(Mark One)
x
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
Name of each exchange on | ||
Title of each class | which registered | |
Common Stock, par value $1.00 per share | New York Stock Exchange |
As of March 1,November 14, 2005, the registrant had outstanding 128,678,345128,743,368 shares of common stock.
Document Incorporated by Reference*
Document | Where 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. |
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
• | ||
• | Visteon is making corrections | |
increased net loss by approximately $6 million ($0.05 per share) for the year ended December 31, 2002. | ||
• | Visteon is making corrections | |
• | ||
2004. |
1
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.
2
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
• | 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
• | 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
• | 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. | |
4
• | 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 |
Chassis Product Lines | Description | |
Driveline Systems | Visteon produces all of the major components for an all-wheel drive system. Major products | |
Steering Systems/Steering Columns | Visteon designs and produces hydraulic power assisted steering systems, rack and pinion steering gears and recirculating ball nut steering | |
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 |
5
Interior Product Lines | Description | |
Cockpit | Visteon’s | |
Visteon provides a wide range of door trim panels and modules as well as a variety of interior trim products. | ||
Console Modules | Visteon’s |
5
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 Lines | Description | |
Visteon designs and manufactures fully integrated heating, ventilation and air conditioning (HVAC) systems. Visteon’s proprietary analytical tools and | ||
Powertrain Cooling Systems | Cooling functionality and thermal management for the |
Powertrain Product Lines | Description | |
Powertrain Electronics | Visteon has a complete line of products for vehicle engine and powertrain management, including the | |
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 | Visteon manufactures systems and components to support low emissions vehicles. The principal products in these systems are plastic blow-molded and thermoformed |
6
Electronic Product Lines | Description | |
Audio Systems | Visteon produces a wide range of audio systems and components, | |
Driver Information Systems | Visteon designs and | |
Visteon has developed numerous products to assist driving and |
Exterior Product Lines | Description | |
Lighting | Visteon designs and builds a wide variety of headlamps | |
Bumpers | Visteon offers bumper systems, fascias and assemblies and valance panels. |
7
2004 sales.
so, especially considering recent increases in the costs of steel and resins.
8
9
10
Furthermore,
Visteon has received no payments related to either the cost differential or the GEN program as of December 31, 2004.
As described further below, Ford has agreed to additional acceleration of payment terms for certain payables to Visteon through at least 2005.
11
Visteon.
12
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
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
Intellectual Property
developments which are considered to have business significance.
13
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.
13
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.
14
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.
14
Available Information
15
Total | Total | |||||||||||||||||
Number of | Manufacturing | Number of | Manufacturing | |||||||||||||||
Manufacturing | Sites Square | Manufacturing | Sites’ Square | |||||||||||||||
Region | Region | Sites | Footage | Region | Sites | Footage | ||||||||||||
(in millions) | (in millions) | |||||||||||||||||
North America | North America | 60 | 29.7 | North America | 61 | 27.6 | ||||||||||||
Europe | Europe | 44 | 13.1 | Europe | 43 | 12.7 | ||||||||||||
South America | South America | 7 | 0.8 | South America | 7 | 0.8 | ||||||||||||
Asia-Pacific | Asia-Pacific | 24 | 6.4 | Asia-Pacific | 25 | 7.3 | ||||||||||||
Total | 135 | 50.0 | Total | 136 | 48.4 | |||||||||||||
2003:2004:
Customer | Customer | |||||||||||||||||||||||||||
Manufacturing | Technical | Centers and | Manufacturing | Technical | Centers and | |||||||||||||||||||||||
Region | Region | Sites | Centers | Sales Offices | Region | Sites | Centers | Sales Offices | ||||||||||||||||||||
North America | North America | North America | ||||||||||||||||||||||||||
Automotive Operations | 56 | 25 | 4 | Automotive Operations | 57 | 23 | 4 | |||||||||||||||||||||
Glass Operations | 4 | 1 | 2 | Glass Operations | 4 | 3 | — | |||||||||||||||||||||
Europe | Europe | Europe | ||||||||||||||||||||||||||
Automotive Operations | 44 | 9 | 15 | Automotive Operations | 43 | 13 | 14 | |||||||||||||||||||||
Glass Operations | — | — | — | Glass Operations | — | — | — | |||||||||||||||||||||
South America | South America | South America | ||||||||||||||||||||||||||
Automotive Operations | 7 | — | — | Automotive Operations | 7 | — | — | |||||||||||||||||||||
Glass Operations | — | — | — | Glass Operations | — | — | — | |||||||||||||||||||||
Asia-Pacific | Asia-Pacific | Asia-Pacific | ||||||||||||||||||||||||||
Automotive Operations | 24 | 8 | 5 | Automotive Operations | 25 | 8 | 6 | |||||||||||||||||||||
Glass Operations | — | — | — | Glass Operations | — | — | — | |||||||||||||||||||||
Totals | Totals | 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
16
We
None.
our company.Visteon. All ages are as of FebruaryMarch 1, 2004:2005:
Name | Age | Position | ||||
Peter J. Pestillo | Chairman of the Board | |||||
Michael F. Johnston | Director, President and Chief | |||||
Executive Vice President and President, North America | ||||||
James F. Palmer | 55 | Executive Vice President and Chief Financial Officer | ||||
Executive Vice President and President, | ||||||
Senior Vice President | ||||||
Stacy L. Fox | Senior Vice President, General Counsel and Secretary | |||||
John F. Kill | 55 | Senior Vice President Product Development | ||||
Robert H. Marcin | Senior Vice President, Corporate Relations | |||||
Thomas A. Burke | Vice President, North America | |||||
Jonathan K. Maples | Vice President | |||||
Vice President and President, | ||||||
William G. Quigley III | 43 | Vice President, Corporate Controller and |
17
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.
Anjan Chatterjee
17
Director of Enterprise Information Technology Solutions.
Ms. Fox will resign from her positions with Visteon effective as of March 31, 2005.
18
Lorie J. Buckingham
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
18
ITEM 5. | MARKET FOR VISTEON’S COMMON STOCK AND RELATED STOCKHOLDER MATTERS |
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 | |||||||||||||||||
First | Second | Third | Fourth | ||||||||||||||
Quarter | Quarter | Quarter | Quarter | ||||||||||||||
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 | |||||||||||||||||||||||||||||||
First | Second | Third | Fourth | Quarter | Quarter | Quarter | Quarter | |||||||||||||||||||||||||||
Quarter | Quarter | Quarter | Quarter | |||||||||||||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||||||||||||
Common stock price per share | Common 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 share | Dividends 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 |
company’s dividend policy quarterly based on all relevant factors.
ITEM 6. | SELECTED FINANCIAL DATA |
The following selected consolidated financial data has been restated to reflect adjustments to the Original Filing for accounting corrections related to freight, raw material costs, other supplier costs and income tax matters that are further discussed in “Explanatory Note” in the forepart of this Form 10-K/A and in Note 2, “Restatement of Financial Statements,” to our consolidated financial statements included in this Form 10-K/A.
The following selected consolidated financial data reflect our financial condition, results of operations and cash flows, with 2000 including activity both before and after our spin-off from Ford on June 28, 2000. 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.
