as an obligation to reimburse Ford for Visteon-assigned Ford-UAW employees who retire after July 1, 2000. Ford retained the financial obligation and related prepayments for pension and postretirement healthcare and life insurance benefits to its employees who retired on or before July 1, 2000.

      During the fourth quarter of 2003, the separation-related agreements were amended and restated. Under the terms of the amended and restated agreements, Ford agreed to assume responsibility for approximately $1,646 million of amounts previously owed by Visteon to Ford for postretirement health and life insurance benefits earned by the Visteon-assigned Ford-UAW employees during the period prior to the separation. Ford agreed also to assume responsibility for future accretion onThese amended and restated agreements effectively reduced the $1,646 million amount at the appropriate SFAS 106 discount rate (6.25% at December 31, 2003). Visteon had previously recorded the $1,646 million liability in accordance with the original terms of the separation-related agreements. Visteon continues to be responsible to Ford for changes in this liability that result from changes in actuarial assumptions, changes in salaries and Visteon early retirement incentive plans.

     In accordance with SFAS 15, “Accounting by Debtors and Creditors for Troubled Debt Restructurings,” Visteon has not recorded any gain or loss relating to this amendment because future accretion and contingently payable amounts with respect to the restructured obligation are expected to exceed the amount currently recorded by Visteon. The amounts ultimately due are contingent upon future health and retirement benefit costs to be charged to Visteon by Ford with respect to the Visteon-assigned Ford-UAW employees. A portion of the yearly expense charged by Ford will be offset as charged by the release of the contingently payable amount ($1,138 million at December 31, 2003) and the remainder will reduce future accretion charges over the life of the obligation ($508 million).

32

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS — (Continued)

     Under the terms of the revised Agreements with Ford, Visteon is required to fund a portion of actual costs of thesepostretirement benefits, as incurred by Fordwell as, future expense for such benefits and lengthened the Visteon-assigned Ford-UAW employees through 2005 and certain salaried employees through 2010. In addition, Visteon has agreed to contribute funds to arequired Voluntary Employees’ Beneficiary Association (“VEBA”) trust to fund postretirement health care and life insurance benefits to be provided by Ford related to the post-spin service of Visteon-assigned Ford-UAW hourly employees as well as many transferred salaried employees.funding terms. The requiredannual VEBA funding is over a 44-year periodrequirement, beginning in 2006, for the Visteon-assigned Ford-UAW hourly employees, and over a 39-year period beginning in 2011 for those salaried employees. The annual funding requirement during these periods will be determined based upon amortization of the unfunded liabilities at the beginning of each period, plus amortization of annual expense. Based upon estimates of the unfunded liabilities and the related expense, the first required annual payment to the VEBA will be about $112$115 million (which includes about $30$35 million to cover benefit payments) in 2006 reduced from $535 million based on the prior agreement. In December 2000, the companyVisteon pre-funded a portion of this obligation by contributing $25 million to a VEBA. The fair value of the VEBA assets as of December 31, 20032004 was $28$24 million, and is included in other non-current assets in the accompanying balance sheet.

Refer to Note 9 to the consolidated financial statements for further details on the amended and restated agreements and discussion of the accounting treatment.

Visteon Pension Plans

The Visteon plans’ worldwide funded position is slightly better than it was a year ago on a percentage basis. Strong asset returns along with world-wide contributions offset the effect of lower discount rates. For the plan year ended September 30, 20032004 (the measurement date for our pension funds) our U.S. portfolio returned 20%13%. The U.S. pension plan investment strategy, asset allocations and expected contributions for 20042005 are discussed in Note 89 to our consolidated financial statements, incorporated herein by reference.

Legislation

39

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

                RESULTS OF OPERATIONS — (Continued)
Legislation
The Medicare Prescription Drug, Improvement and Modernization Act of 2003 was signed into law on December 9, 2003, subsequent8, 2003. This legislation provides for a federal subsidy beginning in 2006 to our September 30, 2003 measurement date. Becausesponsors of retiree health care benefit plans that provide a benefit at least actuarially equivalent to the impactbenefit established by the law. Visteon’s plans generally provide retiree drug benefits that exceed the value of the act on Visteon’s expensebenefit that will depend in large part on Ford’s implementation decisions,be provided by Medicare Part D, and we have not quantifiedconcluded that our plans are actuarially equivalent, pending further definition of the effect, but expect itcriteria used to determine equivalence. This subsidy reduced the benefit obligation for Visteon plans by $87 million as of March 31, 2004, and will be recognized through reduced retiree health care expense over the related employee future service lives, of which $12 million has been recognized as of December 31, 2004. The Medicare Act of 2003 also affected the allocation to Visteon of the Ford postretirement health care and life insurance benefit obligation and expense for the Visteon-assigned Ford-UAW employees and certain salaried employees, resulting in a significant reduction in expense.to 2004 expense of about $25 million.

Cash Flows

Operating Activities

Cash provided by operating activities during 20032004 totaled $363$418 million, compared with cash provided by operating activities of $1,103$363 million for the same period in 2002.2003. The reduced amountincrease is primarily related to lower operating losses, offset partially by increases in trade working capital related primarily to higher sales volumes and non-recurrence of cash provided by operationsone-time improvements in 2003 reflects primarilydue to changes in certain supplier payment terms. Cash provided from the utilization of our operating losses.receivables-based programs was $66 million and $5 million during 2004 and 2003, respectively. Cash payments related to special charges, including those for severance and special pension benefits, were $171 million and $162 million and $88 million during 2003 and 2002, respectively.

     Pursuant to the Purchase and Supply Agreement between Visteon and Ford, our sales to Ford will be collected in a shorter time frame than in the past. Our agreement calls for Ford to pay us, on average, 33 days after the date of sale, compared with 43 days on average in past years. We expect the effect of this change to improve cash provided by operating activities by approximately $200 million. This arrangement will be in place for 2004 and 2005, with 2006 being a transition adjustment as we return in 2007 to Ford’s standard payment terms in effect at that time.

33

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
2003, respectively.

RESULTS OF OPERATIONS — (Continued)

Investing Activities

Cash used in investing activities was $782 million during 2004, compared with $781 million during 2003, compared with $609 million for 2002. Ourthe same period in 2003. Visteon’s capital expenditures for 2003in 2004 totaled $872$827 million, compared with $725$872 million for the same period in 2002. Our2003. Visteon’s capital spending in each of 2003 is higher than historic levels as we undertakeand 2004 included spending to fund new construction for consolidation of operations in Southeast Michigan and also to fund our IT infrastructure transition and improvements. We anticipateVisteon anticipates that ourthe facilities’ consolidation will allow us to centralize customer support functions, research and development, and selected business operations at lower operating costs.operations. During 2003, we had net sales2004, Visteon sold $11 million of marketable securities, of $70 million, compared with net sales of securities of $80$70 million in 2002. The lower level of securities purchased in both years reflects the lower level of cash available for investment and the lower level of attractiveness of these securities as interest rates have fallen over the past two years.same period last year. Other investing cash flows are comprised mainly of $25 million and $36 million during 2003 and 2002, respectively, are related primarily to the sale of assets, with the 2002 amount including $25 millionproceeds from the sale of the restraint electronics business.fixed assets.

Financing Activities

      Cash provided by financing activities totaled $135 million in 2004, compared with $128 million in 2003, compared with cash usagethe same period in 2003. Financing activities in 2004 include a net increase in debt of $338$200 million in 2002. The cash proceeds in 2003 reflect primarilydue to the net issuance of debtMarch Notes Sale and April Tender Offer, offset partially by funds used to repay maturing short-term commercial paper obligations, dividend paymentsreductions in short term debt and purchases of treasury stock.

other debt.

      On October 13, 2003,February 9, 2005, the Visteon Board of Directors declared aelected to suspend the payment of its usual quarterly dividend of $0.06 per share of common stock. The Board evaluates Visteon’s dividend policy quarterly based on Visteon’s common stock, payable on December 1, 2003, to the stockholders of record as of October 31, 2003. On January 16, 2004, the Visteon Board of Directors declared a dividend of $0.06 per share on Visteon’s common stock, payable on March 1, 2004, to the stockholders of record as of January 30, 2004. Visteon has paid a dividend each quarter since it became an independent, publicly traded company in June 2000.all relevant factors.

3440

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS — (Continued)

Critical Accounting Policies

A summary of Visteon’s accounting policies is described in Note 3 ofto our consolidated financial statements, which is incorporated herein by reference. Critical accounting policies are those that are both most important to the portrayal of a company’s financial condition and results, and require management’s most difficult, subjective or complex judgments. Our critical accounting policies are considered the following:

Employee Retirement Benefits

The determination of our obligation and expense for Visteon’s pension and other postretirement benefits, such as retiree healthcare and life insurance, is dependent on our selection of certain assumptions used by actuaries in calculating such amounts. Those assumptions are described in Note 89 of our consolidated financial statements, which is incorporated herein by reference, and include, among others, the discount rate, expected long-term rate of return on plan assets and rates of increase in compensation and healthcare costs. The expected long-term rate of return for pension assets has been chosen based on historical returns for the different asset classes held by our trusts and our asset allocation. The discount rate is chosen based on market rates for long-term, high-quality corporate bonds (principally Moody’s Aa 30 year)with maturities closely matched to the timing of projected benefit payments at our September 30 measurement date. The U.S. discount rate assumption for year end 20032004 was a weighted average of 6.1%, reduced from 6.75% at year end 2002. This change increased our U.S. pension and healthcare and life insurance projected benefit obligations by $103 million and $82 million, respectively, and is estimated to increase 2004 expense by about $50 million in aggregate.. In accordance with accounting principles generally accepted in the United States of America, actual results that differ from our assumptions are accumulated and amortized over future periods and, therefore, generally affect our recognized expense and recorded obligation in such future periods. Our market-related value of pension assets reflects changes in the fair value of assets over a five-year period, with a one-third weighting to the most recent year. For postretirement healthcarehealth care and life insurance, as shown in Note 89 of our consolidated financial statements, we extended the time period needed for the healthcarehealth care cost trend rate to reach the ultimate rate from 20072009 to 2009.2010. While we believe that our assumptions are appropriate, significant differences in our actual experience or significant changes in our assumptions may materially affect our pension and other postretirement obligations and our future expense.

The following table illustrates the sensitivity to a change in certain assumptions for Visteon’sVisteon sponsored U.S. pension plans on our funded status and pre-tax pension expense:expense (Visteon-assigned Ford-UAW employees and certain salaried employees are covered by Ford sponsored plans):

         
Impact on Visteon’sVisteon
Impact on 2004 pre-taxU.S. Plan 2003sponsored
Impact on 2005 pre-taxU.S. Plan 2004
25 basis point change in assumption(a)pension expensepension expense(b)funded status
(Restated)
decrease in discount rate  + $5$6 million   - $40$48 million 
increase in discount rate  - $5$6 million   + $40$48 million 
decrease in expected return on assets  + $5$2 million     
increase in expected return on assets  - $5$2 million     

(a) Assumes all other assumptions are held constant.

(b) Includes the effect on expense for Visteon-assigned Ford-UAW employees.

3541

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS — (Continued)

The following table illustrates the sensitivity to a change in the discount rate assumption related to Visteon’sVisteon sponsored U.S. postretirement healthcare and life insurance plans:
plans expense (Visteon-assigned Ford-UAW employees and certain salaried employees are covered by Ford sponsored plans):
         
Impact on Visteon’sVisteon
25 basis point change inImpact on 2005 pre-taxImpact on 2004 pre-taxsponsored U.S. Plan 20032004
assumption(a)OPEB expenseOPEB expense(b)funded status
(Restated)
decrease in discount rate  + $16$6 million   - $45$44 million 
increase in discount rate  - $16$6 million   + $45$44 million 

(a) Assumes all other assumptions are held constant.

(b) Includes the effect on expense for Visteon-assigned Ford-UAW employees.

Visteon’s postretirement benefits payable to Ford includes the financial obligation Visteon has to Ford for the cost of providing selected health care and life insurance benefits to Visteon-assigned Ford-UAW hourly employees and certain Visteon salaried employees who retire after July 1, 2000. The health care and pension costs for these employees are calculated using Ford’s assumptions, which are disclosed in Note 89 of our consolidated financial statements. The annual funding requirements related to these employees are discussed further in the section “Pension and Postretirement Benefits.”

Impairment of Long-Lived Assets and Certain Identifiable Intangibles

      Visteon evaluates long-lived assets to be held and used and long-lived assets to be disposed of for potential impairment at the product line level whenever events or changes in business circumstances indicate that the carrying value of the assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate. Asset groupings at the product line level rather than the operating segment level used in prior years, is considered the lowest level of identifiable cash flows which are largely independent as the recently completedDecember 2003 Ford agreements contractually provide Visteon greater flexibility to make product level decisions, including decisions related to selling or exiting certain businesses. Visteon considers projected future undiscounted cash flows, trends and other circumstances in making such estimates and evaluations. While we believe that our estimates of future cash flows are reasonable, different assumptions regarding such factors as future automotive production volumes (primarily for Ford), selling price changes, labor cost changes, material cost changes, productivity and other cost savings and capital expenditures could significantly affect our evaluations.
      During the third quarter of 2004, the Automotive Operations recorded a pre-tax, non-cash impairment write-down of $314 million in costs of sales to reduce the net book value of certain long-lived assets. This write-down was based on an assessment by product line asset group, completed in the third quarter of 2004, of the recoverability of our long-lived assets in light of the challenging environment in which we operate, and included consideration of lower than anticipated current and near term future year Ford North American production volumes and the related impact on our future operating projections. Assets are considered impaired if the book value is greater than the undiscounted cash flows expected from the use of the asset. As a result of this analysis the assets of the steering systems product group were impaired. The write-down was approximately $249 million in North America and $65 million in Europe and was determined on a “held for use” basis. Fair values were determined primarily based on prices for similar groups of assets determined by a third-party valuation firm.

42

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

                RESULTS OF OPERATIONS — (Continued)
      During the fourth quarter of 2003, Visteon recorded a pre-tax, non-cash impairment write-down of $407 million in costs of sales to reduce the net book value of certain long-lived assets. This write-down was based on an assessment by product line asset group, completed in the fourth quarter of 2003, of the recoverability of our long-lived assets in light of the challenging environment in which we operate and as part of our business planning process for 2004 and beyond. This assessment included considering the substantial change in the production levels of Visteon’s major customer and the related impact on our future operating projections, as well as the anticipated impact of the recently completed Ford agreements. As a result of this analysis the assets of six product groupings were impaired: bumpers, fuel tanks, starters and alternators, steering columns, suspension systems and wiper/washer. The write-down was approximately $300 million in North America and $100 million in Europe and was determined on a “held for use” basis. Fair values were determined primarily based on prices for similar groups of assets determined by a third-party valuation firm.

36

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS — (Continued)

Deferred Income Taxes

      Deferred income taxes are provided for temporary differences between amounts of assets and liabilities for financial reporting purposes and the basis of such assets and liabilities as measured by tax laws and regulations, as well as net operating loss, tax credit and other carryforwards. Statement of Financial Accounting Standards No. 109 (“SFAS 109,109”), “Accounting for Income Taxes,” requires that deferred tax assets be reduced by a valuation allowance if, based on all available evidence, it is considered more likely than not that some portion or all of the recorded deferred tax assets will not be realized in future periods. This assessment requires significant judgment, and the fact that a benefit may be expected for a portion but not all of a deferred tax asset increases the judgmental complexity.

     We evaluate the recoverability of our deferred tax assets on an ongoing basis. Inin making this evaluation, during 2003, we consideredVisteon considers all available positive and negative evidence, including our past results, the existence of cumulative losses in recent years,periods, and our forecast of future taxable income for the current year and future years.

      During the third quarter of 2004, Visteon recorded a non-cash charge of $871 million to establish full valuation allowances against our net deferred tax assets in the U.S. and certain foreign countries. This charge was comprised of $948 million of deferred tax assets as of the beginning of the year, offset partially by a reduction of related tax reserves, previously included in other liabilities, of $77 million.
      In assessing the need for additional valuation allowances during the third quarter of 2004, Visteon considered the impact on our 2004 operating results from Ford’s lower than expected North American production estimates for the fourth quarter and full year 2004, as well as increased steel and fuel costs, which contemplates a minimumwe have not been able to recover fully, and delays in the benefits that were expected to be achieved from labor strategies, such as flowbacks and plant-level operating agreements. In light of $2.4 billionthese developments, we determined that Visteon would likely not achieve its forecast of U.S.2004 taxable earnings overin the U.S. We concluded, in light of this negative evidence and the uncertainty as to the timing of when we would be able to generate the necessary level of taxable earnings to recover our net deferred tax assets in the U.S., that a 10-year time horizon. Our forecastfull valuation allowance against these deferred tax assets was required in the third quarter of future taxable income exceeds2004. Additionally, we concluded that additional valuation allowances were required for deferred tax assets in certain other foreign countries where recoverability was also considered uncertain. In reviewing our recent historical performanceresults for the fourth quarter of 2004 and reflects our best assumptions aboutforward-year outlook, we concluded that there were no further changes to our previous assessments as to the likely impactrealizability of several major 2003 events and other items that are expected to improve our future profitability, including:deferred tax assets.

43

ITEM 7. • The series of contractual agreements reached with Ford in December 2003, under which Visteon was relieved of approximately $1,646 million of OPEB obligations related to Visteon-assigned Ford-UAW employees, in addition to other structural improvements.
• The agreement reached in the second quarter 2003 with Ford and other parties that permitted us to exit from our unprofitable seating operations in Chesterfield, Michigan.
• The significant U.S. restructuring charges incurred in recent years, which are expected to have a favorable impact on our results going forward, as well as the expectation that U.S. restructuring charges will be substantially less in 2004.
• Anticipated future cost savings in the material, manufacturing and SG&A areas, as well as the favorable impact of net new business, the majority of which is based on firm, existing contracts supported by purchase orders.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

                RESULTS OF OPERATIONS — (Continued)
      Visteon’s provision for income taxes for 2004 includes a benefit of $42 million recorded in the fourth quarter to reduce our deferred tax asset valuation allowance to offset a related reduction in our net deferred tax assets. This reduction in our net deferred tax assets was the result of certain U.S. tax adjustments related primarily to foreign currency movements that were recorded through other comprehensive income during the fourth quarter. In determining the amountaddition, Visteon’s provision for income taxes for 2004 includes $133 million of future taxable income a number of additional assumptions are made, including the amount of U.S. andtax expense primarily related to foreign pre-tax operating income, the time period over which our temporary differences will reverse, and the implementation of feasible and prudent tax planning strategies. While these assumptions require significant judgment, they are consistent with the plans and estimates we are usingcountries whose results continue to manage the underlying business.

be tax-effected due to their ongoing profitability. As more fully described in Note 67 to our consolidated financial statements, at December 31, 2004, Visteon’s consolidated balance sheet reflects a net deferred tax liability of $133 million after valuation allowances.

      During the fourth quarter 2003, Visteon recorded a non-cash charge of $449 million to establish partial valuation allowances against our deferred tax assets in the U.S. and full valuation reserves for certain foreign countries as of the end of 2003. As more fully described in Note 7 to our consolidated financial statements, at December 31, 2003, Visteon’s consolidated balance sheet reflects a net deferred tax asset of $860 million which includes aafter valuation allowance of $524 million. During 2003, we established an additionalallowances.
      Going forward, the need to maintain valuation allowance of $503 millionallowances against our deferred tax assets of which $473 million was recorded through income tax expense ($465 million as a special charge in the fourth quarter)U.S. and $30 million was recorded through other comprehensive income. Of the totalaffected countries will cause variability in our quarterly and annual effective tax rates. Visteon will maintain full valuation allowance of $524 million at December 31, 2003, $383 million relates to a portion of Visteon’s U.S. deferred tax assets, including deferred tax assets related to foreign affiliates that are treated as pass-through entities for U.S. tax purposes, and $141 million relates to net operating losses and otherallowances against our deferred tax assets in certainthe U.S. and applicable foreign jurisdictions where recovery ofcountries, which include the carryforwards or assets is unlikely.

37

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS — (Continued)

     We believe that we are more likely than not to recover our remaining net deferred tax asset of $860 million at December 31, 2003, through reductions in our tax liabilities in future periods. However, recovery is dependent on achieving our forecast of future taxable income. We will review our forecast in relation to actual resultsU.K. and expected trends on an ongoing basis. Failure to achieve our business plan targets, particularly in the U.S., may change our assessment regarding the recoverability of our net deferred tax asset 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, reduce stockholders’ equity and could have a significant impact on our earnings going forward. Further, changes to statutory tax rates, particularly in the U.S., could also affect the level of our deferred tax assets. We intend to maintain an appropriate valuation allowance against our deferred tax assetsGermany, until sufficient positive evidence exists to reduce or eliminate it.

them.

Revenue Recognition

      Sales are recognized when there is evidence of a sales agreement, the delivery of goods has occurred, the sales price is fixed or determinable and collectibility is reasonably assured, generally upon shipment of product to customers and transfer of title under standard commercial terms. Significant retroactive price adjustments are estimated by management based upon an assessment of the ultimate outcome of customer negotiations and are recognized in the period when such amounts become probable. Sales are recognized based on the gross amount billed to a customer for those products in which Visteon’s customer has directed the sourcing of certain raw materials or components used in the manufacture of the final product.

44

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

                RESULTS OF OPERATIONS — (Continued)
Product Recalls

      Product recall accruals are made related to our potential financial participation in our customers’ actions to provide remedies related primarily to safety concerns as a result of actual or threatened regulatory or court actions or Visteon’s determination of the potential for such actions. Our reserves for product recalls include the expected costs to be incurred by Visteon related to these actions. As part of our spin-off from Ford, Visteon and Ford agreed on a division of liabilities including liabilities related to product recalls. Visteon and Ford agreed on a division of responsibility for recall matters as follows: (a) Ford will retain liability for all recall claims that involve parts made or sold by Visteon for 1996 or earlier model year Ford vehicles, (b) Visteon is liable for all recall claims that involve parts made or sold by Visteon for 1997 or later model year Ford vehicles in accordance with Ford’s global standard purchase order terms as applied to other Tier 1 suppliers, and (c) Visteon has assumed all responsibility for recall claims relating to parts made or sold by Visteon to any non-Ford customers. Visteon accrues for recall claims for products sold based on management estimates, with support from our sales, engineering, quality and legal activities, of the amount that eventually will be required to settle such claims. This accrual, which is reviewed in detail on a regular basis, is based on several factors, including the terms of Visteon’s master transfer agreement with Ford, past experience, current claims, industry developments and various other considerations.

Additionally, costs of sales in 2004 were reduced by $49 million related to an adjustment made to a product recall accrual as a result of settling a product recall claim.

New Accounting Standards and Accounting Changes

     Starting

      In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123 (Revised 2004) (“SFAS 123-R”), “Share-Based Payments.” This revised statement requires the fair-value based method to be used and eliminates the alternative use of the intrinsic value method. Requirements of SFAS 123-R are effective as of the beginning of the first annual interim period that begins after June 15, 2005. Visteon does not expect the requirements of SFAS 123-R to have a material effect on Visteon’s results of operations as, starting January 1, 2003, Visteon began expensing the fair value of stock-based awards, including stock options, granted to employees pursuant to the original provisions of SFAS 123.
      In November 2004, the FASB issued Statement of Financial Accounting Standards No. 151 (“SFAS 151”), “Inventory Costs — an amendment of ARB No. 43, Chapter 4.” This standard was adoptedstatement 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 a prospective method basisthe normal capacity of the production facilities. The provisions of this statement will be effective for stock-based awards granted, modified or settledinventory costs incurred during fiscal years beginning after December 31, 2002, and resulted in additional compensation expenseJune 15, 2005. Visteon has not determined the effect of about $4 million in 2003.SFAS 151.

3845

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS — (Continued)

      In December 2003, the FASB issued revised Interpretation No. 46 (“FIN 46”46-R”) “Consolidation of Variable Interest Entities.” Until this interpretation, a company generally included another entity in its consolidated financial statements only if it controlled the entity through voting interests. FIN 4646-R requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or entitled to receive a majority of the entity’s residual returns. Application of FIN 46 is46-R was required during the fourth quarter of 2003 for interests in structures that are commonly referred to as special-purpose entities; immediately for all new entities created after February 1, 2003; and for all other types of variable interest entities in the first quarter of 2004. The effect of applying the initial consolidation provisions of FIN 4646-R on Visteon’s results of operations or financial position as of December 31, 20032004 was not significant. We do not expect the application of the remaining consolidation provisions of FIN 46, as required in the first quarter of 2004, will have a material effect on Visteon’s results of operations or financial position.

     In April 2003, the FASB issued Statement of Financial Accounting Standards No. 149 (“SFAS 149”), “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” This statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS 133, “Accounting for Derivative Instruments and Hedging Activities.” SFAS 149 is effective for contracts entered into or modified after June 30, 2003. We currently have no contracts that fall within the guidelines of the new requirements and, as such, there was no effect of adopting SFAS 149 on Visteon’s results of operations or financial position.

     In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150 (“SFAS 150”), “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” This statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003, and the first interim period beginning after June 15, 2003. We currently have no financial instruments that fall within the guidelines of the new requirements and, as such, there was no effect of adopting SFAS 150 on Visteon’s results of operations or financial position.

      In December 2003, the FASB issued Statement of Financial Accounting Standards No. 132 (revised 2003) (“SFAS 132-R”), “Employers’ Disclosures about Pensions and Other Postretirement Benefits.” This revised statement expands financial statement disclosures for defined benefit plans related to plan assets, investment policies, future benefit payments and plan contributions. Certain disclosure requirements of SFAS 132-R arewere effective for the year ended December 31, 2003, with additional2003. Additional annual and interim disclosure requirements were effective during the year ended December 31, 2004.

Cautionary Statement regarding Forward-Looking Information

      This report contains forward-looking statements made pursuant towithin the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “anticipate,” “expect,” “intend,” “plan,” “believe,” “seek”“seek,” “outlook” and “estimate” as well as similar words and phrases signify forward-looking statements. Visteon’s forward-looking statements are not guarantees of future results and conditions. Importantconditions and important factors, risks and uncertainties that may cause our actual results to differ materially from those expressed in Visteon’sour forward-looking statements, include,including, but are not limited to, the following:

 • Visteon’s dependenceability to satisfy its future capital and liquidity requirements; Visteon’s ability to access the credit and capital markets at the times and in the amounts needed and on Ford.terms acceptable to Visteon, which is influenced by Visteon’s credit ratings (which have declined in the past and could decline further in the future); Visteon’s ability to comply with financial covenants applicable to it; and the continuation of acceptable supplier payment terms.
 
 • Visteon’s ability to satisfy its pension and other post-employment benefit obligations, and to retire outstanding debt and satisfy other contractual commitments, all at the levels and times planned by management.
• Visteon’s ability to access funds generated by its foreign subsidiaries and joint ventures on a timely and cost effective basis.
• Visteon’s dependence on Ford, and our ability to make necessary strategic and structural changes to our U.S. business to achieve a sustainable and competitive business, including immediately addressing the cost structure of our legacy operations in a highly competitive and challenging market.
• Visteon’s ability to reach an acceptable agreement with Ford that implements strategic and structural changes necessary to achieve a sustainable and competitive business.

3946

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS — (Continued)

 • Changes in vehicle production volume of our customers in the markets where we operate, and in particular changes in Ford’s North American vehicle production volume.volume and platform mix.
 
 • Changes in the operations (including products, product planning and part sourcing), financial condition, results of operations or market share of Visteon’s customers, particularly its largest customer, Ford, which is undergoing a comprehensive “revitalization plan.”Ford.
 
 • Visteon’s ability to increase sales toprofitably win new business from customers other than Ford and to maintain current business with, and to provide competitive quotes and win future business from, Ford.Ford, and, Visteon’s ability to realize expected sales and profits from new business.
• Increases in commodity costs or disruptions in the supply of commodities, including steel, resins, fuel and natural gas.
 
 • Visteon’s ability to generate cost savings to offset or exceed agreed upon price reductions or price reductions to win additional business and, in general, to maintain and improve its operating performance; to achieve the benefits of its restructuring activities;and to recover engineering and tooling costs; to streamline and focus its product portfolio; to sustain technological competitiveness;costs.
• Visteon’s ability to compete favorably with automotive parts suppliers with lower cost structures and greater ability to rationalize operations; to achieve the benefits of its restructuring activities; and to exit non-performing businesses on satisfactory terms, particularly due to limited flexibility under existing labor agreements.
 
 • Visteon’s ability to satisfystreamline and focus its future capitalproduct portfolio; and liquidity requirements; Visteon’s ability to access the credit and capital markets, which depends in large part on Visteon’s credit ratings (which have declined in the past and could decline further in the future); and Visteon’s ability to comply with financial covenants applicable to it.
• Visteon’s ability to recover its remaining net deferred tax asset through reductions in its tax liabilities in future periods.sustain technological competitiveness.
 
 • Visteon’s ability to reduce its cost structure by, among other things, negotiating a supplementreducing the number of Ford-UAW workers assigned to a new Visteon-UAW collective bargaining agreement that would provide for lower wages and less-expensive benefits for futurework at Visteon hourly workers that are more in line with what competitors pay.locations.
 
 • Restrictions in labor contracts with unions, and with the UAW in particular, that significantly restrict Visteon’s ability to close plants, divest unprofitable, noncompetitive businesses, change local work rules and practices at a number of facilities and implement cost-saving measures.
 
 • 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.
 
 • Visteon’s ability to realize sales and profits from its book of business.
• 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.
 
 • 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.

40

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS — (Continued)

 • Shortages of materials or interruptions in transportation systems, labor strikes, work stoppages or other interruptions to or difficulties in the employment of labor in the major markets where Visteon purchases materials, components or supplies to manufacture its products or where its products are manufactured, distributed or sold.

47

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

                RESULTS OF OPERATIONS — (Continued)
 • Changes in laws, regulations, policies or other activities of governments, agencies and similar organizations, domestic and foreign, that may tax or otherwise increase the cost of, or otherwise affect, the manufacture, licensing, distribution, sale, ownership or use of Visteon’s products or assets.
 
 • 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.
 
 • Conflicts of interest in negotiating with Ford due to the relationships of Visteon’s executives with Ford and Ford executives and their ownership of Ford securities.
• Visteon’s ability to comply with environmental, safety and other regulations applicable to it and any increase in the requirements, responsibilities and associated expenses and expenditures of these regulations.
 
 • Visteon’s ability to protect its intellectual property rights, and to respond to changes in technology and technological risks and to claims by others that Visteon infringes their intellectual property rights.
 
 • Delays in completing Visteon’s transition to an information technology environment that is separate from Ford’s environment and Visteon’s ability to atransition to new facility for the majority of its central executive, administrativeinformation technology systems and engineering functions.applications, which could have an effect on Visteon’s internal control over financial reporting.
 
 • Other factors, risks and uncertainties detailed from time to time in Visteon’s Securities and Exchange Commission filings.

      These risks and uncertainties are not the only ones facing our company.Visteon. Additional risks and uncertainties not presently known to Visteon or currently believed to be immaterial also may adversely affect Visteon. Any risks and uncertainties that develop into actual events could have material adverse effects on Visteon’s business, financial condition and results of operations. For these reasons, do not place undue reliance on our forward-looking statements. Visteon does not intend or assume any obligation to update any of these forward-looking statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      Visteon is exposed to market risks from changes in currency exchange rates, interest rates and certain commodity prices. To managereduce Visteon’s exposure to these risks, we use a combination of fixed price contracts with suppliers, cost sourcing arrangements with customers and suppliers and financial derivatives. We maintain risk management controls to monitor the risks and the related hedging. Derivative positions are examined using analytical techniques such as market value and sensitivity analysis. Derivative instruments are not used for speculative purposes, as per clearly defined risk management policies.

41

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK — (Continued)

Foreign Currency Risk

     Our

      Visteon’s net cash inflows and outflows exposed to the risk of changes in exchange rates arise from the sale of products in countries other than the manufacturing source, foreign currency denominated supplier payments debtto suppliers in currencies other than what the product is sold for and other payables, subsidiary dividends and investments infrom financing transactions with subsidiaries. OurVisteon’s on-going solution is to reduce the exposure through operating actions. We use foreign exchange forward contracts to manage a portion of our exposure.

     Our48

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK — (Continued)

      Visteon’s primary foreign exchange exposure includes the Mexican peso, euro, Canadian dollar and Czech koruna. Because of the mix between our costs and our revenuessales in various regions, we are exposed generally to weakening of the euro and to strengthening of the Mexican peso, Canadian dollar and Czech koruna. For transactions in these currencies, we utilizeVisteon utilizes a strategy of partial coverage. As of December 31, 2003,2004, our coverage for projected transactions innet inflows/outflows of these currencies was about 50%45% for 2004.

2005.

      As of December 31, 20032004 and 2002,2003, the net fair value of financial instruments with exposure to currency risk were liabilitieswas an asset of $10$18 million and $36a liability of $10 million, respectively. The hypothetical pre-tax gain or loss in fair value from a 10% favorable or adverse change in quoted currency exchange rates would be approximately $81$72 million and $86$81 million as of December 31, 20032004 and 2002,2003, respectively. These estimated changes assume a parallel shift in all currency exchange rates and include the gain or loss on financial instruments used to hedge loans to subsidiaries. Because exchange rates typically do not all move in the same direction, the estimate may overstate the impact of changing exchange rates on the net fair value of our financial derivatives. It is important to note that gains and losses indicated in the sensitivity analysis would be offset by gains and losses on the underlying exposures being hedged.

