visteon 1Q 2004 Form 10-Q A

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visteon 1Q 2004 Form 10-Q A

  1. 1. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q/A (Amendment No. 1) (Mark One) ≤ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2004, or n TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission Ñle number 1-15827 VISTEON CORPORATION (Exact name of Registrant as speciÑed in its charter) Delaware 38-3519512 (State of incorporation) (I.R.S. employer IdentiÑcation number) One Village Center Drive, Van Buren Township, Michigan 48111 (Address of principal executive oÇces) (Zip code) Registrant's telephone number, including area code: (800)-VISTEON Indicate by check mark whether the Registrant: (1) has Ñled all reports required to be Ñled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to Ñle such reports), and (2) has been subject to such Ñling requirements for the past 90 days. Yes „ No Indicate by check mark whether the Registrant is an accelerated Ñler (as deÑned in Exchange Act Rule 12b-2). Yes „ No As of March 1, 2005, the Registrant had outstanding 128,678,345 shares of common stock, par value $1.00 per share. Exhibit index located on page number 40.
  2. 2. VISTEON CORPORATION AND SUBSIDIARIES EXPLANATORY NOTE This Amendment No. 1 on Form 10-Q/A(quot;quot;Form 10-Q/A'') to our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2004, initially Ñled with the Securities and Exchange Commission (the quot;quot;SEC'') on May 3, 2004 (the quot;quot;Original Filing''), is being Ñled to reÖect restatements of our consolidated balance sheets at March 31, 2004 and December 31, 2003; and our consolidated statement of operations for each of the periods ended March 31, 2004 and March 31, 2003, and the notes related thereto. The restatements primarily pertain to the following matters identiÑed during the course of preparing Visteon's 2004 Ñnancial statements: ‚ EÅective in January 2002, and again in January 2004, Visteon amended its retiree health care beneÑts plans for certain of its U.S. employees. These amendments changed the eligibility requirements for participants in the plans, and, as a result, Visteon changed the expense attribution periods. We have determined that these changes in eligibility requirements were not properly communicated to aÅected employees, and, therefore, the revision to the expense attribution periods, which resulted in expense reductions, should not have been made. The impact of the correction of these errors decreased net income by approximately $5 million ($0.04 per share) and increased net loss by approximately $4 million ($0.03 per share) for the quarters ended March 31, 2004 and March 31, 2003, respectively. ‚ Visteon is making corrections for certain tooling costs originally recorded as receivables. Costs incurred for Visteon-owned tooling used in production have been adjusted to reÖect such costs as long-term assets and to provide related amortization expense. Non- reimbursable costs incurred to develop customer-owned tooling have been expensed in the periods such costs were incurred. There was no impact of the correction of these errors on net income for the quarters ended March 31, 2004 and March 31, 2003. ‚ Visteon is making corrections for certain volume related rebates, received from numerous capital equipment suppliers for purchases, which were originally recognized as a reduction to expense. Costs incurred for capital equipment have been adjusted to reÖect 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 $2 million ($0.01 per share) for the quarter ended March 31, 2004. ‚ During the review of our annual United Kingdom pension valuations, we identiÑed unrecorded pension expenses incurred as a result of special termination beneÑts provided under Visteon's European Plan for Growth program. The impact of the correction of these errors decreased net income by approximately $3 million ($0.02 per share) for the quarter ended March 31, 2004. ‚ Visteon also identiÑed unrecorded postretirement health care expenses at one of Visteon's foreign locations. There was no impact of the correction of these errors on net income for the quarters ended March 31, 2004 and March 31, 2003. 1
  3. 3. ‚ Visteon is correcting the amount and timing of the recognition of certain tax adjustments made during the periods. As Visteon expects to repatriate earnings of foreign subsidiaries, adjustments were made to provide for the tax eÅects of foreign currency movements against the U.S. dollar. These adjustments also impacted the timing of the recognition of deferred tax asset valuation allowances in the fourth quarter of 2003 and the third quarter of 2004. Further, Visteon recognized an additional valuation allowance for certain deferred tax assets that had previously been misclassiÑed and not considered in Visteon's 2003 deferred tax assessment. There was no impact of the correction of these errors on net income for the quarters ended March 31, 2004 and March 31, 2003. For a more detailed description of these restatements, see Note 2, quot;quot;Restatement of Financial Statements'' to the accompanying consolidated Ñnancial statements contained in this Form 10-Q/A. The decision to restate Visteon's consolidated Ñnancial statements was previously announced in a press release that was Ñled with the SEC as part of a Current Report on Form 8-K of Visteon dated January 31, 2005. Although this Form 10-Q/A sets forth the Original Filing in its entirety, this Form 10-Q/A only amends and restates Items 1, 2 and 4 of Part I, Item 6 of Part II and Exhibit 12.1 of Item 6 of Part II of the Original Filing, in each case, solely as a result of, and to reÖect, the restatement, and no other information in the Original Filing is amended hereby. The foregoing items have not been updated to reÖect other events occurring after the Original Filing or to modify or update those disclosures aÅected by subsequent events. In addition, pursuant to the rules of the SEC, Item 6 of Part II of the Original Filing has been amended to contain the consent of our independent registered public accounting Ñrm and currently-dated certiÑcations from our Chief Executive OÇcer and Chief Financial OÇcer, as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002. The consent of the independent registered public accounting Ñrm and the certiÑcations of our Chief Executive OÇcer and Chief Financial OÇcer are attached to this Form 10-Q/A as Exhibits 15.1, 31.1, 31.2, 32.1 and 32.2, respectively. Except for the foregoing amended information, this Form 10-Q/A continues to describe conditions as of the date of the Original Filing, and we have not updated the disclosures contained herein to reÖect events that occurred at a later date. Other events occurring after the Ñling of the Original Filing or other disclosures necessary to reÖect subsequent events have been or will be addressed in either our amended Quarterly Reports on Form 10-Q/A for the quarterly periods ended June 30, 2004 and/or September 30, 2004, which are being Ñled concurrently with the Ñling of this Form 10-Q/A, or by our Annual Report on Form 10-K for the year ended December 31, 2004, when Ñled, or other reports Ñled with the SEC subsequent to the date of this Ñling. 2
  4. 4. PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS VISTEON CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME For the Periods Ended March 31, 2004 and 2003 (in millions, except per share amounts) First Quarter 2004 2003 (Restated) (Restated) (unaudited) Sales Ford and aÇliates ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $3,637 $3,721 Other customers ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,335 983 Total salesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 4,972 4,704 Costs and expenses (Notes 3 and 5) Costs of sales ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 4,656 4,481 Selling, administrative and other expenses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 265 244 Total costs and expensesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 4,921 4,725 Operating income (loss) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 51 (21) Interest income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 4 4 Interest expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 23 23 Net interest expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (19) (19) Equity in net income of aÇliated companies (Note 3) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 11 15 Income (loss) before income taxesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 43 (25) Provision (beneÑt) for income taxes (Note 3) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 14 (14) Income (loss) before minority interests ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 29 (11) Minority interests in net income of subsidiaries ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 9 8 Net income (loss) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 20 $ (19) Earnings (loss) per share (Note 9) BasicÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 0.16 $(0.15) Diluted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 0.16 (0.15) Cash dividends per share ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 0.06 $ 0.06 The accompanying notes are part of the Ñnancial statements. 3
