Visteon Announces Third-Quarter 2008 Results
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"Visteon has taken aggressive actions designed to reduce spending and control costs, and we have addressed 28 of the 30 original planned facilities under our three-year plan," said Donald J. Stebbins, president and chief executive officer. "However, extremely difficult market conditions continue to impact the automotive industry, particularly in North America. With the current state of the credit markets and related consumer concerns, we are also seeing slowing production volumes in both Western Europe and the Asia Pacific region. As a result, we will continue to aggressively align our resources with market demand."
Recent additional restructuring actions included the following:
In August, Visteon completed the sale of its interiors operations conducted at its Halewood, England, facility to International Automotive Components Group Limited Europe (IAC Europe). The Halewood facility is dedicated to the assembly and sequencing of cockpit systems and consoles to Jaguar Land Rover's Halewood operation. Visteon's Halewood facility had 2007 sales of approximately $150 million and operated on close to a break-even basis. The nearly 150 employees at the facility were also transferred to IAC Europe.
Visteon reduced hourly and salaried headcount at its facilities in Mexico. These reductions resulted from operating efficiencies and aligning headcount with lower North American production levels. Approximately 880 employees have been separated and Visteon has recorded $8 million of restructuring charges, all of which are eligible for reimbursement from the restructuring escrow account.
In addition, Visteon reduced its global hourly workforce by approximately 1,200 during the third quarter.
Visteon recently implemented a number of programs to reduce its global salaried workforce by more than 800 positions. In connection with these reduction programs, Visteon recorded charges of $25 million during the third quarter and expects total charges related to these programs to be approximately $60 million. The remaining charges, which will be recognized over the coming months, are eligible for reimbursement from the escrow account. During the third quarter, about 150 employees were separated from the company, and nearly all of the remaining affected employees are expected to depart the company by the end of the first quarter 2009. Visteon expects to realize more than $60 million of total annual savings from these actions.
In October, the company amended its other post-retirement employee benefits (OPEB) for certain former employees at two U.S. facilities that were closed in the past year. Visteon eliminated company-sponsored prescription drug benefits for the plants' Medicare-eligible retirees, spouses and dependents effective Jan. 1, 2009. This revision, combined with the contract that was ratified by the union representing hourly workers at Visteon's Pennsylvania facility (as described below), is expected to reduce OPEB liabilities by nearly $100 million. Additionally, the company expects to recognize a gain of $15 million in fourth quarter 2008 related to the curtailment of future benefit eligibility.
Update on Three-year Improvement Plan and ACH Agreements
Visteon has completed 28 of the 30 previously identified restructuring activities under its three-year improvement plan. Recently completed actions include:
In early October, hourly employees at Visteon's Pennsylvania facility approved an extension of their contract with the company through March 13, 2011, which included changes related to other post-retirement employee benefits. The agreement, covering approximately 250 UAW-represented employees at the facility, significantly improves the cost structure of the facility and provides additional future flexibility for the operation.
In July, Visteon completed the sale of operations at its Swansea, Wales, facility to Linamar Corporation. The Swansea operation, which was Visteon's largest in the UK, generated negative gross margin of approximately $40 million on sales of approximately $80 million during 2007. The company's third quarter 2008 results include a $16 million loss associated with completion of this sale.
Also in July, Visteon finalized agreements with customers supported by its remaining UK plants to address ongoing operating losses.
-- In August, Visteon amended a number of agreements with Ford Motor Company and Automotive Components Holdings, LLC (ACH) initially related to the 2005 ACH-related transactions. The reimbursement agreement with Ford was amended to require Ford to reimburse Visteon for certain severance and other qualifying benefits, as defined in such agreement, relating to the termination of salaried employees leased to ACH, without a cap or cost sharing by Visteon. The escrow agreement with Ford was amended to provide an additional $50 million of restructuring funds into the escrow account for first-dollar funding of restructuring and other qualifying expenses.
Third Quarter 2008 Results
For third quarter 2008, total sales were $2.11 billion, including product sales of $2.01 billion and services revenue of $100 million. Product sales decreased by about $400 million year-over-year as lower production and sourcing actions net of new business reduced sales by about $275 million, divestitures and closures reduced sales by about $200 million and favorable foreign currency of approximately $75 million was a partial offset. The company experienced lower sales across all of the regions in which it operates, reflecting decreased production volumes by its key customers. The largest reduction occurred in North America, where Ford production was lower by approximately 30 percent and Nissan truck production was lower by more than 60 percent.
Product gross margin for third quarter 2008 was $42 million, compared with $97 million a year earlier. Favorable net cost performance, including restructuring savings, was more than offset by the impact of lower product sales.
For third quarter 2008, the company reported a net loss of $188 million, or $1.45 per share. This compares with a net loss of $109 million, or $0.84 per share, in the same period a year ago. Third quarter 2008 results include asset impairments and loss on divestitures of $19 million and $42 million in restructuring expenses, of which $39 million is reimbursable from the escrow account. Third quarter results for 2007 included $14 million of asset impairments and $27 million of restructuring expenses that were reimbursable from the escrow account. The provision for income taxes was $31 million for the third quarter 2008, compared with $20 million in the same period a year ago. EBIT-R for third quarter 2008 was negative $97 million, compared with negative $33 million in the prior year.
Nine Month 2008 Results
For the first nine months of 2008, sales from continuing operations were $7.88 billion, including $7.53 billion of product sales. Product sales decreased $471 million from the first nine months of 2007, as divestitures and closures of approximately $800 million and volume and sourcing of approximately $105 million were partially offset by nearly $420 million of favorable foreign currency. Services revenue for the first nine months of $345 million decreased $62 million from the same period in 2007.
Product gross margin for the first nine months of 2008 was $466 million, increasing $100 million from the same period a year ago. This increase reflects positive net cost performance and favorable currency, partially offset by the impact of lower production volumes and plant closures and divestitures.
Visteon reported a net loss of $335 million or $2.59 per share for the first nine months of 2008, compared with a net loss of $329 million, or $2.54 per share, for the same period a year ago. First nine month results for 2008 included $117 million of restructuring expenses and $81 million of reimbursements from the escrow account, and $70 million of asset impairments and loss on divestitures. The company's provision for income taxes totaled $131 million for the first nine months of 2008, an increase of $66 million from the same period a year ago. EBIT-R increased $96 million from the first nine months of 2007 to a positive $32 million.