|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30
|
|
2012
|
|
2011
|
|
Change
|
|
(Dollars in Millions)
|
Sales
|
$
|
1,624
|
|
|
$
|
1,909
|
|
|
$
|
(285
|
)
|
Cost of sales
|
1,495
|
|
|
1,770
|
|
|
(275
|
)
|
Gross margin
|
129
|
|
|
139
|
|
|
(10
|
)
|
Selling, general and administrative expenses
|
89
|
|
|
95
|
|
|
(6
|
)
|
Interest expense, net
|
13
|
|
|
5
|
|
|
8
|
|
Loss on debt extinguishment
|
4
|
|
|
—
|
|
|
4
|
|
Equity in net income of non-consolidated affiliates
|
38
|
|
|
43
|
|
|
(5
|
)
|
Restructuring and other (income) expenses
|
(11
|
)
|
|
1
|
|
|
(12
|
)
|
Income before income taxes
|
72
|
|
|
81
|
|
|
(9
|
)
|
Provision for income taxes
|
33
|
|
|
25
|
|
|
8
|
|
Income from continuing operations
|
39
|
|
|
56
|
|
|
(17
|
)
|
(Loss) income from discontinued operations
|
(5
|
)
|
|
4
|
|
|
(9
|
)
|
Net income
|
34
|
|
|
60
|
|
|
(26
|
)
|
Net income attributable to non-controlling interests
|
19
|
|
|
19
|
|
|
—
|
|
Net income attributable to Visteon
|
$
|
15
|
|
|
$
|
41
|
|
|
$
|
(26
|
)
|
Adjusted EBITDA*
|
$
|
131
|
|
|
$
|
168
|
|
|
$
|
(37
|
)
|
|
|
|
|
|
|
*
Adjusted EBITDA is a Non-GAAP financial measure, as further discussed
below.
|
Sales
The Company's consolidated sales totaled $1,624 million for the three-month period ended September 30, 2012, which represents a decrease of $285 million when compared to the same period of 2011. Approximately $178 million of this decrease is due to the deconsolidation of Duckyang Industry Co. Ltd ("Duckyang"), an Interiors joint venture, which resulted from the October 2011 sale of a controlling ownership interest in the entity. Unfavorable currency of $131 million, primarily attributable to the Euro and Korean Won currencies, also contributed to the decline. Production volumes increased sales by $33 million, primarily associated with Asia and North America partially offset by declines in Europe. Additionally, other reductions of $9 million were associated with price productivity net of design actions and commercial agreements.
Gross Margin
The Company recorded gross margin of $129 million for the three-month period ended September 30, 2012 compared to $139 million for the same period of 2011. The decrease in gross margin of $10 million was associated with unfavorable currency of $21 million, unfavorable product mix of $18 million, and the impact of the Duckyang deconsolidation of $2 million. Favorable manufacturing cost performance of $15 million, lower depreciation and amortization expense of $13 million and other reductions including customer recoveries of $9 million, were partial offsets. Favorable manufacturing cost performance was primarily driven by increases in cost recoveries and material and manufacturing efficiencies in excess of price productivity.
Selling, General and Administrative Expenses
Selling, general, and administrative expenses were $89 million and $95 million during the three-month periods ended September 30, 2012 and 2011, respectively. The decrease of $6 million was primarily due to lower compensation costs and favorable foreign currency, partially offset by higher professional fees, corporate office rent expense, and bad debt expense.
Interest Expense, Net
Interest expense for the three-month period ended September 30, 2012 of $17 million included $8 million on the 6.75% senior notes due April 15, 2019, $5 million related to the Korean Bridge Loan, and $4 million associated with affiliate debt, commitment fees and amortization of debt issuance costs. During the three-month period ended September 30, 2011, interest expense was $10 million, including $8 million on the 6.75% senior notes due April 15, 2019 and $2 million associated with affiliate debt, commitment fees and amortization of debt issuance costs. Interest income of $4 million for three months ended September 30, 2012 decreased by $1 million when compared to $5 million for the same period of 2011 due to lower average cash balances and rates.
Loss on Debt Extinguishment
Loss on debt extinguishment of $4 million for the three months ended September 30, 2012 was related to unamortized amounts attributable to the Korean Bridge Loan that was repaid during third quarter 2012.
Equity in Net Income of Non-consolidated Affiliates
Equity in the net income of non-consolidated affiliates totaled $38 million and $43 million for the three-month periods ended September 30, 2012 and 2011, respectively, representing a decrease of $5 million. The following table presents summarized financial data for the Company's non-consolidated affiliates. The amounts included in the table below represent 100% of the results of operations of such non-consolidated affiliates accounted for under the equity method.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
Gross Margin
|
|
Net Income
|
|
Three Months Ended September 30
|
|
Three Months Ended September 30
|
|
Three Months Ended September 30
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
|
(Dollars in Millions)
|
Yanfeng
|
$
|
1,582
|
|
|
$
|
740
|
|
|
$
|
257
|
|
|
$
|
125
|
|
|
$
|
62
|
|
|
$
|
68
|
|
All other
|
404
|
|
|
211
|
|
|
46
|
|
|
38
|
|
|
15
|
|
|
19
|
|
|
$
|
1,986
|
|
|
$
|
951
|
|
|
$
|
303
|
|
|
$
|
163
|
|
|
$
|
77
|
|
|
$
|
87
|
|
Yanfeng net sales and gross margin for the three months ended September 30, 2012 include approximately $726 million and $131 million, respectively, related to a former equity investee that was consolidated effective June 1, 2012. The increase in net sales for all other non-consolidated affiliates includes $163 million related to Duckyang.
Restructuring and Other (Income) / Expenses
Restructuring and other (income) / expenses consist of the following:
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30
|
|
2012
|
|
2011
|
|
(Dollars in Millions)
|
Restructuring expenses
|
$
|
2
|
|
|
$
|
1
|
|
Transformation costs
|
5
|
|
|
—
|
|
Bankruptcy-related costs
|
1
|
|
|
—
|
|
Gain on sale of joint venture interest
|
(19
|
)
|
|
—
|
|
|
$
|
(11
|
)
|
|
$
|
1
|
|
During the three-months ended September 30, 2012, the Company recorded $2 million of restructuring expenses associated with 15 voluntary employee separations associated with the Climate action announced in the fourth quarter of 2011.
The following is a summary of the Company's consolidated restructuring reserve and related activity for the three-month period ended September 30, 2012.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronics
|
|
Interiors
|
|
Climate
|
|
Total
|
|
(Dollars in Millions)
|
Restructuring reserve - June 30, 2012
|
$
|
1
|
|
|
$
|
7
|
|
|
$
|
1
|
|
|
$
|
9
|
|
Expenses
|
—
|
|
|
—
|
|
|
2
|
|
|
2
|
|
Utilization
|
—
|
|
|
(1
|
)
|
|
(2
|
)
|
|
(3
|
)
|
Restructuring reserve - September 30, 2012
|
$
|
1
|
|
|
$
|
6
|
|
|
$
|
1
|
|
|
$
|
8
|
|
Utilization of $3 million during the third quarter of 2012 represents payments of $2 million for employee severance and termination benefits related to the Climate action and $1 million reflecting consulting and legal costs related to previously announced restructuring actions. Given the economically-sensitive and highly competitive nature of the automotive industry, the Company continues to closely monitor current market factors and industry trends taking action as necessary, including but not limited to, additional restructuring actions. However, there can be no assurance that such actions will be sufficient to fully offset the impact of adverse factors on the Company or its results of operations, financial position and cash flows.
The Company continued its efforts to transform its business portfolio and to rationalize its cost structure including, among other things, the investigation of potential transactions for the sale, merger or other combination of certain businesses. Business transformation costs of $5 million incurred during the three-month period ended September 30, 2012 relates principally to financial and advisory fees.