  5. 5. VISTEON CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (in millions) March 31, December 31, 2004 2003 (Restated) (Restated) (unaudited) Assets Cash and cash equivalents ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 1,187 $ 953 Marketable securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1 3 Total cash and marketable securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,188 956 Accounts receivable Ì Ford and aÇliates ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,476 1,175 Accounts receivable Ì other customers (Note 7) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,184 1,185 Total receivables, net (Note 3)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2,660 2,360 Inventories (Note 12) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 828 761 Deferred income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 163 163 Prepaid expenses and other current assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 186 143 Total current assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 5,025 4,383 Equity in net assets of aÇliated companiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 225 215 Net property ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 5,379 5,365 Deferred income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 716 700 Other assetsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 277 270 Total assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $11,622 $10,933 Liabilities and Stockholders' Equity Trade payables ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 2,457 $ 2,270 Accrued liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,003 930 Income taxes payable ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 39 31 Debt payable within one year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 276 351 Total current liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3,775 3,582 Long-term debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,945 1,467 Postretirement beneÑts other than pensions ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 581 515 Postretirement beneÑts payable to FordÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2,079 2,090 Other liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,491 1,508 Total liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 9,871 9,162 Stockholders' equity Capital stock Preferred Stock, par value $1.00, 50 million shares authorized, none outstanding ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì Ì Common Stock, par value $1.00, 500 million shares authorized, 131 million shares issued, 129 million and 131 million shares outstanding, respectivelyÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 131 131 Capital in excess of par value of stockÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3,297 3,288 Accumulated other comprehensive (loss) (Note 13) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (80) (54) Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (34) (19) Accumulated deÑcit ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (1,563) (1,575) Total stockholders' equityÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,751 1,771 Total liabilities and stockholders' equity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $11,622 $10,933 The accompanying notes are part of the Ñnancial statements. 4
  6. 6. VISTEON CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS For the Periods Ended March 31, 2004 and 2003 (in millions) First Quarter 2004 2003 (Restated) (Restated) (unaudited) Cash and cash equivalents at January 1 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 953 $1,204 Cash Öows provided by (used in) operating activities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 103 (135) Cash Öows from investing activities Capital expendituresÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (196) (181) Purchases of securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì (48) Sales and maturities of securitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3 70 Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì 6 Net cash used in investing activities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (193) (153) Cash Öows from Ñnancing activities Commercial paper repayments, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (54) (17) Other short-term debt, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (19) Ì Proceeds from issuance of other debt, net of issuance costs ÏÏÏÏÏÏÏÏÏÏ 474 36 Principal payments on other debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (12) (27) Purchase of treasury stockÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (11) (5) Cash dividends ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (8) (8) Other, including book overdraftsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (42) (1) Net cash provided by (used in) Ñnancing activities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 328 (22) EÅect of exchange rate changes on cash ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (4) 2 Net increase (decrease) in cash and cash equivalents ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 234 (308) Cash and cash equivalents at March 31 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $1,187 $ 896 The accompanying notes are part of the Ñnancial statements. 5
  7. 7. VISTEON CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (unaudited) NOTE 1. Financial Statements The Ñnancial data presented herein are unaudited, but in the opinion of management reÖect those adjustments, including normal recurring adjustments, necessary for a fair statement of such information. Results for interim periods should not be considered indicative of results for a full year. Reference should be made to the consolidated Ñnancial statements and accompanying notes included in the company's Annual Report on Form 10-K for the Ñscal year ended December 31, 2003, as Ñled with the Securities and Exchange Commission on February 13, 2004 and as amended on March 16, 2005. Visteon Corporation (quot;quot;Visteon'') is a leading, global supplier of automotive systems, modules and components. Visteon sells products primarily to global vehicle manufacturers, and also sells to the worldwide aftermarket for replacement and vehicle appearance enhancement parts. Visteon became an independent company when Ford Motor Company (quot;quot;Ford'') established Visteon as a wholly-owned subsidiary in January 2000 and subsequently transferred to Visteon the assets and liabilities comprising Ford's automotive components and systems business. Ford completed its spin-oÅ of Visteon on June 28, 2000 (the quot;quot;spin-oÅ''). Prior to incorporation, Visteon operated as Ford's automotive components and systems business. 6
  8. 8. VISTEON CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS Ì (Continued) (unaudited) NOTE 2. Restatement of Financial Statements Visteon has restated its previously issued consolidated Ñnancial statements for 2001 through 2003 and for the Ñrst three months of 2004, primarily for accounting corrections related to postretirement health care and pension costs, tooling costs, capital equipment costs, inventory costing and income taxes. The following table summarizes the impact of these adjustments to Visteon's previously reported net income (loss). These adjustments impacted previously reported costs of sales, selling, administrative and other expenses and income tax expense on the consolidated statement of income. First Quarter 2004 2003 (in millions) Net income (loss), as originally reportedÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 30 $(15) Accounting corrections for postretirement health care costs and pension costs (pre-tax)(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (11) (6) Accounting corrections for capital equipment costs (pre-tax)(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (2) Ì Tax impact of above(3) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3 2 Net income (loss), as restated ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 20 $(19) (1) Ì EÅective in January 2002, Visteon amended its retiree health care beneÑts plan for certain of its U.S. employees. EÅective in January 2004, a Visteon wholly owned subsidiary amended its retiree health care beneÑts plan for its U.S. employees. These amendments changed the eligibility requirements for participants in the plans. As a result of these amendments, Visteon changed the expense attribution periods, which eliminated cost accruals for younger employees and increased accrual rates for older participating employees. Prior to these amendments, Visteon accrued for the cost of the beneÑt from a participating employee's date of hire, regardless of age. Visteon determined that these beneÑt changes were not properly communicated to eÅected 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 identiÑed pension expenses related to special termination beneÑts provided under Visteon's European Plan for Growth which were not fully recognized in the period in which those beneÑts were accepted by employees ($3 million in the Ñrst quarter of 2004). The impact of the correction of these errors decreased net income by approximately $8 million ($0.06 per share) and increased net loss by approximately $4 million ($0.03 per share), for the Ñrst quarter ended March 31, 2004 and March 31, 2003, respectively. (2) Ì Represents an adjustment for 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 reÖect 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 decreased net income approximately $2 million ($0.01 per share) for the Ñrst quarter ended March 31, 2004. (3) Ì Represents the deferred tax beneÑt of the pre-tax expense adjustments. 7
