As filed with the Securities and Exchange Commission on April 14, 2000
File No. ________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
VISTEON CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
----------
DELAWARE 38-3519512
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
5500 Auto Club Drive
Dearborn, Michigan 48126
(Address of Principal Executive Offices) (Zip Code)
(800) VISTEON
(Registrant's telephone number, including area code)
----------
Securities to be registered
pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
Common Stock, par value $1.00 per share The New York Stock Exchange
Securities to be registered
pursuant to Section 12(g) of the Act:
None
================================================================================
<PAGE>
INFORMATION REQUIRED IN REGISTRATION STATEMENT
CROSS-REFERENCE SHEET BETWEEN INFORMATION STATEMENT AND ITEMS
OF FORM 10
Item 1. Business
The information required by this item is contained under the sections
"Summary," "Risk Factors," "Business" and "Relationship with Ford" of the
Information Statement attached hereto. Those sections are incorporated herein by
reference.
Item 2. Financial Information
The information required by this item is contained under the sections
"Summary," "Capitalization," "Unaudited Pro Forma Condensed Consolidated
Financial Statements," "Selected Consolidated Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" of the
Information Statement. Those sections are incorporated herein by reference.
Item 3. Properties
The information required by this item is contained under the section
"Business -- Properties" of the Information Statement. That section is
incorporated herein by reference.
Item 4. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is contained under the sections
"Management--Stock Ownership of Directors and Executive Officers" and "Security
Ownership of Ford and Visteon" of the Information Statement. Those sections are
incorporated herein by reference.
Item 5. Directors and Executive Officers
The information required by this item is contained under the section
"Management" of the Information Statement. That section is incorporated herein
by reference.
Item 6. Executive Compensation
The information required by this item is contained under the section
"Management" of the Information Statement. That section is incorporated herein
by reference.
Item 7. Certain Relationships and Related Transactions
The information required by this item is contained under the sections
"Management" and "Relationship with Ford" of the Information Statement. Those
sections are incorporated herein by reference.
Item 8. Legal Proceedings
The information required by this item is contained under the sections
"Business -- Environmental Matters" and "Business -- Legal Proceedings" of the
Information Statement. Those sections are incorporated herein by reference.
Item 9. Market Price of and Dividends on the Registrant's Common Equity and
Related Stockholder Matters
The information required by this item is contained under the sections "Risk
Factors," "Description of Capital Stock," "Management," "The Spin-Off" and
"Dividend Policy" of the Information Statement. Those sections are incorporated
herein by reference.
2
<PAGE>
Item 10. Recent Sales of Unregistered Securities
Not applicable.
Item 11. Description of Registrant's Securities to be Registered
The information required by this item is contained under the
section "Description of Capital Stock" of the Information Statement. That
section is incorporated herein by reference.
Item 12. Indemnification of Directors and Officers
The information required by this item is contained under the section
"Indemnification of Directors and Officers" of the Information Statement. That
section is incorporated herein by reference.
Item 13. Financial Statements and Supplementary Data
The information required by this item is contained under the sections
"Capitalization," "Unaudited Pro Forma Condensed Consolidated Financial
Statements," "Selected Consolidated Financial Data," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Consolidated
Financial Statements" of the Information Statement. Those sections are
incorporated herein by reference.
Item 14. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
Item 15. Financial Statements and Exhibits
(a) Financial Statements
The information required by this item is contained under the section
"Consolidated Financial Statements" beginning on page F-1 of the Information
Statement. That section is incorporated herein by reference.
(b) Exhibits
The following documents are filed as exhibits hereto:
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
3.1 Amended and Restated Certificate of Incorporation.*
3.2 Amended and Restated By-laws.*
4.1 Form of Visteon Common Stock certificate.*
10.1 Form of Distribution Agreement.*
10.2 Form of Master Transfer Agreement.
10.3 Form of Purchase and Supply Agreement.
10.3.1 Form of Letter Relating to Price Reductions.*
10.4 Form of Master Separation Agreement.*
10.5 Form of Aftermarket Relationship Agreement.
10.6 Form of Hourly Employee Assignment Agreement.
10.7 Form of Employee Transition Agreement.
10.8 Form of Tax Sharing Agreement.*
10.9 Long-Term Incentive Plan.*
10.10 Form of Change in Control Agreement.*
21.1 Subsidiaries of Visteon.*
3
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
27.1 Financial Data Schedule (1997).
27.2 Financial Data Schedule (1998).
27.3 Financial Data Schedule (1999).
- ----------
* To be filed by amendment.
4
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
VISTEON CORPORATION
Dated: April 14, 2000 By: /s/ Peter J. Pestillo
-----------------------------------------
Peter J. Pestillo, Chairman of the Board,
Chief Executive Officer and President
5
<PAGE>
Ford Motor Company
______________, 2000
Dear Fellow Ford Stockholder:
In January of this year, we announced as one of our milestones the goal
for Visteon to achieve independence. Towards achieving this goal, we
established Visteon Corporation as a wholly-owned subsidiary and transferred to
it the assets and liabilities comprising our automotive components and systems
business. To complete the goal of independence, on _______, 2000, a special
committee of our Board of Directors, pursuant to full Board authorization,
approved a pro rata distribution (or spin-off) to Ford common and Class B
stockholders of all shares of Visteon common stock owned by Ford.
In the spin-off, you will receive ____ shares of Visteon common stock for
each share of Ford common or Class B stock that you held of record at the close
of business on ___________, 2000. Your current shares of Ford common or Class B
stock will continue to represent your ownership position in Ford.
We have concluded that the spin-off is in the best interests of Ford, the
Visteon business and Ford stockholders, because:
o as an independent company, Visteon will be better able to pursue
business with non-Ford customers
o it will reduce Ford's automotive assets and capital requirements
o it will provide Visteon's management increased strategic flexibility and
decision-making power, including the ability to manage Visteon's product
portfolio over the long-term based on Visteon's own strategic objectives
o having two separate public companies will enable the financial markets
to evaluate each company more effectively, thereby maximizing
stockholder value over the long term for both Ford and Visteon
o separate management and ownership structures for Visteon will provide
incentives to Visteon's management and direct accountability to public
investors
o a spin-off allows Visteon to achieve independence in the shortest
possible time
Shares of Visteon's common stock trade on the New York Stock Exchange
under the ticker symbol "VC."
The enclosed information statement explains the spin-off in detail and
provides important information regarding Visteon. We urge you to read it
carefully. Please note that general stockholder approval is not required for
the spin-off, and holders of Ford common and Class B stock are not required to
take any action to participate in the spin-off. Thus, we are not asking you for
a proxy.
Very truly yours,
William Clay Ford, Jr.
Chairman of the Board
Ford Motor Company
<PAGE>
Visteon Corporation
______________, 2000
Dear Visteon Stockholder:
We welcome you as a "founding" stockholder of Visteon, which began trading
publicly on a "when-issued" basis for the first time on _____________, 2000.
We are the world's third largest supplier of automotive systems, modules
and components. We have become a leader in the global automotive parts industry
by capitalizing on the extensive experience we have gained as the largest
supplier to Ford, the world's largest producer of trucks and the second largest
producer of cars and trucks combined. We have been the largest supplier of
automotive parts to Ford for most of Ford's history, and even as we continue to
broaden our base of customers and products, we expect to continue to be the
primary supplier to Ford for many years to come. We have established a broad
global presence, with a workforce of over 81,000 and a network of manufacturing
sites, technical centers, sales offices and joint ventures located in every
major region of the world.
This is a very exciting time, and we are enthusiastic about what the
future holds. We believe that Visteon has a great opportunity to grow, and as a
new Visteon stockholder, like our customers, you have an opportunity to grow
with us. We are committed to building value for you, our new stockholders, and
we look forward to many years of growth.
Congratulations on becoming one of the "founding" stockholders of Visteon!
Very truly yours,
Peter J. Pestillo
Chairman of the Board, Chief Executive
Officer and President
Visteon Corporation
<PAGE>
Preliminary Information Statement
(Subject to Completion, Dated April 14, 2000)
VISTEON CORPORATION
COMMON STOCK
(par value $1.00 per share)
At this time, Visteon Corporation is wholly-owned by Ford Motor Company.
In this spin-off, Ford will distribute all of its shares of our common stock on
a pro rata basis to the holders of Ford common and Class B stock. Each of you,
as a holder of Ford common or Class B stock, will receive ___ shares of our
common stock for each share of Ford common or Class B stock that you held at
the close of business on __________, 2000, the record date for the spin-off.
Immediately after the spin-off is completed, Ford will not own any shares of
our common stock, and we will be an independent public company.
We are sending you this information statement to describe the spin-off. We
expect the spin-off to occur on ____________, 2000. On or shortly after the
_____________, 2000 distribution date:
o holders of record of Ford common and Class B stock on the record date
will have credited to a book-entry account established for them by, and
maintained at, EquiServe Trust Company, N.A. (the registrar and transfer
agent for Visteon common stock) their proportionate number of shares of
Visteon common stock;
o holders of record of fewer than _____ shares of Ford common and Class B
stock on the record date, which would entitle them to receive less than
one whole share of Visteon common stock, will receive a check for the
cash value of any such fractional shares; and
o beneficial owners of Ford common and Class B stock on the record date
should have credited to their brokerage, custodian or similar account
through which they own their Ford stock, their proportionate number of
shares of Visteon common stock or cash in lieu of a fractional share of
Visteon common stock.
No general stockholder vote is required for the spin-off to occur. No
stockholder action is necessary for you to receive the shares of our common
stock to which you are entitled in the spin-off. This means that:
o you do not need to pay any consideration to Ford or to Visteon
o you do not need to surrender any shares of Ford common or Class B stock
to receive your shares of our common stock.
Before _____, 2000, there was no trading market for our common stock. On
that date, trading of shares of our common stock on a "when issued" basis
began. Our common stock trades on the New York Stock Exchange under the ticker
symbol "VC."
As you review this information statement, you should carefully consider
the matters described in "Risk Factors" beginning on page 11.
----------
The Securities and Exchange Commission and state securities regulators
have not approved or disapproved of these securities, or determined if this
information statement is truthful or complete. Any representation to the
contrary is a criminal offense.
The date of this information statement is ____________, 2000.
<PAGE>
TABLE OF CONTENTS
Page
Summary......................................................................3
Risk Factors................................................................11
Special Note About Forward-Looking Statements...............................19
The Spin-Off................................................................20
Capitalization..............................................................23
Dividend Policy.............................................................23
Selected Consolidated Financial Data........................................24
Unaudited Pro Forma Condensed Consolidated Financial Statements.............26
Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................................31
Business....................................................................40
Relationship with Ford......................................................70
Management..................................................................79
Security Ownership of Ford and Visteon......................................91
Description of Capital Stock................................................92
Indemnification of Directors and Officers...................................95
Where You Can Find More Information.........................................95
Index to Consolidated Financial Statements.................................F-1
2
<PAGE>
SUMMARY
This summary highlights information relating to our company and the common
stock being distributed in the spin-off. More detailed discussions of this
information are contained in this information statement. In some places in this
information statement, we have presented pro forma information, adjusted to
reflect the terms of our spin-off from Ford and certain changes in our
operations as a result of the spin-off. You should read the entire information
statement, including the risk factors and our consolidated historical and pro
forma financial statements and notes to those statements appearing elsewhere in
this information statement.
VISTEON
Our Company
We are the world's third largest supplier of automotive systems, modules
and components, based on our 1999 sales of $19.4 billion or our pro forma 1999
sales of $18.7 billion, according to the latest available industry data. We have
become a leader in the global automotive parts industry by capitalizing on the
extensive experience we have gained as the largest supplier to Ford, the world's
largest producer of trucks and the second largest producer of cars and trucks
combined.
We have been the largest supplier of automotive parts to Ford for most of
Ford's history. Ford produces cars and trucks that are marketed and sold under
the Ford, Lincoln, Mercury, Volvo, Jaguar and Aston Martin brands. We began
using the Visteon name in 1997. Before the spin-off, we have been a division of
Ford and, more recently, a wholly-owned subsidiary of Ford. After our spin-off
from Ford, we will be an independent supplier. We believe that our independence
will enhance our ability to increase sales to non-Ford vehicle manufacturers
over time.
We have developed a sophisticated understanding of the design,
engineering, manufacture and operation of the automotive vehicle. We are
currently able to supply over 40% of a vehicle's total material cost. We have
both extensive technical expertise in a broad range of products and strong
systems integration skills, which enable us to provide comprehensive,
consumer-oriented solutions for our customers. In recent years, we have placed
increasing emphasis on the development of systems and modules with electronic
content, in response to consumer demand. We have over 8,900 technical personnel
around the world with well-established credentials in technical research and
development. In 1999, we began using the Internet both for our supply needs and
for the sale of our aftermarket products. We expect that use of the Internet in
our business will grow significantly over the next several years.
In recent years, our goal has been to pursue new business growth
opportunities with Ford and non-Ford vehicle manufacturers, or VMs, as well as
with non-automotive customers. Although Ford still accounts for a substantial
majority of our sales, we sell to 17 of the 20 largest VMs. Our sales to
customers other than Ford grew at a compound annual growth rate of 36% between
1997 and 1999, from about $1.2 billion to about $2.3 billion. Non- Ford business
as a percentage of our total sales has grown from about 7% to about 12% in that
time. In 1999, 38% of the new business we were awarded for delivery in future
years was non-Ford business. We have a goal of expanding our non-Ford business
to 20% of our sales by 2002. We believe that our spin-off from Ford will
facilitate our achievement of this goal.
We have a broad global presence, with a workforce of over 81,000 and a
network of manufacturing sites, technical centers, sales offices and joint
ventures located in every major region of the world. About 23.5% of our total
1999 sales were derived from products manufactured outside of the United States.
In addition, 39% of the new business we won in 1999 was with customers outside
of North America.
We operate in three business segments and are a leading Tier 1 supplier in
two of these segments: Comfort, Communication & Safety and Dynamics & Energy
Conversion:
o Comfort, Communication & Safety, composed of our climate control
systems and interior/exterior systems product groups. Our climate
control systems product group produces systems, modules and components
in
3
<PAGE>
the areas of fluid transport, air handling, heat exchange and
compressors. Our interior/exterior systems product group produces
systems, modules and components in the areas of cockpits, instrument
panels, interior trim and seats, lighting and bumpers, as well as
safety and convenience systems such as air bag electronics and voice
activated control.
o Dynamics & Energy Conversion, composed of our energy transformation
systems and chassis systems product groups. Our energy transformation
systems product group produces systems, modules and components in the
areas of energy management, distributed power generation, electrical
conversion, and fuel storage and delivery products. Our chassis
systems product group produces systems, modules and components in the
areas of axle and driveline, steering and chassis products.
o Glass, composed of our vehicle glazing product group, which produces
glass products for Ford and aftermarket customers, and our commercial
glass product group, which produces float glass for commercial
architecture.
In addition to our VM sales, we also sell our products to the worldwide
aftermarket for replacement and vehicle appearance enhancement parts.
Our Industry
The automotive parts industry provides systems, modules and
components to VMs for the manufacture of new vehicles, as well as to the
aftermarket for use as replacement and enhancement parts. Today, suppliers
offer their individual component products to VMs and also offer those products
in a variety of more fully engineered forms, such as modules, which are groups
of component parts arranged in close physical proximity to each other within a
vehicle, and systems, which are groups of component parts located throughout
the vehicle that operate together to provide a specific vehicle function. We
believe global automotive parts industry sales to VMs will be about $500
billion in 2000. In addition to these sales, U.S. automotive aftermarket
retail sales are estimated to be over $160 billion in 2000.
Several key trends have been reshaping the automotive parts industry over
the past several years:
o Shift of Engineering to Suppliers; Increased Emphasis on Systems and
Modules Sourcing
o Increasing Electronics Integration and Technological Content
o Growth in E-Commerce
o Increased Emphasis on Speed-to-Market
o Globalization of Suppliers
o Ongoing Industry Consolidation
o Demand for Safe and Environmentally Friendly Products
Our Strategy
Our objective is to be the world's leading consumer-focused,
technology-driven automotive systems company. Whether we are selling to VMs or
directly to consumers, we regard the consumer as our ultimate customer. We
systematically gather and analyze consumer information that helps us to
anticipate new trends and consumer preferences. We then can anticipate our VM
customers' needs with regard to new products and help introduce these products
to consumers, gaining acceptance for our products. We believe that our extensive
global presence and systems capabilities provide us with a substantial
competitive advantage as we pursue new business around the world. This is
especially true as VMs move to global vehicle platforms, or world cars. We
believe that our extensive
4
<PAGE>
experience and expertise with Ford also gives us many benefits as we pursue
non-Ford business. We believe that our consumer focus, global reach and the
following strategies will allow us to capitalize on the industry trends
described above and to achieve our objective.
o Capitalize on Our Core Ford Business. We have been the largest
supplier to Ford, the world's largest producer of trucks and the
second largest producer of cars and trucks combined, for most of
Ford's history. Worldwide, in 1999, we supplied an average of about
$2,300 of content on every vehicle that Ford sold. Ford's continued
success in the market has earned it four of the top ten vehicles sold
in the United States in 1999; we supplied an average of about $2,900
of content per vehicle on those four models. We have a substantial
base of awarded business with Ford and we have also entered into a
supply agreement with Ford that allows us to secure additional
business. In addition, because we have been integrally involved in the
design and development of many of Ford's vehicles and we understand
Ford's needs, we believe that we are uniquely positioned to work with
Ford on future models. We expect that Ford will remain our largest
customer for a significant period of time. We have been awarded Ford
business of $16.3 billion for 2000, $16.0 billion for 2001, $16.5
billion for 2002, $15.3 billion for 2003 and $13.9 billion for 2004,
with additional Ford business for the later years still expected to be
awarded. However, our sales to Ford may decline over time.
o Improve Our Operating Performance. We have implemented a number of
initiatives to improve our operating performance on a continuous
basis. Reducing costs and streamlining product development and
production improves profitability, increases cash flow and frees up
capital for investment. We have put in place a disciplined product
development process and state-of-the-art computer tools, some of which
are proprietary to Visteon, for the design, development and testing of
products and systems. These advances have improved our
speed-to-market, reduced our development costs and improved our
overall quality. We use global procurement to obtain competitive
prices for our direct and indirect materials, machinery, equipment and
services, as well as for parts we purchase from other suppliers for
use in our product offerings. As an independent company, we believe
that we will be able to derive significant cost savings through
re-sourcing supply contracts from our least competitive suppliers,
increased use of Internet procurement and leveraging our scale. In
addition to ongoing production improvement actions, we are
implementing "lean" cell-based manufacturing for new programs and
converting existing production facilities to "lean" where feasible.
This approach allows greater flexibility and lower floor space,
inventory and investment.
o Expand Our Non-Ford Business. We have demonstrated our ability to grow
our non-Ford business over the past two years. In 1999, about 12% of
our sales were to non-Ford customers, up from 7% in 1997. We have a
goal of expanding our non-Ford business to 20% of our sales by 2002.
We believe that our spin-off from Ford, combined with our
technological leadership, systems engineering capability and high
quality products, will facilitate achievement of our goal. We have
built a new sales and marketing organization, currently at about 100
people and expected to grow to about 125 people by the end of 2000,
dedicated to non-Ford accounts. We have recruited account managers
from outside of Visteon with extensive automotive industry experience
and have established customer-supplier relationships with all of the
major VMs. In addition, we have made, and expect to continue making,
strategic acquisitions, alliances and joint ventures that give us
increased access to non-Ford VMs.
o Use E-Commerce to Lower Costs and Enhance Sales. The automotive
manufacturing business model is in a transition from "push" to "pull,"
with the goal being a seamless supply chain building cars and trucks
to precise consumer specification on demand. The profit opportunity
from being on the forefront of this change is substantial, and we have
identified what we believe are the major components of this transition
and have developed strategies to allow us to capitalize on this
transition. Technology-based supply chain management techniques allow
us to substantially lower procurement costs, manage inventory and
supply chain logistics more efficiently, sell more effectively, and
increase the value of our products to consumers.
o Exploit Our Technology and Systems Engineering Leadership. Consumers
are increasingly demanding technology and electronics to make their
cars safer, more convenient and more comfortable. We believe
5
<PAGE>
that the use of electronics integration and systems engineering to
increase the functionality and personalization of products is key to
our future success. As VMs increasingly demand systems instead of
individual components, we expect to capitalize on that trend. We are
one of the few global suppliers able to deliver systems to VMs across
a wide array of product areas, with particular expertise in climate
control, audio and instrumentation. Together, sales of these three
types of systems accounted for $4.7 billion of our sales in 1999. We
have extensive experience in engineering complex and interactive
vehicle systems, and have a strong technical knowledge of vehicle and
user requirements that form the basis for integrating new
technologies. Our systems engineering process allows us to quickly
interpret and translate customer (VM and consumer) needs to develop
innovative systems-based solutions depending on the needs of
individual VMs and the aftermarket.
o Grow Our Aftermarket Business. The aftermarket represents a major
opportunity for revenue and earnings growth. The time between design
and launch is only a matter of months, as compared to years in the
case of new vehicle production, allowing us to increase revenues more
quickly. The aftermarket also offers an opportunity to sell higher
margin products and improve Visteon's overall returns by leveraging
our existing investments in engineering and production. Importantly,
the aftermarket serves as a forum for proving consumer acceptance and
commercial viability of new high technology product concepts, leading
to introduction in the new vehicle market. For example, the success of
our rear seat entertainment system in the aftermarket was a key factor
in influencing VMs to include it in their new vehicle programs. In
addition, as we develop our brands and introduce products in
conjunction with leading brands, we expect consumers to increasingly
demand our products from VMs and "pull" these products through the
supply chain. The aftermarket also serves as a partial diversification
of our VM business.
o Streamline and Focus Our Product Portfolio. While having a broad
portfolio remains important to our success, we believe that our
spin-off from Ford will give us the flexibility and opportunity to
focus our investment and technical resources in high growth, strategic
and high margin areas. We intend to invest in those businesses that
fit our strategic vision and focus on electronics and systems
integration, while exploring every opportunity to address low return
operations. In addition, we intend to pursue strategic acquisitions
and alliances that complement or fill gaps in our product portfolio,
enhance our design, engineering and manufacturing capabilities and
increase our access to new markets and customers.
----------
We were incorporated in Delaware as of January 1, 2000. References in this
information statement to "Visteon," "we," "our" and "us" collectively refer to
Visteon Corporation and its consolidated subsidiaries. Our principal executive
offices are located at 5500 Auto Club Drive, Dearborn, Michigan 48126, and our
telephone number is (800) VISTEON. We maintain an Internet site at
http://www.visteon.com. Our website and the information contained on that site,
or connected to that site, is not incorporated into this information statement.
Visteon] is a registered trademark, and Carlite(R), ClimatePro(TM), RoadFx(TM),
NavMate(R) and the Visteon logo are trademarks of Visteon. Ford(R), Lincoln(R),
Mercury(R), Volvo(R), Jaguar(R)and Aston Martin(R) are all registered
trademarks owned by or licensed to Ford or its subsidiaries. Each trademark,
trade name or service mark of any other company appearing in this information
statement belongs to its holder.
6
<PAGE>
THE SPIN-OFF
The following is a brief summary of the terms of the spin-off.
Distributing Company................ Ford Motor Company. After the spin-off,
Ford will not own any shares of our
stock.
Spun-Off Company.................... Visteon Corporation, currently a
wholly-owned subsidiary of Ford. After
the spin-off, Visteon will be an
independent public company.
Securities to Be Distributed........ __________ shares of Visteon common
stock, which is all of the shares of
Visteon common stock owned by Ford.
Immediately after the spin-off, we
estimate that about ___ stockholders of
record will hold shares of our common
stock, although some of the shares may
be registered in the name of a single
stockholder who represents a number of
stockholders.
Distribution Ratio.................. ____ shares of our common stock for
each share of Ford common or Class B
stock that you hold at the close of
business on ____________, 2000, the
record date for the spin-off.
Record Date......................... ___________, 2000 (close of business).
Spin-Off Date....................... ___________, 2000
Distribution Agent.................. First Chicago Trust Company of New
York, which is the registrar and
transfer agent for Ford common stock and
an affiliate of EquiServe Trust
Company, N.A. (the registrar and
transfer agent for Visteon common stock)
New York Stock Exchange Symbol...... VC
Trading Market...................... Before ____, 2000, there was no trading
market for our common stock. On that
date, trading of shares of our common
stock on a "when issued" basis began.
Tax Consequences.................... Ford has received an opinion of Davis
Polk & Wardwell to the effect that the
spin-off should be tax-free to Ford and
its stockholders for U.S. federal
income tax purposes. See "The
Spin-Off--Material Federal Income Tax
Consequences of the Spin-Off" for a
more detailed description of the
federal income tax consequences of the
spin-off.
7
<PAGE>
Book-Entry Shareholding............. Ford common and Class B stockholders
will receive ____ shares of Visteon
common stock for each share of Ford
common or Class B stock they held at
the close of business on ________, 2000
(the record date for the spin-off). On
or shortly after the __________, 2000
distribution date:
o holders of record of _____ or more
shares of Ford common and Class B
stock on the record date will have
credited to a book-entry account
established for them by, and
maintained at, EquiServe Trust
Company, N.A. (the registrar and
transfer agent for Visteon common
stock) their proportionate number of
shares of Visteon common stock;
o holders of record of fewer than _____
shares of Ford common and Class B
stock on the record date, which would
entitle them to receive less than one
whole share of Visteon common stock,
will receive a check for the cash
value of any such fractional shares;
and
o beneficial owners of Ford common and
Class B stock on the record date
should have credited to their
brokerage, custodian or similar
account through which they own their
Ford stock, their proportionate number
of shares of Visteon common stock or
cash in lieu of a fractional share of
Visteon common stock.
Relationship Between Visteon and
Ford After the Spin-Off....... Ford will remain our largest customer
for the foreseeable future. We and
Ford have entered into a supply
agreement and other agreements
described in the section entitled
"Relationship with Ford." We and Ford
may enter into additional or modified
agreements, arrangements and
transactions after the spin-off, which
will be negotiated at arm's length.
Our Management and Management
Compensation After the Spin-Off The compensation, awards and other
benefits payable to selected members of
management after the spin-off are
described in "Management."
----------
You should carefully read the "Risk Factors" beginning on page 11.
8
<PAGE>
If you have any questions relating to the spin-off, you should
contact EquiServe Trust Company, N.A. at:
Visteon Shareholder Services
EquiServe Trust Company, N.A.
P.O. Box 2747
Jersey City, NJ 07303-2747
Tel: (877) 881-5962 (within U.S. and Canada)
Tel: (201) 536-8058 (outside U.S. and Canada)
Fax: (201) 222-4177
E-mail: [email protected]
After the spin-off, if you are a stockholder of Visteon and have questions
relating to the spin-off, you can contact us directly. Our contact information
is:
Visteon Corporation
5500 Auto Club Drive
Dearborn, MI 48126
Tel: (800) 311-8608
Fax: (313) 390-1877
Attention: Investor Relations
No action is necessary for you to receive the shares of our common stock
to which you are entitled in the spin-off. You do not need to pay any
consideration to Ford or to us, and you do not need to surrender any shares of
Ford common or Class B stock to receive your shares of our common stock.
9
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following summary consolidated financial data reflect the historical
results of operations and cash flows of the businesses that were part of the
Visteon business during each respective period. Our results for 1999 also are
presented on a pro forma basis to give effect to the spin-off and the terms of
our separation from Ford. See "Unaudited Pro Forma Condensed Consolidated
Financial Statements" for additional discussion of these pro forma adjustments.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------------
Pro Forma
1999 1999 1998 1997 1996 1995
---------- -------- -------- --------- --------- ---------
(in millions, except per share amounts, percentages and as noted)
<S> <C> <C> <C> <C> <C> <C>
Statement of Income Data:
Sales........................................... $ 18,676 $ 19,366 $ 17,762 $ 17,220 $ 16,497 $ 15,115
Operating income ............................... 539 1,189 1,134 851 620 273
Net income...................................... 291 735 703 511 384 164
Basic and diluted earnings per share based on
_________ shares outstanding...................
Statement of Cash Flows Data:
Cash provided by operating activities........... $ 2,482 $ 1,376 $ 1,411 $ 1,178 n/a
Cash (used in) investing activities............. (1,453) (940) (943) (996) n/a
Cash provided by (used in) financing activities. 290 (234) (251) (189) n/a
Other Financial Data:
Depreciation and amortization................... $ 651 $ 565 $ 590 $ 510 $ 459
EBITDA.......................................... 1,840 1,699 1,441 1,130 732
Capital spending................................ 876 861 917 969 n/a
Capital spending as a percentage of revenue..... 4.5% 4.8% 5.3% 5.9% n/a
After tax return on:
Sales.......................................... 3.9% 3.9% 3.0% 2.3% 1.1%
Average assets................................. 6.9% 7.8% 6.2% 4.9% n/a
Sales per employee (in thousands)............... $ 244 $ 235 $ 237 n/a n/a
</TABLE>
<TABLE>
At December 31,
-------------------------------------------------------
Pro Forma
1999 1999 1998 1997 1996 1995
---- ---- ---- ---- ---- ----
(in millions)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets....... $10,738 $12,449 $9,373 $8,471 $7,967 $7,510
Total debt......... 2,000 2,319 1,125 1,136 1,136 1,140
Total equity....... 2,316 1,499 1,655 1,204 977 802
</TABLE>
"EBITDA" is defined as income before provision for interest expense and
interest income, income taxes, depreciation and amortization, equity in net
income of affiliated companies and minority interests. EBITDA is not presented
as an alternative measure of operating results or cash flow from operations, as
determined in accordance with generally accepted accounting principles, but is
presented because we believe it is a widely accepted indicator of our ability to
incur and service debt. EBITDA does not give effect to cash used for debt
service requirements and thus does not reflect funds available for dividends,
reinvestment or other discretionary uses. In addition, EBITDA as presented in
this information statement may not be comparable to similarly titled measures
reported by other companies.
10
<PAGE>
RISK FACTORS
You should carefully consider each of the following risks and all of the
other information set forth in this information statement. Some of the following
risks relate principally to establishing our company as independent from Ford.
Other risks relate principally to our business. Finally, we describe risks
relating principally to the securities markets and ownership of our stock. The
risks and uncertainties described below are not the only ones facing our
company. Additional risks and uncertainties not presently known to us or that we
currently believe to be immaterial may also adversely affect our business.
