UNITED STATES
FORM 10-Q
(Mark One)
For the quarterly period ended March 31, 2001 or
For the transition period from __________________ to
Commission file number 1-15827
VISTEON CORPORATION
Registrant’s telephone number, including area code: (800)-VISTEON
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes No
Applicable Only to Corporate Issuers: Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of April 15, 2001, the Registrant had outstanding 130,928,775 shares of Common Stock, par value $1.00 per share.
Exhibit index located on page number 13.
VISTEON CORPORATION AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying notes are part of the financial statements.
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1. Financial Statements — The financial data presented herein are unaudited, but in the opinion of management reflect those adjustments necessary for a fair presentation of such information. Results for interim periods should not be considered indicative of results for a full year. Reference should be made to the consolidated financial statements and accompanying notes included in the company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2000, as filed with the Securities and Exchange Commission on February 27, 2001.
Visteon Corporation (“Visteon”) is a leading, global supplier of automotive systems, modules and components. Visteon sells products primarily to global vehicle manufacturers, and also sells to the worldwide aftermarket for replacement and vehicle appearance enhancement parts. Visteon became an independent company when Ford Motor Company (“Ford”) established Visteon as a wholly-owned subsidiary in January 2000 and subsequently transferred to Visteon the assets and liabilities comprising Ford’s automotive components and systems business. Ford completed its spin-off of Visteon on June 28, 2000 (the “spin-off”). Prior to incorporation, Visteon operated as Ford’s automotive components and systems business.
2. Selected costs and expenses are summarized as follows:
3. Income Per Share of Common Stock —Basic income per share of Common Stock is calculated by dividing the income attributable to Common Stock by the average number of shares of Common Stock outstanding during the applicable period, adjusted for restricted stock. For purposes of the earnings per share calculations, 130 million shares of Common Stock are treated as outstanding for periods prior to the spin-off from Ford.
4. Inventories are summarized as follows:
5. Comprehensive Income — Other comprehensive income includes mainly foreign currency translation adjustments. Total comprehensive income is summarized as follows:
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NOTES TO FINANCIAL STATEMENTS — (Continued)
6. Accounting Change — Visteon adopted Statement of Financial Accounting Standards No. 133 (“SFAS 133”), “Accounting for Derivative Instruments and Hedging Activities,” on January 1, 2001. SFAS 133 (as amended by SFAS 137 and 138) establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires recognition of all derivatives as either assets or liabilities on the balance sheet and measurement of the instruments at fair value. The change in fair value of a derivative is required to be recorded each period in current earnings or other comprehensive income, depending on whether the derivative is designated as part of a hedge transaction and if so, the type of hedge transaction.
For anticipated transactions, Visteon uses forward contracts to hedge the variability in cash flows related to exchange rate movements. Visteon uses derivatives to hedge anticipated exposures up to two years in the future. For a derivative designated as a cash flow hedge, the effective portion of the derivative’s gain or loss because of a change in fair value is recorded initially as a component of other comprehensive income and subsequently reclassified into earnings when the hedged exposure affects earnings. For a derivative not designated as a hedging instrument, the gain or loss is recognized in earnings in the period of change.
The first quarter impact of implementing this new standard on Visteon’s results of operations and financial condition was not material.
7. Segment Information — Visteon’s reportable operating segments are Dynamics & Energy Conversion; Comfort, Communication & Safety; and Glass. Financial information for the reportable operating segments is summarized as follows:
Other includes net interest expense not allocated to the reportable operating segments.
8. Subsequent Event — During April 2001, Visteon eliminated about 950 U.S. staff jobs, representing about 12 percent of Visteon’s U.S. salaried workforce. As part of a review of operations outside the U.S., as well as plant structure within the U.S., the company expects about 1,800 worldwide jobs to be eliminated when combined with the actions implemented in April 2001. The structuring is expected to be completed by the end of the second quarter of 2001 and will result in a one-time charge estimated at $135 million after taxes ($215 million before taxes) in the second quarter of 2001.
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To the Board of Directors and Stockholders
We have reviewed the accompanying consolidated balance sheet of Visteon Corporation and its subsidiaries as of March 31, 2001, and the related consolidated statement of income and condensed consolidated statement of cash flows for the three-month periods ended March 31, 2001 and March 31, 2000. These financial statements are the responsibility of the company’s management.
We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should be made to the accompanying consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.
