Visteon10Q Q1 2012




UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
________________
FORM 10-Q
(Mark One)
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2012, or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 1-15827
VISTEON CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
38-3519512
(State of incorporation)
(I.R.S. employer identification number)
One Village Center Drive, Van Buren Township, Michigan
48111
(Address of principal executive offices)
(Zip code)
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 ü No__
Indicate by check mark whether the registrant: has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ü No __
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer," "accelerated filer” and "smaller reporting company" in Rule 12b-2 of the Exchange Act. Large accelerated filer  ü  Accelerated filer  __   Non-accelerated filer __   Smaller reporting company  __
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes __ No ü
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ü No__
As of April 26, 2012, the registrant had outstanding 52,472,395 shares of common stock.
Exhibit index located on page number 41.





INDEX

 
 
 
 
 
 
 
 
 
 
 
 
 
 



Table of Contents

PART I
FINANCIAL INFORMATION

ITEM 1.
FINANCIAL STATEMENTS
VISTEON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited, Dollars in Millions Except Per Share Amounts)
 
Three Months Ended
 
March 31
 
2012
 
2011
 
 
 
 
Sales
$
1,717

 
$
1,850

Cost of sales
1,583

 
1,707

Gross margin
134

 
143

 
 
 
 
Selling, general and administrative expenses
91

 
96

Restructuring and other expenses
63

 
2

Operating (loss) income
(20
)
 
45

 
 
 
 
Interest expense
12

 
15

Interest income
3

 
6

Equity in net income of non-consolidated affiliates
42

 
44

Income from continuing operations before income taxes
13

 
80

 
 
 
 
Provision for income taxes
27

 
28

(Loss) income from continuing operations
(14
)
 
52

 
 
 
 
Income from discontinued operations, net of tax
3

 
4

Net (loss) income
(11
)
 
56

 
 
 
 
Net income attributable to non-controlling interests
18

 
17

Net (loss) income attributable to Visteon Corporation
$
(29
)
 
$
39

 
 
 
 
Basic (loss) earnings per share:
 
 
 
    Continuing operations
$
(0.62
)
 
$
0.69

    Discontinued operations
0.06

 
0.08

Basic (loss) earnings attributable to Visteon Corporation
$
(0.56
)
 
$
0.77

Diluted (loss) earnings per share:
 
 
 
    Continuing operations
$
(0.62
)
 
$
0.67

    Discontinued operations
0.06

 
0.08

Diluted (loss) earnings attributable to Visteon Corporation
$
(0.56
)
 
$
0.75

 
 
 
 
Comprehensive income:
 
 
 
Comprehensive income
$
36

 
$
119

Comprehensive income attributable to Visteon Corporation
$
11

 
$
92


See accompanying notes to the consolidated financial statements.

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Table of Contents

VISTEON CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited, Dollars in Millions)
 
March 31
 
 
December 31
 
2012
 
 
2011
 
 
ASSETS
Cash and equivalents
$
696

 
 
$
723

Restricted cash
25

 
 
23

Accounts receivable, net
1,191

 
 
1,063

Inventories, net
381

 
 
381

Other current assets
394

 
 
304

Total current assets
2,687

 
 
2,494

 
 
 
 
 
Property and equipment, net
1,384

 
 
1,412

Equity in net assets of non-consolidated affiliates
679

 
 
644

Intangible assets, net
340

 
 
353

Other non-current assets
68

 
 
66

Total assets
$
5,158

 
 
$
4,969

 
 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Short-term debt, including current portion of long-term debt
$
93

 
 
$
87

Accounts payable
1,155

 
 
1,010

Accrued employee liabilities
161

 
 
189

Other current liabilities
297

 
 
267

Total current liabilities
1,706

 
 
1,553

 
 
 
 
 
Long-term debt
503

 
 
512

Employee benefits
417

 
 
495

Deferred tax liabilities
196

 
 
187

Other non-current liabilities
245

 
 
225

 
 
 
 
 
Shareholders’ equity:
 
 
 
 
 Preferred stock (par value $0.01, 50 million shares authorized, none outstanding at March 31, 2012 and December 31, 2011)

 
 

 Common stock (par value $0.01, 250 million shares authorized, 53 million and 52 million shares issued, 53 million and 52 million shares outstanding at March 31, 2012 and December 31, 2011, respectively)
1

 
 
1

  Stock warrants
13

 
 
13

  Additional paid-in capital
1,243

 
 
1,165

  Retained earnings
137

 
 
166

  Accumulated other comprehensive income (loss)
15

 
 
(25
)
  Treasury stock
(11
)
 
 
(13
)
Total Visteon Corporation shareholders’ equity
1,398

 
 
1,307

Non-controlling interests
693

 
 
690

Total shareholders’ equity
2,091

 
 
1,997

Total liabilities and shareholders’ equity
$
5,158

 
 
$
4,969


See accompanying notes to the consolidated financial statements.

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Table of Contents

VISTEON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, Dollars in Millions)
 
Three Months Ended
 
March 31
 
2012
 
2011
Operating Activities
 
 
 
Net (loss) income
$
(11
)
 
$
56

Adjustments to reconcile net (loss) income to net cash provided from (used by) operating activities:
 
 
 
Depreciation and amortization
65

 
77

Equity in net income of non-consolidated affiliates, net of dividends remitted
(42
)
 
(44
)
Other non-cash items
25

 
10

Changes in assets and liabilities:
 
 
 
Accounts receivable
(102
)
 
(122
)
Inventories
(21
)
 
(41
)
Accounts payable
126

 
75

Other assets and other liabilities
(21
)
 
(61
)
Net cash provided from (used by) operating activities
19

 
(50
)
 
 
 
 
Investing Activities
 
 
 
Capital expenditures
(53
)
 
(55
)
Other

 
1

Net cash used by investing activities
(53
)
 
(54
)
 
 
 
 
Financing Activities
 
 
 
Short-term debt, net

 
3

Proceeds from issuance of debt, net of issuance costs
2

 

Principal payments on debt
(4
)
 
(3
)
Cash restriction, net

 
4

Other

 
5

Net cash (used by) provided from financing activities
(2
)
 
9

Effect of exchange rate changes on cash and equivalents
9

 
21

Net decrease in cash and equivalents
(27
)
 
(74
)
Cash and equivalents at beginning of period
723

 
905

Cash and equivalents at end of period
$
696

 
$
831


See accompanying notes to the consolidated financial statements.

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Table of Contents

VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. Basis of Presentation

Description of Business: Visteon Corporation (the “Company” or “Visteon”) is a supplier of climate, interiors and electronics systems, modules and components to global automotive original equipment manufacturers (“OEMs”). Headquartered in Van Buren Township, Michigan, Visteon has a workforce of approximately 25,000 employees and a network of manufacturing operations, technical centers and joint ventures in every major geographic region of the world.

Interim Financial Statements: The unaudited consolidated financial statements of the Company have been prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States ("GAAP") have been condensed or omitted pursuant to such rules and regulations. These interim consolidated financial statements include all adjustments (consisting of normal recurring adjustments, except as otherwise disclosed) that management believes are necessary for a fair presentation of the results of operations, financial position and cash flows of the Company for the interim periods presented. Interim results are not necessarily indicative of full-year results.

Use of Estimates: The preparation of the financial statements in conformity with GAAP requires management to make estimates, judgments and assumptions that affect amounts reported herein. Management believes that such estimates, judgments and assumptions are reasonable and appropriate. However, due to the inherent uncertainty involved, actual results may differ from those provided in the Company's consolidated financial statements.

Reclassifications: Certain prior period amounts have been reclassified to conform to current period presentation.

Principles of Consolidation: The consolidated financial statements include the accounts of the Company and all subsidiaries that are more than 50% owned and over which the Company exercises control. Investments in affiliates of greater than 20% and for which the Company exercises significant influence but does not exercise control are accounted for using the equity method.

