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 JuneSeptember 30, 2009, or
  
     
o 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
(State of incorporation)
 
38-3519512
(I.R.S. employer
Identification number)
One Village Center Drive, Van Buren Township, Michigan
(Address of principal executive offices)
 48111
(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 ofRegulation 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         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” inRule 12b-2 of the Exchange Act. (Check one):
 
Large Accelerated Filer          Accelerated Filer          Non-Accelerated Filer          Smaller Reporting Company   ü  
(Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Exchange Act).  Yes         No  ü  
 
As of August 3,October 23, 2009, the Registrant had outstanding 130,378,272130,334,131 shares of common stock, par value $1.00 per share.
 
Exhibit index located on page number 59.63.
 


 

 
VISTEON CORPORATION AND SUBSIDIARIES
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNESEPTEMBER 30, 2009

INDEX
 
     
  Page No.
 
    
    
  2 
  3 
  4 
  5 
  3338 
  4958 
  5160 
Part II — Other Information    
  5261 
  52
54
5561 
  5561 
  5662 
  5763 
 EX-10.4
EX-10.5
EX-10.6EX-10.1
 EX-12.1
 EX-31.1
 EX-31.2
 EX-32.1
 EX-32.2


1


 
PART I
 
FINANCIAL INFORMATION
 
ITEM 1. FINANCIAL STATEMENTS
 
VISTEON CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
                                
 Three Months Ended
 Six Months Ended
  Three Months Ended
 Nine Months Ended
 
 June 30 June 30  September 30 September 30 
 2009 2008 2009 2008  2009 2008 2009 2008 
 (Dollars in Millions, Except Per Share Data)  (Dollars in Millions, Except Per Share Data) 
Net sales                                
Products $1,482  $2,781  $2,777  $5,520  $1,672  $2,010  $4,449  $7,530 
Services  87   128   144   251   61   110   205   361 
                  
  1,569   2,909   2,921   5,771   1,733   2,120   4,654   7,891 
Cost of sales                                
Products  1,403   2,551   2,654   5,096   1,557   1,968   4,211   7,064 
Services  86   127   142   249   60   109   202   358 
                  
  1,489   2,678   2,796   5,345   1,617   2,077   4,413   7,422 
                  
Gross margin
  80   231   125   426   116   43   241   469 
Selling, general and administrative expenses  97   156   205   304   95   138   300   442 
Restructuring expenses  18   29   45   75   27   42   72   117 
Reimbursement from escrow account     18   62   42 
Reimbursement from escrow and accommodation agreements  4   39   66   81 
Reorganization items  7      7      23      30    
Deconsolidation gain        95            95    
Asset impairments and loss on divestitures     11      51      19      70 
                  
  
Operating (loss) income
  (42)  53   25   38 
Operating loss
  (25)  (117)     (79)
Interest expense  47   55   102   112   8   48   110   160 
Interest income  2   13   6   28   2   10   8   38 
Equity in net income of non-consolidated affiliates  19   15   26   30   26   5   52   35 
                  
  
(Loss) income before income taxes
  (68)  26   (45)  (16)
Loss before income taxes
  (5)  (150)  (50)  (166)
Provision for income taxes  31   49   45   100   18   31   63   131 
                  
  
Net loss
  (99)  (23)  (90)  (116)  (23)  (181)  (113)  (297)
Net income attributable to noncontrolling interests  13   19   20   31   15   7   35   38 
                  
  
Net loss attributable to Visteon Corporation
 $(112) $(42) $(110) $(147) $(38) $(188) $(148) $(335)
                  
  
Per Share Data:
                                
Net loss per share attributable to Visteon Corporation $(0.87) $(0.32) $(0.85) $(1.14) $(0.29) $(1.45) $(1.14) $(2.59)
 
See accompanying notes to the consolidated financial statements.


2


VISTEON CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS
 
                
 (Unaudited)
    (Unaudited)
   
 June 30
 December 31
  September 30
 December 31
 
 2009 2008  2009 2008 
 (Dollars in Millions)  (Dollars in Millions) 
ASSETS
ASSETS
ASSETS
Cash and equivalents $647  $1,180  $712  $1,180 
Restricted cash  95      102    
Accounts receivable, net  998   989   1,126   989 
Inventories, net  329   354   360   354 
Other current assets  208   249   224   249 
          
Total current assets
  2,277   2,772   2,524   2,772 
Property and equipment, net  2,053   2,162   2,039   2,162 
Equity in net assets of non-consolidated affiliates  237   220   266   220 
Other non-current assets  80   94   78   94 
          
Total assets
 $4,647  $5,248  $4,907  $5,248 
          
LIABILITIES AND SHAREHOLDERS’ DEFICIT
LIABILITIES AND SHAREHOLDERS’ DEFICIT
LIABILITIES AND SHAREHOLDERS’ DEFICIT
Short-term debt, including current portion of long-term debt and debt in default $136  $2,697  $136  $2,697 
Accounts payable  780   1,058   952   1,058 
Accrued employee liabilities  161   228   159   228 
Other current liabilities  200   288   262   288 
          
Total current liabilities
  1,277   4,271   1,509   4,271 
Long-term debt  62   65   66   65 
Employee benefits  409   1,031   416   1,031 
Deferred income taxes  136   139   149   139 
Other non-current liabilities  343   365   340   365 
Liabilities subject to compromise  3,142      3,126    
Shareholders’ deficit:                
Preferred stock (par value $1.00, 50 million shares authorized, none outstanding)            
Common stock (par value $1.00, 500 million shares authorized, 131 million shares issued, 130 million and 131 million shares outstanding, respectively)  131   131   131   131 
Stock warrants  127   127   127   127 
Additional paid-in capital  3,407   3,407   3,407   3,407 
Accumulated deficit  (4,814)  (4,704)  (4,852)  (4,704)
Accumulated other comprehensive income  165   157   201   157 
Other  (5)  (5)  (5)  (5)
          
Total Visteon Corporation shareholders’ deficit  (989)  (887)  (991)  (887)
Noncontrolling interests  267   264   292   264 
          
Total shareholders’ deficit
  (722)  (623)  (699)  (623)
          
Total liabilities and shareholders’ deficit
 $4,647  $5,248  $4,907  $5,248 
          
 
See accompanying notes to the consolidated financial statements.


3


VISTEON CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
                
 Six Months Ended
  Nine Months Ended
 
 June 30  September 30 
 2009 2008  2009 2008 
 (Dollars in Millions)  (Dollars in Millions) 
Operating activities
                
Net loss $(90) $(116) $(113) $(297)
Adjustments to reconcile net loss to net cash (used by) provided from operating activities:        
Adjustments to reconcile net loss to net cash used by operating activities:        
Depreciation and amortization  162   225   255   327 
Deconsolidation gain  (95)     (95)   
Asset impairments and loss on divestitures     51      70 
Gain on asset sales  (2)  (17)
Gain (loss) on asset sales  1   (15)
Equity in net income of non-consolidated affiliates, net of dividends remitted  (20)  (26)  (46)  (30)
Reorganization items  30    
Other non-cash items  (6)  (26)  (18)  (43)
Changes in assets and liabilities:                
Accounts receivable  (39)  (35)  (142)  204 
Inventories  24   (17)  6   (16)
Accounts payable  (64)  43   50   (259)
Other assets and liabilities  (105)  (75)  (79)  (94)
          
Net cash (used by) provided from operating activities  (235)  7 
Net cash used by operating activities  (151)  (153)
Investing activities
                
Capital expenditures  (58)  (154)  (87)  (230)
Cash associated with deconsolidation  (11)     (11)   
Proceeds from divestitures and asset sales  4   59   5   65 
Other     4      5 
          
Net cash used by investing activities  (65)  (91)  (93)  (160)
Financing activities
                
Short-term debt, net  (19)  34   (24)  24 
Cash restriction  (95)     (102)   
Proceeds from issuance of debt, net of issuance costs  56   185   56   185 
Principal payments on debt  (119)  (32)  (119)  (78)
Repurchase of unsecured debt securities     (337)     (337)
Other, including book overdrafts  (58)  (32)
Other, including overdrafts  (56)  (62)
          
Net cash used by financing activities  (235)  (182)  (245)  (268)
Effect of exchange rate changes on cash  2   14   21   (44)
          
Net decrease in cash and equivalents  (533)  (252)  (468)  (625)
Cash and equivalents at beginning of year
  1,180   1,758   1,180   1,758 
          
Cash and equivalents at end of period
 $647  $1,506  $712  $1,133 
          
 
See accompanying notes to the consolidated financial statements.


4


 
VISTEON CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
NOTE 1. Description of Business and Company Background
 
Visteon Corporation (the “Company” or “Visteon”) is a leading global 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 30,000 employees and a network of manufacturing operations, technical centers, sales offices and joint ventures in every major geographic region of the world.
 
Reorganization under Chapter 11 of the U.S. Bankruptcy Code
 
On May 28, 2009 (the “Petition Date”), 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”). The reorganization cases are being jointly administered as CaseNo. 09-11786 under the caption “In re Visteon Corporation, et al” (hereinafter referred to as the “Chapter 11 Proceedings”). The Debtors continue to operate their businesses as“debtors-in-possession” (“DIP”) under the jurisdiction of the Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Court. The Company’s other subsidiaries, primarilynon-U.S. subsidiaries, have been excluded from the Chapter 11 Proceedings and continue to operate their businesses without supervision from the Court and are not subject to the requirements of the Bankruptcy Code.
 
The Chapter 11 Proceedings were initiated in response to sudden and severe declines in global automotive production during the latter part of 2008 and early 2009 and the adverse impact on the Company’s cash flows and liquidity. Under the Chapter 11 Proceedings, the Debtors expect to develop and implement a plan to restructure their capital structure to reflect the current automotive industry demand. Additional details regarding the status of the Company’s Chapter 11 Proceedings are included herein under Note 4, “Voluntary Reorganization under Chapter 11 of the United States Bankruptcy Code,” to the consolidated financial statements.
 
Visteon UK Limited Administration
 
On March 31, 2009, in accordance with the provisions of the United Kingdom Insolvency Act of 1986 and pursuant to a resolution of the board of directors of Visteon UK Limited, a company organized under the laws of England and Wales (the “UK Debtor”) and an indirect, wholly-owned subsidiary of the Company, representatives from KPMG (the “Administrators”) were appointed as administrators in respect of the UK Debtor (the “UK Administration”). The UK Administration was initiated in response to continuing operating losses of the UK Debtor and mounting labor costs and their related demand on the Company’s cash flows, and does not include the Company or any of the Company’s other subsidiaries. Under the UK Administration, the UK Debtor, which has operations in Enfield, UK, Basildon, UK and Belfast, UK, is expected to be wound down. The effect of the UK Debtor’s entry into administration was to place the management, affairs, business and property of the UK Debtor under the direct control of the Administrators. Since their appointment, the Administrators have wound down the business of UK Debtor and closed its operations in Enfield, UK, Basildon, UK and Belfast, UK, and made the employees redundant. The Administrators continue to realize the UK Debtor’s assets, comprised mainly of receivables.


5


VISTEON CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 1. Description of Business and Company Background — (Continued)
 
The UK Debtor recorded sales, negative gross margin and net loss of $32 million, $7 million and $10 million, respectively, for the three months ended March 31, 2009. As of March 31, 2009 total assets of $64 million, total liabilities of $132 million and related amounts deferred as “Accumulated other comprehensive income” of $84 million, were deconsolidated from the Company’s balance sheet resulting in a deconsolidation gain of $152 million. The Company also recorded $57 million for contingent liabilities related to the UK Administration, including $45 million of costs associated with former employees of the UK Debtor, for which the Company was reimbursed from the escrow account on a 100% basis.


5


VISTEON CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 1. Description of Business and Company Background — (Continued)
 
Additional amounts related to these items or other contingent liabilities for potential claims under the UK Administration, which may result from (i) negotiations; (ii) actions of the Administrators; (iii) resolution of contractual arrangements, including unexpired leases; (iv) material adverse developments; or other events, may be recorded in future periods. No assurance can be provided that the Company will not be subject to future litigationand/or liabilities related to the UK Administration. Additional liabilities, if any, will be recorded when they become probable and estimable and could materially affect the Company’s results of operations and financial condition in future periods.
 
Transactions with Ford Motor Company
 
The Company transacts a significant amount of commercial activity with Ford Motor Company (“Ford”). The financial statement impact of these commercial activities is summarized in the table below.
 
                                
 Three Months Ended
 Six Months Ended
  Three Months Ended
 Nine Months Ended
 
 June 30 June 30  September 30 September 30 
 2009 2008 2009 2008  2009 2008 2009 2008 
 (Dollars in Millions)  (Dollars in Millions) 
Net Sales
                                
Products $428  $1,010  $826  $1,988  $443  $643  $1,269  $2,631 
Services $86  $124  $143  $241  $61  $106  $205  $347 
 
                
 June 30
 December 31
  September 30
 December 31
 
 2009 2008  2009 2008 
 (Dollars in Millions)  (Dollars in Millions) 
Accounts receivable, net $228  $174  $233  $174 
Postretirement employee benefits $  $113  $  $113 
Liabilities subject to compromise $228  $  $229  $ 
 
On May 13, 2009, the Company entered into certain transactions whereby Ford purchased, assumed and took an assignment of all of the outstanding loans, obligations and other interests of the lenders under the ABL Credit Agreement. As of JuneSeptember 30, 2009, the balance owed to Ford under the ABL Credit Agreement approximated $89 million.was approximately $110 million, including $21 million related to unreimbursed draws on letters of credit. Additionally, as of September 30, 2009 there was approximately $35 million outstanding on undrawn letters of credit.
 
NOTE 2. Basis of Presentation
 
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.


6


VISTEON CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 2. Basis of Presentation — (Continued)
 
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. The Company’s management believes that the disclosures are adequate to make the information presented not misleading when read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report onForm 10-K for the fiscal year ended December 31, 2008, as filed with the SEC. Interim results are not necessarily indicative of full year results.


6


VISTEON CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 2. Basis of Presentation — (Continued)
 
Financial Statement Presentation:  The accompanying consolidated financial statements have been prepared in accordance with AICPA Statement of Position90-7(“SOP 90-7”), “Financial Reporting by Entities in Reorganization under the Bankruptcy Code”U.S. GAAP and on a going concern basis, which contemplates continuity of operations and realization of assets and liquidation of liabilities in the ordinary course of business. However, as a result of the Chapter 11 Proceedings, such realization of assets and liquidation of liabilities, without substantial adjustments to amountsand/or changes of ownership, is highly uncertain.
 
The appropriateness of using the going concern basis for the Company’s financial statements is dependent upon, among other things, the Company’s ability to: (i) obtain sufficient DIP financing; (ii) comply with various orders entered by the Bankruptcy Court in connection with the Chapter 11 Proceedings; (ii) maintain adequate cash on hand; (iii) generate sufficient cash from operations; (iv) achieve confirmation of a plan of reorganization under the Bankruptcy Code; and (v) and achieve profitability following such confirmation.
 
Reclassifications:  Certain prior period amounts have been reclassified to conform to current period presentation.
 
Use of Estimates:  The preparation of 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.
 
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 does not exercise control are accounted for using the equity method. The consolidated financial statements also include the accounts of certain entities in which the Company holds a controlling interest based on exposure to economic risks and potential rewards (variable interests) for which it is the primary beneficiary.
 
Revenue Recognition:  The Company records revenue when persuasive evidence of an arrangement exists, delivery occurs or services are rendered, the sales price or fee is fixed or determinable and collectibility is reasonably assured. The Company delivers 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 and are generally the subject of specific negotiations 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.
Services revenues are recognized as services are rendered and associated costs of providing such services are recorded as incurred. Services revenues and related costs for the first half 2009 included $25 million of contractual reimbursement from Ford under the Amended Reimbursement Agreement for costs associated with the separation of ACH leased employees no longer required to provide such services.


7


 
VISTEON CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
NOTE 2. Basis of Presentation — (Continued)
 
Services revenues are recognized as services are rendered, and associated costs of providing such services are recorded as incurred. Services revenues and related costs for the first nine months of 2009 included $27 million of contractual reimbursement from Ford under the Amended Reimbursement Agreement for costs associated with the separation of ACH leased employees no longer required to provide such services.
Restricted Cash:  Restricted cash includes approximately $80 million under the terms of the ABL Credit Agreement and $12$20 million pursuant to a cash collateral order of the Court.
 
Subsequent Events:  The Company evaluated all transactions for subsequent event impacts on the periods presented through August 6,October 29, 2009.
 
NOTE 3. New Accounting Pronouncements
 
In JuneJuly 2009, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 168 (“SFAS 168”), “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles — a replacement of FASB Statement No. 162.” SFAS 168 appoints the FASB Accounting Standards Codification (“ASC”) as the only authoritative source of generally accepted accounting principles. SFAS 168The ASC is effective for interim and annual reporting periods ending after September 15, 2009. The Company does not expect SFAS 168 to haveimplemented use of the ASC without a significant impact on its consolidated financial statements.
 
In June 2009, the FASB issued Statement of Financial Accounting Standards No. 167 (“SFAS 167”), “Amendments to FASB Interpretation No. 46(R),”guidance which amends the consolidation guidanceprovisions that appliesapply to Variable Interest Entities (“VIEs”). SFAS 167This guidance is effective for fiscal years that begin after November 15, 2009. The2009 and the Company is currently evaluating the impact of SFAS 167this guidance may have on its consolidated financial statements.
 
In May 2009 the FASB issued Statement of Financial Accounting Standards No. 165 (“SFAS 165”), “Subsequent Events.” SFAS 165 provides guidance requiring disclosures on management’s assessment of subsequent events, and is effective for interim and annual periods ending after June 15, 2009 and wasthe Company adopted by the Companythis guidance on a prospective basis onas of April 1, 2009 without material impact on its consolidated financial statements.
 
In April 2009,connection with ASC Topic 820, “Fair Value Measurements and Disclosures,” (“ASC 820”) which defines fair value, establishes a framework for measuring fair value and expands disclosure requirements regarding fair value measurements, the FASB issued FASB Staff Position (“FSP”)No. FAS 157-4 (“FSPFAS 157-4”), “Determining Fair Value WhenCompany provided expanded disclosures as of January 1, 2008 without a material impact on its consolidated financial statements. The application of ASC 820 to the VolumeCompany’s nonfinancial assets and Level of Activity forliabilities did not impact the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly.” FSPFAS 157-4 providesCompany’s consolidated financial statements. The Company also adopted related guidance on estimating the fair value when the volume and level of activity have significantly decreased and on identifying circumstances that indicate a transaction is not orderly. FSPFAS 157-4 is effective for interim and annual periods ending afterorderly as of June 15,30, 2009 and was adopted by the Company without material impact on its consolidated financial statements.
 
In April 2009, the FASB issued FSPNo. FAS 107-1 and APB28-1 (“FSPFAS 107-1”), “Interim Disclosures about Fair Value of Financial Instruments.” This FSP requiresguidance requiring disclosures around the fair value of financial instruments for interim reporting periods, including (a) the fair value at the period end and (b) the methods and assumptions used to calculate the fair value. FSPFAS 107-1 wasThe Company adopted by the Companythis guidance without a material impact on its consolidated financial statements.
 
In December 2008, the FASB issued FSP No. FAS 132(R)-1 (“FSP FAS 132(R)-1”), “Employers’ Disclosures about Postretirement Benefit Plan Assets.” This FSP requiresguidance requiring disclosure of (a) how pension plan asset investment allocation decisions are made, (b) the major categories of plan assets, (c) the inputs and valuation techniques used to measure the fair value of plan assets, (d) the effect of fair value measurements using significant unobservable inputs (Level 3) on changes in plan assets and (e) significant concentrations of risk within plan assets. FSP FAS 132(R)-1 is effectiveThese disclosures are required for fiscal years ending after December 15, 2009 and will be adopted by the Company for its annual consolidated financial statements for the fiscal year ending December 31, 2009.


8


 
VISTEON CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
NOTE 3. New Accounting Pronouncements — (Continued)
 
In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133.” This statement requiresguidance requiring disclosure of (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement of Financial Accounting Standards No. 133 and its related interpretations and (c) how derivative instruments and related hedged items affect an entity’s financial position, results of operations and cash flows. This statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008 and was adoptedThese disclosures were provided by the Company on a prospective basis onwith effect from January 1, 2009, as more fully described in Note 17 “Financial Instruments” to the consolidated financial statements.
 
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141(R), “Business Combinations” and Statement of Financial Accounting Standards No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment to ARB No. 51.” These statements changeguidance on the accounting and reporting for business combination transactions and noncontrolling interests in consolidated financial statements. The Company adopted these standardsthis guidance effective January 1, 2009 as more fully described in Note 14 “Shareholders’ Deficit” to the consolidated financial statements.
 
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157 (“SFAS 157”), “Fair Value Measurements.” This statement, which became effective January 1, 2008, defines fair value, establishes a framework for measuring fair value and expands disclosure requirements regarding fair value measurements. The Company adopted the requirements of SFAS 157 as of January 1, 2008 without a material impact on its consolidated financial statements. In February 2008, the FASB issued FASB Staff PositionNo. FAS 157-2 (“FSPFAS 157-2”), “Effective Date of FASB Statement No. 157,” which delayed the effective date of SFAS 157 for nonfinancial assets and nonfinancial liabilities that are recognized or disclosed in the financial statements on a nonrecurring basis to fiscal years beginning after November 15, 2008. The application of SFAS 157 to the Company’s nonfinancial assets and liabilities did not impact the Company’s consolidated financial statements.
NOTE 4. Voluntary Reorganization under Chapter 11 of the United States Bankruptcy Code
 
On May 28, 2009, the Debtors filed voluntary petitions for reorganization relief under the Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. The reorganization cases are being jointly administered as CaseNo. 09-11786 under the caption “In re Visteon Corporation, et al”.al.” The Debtors continue to operate their businesses as“debtors-in-possession” under the jurisdiction of the Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Court. The Company’s other subsidiaries, primarilynon-U.S. subsidiaries, have been excluded from the Chapter 11 Proceedings and continue to operate their businesses without supervision from the Court and are not subject to the requirements of the Bankruptcy Code.


9


VISTEON CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 4. Voluntary Reorganization under Chapter 11 of the United States Bankruptcy Code — (Continued)
 
Implications of Chapter 11 Proceedings
 
Under section 362 of the Bankruptcy Code, the filing of a bankruptcy petition automatically stays 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. Absent an order of the Court, substantially all pre-petition liabilities are subject to settlement under a plan of reorganization. While operating asdebtors-in-possession under the Bankruptcy Code and subject to approval of the Bankruptcy Court or otherwise as permitted in the ordinary course of business, the Debtors, or some of them, may sell or otherwise dispose of assets and liquidate or settle liabilities for amounts other than those reflected in the consolidated financial statements. Further, a confirmed plan of reorganization or other arrangement could materially change the amounts and classifications in the historical consolidated financial statements.
 