  9. 9. VISTEON CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS Ì (Continued) (unaudited) NOTE 2. Restatement of Financial Statements Ì (Continued) The following is a summary of the impact of the restatement on the previously issued consolidated statement of income, consolidated balance sheets and condensed consolidated statement of cash Öows included in this Ñling. CONSOLIDATED STATEMENT OF INCOME First Quarter 2004 2003 As As Originally As Originally As Reported Restated Reported Restated (in millions) Sales Ford and aÇliates ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $3,637 $3,637 $3,721 $3,721 Other customers ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,335 1,335 983 983 Total salesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 4,972 4,972 4,704 4,704 Costs and expenses Costs of sales ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 4,645 4,656 4,477 4,481 Selling, administrative and other expenses ÏÏ 263 265 242 244 Total costs and expenses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 4,908 4,921 4,719 4,725 Operating income (loss) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 64 51 (15) (21) Interest income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 4 4 4 4 Interest expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 23 23 23 23 Net interest expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (19) (19) (19) (19) Equity in net income of aÇliated companies ÏÏÏ 11 11 15 15 Income (loss) before income taxes and minority interests ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 56 43 (19) (25) Provision (beneÑt) for income taxes ÏÏÏÏÏÏÏÏÏÏ 17 14 (12) (14) Income (loss) before minority interests ÏÏÏÏÏÏ 39 29 (7) (11) Minority interest in net income of subsidiaries ÏÏ 9 9 8 8 Net income (loss) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 30 $ 20 $ (15) $ (19) Income (loss) per share BasicÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 0.24 $ 0.16 $(0.12) $(0.15) Diluted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 0.23 0.16 (0.12) (0.15) 8
  10. 10. VISTEON CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS Ì (Continued) (unaudited) NOTE 2. Restatement of Financial Statements Ì (Continued) CONSOLIDATED BALANCE SHEET March 31, 2004 December 31, 2003 As As Originally As Originally As Reported Restated Reported Restated (in millions) Assets Cash and cash equivalentsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 1,187 $ 1,187 $ 953 $ 953 Marketable securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1 1 3 3 Total cash and marketable securities ÏÏÏÏÏÏ 1,188 1,188 956 956 Accounts receivable Ì Ford and aÇliates ÏÏÏÏ 1,499 1,476 1,198 1,175 Accounts receivable Ì other customersÏÏÏÏÏÏ 1,163 1,184 1,164 1,185 Total receivables ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2,662 2,660 2,362 2,360 Inventories ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 828 828 761 761 Deferred income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 163 163 163 163 Prepaid expenses and other current assets ÏÏ 211 186 168 143 Total current assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 5,052 5,025 4,410 4,383 Equity in net assets of aÇliated companiesÏÏÏ 225 225 215 215 Net property ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 5,386 5,379 5,369 5,365 Deferred income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 713 716 700 700 Other assetsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 277 277 270 270 Total AssetsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $11,653 $11,622 $10,964 $10,933 Liabilities and Stockholders' Equity Trade payables ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 2,457 $ 2,457 $ 2,270 $ 2,270 Accrued liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 994 1,003 924 930 Income taxes payable ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 35 39 27 31 Debt payable within one year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 276 276 351 351 Total current liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3,762 3,775 3,572 3,582 Long-term debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,945 1,945 1,467 1,467 Postretirement beneÑts other than pensions ÏÏ 527 581 469 515 Postretirement beneÑts payable to FordÏÏÏÏÏÏ 2,079 2,079 2,090 2,090 Other liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,491 1,491 1,508 1,508 Total liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 9,804 9,871 9,106 9,162 Stockholders' equity Capital stockÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 131 131 131 131 Capital in excess of par value of stockÏÏÏÏÏÏÏ 3,297 3,297 3,288 3,288 Accumulated other comprehensive (loss) ÏÏÏÏ (46) (80) (21) (54) Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (34) (34) (19) (19) Accumulated deÑcit ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (1,499) (1,563) (1,521) (1,575) Total stockholders' equityÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,849 1,751 1,858 1,771 Total liabilities and stockholders' equity ÏÏ $11,653 $11,622 $10,964 $10,933 In addition, certain amounts in Notes 3, 4, 5, 6, 9, 13, and 14 have been restated to reÖect the restatement adjustments described above. 9
  11. 11. VISTEON CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS Ì (Continued) (unaudited) NOTE 2. Restatement of Financial Statements Ì (Continued) CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS First Quarter 2004 2003 As As Originally As Originally As Reported Restated Reported Restated (in millions) Cash and cash equivalents at January 1 ÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 953 $ 953 $1,204 $1,204 Cash Öows provided by (used in) operating activities ÏÏ 105 103 (135) (135) Cash Öows used in investing activities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (195) (193) (153) (153) Cash Öows provided by (used in) Ñnancing activities ÏÏ 328 328 (22) (22) EÅect of exchange rate changes on cash ÏÏÏÏÏÏÏÏÏÏÏÏÏ (4) (4) 2 2 Net increase (decrease) in cash and cash equivalents ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 234 234 (308) (308) Cash and cash equivalents at December 31 ÏÏÏÏÏÏÏÏÏÏ $1,187 $1,187 $ 896 $ 896 NOTE 3. Selected Costs, Income and Other Information Depreciation and Amortization Depreciation and amortization expenses are summarized as follows: First Quarter 2004 2003 (in millions) Depreciation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $140 $140 Amortization ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 26 23 Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $166 $163 Investments in AÇliates The following table presents summarized Ñnancial data for those aÇliates accounted for under the equity method. The amounts represent 100% of the results of operations of these aÇliates. Visteon reports its share of their net income in the line quot;quot;Equity in net income of aÇliated companies'' on the Consolidated Statement of Income. First Quarter 2004 2003 (in millions) Net sales ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $334 $291 Gross proÑt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 61 67 Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 21 30 10
  12. 12. VISTEON CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS Ì (Continued) (unaudited) NOTE 3. Selected Costs, Income and Other Information Ì (Continued) Purchase and Supply Agreement with Ford Under the terms of the new purchase and supply agreement entered into with Ford on December 19, 2003, Visteon agreed to pay Ford $150 million in lieu of additional productivity price reductions on components supplied by Visteon in North America during 2003. This payment was accrued for in 2003 as a reduction to sales. Visteon paid $50 million in December 2003 and $100 million during the Ñrst quarter of 2004. Accounts Receivable The allowance for doubtful accounts was $39 million at March 31, 2004 and $35 million at December 31, 2003. Income Taxes Visteon's provision (beneÑt) for income taxes, which is computed based upon income (loss) before income taxes excluding equity in net income of aÇliated companies, reÖects an eÅective tax rate of 44% for the Ñrst quarter of 2004, compared with (35%) for the Ñrst quarter of 2003. The change in our eÅective tax rate is due primarily to the need to maintain full valuation allowances against deferred tax assets in certain foreign jurisdictions. We expect our full year 2004 eÅective tax rate to be 38%; however, the rate could vary quarter-to-quarter. Further, the rate is largely dependent on pre-tax income (loss) by country, and any changes in our forecast or actual results could have a signiÑcant impact on our eÅective tax rate for a given quarter or for the full year. 11