If any of the following risks and uncertainties develop into
actual events, this could have a material adverse effect on our business,
financial condition or results of operations. In that case, the trading price
of our common stock could decline.
Risk Factors Relating to Establishing Our Company as Independent from Ford
We may not be able to increase our non-Ford sales as expected
We cannot assure you that we will increase our non-Ford sales as we expect
after our spin-off from Ford. We believe that some of Ford's competitors have
been concerned that awarding contracts to us would benefit Ford and that Ford
might obtain access, through us, to confidential information regarding their
vehicle design and manufacturing processes. Although Ford will be divesting its
ownership of Visteon in the spin-off, Ford will remain our largest customer for
a significant period of time and we will continue to have a variety of
contractual relationships with Ford, including the supply agreement. We also
have limited experience at winning business with non-Ford customers.
Accordingly, we cannot assure you as to the amount or timing of our sales to
non-Ford customers.
Even if we successfully increase our sales to non-Ford customers, these
sales, if any, will likely not be realized for several years because the vast
majority of VM parts purchases are sourced at least several years in advance of
production.
In addition, because we have historically operated as a division of Ford,
substantially all of our existing contracts with our non-Ford customers were
signed by Ford, not Visteon, and require the consent of the customer in order to
assign or transfer the contract, including from Ford to Visteon. Although we
have had discussions with all of our major non-Ford customers regarding our
spin-off from Ford, we do not currently intend to seek consent from these
customers to the assignment from Ford to us of their existing contracts or to
enter into replacement contracts; we intend to continue to perform under these
contracts as if they were made with us.
Our ability to streamline and focus our product portfolio is limited by
contractual restrictions
We have entered into agreements with our largest unions that, as a
practical matter, restrict our ability to eliminate product lines, close plants
and divest businesses. These agreements also can limit our ability to change
local work rules and practices at a number of our facilities. In addition, in
connection with our spin-off from Ford, we have entered into a tax sharing
agreement with Ford that contains restrictive covenants, including limits on our
ability to make acquisitions or divestitures. These covenants generally expire
two years after the spin-off. All of these restrictions could, individually or
in the aggregate, have a material adverse effect on the conduct of our business
and our ability to pursue our business objectives.
We may be unable to increase our competitiveness because of our labor
arrangements
As part of the Ford UAW master collective bargaining agreement, Ford and
the UAW have agreed that (i) all UAW-represented employees working at Visteon
facilities covered by that agreement as of ____________, 2000 will remain Ford
employees indefinitely and will continue to be covered under the Ford UAW
11
<PAGE>
agreement, (ii) Visteon will continue to use the services of these employees
and, in some circumstances, other Ford UAW employees who transfer to our
facilities, and (iii) Visteon will adopt a collective bargaining agreement for
hourly employees hired into these UAW-represented facilities after ___________,
2000 that closely reflects the Ford UAW agreement and the next two master
agreements between Ford and the UAW. In addition to guaranteeing Ford wage and
benefit levels, the terms of the Ford UAW agreement provide for significant
employment security. Under an agreement between Ford and us, we have agreed to
reimburse Ford for the costs of the Ford employees working in our facilities,
including amounts (limited to $50 million per year in each of 2000-2004) for
profit sharing based on Ford's profits. Our reimbursement obligations apply to
all these employees even if we do not need or utilize all of them for any
reason, including if we lose business from Ford or another VM. See "Relationship
with Ford--Hourly Employee Assignment Agreement."
We also have agreed with the UAW that all new hourly employees hired into
our UAW-represented facilities covered by the Ford UAW agreement after
___________, 2000 and during the term of the current four-year Ford UAW
agreement and the terms of the next two master agreements between Ford and the
UAW will, for the duration of their employment with and retirement from Visteon,
receive wages, benefits and other terms and conditions of employment that
closely reflect those required to be provided from time to time by Ford to its
UAW-represented employees.
In Europe, all Ford employees working in Visteon facilities have become
our employees. We have agreed that for the duration of their employment with and
retirement from us, we will provide these employees with wages, benefits and
other terms and conditions of employment that closely reflect what Ford provides
to its employees in the respective countries.
Our hourly employee compensation costs resulting from these arrangements
could have a material impact on our results of operations or financial
condition.
Neither our historical financial information nor our pro forma financial
information may be representative of our results as a separate company
The historical financial information included in this information
statement may not be representative of our results of operations, financial
position and cash flows had we operated as a separate, stand-alone entity during
the periods presented or of our results of operations, financial position and
cash flows in the future. This is because:
o in preparing this information, we have made adjustments and
allocations because Ford did not account for us as, and we were not
operated as, a stand-alone business for all periods presented;
o the information does not reflect many changes that will occur in our
funding and operations as a result of our spin-off from Ford;
o a pricing letter we have entered into with Ford requires a one-time 5%
price reduction on products that we were supplying to Ford as of
January 1, 2000 based on a market pricing review conducted by Ford and
us; the pricing letter also requires productivity price adjustments in
each of 2000, 2001, 2002 and 2003; we and Ford have agreed on a 3.5%
productivity price reduction for 2000 on such products, which is
consistent with (i) price reductions between Visteon and Ford in prior
years and (ii) the amount of annual productivity improvement that Ford
generally expects from its other Tier 1 suppliers; although the
pricing letter contains a methodology for calculating price
adjustments in 2001, 2002 and 2003 (see "Relationship with Ford --
Supply Agreement and Related Pricing Letter"), we cannot predict what
future annual price reductions we will be required to provide to Ford;
and
o we are unable to predict the level of future price reductions that may
be imposed upon us by non-Ford vehicle manufacturers.
We cannot assure you that the adjustments and allocations we have made in
preparing our historical consolidated financial statements appropriately
reflect our operations during those periods as if we had in fact operated as a
stand-alone entity or what the actual effect of our spin-off from Ford will be.
12
<PAGE>
Most of our management may have conflicts of interest because of their
ownership of Ford stock
Most of our management own Ford stock and/or options to purchase Ford
stock because of their current or prior relationships with Ford. This ownership
could create, or appear to create, potential conflicts of interest when our
executive officers are faced with decisions that could have different
implications for our company and Ford. Our board will consist of a majority of
directors who are independent from both Ford and Visteon. See "Management."
Provisions in our supply agreement with Ford could delay or prevent a change
in control of our company, including an acquisition of our company, which
could adversely affect the price of our common stock
Our supply agreement with Ford may be terminated by Ford if 35% or more of
our company becomes owned or controlled by a competitor of Ford in the business
of manufacturing automotive vehicles. Termination of the supply agreement, upon
which we rely for a substantial portion of our future sales, would likely have a
material adverse effect on our company. We have also entered into an agreement
providing for us to indemnify Ford for tax liabilities arising out of a change
in control of Visteon that occurs within two years of the spin-off. A change in
control could subject Ford to material tax liabilities in connection with the
spin-off; our indemnification of Ford for these amounts would likely be material
to our financial condition and results of operations.
Risk Factors Relating to Our Business
We are dependent on Ford's continued success and on maintaining our current
business and winning future business with Ford
We are highly dependent on Ford as our largest customer. Ford accounted
for about 88%, 92% and 93% of our total sales in 1999, 1998 and 1997,
respectively. We expect that Ford will continue to be our largest customer for
the foreseeable future, and, therefore, for the foreseeable future any changes
in Ford's sales volume will have a significant impact on our sales volumes. In
addition, our ability to realize future sales to Ford is subject to a number of
risks. These risks include uncertainties relating to our business under the
supply agreement that we have entered into with Ford. In addition, the
uncertainties that we identify in this information statement as being generally
applicable to supplier-customer relationships in our industry will be heightened
in the case of our relationship with Ford because it is our largest customer.
Accordingly, we cannot assure you as to the amount of our future business with
Ford.
Under our supply agreement with Ford, all of our existing purchase orders
with Ford as of January 1, 2000 will remain in effect at least through the end
of 2003, subject to Ford's right to terminate any particular purchase order if
we fail to maintain certain performance standards. The supply agreement also
requires Ford to offer us the opportunity to supply on competitive terms the
first replacement cycle of existing product programs. When bidding on this
replacement business, other suppliers' bids may include offers of substantial
price reductions to Ford on these products or new technologies that Visteon does
not offer. To the extent we cannot match these terms or product offerings, we
may not win the replacement business.
Our gross margins will be adversely affected if we are unable to offset all of
the price reductions we must provide to Ford or other customers
VMs are applying substantial and continuing pressure on suppliers like
Visteon to reduce the price of suppliers' products. As a result, we are forced
to reduce prices both in the initial bidding process and during the term of the
contractual arrangements. During the terms of the current UAW contract and the
next two renewals, we will be restricted in our ability to significantly reduce
our UAW labor costs from period-to-period. We cannot assure you that we will be
able to generate cost savings and operational improvements in the future
sufficient to offset required price reductions and price reductions necessary to
win additional business. As a result, our gross margins could be adversely
affected. Alternatively, if we are unwilling to reduce our margins to win
business, our products may not be priced competitively, and this may reduce our
sales and have an adverse effect on our results of operations.
13
<PAGE>
VMs often seek further price reductions on existing contracts with a
supplier in the context of awarding new business to that supplier. In addition,
our ability to pass increased raw material costs on to our customers is limited,
with cost recovery generally less than 100% and often on a delayed basis.
Our business may be adversely impacted by work stoppages at our facilities or
those of our principal customers
We may experience work stoppages at our facilities. As of December 31,
1999, about 75% of our hourly workforce was represented by about 29 unions,
including the UAW, which is our largest union. It is likely that our hourly
workforce will remain highly unionized for the foreseeable future. A work
stoppage at one or more of our plants may have a material adverse effect on our
business.
If one or more of our customers, particularly Ford, experiences a material
work stoppage, that customer may halt or limit purchases of our products. This
could cause us to shutdown production facilities relating to those products,
which could have a material adverse effect on our business.
We may be unable to realize our business strategy of improving our operating
performance
We continue to implement several important strategic initiatives designed
to improve our operating performance. We cannot assure you that we will be able
to successfully implement or realize the expected benefits of any of these
initiatives or that we will be able to sustain any improvements we have made. In
addition, the Ford UAW agreement may limit our ability to improve our operating
performance. If we are not successful at these initiatives, this would have a
material adverse effect on our business, particularly because we rely on these
initiatives to offset pricing pressures from our customers. These initiatives
are subject in many cases to participation by labor unions and other third
parties, including Ford.
We may incur unrecovered costs relating to engineering expenses and may incur
additional substantial costs for new tooling expenses
As VMs have looked to suppliers to bear increasing responsibility for the
design, engineering and manufacture of automotive systems, they have
systematically shifted both financial risk and potential liability associated
with those systems to the suppliers as well. This trend is likely to continue,
and is most evident in the areas of engineering cost reimbursement, sharing of
product warranty and recall costs and product liability. More recently, VMs have
discussed the possibility of also shifting to suppliers costs and risks related
to program tooling.
New vehicle programs require significant up-front investments in
engineering, design and tooling. Historically, these investments were fully
reimbursed by the VM. Over the past few years, VMs have moved away from lump sum
reimbursement of engineering expenses toward reimbursement of such expenses on a
per component, or piece price, basis. Because this form of reimbursement
requires the supplier to recoup its investment in engineering and tooling
through anticipated component sales, piece price reimbursement has the effect of
delaying reimbursement and shifting volume risk associated with the vehicle
program from the VM to the supplier.
Recently, VMs have begun discussions with their suppliers to similarly
shift costs of program tooling. Traditionally, VMs have fully reimbursed
suppliers for, and retained ownership of, all tooling relating to their vehicle
programs. The VMs' strategy to transfer ownership and costs of tooling of
suppliers represents a material change in the way suppliers have historically
conducted business with the VMs. Specifically, Ford has informed us that it
desires to cease reimbursing us (as well as other Tier 1 suppliers) for tooling
in connection with products produced for Ford. With respect to other Ford-owned
tooling, Ford has agreed that we will be treated in accordance with Ford's
global terms and conditions, to be treated by Ford as any other third party
supplier, and in accordance with customary practice. To the extent that we are
required to accept revised tooling terms, we will, as in the case of engineering
expenses, assume volume and cancellation risks associated with that investment.
Furthermore, while we would hope to recover our tooling investment through
component piece pricing over the life of the program, we have no guarantee that
this piece price reimbursement formula will properly reflect our cost of capital
over the life of the
14
<PAGE>
program. The need to finance this additional tooling could have a material
impact on our liquidity. In addition, we would be required to amortize the cost
of this tooling over a relatively short time, generally three to five years.
Our business is highly cyclical and would be adversely impacted by a downturn
in economic conditions
Almost all of our business is directly related to automotive sales and
production by our customers, which are highly cyclical and depend on general
economic conditions and other factors, including consumer spending and
preferences. Because a large portion of our costs are fixed, as opposed to
variable, we are particularly susceptible to cyclical declines in demand for our
products. The global economy, in particular the United States economy, where the
majority of our sales are concentrated, has been expanding at a rapid rate in
recent years. This expansion has created increased consumer income and wealth,
which generally leads to increased automobile purchases. If the economy in any
of our major markets were to experience a slowdown or a downturn, this would
likely result in reduced demand for automobiles and cause our customers to
reduce their automotive production, which would have a material adverse effect
on our business.
We may be unable to compete favorably in the highly competitive automotive
parts industry
We compete with a number of automotive parts suppliers that produce
systems, modules and components for sale to VMs and in the aftermarket as
replacement parts. Most of our competitors have lower cost structures,
particularly with respect to wages and benefits, than our company. They may also
be more able to close underperforming facilities or otherwise rationalize their
operations. In addition, there is no contractual prohibition preventing Ford
from competing with us in the future.
Recently, Ford, General Motors Corporation and DaimlerChrysler Corporation
announced an initiative to establish an Internet-based marketplace for most, if
not all, of their purchases. It is likely that other major VMs will join this
marketplace or announce competing initiatives. Although relatively little
automotive parts purchasing is currently conducted via the Internet, it is
likely that it will increase in the future. The VMs believe that these
initiatives will lead to increased competition among automotive parts suppliers.
If these or other initiatives do increase competition and lower the prices VMs
are willing to pay for automotive parts, this could have a significant material
adverse effect on our business and results of operations. We cannot assure you
that we will be able to compete favorably or that increased competition in our
markets will not have a material adverse effect on our business.
We may be unable to realize all of the sales represented by our awarded
business
The realization of future sales from awarded business with any VM is
subject to a number of important risks and uncertainties, including the
following:
o the volume of vehicle models and specific vehicle options actually
produced by the VM which, in turn, are subject to a number of
significant risks outlined below;
o the determination by the VM to delay or cancel a particular vehicle
program for which it has sourced business with the supplier or to
change the option mix within the program;
o the VM's contractual right to replace the supplier throughout the
duration of the contract for a variety of reasons, including if the
supplier does not remain competitive in terms of quality, service,
design, technology and, in some circumstances, price;
o the VM's contractual right to terminate the contract altogether;
although this right varies by contract, some contracts, generally
shorter-term purchase orders, are terminable by the VM at any time for
any reason;
o the VM's decision to redesign a vehicle model and not to select the
initial supplier to supply any or all of the same parts it was
providing on the previous vehicle model; and
15
<PAGE>
o product pricing, including price reductions on existing contracts
negotiated in connection with the VM's sourcing of new business with
the supplier.
The actual production volumes and option mix of vehicles produced by VM
customers depend on a number of factors that are beyond a supplier's control.
These include:
o general economic conditions;
o consumer preferences for particular vehicles or vehicle features;
o labor difficulties or work stoppages and any related recoveries of
production; and
o capital planning and other factors specific to a particular VM.
Economic and other conditions in international markets may affect demand for
our products and our results of operations
We have substantial manufacturing operations in different regions of the
world. In addition, we sell our products to vehicle manufacturers and other
customers around the world, and the automobiles in which our products are
assembled are sold in different regions of the world. In 1999, we derived about
23.5% of our sales from international operations. Economic and other conditions
may vary from region to region. Operations in international markets also present
increased risks, such as:
o currency exchange fluctuations, which may directly affect our
operations or result in currency translation impacts on our financial
results;
o inflationary economies;
o in some countries where we operate, economic and monetary conditions
or legal restrictions could affect our ability to convert our earnings
to United States dollars or to remove funds from those countries;
o tax consequences resulting from repatriating funds to the United
States from other countries;
o the need to comply with a variety of foreign laws and regulations; and
o potential difficulties in enforcing intellectual property rights in
certain foreign countries.
We cannot assure you that we will be successful in managing these risks.
An important part of our strategy is to be able to supply products worldwide for
vehicle manufacturers' global platforms; this may increase our risks. If we are
not successful in managing these risks, this could have a material adverse
effect on our international operations or our business as a whole.
We may incur material losses and costs as a result of product liability claims
that may be brought against us, or as a result of product recalls
We face an inherent business risk of exposure to product liability claims
in the event that the failure of our products results, or is alleged to result,
in property damage, bodily injury and/or death. We cannot assure you that we
will not experience any material product liability losses in the future or that
we will not incur significant costs to defend these claims. We are currently
covered by Ford's insurance against product liability claims; this coverage will
continue until the spin-off. We expect to purchase product liability insurance
coverage, to be effective at the time the Ford coverage ceases. However, we
cannot assure you that this coverage will be adequate for liabilities ultimately
incurred or that it will continue to be available on terms acceptable to us. In
addition, if any of our products are, or are alleged to be, defective, we may be
required to participate in a recall involving those products. Each VM has its
own policy regarding product recalls and other product liability actions
relating to its suppliers.
16
<PAGE>
However, as suppliers become more integrally involved in the vehicle design
process and assume more vehicle assembly functions, VMs are increasingly looking
to their suppliers for contribution when faced with product recalls or product
liability claims. A successful claim brought against us in excess of our
available insurance coverage or a requirement to participate in a product recall
may have a material adverse effect on our business.
In connection with our spin-off from Ford, we will have responsibility for
product liability claims and product recalls involving our products used in 1997
and later model year Ford vehicles as described in "Relationship with Ford --
Master Transfer Agreement -- Division of Liabilities."
We may incur material product warranty costs
Currently, VMs customarily absorb the cost of warranty claims arising
under and during the specific base warranty offered to consumers. For vehicles
sold in the United States, this base warranty period, depending on the vehicle
model, generally ranges from 3 years or 36,000 miles to 5 years or 60,000 miles,
in each case, whichever comes first. Under its agreements with VMs, Visteon is
responsible for claims arising from abnormal base warranty experience traceable
to specific components or systems manufactured, supplied or assembled by
Visteon. Abnormal base warranty claims are those that are in excess of those
projected by VMs. These projections are customarily based on experience with
earlier product models or contemporaneous experience with a similar product type
supplied by another supplier. In some cases, we and the VM may agree on a
sharing arrangement with respect to abnormal warranty claims. We do not have
increased exposure for extended warranty coverage purchased by consumers.
VMs are increasingly requiring their outside suppliers to guarantee or
warrant their products and to bear the costs of repair and replacement of those
products under new vehicle base warranties. Because this is a new trend in our
industry and we have only limited experience in this regard, we cannot assure
you that our costs associated with providing product warranties will not be
material.
In connection with our spin-off from Ford, we will have responsibility for
warranty claims involving our products used in 1997 and later model year Ford
vehicles as described in "Relationship with Ford -- Master Transfer Agreement --
Division of Liabilities."
We may be adversely affected by environmental liabilities or environmental and
safety regulations
We are subject to the requirements of federal, state and local
environmental and occupational safety and health laws and regulations in the
United States and other countries. In addition to the sites that have been
transferred to us and our operation of those sites, we are responsible or may be
responsible for remediation at several third party disposal or treatment
facilities to which we are alleged to have contributed wastes or which we have
agreed to remediate pursuant to the superfund regulations. We cannot assure you
that we have been or will be at all times in complete compliance with all of
these requirements or that we will not incur material costs or liabilities in
connection with these requirements or in connection with remediation at
Visteon-owned sites or third party sites where it has been alleged that Visteon
has liability, in excess of amounts we have reserved. In addition, these
requirements are complex, change frequently and have tended to become more
stringent over time, and we cannot assure you that these requirements will not
change in the future in a manner that could have a material adverse effect on
our business. We have made and will continue to make capital and other
expenditures to comply with environmental requirements.
Risk Factor Relating to Securities Markets
Our stock price may fluctuate significantly following the spin-off
Before _______, 2000, there was no public market for our common stock. On
that date, trading of shares of our common stock on a "when issued" basis began.
Our common stock trades on the New York Stock Exchange under the symbol "VC."
17
<PAGE>
After the spin-off, trading prices for our common stock will be
established by the public markets - we have not established a price for the
common stock. An active trading market may not develop or be sustained in the
future.
We cannot predict the prices at which our common stock may trade after the
spin-off. The market price of our common stock may fluctuate significantly due
to a number of factors, some of which may be beyond our control, including:
o our business profile may not fit the investment objectives of Ford
stockholders, causing them to sell our shares after the spin-off; this
is particularly true of Ford stockholders who hold Ford stock based on
its inclusion in the S&P 500 Index - we have been advised that it is
unlikely that our common stock will be included in the S&P 500 Index
o actual or anticipated fluctuations in our operating results
o changes in earnings estimated by securities analysts or our ability to
meet those estimates
o the operating and stock price performance of other comparable
companies
o overall market fluctuations
o developments in and publicity regarding the automotive industry, the
automotive parts industry or any of our significant customers,
particularly Ford
o economic conditions
In particular, the realization of any of the risks described in these
"Risk Factors" could have a significant and adverse impact on the market price
of our common stock. In addition, the stock market in general has experienced
extreme volatility that has often been unrelated to the operating performance of
particular companies. These broad market fluctuations may adversely affect the
trading price of our common stock, regardless of our actual performance.
18
<PAGE>
SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS
We have made forward-looking statements in this information statement,
including the sections entitled "Summary," "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business," that are based on our management's beliefs and assumptions and on
information currently available to our management. Forward-looking statements
include the information concerning our possible or assumed future results of
operations, business strategies, financing plans, competitive position,
potential growth opportunities, potential operating performance improvements,
benefits resulting from our spin-off from Ford, the effects of competition and
the effects of future legislation or regulations. Forward-looking statements
include all statements that are not historical facts and can be identified by
the use of forward-looking terminology such as the words "believe," "expect,"
"plan," "intend," "anticipate," "estimate," "predict," "potential," "continue,"
"may," "will," "should" or the negative of these terms or similar expressions.
Forward-looking statements involve risks, uncertainties and assumptions.
Actual results may differ materially from those expressed in these
forward-looking statements. You should not put undue reliance on any
forward-looking statements. We do not have any intention or obligation to update
forward-looking statements after we distribute this information statement.
The risk factors discussed in "Risk Factors" could cause our results to
differ materially from those expressed in forward-looking statements. There may
also be other risks that we are unable to predict at this time.
19
<PAGE>
THE SPIN-OFF
Reasons for the Spin-Off
In January of this year, Ford announced as one of its milestones the goal
for Visteon to achieve independence. Ford has concluded that the spin-off is in
the best interests of Ford, the Visteon business and Ford stockholders, because:
o as an independent company, Visteon will be better able to pursue
business with non-Ford customers
o it will reduce Ford's automotive assets and capital requirements
o it will provide Visteon's management increased strategic flexibility
and decision-making power, including the ability to manage Visteon's
product portfolio over the long-term based on Visteon's own strategic
objectives
o having two separate public companies will enable the financial markets
to evaluate each company more effectively, thereby maximizing
stockholder value over the long term for both Ford and Visteon
o separate management and ownership structures for Visteon will provide
incentives to Visteon's management and direct accountability to public
investors
o a spin-off allows Visteon to achieve independence in the shortest
possible time
The Separation of Visteon from Ford
We are currently a wholly-owned subsidiary of Ford. We were incorporated
in Delaware as of January 1, 2000 in preparation for our spin-off from Ford.
Ford has contributed or otherwise transferred to us generally all of the assets,
and we have assumed generally all of the liabilities, comprising the Visteon
business. We call this transfer of assets and assumption of liabilities the
"separation." We and Ford have agreed to transfer legal title to any remaining
assets and any remaining liabilities of the Visteon business not transferred
prior to the spin-off, most of which are foreign assets and liabilities subject
to regulatory and other delays, as soon as practicable. In the interim, we will
operate and receive the economic benefits of (and bear the economic burdens of)
these assets. These assets are not, individually or in the aggregate, material
to our company. The information included in this information statement,
including our consolidated financial statements, assumes the completion of all
of these transfers.
Description of the Spin-Off
Ford will effect the spin-off on or about ____________, 2000 by
distributing on a pro rata basis all the shares of Visteon common stock that it
owns (__________ shares) to holders of record of Ford common or Class B stock at
the close of business on ___________, 2000, the record date for the spin-off.
The shares of our common stock will be validly issued, fully paid and
nonassessable, and the holders of these shares will not be entitled to
preemptive rights. See "Description of Capital Stock."
Based on the total number of shares of Ford common and Class B stock
outstanding at the close of business on the record date for the spin-off
(________ shares), each record holder of Ford common or Class B stock will
receive _____ shares of our common stock for each share of Ford common or Class
B stock held at the close of business on the record date.
As part of the spin-off, we will be adopting a book-entry share transfer
and registration system for our common stock. Instead of receiving physical
share certificates, registered holders of _______ or more shares of Ford common
or Class B stock on the record date, will have their shares of Visteon common
stock distributed on the date of the spin-off credited to book-entry accounts
established for them by EquiServe. EquiServe will mail an account
20
<PAGE>
statement to each such registered holder stating the number of shares of Visteon
common stock credited to the holder's account. After the spin-off, any holder
may request:
o a transfer of all or a portion of their Visteon shares to a brokerage
or other account
o receipt of one or more physical share certificates representing their
Visteon shares
Registered holders of fewer than ______ shares of Ford common and Class B
stock on the record date, which would entitle them to receive less than one
whole share of Visteon common stock, will receive cash in lieu of fractional
shares. EquiServe will aggregate all of these fractional shares and sell them in
the open market at then prevailing prices on behalf of these holders. These
holders will receive cash payments in the amount of their proportionate share of
the total sale proceeds from the sale of the aggregated fractional shares, based
upon the average gross selling price per share of Visteon common stock. See
"--Material Federal Income Tax Consequences of the Spin-Off." Ford will bear the
cost of commissions incurred in connection with these sales. We anticipate that
these sales will occur as soon after the date of the spin-off as practicable.
None of Ford, Visteon or EquiServe will guarantee any minimum sale price for the
fractional shares of Visteon common stock. Neither we nor Ford will pay any
interest on the proceeds from the sale of fractional shares.
If you become a registered holder of our common stock in connection with
the spin-off and you prefer to receive one or more physical share certificates
representing your shareholding of our common stock, you will receive one or more
certificates for all whole shares of Visteon common stock and, if applicable,
cash for any fractional interest. EquiServe will mail you certificates
representing your proportionate number of whole shares of our common stock as
soon after the date of request as practicable.
For those holders of Ford common or Class B stock who hold their shares
through a broker, bank or other nominee, EquiServe will credit the shares of our
common stock to the accounts of those nominees who are registered holders, who,
in turn, will credit their customers' accounts with our common stock. We and
Ford anticipate that brokers, banks and other nominees will generally credit
their customers' accounts with Visteon common stock on or shortly after
___________, 2000.
Material Federal Income Tax Consequences of the Spin-Off
In the opinion of Davis Polk & Wardwell the following is an accurate
summary of the material U.S. federal income tax consequences relating to
Visteon's spin-off from Ford. This summary is based on the Internal Revenue Code
of 1986, as amended (the "Code"), the Treasury regulations promulgated
thereunder, and interpretations of the Code and the Treasury regulations by the
courts and the IRS, in effect as of the date of this information statement. This
summary does not discuss all the tax considerations that may be relevant to Ford
stockholders in light of their particular circumstances, nor does it address the
consequences to Ford stockholders subject to special treatment under the U.S.
federal income tax laws (such as tax-exempt entities, non-resident alien
individuals and foreign corporations, foreign trusts and estates and
beneficiaries thereof). In addition, this summary does not address the U.S.
federal income tax consequences to those Ford stockholders who do not hold their
Ford common or Class B stock as a capital asset. Finally, this summary does not
address any state, local or foreign tax consequences. Ford stockholders are
urged to consult their own tax advisors as to the particular tax consequences to
them of the spin-off and of the ownership and disposition of Visteon common
stock, including the application of state, local and foreign tax laws and any
changes in U.S. federal tax laws that occur after the date of this information
statement.
For U.S. federal income tax purposes, the spin-off should qualify under
Section 355 of the Code as a tax-free distribution to Ford stockholders (except
with respect to cash received in lieu of fractional Visteon shares) and should
be tax-free to Ford. Assuming the spin-off qualifies under Section 355 of the
Code as a tax free distribution: (i) no gain or loss will be recognized by (and
no amount will be included in the income of) Ford stockholders upon their
receipt of shares of Visteon common stock in the spin-off; (ii) any cash
received in lieu of fractional share interests in Visteon will give rise to gain
or loss equal to the difference between the amount of cash received and the tax
basis allocable to the fractional share interests (determined as described
below), and such gain or loss will be capital gain or loss if the Ford stock on
which the distribution is made is held as a capital asset on the date of the
21
<PAGE>
spin-off; (iii) the aggregate basis of the Ford stock and the Visteon common
stock in the hands of each Ford stockholder after the spin-off (including any
fractional interests to which the stockholder would be entitled) will equal the
aggregate basis of Ford stock held by the stockholder immediately before the
spin-off, allocated between the Ford stock and the Visteon common stock in
proportion to the relative fair market value of each on the date of the
spin-off; and (iv) the holding period of the Visteon common stock received by
each Ford stockholder will include the period during which the stockholder has
held the Ford stock on which the distribution is made, provided that the Ford
stock is held as a capital asset on the date of the spin-off.
U.S. Treasury regulations require each stockholder that receives stock in
a spin-off to attach to the stockholder's U.S. federal income tax return for the
year in which the spin-off occurs a detailed statement setting forth certain
information relating to the tax-free nature of the spin-off. Shortly after the
spin-off, Ford will provide stockholders who will receive Visteon shares in the
spin-off with the information necessary to comply with that requirement.
