Despite losses during the second quarter, executives at the Visteon Corporation remain positive that the company will demonstrate significant year-over-year improvement while benefiting from the restructuring efforts that are currently in progress.
The company, which designs, engineers and manufactures innovative climate, interior, electronic and lighting products for vehicle manufacturers and the aftermarket, recently announced second quarter 2007 results. For the second quarter 2007, Visteon reported a net loss of $67 million or $0.52 per share, which included non-cash asset impairments of $13 million. Second quarter EBIT-R, as defined below, was $15 million. Sales from continuing operations for the quarter were $2.97 billion, including product sales of $2.83 billion and services revenues of $141 million. During the quarter, Visteon generated $146 million of cash from operating activities and free cash flow, as defined below, of $66 million.
"At the mid-point of our three-year improvement plan, we have demonstrated progress across each pillar of the plan," says Michael F. Johnston, chairman and chief executive officer. "More than half of the restructuring actions are complete, and several others are well on their way to completion. Even with significant reductions in customer volumes in North America, we are making solid progress on improving our base operations through improved quality and safety and significantly reduced administrative costs. We are also diversifying our sales and growing the business, particularly outside of North America."
Visteon has now completed 16 of 30 previously identified restructuring activities. During the second quarter 2007, in the United States, the company ended production at its Chesapeake, Va. facility, exited its facility in Chicago, commenced the closure of its Connersville, Ind. facility and announced its intention to close the Bedford, Ind. facility. The company has also taken action to reduce costs at a number of its facilities in Western Europe.
As previously announced, Visteon completed the sale of three European chassis facilities, located in Germany and Poland, during the second quarter 2007. These facilities represented a substantial portion of the company's operating capabilities in certain chassis-related product lines, including suspension systems, driveline systems and steering systems. Additionally, during May 2007 the company ceased brake production at its Swansea facility in the United Kingdom, exiting the remainder of the company's suspension systems operations. Accordingly, the results of operations of the suspension systems product line have been classified as discontinued operations in the consolidated statements of operations.
Visteon continues to make significant progress in the movement of its manufacturing and engineering footprint to lower cost countries. As of June 30, 2007, more than half of the company's manufacturing personnel and one-third of its engineering personnel were located in lower cost countries. The company remains on track to have three quarters of its manufacturing and half of its engineering personnel in lower cost countries by 2009.
Once the restructuring actions are complete, they will generate approximately $175 million of annual savings. With the completion of the 14 remaining restructuring actions, Visteon expects to achieve total annual savings of approximately $400 million.
Visteon continues to win new business from a diverse group of customers across each of the company's key product lines. Year-to-date new business wins are approximately $450 million, maintaining the momentum from 2006 when Visteon won $1 billion of new business. Of the 2007 new business wins, nearly 75 percent is related to business outside of North America, and the wins are primarily concentrated in climate and electronics.
"Our focused product portfolio and our ability to deliver the innovation and quality our customers expect is driving increased confidence in Visteon from a wide range of customers around the world, especially in Asia where we continue to win substantial amounts of new orders through both our wholly-owned and joint venture operations," Donald J. Stebbins, president and chief operating officer, says. "Our wins demonstrate that we are successfully restructuring and improving the company, while simultaneously positioning Visteon for the long-term."
Cash provided from operating activities totaled $146 million for the second quarter 2007, increasing $38 million from the same period a year ago. Free cash flow of $66 million for the quarter was an improvement of $56 million over the second quarter 2006. Year-to-date cash provided from operating activities totaled $15 million, compared to $76 million for the first six months of 2006. For the first half of 2007, free cash flow was negative $129 million, $22 million lower than first half 2006.
As of June 30, 2007, Visteon had cash balances totaling $1.5 billion and total debt of $2.7 billion. Additionally, no amounts were drawn on the company's $350 million asset-based U.S. revolving credit facility.
For the second quarter 2007, sales from continuing operations were $2.97 billion, including favorable foreign currency of approximately $110 million. Sales from continuing operations for the second quarter 2006 were $2.96 billion. Product sales to Ford Motor Co. declined 16 percent or $216 million to $1.11 billion, reflecting primarily lower North American production volumes, pricing, sourcing and product mix. Product sales to other customers increased 15 percent, or $230 million, to $1.72 billion and represented 61 percent of total product sales.
For the second quarter 2007, Visteon had a net loss of $67 million, or $0.52 per share, which included $13 million of non-cash asset impairments. In the same period in 2006, Visteon reported net income of $50 million, or $0.39 per share. Last year's results included $22 million of non-cash asset impairments and an extraordinary gain of $8 million associated with the acquisition of a lighting facility in Mexico. Visteon also recognized a $49 million benefit in the second quarter 2006 related to the relief of post-employment benefits for Visteon salaried employees associated with two ACH manufacturing facilities transferred to Ford.
EBIT-R, as defined, for the second quarter 2007 was $15 million compared to $119 million for the second quarter 2006.
For the first half 2007, sales from continuing operations were $5.86 billion, including favorable foreign currency of approximately $300 million. Sales from continuing operations for the same period in 2006 were $5.87 billion, including product sales of $5.59 billion. Product sales to Ford declined 14 percent, or $362 million, to $2.25 billion, reflecting primarily lower North American production volumes, pricing, sourcing and product mix. Despite lower sales to Nissan in North America due to production volumes, product sales to other customers increased 12 percent, or $368 million, to $3.34 billion and represented 60 percent of total product sales.
Visteon reported a net loss of $220 million, or $1.70 per share, for the first six months of 2007. These results include $63 million of non-cash asset impairments. This compares to net income of $53 million, or $0.41 per share, for the same period a year ago. Half year results for 2006 include $22 million of non-cash asset impairments and an extraordinary gain of $8 million. In the first half of 2006, Visteon recognized a cumulative benefit of $72 million related to the relief of post-employment benefits for Visteon salaried employees associated with two ACH manufacturing facilities transferred to Ford.
EBIT-R for the first half 2007 was a loss of $31 million compared to positive $191 million for the same period in 2006.
Visteon continues to expect EBIT-R for the full year 2007 to be in the range of negative $35 million to negative $135 million on product sales of $10.7 billion. Free cash flow is still projected to be in the range of negative $180 million to negative $280 million.
"The second half of 2007 will continue to be a challenge as we face low production on a number of important platforms, particularly in North America," says Johnston. "However we expect to show significant improvement in our financial performance compared to the back half of 2006 as we benefit from the restructuring actions we have taken as well as other cost-reduction efforts."
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