Interest Rate Risk

      As of December 31, 20032004 and 2002,2003, the net fair value of interest rate swaps was an asset of $15$2 million and $39$15 million, respectively. The potential loss in fair value of these swaps from a hypothetical 50 basis point adverse change in interest rates would be approximately $10$16 million and $16$10 million as of December 31, 20032004 and 2002,2003, respectively. The annual increase in pre-tax interest expense from a hypothetical 50 basis point adverse change in variable interest rates (including the impact of interest rate swaps) would be approximately $5$6 million and $6$5 million as of December 31, 20032004 and 2002,2003, respectively. This analysis may overstate the adverse impact on net interest expense because of the short-term nature of our interest bearing investments.

Commodity Risk

     We

      Steel products and plastics resins are purchased for various uses but are not hedged due to the lack of acceptable hedging instruments in the market. Visteon’s exposures to steel and resin price changes are attempted to be addressed through negotiations with our suppliers and our customers although there can be no assurance that Visteon will not have entered into long-term agreements with someto absorb any or all price increases and/or surcharges. Steel material surcharges in 2004 were significant, and we expect increased raw material cost pressure for steel and resins. When and if acceptable hedging instruments for steel and plastics resins are available in the market, management will determine at that time if financial hedging is appropriate, depending upon Visteon’s exposure level at that time, the effectiveness of our key suppliers of non-ferrous metalsthe financial hedge and other factors.
      Visteon is exposed to protect Visteonmarket risks from changes in market prices. In addition, some products Visteon manufactures and sellsthe price of non-ferrous metals. Visteon’s exposure to Ford containing non-ferrous metals are price-adjusted monthly based on metalis primarily related to the aluminum and copper content and market price. Duringof some products. In the third quarter 2003,case of copper, Visteon initiatedreduces its short-term exposure to changes in prices through the use of financial instruments to lock in pricing of its forward year copper purchases.derivatives. As of December 31, 2004 and 2003, the net fair value of copper derivatives was an asset of $4 million and $2 million, respectively, and the potential loss in fair value from a 10% adverse change in quoted prices would be $1 million and $2 million.million, respectively.

     Precious metals (for catalytic converter production) are purchased through a Ford-directed source; Ford accepts all market price risk. As a result, we presently do not enter into financial derivatives to hedge these potential exposures.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK — (Continued)

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK — (Continued)

      Natural gas is a commodity Visteon uses in its manufacturing processing, related primarily to glass production, as well as for heating our facilities. Uncertainty in both supply and demand for this commodity has led to price instability over the last three years. As of December 31, 2003,2004, Visteon has locked in pricing on about 65% of its projected usage for 2004,2005, through financial derivatives. As of December 31, 20032004 and 2002,2003, the net fair value of natural gas derivatives was an asset of $9$5 million and $7$9 million, respectively. The potential loss in fair value of these derivative contracts from a 10% adverse change in quoted prices would be approximately $5$6 million and less than $4$5 million at December 31, 2004 and 2003, and 2002, respectively.

      Ford accepts all market price risk for purchases of precious metals (for catalytic converter production). As a result, we presently do not enter into financial derivatives to hedge these potential exposures.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Our consolidated financial statements, the accompanying notes and the report of independent registered public accounting firm that are filed as part of this Report are listed under Item 15, “Exhibits and Financial Statement Schedules, and Reports on Form 8-K,” and are set forth on pages 5062 through 101121 of this Annual Report on Form 10-K.

10-K/A.

Selected quarterly financial data for us and our consolidated subsidiaries for 20032004 and 20022003 are presented in Note 1921 of our consolidated financial statements on pages 99-100page 118-120 of this Annual Report on Form 10-K.10-K/A.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

      None.

ITEM 9A. CONTROLS AND PROCEDURES
(a) Disclosure Controls and Procedures
      Visteon maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in reports Visteon files or submits under the Securities Exchange Act of 1934, as amended (the “Securities Exchange Act”), is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to Visteon’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Visteon has restated its previously issued consolidated financial statements for 2001 through 2003 and for50

ITEM 9A. CONTROLS AND PROCEDURES — (Continued)
      As required by Rule 13a-15 under the first nine months of 2004, primarily for accounting corrections related to postretirement health care and pension costs, tooling costs, capital equipment costs, inventory costing and income taxes. Refer to Note 2 to the consolidated financial statements for further information regarding this restatement. InSecurities Exchange Act, in connection with the restatement and the preparation and filing of thiseach the Original Filing and the Form 10-K/A, Visteon re-evaluated,carried out an evaluation, under the supervision and with the participation of Visteon’s Disclosure Committee and management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15 as of December 31, 2003, the end of the period covered by this Form 10-K/ A.2004. Based upon this evaluation,these evaluations as of December 31, 2004, the Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures were not effective for the reasons discussed below related to the weaknesses in our internal control over financial reporting. To address the control weaknesses described below, Visteon performed additional analysis and other post-closing procedures to ensure our consolidated financial statements are prepared in accordance with generally accepted accounting principles. Accordingly, management believes that the consolidated financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.

During      On May 10, 2005, Visteon announced that its Audit Committee was conducting an independent review of the courseaccounting for certain transactions originating in Visteon’s North American purchasing activity. Based on the results of the review, which were discussed in our Current Report on Form 8-K dated October 21, 2005, we are restating our previously issued consolidated financial statements for 2002, 2003 and 2004, primarily for accounting corrections related to the timing of the recognition of costs and the adequacy of period-end accruals for freight, raw material costs and other supplier costs. Refer to Note 2 to the consolidated financial statements for further information regarding this restatement. In addition, the Audit Committee determined, among other things, that many of the accounting errors were principally the result of improper conduct on the part of two former, non-executive finance employees responsible for these matters.

(b) Management’s Report on Internal Control over Financial Reporting (As Restated)
      The management of Visteon is responsible for establishing and maintaining adequate internal control over financial reporting. Visteon’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of Visteon’s Annual Report on Form 10-Kthe company’s financial statements for external purposes in accordance with generally accepted accounting principles in the fiscal year endedUnited States of America.
      Management of Visteon has assessed the effectiveness of the company’s internal control over financial reporting as of December 31, 2004,2004. In making this assessment, Visteon’s management used the companycriteria established in “Internal Control — Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
      A material weakness is a control deficiency, or combination of control deficiencies, that results in there being more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. Management’s assessment identified the following material weaknesses in the company’s internal controlscontrol over financial reporting.
reporting as of December 31, 2004.

4351

ITEM 9A. CONTROLS AND PROCEDURES — (Continued)

 •(1) Accounting for Employee Postretirement Health Care Benefits

 As of December 31, 2003, Visteon did not maintain effective controls over the accounting for amendments to U.S. postretirement health care benefit plans. Specifically, controls to determine that such amendments were reviewed and all necessary actions were implemented, including communications to affected employees, prior to recognizing the accounting treatment in Visteon’s consolidated financial statements, were not effective. This control deficiency resulted in an adjustment to our fourth quarter 2004 financial results, and resulted in the restatement of Visteon’s consolidated financial statements for 2002 and 2003 and for the first, second and third quarters of 2004.

 The requirement of Statement of Financial Accounting Standards No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions” (“SFAS No. 106”), to communicate changes in eligibility requirements to certain employees for postretirement health care benefits prior to reflecting an accounting treatment change was not satisfied. Effective in January 2002, Visteon amended its retiree health care benefits plan for certain of its U.S. employees. Effective in January 2004, a Visteon wholly owned subsidiary amended its retiree health care benefits plan for its employees. These amendments changed the eligibility requirements for participants in the plan. As a result of these amendments, which were not communicated to affected employees, Visteon changed the expense attribution periods, which eliminated cost accruals for younger employees and increased accrual rates for older participating employees.
 The errors resulting from this control deficiency impacted cost of sales and selling, administrative and other expenses in Visteon’s consolidated statement of operations and postretirement benefits other than pensions liability and stockholders’ equity in Visteon’s consolidated balance sheets for the respective periods. The impact of the correction of these errors was to increase the net loss by approximately $24 million, $32 million and $12 million for the first nine months of 2004, and the years ended December 31, 2003 and 2002, respectively. These errors also impacted the disclosure of healthcare and life insurance benefit expenses and liabilities included in Visteon’s consolidated financial statements for the respective periods. Additionally, this control deficiency could result in a misstatement to the aforementioned accounts that would result in a material misstatement to annual or interim financial statements.

 •(2) Accounting for Costs Incurred for Tools Used in Production

 As of December 31, 2003, Visteon did not maintain effective controls to ensure that there was appropriate support and documentation of either ownership or an enforceable agreement for reimbursement of expenditures at the time of the initial recording of incurred tooling costs. Further, controls over periodic review, assessment and timely resolution of tooling costs, related aged accounts receivable balances and potential overruns to customer-authorized reimbursement levels were not effective. This control deficiency resulted in the misstatement of Visteon’s consolidated financial statements for each of the years 2000 through 2003 and the second and third quarters of 2004 because of costs that either should have been expensed as incurred or capitalized and amortized to expense over the terms of the related supply agreement.

4452

ITEM 9A. CONTROLS AND PROCEDURES — (Continued)

 The errors resulting from this control deficiency impacted cost of sales in Visteon’s consolidated statement of operations and accounts receivable, net property, and stockholders’ equity in Visteon’s consolidated balance sheets for the respective periods. The errors relating to 2001, 2002, 2003 and for the first nine months of 2004 were corrected in connection with the restatement of financial statements for the respective periods. The impact of the correction of these errors was to increase the net loss by approximately $2 million, $10 million, $3 million and $5 million for the first nine months of 2004, and for the years ended December 31, 2003, 2002 and 2001, respectively. Additionally, this control deficiency could result in a misstatement to the aforementioned accounts that would result in a material misstatement to annual or interim financial statements.
(3) Accounting for Freight, Raw Material and Other Supplier Costs and Related Period-End Accruals at our North American Purchasing Function
Visteon did not maintain effective controls over the complete and accurate recording of freight, raw material and other supplier costs and related period-end accruals at its North American purchasing function. Specifically, controls to ensure that accruals for freight, raw materials and other supplier costs were appropriately supported and adequately reviewed: (i) did not operate effectively to ensure that such costs were recorded in the correct period and that period end accruals were complete and accurate; and (ii) did not prevent or detect the improper conduct by two former, non-executive employees. In addition, the Company did not have effective controls designed and in place over: (i) the information received from its third-party freight administrator to completely and accurately record freight costs and related period-end accruals; (ii) the monitoring of supplier negotiations to ensure that resulting price changes were identified and recorded in a timely manner; and (iii) ongoing supplier contract compliance to ensure that raw material costs and related period-end accruals were complete and accurate. This control deficiency and the related improper conduct resulted in accounting errors which required restatement of the Company’s 2004, 2003 and 2002 annual consolidated financial statements, the 2004 interim consolidated financial statements, and adjustments to the consolidated financial statements for the first quarter 2005. The impact of the correction of these errors was to increase net loss by $40 million, $22 million and $11 million for the years ended December 31, 2004, 2003 and 2002, respectively, and to decrease net loss by $58 million for the quarter ended March 31, 2005. Additionally, this control deficiency could result in a misstatement of freight, raw material and other supplier costs and related period-end accruals that would result in a material misstatement to annual or interim financial statements that would not be prevented or detected.
      Because of the material weaknesses described above, the company’s management concluded that the company did not maintain effective control over financial reporting as of December 31, 2004 based on the criteria in “Internal Control — Integrated Framework” issued by the COSO.
      Management had previously concluded that the Company did not maintain effective internal control over financial reporting as of December 31, 2004 because of the material weaknesses described in (1) and (2) above. In connection with the restatement of the Company’s consolidated financial statements described in Note 2 to the consolidated financial statements, management has also determined that the material weaknesses described in (3) above, also existed as of December 31, 2004. Accordingly, management has restated this Report on Internal Control over Financial Reporting to include this additional material weakness.
      Management’s assessment of the effectiveness of Visteon’s internal control over financial reporting as of December 31, 2004 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.

53

ITEM 9A. CONTROLS AND PROCEDURES — (Continued)
(c) Remediation Efforts to Address Material Weaknesses
Management has formulated remediation plans and has initiated, and in certain cases, implemented actions designed to address each of the material weaknesses in internal control over financial reporting described above.

Visteon’s remediation plans include the implementation of additional monitoring and oversight controls to ensure that all necessary actions required to implement any future
(1) Accounting for Employee Postretirement Health Care Benefits

In the second and third quarters of 2005, Visteon implemented additional controls to ensure that all necessary actions required to effect changes in the accounting for Visteon’s employee postretirement health care benefits have been completed prior to recognizing such changes in Visteon’s financial records. These controls include formal employee communication procedures and specific identification, assignment and required inter-departmental coordination of employees responsible for the planning and implementation of employee benefit changes and the related accounting and recording of such changes. In the second quarter 2005, Visteon amended its employee postretirement health care plans for certain of its U.S. salaried employees; the controls described above were applied to this amendment.
(2) Accounting for Costs Incurred for Tools Used in Production
During the nine months ended September 30, 2005, Visteon implemented additional controls over the accounting for costs incurred for tools used in production including the evaluation and adjustment of existing policies and procedures, training of employees responsible for the accounting for these transactions, and the identification of specific determinants, and required documentation, of rights and obligations and related valuation of tooling costs incurred. Additionally, Visteon has implemented additional monitoring controls to include a complete and timely review of recorded tooling amounts, including review of aged unbilled items.
(3) Accounting for Freight, Raw Material and Other Supplier Costs and Related Period-End Accruals at our North American Purchasing Function
During the third quarter of 2005, Visteon implemented additional controls to identify and evaluate potential liabilities related to activities with its North American suppliers. Such controls include the establishment of processes to assess and account for supplier negotiations and on-going contract administration and to estimate and record freight costs as incurred. The two former non-executive finance employees responsible for these matters are no longer employed by the Company.
(d) Changes in the accounting for the valuation of our employee postretirement health care liability accounts have been completed prior to recording such changes. These controls are expected to specifically include a focus on controls over communication and responsibility for actions requiring inter-departmental cooperation.
Internal Control Over Financial Reporting

Further, Visteon’s remediation plans include enhanced training for relevant personnel and the strengthening of existing controls regarding determinations, and supporting documentation for, the valuation and rights and obligations relating to deferred costs for tools used in production. Additionally, Visteon plans to implement additional controls over the complete and timely review of these items and the associated accounts, including monthly reviews of aging of unbilled items.

The changes to internal control over financial reporting described above are in the process of being implemented beginning in the first quarter of 2005. Except as otherwise discussed below, there      There have been no changes in Visteon’s internal control over financial reporting during the fiscal quarter ended December 31, 20032004 that hashave materially affected, or isare reasonably likely to materially affect, Visteon’s internal control over financial reporting.

      As discussed previously under “Item 7 — Management’s Discussionfurther in Visteon’s Current Report on Form 8-K dated October 6, 2005, Visteon transferred twenty-three of its North American facilities and Analysis of Financial Conditionrelated assets to Automotive Components Holdings, LLC (“ACH”) on September 30, 2005, and, Results of Operations,” we have entered into a global IT outsourcing arrangement with IBM, which provides for, among other things, the transition ofon October 1, 2005, Ford acquired from Visteon applications from Ford’s IT systems, upon which we have relied since our spin-off. In October 2003, we successfully completed the first major migration of applications from Ford’s IT systems, including selected financial reporting applications. The second major phase of this transition has begun, with the migration of all remaining applications from Ford’s IT systems expected to be substantially completed in 2004. This transition may affect Visteon’s existing business processes including Visteon’s internal control over financial reporting. As this transition continues it will be monitored and evaluated with regard to Visteon’s ability to process, record, summarize and report financial information.

45

ITEM 9A. CONTROLS AND PROCEDURES — (Continued)

     Certain of Visteon’s applications now reside within IBM’s data centers and are run by IBM. IBM has contracted with an independent third party to perform a review (“SAS 70 Type II”) of the control environment at its data centers, including physical securityissued and environmental control; organizationoutstanding shares of common stock of the parent of ACH. Various process changes and administration; logical access controls; computer operations; and problem and change management. This review is available to the clients of IBM’s data centerscontrols are being implemented in the normal coursefourth quarter of business, for their reliance with respect2005 to these controls. However, IBMensure financial transactions between Visteon and its independent reviewerACH are not able to make available this SAS 70 report to Visteon for 2003, because our applications did not commence operating within this environment until October. IBM has confirmed to Visteon that it has maintained the security controls as previously maintained,identified and Visteon has observed the physical security and environmental controls of the primary data center location.separately reported.

4654

ITEM 9B. OTHER INFORMATION
      On March 10, 2005, the Organization and Compensation Committee (the “Compensation Committee”) of the Board of Directors of Visteon approved the performance criteria and relative weighting of each criterion that will be used to determine awards to eligible employees pursuant to the annual incentive program for the 2005 fiscal year (the “2005 Annual Incentive”) and the long-term incentive program for the 2005-2007 performance period (the “2005-2007 Long-Term Incentive”), each in accordance with the terms of the Visteon Corporation 2004 Incentive Plan (the “Incentive Plan”).
      Pursuant to the 2005 Annual Incentive, certain key employees are eligible to receive a cash bonus based on Visteon’s financial performance relative to a target profit before tax metric and a target free cash flow metric. 75% of each eligible employee’s award will be based on the profit before tax metric and 25% will be based on the free cash flow metric. The following table sets forth the 2005 Annual Incentive opportunity for those current executive officers of Visteon that are expected to appear as the “named executive officers” in Visteon’s 2005 proxy statement (the “Named Executives”):
Target
2005 Annual Incentive Award as
Name and Positiona Percentage of Base Salary(1)
Michael F. Johnston110%
President and Chief Executive Officer
James C. Orchard70%
Executive Vice President and President, North America
James F. Palmer70%
Executive Vice President and Chief Financial Officer
Dr. Heinz Pfannschmidt65%
Executive Vice President and President, Europe & South America
(1) Payments will be based on the base salary of the recipient as of December 31, 2005. Final payments may be adjusted based on the recipient’s achievement of individual performance goals. There is no maximum limit on the amount that may be paid in respect of a 2005 Annual Incentive award, except that the Incentive Plan limits the amount payable in respect of all performance cash awards to any Named Executive during a calendar year to $10 million.

55

PART IIIITEM 9B. OTHER INFORMATION — (Continued)
     The 2005-2007 Long-Term Incentive is comprised of several components designed to retain key employees and to further align the interests of employees with Visteon’s long-term business objectives and the interests of stockholders. For officers of Visteon, 25% of their total 2005-2007 Long-Term Incentive opportunity is awarded in the form of stock options and an additional 25% of the total is awarded in the form of restricted stock units. As a result, on March 10, 2005, Visteon granted stock options, with an exercise price equal to the fair market value of Visteon’s common stock on such date and vesting ratably over three years, and restricted stock units, which will be paid in cash following the conclusion of the three-year performance period based on the fair market value of Visteon’s common stock on such date, to each of the Named Executives. In addition, 25% of the total 2005-2007 Long-Term Incentive opportunity is awarded in the form of a cash bonus that will be paid to eligible employees in three approximately equal installments in each of 2006, 2007 and 2008 so long as such employees continue to be employees in good standing on such dates. 12.5% of the total 2005-2007 Long-Term Incentive opportunity is awarded in the form of a cash bonus based on Visteon’s financial performance relative to a target return on assets metric at the end of the 2005-2007 performance period. Finally, 12.5% of the total 2005-2007 Long-Term Incentive opportunity is awarded in the form of a cash bonus based on Visteon’s performance relative to a target product quality metric at the end of the 2005-2007 performance period. The following table sets forth the total 2005-2007 Long-Term Incentive opportunity for the Named Executives:
Target
2005-2007 Long-Term Incentive Award
Name and Positionas a Percentage of Base Salary(1)
Michael F. Johnston550%
President and Chief Executive Officer
James C. Orchard215%
Executive Vice President and President, North America
James F. Palmer300%
Executive Vice President and Chief Financial Officer
Dr. Heinz Pfannschmidt190%
Executive Vice President and President, Europe & South America
(1) Cash payments will be based on the base salary of the recipient as of December 31 of the fiscal year preceding payment. There is no maximum limit on the amount that may be paid in respect of the performance-based cash bonus components of a 2005-2007 Long-Term Incentive award, except that the Incentive Plan limits the amount payable in respect of all performance cash awards to any Named Executive during a calendar year to $10 million.
     In addition, on March 10, 2005, Visteon entered into a Resignation Agreement (the “Resignation Agreement”) and Consulting Agreement (the “Consulting Agreement”) with Stacy L. Fox, Senior Vice President, General Counsel and Secretary of Visteon. The Resignation Agreement provides for the terms of Ms. Fox’s resignation from regular employment with Visteon and its affiliates effective as of March 31, 2005. Pursuant to the Resignation Agreement, Visteon will pay Ms. Fox a severance payment of $1.36 million and accelerate the vesting date relating to 43,000 shares of restricted stock previously awarded to Ms. Fox under the Incentive Plan. The foregoing payment and acceleration are in lieu of any other incentive compensation amounts or bonus previously awarded to Ms. Fox that have not been paid. Ms. Fox also agreed to release any claims she may have against Visteon or its affiliates and agents, continue to maintain the confidentiality of Visteon’s information and refrain from soliciting or hiring employees of Visteon or its subsidiaries.

56

ITEM 9B. OTHER INFORMATION — (Continued)
      Pursuant to the Consulting Agreement, Ms. Fox has agreed to provide consulting services and other assistance as may be required or requested by Visteon’s executives, attorneys and/or other representatives, up to a maximum of 160 hours per month. Ms. Fox will receive a retainer of $40,000 per month (which will be reduced by amounts Ms. Fox earns from other employment during the term of the agreement), as well as reimbursement for travel and business expenses reasonably incurred. The term of the agreement commences on April 1, 2005 and continues until December 31, 2005, except that the agreement may be terminated by Ms. Fox at any time upon at least 15 days’ notice (including upon the commencement of certain other full-time positions), or by Visteon for cause (as defined in the Consulting Agreement).
      The terms of the Resignation Agreement and the Consulting Agreement were approved by the Compensation Committee. Pursuant to the Resignation Agreement, all prior agreements between Visteon and Ms. Fox, whether oral or written, are being terminated effective as of Ms. Fox’s resignation, except for certain stock option award agreements and arrangements under Visteon’s Pension Plan, Investment Plan and Deferred Compensation Plan. The description of the above-referenced documents does not purport to be complete and is qualified in its entirety by reference to the complete text of the documents referred to above, copies of which are filed as Exhibits 10.36 and 10.37 hereto and incorporated herein by reference.

57

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF VISTEONPART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
      Except as set forth herein, the information required by Item 10 regarding our directors is incorporated by reference from the information under the captions “Item 1. Election of Directors,” “Corporate Governance — Committees” and “Section 16(a) Beneficial Ownership Reporting Compliance” in our 20042005 Proxy Statement. The information required by Item 10 regarding our executive officers appears as Item 4A under Part I of this Annual Report on Form 10-K.

10-K/A.

      Visteon has adopted a code of ethics, as such phrase is defined in Item 406 of Regulation S-K, that applies to all directors, officers and employees of Visteon and its subsidiaries, including the Chairman, the President and Chief Executive Officer, the Executive Vice President and Chief Financial Officer and the Vice President and Chief Accounting Officer. The code, entitled “A Pledge of Integrity,” is available on our website at www.visteon.com and has been filed as an exhibit hereto.

www.visteon.com.

ITEM 11. EXECUTIVE COMPENSATION
ITEM 11. EXECUTIVE COMPENSATION

      The information required by Item 11 is incorporated by reference from the information under the captions “Item 1. Election of Directors,” “Organization and Compensation Committee Report on Executive Compensation,” “Executive Compensation” and “Stock Performance Graph” in our 20042005 Proxy Statement.

58

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

      The information required by Item 12 is incorporated by reference from the information under the caption “Stockholdings” and “Item 3. Amendment to 2000 Incentive Plan” in our 20042005 Proxy Statement.

      The following table summarizes information as of December 31, 2004 relating to our equity compensation plans pursuant to which grants of stock options, stock appreciation rights, stock rights, restricted stock, restricted stock units and other rights to acquire shares of our common stock may be made from time to time.
Equity Compensation Plan Information
             
      Number of Securities
      Remaining Available for
  Number of Securities Weighted-Average Future Issuance Under
  to Be Issued Upon Exercise Price of Equity Compensation
  Exercise of Outstanding Plans (excluding
  Outstanding Options, Options, Warrants securities reflected in
  Warrants and Rights and Rights column(a))
Plan Category (a)(1) (b) (c)(2)
       
Equity compensation plans approved by security holders  14,167,424  $11.24   1,976,655 
Equity compensation plans not approved by security holders  —   —   — 
          
Total  14,167,424       1,976,655 
          
(1) Excludes 4,179,803 unvested shares of restricted common stock issued pursuant to the Visteon Corporation 2004 Incentive Plan. Also excludes stock appreciation rights and restricted stock units issued pursuant to the Visteon Corporation 2004 Incentive Plan and Employees Equity Incentive Plan that by their terms may only be settled in cash.
(2) Excludes an indefinite number of securities that may be awarded under the Visteon Corporation Restricted Stock Plan for Non-Employee Directors. Such Plan provides for an annual, automatic grant of 3,000 restricted shares or stock units to each non-employee director of Visteon. There is no maximum number of securities that may be issued under this Plan, however, the Plan will terminate on May 9, 2011 unless earlier terminated by the Board of Directors. This Plan was approved by stockholders on May 9, 2001.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS      None.

     The information required by Item 13 is incorporated by reference from the information under the caption “Corporate Governance — Related Party Transactions” in our 2004 Proxy Statement.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

      The information required by Item 14 is incorporated by reference from the information under the captioncaptions “Audit Fees” and “Audit Committee Report”Pre-Approval Processes and Policies” in our 20042005 Proxy Statement.

4759

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
         
Page No.
(a) 1. Consolidated Financial Statements    
    Report of Independent Registered Public Accounting Firm  5062 
    Consolidated Statement of Operations for the years ended December 31, 2004, 2003 2002 and 20012002 — Restated  5166 
    Consolidated Balance Sheet at December 31, 20032004 and 20022003 — Restated  5267 
    Consolidated Statement of Cash Flows for the years ended December 31, 2004, 2003 2002 and 20012002 — Restated  5368 
    Consolidated Statement of Stockholders’ Equity for the years ended December 31, 2004, 2003 2002 and 20012002 — Restated  5469 
    Notes to Financial Statements — Restated  5570 
  2. Financial Statement Schedule    
    Schedule of Valuation and Qualifying Accounts — Restated  101121 
  3. Exhibits    
    Refer to the “Exhibit Index” on pages 102-104122-126 of this report.
(b)Reports on Form 8-Kreport    

     Visteon filed the following Current Reports on Form 8-K during the quarter ended December 31, 2003:

     Current Report on Form 8-K dated October 14, 2003, relating to the payment of a cash dividend.

     Current Report on Form 8-K dated October 17, 2003, relating to Visteon’s third quarter 2002 financial results.

     Current Report on Form 8-K dated November 18, 2003, relating to an officer appointment.

     Current Report on Form 8-K dated November 26, 2003, relating to a previously announced officer appointment.

     Current Report on Form 8-K dated December 22, 2003, relating to new commercial agreements with Ford Motor Company.

4860

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.

 VISTEON CORPORATION

 By: /s/ MICHAELMichael F. JOHNSTON*Johnston*
 
 Michael F. Johnston
President and Chief Executive Officer

Date: March 16,November 22, 2005

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below on March 16,November 22, 2005, by the following persons on behalf of Visteon Corporation and in the capacities indicated.

   
SignatureTitle
/s/ PETER J. PESTILLO*Michael F. Johnston*
Peter J. Pestillo
Michael F. Johnston		 Chairman of the Board
/s/ MICHAEL F. JOHNSTON*
Michael F. Johnston		Director, President and Chief Executive Officer
(Principal (Principal Executive Officer)
/s/ JAMESJames F. PALMER*Palmer
James F. Palmer		 Executive Vice President and Chief Financial Officer
(Principal (Principal Financial Officer)
/s/ WILLIAMWilliam G. QUIGLEYQuigley III*
William G. Quigley III		 Vice President, Corporate Controller and Chief Accounting Officer
(Principal (Principal Accounting Officer)
/s/ MARLAMarla C. GOTTSCHALK*Gottschalk*
Marla C. Gottschalk		 Director
/s/ WILLIAMWilliam H. GRAY,Gray, III*
William H. Gray, III		 Director
/s/ STEVEN K. HAMP*
Steven K. Hamp		Director
/s/ PATRICIAPatricia L. HIGGINS*Higgins*
Patricia L. Higgins		 Director
/s/ KARLKarl J. KRAPEK*Krapek*
Karl J. Krapek		 Director
/s/ CHARLESCharles L. SCHAFFER*Schaffer*
Charles L. Schaffer		 Director
/s/ THOMAS T. STALLKAMP*
Thomas T. Stallkamp		Director
/s/ JAMESJames D. THORNTON*Thornton*
James D. Thornton		 Director
/s/ KENNETHKenneth B. WOODROW*Woodrow*
Kenneth B. Woodrow		 Director
*By: /s/ STACY L. FOXJames F. Palmer
Stacy L. Fox
James F. Palmer
Attorney-in-Fact		  

4961

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

Visteon Corporation
      We have completed an integrated audit of Visteon Corporation’s 2004 consolidated financial statements and of its internal control over financial reporting as of December 31, 2004 and audits of its 2003 and 2002 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.

Consolidated financial statements and financial statement schedule
In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) present fairly, in all material respects, the financial position of Visteon Corporation and its subsidiaries at December 31, 20032004 and 2002,2003, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 20032004 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 217 to the consolidated financial statements, during 2004 the Company restatedchanged its method of determining the cost of certain inventories from the last-in, first-out method to the first-in, first-out method. The consolidated financial statements as of December 31,presented for 2003 and December 31, 2002 and for each ofhave been adjusted to give retroactive effect to the three years in the period ended December 31, 2003.

Aschange. In addition, as discussed in Note 1517 to the consolidated financial statements, the Company changed its method of accounting for goodwill resulting from its adoption of Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets,”Assets”, effective January 1, 2002.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP

Detroit, Michigan
January 22, 2004, except as      As discussed in Note 2 to the effectsconsolidated financial statements, the Company restated its 2004, 2003 and 2002 consolidated financial statements.
Internal control over financial reporting
      Also, we have audited management’s assessment, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A, that Visteon Corporation did not maintain effective internal control over financial reporting as of December 31, 2004, because of the matterseffect of the material weaknesses relating to accounting for: (1) employee postretirement health care benefits; (2) costs incurred for tools used in production; and (3) freight, raw material and other supplier costs and related period-end accruals in its North American purchasing function, based on criteria established inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit.

62

      We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.
      A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
      Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
      A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. The following material weaknesses have been identified and included in management’s assessment as of December 31, 2004:
(1) Accounting for Employee Postretirement Health Care Benefits
      The Company did not maintain effective controls over the accounting for amendments to U.S. postretirement health care benefit plans. Specifically, controls to determine that such amendments were reviewed and all necessary actions were implemented, including communications to affected employees, prior to recognizing the accounting treatment in Visteon’s consolidated financial statements, were not effective. This control deficiency resulted in an adjustment to Visteon’s fourth quarter 2004 financial results, and resulted in the restatement of Visteon’s consolidated financial statements for 2002 and 2003 and for the first, second and third quarters of 2004.
      The requirement of Statement of Financial Accounting Standards No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions” (“SFAS No. 106”), to communicate changes in eligibility requirements to certain employees for postretirement health care benefits prior to reflecting an accounting treatment change was not satisfied. Effective in January 2002, Visteon amended its retiree health care benefits plan for certain of its U.S. employees. Effective in January 2004, a Visteon wholly owned subsidiary amended its retiree health care benefits plan for its employees. These amendments changed the eligibility requirements for participants in the plan. As a result of these amendments, which were not communicated to affected employees, Visteon changed the expense attribution periods, which eliminated cost accruals for certain employees and increased accrual rates for other participating employees.

63

      The errors resulting from this control deficiency impacted cost of sales and selling, administrative and other expenses in Visteon’s consolidated statement of operations and postretirement benefits other than pensions liability and stockholders’ equity in Visteon’s consolidated balance sheets for the respective periods. The impact of the correction of these errors was to increase the net loss by approximately $24 million, $32 million and $12 million for the first nine months of 2004, and the years ended December 31, 2003 and 2002, respectively. These errors also impacted the disclosure of healthcare and life insurance benefit expenses and liabilities included in Visteon’s consolidated financial statements for the respective periods. Additionally, this control deficiency could result in a misstatement to the aforementioned accounts that would result in a material misstatement to annual or interim financial statements.
(2) Accounting for Costs Incurred for Tools Used in Production
      The Company did not maintain effective controls to ensure that there was appropriate support and documentation of either ownership or an enforceable agreement for reimbursement of expenditures at the time of the initial recording of incurred tooling costs. Further, controls over periodic review, assessment and timely resolution of tooling costs, related aged accounts receivable balances and potential overruns to customer-authorized reimbursement levels were not effective. This control deficiency resulted in the misstatement of Visteon’s consolidated financial statements for each of the years 2000 through 2003 and the second and third quarters of 2004 because of costs that either should have been expensed as incurred or capitalized and amortized to expense over the terms of the related supply agreement.
      The errors resulting from this control deficiency impacted cost of sales in Visteon’s consolidated statement of operations and accounts receivable, net property, and stockholders’ equity in Visteon’s consolidated balance sheets for the respective periods. The errors relating to 2001, 2002, 2003 and for the first nine months of 2004 were corrected in connection with the restatement of financial statements for the respective periods. The impact of the correction of these errors was to increase the net loss by approximately $2 million, $10 million, $3 million, and $5 million for the first nine months of 2004 and for the years ended December 31, 2003, 2002 and 2001, respectively. Additionally, this control deficiency could result in a misstatement to the aforementioned accounts that would result in a material misstatement to annual or interim financial statements.