In August 2012, Visteon sold its 50% ownership interest in R-Tek Ltd., a UK-based Interiors joint venture, for cash proceeds of approximately $30 million, resulting in a gain of $19 million.
Income Taxes
The Company's provision for income taxes of $33 million for the three-month period ended September 30, 2012 represents an increase of $8 million when compared with $25 million in the same period of 2011. The increase in tax expense reflects the non-recurrence of approximately $15 million in tax benefits related primarily to the release of valuation allowances in foreign subsidiaries and the release of reserves associated with unrecognized tax benefits as a result of audit closures. These increases in tax expense were partially offset by overall lower earnings in those countries where the Company is profitable, which includes the year-over-year impact of changes in the mix of earnings and differing tax rates between jurisdictions and other items.
Discontinued Operations
In connection with the Lighting Transaction, the results of operations of the Lighting business have been reclassified to “(Loss) income from discontinued operations, net of tax” in the Consolidated Statements of Comprehensive Income for the three-month periods ended September 30, 2012 and 2011, and are detailed as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30
|
|
2012
|
|
2011
|
|
(Dollars in Millions)
|
Sales
|
$
|
32
|
|
|
$
|
128
|
|
Cost of sales
|
28
|
|
|
119
|
|
Gross margin
|
4
|
|
|
9
|
|
Selling, general and administrative expenses
|
1
|
|
|
3
|
|
Asset impairments
|
6
|
|
|
—
|
|
Interest expense
|
1
|
|
|
—
|
|
Other expense
|
1
|
|
|
2
|
|
(Loss) income from discontinued operations before income taxes
|
(5
|
)
|
|
4
|
|
Provision for income taxes
|
—
|
|
|
—
|
|
(Loss) income from discontinued operations, net of tax
|
$
|
(5
|
)
|
|
$
|
4
|
|
On August 1, 2012, the Company completed the Lighting Transaction, excluding the Company's investment in VTYC, for proceeds of approximately
$70 million
, subject to purchase price adjustments. The Company recorded an asset impairment charge of $6 million for the three-month period ended September 30, 2012, representing the difference between the carrying value of the assets subject to sale and the sale proceeds.
Net Income
Net income attributable to Visteon was $15 million for the three-month period ended September 30, 2012 compared to a net income of $41 million for the same period of 2011, representing a decrease of $26 million. Adjusted EBITDA (as defined below) was $131 million for the three month period ended September 30, 2012, representing a decrease of $37 million when compared with Adjusted EBITDA of $168 million for the same period of 2011. The Company's Adjusted EBITDA decreased primarily due to unfavorable currency, unfavorable product volume, and price productivity in excess of material and manufacturing efficiencies.
Adjusted EBITDA is presented as a supplemental measure of the Company's financial performance that management believes is useful to investors because the excluded items may vary significantly in timing or amounts and/or may obscure trends useful
in evaluating and comparing the Company's operating activities across reporting periods. The Company defines Adjusted EBITDA as net income attributable to the Company, plus net interest expense, provision for income taxes and depreciation and amortization, as further adjusted to eliminate the impact of asset impairments, gains or losses on divestitures, net restructuring expenses and other reimbursable costs, certain employee charges and benefits, reorganization items and other non-operating gains and losses. Additionally, amounts below are inclusive of the Company's discontinued operations. Not all companies use identical calculations and, accordingly, the Company's presentation of Adjusted EBITDA may not be comparable to other similarly titled measures of other companies.
Adjusted EBITDA is not a recognized term under accounting principles generally accepted in the United States (“GAAP”) and does not purport to be a substitute for net income as an indicator of operating performance or cash flows from operating activities as a measure of liquidity. Adjusted EBITDA has limitations as an analytical tool and is not intended to be a measure of cash flow available for management's discretionary use, as it does not consider certain cash requirements such as interest payments, tax payments and debt service requirements. In addition, the Company uses Adjusted EBITDA (i) as a factor in incentive compensation decisions, (ii) to evaluate the effectiveness of the Company's business strategies and (iii) because the Company's credit agreements use measures similar to Adjusted EBITDA to measure compliance with certain covenants. Adjusted EBITDA, as determined and measured by the Company should not be compared to similarly titled measures reported by other companies. The reconciliation of Adjusted EBITDA to net income attributable to Visteon for the three month periods ended September 30, 2012 and 2011 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30
|
|
|
2012
|
|
2011
|
|
Change
|
|
|
(Dollars in Millions)
|
Adjusted EBITDA
|
|
$
|
131
|
|
|
$
|
168
|
|
|
$
|
(37
|
)
|
Depreciation and amortization
|
|
64
|
|
|
81
|
|
|
(17
|
)
|
Restructuring and other (income) expense
|
|
(11
|
)
|
|
1
|
|
|
(12
|
)
|
Interest expense, net
|
|
13
|
|
|
5
|
|
|
8
|
|
Provision for income taxes
|
|
33
|
|
|
25
|
|
|
8
|
|
Loss on debt extinguishment
|
|
4
|
|
|
—
|
|
|
4
|
|
Other non-operating costs, net
|
|
5
|
|
|
8
|
|
|
(3
|
)
|
Discontinued operations
|
|
8
|
|
|
7
|
|
|
1
|
|
Net income attributable to Visteon
|
|
$
|
15
|
|
|
$
|
41
|
|
|
$
|
(26
|
)
|
Segment Results of Operations - Three Months Ended September 30, 2012 and 2011
The Company's operating structure is organized by global product lines, including Climate, Electronics and Interiors. These global product lines have financial and operating responsibility over the design, development and manufacture of the Company's product portfolio. Global customer groups are responsible for the business development of the Company's product portfolio and overall customer relationships. Certain functions such as procurement, information technology and other administrative activities are managed on a global basis with regional deployment.
The Company's reportable segments are as follows:
|
|
•
|
Climate - The Company's Climate product line includes climate air handling modules, powertrain cooling modules, heat exchangers, compressors, fluid transport and engine induction systems.
|
|
|
•
|
Electronics - The Company's Electronics product line includes audio systems, infotainment systems, driver information systems, powertrain and feature control modules, climate controls, and electronic control modules.
|
|
|
•
|
Interiors - The Company's Interiors product line includes instrument panels, cockpit modules, door trim and floor consoles.
|
Sales by Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Climate
|
|
Electronics
|
|
Interiors
|
|
Eliminations
|
|
Total
|
|
(Dollars in Millions)
|
Three months ended September 30, 2011
|
$
|
1,003
|
|
|
$
|
338
|
|
|
$
|
606
|
|
|
$
|
(38
|
)
|
|
$
|
1,909
|
|
Volume and mix
|
92
|
|
|
(15
|
)
|
|
(59
|
)
|
|
15
|
|
|
33
|
|
Currency
|
(69
|
)
|
|
(21
|
)
|
|
(41
|
)
|
|
—
|
|
|
(131
|
)
|
Duckyang deconsolidation
|
—
|
|
|
—
|
|
|
(190
|
)
|
|
12
|
|
|
(178
|
)
|
Other
|
(2
|
)
|
|
(4
|
)
|
|
(3
|
)
|
|
—
|
|
|
(9
|
)
|
Three months ended September 30, 2012
|
$
|
1,024
|
|
|
$
|
298
|
|
|
$
|
313
|
|
|
$
|
(11
|
)
|
|
$
|
1,624
|
|
Climate sales increased during the three-month period ended September 30, 2012 by $21 million. Higher production volumes and net new business increased sales by $92 million, primarily attributable to Asia and North America. Unfavorable currency related to the Euro, Indian Rupee and Korean Won, resulted in a decrease of $69 million. Other changes, totaling $2 million, reflected price productivity, partially offset by increases in revenue related to commodity pricing and design actions.
