Visteon, Ford Sign Memorandum of Understanding for New Business Arrangement
Plan would streamline Visteon's North American operations, improve Visteon's cost-competitiveness and balance its customer and geographic footprint
VAN BUREN TOWNSHIP, Mich., May 25 -- Visteon Corporation has signed a memorandum of understanding with Ford Motor Company that provides for significant structural changes to Visteon's North American manufacturing operations. When finalized, the transaction is expected to increase Visteon's competitiveness by streamlining and improving the cost structure of its North American operations.
"This is a milestone agreement which, upon completion, will create a more competitive business structure for Visteon in the United States and remove a number of structural barriers to the company's long-term sustainable success," said Mike Johnston, Visteon's chairman-elect and chief executive officer. "Visteon will have a more competitive North American structure, a more balanced global customer portfolio and a healthy regional mix. We will be able to accelerate our focus on products most valued by our customers and be well-positioned for growth."
Going forward, a smaller, leaner Visteon will focus its engineering and capital resources on products that have been generating significant new business with major vehicle manufacturers -- interiors, climate control and electronics, including lighting. Visteon has significant global scale in these products and intends to strengthen its position through a more focused investment in capital, people and technology.
"The completion of this transaction will be a significant step forward for Visteon. We will now have the opportunity to appropriately size our operations on a global basis," said Johnston. "This positions us to achieve our vision of being a world-class automotive supplier. In every aspect of our business, we're strengthening Visteon as a global competitor. However, we will need to take significant additional restructuring actions over the next several years to bring our vision to full fruition."
Key aspects of the proposed agreement include:
* Transfer of manufacturing facilities and other locations listed below
and certain associated assets, including machinery, equipment, tooling,
inventory, purchase and supply contracts, and prepaid assets to a
separate entity that will be acquired by Ford. Following the closing of
the transaction, Visteon will not have any ownership of this new
entity.
* Termination of the current leasing arrangements for approximately
17,400 Ford-UAW employees.
* Relief of Visteon's remaining liability, including about $1.5 billion
of previously deferred gains, related to Ford-UAW post-retirement
health care and life insurance benefit obligations (OPEB) for former
assigned employees and retirees and certain salaried retirees, totaling
about $2 billion.
* Transfer of all assets in the Visteon Corporation UAW Voluntary
Employee Beneficiary Association (VEBA) to the Ford-UAW VEBA.
* Ford would agree to reimburse up to $550 million of further
restructuring actions by Visteon.
* Payment of transferred inventory based on net book value at the time of
closing.
* Upon the signing of the definitive agreement, Ford will provide a
secured loan of $250 million to refinance Visteon's public notes due
August, 1, 2005. Visteon will repay the loan when the transaction is
closed.
* Visteon will issue to Ford warrants to purchase 25 million shares of
Visteon stock at an exercise price of $6.90 per share.
Under the proposed arrangement, Visteon will also provide transition services, such as information technology, human resources and accounting support to facilitate the operations of the Ford-managed legal entity. These services will be available to the Ford-managed legal entity at cost for up to 39 months after closing the transaction, and for a period thereafter at an agreed upon mark-up. In addition, certain salaried and hourly employees will be leased from Visteon and will be directly assigned to support the operations of the Ford-managed legal entity. These resources will be leased at cost from Visteon until transitioned to a subsequent buyer.
The non-binding memorandum of understanding is subject to certain customary conditions, regulatory approvals and the ratification of the affected Ford-UAW members assigned to Visteon. Visteon and Ford expect to sign a definitive agreement on or before August 1, 2005 and close the transaction by the end of the third quarter of 2005.