You should consult your tax adviser regarding the particular federal, foreign,
state and local tax consequences of the spin-off to you.
For a description of the agreements under which we and Ford have provided
for tax sharing and other tax matters, see "Relationship with Ford--Tax Sharing
Agreement."
22
<PAGE>
CAPITALIZATION
Set forth below is the pro forma capitalization of Visteon as
of December 31, 1999, adjusted to give effect to the spin-off and the terms of
our separation from Ford, as more fully described in "Unaudited Pro Forma
Condensed Consolidated Financial Statements" beginning on page 26.
Pro Forma
At December 31,
1999
----------------
(in millions)
Cash and cash equivalents.......................... $ 700
=========
Debt payable within one year....................... $ 764
Long-term debt..................................... 1,236
---------
Total debt.................................... $ 2,000
Common stock and additional paid in capital........ 2,383
Accumulated other comprehensive income............. (67)
---------
Total equity.................................. 2,316
---------
Total capitalization..................... $ 4,316
=========
DIVIDEND POLICY
Our board of directors currently intends to declare quarterly dividends on
our common stock, with the first quarterly dividend expected to be $____ per
share, or a rate of $___ per share annually, declared and paid in the _____
quarter of 2000. Our board is free to change our dividend practices at any time,
including to increase, decrease or eliminate our dividend. The board will base
its decisions on, among other things, general business conditions, our financial
results, contractual, legal and regulatory restrictions regarding dividend
payments by our subsidiaries and any other factors the board may consider to be
relevant.
23
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data reflect the historical
results of operations and cash flows that were part of the Visteon business
during each respective period. The historical consolidated statement of income
data set forth below do not reflect many significant changes that will occur in
the operations and funding of our company as a result of our spin-off from Ford.
The historical consolidated balance sheet data set forth below reflect the
assets and liabilities that were or are expected to be transferred to our
company in accordance with the master transfer agreement.
The selected consolidated financial data should be read in conjunction
with, and are qualified by reference to, "Unaudited Pro Forma Condensed
Consolidated Financial Statements," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements and accompanying notes included elsewhere in this information
statement. The consolidated statement of income and cash flow data set forth
below for each of the three years in the period ended December 31, 1999, and the
consolidated balance sheet data as of December 31, 1998 and 1999, are derived
from the audited consolidated financial statements included elsewhere in this
information statement, and should be read in conjunction with those consolidated
financial statements and the accompanying notes. The consolidated statement of
income and cash flow data for the year ended December 31, 1996 and the
consolidated balance sheet data as of December 31, 1997 are derived from, and
qualified by reference to, audited consolidated financial statements which are
not included in this information statement. The consolidated statement of income
and cash flow data for the year ended December 31, 1995 and the consolidated
balance sheet data as of December 31, 1995 and 1996 are derived from unaudited
consolidated financial statements not included in this information statement,
which in our opinion include all adjustments necessary for a fair presentation
of the results for those periods.
The financial information presented below may not reflect what our results
of operations, financial position and cash flows would have been had we operated
as a separate, stand-alone entity during the periods presented or what our
results of operations, financial position and cash flows will be in the future.
24
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ---------- ---------- ------------
(in millions, except per share amounts, percentages and as noted)
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Sales.......................................... $ 19,366 $ 17,762 $ 17,220 $ 16,497 $ 15,115
Costs and expenses:
Costs of sales............................... 17,503 15,969 15,794 15,392 14,359
Selling, administrative and other
expenses..................................... 674 659 575 485 483
--------- --------- --------- --------- ---------
Total costs and expenses.................. 18,177 16,628 16,369 15,877 14,842
--------- --------- --------- --------- ---------
Operating income............................... 1,189 1,134 851 620 273
Interest income................................ 79 38 17 16 11
--------- --------- --------- --------- ---------
Interest expense............................... 143 82 82 79 69
Net interest expense...................... (64) (44) (65) (63) (58)
Equity in net income of affiliated
companies.................................... 47 26 29 47 30
--------- --------- --------- --------- ---------
Income before income taxes..................... 1,172 1,116 815 604 245
Provision for income taxes..................... 422 416 305 223 86
--------- --------- --------- --------- ---------
Income before minority interests............... 750 700 510 381 159
Minority interests in net income (loss) of
subsidiaries................................. 15 (3) (1) (3) (5)
--------- --------- --------- --------- ---------
Net income..................................... $ 735 $ 703 $ 511 $ 384 $ 164
========= ========= ========= ========= =========
Basic and diluted earnings per share based on
____________ shares outstanding.............. $ $ $ $ $
Statement of Cash Flows Data:
Cash provided by operating activities.......... $ 2,482 $ 1,376 $ 1,411 $ 1,178 n/a
Cash (used in) investing activities............ (1,453) (940) (943) (996) n/a
Cash provided by (used in) financing activities 290 (234) (251) (189) n/a
Other Financial Data:
Depreciation and amortization.................. $ 651 $ 565 $ 590 510 $ 459
EBITDA......................................... 1,840 1,699 1,441 1,130 732
Capital spending............................... 876 861 917 969 n/a
Capital spending as a percentage of revenue.... 4.5% 4.8% 5.3% 5.9% n/a
After tax return on:
Sales........................................ 3.9% 3.9% 3.0% 2.3% 1.1%
Average assets............................... 6.9% 7.8% 6.2% 4.9% n/a
Sales per employee (in thousands).............. $ 244 $ 235 $ 237 n/a n/a
</TABLE>
<TABLE>
<CAPTION>
At December 31,
-----------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------ ------- ------
(in millions)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets....... $12,449 $9,373 $8,471 $7,967 $7,510
Total debt......... 2,319 1,125 1,136 1,136 1,140
Total equity....... 1,499 1,655 1,204 977 802
</TABLE>
"EBITDA" is defined as income before provision for interest expense and
interest income, income taxes, depreciation and amortization, equity in net
income of affiliated companies and minority interests. EBITDA is not presented
as an alternative measure of operating results or cash flow from operations, as
determined in accordance with generally accepted accounting principles, but is
presented because we believe it is a widely accepted indicator of our ability to
incur and service debt. EBITDA does not give effect to cash used for debt
service requirements and thus does not reflect funds available for dividends,
reinvestment or other discretionary uses. In addition, EBITDA as presented in
this information statement may not be comparable to similarly titled measures
reported by other companies.
25
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
These unaudited pro forma condensed consolidated financial statements of
Visteon were derived from the application of pro forma adjustments to our
consolidated financial statements and give effect to the terms related to our
separation and spin-off from Ford. The unaudited pro forma condensed
consolidated statement of income for the year ended December 31, 1999 has been
prepared as if the spin-off and our separation from Ford had occurred as of
January 1, 1999. The unaudited pro forma condensed consolidated balance sheet as
of December 31, 1999 has been prepared as if the spin-off and our separation
from Ford had occurred as of December 31, 1999.
The following unaudited pro forma condensed consolidated income statement
does not purport to be indicative of what our operations would have been had the
spin-off and our separation from Ford taken place on the date indicated. In
addition, the following unaudited pro forma condensed consolidated balance sheet
does not purport to be representative of what our financial position would have
been had the spin-off and our separation from Ford taken place on the date
indicated.
These unaudited pro forma condensed consolidated financial statements
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our audited historical
financial statements and the related notes included elsewhere in this
information statement.
26
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF INCOME
For the Year Ended December 31, 1999
(in millions, except per share amounts)
<TABLE>
<CAPTION>
Historical Adjustments Notes Pro Forma
---------- ----------- ----- ---------
<S> <C> <C> <C> <C>
Sales ............................................................ $ 19,366 $ (690) (1) $ 18,676
Costs and expenses:
Costs of sales ............................................. 17,503 (146) (2)
4 (3) 17,361
Selling, administrative and other expenses ................. 674 8 (3)
94 (4) 776
-------- -------- --------
Total costs and expenses ............................... 18,177 (40) 18,137
Operating Income ................................................. 1,189 (650) 539
Interest income .................................................. 79 (44) (5) 35
Interest expense ................................................. 143 17 (6) 160
-------- -------- --------
Net interest expense ....................................... (64) (61) (125)
Equity in net income of affiliated companies ..................... 47 -- 47
-------- -------- --------
Income before income taxes ....................................... 1,172 (711) 461
Provision for income taxes ....................................... 422 (267) (7) 155
-------- -------- --------
Income before minority interests ................................. 750 (444) 306
Minority interests in net income of subsidiaries ................. 15 -- 15
-------- -------- --------
Net income ...................................................... $ 735 $ (444) $ 291
======== ======== ========
Basic and diluted earnings per share based on __________ shares
outstanding .................................................... $ $
======== ========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.
27
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET DATA
As of December 31, 1999
(in millions)
<TABLE>
<CAPTION>
Historical Adjustments Notes Pro Forma
---------- ----------- ----- ---------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents ......................... $ 1,849 $ (1,182) (8)
(812) (9)
1,592 (10)
(747) (11) $ 700
Accounts and notes receivable - Ford and affiliates 1,578 286 (8) 1,864
Accounts receivable - other customers ............. 613 89 (8) 702
-------- -------- --------
Total receivables ................................ 2,191 375 2,566
Inventories ....................................... 751 -- 751
Deferred income taxes ............................. 110 (30) (15) 80
Prepaid expenses and other current assets ......... 295 (174) (12)
(19) (14) 102
-------- -------- --------
Total current assets ............................. 5,196 (997) 4,199
Equity in net assets of affiliated companies ...... 205 -- 205
Net property ...................................... 5,789 -- 5,789
Deferred income taxes ............................. 362 (312) (15) 50
Other assets ...................................... 897 (333) (12)
(69) (14) 495
-------- -------- --------
Total assets ..................................... $ 12,449 $ (1,711) $ 10,738
======== ======== ========
LIABILITIES AND EQUITY
Trade payables - Ford and affiliates .............. $ 1,414 $ (807) (8) $ 607
Trade payables - other suppliers .................. 1,736 -- 1,736
-------- -------- --------
Total trade payables ............................. 3,150 (807) 2,343
Accrued liabilities ............................... 1,211 (87) (14) 1,124
Income taxes payable .............................. 153 -- 153
Debt payable within one year - Ford and affiliates 697 (697) (9) --
Debt payable within one year - other .............. 264 500 (10) 764
-------- -------- --------
Total debt payable within one year ............... 961 (197) 764
-------- -------- --------
Total current liabilities ........................ 5,475 (1,091) 4,384
Long-term debt - Ford and affiliates .............. 1,214 (115) (9)
(1,099) (13) --
Long-term debt - other ............................ 144 1,092 (10) 1,236
-------- -------- --------
Total long-term debt ............................. 1,358 (122) 1,236
Other liabilities ................................. 3,964 (1,478) (14) 2,486
Deferred income taxes ............................. 153 163 (15) 316
-------- -------- --------
Total liabilities ................................ 10,950 (2,528) 8,422
Equity
Common stock and additional paid in capital ....... -- 2,383 (16) 2,383
Ford's net investment ............................. 1,566 (747) (11)
(507) (12)
1,099 (13)
1,477 (14)
(505) (15)
(2,383) (16) --
Accumulated other comprehensive income ............ (67) -- (67)
-------- -------- --------
Total equity ..................................... 1,499 817 2,316
-------- -------- --------
Total liabilities and equity ..................... $ 12,449 $ (1,711) $ 10,738
======== ======== ========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
28
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following pro forma adjustments were made to reflect the terms related
to our separation and spin-off from Ford:
(1) Reflects a one-time 5% price reduction, effective as of January 1, 2000, on
products that Visteon was supplying to Ford on that date, based on a market
pricing review conducted by Ford and Visteon, as described in "Relationship
with Ford."
(2) Reflects an adjustment to profit sharing expense incurred in 1999. As
described in "Relationship with Ford," Visteon will reimburse Ford for
wage, benefit and other costs incurred by Ford related to
Visteon-designated employees of Ford covered by the Ford UAW agreement.
However, Visteon's liability for profit sharing based on Ford's profits is
limited to $50 million per year in each of 2000-2004.
(3) Reflects the estimated incremental expense associated with the agreements
between Visteon and Ford regarding employee benefit obligations, as
described in "Relationship with Ford" and note 14 below:
<TABLE>
<CAPTION>
Year Ended
December 31,
1999
------------------
(in millions)
<S> <C>
Pension-related costs............................... $ 110
Postretirement benefit other than pensions.......... (98)
-------
Total.............................................. $ 12
=======
Portion attributable to:
Costs of sales..................................... $ 4
Selling, administrative and other expenses......... 8
-------
Total.............................................. $ 12
=======
</TABLE>
(4) Reflects an estimate of the net incremental selling, administrative and
other expenses associated with operating Visteon as a stand-alone company.
This estimate mainly represents additional costs for personnel and
purchased services such as information technology, human resource
administration, legal and corporate communications as well as incremental
insurance and risk management costs.
Although this adjustment is based upon available information and
assumptions that management believes are reasonable, Visteon may incur
greater than expected selling, administrative and other expenses in
connection with operating as a stand-alone company.
One-time expenses related to Visteon's spin-off from Ford are expected to
total $60 million in 2000. Since these expenses are non-recurring, they
have not been included in this pro forma adjustment.
(5) Reflects lower interest income due to reductions in Visteon's pro forma
cash balance, assuming a 5% annual rate of return after the spin-off from
Ford.
(6) Reflects increased interest expense associated with higher average debt
levels after the spin-off from Ford. Interest expense has been calculated
using an 8% annual interest rate. A 1/8% change to the annual interest rate
would change interest expense by about $2.5 million.
(7) Reflects the tax effect of the pro forma adjustments using our historical
effective tax rate of 37.5%, which is our estimate of Visteon's stand-alone
effective tax rate.
(8) Reflects (i) an $89 million increase in accounts receivable resulting from
the discontinuance of sale of receivables to Ford Motor Credit Company,
(ii) a $286 million increase in accounts receivable from Ford, and a
29
<PAGE>
$300 million decrease in payables to Ford, resulting from a change in
payment terms for transactions between Visteon and Ford primarily in the
United States and (iii) a $507 million decrease in payables to Ford related
to the one-time payment of certain prepaid health care amounts discussed in
note 12 below.
(9) Reflects the repayment of $812 million of debt owed by Visteon subsidiaries
to Ford subsidiaries through cash payments from those Visteon subsidiaries
to the Ford subsidiaries.
(10) Reflects the short-term and long-term debt Visteon expects to incur in
order to finance operations separately from Ford. Visteon initially will
finance its operations with short-term financial instruments that Visteon
expects to replace with short-term and long-term debt. Visteon expects to
have about $2 billion of debt outstanding after the spin-off.
(11) Reflects a dividend from Visteon to Ford equal to an amount necessary to
bring pro forma cash and cash equivalents to $700 million. The actual
adjustment -- either a dividend or a capital contribution -- will be
determined based on cash and cash equivalent levels on a date in the second
quarter of 2000 which has not yet been determined.
(12) Reflects retention by Ford of certain prepaid health care amounts.
(13) Reflects conversion to equity of $1,099 million of debt owed to Ford under
an intracompany revolving loan arrangement.
(14) Reflects the pro forma effect of:
<TABLE>
<CAPTION>
Year Ended
December 31,
1999
------------
(in millions)
<S> <C>
o Ford's retention of postretirement health care and retiree life insurance
obligations for certain Visteon-designated employees of Ford who
retired by January 1, 2000 and Ford's retention of related Voluntary
Employees' Beneficiary Association ("VEBA") SFAS 106 assets as of
December 31, 1999.............................................................. $ 1,732
o Ford's retention of pension obligations for certain Visteon-designated
employees of Ford who retired by January 1, 2000 and the pro forma
effect of planned asset/liability transfers between Ford and Visteon
pension plans as of December 31, 1999.......................................... (255)
--------
$ 1,477
========
</TABLE>
(15) Reflects a $505 million adjustment to reduce deferred income tax assets
resulting from the adjustments described in note 14 above.
(16) Reflects the transfer to Visteon by Ford of the net assets comprising the
Visteon business after giving effect to the terms related to our separation
and spin-off from Ford.
30
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
We are the world's third largest supplier of automotive systems, modules
and components, based on our 1999 sales of $19.4 billion or our pro forma 1999
sales of $18.7 billion, according to the latest available industry data. We have
a broad global presence, with a workforce of over 81,000 and a network of
manufacturing sites, technical centers, sales offices and joint ventures located
in every major region of the world. We have been the largest supplier of
automotive parts to Ford for most of Ford's history. Ford produces cars and
trucks that are marketed and sold under the Ford, Lincoln, Mercury, Volvo,
Jaguar and Aston Martin brands. Before the spin-off, we have been a division of
Ford and, more recently, a wholly-owned subsidiary of Ford. After our spin-off
from Ford, we will become an independent supplier. We believe that our
independence will enhance our ability to increase sales to non-Ford VMs over
time.
Our worldwide sales were $19.4 billion in 1999, compared with $17.8
billion in 1998 and $17.2 billion in 1997. Our 1999 sales include six months of
sales resulting from the June 1999 acquisition of the automotive interiors
division of Compagnie Plastic Omnium.
Our worldwide net income was $735 million in 1999, compared with $703
million in 1998 and $511 million in 1997. The improvement in net income in each
of the years between 1997 and 1999 reflects primarily higher volume and cost
efficiencies, offset partially by price reductions to customers.
Unaudited pro forma condensed consolidated financial statements have been
derived from the application of pro forma adjustments to our consolidated
financial statements and give effect to our spin-off from Ford. The pro forma
condensed consolidated statement of income does not purport to be indicative of
what our operations actually would have been had these events occurred as of
that date. The pro forma adjustment to our 1999 worldwide sales reflects a
decrease of $690 million to $18.7 billion. The pro forma adjustment to our 1999
worldwide net income reflects a decrease of $444 million to $291 million. For
further discussion of these adjustments, please refer to "--Pro Forma 1999
Results" below.
Sources of Revenue
We derive our revenue from the sale of automotive vehicle systems, modules
and components. The majority of our sales are directly to VMs -- 17 of the
largest 20 VMs are Visteon customers. Sales directly to Ford accounted for 88%
of our total sales in 1999. This percentage has declined since 1997, reflecting
an increase in non-Ford business. We expect this trend to continue. Aftermarket
sales accounted for 4.6% of our total sales in 1999. We have increased our focus
on this area and expect these sales to increase in the future. Our largest
market is in North America, which accounted for 80.8% of our 1999 total sales.
Generally, we enter into contracts with our customers that tend to average three
to five years in length and provide for annual price reviews.
31
<PAGE>
The following table delineates our total sales for the periods
indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------
1999 1998 1997
-------------- --------------- -------------
<S> <C> <C> <C>
By customer:
Ford VM.................. 86.4% 90.2% 91.1%
Non-Ford VM.............. 9.0 5.8 5.0
Ford Aftermarket......... 1.9 1.9 1.8
Non-Ford Aftermarket..... 2.7 2.1 2.1
----- ----- -----
Total................ 100.0% 100.0% 100.0%
===== ===== =====
By geographic region:
North America............ 80.8% 83.2% 82.4%
Europe................... 15.8 15.1 15.4
Other (rest of world).... 3.4 1.7 2.2
----- ----- -----
Total................ 100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
"Ford Aftermarket" refers to sales to Ford's Automotive Consumer Services
Group and "non-Ford Aftermarket" refers to sales to other aftermarket customers.
Our sales by geographic region are reported by the location of delivery of
product to the customer.
We operate in three business segments - Comfort, Communication & Safety,
Dynamics & Energy Conversion and Glass. The following table shows the sales
attributable to each of our segments for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1999 1998 1997
------------- ----------- -----------
(in millions)
<S> <C> <C> <C>
Comfort, Communication & Safety.... $ 9,377 $ 8,337 $ 8,545
Dynamics & Energy Conversion....... 9,216 8,673 7,918
Glass.............................. 773 752 757
--------- --------- ---------
Total sales....................... $ 19,366 $ 17,762 $ 17,220
========= ========= =========
</TABLE>
Components of Costs and Expenses
The largest components of our costs and expenses are purchases of raw
materials and component parts along with manufacturing labor and overhead. These
two items account for about 80% of our total costs. The other major components
of our costs and expenses are engineering, depreciation and amortization,
administrative costs and freight. The typically long lead time between the
development of automotive systems, modules and components and their ultimate
sale, means that we incur significant expenditures (including design,
engineering and tooling expenses) often years before sales, if any, are
realized, or these expenses are otherwise reimbursed. Finally, selling,
administrative and other expenses are becoming a larger component of our cost
and expense structure as we establish a sales force for non-Ford VMs and the
aftermarket, more broadly promote the Visteon brand and establish ourselves as
an independent company.
Pro Forma 1999 Results
We have prepared unaudited pro forma condensed consolidated financial
statements of Visteon, which give effect to the spin-off and the terms of our
separation from Ford. We have prepared the pro forma condensed consolidated
statement of income for 1999 to provide additional information on our operations
as if the spin-off and our separation from Ford had occurred as of January 1,
1999. The pro forma condensed consolidated statement of income does not purport
to be indicative of what our operations actually would have been had these
events occurred as of that date.
32
<PAGE>
In connection with the preparation of the unaudited pro forma statement of
income, we made the following significant adjustments:
o Our sales in 1999 would have decreased by about $690 million, to $18.7
billion, had the one-time 5% price reduction effective as of January
1, 2000 been in effect for 1999. The one-time 5% reduction, which is
based on a market pricing review conducted by Ford and us, is designed
to make Visteon's prices more competitive with third party
competitors.
o Our costs of sales in 1999 would have decreased by about $142 million,
to about $17.4 billion, primarily as a result of a $146 million
adjustment to profit sharing expense incurred in 1999. This adjustment
is due to our agreement with Ford that our liability, for profit
sharing payments based on Ford's profits made to Ford workers that are
assigned to us, will be limited to $50 million per year in each of
2000-2004.
o Our selling, administrative and other expenses in 1999 would have
increased by about $102 million, to about $776 million, principally as
a result of operating Visteon as a stand-alone company. These added
costs are comprised of incremental corporate costs and, to a lesser
extent, incremental insurance and risk management costs.
o Our interest income in 1999 would have decreased by about $44 million,
to $35 million, as a result of reductions in Visteon's pro forma cash
balances. Because of an increase in our average outstanding debt
levels, our interest expense would have increased by about $17 million
to $160 million.
o As a result of these and other adjustments, our net income would have
decreased from $735 million to $291 million.
See "Unaudited Pro Forma Condensed Consolidated Financial Statements."
Results of Operations
The following table shows statement of income data as a percentage of
sales for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------
Pro Forma
1999 1999 1998 1997
----------- ----------- ---------- --------
<S> <C> <C> <C> <C>
Sales............................................. 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Costs of sales................................... 93.0 90.4 89.9 91.7
Selling, administrative and other expenses....... 4.1 3.5 3.7 3.3
----- ----- ----- -----
Total costs and expenses....................... 97.1 93.9 93.6 95.0
Operating income.................................. 2.9 6.1 6.4 5.0
Interest income................................... 0.2 0.4 0.2 0.1
Interest expense.................................. 0.9 0.7 0.5 0.5
----- ----- ----- -----
Net interest expense........................... (0.7) (0.3) (0.3) (0.4)
Equity in income of affiliated companies.......... 0.3 0.3 0.1 0.2
----- ----- ----- -----
Income before income taxes........................ 2.5 6.1 6.2 4.8
Provision for income taxes........................ 0.8 2.2 2.3 1.8
----- ----- ----- -----
Income before minority interests.................. 1.7 3.9 3.9 3.0
Minority interests in net income
(loss) of subsidiaries........................... 0.1 0.1 (0.0) (0.0)
----- ----- ----- -----
Net income........................................ 1.6% 3.8% 3.9% 3.0%
===== ===== ===== =====
</TABLE>
33
<PAGE>
1999 Compared with 1998
The following table shows the increase in sales for each of our segments,
both in dollars and in percentage terms:
<TABLE>
<CAPTION>
Year Ended December 31, 1999 over 1998
------------------------- ------------------------
1999 1998 Amount Percent
-------- --------- -------- -------
(in millions, except percentages)
<S> <C> <C> <C> <C>
Comfort, Communication & Safety......... $ 9,377 $ 8,337 $ 1,040 12.5%
Dynamics & Energy Conversion............ 9,216 8,673 543 6.3
Glass................................... 773 752 21 2.8
-------- -------- --------
Total sales............................ $ 19,366 $ 17,762 $ 1,604 9.0%
======== ========= ========
</TABLE>
Sales in 1999 totaled $19.4 billion compared with $17.8 billion in 1998,
an increase of $1.6 billion or 9%. Sales for our Comfort, Communications &
Safety segment were $9.4 billion, compared with $8.3 billion in 1998. Sales for
our Dynamics & Energy Conversion segment were $9.2 billion, up $543 million or
6.3% from 1998. Glass sales were $773 million in 1999, compared with $752
million in 1998. The increase in sales for each segment reflects primarily
higher sales to Ford. In addition, our June 1999 acquisition of the automotive
interiors division of Compagnie Plastic Omnium increased 1999 sales of our
Comfort, Communication & Safety segment by $261 million. These increases were
offset partially by price reductions granted to Ford and our other customers.
Our overall price reductions to Ford as a percentage of net sales were 4.9% in
1999, 3.2% in 1998 and 2.7% in 1997.
Our pricing letter with Ford requires a one-time 5% price reduction on
products that we were supplying to Ford as of January 1, 2000 based on a market
pricing review conducted by Ford and us. The pricing letter also requires
productivity price adjustments in each of 2000, 2001, 2002 and 2003 to reflect
competitive price reductions obtained each year by Ford from its other Tier 1
suppliers. We and Ford have agreed on a 3.5% productivity price reduction for
2000 on such products, which is consistent with (i) price reductions between
Visteon and Ford in prior years and (ii) the amount of annual productivity
improvement that Ford generally expects from its other Tier 1 suppliers. Price
adjustments for 2001, 2002 and 2003 will be calculated using a basket of
products composed of identical or substantially similar products that Ford
purchases from other suppliers. In addition to these price reductions, we have
agreed to use our best efforts to achieve design and engineering improvements in
our products sold to Ford so as to further reduce their cost to Ford by 1.5% to
2.5% each year. We do not believe that we can fully offset the 2000 price
reductions with cost reductions. As a result, we expect our profitability in
2000 and beyond to be significantly lower than that achieved in our 1999 actual
results and in prior years.
The following table shows the change in net income (loss) for each of our
segments, both in dollars and in percentage terms:
<TABLE>
<CAPTION>
Year Ended December 31, 1999 over/(under) 1998
-------------------------- -------------------------------
1999 1998 Amount Percent
-------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
(in millions, except percentages)
Comfort, Communication & Safety............... $ 422 $ 452 $ (30) (6.6)%
Dynamics & Energy Conversion.................. 344 294 50 17.0
Glass......................................... 3 (15) 18 n/a
------ ------ -----
Total net income (including unallocated
interest).................................. $ 735 $ 703 $ 32 4.6%
====== ====== =====
</TABLE>
Net income for our Comfort, Communication & Safety segment was $422
million in 1999, down $30 million from 1998. The reduction reflected primarily
price reductions and increased costs associated with engineering future products
and support costs, offset partially by higher volume and material and
manufacturing cost reductions. Net income for our Dynamics & Energy Conversion
segment was $344 million in 1999, an increase of $50 million,
34
<PAGE>
reflecting lower costs and high volume; price reductions were a partial offset.
Net income for our Glass segment increased by $18 million to $3 million. The
improvement was more than accounted for by lower costs and higher volume, offset
partially by reduced prices.
1998 Compared with 1997
The following table shows the change in sales for each of our
segments, both in dollars and in percentage terms:
<TABLE>
<CAPTION>
Year Ended December 31, 1998 over/(under) 1997
----------------------------- -------------------------------
1998 1997 Amount Percent
------------ ------------- ------------- -------------
(in millions, except percentages)
<S> <C> <C> <C> <C>
Comfort, Communication & Safety....... $ 8,337 $ 8,545 $ (208) (2.4)%
Dynamics & Energy Conversion.......... 8,673 7,918 755 9.5
Glass................................. 752 757 (5) (0.7)
--------- --------- ------
Total sales.......................... $ 17,762 $ 17,220 $ 542 3.1%
========= ========= ======
</TABLE>
Sales in 1998 totaled $17.8 billion compared with $17.2 billion in 1997,
an increase of $542 million or 3.1%. The increase reflected higher sales to
non-Ford customers, an improved mix of sales to Ford, and the impact of product
content changes requested by our customers. These improvements were offset
partially by price reductions, reflecting cost-cutting pressures from Ford and
our other customers. Sales in 1998 were higher than in 1997 for our Dynamics &
Energy Conversion segment, and lower for our other two segments (where price
reductions more than offset higher non-Ford volume and a favorable mix of sales
to Ford).
The following table shows the change in net income (loss) for each of our
segments, both in dollars and in percentage terms:
<TABLE>
<CAPTION>
Year Ended December 31, 1998 over 1997
--------------------------- --------------------------
1998 1997 Amount Percent
--------- -------- -------- --------
(in millions, except percentages)
<S> <C> <C> <C> <C>
Comfort, Communication & Safety.............. $ 452 $ 439 $ 13 3.0%
Dynamics & Energy Conversion.................. 294 136 158 116.2
Glass......................................... (15) (25) 10 n/a
------ ------ ------
Total net income (including unallocated
interest).................................. $ 703 $ 511 $ 192 37.6%
====== ====== ======
</TABLE>
Net income for our Comfort, Communication & Safety segment increased to
$452 million in 1998 from $439 million in 1997, reflecting primarily reductions
in material and manufacturing costs; price reductions to our customers, and
higher costs associated with engineering future products and support costs were
a partial offset. Net income for our Dynamics & Energy Conversion segment
increased to $294 million in 1998 from $136 million in 1997, reflecting material
and manufacturing cost reductions and higher prices, offset partially by
increased costs associated with engineering future products and support costs.
Net losses for our Glass segment were reduced by $10 million during 1998 to $15
million. The improvement reflected the non-recurrence of a Glass segment
restructuring charge in 1997, and higher aftermarket and commercial glass sales
offset partially by higher costs and price reductions to our customers.