Electronics sales decreased during the three-month period ended September 30, 2012 by $40 million. Customer sourcing actions and production volume declines lowered sales by $15 million, primarily reflecting weak European economic conditions. Unfavorable currency, primarily driven by the weakening of the Euro, further decreased sales by $21 million. Other changes, totaling $4 million, reflected price productivity, partially offset by increases in revenue related to commodity pricing and design actions.
Interiors sales decreased during the three-month period ended September 30, 2012 by $293 million. Sales decreased $190 million due to the deconsolidation of Duckyang, which resulted from the Company's sale of a controlling ownership interest in October 2011. Sales were further decreased by lower production volumes in Europe and South America of $28 million and $13 million, respectively. Unfavorable currency of $41, primarily related to the Euro and Brazilian Real of $25 million and $11 million, respectively, further reduced sales. Other changes decreased sales by $3 million including the impact of customer accommodation agreements and price productivity.
Cost of Sales by Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Climate
|
|
Electronics
|
|
Interiors
|
|
Eliminations
|
|
Total
|
|
(Dollars in Millions)
|
Three months ended September 30, 2011
|
$
|
925
|
|
|
$
|
308
|
|
|
$
|
575
|
|
|
$
|
(38
|
)
|
|
$
|
1,770
|
|
Material
|
(4
|
)
|
|
(19
|
)
|
|
(232
|
)
|
|
27
|
|
|
(228
|
)
|
Freight and duty
|
10
|
|
|
(4
|
)
|
|
(5
|
)
|
|
—
|
|
|
1
|
|
Labor and overhead
|
(4
|
)
|
|
(2
|
)
|
|
(29
|
)
|
|
—
|
|
|
(35
|
)
|
Depreciation and amortization
|
(9
|
)
|
|
(4
|
)
|
|
(3
|
)
|
|
—
|
|
|
(16
|
)
|
Other
|
17
|
|
|
—
|
|
|
(14
|
)
|
|
—
|
|
|
3
|
|
Three months ended September 30, 2012
|
$
|
935
|
|
|
$
|
279
|
|
|
$
|
292
|
|
|
$
|
(11
|
)
|
|
$
|
1,495
|
|
Climate material costs decreased $4 million, including $32 million related to design changes, purchasing improvements and other changes, partially offset by $28 million related to higher production volumes net of currency. Freight and duty increased $10 million, labor and overhead decreased $4, depreciation and amortization decreased $9 million while other costs including engineering, launch and other costs increased by $17 million.
Electronics material costs decreased $19 million, including $13 million related to lower production volumes net of currency and $6 million related to the impact of design changes, purchasing improvements, and other changes. Labor and overhead decreased $2 million and depreciation and amortization decreased $4 million.
Interiors material costs decreased $232 million, $176 million related to the deconsolidation of the Duckyang joint venture, $54 million related to lower production volumes net of currency and $2 million related to the impact of design changes, purchasing improvements, and other changes. Labor and overhead decreased $29 million, including $14 million related to the deconsolidation of the Duckyang joint venture, $18 million related to lower production volumes net of currency, while other costs increased $3 million. Depreciation and amortization decreased $3 million and other costs decreased $14 primarily due to customer cost recoveries for engineering, design and development.
Adjusted EBITDA by Segment
Effective April 1, 2012, the Company began utilizing Adjusted EBITDA as its primary measure for evaluating the performance of its global product lines. Adjusted EBITDA by global product line for the three months ended September 30, 2012 and 2011 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30
|
|
2012
|
|
2011
|
|
Change
|
|
(Dollars in Millions)
|
Climate
|
$
|
70
|
|
|
$
|
69
|
|
|
$
|
1
|
|
Electronics
|
13
|
|
|
33
|
|
|
(20
|
)
|
Interiors
|
45
|
|
|
55
|
|
|
(10
|
)
|
Discontinued operations
|
3
|
|
|
11
|
|
|
(8
|
)
|
Total consolidated
|
$
|
131
|
|
|
$
|
168
|
|
|
$
|
(37
|
)
|
Changes in Adjusted EBITDA by global product line are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Climate
|
|
Electronics
|
|
Interiors
|
|
Total
|
|
(Dollars in Millions)
|
Three months ended September 30, 2011
|
$
|
69
|
|
|
$
|
33
|
|
|
$
|
55
|
|
|
$
|
157
|
|
Volume and mix
|
7
|
|
|
(11
|
)
|
|
(14
|
)
|
|
(18
|
)
|
Currency
|
(4
|
)
|
|
(2
|
)
|
|
(9
|
)
|
|
(15
|
)
|
Other
|
(2
|
)
|
|
(7
|
)
|
|
13
|
|
|
4
|
|
Three months ended September 30, 2012
|
$
|
70
|
|
|
$
|
13
|
|
|
$
|
45
|
|
|
128
|
|
Discontinued operations
|
|
|
|
|
|
|
3
|
|
Total
|
|
|
|
|
|
|
$
|
131
|
|
Adjusted EBITDA for the three months ended September 30, 2012 decreased compared to the same period of 2011. The decrease resulted from lower production volume, unfavorable product mix and currency. Other increases include the net performance impact of design changes and purchasing improvements, offset by customer productivity, engineering, freight, launch and other costs.
Consolidated Results of Operations - Nine Months Ended September 30, 2012 and 2011
The Company's consolidated results of operations for the nine months ended September 30, 2012 and 2011 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30
|
|
2012
|
|
2011
|
|
Change
|
|
(Dollars in Millions)
|
Sales
|
$
|
5,034
|
|
|
$
|
5,805
|
|
|
$
|
(771
|
)
|
Cost of sales
|
4,643
|
|
|
5,331
|
|
|
(688
|
)
|
Gross margin
|
391
|
|
|
474
|
|
|
(83
|
)
|
Selling, general and administrative expenses
|
267
|
|
|
291
|
|
|
(24
|
)
|
Interest expense, net
|
28
|
|
|
21
|
|
|
7
|
|
Loss on debt extinguishment
|
4
|
|
|
24
|
|
|
(20
|
)
|
Equity in net income of non-consolidated affiliates
|
183
|
|
|
130
|
|
|
53
|
|
Restructuring and other expenses
|
63
|
|
|
29
|
|
|
34
|
|
Income before income taxes
|
212
|
|
|
239
|
|
|
(27
|
)
|
Provision for income taxes
|
102
|
|
|
87
|
|
|
15
|
|
Income from continuing operations
|
110
|
|
|
152
|
|
|
(42
|
)
|
(Loss) income from discontinued operations
|
(3
|
)
|
|
8
|
|
|
(11
|
)
|
Net income
|
107
|
|
|
160
|
|
|
(53
|
)
|
Net income attributable to non-controlling interests
|
46
|
|
|
54
|
|
|
(8
|
)
|
Net income attributable to Visteon
|
$
|
61
|
|
|
$
|
106
|
|
|
$
|
(45
|
)
|
Adjusted EBITDA*
|
$
|
432
|
|
|
$
|
531
|
|
|
$
|
(99
|
)
|
|
|
|
|
|
|
*
Adjusted EBITDA is a Non-GAAP financial measure, as further discussed
below.
|
Sales
Consolidated sales totaled $5,034 million for the nine-month period ended September 30, 2012, which represents a decrease of $771 million when compared to the same period of 2011. The deconsolidation of Duckyang resulted in a decrease of approximately $479 million and unfavorable currency, primarily attributable to the Euro, Korean Won and Indian Rupee, decreased sales by $272 million. Other reductions of $82 million were associated with price productivity net of design actions and commercial agreements. Higher net production volumes and favorable product mix increased sales by $62 million as volume increases and net new business in Asia and North America more than offset production volume declines in Europe and South America.