64

(3) Accounting for Freight, Raw Material and Other Supplier Costs and Related Period-End Accruals at its North American Purchasing Function
      The Company did not maintain effective controls over the complete and accurate recording of freight, raw material and other supplier costs and related period-end accruals at its North American purchasing function. Specifically, controls to ensure that accruals for freight, raw materials and other supplier costs were appropriately supported and adequately reviewed: (i) did not operate effectively to ensure that such costs were recorded in the correct period and that period end accruals were complete and accurate; and (ii) did not prevent or detect the improper conduct by two former, non-executive employees. In addition, the Company did not have effective controls designed and in place over: (i) the information received from its third-party freight administrator to completely and accurately record freight costs and related period-end accruals; (ii) the monitoring of supplier negotiations to ensure that resulting price changes were identified and recorded in a timely manner; and (iii) ongoing supplier contract compliance to ensure that raw material costs and related period-end accruals were complete and accurate. This control deficiency and the related improper conduct resulted in accounting errors which required restatement of the Company’s 2004, 2003 and 2002 annual consolidated financial statements, the 2004 interim consolidated financial statements, and adjustments to the consolidated financial statements for the first quarter 2005. The impact of the correction of these errors was to increase net loss by approximately $40 million, $22 million and $11 million for the years ended December 31, 2004, 2003 and 2002, respectively, and to decrease net loss by $58 million for the quarter ended March 31, 2005. Additionally, this control deficiency could result in a misstatement of freight, raw material and other supplier costs and related period-end accruals that would result in a material misstatement to annual or interim financial statements that would not be prevented or detected.
      These material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2004 consolidated financial statements, and our opinion regarding the effectiveness of the Company’s internal control over financial reporting does not affect our opinion on those financial statements.
      In our opinion, management’s assessment that Visteon Corporation did not maintain effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on criteria established inInternal Control — Integrated Frameworkissued by the COSO. Also, in our opinion, because of the effect of the material weaknesses described above on the achievement of the objectives of the control criteria, Visteon Corporation has not maintained effective internal control over financial reporting as of December 31, 2004, based on criteria established inInternal Control — Integrated Frameworkissued by the COSO.
      Management and we previously concluded that the Company did not maintain effective internal control over financial reporting as of December 31, 2004 because of the material weaknesses described in (1) and (2) above. In connection with the restatement of the Company’s consolidated financial statements described in Note 2 which areto the consolidated financial statements, management has determined that the material weakness described in (3) above, also existed as of December 31, 2004. Accordingly, Management’s Report on Internal Control over Financial Reporting and our opinion on the effectiveness of internal control over financial reporting have been restated to include this additional material weakness.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Detroit, Michigan
March 16, 2005,
except for the restatement described in Note 2 to the consolidated financial statements and the matter described in the penultimate paragraph of Management’s Report on Internal Control over Financial Reporting, as to which the date is November 22, 2005

5065

VISTEON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
                            
 For the Years Ended
For the Years Ended  December 31,
December 31,   
  2004 2003 2002
200320022001       
  Restated Restated Restated
(Restated)(Restated)(Restated)  (in millions, except
 per share amounts)
(in millions, except
per share amounts)
Sales (Notes 3 and 12)
          
Sales (Notes 3 and 14)
Sales (Notes 3 and 14)
          
Ford and affiliates $13,475 $14,779 $14,656 Ford and affiliates $13,015 $13,475 $14,779 
Other customers  4,185  3,616  3,187 Other customers  5,642  4,185  3,616 
 
 
 
         
 Total sales  17,660  18,395  17,843  Total sales  18,657  17,660  18,395 
Costs and expenses (Notes 3, 12 and 14)
          
Costs and expenses (Notes 3, 14 and 16)
Costs and expenses (Notes 3, 14 and 16)
          
Costs of sales  17,821  17,599  17,111 Costs of sales  18,151  17,824  17,626 
Selling, administrative and other expenses  1,008  893  855 Selling, administrative and other expenses  994  1,008  893 
 
 
 
         
 Total costs and expenses  18,829  18,492  17,966  Total costs and expenses  19,145  18,832  18,519 
Operating (loss)
Operating (loss)
  (1,169)  (97)  (123)
Operating (loss)
  (488)  (1,172)  (124)
Interest incomeInterest income  17  23  55 Interest income  19  17  23 
Debt extinguishment cost (Note 10)Debt extinguishment cost (Note 10)  11  —  — 
Interest expenseInterest expense  94  103  131 Interest expense  104  94  103 
 
 
 
         
 Net interest expense  (77)  (80)  (76) Net interest expense and debt extinguishment cost  (96)  (77)  (80)
Equity in net income of affiliated companies (Note 3)Equity in net income of affiliated companies (Note 3)  55  44  24 Equity in net income of affiliated companies (Note 3)  45  55  44 
 
 
 
         
(Loss) before income taxes, minority interests and
change in accounting
(Loss) before income taxes, minority interests and
change in accounting
  (1,191)  (133)  (175)
(Loss) before income taxes, minority interests and change in accounting
  (539)  (1,194)  (160)
Provision (benefit) for income taxes (Note 6)  23  (64)  (74)
Provision (benefit) for income taxes (Note 7)Provision (benefit) for income taxes (Note 7)  962  6  (74)
 
 
 
         
(Loss) before minority interests and change in accounting
(Loss) before minority interests and change in accounting
  (1,214)  (69)  (101)
(Loss) before minority interests and change in accounting
  (1,501)  (1,200)  (86)
Minority interests in net income of subsidiariesMinority interests in net income of subsidiaries  29  28  21 Minority interests in net income of subsidiaries  35  29  28 
 
 
 
         
(Loss) before change in accounting
(Loss) before change in accounting
  (1,243)  (97)  (122)
(Loss) before change in accounting
  (1,536)  (1,229)  (114)
Cumulative effect of change in accounting, net of tax (Note 15)  —  (265)  — 
Cumulative effect of change in accounting, net of tax (Note 17)Cumulative effect of change in accounting, net of tax (Note 17)  —  —  (265)
 
 
 
         
Net (loss)
Net (loss)
 $(1,243) $(362) $(122)
Net (loss)
 $(1,536) $(1,229) $(379)
 
 
 
         
Basic and diluted loss per share (Note 3)
          
Basic and diluted (loss) per share (Note 3)
Basic and diluted (loss) per share (Note 3)
          
Before cumulative effect of change in accounting $(9.88) $(0.77) $(0.94)Before cumulative effect of change in accounting $(12.26) $(9.77) $(0.90)
Cumulative effect of change in accounting  —  (2.07)  — Cumulative effect of change in accounting  —  —  (2.07)
 
 
 
         
 Basic and diluted $(9.88) $(2.84) $(0.94) Basic and diluted $(12.26) $(9.77) $(2.97)
 
 
 
         
Cash dividends per share
Cash dividends per share
 $0.24 $0.24 $0.24 
Cash dividends per share
 $0.24 $0.24 $0.24 

The accompanying notes are part of the financial statements.

5166

VISTEON CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
          
December 31,
20032002
(Restated)(Restated)
(in millions)
Assets
        
Cash and cash equivalents $953  $1,204 
Marketable securities  3   74 
  
  
 
 Total cash and marketable securities  956   1,278 
Accounts receivable — Ford and affiliates  1,175   1,382 
Accounts receivable — other customers  1,185   837 
  
  
 
 Total receivables, net (Notes 3 and 5)  2,360   2,219 
Inventories (Note 4)  761   878 
Deferred income taxes (Note 6)  163   199 
Prepaid expenses and other current assets  143   136 
  
  
 
 Total current assets  4,383   4,710 
Equity in net assets of affiliated companies  215   191 
Net property (Note 5)  5,365   5,448 
Deferred income taxes (Note 6)  700   587 
Other assets  270   233 
  
  
 
 
Total assets
 $10,933  $11,169 
  
  
 
Liabilities and Stockholders’ Equity
        
Trade payables $2,270  $2,038 
Accrued liabilities (Note 7)  930   1,022 
Income taxes payable  31   18 
Debt payable within one year (Note 9)  351   393 
  
  
 
 Total current liabilities  3,582   3,471 
Long-term debt (Note 9)  1,467   1,298 
Postretirement benefits other than pensions (Note 8)  515   431 
Postretirement benefits payable to Ford (Note 8)  2,090   1,874 
Other liabilities (Note 7)  1,508   1,145 
  
  
 
 Total liabilities  9,162   8,219 
Stockholders’ equity
        
Capital stock (Note 10)        
 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, 131 million and 129 million shares outstanding, respectively  131   131 
Capital in excess of par value of stock  3,288   3,298 
Accumulated other comprehensive (loss)  (54)  (144)
Other  (19)  (33)
Accumulated deficit  (1,575)  (302)
  
  
 
 Total stockholders’ equity  1,771   2,950 
  
  
 
 
Total liabilities and stockholders’ equity
 $10,933  $11,169 
  
  
 
          
  December 31,
   
  2004 2003
     
  Restated Restated
  (in millions)
Assets
Cash and cash equivalents $752  $953 
Marketable securities  —   3 
       
 Total cash and marketable securities  752   956 
Accounts receivable – Ford and affiliates  1,255   1,175 
Accounts receivable – other customers  1,285   1,185 
       
 Total receivables, net (Notes 3 and 4)  2,540   2,360 
Inventories (Note 5)  889   852 
Deferred income taxes (Note 7)  37   163 
Prepaid expenses and other current assets  212   143 
       
 Total current assets  4,430   4,474 
Equity in net assets of affiliated companies  227   215 
Net property (Note 6)  5,303   5,365 
Deferred income taxes (Note 7)  129   700 
Other assets  203   270 
       
 
Total assets
 $10,292  $11,024 
       
Liabilities and Stockholders’ Equity
        
Trade payables $2,493  $2,320 
Accrued liabilities (Note 8)  894   930 
Income taxes payable  27   31 
Debt payable within one year (Note 10)  508   351 
       
 Total current liabilities  3,922   3,632 
Long-term debt (Note 10)  1,513   1,467 
Postretirement benefits other than pensions (Note 9)  639   515 
Postretirement benefits payable to Ford (Note 9)  2,135   2,090 
Deferred income taxes (Note 7)  287   3 
Other liabilities (Note 8)  1,476   1,505 
       
 Total liabilities  9,972   9,212 
Stockholders’ equity
        
Capital stock (Note 11)        
 Preferred stock, par value $1.00, 50 million shares authorized, none outstanding  —   — 
 Common stock, par value $1.00, 500 million shares authorized, 131 million shares issued, 130 million and 131 million shares outstanding, respectively  131   131 
Capital in excess of par value of stock  3,380   3,358 
Accumulated other comprehensive income (loss)  5   (54)
Other  (26)  (19)
Accumulated deficit  (3,170)  (1,604)
       
 Total stockholders’ equity  320   1,812 
       
 
Total liabilities and stockholders’ equity
 $10,292  $11,024 
       

The accompanying notes are part of the financial statements.

5267

VISTEON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
              
For the Years Ended              
December 31,  For the Years Ended
  December 31,
200320022001   
  2004 2003 2002
(Restated)(Restated)(Restated)       
 Restated Restated Restated
(in millions)  (in millions)
Cash and cash equivalents at January 1
Cash and cash equivalents at January 1
 $1,204 $1,024 $1,412 
Cash and cash equivalents at January 1
 $953 $1,204 $1,024 
Cash flows provided by operating activities (Note 16)  363  1,103  440 
Cash flows provided by operating activities (Note 18)Cash flows provided by operating activities (Note 18)  418  363  1,103 
Cash flows from investing activitiesCash flows from investing activities          Cash flows from investing activities          
Capital expenditures  (872)  (725)  (756)Capital expenditures  (827)  (872)  (725)
Acquisitions and investments in joint ventures, net  (4)  —  (7)Acquisitions and investments in joint ventures, net  —  (4)  — 
Purchases of securities  (48)  (508)  (346)Purchases of securities  —  (48)  (508)
Sales and maturities of securities  118  588  260 Sales and maturities of securities  11  118  588 
Other  25  36  102 Other  34  25  36 
 
 
 
         
 Net cash used in investing activities  (781)  (609)  (747) Net cash used in investing activities  (782)  (781)  (609)
Cash flows from financing activitiesCash flows from financing activities          Cash flows from financing activities          
Commercial paper (repayments) issuances, net  (85)  (194)  8 Commercial paper (repayments), net  (81)  (85)  (194)
Other short-term debt, net  55  45  — Other short-term debt, net  (20)  55  45 
Proceeds from issuance of other debt  238  115  114 Proceeds from issuance of other debt, net of issuance costs  576  238  115 
Principal payments on other debt  (121)  (245)  (144)Repurchase of unsecured debt securities (Note 10)  (269)  —  — 
Purchase of treasury stock  (5)  (24)  (25)Principal payments on other debt  (32)  (121)  (245)
Cash dividends  (31)  (31)  (31)Purchase of treasury stock  (11)  (5)  (24)
Other, including book overdrafts  77  (4)  3 Cash dividends  (31)  (31)  (31)
 
 
 
 Other, including book overdrafts  3  77  (4)
 Net cash provided by (used in) financing activities  128  (338)  (75)        
 Net cash provided by (used in) financing activities  135  128  (338)
Effect of exchange rate changes on cashEffect of exchange rate changes on cash  39  24  (6)Effect of exchange rate changes on cash  28  39  24 
 
 
 
         
Net (decrease) increase in cash and cash equivalentsNet (decrease) increase in cash and cash equivalents  (251)  180  (388)Net (decrease) increase in cash and cash equivalents  (201)  (251)  180 
 
 
 
         
Cash and cash equivalents at December 31
Cash and cash equivalents at December 31
 $953 $1,204 $1,024 
Cash and cash equivalents at December 31
 $752 $953 $1,204 
 
 
 
         

The accompanying notes are part of the financial statements.

5368

VISTEON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(Restated)
                                                  
Earnings        Earnings    
CapitalRetainedOther      Capital Retained for   Other
Infor Use inAccumulated
    In Use in Accumulated  
Common StockExcessBusinessOtherUnearned  Common Stock Excess Business Other   Unearned  
of Par(AccumulatedComprehensiveTreasuryStock    of Par (Accumulated Comprehensive Treasury Stock  
SharesAmountValueDeficit)LossStockCompensationTotal  Shares Amount Value Deficit) Income (Loss) Stock Compensation Total
                 
 (in millions)
(in millions)
Year Ended December 31, 2001
                         
Beginning balance, as originally reported  131 $131 $3,311 $254 $(179) $— $(12) $3,505 
Error corrections           (10)  (3)        (13)
 
 
 
 
 
 
 
 
 
Beginning balance, as restated  131  131  3,311  244  (182)  —  (12)  3,492 
 
 
 
 
 
 
 
 
 
Comprehensive income (loss)                         
Net (loss)           (122)           (122)
Foreign currency translation, net of tax              (16)        (16)
Realized and unrealized gains/losses on derivatives, net of tax              5        5 
Change in unrealized loss on marketable securities, net of tax              (2)        (2)
Minimum pension liability, net of tax              (2)        (2)
               
 
 Comprehensive (loss)                       (137)
Purchase of treasury stock                 (25)     (25)
Deferred stock-based compensation                 13  (13)  — 
Amortization and adjustment of deferred stock- based compensation, net                    9  9 
Exercise of common stock options                 3     3 
Cash dividends           (31)           (31)
 
 
 
 
 
 
 
 
 
Ending balance  131 $131 $3,311 $91 $(197) $(9) $(16) $3,311 
 
 
 
 
 
 
 
 
 
Year Ended December 31, 2002
                         
Year Ended December 31, 2002 (Restated)
Year Ended December 31, 2002 (Restated)
                         
Beginning balanceBeginning balance  131 $131 $3,311 $91 $(197) $(9) $(16) $3,311 Beginning balance  131 $131 $3,381 $65 $(197) $(9) $(16) $3,355 
Comprehensive income (loss)                         
Net (loss)           (362)           (362)
Foreign currency translation, net of tax              132        132 
Realized and unrealized gains/losses on derivatives, net of tax              (13)        (13)
Comprehensive (loss)Comprehensive (loss)                         
Change in unrealized loss on marketable securities, net of tax              1        1 Net (loss)           (379)           (379)
Minimum pension liability, net of tax              (67)        (67)Other comprehensive income (Note 12)              53        53 
               
                   
 Comprehensive (loss)                       (309) Comprehensive (loss)                       (326)
Purchase of treasury stockPurchase of treasury stock                 (24)     (24)Purchase of treasury stock                 (24)     (24)
Deferred stock-based compensationDeferred stock-based compensation                 16  (16)  — Deferred stock-based compensation                 16  (16)  — 
Amortization and adjustment of deferred stock- based compensation, netAmortization and adjustment of deferred stock- based compensation, net        (13)        (1)  17  3 Amortization and adjustment of deferred stock- based compensation, net        (13)        (1)  17  3 
Cash dividendsCash dividends           (31)           (31)Cash dividends           (31)           (31)
 
 
 
 
 
 
 
 
                   
Ending balanceEnding balance  131 $131 $3,298 $(302) $(144) $(18) $(15) $2,950 Ending balance  131 $131 $3,368 $(345) $(144) $(18) $(15) $2,977 
 
 
 
 
 
 
 
 
                   
Year Ended December 31, 2003
                         
Year Ended December 31, 2003 (Restated)
Year Ended December 31, 2003 (Restated)
                         
Beginning balanceBeginning balance  131 $131 $3,298 $(302) $(144) $(18) $(15) $2,950 Beginning balance  131 $131 $3,368 $(345) $(144) $(18) $(15) $2,977 
Comprehensive income (loss)                         
Net (loss)           (1,243)           (1,243)
Foreign currency translation, net of tax              163        163 
Comprehensive (loss) Comprehensive (loss)                          
Realized and unrealized gains/losses on derivatives, net of tax              16        16 Net (loss)           (1,229)           (1,229)
Minimum pension liability              (89)        (89)Other comprehensive income (Note 12)              90        90 
               
                   
 Comprehensive (loss)                       (1,153) Comprehensive (loss)                       (1,139)
Purchase of treasury stockPurchase of treasury stock                 (5)     (5)Purchase of treasury stock                 (5)     (5)
Deferred stock-based compensationDeferred stock-based compensation        (4)        20  (16)  — Deferred stock-based compensation        (4)        20  (16)  — 
Amortization and adjustment of deferred stock- based compensation, netAmortization and adjustment of deferred stock- based compensation, net        (6)        2  13  9 Amortization and adjustment of deferred stock- based compensation, net        (6)        2  13  9 
Cash dividendsCash dividends           (30)           (30)Cash dividends           (30)           (30)
 
 
 
 
 
 
 
 
                   
Ending balanceEnding balance  131 $131 $3,288 $(1,575) $(54) $(1) $(18) $1,771 Ending balance  131 $131 $3,358 $(1,604) $(54) $(1) $(18) $1,812 
 
 
 
 
 
 
 
 
                   
Year Ended December 31, 2004 (Restated)
Year Ended December 31, 2004 (Restated)
                         
Beginning balanceBeginning balance  131 $131 $3,358 $(1,604) $(54) $(1) $(18) $1,812 
Comprehensive (loss) Comprehensive (loss)                          
Net (loss)           (1,536)           (1,536)
Other comprehensive income (Note 12)              59        59 
                 
 Comprehensive (loss)                       (1,477)
Purchase of treasury stockPurchase of treasury stock                 (11)     (11)
Deferred stock-based compensationDeferred stock-based compensation                 2  (2)  — 
Shares Issued for stock options exercisedShares Issued for stock options exercised        (1)        5     4 
Amortization and adjustment of deferred stock- based compensation, netAmortization and adjustment of deferred stock- based compensation, net        23        (12)  11  22 
Cash dividendsCash dividends           (30)           (30)
                 
Ending balanceEnding balance  131 $131 $3,380 $(3,170) $5 $(17) $(9) $320 
                 

The accompanying notes are part of the financial statements.

5469

VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS

NOTE 1. Background and Basis of Presentation

NOTE 1. Background and Basis of Presentation

Visteon Corporation (“Visteon”) is a leading global supplier of automotive systems, modules and components. Visteon sells products primarily to global vehicle manufacturers, and also sells to the worldwide aftermarket for replacement and vehicle appearance enhancement parts. Visteon became an independent company when Ford Motor Company (“Ford”) established Visteon as a wholly-owned subsidiary in January 2000 and subsequently transferred to Visteon the assets and liabilities comprising Ford’s automotive components and systems business. Ford completed its spin-off of Visteon on June 28, 2000 (the “spin-off”). Prior to incorporation, Visteon operated as Ford’s automotive components and systems business.

Visteon and Ford have entered into a series of agreements outlining the business relationship between the two companies following the spin-off which are further discussed in Note 1214 of our consolidated financial statements.

Use of estimates and assumptions as determined by management are required in the preparation of financial statements in conformity with accounting principles generally accepted in the United States of America. Actual results could differ from those estimates and assumptions. Certain amounts for prior periods were reclassified to conform with present period presentation.

NOTE 2. Restatement of Financial Statements

NOTE 2. Restatement of Financial Statements

      In May 2005, Visteon’s Audit Committee initiated an independent review of the accounting for certain transactions originating in the company’s North American purchasing activity as a result of errors identified by management during the course of preparing Visteon’s Quarterly Report on Form 10-Q for the first quarter of 2005. As reported in Visteon’s Current Reports on Form 8-K dated August 1, 2005 and October 21, 2005, the Audit Committee’s independent review determined that the accrual for freight, raw materials and other supplier costs originating in North America recorded in periods after December 31, 2004 should have been recorded in prior periods, and that many of these accounting errors resulted principally from improper conduct on the part of two former, non-executive finance employees responsible for the accounting oversight of these matters.
      Based in part on the foregoing, Visteon has restated its previously issued consolidated financial statements for 20012002 through 2003, primarily2004, for accounting corrections related to postretirement health care and pensionfreight, raw material costs, toolingother supplier costs capital equipment costs, inventory costing and income taxes.taxes matters.
      As a result of the restatement, previously reported net loss increased by $37 million, $22 million and $11 million for the years ended December 31, 2004, 2003 and 2002, respectively. The restatement increased previously reported loss per share by $0.30, $0.18 and $0.09 for the years ended December 31, 2004, 2003 and 2002, respectively.

70

VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)

NOTE 2. Restatement of Financial Statements — (Continued)

The following table summarizes the impact of these adjustmentsaccounting corrections to Visteon’s previously reported net loss.loss as reported in its 2004 Annual Report on Form 10-K as filed on March 16, 2005. These adjustmentsaccounting corrections impacted previously reported costs of sales selling, administrative and other expenses and income tax expense on the consolidated statement of operations.
             
Year Ended December 31,
200320022001
(in millions)
Net (loss), as originally reported
 $(1,213) $(352) $(118)
Accounting corrections for postretirement health care costs and pension costs (pre-tax)(1)
  (29)  (21)  (1)
Accounting corrections for tooling costs (pre-tax)(2)
  (5)  (4)  (8)
Accounting corrections for capital equipment costs (pre-tax)(3)
  (7)  —   — 
Accounting corrections for inventory costs (pre-tax)(4)
  —   9   3 
Tax impact of above(5)
  (13)  6   2 
Accounting correction for taxes(6)
  32   —   — 
Accounting correction for taxes(7)
  (8)  —   — 
  
  
  
 
Net (loss), as restated
 $(1,243) $(362) $(122)
  
  
  
 
             
  Year Ended December 31,
   
  2004 2003 2002
       
  (in millions)
Net (loss), as previously reported
 $(1,499) $(1,207) $(368)
Accounting corrections for freight costs (pre-tax)(1)  (8)  (11)  (9)
Accounting corrections for raw material costs (pre-tax)(2)  (26)  6   (9)
Accounting corrections for other supplier costs (pre-tax)(3)  (6)  (1)  — 
Tax impact of above(4)  —   (16)  7 
Accounting correction for income taxes(5)  3   —   — 
          
Net (loss), as restated
 $(1,536) $(1,229) $(379)
          

55

VISTEON CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS — (Continued)

NOTE 2. Restatement of Financial Statements — (Continued)

1 –(1) Effective in January 2002, Visteon amended its retiree health care benefits planRepresents corrections to record freight costs incurred for certain of its U.S. employees. This amendment changed the eligibility requirements for participants in the plan. As a result of this amendment, Visteon changed the expense attribution periods, which eliminated cost accruals for younger employees and increased accrual rates for older participating employees. Prior to this amendment, Visteon accrued for the cost of the benefit from a participating employee’s date of hire, regardless of age. Visteon determinedservices provided that these benefit changes were not properly communicated to effected employees pursuant to the requirements of Statement of Financial Accounting Standards No. 106 and that such expense reductions should not have been recorded. Further, analysis of the annual United Kingdom pension valuation identified pension expenses related to special termination benefits provided under Visteon’s European Plan for Growth which were not fully recognizedaccrued in the period in which those benefitssuch services were accepted by employees ($5 million in 2003). Lastly, amounts for each of 2002 and 2001 include $1 million in additional postretirement health care expense at one of Visteon’s foreign locations that was not recognized. The impact of the correction of these errors increased net loss by approximately $37 million ($0.29 per share), $13 million ($0.11 per share) and $1 million ($0.01 per share), for the years ended December 31, 2003, 2002 and 2001, respectively.
2 – Represents a) additional amortization expense related to $10 million of tooling costs that were misclassified as accounts receivable rather than as a long-term asset with amortization starting in 2001 and, b) $13 million of tooling costs misclassified as accounts receivable related to customer-owned tooling for which there was no contractual agreement for reimbursement or overruns to customer-authorized reimbursement levels and, accordingly, should have been expensed as incurred. The impact of the correction of these errors increased net loss by approximately $10 million ($0.08 per share), $3 million ($0.02 per share) and $5 million ($0.03 per share), for the years ended December 31, 2003, 2002 and 2001, respectively.
3 – Represents an adjustment for certain volume related rebates, received from numerous capital equipment suppliers for purchases, which were originally recognized as a reduction to expense. Costs incurred for capital equipment have been adjusted to reflect such discounts as a reduction to long-term assets and to adjust related depreciation and amortization expense. The impact of the correction of these errors increased net loss by approximately $7 million ($0.05 per share) for the year ended December 31, 2003.
4 – Represents a correction for an inventory costing error during 2000 at one of Visteon’s U.S. plants, which had the effect of reducing costs of sales in 2000 and increasing costs of sales in 2001 and 2002. The impact of the correction of this error decreased net loss by approximately $6 million ($0.04 per share) and $2 million ($0.01 per share) for the years ended December 31, 2002 and 2001, respectively.
5 – Represents the deferred tax benefit of the pre-tax expense adjustments. The 2003 amount includes an additional $25 million deferred tax benefit to adjust the valuation allowance in the fourth quarter of 2003 for the cumulative impact through 2003 on deferred tax assets of the pre-tax accounting corrections.
6 – Represents an adjustment to U.S. deferred taxes on undistributed earnings of non-U.S. subsidiaries for the impact of currency fluctuations and the related adjustments to the required deferred tax asset valuation allowances in the fourth quarter of 2003. Visteon expects to repatriate earnings of non-U.S. subsidiaries and must provide for the expected U.S. tax impact of the assumed future repatriation, including the impact of currency

56

VISTEON CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS — (Continued)

NOTE 2. Restatement of Financial Statements — (Continued)

fluctuations. This adjustment was recorded to fully recognize the tax amounts as they arose in prior periods and to account for the related impact on the deferred tax asset valuation allowances recorded in the fourth quarter of 2003. The impact of the correction of these errors decreased net loss by approximately $32 million ($0.25 per share) for the year ended December 31, 2003.
7 – Represents accounting corrections to adjust the valuation allowance recorded against Visteon’s deferred tax assets relating to certain foreign deferred tax assets that had been previously misclassified as accounts receivable, prepaid expenses and other current assets and income taxes payable.performed. The impact of the correction of these errors increased net loss by approximately $8 million ($0.06 per share), $24 million ($0.19 per share) and $5 million ($0.04 per share) for the years ended December 31, 2004, 2003 and 2002, respectively.
(2) Represents corrections to record raw material cost increases that were not properly accrued in the period such increases were incurred. The impact of the correction of these errors increased net loss by approximately $26 million ($0.21 per share) for the year ended December 31, 2003.2004, reduced net loss by approximately $3 million ($0.02 per share) for the year ended December 31, 2003 and increased net loss by approximately $6 million ($0.05 per share) for the year ended December 31, 2002.
(3) Represents corrections to record other supplier costs that should have been accrued in periods prior to December 31, 2004. The impact of the correction of these errors increased net loss by approximately $6 million ($0.05 per share) and $1 million ($0.01 per share), for the years ended December 31, 2004 and 2003, respectively and had no impact on net loss for the year ended December 31, 2002.
(4) Represents the deferred tax impact of the pre-tax accounting corrections described above. The 2003 amount includes an additional $18 million of tax expense to adjust the deferred tax valuation allowance in the fourth quarter of 2003 for the cumulative impact on deferred tax assets of pre-tax accounting corrections.
(5) Represents a correction for income taxes related to various foreign affiliates that should have been recognized in 2004. The impact of this correction reduced net loss by approximately $3 million ($0.02 per share) for the year ended December 31, 2004.

5771

VISTEON CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS — (Continued)
NOTE 2. Restatement of Financial Statements — (Continued)
NOTE 2. Restatement of Financial Statements — (Continued)

The following is a summary of the impact of the restatementthese accounting corrections on the previously issuedVisteon’s consolidated statement of operations, consolidated balance sheetssheet and consolidated statement of cash flows includedas previously reported in this filing.

the 2004 Annual Report on Form 10-K as filed on March 16, 2005.