  13. 13. VISTEON CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS Ì (Continued) (unaudited) NOTE 4. Stock-Based Awards Starting January 1, 2003, Visteon began expensing the fair value of stock-based awards granted to employees pursuant to Statement of Financial Accounting Standards No. 123 (quot;quot;SFAS 123''), quot;quot;Accounting for Stock-Based Compensation.'' This standard was adopted on a prospective method basis for stock-based awards granted, modiÑed or settled after December 31, 2002. For stock options and restricted stock awards granted prior to January 1, 2003, Visteon measures compensation cost using the intrinsic value method. If compensation cost for all stock-based awards had been determined based on the estimated fair value of stock options and the fair value set at the date of grant for restricted stock awards, in accordance with the provisions of SFAS 123, Visteon's reported net income (loss) and income (loss) per share would have changed to the pro forma amounts indicated below: First Quarter 2004 2003 (Restated) (in millions, except per share amounts) Net income (loss), as reported ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 20 $ (19) Add: Stock-based employee compensation expense included in reported net income (loss), net of related tax eÅects ÏÏÏ 2 1 Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax eÅects ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (4) (3) Pro forma net income (loss) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 18 $ (21) Income (loss) per share: As reported: Basic ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $0.16 $(0.15) Diluted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 0.16 (0.15) Pro forma: Basic ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $0.14 $(0.17) Diluted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 0.14 (0.17) NOTE 5. Special Charges First Quarter 2004 Actions In the Ñrst quarter of 2004, Visteon recorded pre-tax charges of $14 million in costs of sales ($10 million after-tax) which includes $9 million for the separation of about 50 hourly employees located at Visteon's plants in Europe through a continuation of a special voluntary retirement and separation program started in 2002, and $5 million related to the involuntary separation of about 220 employees as a result of the planned closure of our La Verpilliere, France, manufacturing facility by the end of 2004. The involuntary separations of the employees at the La Verpilliere facility are expected to occur at various times throughout 2004. Additional charges, if any, as a result of the Ñnalization of employee termination beneÑts above those legally required, will be recorded during the remainder of 2004 based on the estimated dates of the employee separations. All of the other actions were substantially completed in the Ñrst quarter of 2004. 12
  14. 14. VISTEON CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS Ì (Continued) (unaudited) NOTE 5. Special Charges Ì (Continued) During the Ñrst quarter of 2004, Visteon paid Ford about $23 million of previously accrued amounts related to an agreement entered into in 2003 to reimburse Ford for the actual net costs of transferring seating production, including costs related to Ford hourly employee voluntary retirement and separation programs that Ford is expected to implement. First Quarter 2003 Actions In the Ñrst quarter of 2003, Visteon recorded pre-tax charges of $31 million ($20 million after-tax), with $26 million recorded in costs of sales and $5 million in selling, administrative and other expenses. This includes $27 million related to the involuntary separation of about 135 U.S. salaried employees, the separation of about 35 hourly employees located at Visteon's plants in Europe through a continuation of a special voluntary retirement and separation program started in 2002, and the elimination of about 120 manufacturing positions in Mexico and other minor actions. Included in the $31 million pre-tax charge are $4 million of non-cash charges related to the write-down of a group of coiled spring and stamping equipment at our Monroe, Michigan, plant for which production activities were discontinued and the future undiscounted cash Öows were less than the carrying value of these Ñxed assets held for use. Visteon measured the impairment loss by comparing the carrying value of these Ñxed assets to the expected proceeds from disposal of the assets after completion of remaining production commitments. The above actions were substantially completed during the Ñrst quarter of 2003. Reserve Activity Reserve balances of $32 million and $45 million at March 31, 2004 and December 31, 2003, respectively, are included in current accrued liabilities on the accompanying balance sheets. The March 31, 2004 reserve balance of $32 million includes $23 million related primarily to 2003 restructuring activities. Visteon currently anticipates that the restructuring activities to which all of the above charges relate will be substantially completed by the end of 2004. Automotive Glass Total Operations Operations Visteon (Restated) (in millions) December 31, 2003 reserve balance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 45 $Ì $ 45 First quarter 2004 actions: Included in costs of sales ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 14 Ì 14 Total net expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 59 Ì 59 Utilization ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (27) Ì (27) March 31, 2004 reserve balance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 32 $Ì $ 32 Utilization in the Ñrst quarter of 2004 of $27 million was primarily related to severance pay. On April 14, 2004, Visteon announced its intention to move a portion of its Bedford, Indiana, plant operations to an undetermined manufacturing site. This action could affect about 600 of the plant's 1,150 hourly and salaried employees. Timing of this intended move has not been determined. Charges related to this move, if any, will be recognized as appropriate when detailed move plans are completed and the terms of any termination beneÑt arrangements are established. 13
  15. 15. VISTEON CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS Ì (Continued) (unaudited) NOTE 6. Employee Retirement BeneÑts Visteon's retirement plans' expense for the Ñrst quarter of 2004 and 2003 are summarized as follows: Health Care and Life Retirement Plans Insurance U.S. Plans Non-U.S. Plans BeneÑts 2004 2003 2004 2003 2004 2003 (Restated) (in millions) First Quarter Service cost ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 14 $ 13 $ 9 $ 8 $ 11 $ 9 Interest cost ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 17 15 17 13 16 13 Expected return on plan assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (16) (14) (15) (13) Ì Ì Amortization of: Plan amendments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2 2 3 2 Ì Ì (Gains) losses and otherÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1 Ì Ì Ì 6 3 Special termination beneÑtsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì Ì 3 7 Ì Ì Expense for Visteon-assigned Ford-UAW and certain salaried employeesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 31 21 Ì Ì 37 83 Net pension/postretirement expense ÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 49 $ 37 $ 17 $ 17 $ 70 $108 As discussed in our 2003 Annual Report on Form 10-K, Visteon's expected contributions during 2004 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. As of March 31, 2004, contributions to U.S. retirement plans and postretirement health care and life insurance plans were $23 million and $15 million, respectively, including payments to Ford of $17 million and $14 million, respectively. The Medicare Prescription Drug Improvement and Modernization Act of 2003 (the quot;quot;Medicare Act'') was signed into law on December 8, 2003. This legislation provides for a federal subsidy beginning in 2006 to sponsors of retiree healthcare beneÑt plans that provide a beneÑt at least actuarially equivalent to the beneÑt established by the law. Visteon's plans generally provide retiree drug beneÑts that exceed the value of the beneÑt that will be provided by Medicare Part D, and we have concluded that our plans are actuarially equivalent, pending further deÑnition of the criteria used to determine equivalence. This subsidy is estimated to reduce the beneÑt obligation for Visteon plans by $87 million as of March 31, 2004, and will be recognized through reduced retiree healthcare expense over the related employee future service lives, subject to Ñnal accounting guidance to be issued by the Financial Accounting Standards Board. As a result of charges during the period as well as the effect of the Medicare Act, the portion of the postretirement benefit obligation payable to Ford considered contingently payable is $1,079 million and $1,138 million at March 31, 2004 and December 31, 2003, respectively. 14