Subsequent to the petition date, the Debtors received approval from the Bankruptcy Court to pay or otherwise honor certain pre-petition obligations generally designed to stabilize the Debtors’ operations including employee obligations, tax matters and from limited available funds, pre-petition claims of certain critical vendors, certain customer programs, limited foreign business operations, adequate protection payments and certain other pre-petition claims. Additionally, the Debtors have been paying and intend to continue to pay undisputed post-petition claims in the ordinary course of business.
To successfully emerge from chapter 11, in addition to obtaining exit financing, the Court must confirm a plan of reorganization, the filing of which will depend upon the timing and outcome of numerous ongoing matters in the Chapter 11 Proceedings. The Debtors currently expect to file a plan of reorganization that provides for the Debtors’ emergence from bankruptcy in early to mid 2010, but there can be no assurance that the Court will confirm the Company’s plan of reorganization or that any such plan will be implemented successfully. On October 7, 2009 the Court entered an order extending the Debtors’ exclusive period to file a chapter 11 plan of reorganization until December 10, 2009 and to solicit votes to accept a proposed chapter 11 plan of reorganization until February 10, 2010.


109


 
VISTEON CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
NOTE 4. Voluntary Reorganization under Chapter 11 of the United States Bankruptcy Code — (Continued)
 
The Company’s plan of reorganization will determine the rights and satisfaction of claims of various creditors and security holders. At this time, it is not possible to predict with certainty the effect of the Chapter 11 Reorganization Financing
On May 28, 2009,Proceedings on the Company’s business. The Debtors entered into a commitment letter with Ford (the “DIP Commitment”), pursuantwill include estimates of expected claims dispositions in the plan of reorganization, but the ultimate settlement of those claims will continue to which, among other things, Ford agreed,be subject to the termsuncertain outcome of litigation, negotiations and conditions set forth therein,Court decisions up to provide no less than $125 millionand for a period of financing under the terms of a senior, super-priority DIP revolving credit facility to the Debtors under the Bankruptcy Code (the “DIP Facility”). The terms of the DIP Facility, including the aggregate size thereof and permitted uses thereof, remain subject to contingencies including receipt of commitments from customers of the Debtors other than Ford to participate in the DIP Facility. The DIP Commitment is subject to significant conditions, including, among other things, the execution and delivery of definitive documents acceptable to Ford, agreement on a budget acceptable to Ford as to permitted uses of the DIP Facility and other customary lending conditions that will be set forth in such definitive agreements. While the DIP Commitment expired on June 30, 2009, the Debtors continue to work with Ford and other North America customers to secure DIP financing. However, there is no assurance that the Debtors will be successful in securing such commitments or obtaining sufficient DIP financing in a timeframe or on terms acceptable to the Debtors in order to facilitatetime after a plan of reorganization is confirmed. The Company believes that its presently outstanding equity securities will have no value and will be canceled under any plan of reorganization. For this reason, the Company urges that caution be exercised with respect to existing and future investments in any security of the Company.
 
The Debtors also continue to work with other customers on a global basis to provide liquidity. During July 2009, the Company executed support agreements with certain European customers that provide for additional liquidity through certain lump sum payments for recoveryStatus of invested research and engineering costs, accelerated payment terms and other commercial arrangements. Additionally, during July 2009, the Debtors sold their 80% interest in Halla Climate Systems Alabama Corp. (“Halla Alabama”) to the Debtors’ 70% owned joint venture, Halla Climate Control Corporation (“Halla Korea”) under Bankruptcy Code Section 363.Chapter 11 Proceedings
 
The Debtors are currently funding post-petition operations under a temporary cash collateral order from the Court. There can be no assurance that such cash collateral funds will be sufficient to meet the Debtors ongoing cash needs or that the Debtors will be successful in extending the duration of the cash collateral order with the Court to continue operating asdebtors-in-possession absent an approved DIP financing arrangement. Even
The Debtors continue to work with their customers on a global basis to facilitate the reorganization of the Company’s business. During July 2009, the Company executed support agreements with certain European customers that provide for, among other things, accelerated payment terms, price increases, restructuring cost reimbursements and settlement payments for invested research and engineering costs and other unrecovered amounts. During the three-month period ended September 30, 2009 the Company received non-refundable settlement payments of approximately $40 million in the event that the Debtors secure sufficient DIP financing to implement a planconnection with these agreements and anticipates receipt of reorganization, the termsadditional non-refundable settlement payments of such DIP financing may require the Debtors to implement substantial additional restructuring measures including facility closures, business exitsapproximately $30 million on or before each of June 30, 2010 and asset sales. Such activities could materially change the amounts and classifications reported in the consolidated financial statements, which do not give effect to any adjustments to the carrying value of assets or amounts of liabilities that might be necessary pursuantJune 30, 2011, subject to the terms and conditions of anythese agreements. The Company recorded $9 million of revenue associated with these settlement payments during the third quarter of 2009, with $31 million deferred on the balance sheet at September 30, 2009. Additionally, during July 2009, the Debtors sold their 80% interest in Halla Climate Systems Alabama Corp. (“Halla Alabama”) to the Debtors’ 70% owned joint venture, Halla Climate Control Corporation under Bankruptcy Code Section 363 for cash proceeds to the Debtors’ of $37 million.
On September 17, 2009, the Debtors filed a motion with the Court seeking authority to enter into a customer accommodation agreement and related access and security agreement (together, the “GM Accommodation Agreement”) with General Motors Corporation (“GM”). Pursuant to the GM Accommodation Agreement, GM has agreed to, among other things, pay approximately $8 million in cash surcharge payments above the purchase order price for GM component parts produced; reimburse up to $10 million for restructuring costs associated with the consolidation of certain of the Company’s Mexican facilities; reimburse $4 million of engineering, design and development support costs; accelerate payment terms; reimburse the Company for costs associated with the wind-down of operations related to the production of interior and fuel tank GM component parts; and pay approximately $8 million in cure payments in connection with the assumption and assignment of purchase orders with the Company in the Motors Liquidation Company (f/k/a General Motors Corporation) chapter 11 case.


10


VISTEON CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 4. Voluntary Reorganization under Chapter 11 of the United States Bankruptcy Code — (Continued)
In exchange for these benefits, the Company agreed to continue producing and delivering component parts to GM during the term of the GM Accommodation Agreement as well as provide considerable assistance to GM in re-sourcing production to other suppliers. Also, the Company agreed to build an inventory bank for GM, provided GM pays for such inventory on an accelerated basis and covers the Company’sout-of-pocket expenses in maintaining and handling the inventory. In addition, the GM Accommodation Agreement grants GM an option to purchase equipment and tooling owned by the Company that is exclusively used to manufacture GM component parts, provides GM with a right to access the Company’s facilities if the Company ceases production and grants to GM a security interest in certain operating assets that would be necessary for GM component part production. In general, the rights and benefits inuring to the Company and GM pursuant to the GM Accommodation Agreement expire on the earlier of the date that resourcing of production is completed or March 31, 2010. The Court entered an order approving the Debtors motion with respect to the GM Accommodation Agreement on October 7, 2009.
On October 2, 2009, the Debtors filed a motion with the Court seeking authority to enter into a customer accommodation agreement and related access and security agreement (together, the “Chrysler Accommodation Agreement”) with Chrysler Group LLC (“Chrysler”). The effectiveness of the Chrysler Accommodation Agreement is contingent upon approval by the Court. Pursuant to the Chrysler Accommodation Agreement, Chrysler has agreed to, among other things, pay surcharge payments to the Company above the purchase order price for Chrysler component parts produced by the Company in an aggregate amount of $13 million; pay approximately $5 million for the purchase of certain tooling used at the Company’s Saltillo, Mexico facility to manufacture Chrysler component parts; purchase certain designated equipment and tooling exclusively used to manufacture Chrysler component parts at the Company’s Highland Park, Michigan and Saltillo, Mexico facilities; reimburse the Company for certain costs associated with the wind-down of certain lines of Chrysler component part production; accelerate payment terms; and pay approximately $13 million to the Company as cure payments in connection with the assumption and assignment of purchase orders with the Company in the Old Carco LLC (f/k/a Chrysler LLC) chapter 11 case.
In exchange for these benefits, the Company will continue to produce and deliver component parts to Chrysler during the term of the Chrysler Accommodation Agreement, as well as provide assistance to Chrysler in re-sourcing certain lines of production. The Company also has agreed to build an inventory bank for Chrysler, provided that Chrysler will pay for such parts in accordance with the payment terms set forth in the Chrysler Accommodation Agreement and will cover the Company’s incremental costs incurred in the production of such parts to the extent such costs exceed purchase order prices. The Company will also grant Chrysler an option to purchase certain machinery and equipment exclusively used to manufacture Chrysler component parts, and has agreed to seek Court approval for the sale of the Company’s Highland Park, Michigan and Saltillo, Mexico facilities as going concerns if Chrysler designates such facilities for sale prior to the termination date of the Chrysler Accommodation Agreement. The Chrysler Accommodation Agreement provides Chrysler with a right to access the Company’s facilities if the Company ceases production and grants to Chrysler a security interest in certain operating assets that would be necessary for Chrysler component part production. In general, the rights and benefits inuring to the Company and Chrysler pursuant to the Chrysler Accommodation Agreement expire on the earlier of the date that resourcing of production is completed or March 31, 2010.


11


VISTEON CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 4. Voluntary Reorganization under Chapter 11 of the United States Bankruptcy Code — (Continued)
On October 23, 2009, the Debtors filed a motion with the Court seeking authority to, among other things, enter into (i) a customer accommodation agreement and related access and security agreement (together, the “Nissan Accommodation Agreement”) with Nissan North America, Inc. (“Nissan”), and (ii) an asset purchase agreement (the “Nissan Purchase Agreement”) among the Company, GCM-Visteon Automotive Systems, LLC, GCM-Visteon Automotive Leasing Systems, LLC, MIG-Visteon Automotive Systems, LLC, and VC Regional Assembly & Manufacturing, LLC (collectively, the “Sellers”), Haru Holdings, LLC (the “Buyer”) and Nissan. The effectiveness of the Nissan Accommodation Agreement is contingent upon approval by the Court.
Pursuant to the Nissan Purchase Agreement, the Sellers have agreed to sell to the Buyer certain assets, intellectual property, agreements and rights (the “Assets”) primarily related to the Sellers’ automobile cockpit module, front end module, and interior manufacturing and assembly businesses located at their plants in LaVergne, Tennessee, Smyrna, Tennessee, Tuscaloosa, Alabama, and Canton, Mississippi, as well as certain other direct-shipment sourcing arrangements. The Nissan Purchase Agreement provides that the Buyer will make the following payments to the Sellers:
• $11 million, representing the orderly liquidation value of the facilities and related equipment being sold in accordance with the Nissan Purchase Agreement;
• An amount equal to the orderly liquidation value of certain off-site tooling;
• An agreed upon purchase order amount for certain of the Sellers’ inventory;
• A $20 million cash surcharge payment, to be paid in six installments subject to certain conditions;
• Costs to cure assumed contracts; and
• Reimbursement for costs associated with thewind-down and transition of the Assets.
The amounts of these payments are subject to adjustment in accordance with the Nissan Purchase Agreement. The Nissan Purchase Agreement also contains customary representations, warranties, indemnities, covenants and conditions to closing, including the approval of the Court.
Pursuant to the Nissan Accommodation Agreement, Nissan has agreed to, among other things, accelerate its payment terms on outstanding purchase orders, limit its ability to set-off against accounts receivables owing to the Company and forbear from re-sourcing component parts to a third party supplier during the term of the Nissan Accommodation Agreement. The Company will, among other things, continue to produce and deliver component parts to Nissan during the term of the Nissan Accommodation Agreement and will build an inventory bank for Nissan at its request (provided that Nissan will pay for such inventory bank parts on an accelerated basis and will also cover the Company’sout-of-pocket expenses in maintaining and handling the inventory). The Company will also provide assistance and cooperation to Nissan in preparing for and carrying out the transition of various production lines to other suppliers in the event the Company defaults. Also, the Nissan Accommodation Agreement provides Nissan with an access right to certain facilities if the Company fails to maintain continuity of supply as required.
On October 28, 2009, the Debtors filed a motion with the Court seeking authority to enter into a Letter of Credit Reimbursement and Security Agreement that provides for a committed $40 million letter of credit facility that expires on September 30, 2010 (“LOC Facility”). Amounts drawn under the LOC Facility would be subject to a fee of 0.65% per annum of the outstanding balance and would be secured by cash collateral. Amounts undrawn would be subject to a fee of 0.40% per annum of the undrawn balance.


12


VISTEON CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 4. Voluntary Reorganization under Chapter 11 of the United States Bankruptcy Code — (Continued)
On October 28, 2009, the Debtors filed a motion with the Court seeking authority to borrow up to $150 million under the terms of a proposed senior secured super-priority primingdebtor-in-possession credit and guarantee agreement (the “Proposed DIP financing. Additionally, a confirmedFacility”) with certain pre-petition secured term loan lenders (the “DIP Lenders”) and Wilmington Trust Company, as administrative agent. Borrowings under the Proposed DIP Facility would be used to finance working capital, capital expenditures and other general corporate purposes in accordance with an approved budget.
The Proposed DIP Facility would mature on the earliest of (i) six months after the closing of such facility; provided, that the Company may extend it an additional three months, (ii) the effective date of the Debtor’s plan of reorganization, could also materially changeand (c) the amountsdate a sale or sales of all or substantially all of the Company’s and classifications reportedguarantors’ assets is or are consummated under section 363 of the Bankruptcy Code. Borrowing under the Proposed DIP Facility will be secured by, among other things, a first priority perfected security interest in assets that constitute first priority collateral under pre-petition secured term loans and certain otherwise unencumbered assets (including the consolidated financial statements, which do not give effect to any adjustments to the carrying valueassets of assets or amounts of liabilities that might be necessaryVisteon Electronics Corporation), as well as a consequencesecond priority perfected security interest in assets that constitute first priority collateral under the ABL Credit Agreement. The Proposed DIP Facility would also contain other usual and customary affirmative and negative covenants, events of confirmation of a plan of reorganization.
default, indemnification, representations, warranties and conditions.
 
Financial Statement Classification
 
Financial reporting applicable to companies in chapter 11 of the Bankruptcy Code generally does not change the manner in which financial statements are prepared. However, it does require, among other disclosures, that the financial statements for periods subsequent to the filing of the chapter 11 petition distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business.


11


VISTEON CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 4. Voluntary Reorganization under Chapter 11 of the United States Bankruptcy Code — (Continued)
Revenues, Accordingly, revenues, expenses, realized gains and losses and provisions for losses that can be directly associated with the reorganization of the business must behave been reported separately as reorganization items in the Company’s statements of operations. Reorganization items included in the consolidated statements of operations include costs directly related to the Chapter 11 Proceedings, as follows:
 
            
 Three Months Ended
  Three Months Ended
 Nine Months Ended
 
 June 30, 2009  September 30, 2009 September 30, 2009 
 (Dollars in Millions)  (Dollars in Millions) 
Professional fees $6  $21  $27 
Other direct costs  1 
Other direct costs, net  2   3 
        
 $7  $23  $30 
        
 
SOP 90-7 requires thatCash payments for reorganization costs during the balance sheet must distinguish pre-petition liabilities subject to compromise from both those pre-petition liabilities that are not subject to compromise and from post-petition liabilities. Liabilities that may be affected by a plan of reorganization must be reported at the amounts expected to be allowed, even if they may be settled for lesser amounts. The amounts of the various liabilities that are subject to compromise are set forth below. These amounts represent the Company’s estimate of known or potential pre-petition claims to be resolved in connection with the Chapter 11 Proceedings. Such claims remain subject to future adjustments, which may result from (i) negotiations; (ii) actions of the Bankruptcy Court; (iii) disputed claims; (iv) rejection of executory contracts and unexpired leases; (v) the determination as to the value of any collateral securing claims; (vi) proofs of claim; or (vii) other events. Liabilities subject to compromise include the following:
     
  June 30 2009 
  (Dollars in Millions) 
 
Debt $2,462 
Employee liabilities  499 
Accounts payable  142 
Interest payable  31 
Other accrued liabilities  8 
     
  $3,142 
     
Substantially all of the Company’s pre-petition debt is in default, including $1.5 billion principal amount due under the seven-year secured term loans due 2013; $862 million principal amount under various unsecured notes due 2010, 2014 and 2016; and $99 million of other secured and unsecured borrowings. Debt discounts of $8 million, deferred financing costs of $14 million and fair value of terminated interest rate swaps of $22 million are no longer being amortized and have been included as a valuation of the related pre-petition debt.
Employee liabilities subject to compromise includes $425 million related to other post-employment benefit obligations. On June 26,nine months ended September 30, 2009 the Debtors requested the Bankruptcy Court to enter an order authorizing the Debtors to modify or terminate certain plans and programs giving rise to such benefits.


12


VISTEON CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 4. Voluntary Reorganization under Chapter 11 of the United States Bankruptcy Code — (Continued)
Contractual Interest Expense
Contractual interest expense represents amounts due under the contractual terms of outstanding debt, including debt subject to compromise. Effective May 28, 2009, the Company ceased recording contractual interest expense on all indebtedness attributable to the Debtors. Interest expense, including all contractual interest, would have been $63 million and $118 million for the three-month and six-month periods ended June 30, 2009.
Debtors Financial Statements
The financial statements included below represent the condensed combined financial statements of the Debtors only. These statements reflect the results of operations, financial position and cash flows of the combined Debtor subsidiaries, including certain amounts and activities between Debtor and non-Debtor subsidiaries of the Company, which are eliminated in the consolidated financial statements.
CONDENSED COMBINEDDEBTORS-IN-POSSESSION
STATEMENT OF OPERATIONS
(Non-Debtor subsidiaries have been excluded)
     
  May 28, 2009 to
 
  June 30, 2009 
  (Dollars in Millions,
 
  Except Per Share
 
  Data) 
 
Net sales $233 
Cost of sales  243 
     
Gross margin
  (10)
Selling, general and administrative expenses  23 
Reorganization items  7 
     
Operating loss
  (40)
Interest income  1 
Equity in net income of non-consolidated affiliates  8 
     
Loss before income taxes and earnings of non-Debtor subsidiaries
  (31)
Provision for income taxes  1 
     
Loss before earnings of non-Debtor subsidiaries
  (32)
Earnings of non-Debtor subsidiaries  12 
     
Net loss
  (20)
Net income attributable to noncontrolling interests   
     
Net loss attributable to Debtors
 $(20)
     
were approximately $11 million.


13


 
VISTEON CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
NOTE 4. Voluntary Reorganization under Chapter 11 of the United States Bankruptcy Code — (Continued)
 
CONDENSED COMBINEDDEBTORS-IN-POSSESSION
BALANCE SHEET
(Non-Debtor subsidiariesAdditionally, pre-petition liabilities subject to compromise under a plan of reorganization have been excluded)
reported separately from both pre-petition liabilities that are not subject to compromise and from liabilities arising subsequent to the petition date. Liabilities that may be affected by a plan of reorganization are reported at amounts expected to be allowed, even if they may be settled for lesser amounts. Liabilities subject to compromise as of September 30, 2009 are set forth below and represent the Company’s estimate of known or potential pre-petition claims to be resolved in connection with the Chapter 11 Proceedings. Such claims remain subject to future adjustments, which may result from (i) negotiations; (ii) actions of the Court; (iii) disputed claims; (iv) rejection of executory contracts and unexpired leases; (v) the determination as to the value of any collateral securing claims; (vi) proofs of claim; or (vii) other events. Liabilities subject to compromise include the following:
 
     
  June 30, 2009 
  (Dollars in Millions) 
 
ASSETS
Cash and equivalents $227 
Restricted cash  94 
Accounts receivable, net  292 
Accounts receivable, non-Debtor subsidiaries  563 
Inventories, net  80 
Other current assets  85 
     
Total current assets
  1,341 
Notes receivable, non-Debtor subsidiaries  528 
Investments in non-Debtor subsidiaries  478 
Property and equipment, net  450 
Equity in net assets of non-consolidated affiliates  224 
Other non-current assets  9 
     
Total assets
 $3,030 
     
 
LIABILITIES AND SHAREHOLDERS’ DEFICIT
Short-term debt, including current portion of long-term debt $5 
Accounts payable  81 
Accounts payable, non-Debtor subsidiaries  144 
Accrued employee liabilities  40 
Other current liabilities  28 
     
Total current liabilities
  298 
Long-term debt  3 
Employee benefits  280 
Deferred income taxes  67 
Other non-current liabilities  85 
Liabilities subject to compromise  3,142 
Liabilities subject to compromise, non-Debtor subsidiaries  143 
Shareholders’ deficit    
Total Debtors’ shareholders’ deficit  (989)
Noncontrolling interests  1 
     
Total shareholders’ deficit
  (988)
     
Total liabilities and shareholders’ deficit
 $3,030 
     
     
  September 30
 
  2009 
  (Dollars in Millions) 
 
Debt $2,473 
Employee liabilities  489 
Accounts payable  122 
Interest payable  31 
Other accrued liabilities  11 
     
  $3,126 
     
Substantially all of the Company’s pre-petition debt is in default, including $1.5 billion principal amount due under the seven-year secured term loans due 2013; $862 million principal amount under various unsecured notes due 2010, 2014 and 2016; and $110 million of other secured and unsecured borrowings. Debt discounts of $8 million, deferred financing costs of $14 million and fair value of terminated interest rate swaps of $23 million are no longer being amortized and have been included as a valuation adjustment to the related pre-petition debt. Effective May 28, 2009, the Company ceased recording interest expense on outstanding pre-petition debt instruments classified as liabilities subject to compromise. Adequate protection amounts pursuant to the cash collateral order of the Court, and as related to the ABL Credit Agreement have been classified as “Interest expense” on the Company’s statements of operations. Interest expense on a contractual basis would have been $54 million and $172 million for the three-month and nine-month periods ended September 30, 2009.
Employee liabilities subject to compromise includes $315 million related to other post-employment benefit obligations. On June 26, 2009 the Debtors requested the Court to enter an order authorizing the Debtors to modify or terminate certain plans and programs giving rise to such benefits.
Additionally, a confirmed plan of reorganization could also materially change the amounts and classifications reported in the consolidated financial statements, which do not give effect to any adjustments to the carrying value of assets or amounts of liabilities that might be necessary as a consequence of confirmation of a plan of reorganization.