We previously audited in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet as of December 31, 2000, and the related consolidated statements of income, stockholders’ equity and cash flows for the year then ended (not presented herein); and in our report dated January 17, 2001, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet information as of December 31, 2000, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
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This report contains forward-looking statements made pursuant to the Private Securities Litigation Reform Act of 1995. Words such as “anticipate,” “expect,” “intend,” “plan,” “believe,” “seek” and “estimate” signify forward-looking statements. Forward-looking statements are not guarantees of future results and conditions but rather are subject to various risks and uncertainties. Some of these risks and uncertainties are identified in our Current Report on Form 8-K filed with the Securities and Exchange Commission on February 27, 2001. The risks and uncertainties so identified are not the only ones facing our company. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial also may adversely affect us. Should any risks and uncertainties develop into actual events, these developments could have material adverse effects on our business, financial condition and results of operations. For these reasons, we caution you not to place undue reliance on our forward-looking statements.
The financial data presented herein are unaudited, but in the opinion of management reflect those adjustments necessary for a fair presentation 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, 2000, as filed with the Securities and Exchange Commission on February 27, 2001.
Overview
In the first quarter of 2001 our worldwide sales were $4.7 billion, compared with $5.2 billion in the first quarter of 2000. The decrease reflects primarily reduced sales to Ford reflecting lower production volumes in North America and annual price reductions. Sales from new business with Ford and other customers were a partial offset. Sales to non-Ford customers accounted for 17% of first quarter 2001 total sales, up 3 percentage points from the first quarter of 2000.
Worldwide net income was $31 million in the first quarter of 2001, compared with actual net income of $147 million in the first quarter of 2000 and pro forma net income of $124 million. The reduction in net income compared with first quarter 2000 actual and pro forma results was more than accounted for by lower customer production volumes and annual price reductions; year-over-year cost reductions were a partial offset. For further discussion of pro forma adjustments, see “Pro Forma First Quarter 2000 Results” below.
Results of Operations
First Quarter 2001 Compared with First Quarter 2000
The following table shows the reduction in sales attributable to each of our segments for the period indicated:
Sales for our Comfort, Communication & Safety segment were $2.4 billion, compared with $2.6 billion in the first quarter of 2000, a decrease of $197 million. Sales for our Dynamics & Energy Conversion segment were $2.2 billion, a decrease of $273 million from the first quarter of
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2000. Glass sales were $165 million in the first quarter of 2001, compared with $197 million in the first quarter of 2000, a decline of $32 million. The decrease in sales for our Comfort, Communication & Safety segment reflects primarily lower production volumes in North America and annual price reductions; sales from new business were a partial offset. The decrease in sales for our Dynamics and Energy Conversion segment reflects primarily lower production volumes in North America and annual price reductions. The decrease in sales for our Glass segment reflects primarily lower customer production volumes.
The following table shows the reduction in net income/ (loss) for each of our segments for the period indicated:
Net income for our Comfort, Communication & Safety segment was $34 million in the first quarter of 2001, down $60 million from the first quarter of 2000. Net income for our Dynamics & Energy Conversion segment was $9 million in the first quarter of 2001, a decrease of $58 million. Net loss for Glass was $2 million in the first quarter of 2001, reflecting an additional loss of $1 million compared with the first quarter of 2000. The decreases in net income for Comfort, Communication & Safety and Dynamics & Energy Conversion segments reflected primarily lower customer production volumes in North America and customer price reductions, offset partially by lower costs. The decrease in net income for our Glass segment is more than accounted for by lower production volumes, offset partially by lower depreciation cost.
Pro Forma First Quarter 2000 Results
Unaudited pro forma consolidated financial data for the first quarter of 2000 has been derived from the application of pro forma adjustments to our consolidated financial statements and give effect to our spin-off from Ford. The pro forma financial data has been prepared as if the spin-off from Ford had occurred as of January 1, 1999. The pro forma consolidated financial data do not purport to be indicative of what our operations actually would have been had these events occurred as of that date.
In connection with the preparation of the unaudited pro forma statement of income for the first quarter of 2000, we made the following adjustments:
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Liquidity and Capital Resources
Our balance sheet reflects cash and marketable securities of $1.1 billion and total debt of $2 billion at March 31, 2001, and cash and marketable securities of $1.5 billion and total debt of $2 billion at December 31, 2000. Our net debt, defined as the amount that total debt exceeds cash and marketable securities, was $915 million at March 31, 2001, and $542 million at December 31, 2000. The change in our cash and marketable securities and net debt primarily reflects a seasonal increase in trade working capital levels required to support higher sales activity during the latter half of the first quarter of 2001, compared with sales activity in the latter half of the fourth quarter of 2000.
Our ratio of total debt to total capital, which consists of total debt plus equity, was 36% at March 31, 2001, compared with 37% at December 31, 2000.
We have a commercial paper program providing up to $2 billion of borrowing ability. We also have financing arrangements with third-party lenders, put in place in June 2000, to provide up to a total of $2 billion of contractually committed, unsecured revolving credit facilities. These facilities are split evenly between 364-day commitments maturing in June 2001 and five-year commitments maturing in June 2005. Any borrowings under the revolving credit facilities would bear interest based on a variable interest rate option selected at the time of borrowing. We intend to use the commercial paper program as our primary short-term financing source and do not intend to exceed $2 billion of aggregate borrowing under the commercial paper program and revolving credit facilities. As of March 31, 2001, the outstanding balance under our commercial paper program was $338 million; we had no borrowings under our revolving credit facilities.