CONSOLIDATED STATEMENT OF OPERATIONS

                     
Year Ended December 31,                     
  Year Ended December 31,
  
200320022001  2004 2003 2002
       
AsAsAs  As   As   As  
OriginallyAsOriginallyAsOriginallyAs  Previously As Previously As Previously As
ReportedRestatedReportedRestatedReportedRestated  Reported Restated Reported Restated Reported Restated
            
(in millions)  (in millions, except per share amounts)
Sales
Sales
                   
Sales
    ��               
Ford and affiliatesFord and affiliates $13,475 $13,475 $14,779 $14,779 $14,656 $14,656 Ford and affiliates $13,015 $13,015 $13,475 $13,475 $14,779 $14,779 
Other customersOther customers  4,185  4,185  3,616  3,616  3,187  3,187 Other customers  5,642  5,642  4,185  4,185  3,616  3,616 
 
 
 
 
 
 
               
Total sales  17,660  17,660  18,395  18,395  17,843  17,843  Total sales  18,657  18,657  17,660  17,660  18,395  18,395 
Costs and expenses
Costs and expenses
                   
Costs and expenses
                   
Costs of sales  17,786  17,821  17,588  17,599  17,105  17,111 
Selling, administrative and other expenses  1,002  1,008  888  893  855  855 
Costs of sales  18,111  18,151  17,818  17,824  17,608  17,626 
Selling, administrative and other expenses  994  994  1,008  1,008  893  893 
 
 
 
 
 
 
               
Total costs and expenses  18,788  18,829  18,476  18,492  17,960  17,966  Total costs and expenses  19,105  19,145  18,826  18,832  18,501  18,519 
Operating (loss)
Operating (loss)
  (1,128)  (1,169)  (81)  (97)  (117)  (123)
Operating (loss)
  (448)  (488)  (1,166)  (1,172)  (106)  (124)
Interest incomeInterest income  17  17  23  23  55  55 Interest income  19  19  17  17  23  23 
Debt extinguishment costsDebt extinguishment costs  11  11  —  —  —  — 
Interest expenseInterest expense  94  94  103  103  131  131 Interest expense  104  104  94  94  103  103 
 
 
 
 
 
 
               
Net interest expense  (77)  (77)  (80)  (80)  (76)  (76) Net interest expense  (96)  (96)  (77)  (77)  (80)  (80)
Equity in net income of affiliated companiesEquity in net income of affiliated companies  55  55  44  44  24  24 Equity in net income of affiliated companies  45  45  55  55  44  44 
 
 
 
 
 
 
               
(Loss) before income taxes, minority interests and change in accounting
(Loss) before income taxes, minority interests and change in accounting
  (1,150)  (1,191)  (117)  (133)  (169)  (175)
(Loss) before income taxes, minority interests and change in accounting
  (499)  (539)  (1,188)  (1,194)  (142)  (160)
Provision (benefit) for income taxesProvision (benefit) for income taxes  34  23  (58)  (64)  (72)  (74)Provision (benefit) for income taxes  965  962  (10)  6  (67)  (74)
 
 
 
 
 
 
               
(Loss) before minority interests and change in accounting
(Loss) before minority interests and change in accounting
  (1,184)  (1,214)  (59)  (69)  (97)  (101)
(Loss) before minority interests and change in accounting
  (1,464)  (1,501)  (1,178)  (1,200)  (75)  (86)
Minority interest in net income of subsidiaries  29  29  28  28  21  21 
Minority interest in net income of subsidiaries  35  35  29  29  28  28 
 
 
 
 
 
 
               
(Loss) before change in accounting
(Loss) before change in accounting
  (1,213)  (1,243)  (87)  (97)  (118)  (122)
(Loss) before change in accounting
  (1,499)  (1,536)  (1,207)  (1,229)  (103)  (114)
Cumulative effect of change in accounting, net of taxCumulative effect of change in accounting, net of tax  —  —  (265)  (265)  —  — Cumulative effect of change in accounting, net of tax  —  —  —  —  (265)  (265)
 
 
 
 
 
 
               
Net (loss)
Net (loss)
 $(1,213) $(1,243) $(352) $(362) $(118) $(122)
Net (loss)
 $(1,499) $(1,536) $(1,207) $(1,229) $(368) $(379)
 
 
 
 
 
 
               
Basic and diluted loss per share
Basic and diluted loss per share
                   
Basic and diluted loss per share
                   
Before cumulative effect of change in accounting $(9.65) $(9.88) $(0.68) $(0.77) $(0.91) $(0.94)Before cumulative effect of change in accounting $(11.96) $(12.26) $(9.59) $(9.77) $(0.81) $(0.90)
Cumulative effect of change in accounting  —  —  (2.07)  (2.07)  —  — Cumulative effect of change in accounting  —  —  —  —  (2.07)  (2.07)
 
 
 
 
 
 
               
 Basic and diluted $(9.65) $(9.88) $(2.75) $(2.84) $(0.91) $(0.94) Basic and diluted $(11.96) $(12.26) $(9.59) $(9.77) $(2.88) $(2.97)
 
 
 
 
 
 
               

5872

VISTEON CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS — (Continued)
NOTE 2. Restatement of Financial Statements — (Continued)
NOTE 2. Restatement of Financial Statements — (Continued)

CONSOLIDATED BALANCE SHEET

               
December 31,
              
 December 31, December 31,
20032002  2004 2003
     
AsAs  As   As  
OriginallyAsOriginallyAs  Previously As Previously As
ReportedRestatedReportedRestated  Reported Restated Reported Restated
        
(in millions)  (in millions)
Assets
Assets
             
Assets
             
Cash and cash equivalentsCash and cash equivalents $953 $953 $1,204 $1,204 Cash and cash equivalents $752 $752 $953 $953 
Marketable securitiesMarketable securities  3  3  74  74 Marketable securities  —  —  3  3 
 
 
 
 
           
Total cash and marketable securities  956  956  1,278  1,278 Total cash and marketable securities  752  752  956  956 
Accounts receivable — Ford and affiliates  1,198  1,175  1,401  1,382 
Accounts receivable — other customers  1,164  1,185  828  837 
Accounts receivable – Ford and affiliatesAccounts receivable – Ford and affiliates  1,255  1,255  1,175  1,175 
Accounts receivable – other customersAccounts receivable – other customers  1,285  1,285  1,185  1,185 
 
 
 
 
           
Total receivables  2,362  2,360  2,229  2,219 Total receivables  2,540  2,540  2,360  2,360 
InventoriesInventories  761  761  878  878 Inventories  889  889  852  852 
Deferred income taxesDeferred income taxes  163  163  199  199 Deferred income taxes  51  37  163  163 
Prepaid expenses and other current assetsPrepaid expenses and other current assets  168  143  153  136 Prepaid expenses and other current assets  212  212  143  143 
 
 
 
 
           
Total current assets  4,410  4,383  4,737  4,710 Total current assets  4,444  4,430  4,474  4,474 
Equity in net assets of affiliated companiesEquity in net assets of affiliated companies  215  215  191  191 Equity in net assets of affiliated companies  227  227  215  215 
Net propertyNet property  5,369  5,365  5,443  5,448 Net property  5,303  5,303  5,365  5,365 
Deferred income taxesDeferred income taxes  700  700  566  587 Deferred income taxes  132  129  700  700 
Other assetsOther assets  270  270  233  233 Other assets  203  203  270  270 
 
 
 
 
           
Total Assets
 $10,964 $10,933 $11,170 $11,169 
Total assets
 $10,309 $10,292 $11,024 $11,024 
 
 
 
 
           
Liabilities and Stockholders’ Equity
Liabilities and Stockholders’ Equity
             
Liabilities and Stockholders’ Equity
             
Trade payablesTrade payables $2,270 $2,270 $2,038 $2,038 Trade payables $2,403 $2,493 $2,270 $2,320 
Accrued liabilitiesAccrued liabilities  924  930  1,021  1,022 Accrued liabilities  894  894  930  930 
Income taxes payableIncome taxes payable  27  31  14  18 Income taxes payable  38  27  31  31 
Debt payable within one yearDebt payable within one year  351  351  393  393 Debt payable within one year  508  508  351  351 
 
 
 
 
           
Total current liabilities  3,572  3,582  3,466  3,471 Total current liabilities  3,843  3,922  3,582  3,632 
Long-term debtLong-term debt  1,467  1,467  1,298  1,298 Long-term debt  1,513  1,513  1,467  1,467 
Postretirement benefits other than pensionsPostretirement benefits other than pensions  469  515  409  431 Postretirement benefits other than pensions  639  639  515  515 
Postretirement benefits payable to FordPostretirement benefits payable to Ford  2,090  2,090  1,874  1,874 Postretirement benefits payable to Ford  2,135  2,135  2,090  2,090 
Deferred income taxesDeferred income taxes  296  287  3  3 
Other liabilitiesOther liabilities  1,508  1,508  1,145  1,145 Other liabilities  1,476  1,476  1,505  1,505 
 
 
 
 
           
Total liabilities  9,106  9,162  8,192  8,219 Total liabilities  9,902  9,972  9,162  9,212 
Stockholders’ equity
Stockholders’ equity
             
Stockholders’ equity
             
Capital stockCapital stock  131  131  131  131 Capital stock  131  131  131  131 
Capital in excess of par value of stockCapital in excess of par value of stock  3,288  3,288  3,298  3,298 Capital in excess of par value of stock  3,380  3,380  3,358  3,358 
Accumulated other comprehensive (loss)Accumulated other comprehensive (loss)  (21)  (54)  (140)  (144)Accumulated other comprehensive (loss)  5  5  (54)  (54)
OtherOther  (19)  (19)  (33)  (33)Other  (26)  (26)  (19)  (19)
Accumulated deficitAccumulated deficit  (1,521)  (1,575)  (278)  (302)Accumulated deficit  (3,083)  (3,170)  (1,554)  (1,604)
 
 
 
 
           
Total stockholders’ equity  1,858  1,771  2,978  2,950 Total stockholders’ equity  407  320  1,862  1,812 
 
 
 
 
           
Total liabilities and stockholders’ equity
 $10,964 $10,933 $11,170 $11,169 
Total liabilities and stockholders’ equity
 $10,309 $10,292 $11,024 $11,024 
 
 
 
 
           

5973

VISTEON CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS — (Continued)
NOTE 2. Restatement of Financial Statements — (Continued)
NOTE 2. Restatement of Financial Statements — (Continued)

CONSOLIDATED STATEMENT OF CASH FLOWS

                
Year Ended December 31,                   
 Year Ended December 31,
  
200320022001 2004 2003 2002
      
AsAsAs As   As   As  
OriginallyAsOriginallyAsOriginallyAs Previously As Previously As Previously As
ReportedRestatedReportedRestatedReportedRestated Reported Restated Reported Restated Reported Restated
            
(in millions) (in millions)
Cash and cash equivalents at January 1
 $1,204 $1,204 $1,024 $1,024 $1,412 $1,412  $953 $953 $1,204 $1,204 $1,024 $1,024 
Cash flows provided by operating activities  370  363  1,101  1,103  436  440   418  418  363  363  1,103  1,103 
Cash flows used in investing activities  (788)  (781)  (607)  (609)  (743)  (747)  (782)  (782)  (781)  (781)  (609)  (609)
Cash flows provided by (used in) financing activities  128  128  (338)  (338)  (75)  (75)  135  135  128  128  (338)  (338)
Effect of exchange rate changes on cash  39  39  24  24  (6)  (6)
Effect of exchange rate changes in cash  28  28  39  39  24  24 
 
 
 
 
 
 
              
Net (decrease) increase in cash and cash equivalents  (251)  (251)  180  180  (388)  (388)  (201)  (201)  (251)  (251)  180  180 
 
 
 
 
 
 
              
Cash and cash equivalents at December 31
 $953 $953 $1,204 $1,204 $1,024 $1,024  $752 $752 $953 $953 $1,204 $1,204 
 
 
 
 
 
 
              

Refer to Note 1921 for a summary of the impact of the restatement on the 20032004 and 20022003 quarterly information. In addition, certain amounts in Notes 3, 5, 6, 7, 8, 14, 15,12, 16, 18 and 1820 have been restated to reflect the restatement adjustmentsaccounting corrections described above.

      Refer to Note 17 for detail regarding the 2004 change in the method of determining the cost of production inventory for U.S. locations from the last-in, first-out (“LIFO”) to the first-in, first-out (“FIFO”) method.

NOTE 3. Accounting Policies

NOTE 3. Accounting Policies
Principles of Consolidation

The consolidated financial statements include the accounts of Visteonthe company and its majority-owned subsidiaries. Intra-Visteon transactions have been eliminated in consolidation.subsidiaries and certain variable interest entities discussed below. Companies that are 20% to 50% owned by Visteon, other than those variable interest entities discussed below, are accounted for on an equity basis.
Intra-Visteon transactions have been eliminated in consolidation.

74

VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
NOTE 3. Accounting Policies — (Continued)
Variable Interest Entities

      In December 2003, the FASB issued revised Interpretation No. 46 (“FIN 46”46-R”) “Consolidation of Variable Interest Entities.” Until this interpretation, a company generally included another entity in its consolidated financial statements only if it controlled the entity through voting interests. FIN 4646-R requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or entitled to receive a majority of the entity’s residual returns. Application of FIN 46 is46-R was required during the fourth quarter of 2003 for interests in structures that are commonly referred to as special-purpose entities; immediately for all new entities created after February 1, 2003; and for all other types of variable interest entities in the first quarter of 2004. The effect of applying the initial consolidation provisions of FIN 4646-R on Visteon’s results of operations or financial position as of December 31, 20032004 was not significant. We do not expect the application of the remaining consolidation provisions of FIN 46, as required in the first quarter of 2004, will have a material effect on Visteon’s results of operations or financial position.

60

VISTEON CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS — (Continued)

     
NOTE 3. Accounting Policies — (Continued)

From June 30, 2002, a variable interest entity owned by an affiliate of a bank is included in Visteon’s consolidated financial statements. This entity was established in early 2002 to build a leased facility for Visteon to centralize customer support functions, research and development and administrative operations. Construction of the facility is planned to bewas substantially completed in 2004. As of December 31, 2004, at a cost of about $250 million, with initial occupancy starting in mid-2004. The lease agreement requires Visteon to make lease payments after construction is substantially completed equal to all interest then due and payable by thethis variable interest entity underhas total assets of $241 million and total liabilities of $255 million.

      As a result of the related credit agreement. The lease term expires in 2017, at which timeapplication of FIN 46-R, from January 1, 2004, the consolidated financial statements include the accounts of Lextron-Visteon Automotive Systems, LLC and MIG-Visteon Automotive Systems, LLC, both joint ventures 49% owned by Visteon is required to either purchase the facility at a price equal to the sum of all borrowings under the related credit agreement, less certain proceedsor its subsidiaries, that supply integrated cockpit modules and other amounts applied against the balance, or renew the lease upon the mutual agreement of Visteonmodules and the lessor.systems to Nissan. Consolidation of this entitythese entities was based on an assessment that Visteon is subject to a majority of the risk of loss from the variable interest entity’s activities and is entitled to receive a majority of the entity’s residual returns. This assessment included consideration of the terms of the lease agreement, the amount of the owner’s equity investment at risk, the subordinated financial support provided by Visteon, and that Visteon supplies the sourcejoint ventures’ inventory. The effect of consolidation on Visteon’s results of operations or financial position as of December 31, 2004 was not significant as substantially all of the entity’s debt financing through the delayed draw term loan arrangement provided for under Visteon’s Credit Facilities discussed further in Note 9 of our consolidated financial statements.joint ventures’ liabilities and costs are related to activity with Visteon. As of December 31, 2003,2004, these variable interest entities have total assets of $81 million and total liabilities of $91 million.
      Vitro Flex, S.A. de C.V., a Mexican corporation, is a joint venture 38% owned by Visteon or its subsidiaries, since spin-off. Vitro Flex manufactures and supplies tempered and laminated glass for use in automotive vehicles. Vitro Flex is considered a variable interest entity under FIN 46-R, however Visteon is not the primary beneficiary of this entity hasand does not consolidate this entity. In addition to Visteon’s equity investment of about $20 million at December 31, 2004, Visteon’s maximum exposure would include costs that would be incurred if Visteon failed to provide, though 2008, sales orders and/or other competitively-priced business opportunities meeting certain average annual levels (currently about $117$71 million in expenditures related toon an annual basis), mainly based on the venture’s manufacturing capacity. As of December 31, 2004, total assets of this facility.
joint venture were about $85 million.

75

VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
NOTE 3. Accounting Policies — (Continued)
Revenue Recognition

Sales are recognized when there is evidence of a sales agreement, the delivery of goods has occurred, the sales price is fixed or determinable and collectibility is reasonably assured, generally upon shipment of product to customers and transfer of title under standard commercial terms. Significant retroactive price adjustments are recognized in the period when such amounts become probable. Sales are recognized based on the gross amount billed to a customer for those products in which Visteon’s customer has directed the sourcing of certain raw materials or components used in the manufacture of the final product.

Guarantees and Product Warranty

      In November 2002, the FASB issued Interpretation No. 45 (“FIN 45”), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” FIN 45 clarifies that at the time a company issues a guarantee, the company must recognize an initial liability for the fair value, or market value, of the obligations it assumes under that guarantee. The initial recognition and initial measurement provisions apply on a prospective basis toFinancial guarantees issued or modified after December 31, 2002. Asare further described in Note 10 of December 31, 2003, the effect of adopting FIN 45 on Visteon’s results of operations andour consolidated financial position was not material.

61

VISTEON CORPORATION AND SUBSIDIARIESstatements.

NOTES TO FINANCIAL STATEMENTS — (Continued)

     
NOTE 3. Accounting Policies — (Continued)

Visteon accrues for warranty obligations for products sold based on management estimates, with support from our sales, engineering, quality and legal activities, of the amount that eventually will be required to settle such obligations. This accrual, which is reviewed in detail on a regular basis, is based on several factors, including contractual arrangements, past experience, current claims, production changes, industry developments and various other considerations. The following table presents a reconciliation of changes in the product warranty claims liability for the selected periods:

          
200320022001        
 2004 2003 2002
      
(in millions) (in millions)
Beginning balanceBeginning balance $17 $20 $18  $22 $17 $20 
Accruals for products shippedAccruals for products shipped  25  16  18   33  25  16 
Accruals for pre-existing warranties (including changes in estimates)Accruals for pre-existing warranties (including changes in estimates)  (3)  —  4   14  (3)  — 
SettlementsSettlements  (17)  (19)  (20)  (28)  (17)  (19)
 
 
 
        
Ending balance $41 $22 $17 
Ending balance $22 $17 $20        
 
 
 
 

      Visteon enters into agreements that contain indemnification provisions in the normal course of business for which the risks are considered nominal and impracticable to estimate.

Product Recalls

      Visteon accrues for product recall claims related to potential financial participation in customers’ actions to provide remedies related primarily to safety concerns as a result of actual or threatened regulatory or court actions or Visteon’s determination of the potential for such actions. Visteon accrues for recall claims for products sold based on management estimates, with support from our sales, engineering, quality and legal activities, of the amount that eventually will be required to settle such claims. This accrual, which is reviewed in detail on a regular basis, is based on several factors, including contractual arrangements, past experience, current claims, industry developments and various other considerations. Costs of Sales in the third quarter of 2004 were reduced by $49 million related to an adjustment made to product recall accruals as a result of settling a product recall claim.

76

VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
NOTE 3. Accounting Policies — (Continued)
Other Costs

Advertising and sales promotion costs are expensed as incurred. Advertising costs were $13 million in 2004, $15 million in 2003 and $17 million in 2002 and $19 million in 2001.2002.

Research and development costs are expensed as incurred and were $896 million in 2004, $913 million in 2003 and $911 million in 2002 and $1,037 million in 2001.2002.

      Pre-production design and development costs that are non-reimbursable relating to long-term supply arrangements are expensed as incurred.

62

VISTEON CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS — (Continued)

NOTE 3. Accounting Policies — (Continued)

Related Party Transaction

      A member of Visteon’s Board of Directors was the Chief Executive Officer of a supplier of contract staffing services to Visteon. Visteon’s payments to this supplier were approximately $81 million and $115 million in 2003 and 2002, respectively. The supplier has indicated that it expects to recognize approximately $13 million and $20 million of these payments as revenue in 2003 and 2002, respectively, relating to services performed directly by the supplier. The remaining payments to this supplier are related to arrangements in which the supplier serves as a master vendor on the behalf of many other suppliers and are not expected to be recognized as revenue for such supplier. This individual ceased to be an employee or officer of this supplier in December 2003.

Income (Loss) Per Share of Common Stock

Basic income (loss) per share of common stock is calculated by dividing net income(loss) by the average number of shares of common stock outstanding during the applicable period, adjusted for restricted stock. The calculation of diluted income(loss) per share takes into account the effect of dilutive potential common stock, such as stock options, and contingently returnable shares, such as restricted stock. Basic and diluted income (loss) per share were calculated using the following numbers of shares:
             
200320022001             
  2004 2003 2002
      
(average shares in millions)  (average shares in millions)
Common shares outstandingCommon shares outstanding  130.4  130.3  130.7 Common shares outstanding  129.6  130.4  130.3 
Less: Restricted stock outstandingLess: Restricted stock outstanding  (4.6)  (2.6)  (1.4)Less: Restricted stock outstanding  (4.3)  (4.6)  (2.6)
 
 
 
         
Basic shares  125.8  127.7  129.3 Basic shares  125.3  125.8  127.7 
Net dilutive effect of restricted stock and stock optionsNet dilutive effect of restricted stock and stock options  —  —  — Net dilutive effect of restricted stock and stock options  —  —  — 
 
 
 
         
Diluted sharesDiluted shares  125.8  127.7  129.3 Diluted shares  125.3  125.8  127.7 
 
 
 
         

      For 2004, 2003 2002 and 2001,2002, potential common stock of about 3,145,000 shares, 1,020,000 shares 606,000 shares and 343,000606,000 shares, respectively, are excluded from the calculation of diluted income(loss) per share because the effect of including them would have been antidilutive.antidilutive due to the losses incurred during those periods. In addition, options to purchase 8,730,000 shares of common stock at exercise prices ranging from $10 per share to $22 per share were outstanding for 2004 but were not included in the computation of diluted (loss) per share because the options’ exercise price was greater than the average market price of the common shares. The options expire at various dates between 2009 and 2012.

77

VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
NOTE 3. Accounting Policies — (Continued)
Derivative Financial Instruments

      Visteon has operations in every major region of the world and is exposed to a variety of market risks, including the effects of changes in foreign currency exchange rates, interest rates and commodity prices. These financial exposures are monitored and managed by Visteon as an integral part of the company’s overall risk management program, which recognizes the unpredictability of financial markets and seeks to reduce the potentially adverse effect on Visteon’sthe company’s results. VisteonThe company uses derivative financial instruments, including forward contracts, swaps and options, to manage the exposures in exchange rates, interest rates and commodity prices. All derivative financial instruments are classified as “held for purposes other than trading.” Visteon policy specifically prohibits the use of leveraged derivatives or use of any derivatives for speculative purposes.

63

VISTEON CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS — (Continued)

     
NOTE 3. Accounting Policies — (Continued)

Visteon’s primary foreign currency exposures, in terms of net corporate exposure, are in the Mexican peso, euro, Canadian dollar, and Czech Koruna, and Canadian dollar.Koruna. Visteon uses derivative instruments to hedge expected future cash flows in foreign currencies and firm commitments. Visteon has entered into interest rate swaps to manage its interest rate risk. As a result of these swaps, approximately 40%45% of Visteon’s borrowings at December 31, 2004 are on a fixed rate basis, with the balance on a variable rate basis, subject to changes in short-term interest rates. Visteon’s primary commodity-price exposures are steel, plastic resins, aluminum, copper and natural gas, which are managed largely through negotiations with suppliers and customers, and in part through derivative financial instruments and fixed-price contractsnegotiations with suppliers.suppliers and customers.

The criteria used to determine whether hedge accounting treatment is appropriate are the designation of the hedge to an underlying exposure, reduction of overall risk and correlation between the changes in the value of the derivative instrument and the underlying exposure. Gains and losses on cash flow hedges initially are reported as a component of other comprehensive income (outside earnings) and subsequently reclassified into earnings when the forecasted transaction affects earnings. Gains and losses on interest rate swaps (fair value hedges) are recorded in long-term debt (see Note 1315 of our consolidated financial statements). All other derivative gains and losses are recognized in costs of sales. Except for interest rate swaps, these derivatives usually mature in two years or less, consistent with the underlying transactions. The effect of changes in exchange rates, interest rates and commodity prices mayare not be fully offset by gains or losses on currency derivatives, depending on the extentbecause Visteon’s exposure to which the exposuresthese changes are not fully hedged.

Foreign Currency Translation

Assets and liabilities of Visteon’s non-U.S. businesses generally are translated to U.S. Dollars at end-of-period exchange rates. The effects of this translation for Visteon are reported in other comprehensive income. Remeasurement of assets and liabilities of Visteon’s non-U.S. businesses that use the U.S. Dollar as their functional currency are included in income as transaction gains and losses. Income statement elements of Visteon’s non-U.S. businesses are translated to U.S. Dollars at average-period exchange rates and are recognized as part of revenues,sales, costs and expenses. Also included in income are gains and losses arising from transactions denominated in a currency other than the functional currency of the business involved. In addition, transaction losses of $4 million in 2004 resulting from the remeasurement of certain deferred foreign tax liabilities are included within income tax expense. Net transaction gains and losses, as described above, decreased net incomeloss $11 million in 2004 and increased net loss $26 million and $14 million in 2003 and 2002, respectively, and increased net income $6 million in 2001. Total foreign currency translation adjustments as a component of accumulated other comprehensive income increased stockholders’ equity by $97 million at December 31, 2003, and reduced stockholders’ equity $66 million at December 31, 2002.

respectively.

78

VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
NOTE 3. Accounting Policies — (Continued)
Cash and Cash Equivalents

      Visteon considers all highly liquid investments purchased with a maturity of three months or less, including short-term time deposits and government agency and corporate obligations, to be cash equivalents.

Marketable Securities

      Marketable securities are classified as available-for-sale. The fair value of substantially all securities is determined by quoted market prices. The estimated fair value of securities, for which there are no quoted market prices, is based on similar types of securities that are traded in the market. Book value approximates fair value for all securities.

64

VISTEON CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS — (Continued)

NOTE 3. Accounting Policies — (Continued)

Accounts Receivable

      The allowance for doubtful accounts was $35$44 million and $24$35 million at December 31, 2004 and 2003, respectively. The allowance for doubtful accounts is determined considering factors such as length of time accounts are past due, historical experience of write-offs, and 2002,our customers’ financial condition. Accounts receivable are written-off when they become uncollectible. Unbilled receivables related to production tools in progress, which will not be owned by Visteon and for which there is an agreement for contractual reimbursement, were about $135 million and $215 million at December 31, 2004 and 2003, respectively.

Inventories
      Inventories are stated at the lower of cost, determined on a first-in, first-out (“FIFO”) basis, or market.
Investments in Affiliates

The following table presents summarized financial data for those affiliates accounted for under the equity method.method, including YanFeng Visteon Automotive Trim Systems Co., Ltd. in which Visteon has a 50% ownership interest. The amounts represent 100% of the assets, liabilities, equity and results of operations of these affiliates. Visteon reports itsOur share of their net assets and net income is reported in the lines “Equity in net assets of affiliated companies” on the Consolidated Balance Sheet and “Equity in net income of affiliated companies” on the Consolidated Statement of Operations.
          
December 31,
20032002
(in millions)
Current assets $571  $361 
Other assets  345   320 
  
  
 
 Total assets $916  $681 
  
  
 
Current liabilities $328  $217 
Other liabilities  85   91 
Stockholders’ equity  503   373 
  
  
 
 Total liabilities and stockholders’ equity $916  $681 
  
  
 
             
200320022001
(in millions)
Net sales $1,462  $973  $747 
Gross profit  368   217   152 
Net income  111   93   63 
          
  December 31,
   
  2004 2003
     
  (in millions)
Current assets $485  $571 
Other assets  391   345 
       
 Total assets $876  $916 
       
Current liabilities $354  $328 
Other liabilities  64   85 
Stockholders’ equity  458   503 
       
 Total liabilities and stockholders’ equity $876  $916 
       

79

VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
NOTE 3. Accounting Policies — (Continued)
             
  2004 2003 2002
       
  (in millions)
Net sales $1,426  $1,462  $973 
Gross profit  252   368   217 
Net income  90   111   93 
      Included in Visteon’s accumulated deficit are undistributed earnings of affiliates accounted for under the equity method, which are estimated to be about $150 million at December 31, 2004. Visteon’s ability to move cash among unconsolidated and consolidated operating locations is subject to the operating needs of each location as well as restrictions imposed by local laws.
Capitalized Software Costs

Significant costs incurred in the acquisition or development of software for internal use are capitalized. Costs incurred prior to the final selection of software and costs not qualifying for capitalization are charged to expense. Capitalized internal software costs include primarily external direct costs and payroll and payroll related costs. Capitalized software costs are amortized using the straight-line method over estimated useful lives generally ranging from 3 to 8 years. The net book value of capitalized software costs was about $114 million and $108 million at December 31, 2003.2004 and 2003, respectively. Related amortization expense was about $38 million and $39 million in 2003.

65

VISTEON CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS — (Continued)

2004 and 2003, respectively.
NOTE 3. Accounting Policies — (Continued)

Impairment of Long-Lived Assets and Certain Identifiable Intangibles

Visteon evaluates long-lived assets to be held and used and long-lived assets to be disposed of for potential impairment at the product line level whenever events or changes in business circumstances indicate that the carrying value of the assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate. Asset groupings atVisteon continues to assess the product line level, rather thanrecoverability of long-lived assets in light of the operating segment level usedchallenging environment in prior years, is consideredwhich we operate and as part of our business planning process. If conditions, including the lowest levelresults of identifiable cash flowsany discussions with Ford, indicate that any of these assets are impaired, impairment charges will be required, although we cannot predict the timing or range of amounts, if any, which are largely independent as the recently completed Ford agreements contractually provide Visteon greater flexibility to make product level decisions, including decisions related to selling or exiting certain businesses.may result. Visteon considers projected future undiscounted cash flows, trends and other circumstances in making such estimates and evaluations. While we believe that our estimates of future cash flows are reasonable, different assumptions regarding such factors as future automotive production volumes (primarily for Ford), selling price changes, labor cost changes, material cost changes, productivity and other cost savings and capital expenditures could significantly affect our evaluations. Asset impairment charges recorded during 2004 and 2003 are discussed further in Note 1416 of our consolidated financial statements.

Goodwill

Goodwill

Visteon adopted Financial Accounting Standards No. 142 (“SFAS 142”), “Goodwill and Other Intangible Assets,” effective January 1, 2002. SFAS 142 no longer permits amortization of goodwill and establishes a new method of testing goodwill for impairment by using a fair-value based approach. See Note 1517 of our consolidated financial statements for further description related to this accounting change.

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VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
NOTE 3. Accounting Policies — (Continued)
Postemployment Benefits

      Visteon accounts for certain severance benefits to former or inactive employees after employment but before retirement when it is probable that a liability has been incurred, and the amount can be reasonably estimated.

66

VISTEON CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS — (Continued)

NOTE 3. Accounting Policies — (Continued)

Stock-Based Awards

Starting

      In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123 (Revised 2004) (“SFAS 123-R”), “Share-Based Payments.” This revised statement requires the fair-value based method to be used and eliminates the alternative use of the intrinsic value method. Requirements of SFAS 123-R are effective as of the beginning of the first annual interim period that begins after June 15, 2005. Visteon does not expect the requirements of SFAS 123-R to have a material effect on its results of operations, as starting January 1, 2003, Visteon began expensing the fair value of stock-based awards granted to employees pursuant to the original provisions of Statement of Financial Accounting Standards No. 123 (“SFAS 123”), “Accounting for Stock-Based Compensation.” This standardSFAS 123 was adopted on a prospective method basis for stock-based awards granted, modified or settled after December 31, 2002. For stock options and restricted stock awards granted prior to January 1, 2003, Visteon measures compensation cost using the intrinsic value method. If compensation cost for all stock-based awards had been determined based on the estimated fair value of stock options and the fair value set at the date of grant for restricted stock awards, in accordance with the provisions of SFAS 123, Visteon’s reported net (loss) and (loss) per share would have changed to the pro forma amounts indicated below:
              
  2004 2003 2002
       
  Restated Restated Restated
  (in millions, except per share
  amounts)
Net (loss), as reported $(1,536) $(1,229) $(379)
Add: Stock-based employee compensation expense included in reported net (loss), net of related tax effects  18   9   4 
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects  (27)  (18)  (15)
          
 Pro forma net (loss) $(1,545) $(1,238) $(390)
          
(Loss) per share:            
 Basic and diluted — as reported $(12.26) $(9.77) $(2.97)
 Basic and diluted — pro forma $(12.33) $(9.84) $(3.05)

81

VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
              
200320022001
(Restated)
(in millions, except per share
amounts)
Net (loss), as reported $(1,243) $(362) $(122)
Add: Stock-based employee compensation expense included in reported net (loss), net of related tax effects  9   4   9 
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects  (18)  (15)  (11)
  
  
  
 
 Pro forma net (loss) $(1,252) $(373) $(124)
  
  
  
 
(Loss) per share:            
 Basic and diluted — as reported $(9.88) $(2.84) $(0.94)
 Basic and diluted — pro forma $(9.95) $(2.92) $(0.96)
NOTE 3. Accounting Policies — (Continued)

The following is a summary of the fair values and assumptions used under a Black-Scholes option-pricing model for stock options granted in 2004, 2003 2002 and 2001:

2002:
                     
200320022001 2004 2003 2002
      
Fair Values
                    
Average fair value of stock option granted in which the exercise price equaled the market price of the stock on the grant date $2.34 $6.27 $6.83 
Average fair value of stock option granted in which the exercise price was less than the market price of the stock on the grant date  N/A  N/A $7.94 
Average fair value of stock options granted $3.32 $2.34 $6.27 
Weighted Average Assumptions
                    
Risk-free interest rate  3.0%  4.8%  4.7%  4.1%  3.0%  4.8%
Expected life (years)  5.0  6.0  4.7   5.0  5.0  6.0 
Volatility  43.2%  51.6%  42.8%  40.8%  43.2%  51.6%
Dividend yield  1.9%  1.8%  1.4%  2.6%  1.9%  1.8%

See Note 1011 of our consolidated financial statements for further information related to stock-based awards.

NOTE 4. Asset Securitization
United States
      In the first quarter of 2004, Visteon established a revolving accounts receivable securitization facility in the United States (“facility agreement”). Under this facility agreement, Visteon can sell a portion of its U.S. trade receivables from customers other than Ford to Visteon Receivables LLC (“VRL”), a wholly-owned consolidated special purpose entity. VRL may then sell, on a non-recourse basis (subject to certain limited exceptions), an undivided interest in the receivables to an asset-backed, multi-seller commercial paper conduit, which is unrelated to Visteon or VRL. The conduit typically finances the purchases through the issuance of commercial paper, with back-up purchase commitments from the conduit’s financial institution. As of December 31, 2004 the amount of undivided interests that VRL could sell to the conduit was about $66 million. The sale of the undivided interest in the receivables from VRL to the conduit is accounted for as a sale under the provisions of Statement of Financial Accounting Standards No. 140, “Accounting for the Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” When VRL sells an undivided interest to the conduit, VRL retains the remaining undivided interest. The carrying value of the remaining undivided interests approximates the fair market value of these receivables. The value of the undivided interest sold to the conduit is excluded from our consolidated balance sheet and reduces our accounts receivable balance. Visteon continues to perform the collection and administrative functions related to the accounts receivable. The facility has been extended to March 29, 2006 and can be extended annually through March 2008 based upon the mutual agreement of the parties. Additionally, the agreement contains financial covenants similar to our unsecured revolving credit facilities, and a mechanism which considers changes in Visteon’s credit ratings in determining the maximum amount of undivided interests that VRL could sell to the conduit.

6782

VISTEON CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS — (Continued)
NOTE 4. InventoriesAsset Securitization — (Continued)
      At the time VRL sells the undivided interest to the conduit, the sale is recorded at fair market value with the difference between the carrying amount and fair value of the assets sold included in operating income as a loss on sale. This difference between carrying value and fair value is principally the estimated discount inherent in the facility agreement, which reflects the borrowing costs as well as fees and expenses of the conduit, and the length of time the receivables are expected to be outstanding. For the year ended December 31, 2004, gross proceeds from new securitizations were $235 million; collections and repayments to the conduit were $180 million, resulting in net proceeds of $55 million. The retained interest at December 31, 2004 of $178 million is included in Accounts receivable — other customers on the Consolidated Balance Sheet. The loss on the sale of receivables was about $1 million and customer delinquencies were less than $1 million for 2004.
          
December 31,
20032002
(Restated)
(in millions)
Raw materials, work-in-process and supplies $518  $609 
Finished products  243   269 
  
  
 
 Total inventories $761  $878 
  
  
 
U.S. inventories $436  $548 
Europe
      As of December 31, 2004 and 2003, Visteon has sold euro 19 million ($26 million) and euro 12 million ($15 million), respectively, of trade receivables without recourse, under a European sale of receivables agreement with a bank which is renewable on an annual basis. This agreement currently provides for the sale of up to euro 60 million in trade receivables until March 31, 2006.

The components
NOTE 5. Inventories

          
  December 31,
   
  2004 2003
     
  (in millions)
Raw materials, work-in-process and supplies $621  $573 
Finished products  268   279 
       
 Total inventories $889  $852 
       
      During 2004, Visteon changed the method of inventory have been conformed to reclassify finished products inventory at several plant locations.

     Inventories are stated atdetermining the lower of cost or market. The cost of mostproduction inventory for U.S. inventories is determined byfrom the last-in, first-out (“LIFO”) method. The cost of the remaining inventories is determined primarily bymethod to the first-in first-out (“FIFO”) method.