1920
2003 | 2002 | 2001 | 2000 | 1999 | ||||||||||||||||||||||||||||||||||||||||
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 | ||||||||||||||||||||||||||||||||||||||||||
Sales | Sales | 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 expenses | Costs 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 income | Interest income | 17 | 23 | 55 | 109 | 79 | Interest income | 19 | 17 | 23 | 55 | 109 | ||||||||||||||||||||||||||||||||
Debt extinguishment cost | Debt extinguishment cost | 11 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
Interest expense | Interest 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 companies | Equity 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 accounting | Income (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 taxes | Provision (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 accounting | Income (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 subsidiaries | Minority 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 accounting | Income (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 tax | Cumulative 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 share | Cash 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 activities | Cash 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 activities | Cash (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 activities | Cash 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 assets | Total assets | $ | 10,933 | $ | 11,169 | $ | 11,184 | $ | 11,393 | $ | 12,542 | Total assets | $ | 10,292 | $ | 11,024 | $ | 11,240 | $ | 11,254 | $ | 11,462 | ||||||||||||||||||||||
Total debt | Total 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 amortization | Depreciation and amortization | $ | 677 | $ | 633 | $ | 667 | $ | 676 | $ | 651 | Depreciation and amortization | $ | 685 | $ | 677 | $ | 633 | $ | 667 | $ | 676 | ||||||||||||||||||||||
Capital expenditures | Capital 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 |
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.
22
ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND |
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.
2123
ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND |
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
Restructuring, Dispositions and Special Charges
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 | ) | |||||||||||||||||||
Automotive | Glass | Total | Special charges above, after taxes | $ | (388 | ) | $ | (4 | ) | $ | (392 | ) | ||||||||||||||||
Operations | Operations | Visteon | Deferred 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 |
25
ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND |
23
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.
During 2001, Visteon recorded net pre-tax
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 |
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 |
27
ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND |
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 |
28
ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND |
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 | ) |
29
ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND |
Year Ended | ||||||||||||||||||||||||||
December 31, | 2003 | Year Ended | ||||||||||||||||||||||||
over/(under) | December 31, | 2003 | ||||||||||||||||||||||||
2003 | 2002 | 2002 | over/(under) | |||||||||||||||||||||||
2003 | 2002 | 2002 | ||||||||||||||||||||||||
(in millions) | (in millions) | |||||||||||||||||||||||||
Automotive Operations | Automotive Operations | $ | 17,097 | $ | 17,797 | $ | (700 | ) | Automotive Operations | $ | 17,097 | $ | 17,797 | $ | (700 | ) | ||||||||||
Glass Operations | Glass 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 customers | Memo: Sales to non-Ford customers | |||||||||||||||||||||||||
Percentage of total sales | 24 | % | 20 | % | 4 | pts | Amount | $ | 4,185 | $ | 3,616 | $ | 569 | |||||||||||||
Percentage of total sales | 24 | % | 20 | % | 4 | pts |
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.
2530
ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND |
Year Ended | ||||||||||||||||||||||||||
December 31, | 2003 | Year Ended | ||||||||||||||||||||||||
(under) | December 31, | 2003 | ||||||||||||||||||||||||
2003 | 2002 | 2002 | (under) | |||||||||||||||||||||||
2003 | 2002 | 2002 | ||||||||||||||||||||||||
(Restated) | Restated | Restated | ||||||||||||||||||||||||
(in millions) | (in millions) | |||||||||||||||||||||||||
Automotive Operations | Automotive Operations | $ | (1,182 | ) | $ | (153 | ) | $ | (1,029 | ) | Automotive Operations | $ | (1,187 | ) | $ | (181 | ) | $ | (1,006 | ) | ||||||
Glass Operations | Glass 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 |
Year Ended | ||||||||||||||||||||||||||
December 31, | 2003 | Year Ended | ||||||||||||||||||||||||
(under) | December 31, | 2003 | ||||||||||||||||||||||||
2003 | 2002 | 2002 | over/(under) | |||||||||||||||||||||||
2003 | 2002 | 2002 | ||||||||||||||||||||||||
(Restated) | Restated | Restated | ||||||||||||||||||||||||
(in millions) | (in millions) | |||||||||||||||||||||||||
Automotive Operations | Automotive Operations | $ | (1,234 | ) | $ | (376 | ) | $ | (858 | ) | Automotive Operations | $ | (1,222 | ) | $ | (394 | ) | $ | (828 | ) | ||||||
Glass Operations | Glass 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
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) | |||||||||||||
2002 | 2001 | 2001 | |||||||||||
(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
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) | |||||||||||||
2002 | 2001 | 2001 | |||||||||||
(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) | |||||||||||||
2002 | 2001 | 2001 | |||||||||||
(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
Liquidity and Capital Resources
Ourabout $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 |
33
ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND |
34
ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND |
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 |
36
ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND |
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.
Our
3037
ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND |
2009 | |||||||||||||||||||||
Total | 2004 | 2005-2006 | 2007-2008 | and 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 |
(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 |
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
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
38
ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND |
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
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.
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
ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND |
Cash Flows
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
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
other debt.
3440
ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND |
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 | |||||||||||
Impact on 2005 pre-tax | U.S. Plan 2004 | ||||||||||
25 basis point change in assumption(a) | pension expense | funded status | |||||||||
decrease in discount rate | + | - | |||||||||
increase in discount rate | - | + | |||||||||
decrease in expected return on assets | + | ||||||||||
increase in expected return on assets | - |
(a) | Assumes all other assumptions are held constant. |
3541
ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND |
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 Visteon’sVisteon sponsored U.S. postretirement healthcare and life insurance plans: Impact on Visteon’sVisteon25 basis point change in Impact on 2005 pre-tax Impact on 2004 pre-taxsponsored U.S. Plan 20032004assumption(a) OPEB expense OPEB 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.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
42
ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND |
36
Deferred Income Taxes
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.
43
ITEM 7. | ||
be tax-effected due to their ongoing profitability. As more fully described in Note them.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.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.which includes aafter valuation allowance of $524 million. During 2003, we established an additionalallowances.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.37ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS 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.
44
ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND |
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.
Starting
3845
ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND |
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.
• | Visteon’s | |
• | 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 |
• | 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 | |
• | 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, | |
• | Visteon’s ability to | |
• | 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, | |
• | Visteon’s ability to compete favorably with automotive parts suppliers with lower cost structures and greater ability to rationalize operations; | |
• | Visteon’s ability to | |
• | Visteon’s ability to reduce its cost structure by, among other things, | |
• | 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. | |
• | ||
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
• | 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 |
• | 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. | |
• | ||
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 | |
• | Other factors, risks and uncertainties detailed from time to time in Visteon’s Securities and Exchange Commission filings. |
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
Foreign Currency Risk
Our
Our48
ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK — (Continued) |
2005.
We
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.
4249
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.
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.
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 |
Visteon has restated its previously issued consolidated financial statements for 2001 through 2003 and for50
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.
