Highlights: * 2005 net loss narrows; cash flow improves * Multi-year action plan for year-over-year improvements through 2008 and beyond * Customer diversification continues
"With the Ford transaction completed, we are now focused on implementing our multi-year plan to restructure Visteon and improve our earnings and free cash flow," said Michael F. Johnston, chairman and chief executive officer. "We are looking at every opportunity to accelerate our actions to achieve continued year-over-year improvements. For 2006, we are increasing our outlook for earnings and reaffirming our outlook for positive free cash flow. We are also reiterating our expectation for continued improvement in 2007 and beyond."
Fourth Quarter 2005
For the fourth quarter of 2005, product sales were $2.7 billion and services revenues were $164 million. More than 50 percent of total product sales were generated from customers other than Ford, a significant increase over prior year. Sales for the same period a year ago totaled $4.7 billion, of which non-Ford sales were 33 percent. Product sales were lower primarily due to the sale of 23 North American facilities on Oct. 1, 2005, as part of the Automotive Components Holdings, LLC (ACH) transactions, lower production volumes by Ford in North America and price reductions to customers. Services revenues of $164 million represent billings for employee and related costs for business support activities provided to ACH under terms of various agreements between Visteon and ACH that took effect Oct. 1, 2005.
Visteon's net income of $1.338 billion for the fourth quarter of 2005 included a gain of $1.8 billion related to the ACH transactions, and non-cash asset impairment charges of $335 million related to product lines manufactured principally at plants in the United States and the United Kingdom. These manufacturing operations are addressed by Visteon's multi-year restructuring program. This impairment charge is expected to decrease depreciation and amortization expense by approximately $25 million annually. Visteon also incurred $28 million of restructuring expenses in the quarter related to various personnel and other cost-reduction actions. Reimbursements from the restructuring escrow account for qualified expenses incurred by Visteon in both the fourth quarter and prior quarters of 2005 totaled $51 million. For the fourth quarter of 2004, Visteon reported a net loss of $138 million, which included restructuring expenses of $41 million.
Cash provided by operating activities was $42 million for the fourth quarter of 2005, down about $150 million from the same period a year ago, as favorable performance in trade working capital was offset by an estimated $300 million net working capital run-off associated with retained receivables and payables of the business that transferred as part of the ACH transactions. Capital expenditures for the quarter of $185 million were $73 million lower than fourth quarter 2004. Free cash flow was negative $143 million in the fourth quarter 2005, compared with negative $63 million in the same period of 2004.
Full Year 2005
Sales for full year 2005 totaled $17.0 billion, including product sales of $16.8 billion and services revenues of $164 million. Of the product sales, 62 percent were Ford-related with 38 percent from other customers. Sales for the same period a year ago totaled $18.7 billion, of which Ford-related sales were 70 percent and sales from other customers were 30 percent. Sales were lower primarily due to the sale of 23 North American facilities on Oct. 1, 2005 as part of the ACH transactions, lower production volumes by Ford in North America and price reductions to customers.
2005 results include the operations of the businesses and facilities that were sold as part of the ACH transactions for the nine months for which they were owned by Visteon. Sales generated by these former facilities as reported in Visteon's 2005 results were nearly $6.1 billion, including $611 million of sales to customers other than Ford. For 2004, these former facilities accounted for nearly $9.0 billion of sales, including $677 million of sales to customers other than Ford.
Visteon's net loss of $270 million for the full year 2005 represents an improvement over 2004's net loss of $1.5 billion. The results for 2005 include the fourth quarter non-cash charges discussed above, the gain on the ACH transactions, as well as previously announced non-cash asset impairment charges of about $1.2 billion and $46 million of restructuring expenses, partially offset by $51 million of reimbursements from the restructuring escrow account. For 2004, Visteon's net loss included restructuring expenses of $82 million, non-cash asset impairment charges of $314 million and a non- cash charge of $871 million related to deferred tax assets.
Cash provided by operating activities was $417 million for full year 2005, about the same as 2004 full-year results. Free cash flow for full year 2005 was negative $168 million compared with a negative $409 million for full year 2004. Capital expenditures for the year of $585 million were $242 million lower than for the full year 2004.
Cash and Debt
As of Dec. 31, 2005, Visteon had cash of $865 million, an improvement over 2004's $752 million. Visteon's 2005 debt position also improved, with total borrowings of $1.994 billion as of Dec. 31, 2005, compared with total borrowings of $2.021 billion at the end of 2004.
On Jan. 9, 2006, Visteon closed on a new 18-month secured term loan of $350 million. The new loan expires on June 20, 2007, and replaced Visteon's $300 million secured short-term revolving credit facility that expired on Dec. 15, 2005. The term loan was made part of Visteon's existing $772 million five-year facility agreement. The terms and conditions of the agreement were also modified to align various covenants with Visteon's restructuring initiatives and to make changes to the consolidated leverage ratios. Visteon also amended its $241 million delayed draw term loan agreement, which also expires in June 2007, to reflect substantially the same terms and conditions.
Visteon is raising its estimate for 2006 full-year earnings before net interest expense and the provision for income taxes, excluding net unreimbursed restructuring expenses and non-cash asset impairments (EBIT-R) to a range of $45 million to $75 million, reflecting reduced depreciation and amortization expense estimates. Additionally, Visteon expects to generate about $50 million of free cash flow and expects 2006 full-year product sales of approximately $11.2 billion, with 58 percent coming from non-Ford sales.
"Visteon is a global leader in our core product areas of climate, interior and electronic systems, with the global reach and diverse customer mix to continue delivering year-over-year improvements," Johnston said. "We have established a sustainable business model and solid action plans to strengthen our results and create value for our customers, employees and shareholders."
This press release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward- looking statements are not guarantees of future results and conditions but rather are subject to various factors, risks and uncertainties that could cause our actual results to differ materially from those expressed in these forward-looking statements, including general economic conditions, including changes in interests rates and fuel prices; the automotive vehicle production volumes and schedules of our customers, and in particular Ford's vehicle production volumes; our ability to satisfy our future capital and liquidity requirements and comply with the terms of our existing credit agreements and indentures; the financial distress of our suppliers and possible disruptions in the supply of commodities; our ability to implement, and realize the anticipated benefits of, restructuring and other cost-reduction initiatives and our successful execution of internal performance plans and other productivity efforts; the timing and expenses related to restructurings, employee reductions, acquisitions or dispositions; increases in raw material and energy costs and our ability to offset or recover significant material surcharges; the effect of pension and other post-employment benefit obligations; increases in our warranty, product liability and recall costs; the outcome of legal or regulatory proceedings to which we are or may become a party; as well as those factors identified in our filings with the SEC (including our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2005). We assume no obligation to update these forward-looking statements.