14


 
VISTEON CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
NOTE 4. Voluntary Reorganization under Chapter 11 of the United States Bankruptcy Code — (Continued)
On August 26, 2009, pursuant to the Bankruptcy Code, the Debtors filed statements and schedules with the Court setting forth the assets and liabilities of the Debtors as of the Petition Date. In September 2009, the Debtors issued approximately 57,000 proof of claim forms to their current and prior employees, known creditors, vendors and other parties with whom the Debtors have previously conducted business. To the extent that recipients disagree with the claims as quantified on these forms, the recipient may file discrepancies with the Court. Differences between amounts recorded by the Debtors and claims filed by creditors will be investigated and resolved as part of the Chapter 11 Proceedings. However, the Court will ultimately determine liability amounts, if any, that will be allowed for these claims. An October 15, 2009 bar date was set for the filing of proofs of claim against the Debtors. Because the Debtors have not completed their evaluation of these claims, the ultimate number and allowed amount of such claims are not presently known. The resolution of such claims could result in a material adjustment to the Debtors’ financial statements.
Debtors Financial Statements
The financial statements included below represent the condensed combined financial statements of the Debtors and exclude the Company’s other subsidiaries, primarily non-U.S. subsidiaries. These statements reflect the results of operations, financial position and cash flows of the combined Debtor subsidiaries, including certain amounts and activities between Debtor and non-Debtor subsidiaries of the Company, which are eliminated in the consolidated financial statements.
CONDENSED COMBINEDDEBTORS-IN-POSSESSION
STATEMENT OF OPERATIONS
         
  Three Months Ended
  May 28, 2009 to
 
  September 30, 2009  September 30, 2009 
  (Dollars in Millions) 
 
Net sales $644  $877 
Cost of sales  644   887 
         
Gross margin
     (10)
         
Selling, general and administrative expenses  67   90 
Restructuring expenses  15   15 
Reorganization items  23   30 
         
Operating loss
  (105)  (145)
         
Interest income, net     1 
Equity in net income of non-consolidated affiliates  25   33 
         
         
Loss before income taxes and earnings of non-Debtor subsidiaries
  (80)  (111)
         
Benefit from income taxes  2   1 
         
         
Loss before earnings of non-Debtor subsidiaries
  (78)  (110)
         
Earnings of non-Debtor subsidiaries  40   52 
         
Net loss attributable to Debtors
 $(38) $(58)
         


15


VISTEON CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 4. Voluntary Reorganization under Chapter 11 of the United States Bankruptcy Code — (Continued)
CONDENSED COMBINEDDEBTORS-IN-POSSESSION
BALANCE SHEET
     
  September 30, 2009 
  (Dollars in Millions) 
 
ASSETS
Cash and equivalents $260 
Restricted cash  101 
Accounts receivable, net  325 
Accounts receivable, non-Debtor subsidiaries  560 
Inventories, net  79 
Other current assets  86 
     
Total current assets
  1,411 
Notes receivable, non-Debtor subsidiaries  549 
Investments in non-Debtor subsidiaries  528 
Property and equipment, net  382 
Equity in net assets of non-consolidated affiliates  251 
Other non-current assets  9 
     
Total assets
 $3,130 
     
 
LIABILITIES AND SHAREHOLDERS’ DEFICIT
Short-term debt, including current portion of long-term debt $4 
Accounts payable  148 
Accounts payable, non-Debtor subsidiaries  227 
Accrued employee liabilities  40 
Other current liabilities  48 
     
Total current liabilities
  467 
Long-term debt  2 
Employee benefits  285 
Deferred income taxes  77 
Other non-current liabilities  76 
Liabilities subject to compromise  3,126 
Liabilities subject to compromise, non-Debtor subsidiaries  88 
Shareholders’ deficit    
Total Debtors’ shareholders’ deficit  (991)
Noncontrolling interests   
     
Total shareholders’ deficit
  (991)
     
Total liabilities and shareholders’ deficit
 $3,130 
     


16


VISTEON CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 4. Voluntary Reorganization under Chapter 11 of the United States Bankruptcy Code — (Continued)
 
CONDENSED COMBINEDDEBTORS-IN-POSSESSION
STATEMENT OF CASH FLOWS
(Non-Debtor subsidiaries have been excluded)
 
        
 May 28, 2009 to
  May 28, 2009 to
 
 June 30, 2009  September 30, 2009 
 (Dollars in Millions)  (Dollars in Millions) 
Net cash provided from operating activities
 $28  $27 
Investing activities
        
Capital expenditures  (3)  (5)
Proceeds from sale of Halla Alabama to non-Debtor  37 
      
Net cash used by investing activities  (3)
Net cash provided from investing activities  32 
 
Financing activities
        
Net change in restricted cash  (14)  (21)
Other, including book overdrafts  1   7 
      
Net cash used by financing activities  (13)  (14)
 
Net increase in cash and equivalents  12   45 
 
Cash and equivalents at beginning of period
  215   215 
   
    
Cash and equivalents at end of period
 $227  $260 
      
 
NOTE 5. Restructuring and Exit Activities
 
The Company has undertaken various restructuring and exit activities to achieve its strategic and financial objectives. Restructuring activities include, but are not limited to, plant closures, divestitures, production relocation, administrative cost structure realignment and consolidation of available capacity and resources. The Company expects to finance restructuring programs with cash pursuant to the terms of certain customer accommodation and support agreements, cash on hand, cash generated from its ongoing operations or through cash available under its existing debt agreements, subject to the terms of applicable covenants.
 
Escrow Account2009 Restructuring Actions
 
The following table provides a reconciliationDuring the third quarter of amounts available2009, the Company recorded $27 million in the escrow account.
             
  Three Months Ended  Six Months Ended  Inception through 
  June 30, 2009  June 30, 2009  June 30, 2009 
  (Dollars in Millions) 
 
Beginning escrow account available $53  $68  $400 
Additional escrow account funding        50 
Investment earnings        35 
Disbursements for restructuring costs  (52)  (67)  (484)
             
Ending escrow account available $1  $1  $1 
             
Approximately $1employee severance and termination benefit costs related to headcount reductions, including $11 million and $7associated with approximately 160 employees at two European Interiors facilities, $6 million of amounts receivable from the escrow account were classified in “Other current assets” inassociated with approximately 60 employees at the Company’s consolidated balance sheets asNorth American headquarters and $10 million associated with approximately 300 employees at a North American Electronics facility. The Company recorded $4 million for the reimbursement of June 30, 2009 and December 31, 2008, respectively.restructuring costs associated with a European Interiors facility pursuant to a customer support agreement.


1517


 
VISTEON CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
NOTE 5. Restructuring and Exit Activities — (Continued)
 
2009 Restructuring Actions
During the second quarter of 2009, the Company recorded $18 million in employee severance and termination benefit costs including $10 million related to approximately 170 salaried employees, $5 million under the previously announced multi-year improvement plan and $3 million related to approximately 200 employees associated with the consolidation of Electronics operations in South America.
The following is a summary of the Company’s consolidated restructuring reserves and related activity:activity.
 
                                        
 Interiors Climate Electronics Other Total  Interiors Climate Electronics Other Total 
 (Dollars in Millions)  (Dollars in Millions) 
December 31, 2008 $49  $3  $4  $8  $64  $49  $3  $4  $8  $64 
Expenses  7   5   1   14   27   7   5   1   14   27 
Currency exchange  (3)           (3)  (3)           (3)
Utilization  (19)  (7)  (1)  (19)  (46)  (19)  (7)  (1)  (19)  (46)
                      
March 31, 2009  34   1   4   3   42   34   1   4   3   42 
Expenses  1      3   14   18   1      3   14   18 
Currency exchange  2            2   2            2 
Utilization  (14)  (1)  (1)  (16)  (32)  (14)  (1)  (1)  (16)  (32)
                      
June 30, 2009 $23  $  $6  $1  $30   23      6   1   30 
Expenses  11      10   6   27 
Currency exchange  1            1 
Utilization  (10)     (2)  (4)  (16)
                      
September 30, 2009 $25  $  $14  $3  $42 
           
 
Utilization for the three months ended JuneSeptember 30, 2009 includes $23$12 million of payments for severance and other employee termination benefits and $9$4 million of special termination benefits reclassified to pension and other postretirement employee benefits, where such payments are made from the Company’s benefit plans.
 
In July 2009, the Company announced its intention to close a North American Electronics facility, contingent upon final customer arrangements, DIP financing and court approval.
Asset Impairments and Loss on DivestitureDivestitures
 
The Company recorded asset impairments and loss on divestitures of $19 million during the three months ended September 30, 2008 in connection with the divestitures of its chassis operation in Swansea, UK and its Interiors operation in Halewood, UK. During the second quarter of 2008, the Company initiated the salealso recorded asset impairments and losses on divestitures of certain assets related to its chassis manufacturing operation located in Swansea, United Kingdom. The sale was completed on July 7, 2008, and the Company recorded losses of $32$7 million during the second quarter of 2008 in connection with the transaction.
sale of the Swansea, UK operation and $4 million for long-lived assets related to the Other product group that met the “held for sale” criteria under GAAP. During the first quarter of 2008, the Company completed the sale of its North American-based aftermarket underhood and remanufacturing operations and recorded total losses of $40 million in connection with the transaction.


1618


 
VISTEON CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 5. Restructuring and Exit Activities — (Continued)
 
 
NOTE 6. Inventories
 
Inventories are stated at the lower of cost, determined on afirst-in, first-out basis, or market. A summary of inventories is provided below:
 
                
 June 30
 December 31
  September 30
 December 31
 
 2009 2008  
2009
 2008 
 (Dollars in Millions)  (Dollars in Millions) 
Raw materials $135  $145  $136  $145 
Work-in-process  162   184   182   184 
Finished products  77   67   93   67 
          
 $374  $396  $411  $396 
Valuation reserves  (45)  (42)  (51)  (42)
          
 $329  $354  $360  $354 
          
 
NOTE 7. Other Assets
 
Other current assets are summarized as follows:
 
                
 June 30
 December 31
  September 30
 December 31
 
 2009 2008  
2009
 2008 
 (Dollars in Millions)  (Dollars in Millions) 
Recoverable taxes $96  $119  $98  $119 
Deposits  36   24 
Current deferred tax assets  31   29   32   29 
Deposits  28   24 
Prepaid assets  25   18   23   18 
Unamortized debt costs     20      20 
Other  28   39   35   39 
          
 $208  $249  $224  $249 
          
 
Other non-current assets are summarized as follows:
 
                
 June 30
 December 31
  September 30
 December 31
 
 2009 2008  
2009
 2008 
 (Dollars in Millions)  (Dollars in Millions) 
Non-current deferred tax assets $33  $34  $31  $34 
Notes and other receivables  11   4   10   4 
Other intangible assets  6   7   6   7 
Other  30   49   31   49 
          
 $80  $94  $78  $94 
          


1719


 
VISTEON CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
NOTE 7. Other Assets — (Continued)
NOTE 8. Property and Equipment
 
Property and equipment is stated at cost and is depreciated over the estimated useful lives of the assets, principally using the straight-line method. A summary of Property and equipment, net is provided below:
 
                
 June 30
 December 31
  September 30
 December 31
 
 2009 2008  
2009
 2008 
 (Dollars in Millions)  (Dollars in Millions) 
Land $70  $73  $76  $73 
Buildings and improvements  860   809   861   809 
Machinery, equipment and other  2,837   2,985   2,934   2,985 
Construction in progress  110   112   69   112 
          
Total property and equipment $3,877  $3,979  $3,940  $3,979 
Accumulated depreciation  (1,906)  (1,907)  (1,980)  (1,907)
          
 $1,971  $2,072  $1,960  $2,072 
Product tooling, net of amortization  82   90   79   90 
          
Property and equipment, net $2,053  $2,162 
      $2,039  $2,162 
     
 
Depreciation and amortization expenses are summarized as follows:
 
            
 Three
  
 Months
 Six Months
               
 Ended
 Ended
 Three Months Ended
 Nine Months Ended
 
 June 30 June 30 September 30 September 30 
 2009 2008 2009 2008 2009 2008 2009 2008 
 (Dollars in Millions) (Dollars in Millions) 
Depreciation $77  $101  $149  $206  $86  $93  $235  $299 
Amortization  7   9   13   19   7   9   20   28 
                  
 $84  $110  $162  $225  $93  $102  $255  $327 
  ��                
 
The Company recorded approximately $10$13 million and $13$26 million of accelerated depreciation expense for the three and sixnine months ended JuneSeptember 30, 2009, respectively, representing the shortening of estimated useful lives of certain assets (primarily machinery and equipment) in connection with the Company’s restructuring activities.
 
NOTE 9. Non-Consolidated Affiliates
 
The Company had $237$266 million and $220 million of equity in the net assets of non-consolidated affiliates at JuneSeptember 30, 2009 and December 31, 2008, respectively. The Company recorded equity in net income ofnon-consolidated affiliates of $19$26 million and $15$5 million for the three months ended JuneSeptember 30, 2009 and 2008, respectively. For the six-monthnine-month periods ended JuneSeptember 30, 2009 and 2008, the Company recorded $26$52 million and $30$35 million, respectively.
The following table presents summarized financial data for the Company’s non-consolidated affiliates. Yanfeng Visteon Automotive Trim Systems Co., Ltd (“Yanfeng”), of which the Company owns a 50% interest, is considered a significant non-consolidated affiliate. Summarized financial information reflecting


1820


 
VISTEON CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
NOTE 9. Non-Consolidated Affiliates — (Continued)
 
The following table presents summarized financial data for the Company’s non-consolidated affiliates. Yanfeng Visteon Automotive Trim Systems Co., Ltd (“Yanfeng”), of which the Company owns a 50% interest, is considered a significant non-consolidated affiliate. Summarized financial information reflecting 100% of the operating results of the Company’s equity investees areis provided below for the three-monththree and six-monthnine-month periods ended JuneSeptember 30.
 
                                        
 Three Months Ended June 30  Three Months Ended September 30 
 Net Sales Gross Margin Net Income  Net Sales Gross Margin Net Income 
 2009 2008 2009 2008 2009 2008  2009 2008 2009 2008 2009 2008 
 (Dollars in Millions)  (Dollars in Millions) 
Yanfeng Visteon Automotive Trim Systems Co., Ltd.  $349  $294  $59  $54  $23  $24  $394  $235  $61  $38  $34  $9 
All other  161   210   28   40   15   6   203   206   34   27   17    
                          
 $510  $504  $87  $94  $38  $30  $597  $441  $95  $65  $51  $9 
                          
 
                                             
 Six Months Ended June 30  Nine Months Ended September 30 
 Net Sales Gross Margin Net Income  Net Sales Gross Margin Net Income 
 2009 2008 2009 2008 2009 2008  2009 2008 2009 2008 2009 2008 
 (Dollars in Millions)  (Dollars in Millions) 
Yanfeng Visteon Automotive Trim Systems Co., Ltd.  $619  $591  $92  $106  $40  $44  $1,012  $825  $153  $144  $74  $53 
All other  283   420   34   64   11   16   486   626   67   91   28   16 
                          
 $902  $1,010  $126  $170  $51  $60  $1,498  $1,451  $220  $235  $102  $69 
                          
 
The Company’s share of net assets and net income is reported in the consolidated financial statements as “Equity in net assets of non-consolidated affiliates” on the consolidated balance sheets and “Equity in net income of non-consolidated affiliates” on the consolidated statements of operations. Included in the Company’s accumulated deficit is undistributed income of non-consolidated affiliates accounted for under the equity method of approximately $73$99 million and $104 million at JuneSeptember 30, 2009 and December 31, 2008, respectively.
 
NOTE 10. Other Liabilities
 
Other current liabilities are summarized as follows:
 
                
 June 30
 December 31
  September 30
 December 31
 
 2009 2008  2009 2008 
 (Dollars in Millions)  (Dollars in Millions) 
Income and other taxes payable $48  $54  $59  $54 
Product warranty and recall reserves  45   50   46   50 
Restructuring reserves  30   45   42   45 
Deferred income  35   10 
Accrued interest payable  1   45   4   45 
Other accrued liabilities  76   94   76   84 
          
 $200  $288  $262  $288 
          


1921


 
VISTEON CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
NOTE 10. Other Liabilities — (Continued)
 
Other non-current liabilities are summarized as follows:
 
         
  June 30
  December 31
 
  2009  2008 
  (Dollars in Millions) 
 
Income tax reserves $164  $155 
Non-income tax payable  58   57 
Product warranty and recall reserves  45   50 
Deferred income  38   46 
Restructuring reserves     19 
Other accrued liabilities  38   38 
         
  $343  $365 
         
         
  September 30
  December 31
 
  2009  2008 
  (Dollars in Millions) 
 
Income tax reserves $161  $155 
Non-income tax payable  62   57 
Product warranty and recall reserves  46   50 
Deferred income  37   46 
Restructuring reserves     19 
Other accrued liabilities  34   38 
         
  $340  $365 
         
As of September 30, 2009, current deferred income of $35 million primarily relates to non-refundable settlement payments in connection with customer support agreements. Additionally, non-current deferred income of $37 million is primarily related to deferred gains on sale-leaseback transactions that will be recognized in the period that the Company’s continuing involvement ceases.
 
NOTE 11. Debt
 
The Company’s short and long-term debt balances, including the fair value of related interest rate swaps are as follows:
 
                
 June 30
 December 31
  September 30
 December 31
 
 2009 2008  2009 2008 
 (Dollars in Millions)  (Dollars in Millions) 
Short-term debt
                
Debt in default $  $2,554  $  $2,554 
Current portion of long-term debt  54   72   57   72 
Other — short-term  82   71   79   71 
          
Total short-term debt $136  $2,697 
 $136  $2,697 
Long-term debt
                
Other  62   65   66   65 
          
Total debt $198  $2,762 
      $202  $2,762 
     
 
On May 22, 2009, the Company delivered a notice of termination ofterminated its European trade accounts receivable securitization facility. As a result, participating subsidiaries repurchased receivables previously sold and outstanding under the program and outstanding as of May 22, 2009, and all amounts borrowed under the facility totaling $42 million were repaid.
 
The fair value of the Company’s long-term debt that is not subject to compromise has been calculated based on quoted market prices for the same or similar issues, or on the current rates offered to the Company for debt of the same remaining maturities. The Company is unable to estimate the fair value of long-term debt of the Debtors that is subject to compromise at JuneSeptember 30, 2009, due to the uncertainties associated with the Chapter 11 Proceedings. Fair value of total debt was $200$206 million and $826 million as of JuneSeptember 30, 2009 and December 31, 2008, respectively.


2022


 
VISTEON CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
NOTE 11. Debt — (Continued)
NOTE 12. Employee Retirement Benefits
 
The components of the Company’s net periodic benefit costs for the three-month periods ended JuneSeptember 30, 2009 and 2008 were as follows:
 
                      
     Health Care
 
 Retirement Plans and Life
                       
   Non-U.S.
 Insurance
  Retirement Plans Health Care and Life
 
 U.S. Plans Plans Benefits  U.S. Plans Non-U.S. Plans Insurance Benefits 
 2009 2008 2009 2008 2009 2008  2009 2008 2009 2008 2009 2008 
 (Dollars in Millions)  (Dollars in Millions) 
Service cost $3  $6  $1  $6  $1  $1  $3  $5  $2  $4  $  $1 
Interest cost  19   18   5   17   4   8   18   19   6   20   5   8 
Expected return on plan assets  (20)  (20)  (4)  (16)        (19)  (21)  (5)  (15)      
Amortization of:                                                
Plan amendments  (1)  (1)     2   (5)  (9)           1   (5)  (7)
Actuarial losses and other           1   1   3               2   2 
Special termination benefits  3   1               1   2             
Curtailments           6      (26)                 (13)
                          
Visteon sponsored plan net periodic benefit costs  4   4   2   16   1   (23)  3   5   3   10   2   (9)
Expense for certain salaried employees whose pensions are partially covered by Ford  9            (2)  (2)     3         (2)  (2)
                          
Net periodic benefits costs, excluding restructuring $13  $4  $2  $16  $(1) $(25) $3  $8  $3  $10  $  $(11)
                          
Special termination benefits  3         14         4   11      4      1 
Other  6                
                          
Total employee retirement benefit related restructuring costs $9  $  $  $14  $  $  $4  $11  $  $4  $  $1 
                          


2123


 
VISTEON CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
NOTE 12. Employee Retirement Benefits — (Continued)
 
The components of the Company’s net periodic benefit costs for the six-monthnine-month periods ended JuneSeptember 30, 2009 and 2008 were as follows:
 
                                                
     Health Care
      Health Care
 
 Retirement Plans and Life
      and Life
 
   Non-U.S.
 Insurance
  Retirement Plans Insurance
 
 U.S. Plans Plans Benefits  U.S. Plans Non-U.S. Plans Benefits 
 2009 2008 2009 2008 2009 2008  2009 2008 2009 2008 2009 2008 
 (Dollars in Millions)  (Dollars in Millions) 
Service cost $7  $11  $4  $11  $1  $2  $10  $16  $6  $15  $1  $3 
Interest cost  37   36   18   35   9   16   55   55   24   55   14   24 
Expected return on plan assets  (40)  (41)  (16)  (30)        (59)  (62)  (21)  (45)      
Amortization of:                                                
Plan amendments  (1)  (1)  1   3   (11)  (17)  (1)  (1)  1   4   (16)  (24)
Actuarial losses and other           2   3   6            2   5   8 
Special termination benefits  4   1               5   3             
Curtailments  (1)  1   6   5   (9)  (30)  (1)  1   6   5   (9)  (43)
                          
Visteon sponsored plan net periodic benefit costs  6   7   13   26   (7)  (23)  9   12   16   36   (5)  (32)
Expense for certain salaried employees whose pensions are partially covered by Ford  10   (2)        (4)  (3)  10   1         (6)  (5)
                          
Net periodic benefits costs, excluding restructuring $16  $5  $13  $26  $(11) $(26) $19  $13  $16  $36  $(11) $(37)
                          
Special termination benefits  6   1   8   17         10   12   8   21      1 
Other  6                  6                
                          
Total employee retirement benefit related restructuring costs $12  $1  $8  $17  $  $  $16  $12  $8  $21  $  $1 
                          
 
Curtailments and Settlements
 
Curtailment and settlement gains and losses are classified in the Company’s consolidated statements of operations as “Cost of sales” or “Selling, general and administrative expenses.” Qualifying curtailment and settlement losses related to the Company’s restructuring activities were reimbursable under the terms of the Escrow Agreement. The following curtailments and settlements were recorded during the three and six monthnine-month periods ended JuneSeptember 30, 2009 and 2008:
 
• The Company recorded curtailment gains of $10 million for the sixnine months ended JuneSeptember 30, 2009 associated with the U.S. salaried pension and other postretirement benefit (“OPEB”) plans in connection with employee headcount reductions under previously announced restructuring actions.
 
• The Company recorded pension curtailment losses of $6 million for the sixnine months ended JuneSeptember 30, 2009 related to the reduction of future service in the UK pension plan in connection with employee headcount reductions in the UK.
 
• The Company recorded curtailment gains of $13 million and $43 million for the three and nine months ended September 30, 2008 related to elimination of employee benefits associated with the U.S. other postretirement benefit plans in connection with employee headcount reductions under previously announced restructuring actions.


24


VISTEON CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 12. Employee Retirement Benefits — (Continued)
• During the threenine months ended JuneSeptember 30, 2008 the Company recorded pension curtailment losses of $7 million related to the reduction of future service in the UK pension plan for employees at the Company’s Swansea, UK operation in connection with the divestiture of that operation. Additionally, the Company remeasured the assets and obligations of its UK pension plan, which resulted in an increase of $57 million in the Company’s net pension liability and a corresponding decrease in Accumulated Other Comprehensive Income.


22


VISTEON CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 12. Employee Retirement Benefits — (Continued)
 
Retirement Benefit Related Restructuring Expenses
 
In addition to retirement benefit expenses, the Company recorded $9$4 million and $20$24 million for the three and sixnine months ended JuneSeptember 30, 2009, respectively, for retirement benefit related restructuring charges. Such charges generally relate to special termination benefits, voluntary termination incentives and pension losses and are the result of various restructuring actions as described in Note 5 “Restructuring and Exit Activities.” Retirement benefit related restructuring charges are initially classified as restructuring expenses and related accruals are subsequently reclassified to retirement benefit liabilities.
 