  16. 16. VISTEON CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS Ì (Continued) (unaudited) NOTE 7. Asset Securitization In the Ñrst quarter of 2004, Visteon established a $100 million revolving accounts receivable securitization facility in the United States (quot;quot;facility agreement''). Under this facility agreement, Visteon can sell a portion of its U.S. trade receivables to Visteon Receivables LLC (quot;quot;VRL''), a wholly-owned consolidated special purpose entity. VRL may then sell, on a non-recourse basis (subject to certain limited exceptions), an undivided interest in the receivables to an asset-backed, multi-seller commercial paper conduit, which is unrelated to Visteon or VRL. The conduit typically Ñnances the purchases through the issuance of commercial paper, with back-up purchase commitments from the conduit's Ñnancial institution. The sale of the undivided interest in the receivables from VRL to the conduit will be accounted for as a sale under the provisions of Statement of Financial Accounting Standards No. 140, quot;quot;Accounting for the Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.'' When VRL sells an undivided interest to the conduit, VRL retains the remaining undivided interest. The value of the undivided interest sold to the conduit will be excluded from our consolidated balance sheet and will reduce our accounts receivable balance. This facility expires in March 2005 and can be extended annually through March 2008 based upon the mutual agreement of the parties. Additionally, this facility contains Ñnancial covenants similar to our unsecured revolving credit facilities. In April 2004, VRL made an initial sale of a $25 million undivided interest in about $300 million of total receivables. As of March 31, 2004, Visteon has sold euro 35 million ($43 million) of trade receivables under a European sale of receivables agreement with a bank. This agreement provides for the sale of up to euro 40 million in trade receivables. NOTE 8. Debt March 31, December 31, 2004 2003 (in millions) Debt payable within one year Commercial paper ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 27 $ 81 Other Ì short-term ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 214 234 Current portion of long-term debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 35 36 Total debt payable within one year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 276 351 Long-term debt 8.25% notes due August 1, 2010 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 723 716 7.95% notes due August 1, 2005 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 516 518 7.00% notes due March 10, 2014 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 452 Ì Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 254 233 Total long-term debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,945 1,467 Total debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $2,221 $1,818 15
  17. 17. VISTEON CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS Ì (Continued) (unaudited) NOTE 8. Debt Ì (Continued) On March 10, 2004, Visteon completed a public oÅering of unsecured Ñxed-rate term debt securities totaling $450 million with a maturity of ten years. The securities bear interest at a stated rate of 7.00%, with interest payable semi-annually on March 10 and September 10, beginning on September 10, 2004. The securities rank equally with Visteon's existing and future unsecured Ñxed-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 deÑned 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 eÅectively converts the securities from Ñxed interest rate to variable interest rate instruments. On April 6, 2004, Visteon repurchased $250 million of Visteon's existing 7.95% Ñve-year notes maturing on August 1, 2005. In the second quarter of 2004, Visteon will record a pre-tax debt extinguishment charge of $11 million, which consists of redemption premiums and transaction costs ($19 million), oÅset partially by the accelerated recognition of gains from interest rate swaps associated with the repurchased debt ($8 million). NOTE 9. Income (Loss) Per Share of Common Stock Basic income (loss) per share of common stock is calculated by dividing reported net income (loss) by the average number of shares of common stock outstanding during the applicable period, adjusted for restricted stock. The calculation of diluted income (loss) per share takes into account the eÅect of dilutive potential common stock, such as stock options, and contingently returnable shares, such as restricted stock. First Quarter 2004 2003 (Restated) (in millions, except per share amounts) Numerator: Net income (loss) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 20 $ (19) Denominator: Average common stock outstanding ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 129.9 129.9 Less: Average restricted stock outstandingÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (4.6) (3.9) Basic shares ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 125.3 126.0 Net dilutive eÅect of restricted stock and stock options ÏÏÏÏÏ 3.2 Ì Diluted shares ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 128.5 126.0 Income (loss) per share: Basic ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $0.16 $(0.15) Diluted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 0.16 (0.15) 16
  18. 18. VISTEON CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS Ì (Continued) (unaudited) NOTE 9. Income (Loss) Per Share of Common Stock Ì (Continued) For the Ñrst quarter of 2003 potential common stock of about 515,000 shares are excluded from the calculation of diluted income (loss) per share because the eÅect of including them would have been antidilutive. NOTE 10. Variable Interest Entities In December 2003, the FASB issued revised Interpretation No. 46 (quot;quot;FIN 46'') quot;quot;Consolidation of Variable Interest Entities.'' Until this interpretation, a company generally included another entity in its consolidated financial statements only if it controlled the entity through voting interests. FIN 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity's activities or entitled to receive a majority of the entity's residual returns. Application of FIN 46 was required during the fourth quarter of 2003 for interests in structures that are commonly referred to as special-purpose entities and for all other types of variable interest entities in the first quarter of 2004. During the Ñrst quarter of 2004, Visteon began to consolidate Lextron/Visteon Automotive Systems, a joint venture with Lextron Corporation located in Canton, Mississippi, which started to supply integrated cockpit modules and front-end modules to Nissan in late 2003. Visteon owns 49% of this joint venture. Consolidation of this entity was based on an assessment of the amount of equity investment at risk, the subordinated Ñnancial support provided by Visteon, and Visteon's supply of the joint venture's inventory. The eÅect of consolidating this entity on Visteon's results of operations or Ñnancial position as of March 31, 2004 was not signiÑcant as substantially all of the joint venture's liabilities and costs are related to activity with Visteon. From June 30, 2002, a variable interest entity owned by an aÇliate of a bank is included in Visteon's consolidated Ñnancial statements. This entity was established in early 2002 to build a leased facility for Visteon to centralize customer support functions, research and development, and administrative operations. Construction of the facility is planned to be completed in 2004 at a cost of about $250 million, with initial occupancy starting in mid-2004. The lease agreement requires Visteon to make lease payments after construction is substantially completed equal to all interest then due and payable by the variable interest entity under the related credit agreement. The lease term expires in 2017, at which time 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 proceeds and other amounts applied against the balance, or renew the lease upon the mutual agreement of Visteon and the lessor. As of March 31, 2004, this entity has incurred about $159 million in expenditures related to this facility. 17
  19. 19. VISTEON CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS Ì (Continued) (unaudited) NOTE 11. Product Warranty A reconciliation of changes in the product warranty liability is summarized as follows: First Quarter 2004 (in millions) Beginning Balance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $22 Accruals for products shipped ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 7 Accruals for pre-existing warranties (including changes in estimates) ÏÏ 9 Settlements ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (8) Ending Balance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $30 NOTE 12. Inventories Inventories are summarized as follows: March 31, December 31, 2004 2003 (Restated) (in millions) Raw materials, work-in-process and supplies ÏÏÏÏÏÏÏÏÏÏÏ $592 $518 Finished products ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 236 243 Total inventories ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $828 $761 U.S. inventories ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $472 $436 NOTE 13. Comprehensive Income Comprehensive income is summarized as follows: First Quarter 2004 2003 (Restated) (in millions) Net income (loss) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 20 $(19) Change in foreign currency translation adjustments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (28) 15 Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2 7 Total comprehensive (loss) income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ (6) $ 3 Accumulated other comprehensive loss is comprised of the following: March 31, December 31, 2004 2003 (Restated) (in millions) Foreign currency translation adjustments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 69 $ 97 Realized and unrealized gains on derivatives, net of taxÏÏÏÏ 9 8 Unrealized loss on marketable securities, net of tax ÏÏÏÏÏ Ì (1) Minimum pension liability, net of tax ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (158) (158) Total accumulated other comprehensive loss ÏÏÏÏÏÏÏÏÏÏ $ (80) $ (54) 18