Gross Margin
The Company recorded gross margin of $391 million for the nine-month period ended September 30, 2012 compared to $474 million for the same period of 2011. The decrease in margin of $83 million was associated with unfavorable product mix of $54 million, unfavorable currency of $50 million, the Duckyang deconsolidation of $7, and unfavorable net cost performance of $3 million. Cost performance was primarily driven by price productivity and commercial agreements material and manufacturing efficiencies in excess of price productivity. Lower depreciation and amortization expenses on tangible and intangible assets improved margin by $31 million.
Selling, General and Administrative Expenses
Selling, general, and administrative expenses were $267 million and $291 million during the nine-month periods ended September 30, 2012 and 2011, respectively. The decrease was primarily due to reduced employee overhead costs and foreign currency, partially offset by increased corporate office rent expense, professional fees and the deconsolidation of the Duckyang joint venture.
Interest Expense, Net
Interest expense for the nine-month period ended September 30, 2012 of $39 million included $25 million associated with the 6.75% senior notes due April 15, 2019, $6 million associated with commitment fees and amortization of debt issuance costs, $5
million related to the Korean Bridge Loan, and $3 million related to affiliate debt. During the nine-month period ended September 30, 2011, interest expense was $37 million, including $17 million related to the 6.75% senior notes due April 15, 2019, $11 million related to the Company's $500 million secured term loan due October 1, 2017 (terminated in April 2011), $5 million on affiliate debt, and $4 million related to commitment fees and the amortization of debt issuance costs. Interest income of $11 million for the nine-month period ended September 30, 2012 decreased by $5 million when compared to $16 million for the same period of 2011 due to lower average cash balances and interest rates.
Loss on Debt Extinguishment
Loss on debt extinguishment decreased by $20 million to $4 million when compared to $24 million in the same period in 2011. Loss on debt extinguishment of $4 million for the nine months ended September 30, 2012 was related to unamortized amounts attributable to the Korean Bridge Loan that was repaid during third quarter 2012. Loss on debt extinguishment of $24 million for the nine months ended September 30, 2011 related to unamortized discount and debt issue costs associated with the Company's Term Loan which was repaid in conjunction with the April 6, 2011 sale of the 6.75% $500 million principal notes due April 15, 2019.
Equity in Net Income of Non-consolidated Affiliates
Equity in the net income of non-consolidated affiliates totaled $183 million and $130 million for the nine-month periods ended September 30, 2012 and 2011, respectively, representing an increase of $53 million. Equity earnings for the nine months ended September 30, 2012 included $63 million representing Visteon's equity interest in a non-cash gain recorded by Yanfeng resulting from the excess of fair value over the carrying value of a former equity investee that was consolidated effective June 1, 2012. The following table presents summarized financial data for the Company's non-consolidated affiliates. The amounts included in the table below represent 100% of the results of operations of such non-consolidated affiliates accounted for under the equity method.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
Gross Margin
|
|
Net Income
|
|
Nine Months Ended September 30
|
|
Nine Months Ended September 30
|
|
Nine Months Ended September 30
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
|
(Dollars in Millions)
|
Yanfeng
|
$
|
3,366
|
|
|
$
|
2,199
|
|
|
$
|
557
|
|
|
$
|
362
|
|
|
$
|
319
|
|
|
$
|
200
|
|
All other
|
1,284
|
|
|
603
|
|
|
140
|
|
|
108
|
|
|
59
|
|
|
60
|
|
|
$
|
4,650
|
|
|
$
|
2,802
|
|
|
$
|
697
|
|
|
$
|
470
|
|
|
$
|
378
|
|
|
$
|
260
|
|
Yanfeng sales and gross margin for the nine months ended September 30, 2012 include approximately $927 million and $171 million, respectively, related to post-consolidation activity of the aforementioned former equity investee that was consolidated effective June 1, 2012. Yanfeng net income includes approximately $130 million associated with a non-cash gain on the consolidation of a former equity investee. The increase in sales for all other non-consolidated affiliates includes $571 million related to Duckyang.
Restructuring and Other (Income) / Expenses
Restructuring and other expenses consist of the following:
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30
|
|
2012
|
|
2011
|
|
(Dollars in Millions)
|
Restructuring expenses
|
$
|
44
|
|
|
$
|
18
|
|
Loss on asset contribution
|
14
|
|
|
—
|
|
Transformation costs
|
23
|
|
|
3
|
|
Bankruptcy-related costs
|
1
|
|
|
8
|
|
Gain on sale of joint venture interest
|
(19
|
)
|
|
—
|
|
|
$
|
63
|
|
|
$
|
29
|
|
During the nine-month period ended September 30, 2012, the Company recorded $44 million of restructuring expenses, including $36 million recorded in connection with the previously announced closure of the Cadiz Electronics operation in El Puerto de Santa Maria, Spain. Additionally, the Company agreed to transfer land, building and machinery with a net book value of approximately $14 million for the benefit of the employees. The Company also recorded approximately $7 million for employee severance and termination benefits during the nine-month period ended September 30, 2012 including $3 million associated with the separation of approximately 250 employees at a South American Interiors facility and $4 million associated with 70 voluntary employee separations associated with the Climate action announced in the fourth quarter of 2011.
During the nine-month period ended September 30, 2011, the Company recorded $27 million of restructuring expenses, including $22 million for severance and termination benefits related to the announced closure of the Company's Cadiz Electronics operation and $5 million for employee severance and termination benefits associated with previously announced actions at two European Interiors facilities. Additionally, the Company reversed approximately $9 million of previously established accruals, including $7 million for employee severance and termination benefits at a European Interiors facility pursuant to a March 2011 contractual agreement to cancel the related social plan and an additional $2 million for employee and severance and termination benefits at a South American Electronics facility.
The following is a summary of the Company's consolidated restructuring reserves and related activity for the nine-month period ended September 30, 2012.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronics
|
|
Interiors
|
|
Climate
|
|
Total
|
|
(Dollars in Millions)
|
Restructuring reserve - December 31, 2011
|
$
|
19
|
|
|
$
|
6
|
|
|
$
|
1
|
|
|
$
|
26
|
|
Expenses
|
36
|
|
|
4
|
|
|
4
|
|
|
44
|
|
Utilization
|
(54
|
)
|
|
(4
|
)
|
|
(4
|
)
|
|
(62
|
)
|
Restructuring reserve - September 30, 2012
|
$
|
1
|
|
|
$
|
6
|
|
|
$
|
1
|
|
|
$
|
8
|
|
Utilization of $62 million during the first nine months of 2012 represents payments of $55 million for employee severance and termination benefits, $4 million in connection with the asset contribution for the Cadiz exit, and $3 million reflecting lease termination, consulting, and legal costs related to previously announced restructuring actions. Given the economically-sensitive and highly competitive nature of the automotive industry, the Company continues to closely monitor current market factors and industry trends taking action as necessary, including but not limited to, additional restructuring actions. However, there can be no assurance that such actions will be sufficient to fully offset the impact of adverse factors on the Company or its results of operations, financial position and cash flows.
The Company continued its efforts to transform its business portfolio and to rationalize its cost structure including, among other things, the investigation of potential transactions for the sale, merger or other combination of certain businesses. Business transformation costs of $23 million and $3 million incurred during the nine-month periods ended September 30, 2012 and 2011, respectively, relate principally to financial and advisory fees. The Company recorded bankruptcy-related costs of $1 million and $8 million for the nine-month periods ended September 30, 2012 and September 30, 2011, respectively, which are comprised of amounts directly associated with the bankruptcy claims settlement process under Chapter 11.
In August 2012, Visteon sold its 50% ownership interest in R-Tek Ltd., a UK-based Interiors joint venture, for cash proceeds of approximately $30 million, resulting in a gain of $19 million.