Quarterly Data
Our business is moderately seasonal because our largest North American
customers typically halt operations for about two weeks in July and about one
week in December. In addition, third quarter automotive production traditionally
is lower as new models enter production. Accordingly, our third and fourth
quarter results may reflect these trends. The following table shows unaudited
condensed financial data for each of the eight quarters through
35
<PAGE>
the period ended December 31, 1999. The operating results for any quarter shown
are not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
1999 1998
------------------------------------------- ---------------------------------------------
First Second Third Fourth First Second Third Fourth
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
------- ------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales................. $ 4,772 $ 5,063 $ 4,600 $ 4,931 $ 4,378 $ 4,725 $ 4,097 $ 4,562
Operating income...... 298 461 280 150 303 377 243 211
Income before income
taxes................ 313 449 260 150 286 384 240 206
Net income...... 205 280 155 95 187 239 148 129
</TABLE>
Fourth quarter net income in 1999 was $95 million, compared with $129
million in 1998. The decline reflected the impact of negotiated price
reductions, the labor agreement in North America and currency-related costs,
offset partially by cost efficiencies and improved volume.
Liquidity and Capital Resources
Our historical balance sheet reflects cash and cash equivalents of $1.8
billion and short-term and long-term debt of $2.3 billion at December 31, 1999,
and cash and cash equivalents of $542 million and debt of $1.1 billion at
December 31, 1998. The short-term and long-term debt at year-end 1999 consisted
of $1.1 billion of debt owed to Ford under an intracompany revolving loan
arrangement, $812 million of debt owed by Visteon subsidiaries to subsidiaries
of Ford, and $408 million of debt owed to third parties.
Our debt exceeded our cash and cash equivalents by $470 million at
December 31, 1999 and by $583 million at December 31, 1998. Our ratio of total
debt to total capital, which consists of total debt plus equity, was 61% at
December 31, 1999 compared with 40% at December 31, 1998. The increase during
1999 reflected primarily increased debt relating to our acquisition of the
automotive interiors division of Compagnie Plastic Omnium.
In connection with our separation and spin-off from Ford, we will take
several actions that will result in lower cash and cash investment balances and
slightly lower debt levels. These reductions reflect primarily higher working
capital as a result of a change in payment terms from Ford, repayment and
capitalization of debt owed to Ford and replacement with outside debt financing,
and a cash adjustment prior to the spin-off. These and other actions in
connection with the separation and spin-off would result, on a pro forma basis
at December 31, 1999, in cash and cash equivalent levels of about $700 million,
total debt of about $2 billion, and a pro forma total debt to capital ratio of
about 46%. The actual cash adjustment - either a dividend to Ford or a capital
contribution from Ford - will be determined based on cash and cash equivalent
levels on a date in the second quarter of 2000 which has not yet been
determined.
We also plan to enter into financing agreements with lenders providing for
an aggregate of $1.5 billion to $2 billion in revolving credit facilities. The
facilities will be split between 364-day and 5-year commitments. Our intent is
to use these credit facilities as backup facilities, although we may borrow
under them for general corporate or other purposes.
VMs are increasingly pushing responsibility for engineering and tooling
onto suppliers. The need to finance these costs increases our working capital
needs and could have a material impact on our liquidity. In addition, although
we have no specific acquisition plans, our ability to make acquisitions could be
constrained by limited borrowing capacity, as well as by various contractual
restrictions.
Visteon's intra-year cash fluctuations are impacted by the volume and
timing of worldwide vehicle production. Examples of seasonal effects in the
industry include the shut-down of operations for about two weeks in July, the
subsequent ramp-up of new model production and the additional one-week shut-down
in December by our primary North American customers. We believe that we have
sufficient financial flexibility to fund these fluctuations and to access the
global capital markets on satisfactory terms and in adequate amounts, although
there can be no assurance
36
<PAGE>
that this will be the case. We expect cash flows from operations and borrowings
to satisfy future working capital, capital expenditure, research and
development, pension funding and debt service requirements for at least the next
year.
Cash Flows
Operating Activities
Cash flows from operating activities were $2.48 billion, $1.38
billion and $1.41 billion in 1999, 1998 and 1997, respectively. The primary
components of our operating cash flows are net income, depreciation and
amortization, and changes in various payables and receivables balances with
Ford. Cash flow from 1999 was positively affected because of an increase in
our payable balance to Ford. The historical operating cash flows may not be
representative of our results had we operated as a separate stand-alone entity.
Investing Activities
Cash used in investing activities was $1.45 billion, $940 million and $943
million in 1999, 1998 and 1997, respectively. The primary use of cash for
investing activities in each year was for capital expenditures. In addition, in
1999, we acquired the automotive interiors division of Compagnie Plastic Omnium,
headquartered in France, for about $479 million, and increased our ownership in
Halla Climate Control to 70% by purchasing an additional 35% interest for $84
million. In 1998 we made several acquisitions totaling about $103 million,
including acquiring PABA, Inc. (now Visteon Climate Control Systems), two
manufacturing facilities in Poland and Zexel Innovations.
Our capital expenditures were $876 million in 1999, $861 million in 1998
and $917 million in 1997, with about 48% in each year spent on Comfort,
Communication & Safety, about 45% in each year spent on Dynamics & Energy
Conversion and about 7% in each year spent on Glass. We currently expect about
$950 million in capital expenditures in 2000, split among our segments in about
the same proportions as in prior years. Our capital expenditures are used
primarily for equipment, tooling and other spending associated with new product
programs. Our capital expenditure program promotes our growth-oriented business
strategy by investing in core areas, where efficiencies and profitability can be
enhanced, and by targeting funds for new innovative technologies, where long-
term growth opportunities can be realized. Capital expenditures also will be
used for expansion into new markets outside of the United States and the
continued implementation of lean manufacturing strategies.
Financing Activities
Cash provided by financing activities totaled $290 million in
1999. This compared with cash used in financing activities of $234 million
and $251 million in 1998 and 1997, respectively. We historically have funded
our investing activities through cash from operating activities, funding from
Ford, and some third party debt. In 1999, cash provided by financing
activities reflected additional debt associated with acquisition activities,
offset partially by net cash distributions to Ford. Historically, we have
paid about 38% of our net income to Ford as a cash distribution. We plan to
pay dividends to shareholders with the first quarterly dividend expected to be
$_____ per share, or a rate of $_____ per share annually, declared and paid in
the _____ quarter of 2000.
Pension and Postretirement Benefits
Employees and retirees participate in various pension, health-care and
life insurance benefit plans sponsored by Ford and existing Visteon
subsidiaries. Benefit plan liability and related asset transfers between Visteon
and Ford in connection with our separation from Ford are covered by various
employee benefits agreements.
Ford will retain pension and postretirement health care and life insurance
obligations for certain Visteon-designated employees of Ford who retire prior to
the spin-off. In addition, Ford will retain the pension obligation related to
benefits earned through the spin-off date for certain active U.S. salaried
Visteon-designated employees that meet specific age and years of service
requirements. With respect to individuals covered by the Ford UAW agreement who
are employed in our facilities, we will be responsible for the related cost upon
their retirement
37
<PAGE>
for pension, health care and life insurance benefits. The liability for these
individuals for these programs was $1.1 billion at December 31, 1999.
It is expected that after the benefit plan liability and related asset
transfers, Visteon's U.S. pension plan assets will at least equal the
actuarially determined projected benefit obligation on an aggregate basis. The
actuarially determined total worldwide projected benefit obligation and the
total worldwide fair market value of plan assets related to pension obligations
to be assumed by Visteon were about $1.2 billion at December 31, 1999. The total
unfunded liability recorded by Visteon related to retiree health care and life
insurance obligations to be assumed by Visteon was about $1.8 billion at
December 31, 1999.
Quantitative and Qualitative Disclosures About Market Risk
We are exposed to a variety of market risks, including foreign currency
exchange rates, interest rates and commodity prices, which could impact its
financial results. The effect of changes in exchange rates, interest rates and
commodity prices on our earnings generally have been small relative to other
factors that also affect earnings, such as unit sales and operating margins.
We use derivative financial instruments as part of an overall risk
management program in order to reduce the potentially adverse impact from these
financial risks. Derivative instruments are not used for speculative purposes,
as per clearly defined risk management policies. Until now, our market risk has
been managed as an integrated part of Ford's overall risk management program.
Foreign Currency Risk
Our 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. We use
primarily foreign exchange forward contracts to manage our exposures. The gain
or loss on the contracts substantially offsets the loss or gain on the
underlying transaction being hedged.
As of December 31, 1999, our primary foreign exchange exposure includes
the euro, Mexican Peso and Canadian Dollar. The fair value of the forward
contracts is sensitive to changes in exchange rates. As of December 31, 1999, a
10% appreciation of exchange rates from the prevailing market rates would
increase the related net unrealized gain by $4 million. Conversely, a 10%
depreciation of exchange rates from the prevailing market rates would reduce the
related net unrealized gain by $4 million.
Interest Rate Risk
Historically, about half of our borrowings from third party credit
sources, and most of our funding from Ford, have been on a variable rate basis.
After our spin-off from Ford, derivative instruments and an increased proportion
of fixed rate borrowings may be used to manage some of our exposure to interest
rate risk.
Commodity Risk
We have entered into fixed price contracts with some of our key suppliers
to protect us from changes in market prices for the non-ferrous metals used in
the manufacturing of automotive components. As a result, we have no need
presently to enter into financial derivatives to hedge these potential
exposures. The risk to these exposures may be managed with the use of financial
derivatives if in the future we enter into floating price contracts with our key
suppliers.
38
<PAGE>
New Accounting Standards and Changes
New Standards
In the first quarter of 1999, we adopted Statement of Position ("SOP")
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." This SOP requires entities to capitalize certain internal-use
software costs once certain criteria are met. Our practice had been to expense
the costs of obtaining or developing internal-use software as incurred.
Statement of Financial Accounting Standards No. 133 ("SFAS 133"),
"Accounting for Derivative Instruments and Hedging Activities," was issued by
the Financial Accounting Standards Board in June 1998. SFAS 133 provides a
comprehensive and consistent standard for the recognition and measurement of
derivatives and hedging activities. We have not adopted SFAS 133 based on the
May 1999 announcement by the Financial Accounting Standards Board to delay by
one year the implementation date of SFAS 133 until January 1, 2001. We have not
yet determined the effect of adopting SFAS 133.
The Emerging Issues Task Force (EITF) recently reached a final consensus
with respect to EITF Issue 99-5, "Accounting for Pre-Production Costs Related to
Long-Term Supply Arrangements." This consensus provides guidance on whether
design and development costs related to long-term supply arrangements should be
expensed or capitalized, and is effective for design and development costs
incurred after December 31, 1999. Adoption of this guidance is not expected to
have a material effect on the financial statements.
Accounting Changes
Beginning in 1999, we changed from an accelerated method to the
straight-line method for amortization of special tooling. This change is being
made to recognize that special tooling retains its value more uniformly over
time.
Also beginning in 1999, we modified our plant and equipment retirement
policy to reflect gains and losses in income in the year of retirement.
Previously, the cost of retired assets, net of salvage proceeds, was charged to
accumulated depreciation. The change in accounting principle for plant and
equipment retirement is being made to better reflect the results of asset
disposal/sale decisions.
Adoption of new accounting standards and accounting changes did
not have a material effect on our financial statements.
39
<PAGE>
BUSINESS
Overview
We are the world's third largest supplier of automotive systems, modules
and components, based on our 1999 sales which were $19.4 billion, or our pro
forma 1999 sales of $18.7 billion, according to the latest available industry
data. We have become a leader in the global automotive parts industry by
capitalizing on the extensive experience we have gained as the largest supplier
to Ford, the world's largest producer of trucks and the second largest producer
of cars and trucks combined. We have a broad global presence, with a workforce
of over 81,000 and a network of manufacturing sites, technical centers, sales
offices and joint ventures located in every major region of the world.
We have been the largest supplier of automotive parts to Ford for most of
Ford's history. Ford produces cars and trucks that are marketed and sold under
the Ford, Lincoln, Mercury, Volvo, Jaguar and Aston Martin brands. We began
using the Visteon name in 1997. Visteon has been responsible for the
introduction of a number of innovations in the automotive industry such as
integrated voice activated control of the cellular phone, audio system and
climate control system, currently available in the Jaguar S-Type. We have
developed extensive experience and expertise in all areas of automotive
integrated system, module and component design. Before the spin-off, we have
been a division of Ford and, more recently, a wholly-owned subsidiary of Ford.
After our spin-off from Ford, we will be an independent supplier. We believe
that our independence will enhance our ability to increase sales to non-Ford VMs
over time.
We have developed a sophisticated understanding of the design,
engineering, manufacture and operation of the automotive vehicle. We are
currently able to supply over 40% of a vehicle's total material cost. We have
both extensive technical expertise in a broad range of products and strong
systems integration skills, which enable us to provide comprehensive,
consumer-oriented solutions for our customers. In recent years, we have placed
increasing emphasis on the development of systems and modules with electronic
content, in response to consumer demand. The dollar value of electronic content
of vehicles has been increasing in recent years and is expected to continue to
increase, although at a slower rate, despite significant reductions in unit
prices due to technological innovation. We have over 8,900 engineers,
scientists, technical specialists and technicians, or technical personnel,
around the world with well-established credentials in technical research and
development. We believe that our comprehensive vehicle knowledge, consumer focus
and expansive global presence provide a solid foundation for our continued
growth. In 1999, we began using the Internet both for our supply needs and for
the sale of our aftermarket products. We expect this aspect of our business to
grow significantly over the next several years.
Over the past decade, the industry mix of vehicles sold in North America
has shifted from about 40% trucks/60% cars to about 50% trucks/50% cars. In
general, trucks generate higher margins for VMs. In particular, Ford's product
mix is more heavily weighted towards trucks, with trucks making up about 60% of
Ford's vehicle production in 1999. We believe that our expertise and experience
as the largest supplier to Ford gives us an advantage in this important market.
In recent years, our goal has been to pursue new business growth
opportunities with Ford and non-Ford VMs, as well as with non-automotive
customers. Although Ford still accounts for a substantial majority of our sales,
we sell to 17 of the 20 largest VMs. Our sales to customers other than Ford grew
at a compound annual growth rate of 36% between 1997 and 1999, from about $1.2
billion to about $2.3 billion. Non-Ford business as a percentage of our total
sales has grown from about 7% to about 12% in that time. In 1999, 38% of the new
business we were awarded for delivery in future years, which does not include
renewals of existing contracts, was non-Ford business. We have a goal of
expanding our non-Ford business to 20% of our sales by 2002. We believe that our
spin-off from Ford will facilitate our achievement of this goal.
Additionally, we have had a goal of expanding our global presence. From
1997 to 1999, we opened four manufacturing facilities outside North America.
About 23.5% of our total 1999 sales were derived from products manufactured
outside of the United States. In addition, 39% of the new business we won in
1999 was with customers outside of North America.
40
<PAGE>
We operate in three business segments and are a leading Tier 1 supplier in
two of these segments: Comfort, Communication & Safety and Dynamics & Energy
Conversion:
o Comfort, Communication & Safety, composed of our climate control
systems and interior/exterior systems product groups. Our climate
control systems product group produces systems, modules and components
in the areas of fluid transport, air handling, heat exchange and
compressors. Our interior/exterior systems product group produces
systems, modules and components in the areas of cockpits, instrument
panels, interior trim and seats, lighting and bumpers.
We believe that the integration of our climate control systems and
interior/exterior systems product groups into a single organization
enables us to deliver complete interiors to our customers, with
features that consumers demand, such as integrated seats with heating
and cooling capabilities; advanced safety features like voice
activated control, advanced air bag electronics and passive antitheft
devices; and cockpits with fully integrated multimedia products,
Internet wireless communication and climate control.
o Dynamics & Energy Conversion, composed of our energy transformation
systems and chassis systems product groups. Our energy transformation
systems product group produces systems, modules and components in the
areas of energy management, distributed power generation, electrical
conversion, and fuel storage and delivery products. Our chassis
systems product group produces systems, modules and components in the
areas of axle and driveline, steering and chassis products.
We believe that the integration of our energy transformation systems
and chassis systems product groups provides synergies as a result of a
global focus on all of the dynamics of a vehicle - ride, handling and
performance. Combining this focus with our electronics expertise
allows us to deliver a complete vehicle dynamics system to our
customers that combines steering control, torque conversion, engine
management controls and drivelines.
o Glass, composed of our vehicle glazing product group, which produces
glass products for Ford and aftermarket customers, and our commercial
glass product group, which produces float glass for commercial
architecture.
In addition to our VM sales, we also sell our products to the worldwide
aftermarket for replacement and vehicle appearance enhancement parts.
Automotive Parts Industry
The automotive parts industry provides systems, modules and components to
VMs for the manufacture of new vehicles, as well as to the aftermarket for use
as replacement and enhancement parts. Today, suppliers offer their component
products to VMs and also offer those products in a variety of more fully
engineered forms, such as modules and systems:
o "Modules" are groups of component parts arranged in close physical
proximity to each other within a vehicle that are often assembled by
the supplier and shipped to the VM for installation in a vehicle as a
unit. Modular instrument panels, cockpit modules and door modules are
examples.
o "Systems" are groups of component parts located throughout the vehicle
that operate together to provide a specific vehicle function. Air
conditioning and heating systems, electrical systems and steering
systems are examples.
Historically, large VMs operated internal divisions to provide
a wide range of component parts for their vehicles. In recent years, VMs have
moved towards a competitive sourcing process for automotive parts, including
increased purchases from independent suppliers, as they seek lower-priced
and/or higher-technology products. These
41
<PAGE>
independent parts suppliers, which often have lower cost structures than
in-house component operations, have become an important part of the automotive
parts industry.
We believe global automotive parts industry sales to VMs will be about
$500 billion in 2000. In addition to these sales, U.S. automotive aftermarket
retail sales are estimated to be over $160 billion in 2000. The aftermarket
includes replacement parts as well as parts designed to enhance or personalize
vehicles. Demand for aftermarket products tends to increase when new vehicle
sales decline because vehicle owners retain their vehicles longer; these
vehicles generally have a greater need for repairs.
Our industry is generally divided into two tiers:
o "Tier 1" suppliers like Visteon sell their products principally to VMs
directly and often offer a broad range of product capabilities,
including design, engineering and assembly services. Tier 1 suppliers
supply systems and modules and are increasingly influencing vehicle
content, including the sourcing of Tier 2 components.
o "Tier 2" suppliers sell their products principally to Tier 1
suppliers, who then combine these parts into their own product
offerings.
Within Tier 1, there are only a few companies with a combination of global
operations and a product portfolio breadth that allows them to compete for a
substantial portion of VMs' automotive parts needs. The top four automotive
suppliers, including Visteon, accounted for $74.2 billion in sales in 1998.
Based on 1998 data, there were 67 other Tier 1 suppliers with annual sales over
$1 billion each, accounting for a total of about $197.3 billion in sales. Most
of these suppliers are focused on a limited number of product areas. The
remaining suppliers in the industry are generally Tier 2 suppliers, focusing on
a limited number of products.
Industry Trends. Several key trends have been reshaping the automotive
parts industry over the past several years:
o Shift of Engineering to Suppliers; Increased Emphasis on Systems and
Modules Sourcing. Increasingly, VMs are focusing their efforts on
consumer brand development and overall vehicle design, as opposed to
the design of vehicle systems. For example, Ford is spinning off
Visteon, and General Motors spun off Delphi Automotive Systems
Corporation in 1999. In order to simplify the vehicle design and
assembly processes and reduce their costs, VMs increasingly look to
their suppliers to provide fully engineered, pre-assembled
combinations of components rather than individual components. This is
especially true outside of the United States. By offering
sophisticated systems and modules rather than individual components,
Tier 1 suppliers have assumed many of the design, engineering,
research and development and assembly functions traditionally
performed by VMs. As a result, they are gaining increased access to
confidential planning information regarding VMs' future vehicle
designs and manufacturing processes. Systems and modules increase the
importance of Tier 1 suppliers because they increase their percentage
of vehicle content and the ability to reduce costs. As suppliers
produce complete systems, they are increasingly attempting to increase
brand awareness of their own products. This has generally been most
successful in the audio systems and aftermarket areas. Suppliers with
broad product portfolios are well positioned to provide the systems
and modules VMs demand.
o Increasing Electronics Integration and Technological Content.
Electronics integration, which generally refers to replacing
mechanical components with electronic components and integration of
mechanical and electrical functions within the vehicle, allows VMs to
achieve substantial reductions in the weight and number of parts
required in vehicles. This results in easier assembly, enhanced fuel
economy and emissions control, and better vehicle performance. This is
increasingly important as heavier vehicles - sport utility vehicles,
or SUVs, pickup trucks and minivans - make up more and more of the
automotive market. Stringent regulatory standards and consumer demand
for low automotive emissions and safety features including evolving
air bag technologies, as well as increasing consumer demand for
electronics-based, leading edge consumer products such as navigation
systems, Internet-linked in-car computer
42
<PAGE>
systems and rear seat entertainment systems, have all increased the
electronic content of vehicles. As shown in the following table, the
dollar value of electronic content of vehicles has increased in recent
years. Electronic content is expected to continue to increase in the
future, although at a slower rate. Suppliers with the necessary
technological expertise will be able to gain from this trend:
Automotive Electronics (dollars per vehicle, by model year)
<TABLE>
<CAPTION>
1998-2000
compound
annual
Region 1998 2000 growth rate
- -------------------- -------- -------- ------------
<S> <C> <C> <C>
North America....... $ 1,057 $ 1,176 5.5%
Europe.............. 862 962 5.6
Asia-Pacific........ 1,000 1,061 3.0
Rest of world....... 285 340 9.2
World average....... 843 921 4.5
</TABLE>
Source: Prismark Partners. Figures are not adjusted for inflation.
o Growth in E-Commerce. The Internet is revolutionizing the way
businesses and consumers purchase products and services. Recently,
Ford, General Motors and DaimlerChrysler announced an initiative to
establish an Internet-based marketplace for most, if not all, of their
purchases. It is likely that other major VMs will join this
marketplace or announce competing initiatives. Suppliers that are able
to provide more value-added systems should be able to differentiate
themselves from their competitors on variables other than price.
Visteon and other automotive suppliers, in turn, are seeking to source
more and more of their needs over the Internet. Finally, consumers are
increasingly purchasing goods over the Internet and an increase of
direct online sales of automotive parts can be expected. Suppliers
with the technological resources and expertise to be able to use these
Internet tools will be well equipped to take advantage of this trend.
o Increased Emphasis on Speed-to-Market. As VMs are under increasing
pressure to adjust to changing consumer preferences and to incorporate
technological advances, they are shortening product development times.
These shorter development times allow VMs to more effectively come to
market with vehicles and features that match prevailing consumer
preferences. Suppliers that are able to deliver new products to VMs to
accommodate the VMs' needs will be well-positioned to succeed in this
evolving marketplace. Shorter product development times also reduce
product development costs. Consumers are increasingly well-informed
and sophisticated and, both in the aftermarket and the new vehicle
market, are demanding personalized features not typically found in the
automotive environment. Additionally, the Internet has increasingly
made consumers accustomed to rapid delivery of their desired items.
Suppliers that are able to deliver what consumers demand on a timely
basis, whether in the new vehicle market or in the aftermarket, will
benefit from this trend.
o Globalization of Suppliers. In order to serve multiple markets in a
more cost effective manner, many VMs are turning to global vehicle
platforms, or "world cars," which typically are designed in one
location but produced and sold in many different geographic markets
around the world. With these vehicles, VMs can better serve multiple
markets and address local consumer preferences while controlling
design costs and taking advantage of low-cost manufacturing locations.
Suppliers for a specific world car are often required by the VM to
provide their products and services in all global locations where that
vehicle is manufactured. Few suppliers are able to provide this global
coverage and it is a source of significant competitive advantage for
these suppliers with global capabilities.
43
<PAGE>
o Ongoing Industry Consolidation. The worldwide automotive parts
industry is consolidating as suppliers seek to achieve operating
synergies through business combinations, shift production to locations
with more flexible local work rules and practices, acquire
complementary technologies, build stronger customer relationships and
follow their customers as they expand globally. According to U.S.
Industry and Trade Outlook 1999: Automotive Parts, the overall number
of Tier 1 suppliers worldwide decreased from 3,000 to 1,500 between
1990 and 1996, primarily due to industry consolidation. The trend for
suppliers to provide VMs with single-point sourcing of integrated
systems and modules on a global basis has helped drive industry
consolidation.
o Demand for Safe and Environmentally Friendly Products. Some VMs are
increasingly focused on, and governments are increasingly requiring,
safe and environmentally friendly or "green" products. Advances in
technology have led to a number of new innovations and have reduced
costs for existing products, such as passive and active restraints. In
addition, there has been increased consumer focus on safety.
Environmental trends cut across a wide range of innovations, from
emissions controls to fuel and fuel consumption improvements to
recyclable materials. In addition, there are some technologies, such
as fuel cells, which may revolutionize the automotive industry. The
ability of suppliers to cost-effectively produce safe and
environmentally friendly products will increasingly be a
distinguishing factor among suppliers.
Strategy
Our objective is to be the world's leading consumer-focused,
technology-driven automotive systems company. Whether we are selling to VMs or
directly to consumers, we regard the consumer as our ultimate customer. We
systematically gather and analyze consumer information that helps us anticipate
new trends and consumer preferences. We then can anticipate our VM customers'
needs with regard to new products and help introduce these products to
consumers, gaining acceptance for our products. We believe that our extensive
global presence and broad system capabilities provide us with a substantial
competitive advantage as we pursue new business around the world. This is
especially true as VMs move to global vehicle platforms, or world cars. We
believe that our extensive experience and expertise with Ford also gives us many
benefits as we pursue non-Ford business. We believe that our consumer focus,
global reach and the following strategies will allow us to capitalize on the
industry trends described above and to achieve our objective:
Capitalize on Our Core Ford Business. We have been the largest
supplier to Ford, the world's largest producer of trucks and the second
largest producer of cars and trucks combined, for most of Ford's history.
Worldwide, in 1999, we supplied an average of about $2,300 of content on every
vehicle that Ford sold. Ford's continued success in the market has earned it
four of the top ten vehicle models sold in the United States in 1999; we
supplied an average of about $2,900 of content per vehicle on those four
models. We also have a significant amount of content on a number of all-new,
potentially segment-leading products such as the Excursion, Escape, F-150
SuperCrew, Focus, Explorer Sport Trac and Lincoln LS. The Focus was named
"North American Car of the Year 2000" by the North American automotive press
and "European Car of the Year 1999" by the European automotive press, the
first car to win both awards. The Lincoln LS was named "2000 Motor Trend Car
of the Year." Some of these products represent entries into segments in which
Ford did not compete in the past. We expect continued success with Ford, and
our goal is to be a leader in these new vehicle segments, both with Ford and
with other VMs.
We have a substantial base of awarded business with Ford and we have also
entered into a supply agreement with Ford that allows us to secure additional
business. In addition, because we have been integrally involved in the design
and development of many of Ford's vehicles and we understand Ford's needs, we
believe that we are uniquely positioned to work with Ford on future models. Many
of our engineers work closely with Ford engineers at Ford facilities, ensuring
maximum cooperation and attentiveness to customer needs. We believe that this
combination will provide us with substantial future business. We expect that
Ford will remain our largest customer for a significant period of time. We have
been awarded Ford business of $16.3 billion for 2000, $16.0 billion for 2001,
$16.5 billion for 2002, $15.3 billion for 2003 and $13.9 billion for 2004, with
additional Ford business for the later years still expected to be awarded.
Although this business provides an important base, our sales to Ford may decline
over time.
44
<PAGE>
Improve Our Operating Performance. We have implemented a number of
initiatives to improve our operating performance on a continuous basis. Reducing
costs and streamlining product development and production improves
profitability, increases cash flow and frees up capital for investment.
Additionally, these operating performance improvements are particularly crucial
because of VMs' continued focus on price reductions.
Increased attention to our product and technology development and
production techniques has allowed us to achieve cost performance reductions of
more than $600 million annually over the last two years, primarily through a
combination of negotiations with our suppliers, material efficiencies and
manufacturing cost reductions. We have focused our performance strategies on the
following key functions:
o Product technology and development. We have put in place a disciplined
product development process and state-of-the-art computer tools, some
of which are proprietary to Visteon, for the design, development and
testing of products and systems. These advances have improved our
speed-to-market, reduced our development costs and improved our
overall quality. The use of computer tools has enhanced the design
process by incorporating engineering and manufacturing design rules
and/or process capabilities up front in the component or system design
phase. These tools also incorporate manufacturing and product
knowledge gained from past experiences and use it to make decisions
that significantly increase the probability of first pass success.
The effective use of computer-based product development tools is
demonstrated in the results we have achieved. For example, computer
tools have reduced design time on a fuel rail, instrument cluster and
air induction system by over 50% in key design phases. Warranty costs
for Visteon-supplied products have dropped an estimated 38% between
the 1994 model year and the 1999 model year.
o Procurement. We use global procurement to obtain competitive prices
for our direct and indirect materials, machinery, equipment and
services, as well as for parts we purchase from other suppliers for
use in our product offerings. In 1999, our total purchases were about
$9.8 billion. The procurement group achieved reductions in material
costs due to negotiations with our suppliers of about $540 million
combined in 1998 and 1999. Our independent procurement strategy will
be focused on identifying and obtaining the best price, terms and
quality for all materials and supplies. As an independent company, we
believe that we will be able to derive significant cost savings
through this increased focus on reducing our supply costs. We plan to
achieve this through the following:
o Re-sourcing supply contracts from our least competitive
suppliers: We believe that this re-sourcing will help us cut
procurement costs by moving contracts from high cost suppliers to
lower cost suppliers. In 1999, we enhanced our prior efforts with
the implementation of a formal commodity strategy, which analyzes
particular commodities and highlights opportunities to improve
our terms with current sources or identifies new alternative
sources. We believe that our updated re-sourcing program will
create a competitive environment among our suppliers and lead to
lower costs throughout the entire system.
o Increased use of Internet procurement: We plan on leveraging the
Internet to minimize procurement costs. We believe that these
savings will come primarily through the use of online auctions.
These auctions allow suppliers to bid on Visteon contracts online
and in real time. Our 1999 controlled experiment in Internet
sourcing and auctioning resulted in significant savings - on the
$189 million worth of products we sourced on the Internet, we
experienced double-digit percent reductions. We will
substantially increase our use of Internet sourcing and
auctioning. Additionally, we save time and effort with the new
online process.
o Leveraging scale: As the third largest auto parts supplier, we
are a major source of revenue to many of our suppliers. We have
experienced no detrimental effects from disaggregating our
volumes from Ford volumes and do not expect any adverse effects
in the future (in fact, we believe the shift in purchasing focus
from Ford to Visteon priorities will provide positive effects).