Revenue Recognition: The Company records revenue when persuasive evidence of an arrangement exists, delivery occurs or services are rendered, the sales price is fixed or determinable and collectibility is reasonably assured. The Company ships product and records revenue pursuant to commercial agreements with its customers generally in the form of an approved purchase order, including the effects of contractual customer price productivity. The Company does negotiate discrete price changes with its customers, which are generally the result of unique commercial issues between the Company and its customers. The Company records amounts associated with discrete price changes as a reduction to revenue when specific facts and circumstances indicate that a price reduction is probable and the amounts are reasonably estimable. The Company records amounts associated with discrete price changes as an increase to revenue upon execution of a legally enforceable contractual agreement and when collectibility is reasonably assured.

Reorganization under Chapter 11 of the U.S. Bankruptcy Code: On May 28, 2009, Visteon and certain of its U.S. subsidiaries (the “Debtors”) filed voluntary petitions for reorganization relief under chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the District of Delaware (the “Court”) in response to sudden and severe declines in global automotive production during the latter part of 2008 and early 2009 and the resulting adverse impact on the Company’s cash flows and liquidity. On August 31, 2010, the Court entered an order confirming the Debtors’ joint plan of reorganization. On October 1, 2010 (the “Effective Date”), all conditions precedent to the effectiveness of the Plan and related documents were satisfied or waived and the Company emerged from bankruptcy. The Company adopted fresh-start accounting upon emergence from the Chapter 11 Proceedings and became a new entity for financial reporting purposes as of the Effective Date.

Restricted Cash: Restricted cash represents amounts designated for uses other than current operations and includes $11 million of collateral for the Letter of Credit Facility with US Bank National Association, and $14 million related to cash collateral for other corporate purposes at March 31, 2012.

New Accounting Pronouncements: In June 2011, the Financial Accounting Standards Board issued guidance amending comprehensive income disclosures retrospectively, for fiscal years, and interim reporting periods within those years, beginning after December 15, 2011. This guidance requires disclosures of all non-owner changes (components of comprehensive income) in stockholders’ equity to be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The Company adopted these new disclosure requirements with effect from January 1, 2012.


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Table of Contents

NOTE 2. Discontinued Operations

In March 2012, the Company entered into an agreement for the sale of certain assets and liabilities associated with the Company's Lighting operations to Varroccorp Holding BV and Varroc Engineering Pvt. Ltd. (together, "Varroc Group") for proceeds of approximately $92 million, including $20 million related to the Company's 50% equity interest in Visteon TYC Corporation (“VTYC”) (collectively the "Lighting Transaction"). The Company's Lighting operations manufacture front and rear lighting systems, auxiliary lamps and key subcomponents such as projectors and electronic modules through facilities located in Novy Jicin and Rychvald, Czech Republic, Monterrey, Mexico and Pune, India. The Company's Lighting business recorded sales for the year ended December 31, 2011 of $531 million.

The Company determined that assets and liabilities, excluding the Company's investment in VTYC, subject to the Lighting Transaction met the "held for sale" criteria during the quarterly period ended March 31, 2012. The held for sale Lighting assets and liabilities were revalued to the lower of carrying amount or fair value less cost to sell, which resulted in asset impairment charges of approximately $2 million. Additionally, the held for sale Lighting assets and liabilities were reclassified in the Consolidated Balance Sheets to "Other current assets" or "Other current liabilities," respectively, as the sale of such assets and liabilities is expected to close during the third quarter of 2012.

Assets and liabilities held for sale are summarized as follows:
 
 
March 31
 
 
 
March 31
Assets
 
2012
 
Liabilities
 
2012
 
 
(Dollars in Millions)
 
 
 
(Dollars in Millions)
Property and equipment, net
 
$
37

 
Employee liabilities
 
$
8

Inventories, net
 
29

 
Capital lease obligations
 
3

Definite-lived intangibles, net
 
5

 
 
 
$
11

Other assets
 
5

 
 
 
 
 
 
$
76

 
 
 
 

Further, because the Lighting operations represent a component of the Company's business, the results of operations of the Lighting business have been reclassified to “Income from discontinued operations, net of tax” in the Consolidated Statements of Comprehensive Income for the periods ended March 31, 2012 and 2011.

Discontinued operations are summarized as follows:
 
Three Months Ended March 31
 
2012
 
2011
 
(Dollars in Millions)
Sales
$
139

 
$
123

Cost of sales
123

 
117

Gross margin
16

 
6

Selling, general and administrative expenses
3

 
2

Asset impairments
2

 

Other expenses
2

 

Income from discontinued operations before income taxes
9

 
4

Provision for income taxes
6

 

Net income from discontinued operations attributable to Visteon Corporation
$
3

 
$
4




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Table of Contents

Note 3. Restructuring and Other Expenses

Restructuring and other expenses consist of the following:
 
Three Months Ended March 31
 
2012
 
2011
 
(Dollars in Millions)
Restructuring expenses
$
41

 
$
(2
)
Loss on asset contribution
14

 

Transformation costs
8

 
1

Bankruptcy related costs

 
3

 
$
63

 
$
2


Restructuring Activities

The Company has undertaken various restructuring activities to achieve its strategic and financial objectives. Restructuring activities include, but are not limited to, plant closures, production relocation, administrative cost structure realignment and consolidation of available capacity and resources. The Company expects to finance restructuring programs through cash on hand, cash generated from its ongoing operations, reimbursements pursuant to customer accommodation and support agreements or through cash available under its existing debt agreements, subject to the terms of applicable covenants. Restructuring costs are recorded as elements of a plan are finalized and the timing of activities and the amount of related costs are not likely to change. However, such costs are estimated based on information available at the time such charges are recorded. In general, management anticipates that restructuring activities will be completed within a time frame such that significant changes to the plan are not likely. Due to the inherent uncertainty involved in estimating restructuring expenses, actual amounts paid for such activities may differ from amounts initially estimated.

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 any 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.

Restructuring reserves of $14 million and $26 million at March 31, 2012 and December 31, 2011, respectively, are classified as other current liabilities on the consolidated balance sheets. The Company anticipates that the activities associated with these reserves will be substantially completed by the end of 2012. The following is a summary of the Company's consolidated restructuring reserves and related activity for the three months ended March 31, 2012.
 
Electronics
 
Interiors
 
Climate
 
Total
 
(Dollars in Millions)
December 31, 2011
$
19

 
$
6

 
$
1

 
$
26

  Expenses
36

 
4

 
1

 
41

  Utilization
(49
)
 
(3
)
 
(1
)
 
(53
)
March 31, 2012
$
6

 
$
7

 
$
1

 
$
14


During the first quarter of 2012, the Company recorded $41 million of restructuring expenses, including $36 million recorded in connection with the previously announced closure of the Company's Cadiz Electronics operation in El Puerto de Santa Maria, Spain. In January 2012 the Company reached agreements with the local unions and Spanish government for the closure of its Cadiz operation, which were subsequently ratified by the employees in February 2012. Pursuant to the agreements, the Company agreed to pay one-time termination benefits, in excess of the statutory minimum requirement, of approximately $31 million. 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 $5 million of other exit costs related to the Cadiz exit including amounts payable to the Spanish government in connection with the asset contribution. The Company recovered approximately $15 million of such costs during the quarter ended March 31, 2012 pursuant to the Release Agreement with Ford for an aggregate recovery of $19 million when considering the $4 million received during 2011. Amounts recovered have been recorded as deferred revenue on the Company's consolidated balance sheet as further described in Note 9, "Other Liabilities". The Company anticipates recovery of an additional $4 million of such costs during the remainder of 2012.

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Table of Contents


The Company also recorded approximately $4 million for employee severance and termination benefits during the three months ended March 31, 2012 including $3 million associated with the separation of approximately 250 employees at a South American Interiors facility and $1 million associated with 40 voluntary employee separations associated with the Climate action announced in the fourth quarter of 2011. Utilization of $53 million during the first quarter of 2012 represents payments of $50 million for employee severance and termination benefits and $3 million reflecting lease termination, consulting and legal costs related to previously announced restructuring actions.