Income Taxes
The Company's provision for income taxes of $102 million for the nine-month period ended September 30, 2012 represents an increase of $15 million when compared with $87 million in the same period of 2011. The increase in tax expense reflects the non-recurrence of approximately $20 million in tax benefits related primarily to the release of valuation allowances in foreign subsidiaries and the release of reserves associated with unrecognized tax benefits as a result of audit closures. Additionally, the increase includes $6 million of deferred tax expense related to Visteon's equity interest in a non-cash equity investment gain recorded by Yanfeng, a 50% owned non-consolidated affiliate of the Company and other items. These increases in tax expense were partially offset by overall lower earnings in those countries where the Company is profitable, which includes the year-over-year impact of changes in the mix of earnings and differing tax rates between jurisdictions.
Discontinued Operations
In connection with the Lighting Transaction, the results of operations of the Lighting business have been reclassified to “(Loss) income from discontinued operations, net of tax” in the Consolidated Statements of Comprehensive Income for the nine-month periods ended September 30, 2012 and 2011, and are detailed as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30
|
|
|
2012
|
|
2011
|
|
|
(Dollars in Millions)
|
Sales
|
|
$
|
297
|
|
|
$
|
383
|
|
Cost of sales
|
|
264
|
|
|
363
|
|
Gross margin
|
|
33
|
|
|
20
|
|
Selling, general and administrative expenses
|
|
7
|
|
|
9
|
|
Asset impairments
|
|
19
|
|
|
—
|
|
Interest expense
|
|
2
|
|
|
1
|
|
Other expenses
|
|
4
|
|
|
2
|
|
Income from discontinued operations before income taxes
|
|
1
|
|
|
8
|
|
Provision for income taxes
|
|
4
|
|
|
—
|
|
(Loss) income from discontinued operations, net of tax
|
|
$
|
(3
|
)
|
|
$
|
8
|
|
On August 1, 2012, the Company completed the Lighting Transaction, excluding the Company's investment in VTYC, for proceeds of approximately
$70 million
. The Company recorded an asset impairment charge of $19 million for the nine-month period ended September 30, 2012, representing the difference between the carrying value of the assets subject to sale and the sale proceeds.
Included in the provision for income taxes for the nine-month period ended September 30, 2012 is $4 million related to the establishment of a valuation allowance against certain deferred tax credits in Mexico, the realization of which is no longer considered more likely than not due to insufficient projected future taxable income.
Net Income
Net income attributable to Visteon was $61 million for the nine-month period ended September 30, 2012 compared to $106 million for the same period of 2011, representing a decrease of $45 million. Net income attributable to Visteon for the nine months ended September 30, 2012 included $63 million of increased equity in the net income of non-consolidated affiliates resulting from a non-cash gain at Yanfeng. Adjusted EBITDA (as defined below) was $432 million for the nine-month period ended September 30, 2012, representing a decrease of $99 million when compared with Adjusted EBITDA of $531 million for the same period of 2011. The Company's Adjusted EBITDA decreased in the nine-month period of 2012 as compared with 2011 primarily due to foreign currency impacts of the Euro and Indian Rupee and European production volume declines.
Adjusted EBITDA is presented as a supplemental measure of the Company's financial performance that management believes is useful to investors because the excluded items may vary significantly in timing or amounts and/or may obscure trends useful in evaluating and comparing the Company's operating activities across reporting periods. The Company defines Adjusted EBITDA as net income attributable to the Company, plus net interest expense, provision for income taxes and depreciation and amortization, as further adjusted to eliminate the impact of asset impairments, gains or losses on divestitures, net restructuring expenses and other reimbursable costs, certain employee charges and benefits, reorganization items and other non-operating gains and losses. Additionally, amounts below are inclusive of the Company's discontinued operations. Not all companies use identical calculations and, accordingly, the Company's presentation of Adjusted EBITDA may not be comparable to other similarly titled measures of other companies.
Adjusted EBITDA is not a recognized term under accounting principles generally accepted in the United States (“GAAP”) and does not purport to be a substitute for net income as an indicator of operating performance or cash flows from operating activities as a measure of liquidity. Adjusted EBITDA has limitations as an analytical tool and is not intended to be a measure of cash flow available for management's discretionary use, as it does not consider certain cash requirements such as interest payments, tax payments and debt service requirements. In addition, the Company uses Adjusted EBITDA (i) as a factor in incentive compensation decisions, (ii) to evaluate the effectiveness of the Company's business strategies and (iii) because the Company's credit agreements use measures similar to Adjusted EBITDA to measure compliance with certain covenants. Adjusted EBITDA, as determined and measured by the Company should not be compared to similarly titled measures reported by other companies.
The reconciliation of Adjusted EBITDA to net income attributable to Visteon for the nine-month periods ended September 30, 2012 and 2011 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30
|
|
|
2012
|
|
2011
|
|
Change
|
|
|
(Dollars in Millions)
|
Adjusted EBITDA
|
|
$
|
432
|
|
|
$
|
531
|
|
|
$
|
(99
|
)
|
Depreciation and amortization
|
|
195
|
|
|
232
|
|
|
(37
|
)
|
Restructuring and other expenses
|
|
63
|
|
|
29
|
|
|
34
|
|
Equity investment gain
|
|
(63
|
)
|
|
—
|
|
|
(63
|
)
|
Interest expense, net
|
|
28
|
|
|
21
|
|
|
7
|
|
Provision for income taxes
|
|
102
|
|
|
87
|
|
|
15
|
|
Loss on debt extinguishment
|
|
4
|
|
|
24
|
|
|
(20
|
)
|
Other non-operating costs, net
|
|
12
|
|
|
13
|
|
|
(1
|
)
|
Discontinued operations
|
|
30
|
|
|
19
|
|
|
11
|
|
Net income attributable to Visteon
|
|
$
|
61
|
|
|
$
|
106
|
|
|
$
|
(45
|
)
|
Segment Results of Operations - Nine Months Ended September 30, 2012 and 2011
The Company's operating structure is organized by global product lines, including: Climate, Electronics and Interiors. These global product lines have financial and operating responsibility over the design, development and manufacture of the Company's product portfolio. Global customer groups are responsible for the business development of the Company's product portfolio and overall customer relationships. Certain functions such as procurement, information technology and other administrative activities are managed on a global basis with regional deployment. The Company's reportable segments are as follows:
|
|
•
|
Climate - The Company's Climate product line includes climate air handling modules, powertrain cooling modules, heat exchangers, compressors, fluid transport and engine induction systems.
|
|
|
•
|
Electronics - The Company's Electronics product line includes audio systems, infotainment systems, driver information systems, powertrain and feature control modules, climate controls, and electronic control modules.
|
|
|
•
|
Interiors - The Company's Interiors product line includes instrument panels, cockpit modules, door trim and floor consoles.
|
Sales by Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Climate
|
|
Electronics
|
|
Interiors
|
|
Eliminations
|
|
Total
|
|
(Dollars in Millions)
|
Nine months ended September 30, 2011
|
$
|
3,040
|
|
|
$
|
1,047
|
|
|
$
|
1,854
|
|
|
$
|
(136
|
)
|
|
$
|
5,805
|
|
Volume and mix
|
256
|
|
|
(72
|
)
|
|
(155
|
)
|
|
33
|
|
|
62
|
|
Currency
|
(138
|
)
|
|
(44
|
)
|
|
(90
|
)
|
|
—
|
|
|
(272
|
)
|
Duckyang deconsolidation
|
—
|
|
|
—
|
|
|
(515
|
)
|
|
36
|
|
|
(479
|
)
|
Other
|
(46
|
)
|
|
(12
|
)
|
|
(24
|
)
|
|
—
|
|
|
(82
|
)
|
Nine months ended September 30, 2012
|
$
|
3,112
|
|
|
$
|
919
|
|
|
$
|
1,070
|
|
|
$
|
(67
|
)
|
|
$
|
5,034
|
|
Climate sales increased during the nine-month period ended September 30, 2012 by $72 million. Higher production volumes and net new business, primarily in Asia and North America, increased sales by $256 million. Unfavorable currency, primarily related to the Euro and Korean Won resulted in a decrease of $138 million. Other changes decreased sales by $46 million and reflected price productivity, partially offset by increases in revenue related to commodity pricing and design actions.