Transferred Plants and Facilities
At closing, Visteon will transfer the following plants and facilities, in alphabetical order by location:
Plant / Facility Location Primary Operation Bellevue Bellevue, Ohio Service Parts Autovidrio Chihuahua, Mexico Glass El Jarudo Chihuahua, Mexico Powertrain Chesterfield Chesterfield, Michigan Interior Commerce Park South Dearborn, Michigan Engineering/Support Glass Labs Dearborn, Michigan Glass Product Assurance Center Dearborn, Michigan Engineering Visteon Technical Center Product Dearborn, Michigan Engineering/Support Indianapolis Indianapolis, Indiana Chassis Kansas City VRAP Kansas City, Missouri Interior Carlite Automotive Lebanon, Tennessee Glass Milan Milan, Michigan Powertrain / Exterior Monroe Monroe, Michigan Chassis Nashville Nashville, Tennessee Glass Lamosa I, II, III Nuevo Laredo, Mexico Chassis / Powertrain Vitro Flex Nuevo Leon, Mexico Glass Sheldon Road Plymouth, Michigan Climate Control Saline Saline, Michigan Interior Sandusky Sandusky, Ohio Powertrain / Exterior Sterling Sterling Heights, Michigan Chassis Tulsa Tulsa, Oklahoma Glass Utica Utica, Michigan Interior / Exterior Rawsonville Ypsilanti, Michigan Powertrain Ypsilanti Ypsilanti, Michigan Powertrain A Leaner, More Competitive Visteon
The agreement will reshape Visteon from a company that had $18.7 billion in revenue in 2004 to a leaner, more competitive $11.4 billion organization, based on estimated 2005 pro forma revenue.
"Visteon is extremely well-positioned around the world, with strong systems and engineering expertise and manufacturing capabilities serving our customers on a 24 / 7 schedule," Johnston said. "This agreement begins to place our North American structural issues behind us and we are preparing to restructure to be a more efficient, productive and competitive Tier I supplier."
Upon completion of the transactions, Visteon will have a more balanced regional sales mix. Based on 2005 estimated pro forma revenue, regions outside North America would represent about 60 percent of Visteon's total sales -- up from 30 percent in 2004. Global revenue would be more equally distributed between North America and Europe with Asia Pacific accounting for the remaining 20 percent of sales. Including unconsolidated sales from joint ventures in the Asia Pacific region, Visteon's geographic sales mix would become more balanced across all regions.
Visteon's customer portfolio would also gain balance as sales to customers other than Ford would increase to nearly 50 percent of the company's total global revenue, up from the 2004 level of 30 percent.
"Through the proposed Ford agreement and additional restructuring activities that will need to be implemented, Visteon has defined a path to profitability that builds on its previous operational improvements and restructuring actions", said Jim Palmer, executive vice president and chief financial officer. "While this agreement places the company on track for sustainable long-term success, we will continue efforts to improve our operational and financial performance," he said.
The completion of the transaction contemplated by the memorandum of understanding with Ford will allow Visteon to strengthen its global competitive position in interiors, climate, electronics and lighting. On a limited basis in Europe, Visteon will continue to serve customers in certain chassis and powertrain products lines. Visteon's Aftermarket operations in North America and Europe will continue to offer mobile electronics and underhood parts. The transfer of operations to the new entity will remove glass products from Visteon's aftermarket product portfolio.
Visteon expects that the transaction will result in a net gain in the range of about $450 -- $650 million depending upon the actual amount of assets transferred. It is expected that Visteon would recognize a non-cash charge of approximately $1.3 billion in the second quarter offset by the gains primarily associated with the relief of liabilities associated with the transaction upon closing of the transaction at the end of the third quarter.
Cash and Liquidity
Visteon and Ford also amended their March 10 Funding Agreement to further change the payment terms for certain components supplied by Visteon in the United States and received from and after June 1, 2005 to an average 18 days through July 31, 2005, then 22 days from August 1, 2005 to December 31, 2005. If the transaction is completed, payment terms would continue at 22 days through December 31, 2006. Payment terms would be 26 days in 2007. Effective January 1, 2008, the payment terms would be increased to 34.5 days and effective Jan. 1, 2009, normal payment terms would apply.
On Friday, May 20, 2005, Visteon received amendments from its lenders under its major credit facilities that will permit it to delay delivery of its first quarter 2005 financials until July 29, 2005. Further, Visteon is currently in discussions with its global credit line banks regarding its financing alternatives, including the renewal or replacement of its 364 day facility.
Visteon Corporation is a leading full-service supplier that delivers consumer-driven technology solutions to automotive manufacturers worldwide and through multiple channels including the global automotive aftermarket. Visteon has about 70,000 employees and a global delivery system of more than 200 technical, manufacturing, sales and service facilities located in 24 countries.