4351
Accounting for Employee Postretirement Health Care Benefits |
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 | |
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. | |
Accounting for Costs Incurred for Tools Used in Production |
4452
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. |
53
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. 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.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
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
Target | |||||
2005 Annual Incentive Award as | |||||
Name and Position | a Percentage of Base Salary(1) | ||||
Michael F. Johnston | 110% | ||||
President and Chief Executive Officer | |||||
James C. Orchard | 70% | ||||
Executive Vice President and President, North America | |||||
James F. Palmer | 70% | ||||
Executive Vice President and Chief Financial Officer | |||||
Dr. Heinz Pfannschmidt | 65% | ||||
Executive Vice President and President, Europe & South America |
(1) | Payments will be based on the base salary of the recipient as of December 31, 2005. Final payments may be adjusted based on the recipient’s achievement of individual performance goals. There is no maximum limit on the amount that may be paid in respect of a 2005 Annual Incentive award, except that the Incentive Plan limits the amount payable in respect of all performance cash awards to any Named Executive during a calendar year to $10 million. |
55
Target | |||||
2005-2007 Long-Term Incentive Award | |||||
Name and Position | as a Percentage of Base Salary(1) | ||||
Michael F. Johnston | 550% | ||||
President and Chief Executive Officer | |||||
James C. Orchard | 215% | ||||
Executive Vice President and President, North America | |||||
James F. Palmer | 300% | ||||
Executive Vice President and Chief Financial Officer | |||||
Dr. Heinz Pfannschmidt | 190% | ||||
Executive Vice President and President, Europe & South America |
(1) | Cash payments will be based on the base salary of the recipient as of December 31 of the fiscal year preceding payment. There is no maximum limit on the amount that may be paid in respect of the performance-based cash bonus components of a 2005-2007 Long-Term Incentive award, except that the Incentive Plan limits the amount payable in respect of all performance cash awards to any Named Executive during a calendar year to $10 million. |
56
57
ITEM 10. | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT |
10-K/A.
www.visteon.com.
ITEM 11. | EXECUTIVE COMPENSATION |
The information required by Item 11 is incorporated by reference from the information under the captions “Item 1. Election of Directors,” “Organization and Compensation Committee Report on Executive Compensation,” “Executive Compensation” and “Stock Performance Graph” in our 20042005 Proxy Statement.
58
ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
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 |
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 |
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
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 | ||||||||
Consolidated Statement of Operations for the years ended December 31, 2004, 2003 | ||||||||
Consolidated Balance Sheet at December 31, | ||||||||
Consolidated Statement of Cash Flows for the years ended December 31, 2004, 2003 | ||||||||
Consolidated Statement of Stockholders’ Equity for the years ended December 31, 2004, 2003 | ||||||||
Notes to Financial Statements — Restated | ||||||||
2. | Financial Statement Schedule | |||||||
Schedule of Valuation and Qualifying Accounts — Restated | ||||||||
3. | Exhibits | |||||||
Refer to the “Exhibit Index” on pages | ||||||||
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
VISTEON CORPORATION |
By: | /s/ |
Michael F. Johnston | |
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.
Signature | Title | |||
/s/ | Chairman of the Board | |||
/s/ James F. Palmer | Executive Vice President and Chief Financial Officer | |||
/s/ William G. Quigley III | Vice President, Corporate Controller and Chief Accounting Officer | |||
/s/ Marla C. Gottschalk | Director | |||
/s/ William H. Gray, III | Director | |||
/s/ Patricia L. Higgins | Director | |||
/s/ Karl J. Krapek | Director | |||
/s/ Charles L. Schaffer | Director | |||
/s/ James D. Thornton | Director | |||
/s/ Kenneth B. Woodrow | Director | |||
*By: /s/ Attorney-in-Fact |
4961
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
As discussed in Note 62 63 64 The accompanying notes are part of the financial statements. The accompanying notes are part of the financial statements. The accompanying notes are part of the financial statements. The accompanying notes are part of the financial statements. 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 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. 70 The following is a summary of the impact of CONSOLIDATED STATEMENT OF OPERATIONS CONSOLIDATED BALANCE SHEET CONSOLIDATED STATEMENT OF CASH FLOWS Refer to Note 74 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 75 Guarantees and Product Warranty 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: 76 Research and development costs are expensed as incurred and were $896 million in 2004, $913 million in 2003 and $911 million in Pre-production design and development costs that are non-reimbursable relating to long-term supply arrangements are expensed as incurred. Related Party Transaction 77 Visteon’s primary foreign currency exposures, in terms of net corporate exposure, are in the Mexican peso, euro, Canadian dollar, and Czech 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 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 78 Accounts Receivable 79 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, Impairment of Long-Lived Assets and Certain Identifiable Intangibles20032004 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.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 LLPPricewaterhouseCoopers LLPDetroit, MichiganJanuary 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.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.(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. 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. (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. 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.5065 For the Years Ended For the Years Ended December 31, December 31, 2004 2003 2002 2003 2002 2001 Restated Restated Restated (Restated) (Restated) (Restated) (in millions, except per share amounts) (in millions, except per share amounts) 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 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 (1,169 ) (97 ) (123 ) (488 ) (1,172 ) (124 ) Interest income Interest income 17 23 55 Interest income 19 17 23 Debt extinguishment cost (Note 10) Debt extinguishment cost (Note 10) 11 — — Interest expense Interest 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
change in accounting
change in accounting (1,191 ) (133 ) (175 ) (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 ) (1,214 ) (69 ) (101 ) (1,501 ) (1,200 ) (86 ) Minority interests in net income of subsidiaries Minority interests in net income of subsidiaries 29 28 21 Minority interests in net income of subsidiaries 35 29 28 (1,243 ) (97 ) (122 ) (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 ) $ (1,243 ) $ (362 ) $ (122 ) $ (1,536 ) $ (1,229 ) $ (379 ) 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 ) $ 0.24 $ 0.24 $ 0.24 $ 0.24 $ 0.24 $ 0.24 5166 December 31, 2003 2002 (Restated) (Restated) (in millions) 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 $ 10,933 $ 11,169 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 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 $ 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 $ 10,292 $ 11,024 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 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 $ 10,292 $ 11,024 5267 For the Years Ended December 31, For the Years Ended December 31, 2003 2002 2001 2004 2003 2002 (Restated) (Restated) (Restated) Restated Restated Restated (in millions) (in millions) $ 1,204 $ 1,024 $ 1,412 $ 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 activities Cash 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 activities Cash 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 cash Effect 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 equivalents Net (decrease) increase in cash and cash equivalents (251 ) 180 (388 ) Net (decrease) increase in cash and cash equivalents (201 ) (251 ) 180 $ 953 $ 1,204 $ 1,024 $ 752 $ 953 $ 1,204 5368(Restated) Earnings Earnings Capital Retained Other Capital