During the first quarter of 2011, the Company recorded approximately $4 million for employee severance and termination benefits associated with previously announced actions at two European Interiors facilities. The Company also reversed approximately $6 million of previously established accruals for employee severance and termination benefits at a European Interiors facility pursuant to a March 2011 contractual agreement to cancel the related social plan.

Business Transformation Activities

Business transformation costs of $8 million and $1 million incurred during the first quarter of 2012 and 2011, respectively, relate principally to financial and advisory fees associated with the Company's continued 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.

In November 2011, Visteon and Yanfeng Visteon Automotive Trim Systems, Co. Ltd., a 50% owned non-consolidated affiliate of the Company, signed a non-binding memorandum of understanding ("MOU") with respect to a potential transaction that would combine the majority of Visteon's global interiors business with YFV. Although the MOU sets forth basic terms of the proposed transaction, definitive agreements for the proposed sale, which would be subject to regulatory and other approvals, remain subject to significant uncertainties and there can be no assurance that definitive agreements will be entered into or that such a transaction will be completed in the timetable or on the terms referenced in the MOU.  In connection with the preparation of the March 31, 2012 financial statements, the Company concluded that proceeds associated with the potential sale transaction indicated that the carrying value of the Company's Interiors assets, which approximated $189 million as of March 31, 2012, may not be recoverable.  Accordingly, the Company performed a recoverability test utilizing a probability weighted analysis of cash flows associated with continuing to run and operate the Interiors business and cash flows associated with the potential sale of the Interiors business. As a result of the analysis, the Company concluded that no impairment existed as of March 31, 2012.  Further, as of March 31, 2012 the Company did not meet the specific criteria necessary for the Interiors assets to be considered held for sale.

During the first quarter 2011, the Company recorded bankruptcy-related costs of $3 million, which were the result of amounts directly associated with the bankruptcy claims settlement process under Chapter 11.


NOTE 4. Inventories

Inventories are stated at the lower of cost, determined on a first-in, first-out basis, or market. A summary of inventories is provided below:

 
March 31
 
December 31
 
2012
 
2011
 
(Dollars in Millions)
Raw materials
$
146

 
$
167

Work-in-process
181

 
174

Finished products
78

 
64

 
405

 
405

Valuation reserves
(24
)
 
(24
)
 
$
381

 
$
381




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Table of Contents

NOTE 5. Other Assets

Other current assets are summarized as follows:
 
March 31
 
December 31
 
2012
 
2011
 
(Dollars in Millions)
Recoverable taxes
$
112

 
$
99

Assets held for sale
76

 

Pledged accounts receivable
76

 
82

Deposits
38

 
40

Deferred tax assets
29

 
30

Prepaid assets
29

 
17

Other
34

 
36

 
$
394

 
$
304


Other non-current assets are summarized as follows:
 
March 31
 
December 31
 
2012
 
2011
 
(Dollars in Millions)
Deferred tax assets
$
18

 
$
18

Income tax receivable
11

 
11

Deposits
7

 
7

Other
32

 
30

 
$
68

 
$
66



NOTE 6. Property and Equipment

Property and equipment, net consists of the following:

 
March 31
 
December 31
 
2012
 
2011
 
(Dollars in Millions)
Land
$
167

 
$
184

Buildings and improvements
314

 
311

Machinery, equipment and other
1,040

 
985

Construction in progress
84

 
106

Total property and equipment
1,605

 
1,586

Accumulated depreciation
(301
)
 
(254
)
 
1,304

 
1,332

Product tooling, net of amortization
80

 
80

Property and equipment, net
$
1,384

 
$
1,412


Property and equipment is depreciated principally using the straight-line method of depreciation over an estimated useful life. Generally, buildings and improvements are depreciated over a 40-year estimated useful life and machinery, equipment and other assets are depreciated over estimated useful lives ranging from 3 to 15 years. Product tooling is amortized using the straight-line method over the estimated life of the tool, generally not exceeding six years.



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Depreciation and amortization expenses are summarized as follows:
 
Three Months
Ended
March 31
 
Three Months
Ended
March 31
 
2012
 
2011
 
(Dollars in Millions)
Depreciation
$
53

 
$
61

Amortization
2

 
5

 
$
55

 
$
66


Subsequent Event

On April 17, 2012, the Company entered into an agreement to sell its corporate headquarters, which has a net book value of approximately $60 million at March 31, 2012, for approximately $81 million. In connection with the sale, the Company entered into an agreement to lease back the corporate offices over a period of 15 years. The resulting gain on the sale will be deferred and recognized into income over the lease term.

NOTE 7. Non-Consolidated Affiliates

The Company recorded equity in net income of non-consolidated affiliates of $42 million and $44 million for the three-month periods ended March 31, 2012 and 2011, respectively. The Company had $679 million and $644 million of equity in the net assets of non-consolidated affiliates at March 31, 2012 and December 31, 2011, respectively. The following table presents summarized financial data for the Company’s non-consolidated affiliates, including Yanfeng Visteon Automotive Trim Systems Co., Ltd (“Yanfeng”), of which the Company owns a 50% interest and which is considered a significant non-consolidated affiliate. Summarized financial information reflecting 100% of the operating results of the Company's equity investees are provided below.
 
Net  Sales
 
          Gross  Margin
 
          Net  Income
 
Three Months Ended March 31
 
Three Months Ended March 31
 
Three Months Ended March 31
 
2012
 
2011
 
2012
 
2011
 
2012
 
2011
 
(Dollars in Millions)
Yanfeng
$
793

 
$
720

 
$
122

 
$
109

 
$
72

 
$
69

All other
413

 
187

 
42

 
33

 
17

 
19

 
$
1,206

 
$
907

 
$
164

 
$
142

 
$
89

 
$
88


Net sales of all other non-consolidated affiliates for the three-month period ended March 31, 2012 included $193 million for Duckyang, which was deconsolidated from the Company's financial statements as a result of the Company's sale of a controlling ownership interest in October 2011.
 
The Company monitors its investments in the net assets of non-consolidated affiliates for indicators of other-than-temporary declines in value on an ongoing basis. If the Company determines that such a decline has occurred, an impairment loss is recorded, which is measured as the difference between carrying value and fair value.



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NOTE 8. Intangible Assets

Intangible assets, net are comprised of the following:

 
March 31, 2012
 
December 31, 2011
 
Gross Carrying Value    
 
Accumulated Amortization
 
Net Carrying Value
 
Gross Carrying Value    
 
Accumulated Amortization
 
Net Carrying Value
 
(Dollars in Millions)
Definite-lived intangible assets
 
 
Developed technology
$
200

 
$
38

 
$
162

 
$
204

 
$
32

 
$
172

Customer related
121

 
20

 
101

 
119

 
16

 
103

Other
20

 
4

 
16

 
20

 
3

 
17

 
$
341

 
$
62

 
$
279

 
$
343

 
$
51

 
$
292

 
 
 
 
 
 
 
 
 
 
 
 
Goodwill and indefinite-lived intangible assets
 
 
Goodwill
 
 
 
 
$
36

 
 
 
 
 
$
36

Trade names
 
 
 
 
25

 
 
 
 
 
25

 
 
 
 
 
$
61

 
 
 
 
 
$
61


The Company recorded approximately $10 million and $11 million of amortization expense related to definite-lived intangible assets for the three-month periods ended March 31, 2012 and March 31, 2011, respectively. The Company currently estimates annual amortization expense to be $40 million for 2012 through 2014, $39 million for 2015 and $38 million for 2016.

Goodwill and trade names, substantially all of which relate to the Company's Climate reporting unit, are not amortized but are tested for impairment at least annually. Impairment testing is required more often if an event or circumstance indicates that an impairment is more likely than not to have occurred. In conducting impairment testing, the fair value of the reporting unit is compared to the net book value of the reporting unit. If the net book value exceeds the fair value, an impairment loss is measured and recognized. The Company conducts its annual impairment testing as of the first day of the fourth quarter.