We believe we have purchasing leverage that can provide us with
significant strength in negotiating and, as a separate company,
we plan to fully utilize this leverage in order to obtain lower
supply costs from our suppliers.
45
<PAGE>
o Production. In 1995, we developed and began the process of
implementing the Visteon Production System (VPS) throughout our global
operations. VPS is designed to optimize material flow and inventory
while creating a flexible and predictable common production system. A
key part of our production strategy is "lean" cell-based manufacturing
for new programs and converting existing production facilities to
"lean" where feasible. The "lean" methodology relies on smaller
manufacturing units rather than dedicated large assembly lines and
leads to a number of operational improvements. This approach allows
greater flexibility and lower floor space, inventory and investment.
Currently, Visteon has completed 129 lean cells, has 128 more lean
cells under way, expected to be completed by December 2000, and has
329 additional lean cells planned, expected to be completed in the
next few years. Impressive results have been achieved from our first
round of implementation and have partially offset increased labor
costs: while results vary from project to project, an example is the
Sheldon Road climate control lean cell, in Plymouth, Michigan, which
resulted in a 58% reduction in floor space required, a 76% reduction
in inventory and capital expenditure avoidance equal to 66% of the
project's initial estimated cost. In deciding on which projects to
apply lean processes, we consider a number of variables, including
labor intensity, prior investments of capital and required new
investments of capital.
Expand Our Non-Ford Business. We have demonstrated our ability to grow our
non-Ford business over the past two years. In 1999, about 12% of our sales were
to non-Ford customers, up from 7% in 1997. We have a goal of expanding our
non-Ford business to 20% of our sales by 2002. We have been awarded non-Ford
business of $4.4 billion for 2004. Future new business wins should drive this
number higher. Our total non-Ford business was $2.3 billion in 1999. During
1999, we won new non-Ford business of $762 million. When we refer to new
business wins, we count the expected annual business once the program is running
at full volume. Some of our important new business wins in 1999 from non-Ford
VMs are: rear seat entertainment systems for General Motors, steering pumps and
gears for DaimlerChrysler, cockpits for Hyundai Motor Company and audio systems
for Fiat S.P.A. We believe that our spin-off from Ford, combined with our
technological leadership, systems engineering capability and high quality
products, will facilitate achievement of our goal.
Our strategy to win new non-Ford business, particularly on global
vehicles, is to take our technology, systems engineering skills and global scale
gained during our relationship with Ford and apply them to other VMs. To access
these VMs, our intent is to establish appropriate organizational staffing to
support these VMs, and to establish facilities near their headquarters and
manufacturing facilities. We have built a new sales and marketing organization,
currently at about 100 people and expected to grow to about 125 people by the
end of 2000, dedicated to non-Ford accounts. We have recruited account managers
from outside of Visteon with extensive automotive industry experience and
located them adjacent to the headquarters of VMs like General Motors,
DaimlerChrysler, Renault Group, Peugeot SA Citroen and Toyota Motor Corporation.
Visteon also stages technical reviews at customer sites with applications
engineers from regional technical centers to demonstrate our superior systems
capabilities and broad portfolio of products. In 1999, we conducted 19
customer-specific onsite technical exhibitions, which generally run for two
days.
We have made, and expect to continue making, strategic acquisitions,
alliances and joint ventures that give us increased access to non-Ford VMs. Our
June 1999 acquisition of the automotive interiors division of Compagnie Plastic
Omnium makes us the largest supplier of instrument panels in the world and adds
about $400 million of annual sales, including significant programs with three
major European VMs. We intend to leverage this business to provide cockpit
modules, including climate control, audio and multimedia systems to these
European VMs. We also made an acquisition in December 1999 that has made us the
leading provider of instrument panels in South Korea, giving us a key
relationship with Hyundai and Kia Motors. Because of the long lead time for
delivery under our contracts with VMs and our continued efforts to retain
attractive Ford business, any changes in the mix of our VM business will be
gradual.
We also believe that our automotive expertise lends itself to
non-automotive applications. We intend to leverage this expertise to grow our
non-VM business. While not yet material to our operations as a whole, we
currently provide electronic engine control systems for Polaris Industries, Inc.
motorcycles and fuel tanks for Honda Motor Co. motorcycles. Voice recognition,
theater seating and power generation are some of the other products and
technologies that have application outside of the automotive sector.
46
<PAGE>
Use E-Commerce to Lower Costs and Enhance Sales. The automotive
manufacturing business model is in a transition from "push" to "pull," with the
goal being a seamless supply chain building cars and trucks to precise consumer
specification on demand. The profit opportunity from being on the forefront of
this change is substantial, and we have identified what we believe are the major
components of this transition and have developed strategies to allow us to
capitalize on this transition.
Technology-based supply chain management techniques allow us to
substantially lower procurement costs, manage inventory and supply chain
logistics more efficiently, sell more effectively, and increase the value of our
products to consumers:
o Lower procurement costs: As discussed above, we are focusing efforts
on bringing more of our procurement online in an effort to remove
barriers to bidding and increase our global reach. We expect this to
lead to substantial savings over the next several years.
o Supply chain management: Tier 1 suppliers have traditionally built up
inventory to support the needs of VM customers. We have implemented
just-in-time deliveries and shipments and we plan to use technology to
improve our logistics. We are evaluating various e-commerce solutions
that will enable us to manage our freight operations on a real time
basis - linking the key freight operations via the Internet. Billing
would be managed electronically and the system would provide us with
instantaneous logistics data that allow us to understand the
underlying issues and optimize our material flow. Visteon is also
planning to change the way we handle procurement of carriers by going
to an e-commerce bidding process that would allow opportunities for
further freight savings.
o Increased selling effectiveness: Visteon has an e-commerce web site,
www.evisteon.com, that currently facilitates the sale and service of
our aftermarket products both for our business partners and for
consumers. Feedback and experience from this web site over the last
few months has resulted in an aggressive plan to update this web site
and enhance our transactional processing capability. We expect that by
the middle of 2000, www.evisteon.com will transition from being a site
that only facilitates our selling to a site where our business
partners will also conduct business. Our North American and European
business partners will be able to access an electronic catalog that
will permit them to view inventory availability and submit orders.
This is especially useful for small and/or remote customers, who would
traditionally have less access to this information. They will also be
able to select shipping methods, track order status and obtain account
information online.
Additionally, we plan to use e-commerce to increase the value of our
products to consumers. As the importance of wireless technology increases,
consumers will want to retrofit cars to include updated communication
capabilities. As drivers spend increasing time connected to the outside world,
we are well positioned to provide the necessary technology and interface.
Finally, we believe that by manufacturing innovative products, especially
those that are technologically advanced or that have regulatory or safety
impacts, we provide products that are not purchased solely on the basis of price
and which distinguish us in the Tier 1 arena.
Exploit Our Technology and Systems Engineering Leadership. Consumers are
increasingly demanding technology and electronics to make their cars safer, more
convenient and more comfortable. We believe that the use of electronics
integration and systems engineering to increase the functionality and
personalization of products is key to our future success. As VMs increasingly
demand systems instead of individual components, we expect to capitalize on that
trend. We are one of the few global suppliers able to deliver systems to VMs
across a wide array of product areas, with particular expertise in climate
control, audio and instrumentation. Together, sales of these three types of
systems accounted for $4.7 billion of our sales in 1999. We have extensive
experience in engineering complex and interactive vehicle systems, and have a
strong technical knowledge of vehicle and user requirements that form the basis
for integrating new technologies. Our systems engineering process allows us to
quickly interpret and translate customer (VM and consumer) needs to develop
innovative systems-based solutions depending on the
47
<PAGE>
needs of individual VMs and the aftermarket. Our advanced technology
organization works across business and functional lines to identify, develop and
incubate new products and businesses.
Examples of our application of technology and systems engineering for
competitive advantage are:
o We have developed innovative electronics-based, consumer products such
as dual staged air bag crash sensors, navigation systems,
voice-activated control systems, Internet-linked in-car computer
systems and rear seat entertainment systems, demonstrating our ability
to utilize the latest technology and provide consumers added
convenience, pleasure and safety. Examples of sales to VMs in these
high growth areas include voice activation, included in the 2000
Jaguar S-Type, and an adaptive restraint module with crash severity
algorithm and crash sensors, included in the 2000 Taurus. Our rear
seat entertainment systems were first introduced in the aftermarket in
mid-1999 and quickly resulted in awarded VM business that will reach
$40 million annually. We have product development relationships with
leaders in the consumer electronics arena, such as Nintendo Co., Ltd.,
Bang & Olufsen Holding A/S and Boston Acoustics, Inc.
o We are developing Superintegration, a technology that integrates
electronics into the surrounding environment in a highly flexible,
cost and space-efficient manner and provides the VM with significant
advantages in assembly, service and function. For example, our
superintegrated cockpit, which we have begun to market to VMs,
incorporates all the standard cockpit functions at a substantial cost
reduction and improves service, quality and reliability while
increasing the ease of upgrade. The superintegrated cockpit program
has showcased our technical abilities with key new customers and
allowed us to win more conventional systems and module business. The
superintegrated cockpit revolutionizes the design and manufacturing
process for what used to be a number of separately designed systems.
For example, instead of having separate power supplies for the
instrument cluster, the radio and the electronic climate control
system, the superintegrated cockpit would have one power supply, and
instead of having separate tone generators to signal that the car
doors are open or that the keys have been left in the ignition, the
audio system's speakers would be used. The superintegrated cockpit is
designed to reduce weight by 20% and delivery cost reductions in the
range of 14% to 20%. We also believe it will deliver a 27% improvement
in service time and a 30% increase in quality versus traditional
designs. We believe that Superintegration will be a key competitive
advantage for us.
o We use advanced engineering tools to create a virtual design and
testing environment. The use of these tools enables fast product
development cycles, minimizes cost and optimizes product performance.
For example, Visteon utilizes a proprietary technology to efficiently
explore alternative vehicle interiors to satisfy ergonomic and other
functions important to consumers. This three dimensional
computer-based tool creates occupant parameters inside a virtual
vehicle to investigate the ideal relationship between passengers and
the vehicle interior at the concept design stage. Once modeled, this
analysis can be done in minutes instead of weeks, without the need for
prototypes.
Grow Our Aftermarket Business. The aftermarket represents a major
opportunity for revenue and earnings growth. The time between design and launch
is only a matter of months, as compared to years in the case of new vehicle
production, allowing us to increase revenues more quickly. The aftermarket also
offers an opportunity to sell higher margin products and improve Visteon's
overall returns by leveraging our existing investments in engineering and
production. Importantly, the aftermarket serves as a forum for proving consumer
acceptance and commercial viability of new high technology product concepts,
leading to introduction in the new vehicle market. For example, the success of
our rear seat entertainment system in the aftermarket was a key factor in
influencing VMs to include it in their new vehicle programs. As we develop our
brands and introduce products in conjunction with leading brands, we expect
consumers to increasingly demand our products from VMs and "pull" these products
through the supply chain. The aftermarket also serves as a partial
diversification of our VM business.
As a major original equipment supplier to VMs, Visteon is well positioned
to capitalize on this market. We understand the complex characteristics of
automotive vehicles and our aftermarket replacement products are appealing to
consumers who wish to maintain the original performance and appearance of their
vehicles. Our sales
48
<PAGE>
to the aftermarket grew at a compound annual growth rate of 16% between 1997
and 1999, from about $660 million to about $885 million. Most of this growth was
in sales to non-Ford customers.
Our aftermarket strategy includes expanding our existing product lines to
"all makes," establishing a strong presence in new markets, building worldwide
distribution channels (including a business-to-business strategy online at
www.evisteon.com) and continuing our aggressive launch of new products.
Particular attention will be paid to utilizing new technologies whenever
possible. We believe that direct sales to consumers will increase over time. As
part of our strategy formulation, we have identified two major areas of
opportunity:
o Vehicle Personalization. Many consumers are looking to enhance or
personalize the performance and appearance of their vehicles. Fit,
finish and durability are essential elements for success in this area.
Our position as a leading VM supplier allows us to provide high
quality products that incorporate these elements. To take full
advantage of this opportunity, Visteon has launched an aftermarket
brand initiative under the RoadFx(TM])name.
o Replacements/repairs. This area allows us to capitalize on our
existing designs, tooling and manufacturing facilities.
Remanufacturing, in particular, is one of the fastest growing and most
profitable segments in the aftermarket, driven by strong economic
pressure on the cost of vehicle ownership (remanufactured parts retail
for about half the price of new parts) and the perception that it is
environmentally friendly.
We continue to use technology to strengthen our current brands while
developing equity in new brand names:
o Visteon multimedia products like the CD6 Music System,
NavMate(R) Navigation System and Rear Seat Entertainment
System, will be marketed and sold under the Visteon name, as these
products fall under the high technology umbrella of Visteon and
support the company's overall positioning strategy. A key branding
strategy of the aftermarket is to partner with well-respected
companies and brand names to help differentiate Visteon multimedia
products and to create greater consumer awareness. We have product
development relationships with consumer electronics leaders like
Nintendo, Bang & Olufsen, Texas Instruments, Microsoft Corporation,
Intel Corporation and Boston Acoustics. We are already selling several
products directly to consumers over the Internet, such as the
NavMate(R) Navigation System and the Visteon/Nintendo Rear
Seat Entertainment System.
o The aftermarket climate control business of Visteon utilizes the most
complex branding strategy due to its diverse distribution channel. The
ClimatePro(TM) by Visteon brand is distributed through the
traditional distribution network (to service providers via
distributors); Midas Gold(R) by Visteon is distributed to
more than 2,100 Midas, Inc. franchises; and our co-manufacturing
customers re-label Visteon's products under their private brands.
Counterman, a leading aftermarket parts and service publication,
ranked our contract with Midas as one of the major aftermarket
announcements of 1999. Visteon is currently developing another brand
name for the retail network.
Streamline and Focus Our Product Portfolio. Our long history as the
largest supplier of systems, modules and components to Ford has given us one of
the broadest portfolios in the automotive parts industry. This comprehensive
array of products is a strategic advantage for us - it allows us to compete
across many component areas and plays a key role in supporting our systems
capabilities.
While having a broad portfolio remains important to our success, we
believe that our spin-off from Ford will give us the flexibility and opportunity
to focus our investment and technical resources in high growth, strategic and
high margin areas. We have implemented, and continue to refine, a portfolio
management process. Through this process we regularly evaluate all of our
product lines to assess how each supports our overall vision and strategic
objectives, with a focus on electronics and systems integration. We intend to
invest in those businesses that fit our strategic vision and focus on
electronics and systems integration, while exploring every opportunity to
address low return operations. For example, we sold our steel wheels business in
1999, as we believed this to be a non-strategic, low margin business. In
addition, we intend to pursue strategic acquisitions and alliances that
complement or fill gaps in our product portfolio, enhance our design,
engineering and manufacturing capabilities and increase our
49
<PAGE>
access to new markets and customers. For example, Autoneural Systems, our
partnership with Sumitomo Electric Wiring Systems, Inc. combines our extensive
automotive systems capabilities and Sumitomo's advanced electrical distribution
expertise and provides added capability in delivering complete vehicle systems.
We believe that our spin-off from Ford will increase our ability to manage
our product portfolio over the long term based on our own strategic objectives.
Our labor arrangements, however, place some limits on our ability to divest or
restructure businesses in the near term.
Description of Business
Sales and Awarded Business
We sell to four principal types of customers:
o Ford VM
o non-Ford VM
o Ford aftermarket
o non-Ford aftermarket
We expect that Ford will remain our largest customer for the foreseeable
future due to the long-term nature of sales contracts in our industry, our
strong customer-supplier relationship with Ford and our supply agreement with
Ford. Our sales to non-Ford customers have grown from about 7% of our total
sales in 1997 to about 12% of our total sales in 1999, and we expect our
non-Ford sales to increase in the future. Recent non-Ford business wins include
rear seat entertainment systems for General Motors, steering pumps and gears for
DaimlerChrysler, cockpits for Hyundai and audio systems for Fiat.
We sell our products to the worldwide aftermarket for replacement parts.
Currently, about 42% of our aftermarket sales are to Ford's Automotive Consumer
Services Group for distribution principally to the North American aftermarket.
We sell our products globally. Of our 1999 total sales, about 80.8% were
in North America, 15.8% were in Europe and 3.4% were in the rest of the world,
primarily Latin America and Asia-Pacific.
The following table delineates our total sales for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
By customer:
Ford VM.................. 86.4% 90.2% 91.1%
Non-Ford VM.............. 9.0 5.8 5.0
Ford Aftermarket......... 1.9 1.9 1.8
Non-Ford Aftermarket..... 2.7 2.1 2.1
----- ----- -----
Total................ 100.0% 100.0% 100.0%
===== ===== =====
By geographic region:
North America............ 80.8% 83.2% 82.4%
Europe................... 15.8 15.1 15.4
Other (rest of world).... 3.4 1.7 2.2
----- ----- -----
Total................ 100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
50
<PAGE>
"Ford Aftermarket" refers to sales to Ford's Automotive Consumers Services
Group and "non-Ford Aftermarket" refers to sales to other aftermarket customers.
Our sales by geographic region are reported by the location of delivery of
product to the customer.
Contracts for VM Business. Automotive parts are generally sourced for the
length of production of a vehicle program, generally from three to seven years.
Tier 1 suppliers generally compete for new VM business at the beginning of the
development of new vehicle models and upon the redesign of existing vehicle
models, at which time a supplier would bid for the "replacement cycle" of an
existing product program. New vehicle model development generally begins two to
five years before the marketing of models to consumers. As a result, a
significant portion of a supplier's annual sales are generated pursuant to
arrangements entered into about two to five years before the sales related to
those arrangements begin to be realized.
The Tier 1 sourcing process for vehicle programs typically begins when a
VM seeks requests for quotations or initiates a development program with several
suppliers three to six years before anticipated vehicle production. Based on
these quotations, VMs in many cases then select and work with a supplier on
specific component design and development projects related to the new vehicle
program. The VM will then develop a proposed production timetable, including
current vehicle volume and option mix estimates based on its own assumptions,
and then source business with the supplier pursuant to written contracts,
purchase orders or other firm commitments, provided that the supplier can meet
the VM's designated conditions.
Awarded Business. We believe that we currently have a solid foundation of
awarded business upon which to grow our company once we are separated from Ford.
We track as "awarded business" the future sales that we have a strong
expectation of realizing. In calculating our awarded business, we have made
various assumptions and estimates regarding, among other things, the timing and
volume of vehicle production, option mix and product pricing. We have not
assumed that we will win any new business beyond that we have already been
awarded, but we have assumed that we will retain business upon minor and major
"refreshenings," except for (i) some business that we believe Ford will seek to
resource because we supply an overwhelming portion of that business and (ii)
some less attractive business on which we may choose not to bid. In estimating
our awarded business, we use assumptions about the volume and timing of vehicle
production and option mix and product pricing, adjusted based on other
information we may have.
While we believe our assumptions to be reasonable and the methodology by
which we track our awarded business to be appropriate, we continuously evaluate
and from time to time make modifications to our assumptions and methodology. As
a result, awarded business is not the same as contractual backlog, and we cannot
assure you that we will in fact realize any specific amount of awarded business
because it remains in all cases subject to a number of important risks and
uncertainties. VMs may delay, cancel or redesign vehicle programs, or may
resource business away from us upon a refreshening. In addition, our VM
customers generally have a contractual right to replace us with another supplier
throughout the duration of a contract for a variety of reasons, although the
impact of this contractual right is mitigated to some extent by the substantial
re-engineering costs that a VM typically would need to incur in order to
introduce a new supplier to an established vehicle platform.
Subject to these and other risks and uncertainties, we currently estimate
sales from our existing awarded business as follows:
<TABLE>
<CAPTION>
2004 2003 2002 2001 2000
---- ---- ---- ---- ----
(in billions)
<S> <C> <C> <C> <C> <C>
Awarded business (Ford)..... $ 13.9 $ 15.3 $ 16.5 $ 16.0 $ 16.3
Awarded business (non-Ford). 4.4 4.2 3.8 3.1 2.5
------- ------- ------- ------- -------
Total...................... $ 18.3 $ 19.5 $ 20.3 $ 19.1 $ 18.8
======= ======= ======= ======= =======
</TABLE>
The amount of our awarded business declines over time as the vehicle
programs in which we are currently participating mature and eventually
terminate. However, we expect over time, particularly in the later years, that
we will be awarded additional business from Ford and, increasingly, other
customers.
51
<PAGE>
Products
We operate in three business segments - Comfort, Communication & Safety,
Dynamics & Energy Conversion and Glass. The following table shows our total
sales and net income (loss) by segment and in total for the last three years:
<TABLE>
<CAPTION>
Total Sales Net Income (Loss)
------------------------------------ ----------------------------------
December 31, December 31,
------------------------------------ ----------------------------------
1999 1998 1997 1999 1998 1997
---------- ---------- ---------- --------- ---------- --------
(in millions)
<S> <C> <C> <C> <C> <C> <C>
Comfort, Communication & Safety..... $ 9,377 $ 8,337 $ 8,545 $ 422 $ 452 $ 439
Dynamics & Energy Conversion........ 9,216 8,673 7,918 344 294 136
Glass............................... 773 752 757 3 (15) (25)
--------- --------- --------- -------- -------- --------
Total (including unallocated
interest)........................ $ 19,366 $ 17,762 $ 17,220 $ 735 $ 703 $ 511
========= ========= ========= ======== ======== ========
</TABLE>
The following discussion describes each of our segments, as well as the
major product groups within each segment.
Comfort, Communication & Safety
Our Comfort, Communication & Safety segment is composed of our climate
control systems product group, which produces systems, modules and components in
the areas of fluid transport, air handling, heat exchange and compressors, and
our interior/exterior systems product group, which produces systems, modules and
components in the areas of cockpits, instrument panels, interior trim and seats,
lighting and bumpers, as well as safety and convenience systems such as air bag
electronics and voice activated control. Comfort, Communication & Safety
accounted for about $9.4 billion, or 48.4%, of our 1999 total sales.
Climate Control Systems. Our climate control systems product group is one
of the leading global suppliers of components and systems that provide
automotive heating, ventilation and air conditioning and powertrain cooling. The
climate control systems product group is divided into four business units: heat
exchanger, air handling, compressors and fluid transport. Climate control
systems operates in 24 manufacturing facilities throughout the world, of which
14 are outside of North America and 12 are non-unionized and one is shared with
another Visteon product group.
Our climate control systems product group is well positioned to capitalize
as air conditioning becomes standard equipment on European models due to
increasing consumer demand. Only 42% of vehicles manufactured in Europe in 1996
contained air conditioning systems. It is estimated that about 70% of vehicles
manufactured in Europe in 2002 will contain air conditioning systems.
In 1998, we acquired an 80% stake in PABA, Inc., a manufacturer and
distributor of aftermarket climate control products in North America. This
positioned us to supply replacement climate control parts for virtually every
make and model of automobile driven in North America. Based on the strength of
our product portfolio, we recently entered into an agreement with Midas under
which we will be the sole climate control component and system provider to
Midas.
Our climate control systems product group has demonstrated strong
full-service design capabilities and significant technological developments,
leading to major new business wins with VMs like General Motors, Jaguar and
Honda.
Interior/Exterior Systems. Our interior/exterior systems product group is
one of the leading global suppliers of cockpit modules, in-vehicle
entertainment, driver information, navigation, wireless communication, safety
and security electronics, exterior lighting, bumpers and fascias. The
interior/exterior systems product group is divided
52
<PAGE>
into five business units: cockpit systems - North America and Asia-Pacific,
interior systems - Europe and South America, lighting, interior trim and seats,
and bumpers. Interior/exterior systems operates in 37 manufacturing facilities
throughout the world, of which 26 are outside of North America and four are
non-unionized and two are shared with another Visteon product group.
To secure its position as a global cockpit provider, Visteon acquired the
automotive interiors division of Compagnie Plastic Omnium and a majority
interest in Duck Yang Ind. Co., Ltd., substantially increasing Visteon's
penetration into Europe and Asia, giving us increased access to five VMs out of
the world's 20 largest. Our acquisition of the automotive interiors division of
Compagnie Plastic Omnium adds about $400 million of annual sales.
Because of its critical role in the sensitive design phase for a new
vehicle platform, interior/exterior systems has been limited in its ability to
bid on non-Ford business. Despite this difficulty, interior/exterior systems has
recently won several significant new contracts with General Motors,
DaimlerChrysler, Honda, Renault, Fiat and Peugeot. By being spun-off from Ford,
we expect to be able to substantially increase our non-Ford sales.
The following table shows the various products in our Comfort,
Communication & Safety segment:
<TABLE>
<S> <C>
Product Line Description
- ---------------------------------------- ---------------------------------------------------------------
Climate Control Systems
Heat Exchanger Some of the products produced by this unit include radiators,
condensers, evaporator and heater cores, cooling modules and
intercoolers.
The unit also produces exhaust gas recirculated coolers which aid in
the improvement of diesel emissions with the new generation of
diesel engines.
Air Handling Some of the products produced by this unit include heating,
ventilating and cooling modules, manual controls and electronic
automatic temperature controls.
Compressors This unit produces piston compressors that raise refrigerant
pressures to provide interior cooling as part of the air conditioning
system and scroll compressors that utilize scroll technology (which
utilizes rolling rather than sliding components, reducing friction and
extending component durability up to 10 years/150,000 miles) for air
conditioning systems.
Fluid Transport This unit produces pressurized a/c hoses (that route refrigerant in the
air conditioning system), accumulators (which are pressurized
reservoirs for the refrigerant in the air conditioning system), and
hydraulic hoses for power steering.
Interior/Exterior Systems
Interior Systems/Safety
Multimedia Systems This unit produces a wide range of audio systems and components,
including integrated cassette/CD/DVD radios, amplifiers, and
audiophile systems such as Mach(TM), as well as other systems made
in conjunction with Bang & Olufsen and Boston Acoustics.
53
<PAGE>
Entertainment Systems This unit produces integrated in-vehicle systems which transform
home electronic products into automotive vehicle entertainment
systems, including DVD and VHS players. We have worked with
companies like Nintendo and Sharp Electronics Corporation to bring
their systems into the automobile.
Advance Communication Systems This unit produces products such as wireless portable cellular phone
docking units, satellite digital audio radio, ICES(TM) (which is
electronic hardware and software architecture that supports
information, communication, entertainment, safety and security
features) vehicle emergency messaging and NavMate(R) (which is an
in-vehicle, turn-by-turn navigation system with route guidance
provided through a color display screen, turn icons and voice
directions). These systems are able to move information into, out of,
and around the vehicle utilizing technologies like the Global
Positioning System, the Internet, cellular, voice activated control, the
Microsoft Windows CE(TM) operating system and the Palm(TM)
interface.
Vehicle Body Electronics This unit produces electronic products that can control or sense
various functions within the vehicle, including safety, switching,
security and control. Examples include remote keyless entry, anti-
theft and multiplexing modules, which reduce electrical wires and
connectors.
Cockpit Modules and Instrument These units produce fully integrated instrument panels which
Panels incorporate the latest safety, driver information, electrical
distribution, multimedia, advance communication and climate
control systems. These functional instrument panels are styled to
correspond to vehicle brand image. They can be hard, soft or 100%
recyclable panels. Soft panels can utilize a cast skin process or an
environmentally friendly vacuum formed process.
Safety/Security Systems This unit produces products for occupant protection through crash
deployment electronics, crash detection electronics, emergency
messaging systems, remote keyless vehicle entry, engine
immobilizers, airbag cutoff sub-systems, occupant position/weight
sensing systems, energy absorbing materials and energy management
electronics.
Driver Information Systems This unit produces information displays using projected imaging
systems to analog/digital instrumentation. Information systems and
components provide vehicle information and include analog,
electronic and high impact instrument clusters, message centers, fuel
computers, clocks and warning modules. Future technologies such
as virtual and re-configurable projected image displays/message
systems are under development.
54
<PAGE>
Seat Systems This unit produces luxury seating systems which incorporate
enhanced safety, comfort and styling concepts. Our safety seats
enhance occupant protection through better energy management,
crash severity adaptivity, integrated airbags and anti-whiplash
features. We also produce theater seats which deliver styling and
comfort in the movie world.
Our interior systems group also produces advanced door modules
and systems as well as a variety of interior trim products enhancing
the look and feel of the vehicle's interior.
Exterior Systems
Lighting Systems This unit produces front lamps, signal lamps and rear lamps which
utilize special optic-design software.
Bumpers This unit produces painted fascias and bumpers for front and rear
that support the vehicle energy management system using blow
molding and injection molded technologies.
</TABLE>
Dynamics & Energy Conversion
Our Dynamics & Energy Conversion segment is composed of our energy
transformation systems product group, which produces systems, modules and
components in the areas of energy management, distributed power generation,
electrical conversion, and fuel storage and delivery, and our chassis systems
product group, which produces systems, modules and components in the areas of
axle and driveline, steering and chassis products. Dynamics & Energy Conversion
accounted for about $9.2 billion, or 47.6%, of our 1999 total sales.
Energy Transformation Systems. Our energy transformation systems product
group is one of the leading global suppliers of systems, modules and components
for enhancing powertrain performance, fuel economy and emissions control. The
energy transformation systems product group is divided into five business units:
energy management - North and South America, energy management - Europe and
Asia-Pacific, electrical conversion, fuel storage and delivery, and distributed
power generation. Energy transformation systems operates in 22 manufacturing
facilities throughout the world, of which 12 are outside of North America and
seven are non-unionized and 11 are shared with another Visteon product group.
Energy transformation systems has developed a product portfolio that will
benefit from several trends in the energy market. Over time, it is expected that
direct injection, hybrid vehicles, and, in the longer term, fuel cells will
replace port fuel injection. As a result, over the last few years, energy
transformation systems has increased its engineering spending on new systems,
restructuring its capabilities to offer products that address these trends, such
as the 42-volt electrical system, which will power increased electronics and
electrical devices in the automotive vehicle.