Electronics sales decreased during the nine-month period ended September 30, 2012 by $128 million. Customer sourcing actions and production volume declines reflecting weakened economic conditions in Europe decreased sales by $72 million. Unfavorable currency, primarily related to the Euro, further decreased sales by $44 million. Other changes, totaling $12 million, reflected price productivity, partially offset by increases in revenue related to commodity pricing and design actions.
Interiors sales decreased during the nine-month period ended September 30, 2012 by $784 million. Sales decreased due to the deconsolidation of Duckyang by $515 million. Lower production volumes in Europe and South America of $93 million and $40 million, respectively, further reduced sales. Unfavorable currency related to the Euro and Brazilian Real decreased sales $84 million. Other reductions, totaling $24 million, include $13 million from a 2011 customer settlement agreement in South America, customer accommodation agreements and price productivity, partially offset by increases in revenue related to commodity pricing and design actions.
Cost of Sales by Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Climate
|
|
Electronics
|
|
Interiors
|
|
Eliminations
|
|
Total
|
|
(Dollars in Millions)
|
Nine months ended September 30, 2011
|
$
|
2,784
|
|
|
$
|
943
|
|
|
$
|
1,740
|
|
|
$
|
(136
|
)
|
|
$
|
5,331
|
|
Material
|
47
|
|
|
(53
|
)
|
|
(609
|
)
|
|
69
|
|
|
(546
|
)
|
Freight and duty
|
10
|
|
|
(8
|
)
|
|
(13
|
)
|
|
—
|
|
|
(11
|
)
|
Labor and overhead
|
(1
|
)
|
|
(26
|
)
|
|
(81
|
)
|
|
—
|
|
|
(108
|
)
|
Depreciation and amortization
|
(20
|
)
|
|
(10
|
)
|
|
(8
|
)
|
|
—
|
|
|
(38
|
)
|
Other
|
33
|
|
|
(3
|
)
|
|
(15
|
)
|
|
—
|
|
|
15
|
|
Nine months ended September 30, 2012
|
$
|
2,853
|
|
|
$
|
843
|
|
|
$
|
1,014
|
|
|
$
|
(67
|
)
|
|
$
|
4,643
|
|
Climate material costs increased $47 million, including $107 million related to higher production volumes net of currency partially offset by $60 million related to design changes, purchasing improvements, and other changes. Depreciation and amortization decreased $20 million while freight increased $10 million and launch, engineering and other expenses increased by $33 million.
Electronics material costs decreased $53 million, including $38 million related to lower production volumes net of currency and $15 million related to the impact of design changes, purchasing improvements, and other changes. Labor and overhead decreased $26 million, including $21 million related to lower production volumes net of currency. Depreciation and amortization decreased $10 million while other manufacturing expense was lower by $3 million.
Interiors material costs decreased $609 million, including $472 million related to the deconsolidation of Duckyang, $127 million related to lower production volumes net of currency and $10 million related to the impact of design changes, purchasing improvements, and other changes. Labor and overhead decreased $81 million, including $36 million related to the deconsolidation of Duckyang and $45 million related to lower production volumes net of currency and other changes. Freight decreased $13 million and depreciation and amortization decreased $8 million while other costs decreased $15 million primarily due to customer cost recoveries for engineering, design and development.
Adjusted EBITDA by Segment
Effective April 1, 2012, the Company began utilizing Adjusted EBITDA as its primary measure for evaluating the performance of its global product lines. Adjusted EBITDA by global product line for the nine months ended September 30, 2012 and 2011 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30
|
|
2012
|
|
2011
|
|
Change
|
|
(Dollars in Millions)
|
Climate
|
$
|
216
|
|
|
$
|
228
|
|
|
$
|
(12
|
)
|
Electronics
|
58
|
|
|
96
|
|
|
(38
|
)
|
Interiors
|
131
|
|
|
180
|
|
|
(49
|
)
|
Discontinued operations
|
27
|
|
|
27
|
|
|
—
|
|
Total consolidated
|
$
|
432
|
|
|
$
|
531
|
|
|
$
|
(99
|
)
|
Changes in Adjusted EBITDA by global product line are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Climate
|
|
Electronics
|
|
Interiors
|
|
Total
|
|
(Dollars in Millions)
|
Nine months ended September 30, 2011
|
$
|
228
|
|
|
$
|
96
|
|
|
$
|
180
|
|
|
$
|
504
|
|
Volume and mix
|
17
|
|
|
(28
|
)
|
|
(43
|
)
|
|
(54
|
)
|
Currency
|
(18
|
)
|
|
(8
|
)
|
|
(14
|
)
|
|
(40
|
)
|
Other
|
(11
|
)
|
|
(2
|
)
|
|
8
|
|
|
(5
|
)
|
Nine months ended September 30, 2012
|
$
|
216
|
|
|
$
|
58
|
|
|
$
|
131
|
|
|
405
|
|
Discontinued operations
|
|
|
|
|
|
|
27
|
|
Total
|
|
|
|
|
|
|
$
|
432
|
|
Adjusted EBITDA for the nine months ended September 30, 2012 decreased compared to the same period of 2011. The decrease resulted from lower production volumes, unfavorable product mix and currency. Other decreases include the net performance impact of design changes and purchasing improvements, more than offset by customer productivity, freight, launch, engineering, and other costs.
Liquidity
Overview
The Company's primary liquidity needs are related to the funding of general business requirements, including working capital requirements, capital expenditures, debt service, employee retirement benefits and restructuring actions. The Company funds its liquidity needs with cash flows from operating activities, a substantial portion of which is generated by the Company's international subsidiaries. Accordingly, the Company utilizes a combination of cash repatriation strategies, including dividends, royalties, intercompany loan repayments and other distributions and advances to provide the funds necessary to meet obligations globally. The Company's ability to access funds from its subsidiaries using these repatriation strategies is subject to, among other things, customary regulatory and statutory requirements and contractual arrangements including joint venture agreements and local debt agreements. Additionally, such repatriation strategies may be adjusted or modified as the Company continues to, among other things, rationalize its business portfolio and cost structure. As of September 30, 2012, the Company had total cash balances of $920 million, including restricted cash of $19 million. Cash balances totaling $549 million were located in jurisdictions outside of the United States, of which, approximately $160 million is considered permanently reinvested for funding ongoing operations outside of the U.S. If such permanently reinvested funds are needed for operations in the U.S. or in other jurisdictions, the Company would be required to accrue additional tax expense, primarily related to foreign withholding taxes.
The Company's ability to fund its liquidity needs is dependent on the level, variability and timing of its customers' worldwide vehicle production, which may be adversely affected by many factors including, but not limited to, general economic conditions, specific industry conditions, financial markets, competitive factors and legislative and regulatory changes. During the first nine months of 2012, economic conditions in Europe continued to be adversely impacted by sovereign debt issues and economic growth in China remained slower than recent historical growth rates. Accordingly, the Company continues to closely monitor the macroeconomic environment and its impact on vehicle production volumes in relation to the Company's specific cash needs. Further, the Company's intra-year needs are impacted by seasonal effects in the industry, such as mid-year shutdowns, the subsequent ramp-up of new model production and the additional year-end shutdowns by primary customers.