Retained for Other In for Use in Accumulated In Use in Accumulated Common Stock Excess Business Other Unearned Common Stock Excess Business Other Unearned of Par (Accumulated Comprehensive Treasury Stock of Par (Accumulated Comprehensive Treasury Stock Shares Amount Value Deficit) Loss Stock Compensation Total Shares Amount Value Deficit) Income (Loss) Stock Compensation Total (in millions) (in millions) 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 Beginning balance Beginning 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 stock Purchase of treasury stock (24 ) (24 ) Purchase of treasury stock (24 ) (24 ) Deferred stock-based compensation Deferred stock-based compensation 16 (16 ) — Deferred stock-based compensation 16 (16 ) — Amortization and adjustment of deferred stock- based compensation, net Amortization 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 dividends Cash dividends (31 ) (31 ) Cash dividends (31 ) (31 ) Ending balance Ending balance 131 $ 131 $ 3,298 $ (302 ) $ (144 ) $ (18 ) $ (15 ) $ 2,950 Ending balance 131 $ 131 $ 3,368 $ (345 ) $ (144 ) $ (18 ) $ (15 ) $ 2,977 Beginning balance Beginning 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 stock Purchase of treasury stock (5 ) (5 ) Purchase of treasury stock (5 ) (5 ) Deferred stock-based compensation Deferred stock-based compensation (4 ) 20 (16 ) — Deferred stock-based compensation (4 ) 20 (16 ) — Amortization and adjustment of deferred stock- based compensation, net Amortization 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 dividends Cash dividends (30 ) (30 ) Cash dividends (30 ) (30 ) Ending balance Ending 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 Beginning balance Beginning 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 stock Purchase of treasury stock (11 ) (11 ) Deferred stock-based compensation Deferred stock-based compensation 2 (2 ) — Shares Issued for stock options exercised Shares Issued for stock options exercised (1 ) 5 4 Amortization and adjustment of deferred stock- based compensation, net Amortization and adjustment of deferred stock- based compensation, net 23 (12 ) 11 22 Cash dividends Cash dividends (30 ) (30 ) Ending balance Ending balance 131 $ 131 $ 3,380 $ (3,170 ) $ 5 $ (17 ) $ (9 ) $ 320 5469NOTE 1. Background and Basis of PresentationNOTE 1. Background and Basis of Presentation 1214 of our consolidated financial statements.NOTE 2. Restatement of Financial StatementsNOTE 2. Restatement of Financial Statements 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.NOTE 2. Restatement of Financial Statements — (Continued) 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, 2003 2002 2001 (in millions) $ (1,213 ) $ (352 ) $ (118 ) (29 ) (21 ) (1 ) (5 ) (4 ) (8 ) (7 ) — — — 9 3 (13 ) 6 2 32 — — (8 ) — — $ (1,243 ) $ (362 ) $ (122 ) Year Ended December 31, 2004 2003 2002 (in millions) $ (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 — — $ (1,536 ) $ (1,229 ) $ (379 ) 55VISTEON CORPORATION AND SUBSIDIARIESNOTES 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 currency56VISTEON CORPORATION AND SUBSIDIARIESNOTES 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. 5771NOTE 2. Restatement of Financial Statements — (Continued)NOTE 2. Restatement of Financial Statements — (Continued) 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. Year Ended December 31, Year Ended December 31, 2003 2002 2001 2004 2003 2002 As As As As As As Originally As Originally As Originally As Previously As Previously As Previously As Reported Restated Reported Restated Reported Restated Reported Restated Reported Restated Reported Restated (in millions) (in millions, except per share amounts) �� Ford and affiliates Ford 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 customers Other 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 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 (1,128 ) (1,169 ) (81 ) (97 ) (117 ) (123 ) (448 ) (488 ) (1,166 ) (1,172 ) (106 ) (124 ) Interest income Interest income 17 17 23 23 55 55 Interest income 19 19 17 17 23 23 Debt extinguishment costs Debt extinguishment costs 11 11 — — — — Interest expense Interest 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 companies Equity 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 (1,150 ) (1,191 ) (117 ) (133 ) (169 ) (175 ) (499 ) (539 ) (1,188 ) (1,194 ) (142 ) (160 ) Provision (benefit) for income taxes Provision (benefit) for income taxes 34 23 (58 ) (64 ) (72 ) (74 ) Provision (benefit) for income taxes 965 962 (10 ) 6 (67 ) (74 ) (1,184 ) (1,214 ) (59 ) (69 ) (97 ) (101 ) (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 (1,213 ) (1,243 ) (87 ) (97 ) (118 ) (122 ) (1,499 ) (1,536 ) (1,207 ) (1,229 ) (103 ) (114 ) Cumulative effect of change in accounting, net of tax Cumulative effect of change in accounting, net of tax — — (265 ) (265 ) — — Cumulative effect of change in accounting, net of tax — — — — (265 ) (265 ) $ (1,213 ) $ (1,243 ) $ (352 ) $ (362 ) $ (118 ) $ (122 ) $ (1,499 ) $ (1,536 ) $ (1,207 ) $ (1,229 ) $ (368 ) $ (379 ) 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 ) 5872NOTE 2. Restatement of Financial Statements — (Continued)NOTE 2. Restatement of Financial Statements — (Continued) December 31, December 31, December 31, 2003 2002 2004 2003 As As As As Originally As Originally As Previously As Previously As Reported Restated Reported Restated Reported Restated Reported Restated (in millions) (in millions) Cash and cash equivalents Cash and cash equivalents $ 953 $ 953 $ 1,204 $ 1,204 Cash and cash equivalents $ 752 $ 752 $ 953 $ 953 Marketable securities Marketable 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 affiliates Accounts receivable – Ford and affiliates 1,255 1,255 1,175 1,175 Accounts receivable – other customers Accounts 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 Inventories Inventories 761 761 878 878 Inventories 889 889 852 852 Deferred income taxes Deferred income taxes 163 163 199 199 Deferred income taxes 51 37 163 163 Prepaid expenses and other current assets Prepaid 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 companies Equity in net assets of affiliated companies 215 215 191 191 Equity in net assets of affiliated companies 227 227 215 215 Net property Net property 5,369 5,365 5,443 5,448 Net property 5,303 5,303 5,365 5,365 Deferred income taxes Deferred income taxes 700 700 566 587 Deferred income taxes 132 129 700 700 Other assets Other assets 270 270 233 233 Other assets 203 203 270 270 $ 10,964 $ 10,933 $ 11,170 $ 11,169 $ 10,309 $ 10,292 $ 11,024 $ 11,024 Trade payables Trade payables $ 2,270 $ 2,270 $ 2,038 $ 2,038 Trade payables $ 2,403 $ 2,493 $ 2,270 $ 2,320 Accrued liabilities Accrued liabilities 924 930 1,021 1,022 Accrued liabilities 894 894 930 930 Income taxes payable Income taxes payable 27 31 14 18 Income taxes payable 38 27 31 31 Debt payable within one year Debt 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 debt Long-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 pensions Postretirement benefits other than pensions 469 515 409 431 Postretirement benefits other than pensions 639 639 515 515 Postretirement benefits payable to Ford Postretirement 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 taxes Deferred income taxes 296 287 3 3 Other liabilities Other 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 Capital stock Capital stock 131 131 131 131 Capital stock 131 131 131 131 Capital in excess of par value of stock Capital 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 ) Other Other (19 ) (19 ) (33 ) (33 ) Other (26 ) (26 ) (19 ) (19 ) Accumulated deficit Accumulated 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 $ 10,964 $ 10,933 $ 11,170 $ 11,169 $ 10,309 $ 10,292 $ 11,024 $ 11,024 5973NOTE 2. Restatement of Financial Statements — (Continued)NOTE 2. Restatement of Financial Statements — (Continued) Year Ended December 31, Year Ended December 31, 2003 2002 2001 2004 2003 2002 As As As As As As Originally As Originally As Originally As Previously As Previously As Previously As Reported Restated Reported Restated Reported Restated Reported Restated Reported Restated Reported Restated (in millions) (in millions) $ 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 $ 953 $ 953 $ 1,204 $ 1,204 $ 1,024 $ 1,024 $ 752 $ 752 $ 953 $ 953 $ 1,204 $ 1,204 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.NOTE 3. Accounting PoliciesNOTE 3. Accounting Policies 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.NOTE 3. Accounting Policies — (Continued) 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.60VISTEON CORPORATION AND SUBSIDIARIESNOTES TO FINANCIAL STATEMENTS — (Continued)NOTE 3. Accounting Policies — (Continued)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.