  20. 20. VISTEON CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS Ì (Continued) (unaudited) NOTE 14. Segment Information Visteon's reportable operating segments are Automotive Operations and Glass Operations. Financial information for the reportable operating segments is summarized as follows: Automotive Glass Total Operations Operations Visteon (Restated) (in millions) First Quarter 2004: Sales ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 4,833 $139 $ 4,972 Income (loss) before taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 34 9 43 Net income (loss)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 14 6 20 Special charges before taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 14 Ì 14 Special charges after taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 10 Ì 10 Total assets, end of period ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 11,354 268 11,622 2003: Sales ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 4,551 $153 $ 4,704 Income (loss) before taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (29) 4 (25) Net income (loss)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (22) 3 (19) Special charges before taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 30 1 31 Special charges after taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 19 1 20 Total assets, end of period ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 11,159 285 11,444 NOTE 15. Litigation and Claims Various legal actions, governmental investigations and proceedings, and claims are pending or may be instituted or asserted in the future against Visteon, including those arising out of alleged defects in Visteon's products; governmental regulations relating to safety; employment-related matters; customer, supplier and other contractual relationships; intellectual property rights; product warranties; product recalls; and environmental matters. Some of the foregoing matters involve or may involve compensatory, punitive or antitrust or other treble damage claims in very large amounts, or demands for recall campaigns, environmental remediation programs, sanctions, or other relief which, if granted, would require very large expenditures. Litigation is subject to many uncertainties, and the outcome of individual litigated matters is not predictable with assurance. Reserves have been established by Visteon for matters discussed in the foregoing paragraph where losses are deemed probable; these reserves are adjusted periodically to reÖect 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 March 31, 2004. Visteon does not reasonably expect, based on its analysis, that any adverse outcome from such matters would have a material eÅect on our Ñnancial condition, results of operations or cash Öows, although such an outcome is possible. 19
  21. 21. REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders Visteon Corporation We have reviewed the accompanying consolidated balance sheet of Visteon Corporation and its subsidiaries as of March 31, 2004, and the related consolidated statement of income for each of the three-month periods ended March 31, 2004 and March 31, 2003 and the condensed consolidated statement of cash Öows for the three-month periods ended March 31, 2004 and March 31, 2003. These interim Ñnancial statements are the responsibility of the Company's management. We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim Ñnancial information consists principally of applying analytical procedures and making inquiries of persons responsible for Ñnancial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the Ñnancial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modiÑcations that should be made to the accompanying consolidated interim Ñnancial statements for them to be in conformity with accounting principles generally accepted in the United States of America. We previously audited in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet as of December 31, 2003, and the related consolidated statements of operations, stockholders' equity, and of cash Öows for the year then ended (not presented herein), and in our report dated January 22, 2004, except as to the eÅects of the matters described in Note 2, which are as of March 16, 2005, we expressed an unqualiÑed opinion on those consolidated Ñnancial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet information as of December 31, 2003, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived. As discussed in Note 2 to the consolidated Ñnancial statements, the Company restated its Ñnancial statements as of March 31, 2004 and December 31, 2003 and for each of the three- month periods ended March 31, 2004 and March 31, 2003. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Detroit, Michigan April 20, 2004, except as to the eÅects of the matters described in Note 2, which are as of March 16, 2005 20
  22. 22. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESTATEMENT Visteon has restated its previously issued consolidated Ñnancial statements for 2001 through 2003 and for the Ñrst three months of 2004, primarily for accounting corrections related to postretirement health care and pension costs, tooling costs, capital equipment costs, inventory costing and income taxes. As a result of the restatement, net income decreased $10 million (33.3% of the originally reported amount) for the Ñrst three months ended March 31, 2004 and net loss increased $4 million (26.7% of the originally reported amount) for the Ñrst three months ended March 31, 2003. The restatement decreased reported net income per share by $0.07 for the Ñrst three months ended March 31, 2004 and increased reported net loss per share by $0.03 for the Ñrst three months ended March 31, 2003. Further information on the nature and impact of these adjustments is provided in Note 2, quot;quot;Restatement of Financial Statements'' to our consolidated Ñnancial statements included elsewhere in this Form 10-Q/A. The financial data presented herein are unaudited, but in the opinion of management reflect those adjustments, including normal recurring adjustments, necessary for a fair statement of such information. Reference should be made to the consolidated financial statements and accompanying notes included in the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2003, as filed with the Securities and Exchange Commission on February 13, 2004 and as amended on March 16, 2005. Overview Visteon's worldwide sales for the Ñrst quarter of 2004 were $5.0 billion, compared with $4.7 billion for the same period in 2003. Much of the increase in sales was a result of higher sales to non-Ford customers, which increased 36% over Ñrst quarter 2003 levels, and the favorable impact of exchange rates. Ford's Ñrst quarter 2004 combined production volumes for North America and Europe, our primary sales markets with Ford, were down slightly compared with the same period last year. As a result, our Ñrst quarter 2004 sales to Ford declined slightly compared to the same period in 2003. Net income for the Ñrst quarter of 2004 was $20 million, or $0.16 per share, an improvement of $39 million over a net loss of $19 million, or $0.15 per share, for the Ñrst quarter of 2003. ProÑt improvement came from cost reductions, increased non-Ford business, and restructuring eÅorts. We expect recent initiatives, such as the European Plan for Growth, the exit from our unproÑtable ChesterÑeld seating operations and the restructuring of postretirement beneÑt obligations to Ford, to continue to beneÑt us on our path to proÑtability. We continue to focus on cash Öow generation and maintaining a strong liquidity position. Our cash provided by operating activities was $103 million, a $238 million improvement from the Ñrst quarter of 2003, and we ended the quarter with $1.2 billion in cash and marketable securities. During the quarter, we improved our trade working capital Öows, issued new public debt securities, commenced a tender oÅer to repurchase a portion of our outstanding debt securities that mature in 2005 and set in place a revolving accounts receivable securitization facility. 21