Contributions
 
During January 2009, the Company reached an agreement with the Pension Benefit Guaranty Corporation (“PBGC”) pursuant to U.S. federal pension law provisions that permit the PBGC to seek protection when a plant closing results in termination of employment for more than 20 percent of employees covered by a pension plan (the “PBGC Agreement”). In connection with the multi-year improvement plan the Company closed its Connersville, Indiana and Bedford, Indiana facilities, which resulted in the separation of all active participants in the respective pension plan. Under the PBGC Agreement, the Company agreed to accelerate payment of a $10.5 million cash contribution, provide a $15 million letter of credit (“LOC”) and provide for a guarantee by certain affiliates of certain contingent pension obligations of up to $30 million. During September 2009 the Company did not make the required contribution to the plan, which triggered an LOC draw event under the PBGC Agreement and resulted in a LOC draw by the PBGC of less than $1 million.
 
During the six-monthnine-month period ended JuneSeptember 30, 2009, contributions to the Company’s U.S. retirement plans and postretirement health care and life insurance plans were $17$19 million and $14$21 million, respectively, and contributions tonon-U.S. retirement plans were $17$20 million. The Company does not presently anticipatesanticipate additional contributions to its U.S. retirement plans andin 2009 while an additional $6 million of contributions to its postretirement health care and life insurance plans of $3 million and $16 million, respectively, in 2009.are expected. The Company also anticipates additional 2009 contributions tonon-U.S. retirement plans of $18$6 million.
 
NOTE 13. Income Taxes
 
The Company’s provision for income taxes in interim periods is computed by applying an estimated annual effective tax rate against income (loss) before income taxes, excluding equity in net income ofnon-consolidated affiliates and the gain related to the deconsolidation of the UK Debtor 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


25


VISTEON CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 13. Income Taxes — (Continued)
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 tax of $31$18 million and $45$63 million for the three-month and six-monthnine-month periods ended JuneSeptember 30, 2009 reflects income tax expense related to those countries where the Company is profitable, accrued withholding taxes, ongoing assessments related to the recognition and measurement of uncertain tax benefits, 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, and certain other non-recurring tax items. Included in the deconsolidation gain related to the UK Administration is $18 million of tax expense representing the elimination of disproportionate tax effects in other comprehensive income as all items of other comprehensive income related to Visteon UK Limited have been derecognized.


23


VISTEON CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 13. Income Taxes — (Continued)
 
As of JuneSeptember 30, 2009 and March 31,June 30, 2009 the Company had $246$249 million and $236$246 million, respectively, of gross unrecognized tax benefits. Of this amount approximately $121 million and $113 million, respectively, representrepresents the amount of unrecognized benefits that, if recognized, would impact the effective tax rate. This amount remained unchanged for the third quarter of 2009 as increases in unrecognized tax benefits attributable primarily to unfavorable foreign exchange impacts were offset by a reduction in uncertain tax benefits related to statute expirations of approximately $6 million.
The Company records interest and penalties related to uncertain tax positions as a component of income tax expense. Estimated interest and penalties related to the potential underpayment of income taxes totaled $4represented a benefit of $2 million for the three months ended JuneSeptember 30, 2009. As of JuneSeptember 30, 2009, the Company had approximately $43$41 million of accrued interest and penalties related to uncertain tax positions.
 
It is reasonably possible that the amount of the Company’s unrecognized tax benefits may change within the next twelve months as a result of settlement of ongoing audits or for changes in judgment as new information becomes available related to positions expected to be taken in future tax returns, primarily related to transfer pricing initiatives, or from the closure 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. Further, substantially all of the Company’s unrecognized tax benefits relate to uncertain tax positions that are not currently under review by taxing authorities and therefore, the Company is unable to specify the future periods in which it may be obligated to settle such amounts. For those jurisdictions that are currently under examination, a reasonable estimate of the range of possible change cannot be made until further correspondence has been conducted with the relevant taxing authorities.


26


VISTEON CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 14. Shareholders’ Deficit
 
The table below provides a reconciliation of the carrying amount of total shareholders’ deficit, including shareholders’ deficit attributable to Visteon and equity attributable to noncontrolling interests (“NCI”).
 
                                                
 Three Months Ended June 30  Three Months Ended September 30 
 2009 2008  2009 2008 
 Visteon NCI Total Visteon NCI Total  Visteon NCI Total Visteon NCI Total 
 (Dollars in Millions)  (Dollars in Millions) 
Shareholders’ (deficit) equity beginning balance $(995) $245  $(750) $(136) $285  $149  $(989) $267  $(722) $(207) $295  $88 
Net (loss) income  (112)  13   (99)  (42)  19   (23)  (38)  15   (23)  (188)  7   (181)
Other comprehensive income (loss):                                                
Foreign currency translation adjustment  90   12   102   11   (9)  2   41   11   52   (140)  (24)  (164)
Pension and other post-retirement benefits  6      6   (51)     (51)  (5)     (5)  13      13 
Other  22   2   24   11      11      (1)  (1)  (8)  2   (6)
                          
Total other comprehensive income (loss)  118   14   132   (29)  (9)  (38)  36   10   46   (135)  (22)  (157)
Dividends to noncontrolling interests     (5)  (5)                       (2)  (2)
                          
Shareholders’ (deficit) equity ending balance $(989) $267  $(722) $(207) $295  $88  $(991) $292  $(699) $(530) $278  $(252)
                          
 
                                                
 Six Months Ended June 30  Nine Months Ended September 30 
 2009 2008  2009 2008 
 Visteon NCI Total Visteon NCI Total  Visteon NCI Total Visteon NCI Total 
 (Dollars in Millions)  (Dollars in Millions) 
Shareholders’ (deficit) equity beginning balance $(887) $264  $(623) $(90) $293  $203  $(887) $264  $(623) $(90) $293  $203 
Net (loss) income  (110)  20   (90)  (147)  31   (116)  (148)  35   (113)  (335)  38   (297)
Other comprehensive income (loss):                                                
Foreign currency translation adjustment  (158)  (2)  (160)  81   (15)  66   (117)  9   (108)  (59)  (39)  (98)
Pension and other post-retirement benefits  152      152   (59)     (59)  147      147   (46)     (46)
Other  14   (3)  11   8   (2)  6   14   (4)  10          
                          
Total other comprehensive income (loss)  8   (5)  3   30   (17)  13   44   5   49   (105)  (39)  (144)
Dividends to noncontrolling interests     (12)  (12)     (12)  (12)     (12)  (12)     (14)  (14)
                          
Shareholders’ (deficit) equity ending balance $(989) $267  $(722) $(207) $295  $88  $(991) $292  $(699) $(530) $278  $(252)
                          
The Accumulated other comprehensive income (“AOCI”) category of Shareholders’ deficit, includes:
         
  September 30
  December 31
 
  2009  2008 
  (Dollars in Millions) 
 
Foreign currency translation adjustments, net of tax $91  $208 
Pension and other postretirement benefit adjustments, net of tax  108   (39)
Realized and unrealized losses on derivatives, net of tax  2   (12)
         
  $201  $157 
         


2427


 
VISTEON CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
NOTE 14. Shareholders’ Deficit — (Continued)
The Accumulated other comprehensive income (“AOCI”) category of Shareholders’ deficit, includes:
         
  June 30
  December 31
 
  2009  2008 
  (Dollars in Millions) 
 
Foreign currency translation adjustments, net of tax $50  $208 
Pension and other postretirement benefit adjustments, net of tax  113   (39)
Realized and unrealized losses on derivatives, net of tax  2   (12)
         
Total Visteon Accumulated other comprehensive income $165  $157 
         
 
NOTE 15. Loss Per Share
 
Basic loss per share of common stock is calculated by dividing reported net loss by the average number of shares of common stock outstanding during the applicable period, adjusted for restricted stock. In addition to restricted stock, the calculation of diluted loss per share takes into account the effect of dilutive potential common stock, such as stock warrants and stock options.
 
                                
 Three Months Ended
 Six Months Ended
  Three Months Ended
 Nine Months Ended
 
 June 30 June 30  September 30 September 30 
 2009 2008 2009 2008  2009 2008 2009 2008 
 (Dollars in Millions)  (Dollars in Millions) 
Numerator:
                
Numerator:
                
Net loss attributable to Visteon common shareholders $(112) $(42) $(110) $(147) $(38) $(188) $(148) $(335)
                  
Denominator:
                
Denominator:
                
Average common stock outstanding  130.4   130.7   130.4   130.3   130.4   130.6   130.4   130.4 
Less: Average restricted stock outstanding  (1.0)  (1.2)  (1.0)  (0.8)  (1.0)  (1.2)  (1.0)  (0.9)
                  
Basic and diluted shares  129.4   129.5   129.4   129.5   129.4   129.4   129.4   129.5 
                  
Loss per share:
                
Loss per share:
                
Basic and diluted loss per share $(0.87) $(0.32) $(0.85) $(1.14) $(0.29) $(1.45) $(1.14) $(2.59)
                  
 
For the three and sixnine months ended JuneSeptember 30, 2009, stock options to purchase approximately 11 million and 12 million shares, respectively, of common stock and stock warrants to purchase 25 million shares of common stock were not included in the computation of diluted loss per share as the effect of including them would have been anti-dilutive. Stock warrants to purchase 25 million shares of common stock and stock options to purchase approximately 12 million and 13 million shares, respectively, of common stock for the three and sixnine months ended JuneSeptember 30, 2008 were not included in the computation of diluted loss per share as the effect would have been anti-dilutive.
 
NOTE 16. Fair Value Measurements
 
Financial assets and liabilities are categorized, based on the inputs to the valuation technique, into athree-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.


25


VISTEON CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 16. Fair Value Measurements — (Continued)
• 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.


28


VISTEON CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 16. Fair Value Measurements — (Continued)
 
The following table presents the Company’s fair value hierarchy, all of which are Level 2, “Other Observable Inputs,” for those assets and liabilities measured at fair value on a recurring basis.
 
                
 June 30
 December 31
  September 30
 December 31
 
 2009 2008  2009 2008 
 (Dollars in Millions)  (Dollars in Millions) 
Assets
                
Interest rate swaps $  $17  $  $17 
Foreign currency instruments  5   15   4   15 
          
Total $5  $32 
 $4  $32 
          
Liabilities
                
Foreign currency instruments $1  $11  $  $11 
          
 
Valuation Methods
 
Interest rate swaps and foreign currency hedge instruments — These financial instruments are valued 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.
 
NOTE 17. Financial Instruments
 
The Company is exposed to various market risks including, but not limited to, changes in foreign currency exchange rates and market interest rates. The Company manages these risks through the use of derivative financial instruments. The Company’s use of derivative financial instruments is limited to hedging activities and such instruments are not used for speculative or trading purposes. The use of derivative financial instruments creates exposure to credit loss in the event of nonperformance by the counterparty to the derivative financial instruments. The Company limits this exposure by entering into agreements directly with a variety of major financial institutions with high credit standards that are expected to fully satisfy their obligations under the contracts. Additionally, the Company’s ability to utilize derivatives to manage risks is dependent on credit and market conditions.


26


VISTEON CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 17. Financial Instruments — (Continued)
 
Foreign Currency Exchange Rate Risk
 
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.
 
During the three months ended June 30, 2009 all foreign currency forward contracts entered into by the Debtors were terminated or settled for a gain of approximately $4 million, which has beenwas recorded as an adjustment to “Accumulated other comprehensive income” and will be reclassified to the consolidated statement of operations when the hedged transactions affect results of operations. As of JuneSeptember 30,


29


VISTEON CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 17. Financial Instruments — (Continued)
2009 and December 31, 2008, the Company had forward contracts designated as hedges related to changes in foreign currency exchange rates with notional amounts of approximately $100$80 million and $350 million, respectively. Estimates of the fair values of these contracts are based on quoted market prices.
 
Interest Rate Risk
 
During the three months ended June 30, 2009, the Company’s interest rate swaps with a notional amount of $125 million related to a portion of the 8.25% notes due August 1, 2010 were terminated by the counterparty. These interest rate swaps had been designated as fair value hedges, resulting in a loss of approximately $3 million, which has beenwas recorded as a valuation adjustment of the underlying debt. The counterparty also terminated interest rate swaps with a notional amount of $100 million related to a portion of the $1 billion seven-year term loan due 2013,2013; these interest rate swaps had been designated as cash flow hedges. As the underlying interest payments arewere not probable of occurring, a loss of approximately $3 million has beenwas recorded toas interest expense.
 
On March 30, 2009 the Company entered into an agreement to terminate interest rate swaps with a notional amount of $225 million related to a portion of the 7.00% notes due March 10, 2014. These interest rate swaps had been designated as fair value hedges and during the three months ended June 30, 2009 were settled for a gain of $18 million, which has beenwas recorded as a valuation adjustment of the underlying debt. The Company also terminated interest rate swaps with a notional amount of $100 million related to a portion of the $1 billion seven-year term loan due 2013. These interest rate swaps had been designated as cash flow hedges and during the three months ended March 31, 2009 were settled for a loss of $10 million, which was recorded as an adjustment to “Accumulated other comprehensive income.” As of June 30, 2009,the Petition Date, the underlying interest payments were no longer probable of occurring therefore, this loss has beenwas recorded toas interest expense.
 
As of December 31, 2008, the Company had interest rate swaps designated as hedges of forecasted cash flows related to future interest payments for a portion of the $1 billion seven-year term loan due June 13, 2013 ($200 million). These interest rate swaps effectively converted the designated portion of theseven-year term loan from a variable rate instrument to a fixed rate instrument in connection with the Company’s risk management policies. The notional amount of these interest rate swaps was $200 million at December 31, 2008.


27


VISTEON CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 17. Financial Instruments — (Continued)
 
As of December 31, 2008, the Company had interest rate swaps designated as hedges of the fair value of a portion of the 8.25% notes due August 1, 2010 ($125 million) and a portion of the 7.00% notes due March 10, 2014 ($225 million). These interest rate swaps effectively converted the designated portions of these notes from fixed interest rate to variable interest rate instruments in connection with the Company’s risk management policies. The Company estimatesestimated the fair value of these interest rate swaps based on quoted market prices. The notional amount of these interest rate swaps werewas approximately $350 million at December 31, 2008.
 
Accounting for Derivative Financial Instruments
 
Criteria used to determine whether hedge accounting treatment is appropriate include the designation of the hedging financial instrument to an underlying exposure, reduction of overall risk and a highly effective relationship between the hedging financial instrument and the hedged item or transaction.
 
At inception, the Company formally designates and documents the financial instrument as a hedge of a specific underlying exposure, as well as the risk management objectives and strategies for undertaking the


30


VISTEON CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 17. Financial Instruments — (Continued)
hedge transactions. The Company formally assesses, both at the inception and at least quarterly thereafter, whether the financial instruments that are used in hedging transactions are effective at offsetting changes in either the fair value or cash flows of the related underlying exposure. Because of the high degree of effectiveness between the hedging instrument and the underlying exposure being hedged, fluctuations in the value of the derivative instruments are generally offset by changes in the fair values or cash flows of the underlying exposures being hedged. Any ineffective portion of a financial instrument’s change in fair value is immediately recognized in earnings.operating results. Derivatives not designated as a hedge are adjusted to fair value through operating results.
 
The Company recognizes all derivative instruments as either assets or liabilities in the consolidated balance sheets at fair value. The fair values of derivatives used to hedge the Company’s risks fluctuate over time, generally in relation to the fair values or cash flows of the underlying hedged transactions or exposures. The accounting for changes in fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, further, on the type of hedging relationship. At the inception of the hedging relationship, the Company must designate the instrument as a fair value hedge, a cash flow hedge or a hedge of a net investment in a foreign operation. This designation is based upon the exposure being hedged.
 
Derivative instruments that are designated and qualify as cash flow hedges of forecasted transactions are reflected as other assets or liabilities in the Company’s consolidated balance sheets. Changes in the fair value of cash flow hedges are initially recorded as a component of “Accumulated other comprehensive income” and reclassified to the consolidated statement of operations when the hedged transactions affect results of operations. At this time, a gain or loss on the cash flow hedge is recognized representing the excess of the cumulative change in the present value of future cash flows of the hedged item. Any ineffective portion of a cash flow hedge is immediately recognized in earnings.operating results.
 
Interest rate swaps that are designated and qualify as fair value hedges are reflected as other non-current assets or liabilities in the Company’s consolidated balance sheets. Changes in the fair value of these interest rate swaps are recorded as a direct adjustment to the underlying debt. The adjustment does not affect the results of operations unless the contract is terminated, in which case the resulting cash flow is offset by a valuation adjustment of the underlying debt and is amortized to interest expense over the remaining life of the debt.


28


VISTEON CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 17. Financial Instruments — (Continued)
 
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 as hedging instruments are included in the Company’s consolidated balance sheets at JuneSeptember 30, 2009 and December 31, 2008 as follows:
                     
  Assets  Liabilities 
Risk Hedged
 
Classification
 2009  2008  
Classification
 2009  2008 
  (Dollars in Millions) 
 
Foreign currency Other current assets $5  $16  Other current assets $1  $1 
Foreign currency           Other current liabilities     11 
Interest rates Other non-current assets     25  Other non-current liabilities     8 
                     
Total   $5  $41    $1  $20 
                     
The impact of derivative financial instruments on the Company’s financial statements, as recorded in “Cost of sales” and “Interest expense” for the three months ended June 30, 2009 and June 30, 2008 is as follows:
                         
  Amount of Gain (Loss) 
     Reclassified
    
     from
    
  Recorded
  AOCI into
  Recorded in
 
  in AOCI  Income  Income 
  2009  2008  2009  2008  2009  2008 
  (Dollars in Millions) 
 
Foreign currency risk
                        
Cash flow hedges $6  $8  $1  $(6) $  $ 
Non-designated cash flow hedges              (2)  (3)
                         
Total $6  $8  $1  $(6) $(2) $(3)
                         
Interest rate risk
                        
Fair value hedges $  $  $  $  $  $ 
Cash flow hedges  10   5   (13)  (1)      
                         
Total $10  $5  $(13) $(1) $  $ 
                         
The impact of derivative financial instruments on the Company’s financial statements, as recorded in “Cost of sales” and “Interest expense” for the six months ended June 30, 2009 and June 30, 2008 is as follows:
                         
  Amount of Gain (Loss) 
     Reclassified
    
     from
    
  Recorded
  AOCI into
  Recorded in
 
  in AOCI  Income  Income 
  2009  2008  2009  2008  2009  2008 
  (Dollars in Millions) 
 
Foreign currency risk
                        
Cash flow hedges $(1) $5  $(7) $(6) $  $ 
Non-designated cash flow hedges              1   3 
                         
Total $(1) $5  $(7) $(6) $1  $3 
                         
Interest rate risk
                        
Fair value hedges $  $  $  $  $2  $ 
Cash flow hedges  7   2   (15)  (1)      
                         
Total $7  $2  $(15) $(1) $2  $ 
                         
                     
  Assets  Liabilities 
Risk Hedged
 
Classification
 2009  2008  
Classification
 2009  2008 
  (Dollars in Millions) 
 
Foreign currency Other current assets $4  $16  Other current assets $  $1 
Foreign currency           Other current liabilities     11 
Interest rates Other non-current assets     25  Other non-current liabilities     8 
                     
    $4  $41    $  $20 
                     


2931


 
VISTEON CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
NOTE 17. Financial Instruments — (Continued)
The impact of derivative financial instruments on the Company’s financial statements, as recorded in “Cost of sales” and “Interest expense” for the three months ended September 30, 2009 and September 30, 2008 is as follows:
                         
  Amount of Gain (Loss) 
  Recorded
  Reclassified from
    
  in AOCI  AOCI into Income  Recorded in Income 
  2009  2008  2009  2008  2009  2008 
  (Dollars in Millions) 
 
Foreign currency risk
                        
Cash flow hedges $  $(7) $5  $15  $  $ 
Non-designated cash flow hedges              1   (5)
                         
  $  $(7) $5  $15  $1  $(5)
                         
Interest rate risk
                        
Fair value hedges $  $  $  $  $  $1 
Cash flow hedges           (1)      
                         
  $  $  $  $(1) $  $1 
                         
The impact of derivative financial instruments on the Company’s financial statements, as recorded in “Cost of sales” and “Interest expense” for the nine months ended September 30, 2009 and September 30, 2008 is as follows:
                         
  Amount of Gain (Loss) 
  Recorded
  Reclassified from
    
  in AOCI  AOCI into Income  Recorded in Income 
  2009  2008  2009  2008  2009  2008 
  (Dollars in Millions) 
 
Foreign currency risk
                        
Cash flow hedges $(1) $(2) $(2) $9  $  $ 
Non-designated cash flow hedges              2   (2)
                         
  $(1) $(2) $(2) $9  $2  $(2)
                         
Interest rate risk
                        
Fair value hedges $  $  $  $  $2  $1 
Cash flow hedges  7   2   (15)  (2)      
                         
  $7  $2  $(15) $(2) $2  $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 substantial investment and commercial banks with significant experience using such derivatives. 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 JuneSeptember 30, 2009 was not significant.


32


VISTEON CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 17. Financial Instruments — (Continued)
 
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 JuneSeptember 30, 2009 and December 31, 2008, respectively.
 
                
 June 30
 December 31
  September 30
 December 31
 
 2009 2008  2009 2008 
Ford and affiliates  24%  18%  21%  18%
Hyundai Motor Company  15%  13%  15%  13%
Hyundai Mobis Company  12%  10%  11%  10%
PSA Peugeot Citroën  9%  16%  6%  16%
 
Management periodically performs credit evaluations of its customers and generally does not require collateral.
 
NOTE 18. Commitments and Contingencies
 
Contingencies are subject to many uncertainties, and the outcome of individual litigated matters is not predictable with assurance. Accruals have been established by the Company for matters where losses are deemed probable and reasonably estimable. It is possible, however, that some of the matters 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 JuneSeptember 30, 2009 or that are in excess of established accruals. 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.
 
Guarantees
The Company has guaranteed approximately $36 million for lease payments. In connection with the January 2009 PBGC Agreement, the Company agreed to provide a guarantee by certain affiliates of certain contingent pension obligations of up to $30 million.
Litigation and Claims
 
On May 28, 2009, the Debtors filed voluntary petitions in the Bankruptcy 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 CaseNo. 09-11786. The Debtors continue to operate their business asdebtors-in-possession under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and the orders of the Bankruptcy Court. Refer to Note 4, “Voluntary Reorganization under Chapter 11 of the United States Bankruptcy Code,” for details on the chapter 11 cases.


30


VISTEON CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 18. Commitments and Contingencies — (Continued)
 
On March 31, 2009, Visteon UK Limited, a company organized under the laws of England and Wales and an indirect, wholly-owned subsidiary of the Company, filed for administration under the United Kingdom Insolvency Act of 1986 with the High Court of Justice, Chancery division in London, England. The UK Administration does not include the Company or any of the Company’s other subsidiaries. The UK Administration is discussed in Note 1, “Description of the Business and Company Background.”