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.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.NOTE 3. Accounting Policies — (Continued) 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.61VISTEON CORPORATION AND SUBSIDIARIESstatements.NOTES TO FINANCIAL STATEMENTS — (Continued)NOTE 3. Accounting Policies — (Continued) 2003 2002 2001 2004 2003 2002 (in millions) (in millions) Beginning balance Beginning balance $ 17 $ 20 $ 18 $ 22 $ 17 $ 20 Accruals for products shipped Accruals 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 ) — Settlements Settlements (17 ) (19 ) (20 ) (28 ) (17 ) (19 ) Ending balance $ 41 $ 22 $ 17 Ending balance $ 22 $ 17 $ 20 NOTE 3. Accounting Policies — (Continued) 2002 and $19 million in 2001.2002.2002 and $1,037 million in 2001.2002.62VISTEON CORPORATION AND SUBSIDIARIESNOTES TO FINANCIAL STATEMENTS — (Continued)NOTE 3. Accounting Policies — (Continued)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 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: 2003 2002 2001 2004 2003 2002 (average shares in millions) (average shares in millions) Common shares outstanding Common shares outstanding 130.4 130.3 130.7 Common shares outstanding 129.6 130.4 130.3 Less: Restricted stock outstanding Less: 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 options Net dilutive effect of restricted stock and stock options — — — Net dilutive effect of restricted stock and stock options — — — Diluted shares Diluted shares 125.8 127.7 129.3 Diluted shares 125.3 125.8 127.7 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.NOTE 3. Accounting Policies — (Continued) 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.63VISTEON CORPORATION AND SUBSIDIARIESNOTES TO FINANCIAL STATEMENTS — (Continued)NOTE 3. Accounting Policies — (Continued)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.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.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.NOTE 3. Accounting Policies — (Continued) 64VISTEON CORPORATION AND SUBSIDIARIESNOTES TO FINANCIAL STATEMENTS — (Continued)NOTE 3. Accounting Policies — (Continued)$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.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, 2003 2002 (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 2003 2002 2001 (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 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 2003.2004 and 2003, respectively. Related amortization expense was about $38 million and $39 million in 2003.65VISTEON CORPORATION AND SUBSIDIARIESNOTES TO FINANCIAL STATEMENTS — (Continued)NOTE 3. Accounting Policies — (Continued)
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
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.
80
NOTE 3. | Accounting Policies — (Continued) |
66
NOTES TO FINANCIAL STATEMENTS — (Continued)
Stock-Based Awards
Starting
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
2003 | 2002 | 2001 | |||||||||||
(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:
2003 | 2002 | 2001 | 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 |
6782
NOTE 4. |
December 31, | |||||||||
2003 | 2002 | ||||||||
(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 |
The componentsNOTE 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 | |||||
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.
NOTE | 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
NOTE 6. | Net Property, Depreciation and Amortization — (Continued) |
December 31, | |||||||||
2003 | 2002 | ||||||||
(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
NOTES TO FINANCIAL STATEMENTS — (Continued)
Depreciation and amortization expenses, werewhich do not include asset impairment charges, are summarized as follows:
2003 | 2002 | 2001 | ||||||||||||||||||||||||
2004 | 2003 | 2002 | ||||||||||||||||||||||||
(Restated) | ||||||||||||||||||||||||||
(in millions) | (in millions) | |||||||||||||||||||||||||
Depreciation | Depreciation | $ | 572 | $ | 551 | $ | 562 | Depreciation | $ | 580 | $ | 572 | $ | 551 | ||||||||||||
Amortization | Amortization | 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 | Income Taxes |
Income (loss) before income taxes, minority interests and change in accounting, excluding equity in net income of affiliated companies, was as follows:
2003 | 2002 | 2001 | ||||||||||||||||||||||||
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
NOTE | Income Taxes — (Continued) |
The provision (benefit) for income taxes was calculated as follows:
2003 | 2002 | 2001 | ||||||||||||||||||||||||||
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 | )* | ||||||||||||
* |
The components of deferred income tax assets and liabilities at December 31 were as follows: During 87 Current Liabilities Noncurrent Liabilities Other current and noncurrent liabilities include amounts related to product warranty, product recall and 88 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. 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 90 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 The status of The accumulated benefit obligation for all defined benefit pension plans was 94 Debt at December 31, including the fair market value of related interest rate swaps, was as follows: On Under Visteon’s commercial paper program, $81 million 2003. No commercial paper amounts were outstanding at December 31, 2004. As of December 31, 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 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 Information concerning stock options and SARs is as follows: 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 100 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, 102 Supply Agreement and Pricing Letter Agreement 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, Visteon has received no payments related to the either cost differential or the GEN program as of December 31, 2004. Master Separation Agreement 105 Fair Value of Financial Instruments The fair value of debt excluding related interest rate swaps was 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 Concentration of Credit Risk 2003 2002 2001 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.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.7085NOTE 6. 7. Income Taxes — (Continued) December 31, 2003 2002 December 31, 2004 2003 (Restated) Restated Restated (in millions) (in millions) Deferred tax assets Deferred 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 liabilities Deferred 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) assets Net 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 2021.2003,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.7186NOTE 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.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.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.NOTE 7. 8. Liabilities December 31, 2003 2002 December 31, 2004 2003 (Restated) (in millions) (in millions) Employee benefits, including pensions Employee benefits, including pensions $ 386 $ 384 Employee benefits, including pensions $ 341 $ 386 Salaries, wages and employer taxes Salaries, wages and employer taxes 104 170 Salaries, wages and employer taxes 120 104 Postretirement benefits other than pensions Postretirement benefits other than pensions 73 93 Postretirement benefits other than pensions 83 73 Restructuring related (Note 16) Restructuring related (Note 16) 55 45 Interest Interest 43 37 Other Other 367 375 Other 252 285 Total accrued liabilities $ 930 $ 1,022 Total accrued liabilities $ 894 $ 930 December 31, 2003 2002 December 31, 2004 2003 (Restated) (in millions) (in millions) Employee benefits, including pensions Employee benefits, including pensions $ 668 $ 571 Employee benefits, including pensions $ 751 $ 668 Minority interests in net assets of subsidiaries Minority 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 Other Other 681 442 Other 332 475 Total other liabilities $ 1,508 $ 1,145 Total other liabilities $ 1,476 $ 1,505 the exit from the North American seating operation, which is discussed further in Note 14 of our consolidated financial statements.72VISTEON CORPORATION AND SUBSIDIARIESNOTES TO FINANCIAL STATEMENTS — (Continued)NOTE 8. 9. Employee Retirement Benefits NOTE 9. Employee Retirement Benefits — (Continued) 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.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.7389NOTE 8. 