The Company reclassified approximately $5 million of Lighting developed technology assets to Other current assets as they were considered held for sale as of March 31, 2012. See Note 2, "Discontinued Operations" for further details.



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NOTE 9. Other Liabilities

Other current liabilities are summarized as follows:
 
March 31
 
December 31
 
2012
 
2011
 
(Dollars in Millions)
Non-income taxes payable
$
42

 
$
41

Product warranty and recall reserves
40

 
42

Deferred income
36

 
21

Income taxes payable
29

 
29

Payables to related parties
22

 
24

Accrued interest payable
16

 
7
Restructuring reserves
14

 
26
Liabilities held for sale
11

 

Foreign currency hedges
7

 
16

Claims settlement accruals
5

 
9

Other accrued liabilities
75

 
52

 
$
297

 
$
267


Other non-current liabilities are summarized as follows:
 
March 31
 
December 31
 
2012
 
2011
 
(Dollars in Millions)
Income tax reserves
$
103

 
$
97

Deferred income
56

 
42

Non-income taxes payable
42

 
41

Product warranty and recall reserves
26

 
24

Other accrued liabilities
18

 
21

 
$
245

 
$
225


Current and non-current deferred income of $19 million and $47 million, respectively, relate to various customer accommodation, support and other agreements. Revenue associated with these agreements is being recorded in relation to the delivery of associated products in accordance with the terms of the underlying agreement or over the estimated period of benefit to the customer, generally representing the duration of remaining production on current vehicle platforms. The Company recorded $5 million of revenue associated with these payments during the three months ended March 31, 2012. The Company expects to record approximately $15 million, $16 million, $15 million, $10 million and $9 million of deferred amounts in the remainder of 2012 and the annual periods of 2013, 2014, 2015 and 2016, respectively.



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Table of Contents

NOTE 10. Debt

As of March 31, 2012, the Company had $93 million and $503 million of debt outstanding classified as short-term debt and long-term debt, respectively. The Company’s short and long-term debt balances consist of the following:

 
 
 
March 31
 
December 31
 
2012
 
2011
 
(Dollars in Millions)
Short-term debt
 
 
 
  Current portion of long-term debt
$
6

 
$
1

  Other – short-term
87

 
86

Total short-term debt
93

 
87

 
 
 
 
Long-term debt
 
 
 
  6.75% senior notes due April 15, 2019
494

 
494

  Other
9

 
18

Total long-term debt
503

 
512

Total debt
$
596

 
$
599


The Company's revolving loan credit agreement has a borrowing capacity of $220 million, subject to borrowing base requirements. As of March 31, 2012, there were no amounts outstanding under the revolving loan credit agreement and the amount available for borrowing was $220 million. On April 3, 2012, the Company entered into an amendment to the revolving loan credit agreement to allow for the potential sale of the Lighting assets as well as the sale and leaseback of the Company's U.S. corporate headquarters. The future borrowing capacity under the revolving loan credit agreement is likely to be impacted by the sale of these assets.

In connection with the Company's $15 million Letter of Credit ("LOC") Facility with US Bank National Association it must continue to maintain a collateral account equal to 103% of the aggregated stated amount of the LOCs with reimbursement of any draws. As of March 31, 2012 and December 31, 2011, the Company had $11 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 securitized by cash collateral as of March 31, 2012.

As of March 31, 2012, the Company had affiliate debt outstanding of $101 million, with $92 million and $9 million classified in short-term and long-term debt, respectively. These balances are primarily related to the Company’s non-U.S. operations and are payable in non-U.S. currencies including, but not limited to the Euro, Chinese Yuan, and Korean Won. Remaining availability on outstanding affiliate credit facilities is approximately $180 million and certain of these facilities have pledged receivables, inventory or equipment as security. Included in the Company's affiliate debt is an arrangement, through a subsidiary in France, to sell accounts receivable on an uncommitted basis. The amount of financing available is contingent upon the amount of receivables less certain reserves. The Company pays a 30 basis points servicing fee on all receivables sold, as well as a financing fee of 3-month Euribor plus 75 basis points on the advanced portion. At March 31, 2012, there were $29 million outstanding borrowings under the facility with $76 million of receivables pledged as security, which are recorded as Other current assets on the consolidated balance sheet.

The fair value of debt was approximately $605 million and $587 million at March 31, 2012 and December 31, 2011, respectively. Fair value estimates were based on quoted market prices or current rates for the same or similar issues, or on the current rates offered to the Company for debt of the same remaining maturities.



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Table of Contents

NOTE 11. Employee Retirement Benefits

Benefit Expenses

The components of the Company’s net periodic benefit costs for the three-month periods ended March 31, 2012 and 2011 were as follows:
 
Retirement Plans
 
U.S. Plans
 
Non-U.S. Plans
 
2012
 
2011
 
2012
 
2011
 
(Dollars in Millions)
Costs recognized in income    
 
 
 
 
 
 
 
  Service cost
$

 
$
1

 
$
1

 
$
1

  Interest cost
17

 
19

 
7

 
7

  Expected return on plan assets
(19
)
 
(19
)
 
(4
)
 
(4
)
  Special termination benefits

 
2

 

 

Visteon sponsored plan net pension (income) expense
$
(2
)
 
$
3

 
$
4

 
$
4


Most U.S. salaried employees and certain non-U.S. employees are eligible to participate in defined contribution plans by contributing a portion of their compensation, which is partially matched by the Company. Effective January 1, 2012, matching contributions for the U.S. defined contribution plan are 100% on the first 6% of pay contributed. The expense related to matching contributions was approximately $5 million for the three-month period ended March 31, 2012.

Contributions

On January 9, 2012 the Company completed a contribution of approximately 1.5 million shares of Visteon Corporation common stock valued at approximately $73 million to its two largest U.S. defined benefit plans. This contribution was in excess of the calendar 2012 minimum required contributions for those plans by approximately $10 million.

During the three-month period ended March 31, 2012, cash contributions to the Company's U.S. retirement plans were $1 million and contributions to non-U.S. retirement plans were $3 million. The Company anticipates additional cash contributions to its U.S. retirement plans and OPEB plans of $3 million and $2 million, respectively, during 2012. The Company also anticipates additional 2012 contributions to non-U.S. retirement plans of $13 million. The Company’s expected 2012 contributions may be revised.

NOTE 12. Income Taxes

The Company's provision for income taxes in interim periods is computed by applying an estimated annual effective tax rate against income before income taxes, excluding equity in net income of non-consolidated affiliates for the period. Effective tax rates vary from period to period as separate calculations are performed for those countries where the Company's operations are profitable and whose results continue to be tax-effected and for those countries where full deferred tax valuation allowances exist and are maintained. The Company is also required to record the tax impact of certain other non-recurring tax items, including changes in judgment about valuation allowances and effects of changes in tax laws or rates, in the interim period in which they occur. The need to maintain valuation allowances against deferred tax assets in the U.S. and other affected countries will continue to cause variability in the Company's quarterly and annual effective tax rates. Full valuation allowances against deferred tax assets in the U.S. and applicable foreign countries will be maintained until sufficient positive evidence exists to reduce or eliminate them.

The Company's provision for income taxes for the three-month period ended March 31, 2012 of $27 million includes income tax expense in countries where the Company is profitable, withholding taxes, changes in uncertain tax benefits, and the inability to record a tax benefit for pre-tax losses in the U.S. and certain other jurisdictions to the extent not offset by other categories of income.

The amount of income tax expense or benefit allocated to continuing operations is generally determined without regard to the tax effects of other categories of income or loss, such as other comprehensive income. However, an exception to the general rule is provided when there is a pre-tax loss from continuing operations and net pre-tax income from other categories in the current year. In such instances, net pre-tax income from other categories must offset the current loss from operations, the tax benefit of such offset being reflected in continuing operations even when a valuation allowance has been established against the deferred tax

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assets. In instances where a valuation allowance is established against current year operating losses, net pre-tax income from other sources, including other comprehensive income, is considered when determining whether sufficient future taxable income exists to realize the deferred tax assets.