If the FIFO method had been used insteaddescribed further in Note 17 of the LIFO method, inventories would have been higher by $98 million and $78 million at December 31, 2003 and 2002, respectively.

our consolidated financial statements.
NOTE 5. 6. Net Property, Depreciation and Amortization
          
  December 31,
   
  2004 2003
     
  (in millions)
Land $160  $122 
Buildings and land improvements  1,898   1,549 
Machinery, equipment and other  8,031   8,308 
Construction in progress  303   428 
       
 Total land, plant and equipment  10,392   10,407 
Accumulated depreciation  (5,368)  (5,398)
       
 Net land, plant and equipment  5,024   5,009 
Special tools, net of amortization  279   356 
       
Net property $5,303  $5,365 
       

83

VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
NOTE 6. Net Property, Depreciation and Amortization — (Continued)
          
December 31,
20032002
(Restated)
(in millions)
Land $122  $125 
Buildings and land improvements  1,549   1,561 
Machinery, equipment and other  8,308   8,631 
Construction in progress  428   320 
  
  
 
 Total land, plant and equipment  10,407   10,637 
Accumulated depreciation  (5,398)  (5,527)
  
  
 
 Net land, plant and equipment  5,009   5,110 
Special tools, net of amortization  356   338 
  
  
 
Net property $5,365  $5,448 
  
  
 

      Property, equipment and special tools are depreciated principally using the straight-line method of depreciation over the estimated useful life of the asset. On average, buildings and land improvements are depreciated based on a 30-year life; machinery and equipment are depreciated based on a 14-year life. Special tools are amortized using the straight-line method over periods of time representing the estimated life of those tools, with the majority of tools amortized over five years.

68

VISTEON CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS — (Continued)

     
NOTE 5. Net Property, Depreciation and Amortization — (Continued)

Depreciation and amortization expenses, werewhich do not include asset impairment charges, are summarized as follows:

           
200320022001
          
 2004 2003 2002
(Restated)       
(in millions)  (in millions)
DepreciationDepreciation $572 $551 $562 Depreciation $580 $572 $551 
AmortizationAmortization  105  82  82 Amortization  105  105  82 
Goodwill amortization  —  —  23 
 
 
 
         
Total $677 $633 $667 Total $685 $677 $633 
 
 
 
         

At December 31, 2003,2004, Visteon had the following minimum rental commitments under non-cancelable operating leases (in millions): 20042005 — $53; 2005 — $35; 2006 — $29;$45; 2007 — $26;$39; 2008 — $19;$34; 2009 — $30; thereafter — $70. Rent expense was $92 million in 2004, $86 million in 2003 and $90 million in 2002 and $106 million in 2001.2002.

Maintenance, repairs and rearrangement costs are expensed as incurred. Expenditures that increase the value or productive capacity of assets are capitalized. Pre-production costs related to new facilities are expensed as incurred. Unbilled receivables related to production tooling costs, which are not owned by Visteon and for which there is an agreement for contractual reimbursement, were about $215 million and $170 million at December 31, 2003 and 2002, respectively.

NOTE 6. 7. Income Taxes

Income (loss) before income taxes, minority interests and change in accounting, excluding equity in net income of affiliated companies, was as follows:

          
200320022001             
  2004 2003 2002
      
(Restated)  Restated Restated Restated
(in millions)  (in millions)
U.S. U.S.  $(1,202) $(126) $(345)U.S.  $(755) $(1,205) $(153)
Non-U.S. Non-U.S.   (44)  (51)  146 Non-U.S.   171  (44)  (51)
 
 
 
         
Total income (loss) before income taxes $(1,246) $(177) $(199)Total income (loss) before income taxes $(584) $(1,249) $(204)
 
 
 
         

6984

VISTEON CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS — (Continued)
NOTE 6. 7. Income Taxes — (Continued)

The provision (benefit) for income taxes was calculated as follows:

            
200320022001              
  2004 2003 2002
      
(Restated)  Restated Restated Restated
(in millions)  (in millions)
Current tax provision (benefit)Current tax provision (benefit)          Current tax provision (benefit)          
U.S. federal $— $(1) $(6)U.S. federal $(2) $— $(1)
Non-U.S.   89  76  77 Non-U.S.   91  89  76 
U.S. state and local  1  —  — U.S. state and local  —  1  — 
 
 
 
         
 Total current  90  75  71  Total current  89  90  75 
 
 
 
         
Deferred tax provision (benefit)Deferred tax provision (benefit)          Deferred tax provision (benefit)          
U.S. federal  (262)  (62)  (116)U.S. federal  740  (280)  (71)
Non-U.S.   216  (73)  (25)Non-U.S.   71  216  (73)
U.S. state and local  (21)  (4)  (4)U.S. state and local  62  (20)  (5)
 
 
 
         
 Total deferred  (67)  (139)  (145) Total deferred  873  (84)  (149)
 
 
 
         
 Total provision (benefit) $23 $(64) $(74) Total provision (benefit) $962 $6 $(74)*
 
 
 
         

* Excludes2002 excludes effect of change in accounting.accounting for goodwill.

A reconciliation of the provision (benefit) for income taxes compared with amounts at the U.S. statutory tax rate is shown below:
            
200320022001              
  2004 2003 2002
      
(Restated)  Restated Restated Restated
Tax provision (benefit) at U.S. statutory rate of 35%Tax provision (benefit) at U.S. statutory rate of 35%  (35)%  (35)%  (35)%Tax provision (benefit) at U.S. statutory rate of 35%  (35)%  (35)%  (35)%
Effect of:Effect of:          Effect of:          
Tax on non-U.S. income  —  —  — Foreign earnings taxed at different rates  (6)  —  — 
U.S. state and local income taxes  (3)  (2)  (2)Residual U.S. and withholding taxes on foreign earnings  13  —  — 
U.S. general business credits  (1)  (6)  (6)State and local income taxes  (3)  (2)  (2)
Increase in valuation allowance  38  12  — U.S. research tax credits  (6)  (1)  (5)
Other  3  (5)  6 Tax reserve adjustments  (14)  —  — 
 
 
 
 Benefits related to U.S. exports  (2)  (1)  (4)
 Provision (benefit) for income taxes  2%  (36)%*  (37)%Change in valuation allowance  220  37  10 
 
 
 
 Other  (2)  3  — 
       
 Provision (benefit) for income taxes  165%  1%  (36)%*
       

* Excludes2002 excludes effect of change in accounting.accounting for goodwill.

     Deferred income taxes are provided for the net effect of repatriating earnings of non-U.S. subsidiaries. Deferred tax assets and liabilities reflect the estimated tax effect of accumulated temporary differences between amounts of assets and liabilities for financial reporting purposes and those amountsthe basis of such assets and liabilities as measured by tax laws and regulations, as well as net operating loss, and tax credit and other carryforwards. Additionally, deferred taxes have been provided for the net effect of repatriating earnings from consolidated foreign subsidiaries. U.S. Statement of Financial Accounting Standards No. 109 (“SFAS 109”), “Accounting for Income Taxes,” requires that deferred tax assets be reduced by a valuation allowance if, based on all available evidence, it is considered more likely than not that some portion or all of the recorded deferred tax assets will not be realized in future periods.

7085

VISTEON CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS — (Continued)
NOTE 6. 7. Income Taxes — (Continued)

The components of deferred income tax assets and liabilities at December 31 were as follows:

        
December 31,
          
20032002  December 31,
   
 2004 2003
(Restated)     
 Restated Restated
(in millions)  (in millions)
Deferred tax assetsDeferred tax assets       Deferred tax assets       
Employee benefit plans $1,197 $1,067 Employee benefit plans $1,249 $1,197 
Capitalized research and development expenses  319  11 Capitalized expenditures for tax reporting  276  319 
Net operating losses and other carryforwards  281  347 Net operating losses and carryforwards  721  281 
All other  379  184 All other  451  364 
 
 
       
 Subtotal  2,176  1,609  Subtotal  2,697  2,161 
Valuation allowance  (524)  (21)Valuation allowance  (1,949)  (508)
 
 
       
 Total deferred tax assets  1,652  1,588  Total deferred tax assets  748  1,653 
 
 
       
Deferred tax liabilitiesDeferred tax liabilities       Deferred tax liabilities       
Depreciation and amortization  590  707 Depreciation and amortization  476  590 
All other  202  98 All other  405  203 
 
 
       
 Total deferred tax liabilities  792  805  Total deferred tax liabilities  881  793 
 
 
       
Net deferred tax assets $860 $783 
Net deferred tax (liabilities) assetsNet deferred tax (liabilities) assets $(133) $860 
 
 
       

On its 2002 U.S. federal income tax return, Visteon capitalized certain research and development expenses, which resulted in the utilization of substantially all of its U.S. net operating loss carryforwards, as well as losses related to foreign affiliates that are treated as pass-through entities for U.S. tax purposes, at December 31, 2002. Visteon intends to capitalize additional research and development expenses on its 2003 U.S. federal income tax return, resulting in no incremental U.S. net operating loss at December 31, 2003.      The anticipated tax benefit of non-U.S. net operating loss and other carryforwards is $129$354 million at December 31, 2003.2004. These losses have carryforward periods ranging from 5 years to indefinite. The anticipated tax benefit of U.S. net operating loss and capital loss carryforwards is $108 million at December 31, 2004. These losses will begin to expire in 2009. U.S. foreign tax credit carryforwards are $81$155 million at December 31, 2003.2004. These credits will begin to expire in 2006.2011. U.S. general business credit and otherresearch tax credits carryforwards are $71$104 million at December 31, 2003.2004. These credits and other carryforwards will begin to expire in 2021.

2020.

During 2003,the third quarter of 2004, Visteon recorded an additionala non-cash charge of $871 million to establish full valuation allowance of $503 millionallowances against itsour net deferred tax assets in the U.S. and certain foreign countries. This charge was comprised of which $473$948 million wasof deferred tax assets as of the beginning of the year, offset partially by the reduction of related tax reserves, previously included in other liabilities, of $77 million. Visteon’s provision for income taxes for 2004 includes a benefit of $42 million recorded through income tax expense ($465 million as a special charge in the fourth quarter) and $30 millionquarter to reduce our deferred tax asset valuation allowance to offset a related reduction in our net deferred tax asset. This reduction in our net deferred tax asset was the result of certain U.S. tax adjustments related primarily to foreign currency movements that were recorded through other comprehensive income.income during the fourth quarter. In addition, Visteon’s provision for income taxes for 2004 includes $133 million of income tax expense primarily related to foreign countries whose results continue to be tax-effected due to their ongoing profitability. As of December 31, 2003, athe end of 2004, valuation allowanceallowances totaling $524$1,949 million hashave been recorded against Visteon’s deferred tax assets. Of this amount, $383$1,602 million relates to a portion of Visteon’s U.S. deferred tax assets in the U.S., including deferred tax assetsamounts related to foreign affiliates that are treated as pass-through entities for U.S. tax purposes, and $141$347 million relates to net operating loss carryforwards and other deferred tax assets in certain foreign jurisdictions, where recovery of the carryforwards or assets is unlikely.

7186

VISTEON CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS — (Continued)
NOTE 6. 7. Income Taxes — (Continued)

The valuation allowance at December 31, 2003 was determined in accordance with the provisions of SFAS No. 109, “Accounting for Income Taxes,” which requires an assessment of positive and negative evidence when measuring      In assessing the need for aadditional valuation allowance. Such assessment mustallowances during the third quarter of 2004, Visteon considered the impact on our 2004 operating results from Ford’s lower than expected North American production estimates for the fourth quarter and full year 2004, as well as increased steel and fuel costs, which Visteon has not been able to recover fully, and delays in the benefits that were expected to be done on a jurisdiction-by-jurisdiction basis.achieved from labor strategies, such as flowbacks and plant-level operating agreements. In evaluatinglight of these developments, Visteon determined that it would likely not achieve its forecast of 2004 taxable earnings in the recoverabilityU.S. Visteon concluded, in light of this negative evidence and the uncertainty as to the timing of when it would be able to generate the necessary level of U.S. taxable earnings to recover its net deferred tax assets Visteon considered all available positive and negative evidence, including past results,in the existence of cumulative losses in recent years, and forecasted future taxable income. Visteon concludedU.S., that an increase to thea full valuation allowance against itsthese deferred tax assets was required during 2003. The realizationin the third quarter of 2004. Additionally, we concluded that additional valuation allowances were required for deferred tax assets in certain other foreign countries where recoverability was also considered uncertain. In reviewing our results for the remainingfourth quarter of 2004 and forward-year outlook, we concluded that there were no further changes to our previous assessments as to the realizability of our deferred tax assets.

      During the fourth quarter 2003, Visteon recorded a non-cash charge of $449 million to establish partial valuation allowances against our net deferred tax asset atassets in the U.S. and full valuation allowances for certain foreign countries as of the end of 2003. As of December 31, 2003, is dependent on future taxable income. Failure to achieve expected results in 2004 or beyond may require an increase in thea valuation allowance totaling $508 million was recorded against Visteon’s deferred tax assets. Such an increase would resultOf this amount, $141 million relates to net operating loss carryforwards and other deferred tax assets in additional incomecertain foreign jurisdictions, and $367 million relates to a portion of Visteon’s U.S. deferred tax expenseassets, including amounts related to foreign affiliates that are treated as pass-through entities for U.S. tax purposes, where recovery of the applicable period. Visteon intendscarryforwards or assets is unlikely.
      Going forward, the need to maintain an appropriate valuation allowanceallowances against deferred tax assets in the U.S. and other affected countries will cause variability in Visteon’s effective tax rate. Visteon will maintain full valuation allowances against our deferred tax assets in the U.S. and applicable foreign countries, which include the U.K. and Germany, until sufficient positive evidence exists to reduce or eliminate it.them.
      During the fourth quarter of 2004, two U.S. tax bills, the Working Families Tax Relief Act of 2004 (“Relief Act”) and the American Jobs Creation Act of 2004 (“Jobs Act”), were signed into law. The Relief Act provides for the retroactive extension of the Federal research tax credit to December 31, 2005; the credit had expired on June 30, 2004. During the fourth quarter of 2004, Visteon adjusted its income tax provision to reflect a full year’s research tax credit. Because of the existence of deferred tax valuation allowances in the U.S., however, there was no impact on Visteon’s fourth quarter or full year 2004 income tax provision. The Jobs Act provides a deduction for qualified domestic production activities, which will be phased in from 2005 through 2010. In return, the Jobs Act provides for a two-year phase-out, beginning in 2005, of the extra-territorial income exclusion (“ETI”) for foreign sales that was viewed to be inconsistent with international trade protocols by the European Union. The Jobs Act also included a number of other provisions, including an extension of the foreign tax credit carryforward period, a temporary dividends-received deduction for certain foreign dividends, alternative minimum tax reform, and other foreign tax reform provisions designed to improve the global competitiveness of U.S. companies. These provisions had no impact on Visteon’s income tax expense for 2004, and they are expected to have only a minimal impact in 2005, because of the existence of deferred tax valuation allowances in the U.S.

87

VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
NOTE 7. 8. Liabilities

Current Liabilities

Included in accrued liabilities at December 31 were the following:
      
December 31,
        
20032002  December 31,
   
 2004 2003
(Restated)     
(in millions)  (in millions)
Employee benefits, including pensionsEmployee benefits, including pensions $386 $384 Employee benefits, including pensions $341 $386 
Salaries, wages and employer taxesSalaries, wages and employer taxes  104  170 Salaries, wages and employer taxes  120  104 
Postretirement benefits other than pensionsPostretirement benefits other than pensions  73  93 Postretirement benefits other than pensions  83  73 
Restructuring related (Note 16)Restructuring related (Note 16)  55  45 
InterestInterest  43  37 
OtherOther  367  375 Other  252  285 
 
 
       
Total accrued liabilities $930 $1,022 Total accrued liabilities $894 $930 
 
 
       

Noncurrent Liabilities

Included in other noncurrent liabilities at December 31 were the following:
       
December 31,
        
20032002  December 31,
   
 2004 2003
(Restated)     
(in millions)  (in millions)
Employee benefits, including pensionsEmployee benefits, including pensions $668 $571 Employee benefits, including pensions $751 $668 
Minority interests in net assets of subsidiariesMinority interests in net assets of subsidiaries  156  129 Minority interests in net assets of subsidiaries  209  156 
Deferred income taxes  3  3 
Seating operations related payable to Ford (Note 16)Seating operations related payable to Ford (Note 16)  184  206 
OtherOther  681  442 Other  332  475 
 
 
       
Total other liabilities $1,508 $1,145 Total other liabilities $1,476 $1,505 
 
 
       

Other current and noncurrent liabilities include amounts related to product warranty, product recall and the exit from the North American seating operation, which is discussed further in Note 14 of our consolidated financial statements.

72

VISTEON CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS — (Continued)

accruals for taxes related to prior years.
NOTE 8. 9. Employee Retirement Benefits
Visteon Sponsored Plans

Employee Retirement Plans

      In the U.S., Visteon hourly employees represented by the UAW and other collective bargaining groups earn noncontributory benefits based on employee service. Visteon U.S. salaried employees earn similar noncontributory benefits as well as contributory benefits related to pay and service. In accordance with the separation agreements, Ford retained the past service obligations for those transferred salaried employees who were eligible to retire in 2000 as well as those whose combined age and years of service was at least 60 at the date of the separation from Ford. For all other transferred salaried employees, Visteon assumed the pension obligations as well as assets with a fair value at least equal to the related projected benefit obligation at the date of the separation from Ford but no less than the amount required to be transferred under applicable laws and regulations. Certain of the non-U.S. subsidiaries sponsor separate plans that provide similar types of benefits to their employees. For these non-U.S. plans, Visteon has assumed all plan benefit obligations for Visteon employees as well as assets that approximated the benefit obligations for funded plans at the separation date.

88

VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
NOTE 9. Employee Retirement Benefits — (Continued)
      In general, Visteon’s plans are funded with the exception of certain supplemental benefit plans for executives and a plan in Germany. Visteon’s policy for funded plans is to contribute annually, at a minimum, amounts required by applicable law, regulation or union agreement.

      Most U.S. salaried employees are eligible to participate in a defined contribution plan (Visteon Investment Plan) by contributing a portion of their compensation, which was partially matched by Visteon. Matching contributions were suspended effective January 1, 2002.
Postretirement Health Care and Life Insurance Benefits
      In the U.S., Visteon has a financial obligation for the cost of providing selected postretirement health care and life insurance benefits to its employees under Visteon sponsored plans.
      The Medicare Prescription Drug, Improvement and Modernization Act of 2003 (“Medicare Act of 2003”) was signed into law on December 8, 2003. This legislation provides for a federal subsidy beginning in 2006 to sponsors of retiree health care benefit plans that provide a benefit at least actuarially equivalent to the benefit established by the law. Visteon’s plans generally provide retiree drug benefits that exceed the value of the benefit that will be provided by Medicare Part D, and we have concluded that our plans are actuarially equivalent, pending further definition of the criteria used to determine equivalence. This subsidy reduced the benefit obligation for Visteon plans by $87 million as of March 31, 2004, and will be recognized through reduced retiree health care expense over the related employee future service lives, of which $12 million has been recognized as of December 31, 2004.
Ford Sponsored Plans
Employee Retirement Plans
      Visteon-assigned Ford-UAW employees comprising about 22,000 people (combined actives and retirees)(about 17,700 active employees at December 31, 2003,2004) participate in the Ford-UAW Retirement Plan, sponsored by Ford. By agreement, Visteon compensates Ford for the related pension expense incurred by Ford for Visteon-assigned employees.expense. The amount of compensation is disclosed in the table below on the “expense for Visteon-assigned Ford-UAW and certain salaried employees” line, and is calculated by Ford on a SFAS 87 basis using Ford’s pension assumptions.

     Most U.S. salaried employees are eligible to participate in a defined contribution plan (Visteon Investment Plan) by contributing a portion of their compensation, which was partially matched by Visteon. Matching contributions were $31 million in 2001 and were suspended effective January 1, 2002.

Postretirement Health Care and Life Insurance Benefits

      In the U.S., Visteon has a financial obligation for the cost of providing selected health care and life insurance benefitsaddition to its employees under Visteon sponsored plans. In addition,pension, under the terms of the Hourly Employee Assignment Agreement (the “Agreement”), Ford charges the companyVisteon for a portion of the cost of such retiree health care and life insurance benefits that are provided by Ford to Visteon-assigned Ford-UAW employees who retire after July 1, 2000. The estimated cost for these benefits is accrued over periods of employee service on an actuarially determined basis. The amounts charged by Ford related to the Visteon-assigned Ford-UAW employees are determined by Ford’s actuaries, computed in accordance with Ford’s SFAS 106 methodologies and actuarial assumptions, and are included in the accompanying balance sheet as postretirement benefits payable to Ford.

7389

VISTEON CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS — (Continued)
NOTE 8. 9. Employee Retirement Benefits — (Continued)

      During the fourth quarter of 2003, the Agreement was amended and restated. Under the terms of the amended and restated agreement, Ford agreed to assume responsibility for approximately $1,646 million of amounts previously owed by Visteon to Ford for postretirement health and life insurance benefits earned by the Visteon-assigned Ford-UAW employees during the period prior to the separation. Ford agreed also to assume responsibility for future accretion on the $1,646 million amount at the appropriate SFAS 106 discount rate (6.25% at December 31, 2003). Visteon had previously recorded the $1,646 million liability in accordance with the original terms of the Agreement. Visteon continues to be responsible to Ford for changes in this liability that result from changes in actuarial assumptions, changes in salaries and Visteon early retirement incentive plans.

      In accordance with SFAS 15, “Accounting by Debtors and Creditors for Troubled Debt Restructurings,” Visteon hasdid not recordedrecord any immediate gain or loss relating to this amendment because future accretion and contingently payable amounts with respect to the restructured obligation are expected to exceed the amount currently recorded by Visteon. The amounts ultimately due are contingent upon future health and retirement benefit costs to be charged to Visteon by Ford with respect to the Visteon-assigned Ford-UAW employees. A portion of the yearly expense charged by Ford will be offset as charged by the release of the contingently payable amount ($1,138 million at December 31, 2003) and the remainder will reduce future accretion charges over the life of the obligation ($508 million)million at December 31, 2003).

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VISTEON CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS — (Continued)

NOTE 8. Employee Retirement Benefits — (Continued)

      Under the terms of the revised Agreements with Ford, Visteon is required to fund a portion of actual costs of these benefits as incurred by Ford for the Visteon-assigned Ford-UAW employees through 2005 and certain salaried employees through 2010. In addition, Visteon has agreed to contribute funds to a Voluntary Employees’ Beneficiary Association (“VEBA”) trust to fund postretirement health care and life insurance benefits to be provided by Ford related to the post-spin service of Visteon-assigned Ford-UAW hourly employees as well as many transferred salaried employees. The required VEBA funding is over a 44-year period beginning in 2006 for the Visteon-assigned Ford-UAW hourly employees, and over a 39-year period beginning in 2011 for those salaried employees. The annual funding requirement during these periods will be determined based upon amortization of the unfunded liabilities at the beginning of each period, plus amortization of annual expense. Based upon estimates of the unfunded liabilities and the related expense, the first required annual payment to the VEBA will be about $112$115 million (which includes about $30$35 million to cover benefit payments) in 2006 reduced from $535 million based on the prior agreement.2006. In December 2000, Visteon pre-funded a portion of this obligation by contributing $25 million to a VEBA. The fair value of the VEBA assets as of December 31, 2004 and 2003 was $24 million and $28 million, respectively, and is included in other non-current assets in the accompanying balance sheet.

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VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
NOTE 9. Employee Retirement Benefits — (Continued)
The benefit obligation and net amount recognized in the balance sheet for the postretirement health care and life insurance benefits payable to Ford relating to participation by the Visteon-assigned Ford-UAW and certain salaried employees at December 31, was as follows:
          
December 31,          
  December 31,
20032002   
  2004 2003
    
(in millions)  (in millions)
Obligation for benefits to Visteon-assigned Ford-UAW and salaried employeesObligation for benefits to Visteon-assigned Ford-UAW and salaried employees $3,292 $2,886 Obligation for benefits to Visteon-assigned Ford-UAW and salaried employees $3,935 $3,292 
Reimbursable amount assumed by FordReimbursable amount assumed by Ford  (1,646)  — Reimbursable amount assumed by Ford  (1,701)  (1,646)
Unamortized losses/other associated with the obligationUnamortized losses/other associated with the obligation  (1,202)  (1,012)Unamortized losses/other associated with the obligation  (1,598)  (1,202)
Deferred amounts:Deferred amounts:       Deferred amounts:       
Contingently payable  1,138  — Contingently payable  1,476  1,138 
To reduce future accretion  508  — To reduce future accretion  67  508 
 
 
       
 Postretirement benefits payable to Ford $2,090 $1,874  Postretirement benefits payable to Ford $2,179 $2,090 
 
 
       

Visteon recognizes postretirement benefit expense based on an allocation of the Ford postretirement healthcare and life insurance benefit expense for the Visteon-assigned Ford-UAW employees and certain salaried employees. The assumptions used by Ford to measure its obligation and expense for those benefits are as follows as of December 31:
               
20032002 2004 2003
    
Discount rate  6.25%  6.75%  5.75%  6.25%
Initial health care cost trend rate  9.00%  11.00%  9.00%  9.00%
Ultimate health care cost trend rate  5.00%  5.00%  5.00%  5.00%
Year that the rate reaches the ultimate trend rate  2010  2008   2011  2010 

7591

VISTEON CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS — (Continued)
NOTE 8. 9. Employee Retirement Benefits — (Continued)
      The Medicare Act of 2003 also affected the allocation to Visteon of the Ford postretirement health care and life insurance benefit obligation and expense for the Visteon-assigned Ford-UAW employees and certain salaried employees, resulting in a reduction to 2004 expense of about $25 million as shown in the following table.

Tables of Expense and Obligations
Visteon’s expense for retirement benefits was as follows:
                       
Retirement Plans
                       
Health Care and Life  Retirement Plans      
U.S. PlansNon-U.S. PlansInsurance Benefits     
      Health Care and Life
200320022001200320022001200320022001  U.S. Plans Non-U.S. Plans Insurance Benefits
       
 2004 2003 2002 2004 2003 2002 2004 2003 2002
(Restated)                   
(in millions, except percentages)  (in millions, except percentages)
Costs Recognized in Income
Costs Recognized in Income
                            
Costs Recognized in Income
                            
Service costService cost $53 $47 $45 $32 $27 $19 $37 $36 $28 Service cost $55 $53 $47 $32 $32 $27 $42 $37 $36 
Interest costInterest cost  59  55  50  52  40  34  51  62  53 Interest cost  66  59  55  62  52  40  61  51  62 
Expected return on plan assetsExpected return on plan assets  (56)  (64)  (64)  (54)  (48)  (49)  —  —  — Expected return on plan assets  (63)  (56)  (64)  (63)  (54)  (48)  —  —  — 
Amortization of:Amortization of:                            Amortization of:                            
Transition (asset) obligation  —  —  (4)  1  1  —  —  —  — Transition (asset) obligation  —  —  —  1  1  1  —  ���  — 
Plan amendments  10  8  8  10  6  6  —  (7)  (1)Plan amendments  10  10  8  9  10  6  —  —  (7)
(Gains) losses and other  —  (2)  (3)  1  (4)  (8)  10  5  2 (Gains) losses and other  4  —  (2)  2  1  (4)  21  10  5 
Special termination benefitsSpecial termination benefits  2  30  52  20  4  1  4  15  19 Special termination benefits  —  2  30  10  20  4  —  4  15 
CurtailmentsCurtailments  —  —  (3)  —  45  1  —  1  — Curtailments  —  —  —  —  —  45  —  —  1 
SettlementsSettlements  1  —  —  2  —  —  —  —  — Settlements  —  1  —  (1)  2  —  (1)  —  — 
Expense for Visteon-assigned Ford-UAW and certain salaried employees  172  62  58  —  —  —  323  224  181 
                   
Visteon sponsored plan net pension/postretirement expenseVisteon sponsored plan net pension/postretirement expense  72  69  74  52  64  71  123  102  112 
Expense for Visteon-assigned Ford- UAW and certain salaried employeesExpense for Visteon-assigned Ford- UAW and certain salaried employees  129  172  62  —  —  —  131  323  224 
 
 
 
 
 
 
 
 
 
                     
 
Net pension/postretirement expense
 $241 $136 $139 $64 $71 $4 $425 $336 $282  
Net pension/ postretirement expense
 $201 $241 $136 $52 $64 $71 $254 $425 $336 
 
 
 
 
 
 
 
 
 
                     
Assumptions — cost
                            
Weighted Average Assumptions — cost
Weighted Average Assumptions — cost
                            
Discount rate for expenseDiscount rate for expense  6.75%  7.50%  7.75%  5.75%  6.00%  6.25%  6.75%  7.25%  7.50%Discount rate for expense  6.10%  6.75%  7.50%  5.60%  5.75%  6.00%  6.10%  6.75%  7.25%
Assumed long-term rate of return on assetsAssumed long-term rate of return on assets  9.00%  9.50%  9.50%  8.25%  9.00%  10.00%  6.00%  6.00%  6.00%Assumed long-term rate of return on assets  9.00%  9.00%  9.50%  7.70%  8.25%  9.00%  —  6.00%  6.00%
Initial health care cost trend rateInitial health care cost trend rate  —  —  —  —  —  —  10.44%  9.45%  8.97%Initial health care cost trend rate  —  —  —  —  —  —  11.00%  10.44%  9.45%
Ultimate health care cost trend rateUltimate health care cost trend rate  —  —  —  —  —  —  5.00%  5.00%  5.00%Ultimate health care cost trend rate  —  —  —  —  —  —  5.00%  5.00%  5.00%
Year that the rate reaches the ultimate trend rateYear that the rate reaches the ultimate trend rate  —  —  —  —  —  —  2008  2008  2008 Year that the rate reaches the ultimate trend rate  —  —  —  —  —  —  2009  2008  2008 

Increasing the assumed health care cost trend rates by one percentage point is estimated to increase the Visteon sponsored plans’ aggregate service and interest cost components of Visteon’sVisteon sponsored plan net postretirement benefit expense for 20032004 by about $27$25 million ($42 million for Ford plans) and the accumulated postretirement benefit obligation at December 31, 20032004 by about $195$205 million. A decrease of one percentage point would reduce service and interest costs by $21 million ($34 million for Ford plans) and decrease the December 31, 20032004 obligation by about $155$163 million.