33


 
GuaranteesVISTEON CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The Company has guaranteed approximately $41 million for lease payments and $7 million of debt capacity related to its subsidiaries. In connection with the January 2009 PBGC Agreement, the Company agreed to provide a guarantee by certain affiliates of certain contingent pension obligations of up to $30 million.
NOTE 18. Commitments and Contingencies — (Continued)
 
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 product warranty and recall liability for the sixnine months ended JuneSeptember 30, 2009 and 2008:
 
        
 Product Warranty
         
 and Recall  Product Warranty and Recall 
 2009 2008  2009 2008 
 (Dollars in Millions)  (Dollars in Millions) 
Beginning balance $100  $108  $100  $108 
Accruals for products shipped  13   23   20   33 
Changes in estimates  (8)  9   (7)  9 
Settlements  (15)  (20)  (21)  (44)
          
Ending balance $90  $120  $92  $106 
          
 
Environmental Matters
 
The Company is subject to the requirements of federal, state, local and foreign environmental and occupational safety and health laws and regulations. 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 and relating to various third-party superfund sites at which the Company or its predecessor has been named as a potentially responsible party. The Company is in various stages of investigation and cleanup at these sites and at JuneSeptember 30, 2009, had recorded an accrual of approximately $5$4 million for this environmental investigation and cleanup. However, estimating liabilities for environmental investigation and cleanup is complex and dependent upon a number of factors


31


VISTEON CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 18. Commitments and Contingencies — (Continued)
beyond the Company’s control and which may change dramatically. Although the Company believes its accrual is adequate based on current information, the Company cannot provide assurance that the eventual environmental investigation, cleanup costs and related liabilities will not exceed the amount of its current accrual.


34


VISTEON CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 18. Commitments and Contingencies — (Continued)
 
Other Contingent Matters
 
In addition to the matters discussed above, various other 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; and intellectual property rights. Some of the foregoing matters may involve compensatory, punitive or antitrust or other treble damage claims in very large amounts, or demands for equitable relief, sanctions, or other relief.
 
Under section 362 of the Bankruptcy Code, the filing of a bankruptcy petition automatically stays 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. Absent an order of the Court, substantially all pre-petition liabilities are subject to settlement under a plan of reorganization.
 
Under section 365 of the Bankruptcy Code, the Debtors may assume, assume and assign or reject certain executory contracts and unexpired leases, subject to the approval of the Court and certain other conditions. In general, if the Debtors reject an executory contract or unexpired lease, it is treated as a pre-petition breach of the lease or contract in question and, subject to certain exceptions, relieves the Debtors of performing any future obligations. However, such a rejection entitles the lessor or contract counterparty to a pre-petition general unsecured claim for damages caused by such deemed breach and accordingly, the counterparty may file a claim against the Debtors for such damages. In addition, the Debtor’s plan of reorganization will determine the rights and satisfaction of claims of various creditors and security holders, but the ultimate settlement of those claims will continue to be subject to the uncertain outcome of litigation, negotiations and Court decisions up to and for a period of time after a plan of reorganization is confirmed. At this time, it is not possible to predict with certainty the effect of the Chapter 11 Proceedings on the Company’s business.
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.
 
NOTE 19. 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, 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 ofinter-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.


35


VISTEON CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 19. Segment Information — (Continued)
 
The Company’s operating structure is comprised of the following: Climate, Electronics and Interiors. These global product groups have financial and operating responsibility over the design, development and manufacture of the Company’s product portfolio. Within each of the global product groups, certain facilities manufacture a broader range of the Company’s total product line offering and are not limited to the primary product line. 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. In addition to these global product groups, the Company also operates Visteon Services, a centralized administrative function to monitor and facilitate transactions primarily with ACH for the costs of leased employees and other services provided by the Company.


32


VISTEON CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 19. Segment Information — (Continued)
 
Overview of Segments
 
• Climate:  The Climate product group includes facilities that primarily manufacture climate air handling modules, powertrain cooling modules, heat exchangers, compressors, fluid transport and engine induction systems.
 
• Electronics:  The Electronics product group includes facilities that primarily manufacture audio systems, infotainment systems, driver information systems, powertrain and feature control modules, climate controls, electronic control modules and lighting.
 
• Interiors:  The Company’s InteriorInteriors product group includes facilities that primarily manufacture instrument panels, cockpit modules, door trim and floor consoles.
 
• Services:  The Company’s Services operations supply leased personnel and transition services pursuant to the ACH Transactions and other divestitures.
 
Segment Net Sales and Gross Margin
 
                                 
  Net Sales  Gross Margin 
  Three Months
  Six Months
  Three Months
  Six Months
 
  Ended
  Ended
  Ended
  Ended
 
  June 30  June 30  June 30  June 30 
  2009  2008  2009  2008  2009  2008  2009  2008 
  (Dollars in Millions) 
 
Climate $591  $919  $1,082  $1,817  $50  $77  $79  $161 
Electronics  510   1,007   955   1,983   22   116   30   211 
Interiors  428   859   818   1,715   7   25   14   39 
Other     107      234      12      13 
Eliminations  (47)  (111)  (78)  (229)            
                                 
Total products  1,482   2,781   2,777   5,520   79   230   123   424 
Services  87   128   144   251   1   1   2   2 
                                 
Total consolidated $1,569  $2,909  $2,921  $5,771  $80  $231  $125  $426 
                                 
Segment Operating Assets
                 
     Property and
 
  Inventories, net  Equipment, net 
  June 30
  December 31
  June 30
  December 31
 
  2009  2008  2009  2008 
  (Dollars in Millions) 
 
Climate $149  $172  $777  $817 
Electronics  120   131   606   626 
Interiors  51   43   278   298 
Other           1 
Central/Elimination  9   8   1    
                 
Total products  329   354   1,662   1,742 
Reconciling Item                
Corporate        391   420 
                 
Total consolidated $329  $354  $2,053  $2,162 
                 
                                 
  Net Sales  Gross Margin 
  Three Months Ended
  Nine Months Ended
  Three Months Ended
  Nine Months Ended
 
  September 30  September 30  September 30  September 30 
  2009  2008  2009  2008  2009  2008  2009  2008 
  (Dollars in Millions) 
 
Climate $678  $704  $1,760  $2,521  $76  $30  $155  $191 
Electronics  557   762   1,512   2,745   23   10   53   221 
Interiors  504   619   1,322   2,334   16      30   39 
Other     20      254      2      15 
Eliminations  (67)  (95)  (145)  (324)            
                                 
   1,672   2,010   4,449   7,530   115   42   238   466 
Services  61   110   205   361   1   1   3   3 
                                 
  $1,733  $2,120  $4,654  $7,891  $116  $43  $241  $469 
                                 


3336


 
VISTEON CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
NOTE 19. Segment Information — (Continued)
Segment Operating Assets
                 
  Inventories, net  Property and Equipment, net 
  September 30
  December 31
  September 30
  December 31
 
  2009  2008  2009  2008 
     (Dollars in Millions)    
 
Climate $171  $172  $785  $817 
Electronics  126   131   610   626 
Interiors  55   43   284   298 
Other        1   1 
Central/Elimination  8   8       
                 
   360   354   1,680   1,742 
Reconciling Item                
Corporate        359   420 
                 
  $360  $354  $2,039  $2,162 
                 
 
Reconciling Item and Reclassification
 
Certain adjustments are necessary to reconcile segment information to the Company’s consolidated amounts. Corporate reconciling items are related to the Company’s technical centers, corporate headquarters and other administrative and support functions. Segment information for the three and six-monthnine-month periods ended JuneSeptember 30, 2009 and as of December 31, 2008 has been recast to reflect the remaining Other product group operations in the Company’s Climate, Electronics and Interiors product groups. These operations have been reclassified consistent with the Company’s current management reporting structure. All other facilities associated with the Company’s Other product group have been either divested or closed.


3437


NOTE 19. Segment Information — (Continued)
ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
The following Management’s Discussion and Analysis (“MD&A”) is intended to help the reader understand the results of operations, financial condition and cash flows of Visteon Corporation (“Visteon” or the “Company”). MD&A is provided as a supplement to, and should be read in conjunction with, the Company’s Annual Report onForm 10-K for the fiscal year ended December 31, 2008, as filed with the Securities and Exchange Commission on March 31, 2009 and the financial statements and accompanying notes to the financial statements included elsewhere herein. The financial data presented herein are unaudited, but in the opinion of management reflect all adjustments, including normal recurring adjustments necessary for a fair presentation of such information.
 
Executive Summary
 
Visteon Corporation is a leading global supplier of climate, interiors and electronics systems, modules and components to global automotive original equipment manufacturers (“OEMs”) including BMW, Chrysler Group LLC, Daimler AG, Fiat, Ford, General Motors, Honda, Hyundai / Kia, Nissan, PSA Peugeot Citroën, Renault, Toyota and Volkswagen. The Company has a broad network of manufacturing, technical engineering and joint venture operations in every major geographic region of the world, supported by approximately 30,000 employees dedicated to the design, development, manufacture and support of its product offering and its global customers. The Company conducts its business across four segments: Climate, Interiors, Electronics and Services.
 
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”). The reorganization cases are being jointly administered as CaseNo. 09-11786 under the caption “In re Visteon Corporation, et al” (hereinafter referred to as the “Chapter 11 Proceedings”). The Debtors continue to operate their businesses as“debtors-in-possession” (“DIP”) under the jurisdiction of the Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Court. The Company’s other subsidiaries, primarilynon-U.S. subsidiaries, have been excluded from the Chapter 11 Proceedings and continue to operate their businesses without supervision from the Court and are not subject to the requirements of the Bankruptcy Code.
 
The Chapter 11 Proceedings were initiated in response to sudden and severe declines in global automotive production during the latter part of 2008 and early 2009 and the adverse impact on the Company’s cash flows and liquidity. Under the Chapter 11 Proceedings, the Debtors expect to develop and implement a plan to restructure their capital structure to reflect the current automotive industry demand. Under section 362 of the Bankruptcy Code, the filing of a bankruptcy petition automatically stays 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. Absent an order of the Court, substantially all pre-petition liabilities are subject to settlement under a plan of reorganization. Subsequent to the petition date, the Debtors received approval from the Bankruptcy Court to pay or otherwise honor certain pre-petition obligations generally designed to stabilize the Debtors’ operations including employee obligations, tax matters and from limited available funds, pre-petition claims of certain critical vendors, certain customer programs, limited foreign business operations, adequate protection payments and certain otherpre-petition claims. The Debtors have been paying and intend to continue to pay undisputed post-petition claims in the ordinary course of business.


3538


On May 28, 2009,To successfully emerge from chapter 11, in addition to obtaining exit financing, the Debtors entered intoCourt must confirm a commitment letter with Ford (the “DIP Commitment”), pursuant toplan of reorganization, the filing of which among other things, Ford agreed, subject towill depend upon the termstiming and conditions set forth therein, to provide no less than $125 millionoutcome of financing under the terms of a senior, super-priority DIP revolving credit facility to the Debtors under the Bankruptcy Code (the “DIP Facility”). The terms of the DIP Facility, including the aggregate size thereof and permitted uses thereof, remain subject to contingencies including receipt of commitments from customers of the Debtors other than Ford to participatenumerous ongoing matters in the DIP Facility.Chapter 11 Proceedings. The DIP Commitment is subjectDebtors currently expect to significant conditions, including, among other things,file a plan of reorganization that provides for the execution and delivery of definitive documents acceptableDebtors’ emergence from bankruptcy in early to Ford, agreement on a budget acceptable to Ford as to permitted uses of the DIP Facility and other customary lending conditions that willmid 2010, but there can be set forth in such definitive agreements. While the DIP Commitment expired on June 30, 2009, the Debtors continue to work with Ford and other North America customers to secure DIP financing. However, there is no assurance that the Court will confirm the Company’s plan of reorganization or that any such plan will be implemented successfully. On October 7, 2009 the Court entered an order extending the Debtors’ exclusive period to file a chapter 11 plan of reorganization until December 10, 2009 and to solicit votes to accept a proposed chapter 11 plan of reorganization until February 10, 2010.
The Company’s plan of reorganization will determine the rights and satisfaction of claims of various creditors and security holders. At this time, it is not possible to predict with certainty the effect of the Chapter 11 Proceedings on the Company’s business. The Debtors will include estimates of expected claims dispositions in the plan of reorganization, but the ultimate settlement of those claims will continue to be successful in securing such commitments or obtaining sufficient DIP financing in a timeframe or on terms acceptablesubject to the Debtors in orderuncertain outcome of litigation, negotiations and Court decisions up to facilitateand for a period of time after a plan of reorganization.
reorganization is confirmed. The Debtors also continue to work with other customers on a global basis to provide liquidity. During July 2009,Company believes that its presently outstanding equity securities will have no value and will be canceled under any plan of reorganization. For this reason, the Company executed support agreementsurges that caution be exercised with certain European customers that provide for additional liquidity through certain lump sum payments for recoveryrespect to existing and future investments in any security of invested research and engineering costs, accelerated payment terms and other commercial arrangements. Additionally, during July 2009, the Debtors sold their 80% interest in Halla Climate Systems Alabama Corp. (“Halla Alabama”) to the Debtors’ 70% owned joint venture, Halla Climate Control Corporation (“Halla Korea”) under Bankruptcy Code Section 363.Company.
 
The Debtors are currently funding post-petition operations under a temporary cash collateral order from the Court. There can be no assurance that such cash collateral funds will be sufficient to meet the Debtors ongoing cash needs or that the Debtors will be successful in extending the duration of the cash collateral order with the Court to continue operating asdebtors-in-possession absent an approved DIP financing arrangement. Even
The Debtors continue to work with their customers on a global basis to facilitate the reorganization of the Company’s business. During July 2009, the Company executed support agreements with certain European customers that provide for, among other things, accelerated payment terms, price increases, restructuring cost reimbursements and settlement payments for invested research and engineering costs and other unrecovered amounts. During the three-month period ended September 30, 2009 the Company received non-refundable settlement payments of approximately $40 million in the event that the Debtors secure sufficient DIP financing to implement a planconnection with these agreements and anticipates receipt of reorganization, the termsadditional non-refundable settlement payments of such DIP financing may require the Debtors to implement substantial additional restructuring measures including facility closures, business exitsapproximately $30 million on or before each of June 30, 2010 and asset sales. Such activities could materially change the amounts and classifications reported in the consolidated financial statements, which do not give effect to any adjustments to the carrying value of assets or amounts of liabilities that might be necessary pursuantJune 30, 2011, subject to the terms and conditions of any such DIP financing.these agreements. The Company recorded $9 million of revenue associated with these settlement payments during the third quarter of 2009, with $31 million deferred on the balance sheet at September 30, 2009. Additionally, during July 2009, the Debtors sold their 80% interest in Halla Climate Systems Alabama Corp. (“Halla Alabama”) to the Debtors’ 70% owned joint venture, Halla Climate Control Corporation under Bankruptcy Code Section 363 for cash proceeds to the Debtors’ of $37 million.
On September 17, 2009, the Debtors filed a confirmed planmotion with the Court seeking authority to enter into a customer accommodation agreement and related access and security agreement (together, the “GM Accommodation Agreement”) with General Motors Corporation (“GM”). Pursuant to the GM Accommodation Agreement, GM has agreed to, among other things, pay approximately $8 million in cash surcharge payments above the purchase order price for GM component parts produced; reimburse up to $10 million for restructuring costs associated with the consolidation of reorganization could also materially changecertain of the amountsCompany’s Mexican facilities; reimburse $4 million of engineering, design and classifications reporteddevelopment support costs; accelerate payment terms; reimburse the Company for costs associated with the wind-down of operations related to the production of interior and fuel tank GM component parts; and pay approximately $8 million in cure payments in connection with the assumption and assignment of purchase orders with the Company in the consolidated financial statements, which do not give effectMotors Liquidation Company (f/k/a General Motors Corporation) chapter 11 case.


39


In exchange for these benefits, the Company agreed to any adjustmentscontinue producing and delivering component parts to GM during the term of the GM Accommodation Agreement as well as provide considerable assistance to GM in re-sourcing production to other suppliers. Also, the Company agreed to build an inventory bank for GM, provided GM pays for such inventory on an accelerated basis and covers the Company’sout-of-pocket expenses in maintaining and handling the inventory. In addition, the GM Accommodation Agreement grants GM an option to purchase equipment and tooling owned by the Company that is exclusively used to manufacture GM component parts, provides GM with a right to access the Company’s facilities if the Company ceases production and grants to GM a security interest in certain operating assets that would be necessary for GM component part production. In general, the rights and benefits inuring to the carrying valueCompany and GM pursuant to the GM Accommodation Agreement expire on the earlier of the date that resourcing of production is completed or March 31, 2010. The Court entered an order approving the Debtors motion with respect to the GM Accommodation Agreement on October 7, 2009.
On October 2, 2009, the Debtors filed a motion with the Court seeking authority to enter into a customer accommodation agreement and related access and security agreement (together, the “Chrysler Accommodation Agreement”) with Chrysler Group LLC (“Chrysler”). The effectiveness of the Chrysler Accommodation Agreement is contingent upon approval by the Court. Pursuant to the Chrysler Accommodation Agreement, Chrysler has agreed to, among other things, pay surcharge payments to the Company above the purchase order price for Chrysler component parts produced by the Company in an aggregate amount of $13 million; pay approximately $5 million for the purchase of certain tooling used at the Company’s Saltillo, Mexico facility to manufacture Chrysler component parts; purchase certain designated equipment and tooling exclusively used to manufacture Chrysler component parts at the Company’s Highland Park, Michigan and Saltillo, Mexico facilities; reimburse the Company for certain costs associated with the wind-down of certain lines of Chrysler component part production; accelerate payment terms; and pay approximately $13 million to the Company as cure payments in connection with the assumption and assignment of purchase orders with the Company in the Old Carco LLC (f/k/a Chrysler LLC) chapter 11 case.
In exchange for these benefits, the Company will continue to produce and deliver component parts to Chrysler during the term of the Chrysler Accommodation Agreement, as well as provide assistance to Chrysler in re-sourcing certain lines of production. The Company also has agreed to build an inventory bank for Chrysler, provided that Chrysler will pay for such parts in accordance with the payment terms set forth in the Chrysler Accommodation Agreement and will cover the Company’s incremental costs incurred in the production of such parts to the extent such costs exceed purchase order prices. The Company will also grant Chrysler an option to purchase certain machinery and equipment exclusively used to manufacture Chrysler component parts, and has agreed to seek Court approval for the sale of the Company’s Highland Park, Michigan and Saltillo, Mexico facilities as going concerns if Chrysler designates such facilities for sale prior to the termination date of the Chrysler Accommodation Agreement. The Chrysler Accommodation Agreement provides Chrysler with a right to access the Company’s facilities if the Company ceases production and grants to Chrysler a security interest in certain operating assets that would be necessary for Chrysler component part production. In general, the rights and benefits inuring to the Company and Chrysler pursuant to the Chrysler Accommodation Agreement expire on the earlier of the date that resourcing of production is completed or March 31, 2010.
On October 23, 2009, the Debtors filed a motion with the Court seeking authority to, among other things, enter into (i) a customer accommodation agreement and related access and security agreement (together, the “Nissan Accommodation Agreement”) with Nissan North America, Inc. (“Nissan”), and (ii) an asset purchase agreement (the “Nissan Purchase Agreement”) among the Company, GCM-Visteon Automotive Systems, LLC, GCM-Visteon Automotive Leasing Systems, LLC, MIG-Visteon Automotive Systems, LLC, and VC Regional Assembly & Manufacturing, LLC (collectively, the “Sellers”), Haru Holdings, LLC (the “Buyer”) and Nissan. The effectiveness of the Nissan Accommodation Agreement is contingent upon approval by the Court.


40


Pursuant to the Nissan Purchase Agreement, the Sellers have agreed to sell to the Buyer certain assets, intellectual property, agreements and rights (the “Assets”) primarily related to the Sellers’ automobile cockpit module, front end module, and interior manufacturing and assembly businesses located at their plants in LaVergne, Tennessee, Smyrna, Tennessee, Tuscaloosa, Alabama, and Canton, Mississippi, as well as certain other direct-shipment sourcing arrangements. The Nissan Purchase Agreement provides that the Buyer will make the following payments to the Sellers:
• $11 million, representing the orderly liquidation value of the facilities and related equipment being sold in accordance with the Nissan Purchase Agreement;
• An amount equal to the orderly liquidation value of certain off-site tooling;
• An agreed upon purchase order amount for certain of the Sellers’ inventory;
• A $20 million cash surcharge payment, to be paid in six installments subject to certain conditions;
• Costs to cure assumed contracts; and
• Reimbursement for costs associated with thewind-down and transition of the Assets.
The amounts of liabilitiesthese payments are subject to adjustment in accordance with the Nissan Purchase Agreement. The Nissan Purchase Agreement also contains customary representations, warranties, indemnities, covenants and conditions to closing, including the approval of the Court.
Pursuant to the Nissan Accommodation Agreement, Nissan has agreed to, among other things, accelerate its payment terms on outstanding purchase orders, limit its ability to set-off against accounts receivables owing to the Company and forbear from re-sourcing component parts to a third party supplier during the term of the Nissan Accommodation Agreement. The Company will, among other things, continue to produce and deliver component parts to Nissan during the term of the Nissan Accommodation Agreement and will build an inventory bank for Nissan at its request (provided that mightNissan will pay for such inventory bank parts on an accelerated basis and will also cover the Company’sout-of-pocket expenses in maintaining and handling the inventory). The Company will also provide assistance and cooperation to Nissan in preparing for and carrying out the transition of various production lines to other suppliers in the event the Company defaults. Also, the Nissan Accommodation Agreement provides Nissan with an access right to certain facilities if the Company fails maintain continuity of supply as required.
On October 28, 2009, the Debtors filed a motion with the Court seeking authority to enter into a Letter of Credit Reimbursement and Security Agreement that provides for a committed $40 million letter of credit facility that expires on September 30, 2010 (“LOC Facility”). Amounts drawn under the LOC Facility would be necessary assubject to a consequencefee of confirmation0.65% per annum of the outstanding balance and would be secured by cash collateral. Amounts undrawn would be subject to a fee of 0.40% per annum of the undrawn balance.
On October 28, 2009, the Debtors filed a motion with the Court seeking authority to borrow up to $150 million under the terms of a plan of reorganization.proposed senior secured super-priority primingdebtor-in-possession credit and guarantee agreement (the “Proposed DIP Facility”) with certain pre-petition secured term loan lenders (the “DIP Lenders”) and Wilmington Trust Company, as administrative agent. Borrowings under the Proposed DIP Facility would be used to finance working capital, capital expenditures and other general corporate purposes in accordance with an approved budget.


41


Visteon UK Limited Administration
 
On March 31, 2009, in accordance with the provisions of the United Kingdom Insolvency Act of 1986 and pursuant to a resolution of the board of directors of Visteon UK Limited, a company organized under the laws of England and Wales (the “UK Debtor”) and an indirect, wholly-owned subsidiary of the Company, representatives from KPMG (the “Administrators”) were appointed as administrators in respect of the UK Debtor (the “UK Administration”). The UK Administration was initiated in response to continuing operating losses of the UK Debtor and mounting labor costs and their related demand on the Company’s cash flows, and does not include the Company or any of the Company’s other subsidiaries. Under the UK Administration, the UK Debtor, which has operations in Enfield, UK, Basildon, UK and Belfast, UK, is expected to be wound down. The effect of the UK Debtor’s entry into administration was to place the management, affairs, business and property of the UK Debtor under the direct control of the Administrators. Since their appointment, the Administrators have wound down the business of UK Debtor and closed its operations in Enfield, UK, Basildon, UK and Belfast, UK, and made the employees redundant. The Administrators continue to realize the UK Debtor’s assets, comprising primarily of receivables.