Unrecognized Tax Benefits

Gross unrecognized tax benefits were $129 million at March 31, 2012 and $123 million at December 31, 2011, of which approximately $72 million and $69 million, respectively, represent the amount of unrecognized benefits that, if recognized, would impact the effective tax rate. The gross unrecognized tax benefit differs from that which would impact the effective tax rate due to uncertain tax positions embedded in other deferred tax attributes carrying a full valuation allowance. Since the uncertainty is expected to be resolved while a full valuation allowance is maintained, these uncertain tax positions should not impact the effective tax rate in current or future periods. During the three-month period ended March 31, 2012, the Company increased its gross unrecognized tax benefits by approximately $6 million, primarily as a result of certain positions expected to be taken in future tax returns and foreign currency impacts, of which $3 million would impact the effective tax rate if the unrecognized tax benefits were recognized. The Company records interest and penalties related to uncertain tax positions as a component of income tax expense. Accrued interest and penalties related to uncertain tax positions was $31 million at March 31, 2012 and $28 million at December 31, 2011.

The Company operates in multiple jurisdictions throughout the world and the income tax returns of its subsidiaries in various tax jurisdictions are subject to periodic examination by respective tax authorities. With few exceptions, the Company is no longer subject to U.S. federal tax examinations for years before 2008 or state and local, or non-U.S. income tax examinations for years before 2002. It is reasonably possible that the amount of the Company's unrecognized tax benefits may change within the next twelve months due to the conclusion of ongoing audits or the expiration of tax statutes. Given the number of years, jurisdictions and positions subject to examination, the Company is unable to estimate the full range of possible adjustments to the balance of unrecognized tax benefits. However, the Company believes it is reasonably possible it will reduce the amount of its existing unrecognized tax benefits impacting the effective tax rate by $1 million to $3 million due to the lapse of statute of limitations, some portion of such reduction might be reported as discontinued operations.


NOTE 13. Shareholders’ Equity and Non-controlling Interests

The table below provides a reconciliation of the carrying amount of total shareholders' equity, including shareholders' equity attributable to Visteon and equity attributable to non-controlling interests ("NCI").

 
Three Months Ended
 
Three Months Ended
 
March 31, 2012
 
March 31, 2011
 
Visteon
 
NCI
 
Total
 
Visteon
 
NCI
 
Total
 
(Dollars in Millions)
Shareholders' equity beginning balance
$
1,307

 
$
690

 
$
1,997

 
$
1,260

 
$
690

 
$
1,950

(Loss) income from continuing operations
(32
)
 
18

 
(14
)
 
35

 
17

 
52

Income from discontinued operations
3

 

 
3

 
4

 

 
4

Net (loss) income
(29
)
 
18

 
(11
)
 
39

 
17

 
56

Other comprehensive income
 
 
 
 
 
 
 
 
 
 
 
    Foreign currency translation adjustment
28

 
6

 
34

 
47

 
9

 
56

    Pension and other postretirement benefits
2

 

 
2

 
2

 

 
2

    Unrealized hedging gains (losses) and other
10

 
1

 
11

 
4

 
1

 
5

    Total other comprehensive income
40

 
7

 
47

 
53

 
10

 
63

Stock-based compensation, net
7

 

 
7

 
10

 

 
10

Common stock contribution to U.S. Pension plans
73

 

 
73

 

 

 

Warrant exercises

 

 

 
3

 

 
3

Dividends to non-controlling interests

 
(22
)
 
(22
)
 

 
(24
)
 
(24
)
Shareholders' equity ending balance
$
1,398

 
$
693

 
$
2,091

 
$
1,365

 
$
693

 
$
2,058



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Table of Contents

Non-controlling Interests

Non-controlling interests in the Visteon Corporation economic entity are as follows:
 
March 31
 
December 31
 
2012
 
2011
 
(Dollars in Millions)
Halla Climate Control Corporation
$
663

 
$
660

Visteon Interiors Korea Ltd
18

 
20

Other
12

 
10

Total non-controlling interests
$
693

 
$
690


The Company holds a 70% interest in Halla Climate Control Corporation (“Halla”), a consolidated subsidiary. Halla is headquartered in South Korea with operations in North America, Europe and Asia. Halla designs, develops and manufactures automotive climate control products, including air conditioning systems, modules, compressors, and heat exchangers for sale to global OEMs.

Accumulated Other Comprehensive Income (Loss)

The Accumulated other comprehensive income (loss) (“AOCI”) category of Shareholders’ equity, net of tax, includes:
 
March 31
 
December 31
 
2012
 
2011
 
(Dollars in Millions)
Foreign currency translation adjustments
$
(13
)
 
$
(41
)
Pension and other postretirement benefit adjustments
27

 
25

Unrealized gains (losses) on derivatives
1

 
(9
)
Total accumulated other comprehensive income (loss)
$
15

 
$
(25
)


NOTE 14. (Loss) Earnings Per Share

Basic (loss) earnings per share of common stock is calculated by dividing reported net (loss) income by the average number of shares of common stock outstanding during the applicable period, adjusted for restricted stock. Diluted earnings per share is computed by dividing net (loss) income by the average number of shares of common stock outstanding during the applicable period, adjusted for restricted stock and the effect of dilutive potential common stock, such as stock warrants and stock options. The impact of restricted stock and other dilutive potential common stock is not taken into consideration in loss periods as the impact would be anti-dilutive. Accordingly, restricted stock and other dilutive potential common stock have been excluded from the computation of basic and diluted (loss) per share for the three-month period ended March 31, 2012, as applicable.


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Table of Contents

The table below provides details underlying the calculations of basic and diluted (loss) earnings per share.
 
Three Months Ended March 31
 
2012
 
2011
 
(Dollars in Millions, Except Per Share Amounts)
Numerator:
 
 
 
(Loss) income from continuing operations
$
(32
)
 
$
35

Income from discontinued operations
3

 
4

Net (loss) income attributable to Visteon
$
(29
)
 
$
39

Denominator:


 


Average common stock outstanding
51.9

 
50.7

Dilutive effect of warrants

 
1.3

Diluted shares
51.9

 
52.0

 
 
 
 
Basic and Diluted (Loss) Earnings Per Share Data:


 


Basic (loss) earnings per share:
 
 
 
Continuing operations
$
(0.62
)
 
$
0.69

Discontinued operations
0.06

 
0.08

Basic (loss) earnings per share attributable to Visteon
$
(0.56
)
 
$
0.77

Diluted (loss) earnings per share:
 
 
 
Continuing operations
$
(0.62
)
 
$
0.67

Discontinued operations
0.06

 
0.08

Diluted (loss) earnings per share attributable to Visteon
$
(0.56
)
 
$
0.75


NOTE 15. Fair Value Measurements and Financial Instruments

Fair Value Hierarchy

Financial assets and liabilities are categorized, based on the inputs to the valuation technique, into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to the quoted prices in active markets for identical assets and liabilities and lowest priority to unobservable inputs.

Level 1 – Financial assets and liabilities whose values are based on unadjusted quoted market prices for identical assets and liabilities in an active market that the Company has the ability to access.
Level 2 – Financial assets and liabilities whose values are based on quoted prices in markets that are not active or model inputs that are observable for substantially the full term of the asset or liability.
Level 3 – Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement.

Financial Instruments

The Company’s net cash inflows and outflows exposed to the risk of changes in foreign currency exchange rates arise from the sale of products in countries other than the manufacturing source, foreign currency denominated supplier payments, debt and other payables, subsidiary dividends and investments in subsidiaries. Where possible, the Company utilizes derivative financial instruments, including forward and option contracts, to protect the Company’s cash flow from changes in exchange rates. Foreign currency exposures are reviewed monthly and any natural offsets are considered prior to entering into a derivative financial instrument.