  23. 23. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Ì (Continued) Restructuring, Dispositions and Special Charges The table below presents special charges related to restructuring initiatives and other actions during the Ñrst quarter of 2004 and 2003: Automotive Glass Total Operations Operations Visteon (in millions) First Quarter 2004 (Restated): Special charges: European Plan for GrowthÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ (9) $Ì $ (9) Other actions ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (5) Ì (5) Total Ñrst quarter 2004 special charges, before taxes ÏÏÏÏÏ $(14) $Ì $(14) Total Ñrst quarter 2004 special charges, after taxes ÏÏÏÏÏÏÏ $(10) $Ì $(10) First Quarter 2003: Special charges: North American salaried restructuring ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $(18) $Ì $(18) Monroe Plant equipment write-down ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (4) Ì (4) European Plan for GrowthÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (3) Ì (3) Other actions ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (5) (1) (6) Total Ñrst quarter 2003 special charges, before taxes ÏÏÏÏÏ $(30) $(1) $(31) Total Ñrst quarter 2003 special charges, after taxes ÏÏÏÏÏÏÏ $(19) $(1) $(20) In the Ñrst quarter of 2004, Visteon recorded pre-tax charges of $14 million in costs of sales ($10 million after-tax) which includes $9 million for the separation of about 50 hourly employees located at several Visteon plants in Europe through a continuation of a special voluntary retirement and separation program started in 2002, and an additional $5 million related to the involuntary separation of about 220 employees as a result of the planned closure of our La Verpilliere, France, manufacturing facility by the end of 2004. The involuntary separations of the employees at the La Verpilliere facility are expected to occur at various times throughout 2004. Additional charges, if any, as a result of the Ñnalization of employee termination beneÑts above those legally required, will be recorded during the remainder of 2004 based on the estimated dates of the employee separations. All of the other actions were substantially completed in the Ñrst quarter of 2004. In the Ñrst quarter of 2003, Visteon recorded pre-tax charges of $31 million ($20 million after-tax). These charges include $18 million related to the involuntary separation of about 135 U.S. salaried employees, $3 million for the separation of about 35 hourly employees located at Visteon's plants in Europe through a continuation of a special voluntary retirement and separation program started in 2002, and $6 million for the elimination of about 120 manufacturing positions in Mexico and other minor actions. Included in the $31 million pre-tax charge are $4 million of non-cash charges related to the write-down of a group of coiled spring and stamping equipment at our Monroe, Michigan, plant for which production activities were discontinued and the future undiscounted cash Öows were less than the carrying value of these Ñxed assets held for use. Visteon measured the impairment loss by comparing the carrying value of these Ñxed assets to the expected proceeds from disposal of the assets after completion of remaining production commitments. The above actions were substantially completed during the Ñrst quarter of 2003. 22
  24. 24. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Ì (Continued) Cash payments related to special charges, including those for severance and special pension beneÑts, were $67 million and $41 million during the Ñrst quarters of 2004 and 2003, respectively. The Ñrst quarter 2004 amount includes payments to Ford of about $23 million of previously accrued amounts related to an agreement entered into in 2003 to reimburse Ford for the actual net costs of transferring seating production, including costs related to Ford hourly employee voluntary retirement and separation programs that Ford is expected to implement. We continue to evaluate the possibility of partnerships, sales or closings involving other under-performing or non-core 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. On April 14, 2004, Visteon announced its intention to move a portion of its Bedford, Indiana, plant operations to an undetermined manufacturing site. This action could affect about 600 of the plant's 1,150 hourly and salaried employees. Timing of this intended move has not been determined. Charges related to this move, if any, will be recognized as appropriate when detailed move plans are completed and the terms of any termination benefit arrangements are established. Results of Operations First Quarter 2004 Compared with First Quarter 2003 Sales for each of our segments for the Ñrst quarter of 2004 and 2003 are summarized in the following table: 2004 First Quarter over/(under) 2004 2003 2003 (in millions) Automotive Operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $4,833 $4,551 $282 Glass Operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 139 153 (14) Total sales ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $4,972 $4,704 $268 Memo: Sales to non-Ford customers Amount ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $1,335 $ 983 $352 Percentage of total sales ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 27% 21% 6 pts Sales for Automotive Operations were $4.8 billion in 2004, compared with $4.6 billion in 2003, an increase of $282 million or 6%. This increase reÖects favorable currency changes of $196 million and the impact of new business primarily with non-Ford customers oÅset partially by price reductions. Additionally, 2004 sales were aÅected by the loss of $128 million in revenue from the exit of seating operations on June 23, 2003. Sales for Glass Operations were $139 million in 2004, compared with $153 million in 2003, a decrease of $14 million or 9%, resulting primarily from lower Ford North America production volume. Costs of Sales for the Ñrst quarter of 2004 were $4.7 billion, up $175 million compared with the Ñrst quarter of 2003. Costs of sales includes primarily material, labor, manufacturing overhead and other costs, such as product development costs. The increase reÖects currency Öuctuations of $175 million, and higher variable costs associated with new business with customers, oÅset partially by an elimination of variable costs of $153 million resulting from the exit of our seating operations, and favorable cost performance. Special charges included in this line item were $14 million in 2004 and $26 million in 2003. 23
  25. 25. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Ì (Continued) Selling, administrative and other expenses for the Ñrst quarter of 2004 were $265 million, $21 million higher compared with the Ñrst quarter of 2003. The increase reÖects primarily incremental Information Technology (quot;quot;IT'') actions of $22 million. Costs associated with such incremental IT actions are expected to continue into mid-2004. Special charges included in this line item were $5 million for 2003. Net interest expense of $19 million in the Ñrst quarter of 2004 was even with the Ñrst quarter of 2003. Equity in net income of aÇliated companies was $11 million in the Ñrst quarter of 2004, compared with $15 million in the Ñrst quarter of 2003, with the decrease related primarily to our aÇliates in Asia. Income (loss) before income taxes, and minority interests, including and excluding special charges, is the primary proÑtability measure used by our chief operating decision makers. The following table shows income (loss) before income taxes for the Ñrst quarter of 2004 and 2003, for each of our segments: 2004 First Quarter over 2004 2003 2003 (Restated) (in millions) Automotive Operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 34 $(29) $63 Glass OperationsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 9 4 5 Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 43 $(25) $68 Memo: Special charges included above ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $(14) $(31) $17 Automotive Operations' Ñrst quarter 2004 proÑt before income taxes was $34 million compared with a loss of $29 million for the Ñrst quarter of 2003. Special charges before taxes in 2004 were down $17 million from 2003. Additionally, 2003 results include a loss of $25 million from seating operations that were exited June 23, 2003. Results were aÅected also by new business and favorable cost performance, oÅset partially by price reductions. ProÑt before income taxes for Glass Operations in Ñrst quarter of 2004 was $9 million compared with $4 million before taxes for the Ñrst quarter of 2003, reÖecting favorable cost performance, oÅset partially by lower volume. Provision (beneÑt) for income taxes represents an eÅective income tax rate of 44% in the Ñrst quarter of 2004 compared with (35%) in the Ñrst quarter of the prior year. The change in our eÅective tax rate is primarily due to the need to maintain full valuation allowances against deferred tax assets in certain foreign jurisdictions. Minority interests in net income of subsidiaries was $9 million in the Ñrst quarter of 2004, compared with $8 million in the Ñrst quarter of 2003. Minority interest amounts are related primarily to our 70% ownership interest in Halla Climate Control Corporation located in Korea. 24