9. Employee Retirement Benefits — (Continued) 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).74VISTEON CORPORATION AND SUBSIDIARIESNOTES TO FINANCIAL STATEMENTS — (Continued)NOTE 8. Employee Retirement Benefits — (Continued)$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.NOTE 9. Employee Retirement Benefits — (Continued) at December 31, was as follows: December 31, December 31, 2003 2002 2004 2003 (in millions) (in millions) Obligation for benefits to Visteon-assigned Ford-UAW and salaried employees Obligation 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 Ford Reimbursable amount assumed by Ford (1,646 ) — Reimbursable amount assumed by Ford (1,701 ) (1,646 ) Unamortized losses/other associated with the obligation Unamortized 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 2003 2002 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 7591NOTE 8. 9. Employee Retirement Benefits — (Continued) Retirement Plans Health Care and Life Retirement Plans U.S. Plans Non-U.S. Plans Insurance Benefits Health Care and Life 2003 2002 2001 2003 2002 2001 2003 2002 2001 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) Service cost Service cost $ 53 $ 47 $ 45 $ 32 $ 27 $ 19 $ 37 $ 36 $ 28 Service cost $ 55 $ 53 $ 47 $ 32 $ 32 $ 27 $ 42 $ 37 $ 36 Interest cost Interest 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 assets Expected 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 benefits Special termination benefits 2 30 52 20 4 1 4 15 19 Special termination benefits — 2 30 10 20 4 — 4 15 Curtailments Curtailments — — (3 ) — 45 1 — 1 — Curtailments — — — — — 45 — — 1 Settlements Settlements 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 expense Visteon sponsored plan net pension/postretirement expense 72 69 74 52 64 71 123 102 112 Expense for Visteon-assigned Ford- UAW and certain salaried employees Expense for Visteon-assigned Ford- UAW and certain salaried employees 129 172 62 — — — 131 323 224 $ 241 $ 136 $ 139 $ 64 $ 71 $ 4 $ 425 $ 336 $ 282 $ 201 $ 241 $ 136 $ 52 $ 64 $ 71 $ 254 $ 425 $ 336 Discount rate for expense Discount 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 assets Assumed 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 rate Initial 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 rate Ultimate 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 rate Year that the rate reaches the ultimate trend rate — — — — — — 2008 2008 2008 Year that the rate reaches the ultimate trend rate — — — — — — 2009 2008 2008 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.7692NOTE 8. 9. Employee Retirement Benefits — (Continued) thesethe Visteon plans as of their most recent measurement dates was as follows: Retirement Plans Health Care and Life Insurance Retirement Plans U.S. Plans Non-U.S. Plans Benefits Health Care and Life Insurance 2003 2002 2003 2002 2003 2002 U.S. Plans Non-U.S. Plans Benefits 2004 2003 2004 2003 2004 2003 (Restated) (in millions, except percentages) (in millions, except percentages) Benefit obligation — beginning Benefit obligation — beginning $ 851 $ 703 $ 866 $ 641 $ 753 $ 528 Benefit obligation — beginning $ 1,053 $ 851 $ 1,123 $ 866 $ 1,130 $ 753 Service cost Service cost 53 47 32 27 37 27 Service cost 55 53 32 32 42 37 Interest cost Interest cost 59 55 52 40 51 41 Interest cost 66 59 62 52 61 51 Amendments/other Amendments/other 8 28 19 37 1 — Amendments/other 11 8 (25 ) 19 (22 ) 1 Actuarial loss 89 52 39 31 313 187 Actuarial (gain) loss Actuarial (gain) loss 4 89 22 39 (58 ) 313 Special termination benefits Special termination benefits 33 — 15 4 — — Special termination benefits — 33 13 15 — — Curtailment Curtailment — — (12 ) 28 — (4 ) Curtailment — — — (12 ) — — Settlements Settlements (1 ) — 1 — — — Settlements — (1 ) (2 ) 1 (4 ) — Foreign exchange translation Foreign exchange translation — — 150 70 1 — Foreign exchange translation — — 91 150 — 1 Benefits paid Benefits 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 Plan assets — beginning Plan assets — beginning $ 562 $ 595 $ 451 $ 422 $ — $ — Plan assets — beginning $ 671 $ 562 $ 635 $ 451 $ — $ — Actual return on plan assets Actual return on plan assets 107 (27 ) 49 (61 ) — — Actual return on plan assets 88 107 51 49 — — Sponsor contributions Sponsor contributions 37 22 76 47 25 26 Sponsor contributions 63 37 67 76 34 25 Participant contributions Participant contributions 8 8 15 10 1 — Participant contributions 8 8 11 15 — 1 Foreign exchange translation Foreign exchange translation — — 83 33 — — Foreign exchange translation — — 54 83 — — Benefits paid/other Benefits 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 $ — $ — Plan assets in excess of (less than) benefit obligations $ (382 ) $ (289 ) $ (488 ) $ (415 ) $ (1,130 ) $ (753 ) Plan assets (less than) benefit obligations Plan assets (less than) benefit obligations $ (363 ) $ (382 ) $ (523 ) $ (488 ) $ (1,115 ) $ (1,130 ) Contributions between measurement and end of fiscal year Contributions 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 year Special 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 ) Prepaid assets Prepaid assets $ — $ 1 $ 18 $ 15 $ — $ — Prepaid assets $ — $ — $ 8 $ 18 $ — $ — Accrued liabilities Accrued liabilities (315 ) (257 ) (275 ) (194 ) (588 ) (525 ) Accrued liabilities (314 ) (315 ) (329 ) (275 ) (678 ) (588 ) Intangible assets Intangible assets 54 62 83 81 — — Intangible assets 47 54 73 83 — — Deferred income taxes Deferred income taxes 30 32 2 9 — — Deferred income taxes 30 30 2 2 — — Accumulated other comprehensive income Accumulated 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 ) Discount rate Discount 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 assets Expected 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 compensation Rate 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 rate Initial health care cost trend rate — — — — 11.00 % 10.44 % Initial health care cost trend rate — — — — 11.00 % 11.00 % Ultimate health care cost trend rate Ultimate 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 rate Year that the rate reaches the ultimate trend rate — — — — 2009 2007 Year that the rate reaches the ultimate trend rate — — — — 2010 2009 Measurement date Measurement 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 7793NOTE 8. 9. Employee Retirement Benefits — (Continued) $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.20032003.$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.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 2003 actuarial lossesanticipated effect of settling pension obligations related to our Markham, Ontario facility which was closed in the table above.U.S. Plan Assets and Investment Strategy 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 Target Plan Assets Target Plan Assets Target Plan Asset Allocation Allocation Allocation 2004 2003 2002 2005 2004 2003 2005 2004 2003 Equity securities Equity securities 70 % 69 % 54 % Equity securities 70 % 71 % 69 % 55 % 57 % 56 % Debt securities Debt securities 30 31 46 Debt securities 30 29 31 45 43 44 Total 100 % 100 % 100 % Total 100 % 100 % 100 % 100 % 100 % 100 % NOTE 9. Employee Retirement Benefits — (Continued) 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.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.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.78VISTEON CORPORATION AND SUBSIDIARIESNOTES 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. ContributionsDuring 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 LegislationThe 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.NOTE 9. DebtNOTE 10. Debt Weighted Average Weighted Maturity Interest Rate Book Value Average Maturity Interest Rate Book Value 2003 2002 2003 2002 2004 2003 2004 2003 (in millions) (in millions) 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 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 7995NOTE 9. Debt — (Continued)NOTE 10. Debt — (Continued) 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.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).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.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.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.96NOTE 10. Debt — (Continued) $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.80VISTEON CORPORATION AND SUBSIDIARIESNOTES TO FINANCIAL STATEMENTS — (Continued)NOTE 9. Debt — (Continued)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.$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.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 PlansNOTE 11. Capital Stock and Stock Award Plans NOTE 11. Capital Stock and Stock Award Plans — (Continued) 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.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 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.