VAN BUREN TOWNSHIP, Mich., July 30, 2008 /PRNewswire-FirstCall/ -- Highlights -- Continued year-over-year financial improvement -- Net loss narrowed by $25 million -- Operating income improved $44 million -- EBIT-R improved $63 million -- Cash provided by operations of $133 million; free cash flow of $53 million -- Product sales outside North America account for 76 percent of total -- $1.5 billion cash balances; bond transactions significantly reduce 2010 maturities -- Sale of Swansea, UK; 27 of 30 restructuring actions now completed -- Maintains full year 2008 EBIT-R and free cash flow guidance
Visteon Corporation (NYSE: VC) today announced results for second quarter 2008. For the quarter, Visteon reported a net loss of $42 million, or $0.32 per share, on total sales of $2.905 billion. For second quarter 2007, Visteon reported a net loss of $67 million, or $0.52 per share, on total sales of $2.974 billion. Results for second quarter 2008 include $18 million of unreimbursed restructuring and other qualifying costs, $11 million of asset impairments and $49 million of income tax expense. Second quarter 2007 results included $11 million of asset impairments and $28 million of income tax expense. EBIT-R, as defined below, was $78 million, an improvement of $63 million over second quarter 2007.
"Our second quarter and first half results demonstrate Visteon's geographic diversification, as we improved our financial performance despite a difficult North American market," said Donald J. Stebbins, president and chief executive officer. "We expanded gross margins by almost 50 percent and increased operating income nearly five-fold due to steady progress on our restructuring plan, our focus on reducing overhead costs and our drive to improve operational efficiency. We have also addressed our UK manufacturing losses through divestitures and commercial arrangements."
Second Quarter 2008
Total sales for second quarter 2008 were $2.905 billion, a decrease of $69 million from the same period a year ago, including $17 million of lower services revenue. Second quarter 2008 total product sales were $2.781 billion, a decrease of $52 million from second quarter 2007. Divestitures and plant closures decreased product sales by $222 million, which was partially offset by favorable currency of $163 million. Lower production volumes in North America were offset by increases in Europe and Asia, reflecting Visteon's geographic diversification.
Product gross margin for second quarter 2008 was $230 million, representing an increase of $76 million from the same period a year ago. This increase reflects net cost performance of $41 million and favorable currency of $43 million, partially offset by the impact of divestitures, plant closures and other items.
For second quarter 2008, Visteon's operating income of $53 million was an improvement of $44 million from the same period in 2007. This improvement was driven by increased product gross margin, partially offset by unreimbursed restructuring and other qualifying costs and implementation costs associated with the company's overhead cost reduction initiative. Unreimbursed restructuring and other qualifying costs include $12 million related to the sale of the Swansea operation as highlighted below. Operating income for second quarter 2008 also included $7 million of asset impairment related to the Swansea sale.
Cash provided by operating activities for second quarter 2008 was $133 million, $13 million lower than second quarter 2007. Capital expenditures for second quarter 2008 were $80 million, unchanged from the same period a year ago. Free cash flow, as defined below, for second quarter 2008 was $53 million, compared with $66 million in the same period of 2007. The decrease is attributable to net restructuring cash use, higher interest payments and other items, partially offset by improved trade working capital and changes in receivables sold under the company's securitization facility.
During second quarter 2008, Visteon issued $206 million in aggregate principal amount of new 12.25 percent notes due in 2016 and repurchased $344 million of its 8.25 notes due in August 2010. This reduced the amount outstanding on the 2010 notes to $206 million. As of June 30, 2008, Visteon's cash balances totaled $1.506 billion compared with $1.758 billion as of Dec. 31, 2007, and total debt was $2.665 billion, approximately $180 million lower than year-end 2007.
First Half 2008
For the first six months of 2008, Visteon narrowed its net loss by $73 million, or $0.56 per share, to $147 million, or $1.14 per share. Total sales for first half 2008 of $5.765 billion were lower by $97 million from the same period 2007. Total product sales of $5.520 billion were $71 million lower. First half 2008 results include $41 million of restructuring expenses and other qualifying costs in excess of escrow account reimbursement and a $55 million increase in the company's tax provision. EBIT-R for first half 2008 increased $160 million over the first six months of 2007 to $129 million. Cash from operations was positive $7 million for the first six months of 2008, slightly below the $15 million reported in the same period a year ago. Capital expenditures of $154 million were $10 million higher than the first six months of 2007. Free cash flow was a use of $147 million for first half 2008, compared with $129 million for the same period the previous year.
Restructuring and Divestitures
Visteon continues to make solid progress implementing its three-year plan. During the second quarter, Visteon ceased production at its Bedford, Ind. facility, and closed two fuel tank facilities in Germany. Additionally in July, the company divested its Swansea, UK, facility and ceased production at its Concordia, Mo. facility.
By completing the sale of its Swansea chassis manufacturing operation, effective July 7, Visteon divested its largest UK operation, which generated negative gross margin of approximately $40 million on sales of approximately $80 million during 2007. The company expects to record losses of approximately $47 million in connection with the sale, of which $32 million was recorded during second quarter 2008 -- including $18 million of employee severance and termination benefits, $7 million of pension curtailment losses and $7 million of asset impairment. These losses were partially offset by $13 million of escrow account reimbursement.
Visteon continues to address its remaining operations in the UK and commercial agreements are in place to address the operating losses at the company's other UK manufacturing facilities. To date, 27 of the 30 targeted facility actions -- including nine during 2008 -- have been accomplished.
"Last fall we highlighted the significant losses in our UK operations and indicated it was our top priority to address these operations during 2008," Stebbins said. "With the sale of Swansea and the agreements reached regarding our other UK facilities, we are delivering on this commitment."
In addition to the actions under the company's three-year plan, Visteon also announced that it will be closing its interiors facility in Durant, Miss., and will be consolidating that production in other facilities. In January Visteon stated it expects to generate cumulative savings of approximately $215 million over three years as part of its overhead cost-reduction initiative and remains on track to generate the expected savings.
Full Year 2008 Outlook
Visteon is adjusting its full year 2008 sales down $100 million from $10.1 billion to $10.0 billion. It is maintaining its full year outlook for both EBIT-R and free cash flow. For full year 2008, EBIT-R is expected to be in the range of $(25) million to $25 million and free cash flow is expected to be in the range of $(350) million to $(250) million.
"The progress Visteon is making, combined with the additional actions we will execute in second half of 2008, allow us to maintain our EBIT-R and free cash flow guidance for the full year despite a very difficult North American market," Stebbins said. "With $1.5 billion of cash as of June 30, 2008, and additional available liquidity, we have the flexibility to execute our plans."