Energy transformation systems has also developed important technology for
distributed power products and has begun commercialization of these products
outside of the non-automotive area. Distributed power, which is the use of
electrical generators (micro-turbine, battery or fuel cell powered) to supply
locally to households, commercial sites and ultimately to the main power grid,
is a fast growing market. We intend to participate in the growth of this market
by supplying electronic controls as well as hardware and software.
Energy Transformation Systems has recently won several significant new
contracts with VMs like GM, Honda, Toyota and Volkswagen in the automotive area,
and Honeywell International in the non-automotive area.
Chassis Systems. Our chassis systems product group is one of the leading
global suppliers of complete chassis systems, modules and components. The
chassis systems product group is divided into three business units: chassis
55
<PAGE>
components, axle/driveline and steering systems. Chassis systems operates in ten
factories throughout the world, of which five are outside of North America, one
is non-unionized and one is shared with another Visteon product group.
Chassis systems is one of the few suppliers that can design and manage a
fully integrated chassis composed of driveline and axle systems, steering
systems and suspension systems. Chassis systems' product portfolio is currently
aligned with its "manage torque to the wheels" strategy. This facilitates true
driveline and chassis system optimization and added customer value by
eliminating significant design and test lead time.
Chassis systems is developing new products which combine fuel savings,
driving and steering enhancement, and ease of assembly, such as electric power
assist steering, which provides 4% to 4.5% fuel economy savings on a vehicle the
size of a Ford Focus. Additionally, chassis systems leads the market in
technology for four wheel drive and all wheel drive vehicles.
Our chassis systems product group has recently won significant new
contracts with General Motors and DaimlerChrysler.
The following table shows the various products in our Dynamics & Energy
Conversion segment:
<TABLE>
<S> <C>
Product Line Description
- ------------ -----------
Energy Transformation Systems
Energy Management Some of the products produced by this division include: electronic
engine controls, throttle body valves, fuel pressure
regulators/dampers, speed control systems, sensors, injectors/fuel
rails and plastic intake manifolds.
Electrical Conversion This unit produces alternators, starters, ignition coils, poly-gel
mitigators, which aid the production of efficient bumper energy
absorbers lowering collision damage at low speeds, and custom
designed front and rear wiper/washer systems. For future needs, we
are developing a 42-volt electrical system.
Fuel Storage and Delivery This unit produces fuel tanks, delivery modules, oil and water pumps
and carbon canisters, which control evaporative emissions.
Distributed Power This unit produces power conditioning systems that provide stand-
alone electricity generation capacity to non-automotive customers.
Chassis Systems
Suspension and Fully Integrated This unit produces front and rear modules, corner modules,
Chassis Systems suspension electronic modules, springs, stabilizer bars, knuckles and
spindles. In addition, this unit is developing superintegrated chassis
systems for optimal performance.
Axle/driveline This unit produces all wheel drive systems, hypoid rear axles,
independent suspension axles, driveshafts, halfshafts, power take-off
units (which send power to both the front and rear wheels in 4 wheel
drive and all wheel drive vehicles), brake discs and brake drums.
Steering Systems This unit produces hydraulic power assisted steering systems, rack
and pinion steering gears, recirculating ball nut steering gears, power
steering pumps, steering columns, electric and electro-hydraulic
systems and manual steering gears.
56
<PAGE>
Exhaust Systems This unit produces a full range of catalytic converters which treats
the vehicle's tailpipe exhaust in order for it to comply with the clean
air requirements.
</TABLE>
Glass
Our Glass segment is composed of our vehicle glazing product group, which
produces glass products for Ford and aftermarket customers, and our commercial
glass product group, which produces float glass for commercial architecture. The
Glass segment is divided into two product groups: vehicle glazing and commercial
glass. Glass accounted for about $773 million, or 4.0%, of our 1999 total sales.
Glass operates in five manufacturing facilities, of which one is outside of
North America and two are non-unionized.
Additionally, Visteon plans to increase the profitability of its existing
operations by shifting high labor content production from unprofitable
operations to lower cost facilities. In the past year, the Glass segment was
able to increase its profitability through significant head count
rationalizations and plant closure, rationalization of its bidding for new VM
business, controls on capital expenditures, and focus on reducing material
costs.
The following table provides a description of the Glass segment product
lines:
<TABLE>
<CAPTION>
Product Line Description
- ------------ -----------
<S> <C>
Vehicle Glazing Products include windshields, backlites, moon roofs, and side
windows. Capabilities include glass design, development and
manufacturing. Aftermarket replacement glass products are
distributed under the Carlite(R) brand name.
Commercial Glass This unit produces float glass for commercial architectural and
automotive markets.
</TABLE>
Product Technology and Development
We have substantial technical and vehicle systems integration expertise.
We have worked directly with Ford's vehicle design engineers to develop
innovative products and complete automotive systems for Ford's vehicles. As a
result, we have developed a comprehensive knowledge of the design, engineering,
manufacture and operation of all aspects of the automotive vehicle. We have been
responsible for the introduction of a number of innovations in the automotive
industry such as integrated voice activated control of the cellular phone, audio
system and climate control system, currently available in the Jaguar S-Type.
We believe our engineering and technical expertise, together with our
emphasis on continuing research and development, allows us to use the latest
technologies, materials and processes to solve problems for our customers and to
bring new, innovative products to the market. Visteon has strategically located
design and manufacturing activities in 20 countries, and more than 125
manufacturing, engineering, sales and technical centers to provide our worldwide
VM customers with local design, application and manufacturing capabilities. We
have over 8,900 technical personnel around the world.
The Visteon Technology Office serves as the nerve center of our
engineering operation. This organization, with representatives from each of
Visteon's systems areas, works to maximize Visteon's systems integration
capabilities in technology development worldwide. The group works primarily to
identify and prioritize new technology development. Additionally, it acts as the
"incubator" of new and cross-divisional technologies. The level of systems
integration that Visteon is presently developing goes far beyond that found on
any vehicle or system today.
57
<PAGE>
The following table shows information on our technology, research and
development:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1999 1998 1997
------------ ------------- -------------
<S> <C> <C> <C>
Research and development expenditures (in millions)... $ 1,115 $ 1,004 $ 855
Research and development as a percentage of sales..... 5.7% 5.7% 5.0%
Patents awarded
Primary......................................... 146 134 113
Global.......................................... 267* 302 221
Patent applications
Primary......................................... 249 206 192
Global.......................................... 683* 560 548
Engineers, scientists, technical
specialists and technicians......................... 8,900 8,100 7,800
</TABLE>
- ----------
* There is a time lag in reporting of non-United States patents and patent
applications. Therefore, these numbers are not complete.
Our total expenditures for research and development activities are
expected to be about $1.2 billion in 2000.
Our separation arrangements with Ford generally provide that we will own
intellectual property rights associated with technologies that support
development or integration of vehicle components and that Ford will retain
intellectual property rights associated with technologies that support vehicle
systems integration or brand identities. Accordingly, Ford has transferred to us
full ownership of over 3,700 patents and patent applications worldwide,
including over 1,500 primary patents and pending patent applications. In
addition, we and Ford have agreed to cross-license most of these intellectual
property rights to each other to the extent they are associated with
technologies developed prior to August 1, 1999. These cross-licenses will be
non-exclusive, royalty-free, and will include rights to make, have made, use and
sell the licensee's products. As a result, Ford will be permitted to have our
competitors produce components for Ford utilizing our technology licensed to
Ford. We believe that the aggregate values of the cross-licenses are about
equal. We believe that we are receiving the intellectual property necessary for
us to conduct our business.
We have been actively working with technology development partners as well
as our customers to develop several important technological capabilities. We
believe that our electronics integration expertise and our systems capabilities
will enable us to continue to provide innovative, systems-based solutions for
our customers in the future. Many of these advanced products are being developed
through partnerships between our product system groups. Advanced products such
as these will allow Visteon to participate in the substantial growth we expect
to see in vehicle-integrated electronics and systems. Some of these products
include:
o Adaptive Cruise Control. This system uses a forward-looking
sensor to detect other vehicles or objects in front of the
vehicle. The system reduces speed when approaching slower-moving
vehicles by adjusting the throttle or the brake. The system
maintains a "safe" distance based on highway speed and gap
between vehicles. The adaptive cruise control system should
improve safety by reducing the risk of collision, while at the
same time improving driver comfort and convenience. We currently
expect this product to be available in 2003.
o Adaptive Restraint System. This system provides a VM with the
next generation of safety performance. These adaptive restraints
provide tailored deployment of the front and side air bags to
match the severity of the crash, taking into account whether an
occupant is belted or unbelted and the location of the seat
relative to the air bag. To complement adaptive air bag
deployment, Visteon also has multiple solutions to provide weight
sensing for passenger air bag suppression and occupant detection.
This system is ahead of any federal requirements. This product is
currently available on the 2000 Ford Taurus.
o ICES (Information, Communication, Entertainment, Safety &
Security System). ICES is a vehicle computing platform capable of
supporting an on-board multimedia system that we are developing
with
58
<PAGE>
Intel and Microsoft. It consists of an open hardware and
software electronics architecture that makes possible a wide
range of features, from emergency calls and navigation to
on-board entertainment. A core feature is Visteon's voice
recognition technology, which allows drivers to use a wide range
of features safely, with verbal commands. We currently expect
this product to be available in 2000.
o RPID (Reconfigurable Projected Image Display). A reconfigurable,
integrated instrument cluster employing a high-definition video
display, allowing a user to personalize an instrument cluster and
its gauges. This highly advanced product is currently under
development and uses technology licensed from Texas Instruments.
We currently expect this product to be available in 2003.
Visteon's research and development focus is directed toward the following
areas:
o Environmental. New legislation for environment-friendly products
provides growth opportunity for those companies that can use
technology to introduce environment-friendly products with few
value trade-offs. One example is Visteon's next generation
air-conditioning system that uses high pressure CO(2) as its
refrigerant. This solution make economic sense and does not
represent the leakage or disposal hazard of current refrigerants.
o Safety. As highway speeds, vehicle size and traffic congestion
increase, the risk associated with a vehicle fatality increases.
To address this concern, Visteon is developing passive as well as
active safety systems - the latter capable of supporting
intelligent transportation systems. Collision avoidance systems,
occupant protection systems and adaptive cruise control are a few
examples of the products that Visteon has in its product pipeline
to support its vision of tomorrow's transportation network.
o Human-Machine Interface. Our researchers believe that the next
major area of electronics growth in the vehicle is the
human-machine interface. Visteon has introduced leading-edge
voice technology that controls audio, climate, and communication
systems. The opportunity for the proliferation of voice
technology throughout the vehicle and beyond is significant and
Visteon expects to participate in that growth through its
leadership position in this technology.
o Passenger Comfort and Convenience. As consumers spend more time
in their automobiles, systems that provide heightened levels of
comfort and convenience become a prerequisite for their vehicle
purchase decision. Visteon's anticipation of consumer needs,
combined with our considerable electronics integration
capability, have resulted in a stream of products that enhance
vehicle comfort and convenience from navigation to wireless
communication systems.
o Process Enablers. Visteon believes its proprietary computer
modeling capabilities are key to achieving world-class
speed-to-market with new products and systems, and gaining access
to new customers. For example, a new modeling tool that allows us
to assess occupant ergonomic, comfort, and convenience factors in
a virtual environment significantly shortens development times
and reduces prototype tooling costs.
We believe that continued research and development activities are critical
to maintaining our leadership position in the industry and will provide us with
a competitive edge as we seek additional business with new and existing
customers.
Production
Global Presence. We seek to maximize our operating performance in order to
enhance our financial performance in the current highly competitive environment.
Visteon's global footprint, operational productivity and customer focus are
essential elements that provide the basis for achieving our business objectives.
As of December 31, 1999, Visteon operated 84 owned and leased manufacturing
sites in 20 countries, representing every major region of the world. We also
maintain a network of engineering and technical centers in every major region of
59
<PAGE>
the world. We believe that our manufacturing presence is one of the most
expansive in the global automotive parts industry.
Visteon Production System (VPS). In 1995, we developed and began the
process of implementing the Visteon Production System (VPS) throughout our
global operations. VPS is designed to optimize material flow and inventory while
creating a flexible and predictable common production system. It integrates
processes for human resources, industrial materials, material flow, in-station
process control, total productive maintenance, engineering and our quality
operating system. We are able to leverage our skill base, a key element of the
process by engaging the people on the shop floor who have direct involvement in
how operations are set up and run on a day-to-day basis. Through the
implementation of VPS we expect to continue to reduce our manufacturing
investments, costs and floor space utilization, while increasing our
productivity and improving our inventory management. VPS has allowed us to:
o achieve better inventory turns (currently 22 inventory
turns/year)
o improve gross manufacturing efficiency, resulting in gross
savings of $537 million (cumulatively) in 1998 and 1999
o improve product quality (from 1994 to 1999, warranty costs for
Visteon-supplied products dropped by an estimated 38%)
o be more responsive to the changing needs of our customers
A key part of VPS is "lean" cell-based manufacturing for new programs and
converting existing production facilities to "lean" where feasible. The "lean"
methodology relies on smaller manufacturing units rather than dedicated large
assembly lines and leads to a number of operational improvements. This approach
allows greater flexibility and lower floor space, inventory and investment.
Currently, Visteon has completed 129 lean cells, has 128 more lean cells under
way, expected to be completed by December 2000, and has 329 additional lean
cells planned, expected to be completed in the next few years. Impressive
results have been achieved from our first round of implementation and have
partially offset increased labor costs; while results vary from project to
project, an example is the Sheldon Road climate control lean cell, in Plymouth,
Michigan, which resulted in a 58% reduction in floor space required, a 76%
reduction in inventory and an investment avoidance equal to 66% of the project's
initial estimated cost.
In-Line Vehicle Sequencing. Principally as a result of manufacturing
initiatives designed to reduce assembly costs, VMs often require their suppliers
to provide just-in-time delivery of pre-assembled systems or modules directly to
their production lines. Just-in-time delivery provides multiple, small-batch
deliveries on an as-needed basis compared to traditional large-batch deliveries
which increase inventory levels and reduce the VM's assembly efficiency.
Just-in-time delivery generally requires that the supplier have a local presence
where some sub-assembly functions are performed in close proximity to the VM's
manufacturing facility. As a result, the supplier's facility becomes, in effect,
an extension of the VM's manufacturing process.
Our in-line vehicle sequencing process takes just-in-time delivery one
step further by providing our products not only when the VM needs them, but also
in the correct assembly sequence. For example, we supply to in-line sequenced
Ford vehicle assembly plants in both North America and Europe. Currently, we
assemble and deliver instrument panels for the Expedition vehicle that are
sequentially unloaded from the container, with the correct color and options,
for attachment directly onto the vehicle as it moves down the VM's assembly
line. Our in-line vehicle sequencing process enables us to better service our VM
customers' needs through the coordination of our own manufacturing processes
with those of our customers. We currently supply in-sequence cockpits for the
Ford Expedition and the Lincoln Navigator, as well as for the Ford Focus in
Europe, and bumpers for the Navigator, the Focus and other Lincoln vehicles.
60
<PAGE>
Procurement
We use global procurement to obtain competitive prices for our direct and
indirect materials, machinery, equipment and services, as well as for parts we
purchase from other suppliers for use in our product offerings. Currently, Ford
handles purchases for some of our raw material and subcomponent and component
needs. We believe that our size enables us to have sufficient scale and
purchasing leverage to avoid incurring incremental purchasing costs following
our spin-off from Ford. In 1999, our total purchases were about $9.8 billion.
This amount covered our purchases of parts from other suppliers for use in our
product offerings, as well as raw materials and associated freight and
production-related services.
Our independent procurement strategy will be focused on identifying and
obtaining the best price, terms and quality for all materials and supplies. As
an independent company, we believe that we will be able to derive significant
cost savings through this increased focus on reducing our supply costs. We plan
to achieve this in three ways:
o Re-sourcing: We will re-source supply contracts from our least
competitive suppliers. We believe that this re-sourcing will help
us cut procurement costs by moving contracts from high cost
suppliers to lower cost suppliers. In 1999, we enhanced our prior
efforts with the implementation of a formal commodity strategy.
This strategy analyzes particular commodities and highlights
opportunities to improve our terms with current sources or
identifies new alternative sources. We believe that our updated
re-sourcing program will create a competitive environment among
our suppliers and lead to lower costs throughout the entire
system. Historically, we have been able to achieve annual
material reductions of 3% to 3.5%. However, a recent analysis
indicates that out of about 1,600 suppliers 142 accounted for 80%
of our negotiated material cost reductions in 1999. These
suppliers accounted for 47% of our 1999 material purchases. We
expect that through our commodity strategy, e-commerce
initiatives and Internet bidding, a significant portion of our
purchased materials can be re-sourced over several years, with
significant annual percentage reductions realized.
o Increased use of Internet procurement: We plan on leveraging the
Internet to minimize procurement costs. We believe that these
savings will come primarily through the use of online auctions.
These auctions allow suppliers to bid on Visteon contracts online
and in real time. By leveraging the Internet, Visteon can improve
its global reach and drive more quickly to market pricing and
away from the current practice of target pricing. For example, in
1999 we initiated Internet sourcing and auctioning by conducting
a controlled experiment with auctions for certain commodity
groups (e.g., printed wiring boards, plastics, semiconductors,
exhaust, stampings and hoses). The use of on-line auctioning
provides a global forum and includes more suppliers in the
bidding process (in our experiment we had up to 12 pre-qualified
participants per auction, versus three to four participants in a
typical manual sourcing process). These efforts have resulted in
significant savings - on the $189 million worth of products we
sourced on the Internet, we experienced double-digit percent
reductions. Although results will vary, this experiment confirms
the tremendous opportunity available through the use of this
technology. We will substantially increase our use of Internet
sourcing and auctioning. The auction process enables purchasing
managers to view and evaluate competitive bids online, supplying
them with more complete information by eliminating procedures
that divided bids among separate managers. Additionally, we save
time and effort with the new online process, which has proven to
reduce the average number of days to identify savings by 70%, as
measured against Visteon's 1999 commodity strategy process that
is, itself, a significant improvement over the prior process.
These auctions take place on several platforms.
o Leverage scale: As the third largest auto parts supplier, we are
a major source of revenue to many of our suppliers. We have
experienced no detrimental effects from disaggregating our
volumes from Ford volumes and do not expect any adverse effects
in the future. We believe we have purchasing leverage that can
provide us with significant strength in negotiating and, as a
separate company, we plan to fully utilize this leverage in order
to obtain lower supply costs from our suppliers.
61
<PAGE>
We believe that, as a consequence of our re-sourcing strategy, our use of
Internet technology and our scale, the efficient purchasing of materials, goods
and services offers a major cost reduction opportunity.
Workforce
General. As of December 31, 1999, we had a workforce of 81,449 persons,
including 17,260 salaried workers and 64,189 hourly workers. 2,787 of our
salaried workers were unionized, mostly in Europe. Our weighted average hourly
compensation cost per employee has dropped from $25.32 in 1996 to $23.05 in
1999.
The following table shows information about our workforce by major region
as of December 31, 1999:
<TABLE>
<CAPTION>
Hourly Workforce Salaried Workforce Facilities
---------------- ------------------ -------------------- Number of
Region Union Non-Union Union Non-Union Union Non-Union Unions
- ------ ----- --------- ----- --------- ----- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
United States............ 29,641 97 50 9,592 21 1 4
Canada................... 1,392 345 129 171 1 2 2
Mexico................... 2,600 9,400 0 1,200 4 7 2
------ ------ ----- ------ -- -- --
Total North America .. 33,633 9,842 179 10,963 26 10 8
Europe................... 10,532 5,948 2,230 2,300 25 2 26
South America............ 2,430 0 378 0 6 0 2
Asia-Pacific............. 1,288 516 0 1,210 6 9 3
------ ------ ----- ------ -- -- --
Total................. 47,883 16,306 2,787 14,473 63 21 39
====== ====== ===== ====== == == ==
</TABLE>
<TABLE>
<CAPTION>
Union Breakdown Facilities* Workforce
- --------------- ----------- ---------
<S> <C> <C>
United States (hourly & salaried)
Ford UAW agreement............... 16 24,513
UAW non-master agreement......... 3 1,540
IUE.............................. 2 3,588
Other unions..................... 2 50
------
Total........................... 29,691
======
</TABLE>
- ----------
* Some facilities have multiple unions.
Ford and the UAW have agreed that (i) all UAW-represented employees
covered by the Ford UAW agreement who are working at Visteon facilities as of
____________, 2000 will remain Ford employees indefinitely and will continue to
be covered under the Ford UAW agreement, (ii) Visteon will continue to use the
services of these employees and, in some circumstances, other Ford UAW employees
who transfer to our facilities, and (iii) Visteon will adopt a collective
bargaining agreement for hourly employees hired into UAW-represented facilities
after ___________, 2000 that closely reflects the Ford UAW agreement and the
next two master agreements between Ford and the UAW. In addition to guaranteeing
Ford wage and benefit levels, the terms of the Ford UAW agreement provide for
significant employment security. Under an agreement between Ford and us, we have
agreed to fully reimburse Ford for the costs of the Ford employees working in
our facilities, including amounts (limited to $50 million per year in each of
2000-2004) for profit sharing based on Ford's profits. Our reimbursement
obligations apply to all these employees even if we do not need or utilize all
of them for any reason, including if we lose business from Ford or another VM.
See "Relationship with Ford -- Hourly Employee Assignment Agreement."
We also have agreed with the UAW that all new hourly employees hired into
our UAW-represented facilities after ___________, 2000 and during the term of
the current four-year Ford UAW agreement and the terms of the next two master
agreements between Ford and the UAW will, for the duration of their employment
with and retirement from Visteon, receive wages, benefits and other terms and
conditions of employment that closely reflect those required to be provided from
time to time by Ford to its UAW-represented employees.
62
<PAGE>
In Europe, all Ford employees (both hourly and salaried) working in
Visteon facilities have, or will prior to the spin-off, become our employees. We
have agreed that for the duration of their employment with and retirement from
us, we will provide these employees with wages, benefits and other terms and
conditions of employment that closely reflect those required to be provided by
Ford to its employees in the respective countries.
The current Ford UAW agreement expires in September 2003, Ford's national
agreement with the British trade unions expires in November 2002. Ford Germany's
present agreement expired on February 29, 2000. Regional bargaining is under
way, to be followed by local Works Council discussions.
We constantly work to establish and maintain positive, cooperative
relations with our unions around the world. Our success is evidenced by the fact
that it has been nearly 25 years since we experienced any national-level work
stoppage in the U.S. We believe these cooperative relations, which aided in our
creation of joint agreements to improve productivity and labor efficiency, are a
competitive advantage as we work with our unions to make our workforce one of
the most productive in the automotive supplier business.
We and most of our unions have reached a mutual recognition that Visteon's
future success is dependent on us continuing to create productivity gains to
enhance our competitiveness. Through flexible bargaining arrangements, we expect
to accelerate our already improving productivity and manufacturing trends to
assist us in meeting and adapting to changing market conditions. For example, in
our facilities covered by the Ford UAW agreement, we and the local unions have
established joint operational effectiveness committees that are charged with
evaluating, developing and implementing workplace changes to enhance competitive
position; by mutual agreement, they can implement workplace changes up to and
including altering contractual arrangements in mid-bargaining cycle. In Europe,
agreements have been reached that have broadened the skilled trades' involvement
in production, by incorporating them as direct members of Integrated
Manufacturing Teams, or IMTs, including running production equipment. In all
areas of the world, we have established alternative work patterns to match our
production needs, thus maximizing our manufacturing capacity and increasing the
efficiency of our skilled trades by combining classifications.
Although not subject to bargaining, we also have broad employee and union
support for the introduction of the Visteon Production System (VPS) as our
manufacturing operating system. We believe VPS allows us to achieve increased
ongoing productivity and cost efficiencies.
Customers
Ford. Ford is our largest customer and we are its largest automotive parts
supplier. Ford is the world's largest producer of trucks and the second largest
producer of cars and trucks combined. Most of our sales to Ford are to its North
American operations. In 1999, our sales to Ford accounted for about 88% of our
total sales, as shown below.
<TABLE>
<CAPTION>
Percentage of
Customer 1999 Total Sales
- -------------------------------------------------- ----------------
<S> <C>
Ford-North America............................... 72.2%
Ford-Europe...................................... 13.5
Ford-South America............................... 0.5
Ford-Asia-Pacific................................ 0.2
Ford's Automotive Consumer Services Group........ 1.9
----
Total Ford ................................... 88.3%
====
</TABLE>
The supply agreement and related pricing letter we have entered into with
Ford in connection with our spin-off provide that all of our existing purchase
orders with Ford as of January 1, 2000 will remain in effect at least through
the end of 2003, subject to Ford's right to terminate any particular purchase
order if we fail to maintain certain performance standards (see "Relationship
with Ford--Supply Agreement and Related Pricing Letter"). In addition, the
pricing letter requires a one-time 5% price reduction on products that we were
supplying to Ford as of January 1, 2000 based on a market pricing review
conducted by Ford and us. The pricing letter also requires productivity price
63
<PAGE>
adjustments in each of 2000, 2001, 2002 and 2003 to reflect competitive price
reductions obtained each year by Ford from its other Tier 1 suppliers. We and
Ford have agreed on a 3.5% productivity price reduction for 2000 on such
products, which is consistent with (i) price reductions between Visteon and Ford
in prior years and (ii) the amount of annual productivity improvement that Ford
generally expects from its other Tier 1 suppliers. Price adjustments for 2001,
2002 and 2003 will be calculated using a basket of products composed of
identical or substantially similar products that Ford purchases from other
suppliers. Our overall price reductions to Ford as a percentage of net sales
were 4.9% in 1999, 3.2% in 1998 and 2.7% in 1997.
Under the supply agreement, until May 31, 2003, we have a right of last
refusal to meet competitive terms, including price, technology, service and
design, on replacement products that (i) we produce in North America, Europe and
Mexico (for Mexican production intended for export to the U.S. only) and (ii) we
supplied to Ford on January 1, 2000. Although the right of last refusal does not
apply to Ford's Volvo or Jaguar brand vehicles or to Mazda Motor Corporation's
vehicles, Ford has agreed to use reasonable efforts to provide us with similar
opportunities to bid for business with respect to these vehicles.
We expect that the opportunity under the supply agreement to provide these
replacement products to Ford, together with our existing purchase orders and
other commitments, will provide us with the foundation to maintain substantial
business with Ford for the foreseeable future. We will also have the opportunity
to bid on the same basis as other suppliers for other new Ford business. Our
ability to realize sales on all Ford business, including business awarded
pursuant to existing purchase orders, is in all cases subject to a variety of
factors, including the volume and option mix of vehicles actually produced by
Ford, the timing of that production and our continuing competitiveness.
Recently, Ford, General Motors and DaimlerChrysler announced an initiative
to establish an Internet-based marketplace for most, if not all, of their
purchases. It is likely that other major VMs will join this marketplace or
announce competing initiatives. This may put additional price pressure on us as
we compete against other Tier 1 suppliers.
Non-Ford VMs. Although Ford is by far our largest customer, we do business
with 17 of the 20 largest VMs worldwide. These relationships have enabled us to
develop an understanding of global customer needs and business opportunities.
Based on 1998 worldwide market shares, the five largest VMs, other than Ford,
are General Motors Corporation, Toyota Motor Corporation, Volkswagen AG,
DaimlerChrysler AG and Fiat S.p.A., which collectively had an aggregate market
share of about 59.1% of all light vehicles produced throughout the world in 1998
according to The Automobile News 1999 Market Data Book. We currently do business
with each of these VMs. Our top five VM customers other than Ford accounted for
about 3.4% of our total 1999 sales. Mazda Motor Corporation, of which Ford owns
a 33.4% equity interest, is one of our top five non-Ford customers, accounting
for about 1.1% of our 1999 sales. We expect the portion of our sales and profits
coming from non-Ford VMs to grow following the spin-off, as the VMs' concerns
about confidentiality of product design and technology information are eased. In
1999, 38% of the new business we were awarded for delivery in future years was
non-Ford business.
Most of our products are sold under long-term agreements that require us
to provide percentage cost reductions each year. These annual cost
reductions are made directly through price reductions and/or indirectly through
suggestions regarding manufacturing efficiencies or other cost savings.
Because we have historically operated as a division of Ford, substantially
all of our existing contracts with these non-Ford customers were signed by Ford,
not Visteon, and require the consent of the customer in order to assign or
transfer the contract, including from Ford to Visteon. We have had discussions
with all of our non-Ford customers regarding our spin-off from Ford and our
intent to continue to perform under these existing contracts. Given the
extremely large number of existing contracts with our non-Ford customers and the
positive feedback received during discussions with our non-Ford customers, we do
not currently intend either to seek consents from or to enter into new contracts
with these customers in connection with our spin-off from Ford. Based on these
discussions, we do not believe that our spin-off from Ford will adversely affect
our business with these customers. However, we cannot assure you in this regard.
64
<PAGE>
Aftermarket. We sell products to the worldwide aftermarket as replacement
parts or as customized products, such as body appearance packages and in-car
entertainment systems, for current production and older vehicles. In 1999, our
aftermarket sales were about $885 million, representing 4.6% of our total sales.
We currently sell 58% of this product to the independent aftermarket and 42% to
Ford's Automotive Consumer Service Group, the principal aftermarket sales
organization of Ford. In 1999, 89% of our aftermarket sales were in North
America, with 9% in Europe and 2% in South America. Visteon's independent
aftermarket sales are focused in five key areas -- climate control,
remanufactured components, glass, personalized multimedia and vehicle appearance
products.
Non-VM Customers. We are also leveraging our experience and expertise in
the automotive industry to create products with applications in other
industries. Many of the products and technologies that we have created in the
automotive industry have applications in other industries with minimal
additional development cost or time delay. Some of these products include high
power electronics, instrument clusters and theater seats, which we are selling
to the power generation, motorcycle and movie cinema industries. Our non-VM
customers include Honeywell, Honda for motorcycles and Polaris. These non-VM
sales accounted for only a nominal amount of our 1999 total sales. We believe
that opportunities exist to increase our sales in this area and we intend to
continue to work to expand our sales to non-VM customers.