7692

VISTEON CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS — (Continued)
NOTE 8. 9. Employee Retirement Benefits — (Continued)

The status of thesethe Visteon plans as of their most recent measurement dates was as follows:

follows (status of Visteon portion of Ford plans included previously):
                       
Retirement Plans
Health Care and                     
Life Insurance  Retirement Plans  
U.S. PlansNon-U.S. PlansBenefits    Health Care and
      Life Insurance
200320022003200220032002  U.S. Plans Non-U.S. Plans Benefits
       
 2004 2003 2004 2003 2004 2003
(Restated)             
(in millions, except percentages)  (in millions, except percentages)
Change in Benefit Obligation
Change in Benefit Obligation
                   
Change in Benefit Obligation
                   
Benefit obligation — beginningBenefit obligation — beginning $851 $703 $866 $641 $753 $528 Benefit obligation — beginning $1,053 $851 $1,123 $866 $1,130 $753 
Service costService cost  53  47  32  27  37  27 Service cost  55  53  32  32  42  37 
Interest costInterest cost  59  55  52  40  51  41 Interest cost  66  59  62  52  61  51 
Amendments/otherAmendments/other  8  28  19  37  1  — Amendments/other  11  8  (25)  19  (22)  1 
Actuarial loss  89  52  39  31  313  187 
Actuarial (gain) lossActuarial (gain) loss  4  89  22  39  (58)  313 
Special termination benefitsSpecial termination benefits  33  —  15  4  —  — Special termination benefits  —  33  13  15  —  — 
CurtailmentCurtailment  —  —  (12)  28  —  (4)Curtailment  —  —  —  (12)  —  — 
SettlementsSettlements  (1)  —  1  —  —  — Settlements  —  (1)  (2)  1  (4)  — 
Foreign exchange translationForeign exchange translation  —  —  150  70  1  — Foreign exchange translation  —  —  91  150  —  1 
Benefits paidBenefits paid  (39)  (34)  (39)  (12)  (26)  (26)Benefits paid  (45)  (39)  (37)  (39)  (34)  (26)
 
 
 
 
 
 
               
Benefit obligation — ending $1,053 $851 $1,123 $866 $1,130 $753 Benefit obligation — ending $1,144 $1,053 $1,279 $1,123 $1,115 $1,130 
 
 
 
 
 
 
               
Change in Plan Assets
Change in Plan Assets
                   
Change in Plan Assets
                   
Plan assets — beginningPlan assets — beginning $562 $595 $451 $422 $— $— Plan assets — beginning $671 $562 $635 $451 $— $— 
Actual return on plan assetsActual return on plan assets  107  (27)  49  (61)  —  — Actual return on plan assets  88  107  51  49  —  — 
Sponsor contributionsSponsor contributions  37  22  76  47  25  26 Sponsor contributions  63  37  67  76  34  25 
Participant contributionsParticipant contributions  8  8  15  10  1  — Participant contributions  8  8  11  15  —  1 
Foreign exchange translationForeign exchange translation  —  —  83  33  —  — Foreign exchange translation  —  —  54  83  —  — 
Benefits paid/otherBenefits paid/other  (43)  (36)  (39)  —  (26)  (26)Benefits paid/other  (49)  (43)  (62)  (39)  (34)  (26)
 
 
 
 
 
 
               
Plan assets — ending $671 $562 $635 $451 $— $— Plan assets — ending $781 $671 $756 $635 $— $— 
 
 
 
 
 
 
               
Funded Status of the Plans
Funded Status of the Plans
                   
Funded Status of the Plans
                   
Plan assets in excess of (less than) benefit obligations $(382) $(289) $(488) $(415) $(1,130) $(753)
Plan assets (less than) benefit obligationsPlan assets (less than) benefit obligations $(363) $(382) $(523) $(488) $(1,115) $(1,130)
Contributions between measurement and end of fiscal yearContributions between measurement and end of fiscal year  6  —  23  25  14  7 Contributions between measurement and end of fiscal year  1  6  15  23  15  14 
Special termination benefits between measurement and end of fiscal yearSpecial termination benefits between measurement and end of fiscal year  —  —  (5)  —  —  — Special termination benefits between measurement and end of fiscal year  —  —  (2)  (5)  —  — 
Unrecognized:Unrecognized:                   Unrecognized:                   
Net (gains) losses  153  112  274  205  520  214 Net (gains) losses  132  153  330  274  438  520 
Prior service cost/other  59  69  115  111  8  7 Prior service cost/other  52  59  85  115  (16)  8 
 
 
 
 
 
 
               
Net amount recognized $(164) $(108) $(81) $(74) $(588) $(525)Net amount recognized $(178) $(164) $(95) $(81) $(678) $(588)
 
 
 
 
 
 
               
Amount Recognized in Balance Sheet
Amount Recognized in Balance Sheet
                   
Amount Recognized in Balance Sheet
                   
Prepaid assetsPrepaid assets $— $1 $18 $15 $— $— Prepaid assets $— $— $8 $18 $— $— 
Accrued liabilitiesAccrued liabilities  (315)  (257)  (275)  (194)  (588)  (525)Accrued liabilities  (314)  (315)  (329)  (275)  (678)  (588)
Intangible assetsIntangible assets  54  62  83  81  —  — Intangible assets  47  54  73  83  —  — 
Deferred income taxesDeferred income taxes  30  32  2  9  —  — Deferred income taxes  30  30  2  2  —  — 
Accumulated other comprehensive incomeAccumulated other comprehensive income  67  54  91  15  —  — Accumulated other comprehensive income  59  67  151  91  —  — 
 
 
 
 
 
 
               
 Net amount recognized $(164) $(108) $(81) $(74) $(588) $(525)Net amount recognized $(178) $(164) $(95) $(81) $(678) $(588)
 
 
 
 
 
 
               
Assumptions — Benefit Obligations
                   
Weighted Average Assumptions — Benefit Obligations
Weighted Average Assumptions — Benefit Obligations
                   
Discount rateDiscount rate  6.10%  6.75%  5.60%  5.75%  6.10%  6.75%Discount rate  6.10%  6.10%  5.50%  5.60%  6.10%  6.10%
Expected rate of return on assetsExpected rate of return on assets  9.00%  9.00%  7.70%  8.25%  —  — Expected rate of return on assets  9.00%  9.00%  7.50%  7.70%  —  — 
Rate of increase in compensationRate of increase in compensation  4.00%  4.00%  3.70%  3.75%  —  — Rate of increase in compensation  4.00%  4.00%  3.60%  3.70%  —  — 
Initial health care cost trend rateInitial health care cost trend rate  —  —  —  —  11.00%  10.44%Initial health care cost trend rate  —  —  —  —  11.00%  11.00%
Ultimate health care cost trend rateUltimate health care cost trend rate  —  —  —  —  5.00%  5.00%Ultimate health care cost trend rate  —  —  —  —  5.00%  5.00%
Year that the rate reaches the ultimate trend rateYear that the rate reaches the ultimate trend rate  —  —  —  —  2009  2007 Year that the rate reaches the ultimate trend rate  —  —  —  —  2010  2009 
Measurement dateMeasurement date  9/30  9/30  9/30  9/30  9/30  9/30 Measurement date  9/30  9/30  9/30  9/30  9/30  9/30 

7793

VISTEON CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS — (Continued)
NOTE 8. 9. Employee Retirement Benefits — (Continued)

      The accumulated benefit obligation for all defined benefit pension plans was $1,821$2,068 million and $1,392$1,821 million at the 20032004 and 20022003 measurement dates.

     The increase in minimum pension liability included in other comprehensive income for the years ended December 31, 2003 and 2002 was $89 million and $67 million, respectively.

The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for employee retirement plans with accumulated benefit obligations in excess of plan assets were $2,215 million, $1,933 million and $1,358 million, respectively, for 2004 and $1,944 million, $1,670 million and $1,117 million, respectively, for 20032003.
Contributions
      During 2005, Visteon’s expected contributions to Visteon U.S. retirement plans and $1,538 million, $1,279 million and $870 million, respectively, for 2002.

The change in the U.S. discount rate from 6.75% to 6.10% for the year ended December 31, 2003 resulted in an increase of $103 million and $98 million to the U.S. pension benefit obligation andpostretirement health care and life insurance plans are $45 million and $33 million, respectively. Visteon’s expected 2005 contributions to non-U.S. retirement plans is $45 million. These are expected contributions and may be revised during 2005.

Estimated Future Benefit Payments
      The following benefit obligation, respectively,payments, which reflect expected future service, as appropriate, are expected to be paid by the Visteon plans; expected receipts from the Medicare Prescription Drug Act subsidy are also included below:
                 
      Retiree Health and
    Life
  Pension  
  Benefits   Medicare
    Gross Subsidy
  U.S. Non-U.S. Payments Receipts
         
  (in millions)
2005 $48  $129  $33  $— 
2006  49   29   38   3 
2007  50   29   41   3 
2008  52   29   45   3 
2009  53   30   49   4 
Years 2010 — 2014  284   165   317   24 
      Non-U.S. pension benefit payments of $129 million in 2005 from Visteon plans includes the 2003 actuarial lossesanticipated effect of settling pension obligations related to our Markham, Ontario facility which was closed in the table above.
2002.

U.S. Plan Assets and Investment Strategy

Visteon’s U.S. retirement plan asset allocation at September 30, 20032004 and 20022003 and target allocation for 20042005 are as follows:
                        
             U.S. Non-U.S.
    
Percentage of    Percentage of   Percentage of
TargetPlan Assets  Target Plan Assets Target Plan Asset
Allocation
  Allocation   Allocation  
200420032002  2005 2004 2003 2005 2004 2003
             
Equity securitiesEquity securities  70%  69%  54%Equity securities  70%  71%  69%  55%  57%  56%
Debt securitiesDebt securities  30  31  46 Debt securities  30  29  31  45  43  44 
 
 
 
               
Total  100%  100%  100%Total  100%  100%  100%  100%  100%  100%
 
 
 
               

94

VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
NOTE 9. Employee Retirement Benefits — (Continued)
      The plan’splans’ expected long-term raterates of return on plan assets of 9.0% isare primarily based on historical returns of similarly diversified portfolios. In addition, third-party data regarding expected asset class returns and projected inflation has beenis considered.

     Investment management responsibilities of plan assets are delegated to registered investment advisers and overseen by an investment committee comprised of members of Visteon’s senior management. Written investment management agreements and the Visteon U.S. Pension Plan Investment Policy Statement set forth the goals, policies and investment management strategies of the plan with regard to permissible investments, risk management practices and the use of derivative securities. Compliance with these provisions is verified at least quarterly.

      Given the relatively long durationhorizon of the plan’sVisteon’s aggregate obligations, the plan’sits investment strategy is to improve the funded status of the planit U.S. and Non-U.S. plans over time based on a targetwithout exposure to excessive asset value volatility. Visteon manages this risk primarily by maintaining each plan’s actual asset allocation of 70% equity securities. Asset allocation acrossbetween equity and debtfixed income securities is maintained within a +/-5%specified range of theits target asset allocation. In addition, the plan’sVisteon ensures that diversification across various investment subcategories within each plan are also maintained within specified ranges.
      Substantially all of Visteon’s pension assets are managed by outside investment managers and held in trust by third-party custodians. The selection and oversight of these outside service providers is subject to +/-5% tolerance versus the manager mix specified by the plan’s investment policies. Periodic contributions are directed in order to move actual asset balances toward targets. In circumstances where market conditions cause asset allocation or manager diversification to deviate outresponsibility of tolerance, assets are rebalanced into compliance within 30 days of occurrence.

78

VISTEON CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS — (Continued)

NOTE 8. Employee Retirement Benefits — (Continued)

The plan’s investment managers invest in debtInvestment Committees and equity securities of domestic and international entities based upon each manager’s investment mandate.their advisors. The selection of specific securities is at the discretion of the investment manager and is subject to restrictionsthe provisions set forth by written investment management agreements and related policy guidelines regarding permissible investments, risk management practices and the use of the plan’s investment policies.derivative securities. Investment in alternative asset classes as well as in debt andor equity securities related to Visteon Corporation or any of its affiliates is prohibited. Derivative securities may be used by investment managers as efficient substitutes for traditional securities, to reduce portfolio risks, or to hedge identifiable economic exposures. The use of derivative securities to create economic leverage to engage in unrelated speculation is expressly prohibited.

U.S. Contributions

During 2004, Visteon’s expected contributions to U.S. retirement plans and postretirement health care and life insurance plans are $193 million and $72 million, respectively, including payments to Ford of $115 million and $38 million, respectively.

Medicare Legislation

The impact of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (the “Act”), has not been reflected in Visteon’s accounting for postretirement healthcare benefits Visteon staff or in disclosures above as the Act was signed into law subsequent to our measurement date of September 30, 2003.

its outside consultants verify compliance with these provisions at least quarterly.

NOTE 9. Debt
NOTE 10. Debt

Debt at December 31, including the fair market value of related interest rate swaps, was as follows:

                 
Weighted                 
Average    Weighted    
MaturityInterest RateBook Value    Average  
  Maturity Interest Rate Book Value
2003200220032002       
    2004 2003 2004 2003
          
(in millions)        (in millions)
Debt payable within one year
Debt payable within one year
                
Debt payable within one year
                
Commercial paper     2.0%  1.7% $81 $166 Commercial paper     —  2.0% $— $81 
Other — short-term     3.1%  5.4%  234  166 Other – short-term     3.3%  3.1%  221  234 
Current portion of long-term debt     2.6%  5.8%  36  61 7.95% notes due August 1, 2005     7.8%  —  253  — 
       
 
 Current portion of long-term debt     3.6%  2.6%  34  36 
 Total debt payable within one year           351  393             
       
 
  Total debt payable within one year           508  351 
           
Long-term debtLong-term debt                
Long-term debt
                
Unsecured debt securities  2005-2010  6.0%  6.4%  1,234  1,239 8.25% notes due August 1, 2010  2010  6.2%  6.7%  707  716 
Other  2005-2025  2.4%  7.3%  233  59 7.00% notes due March 10, 2014  2014  5.6%  —  446  — 
       
 
 7.95% notes due August 1, 2005     —  6.5%  —  518 
 Total long-term debt           1,467  1,298 Term loan due June 25, 2007  2007  3.0%  2.5%  223  104 
       
 
 Other  2006-2025  3.2%  2.8%  137  129 
 Total debt          $1,818 $1,691             
       
 
  Total long-term debt           1,513  1,467 
           
 Total debt          $2,021 $1,818 
           

7995

VISTEON CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS — (Continued)
NOTE 9. Debt — (Continued)
NOTE 10. Debt — (Continued)

On August 3, 2000,March 10, 2004, Visteon completed a public offering of unsecured fixed ratefixed-rate term debt securities totaling $1.2 billion$450 million with maturitiesa maturity of five years and ten years. The offering included $500securities bear interest at a stated rate of 7.00%, with interest payable semi-annually on March 10 and September 10, beginning on September 10, 2004. The securities rank equally with Visteon’s existing and future unsecured fixed-rate term debt securities and senior to any future subordinated debt. The unsecured term debt securities agreement contains certain restrictions, including, among others, a limitation relating to liens and sale-leaseback transactions, as defined in the agreement. In the opinion of management, Visteon was in compliance with all of these restrictions. In addition, an interest rate swap has been entered into for a portion of this debt ($225 million). This swap effectively converts the securities from fixed interest rate to variable interest rate instruments.

      On April 6, 2004, Visteon repurchased $250 million of securitiesour existing 7.95% five-year notes maturing on August 1, 2005,2005. In the second quarter of 2004, Visteon recorded a pre-tax debt extinguishment charge of $11 million, consisting of redemption premiums and $700 milliontransaction costs ($19 million), offset partially by the accelerated recognition of securities maturing on August 1, 2010. The five and ten year securities were issued at a slight discount togains from interest rate swaps associated with the stated rates of interest of 7.95% and 8.25%, respectively.repurchased debt ($8 million).
      Interest rate swaps have been entered into for a portion of the unsecured term debt securities maturing on August 1, 2005, and a portion of the debt securities maturing on August 1, 2010. These swaps effectively convert the securities from fixed interest rate to variable interest rate instruments, as further described in Note 1315 of our consolidated financial statements. The weighted average interest rates as presented include the effects of interest rate swaps. Interest is payable semi-annually on February 1 and August 1. The unsecured term debt securities agreement contains certain restrictions including, among others, a limitation relating to liens and sale lease-back transactions, as defined in the agreement. In the opinion of management, Visteon was in compliance with all of these restrictions.

      Under Visteon’s commercial paper program, $81 million and $166 million was outstanding at December 31, 2003, and 2002, respectively, with a weighted average remaining maturity of 16 and 12 days at December 31, 2003 and 2002, respectively.

2003. No commercial paper amounts were outstanding at December 31, 2004.

      Visteon maintainshas maintained a trade payables program through General Electric Capital Corporation (“GECC”), subject to periodic review, that provides financial flexibility to Visteon and its suppliers. When a supplier participates in the program, GECC pays the supplier the amount due from Visteon in advance of the original due date. In exchange for the earlier payment, our suppliers accept a discounted payment. Visteon pays GECC the full amount. Approximately $100$69 million and $45$100 million classified as short-term debt, was outstanding to GECC under this program at December 31, 2004 and 2003, and 2002, respectively.respectively, which is included in our reported debt balance. The 2004 balance is partially supported by standby letters of credit. At December 31, 2004, the maximum advance payment allowed was $95 million. As part of thisthe same program with GECC, Visteon is allowed to defer payment to GECC for a period of up to 30 days. AtAs of December 31, 2003,2004, Visteon had not exercised the deferral option of the program. Although this agreement with GECC is scheduled to expire in December 2005, Visteon has notified participating suppliers of its intention to exit the program beginning in March 2005.

     On April 2, 2002, Visteon and Visteon Capital Trust I (the “trust”) filed a shelf registration statement with the Securities and Exchange Commission to register $800 million in securities. Under this shelf process, in one or more offerings, Visteon may sell notes, preferred stock, common stock, depository shares, warrants, stock purchase contracts and stock purchase units; and the trust may sell trust preferred securities representing undivided beneficial interests in the trust. This shelf registration statement replaces the prior shelf registration statement filed on June 23, 2000. The registration statement became effective on April 12, 2002. Each time Visteon sells securities under this shelf registration statement, a prospectus supplement will be provided that will contain specific information about the terms of that offering. Except as may otherwise be determined at the time of sale, the net proceeds would be used for general corporate purposes.96

VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
NOTE 10. Debt — (Continued)
      Visteon has financing arrangements with a syndicate of third-party lenders that provide contractually committed, unsecured revolving credit facilities (the “Credit Facilities”). Our 364-day revolving credit facility, in the amount of $555$565 million, expires in June 2004.2005. In addition to our 364-day revolving facility, we continue to have a revolving credit facility in the amount of $775 million that expires in June 2007. The Credit Facilities also provide for a delayed draw term loan in the amount of $250 million, expiring in 2007, which will bewas used primarily to finance new construction for facilities consolidation in Southeast Michigan. Borrowings under the Credit Facilities bear interest based on a variable rate interest option selected at the time of borrowing. The Credit Facilities contain certain affirmative and negative covenants including a covenant not to exceed a certain leverage ratio.

80

VISTEON CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS — (Continued)

ratio of consolidated EBITDA (as defined in the agreement) of 3.5 to 1.
NOTE 9. Debt — (Continued)

      As of December 31, 2003,2004, Visteon has made draws totaling $104$223 million against the delayed draw term loan. As of December 31, 2003,2004, there were no amountsborrowings outstanding under either of the revolving credit facilities and there were $44about $100 million of obligations under standby letters of credit under the June 2007 credit facility.

      Visteon has additional debt arrangements with respect to a number of its non-U.S. operations, a portion of which are payable in non-U.S. currencies.

      Although Visteon is highly leveraged it may become necessary to incur additional debt to ensure adequate liquidity during 2005. Considering the impact of the Ford funding agreement and master equipment bailment agreement as more fully described in Note 22, and our access to the credit markets, albeit at more restrictive terms and conditions and in lessor amounts than in the past, Visteon currently expects to have sufficient sources of liquidity to meet our operating and other needs for 2005. However, because of the uncertainty regarding economic and market conditions, as well as the outcome of our discussions with Ford, there can be no assurance that sufficient liquidity from internal or external sources will be available at the time or in the amounts required.
      We have guaranteed about $24$166 million of borrowingsdebt capacity held by consolidated subsidiaries, $97 million for lifetime lease payments held by consolidated subsidiaries and $22 million of debt capacity held by unconsolidated joint ventures and have extended loans of about $3 million to unconsolidated joint ventures as of December 31, 2003.ventures. In addition, we have guaranteed Tier 2 suppliers’ debt and lease obligations and other third-party service providers’ obligations of about $16up to $20 million, at December 31, 2003,2004, to ensure the continued supply of essential parts.

Debt, including capital lease obligations, at December 31, 2003,2004, included maturities as follows (in millions): 2004 — $351; 2005 — $538;$508; 2006 — $27;$35; 2007 — $117;$245; 2008 — $0;$2; 2009 — $2; thereafter — $785.$1,229.

NOTE 10. Capital Stock and Stock Award Plans
NOTE 11. Capital Stock and Stock Award Plans

      Visteon was incorporated in Delaware in January 2000 with an initial capitalization of 10,000 shares of $1.00 par value common stock authorized and 1,000 shares of common stock outstanding. Through an amendment to its certificate of incorporation, the number of common shares authorized and outstanding was increased to 500 million and 130 million, respectively. In addition, 50 million shares of preferred stock, par value $1.00 per share, were authorized, none of which have been issued. Treasury stock is carried at an average cost basis, is purchased for employee benefit plans, and consists of about 1.4 million shares at December 31, 2004.

97

VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
NOTE 11. Capital Stock and Stock Award Plans — (Continued)
Incentive Plans
      The Visteon Corporation 20002004 Incentive Plan (“2004 Incentive Plan”), which is administered by the Organization and Compensation Committee of the Board of Directors, provides for the grant of incentive and nonqualified stock options, stock appreciation rights, performance stock rights, restricted stock, restricted stock units and stock and various other rights based on common stock. The 2004 Incentive Plan was originally adopted effective as of June 28, 2000 as the 2000 Incentive Plan. The amended and restated 2004 Incentive Plan, which was approved by shareholders in May 2004, includes changes to increase the maximum number of shares of common stock that may be issued by 1.8 million shares from 13.0 million shares to 14.8 million shares and to change the maximum term of an option or stock appreciation right awarded under the plan after the effective date of the amendment to five years from ten years. At December 31, 2004, there were about 1,456,000 shares of common stock available for grant under the 2004 Incentive Plan.
      The Visteon Corporation Employees Equity Incentive Plan (“EEIP”), which was approved by shareholders, is administered by an Administrator appointed bythe Organization and Compensation Committee of the Board of Directors, provides for the grant of nonqualified stock options, stock appreciation rights, performance stock rights and stock, and various other rights based on stock. The total number of shares of common stock subject to awards under the EEIP is 6.5 million shares of common stock and the maximum term of an option or stock appreciation right awarded under the plan is ten years. At December 31, 2004, there were about 521,000 shares of common stock available for grant under the EEIP.
      The Visteon Corporation Restricted Stock Plan for Non-Employee Directors provides for the grant of restricted stock to non-employee directors. The total numberIn addition, the shareholders approved in 2004 the Visteon Corporation Non-Employee Director Stock Unit Plan which provides for the grant of shares of commonrestricted stock subjectunits to awardsnon-employee directors.
Stock Options and Stock Appreciation Rights
      Stock options and stock appreciation rights (“SARs”) granted under the Incentive Plan and EEIP is 13 million and 6.5 million shares of common stock, respectively. At December 31, 2003, there were about 100,000 and 370,000 shares of common stock available for grant under the Incentive Plan and EEIP, respectively. All plans have been approved by shareholders.

     Stock options granted under the2004 Incentive Plan or the EEIP have an exercise price equal to the average of the highest and lowest prices at which Visteon common stock was traded on the New York Stock Exchange on the date of grant. Stock options and SARs that have been granted become exercisable one-third after one year from the date of grant, an additional one-third after two years and in full after three years. Stock options and SARs granted under the 2004 Incentive Plan after December 31, 2003, will expire five years after the date on which they were granted. Stock options granted under the EEIP plan, and those granted prior to January 1, 2004 under the 2004 Incentive Plan, expire 10 years fromafter the date on which they were granted. SARs granted under the 2004 Incentive Plan entitle the participant to receive a cash amount equal to the appreciation in the underlying share of grant.common stock, which is equal to the difference in fair market value of Visteon common stock on the date the SAR is granted and the fair market value of Visteon common stock on the date the SAR is exercised.

8198

VISTEON CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS — (Continued)
NOTE 10. Capital Stock and Stock Award Plans — (Continued)
NOTE 11. Capital Stock and Stock Award Plans — (Continued)

Effective at the date of spin-off and subject to shareholder approval, Visteon granted under the 2000 Incentive Plan to some employees about 2 million stock options with an exercise price equal to the average of the highest and lowest prices at which Visteon common stock was traded on the New York Stock Exchange on that date. Shareholder approval was obtained in May 2001 for the grant of these stock options. The difference between the exercise price and the average price of Visteon common stock on the date of shareholder approval will bewas recognized as compensation expense over the vesting period. Stock option compensationCompensation expense before taxes,related to stock options and SARs, including the effect of expensing the fair value of stock-based awards granted to employees pursuant to SFAS 123 discussed further in Note 3 of our consolidated financial statements, was $5 million, $5 million and $3 million in 2004, 2003 and $4 million in 2003, 2002, and 2001, respectively.

Information concerning stock options and SARs is as follows:

                    
Weighted Average   Stock  
SharesExercise Price   Appreciation Weighted Average
 Option Shares Rights Exercise Price
(in thousands)      
Outstanding at December 31, 2000  — $— 
Granted  5,193  15.60 
Exercised  (172)  13.09 
Terminated  (89)  15.08 
 
    (in thousands) (in thousands)  
Outstanding at December 31, 2001  4,932 $15.74   4,932  — $15.74 
Granted  3,491  13.45   3,491  —  13.45 
Exercised  (24)  11.96   (24)  —  11.96 
Terminated  (494)  15.10   (494)  —  15.10 
 
          
Outstanding at December 31, 2002  7,905 $14.78   7,905  — $14.78 
Granted  6,226  6.62   6,226  —  6.62 
Terminated  (489)  11.41   (489)  —  11.41 
 
          
Outstanding at December 31, 2003  13,642 $11.22   13,642  — $11.22 
Less: Outstanding but not exercisable at December 31, 2003  9,049    
Granted  1,385  2,155  9.96 
Exercised  (383)  —  6.64 
Terminated  (476)  (44)  10.60 
 
          
Exercisable at December 31, 2003  4,593 $14.89 
Outstanding at December 31, 2004  14,168  2,111 $11.07 
Less: Outstanding but not exercisable at December 31, 2004  6,166  2,111    
 
          
Exercisable at December 31, 2004  8,002  — $13.34 
       

The following is a summary of the range of exercise prices for stock options and SARs that are outstanding and exercisable at December 31, 2003:2004:
                    
                    
Options OutstandingOptions Exercisable Options and SARs Outstanding Options and SARs Exercisable
    
WeightedWeightedWeighted   Weighted Weighted   Weighted
Range ofNumberAverageAverageNumberAverage Number Average Average Number Average
Exercise PricesOutstandingRemaining LifeExercise PriceExercisableExercise Price Outstanding Remaining Life Exercise Price Exercisable Exercise Price
          
(in thousands)(in years)(in thousands) (in thousands) (in years)   (in thousands)  
$ 5.00 - $ 7.00  5,942  9.13 $6.62  — $—   5,377  8.1 $6.63  1,571 $6.63 
7.01 - 12.00  79  8.84  7.87  28  7.98   3,490  4.4  9.92  54  8.00 
12.01 - 17.00  5,009  7.57  13.43  2,824  13.32   4,876  6.5  13.43  3,841  13.39 
17.01 - 22.00  2,612  7.36  17.53  1,741  17.53   2,536  6.3  17.53  2,536  17.53 
 
     
              
  13,642        4,593      16,279        8,002    
 
     
              

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VISTEON CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS — (Continued)
NOTE 11. Capital Stock and Stock Award Plans — (Continued)
NOTE 10. CapitalRestricted Stock and Restricted Stock Award Plans — (Continued)Units

      Under the 2004 Incentive Plan, Visteon has granted restricted stock awards and restricted stock units (“RSUs”) to certain employees. Restricted stock awards and RSUs vest after a designated period of time, which is generally three to five years, or upon the achievement of applicable performance goals at the completion of a performance period, which is generally three years. Performance goals are related to return on equity or return on assets and quality measures. Compensation expense related to performance-based restricted stock awards is recognized over the performance period based upon an estimate of the likelihood of achieving the performance goals and also reflects changes in the price of Visteon common stock. RSUs granted consist of units valued based upon the fair market value of Visteon common stock and are settled in cash. Restricted stock awards issued to the Visteon’s Board of Directors vest on the third anniversary of the date of the grant. Restricted stock units issued under the Non-Employee Director Stock Unit Plan vest immediately, and are distributed after the participant terminates service as a non-employee director of Visteon. Dividends paid on restricted stock were about $1 million in each of 2004, 2003 and 2002, and are treated as compensation expense. Compensation expense before taxesrelated to restricted stock awards and RSUs, excluding that related to dividends, was $13 million, $9 million and $3 million in 2004, 2003 and $9 million in 2003, 2002, and 2001, respectively.

Information concerning restricted stock awards and RSUs is as follows:
                      
Weighted      Weighted
SharesAverage Price  Restricted Restricted Average
  Stock Shares Stock Units Price
(in thousands)       
Outstanding at December 31, 2000  — $— 
Granted  1,892  17.39 
Lapsed  (65)  17.46 
Terminated  (178)  17.46 
 
     (in thousands) (in thousands)  
Outstanding at December 31, 2001Outstanding at December 31, 2001  1,649 $17.38 Outstanding at December 31, 2001  1,649  — $17.38 
GrantedGranted  1,345  13.20 Granted  1,345  —  13.20 
LapsedLapsed  (79)  17.46 Lapsed  (79)  —  17.46 
TerminatedTerminated  (201)  16.26 Terminated  (201)  —  16.26 
 
           
Outstanding at December 31, 2002Outstanding at December 31, 2002  2,714 $15.39 Outstanding at December 31, 2002  2,714  — $15.39 
GrantedGranted  2,567  6.62 Granted  2,567  —  6.62 
LapsedLapsed  (26)  17.46 Lapsed  (26)  —  17.46 
TerminatedTerminated  (234)  9.10 Terminated  (234)  —  9.10 
 
           
Outstanding at December 31, 2003Outstanding at December 31, 2003  5,021  — $11.20 
GrantedGranted  199  2,429  10.16 
LapsedLapsed  (251)  —  16.48 
TerminatedTerminated  (789)  (69)  14.29 
Outstanding at December 31, 2003  5,021 $11.20         
 
   Outstanding at December 31, 2004  4,180  2,360 $10.17 
       

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NOTES TO FINANCIAL STATEMENTS — (Continued)
NOTE 12. Comprehensive (Loss)
      Comprehensive (loss) is summarized as follows:
              
  2004 2003 2002
       
  Restated Restated Restated
  (in millions)
Net (loss) $(1,536) $(1,229) $(379)
Change in foreign currency translation adjustments, net of tax  102   163   132 
Change in minimum pension liability, net of tax  (52)  (89)  (67)
Other  9   16   (12)
          
 Total comprehensive (loss) $(1,477) $(1,139) $(326)
          
      Accumulated other comprehensive income (loss) is comprised of the following:
          
  December 31,
   
  2004 2003
     
  (in millions)
Foreign currency translation adjustments, net of tax $199  $97 
Realized and unrealized gains on derivatives, net of tax  16   8 
Unrealized loss on marketable securities, net of tax  —   (1)
Minimum pension liability, net of tax  (210)  (158)
       
 Total accumulated other comprehensive income (loss) $5  $(54)
       
NOTE 11. 13. Litigation and Claims
      In February 2005, a shareholder lawsuit was filed in the U.S. District Court for the Eastern District of Michigan against Visteon and Messrs. Pestillo, Johnston, Coulson and Palmer and Ms. Minor, each a current or former officer of the company. The lawsuit alleges, among other things, that Visteon made misleading statements of material fact or omitted to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading. The named individual plaintiff seeks to represent a class consisting of purchasers of Visteon’s securities during the period between January 23, 2004 and January 31, 2005. Class action status has not yet been certified in this litigation. Visteon is in the process of evaluating the claims in this lawsuit, and Visteon and its current and former officers intend to contest the lawsuit vigorously. The lawsuit is in a very preliminary stage and at this time, management is unable to assess the impact this litigation may have on its results of operations and financial position.

      Various other legal actions, governmental investigations and proceedings and claims are pending or may be instituted or asserted in the future against Visteon, including those arising out of alleged defects in Visteon’s products; governmental regulations relating to safety; employment-related matters; customer, supplier and other contractual relationships; intellectual property rights; product warranties; product recalls; and environmental matters. Some of the foregoing matters involve or may involve compensatory, punitive or antitrust or other treble damage claims in very large amounts, or demands for recall campaigns, environmental remediation programs, sanctions, or other relief which, if granted, would require very large expenditures.

83101

VISTEON CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS — (Continued)
NOTE 11. 13. Litigation and Claims — (Continued)

Litigation is subject to many uncertainties, and the outcome of individual litigated matters is not predictable with assurance. Reserves have been established by Visteon for matters discussed in the foregoing paragraph where losses are deemed probable; these reserves are adjusted periodically to reflect estimates of ultimate probable outcomes. It is reasonably possible, however, that some of the matters discussed in the foregoing paragraph for which reserves have not been established could be decided unfavorably to Visteon and could require Visteon to pay damages or make other expenditures in amounts, or a range of amounts, that cannot be estimated at December 31, 2003.2004. Visteon does not reasonably expect, except as otherwise described herein, based on its analysis, that any adverse outcome from such matters would have a material effect on our financial condition, results of operations or cash flows, although such an outcome is possible.

NOTE 12. 14. Arrangements with Ford and its Affiliates

     Revenues      Sales from Ford and its affiliates, which include sales to Auto Alliance International, a joint venture between Ford and Mazda, approximated 70% in 2004, 76% in 2003 and 80% in 2002 and 82% in 2001 of total sales.

      Visteon and Ford have entered into a series of agreements outlining the terms of the separation and the relationship between Visteon and Ford on an ongoing basis. In December 2003, Visteon and Ford entered into a series of agreements that modify or replace several of the agreements. On March 10, 2005, Visteon also entered into a funding agreement and a master equipment bailment agreement with Ford, as further described in Note 22. The following summary of certain of these agreements is qualified in all respects by the actual terms of the respective agreements.

Master Transfer Agreement

      The master transfer agreement, effective as of April 1, 2000, and other related agreements, provided for Ford to transfer to Visteon and/or its subsidiaries, all assets used exclusively by Visteon, including but not limited to real property interests, personal property and ownership interests in subsidiaries and joint ventures. In addition, Visteon and Ford agreed to a division of liabilities relating to the assets contributed and the Visteon business, including liabilities related to product liability, warranty, recall, environmental, intellectual property claims and other general litigation claims. Specifically, Visteon and Ford agreed on a division of responsibility for product liability, warranty and recall matters as follows: (a) Ford will retain liability for all product liability, warranty or recall claims that involve parts made or sold by Visteon for 1996 or earlier model year Ford vehicles; (b) Visteon is liable for all product liability, warranty or recall claims that involve parts made or sold by Visteon for 1997 or later model year Ford vehicles in accordance with Ford’s global standard purchase order terms as applied to other Tier 1 suppliers; and (c) Visteon has assumed all responsibility for product liability, warranty or recall claims relating to parts made or sold by Visteon to any non-Ford customers.

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NOTES TO FINANCIAL STATEMENTS — (Continued)
NOTE 14. Arrangements with Ford and its Affiliates — (Continued)
      Also, Visteon and Ford agreed on a division of responsibility for liabilities associated with claims that Visteon’s products infringe or otherwise violate the intellectual property interests of others as follows: (a) Ford will retain liability for such claims related to Visteon’s products sold or supplied to Ford or its subsidiaries on or prior to July 31, 1999; (b) Visteon has assumed liability for such claims related to Visteon’s products sold or supplied to Ford or its subsidiaries after July 31, 1999 to the same extent as other Tier 1 suppliers would be liable if they had supplied such parts, components or systems to Ford; and (c) Visteon has assumed liability for such claims related to Visteon’s products sold to third parties at any time.