  26. 26. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Ì (Continued) Net income (loss) for the Ñrst quarter of 2004 and 2003 are shown in the following table for each of our segments: 2004 First Quarter over 2004 2003 2003 (Restated) (in millions) Automotive Operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 14 $(22) $36 Glass OperationsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 6 3 3 Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 20 $(19) $39 Memo: Special charges included above ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $(10) $(20) $10 Visteon reported a net proÑt for the Ñrst quarter of 2004 of $20 million compared with a net loss of $19 million for the Ñrst quarter of 2003 because of the factors described above in income (loss) before income taxes. Special charges after taxes were $10 million and $20 million for the Ñrst quarter of 2004 and 2003, respectively. Liquidity and Capital Resources Overview Visteon's funding objective is to Ñnance its worldwide business with cash from operations, supplemented when required by a combination of liquidity sources, including but not limited to cash and cash investments, receivables programs, and committed and uncommitted bank facilities and securities issuance. These sources are used also to fund working capital needs, which are highly variable during the year because of changing customer production schedules. Visteon's balance sheet reÖects cash and marketable securities of $1,188 million and total debt of $2,221 million at March 31, 2004, compared with cash and marketable securities of $956 million and total debt of $1,818 million at December 31, 2003. Net debt, deÑned as the amount by which total debt exceeds total cash and marketable securities, was $1,033 million at March 31, 2004, and $862 million at December 31, 2003. The increase in cash and marketable securities is more than explained by the March 2004 issuance of $450 million in debt securities, and the increase in net debt is primarily due to an increase in trade working capital related to higher volumes at the end of the Ñrst quarter compared with the year-end shutdown period. Visteon's ratio of total debt to total capital, which consists of total debt plus total stockholders' equity, was 56% at March 31, 2004 and 51% at December 31, 2003, and increased primarily because of the recent debt issuance. Financing Arrangements On March 10, 2004, Visteon completed a public oÅering (the quot;quot;Notes Sale'') of unsecured Ñxed-rate 7.00% term debt securities totaling $450 million in aggregate principal amount due in March 2014. Proceeds from the Notes Sale were used for a debt retirement and for general corporate purposes. Concurrent with the Notes Sale, Visteon announced an oÅer (the quot;quot;Tender OÅer'') to purchase for cash up to $250 million aggregate principal amount of our 7.95% notes due in August 2005. The Tender OÅer expired on April 2, 2004 and $250 million of these notes were retired on April 6, 2004. 25
  27. 27. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Ì (Continued) In March 2004, Visteon established a $100 million revolving accounts receivable securitization facility (the quot;quot;facility'') in the U.S. The facility allows for sale of a portion of U.S. trade receivables to a wholly-owned consolidated special purpose entity, Visteon Receivables LLC (quot;quot;VRL''), which may then sell an undivided interest in the receivables to an asset-backed multi-seller conduit which is unrelated to Visteon or VRL. In April 2004, VRL made an initial receivables sale to the conduit of $25 million. The facility expires in March 2005 and is extendable annually through March 2008 through mutual agreement of both parties, as discussed further in Note 7 to the consolidated Ñnancial statements. Visteon has Ñnancing arrangements with a syndicate of third-party lenders providing contractually committed, unsecured revolving credit facilities in an aggregate maximum amount of $1,580 million (the quot;quot;Credit Facilities''). The Credit Facilities include a 364-day revolving credit line in the amount of $555 million, which expires June 2004, and a Ñve-year revolving credit line in the amount of $775 million, which expires June 2007. Visteon is currently renegotiating the 364-day facility that expires in June. The Credit Facilities also include a Ñve-year, delayed-draw term loan in the amount of $250 million, which will be used primarily to Ñnance new construction for facilities consolidation in Southeast Michigan. During the Ñrst quarter of 2004, the 364-day revolving credit line agreement was amended to increase various interest rates applicable to borrowings under such facility. At March 31, 2004, there were no borrowings outstanding under the 364-day facility or the Ñve-year facility; there were $47 million of obligations under standby letters of credit under the Ñve-year facility, and $128 million borrowed against the delayed-draw term loan. The Credit Facilities contain certain aÇrmative and negative covenants, including a Ñnancial covenant not to exceed a leverage ratio of net debt to EBITDA (excluding special charges and other items) of 3.5 to 1. Increases in the ratio of net debt to EBITDA can occur during quarters following seasonal shutdown periods, when cash usage increases. In the opinion of management, Visteon has been in compliance with all covenants since the inception of the Credit Facilities. During 2004, we expect to continue to be in compliance, although there can be no assurance that this will be the case especially during quarters following seasonal shutdown periods, when our cash usage may increase signiÑcantly. Visteon has maintained a commercial paper program utilizing the Credit Facilities as backup. As of March 31, 2004, we had $27 million outstanding under our commercial paper program compared with $81 million outstanding at December 31, 2003. Visteon maintains a trade payables program through General Electric Capital Corporation (quot;quot;GECC'') that provides Ñnancial Öexibility to Visteon and its suppliers. The program is presently under review by both parties. 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 million was outstanding to GECC under this program at March 31, 2004 and December 31, 2003. As part of the same program with GECC, Visteon is allowed to defer payment to GECC for a period of up to 30 days. At March 31, 2004, Visteon had not exercised the deferral option of the program. In addition, Visteon at times participates in a trade payables program offered by one of our customers. When we participate, our receivables are reduced and our cash balances are increased. We did not participate in the program as of March 31, 2004, although at December 31, 2003 our receivables had been reduced by $75 million due to this program. Visteon has entered into interest rate swaps to manage our interest rate risk. These swaps eÅectively convert a portion of Visteon's Ñxed rate debt into variable rate debt, and as a result, approximately 40% of Visteon's borrowings are eÅectively on a Ñxed rate basis, while the remainder is subject to changes in short-term interest rates. 26
  28. 28. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Ì (Continued) Credit Ratings Our long-term credit rating with Standard & Poor's (quot;quot;S&P'') is BB°; with Moody's it is Ba1, and with Fitch it is BBB¿. Both S&P and Moody's rate Visteon as quot;quot;stable.'' Fitch rates our short-term credit as F3. Both S&P and Moody's have covered Visteon since June 2000, while Fitch initiated coverage on June 11, 2003. We continue to have access to suÇcient liquidity, and believe we will continue to have access, to meet ongoing operating requirements although that access is less reliable and could be more costly than it was previously. Cash Requirements Visteon's expected cash outÖows related to debt have changed since December 31, 2003 as a result of completing in March 2004 the Notes Sale and the April 2004 Tender OÅer as discussed further in Note 8 to the consolidated Ñnancial statements. As of March 31, 2004, Visteon had guaranteed about $22 million of borrowings held by unconsolidated joint ventures. In addition, we have guaranteed Tier 2 suppliers' debt and lease obligations of about $16 million at March 31, 2004 to ensure the continued supply of essential parts. Cash required to meet capital expenditure needs in the Ñrst quarter 2004 was $196 million. Capital expenditures in 2004 are expected to be higher than historic levels as described below under quot;quot;Cash Flows Ì Investing Activities.'' Visteon's 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 eÅects 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 eÅects normally require use of liquidity resources during the Ñrst and third quarters. Visteon expects improved performance for 2004 will result in cash from operating activities exceeding capital expenditure requirements, although this may not be the case during speciÑc 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 Öows from operations, cash balances and borrowings, if needed. Visteon also believes 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 BeneÑts First quarter 2004 postretirement healthcare and life insurance expense decreased by $38 million when compared with the same period in 2003, primarily as a result of Visteon's amended and restated agreements with Ford and the Medicare Act. Pension expense for Ñrst quarter of 2004 and 2003 was $66 million and $54 million, respectively, primarily reÖecting lower discount rates and the eÅect of the 2003 Ford-UAW collective bargaining agreement. 27

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