Sales and Marketing
Visteon has established a sales and marketing organization of dedicated
customer teams that provide a consistent interface between key customers and the
company. These teams are located in North America, South America, Europe and
Asia-Pacific and include program engineers located at customer sites, customer
service representatives and plant-resident engineers. Our total sales and
marketing staff is currently 664 people. The breakout of our sales and marketing
organization as of December 31, 1999 was as follows:
<TABLE>
<CAPTION>
North America South America Europe Asia-Pacific Total
------------- ------------- ------ ------------ -----
<S> <C> <C> <C> <C> <C>
Ford sales.............. 257 6 83 12 358
Non-Ford VM sales....... 52 6 27 12 97
Aftermarket sales....... 167 14 28 - 209
--- -- --- -- ---
Total............. 476 26 138 24 664
=== == === == ===
</TABLE>
We expect our overall sales and marketing staff to expand as we expand our
efforts to gain non-Ford business. We expect that by the end of 2000, we will
have about 125 people dedicated to non-Ford sales and about 216 people dedicated
to aftermarket sales. These increases will be somewhat offset by a decline in
our Ford sales staff to about 319 at the end of 2000. We maintain this extensive
worldwide customer network in order to better represent individual customers'
interests within our organization, promote customer programs and coordinate
global customer strategies with the goal of enhancing overall customer service
and satisfaction. Our ability to support our customers around the world is
further enhanced by our global presence in terms of manufacturing sites,
customer service centers and sales activity offices and technical and
engineering support.
Our sales and marketing activities are designed to create overall
awareness, consideration and purchase of our components, integrated systems and
modules. To further this objective, we participate in international trade shows
in Paris, Frankfurt, Tokyo and Detroit. We also provide on-site technology
demonstrations at each of our major VM customers on a regular basis. We
advertise in a variety of trade publications and offer an Internet site at
www.visteon.com. We have recently set up a website, www.evisteon.com, to sell
our aftermarket products. Ford has transferred to us ownership of more than
1,600 global trademark registrations and applications, reflecting multi-country
registrations. Our trademarks include Visteon(R), Carlite(R), ClimatePro(TM),
RoadFx(TM), NavMate(R) and the Visteon
logo.
65
<PAGE>
Competition
We conduct our business in a highly competitive industry. The global
automotive parts industry principally involves the supply of components, systems
and modules to VMs for the manufacture of new vehicles, to other suppliers for
use in their product offerings and to the aftermarket for use as replacement
parts for older vehicles.
Although the overall number of our competitors has decreased due to
ongoing industry consolidation, the automotive parts industry remains extremely
competitive. VMs rigorously evaluate suppliers on the basis of product quality,
price competitiveness, technical expertise and development capability, new
product innovation, reliability and timeliness of delivery, product design
capability, leanness of facilities, operational flexibility, customer service
and overall management. Many of our competitors have lower cost structures,
particularly with respect to wages and benefits, than our company.
Our overall product portfolio is extremely broad by industry standards.
Very few other Tier 1 suppliers compete across the full range of our product
areas. However, we do have significant competition in each of our segments. Our
most significant competitors within each segment are listed below.
Comfort, Communication & Safety. Our principal competitors in
the Comfort, Communication & Safety segment include the following: Delphi,
Denso Corporation, Johnson Controls, Inc., Lear Corporation, Magna
International Inc., Valeo S.A., Mannesman VDO AG and Nippon Seiki Co., Ltd.
Dynamics & Energy Conversion. Our principal competitors in the Dynamics &
Energy Conversion segment include the following: American Axle & Manufacturing
Holdings, Inc., Robert Bosch GmbH, Dana Corporation, Delphi, Denso, Siemens and
TRW, Inc.
Glass. Our principal competitors in the Glass segment include the
following: Asahi Glass Company Limited, AFG Industries, Inc., Pilkington Plc and
PPG Industries, Inc.
Properties
Our principal executive offices are located in Dearborn, Michigan. We
occupy this facility, as well as a number of other facilities, under
arrangements with Ford.
66
<PAGE>
We also maintain regional headquarters for our Asia-Pacific region in
Tokyo, Japan, for our Europe/ Africa/Middle East region in Dunton, England and
for our South America region in Sao Paulo, Brazil. We maintain 49 technical
facilities/sales offices and 84 owned and leased plants in 23 countries
throughout the world. The following table shows the total square footage of our
principal owned and leased facilities by region as of December 31, 1999:
<TABLE>
<CAPTION>
Number of Total
Manufacturing Manufacturing Sites
Region Sites Square Footage
- ------ ----- --------------
(in millions)
<S> <C> <C>
North America........ 36 29.5
Europe............... 27 8.7
South America........ 6 1.3
Asia-Pacific......... 15 2.6
-- ----
Total.......... 84 42.1
== ====
</TABLE>
In some cases, several of our manufacturing sites, technical centers
and/or customer service centers and sales activity offices are located at a
single multiple-purpose site. We also maintain a limited number of miscellaneous
facilities. The following table shows the number of various types of facilities
by region as of December 31, 1999:
<TABLE>
<CAPTION>
Customer
Manufacturing Technical Centers and
Region Sites Centers Sales Offices
------------- --------- -------------
<S> <C> <C> <C>
North America..... 36 17 4
Europe............ 27 6 12
South America..... 6 - 1
Asia-Pacific...... 15 1 8
-- -- --
Total....... 84 24 25
== == ==
</TABLE>
We are currently evaluating long-term plans to consolidate our worldwide
engineering and technical resources, including our technical centers, into a
more efficient, customer-focused global engineering support network. While we
believe that this consolidation will enhance our ability to provide engineering
and technical support to our customers around the world, we also expect that it
will have the effect of reducing the overall number of our technical centers.
We believe that our facilities are suitable and adequate, and have
sufficient productive capacity, to meet our current and currently anticipated
needs.
Environmental Matters
Visteon 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. We have an environmental management structure designed to facilitate
and support our compliance with these requirements. We cannot assure you,
however, that we are at all times in complete compliance with all of these
requirements. Although we have made and will continue to make capital and other
expenditures to comply with environmental requirements, we do not expect capital
or other expenditures for environmental compliance to be material in 2000 or
2001. Environmental requirements are complex, change frequently and have tended
to become more stringent over time. Accordingly, we cannot assure you that these
requirements will not change or become more stringent in the future in a manner
that could have a material adverse effect on our business.
Visteon is also subject to environmental laws requiring the investigation
and cleanup of environmental contamination at properties it currently owns or
operates and at third party disposal or treatment facilities to which these
sites sent or arranged to send hazardous wastes. We are aware of contamination
at certain of our properties and have agreed to an allocation of liability at
various third party superfund sites at which Ford has been named as a
67
<PAGE>
potentially responsible party. We are in various stages of investigation and
cleanup at these sites. At December 31, 1999, Visteon had recorded a reserve of
about $13.9 million for this environmental investigation and cleanup. We cannot
assure you that our environmental cleanup costs and liabilities will not exceed
the current amount of our reserve and that any excess amount will not be
material.
In general, we will bear liability for environmental claims relating to
the sites being transferred to us as if we had historically operated as an
independent company. In connection with our spin-off from Ford, we and Ford have
generally agreed that we are liable for all future claims relating to the sites
that have been transferred to us and our operation of those sites, including
off-site disposal. Generally, Ford will retain liability for environmental
claims relating to sites not transferred to us or currently operated by us. In
addition, we and Ford have agreed on a division of liability for, and
responsibility for management and remediation of, some existing environmental
claims. See "Relationship with Ford--Master Transfer Agreement--Division of
Liabilities."
Legal Proceedings
We are involved in routine litigation incidental to the conduct of our
business. We do not believe that any litigation to which we are currently a
party will have a material adverse effect on our financial condition.
We face an inherent business risk of exposure to product liability claims
in the event that the failure of our products results, or is alleged to result,
in property damage, bodily injury and/or death. We cannot assure you that we
will not experience any material product liability losses in the future or that
we will not incur significant costs to defend these claims. In addition, if any
Visteon-designed products are, or are alleged to be, defective, we may be
required to participate in a recall involving those products. Each VM has its
own policy regarding product recalls and other product liability actions
relating to its suppliers. However, as suppliers become more integrally involved
in the vehicle design process and assume more vehicle assembly functions, VMs
are increasingly looking to their suppliers for contribution when faced with
product recalls or product liability claims. Because this is a new trend in our
industry and we have only limited experience in this regard, we cannot assure
you that our costs associated with providing product warranties will not be
material.
From time to time, in the ordinary course of business, Visteon receives
notices from customers that products may not be properly functioning. Our
warranty responsibility for our products is generally governed by the terms and
conditions of the applicable contract. These terms and conditions vary from
contract to contract. Most of our contracts require that we make certain
warranties to our customers regarding, among other things, conformity to
specifications and freedom from defect.
Currently, VMs customarily absorb the cost of warranty claims arising
under and during the specific base warranty offered to consumers. For vehicles
sold in the United States, this base warranty period, depending on the vehicle
model, generally ranges from 3 years or 36,000 miles to 5 years or 60,000 miles,
in each case, whichever comes first. Under its agreements with VMs, Visteon is
responsible for claims arising from abnormal base warranty experience traceable
to specific components or systems manufactured, supplied or assembled by
Visteon. Abnormal base warranty claims are those that are in excess of those
projected by VMs. These projections are customarily based on experience with
earlier product models or contemporaneous experience with a similar product type
supplied by another supplier. In some cases, we and the VM may agree on a
sharing arrangement with respect to abnormal warranty claims. We do not have
increased exposure for extended warranty coverage purchased by consumers.
VMs are increasingly requiring their outside suppliers to guarantee or
warrant their products and to bear the costs of repair and replacement of those
products under new vehicle base warranties. Because this is a new trend in our
industry and we have only limited experience in this regard, we cannot assure
you that our costs associated with providing product warranties will not be
material.
In connection with our spin-off from Ford, Ford will retain liability for
all product liability, warranty or recall claims that involve parts made or sold
by us for 1996 or earlier model year Ford vehicles. Our liability for these
types of claims relating to 1997 or later model year Ford vehicles will be
governed by Ford's global terms and
68
<PAGE>
conditions, with the understanding that we will be treated by Ford as any other
third party supplier, and in accordance with Ford's customary treatment of other
suppliers. We have assumed liability for all product liability, warranty or
recall claims relating to parts made by us and delivered to third parties at any
time.
We believe that we are adequately insured, including with respect to
product liability coverage, at levels sufficient to cover the claims described
above, subject to commercially reasonable deductible amounts. Visteon has been
an "insured" under all of Ford's property and liability insurance programs
worldwide. We will remain insured under those programs, subject to the same
limitations and conditions of coverage applicable to all Ford operations, until
the spin-off. We expect to purchase liability insurance, to be effective at the
time of the spin-off, in amounts determined at that time to be adequate, with
reasonable deductibles or self-insured retentions that will allow for the most
effective financing of predictable losses. We have also established reserves in
amounts we believe are reasonably adequate to cover any adverse judgments.
However, any adverse judgment in excess of our insurance coverage and those
reserves could have a material adverse effect on our business and financial
condition.
69
<PAGE>
RELATIONSHIP WITH FORD
We and Ford have entered into a number of agreements in connection with
our separation and spin-off from Ford. The agreements described below effect the
separation and also provide a framework for our ongoing relationship with Ford,
including some transitional arrangements. Ford has contributed or otherwise
transferred to us generally all of the assets, and we have assumed generally all
of the liabilities, comprising the Visteon business. We call this transfer of
assets and assumption of liabilities the "separation." We and Ford have agreed
to transfer legal title to any remaining assets and any remaining liabilities of
the Visteon business not transferred prior to the spin-off, most of which are
foreign assets and liabilities subject to regulatory and other delays, as soon
as practicable. In the interim, we will operate and receive the economic
benefits of (and bear the economic burdens of) these assets. These assets are
not, individually or in the aggregate, material to our company. The information
included in this information statement, including our consolidated financial
statements, assumes the completion of all of these transfers.
The following is a summary of the terms of the material agreements we have
entered into with Ford. This summary is qualified by reference to the full text
of the agreements, which are filed as exhibits to the Form 10 registration
statement of which this information statement is a part. References to the
"Visteon business" are to the activities conducted under the name Visteon
Automotive Systems, an enterprise of Ford Motor Company, including (i) those
activities conducted by subsidiaries and affiliates aligned with that enterprise
and (ii) all historical operations.
Distribution Agreement
We and Ford have entered into a distribution agreement in connection with
the spin-off. Under the distribution agreement, we and Ford have generally
agreed to indemnify each other and the other's affiliates and controlling
persons from specified liabilities under the securities laws relating to the
Form 10 registration statement and this information statement or to contribute
under specified circumstances to the amount paid or payable by the other in
respect of those liabilities.
Master Transfer Agreement
Asset Transfers. The master transfer agreement, dated March 30, 2000,
provides for Ford to transfer to Visteon and/or its subsidiaries, or for Ford to
cause certain of its subsidiaries to transfer to Visteon and/or its
subsidiaries, prior to the spin-off, generally, all assets used exclusively in
the Visteon business, including but not limited to real property interests,
personal property, ownership interests in subsidiaries and joint ventures, the
name "Visteon" and the associated logo. Separate arrangements have been made for
rights to certain intellectual property, as described below.
Division of Liabilities. We and Ford have agreed on a division of certain
liabilities, as of April 1, 2000, as described below:
o General. Except for any liabilities that Ford may specifically agree
in writing to retain, we will assume all debts, liabilities,
guarantees, contingencies and obligations of the Visteon business,
whether asserted or unasserted, fixed or contingent, accrued or
unaccrued, known or unknown.
o Product Liability, Warranty and Recall Claims. Ford will retain
liability for all product liability, warranty or recall claims that
involve parts made or sold by the Visteon business for 1996 or earlier
model year Ford vehicles. Our liability for these types of claims
relating to 1997 or later model year Ford vehicles will be governed by
Ford's global terms and conditions, with the understanding that we
will be treated by Ford as any other third party supplier, and in
accordance with Ford's customary treatment of other suppliers. We have
assumed liability for all product liability, warranty or recall claims
relating to parts made by the Visteon business and delivered to third
parties at any time.
70
<PAGE>
o Environmental Claims. We and Ford have agreed on a division of
liability for, and responsibility for management and remediation of,
existing environmental claims. Future environmental claims arising out
of the sites that have been transferred to us and our operation of
those sites will be our liability. Ford will retain liability for
environmental claims relating to sites not transferred to us or
currently operated by us.
o Intellectual Property Claims. Subject to certain exceptions, Ford will
retain liability for all intellectual property claims that involve
parts sold or supplied to Ford on or prior to July 31, 1999. Subject
to certain exceptions, our liability for these types of claims
relating to later-supplied parts will be governed by Ford's global
terms and conditions, with the understanding that we will be treated
by Ford as any other third party supplier, and in accordance with
Ford's customary treatment of other suppliers. We have assumed
liability for intellectual property claims relating to parts sold or
supplied by the Visteon business to third parties at any time.
o Employment and General Litigation Claims. We and Ford have agreed on a
division of liability for certain employment and general litigation
claims.
General. We have agreed to indemnify Ford for:
o all liabilities assumed by us or our affiliates under the master
transfer agreement or other agreements entered into in connection with
the separation; and
o any failure by Visteon or any of its subsidiaries to perform any
agreement or covenant in the master transfer agreement or any other
agreement relating to the separation.
We and Ford have agreed to execute all instruments to carry out the
purposes of the master transfer agreement. If any aspect of the transfer or
attempted transfer of assets or liabilities would violate a contract or would
violate any law, statute, decree, rule, regulation or other governmental edict,
and no consent, waiver or authorization can be obtained, Ford has agreed to use
commercially reasonable efforts to give us the full benefits and burdens of, and
cause us to operate, the affected assets or liabilities until the applicable
assets or liabilities are legally transferred.
In addition, we have agreed to work diligently to replace or otherwise have
released all bonds and other guarantees backed or issued by Ford on behalf of
the Visteon business.
We and Ford have agreed that any disputes arising under the master transfer
agreement will be submitted to nonbinding mediation, and if that is not
successful, to binding arbitration, according to established procedures.
Supply Agreement and Related Pricing Letter
We have entered into a supply agreement, dated as of January 1, 2000, and
a pricing letter agreement, dated March 31, 2000, between Ford and us.
General; Pricing; Payment Terms. The supply agreement and related pricing
letter we have entered into with Ford in connection with our spin-off provide
that all of our existing purchase orders with Ford as of January 1, 2000 will
remain in effect at least through the end of 2003, subject to Ford's right to
terminate any particular purchase order for the reasons set forth below. In
addition, the pricing letter requires a one-time 5% price reduction on products
that we were supplying to Ford as of January 1, 2000 based on a market pricing
review conducted by Ford and us. The pricing letter also requires productivity
price adjustments in each of 2000, 2001, 2002 and 2003 to reflect competitive
price reductions obtained each year by Ford from its other Tier 1 suppliers. We
and Ford have agreed on a 3.5% productivity price reduction for 2000 on such
products, which is consistent with (i) price reductions between Visteon and Ford
in prior years and (ii) the amount of annual productivity improvement that Ford
generally expects from its other Tier 1 suppliers. Price adjustments for 2001,
2002 and 2003 will be calculated using a basket of products composed of
identical or substantially similar products that Ford purchases from other
suppliers. The pricing letter provides that, in each of 2001, 2002 and 2003, the
parties will agree upon an initial price reduction to be effective commencing
January 1 that will remain in effect until the calculation of the actual
71
<PAGE>
adjustment is made during the fourth quarter of the year. The initial reduction
will be used by Visteon for invoicing purposes until the actual adjustment is
determined in the fourth quarter of each year. In addition to these price
reductions, we have agreed to use our best efforts to achieve design and
engineering improvements in our products sold to Ford so as to further reduce
their cost to Ford by 1.5% to 2.5% each year.
Unless they are inconsistent with the terms of any existing purchase order
with Ford, the terms and conditions of Ford's standard purchase order are
incorporated into each existing purchase order. In the case of any conflict
between the existing contracts and the supply agreement, the supply agreement
will control.
Generally, payment terms under existing purchase orders will remain
unchanged. However, we have agreed to participate with Ford, consistent with
Ford's other Tier 1 suppliers, as and when Ford moves to different supply chain
models and payment terms.
New Business; Right of Last Refusal. Generally, we will be treated by Ford
in the same manner it treats its other Tier 1 suppliers with respect to Ford's
general sourcing policies and practices, including new purchasing and sourcing
initiatives. All purchase orders for new business will be subject to Ford's
standard purchase order terms and conditions.
Until May 31, 2003, we have a right of last refusal to meet competitive
terms, including with respect to price, on replacement products that (i) we
produce in the United States, Canada, Europe and Mexico (for Mexican production
intended for export to the U.S. only) and (ii) we supplied to Ford on January 1,
2000, provided that we are competitive in terms of design, quality, service and
technology as these factors relate to all aspects of bid packages that may be
submitted by other suppliers. Although the right of last refusal does not apply
to products we produce outside the United States for Ford's Volvo or Jaguar
brand vehicles or products we produce anywhere for Mazda Motor Corporation's
vehicles, Ford has agreed to use reasonable efforts to provide us with similar
opportunities to bid for this business with respect to these vehicles.
Ford's Right to Terminate Contracts If We Are Not Competitive. The supply
agreement allows Ford to terminate its purchase obligations under a purchase
order for a given component, if:
o there is a demonstrable decline in the overall quality of our products
or services supplied under that purchase order,
o we do not remain competitive in terms of design, quality, service,
technology and delivery with other responsible suppliers or potential
suppliers for that component, or
o Ford can obtain supplies of that component from other suppliers of
significantly advanced design or processing.
Ford must give us three months' notice of any termination under these
provisions. We then have until one month before the scheduled termination to
demonstrate to Ford that we will correct the cause for termination by the
termination date or a subsequent date acceptable to Ford, in which case the
purchase obligation with respect to the affected component will not be
terminated.
We will participate in Ford's quality, cost, warranty and customer
satisfaction improvement programs consistent with Ford's other suppliers.
Process for Exiting Businesses. We have agreed not to sell or exit any of
our business operations engaged in the production of products for Ford without
first advising Ford of our intent to do so, providing sufficient detail with
respect to the means by which we expect to assure Ford of a continued supply of
affected products on the same terms and conditions, through the remaining terms
of the affected purchase orders. We have agreed to reasonably consider Ford's
input and concerns and Ford has agreed to cooperate in good faith with us in any
restructuring actions.
72
<PAGE>
Master Separation Agreement-Transitional Services
The master separation agreement, to be dated as of June 1, 2000, provides
for Ford to provide transitional services, as previously identified by us, until
December 31, 2001. These transitional services are services historically
provided to us by Ford. In return, we have agreed to pay Ford amounts that
reflect its fully accounted cost for these services, including a reasonable
allocation for internal overhead costs, as well as any direct costs incurred
from outside suppliers. If Ford provides a service to third parties, Ford will
charge us the same amount as it charges those third parties.
We may terminate any transitional service upon six months' written notice
to Ford and our payments to Ford will be adjusted accordingly. We have agreed to
use commercially reasonable efforts to obtain all transitional services from
sources other than Ford no later than December 31, 2001. If we are unable to do
so, we may continue to obtain the required transitional service through June 30,
2002, provided that we have notified Ford by June 30, 2001.
We have identified the following six most significant transitional
services: information technology, human resources, accounting, customs, product
development technology and real estate. We and Ford have agreed that Ford will
not provide the following services after the spin-off: insurance coverage,
insurance administrative services and legal services. Transitional services for
information technology are covered by a separate agreement that provides that
certain services may be provided until ___________.
Aftermarket Relationship Agreement
We and Ford have entered into an agreement effective as of January 1, 2000
relating to our supplying components for Ford's aftermarket business, which is
managed by Ford's Automotive Consumer Services Group ("ACSG"). The agreement
provides that any components purchased by ACSG from Visteon for vehicles
currently in production will be governed by the supply agreement and related
pricing letter discussed above. With respect to components purchased by ACSG
from Visteon for vehicles no longer in production, Ford will honor the terms and
conditions of all existing agreements, subject to certain modifications
described below.
Pricing. As to pricing for non-production components, ACSG has agreed to
price increases for 2000 not to exceed $4 million. Further, the parties have
agreed to a net average price decrease in 2000 of approximately 1.5% of all
components sold by Visteon to ACSG. For each year 2001, 2002, 2003 and 2004, the
parties have agreed to a net average price decrease of approximately 2% of the
prior year Visteon sales to ACSG, excluding newly sourced components first sold
to ACSG after July 1 of the prior year. In addition, we can receive credit for
these annual price reductions to the extent of cost savings we pass on to ACSG
resulting from changes in design, processing, packing and shipping of components
and for the value of all remanufactured parts sold to ACSG.
Tooling. We will be permitted to use tooling owned by ACSG to produce
components for sale to third parties (i.e., other aftermarket suppliers or
wholesale distributors) through 2004. Use of such tooling will be without
additional charge in 2000. However, in 2001, we will be required to pay ACSG a
tooling use and maintenance fee of 2% and 3.5% on the net sales of components
produced from ASCG-owned tooling and sold to aftermarket suppliers and wholesale
distributors, respectively. For each of the years 2002, 2003 and 2004, such fee
payments will be 2.5% and 4%, respectively. The obligation to make fee payments
does not apply to the following uses of ACSG-owned tooling:
o production of climate control components sold to Midas,
o production of components sold to Freightliner Corporation for its
Sterling HN-80 models,
o production of components sold to Mazda, Nissan Motor Co., Ltd. and
Volkswagen for current programs, and
o production of components for sale to Ford dealers in the Middle East.
73
<PAGE>
Right of Last Refusal. During the period January 1, 2000 through December
31, 2002, we will have the right to match the best offer presented to ACSG for
the supply of replacement products on all current production service parts, all
remanufactured parts that ACSG requires and which are manufactured by Visteon,
and all new service parts that ACSG requires and that are manufactured by
Visteon during the period. To invoke the right of last refusal, we must be
competitive in terms of quality, service and delivery.
Carlite(R) Glass Business. Our automotive glass aftermarket
business utilizing the Carlite(R) brand will continue as currently
operated by us in accordance with past practice and ACSG will have no right or
interest in the business. This will include the continuing right to co-brand
replacement glass with the Ford logo for a period of ten years.
Service Distributor Network. Visteon will continue to manage the Visteon
Service Distributor Network covering audio systems and equipment, instrument
clusters and speedometers. ACSG will continue to recognize Visteon as the sole
authorized service center and distributor, subject to certain agreed upon
exceptions, for the term of the agreement.
Hourly Employee Assignment Agreement
We and Ford have entered into an Hourly Employee Assignment Agreement
effective on April 1, 2000. This agreement sets forth our and Ford's rights and
obligations with respect to the about 23,580 United States hourly employees of
Ford (the "Ford Hourly Employees") who (i) are represented by the UAW, (ii) are
covered by the Ford UAW agreement, (iii) as of the effective date, are employed
in one of our facilities and (iv) after the effective date, will remain Ford
employees indefinitely but will be assigned to work for us.
Under the agreement, we, as Ford's agent, will exercise day-to-day
supervision over the Ford Hourly Employees, including assigning work and
evaluating, supervising and disciplining such employees in accordance with the
terms of the Ford UAW agreement. We will advise Ford of any major issues that
arise under the Ford UAW agreement or other major employment matters potentially
affecting UAW hourly represented Ford employees or other significant matters.
Ford reserves the right to handle the matter if a joint course of action cannot
be agreed.
Ford will continue to provide payroll processing services for the Ford
Hourly Employees (including paying wages and other compensation and making
appropriate tax withholdings and filings) and will continue to provide Ford
Hourly Employees with the same employee benefits generally offered to other
hourly employees of Ford who are represented by the UAW. We will reimburse Ford
generally monthly for the wage, benefit and other costs incurred by Ford for the
Ford Hourly Employees, including:
o Weekly gross wages and any other type of compensation, such as
Christmas bonuses, moving allowances, profit sharing payments
(including amounts based on Ford's profits) and any other cash
compensation. Our liability for profit sharing based on Ford's profits
is limited to $50 million per year in each of 2000-2004. After 2004,
we will be liable for the full amount of profit sharing.
o A per employee standard monthly benefit cost calculated from time to
time by Ford (excluding costs relating to retiree pension, health care
and life insurance benefits).
o An annual payment for retiree pension, health care and life insurance
benefits. We have agreed to prefund a VEBA for postretirement health
benefits commencing January 1, 2006 through December 31, 2020, subject
to certain limitations.
o Other expenses incurred by Ford with respect to each Ford Hourly
Employee that arise from such employee's work for Visteon, such as
reserves for any worker's compensation claims arising out of any work
accident while such employee was performing work for Visteon.
o Reasonable and necessary travel and business related expenses incurred
by Ford Hourly Employees while performing work for Visteon and
reimbursed by Ford under Ford's standard travel and business expense
reimbursement policy.
74
<PAGE>
o All assessments, premiums or other taxes incurred by Ford with respect
to the Ford Hourly Employees.
o Direct out-of-pocket incremental costs incurred by Ford in relation to
establishing and maintaining benefit programs applicable to the Ford
Hourly Employees, including legal, record-keeping, actuarial and
accounting fees not otherwise paid from trusteed plans.
We are obligated under the agreement to maintain our facilities in which
the Ford Hourly Employees work in conformance with legal requirements. We also
are obligated to comply with all applicable federal, state and local health and
safety laws and laws relating to wages and hours, overtime and discrimination in
respect of the Ford Hourly Employees.
We have assumed liability for any pending employment claims related to the
Ford Hourly Employees with the exception of one class action. If we desire to
hire any Ford Hourly Employee, Ford will not interfere with the job offer. Ford
has agreed to allow us to participate in future negotiations planning and
strategy development concerning the terms of any Ford-UAW collective bargaining
agreement for as long as our own labor agreement must closely follow the Ford
agreements. Ford has agreed to cooperate with Visteon in seeking changes with
the UAW in work rules and practices or other local continuous improvement
initiatives to improve operational effectiveness at Visteon locations. Ford also
has agreed to work with us to try to minimize business costs as a result of work
realignments. We have agreed to form a Joint Advisory Board with Ford in order
to address significant labor matters between us.
We have agreed to indemnify Ford for any (i) breach of our agreements,
(ii) employment claims made by Ford Hourly Employees unless such claims arise
from the conduct of certain other Ford employees, and (iii) claims made by Ford
Hourly Employees (or their dependents or beneficiaries) to the Pension Benefit
Guaranty Corporation ("PBGC"), the Department of Labor ("DOL"), or the IRS
arising out of or in connection with the operation, administration, funding or
termination of any of our employee benefit plans or programs. Ford has agreed to
indemnify us for (i) breach of their agreements, (ii) any claims by Ford Hourly
Employees (or their dependents or beneficiaries) to the PBGC, DOL or IRS arising
out of or in connection with the operation, administration, funding or
termination of any of the employee benefit plans or programs applicable to Ford
Hourly Employees, and (iii) employment claims that arise from the conduct of
certain other Ford employees.
Although we will be obligated to utilize the services of the Ford Hourly
Employees and comply with the terms of the agreement until the termination of
employment of all the Ford Hourly Employees, under the agreement, Ford and
Visteon will work together to attempt to minimize the cost of surplus Ford
Hourly Employees during the term of the agreement, but Ford is not committed to
assume any liability for any such costs.
Employee Transition Agreement
We and Ford have entered into an Employee Transition Agreement dated as of
April 1, 2000. This agreement covers the transfer of employment of the employees
(other than the Ford Hourly Employees covered by the Hourly Employee Assignment
Agreement discussed above) engaged in the Visteon business to Visteon and
provides for the transition of employee benefit plans and programs. As of
separation, Ford will transfer the employees who are presently assigned to the
Visteon business to us, other than the Ford Hourly Employees and inactive
employees. Inactive employees will be transferred when they return to work. We
will recognize each employee's term of service with Ford for purposes of our
benefit plans and programs. We have agreed to assume any collective bargaining
agreements that apply to the employees. We plan to pay each employee at the same
base salary or hourly rate they had at Ford. We also have agreed to adopt
substantially comparable benefit plans and programs in the aggregate for the
U.S. employees as were in effect at Ford and to continue such programs for at
least four years after the spin-off. However, if Ford makes changes in their
benefit programs during those four years, we may make comparable changes as
well.