84

VISTEON CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS — (Continued)

NOTE 12. Arrangements with Ford and its Affiliates — (Continued)

Supply Agreement and Pricing Letter Agreement

      The supply agreement entered into in connection with Visteon’s separation from Ford provided that Visteon’s existing purchase orders with Ford as of January 1, 2000 would generally remain in effect at least through the end of 2003, subject to Ford’s right to terminate any particular purchase order for quality or other reasons. The pricing letter also required productivity price adjustment in each of 2000, 2001, 2002 and 2003 to reflect competitive price reductions obtained each year by Ford from its other Tier 1 suppliers, and provided, until May 31, 2003, Visteon the right of last refusal to meet competitive terms, including price, technology, service and design, on replacement products that (1) we produce in North America, Europe and Mexico (for Mexican production intended for export to the U.S. only) and (2) we supplied to Ford on January 1, 2000. Although the right of last refusal did not apply to Ford’s Volvo or Jaguar brand vehicles or to Mazda Motor Corporation’s vehicles, Ford had agreed to use reasonable efforts to provide us with similar opportunities to bid for business with respect to these vehicles.

      During the fourth quarter 2003, Visteon and Ford terminated the original purchase and supply agreement and related pricing letter agreement that were entered into at or around the time of the separation and entered into a new purchase and supply agreement, dated as of December 19, 2003. This agreement governs general commercial matters relating to the supply of components in North America by Visteon to Ford, primarily relating to sourcing and pricing obligations.

      Visteon and Ford have agreed to continue to honor the terms and conditions of all existing agreements regarding the purchase and sale of currently sourced components. In addition, Ford has agreed to include Visteon on its list of suppliers receiving requests for quotations, design competitions and advanced technology development activities with respect to the sourcing of new business unless “good cause” or “other good business reasons” (each as defined in the agreement) exist to exclude Visteon. If Visteon is excluded from the list of suppliers receiving a request for quote for certain replacement new business because of other good business reasons, then Ford will compensate Visteon on account of such exclusion based on lost profits due to the discontinued sourcing of such components, as calculated in accordance with terms of the agreement. Where Visteon has been asked to quote on new business, consistent with commitments made to the UAW and Visteon to “look to Visteon first,” such new business will be awarded to Visteon if Visteon’s quote is “competitive” (as defined in the agreement). Also, as a condition to sourcing Visteon with respect to most new components, Visteon must develop a competitive gap closure plan that identifies opportunities to reduce prices on the same or similar components currently sourced to Visteon to competitive levels, which plans are not intended to reduce Visteon’s margins. Otherwise, Ford will treat Visteon in the same manner as it treats its other Tier 1 suppliers with respect to Ford’s general sourcing policies and practices relating to new business, including new purchasing and sourcing initiatives.

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VISTEON CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS — (Continued)
NOTE 12. 14. Arrangements with Ford and its Affiliates — (Continued)

      Ford may terminate or not renew its purchase obligations relating to a given component (each, a “Purchase Order”) in accordance with the terms of such Purchase Order, on account of “excusable delay” (as defined in the agreement), program cancellation, for good cause or for other good business reasons. If a Purchase Order is terminated or not renewed for good cause, then there will beis no adjustment to the productivity price down percentages. If during the term of any Purchase Order, Ford elects to terminate or not renew a Purchase Order for other good business reasons, then Ford will compensate Visteon based on lost profits due to the discontinued sourcing of such components, as calculated in accordance with terms of the agreement. If during the term of any Purchase Order, Ford elects to terminate or not renew a Purchase Order because of program cancellation or excusable delay, then the terms of the applicable Purchase Order will govern the right to notification, remediation and compensation, if any.

      Furthermore, Visteon has agreed to pay Ford $150 million in lieu of additional productivity price reductions on components supplied by Visteon in North America during 2003, which amount is to bewas recognized in 2003 and paid in three equal installments commencing no later than December 31, 2003 and ending on or before March 1, 2004. Visteon also willagreed to provide specified productivity price reductions for all components supplied to Ford beginning January 1, 2004 and on each January 1 thereafter through 2007.2007 specified productivity price reductions for all components supplied to Ford in North America. Visteon and Ford have also agreed to negotiate in good faith price changes on supplied components resulting from design changes to such components.

      During the period from January 1, 2004 through December 31, 2007, Ford has agreed to pay to Visteon an amount based on the cost differential between wages paid to Ford-UAW workers, at efficient manning levels, and workers at Tier 1 suppliers, with respect to new business sourced to Visteon at plants covered by the Ford-UAW master collective bargaining agreement. Through December 31, 2007, Ford agrees to reimburse Visteon for wages relating to Ford-UAW workers assigned to Visteon who are placed in the Guaranteed Employment Number (“GEN”) program, as set forth in the Ford-UAW master collective bargaining agreement, as a result of Ford’s decision to exclude Visteon from the list of suppliers receiving a request for quote on new business or terminate or not renew a Purchase Order because of other good business reasons.

Visteon has received no payments related to the either cost differential or the GEN program as of December 31, 2004.

      Finally, Ford has agreed to reimburse Visteon for up to one-half of any capital investment spending on production facilities and equipment made by Visteon during the period from January 1, 2004 through December 31, 2007 to the extent related to the production of certain uncompetitive commodities for Ford. Because this reimbursement is calculated on the basis that the capital investment will be amortized over a period of seven years utilizing the production volumes of the applicable components, Visteon may not be reimbursed the full amount in the event that the sourcing programprograms were cancelled or modified by Ford during such period. Visteon has received no payments related this agreement as of December 31, 2004. Ford has also agreed to accelerate the payment terms for certain payables to Visteon through 2006.

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VISTEON CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS — (Continued)
NOTE 12. 14. Arrangements with Ford and its Affiliates — (Continued)

Master Separation Agreement

      Ford has provided a number of transitional services to Visteon pursuant to the master separation agreement and related arrangements, including information technology, human resources, accounting, customs, product development technology and real estate services. Visteon agreed to pay Ford amounts which reflected its fully accounted cost for these services, including a reasonable allocation of internal overhead costs, as well as any direct costs incurred from outside suppliers. Except for certain information technology services, Ford’s obligation to provide these services pursuant to the master separation agreement expired in June 2002. Assessments for these services totaled approximately $136 million in 2001 and $52 million for the first half of 2002. Visteon and Ford have subsequently entered into new arrangements covering some of these services.

      Further, during 2003, Visteon began the process of creating a separate IT environment, including the separation of certain of Ford’s IT systems that had been utilized by Visteon. During December 2003, Visteon and Ford agreed on matters designed to facilitate the separation process, including the provision by Ford of certain limited information technology support services, and for Ford to share a portion (up to $100 million) of the costcosts associated with such process, of whichprocess. During 2003, $74 million was recognized by Visteon in the fourth quarter of 2003 through a reduction in selling, administrative and other expenses and capital expenditures. Ford incurred additional expenses in 2004 for which Visteon was not charged, with a final settlement expected in 2005. The parties have agreed also to the mutual release of all claims related to IT activities since the separation.

Hourly Employee Assignment Agreement

      The hourly employee assignment agreement, as amended and restated as of December 19, 2003, sets forth a number of rights and obligations with respect to the United States hourly employees of Ford who are covered by Ford-UAW master collective bargaining agreements and are assigned to work for Visteon. Under this agreement, Visteon exercises day-to-day supervision over the covered individuals and reimburses Ford for the wage, benefit and other costs incurred by Ford related to these individuals. This includes amounts for profit sharing based on Ford’s profits, which is capped at $2,040 per worker. This cap excludes amounts that may be payable on account of employer payroll taxes or the portion of any profit sharing payment that may be attributable to Visteon’s profits. About $12 million, $4 million and $4 million of profit sharing expense was recognized in each of2004, 2003 and 2002;2002, respectively.
      The amended and no profit sharing expense was recognized in 2001.

87

VISTEON CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS — (Continued)

NOTE 12. Arrangements with Ford and its Affiliates — (Continued)

Therestated hourly employee assignment agreement also provides that at December 31, 2003significantly reduced Visteon’s obligation to reimburse Ford for the Other Post Employment Benefits (“OPEB”) SFAS 106 liability (the “OPEB Liability”) related to pre-separation service of Ford hourly employees assigned to work at Visteon has been significantly reduced, and that the time period for funding Visteon’s post-separation OPEB Liability to Ford for hourly employees assigned to work at Visteon be extended from 2020 to December 31, 2049, which is discussed further in Note 79 of our consolidated financial statements. Visteon has agreed to transfer assets and obligations relating to the pensions and other benefits for those hourly employees of Visteon who become hourly employees of Ford as of December 22, 2003. Finally, the agreement provides for an agreed upon method for the transfer of benefit obligations for Visteon-assigned Ford-UAW employees who return to Ford after service at Visteon.

105

VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
NOTE 13. 15. Financial Instruments

Fair Value of Financial Instruments

Estimated fair value amounts have been determined using available market information and various valuation methods depending on the type of instrument. In evaluating the fair value information, considerable judgment is required to interpret the market data used to develop the estimates. The use of different market assumptions and/or different valuation techniques may have a material effect on the estimated fair value amounts. Further, it should be noted that fair value at a particular point in time gives no indication of future gain or loss, or what the dimensions of that gain or loss are likely to be.

The fair value of debt excluding related interest rate swaps was $1,944about $2,064 million at December 31, 2003,2004, based on quoted market prices or current rates for similar debt with the same credit ratings and remaining maturities, compared with book value of $1,818$2,013 million. The fair value of debt approximated $1,698excluding related interest rate swaps was about $1,910 million at December 31, 2002.2003, compared with book value of $1,783 million. The notional amount of these interest rate swaps was $540$550 million and $790$540 million, respectively, at December 31, 20032004 and 2002.2003. The fair market value of the interest rate swaps was an asset of $15$2 million and $39$15 million at December 31, 20032004 and 2002,2003, respectively, with an offsetting amount recorded in long-term debt.

      The fair value of foreign currency instruments was estimated using current market rates provided by outside quotation services. The notional amount of foreign currency instruments in equivalent U.S. dollars was $1,107$1,832 million and $1,007$1,107 million at December 31, 20032004 and 2002,2003, respectively. The notional amount represents the contract amount, not the amount at risk. The fair value of Visteon’s foreign currency instruments was an asset of $18 million and a liability of $10 million and $36 million at December 31, 2004 and 2003, and 2002, respectively.

      The notional amount of commodity derivatives was $54$71 million and $29$54 million at December 31, 20032004 and 2002,2003, respectively. The fair market value of commodity derivatives was an asset of $11$9 million and $7$11 million at December 31, 2004 and 2003, and 2002, respectively.

     Total realized and unrealized gains and losses on derivatives, net of tax, as a component of accumulated other comprehensive income increased stockholders’ equity by $8 million and reduced stockholders’ equity by $8 million at December 31, 2003 and 2002, respectively.

      It is anticipated that approximately $8$16 million of deferred net gains, net of tax, will be reclassified from accumulated other comprehensive income to earnings over the next 12 monthsin 2005 as the anticipated underlying transactions occur.

88

VISTEON CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS — (Continued)

NOTE 13. 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. Our counterparties for cash equivalents, marketable securities and derivative contracts are banks and financial institutions that meet our requirement of high credit standing. Our counterparties for derivative contracts are substantial investment and commercial banks with significant experience using such derivatives. We manage our credit risk through policies requiring minimum credit standing and limiting credit exposure to any one counterparty, and through monitoring counterparty credit risks. Our concentration of credit risk related to derivative contracts at December 31, 2003,2004, was not significant.

With the exception of accounts receivable from Ford and its affiliates, Visteon has no significant concentration ofVisteon’s credit risk with any individual customer.customer does not exceed ten percent of total accounts receivable at December 31, 2004. Management periodically performs credit evaluations of its customers and generally does not require collateral.

106

VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
NOTE 16. Special Charges
2004 Actions
      Visteon recorded pre-tax special charges of $396 million and after-tax special charges of $1,263 million, with $382 million in costs of sales and $14 million in selling, administrative and other expenses, as summarized below:
           
  2004
   
  Pre-tax After-tax
     
  (in millions)
Restructuring and other charges:        
 U.S. Salaried voluntary separation related $51  $51 
 U.S. Hourly early retirement incentive and other related  25   25 
 Plant closure related  11   7 
 European Plan for Growth related  9   9 
 Adjustments to prior year’s expenses  1   1 
       
  Total restructuring and other charges  97   93 
Loss related to asset impairment charges  314   314 
Adjustments related to seating operations  (15)  (15)
Deferred tax valuation allowance (Note 7)  —   871 
       
  Total special charges $396  $1,263 
       
Restructuring and Other Charges
      U.S. salaried voluntary separation charges are related to incentive programs offered during the fourth quarter of 2004 to eligible salaried Visteon employees to voluntarily separate employment. About 400 employees elected to terminate employment by March 31, 2005.
      Early retirement incentive and other charges are related to incentive programs offered during the third quarter of 2004 to eligible Visteon-assigned Ford-UAW employees to voluntarily retire or to relocate in order to return to a Ford facility. About 500 employees elected to retire early at a cost of $18 million and about 210 employees have agreed to return to a Ford facility at a cost of $7 million.
      Plant closure charges are related to the involuntary separation of up to about 200 employees as a result of the closure of our La Verpilliere, France, manufacturing facility. This program has been substantially completed as of December 31, 2004. European Plan for Growth charges are comprised of $9 million related to the separation of about 50 hourly employees located at Visteon’s plants in Europe through a continuation of a special voluntary retirement and separation program started in 2002.
      In 2004, net accrued liability adjustments of $14 million relating to prior year’s actions were credited to costs of sales, including $15 million related to costs to complete the transfer of seat production located in Chesterfield, Michigan, to another supplier, as discussed further in this note.

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VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
NOTE 14. Special Charges
NOTE 16. Special Charges — (Continued)

Asset Impairment Charge
      During the third quarter of 2004, the Automotive Operations recorded a pre-tax, non-cash impairment write-down of $314 million in costs of sales to reduce the net book value of certain long-lived assets. This write-down was based on an assessment by product line asset group, completed in the third quarter of 2004, of the recoverability of our long-lived assets in light of the challenging environment in which we operate, and included considering the impact of lower than anticipated current and near term future year Ford North American production volumes and the related impact on our future operating projections. Assets are considered impaired if the book value is greater than the undiscounted cash flows expected from the use of the asset. As a result of this analysis the assets of the steering systems product group were impaired. The write-down was approximately $249 million in North America and $65 million in Europe and was determined on a “held for use” basis. Fair values were determined primarily based on prices for similar groups of assets determined by a third-party valuation firm.
2003 Actions

Visteon recorded pre-tax special charges of $754 million and after-tax special charges of $949$933 million, with $734 million in costs of sales and $20 million in selling, administrative and other expenses, as summarized below:

          
2003          
  2003
Pre-taxAfter-tax   
  Pre-tax After-tax
    
(Restated)  Restated
(in millions)  (in millions)
Restructuring and other charges:Restructuring and other charges:       Restructuring and other charges:       
2003 actions $139 $91 2003 actions $139 $91 
Adjustments to prior year’s expenses  (9)  (6)Adjustments to prior year’s expenses  (9)  (6)
 
 
       
 Total restructuring and other charges  130  85  Total restructuring and other charges  130  85 
Loss related to fourth quarter asset impairment chargesLoss related to fourth quarter asset impairment charges  407  260 Loss related to fourth quarter asset impairment charges  407  260 
Loss related to seating operations*Loss related to seating operations*  217  139 Loss related to seating operations*  217  139 
Deferred tax valuation allowance (Note 6)  —  465 
Deferred tax valuation allowance (Note 7)Deferred tax valuation allowance (Note 7)  —  449 
 
 
       
Total special chargesTotal special charges $754 $933 
 Total special charges $754 $949       
 
 
 

 * 2003 amounts include $18 million related operating losses from the North American seating operation between the effective date of the exit agreements (April 1, 2003) and the date the agreements were finalized (June 23, 2003).

Restructuring and Other Charges

In the fourth quarter of 2003, Visteon recorded pre-tax charges of $48 million comprised of $14 million related to an involuntary program to separate about 110 U.S. salaried employees, $7 million related to a program started in the second quarter of 2003 to involuntary separate hourly employees located in Germany, $8 million related to the involuntary separation of about 44 salaried employees in Germany, $11 million related to the separation of about 100 hourly employees located at Visteon’s plants in Europe through a continuation of special voluntary retirement and separation program started in 2002 and $8 million related to other minor actions. The separation of the 110 U.S. salaried employees will taketook place at various times in 2004; all other actions were substantially completed during the fourth quarter of 2003.

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VISTEON CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS — (Continued)
NOTE 14. Special Charges — (Continued)
NOTE 16. Special Charges — (Continued)

      In the third quarter of 2003, Visteon recorded pre-tax charges of $11 million comprised of $7 million related to a program started in the second quarter of 2003 to involuntarily separate hourly employees located in Germany, $1 million related to the separation of about 13 hourly employees located at Visteon’s plants in Europe through a continuation of a special voluntary retirement and separation program started in 2002 and $3 million related to other minor actions.

      In the second quarter of 2003, Visteon recorded pre-tax charges of $49 million, comprised of $42 million related to the involuntary separation of 675 hourly employees located in Germany, $3 million related to the separation of about 93 hourly employees located at Visteon’s plants in Europe through a continuation of a special voluntary retirement and separation program started in 2002 and $4 million related to other minor actions.

      In the first quarter of 2003, Visteon recorded pre-tax charges of $31 million which includes $27 million related to the involuntary separation of about 135 U.S. salaried employees, the separation of about 35 hourly employees located at Visteon’s plants in Europe through a continuation of a special voluntary retirement and separation program started in 2002 and the elimination of about 120 manufacturing positions in Mexico and other minor actions. Included in the $31 million pre-tax charge are $4 million of non-cash charges related to the write-down of a group of coiled spring and stamping equipment at our Monroe, Michigan, plant for which production activities were discontinued and the future undiscounted cash flows are less than the carrying value of these fixed assets held for use. Visteon measured the impairment loss by comparing the carrying value of these fixed assets to the expected proceeds from disposal of the assets after completion of remaining production commitments.

      In addition, accrued restructuring liabilities relating to prior year’s restructuring actions of $9 million were credited to costs of sales in the third quarter of 2003, primarily as a result of reduced costs to complete the closure of the Markham, Ontario facility and the related employee separations.

Asset Impairment Charge

      During the fourth quarter of 2003, the Automotive Operations recorded a pre-tax, non-cash impairment write-down of $407 million ($260 million after-tax) in costs of sales to reduce the net book value of certain long-lived assets. This write-down was based on an assessment by product line asset group, completed in the fourth quarter of 2003, of the recoverability of our long-lived assets in light of the challenging environment in which we operate and as part of our business planning process for 2004 and beyond. This assessment included considering the substantial change in the production levels of Visteon’s major customers and the related impact on our future operating projections, as well as the anticipated impact of the recently completed Ford 2003 agreements. Assets are considered impaired if the book value is greater than the undiscounted cash flows expected from the use of the asset. As a result of this analysis the assets of six product groupings were impaired: bumpers, fuel tanks, starters and alternators, steering columns, suspension systems, and wiper/washer. The write-down was approximately $300 million in North America and $100 million in Europe and was determined on a “held for use” basis. Fair values were determined primarily based on prices for similar groups of assets determined by a third-party valuation firm.

90109

VISTEON CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS — (Continued)
NOTE 14. Special Charges — (Continued)
NOTE 16. Special Charges — (Continued)

Seating Operations

      During the second quarter of 2003, Visteon finalized an agreement with Ford to transfer seat production located in Chesterfield, Michigan, to another supplier. As part of this agreement, about 1,470 Visteon-assigned Ford-UAW employees working at the Chesterfield, Michigan, facility transferred to Ford, and Visteon agreed to be responsible to reimburse Ford for the actual net costs of transferring seating production through June 2004, including costs related to Ford hourly employee voluntary retirement and separation programs that Ford is expected to implement, offset by certain cost savings expected to be realized by Ford. In addition, Visteon and the new supplier entered into a transitional services agreement under which Visteon would be reimbursed for certain engineering and other services.

      Included in costs of sales and our operating results for 2003 is $217 million related to the seating operations consisting of:

 • $114 million of payments to be made to Ford for the estimated costs of separating approximately 650 hourly Ford-UAW employees under Ford employee retirement and separation programs expected to be implemented by Ford during the transition process;
 
 • $60 million of net other contractually-committed cost payments to be made to Ford;
 
 • $25 million non-cash charge related to certain seating-related fixed assets, for which production activities will be discontinued and the future undiscounted cash flows are less than the carrying value of these fixed assets held for use. Visteon measured the impairment loss by comparing the carrying value of these fixed assets to the expected proceeds from disposal of the assets after completion of remaining production commitments.
 
 • $18 million related to operating losses incurred between the effective date of the agreements (April 1, 2003) and the date the agreements were finalized (June 23, 2003).

     Based upon the terms in the agreement related to the $174 million of payments to Ford, Visteon paid Ford about $30 million in 2003. Visteon expects to pay about $76 million during 2004. The remaining payments of about $68 million are related to the separation program costs expected to be paid annually in equal installments over ten years with interest.

      The ultimate costs and cash payments related to this agreement dependdepended on several factors including the actual net costs incurred during the seating production transition phase that is expected to conclude byconcluded around June 2004. The most critical factors that impact this are2004, and the ultimate actual costs incurred related to the relocation, re-deployment and/or employment termination of the 1,470 Visteon-assigned Ford-UAW employees and the savings achieved by Ford (as defined in the agreement) resulting from resourcing production that will serveserved as an offset to the transition costs. A determination of the net costs that Visteon is responsible to reimburse Ford under this agreement was completed in the third quarter of 2004, subject to the final actuarial valuation received in the fourth quarter of 2004, and resulted in a $2 million and $13 million reduction in previously established accruals and a credit to costs of sales in the third quarter of 2004 and fourth quarter of 2004, respectively. Visteon paid Ford about $62 million in 2004 and $30 million in 2003 under this agreement; of the remaining amounts payable of $67 million, about $16 million is expected to be paid in 2005 and the balance to be paid in equal installments over nine years with interest.

91110

VISTEON CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS — (Continued)
NOTE 14. Special Charges — (Continued)
NOTE 16. Special Charges — (Continued)

      The original Hourly Employee Assignment Agreement between Visteon and Ford, entered into in connection with our separation from Ford, provided a mechanism for determining a cash settlement amount for postretirement health and life insurance benefits associated with Visteon-assigned Ford-UAW employees that transfer to Ford. Under this original agreement, Ford would assume the retiree health and life benefits for such employees and Visteon would reimburse Ford an amount equal to the SFAS 106 actuarially determined accumulated projected benefit obligation that was transferred to Ford. The agreement also provided that if the reimbursement related to such transfers exceeds $10 million per year, then Visteon has the option to pay $10 million in the first year and pay the balance in succeeding years in annual installments of at least $5 million until the obligation is satisfied, with outstanding amounts bearing interest based on a variable rate equal to the 90-day Treasury Bill rate. During the second quarter of 2003, Visteon reclassified approximately $148 million in postretirement benefits payable to Ford as an accrued liability based on the estimated SFAS 106 actuarially determined accumulated projected benefit obligation associated with the 1,470 Visteon-assigned Ford-UAW employees working at the Chesterfield, Michigan facility that were transferred to Ford. This amount will be adjusted in the future based upon final actuarial valuation results. At December 31, 2004 and 2003, about $133 million and $138 million, respectively, of this obligation is classified in the line “Other Liabilities” on the Consolidated Balance Sheet with the remainder in current accrued liabilities.

2002 Actions

Visteon recorded pre-tax special charges of $223 million and after-tax special charges of $407 million with $200during 2002. After-tax special charges include a non-cash write-off for the entire value of goodwill of $265 million, net of tax, related to Visteon’s adoption of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets”, as described in costsNote 17 of sales and $23 million in selling, administrative and other expenses, as summarized below:
           
2002
Pre-taxAfter-tax
(in millions)
Restructuring and other charges:        
 2002 actions* $209  $134 
 Adjustments to prior year’s expenses  (12)  (8)
  
  
 
  Total restructuring and other charges  197   126 
Loss related to sale of restraint electronics business  26   16 
Change in accounting, net of tax (Note 15)  —   265 
  
  
 
  Total special charges $223  $407 
  
  
 

* 2002 amount includes $5 million related to the write-down of inventory.

92

VISTEON CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS — (Continued)

our consolidate financial statements.
NOTE 14. Special Charges — (Continued)

    In the first quarter of 2002,      Visteon recorded pre-tax charges of $95 million related to various first quarter of 2002 actions, including the separation of 820 employees at Markham, Ontario, as a result of Visteon’s decision to move nearly all of the non-restraint electronics business to facilities in Mexico, the elimination of about 215 engineering positions in the United States to reduce research and development costs, the closure of our Visteon Technologies facility in California and the related discontinuation of support for our aftermarket navigation systems product line, the closure of our Leatherworks facility in Michigan and the elimination of about 240 manufacturing positions in Mexico. Included

      Visteon recorded pre-tax charges of $71 million ($48 million in the $95costs of sales and $23 million pre-tax charge is $12 million of non-cash chargesin selling, administrative and other expenses) related to the write-downseparation of equipment to be disposed ofabout 308 U.S. salaried employees through a special voluntary early retirement and the write-down of aftermarket navigation systems inventory. The engineering-related and Mexican manufacturing-related separations, and the closure of Visteon Technologies, were completed in the first quarter of 2002. The Leatherworks facility was closed in the third quarter of 2002. As of December 31, 2002, Visteon completed moving all of the non-restraint electronics business to other facilities and separated all Markham employees.

     Effective April 1, 2002, Visteon completed the sale of its restraint electronics business to Autoliv, Inc. for $25 million, resulting in a pre-tax charge in the first quarter of 2002 of $26 million ($16 million after-tax) recorded in costs of sales. The sale includes Visteon’s North American and European order book of approximately $150 million in annual sales to Ford and its affiliates, and associated manufacturing operations in Markham, Ontario, as well as related assets and liabilities. As part of the sale, approximately 280 employees from Markham and about 95 engineers from Dearborn, Michigan, transferred to Autoliv.

     During the third quarter of 2002,separation program.

      Visteon recorded a pre-tax chargecharges in costs of sales of $26$40 million ($17 million after-tax) related to restructuring manufacturing operations in the UK, Germany and France. Of this charge, $10$24 million is related to the separation of about 138338 hourly employees located at Visteon’s plants in GermanyEurope through a special voluntary retirement and separation program. The remaining $16 million is a non-cash impairment charge related to a group of machinery and equipment in Europe for which production activities will be discontinued and the future undiscounted cash flows are less than the carrying value of the assets held for use. Visteon measured the impairment loss by comparing the carrying value of these fixed assets to the expected proceeds from disposal of the assets after completion of remaining production commitments.

     In111

VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
NOTE 16. Special Charges — (Continued)
      Effective April 1, 2002, Visteon completed the fourth quartersale of 2002,its restraint electronics business to Autoliv, Inc. for $25 million, resulting in a pre-tax charge of $26 million recorded in costs of sales. The sale includes Visteon’s North American and European order book of approximately $150 million in annual sales to Ford and its affiliates, and associated manufacturing operations in Markham, Ontario, as well as related assets and liabilities. As part of the sale, approximately 280 employees from Markham and about 95 engineers from Dearborn, Michigan, transferred to Autoliv.
      Visteon recorded pre-tax charges of $88$3 million ($56 million after-tax), with $65 million in costs of sales and $23 million in selling, administrative and other expenses, related to restructuring actions. Of this charge, $71 million is related to the separation of about 308 U.S. salaried employees through a special voluntary early retirement and separation program and $14 million related to the separation of about 200 hourly employees located at Visteon’s plants in Europe through a continuation of a special voluntary retirement and separation program started in the third quarter of 2002. The remaining balance of the charge iswere recorded related to the elimination of about 189 manufacturing positions in Brazil and other minor actions. The separation of the 308 U.S. salaried employees was completed in 2003.

     AccruedIn addition, accrued restructuring liabilities relating to prior year restructuring plans of $5$12 million ($3 million after-tax) and $7 million ($5 million after-tax) were credited to costs of sales in the first and fourth quarters of 2002 respectively, reflecting a change in estimated costs to complete these activities.

93112

VISTEON CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS — (Continued)
NOTE 14. Special Charges — (Continued)
NOTE 16. Special Charges — (Continued)

2001 ActionsReserve Activity

     During the second quarter of 2001, Visteon recorded pre-tax charges of $158 million ($100 million after-tax), of which $146 million

      Reserve balances, excluding those related to the eliminationseating operations, of more than 2,000 salaried positions, mainly in the United States, and $12 million related to the closure of two European facilities, ZEM in Poland and Wickford in the U.K., and other actions. Of the total pre-tax charges, $42 million is recorded in selling, administrative and other expenses and $116 million is recorded in costs of sales.

     During the third quarter of 2001, Visteon recorded a pre-tax charge of $34 million ($21 million after-tax) in costs of sales related to special voluntary retirement and separation programs offered to hourly employees located at Visteon’s Nashville Glass plant. This action resulted in the separation of about 245 employees during the third quarter of 2001.

Reserve Activity

Reserve balances of $45$55 million and $37$45 million at December 31, 20032004 and 2002,2003, respectively, are included in current accrued liabilities on the accompanying balance sheets. The December 31, 2003,2004, reserve balance of $45$55 million includes $2$11 million related to 20022003 restructuring activities. Visteon currently anticipates that the restructuring activities to which all of the above charges relate will be substantially completed by the end of 2004.

2005.
                
Automotive OperationsGlass Operations
Employee-RelatedOtherEmployee-RelatedTotal                 
  Automotive Operations Glass Operations
    
(Restated)  Employee-Related Other Employee-Related Total
        
(in millions)  (in millions)
December 31, 2001 reserve balancesDecember 31, 2001 reserve balances $17 $— $6 $23 December 31, 2001 reserve balances $17 $— $6 $23 
First quarter 2002 actions  81  14  —  95 First quarter 2002 actions  81  14  —  95 
Third quarter 2002 actions  10  16  —  26 Third quarter 2002 actions  10  16  —  26 
Fourth quarter 2002 actions  83  —  5  88 Fourth quarter 2002 actions  83  —  5  88 
Adjustments to prior year’s expenses  (9)  —  (3)  (12)Adjustments to prior years expenses  (9)  —  (3)  (12)
 
 
 
 
           
 Total net expense  165  30  2  197  Total net expense  165  30  2  197 
Utilization  (147)  (30)  (7)  (184)Utilization  (147)  (30)  (7)  (184)
Foreign exchange translation  1  —  —  1 Foreign exchange translation  1  —  —  1 
 
 
 
 
           
December 31, 2002 reserve balancesDecember 31, 2002 reserve balances  36  —  1  37 December 31, 2002 reserve balances $36 $— $1 $37 
First quarter 2003 actions  26  4  1  31 First quarter 2003 actions  26  4  1  31 
Second quarter 2003 actions  49  —  —  49 Second quarter 2003 actions  49  —  —  49 
Third quarter 2003 actions  11  —  —  11 Third quarter 2003 actions  11  —  —  11 
Fourth quarter 2003 actions  48  —  —  48 Fourth quarter 2003 actions  48  —  —  48 
Adjustments to prior year’s expenses  (8)  —  (1)  (9)Adjustments to prior years expenses  (8)  —  (1)  (9)
 
 
 
 
           
 Total net expense  126  4  —  130  Total net expense – Restated  126  4  —  130 
Utilization  (122)  (4)  (1)  (127)Utilization – Restated  (122)  (4)  (1)  (127)
Foreign exchange translation  5  —  —  5 Foreign exchange translation  5  —  —  5 
 
 
 
 
           
December 31, 2003 reserve balancesDecember 31, 2003 reserve balances $45 $— $— $45 December 31, 2003 reserve balances $45 $— $— $45 
 
 
 
 
 First quarter 2004 actions – Restated  14  —  —  14 
Second quarter 2004 actions  5  —  —  5 
Third quarter 2004 actions  24  —  1  25 
Fourth quarter 2004 actions  49  —  3  52 
Adjustments to prior years expenses  1  —  —  1 
         
 Total net expense  93  —  4  97 
Utilization  (87)  —  (1)  (88)
Foreign exchange translation  1  —  —  1 
         
December 31, 2004 reserve balancesDecember 31, 2004 reserve balances $52 $— $3 $55 
         

94

VISTEON CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS — (Continued)

NOTE 14. Special Charges — (Continued)

      Utilization for 2004 of $88 million includes $67 million mainly for severance pay and $21 million related to special pension and other postretirement benefits. Utilization for 2003 of $127 million includes $97 million of cash payments mainly for severance pay, $26 million incurred related to special pension and other postretirement benefits and $4 million related to the non-cash write-down of certain plant assets. Utilization

113

VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
NOTE 17. Accounting Changes
      During the fourth quarter of 2004, Visteon changed the method of determining the cost of production inventory for U.S. locations from the last-in, first-out (“LIFO”) method to the first-in, first-out (“FIFO”) method. Prior to the fourth quarter of 2004, production inventories in the U.S. were valued substantially using the LIFO method. Visteon believes the FIFO method of inventory costing provides more meaningful information to investors and conforms all inventories to the same FIFO basis. As a result, all inventories are now stated at the lower of cost, determined on a FIFO basis, or market. In accordance with Accounting Principles Board Opinion No. 20, “Accounting Changes”, a change from the LIFO method of inventory costing to another method is considered a change in accounting principle that should be applied by retroactively restating all prior periods. This change decreased the 2003 net loss by $36 million ($0.29 per share), which includes a $34 million reduction to the fourth quarter of 2003 non-cash charge which established a valuation allowance against our net deferred tax assets in the U.S.; and increased 2002 net loss by $6 million ($0.04 per share). The change in accounting from LIFO to FIFO resulted in a cumulative increase to stockholders equity at January 1, 2002 of $184 million includes $111 million incurred related to special pension and other postretirement benefits, $43 million of cash payments mainly for severance pay, $28 million related to the non-cash write-down of certain plant assets and inventory and $2 million of cash payments for other exit costs.$61 million.