The Company’s primary foreign currency exposures include the Euro, Korean Won, Czech Koruna, Hungarian Forint and Mexican Peso. Where possible, the Company utilizes a strategy of partial coverage for transactions in these currencies. As of March 31, 2012 and December 31, 2011, the Company had forward contracts to hedge changes in foreign currency exchange rates with notional amounts of approximately $767 million and $741 million, respectively. Fair value estimates of these contracts are based

16


Table of Contents

on quoted market prices. A portion of these instruments have been designated as cash flow hedges with the effective portion of the gain or loss reported in the Accumulated other comprehensive (loss) income component of Shareholders’ equity in the Company’s consolidated balance sheet. The ineffective portion of these instruments is recorded as Cost of sales in the Company’s consolidated statement of operations.

Foreign currency hedge instruments are measured at fair value on a recurring basis under an income approach using industry-standard models that consider various assumptions, including time value, volatility factors, current market and contractual prices for the underlying and non-performance risk. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data, or are supported by observable levels at which transactions are executed in the marketplace. Accordingly, the Company's foreign currency instruments are classified as Level 2, “Other Observable Inputs” in the fair value hierarchy.

Financial Statement Presentation

The Company presents its derivative positions and any related material collateral under master netting agreements on a net basis. Derivative financial instruments designated and non-designated as hedging instruments are included in the Company’s consolidated balance sheets at March 31, 2012 and December 31, 2011 as follows:
Assets
 
  Liabilities
 
 
March 31
 
December 31
 
 
 
March 31
 
December 31
Classification
 
2012
 
2011
 
Classification
 
2012
 
2011
 
 
(Dollars in Millions)
 
 
 
(Dollars in Millions)
Designated:
 
 
 
 
 
Designated:
 
 
 
 
Other current assets
 
$
7

 
$

 
Other current assets
 
$
2

 
$

Other current liabilities
 
1

 
8

 
Other current liabilities
 
7

 
24

 
 
 
 
 
 
 
 
 
 
 
Non-designated:
 
 
 
 
 
Non-designated:
 
 
 
 
Other current liabilities
 

 

 
Other current liabilities
 
1

 

 
 
$
8

 
$
8

 
 
 
$
10

 
$
24


Gains and losses associated with derivative financial instruments recorded in Cost of sales and Interest expense for the three-month period ended March 31, 2012 and 2011 are as follows:
 
Amount of Gain (Loss)
 
Recorded in AOCI
 
Reclassified from AOCI into Income
 
Recorded in Income
 
2012
 
2011
 
2012
 
2011
 
2012
 
2011
 
(Dollars in Millions)
Foreign currency risk – Cost of sales
 
 
 
 
 
 
 
 
 
 
 
Cash flow hedges
$
10

 
$
3

 
$

 
$
2

 
$

 
$

Non-designated cash flow hedges

 

 

 

 
(1
)
 
(1
)
 
$
10

 
$
3

 
$

 
$
2

 
$
(1
)
 
$
(1
)
Interest rate risk – Interest expense
 
 
 
 
 
 
 
 
 
 
 
Cash flow hedges
$

 
$
1

 
$

 
$

 
$

 
$


Concentrations of Credit Risk

Financial instruments, including cash equivalents, marketable securities, derivative contracts and accounts receivable, expose the Company to counterparty credit risk for non-performance. The Company’s counterparties for cash equivalents, marketable securities and derivative contracts are banks and financial institutions that meet the Company’s requirement of high credit standing. The Company’s counterparties for derivative contracts are with investment and commercial banks with significant experience using such derivatives and is assessed on a net basis. The Company manages its credit risk through policies requiring minimum credit standing and limiting credit exposure to any one counterparty and through monitoring counterparty credit risks. The Company’s concentration of credit risk related to derivative contracts at March 31, 2012 and December 31, 2011 is not significant.


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Table of Contents

With the exception of the customers below, the Company’s credit risk with any individual customer does not exceed ten percent of total accounts receivable at March 31, 2012 and December 31, 2011, respectively.

 
March 31
 
December 31
 
2012
 
       2011      
Ford and affiliates
24%
 
24%
Hyundai Mobis Company
11%
 
14%
Hyundai Motor Company
9%
 
10%

Management periodically performs credit evaluations of its customers and generally does not require collateral.

Items Measured at Fair Value on a Non-recurring Basis

In addition to items that are measured at fair value on a recurring basis, the Company measures certain assets and liabilities at fair value on a non-recurring basis, which are not included in the table above. As these non-recurring fair value measurements are generally determined using unobservable inputs, these fair value measurements are classified within Level 3 of the fair value hierarchy. Assets and liabilities measured at fair value on a non-recurring basis during the three month period ended March 31, 2012 include assets and liabilities subject to the Lighting Transaction, as further described in Note 2, "Discontinued Operations."

NOTE 16. Commitments and Contingencies

Guarantees and Commitments

The Company has guaranteed approximately $35 million for lease payments related to its subsidiaries for between one and ten years. In connection with an agreement entered in 2009 with the Pension Benefit Guarantee Corporation ("PBGC"), the Company agreed to provide a guarantee by certain affiliates of contingent pension obligations of up to $30 million, the term of this guarantee is dependent upon events as specifically set forth in the PBGC agreement.

Litigation and Claims

During the third quarter of 2011, the Company received a formal request from the competition unit of the European Commission for documents and information in connection with its on-going investigation into alleged anti-competitive behavior relating to specific automotive electronic components in the European Union/European Economic Area. The Company has responded to request. The Company's policy is to comply with all laws and regulations, including all antitrust and competition laws, and it intends to cooperate fully with the European Commission in the context of its ongoing investigation. At this time, the Company is not able to estimate a reasonably possible range of loss that may ultimately result from this investigation and no accrual has been established for the matter as of March 31, 2012.

Several current and former employees of Visteon Deutschland GmbH (“Visteon Germany”) filed civil actions against Visteon Germany in various German courts beginning in August 2007 seeking damages for the alleged violation of German pension laws that prohibit the use of pension benefit formulas that differ for salaried and hourly employees without adequate justification. Several of these actions have been joined as pilot cases. In a written decision issued in April 2010, the Federal Labor Court issued a declaratory judgment in favor of the plaintiffs in the pilot cases. To date, more than 650 current and former employees have filed similar actions or have inquired as to or been granted additional benefits, and an additional 700 current and former employees are similarly situated. The Company's remaining reserve for unsettled cases is approximately $6 million and is based on the Company’s best estimate as to the number and value of the claims that will be made in connection with the pension plan. However, the Company’s estimate is subject to many uncertainties which could result in Visteon Germany incurring amounts in excess of the reserved amount of up to approximately $8 million.

The Company's operations in Brazil are subject to highly complex labor, tax, customs and other laws. While the Company believes that it is in compliance with such laws, it is periodically engaged in litigation regarding the application of these laws. As of March 31, 2012, the Company maintained accruals of approximately $14 million for claims aggregating approximately $155 million. The amounts accrued represent claims that are deemed probable of loss and are reasonably estimable based on the Company's assessment of the claims and prior experience with similar matters.



18


Table of Contents

On May 28, 2009, the Debtors filed voluntary petitions in the Court seeking reorganization relief under the provisions of chapter 11 of the Bankruptcy Code. The Debtors’ chapter 11 cases have been assigned to the Honorable Christopher S. Sontchi and are being jointly administered as Case No. 09-11786. The Debtors continued to operate their business as debtors-in-possession under the jurisdiction of the Court and in accordance with the applicable provisions of the Bankruptcy Code and the orders of the Court until their emergence on October 1, 2010. Under section 362 of the Bankruptcy Code, the filing of a bankruptcy petition automatically stayed most actions against a debtor, including most actions to collect pre-petition indebtedness or to exercise control over the property of the debtor’s estate. Substantially all pre-petition liabilities and claims relating to rejected executory contracts and unexpired leases have been settled under the Debtor’s plan of reorganization, however, the ultimate amounts to be paid in settlement of each those claims will continue to be subject to the uncertain outcome of litigation, negotiations and Court decisions for a period of time after the Effective Date.