36


The UK Debtor recorded sales, negative gross margin and net loss of $32 million, $7 million and $10 million, respectively for the three months ended March 31, 2009. As of March 31, 2009, total assets of $64 million, total liabilities of $132 million and related amounts deferred as “Accumulated other comprehensive income” of $84 million, were deconsolidated from the Company’s balance sheet resulting in a deconsolidation gain of $152 million. The Company also recorded $57 million for contingent liabilities related to the UK Administration, including $45 million of costs associated with former employees of the UK Debtor, for which the Company was reimbursed from the escrow account on a 100% basis.
 
Additional amounts related to these items or other contingent liabilities for potential claims under the UK Administration, which may result from (i) negotiations; (ii) actions of the Administrators; (iii) resolution of contractual arrangements, including unexpired leases; (iv) material adverse developments; or other events, may be recorded in future periods. No assurance can be provided that the Company will not be subject to future litigationand/or liabilities related to the UK Administration. Additional liabilities, if any, will be recorded when they become probable and estimable and could materially affect the Company’s results of operations and financial condition in future periods.
 
Summary Financial Results for the Three Months Ended JuneSeptember 30, 2009
 
Financial results for the three-month period ended JuneSeptember 30, 2009 are summarized as follows:
 
• Net sales of $1.57$1.73 billion for the three-month period ended JuneSeptember 30, 2009 decreased by $1.34 billion$387 million when compared to $2.91$2.12 billion for the same period in 2008.
 
• Gross margin declined $151increased $73 million during the three months ended JuneSeptember 30, 2009 when compared to the same period in 2008.
 
• Selling, general and administrative expenses of $97$95 million for the three months ended JuneSeptember 30, 2009, waswere lower by $59$43 million or 38%31% when compared to $156$138 million for the same period in 2008.
 
• Net loss of $99$23 million for the three months ended JuneSeptember 30, 2009 was $76$158 million higherlower when compared to a net loss of $23$181 million for the same period in 2008.


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Recessionary economic conditions continued to suppress global consumer demand for automobiles, which resulted in lower customer production volumes for the secondthird quarter 2009 when compared to the same period of 2008. The Company recorded total sales of $1.57$1.73 billion for the three months ended JuneSeptember 30, 2009, including product sales of $1.48$1.67 billion. Product sales decreased by $1.3 billion,$338 million, when compared to the same period in 2008, including $840$202 million primarily due to lower production volumes and customer sourcing actions in all regions and foraffecting all major customers $240in Europe, North America, and South America, $92 million related to divestitures and closures and $181$128 million of unfavorable currency primarily related to the Euro and Korean Won. These reductions were partially offset by a sales increase of $93 million in Asia Pacific resulting from increased Hyundai/Kia production volumes primarily related to the non-recurrence of a 2008 labor disruption. For the three months ended JuneSeptember 30, 2009, product sales on a regional basis included North America — $316$396 million; Europe — $596$615 million; and Asia — $543$628 million.
 
The Company’s gross margin was $80$116 million in the secondthird quarter of 2009, compared with $231$43 million for the same period in 2008, representing a decreasean increase of $151 million or 65%. This decrease$73 million. The increase in gross margin primarily reflects the impactbenefit of lower global customer production volumes on the Company’s fixedsignificant cost structure, divestituresreduction and facility closuresrestructuring efforts and favorable Asia Pacific production, which were partially offset by lower production volumes and sourcing in Europe, North America and South America, plant divestitures and closures and the favorable impactnon-recurrence of the Company’s cost reduction actions and savings associated with restructuring activities.certain pension curtailments/settlement gains.
 
The Company’s cash and equivalents balance was $647$712 million as of JuneSeptember 30, 2009. Cash and equivalents decreased by $533$468 million during the sixnine months ended JuneSeptember 30, 2009 due to operating cash use of $235$151 million related to higher losses, as adjusted for non-cash items, and higher trade working capital outflow; $65outflow and restructuring cash payments; $93 million investing cash use primarily attributable to capital expenditures and cash attributable to the deconsolidation of Visteon UK Limited; $235$245 million financing cash use resulting from the restricted use of $95$102 million of cash balances and $140$143 million net debt payments and other.other; and $21 million increase from effect of exchange rate changes on cash.


37


Results of Operations
 
Three Months Ended JuneSeptember 30, 2009 and 2008
 
                                    ��         
 Sales Gross Margin  Net Sales Gross Margin 
 2009 2008 Change 2009 2008 Change  2009 2008 Change 2009 2008 Change 
 (Dollars in Millions)  (Dollars in Millions) 
Climate $591  $919  $(328) $50  $77  $(27) $678  $704  $(26) $76  $30  $46 
Electronics  510   1,007   (497)  22   116   (94)  557   762   (205)  23   10   13 
Interiors  428   859   (431)  7   25   (18)  504   619   (115)  16      16 
Other     107   (107)     12   (12)     20   (20)     2   (2)
Eliminations  (47)  (111)  64            (67)  (95)  28          
                          
Total product  1,482   2,781   (1,299)  79   230   (151)
  1,672   2,010   (338)  115   42   73 
Services  87   128   (41)  1   1      61   110   (49)  1   1    
                          
Total consolidated $1,569  $2,909  $(1,340) $80  $231  $(151)
              $1,733  $2,120  $(387) $116  $43  $73 
             
 
Net sales decreased $1.34 billion$387 million during the three months ended JuneSeptember 30, 2009 when compared to the same period of 2008, consisting of a $1.30 billion$338 million decrease in product sales and a $41$49 million decrease in services revenues. The decrease was attributable to an $840a $202 million decline due to production volumes and customer sourcing actions in all regionsEurope, North America and for all major customers, $240South America, $92 million associated with facility divestitures and closures, $181$128 million of unfavorable currency primarily related to the Euro and Korean Won and net customer price reductions. These reductions were partially offset by a sales increase of $93 million in Asia Pacific, primarily related to the non-recurrence of a third quarter 2008 Hyundai/Kia labor disruption.


43


Net sales for Climate were $591$678 million for the three months ended JuneSeptember 30, 2009, compared with $919$704 million for the same period of 2008, representing a decrease of $328$26 million. Sales in Asia increased $100 million, or 36%. Vehicle production volume and mix declined significantly in all regions resulting in a decrease in sales of $195 million and facility divestitures and closures, primarily related to higher Hyundai/Kia production volumes due to the UK Administration entered into on March 31, 2009, decreased sales $21 million. Unfavorablenon-recurrence of a third quarter 2008 labor disruption. This increase was more than offset by unfavorable currency of $55 million, primarily driven by the Korean Won, further decreased sales by $74$17 million of divestitures and closures, $17 million of lower production in Europe due to recessionary conditions and net customer pricing resulted in a reduction.price reductions.
 
Net sales for Electronics were $510$557 million for the three months ended JuneSeptember 30, 2009, compared to $1.01 billion$762 million for the same period of 2008, representing a decrease of $497 million or 49%.$205 million. Vehicle production volume and mix and customer sourcing decreased sales $457$175 million, primarily in Europe and North America. Unfavorable currency of $26 million, primarily related to the Euro, of $38 million and net customer pricing further reduced sales.
 
Net sales for Interiors were $428$504 million and $859$619 million for the three-month periods ended JuneSeptember 30, 2009 and 2008, respectively, representing a decrease of $431 million or 50%. Vehicle production volume and mix declined significantly in all regions resulting in a decrease in sales of $247 million and facility$115 million. Facility divestitures and closures in the UK and Spain reduceddecreased sales $116$61 million, lower production volumes in Europe decreased sales $49 million, and unfavorable currency related to the Euro, Korean Won and Brazilian Real decreased sales $48 million. Unfavorable currency reduced sales $69 million.These decreases were partially offset by an increase of $36 million in North America primarily related to higher Ford and Nissan production volumes, a $12 million increase in Asia Pacific primarily related to higher Hyundai/Kia production volumes and a $9 million customer settlement in Europe.
 
All remaining manufacturing facilities in the Other segment have either been divested, closed or reclassified consistent with the Company’s current management reporting structure.
 
Services revenues primarily relate to information technology, engineering, administrative and other business support services provided by the Company to ACH at an amount that approximates cost. Total services revenues were $87$61 million for the three months ended JuneSeptember 30, 2009, compared with $128$110 million for the same period of 2008. The decrease in services revenue represents lower ACH utilization of the Company’s services.


38


Gross Margin
 
The Company’s gross margin was $80$116 million in the secondthird quarter of 2009, compared with $231$43 million in the secondthird quarter of 2008, representing a decreasean increase of $151$73 million or 65% for the three months ended JuneSeptember 30, 2009. This decrease reflectsincrease includes $131 million related to the impactCompany’s cost reduction efforts and savings associated with restructuring actions, $43 million of lower globalfavorable currency, primarily related to the Euro and Korean Won, and $12 million related to higher production volumes on the Company’s fixed cost structure, partially offset by the Company’s restructuring actions to address these pressures. Lower customer production volumes, divestitures and facility closures resulted in a $303 million reduction in gross margin. The non-recurrence of a $26 million OPEB curtailment in 2008 further reduced margin.Asia Pacific. These reductionsincreases were partially offset by $165a $63 million reduction related to lower production volumes and sourcing in Europe, North America and South America, a $15 million reduction related to plant divestitures and closures, the non-recurrence of $13 million in other postretirement benefit plans (“OPEB”) curtailment gains in 2008, and $9 million of cost reductions, includingincreased accelerated depreciation and amortization related to the Company’s restructuring savings.activities.
 
Gross margin for Climate was $50$76 million in the secondthird quarter of 2009, compared with $77$30 million in the secondthird quarter of 2008, representing a decreasean increase of $27$46 million or 35% for the three months ended JuneSeptember 30, 2009. CustomerThe increase includes $18 million related to Asia production declinesvolumes primarily Hyundai/Kia, $19 million of favorable currency primarily related to the Korean Won, and facility divestitures and closures reduced gross margin $83 million. This decrease was partially offset by $50$32 million related to net cost efficiencies achieved through manufacturing performance, purchasing improvement efforts and restructuring activities. These improvements were partially offset by lower production volumes in Europe, North America and South America and plant divestitures and closures.


44


Gross margin for Electronics was $22$23 million in the secondthird quarter of 2009, compared with $116$10 million in the secondthird quarter of 2008, representing a decreasean increase of $94$13 million or 81% for the three months ended JuneSeptember 30, 2009. Customer production declines and sourcing reduced gross margin $135 million. This decrease was partially offset by $33 million related toThe increase included net cost efficiencies achieved through manufacturing performance, purchasing improvement efforts and restructuring activities.activities of $61 million and favorable currency of $16 million. Lower customer production volumes and sourcing reduced gross margin $52 million, while the non-recurrence of a $7 million favorable OPEB curtailment in 2008 further reduced margin.
 
Gross margin for Interiors was $7$16 million in the secondthird quarter of 2009, compared with $25 millionbreak even gross margin in the secondthird quarter of 2008, representing a decreasean increase of $18$16 million or 72% for the three months ended JuneSeptember 30, 2009. Customer production declines and sourcing reduced gross margin $45 million, unfavorable currency in Europe resulted in a $4 million decline and accelerated depreciation related to restructuring activities in the United States reduced gross margin $3 million. These decreases were partially offset by $33 million related toThe increase included net cost efficiencies achieved through manufacturing performance, purchasing improvement efforts and restructuring activities.activities of $31 million and favorable currency of $8 million. Customer production declines and plant divestitures and closures reduced gross margin $11 million and the non-recurrence of an $11 million favorable customer settlement in 2008 further reduced margin.
 
During 2008 all facilities associated with the Company’s Other segment were divested, closed, or reclassified consistent with the Company’s current management reporting structure.
 
Selling, General and Administrative Expenses
 
Selling, general and administrative expenses were $97$95 million in the secondthird quarter of 2009, compared with $156$138 million in the secondthird quarter of 2008, representing a decrease of $59 million or 38%.$43 million. The decrease includes $30$31 million related to net cost efficiencies resulting from the Company’s ongoing restructuring activities, and the non-recurrence of $14$6 million of 2008 expenses to implement those actions. Favorable foreign currency of $8 millionactions and lower expense of $8 million related to the annual incentive plan further contributed to the reduction. These reductions were partially offset by $9$6 million of pre-petition professional fees.favorable foreign currency.
 
Restructuring Expenses and Reimbursement from Escrow and Accommodation Agreements
 
The following is a summary of the Company’s consolidated restructuring reserves and related activity for the three months ended JuneSeptember 30, 2009. The Company’s restructuring expenses are primarily related to employee severance and termination benefit costs.
 
                                        
 Interiors Climate Electronics Other Total  Interiors Climate Electronics Other Total 
 (Dollars in Millions)  (Dollars in Millions) 
March 31, 2009 $34  $1  $4  $3  $42 
June 30, 2009 $23  $  $6  $1  $30 
Expenses  1      3   14   18   11      10   6   27 
Currency  2            2   1            1 
Utilization  (14)  (1)  (1)  (16)  (32)  (10)     (2)  (4)  (16)
                      
June 30, 2009 $23  $  $6  $1  $30 
September 30, 2009 $25  $  $14  $3  $42 
                      


39


During the third quarter of 2009, the Company recorded $27 million in employee severance and termination benefit costs related to headcount reductions associated with the Chapter 11 Proceedings, including $11 million associated with approximately 160 employees at two European Interiors facilities, $6 million associated with approximately 60 employees at the Company’s North American headquarters and $10 million associated with approximately 300 employees at a North American Electronics facility. The Company recorded $4 million for the reimbursement of restructuring costs associated with a European Interiors facility pursuant to a customer support agreement.
Utilization for the three months ended JuneSeptember 30, 2009 includes $23$12 million of payments for severance and other employee termination benefits and $9$4 million of special termination benefits reclassified to pension and other postretirement employee benefits, where such payments are made from the Company’s benefit plans.


45


In July 2009, the Company announced its intention to close a North American Electronics facility, contingent upon final customer arrangements, DIP Financing and court approval.
Reorganization Items
 
Financial reporting applicable to companies in chapter 11 of the Bankruptcy Code generally does not change the manner in which financial statements are prepared. However, it does require that the financial statements for periods subsequentCosts directly attributable to the chapterChapter 11 petition filing date distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Reorganization items of $7Proceedings were $23 million for the three months ended JuneSeptember 30, 2009 areand were related primarily related to professional service fees.
 
Asset Impairments and Loss on Divestitures
 
During the second quarter of 2008, the Company initiated the sale of certain assets related to its chassis manufacturing operation located in Swansea, United Kingdom. The sale was completed on July 7, 2008, and the Company recorded lossesasset impairments and loss on divestitures of $32$19 million during the second quarter ofthree months ended September 30, 2008 in connection with the transaction.divestitures of its chassis operation in Swansea, UK and its Interiors operation in Halewood, UK.
 
Interest
 
Interest expense was $47$8 million and $55$48 million for the quarterly periods ended JuneSeptember 30, 2009 and 2008, respectively. The decrease is primarily due to the Company ceasing to record interest expense in connection with the Chapter 11 Proceedings and lower market rates on other outstanding debt, partially offset by losses on the termination of interest rate swaps that were realized.Proceedings.
 
Income Taxes
 
The Company’s provision for income taxestax of $31$18 million for the second quarter ofthree-month period ended September 30, 2009 represents a decrease of $18$13 million when compared with $49$31 million in the same period of 2008. The decrease includes a higher tax benefit of $12 million on pre-tax losses form continuing operations after taking into consideration pre-tax income from other categories of earnings, a net reduction in uncertain tax benefits related to statute expirations of approximately $6 million, partially offset by higher income tax expense is primarily attributable to lower earnings in those countries where the Company is profitable and a net reduction in unrecognized tax benefitsyear-over-year.profitable.
 
SixNine Months Ended JuneSeptember 30, 2009 and 2008
 
                                                
 Net Sales Gross Margin  Net Sales Gross Margin 
 2009 2008 Change 2009 2008 Change  2009 2008 Change 2009 2008 Change 
 (Dollars in Millions)  (Dollars in Millions) 
Climate $1,082  $1,817  $(735) $79  $161  $(82) $1,760  $2,521  $(761) $155  $191  $(36)
Electronics  955   1,983   (1,028)  30   211   (181)  1,512   2,745   (1,233)  53   221   (168)
Interiors  818   1,715   (897)  14   39   (25)  1,322   2,334   (1,012)  30   39   (9)
Other     234   (234)     13   (13)     254   (254)     15   (15)
Eliminations  (78)  (229)  151            (145)  (324)  179          
                          
Total products  2,777   5,520   (2,743)  123   424   (301)
  4,449   7,530   (3,081)  238   466   (228)
Services  144   251   (107)  2   2      205   361   (156)  3   3    
                          
Total consolidated $2,921  $5,771  $(2,850) $125  $426  $(301)
              $4,654  $7,891  $(3,237) $241  $469  $(228)
             


40


Net Sales
 
Net sales decreased $2.85$3.24 billion during the sixnine months ended JuneSeptember 30, 2009 when compared to the same period of 2008, consisting of a $2.74$3.08 billion decrease in product sales and a $107$156 million decrease in services revenues. The decrease was attributable toin product sales included a $1.9$2.0 billion decline due to production volumes and customer sourcing actions in all regions and for all major customers, $452$544 million associated with facility divestitures and closures, $350$478 million of unfavorable currency, primarily related to the Euro and Korean Won, and net customer price reductions. The decrease in services revenue represents lower utilization of the Company’s services in connection with the terms of various service and transition support agreements.


46


Net sales for Climate were $1.08$1.76 billion for the sixnine months ended JuneSeptember 30, 2009, compared with $1.82$2.52 billion for the same period of 2008, representing a decrease of $735 million or 40%.$761 million. Vehicle production volume and mix declined significantly in all regions resulting in a decrease in sales of $491 million and$412 million. Additionally, facility divestitures and closures, related toincluding the March 2009 UK Administration entered into March 31, 2009 and the closure of the Company’s Connersville, Indiana facility, decreased sales $28$45 million. Unfavorable currency, primarily driven by the Korean Won and the Euro, further decreased sales by $156$210 million and net customer pricing also resulted in a reduction.
 
Net sales for Electronics were $955 million$1.51 billion for the sixnine months ended JuneSeptember 30, 2009, compared to $1.98$2.75 billion for the same period of 2008, representing a decrease of $1.03 billion or 52%.$1.23 billion. Vehicle production volume and mix and customer sourcing decreased sales $944 million,$1.12 billion, primarily in Europe and North America. Unfavorable currency, primarily related to the Euro and the Brazilian Real, resulted in a reduction of $73$98 million and net customer pricing further reduced sales.
 
Net sales for Interiors were $818 million$1.32 billion and $1.72$2.33 billion for the six-monthnine month periods ended JuneSeptember 30, 2009 and 2008, respectively, representing a decrease of $897 million or 52%.$1.01 billion. Vehicle production volume and mix declined significantly in all regions resulting in a decrease in sales of $601$615 million, andwhile facility divestitures and closures in the UK and Spain reduced sales $202$263 million. Unfavorable currency, primarily related to the Euro and Korean Won, reduced sales $121$169 million.
 
All remaining manufacturing facilities in the Other segment have either been divested, closed or reclassified consistent with the Company’s current management reporting structure.
 
Services revenues primarily relate to information technology, engineering, administrative and other business support services provided by the Company to ACH, under the terms of various agreements with ACH. Such services are generally provided at an amount that approximates cost. Total services revenues were $144$205 million for the sixnine months ended JuneSeptember 30, 2009, compared with $251$361 million for the same period of 2008. The decrease in services revenue represents lower ACH utilization of the Company’s services in connection with the terms of various agreements.
 
Gross Margin
 
The Company’s gross margin was $125$241 million for the six-month periodnine months ended JuneSeptember 30, 2009, compared with $426$469 million infor the first half ofsame period in 2008, representing a decrease of $301 million or 71%.$228 million. This decrease reflects the impact of lower global production volumes on the Company’s fixed cost structure, partially offset by savings associated with the Company’s cost reduction efforts and restructuring actions to address these pressures.actions. Lower customer production volumes, divestitures and facility closures resulted in a $646$712 million reduction in gross margin. The non-recurrence of a $26 million OPEB curtailment in 2008 further reduced margin. These reductions were partially offset by $330$464 million of cost reductions includingand restructuring savings and a $27 million customer settlement.savings.
 
Gross margin for Climate was $79$155 million for the six-month periodnine months ended JuneSeptember 30, 2009, compared with $161$191 million infor the first half ofsame period in 2008, representing a decrease of $82 million or 51%.$36 million. Customer production volume declines and facility divestitures and closures reduced gross margin $170 million and the non-recurrence of a $13 million gain on sale of a UK manufacturing facility in the first quarter of 2008 resulted in a further reduction. These decreases were partially offset by $97$130 million related to net cost efficiencies achieved through manufacturing performance, purchasing improvement efforts and restructuring activities.


41


Gross margin for Electronics was $30$53 million for the six-month periodnine months ended JuneSeptember 30, 2009, compared with $211$221 million infor the first half ofsame period in 2008, representing a decrease of $181 million or 86%.$168 million. Customer production declines and sourcing reduced gross margin $292$343 million. This decrease was partially offset by $85$146 million related to net cost efficiencies achieved through manufacturing performance, purchasing improvement efforts and restructuring activities and $20$18 million related to the non-recurrence of 2008 accelerated depreciation related to restructuring activities.costs.


47


Gross margin for Interiors was $14$30 million for the six-month periodnine months ended JuneSeptember 30, 2009, compared with $39 million infor the first half ofsame period in 2008, representing a decrease of $25 million or 64%. Customer$9 million. Lower customer production declinesvolumes, sourcing and sourcingplant divestitures and closures reduced gross margin $105 million and accelerated depreciation related to restructuring activities reduced gross margin $3$116 million. These decreases were partially offset by $60$92 million related to net cost efficiencies achieved through manufacturing performance, purchasing improvement efforts and restructuring activities and $27 million of favorable customer settlements.
 
During 2008 all facilities associated with the Company’s Other segment were divested, closed or reclassified consistent with the Company’s current management reporting structure.
 
Selling, General and Administrative Expenses
 
Selling, general and administrative expenses were $205$300 million infor the first half ofnine-month period ended September 30, 2009, compared with $304 million$442 for the same period in the first half of 2008, representing a decrease of $99 million or 33%.$142 million. The decrease is primarily attributable to $79$110 million of cost efficiencies resulting from the Company’s ongoing restructuring activities, the non-recurrence of $14$20 million of 2008 expenses to implement those actions, $17$23 million of favorable currency and $6$9 million related to lower expenses related to the annual incentive plan. These reductions were partially offset by $19 million of pre-petition professional fees.
 
Restructuring Expenses and Reimbursement from Escrow Accountand Accommodation Agreements
 
The following is a summary of the Company’s consolidated restructuring reserves and related activity for the sixnine months ended JuneSeptember 30, 2009. The Company’s restructuring expenses are primarily related to employee severance and termination benefit costs.
 