To the extent that the Company's liquidity needs exceed cash provided by its operating activities, the Company would look to cash balances on hand; cash available through existing financing vehicles such as the Company's $175 million asset-based revolving loan credit facility, subject to a borrowing base which may be impacted by potential sale agreements and of which none was outstanding as of September 30, 2012; the sale of businesses or other assets as permitted under the credit agreements; affiliate working capital lines of credit of which the Company had approximately $193 million available as of September 30, 2012, and other contractual arrangements; and then to potential additional capital through the debt or equity markets. Access to these markets is influenced by the Company's credit ratings. On July 5, 2012, following the Company's announcement of the Korean tender offer, Moody's and S&P reaffirmed Visteon's corporate ratings, although Moody's changed the 2019 unsecured bond B2 rating outlook to negative. At September 30, 2012, Visteon's corporate credit ratings were B1 and B+ by Moody's and S&P, respectively, both with a stable outlook.
On July 3, 2012, Visteon amended its revolving loan credit agreement to, among other things, reduce the aggregate lending commitment to $175 million, permit the Korean Bridge Loan, and modify certain covenants. The Company also amended the
revolving loan credit agreement on April 3, 2012 to permit the sale and leaseback of the Company's corporate headquarters and the Lighting Transaction. As of September 30, 2012 the Company had no outstanding borrowings or letter of credit obligations under its revolving loan credit agreement with $156 million available for borrowing. Future borrowing base capacity under the facility may be impacted by the sale of assets.
Business divestiture and asset sale transactions have provided approximately $188 million in net cash proceeds during 2012. In September 2012, the Company sold the corporate airplane for approximately $8 million in proceeds. On August 31, 2012, Visteon completed the sale of its 50% ownership interest in R-Tek Ltd., a UK-based Interiors joint venture, for proceeds of approximately $30 million. On August 1, 2012, the Company completed the Lighting Transaction, excluding the Company's investment in VTYC, for proceeds of approximately $70 million. In April 2012, the Company completed a sale and leaseback transaction associated with the Grace Lake Corporate Center, which is located in Van Buren Township, Michigan for approximately $80 million in cash. In September 2012, the Company announced a shareholder value creation strategy that may result in additional business divestiture and asset sale transactions in the future. Cash proceeds in excess of amounts deemed necessary for operating liquidity and ongoing business investment, if any, resulting from such potential future transactions would be evaluated for various uses including, but not limited to, addressing the Company's capital structure and pension liabilities.
Other
On July 30, 2012, Visteon's board of directors authorized the repurchase of up to $100 million of the Company's common stock over the subsequent two year period. The Company anticipates that repurchases of common stock, if any, would occur from time to time in open market transactions or in privately negotiated transactions depending on market and economic conditions, share price, trading volume, alternative uses of capital and other factors. As of September 30, 2012, no stock had been repurchased.
In June 2012, the Korean tax authorities commenced a review of Visteon's controlled subsidiary, Halla Climate Control Corporation ("Halla") for the tax years 2007 through 2011. In October 2012, the tax authorities issued a pre-assessment of approximately $18 million for alleged underpayment of withholding tax on dividends paid and other items, including certain management service fees charged by Visteon Corporation. The Company is considering potential next steps if the pre-assessment becomes finalized, including filing an appeal with the Korean Tax Tribunal. Pursuant to the Korean tax rules, it is possible a payment of the final assessment will need to be made in full in the fourth quarter of 2012 to pursue the appeals process. The Company believes it is more likely than not it will receive a favorable ruling when all of the available appeals have been exhausted.
In January 2012, the Company contributed approximately 1.5 million shares of its common stock valued at approximately $73 million into its two largest U.S. defined benefit pension plans. This share contribution substantially reduces the Company's future cash pension funding requirements for 2012 and 2013. As of September 30, 2012, all shares previously contributed to the plans had been sold, with an average share price of approximately $44.
Cash Flows
Operating Activities
Cash provided from operating activities increased $108 million during the nine-month period ended September 30, 2012 to $163 million, compared with $55 million for the same period in 2011. The increase is primarily due to improved net trade working capital flows, lower bankruptcy related payments, lower pension payments, and lower receivables from joint ventures, partially offset by lower net income, as adjusted for non-cash items.
Free Cash Flow is presented as a supplemental measure of the Company's liquidity that management believes is useful to investors in analyzing the Company's ability to service and repay its debt. The Company defines Free Cash Flow as cash flow from operating activities less capital expenditures. Not all companies use identical calculations, so this presentation of Free Cash Flow may not be comparable to other similarly titled measures of other companies. Free Cash Flow is not a recognized term under GAAP and does not purport to be a substitute for cash flows from operating activities as a measure of liquidity. Free Cash Flow has limitations as an analytical tool as it does not reflect cash used to service debt and does not reflect funds available for investment or other discretionary uses. In addition, the Company uses Free Cash Flow (i) as a factor in incentive compensation decisions and (ii) for planning and forecasting future periods. A reconciliation of Free Cash Flow to cash provided from operating activities is provided in the following table.
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
September 30
|
|
2012
|
|
2011
|
|
(Dollars in Millions)
|
Cash provided by operating activities
|
$
|
163
|
|
|
$
|
55
|
|
Capital expenditures
|
(146
|
)
|
|
(185
|
)
|
Free Cash Flow
|
$
|
17
|
|
|
$
|
(130
|
)
|
Investing Activities
Cash provided from investing activities during the nine-month period ended September 30, 2012 was $40 million, compared to a use of $187 million for the same period in 2011 - for a net change of $227 million. Investing cash activities during the nine-month period ended September 30, 2012 included approximately $100 million of proceeds from the Lighting and R-Tek divestitures and $88 million of proceeds from asset sales primarily related to the Company's corporate headquarters, which partially offset capital spending of $146 million.
Financing Activities
Cash used by financing activities increased $27 million during the nine-month period ended September 30, 2012 to $33 million, compared with $6 million for the same period in 2011. The $33 million used by financing activities during the nine-month period ended September 30, 2012 included dividends paid to non-controlling interests, repayment of Lighting related term debt in Asia Pacific in connection with the Lighting divestiture, and the Korean Bridge Loan draw down net of fees and subsequent repayment in connection with the cash tender offer for the outstanding shares of Halla. Financing activities during the nine-month period ended September 30, 2011 included the termination and payoff of the existing $498 million term loan, settlement of reorganization related professional fees, and dividends paid to non-controlling interests, partially offset by issuance of $500 million in senior notes, a reduction in restricted cash related to the disbursement of previously escrowed funds to settle reorganization related rights offering and other financing fees, and an increase in affiliate debt.
Debt and Capital Structure
In connection with the July 4, 2012 tender offer to purchase the remaining 30 percent of Halla, Visteon, through its wholly-owned Korean subsidiary Visteon Korea Holdings Corp., entered into a fully committed Korean debt facility of 1 trillion Korean Won ("KRW") or $
881 million
(the "Bridge Loan"), under which, Visteon Korea Holdings Corp. borrowed 925 billion KRW or $815 million. The Bridge Loan was secured by a pledge of all of the shares of capital stock of Halla owned directly or indirectly by Visteon. On July 3, 2012, the Company entered into an amendment to the revolving loan credit agreement, to among other things, permit the the Bridge Loan and to reduce the aggregate lending commitment to $175 million reflecting the anticipation of the Lighting Transaction and sale of the Company's corporate headquarters.
On July 30, 2012, Visteon Korea Holdings Corp. repaid approximately 910 billion KRW or $800 million of previously borrowed amounts under the Bridge Loan and amended the Bridge Loan to provide, among other things, for the ability to make additional borrowings at a future date in exchange for the payment of a commitment fee of 0.5 percent per annum (the "Amended Bridge Loan"). Interest on the Amended Bridge Loan was based on the average yield rate quoted by certain bond pricing agencies in respect of KRW denominated non-guaranteed bank debentures with a remaining maturity of one year, plus an annual margin of
3.00 percent
. On August 24, 2012, Visteon Korea Holdings Corp. permanently reduced the available commitments under the Amended Bridge Loan and completed repayment of all outstanding loan amounts on August 28, 2012 as was allowed without penalty after following certain advance notice and other procedures. The Company incurred debt extinguishment costs of approximately $4 million and interest of $5 million during the three and nine months ended September 30, 2012 in connection with this financing arrangement.