In December of 2009, the Court granted the Debtors' motion in part authorizing them to terminate or amend certain other postretirement employee benefits, including health care and life insurance. On December 29, 2009, the IUE-CWA, the Industrial Division of the Communications Workers of America, AFL-CIO, CLC, filed a notice of appeal of the Court's order with the District Court. By order dated March 31, 2010, the District Court affirmed the Court's order in all respects. On April 1, 2010, the IUE filed a notice of appeal. On July 13, 2010, the Circuit Court reversed the order of the District Court as to the IUE-CWA and directed the District Court to, among other things, direct the Court to order the Company to take whatever action is necessary to immediately restore terminated or modified benefits to their pre-termination/modification levels. On July 27, 2010, the Company filed a Petition for Rehearing or Rehearing En Banc requesting that the Circuit Court review the panel’s decision, which was denied. By orders dated August 30, 2010, the Court ruled that the Company should restore certain other postretirement employee benefits to the appellant-retirees and also to salaried retirees and certain retirees of the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (“UAW”). On September 1, 2010, the Company filed a Notice of Appeal to the District Court of the Court's decision to include non-appealing retirees, and on September 15, 2010 the UAW filed a Notice of Cross-Appeal. The appeals process includes mandatory mediation of the dispute. The Company subsequently reached an agreement with the original appellants in late-September 2010, which resulted in the Company not restoring other postretirement employee benefits of such retirees. On September 30, 2010, the UAW filed a complaint, which it amended on October 1, 2010, in the United States District Court for the Eastern District of Michigan seeking, among other things, a declaratory judgment to prohibit the Company from terminating certain other postretirement employee benefits for UAW retirees after the Effective Date. The Company has filed a motion to dismiss the UAW's complaint and a motion to transfer the case to the District of Delaware, which motions are pending. In July 2011, the Company engaged in mediation with the UAW, which was not successful. The parties have established a briefing schedule on the Company's motions pending in the Eastern District of Michigan and the court has scheduled a hearing for May 2012. The parties will also establish a briefing schedule on the parties' appeals pending in the District of Delaware. As of March 31, 2012, the Company maintains an accrual for claims that are deemed probable of loss and are reasonably estimable based on the Company's assessment of the claims and prior experience with similar matters.

While the Company believes its accruals for litigation and claims are adequate, the final amounts required to resolve such matters could differ materially from recorded estimates and the Company's results of operations and cash flows could be materially affected.

Product Warranty and Recall

Amounts accrued for product warranty and recall claims are based on management’s best estimates of the amounts that will ultimately be required to settle such items. The Company’s estimates for product warranty and recall obligations are developed with support from its sales, engineering, quality and legal functions and include due consideration of contractual arrangements, past experience, current claims and related information, production changes, industry and regulatory developments and various other considerations. The Company can provide no assurances that it will not experience material claims in the future or that it will not incur significant costs to defend or settle such claims beyond the amounts accrued or beyond what the Company may recover from its suppliers. The following table provides a reconciliation of changes in the product warranty and recall claims liability for the three months period ended March 31, 2012 and 2011.

 
Three Months Ended March 31
 
2012
 
2011
 
(Dollars in Millions)
Beginning balance
$
65

 
$
75

Accruals for products shipped
5

 
5

Changes in estimates

 
1

Settlements
(4
)
 
(3
)
Ending balance
$
66

 
$
78


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Table of Contents

Environmental Matters

The Company is subject to the requirements of federal, state, local and foreign environmental and occupational safety and health laws and regulations and ordinances. These include laws regulating air emissions, water discharge and waste management. The Company is also subject to environmental laws requiring the investigation and cleanup of environmental contamination at properties it presently owns or operates and at third-party disposal or treatment facilities to which these sites send or arranged to send hazardous waste. The Company is aware of contamination at some of its properties. These sites are in various stages of investigation and cleanup. The Company currently is, has been, and in the future may become the subject of formal or informal enforcement actions or procedures.

Costs related to environmental assessments and remediation efforts at operating facilities, previously owned or operated facilities, or other waste site locations are accrued when it is probable that a liability has been incurred and the amount of that liability can be reasonably estimated. Estimated costs are recorded at undiscounted amounts, based on experience and assessments, and are regularly evaluated. The liabilities are recorded in Other current liabilities and Other non-current liabilities in the consolidated balance sheets. At March 31, 2012, the Company had recorded a reserve of approximately $1 million for environmental matters. However, estimating liabilities for environmental investigation and cleanup is complex and dependent upon a number of factors beyond the Company’s control and which may change dramatically. Accordingly, although the Company believes its reserve is adequate based on current information, the Company cannot provide any assurance that its ultimate environmental investigation and cleanup costs and liabilities will not exceed the amount of its current reserve.

Other Contingent Matters

Various legal actions, governmental investigations and proceedings and claims are pending or may be instituted or asserted in the future against the Company, including those arising out of alleged defects in the Company’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 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. The Company enters into agreements that contain indemnification provisions in the normal course of business for which the risks are considered nominal and impracticable to estimate.

Contingencies are subject to many uncertainties, and the outcome of individual litigated matters is not predictable with assurance. Reserves have been established by the Company for matters discussed in the immediately foregoing paragraph where losses are deemed probable and reasonably estimable. It is possible, however, that some of the matters discussed in the foregoing paragraph could be decided unfavorably to the Company and could require the Company to pay damages or make other expenditures in amounts, or a range of amounts, that cannot be estimated at March 31, 2012 and that are in excess of established reserves. The Company does not reasonably expect, except as otherwise described herein, based on its analysis, that any adverse outcome from such matters would have a material effect on the Company’s financial condition, results of operations or cash flows, although such an outcome is possible.

NOTE 17. Segment Information

Segments are defined as components of an enterprise for which discrete financial information is available that is evaluated regularly by the chief operating decision-maker, or a decision-making group, in deciding the allocation of resources and in assessing performance. The Company’s Chief Operating Decision Making Group ("CODM Group"), comprised of the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluates the performance of the Company’s segments primarily based on net sales, before elimination of inter-company shipments, gross margin and operating assets. Gross margin is defined as total sales less costs to manufacture and product development and engineering expenses. Operating assets include inventories and property and equipment utilized in the manufacture of the segments’ products.

In April 2011, the Company announced a new operating structure for use by the CODM Group in managing the business based on specific global product lines rather than reporting at a broader global product group level as historically utilized by the CODM Group. Under prior global product groups, the results of each of the Company’s facilities were grouped for reporting purposes into segments based on the predominant product line offering of the respective facility, as separate product line results within each facility were not historically available. During the second quarter of 2011 the Company completed the process of realigning systems and reporting structures to facilitate financial reporting under the revised organizational structure such that the results for each product line within each facility can be separately identified. The information reviewed by the CODM Group has been updated to reflect the new structure. The financial results included below have been recast for all periods to reflect the updated structure.

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Table of Contents

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.

Segment Sales and Gross Margin


Sales                   
 
         Gross Margin
 
Three Months Ended March 31
 
Three Months Ended March 31
 
   2012
 
   2011
 
   2012
 
   2011
Climate
$
1,023

 
$
979

 
$
89

 
$
85

Electronics
322

 
358

 
27

 
37

Interiors
400

 
571

 
18

 
21

Eliminations
(28
)
 
(58
)
 

 

Total consolidated
$
1,717

 
$
1,850

 
$
134

 
$
143


Segment Operating Assets    


Inventories, net
 
  Property and Equipment, net 
 
March 31
 
December 31
 
March 31
 
December 31
 
   2012
 
   2011
 
   2012
 
   2011
 
(Dollars in Millions)
Climate
$
264

 
$
236

 
$
958

 
$
934

Electronics
66

 
66

 
129

 
144

Interiors
49

 
47

 
177

 
171

Other
2

 
32

 

 
42

Total Products
381

 
381

 
1,264

 
1,291

Corporate

 

 
120

 
121

Total consolidated
$
381

 
$
381

 
$
1,384

 
$
1,412


Other includes assets of the Company's discontinued Lighting operations as of December 31, 2011 (Inventories, net of $31 million and Property and equipment, net of $42 million). These assets were classified as "Other current assets" as of March 31, 2012. See Note 2, "Discontinued Operations" for further details.