                                        
 Interiors Climate Electronics Other Total  Interiors Climate Electronics Other Total 
 (Dollars in Millions)  (Dollars in Millions) 
December 31, 2008 $49  $3  $4  $8  $64  $49  $3  $4  $8  $64 
Expenses  8   5   4   28   45   19   5   14   34   72 
Currency exchange  (1)           (1)
Utilization  (33)  (8)  (2)  (35)  (78)  (43)  (8)  (4)  (39)  (94)
                      
June 30, 2009 $23  $  $6  $1  $30 
September 30, 2009 $25  $  $14  $3  $42 
                      
During the nine months ended September 30, 2009, the Company recorded $72 million in employee severance and termination benefit costs related to headcount reductions associated with the Chapter 11 Proceedings, including the following:
• $40 million related to employee severance and termination benefit costs related to approximately 340 salaried employees in the United States and approximately 240 in other countries to align the Company’s administrative support functions with underlying operations in connection with restructuring and reorganization efforts and in response to recessionary economic conditions and related negative impact on the automotive sector and the Company’s results of operations and cash flows.
• $7 million in employee severance and termination benefit charges under the previously announced multi-year improvement plan.
• $11 million associated with approximately 160 employees at two European Interiors facilities.
• $10 million associated with approximately 300 employees at a North American Electronics facility.
• $4 million related to approximately 200 employees associated with the consolidation of Electronics operations in South America.
 
Utilization for the sixnine months ended JuneSeptember 30, 2009 includes $58$70 million of payments for severance and other employee termination benefits and $20$24 million of special termination benefits reclassified to pension and other postretirement employee benefits, where such payments are made from the Company’s benefit plans.
The Company was reimbursed $62 million from the escrow account for qualifying restructuring costs pursuant to the terms of Escrow Agreement, including amounts associated with former employees of Visteon UK Limited, as described below.


4248


The Company received reimbursements of $62 million for restructuring and other qualifying costs pursuant to the Escrow Agreement and $4 million pursuant to other customer support agreements. $45 million of disbursements from the Escrow account were associated with employee severance and termination benefits incurred in connection with the UK Administration and deconsolidation of Visteon UK Limited. Charges associated with this action are recorded as part of the “Deconsolidation gain” on the Company’s statements of operations.
Deconsolidation Gain
 
On March 31, 2009, in accordance with the provisions of the United Kingdom Insolvency Act of 1986 and pursuant to a resolution of the board of directors of Visteon UK Limited, a company organized under the laws of England and Wales and an indirect, wholly-owned subsidiary of the Company, representatives from KPMG were appointed as administrators in respect of the UK Debtor. The effect of the UK Debtor’s entry into administration was to place the management, affairs, business and property of the UK Debtor under the direct control of the Administrators. As of March 31, 2009 total assets of $64 million, total liabilities of $132 million and related amounts deferred as “Accumulated other comprehensive income” of $84 million, were deconsolidated from the Company’s balance sheet resulting in a deconsolidation gain of $152 million. The Company also recorded $57 million for contingent liabilities related to the UK Administration, including $45 million of costs associated with former employees of the UK Debtor, for which the Company was reimbursed from the escrow account on a 100% basis.
 
Reorganization Items
Costs directly attributable to the Chapter 11 Proceedings were $30 million for the nine months ended September 30, 2009 and were related primarily to professional service fees.
Asset Impairments and Loss on Divestitures
 
During the second quarterfirst nine months of 2008, the Company initiated the salerecorded asset impairments and loss on divestitures of certain assets$70 million, including $40 million related to its chassis manufacturing operation located inthe NA Aftermarket divestiture, $23 million related to the Swansea United Kingdom. The sale was completed on July 7, 2008,divestiture, and $7 million related to the Company recorded losses of $32 million during the second quarter of 2008 in connection with the transaction.
During the first quarter of 2008, the Company completed the sale of its North American-based aftermarket underhoodHalewood divestiture and remanufacturing operations and recorded total losses of $40 million in connection with the transaction.other assets.
 
Interest
 
Interest expense was $102$110 million for the sixnine months ended JuneSeptember 30, 2009 as compared to $112$160 million for the same period of 2008. The decrease of $10 million resulted from lower borrowing rates andis primarily due to the discontinuance ofCompany ceasing to record interest expense due toin connection with the Chapter 11 Proceedings, partially offset by $11 million for debt waiver fees and $14 million for losses on terminated interest rate swaps. Interest income was $6$8 million for the first half ofnine-month period ended September 30, 2009, compared to $28$38 million for the first halfsame period of 2008. The decrease of $22$30 million resulted from lower global cash balances and lower investment rates.
 
Income Taxes
 
The Company’s provision for income taxestax of $45$63 million for the six-monthnine-month period ended JuneSeptember 30, 2009 represents a decrease of $55$68 million when compared with $100$131 million in the same period of 2008. The decrease in tax expense is primarily attributable to lower earnings in those countries where the Company is profitable, and a net reduction in unrecognized tax benefits,year-over-year. and a higher tax benefit on pre-tax losses form continuing operations after taking into consideration pre-tax income from other categories of earnings.


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Liquidity
 
Over the long-term, the Company expects to fund its working capital, restructuring and capital expenditure needs with cash flows from operations. To the extent that the Company’s liquidity needs exceed cash from operations, the Company would look to its cash balances and availability for borrowings to satisfy those needs, as well as the need to raise additional capital. However, the Company’s ability to fund its working capital, restructuring and capital expenditure needs may be adversely affected by many factors including, but not limited to, general economic conditions, specific industry conditions, financial markets, competitive factors and legislative and regulatory changes. In general, the Company’s cash and liquidity needs are impacted by the level, variability, and timing of its customers’ worldwide vehicle production, which varies based on economic conditions and market shares in major markets. The Company’s intra-year needs are impacted by seasonal effects in the industry, such as the shutdown of operations for two weeks in July,mid-year shutdowns, the subsequentramp-up of new model production and the additional one-week shutdown in Decemberyear-end shutdowns by its primary North American customers. These seasonal effects normally require use of liquidity resources during the first and third quarters.


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The Debtors are currently funding post-petition operations under a temporary cash collateral order from the Court. There can be no assurance that such cash collateral funds will be sufficient to meet the Company’s reorganization or ongoing cash needs or that the Company will be successful in extending the duration of the cash collateral order with the Court to continue operating asdebtors-in-possession absent an approved DIP financing arrangement. The Company’s non-debtor subsidiaries, primarilynon-U.S. subsidiaries, have been excluded from the Chapter 11 Proceedings and are funding their operations through cash generated from operating activities supplemented by customer support agreements and local financing arrangements or through cash transfers from the Debtors subject to specific authorization from the Court pursuant to a foreign funding order.orders.
 
Cash Collateral Order and Term Loan Stipulation
 
On May 28, 2009, the Debtors filed a motion with the Court seeking an order authorizing the Debtors to provide Ford, the secured lender under the ABL Credit Agreement, certain forms of adequate protection in exchange for the consensual use of Ford’s Cash Collateral (as defined in the ABL Credit Agreement). On May 29, 2009, the Court entered an interim order (the first in a series of such orders) authorizing the Debtors’ use of Ford’s Cash Collateral and certain other prepetitionpre-petition collateral (as defined in that order). Such order also granted adequate protection to Ford for any diminution in the value of its interests in its collateral, whether from the use of the cash collateral or the use, sale, lease, depreciation or other diminution in value of its collateral, or as a result of the imposition of the automatic stay under section 362(a) of the Bankruptcy Code. Specifically, subject to certain conditions, adequate protection provided to Ford included, but was not limited to, a first priority, senior and perfected lien on certainpost-petition collateral of the same nature as Ford’s prepetitionpre-petition collateral, a second priority, junior perfected lien on certain collateral subject to liens held by the Debtors’ term loan secured lenders, and payment of accrued and unpaid interest and fees owing Ford on prepetitionpre-petition asset-backed revolving credit facility obligations.


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On June 19, 2009, the Court entered a first supplemental interim order authorizing the use of Ford’s cash collateral and granting adequate protection on substantially the same terms as those set forth in the interim cash collateral order previously entered. On July 1, 2009, the Court entered a second supplemental interim cash collateral order on substantially the same terms as those set forth in the first supplemental interim cash collateral order. On July 16, 2009, the Court entered a third supplemental interim cash collateral order (the “Third Supplemental Interim Cash Collateral Order”) on substantially the same terms as those set forth in the second supplemental interim cash collateral order. On July 28, 2009, the Court entered the fourth supplemental interim cash collateral order (the “Fourth Supplemental Interim Cash Collateral Order”) on substantially the same terms as those set forth in the Third Supplemental Interim Order Cash Collateral Order, extending the Debtors’ consensual use of Ford’s collateral to August 13, 2009. On August 13, 2009, the Court entered the fifth supplemental interim cash collateral order (the “Fifth Supplemental Interim Cash Collateral Order”) on substantially the same terms as those set forth in the Fourth Supplemental Interim Order Cash Collateral Order, extending the Debtors’ consensual use of Ford’s collateral to September 9, 2009. On September 9, 2009, the Court entered the sixth supplemental interim cash collateral order (the “Sixth Supplemental Interim Cash Collateral Order”) on substantially the same terms as those set forth in the Fifth Supplemental Interim Order Cash Collateral Order, extending the Debtors’ consensual use of Ford’s collateral to October 7, 2009. On October 7, 2009, the Court entered the seventh supplemental interim cash collateral order on substantially the same terms as those set forth in the Sixth Supplemental Interim Order Cash Collateral Order, extending the Debtors’ consensual use of Ford’s collateral to November 12, 2009. As of the end of the six months ended JuneSeptember 30, 2009, such cash collateral amounted to approximately $300$292 million, which includes restricted cash of $80 million.
 
On May 29, 2009, Wilmington Trust FSB, as administrative agent for the Debtors’ term loan secured lenders, filed a motion with the Court seeking adequate protection of these lenders’ collateral including, but not limited to, intellectual property, equity in foreign subsidiaries and intercompany debt owed by foreign subsidiaries, as well as certain cash flows associated with such collateral (the “Motion for Adequate Protection”).


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Contemporaneously with entering the Third Supplemental Interim Cash Collateral Order, the Court entered a final order in connection with the Motion for Adequate Protection (the “Stipulation, Agreement, and Final Order”). The Stipulation, Agreement, and Final Order authorizes the Debtors to use the cash collateral and certain other prepetitionpre-petition collateral (as defined in the Stipulation, Agreement, and Final Order) of the term loan secured lenders and grants adequate protection to these lenders for any diminution in the value of their interests in their collateral, whether from the use of the cash collateral or the use, sale, lease, depreciation or other diminution in value of their collateral, or as a result of the imposition of the automatic stay under section 362(a) of the Bankruptcy Code. Specifically, subject to certain conditions, adequate protection provided to the term loan secured lenders included, but was not limited to, replacement liens and adequate protection payments in the form of cash payments of the reasonable and documented fees, costs and expenses of the term loan secured lenders’ professionals (as defined in the Stipulation, Agreement, and Final Order) employed in connection with the Debtors’ chapter 11 cases. As of the end of the six months ended JuneSeptember 30, 2009, the term loan secured lenders’ cash collateral amounted to approximately $12 million of restricted cash, which is held in a segregated account.$20 million.
 
Foreign Funding Order
 
On May 29, 2009, the Court entered an interim order authorizing the Debtors to maintain funding to, and the guarantee of, cash pooling arrangements in Europe, or, alternatively, to fund participants of such arrangements directly, and to continue to honor pre-petition obligations owing to certain non-Debtor subsidiaries in Mexico and Europe up to an aggregate amount of $92 million. On July 16, 2009, such interim order was replaced with a final order. On July 28, 2009, the Court entered a final order increasing the amount which the Debtors are authorized to pay to honor pre-petition obligations owing to certain non-Debtor subsidiaries in Mexico and Europe up to an aggregate amount of $138 million (which amount includes the $92 million previously authorized by the Court).


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Customer Accommodation Agreements
The Company has entered into accommodation and other support agreements with certain North American and European customers that provide for additional liquidity through cash surcharge payments, payments for research and engineering costs, accelerated payment terms, asset sales and other commercial arrangements.
Letter of Credit Reimbursement and Security Agreement
On October 28, 2009, the Debtors filed a motion with the Court seeking authority to enter into a Letter of Credit Reimbursement and Security Agreement that provides for a committed $40 million letter of credit facility that expires on September 30, 2010. Amounts drawn under the LOC Facility would be subject to a fee of 0.65% per annum of the outstanding balance and would be secured by cash collateral. Amounts undrawn would be subject to a fee of 0.40% per annum of the undrawn balance.
Proposed DIP Facility
On October 28, 2009, the Debtors filed a motion with the Court seeking authority to borrow up to $150 million under the terms of a proposed senior secured super-priority primingdebtor-in-possession credit and guarantee agreement with certain pre-petition secured term loan lenders and Wilmington Trust Company, as administrative agent. Borrowings under the Proposed DIP Facility would be used to finance working capital, capital expenditures and other general corporate purposes in accordance with an approved budget.
The Proposed DIP Facility would mature on the earliest of (i) six months after the closing of such facility; provided, that the Company may extend it an additional three months, (ii) the effective date of the Debtor’s plan of reorganization, and (c) the date a sale or sales of all or substantially all of the Company’s and guarantors’ assets is or are consummated under section 363 of the Bankruptcy Code. Borrowing under the Proposed DIP Facility will be secured by, among other things, a first priority perfected security interest in assets that constitute first priority collateral under pre-petition secured term loans and certain otherwise unencumbered assets (including the assets of Visteon Electronics Corporation), as well as a second priority perfected security interest in assets that constitute first priority collateral under the ABL Credit Agreement. The Proposed DIP Facility would also contain other usual and customary affirmative and negative covenants, events of default, indemnification, representations, warranties and conditions.
 
Cash Flows
 
Operating Activities
 
Cash used by operating activities during the sixnine months ended JuneSeptember 30, 2009 totaled $235$151 million, compared with $7$153 million provided fromused by operating activities for the same period in 2008. The increasedecrease in usage is primarily due to higher losses, as adjusted for non-cash items, higherthe impact of the automatic stay on payables and interest associated with the Chapter 11 Proceedings, lower annual incentive compensation payments and a decrease in recoverable tax assets, partially offset by trade working capital outflowpayable term contraction and lower tax expense and restructuring charges as compared to cash payments, partially offset by lower annual incentive compensation payments and a decrease in recoverable tax assets.payments.


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Investing Activities
 
Cash used in investing activities was $65$93 million during the sixnine months ended JuneSeptember 30, 2009, compared with $91$160 million for the same period in 2008. The decrease in cash usage resulted from a decrease in capital expenditures, partially offset by a decrease in proceeds from divestitures and asset sales and $11 million of cash associated with the deconsolidation of the UK Debtor. Capital expenditures, excluding capital leases, decreased to $87 million in the first nine months of 2009 compared with $230 million in the same period of 2008. The proceeds from divestitures and asset sales for the first half ofnine months ended September 30, 2009 totaled $4$5 million compared to $59$65 million for the first halfsame period of 2008, which included proceeds from the divestiture of the North America aftermarket business. Capital expenditures, excluding capital leases, decreased to $58 million in the first half of 2009 compared with $154 million in the same period of 2008.


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Financing Activities
 
Cash used by financing activities totaled $235$245 million in the sixnine months ended JuneSeptember 30, 2009, compared with $182$268 million in the same period of 2008. Cash used by financing activities during the sixnine months ended JuneSeptember 30, 2009 primarily resulted from the requirement for $95$102 million to be classified as restricted cash, primarily pursuant to the Company’s Credit Agreement and chapter 11 cash collateral order of the Court, repayment of the borrowings under the European Securitization, a decrease in book overdrafts and dividends to minority shareholders, partially offset by additional borrowing under the U.S. ABL Facility. Cash used by financing activities increaseddecreased by $53$23 million when compared to $182$268 million used by financing activities during the first half ofnine months ended September 30, 2008, which included the purchase of $344 million in aggregate principal amount of the Company’s 8.25% notes due in 2010 and issuance of $206.4 million in aggregate principal amount of 12.25% notes, duereductions in 2016,affiliate debt, a decrease in book overdrafts and dividends to minority shareholders.
 
Debt and Capital Structure
 
Under section 362 of the Bankruptcy Code, the filing of a bankruptcy petition automatically stays 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. Absent an order of the Court, substantially all pre-petition liabilities are subject to settlement under a plan of reorganization. Substantially all of the Company’s pre-petition debt is in default, including $1.5 billion principal amount due under the seven-year secured term loans due 2013; $862 million principal amount under various unsecured notes due 2010, 2014 and 2016; and $99$110 million of other secured and unsecured borrowings. Debt discounts of $8 million, deferred financing costs of $14 million and losses on terminated interest rate swaps of $22$23 million are no longer being amortized and have been included as adjustments to the net carrying value of the related pre-petition debt. Additional information related to the Company’s debt is set forth in Note 11 “Debt” to the consolidated financial statements included herein under Item 1.
 
Covenants and Restrictions
 
Refer to the Company’s December 31, 2008 Annual Report onForm 10-K for information related to the covenants and restrictions associated with pre-petition debt.
 
Off-Balance Sheet Arrangements
 
The Company has guaranteed approximately $41$36 million for lease payments and $7 million of debt capacity related to its subsidiaries.payments. In connection with the January 2009 PBGCPension Benefit Guarantee Corporation Agreement, the Company agreed to provide a guarantee by certain affiliates of certain contingent pension obligations of up to $30 million.


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Fair Value Measurements
 
The Company uses fair value measurements in the preparation of its financial statements, which utilize various inputs including those that can be readily observable, corroborated or generally unobservable. The Company utilizes market-based data and valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Additionally, the Company applies assumptions that market participants would use in pricing an asset or liability, including assumptions about risk. The primary financial instruments that are recorded at fair value in the Company’s financial statements are derivative instruments.


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The Company’s use of derivative instruments creates exposure to credit loss in the event of nonperformance by the counterparty to the derivative financial instruments. The Company limits this exposure by entering into agreements directly with a variety of major financial institutions with high credit standards and that are expected to fully satisfy their obligations under the contracts. Fair value measurements related to derivative assets take into account the non-performance risk of the respective counterparty, while derivative liabilities take into account the non-performance risk of Visteon and its foreign affiliates. The hypothetical gain or loss from a 100 basis point change in non-performance risk would be less than $1 million for the fair value of foreign currency derivatives as of JuneSeptember 30, 2009.
 
New Accounting Standards
 
In JuneJuly 2009, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 168 (“SFAS 168”), “TheFASB Accounting Standards Codificationand the Hierarchy of Generally Accepted Accounting Principles — a replacement of FASB Statement No. 162.” SFAS 168 appointslaunched the FASB Accounting Standards Codification (“ASC”) as the only authoritative source of generally accepted accounting principles. SFAS 168The ASC is effective for interim and annual reporting periods ending after September 15, 2009. The Company does not expect SFAS 168 to haveimplemented use of the ASC without a significant impact on its consolidated financial statements.
 
In June 2009, the FASB issued Statement of Financial Accounting Standards No. 167 (“SFAS 167”), “Amendments to FASB Interpretation No. 46(R),”guidance which amends the consolidation guidanceprovisions that appliesapply to Variable Interest Entities (“VIEs”). SFAS 167This guidance is effective for fiscal years that begin after November 15, 2009. The2009
and the Company is currently evaluating the impact of SFAS 167this guidance may have on its consolidated financial statements.
 
In May 2009 the FASB issued Statement of Financial Accounting Standards No. 165 (“SFAS 165”), “Subsequent Events.” SFAS 165 provides guidance requiring disclosures on management’s assessment of subsequent events, and is effective for interim and annual periods ending after June 15, 2009 and wasthe Company adopted by the Companythis guidance on a prospective basis onas of April 1, 2009 without material impact on its consolidated financial statements.
 
In April 2009,connection with ASC Topic 820, “Fair Value Measurements and Disclosures,” (“ASC 820”) which defines fair value, establishes a framework for measuring fair value and expands disclosure requirements regarding fair value measurements, the FASB issued FASB Staff Position (“FSP”)No. FAS 157-4 (“FSPFAS 157-4”), “Determining Fair Value WhenCompany provided expanded disclosures as of January 1, 2008 without a material impact on its consolidated financial statements. The application of ASC 820 to the VolumeCompany’s nonfinancial assets and Level of Activity forliabilities did not impact the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly.” FSPFAS 157-4 providesCompany’s consolidated financial statements. The Company also adopted related guidance on estimating the fair value when the volume and level of activity have significantly decreased and on identifying circumstances that indicate a transaction is not orderly. FSPFAS 157-4 is effective for interim and annual periods ending afterorderly as of June 15,30, 2009 and was adopted by the Company without material impact on its consolidated financial statements.
 
In April 2009, the FASB issued FSPNo. FAS 107-1 and APB28-1 (“FSPFAS 107-1”), “Interim Disclosures about Fair Value of Financial Instruments.” This FSP requiresguidance requiring disclosures around the fair value of financial instruments for interim reporting periods, including (a) the fair value at the period end and (b) the methods and assumptions used to calculate the fair value. FSPFAS 107-1 wasThe Company adopted by the Companythis guidance without a material impact on its consolidated financial statements.
 
In December 2008, the FASB issued FSP No. FAS 132(R)-1 (“FSP FAS 132(R)-1”), “Employers’ Disclosures about Postretirement Benefit Plan Assets.” This FSP requiresguidance requiring disclosure of (a) how pension plan assetsasset investment allocation decisions are made, including the factors that are pertinent to an understanding of investment policies and strategies, (b) the major categories of plan assets, (c) the inputs and valuation techniques used to measure the fair value of plan assets, (d) the effect of fair value measurements using significant unobservable inputs (Level 3) on changes in plan assets for the period and (e) significant concentrations of risk within plan assets. FSP FAS 132(R)-1 is effectiveThese disclosures are required for fiscal years ending after December 15, 2009 and will be adopted by the Company for its annual consolidated financial statements for the fiscal year ending December 31, 2009.


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In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133.” This statement requiresguidance requiring disclosure of (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement of Financial Accounting Standards No. 133 and its related interpretations and (c) how derivative instruments and related hedged items affect an entity’s financial position, results of operations and cash flows. This statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008 and was adoptedThese disclosures were provided by the Company on a prospective basis onwith effect from January 1, 2009, as more fully described in Note 17 “Financial Instruments” to the consolidated financial statements.
 
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141(R), “Business Combinations” and Statement of Financial Accounting Standards No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment to ARB No. 51.” These statements changeguidance on the accounting and reporting for business combination transactions and noncontrolling interests in consolidated financial statements. The Company adopted these standardsthis guidance effective January 1, 2009 as more fully described in Note 14 “Shareholders’ Deficit” to the consolidated financial statements.
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157 (“SFAS 157”), “Fair Value Measurements.” This statement, which became effective January 1, 2008, defines fair value, establishes a framework for measuring fair value and expands disclosure requirements regarding fair value measurements. The Company adopted the requirements of SFAS 157 as of January 1, 2008 without a material impact on its consolidated financial statements. In February 2008, the FASB issued FASB Staff PositionNo. FAS 157-2 (“FSPFAS 157-2”), “Effective Date of FASB Statement No. 157,” which delayed the effective date of SFAS 157 for nonfinancial assets and nonfinancial liabilities that are recognized or disclosed in the financial statements on a nonrecurring basis to fiscal years beginning after November 15, 2008. The application of SFAS 157 to the Company’s nonfinancial assets and liabilities did not impact its consolidated financial statements.
 