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.8198NOTE 10. Capital Stock and Stock Award Plans — (Continued)NOTE 11. Capital Stock and Stock Award Plans — (Continued) 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. Weighted Average Stock Shares Exercise 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 2003:2004: Options Outstanding Options Exercisable Options and SARs Outstanding Options and SARs Exercisable Weighted Weighted Weighted Weighted Weighted Weighted Range of Number Average Average Number Average Number Average Average Number Average Exercise Prices Outstanding Remaining Life Exercise Price Exercisable Exercise 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 8299NOTE 11. Capital Stock and Stock Award Plans — (Continued) NOTE 10. CapitalRestricted Stock and Restricted Stock Award Plans — (Continued)Unitsbefore 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. Weighted Weighted Shares Average 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, 2001 Outstanding at December 31, 2001 1,649 $ 17.38 Outstanding at December 31, 2001 1,649 — $ 17.38 Granted Granted 1,345 13.20 Granted 1,345 — 13.20 Lapsed Lapsed (79 ) 17.46 Lapsed (79 ) — 17.46 Terminated Terminated (201 ) 16.26 Terminated (201 ) — 16.26 Outstanding at December 31, 2002 Outstanding at December 31, 2002 2,714 $ 15.39 Outstanding at December 31, 2002 2,714 — $ 15.39 Granted Granted 2,567 6.62 Granted 2,567 — 6.62 Lapsed Lapsed (26 ) 17.46 Lapsed (26 ) — 17.46 Terminated Terminated (234 ) 9.10 Terminated (234 ) — 9.10 Outstanding at December 31, 2003 Outstanding at December 31, 2003 5,021 — $ 11.20 Granted Granted 199 2,429 10.16 Lapsed Lapsed (251 ) — 16.48 Terminated Terminated (789 ) (69 ) 14.29 Outstanding at December 31, 2003 5,021 $ 11.20 Outstanding at December 31, 2004 4,180 2,360 $ 10.17 NOTE 12. Comprehensive (Loss) 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 ) 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 83101NOTE 11. 13. Litigation and Claims — (Continued) 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.NOTE 14. Arrangements with Ford and its Affiliates — (Continued) 84VISTEON CORPORATION AND SUBSIDIARIESNOTES TO FINANCIAL STATEMENTS — (Continued)NOTE 12. Arrangements with Ford and its Affiliates — (Continued)85103NOTE 12. 14. Arrangements with Ford and its Affiliates — (Continued) 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.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.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 2006.86104NOTE 12. 14. Arrangements with Ford and its Affiliates — (Continued) $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.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.each of2004, 2003 and 2002;2002, respectively.no profit sharing expense was recognized in 2001.87VISTEON CORPORATION AND SUBSIDIARIESNOTES 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.NOTE 13. 15. Financial Instruments $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.$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.$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.$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.88VISTEON CORPORATION AND SUBSIDIARIESNOTES TO FINANCIAL STATEMENTS — (Continued)NOTE 13. Financial Instruments — (Continued)2003,2004, was not significant.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
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 | ||||||
107
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-tax | After-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 charges | Loss 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 charges | Total 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). |
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.
89108
90109
• | $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.
91110
2002 | ||||||||||
Pre-tax | After-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 | ||||||
92
NOTES TO FINANCIAL STATEMENTS — (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
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.
In111
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
During the second quarter of 2001, Visteon recorded pre-tax charges of $158 million ($100 million after-tax), of which $146 million
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.
Automotive Operations | Glass Operations | |||||||||||||||||||||||||||||||||||
Employee-Related | Other | Employee-Related | Total | |||||||||||||||||||||||||||||||||
Automotive Operations | Glass Operations | |||||||||||||||||||||||||||||||||||
(Restated) | Employee-Related | Other | Employee-Related | Total | ||||||||||||||||||||||||||||||||
(in millions) | (in millions) | |||||||||||||||||||||||||||||||||||
December 31, 2001 reserve balances | December 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 balances | December 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 balances | December 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 balances | December 31, 2004 reserve balances | $ | 52 | $ | — | $ | 3 | $ | 55 | |||||||||||||||||||||||||||
94
NOTES TO FINANCIAL STATEMENTS — (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
NOTE 17. | Accounting Changes |
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.
95114
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:
2003 | 2002 | 2001 | |||||||||||
(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 | Cash Flows |
The reconciliation of net (loss) to cash flows provided by operating activities is as follows:
2003 | 2002 | 2001 | ||||||||||||||||||||||||||
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 activities | Cash flows provided by operating activities | $ | 363 | $ | 1,103 | $ | 440 | Cash flows provided by operating activities | $ | 418 | $ | 363 | $ | 1,103 | ||||||||||||||
96
NOTES TO FINANCIAL STATEMENTS — (Continued)
Cash paid for interest and income taxes was as follows:
2003 | 2002 | 2001 | ||||||||||||||||||||||
(Restated) | 2004 | 2003 | 2002 | |||||||||||||||||||||
(in millions) | (in millions) | |||||||||||||||||||||||
Interest | $ | 94 | $ | 120 | $ | 131 | $ | 105 | $ | 94 | $ | 120 | ||||||||||||
Income taxes | 75 | 80 | 44 | 101 | 89 | 92 |
NOTE | 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.
115
97
NOTES TO FINANCIAL STATEMENTS — (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:
Automotive | Glass | Total | Automotive | Glass | Total | |||||||||||||||||||||
Operations | Operations | Visteon | Operations | Operations | Visteon | |||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||||
(Restated) | ||||||||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||||
2003 | ||||||||||||||||||||||||||
2004 – Restated | 2004 – Restated | |||||||||||||||||||||||||
Sales | Sales | $ | 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/amortization | Depreciation/amortization | 670 | 7 | 677 | Depreciation/amortization | 681 | 4 | 685 | ||||||||||||||||||
Capital expenditures | 863 | 9 | 872 | |||||||||||||||||||||||
Capital expenditures, including capital leases | Capital 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 period | Total 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
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 |
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
Total | ||||||||||||||||||||
Geographic Areas | United States | Europe | Asia-Pacific | All Other | Visteon | |||||||||||||||
(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 |
isare as follows:
Product Groups | Product Groups | 2003 | 2002 | Product Groups | 2004 | 2003 | 2002 | |||||||||||||||
(in millions) | ||||||||||||||||||||||
(in millions) | ||||||||||||||||||||||
Automotive Operations | ||||||||||||||||||||||
Chassis Products & Systems | $ | 4,390 | $ | 4,544 | ||||||||||||||||||
Automotive Operations Chassis Products & Systems | Automotive 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 Operations | Glass 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) |
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
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. |
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
2003 | 2002 | |||||||||||||||||||||||||||||||
First | Second | Third | Fourth | First | Second | Third | Fourth | |||||||||||||||||||||||||
Quarter | Quarter | Quarter | Quarter | Quarter | Quarter | Quarter | Quarter | |||||||||||||||||||||||||
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) |
2003 | 2002 | |||||||||||||||||||||||||||||||
First | Second | Third | Fourth | First | Second | Third | Fourth | |||||||||||||||||||||||||
Quarter | Quarter | Quarter | Quarter | Quarter | Quarter | Quarter | Quarter | |||||||||||||||||||||||||
(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.