Other information related to the Company's debt is set forth in Note 10, "Debt", to the consolidated financial statements included herein under Item 1. For additional information, refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2011 for specific debt agreements and additional information related to covenants and restrictions.
Off-Balance Sheet Arrangements
On September 27, 2011, the Company extended its $15 million Letters of Credit ("LOC") Facility with US Bank National
Association through September 30, 2013. The Company must continue to maintain a collateral account with U.S. Bank equal to 103% of the aggregated stated amount of the LOCs with reimbursement for any draws. As of September 30, 2012, the Company had $9 million of outstanding letters of credit issued under this facility and secured by restricted cash. In addition, the Company had $13 million of locally issued letters of credit to support various customs arrangements and other obligations at its local affiliates of which $8 million are secured by cash collateral.
The Company has guaranteed approximately $37 million for subsidiary lease payments under various arrangements generally spanning between one to ten years in duration, and approximately $6 million for affiliate credit lines and other credit support agreements. During January 2009, the Company reached an agreement with the PBGC pursuant to U.S. federal pension law provisions that permit the agency to seek protection when a plant closing results in termination of employment for more than 20 percent of employees covered by a pension plan. In connection with this agreement, the Company agreed to provide a guarantee by certain affiliates of certain contingent pension obligations of up to $30 million, the term of this guarantee is dependent upon certain contingent events as set forth in the PBGC Agreement. These guarantees have not, nor does the Company expect they are reasonably likely to have, a material current or future effect on the Company’s financial position, results of operations or cash flows.
Fair Value Measurements
The Company uses fair value measurements in the preparation of its financial statements, which utilize various inputs including those that can be readily observable, corroborated or generally unobservable. The Company utilizes market-based data and valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Additionally, the Company applies assumptions that market participants would use in pricing an asset or liability, including assumptions about risk. The primary financial instruments that are recorded at fair value in the Company's financial statements are derivative instruments.
The Company's use of derivative instruments creates exposure to credit loss in the event of nonperformance by the counterparty to the derivative financial instruments. The Company limits this exposure by entering into agreements directly with a variety of major financial institutions with high credit standards and that are expected to fully satisfy their obligations under the contracts. Fair value measurements related to derivative assets take into account the non-performance risk of the respective counterparty, while derivative liabilities take into account the non-performance risk of Visteon and its foreign affiliates. The hypothetical gain or loss from a 100 basis point change in non-performance risk would be less than $1 million for the fair value of foreign currency derivatives as of September 30, 2012.
Recent Accounting Pronouncements
See Note 1 “Basis of Presentation” to the accompanying consolidated financial statements under Item 1 “Financial Statements” of this Quarterly Report on Form 10-Q for a discussion of recent accounting pronouncements.
Forward-Looking Statements
Certain statements contained or incorporated in this Quarterly Report on Form 10-Q which are not statements of historical fact constitute “Forward-Looking Statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Reform Act”). Forward-looking statements give current expectations or forecasts of future events. Words such as “anticipate”, “expect”, “intend”, “plan”, “believe”, “seek”, “estimate” and other words and terms of similar meaning in connection with discussions of future operating or financial performance signify forward-looking statements. These statements reflect the Company’s current views with respect to future events and are based on assumptions and estimates, which are subject to risks and uncertainties including those discussed in Item 1A under the heading “Risk Factors” and elsewhere in this report. Accordingly, undue reliance should not be placed on these forward-looking statements. Also, these forward-looking statements represent the Company’s estimates and assumptions only as of the date of this report. The Company does not intend to update any of these forward-looking statements to reflect circumstances or events that occur after the statement is made and qualifies all of its forward-looking statements by these cautionary statements.
You should understand that various factors, in addition to those discussed elsewhere in this document, could affect the Company’s future results and could cause results to differ materially from those expressed in such forward-looking statements, including:
|
|
•
|
Visteon’s ability to satisfy its future capital and liquidity requirements; Visteon’s ability to access the credit and capital markets at the times and in the amounts needed and on terms acceptable to Visteon; Visteon’s ability to comply with covenants applicable to it; and the continuation of acceptable supplier payment terms.
|
|
|
•
|
Visteon’s ability to execute on its transformational plans and cost reduction initiatives in the amounts and on the timing
|
contemplated.
|
|
•
|
Visteon’s ability to satisfy its pension and other postretirement employee benefit obligations, and to retire outstanding debt and satisfy other contractual commitments, all at the levels and times planned by management.
|
|
|
•
|
Visteon’s ability to access funds generated by its foreign subsidiaries and joint ventures on a timely and cost effective basis.
|
|
|
•
|
Changes in the operations (including products, product planning and part sourcing), financial condition, results of operations or market share of Visteon’s customers.
|
|
|
•
|
Changes in vehicle production volume of Visteon’s customers in the markets where it operates, and in particular changes in Ford’s and Hyundai Kia’s vehicle production volumes and platform mix.
|
|
|
•
|
Increases in commodity costs or disruptions in the supply of commodities, including steel, resins, aluminum, copper, fuel and natural gas.
|
|
|
•
|
Visteon’s ability to generate cost savings to offset or exceed agreed upon price reductions or price reductions to win additional business and, in general, improve its operating performance; to achieve the benefits of its restructuring actions; and to recover engineering and tooling costs and capital investments.
|
|
|
•
|
Restrictions in labor contracts with unions that restrict Visteon’s ability to close plants, divest unprofitable, noncompetitive businesses, change local work rules and practices at a number of facilities and implement cost-saving measures.
|
|
|
•
|
The costs and timing of facility closures or dispositions, business or product realignments, or similar restructuring actions, including potential asset impairment or other charges related to the implementation of these actions or other adverse industry conditions and contingent liabilities.
|
|
|
•
|
Significant changes in the competitive environment in the major markets where Visteon procures materials, components or supplies or where its products are manufactured, distributed or sold.
|
|
|
•
|
Legal and administrative proceedings, investigations and claims, including shareholder class actions, inquiries by regulatory agencies, product liability, warranty, employee-related, environmental and safety claims and any recalls of products manufactured or sold by Visteon.
|
|
|
•
|
Changes in economic conditions, currency exchange rates, changes in foreign laws, regulations or trade policies or political stability in foreign countries where Visteon procures materials, components or supplies or where its products are manufactured, distributed or sold.
|
|
|
•
|
Shortages of materials or interruptions in transportation systems, labor strikes, work stoppages or other interruptions to or difficulties in the employment of labor in the major markets where Visteon purchases materials, components or supplies to manufacture its products or where its products are manufactured, distributed or sold.
|
|
|
•
|
Changes in laws, regulations, policies or other activities of governments, agencies and similar organizations, domestic and foreign, that may tax or otherwise increase the cost of, or otherwise affect, the manufacture, licensing, distribution, sale, ownership or use of Visteon’s products or assets.
|
|
|
•
|
Possible terrorist attacks or acts of war, which could exacerbate other risks such as slowed vehicle production, interruptions in the transportation system or fuel prices and supply.
|
|
|
•
|
The cyclical and seasonal nature of the automotive industry.
|
|
|
•
|
Visteon’s ability to comply with environmental, safety and other regulations applicable to it and any increase in the requirements, responsibilities and associated expenses and expenditures of these regulations.
|
|
|
•
|
Visteon’s ability to protect its intellectual property rights, and to respond to changes in technology and technological risks and to claims by others that Visteon infringes their intellectual property rights.
|
|
|
•
|
Visteon’s ability to quickly and adequately remediate control deficiencies in its internal control over financial reporting.
|
|
|
•
|
Other factors, risks and uncertainties detailed from time to time in Visteon’s Securities and Exchange Commission filings.
|