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Table of Contents

NOTE 18. Condensed Consolidating Financial Information of Guarantor Subsidiaries

On April 6, 2011, the Company completed the sale of $500 million aggregate principal amount of 6.75% senior notes due April 15, 2019 (the "Original Senior Notes"). In January 2012, the Company exchanged substantially identical senior notes (the "Senior Notes") that have been registered under Securities Act of 1933, as amended, for all of the Original Senior Notes. The Senior Notes were issued under an Indenture (the “Indenture”), among the Company, the subsidiary guarantors named therein, and The Bank of New York Mellon Trust Company, N.A., as trustee. The Indenture and the form of Senior Notes provide, among other things, that the Senior Notes are be senior unsecured obligations of the Company. Interest is payable on the Senior Notes on April 15 and October 15 of each year beginning on October 15, 2011 until maturity. Each of the Company’s existing and future wholly owned domestic restricted subsidiaries that guarantee debt under the Company’s revolving loan credit agreement guarantee the Senior Notes.

Guarantor Financial Statements

Certain subsidiaries of the Company (as listed below, collectively the “Guarantor Subsidiaries”) have guaranteed fully and unconditionally, on a joint and several basis, the obligation to pay principal and interest under the Company’s revolving loan credit agreement and the Senior Notes. The Guarantor Subsidiaries include: Visteon Electronics Corporation; Visteon European Holdings, Inc.; Visteon Global Treasury, Inc.; Visteon International Business Development, Inc.; Visteon International Holdings, Inc.; Visteon Global Technologies, Inc.; Visteon Systems, LLC; and VC Aviation Services, LLC.

The guarantor financial statements are comprised of the following condensed consolidating financial information:

The Parent Company, the issuer of the guaranteed obligations;
Guarantor subsidiaries, on a combined basis, as specified in the Indenture related to the Senior Notes;
Non-guarantor subsidiaries, on a combined basis;
Consolidating entries and eliminations representing adjustments to (a) eliminate intercompany transactions between or among the Parent Company, the guarantor subsidiaries and the non-guarantor subsidiaries, (b) eliminate the investments in subsidiaries, and (c) record consolidating entries.


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Table of Contents

VISTEON CORPORATION
CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME
 
Three Months Ended March 31, 2012
 

Parent Company
 

Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 


Eliminations
 


Consolidated
 
(Dollars in Millions)
Sales
$
41

 
$
368

 
$
1,616

 
$
(308
)
 
$
1,717

Cost of sales
100

 
300

 
1,491

 
(308
)
 
1,583

Gross margin    
(59
)
 
68

 
125

 

 
134

Selling, general and administrative expenses
15

 
18

 
58

 

 
91

Restructuring and other expenses
22

 

 
41

 

 
63

Operating (loss) income        
(96
)
 
50

 
26

 

 
(20
)
Interest expense, net
10

 
(1
)
 

 

 
9

Equity in net income of non-consolidated affiliates

 

 
42

 

 
42

(Loss) income from continuing operations before income taxes and earnings of subsidiaries        
(106
)
 
51

 
68

 

 
13

Provision for income taxes

 

 
27

 

 
27

(Loss) income from continuing operations before earnings of subsidiaries    
(106
)
 
51

 
41

 

 
(14
)
Equity in earnings of consolidated subsidiaries
86

 
(3
)
 

 
(83
)
 

(Loss) income from continuing operations
(20
)
 
48

 
41

 
(83
)
 
(14
)
(Loss) income from discontinued operations, net of tax
(9
)
 
23

 
(11
)
 

 
3

Net (loss) income         
(29
)
 
71

 
30

 
(83
)
 
(11
)
Net income attributable to non-controlling interests

 

 
18

 

 
18

Net (loss) income attributable to Visteon Corporation        
$
(29
)
 
$
71

 
$
12

 
$
(83
)
 
$
(29
)
Comprehensive income:
 
 
 
 
 
 
 
 
 
Comprehensive income
$
11

 
$
116

 
$
77

 
$
(168
)
 
$
36

Comprehensive income attributable to Visteon Corporation
$
11

 
$
116

 
$
52

 
$
(168
)
 
$
11


 
Three Months Ended March 31, 2011
 

Parent Company
 

Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 


Eliminations
 


Consolidated
 
(Dollars in Millions)
Sales
$
38

 
$
368

 
$
1,724

 
$
(280
)
 
$
1,850

Cost of sales
99

 
278

 
1,610

 
(280
)
 
1,707

Gross margin    
(61
)
 
90

 
114

 

 
143

Selling, general and administrative expenses
23

 
13

 
60

 

 
96

Restructuring and other expenses
4

 

 
(2
)
 

 
2

Operating (loss) income        
(88
)
 
77

 
56

 

 
45

Interest expense, net
12

 
(3
)
 

 

 
9

Equity in net income of non-consolidated affiliates

 

 
44

 

 
44

(Loss) income from continuing operations before income taxes and earnings of subsidiaries        
(100
)
 
80

 
100

 

 
80

Provision for income taxes

 
(2
)
 
30

 

 
28

(Loss) income from continuing operations before earnings of subsidiaries    
(100
)
 
82

 
70

 

 
52

Equity in earnings of consolidated subsidiaries
144

 
72

 

 
(216
)
 

Income from continuing operations
44

 
154

 
70

 
(216
)
 
52

Income from discontinued operations, net of tax
(5
)
 
10

 
(1
)
 

 
4

Net income         
39

 
164

 
69

 
(216
)
 
56

Net income attributable to non-controlling interests

 

 
17

 

 
17

Net income attributable to Visteon Corporation        
$
39

 
$
164

 
$
52

 
$
(216
)
 
$
39

Comprehensive income:
 
 
 
 
 
 
 
 
 
Comprehensive income
$
92

 
$
222

 
$
109

 
$
(304
)
 
$
119

Comprehensive income attributable to Visteon Corporation
$
92

 
$
222

 
$
82

 
$
(304
)
 
$
92


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Table of Contents

VISTEON CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEETS

 
March 31, 2012
 

Parent Company
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
 
(Dollars in Millions)
ASSETS
 
 
 
 
 
 
 
 
 
Cash and equivalents
$
65

 
$
40

 
$
591

 
$

 
$
696

Accounts receivable, net
287

 
665

 
1,124

 
(885
)
 
1,191

Inventories, net
21

 
25

 
335

 

 
381

Other current assets
27

 
43

 
349

 

 
419

Total current assets    
400

 
773

 
2,399

 
(885
)
 
2,687

 


 


 


 


 
 
Property and equipment, net
87

 
75

 
1,222

 

 
1,384

Investment in affiliates
1,969

 
1,601

 

 
(3,570
)
 

Equity in net assets of non-consolidated affiliates

 

 
679

 

 
679

Intangible assets, net
81

 
57

 
202

 

 
340

Other non-current assets
13

 
23

 
59

 
(27
)
 
68

Total assets    
$
2,550

 
$
2,529

 
$
4,561

 
$
(4,482
)
 
$
5,158

 
 


 


 


 


LIABILITIES AND SHAREHOLDERS’ EQUITY
 


 


 


 


Short-term debt, including current portion of long-term debt
$
139

 
$
18

 
$
257

 
$
(321
)
 
$
93

Accounts payable
187

 
240

 
1,286

 
(558
)
 
1,155

Other current liabilities
54

 
27

 
377

 

 
458

Total current liabilities    
380

 
285

 
1,920

 
(879
)
 
1,706

 


 


 


 


 
 
Long-term debt
500

 

 
37

 
(34
)
 
503

Employee benefits
241

 
32

 
144

 

 
417

Other non-current liabilities
31

 
7

 
403

 

 
441

 


 


 


 


 


Shareholder