In June 2002, the FASB issued Financial Accounting Standards No. 146 (“SFAS 146”), “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS 146 requires recognition of costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Costs covered by the standard include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing or other exit or disposal activity. The provisions of the new standard are effective for restructuring, exit or disposal activities initiated after December 31, 2002. The effect of adopting SFAS 146 on Visteon’s results of operations or financial position as of December 31, 2003 was not material, although SFAS 146 may impact the timing of recognition of costs associated with future restructuring, exit or disposal activities.

NOTE 15. Accounting Change

      Effective January 1, 2002, Visteon adopted Financial Accounting Standards No. 142 (“SFAS 142”), “Goodwill and Other Intangible Assets.” SFAS 142 no longer permits amortization of goodwill and establishes a new method of testing goodwill for impairment by using a fair-value based approach. Goodwill iswas related primarily to the acquisition of the interiors division of Compagnie Plastic Omnium and the increase of Visteon’s ownership in Halla Climate Corporation to 70% by purchasing an additional 35%, both of which occurred in 1999.

      SFAS 142 requires goodwill to be evaluated for possible impairment as of January 1, 2002, and periodically thereafter, using a fair-value approach. An initial test for goodwill impairment using a fair-value approach was performed for the Automotive Operations reporting unit by comparing the estimated fair value of our Automotive Operations reporting unit to its net book value. Visteon’s stock market capitalization, as well as market multiples and other factors, were used as the basis for determining the fair value of the Automotive Operations reporting unit. Because the fair value of the Automotive Operations reporting unit was considered less than its net book value, Visteon recorded an impairment loss on goodwill of $363 million ($265 million after-tax) as a cumulative effect of change in accounting principle in the first quarter of 2002. The pre-tax impairment loss consists of $357 million of net goodwill as of December 31, 2001, and $6 million reclassified to goodwill related to certain acquired intangible assets, as required by SFAS 142.

95114

VISTEON CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS — (Continued)
NOTE 15. Accounting Change — (Continued)

The following presents net (loss) and (loss) per share, adjusted to reflect the adoption of the non-amortization provisions of SFAS 142, as of the beginning of the periods presented:

              
200320022001
(Restated)
(in millions, except
per share amounts)
Net (Loss)
            
Reported net (loss) $(1,243) $(362) $(122)
Goodwill amortization, net of tax  —   —   17 
  
  
  
 
 Adjusted net (loss) $(1,243) $(362) $(105)
  
  
  
 
(Loss) Per Share — Basic and Diluted
            
Reported (loss) per share $(9.88) $(2.84) $(0.94)
Goodwill amortization, net of tax  —   —   0.13 
  
  
  
 
 Adjusted (loss) per share $(9.88) $(2.84) $(0.81)
  
  
  
 
NOTE 16. 18. Cash Flows

The reconciliation of net (loss) to cash flows provided by operating activities is as follows:

           
200320022001              
  2004 2003 2002
(Restated)       
 Restated Restated Restated
(in millions)  (in millions)
Net (loss)Net (loss) $(1,243) $(362) $(122)Net (loss) $(1,536) $(1,229) $(379)
Adjustment to reconcile net (loss) to cash flows from operating activities:Adjustment to reconcile net (loss) to cash flows from operating activities:          Adjustment to reconcile net (loss) to cash flows from operating activities:          
Cumulative effect of change in accounting, net of tax  —  265  — Cumulative effect of change in accounting, net of tax  —  —  265 
Depreciation and amortization  677  633  667 Depreciation and amortization  685  677  633 
Asset impairment charges  436  —  — Asset impairment charges  314  436  — 
Loss on divestitures  —  26  — Loss on divestitures  —  —  26 
Earnings of affiliated companies in excess of dividends remitted  (20)  (28)  (12)Earnings of affiliated companies in excess of dividends remitted  (2)  (20)  (28)
Benefit for deferred income taxes  (67)  (148)  (145)Deferred income taxes  873  (84)  (158)
Sale of receivables  5  10  — Sale of receivables  66  5  10 
Changes in assets and liabilities:          Changes in assets and liabilities:          
 Decrease (increase) in accounts receivable and other current assets  (37)  280  (186) Decrease (increase) in accounts receivable and other current assets  (173)  (37)  280 
 Decrease in inventory  143  76  83  Decrease in inventory  3  140  85 
 Increase (decrease) in accounts payable, accrued and other liabilities  (8)  49  (185) Increase (decrease) in accounts payable, accrued and other liabilities  (57)  (2)  67 
 Increase in postretirement benefits other than pensions  400  279  257  Increase in postretirement benefits other than pensions  180  400  279 
Other  77  23  83 Other  65  77  23 
 
 
 
         
Cash flows provided by operating activitiesCash flows provided by operating activities $363 $1,103 $440 Cash flows provided by operating activities $418 $363 $1,103 
 
 
 
         

96

VISTEON CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS — (Continued)

NOTE 16. Cash Flows — (Continued)

Cash paid for interest and income taxes was as follows:

            
200320022001
        
(Restated) 2004 2003 2002
      
(in millions) (in millions)
Interest $94 $120 $131  $105 $94 $120 
Income taxes  75  80  44   101  89  92 
NOTE 17. 19. Information Technology Agreement

Since      Prior to January 2003 and since our separation from Ford, Ford hashad provided us with and charged us for many of our information technology needs. In January 2003, we entered into a 10-year outsourcing agreement with International Business Machines (“IBM”) pursuant to which we will outsource most of our IT needs on a global basis, including mainframe support services, data centers, customer support centers, application development and maintenance, data network management, desktop support, disaster recovery and web hosting. The service charges under the outsourcing agreement are expected to aggregate about $2 billion during the ten-yearten year initial term of the agreement, subject to decreases and increases in the service charges based on Visteon’s actual consumption of services to meet its then current business needs. The outsourcing agreement may also be terminated also for Visteon’s business convenience after our second full year under the agreement for a scheduled termination fee. Associated charges were about $280 million in 2004.

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VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
NOTE 18. Segment Information
NOTE 20. Segment Information

      Financial Accounting Standards No. 131, “Disclosures about Segments of an Enterprise and Related Information,” establishes standards for reporting information about operating segments in annual financial statements and requires reporting selected information about operating segments in interim financial reports. It also establishes standards for related disclosures about products and services and geographic operations.

      Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision-makers, or a decision-making group, in deciding how to allocate resources and in assessing performance. Visteon’s chief operating decision-making group is the Strategy Council, which is comprised of the Chairman and Chief Executive Officer and several other senior executives.

      Visteon’s organization is focused on customer business groups, and supported by centralized product development, manufacturing and administrative functions. Consistent with this organization, Visteon’s reportable operating segments are Automotive Operations and Glass Operations. Automotive Operations provides various automotive systems and components mainly to OEM customers; Glass Operations supplies architectural and flat glass to a broad customer base, including OEMs.

97

VISTEON CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS — (Continued)

     
NOTE 18. Segment Information — (Continued)

The accounting policies for the operating segments are the same as those described in Note 3, “Accounting Policies,” of our consolidated financial statements. Income (loss) before income taxes is the primary profitability measure used by our chief operating decision-makers, both including and excluding the effects of special charges. Special charges are discussed further in Notes 6, 147, 16 and 1517 of our consolidated financial statements. Financial information for the reportable operating segments is summarized as follows:

                        
AutomotiveGlassTotal  Automotive Glass Total
OperationsOperationsVisteon  Operations Operations Visteon
       
 (in millions)
(Restated)
(in millions)
2003
          
2004 – Restated
2004 – Restated
          
SalesSales $17,097 $563 $17,660 Sales $18,137 $520 $18,657 
(Loss) before income taxes  (1,182)  (9)  (1,191)
(Loss) before income taxes and minority interests(Loss) before income taxes and minority interests  (523)  (16)  (539)
Net (loss)Net (loss)  (1,234)  (9)  (1,243)Net (loss)  (1,476)  (60)  (1,536)
Special charges:Special charges:          Special charges:          
Before taxes  754  —  754 Before taxes  (392)  (4)  (396)
After taxes  944  5  949 After taxes  (1,215)  (48)  (1,263)
Depreciation/amortizationDepreciation/amortization  670  7  677 Depreciation/amortization  681  4  685 
Capital expenditures  863  9  872 
Capital expenditures, including capital leasesCapital expenditures, including capital leases  833  12  845 
Unconsolidated affiliates:Unconsolidated affiliates:          Unconsolidated affiliates:          
Equity in net income  51  4  55 Equity in net income  40  5  45 
Investments in  195  20  215 Investments in  207  20  227 
Total assets, end of periodTotal assets, end of period  10,675  258  10,933 Total assets, end of period  10,021  271  10,292 
2002
          
Sales $17,797 $598 $18,395 
Income (loss) before income taxes  (153)  20  (133)
Cumulative effect of change in accounting, net of tax  265  —  265 
Net income (loss)  (376)  14  (362)
Special charges:          
Before taxes  221  2  223 
After taxes, excluding change in accounting  141  1  142 
Depreciation/amortization  627  6  633 
Capital expenditures  718  7  725 
Unconsolidated affiliates:          
Equity in net income  39  5  44 
Investments in  171  20  191 
Total assets, end of period  10,907  262  11,169 
2001
          
Sales $17,222 $621 $17,843 
(Loss) before income taxes  (116)  (59)  (175)
Net (loss)  (87)  (35)  (122)
Special charges:          
Before taxes  142  50  192 
After taxes  90  31  121 
Depreciation/amortization  662  5  667 
Capital expenditures  748  8  756 
Unconsolidated affiliates:          
Equity in net income  19  5  24 
Investments in  140  18  158 
Goodwill, end of period  363  —  363 
Total assets, end of period  10,875  309  11,184 

98116

VISTEON CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS — (Continued)
NOTE 18. Segment Information — (Continued)
NOTE 20. Segment Information — (Continued)

              
  Automotive Glass Total
  Operations Operations Visteon
       
  (in millions)
2003 – Restated
            
Sales $17,097  $563  $17,660 
(Loss) before income taxes and minority interests  (1,187)  (7)  (1,194)
Net (loss)  (1,222)  (7)  (1,229)
Special charges:            
 Before taxes  (754)  —   (754)
 After taxes  (928)  (5)  (933)
Depreciation/amortization  670   7   677 
Capital expenditures  863   9   872 
Unconsolidated affiliates:            
 Equity in net income  51   4   55 
 Investments in  195   20   215 
Total assets, end of period  10,725   299   11,024 
2002 – Restated
            
Sales $17,797  $598  $18,395 
Income (loss) before income taxes and minority interests  (181)  21   (160)
Cumulative effect of change in accounting, net of tax  (265)  —   (265)
Net income (loss)  (394)  15   (379)
Special charges:            
 Before taxes  (221)  (2)  (223)
 After taxes, excluding change in accounting  (141)  (1)  (142)
Depreciation/amortization  627   6   633 
Capital expenditures  718   7   725 
Unconsolidated affiliates:            
 Equity in net income  39   5   44 
 Investments in  171   20   191 
Total assets, end of period  10,954   286   11,240 
Visteon’s major geographic areas are the United States, Europe and Asia Pacific. Other geographic areas (primarily Canada, Mexico and South America) individually are not material. Financial information segregated by geographic area is as follows:
                     
          Total
Geographic Areas United States Europe Asia-Pacific All Other Visteon
           
  (in millions)
2004
                    
Sales $11,868  $3,915  $1,744  $1,130  $18,657 
Net property  2,835   1,540   556   372   5,303 
2003
                    
Sales $11,852  $3,209  $1,454  $1,145  $17,660 
Net property  3,001   1,503   442   419   5,365 
2002
                    
Sales $13,093  $2,878  $1,249  $1,175  $18,395 
Net property  3,196   1,409   407   436   5,448 

117

VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
                     
Total
Geographic AreasUnited StatesEuropeAsia-PacificAll OtherVisteon
(Restated)
(in millions)
2003
                    
Sales $11,852  $3,209  $1,454  $1,145  $17,660 
Net property  3,001   1,503   442   419   5,365 
2002
                    
Sales $13,093  $2,878  $1,249  $1,175  $18,395 
Net property  3,196   1,409   407   436   5,448 
2001
                    
Sales $12,677  $2,781  $1,084  $1,301  $17,843 
Net property  3,179   1,255   411   490   5,335 
NOTE 20. Segment Information — (Continued)

Visteon’s sales by group of similar products isare as follows:
                   
Product GroupsProduct Groups20032002Product Groups 2004 2003 2002
       
 (in millions)
(in millions)
Automotive Operations       
Chassis Products & Systems $4,390 $4,544 
Automotive Operations Chassis Products & SystemsAutomotive Operations Chassis Products & Systems $4,477 $4,390 $4,544 
Interior Products & Systems  3,653  3,982 Interior Products & Systems  3,974  3,653  3,982 
Climate Control Products & Systems  3,848  3,786 Climate Control Products & Systems  4,317  3,848  3,786 
Powertrain Products & Systems  3,144  3,320 Powertrain Products & Systems  3,328  3,144  3,320 
Electronic Products & Systems  2,091  2,233 Electronic Products & Systems  1,961  2,091  2,233 
Exterior Products & Systems  801  814 Exterior Products & Systems  881  801  814 
Eliminations  (830)  (882)Eliminations  (801)  (830)  (882)
 
 
         
Total Automotive Operations  17,097  17,797 Total Automotive Operations  18,137  17,097  17,797 
Glass OperationsGlass Operations  563  598 Glass Operations  520  563  598 
 
 
         
Total Visteon $17,660 $18,395 Total Visteon $18,657 $17,660 $18,395 
 
 
         
NOTE 21. Summary Quarterly Financial Data (Unaudited)
      The following tables present the restated and the previously reported summary quarterly financial data.
                                  
  2004 — Restated 2003 — Restated
     
  First Second Third Fourth First Second Third Fourth
  Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
                 
  (in millions, except per share amounts)
Sales $4,972  $4,870  $4,136  $4,679  $4,704  $4,613  $3,884  $4,459 
Gross margin*  317   288   (230)  131   225   (8)  (14)  (367)
Operating income (loss)  52   50   (455)  (135)  (19)  (248)  (278)  (627)
Income (loss) before income taxes and minority interests  44   38   (469)  (152)  (23)  (253)  (285)  (633)
Net income (loss)  21   20   (1,439)  (138)  (17)  (165)  (181)  (866)
Earnings (loss) per share                                
 Basic $0.17  $0.16  $(11.48) $(1.10) $(0.13) $(1.31) $(1.44) $(6.89)
 Diluted $0.16  $0.16  $(11.48) $(1.10) $(0.13) $(1.31) $(1.44) $(6.89)
* Gross margin as presented is calculated as sales less costs of sales.

99118

VISTEON CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS — (Continued)

NOTE 19. Summary Quarterly Financial Data (Unaudited)

NOTE 21. Summary Quarterly Financial Data (Unaudited) — (Continued)

                                  
  2004 — Previously Reported 2003 — Previously Reported
     
  First Second Third Fourth First Second Third Fourth
  Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
                 
  (in millions, except per share amounts)
Sales $4,972  $4,870  $4,136  $4,679  $4,704  $4,613  $3,884  $4,459 
Gross margin*  316   294   (220)  156   223   (19)  (3)  (359)
Operating income
(loss)		  51   56   (445)  (110)  (21)  (259)  (267)  (619)
Income (loss) before income taxes and minority interests  43   44   (459)  (127)  (25)  (264)  (274)  (625)
Net income (loss)  20   24   (1,424)  (119)  (19)  (172)  (174)  (842)
Earnings (loss) per share                                
 Basic $0.16  $0.19  $(11.36) $(0.95) $(0.15) $(1.37) $(1.38) $(6.70)
 Diluted $0.16  $0.19  $(11.36) $(0.95) $(0.15) $(1.37) $(1.38) $(6.70)
* Gross margin as presented is calculated as sales less costs of sales.
The following tables presenttable summarizes the originallyimpact of the accounting corrections described in Note 2 of our consolidated financial statements to Visteon’s previously reported net income (loss) for each quarter in 2004 and the restated summary quarterly financial data.2003.
                                  
  2004 2003
     
  First Second Third Fourth First Second Third Fourth
  Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
                 
  (In millions)
Net income (loss), as previously reported
 $20  $24  $(1,424) $(119) $(19) $(172) $(174) $(842)
Accounting corrections for freight costs (pre-tax)  3   1   (1)  (11)  2   7   (13)  (7)
Accounting corrections for raw material costs (pre-tax)  (1)  (6)  (9)  (10)  1   3   2   — 
Accounting corrections for other supplier costs (pre-tax)  (1)  (1)  —   (4)  (1)  1   —   (1)
Tax impact of above  —   2   (2)  —   —   (4)  4   (16)
Accounting correction for income taxes  —   —   (3)  6   —   —   —   — 
                         
 
Net income (loss), as restated
 $21  $20  $(1,439) $(138) $(17) $(165) $(181) $(866)
                         

119

VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS — (Continued)
                                 
20032002
FirstSecondThirdFourthFirstSecondThirdFourth
QuarterQuarterQuarterQuarterQuarterQuarterQuarterQuarter
Originally Reported
(in millions, except per share amounts)
Sales $4,704  $4,613  $3,884  $4,459  $4,469  $5,039  $4,344  $4,543 
Operating income (loss)  (15)  (251)  (257)  (605)  (89)  127   (75)  (44)
Income (loss) before income taxes  (19)  (256)  (264)  (611)  (107)  117   (78)  (49)
Net income (loss)  (15)  (167)  (168)  (863)  (338)  72   (52)  (34)
Earnings (loss) per share $(0.12) $(1.33) $(1.34) $(6.87) $(2.63) $0.56  $(0.40) $(0.27)
NOTE 21. Summary Quarterly Financial Data (Unaudited) — (Continued)
                                 
20032002
FirstSecondThirdFourthFirstSecondThirdFourth
QuarterQuarterQuarterQuarterQuarterQuarterQuarterQuarter
(Restated)
(in millions, except per share amounts)
Sales $4,704  $4,613  $3,884  $4,459  $4,469  $5,039  $4,344  $4,543 
Operating income (loss)  (21)  (259)  (267)  (622)  (95)  121   (79)  (44)
Income (loss) before income taxes  (25)  (264)  (274)  (628)  (113)  111   (82)  (49)
Net income (loss)  (19)  (172)  (174)  (878)  (342)  69   (54)  (35)
Earnings (loss) per share $(0.15) $(1.37) $(1.38) $(6.99) $(2.66) $0.54  $(0.42) $(0.28)

As discussed further in Note 1416 of our consolidated financial statements, Visteon recorded pre-tax charges of $14 million, $5 million, $336 million and $41 million in the first quarter, second quarter, third quarter and fourth quarter of 2004, respectively, related to asset impairment charges, exit of the North American seating operations, restructuring and other actions. Results for the third quarter of 2004 include income tax expense of $871 million related to recording deferred income tax valuation allowances, which are discussed further in Note 7 of our consolidated financial statements.

      As discussed further in Note 16 of our consolidated financial statements, Visteon recorded pre-tax charges of $31 million, $266 million, $2 million and $455 million in the first quarter, second quarter, third quarter and fourth quarter of 2003, respectively, related to asset impairment charges, exit of the North American seating operations, restructuring and other actions. Results for the fourth quarter of 2003 include income tax expense of $465$449 million related to recording income tax valuation allowances, which are discussed further in Note 67 of our consolidated financial statements.

As discussed further
NOTE 22. Subsequent Event

      On March 10, 2005, Visteon and Ford entered into a funding agreement, effective as of March 1, 2005, under which Ford has agreed (a) to accelerate the payment on or prior to March 31, 2005 of not less than $120 million of payables that are currently not required to be paid to Visteon until after March 31, 2005; (b) to accelerate the payment terms for certain payables to Visteon arising on or after April 1, 2005 from an average of 33 days after the date of sale to an average of 26 days; (c) to reduce the amount of wages that Visteon is currently obligated to reimburse Ford with respect to Visteon-assigned Ford-UAW hourly employees that work at Visteon facilities, which Visteon expects will result in Note 14reduced expenses and in cash savings of our consolidated financial statements,approximately $25 million per month; and (d) to release Visteon recorded pre-tax chargesfrom its obligation to reimburse Ford for Ford profit sharing payments with respect to Visteon-assigned Ford-UAW hourly employees that accrue in 2005.
      Under the funding agreement, Visteon has agreed to (a) continue to provide an uninterrupted supply of $116 million, $26 millioncomponents to Ford in accordance with applicable purchase orders and $81 millionto continue to comply with its other contractual agreements with Ford and the UAW, including continuing to use its best efforts to quote competitive prices for new business to be produced for Ford at certain of Visteon’s plants located in North America; (b) not to request reimbursement from Ford for any material cost surcharges for any component that is produced for Ford at certain of Visteon’s plants located in North America, and (c) that, except with respect to sales of inventory or the disposal of obsolete equipment in the first quarter, third quarter and fourth quarterordinary course of 2002, respectively, related to restructuring actions and the salebusiness, Visteon will not sell, close or otherwise dispose of any of the restraint electronics business. As discussed furtherassets at certain of Visteon’s plants located in Note 15North America, without Ford’s consent.
      Also on March 10, 2005, Ford and Visteon entered into a master equipment bailment agreement, effective as of our consolidated financial statements, resultsJanuary 1, 2005, pursuant to which Ford has agreed to pay third-party suppliers for certain machinery, equipment, tooling and fixtures and related assets, which may be acquired during the first quarterterm of 2002 include an impairment lossthe agreement, which are primarily used to produce components for Ford at some of Visteon’s plants located in North America.
      Each of the above agreements may be terminated by Visteon or Ford at anytime on goodwillor after January 1, 2006 upon 10 business days’ notice or upon the occurrence of $363 million ($265 million after-tax) as a cumulative effectcertain customary events of change in accounting principle.
default.

100120

VISTEON CORPORATION AND SUBSIDIARIES
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
                      
Balance atAdditionsBalance
BeginningCharged toat End
of YearIncomeDeductions(a)Other(b)of Year
(Restated)
(in millions)
Year Ended December 31, 2003:
                    
 Allowance for doubtful accounts $24  $24  $(13) $—  $35 
 Valuation Allowance for deferred taxes  21   473   —   30   524 
Year Ended December 31, 2002:
                    
 Allowance for doubtful accounts $19  $13  $(8) $—  $24 
 Valuation allowance for deferred taxes  —   21   —   —   21 
Year Ended December 31, 2001:
                    
 Allowance for doubtful accounts $22  $11  $(14) $—  $19 
 Valuation allowance for deferred taxes  —   —   —   —   — 
                      
  Balance at Additions     Balance
  Beginning Charged to     at End
  of Year Income Deductions(a) Other(b) of Year
           
  (in millions)
Year Ended December 31, 2004: (Restated)
                    
 Allowance for doubtful accounts $35  $22  $(13) $—  $44 
 Valuation allowance for deferred taxes  508   1,282   —   159   1,949 
Year Ended December 31, 2003: (Restated)
                    
 Allowance for doubtful accounts $24  $24  $(13) $—  $35 
 Valuation Allowance for deferred taxes  21   457   —   30   508 
Year Ended December 31, 2002:
                    
 Allowance for doubtful accounts $19  $13  $(8) $—  $24 
 Valuation allowance for deferred taxes  —   21   —   —   21 

(a)Deductions represent uncollectible accounts charged off, net of recoveries.

(b)Other represents adjustment toadjustments recorded through other comprehensive income. The amount for 2004 also includes tax return true-up adjustments that impacted deferred taxes and the related valuation allowances.

101121

EXHIBIT INDEX
     
Exhibit
NumberExhibit 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 June 23, 2000March 10, 2004 between Visteon and Bank OneJ.P. Morgan Trust Company, N.A., as Trustee, is incorporated herein by reference to Exhibit 4.14.01 to the Current Report on Form 8-K of Visteon dated July 31, 2000March 3, 2004 (filed August 16, 2000)as of March 19, 2004).
 4.2Supplemental Indenture dated as of March 10, 2004 between Visteon and J.P. Morgan Trust Company, as Trustee, is incorporated herein by reference to Exhibit 4.02 to the Current Report on Form 8-K of Visteon dated March 3, 2004 (filed as of March 19, 2004).
4.3  Form of Common Stock Certificate of Visteon is incorporated herein by reference to Exhibit 4.1 to Amendment No. 1 to the Registration Statement on Form 10 of Visteon dated May 19, 2000.
 10.1  Master Transfer Agreement dated as of March 30, 2000 between Visteon and Ford Motor Company (“Ford”) is incorporated herein by reference to Exhibit 10.2 to the Registration Statement on Form S-1 of Visteon dated June 2, 2000 (File No. 333-38388).
 10.2  Purchase and Supply Agreement dated as of December 19, 2003 between Visteon and Ford is incorporated herein by reference to Exhibit 10.2 to the Annual Report on Form 10-K of Visteon for the period ended December 31, 2003.†
 10.3  2003 Relationship Agreement dated December 19, 2003 between Visteon and Ford is incorporated herein by reference to Exhibit 10.3 to the Annual Report on Form 10-K of Visteon for the period ended December 31, 2003.
 10.4  Master Separation Agreement dated as of June 1, 2000 between Visteon and Ford is incorporated herein by reference to Exhibit 10.4 to Amendment No. 1 to the Registration Statement on Form S-1 of Visteon dated June 6, 2000 (File No. 333-38388).
 10.5  Aftermarket Relationship Agreement dated as of January 1, 2000 between Visteon and the Automotive Consumer Services Group of Ford is incorporated herein by reference to Exhibit 10.5 to Amendment No. 1 to the Registration Statement on Form 10 of Visteon dated May 19, 2000.
 10.6  Amended and Restated Hourly Employee Assignment Agreement dated as of April 1, 2000, as amended and restated as of December 19, 2003, between Visteon and Ford is incorporated herein by reference to Exhibit 10.6 to the Annual Report on Form 10-K of Visteon for the period ended December 31, 2003.
 10.7  Amended and Restated Employee Transition Agreement dated as of April 1, 2000, as amended and restated as of December 19, 2003, between Visteon and Ford is incorporated herein by reference to Exhibit 10.7 to the Annual Report on Form 10-K of Visteon for the period ended December 31, 2003.
 10.8  Tax Sharing Agreement dated as of June 1, 2000 between Visteon and Ford is incorporated herein by reference to Exhibit 10.8 to the Registration Statement on Form S-1 of Visteon dated June 2, 2000 (File No. 333-38388).

122

Exhibit
NumberExhibit Name
 10.9  Visteon Corporation 20002004 Incentive Plan, as amended and restated, is incorporated herein by reference to Appendix EB to the Proxy Statement of Visteon dated March 26, 2001.30, 2004.*
10.9.1Form 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.*
10.9.2Form 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.*
10.9.3Form 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.*
10.9.4Form 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.*

102

Exhibit
NumberExhibit Name
 10.10.1  Schedule identifying substantially identical agreements to Revised Change in Control Agreement constituting Exhibit 10.10 hereto entered into by Visteon with Messrs. Pestillo, Johnston, Coulson, Orchard, Palmer, Pfannschmidt, Chatterjee and Marcin, and Ms. Fox.Fox is incorporated herein by reference to Exhibit 10.10.1 to the AnnualQuarterly Report on Form 10-K10-Q of Visteon for the period ended December 31, 2003.dated November 4, 2004.*
 10.11  Issuing and Paying Agency Agreement dated as of June 5, 2000 between Visteon and The Chase Manhattan Bank is incorporated herein by reference to Exhibit 10.11 to the Quarterly Report on Form 10-Q of Visteon dated July 24, 2000.
 10.12  Corporate Commercial Paper — Master Note dated June 1, 2000 is incorporated herein by reference to Exhibit 10.12 to the Quarterly Report on Form 10-Q of Visteon dated July 24, 2000.
 10.13  Letter Loan Agreement dated as of June 12, 2000 from The Chase Manhattan Bank is incorporated herein by reference to Exhibit 10.13 to the Quarterly Report on Form 10-Q of Visteon dated July 24, 2000.
 10.14  Visteon Corporation Deferred Compensation Plan for Non-Employee Directors, as amended, is incorporated herein by reference to Exhibit 10.14 to the Annual Report on Form 10-K of Visteon for the period ended December 31, 2003.*
 10.15  Visteon Corporation Restricted Stock Plan for Non-Employee Directors, as amended, is incorporated herein by reference to Exhibit 10.15 to the Annual Report on Form 10-K of Visteon for the period ended December 31, 2003.*
 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.*
 10.17  Visteon Corporation Savings Parity Plan is incorporated herein by reference to Exhibit 10.17 to the Annual Report on Form 10-K of Visteon for the period ended December 31, 2002.*
 10.18  Visteon Corporation Pension Parity Plan, as amended through February 9, 2005, is incorporated herein by reference to Exhibit 10.1810.4 to the AnnualCurrent Report on Form 10-K8-K of Visteon for the period ended December 31, 2002.dated February 9, 2005.*

123

Exhibit
NumberExhibit Name
 10.19  Visteon Corporation Supplemental Executive Retirement Plan, as amended through February 9, 2005, is incorporated herein by reference to Exhibit 10.1910.2 to the AnnualCurrent Report on Form 10-K8-K of Visteon for the period ended December 31, 2002.dated February 9, 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 10.2210.3 to the AnnualCurrent Report on Form 10-K8-K of Visteon for the period ended December 31, 2002.dated February 9, 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, 10.17, 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.*

103

Exhibit
NumberExhibit Name
 10.24  Five-Year Revolving Loan Credit Agreement dated as of June 20, 2002 among Visteon, the several banks and other financial institutions or entities from time to time parties to the agreement, JPMorgan Chase Bank, as administrative agent, and Bank of America N.A., as syndication agent, is incorporated herein by reference to Exhibit 10.24 to the Annual Report on Form 10-K of Visteon for the period ended December 31, 2002.
 10.2510.24.1  364-Day/1-Year Term-OutFirst Amendment, dated as of December 16, 2004, to and under the Five-Year Revolving Loan Credit Agreement dated as of June 19, 200320, 2002 among Visteon, the several banks and other financial institutions or entities from time to time parties to the agreement, JPMorgan Chase Bank, as administrative agent, and Bank of America N.A., as syndication agent, is incorporated herein by reference to Exhibit 10.24.1 to the Annual Report on Form 10-K of Visteon for the period ended December 31, 2004.
10.25364-Day Credit Agreement dated as of June 18, 2004 among Visteon, the several banks and other financial institutions or entities from time to time parties to the agreement, JPMorgan Chase Bank, as administrative agent, and Citibank, N.A., as syndication agent, is incorporated herein by reference to Exhibit 10.25 to the Quarterly Report on Form 10-Q of Visteon dated July 29, 2003.30, 2004.
 10.26  Five-Year Term Loan Credit Agreement dated as of June 25, 2002 among Visteon, the several banks and other financial institutions or entities from time to time parties to the agreement, JPMorgan Chase Bank, as administrative agent, and Bank of America N.A., as syndication agent, is incorporated herein by reference to Exhibit 10.26 to the Annual Report on Form 10-K of Visteon for the period ended December 31, 2002.
 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.

124

Exhibit
NumberExhibit Name
 10.29  Employment Agreement effective as of January 1, 2004 between Visteon and Daniel R. Coulson is incorporated herein by reference to Exhibit 10.29 to the Annual Report on Form 10-K of Visteon for the period ended December 31, 2003.*
 12.110.30  Visteon Corporation Non-Employee Director Stock Unit Plan is incorporated herein by reference to Appendix C to the Proxy Statement re: Computation of Ratios.Visteon dated March 30, 2004.*
 1410.31  A PledgeEmployment Agreement dated as of Integrity (code of ethics)June 2, 2004 between Visteon and James F. Palmer is incorporated herein by reference to Exhibit 1410.31 to the Quarterly Report on Form 10-Q of Visteon dated July 30, 2004.*
10.32Visteon Executive Severance Plan is incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K of Visteon dated February 9, 2005.*
10.33Form 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.*
10.33.1Schedule identifying substantially identical agreements to Executive Retiree Health Care Agreement constituting Exhibit 10.33 hereto entered into by Visteon with Messrs. Johnston, Orchard and Palmer, is incorporated herein by reference to Exhibit 10.33.1 to the Annual Report on Form 10-K of Visteon for the period ended December 31, 2003.2004.*
10.34Funding 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.
10.35Master 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.
10.36Resignation 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.*
10.37Consulting 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.*
12.1Statement re: Computation of Ratios.
18.1Letter of Independent Registered Public Accounting Firm, PricewaterhouseCoopers LLP, regarding Change in Accounting Principles, is incorporated herein by reference to Exhibit 18.1 to the Annual Report on Form 10-K of Visteon for the period ended December 31, 2004.
 21.1  Subsidiaries of Visteon, is incorporated herein by reference to Exhibit 21.1 to the Annual Report on Form 10-K of Visteon for the period ended December 31, 2003.2004.
 23.1  Consent of Independent Registered Public Accounting Firm, PricewaterhouseCoopers LLP.
 24.1  Powers of Attorney relating to execution of this Annual Report on Form 10-K/A.A is incorporated herein by reference to Exhibit 24.1 to the Annual Report on Form 10-K of Visteon for the period ended December 31, 2004.
 31.1  Rule 13a-14(a) Certification of Chief Executive Officer dated March 16,November 22, 2005.
 31.2  Rule 13a-14(a) Certification of Chief Financial Officer dated March 16,November 22, 2005.
 32.1  Section 1350 Certification of Chief Executive Officer dated March 16,November 22, 2005.

125

Exhibit
NumberExhibit Name
 32.2  Section 1350 Certification of Chief Financial Officer dated March 16,November 22, 2005.
99.1Risk Factors is incorporated herein by reference to Exhibit 99.1 to the Annual Report on Form 10-K of Visteon for the period ended December 31, 2003.

† Portions of this exhibit have been redacted and are subjectpursuant to a confidential treatment request filed with the Secretary of the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. The redacted material was filed separately with the Securities and Exchange Commission.

* Indicates that exhibit is a management contract or compensatory plan or arrangement.

* 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.

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