We expect cash flow from operations and borrowings, and from available liquidity, to fund requirements for working capital, capital expenditures, research and development, pension funding, dividend and debt service for at least the next year.
Cash Flows
Operating Activities
Cash used in operating activities during the first three months of 2001 totaled $187 million compared with $846 million for the same period in 2000. Net cash used in operating activities during the first three months of 2000 was in part associated with our spin-off from Ford, including payments to Ford totaling about $570 million to prepay certain healthcare costs for active employees, and other working capital changes. The improvement in 2001 reflects primarily a net favorable change in working capital compared with the prior year.
Investing Activities
Cash used in investing activities was $254 million during the first three months of 2001 compared with $125 million for the same period in 2000, reflecting primarily capital expenditures and investments in marketable securities. Our capital expenditures were $172 million during this period, and are in line with expected full year capital expenditures of about $800 million in 2001.
Financing Activities
Cash used in financing activities totaled $25 million in the first three months of 2001 compared with cash provided by financing activities of $58 million in the first three months of 2000. For the first three months of 2001, cash used in financing activities reflects primarily repayment of amounts outstanding under our commercial paper program as well as other debt.
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For the first three months of 2000, cash provided by financing activities of $58 million reflects primarily additional short-term borrowing.
On April 11, 2001, the Visteon Board of Directors declared a dividend of $0.06 per share on the company’s Common Stock, payable on June 1, 2001, to the stockholders of record as of May 2, 2001. The dividend of $0.06 per share declared by the Visteon Board of Directors on January 10, 2001, was paid on March 1, 2001.
Subsequent Event
Implementation of Customer-Focused Corporate Structure
Visteon expects to complete implementation of its customer-focused corporate structure by the end of the second quarter of 2001. As part of the new structure, organizational layers have been removed and staff functions streamlined. During April 2001, about 950 U.S. staff jobs, representing about 12 percent of Visteon’s U.S. salaried workforce, were eliminated. We expect about 1,800 jobs will be eliminated worldwide when combined with the actions implemented in April 2001. The structuring is expected to be completed by the end of the second quarter of 2001. Associated with this action, Visteon will record a one-time charge estimated at $135 million after taxes ($215 million before taxes) in the second quarter of 2001. These costs are expected to be recovered in a little more than a year.
Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes to our exposures to market risk since December 31, 2000.
New Accounting Standard
Visteon adopted Statement of Financial Accounting Standards No. 133 (“SFAS 133”), “Accounting for Derivative Instruments and Hedging Activities,” on January 1, 2001. SFAS 133 (as amended by SFAS 137 and 138) establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires recognition of all derivatives as either assets or liabilities on the balance sheet and measurement of the instruments at fair value. The first quarter impact of implementing this new standard on Visteon’s results of operations and financial condition was not material.
Other Financial Information
PricewaterhouseCoopers LLP, our independent accountants, performed a limited review of the financial data presented on pages 1 through 5 inclusive. The review was performed in accordance with standards for such reviews established by the American Institute of Certified Public Accountants. The review did not constitute an audit; accordingly, PricewaterhouseCoopers LLP did not express an opinion on the aforementioned data. Their review report included herein is not a “report” within the meaning of Sections 7 and 11 of the 1933 Act and the independent accountant’s liability under Section 11 does not extend to it. The financial data includes any material adjustments or disclosures proposed by PricewaterhouseCoopers LLP as a result of their review.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In April 2001, we completed the purchase of speech recognition technology from Lernout and Hauspie Speech Products N.V. (“L&H”) and withdrew our claims against L&H and their chief executive officer, John Duerden. We are also involved in legal proceedings, which are ordinary, routine proceedings, incidental to the conduct of our business. We do not believe that any legal proceedings to which we are a party will have a material adverse effect on our financial condition or results of operations, although such an outcome is possible.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Please refer to the Exhibit Index on Page 13.
(b) Reports on Form 8-K
The Registrant filed the following Current Reports on Form 8-K during the quarter ended March 31, 2001:
Current Report on Form 8-K dated January 11, 2001, included information relating to the election of two additional directors.
Current Report on Form 8-K dated January 11, 2001, included information relating to the declaration of a cash dividend.
Current Report on Form 8-K dated January 18, 2001, included information relating to our fourth quarter and fiscal year 2000 results.
Current Report on Form 8-K dated February 27, 2001, included information relating to risks and uncertainties facing our company.
Current Report on Form 8-K dated March 5, 2001, included information relating to the revision of the quarterly segment financial information for 1999.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: May 2, 2001
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EXHIBIT INDEX
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