Cautionary Statements Regarding Forward-Looking Information
 
Certain statements contained or incorporated in this Quarterly Report onForm 10-Q which are not statements of historical fact constitute “Forward-Looking Statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Reform Act”). Forward-looking statements give current expectations or forecasts of future events. Words such as “anticipate”, “expect”, “intend”, “plan”, “believe”, “seek”, “estimate” and other words and terms of similar meaning in connection with discussions of future operating or financial performance signify forward-looking statements. These statements reflect the Company’s current views with respect to future events and are based on assumptions and estimates, which are subject to risks and uncertainties including those discussed in Item 1A under the heading “Risk Factors” in this Quarterly Report onForm 10-Q and in the Company’s Annual Report onForm 10-K for fiscal year 2008 as well as elsewhere in this report. Accordingly, the reader should not place undue reliance on these forward-looking statements. Also, these forward-looking statements represent the Company’s estimates and assumptions only as of the date of this report. The Company does not intend to update any of these forward-looking statements to reflect circumstances or events that occur after the statement is made. The Company qualifies all of its forward-looking statements by these cautionary statements.
 
The reader should understand that various factors, in addition to those discussed elsewhere in this document, could affect the Company’s future results and could cause results to differ materially from those expressed in such forward-looking statements, including:
 
• The potential adverse impact of the Chapter 11 Proceedings on Visteon’s business, financial condition or results of operations, including its ability to maintain contracts and other customer and vendor relationships that are critical to its business and the actions and decisions of its creditors and other third parties with interests in the Chapter 11 Proceedings.


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• Visteon’s ability to maintain adequate liquidity to fund its operations during the Chapter 11 Proceedings and to fund a plan of reorganization and thereafter, including obtaining sufficientdebtor-in-possession and “exit” financing; maintaining normal terms with its vendors and service providers during the Chapter 11 Proceedings and complying with the covenants and other terms of its financing agreements.
 
• Visteon’s ability to obtain court approval with respect to motions in the Chapter 11 Proceedings prosecuted from time to time and to develop, prosecute, confirm and consummate one or more plans of reorganization with respect to the Chapter 11 Proceedings and to consummate all of the transactions contemplated by one or more such plans of reorganization or upon which consummation of such plans may be conditioned.
 
• Visteon’s ability to satisfy its pension and other postemployment benefit obligations, and to retire outstanding debt and satisfy other contractual commitments, all at the levels and times planned by management.
 
• Visteon’s ability to access funds generated by its foreign subsidiaries and joint ventures on a timely and cost effective basis.


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• Changes in the operations (including products, product planning and part sourcing), financial condition, results of operations or market share of Visteon’s customers, particularly its largest customer, Ford.
 
• Changes in vehicle production volume of Visteon’s customers in the markets where it operates, and in particular changes in Ford’s North American and EuropeanHyundai/Kia’s vehicle production volumes and platform mix.
 
• Visteon’s ability to profitably win new business from customers other than Ford and to maintain current business with, and win future business from, Ford, and, Visteon’s ability to realize expected sales and profits from new business.
 
• Increases in commodity costs or disruptions in the supply of commodities, including steel, resins, aluminum, copper, fuel and natural gas.
 
• Visteon’s ability to generate cost savings to offset or exceed agreed upon price reductions or price reductions to win additional business and, in general, improve its operating performance; to achieve the benefits of its restructuring actions; and to recover engineering and tooling costs and capital investments.
 
• Visteon’s ability to compete favorably with automotive parts suppliers with lower cost structures and greater ability to rationalize operations; and to exit non-performing businesses on satisfactory terms, particularly due to limited flexibility under existing labor agreements.
 
• Restrictions in labor contracts with unions that restrict Visteon’s ability to close plants, divest unprofitable, noncompetitive businesses, change local work rules and practices at a number of facilities and implement cost-saving measures.
 
• The costs and timing of facility closures or dispositions, business or product realignments, or similar restructuring actions, including potential asset impairment or other charges related to the implementation of these actions or other adverse industry conditions and contingent liabilities.
 
• Significant changes in the competitive environment in the major markets where Visteon procures materials, components or supplies or where its products are manufactured, distributed or sold.
 
• Legal and administrative proceedings, investigations and claims, including shareholder class actions, inquiries by regulatory agencies, product liability, warranty, employee-related, environmental and safety claims and any recalls of products manufactured or sold by Visteon.
 
• Changes in economic conditions, currency exchange rates, changes in foreign laws, regulations or trade policies or political stability in foreign countries where Visteon procures materials, components or supplies or where its products are manufactured, distributed or sold.


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• Shortages of materials or interruptions in transportation systems, labor strikes, work stoppages or other interruptions to or difficulties in the employment of labor in the major markets where Visteon purchases materials, components or supplies to manufacture its products or where its products are manufactured, distributed or sold.
 
• Changes in laws, regulations, policies or other activities of governments, agencies and similar organizations, domestic and foreign, that may tax or otherwise increase the cost of, or otherwise affect, the manufacture, licensing, distribution, sale, ownership or use of Visteon’s products or assets.
 
• Possible terrorist attacks or acts of war, which could exacerbate other risks such as slowed vehicle production, interruptions in the transportation system, or fuel prices and supply.
 
• The cyclical and seasonal nature of the automotive industry.
 
• Visteon’s ability to comply with environmental, safety and other regulations applicable to it and any increase in the requirements, responsibilities and associated expenses and expenditures of these regulations.
 
• Visteon’s ability to protect its intellectual property rights, and to respond to changes in technology and technological risks and to claims by others that Visteon infringes their intellectual property rights.


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• Visteon’s ability to provide various employee and transition services in accordance with the terms of existing agreements between the parties, as well as Visteon’s ability to recover the costs of such services.
 
• Visteon’s ability to quickly and adequately remediate control deficiencies in its internal control over financial reporting.
• The possibility that Visteon and any of its subsidiaries may need to seek protection under the U.S. Bankruptcy Code or similar laws in other jurisdictions.
 
• Other factors, risks and uncertainties detailed from time to time in Visteon’s Securities and Exchange Commission filings.
 
• The risks and uncertainties and the terms of any reorganization plan ultimately confirmed can affect the value of Visteon’s various pre-petition liabilities, common stockand/or other securities. No assurance can be given as to what values, if any, will be ascribed in the bankruptcy proceedings to each of these constituencies. A plan of reorganization could result in holders of the Company’s liabilitiesand/or securities receiving no value for their interests. Because of such possibilities, the value of these liabilitiesand/or securities is highly speculative. Accordingly, the Company urges that caution be exercised with respect to existing and future investments in any of these liabilitiesand/or securities.


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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
The primary market risks to which the Company is exposed include changes in foreign currency exchange rates, interest rates and certain commodity prices. The Company manages these risks through derivative instruments and various operating actions including fixed price contracts with suppliers and cost sourcing arrangements with customers. The Company’s use of derivative instruments is limited to hedging activities and such instruments are not used for speculative or trading purposes, as per clearly defined risk management policies. Additionally, the Company’s use of derivative instruments creates exposure to credit loss in the event of nonperformance by the counterparty to the derivative financial instruments. The Company limits this exposure by entering into agreements directly with a variety of major financial institutions with high credit standards and that are expected to fully satisfy their obligations under the contracts. Additionally, the Company’s ability to utilize derivatives to manage market risk is dependent on credit conditions and market conditions given the current economic environment.
 
Foreign Currency Risk
 
The Company’s net cash inflows and outflows exposed to the risk of changes in 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 to manage foreign currency exchange rate risks. Forward contracts and, to a lesser extent, option contracts are utilized 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 JuneSeptember 30, 2009, the Company’s full year coverage for projected transactions in these currencies was approximately 31%29%. As of both JuneSeptember 30, 2009 and December 31, 2008, the net fair value of foreign currency forward and option contracts was an asset of $4 million.
 
The hypothetical pre-tax gain or loss in fair value from a 10% favorable or adverse change in quoted currency exchange rates would be approximately $12$8 million and $33 million as of JuneSeptember 30, 2009 and December 31, 2008, respectively. These estimated changes assume a parallel shift in all currency exchange rates and include the gain or loss on financial instruments used to hedge loans to subsidiaries. Because exchange rates typically do not all move in the same direction, the estimate may overstate the impact of changing exchange rates on the net fair value of the Company’s financial derivatives. It is also important to note that gains and losses indicated in the sensitivity analysis would generally be offset by gains and losses on the underlying exposures being hedged.
 
Interest Rate Risk
 
During the three months ended June 30, 2009 the Company’s interest rate swaps with notional amounts of $125 million (related to a portion of the 8.25% notes due August 1, 2010) and $100 million (related to a portion of the $1 billion seven-year term loan due 2013) were terminated by the counterparty. This termination resulted in the Company recording approximately $2 million related to the contract amount due to the counterparty into “Liabilities subject to compromise” on the consolidated balance sheets. On April 1, 2009, the Company terminated interest rate swaps with a notional amount of $225 million related to the 7.00% notes due March 10, 2014 and $100 million related to the $1 billion term loan due 2013. This termination resulted in a net cash settlement of $7 million.


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As of December 31, 2008, the Company had entered into interest rate swaps for a portion of the 8.25% notes due August 1, 2010 ($125 million) and a portion of the 7.00% notes due March 10, 2014 ($225 million). These interest rate swaps effectively converted the designated portions of these notes from fixed interest rate to variable interest rate instruments. Additionally, the Company had entered into interest rate swaps for a portion of the $1 billion term loan due 2013 ($200 million), which effectively converted the designated portion of this loan from a variable interest rate to a fixed interest rate instrument. As of December 31, 2008, the net fair value of interest rate swaps was an asset of $17 million. Approximately 30% of the Company’s borrowings were effectively on a fixed rate basis as of December 31, 2008. The potential loss in fair value of these swaps from a hypothetical 50 basis point adverse change in interest rates would have been approximately $5 million as of December 31, 2008. The annual increase in pre-tax interest expense from a hypothetical 50 basis point adverse change in variable interest rates (including the impact of interest rate swaps) would have been approximately $10 million as of December 31, 2008. This analysis may overstate the adverse impact on net interest expense because of the short-term nature of the Company’s interest bearing investments.
 
Commodity Risk
 
The Company’s exposure to market risks from changes in the price of commodities including steel products, plastic resins, aluminum, natural gas and diesel fuel are not hedged due to a lack of acceptable hedging instruments in the market. While the Company addresses exposures to price changes in such commodities through operating actions, including negotiations with suppliers and customers, there can be no assurance that the Company will be able to mitigate any or all price increasesand/or surcharges. When and if acceptable hedging instruments are available in the market, management will determine at that time if financial hedging is appropriate, depending upon the Company’s exposure level at that time, the effectiveness of the financial hedge and other factors.


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ITEM 4. CONTROLS AND PROCEDURES
 
Disclosure Controls and Procedures
 
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in reports the Company files with the SEC under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
 
The Company’s management carried out an evaluation, under the supervision and with the participation of the CEO and the CFO, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of JuneSeptember 30, 2009. Based upon that evaluation, the CEO and CFO concluded that the Company’s disclosure controls and procedures were effective.
 
Changes in Internal Control over Financial Reporting
 
Except as described below, thereThere were no changes in the Company’s internal controls over financial reporting during the quarterly period ended JuneSeptember 30, 2009 that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.
On May 28, 2009, Visteon and certain of its U.S. subsidiaries filed voluntary petitions for reorganization relief under chapter 11 of the United States Bankruptcy Code. In connection therewith, the Company modified existing or implemented new business processes and related internal controls over financial reporting to ensure that the financial statements for periods subsequent to the chapter 11 filing distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business.


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PART II
OTHER INFORMATION
 
ITEM 1. LEGAL PROCEEDINGS
 
See the information above under Note 18, “Commitments and Contingencies,” to the consolidated financial statements which is incorporated herein by reference.
 
ITEM 1A. RISK FACTORS
 
The Debtors are currently operating without a DIP credit agreement and are currently relying on internally generated cash to fund the Debtors’ post-petition operations.
On May 28, 2009, the Debtors entered into a commitment letter with Ford (the “DIP Commitment”), pursuant to which, among other things, Ford agreed, subject to the terms and conditions set forth therein, to provide no less than $125 million of financing under the terms of a senior, super-priority DIP revolving credit facility to the Debtors under the Bankruptcy Code (the “DIP Facility”). The terms of the DIP Facility, including the aggregate size thereof and permitted uses thereof, remain subject to contingencies including receipt of commitments from customers of the Debtors other than Ford to participate in the DIP Facility. The DIP Commitment is subject to significant conditions, including, among other things, the execution and delivery of definitive documents acceptable to Ford, agreement on a budget acceptable to Ford as to permitted uses of the DIP Facility and other customary lending conditions that will be set forth in such definitive agreements. While the DIP Commitment expired on June 30, 2009, the Debtors continue to work with Ford and other North America customers to secure DIP financing. However, there is no assurance that the Debtors will be successful in securing such commitments or obtaining sufficient DIP financing in a timeframe or on terms acceptable to the Debtors in order to facilitate a plan of reorganization.
The Debtors also continue to work with other customers on a global basis to provide liquidity. During July 2009, the Company executed support agreements with certain European customers that provide for additional liquidity through certain lump sum payments for recovery of invested research and engineering costs, accelerated payment terms and other commercial arrangements. Additionally, during July 2009, the Debtors sold their 80% interest in Halla Climate Systems Alabama Corp. (“Halla Alabama”) to the Debtors’ 70% owned joint venture, Halla Climate Control Corporation (“Halla Korea”) under Bankruptcy Code Section 363.
The Debtors are currently funding post-petition operations under a temporary cash collateral order from the Court. There can be no assurance that such cash collateral funds will be sufficient to meet the Debtors ongoing cash needs or that the Debtors will be successful in extending the duration of the cash collateral order with the Court to continue operating asdebtors-in-possession absent an approved DIP financing arrangement. Even in the event that the Debtors secure sufficient DIP financing to implement a plan of reorganization, the terms of such DIP financing may require the Debtors to implement substantial additional restructuring measures including facility closures, business exits and asset sales. Such activities could materially change the amounts and classifications reported in the consolidated financial statements, which do not give effect to any adjustments to the carrying value of assets or amounts of liabilities that might be necessary pursuant to the terms and conditions of any such DIP financing. Additionally, a confirmed plan of reorganization could also materially change the amounts and classifications reported in the consolidated financial statements, which do not give effect to any adjustments to the carrying value of assets or amounts of liabilities that might be necessary as a consequence of confirmation of a plan of reorganization.


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A long period of operating under chapter 11 may harm the Company’s businesses.
A long period of operating under chapter 11 could adversely affect the Company’s businesses and operations. So long as the Chapter 11 Proceedings continue, the Company’s senior management will be required to spend a significant amount of time and effort dealing with the Bankruptcy reorganization instead of focusing exclusively on business operations. A prolonged period of operating under chapter 11 will also make it more difficult to attract and retain management and other key personnel necessary to the success and growth of its businesses. In addition, the longer the Chapter 11 Proceedings continue, the more likely it is that the Company’s customers and suppliers will lose confidence in its ability to successfully reorganize the businesses and to establish alternative commercial relationships. Furthermore, so long as the Chapter 11 Proceedings continue, the Company will be required to incur substantial costs for professional fees and other expenses associated with the proceedings. A prolonged continuation of the Chapter 11 Proceedings may also require the Company to seek additional financing and it may not be possible for the Company to obtain additional financing during the pendency of the Chapter 11 Proceedings on commercially favorable terms or at all. If the Company requires additional financing during the Chapter 11 Proceedings and is unable to obtain the financing on favorable terms or at all, the chances of successfully reorganizing its businesses may be seriously jeopardized. In addition, the Company may need to sell certain profitable operations to obtain sufficient liquidity to fund its operations through the duration of the Chapter 11 Proceedings.
The Company may not be able to obtain confirmation of its chapter 11 plan after development and when it submits it for Bankruptcy Court approval.
In order to successfully emerge from chapter 11 bankruptcy protection as a viable entity, the Company believes that it must develop, and obtain requisite court and creditor approval of a feasible chapter 11 plan of reorganization (the “Plan”). This process requires the Debtors to meet certain statutory requirements with respect to adequacy of disclosure with respect to the Plan, soliciting and obtaining creditor acceptances of the Plan, and fulfilling other statutory conditions for confirmation. The Debtors may not receive the requisite acceptances to confirm the Plan. Even if the requisite acceptances of the Plan are received, the Bankruptcy Court may not confirm the Plan. A dissenting holder of a claim against the Debtors may challenge the balloting procedures and results as not being in compliance with the Bankruptcy Code. Even if the Bankruptcy Court determined that the balloting procedures and results were appropriate, the Bankruptcy Court could still decline to confirm the Plan if it found that any of the statutory requirements for confirmation had not been met, including that the terms of the Plan are fair and equitable to non-accepting classes. Section 1129 of the Bankruptcy Code sets forth the requirements for confirmation and requires, among other things, a finding by the Bankruptcy Court that (i) the Plan “does not unfairly discriminate” and is “fair and equitable” with respect to any non-accepting classes, (ii) confirmation of the Plan is not likely to be followed by a liquidation or a need for further financial reorganization and (iii) the value of distributions to non-accepting holders of claims within a particular class under the Plan will not be less than the value of distributions such holders would receive if the Debtors were to be liquidated under chapter 7 of the Bankruptcy Code.
The Bankruptcy Court may determine that the Plan does not satisfy one or more of these requirements, in which case it would not be confirmable by the Bankruptcy Court. If the Plan is not confirmed by the Bankruptcy Court, it is unclear whether the Debtors would be able to reorganize its businesses and what, if any, distributions holders of claims against it would ultimately receive with respect to their claims. If an alternative reorganization could not be agreed upon, it is possible that the Debtors would have to liquidate its assets, in which case it is likely that holders of claims would receive substantially less favorable treatment than they would receive if the Debtors were to emerge as a viable, reorganized entity.
For information regarding other factors that could affect the Company’s results of operations, financial condition and liquidity, see the risk factors discussed in Part I, “Item 1A. Risk Factors” in the Company’s Annual Report onForm 10-K for the year ended December 31, 2008. See also, “Cautionary Statements Regarding Forward-Looking Information” included in Part I, Item 2 of this Quarterly Report onForm 10-Q.


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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
The following table summarizes information relating to purchases made by or on behalf of the Company, or an affiliated purchaser, of shares of Visteon common stock during the second quarter of 2008.
Issuer Purchases of Equity Securities
                 
           Maximum Number
 
        Total Number
  (or Approximate
 
        of Shares (or Units)
  Dollar Value)
 
  Total
  Average
  Purchased as Part
  of Shares (or Units)
 
  Number of
  Price Paid
  of Publicly
  that May Yet Be
 
  Shares (or Units)
  per Share
  Announced Plans
  Purchased Under the
 
Period
 Purchased(1)  (or Unit)  or Programs  Plans or Programs(2) 
 
April 1, 2009 to April 30, 2009    $       
May 1, 2009 to May 31, 2009  3,851   0.175       
June 1, 2009 to June 30, 2009           1,650,000 
                 
Total  3,851  $0.175      1,650,000 
                 
(1)This column includes only shares surrendered to the Company by employees to satisfy tax withholding obligations in connection with the vesting of restricted share awards made pursuant to the Visteon Corporation 2004 Incentive Plan and/or the Visteon Corporation Employees Equity Incentive Plan.
(2)On December 12, 2007, the Board of Directors of the Company authorized the open market purchases of up to two million shares of the Company’s common stock during the subsequent 24 months to be used solely to satisfy obligations under the Company’s employee benefit programs.


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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of the Company was held on June 10, 2009. At the meeting, the following matters were submitted to a vote of the stockholders:
(1) The election of the ten directors listed below to serve for a one-year term beginning at the 2009 annual meeting of stockholders and expiring at the 2010 annual meeting of stockholders.
         
Nominee
 For  Withheld 
 
William H. Gray, III  97,158,643   8,684,053 
Steven K. Hamp  97,512,872   8,329,824 
Patricia L. Higgins  97,113,829   8,728,867 
Karl J. Krapek  97,443,174   8,399,522 
Alex J. Mandl  97,697,485   8,145,211 
Charles L. Schaffer  97,518,367   8,324,329 
Donald J. Stebbins  97,907,852   7,934,844 
Richard J. Taggart  97,663,858   8,178,838 
James D. Thornton  97,595,430   8,247,266 
Kenneth B. Woodrow  97,746,326   8,096,370 
(2) The ratification of the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for fiscal year 2009.
       
For
 
Against
 
Abstain
 
Broker Non-Votes
 
100,178,236 1,340,869 4,323,591 N/A
(3) Consideration of a stockholder proposal relating to the ability of stockholders to call special meetings.
       
For
 
Against
 
Abstain
 
Broker Non-Votes
 
47,090,582 14,728,184 206,024 43,817,906
ITEM 6. EXHIBITS
 
See Exhibit Index on Page 59.63.


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SIGNATURE
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
VISTEON CORPORATION
 
 By: /s/  MICHAEL J. WIDGREN
Michael J. Widgren
Vice President, Corporate Controller and Chief
Chief Accounting Officer
 
Date: August 6,October 29, 2009


5862


EXHIBIT INDEX
 
        
Exhibit
Exhibit
  Exhibit
  
Number
Number
 
Exhibit Name
Number
 
Exhibit Name
10.1 Fifth Amendment to Credit Agreement, dated as of May 13, 2009, among Visteon Corporation, certain of its subsidiaries, certain lenders party thereto, and JPMorgan Chase Bank, N.A., as administrative agent, is incorporated herein by reference to Exhibit 10.1 to the Current Report onForm 8-K of Visteon dated May 15, 2009.10.1 Eighth Amendment to Credit Agreement, dated as of July 15, 2009, among Visteon Corporation, certain of its subsidiaries, Ford Motor Company, as sole lender and swingline lender, and The Bank of New York Mellon, as administrative agent.
10.2 Sixth Amendment to Credit Agreement, dated as of May 13, 2009, among Visteon Corporation, certain of its subsidiaries, Ford Motor Company, and JPMorgan Chase Bank, N.A., as administrative agent, is incorporated herein by reference to Exhibit 10.2 to the Current Report onForm 8-K of Visteon dated May 15, 2009.12.1 Statement re: Computation of Ratios.
10.3 Seventh Amendment to Credit Agreement, dated as of May 21, 2009, among Visteon Corporation, certain of its subsidiaries, Ford Motor Company, as sole lender and swingline lender, and JPMorgan Chase Bank, N.A., as administrative agent, is incorporated herein by reference to Exhibit 10.1 to the Current Report onForm 8-K of Visteon dated May 27, 2009.31.1 Rule 13a-14(a) Certification of Chief Executive Officer dated October 29 , 2009.
10.4 Amendments to the Visteon Corporation Deferred Compensation Plan for Non-Employee Directors, dated as of June 10, 2009.*31.2 Rule 13a-14(a) Certification of Chief Financial Officer dated October 29, 2009.
10.5 Amendments to the Visteon Corporation Non-Employee Director Stock Unit Plan, dated as of June 10 2009.*32.1 Section 1350 Certification of Chief Executive Officer dated October 29, 2009.
10.6 Commitment letter, dated as of May 28, 2009, between Visteon Corporation and Ford Motor Company.32.2 Section 1350 Certification of Chief Financial Officer dated October 29, 2009.
12.1 Statement re: Computation of Ratios.
31.1 Rule 13a-14(a) Certification of Chief Executive Officer dated August 6, 2009.
31.2 Rule 13a-14(a) Certification of Chief Financial Officer dated August 6, 2009.
32.1 Section 1350 Certification of Chief Executive Officer dated August 6, 2009.
32.2 Section 1350 Certification of Chief Financial Officer dated August 6, 2009.
 
 
*Indicates that exhibit is a management contract or compensatory plan or arrangement.


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