122 123 124 125As discussed furtherNOTE 22. Subsequent Event 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.$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.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.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.100120 Balance at Additions Balance Beginning Charged to at End of Year Income Deductions(a) Other(b) of Year (Restated) (in millions) Allowance for doubtful accounts $ 24 $ 24 $ (13 ) $ — $ 35 Valuation Allowance for deferred taxes 21 473 — 30 524 Allowance for doubtful accounts $ 19 $ 13 $ (8 ) $ — $ 24 Valuation allowance for deferred taxes — 21 — — 21 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) Allowance for doubtful accounts $ 35 $ 22 $ (13 ) $ — $ 44 Valuation allowance for deferred taxes 508 1,282 — 159 1,949 Allowance for doubtful accounts $ 24 $ 24 $ (13 ) $ — $ 35 Valuation Allowance for deferred taxes 21 457 — 30 508 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 Number Exhibit Name 3.1 Amended and Restated Certificate of Incorporation of Visteon Corporation (“Visteon”) is incorporated herein by reference to Exhibit 3.1 to the Quarterly Report on Form 10-Q of Visteon dated July 24, 2000. 3.2 Amended and Restated By-laws of Visteon as in effect on the date hereof is incorporated herein by reference to Exhibit 3.2 to the Quarterly Report on Form 10-Q of Visteon dated November 14, 2001. 4.1 Amended and Restated Indenture dated as of 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). 4.2 Supplemental Indenture dated as of March 10, 2004 between Visteon and J.P. Morgan Trust Company, as Trustee, is incorporated herein by reference to Exhibit 4.02 to the Current Report on Form 8-K of Visteon dated March 3, 2004 (filed as of March 19, 2004). 4.3 Form of Common Stock Certificate of Visteon is incorporated herein by reference to Exhibit 4.1 to Amendment No. 1 to the Registration Statement on Form 10 of Visteon dated May 19, 2000. 10.1 Master Transfer Agreement dated as of March 30, 2000 between Visteon and Ford Motor Company (“Ford”) is incorporated herein by reference to Exhibit 10.2 to the Registration Statement on Form S-1 of Visteon dated June 2, 2000 (File No. 333-38388). 10.2 Purchase and Supply Agreement dated as of December 19, 2003 between Visteon and Ford is incorporated herein by reference to Exhibit 10.2 to the Annual Report on Form 10-K of Visteon for the period ended December 31, 2003. † 10.3 2003 Relationship Agreement dated December 19, 2003 between Visteon and Ford is incorporated herein by reference to Exhibit 10.3 to the Annual Report on Form 10-K of Visteon for the period ended December 31, 2003. 10.4 Master Separation Agreement dated as of June 1, 2000 between Visteon and Ford is incorporated herein by reference to Exhibit 10.4 to Amendment No. 1 to the Registration Statement on Form S-1 of Visteon dated June 6, 2000 (File No. 333-38388). 10.5 Aftermarket Relationship Agreement dated as of January 1, 2000 between Visteon and the Automotive Consumer Services Group of Ford is incorporated herein by reference to Exhibit 10.5 to Amendment No. 1 to the Registration Statement on Form 10 of Visteon dated May 19, 2000. 10.6 Amended and Restated Hourly Employee Assignment Agreement dated as of April 1, 2000, as amended and restated as of December 19, 2003, between Visteon and Ford is incorporated herein by reference to Exhibit 10.6 to the Annual Report on Form 10-K of Visteon for the period ended December 31, 2003. 10.7 Amended and Restated Employee Transition Agreement dated as of April 1, 2000, as amended and restated as of December 19, 2003, between Visteon and Ford is incorporated herein by reference to Exhibit 10.7 to the Annual Report on Form 10-K of Visteon for the period ended December 31, 2003. 10.8 Tax Sharing Agreement dated as of June 1, 2000 between Visteon and Ford is incorporated herein by reference to Exhibit 10.8 to the Registration Statement on Form S-1 of Visteon dated June 2, 2000 (File No. 333-38388). Exhibit Number Exhibit 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.*10.9.1 Form of Terms and Conditions of Nonqualified Stock Options is incorporated herein by reference to Exhibit 10.9.1 to the Quarterly Report on Form 10-Q of Visteon dated November 4, 2004.* 10.9.2 Form of Terms and Conditions of Restricted Stock Grants is incorporated herein by reference to Exhibit 10.9.2 to the Quarterly Report on Form 10-Q of Visteon dated November 4, 2004.* 10.9.3 Form of Terms and Conditions of Restricted Stock Units is incorporated herein by reference to Exhibit 10.9.3 to the Quarterly Report on Form 10-Q of Visteon dated November 4, 2004.* 10.9.4 Form of Terms and Conditions of Stock Appreciation Rights is incorporated herein by reference to Exhibit 10.9.4 to the Quarterly Report on Form 10-Q of Visteon dated November 4, 2004.* 10.10 Form of Revised Change in Control Agreement is incorporated herein by reference to Exhibit 10.10 to the Annual Report on Form 10-K of Visteon for the period ended December 31, 2000.* 102ExhibitNumberExhibit 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.*Exhibit Number Exhibit 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.* 103ExhibitNumberExhibit 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, 2004.10.25 364-Day Credit Agreement dated as of June 18, 2004 among Visteon, the several banks and other financial institutions or entities from time to time parties to the agreement, JPMorgan Chase Bank, as administrative agent, and Citibank, N.A., as syndication agent, is incorporated herein by reference to Exhibit 10.25 to the Quarterly Report on Form 10-Q of Visteon dated July 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. Exhibit Number Exhibit 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.*10.32 Visteon Executive Severance Plan is incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K of Visteon dated February 9, 2005.* 10.33 Form of Executive Retiree Health Care Agreement is incorporated herein by reference to Exhibit 10.28 to the Current Report on Form 8-K of Visteon dated December 9, 2004.* 10.33.1 Schedule identifying substantially identical agreements to Executive Retiree Health Care Agreement constituting Exhibit 10.33 hereto entered into by Visteon with Messrs. Johnston, 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.*10.34 Funding Agreement, dated as of March 10, 2005, between Visteon and Ford is incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K of Visteon dated March 10, 2005. 10.35 Master Equipment Bailment Agreement, dated as of March 10, 2005, between Visteon and Ford is incorporated herein by reference to Exhibit 10.2 to the Current Report on Form 8-K of Visteon dated March 10, 2005. 10.36 Resignation Agreement, dated as of March 10, 2005, between Visteon and Stacy L. Fox, is incorporated herein by reference to Exhibit 10.36 to the Annual Report on Form 10-K of Visteon for the period ended December 31, 2004.* 10.37 Consulting Agreement, dated as of March 10, 2005, between Visteon and Stacy L. Fox, is incorporated herein by reference to Exhibit 10.37 to the Annual Report on Form 10-K of Visteon for the period ended December 31, 2004.* 12.1 Statement re: Computation of Ratios. 18.1 Letter of Independent Registered Public Accounting Firm, PricewaterhouseCoopers LLP, regarding Change in Accounting Principles, is incorporated herein by reference to Exhibit 18.1 to the Annual Report on Form 10-K of Visteon for the period ended December 31, 2004. 21.1 Subsidiaries of Visteon, is incorporated herein by reference to Exhibit 21.1 to the Annual Report on Form 10-K of Visteon for the period ended December 31, 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.Exhibit Number Exhibit 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. 104126