With respect to U.S. pensions, we have agreed to provide the pension for
future service for all employees. Ford has agreed to retain the pension
obligations for Ford Retirees (those who had worked in the Visteon business and
had retired prior to the spin-off) and for the past service of two groups of
employees. The first group ("Group I") are those employees who as of the first
day of the month coincident with or preceding the date of spin-off (the "Benefit
75
<PAGE>
Transition Date") are eligible for an immediate normal or regular early
retirement under the General Retirement Plan ("GRP"), a defined benefit pension
plan sponsored by Ford. The second group ("Group II") are those employees who as
of the Benefit Transition Date have combined age and service that is at least
sixty points, giving one point for each year of age and service, and who could
meet the eligibility requirements under the GRP for a normal or early pension on
a time for time basis while employed at Visteon. For Group I and II, Ford will
recognize service at Visteon after the Benefit Transition Date for purposes of
eligibility to participate and eligibility for benefits, but not for benefit
calculation purposes. Ford also will recognize the base salary paid at Visteon
after the Benefit Transition Date for purposes of calculating the final average
pay-related benefits under the GRP. Ford will calculate the GRP benefit based on
the benefit rates in effect on the retirement date. We will reimburse Ford
annually for (i) the costs of future benefit increases for Group I and II past
service; (ii) the effect of average salary increases we grant Visteon employees
that exceed the average Ford merit increase by one-half percent in any given
year; and (iii) the incremental cost of early retirement incentive programs.
We will pay pensions based on combined Ford and Visteon service for those
employees who are neither in Group I or Group II ("Group III") under a
replacement plan that would duplicate the level of benefits for service prior to
the Benefit Transition Date and provide substantially comparable benefit
provisions for services after the Benefit Transition Date and have the same
eligibility requirements for retirement as the GRP. Ford will transfer the
liabilities for Group III to our replacement plan together with assets in cash
that equal the projected benefit obligation of Group III, but no less than the
amount required to be transferred under Section 411(d) and 414(l) of the Code
that applies to spin-offs of pension plans.
Ford will retain the liability to provide postretirement health and life
benefits for Ford Retirees on the same basis as is available to other employees
who retired from Ford at the same time. Ford also will provide these benefits
for Group I and II but we will pay for these benefits. We will prefund these
benefits through a VEBA beginning January 1, 2011 through December 31, 2020
subject to certain limitations. We will have the responsibility to pay Group III
their post retirement health and life benefits to the extent we offer such
benefits. Nothing about these arrangements is meant to guarantee or vest any
Ford Retiree or transferred employee in any entitlement to receive
postretirement health and life benefits and the right to eliminate, change or
modify benefit plans or programs is specifically reserved by both Ford and us.
With respect to the non-qualified U.S. retirement plans sponsored by Ford,
(the Benefit Equalization Plan ("BEP"), the Supplemental Executive Retirement
Plan ("SERP"), the Executive Separation Allowance Plan ("ESAP") and the Select
Retirement Plan ("SRP")), Ford will retain the responsibility to provide the
benefit for otherwise eligible Ford Retirees. For those in Group I and II who
were eligible under BEP, SERP and ESAP as of the Benefit Transition Date, Ford
will retain the responsibility to provide a benefit for service prior to the
Benefit Transition Date. We will reimburse Ford for Group I and II past service
obligations in a one time cash payment. We also will reimburse Ford annually for
(i) the costs of future benefit increases that relate to Group I and II past
service; (ii) the effect of average salary increases we grant Visteon employees
that exceed the average Ford merit increase by one-half percent in any given
year; and (iii) the incremental cost of early retirement incentive programs. We
will establish plans comparable to the BEP, SERP and ESAP for service after the
Benefit Transition Date for transferred employees who were otherwise eligible
under the Ford plans, and shall recognize service at Ford for purposes of
determining minimum years of service to achieve eligibility for a benefit. We
will provide a benefit under our non-qualified plans for otherwise eligible
Group III based on combined service between Ford and us.
With respect to non-U.S. pensions, generally the non-U.S. Visteon
employees will transition to benefit plans and programs sponsored by us as of
the Benefits Transition Date, or such other date as may be agreed. After
replacement plans are established, we shall assume the past service liabilities
for the non-U.S. Visteon employees and Ford shall cause the applicable plans to
transfer assets from funded plans. If plans are unfunded or underfunded, we will
assume the liability for making benefit payments regardless. Ford will retain
liabilities for the non-U.S. Ford Retirees as of the Benefit Transition Date, or
such other date as agreed. We will comply with any applicable collective
bargaining agreements with respect to non-U.S. employees, in particular, the
Agreement Governing the Separation of the Ford Visteon Organization dated
January 25, 2000 between Ford and the Ford European Works Council.
76
<PAGE>
We also assume responsibility for any pension plans that are maintained by
an affiliate or subsidiary of Ford which will become a subsidiary or affiliate
of Visteon under the master transfer agreement.
For calendar year 2000, employees who participate in the Ford U.S.
Performance Bonus Plan will continue to participate in the plan to the extent
otherwise eligible. For 2000, employees who are otherwise eligible to
participate in the Ford Annual Incentive Compensation Plan will continue to be
eligible to participate provided the pro forma award amounts, as adjusted for
Ford performance, equals 50% of the adjusted target amount, and as further
adjusted for individual performance to the extent of 50% of the amount of the
Extraordinary Contribution Fund that would normally be allocated to the Visteon
employees. We will establish an interim bonus program for the remainder of 2000
following the spin-off date. Payouts under these plans, if any, will occur in
March, 2001, and Visteon will be financially responsible for these pay-outs. We
will establish comparable incentive compensation plans as more fully described
in "Management--Long-Term Incentive Compensation Plan." We also will adopt a
Visteon Deferred Compensation Plan ("VDCP") effective as of the date of
spin-off. If an employee participates in the Ford Deferred Compensation Plan,
their book entry account balance as of the close of business on the date of the
spin-off will be transferred to the VDCP. We will assume any liability with
respect to such transferred accounts.
We will establish a defined contribution pension plan for the benefit of
our U.S. employees effective as of the Benefit Transition Date. It
will be substantially comparable to the Ford Savings and Stock Investment Plan
("Ford SSIP") with pre tax and after tax features and will have the same
match. Employees who had participated in the Ford SSIP will be given a one
time election after the Benefit Transition Date to transfer their entire
account balance from the Ford SSIP to our plan.
Except as otherwise discussed above, we have agreed to assume all other
employee liabilities arising from the operation of the business, regardless of
when they occurred except for one class action matter. We have also agreed to
indemnify Ford with respect to any such liabilities except liabilities resulting
from the conduct of certain employees. We also have agreed to indemnify Ford for
any breach of our agreement, or any claims brought by Visteon employees under
our benefit plans. Ford will indemnify us for breach of their agreement, claims
brought by Visteon employees under their benefit plans or employment decisions
that arise from the conduct of certain other Ford employees.
Tax Sharing Agreement
Until the spin-off occurs, we will be included in Ford's U.S. federal
consolidated income tax group, and our tax liability thus will be included in
the consolidated federal income tax liability of Ford and its subsidiaries. We
also will be included with Ford or certain Ford subsidiaries in consolidated or
combined income tax groups for state and local tax purposes until the spin-off
occurs.
We have entered into a tax sharing agreement with Ford. Pursuant to this
agreement, with respect to the period between the date of the transfer of the
Visteon business to us and the date of the spin-off, we generally are required
to make payments to Ford on account of all U.S. income taxes attributable to the
Visteon business.
For this purpose, the tax attributable to the Visteon business will be
determined as though Visteon were to file separate federal, state and local
income tax returns as the common parent of an affiliated group of corporations
filing consolidated or combined federal, state and local returns rather than a
consolidated subsidiary of Ford with respect to federal, state and local income
taxes. Tax benefits generated by us will reduce the amount we owe Ford, but Ford
will not compensate us for tax benefits not used by Visteon on a separate return
basis. In determining the amount of tax attributable to the Visteon business,
Ford will prepare and provide to Visteon a pro forma consolidated return for
Visteon that reflects the same positions and elections used by Ford in preparing
the returns for the Ford consolidated group. Ford is responsible for any
increase (and will receive the benefit of any decrease) in the income tax of a
Ford consolidated or combined group for periods prior to the spin-off that
results from an audit by a tax authority (or other tax adjustment) and is
related to Visteon.
Ford will prepare and file the federal consolidated return, and any
combined returns that include our company, with the appropriate tax authorities.
In certain foreign jurisdictions, and possibly in certain state or local
77
<PAGE>
jurisdictions, we will file a separate income tax return, not combined or
consolidated with Ford, for all tax periods regardless of whether such periods
end before or after the spin-off. In those jurisdictions, we would file the
income tax return with the appropriate tax authority, and pay the tax directly
to the tax authority. After the spin-off date, we will prepare and file all tax
returns for our company, and pay all income taxes due with respect to such tax
returns.
We have agreed, until two years after the completion of the spin-off, not
to take, or permit any of our subsidiaries to take, any actions or enter into
any transaction or series of transactions that would cause the spin-off not to
qualify under Section 355 of the Code.
For example, we have agreed not to take certain actions for two years
following the spin-off, unless we obtain an IRS ruling or an opinion of counsel
to the effect that these actions will not affect the tax-free nature of the
spin-off. These actions include: certain issuances of our stock; a liquidation
or merger of Visteon; and dispositions of assets of an aggregate gross fair
market value of $500 million or more of Visteon and its affiliates outside the
ordinary course of business.
If any of these transactions were to occur, the spin-off could be deemed
to be a taxable distribution to Ford. This would subject Ford to a substantial
tax liability. We have agreed to indemnify Ford and its affiliates to the extent
that any action we take or fail to take gives rise to a tax incurred by Ford or
any of its affiliates with respect to the spin-off. In addition, we have agreed
to indemnify Ford for any tax resulting from an acquisition by one or more
persons of a 50% or greater interest in our company.
Cross-Licenses
Through subsidiaries, we and Ford have entered into a non-exclusive,
royalty-free cross-licenses. These cross-licenses provide for a license from us
back to Ford of the intellectual property rights that Ford has contributed or
will contribute to us in connection with the separation (i.e., intellectual
property rights associated with technologies that support our business), but
only to the extent such intellectual property rights are associated with
technologies developed prior to August 1, 1999. Ford will be permitted to make
and to have others (such as our competitors) produce components and systems for
Ford utilizing the technology that we have licensed to Ford. The cross-licenses
also provide for a license from Ford to us of certain of the intellectual
property rights retained by Ford (i.e., technologies that support Ford's
remaining business), but only to the extent such intellectual property rights
are associated with technologies developed prior to August 1, 1999.
In addition, in the event that either party is succeeded by a third party
through a merger, acquisition or otherwise, the rights and obligations under the
cross-licenses will survive in the hands of the third party except in the event
that we are merged with or acquired by another VM.
Neither party shall have any obligation to institute any action or suit
against third parties for infringement of any intellectual property subject to
the cross-licenses or to defend any action or suit brought by a third party that
challenges or concerns the validity of any of the intellectual property subject
to the cross-licenses.
78
<PAGE>
MANAGEMENT
Directors and Executive Officers of Visteon
The following table shows information about the directors and executive
officers of our company. All ages are as of January 1, 2000:
<TABLE>
<CAPTION>
Name Age Position
- ------------------------------- ----- -------------------------------------------------------------------------
<S> <C> <C>
Peter J. Pestillo 61 Chairman of the Board of Directors, Chief Executive Officer and President
Robert J. Womac 56 Executive Vice President of Operations
Daniel R. Coulson 56 Executive Vice President and Chief Financial Officer
Stacy L. Fox 46 Senior Vice President, General Counsel and Secretary
Robert H. Marcin 54 Senior Vice President of Human Resources
Susan F. Skerker 55 Senior Vice President of Business Strategy and Corporate Relations
W. Wayne Booker 65 Director
John M. Rintamaki 57 Director
Henry D.G. Wallace 54 Director
</TABLE>
Peter J. Pestillo. Prior to coming to Visteon in January 2000, Mr.
Pestillo was the Vice Chairman and chief of staff for Ford. He was responsible
for Governmental Affairs, Human Resources, the Office of the General Counsel and
Public Affairs. He assumed this position in January 1999. In July of 1999, he
undertook the added responsibility of overseeing Visteon, The Hertz Corporation
and Ford Land. Mr. Pestillo joined Ford as vice president, Labor Relations in
1980. He was named vice president, Employee Relations in 1985 and vice
president, Employee and External Affairs in 1986. In 1990, Mr. Pestillo became
vice president, Corporate Relations and Diversified Businesses, where he had
responsibility for managing and divesting Ford's steel, aerospace and tractor
operations. Before coming to Ford, Mr. Pestillo was vice president, Corporate
and Employee Relations for The BF Goodrich Company and held industrial relations
positions with the General Electric Company. Mr. Pestillo holds a bachelor's
degree in economics from Fairfield University and a law degree from Georgetown
University in Washington D.C., where he is a member of the Bar association and
is a graduate of the Advanced Management Program at Harvard University. Mr.
Pestillo is also currently a director of Hertz.
Robert J. Womac has been Executive Vice President of Operations since
1997, responsible for Visteon's technology, product development, manufacturing,
supply, information technology and quality. Prior to joining Visteon, Mr. Womac
was a vice president of Ford and general manager of the Automotive Components
Division. Previously, Mr. Womac was named manager, business strategy development
and sales, Electrical and Electronics Division at Ford, followed by assignments
as director of business strategy, Corporate Strategy Staff, and president of
Ford Electronics and Refrigeration Corp., a Ford subsidiary and General Manager
of the Electrical and Fuel Handling Division. Earlier in his career, Mr. Womac
was an electrical engineer at the Ford Rawsonville Plant, an electrical and
fuel-handling manufacturer. After holding several supervisory roles there, he
became plant engineering manager in 1973 at another electrical and fuel handling
plant and became plant manager in 1979. Mr.
79
<PAGE>
Womac holds a bachelor's degree in Electrical Engineering from the University of
Detroit and a master's degree in business administration from the University of
Michigan.
Daniel R. Coulson was the director of accounting for Ford prior to
becoming Executive Vice President and Chief Financial Officer of Visteon in
January 2000. He was responsible for Ford's worldwide accounting organization
and its accounting policies, procedures, and systems. He was also responsible
for Ford's external financial reporting and payroll operations. Mr. Coulson
joined Ford as an accountant with the General Parts Division in 1965, and held a
number of analytical and supervisory positions with Ford's Finance staff before
becoming research-planning manager for Ford's Scientific Research Staff in 1974.
In 1976, Mr. Coulson was appointed manager of the Ford Finance Banking
Department and manager of the Profit Forecast and Financial Statements
department in 1977. Between July 1989 and June 1994, Mr. Coulson was the
controller of the Ford and Lincoln-Mercury Divisions. Mr. Coulson holds a
bachelor's degree in finance and a master's degree in business administration
from Michigan State University.
Stacy L. Fox became Senior Vice President, General Counsel and Secretary
of Visteon in January 2000. Prior to her arrival at Visteon, Ms. Fox was at
Johnson Controls where she had been group vice president and general counsel of
the Automotive Systems Group since 1993. As General Counsel, she led both the
Legal Department and the Environmental, Health & Safety Department for the
worldwide Automotive Group. From 1989 to 1993, Ms. Fox served as Group Counsel,
Automotive Systems Group and Plastics Technology Group at Johnson Controls.
Earlier in her career, Ms. Fox worked for Unisys Finance Corporation as general
counsel and as an associate attorney for Mintz, Levin, Cohn, Ferris, Glovsky &
Popeo, P.C. in Boston, Massachusetts. Ms. Fox holds a bachelor of science degree
and a law degree from the University of Michigan.
Robert H. Marcin has been Senior Vice President of Human Resources since
January 1, 2000. Prior to joining Visteon, he was executive director--Labor
Affairs, Ford Motor Company, a position he assumed in August 1998. He was
responsible for coordinating Ford's labor relations functions worldwide. Prior
to this appointment, Mr. Marcin served as director, U.S. Union Affairs, a
position held since 1996. In 1995, he was appointed director, International
Labor Affairs. He joined Ford's Employee Relations Staff in 1993 as director,
Compensation Planning Office. Previously, Mr. Marcin served as executive vice
president-director, Employee and External Affairs for First Nationwide Financial
Corporation from 1989 until 1993. Mr. Marcin joined Ford in 1973 with Ford
Aerospace as employee representative, Western Development Laboratories Division.
From 1973 until 1989 he held various positions, including as compensation and
personnel planning analyst for Ford Aerospace. Mr. Marcin holds a bachelor's
degree from State University of New York and an MBA from California State
University at Hayward.
Susan F. Skerker held numerous positions at Ford, including senior
director, Global Public Policy, prior to becoming Senior Vice President of
Business Strategy and Corporate Relations of Visteon in January 2000. In her
position at Ford, Ms. Skerker was responsible for managing public policy issues
that impacted Ford as well as the automotive industry. This included developing
plans, strategies and objectives related to public policy issues on a global
scale, including the development of Ford's consumer focused environmental
initiatives. Before joining Ford in 1973, Ms. Skerker was special assistant to
the assistant secretary for Domestic and International Business at the U.S.
Department of Commerce, Washington, D.C. Ms. Skerker holds a bachelor's degree
and a master's degree from the University of Florida and is a 1985 graduate of
the Advanced Management Program at Harvard University.
W. Wayne Booker has been a Vice Chairman of Ford since 1996. He assumed
responsibility for assisting with Ford's transition to Ford's new management
team, especially in the new markets and business development in growth markets
on January 1, 1999. In addition, he served as Ford's interim Chief Financial
Officer during 1999. He was in charge of Ford's International Automotive
Operations until they were integrated into Ford Automotive Operations in 1996.
At that time, Mr. Booker was appointed Vice Chairman responsible for Ford's
presence in growth markets ranging from China and Japan through Southeast Asia
and India to Russia and Belarus and for Ford's association with key global
business partners including Mazda, Kia and other automotive joint ventures
worldwide. Prior to that he served as executive vice president for four years.
He was named a Ford Vice President in 1989. He joined Ford in 1959. Mr. Booker
is also currently a director of Hertz and Kia Holding A.S.
80
<PAGE>
John M. Rintamaki has been Group Vice President and Chief of Staff of Ford
since January 1, 2000. Prior to that, he served as Ford's Vice President-General
Counsel and Secretary. Mr. Rintamaki joined Ford in 1973 in Philadelphia as an
attorney and later moved on to serve as senior attorney with Ford's Office of
the General Counsel in 1978. Mr. Rintamaki was appointed Assistant Secretary and
Assistant General Counsel-SEC and Corporate Matters of Ford in 1991. He served
as Ford's Corporate Secretary and Assistant General Counsel from 1993 to 1999.
Mr. Rintamaki is also currently a director of Hertz. Mr. Rintamaki holds degrees
in law and business from the University of Michigan.
Henry D.G. Wallace assumed responsibility as Group Vice President and
Chief Financial Officer of Ford on January 1, 2000. Prior to that appointment,
he was elected Group Vice President, Asia Pacific Operations and Associations of
Ford in January 1999. In 1986 Mr. Wallace assumed responsibility as Controller,
Ford of Mexico. Mr. Wallace returned to the United Kingdom as Treasurer, Ford of
Europe in 1989. He was appointed President, Ford of Venezuela and moved on to
Japan as Executive Vice President in 1994 and later President of Mazda Motor
Corporation. Mr. Wallace returned once again to the United Kingdom as Ford's
Chief Financial Officer and Vice President, Strategic Planning for Europe in
1998. Mr. Wallace joined Ford in 1971.
Board of Directors
Our board will be divided into three classes, each serving staggered
three-year terms: Class I, whose term will expire at our 2001 annual meeting of
stockholders; Class II, whose term will expire at our 2002 annual meeting of
stockholders; and Class III, whose term will expire at our 2003 annual meeting
of stockholders. As a result, only one class of directors will be elected at
each annual meeting of our stockholders, with the other classes continuing for
the remainder of their respective terms. Our board of directors currently has
four members. Three of our directors, Messrs. Booker, Rintamaki and Wallace are
currently executive officers of Ford. Prior to the spin-off, Ford will have the
ability to change the size and composition of our board of directors and
committees of the board of directors. At the time of the spin-off, the three
directors who are officers of Ford (Messrs. Booker, Rintamaki and Wallace), will
resign from the board of directors. At that time, at least three outside
directors, to be determined, will join our board, none of whom will be executive
officers or directors of Ford.
Our board will hold eight regularly scheduled meetings each year.
Committees of the Board of Directors
Our board of directors is expected to appoint directors who are not
affiliated with us or Ford to a compensation committee of our board of directors
and an audit committee of our board of directors after such directors are
elected. The compensation committee will establish remuneration levels for
certain officers of Visteon and perform such functions as may be delegated to it
under our employee benefit programs and executive compensation programs. The
audit committee will select and engage, on our behalf, the independent public
accountants to audit our annual financial statements. The audit committee also
will review and approve the planned scope of the annual audit.
Our board of directors may, from time to time, establish other committees
to facilitate the management of Visteon.
Our audit committee will hold four regularly scheduled meetings
each year. Our board will establish meeting schedules for any other
committees of the board.
Officers are elected at the organizational meeting of our board of
directors held each year for a term of one year, and they are elected to serve
until the next annual meeting.
Compensation of Directors
We anticipate paying compensation to directors who do not receive
compensation as officers or employees of Visteon or any of our affiliates. Each
such director will be paid an annual board membership fee of $40,000 and an
annual committee membership fee of $10,000 per committee. In addition, we plan
to make an annual grant to each
81
<PAGE>
such director of 3,000 shares of restricted common stock under our Restricted
Stock Plan for Non-Employee Directors, to be adopted by us, subject to
stockholder approval.
Stock Ownership of Directors and Executive Officers
All of our stock is currently owned by Ford and thus none of our executive
officers or directors own any of our common stock prior to the spin-off. To the
extent directors or executive officers of Visteon own shares of Ford common or
Class B stock at the time of the spin-off, they will share in the spin-off on
the same terms as other holders of Ford common or Class B stock. At the time of
the spin-off, the executive officers named in the Summary Compensation Table in
the "--Executive Compensation" section below and certain other officers will be
awarded restricted Visteon common stock. In addition, at the time of the
spin-off, certain key employees will be awarded stock options to acquire Visteon
common stock. Further, beginning in 2001, a larger group of employees of Visteon
will be awarded options to purchase shares of Visteon common stock and/or
performance stock rights.
The following table shows how much stock of Ford and of its majority-owned
subsidiary, Hertz, each director and executive officer of Visteon beneficially
owned as of March 1, 2000. No director or executive officer of Visteon
beneficially owned any Ford preferred stock or Ford Class B stock. No director
or executive officer beneficially owned 1% or more of Ford's total outstanding
common stock or of Hertz's total outstanding Class A common stock, nor do the
directors and executive officers as a group.
<TABLE>
<CAPTION>
Ford Common Ford Common Hertz Class A
Name Stock (1)(2) Stock Units(3) Common Stock
- ------------------------------------------------------------------- ------------ -------------- ------------
<S> <C> <C> <C>
Peter J. Pestillo................................................. 152,148 298,951 5,000
Robert J. Womac................................................... 75,183 - -
Daniel R. Coulson................................................. 16,097 - -
Stacy L. Fox...................................................... - - -
Robert H. Marcin ................................................. 19,308 - -
Susan F. Skerker ................................................. 10,036 - -
W. Wayne Booker................................................... 232,463 - 5,000
John M. Rintamaki................................................. 7,124 - 500
Henry D.G. Wallace................................................ 24,272 - -
All directors and executive officers as a group (9 persons)....... 536,631 298,951 10,500
</TABLE>
- ----------
(1) For individuals who are or were Ford employees, amounts shown include
shares of Ford common stock represented by Ford Stock Fund Units credited
under a deferred compensation plan. These shares may be delivered after
termination of employment.
(2) Also, on March 1, 2000 (or within 60 days after that date), the executive
officers and directors have rights to acquire shares of Ford common stock
through the exercise of stock options under Ford's stock option plans as
follows:
<TABLE>
<CAPTION>
Name Number of Shares
---- ----------------
<S> <C>
Peter J. Pestillo...................... 477,543
Robert J. Womac........................ 210,735
Daniel R. Coulson...................... 120,421
Stacy L. Fox........................... --
Robert H. Marcin ...................... 50,421
Susan F. Skerker ...................... 57,809
W. Wayne Booker........................ 544,553
John M. Rintamaki...................... 63,196
Henry D.G. Wallace..................... 136,644
</TABLE>
(3) These are Ford common stock units credited under a deferred compensation
plan and payable in cash.
82
<PAGE>
Executive Compensation
The following table shows some projected compensation information for the
executive officers of Visteon.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
----------------------------------------------
Target
Salary Bonus
Name and Principal Position Year ($) ($)(1)
- ----------------------------------------------------------------------- ------- --------------- ---------------
<S> <C> <C> <C>
Peter J. Pestillo, Chairman of the Board of Directors, Chief
Executive Officer and President....................................... 2000 $ 1,000,000 $ 1,800,000
Robert J. Womac, Executive Vice President of Operations.................. 2000 400,000 380,000
Daniel R. Coulson, Executive Vice President and Chief Financial Officer.. 2000 450,000 266,000
Stacy L. Fox, Senior Vice President, General Counsel and Secretary....... 2000 415,000 233,000
Robert H. Marcin, Senior Vice President of Human Resources .............. 2000 365,000 218,000
Susan F. Skerker, Senior Vice President of Business Strategy
and Corporate Relations .............................................. 2000 350,000 213,500
</TABLE>
- ----------
(1) Executive officer bonuses will be based on a combination of a
Ford performance bonus determined under the Ford Annual Incentive
Compensation Plan in March 2001, based on performance during 2000, and a
Visteon performance bonus to be determined in March 2001 under a bonus
program to be developed by Visteon for the remainder of 2000 following the
spin-off. The table assumes achievement of 100% of the performance
objectives under both plans.
As an independent company, Visteon will establish executive compensation
practices that will link compensation with the performance of Visteon as well as
Visteon's common stock. On average, a greater portion of the executive's
long-term incentive pay will be linked to the performance of Visteon's common
stock through the grant of stock options. Visteon will continually review its
executive compensation programs to ensure that they are competitive.
Long-Term Incentive Plan
We will sponsor a stock-based long-term incentive plan (the "LTIP")
covering the executive officers, other officers and key employees. We plan to
adopt the LTIP in 2000 contingent upon successful completion of the spin-off.
Awards granted under the LTIP are based on shares of our common stock.
The LTIP is administered by a committee appointed by our board of
directors. After the completion of the spin-off, the LTIP will be administered
by the compensation committee. The LTIP provides for the grant of incentive and
nonqualified stock options, stock appreciation rights, performance stock rights
("Stock Rights"), stock and various other rights based on stock (individually,
an "Award" or collectively, "Awards"). Officers and some salaried employees of
Visteon with potential to contribute to the future success of Visteon or its
subsidiaries will be eligible to receive Awards under the LTIP. The compensation
committee has the discretion to select the employees to whom Awards will be
granted, to determine the type, size and terms and conditions applicable to each
Award and the authority to interpret, construe and implement the provisions of
the LTIP. The compensation committee's decisions will be binding. The
compensation committee also may delegate to a committee of Visteon officers the
determination of the amount of individual grants of options and Stock Rights for
employees who are not officers of Visteon, within limitations prescribed by the
compensation committee.
The total number of shares of our common stock that may be subject to
Awards under the LTIP (the "Overall Limit") is up to 10% of the number of shares
distributed in the spin-off (including Awards granted subject to completion of
the spin-off) and subject to adjustment as provided in the LTIP. No more than
__________ shares of our common stock may be subject to stock options, with or
without any related stock appreciation rights, or stand-alone stock appreciation
rights, awarded to any "covered employee" (generally defined as our chief
executive officer and the next four most highly paid executive officers) under
the LTIP in any one calendar year. Common stock issued under the LTIP may be
either authorized but unissued shares (subject to a maximum limit of
83
<PAGE>
__________ shares), treasury shares or any combination thereof. No more than
_________ shares of common stock may be available as Awards pursuant to Stock
Rights granted under the LTIP to any covered employee in any one calendar
year. Any shares of common stock in addition to __________ shares to be issued
as Awards under the LTIP or pursuant to Awards granted under the LTIP will be
obtained by us either through forfeitures of shares of Restricted Stock (as
defined below) (to the extent that such shares are made available again for
issuance under the LTIP) or from treasury shares (to the extent that we are
permitted by applicable law to acquire our own shares). Any shares of common
stock subject to an Award which lapses, expires or is otherwise terminated
without the issuance of such shares may become available for new Awards.
At the time of the spin-off, we intend to grant (i) restricted stock to
the executive officers as shown below and certain other officers and (ii)
stock options to certain key employees. These Awards will be contingent on the
successful completion of the spin-off. These Awards are summarized in the
following table and are described below:
<TABLE>
<CAPTION>
No. of Shares of No. of Nonqualified
Name Restricted Stock(1) Options(2)
- ------------------------------------------------------------------------ ------------------- ----------
<S> <C> <C>
Peter J. Pestillo.......................................................
Robert J. Womac.........................................................
Daniel R. Coulson.......................................................
Stacy L. Fox............................................................
Robert H. Marcin .......................................................
Susan F. Skerker .......................................................
All executive officers as a group.......................................
Each non-employee director..............................................
All other employees as a group..........................................
</TABLE>
- ----------
(1) The shares of restricted stock will vest on the fifth anniversary of
the date of grant.
(2) We intend to grant these nonqualified options with an exercise price equal
to the closing sale price of Visteon common stock on the New York Stock
Exchange on the date of the spin-off. The options will vest 33% on the
anniversary of the date of grant, an additional 33% on the second
anniversary of the date of grant and in full on the third anniversary of
the date of grant.
Set forth below is a brief description of the Awards that may be granted
under the LTIP:
Stock Options. Options (each an "Option") to purchase shares of our common
stock, which may be incentive or nonqualified stock options, may be granted
under our LTIP at an exercise price (the "Option Price") at least equal to the
closing sale price of our common stock on the New York Stock Exchange on the
date of grant. Each Option represents the right to purchase one share of common
stock at the specified Option Price.
Options will expire not later than 10 years after the date on which they
are granted and will become exercisable at such times and in such installments
as determined by the administrator of the LTIP. Payment of the Option Price must
be made in full at the time of exercise by check or wire transfer. Unless the
compensation committee determines otherwise, payment in full or in part may also
be made by tendering to Visteon shares of our common stock having a fair market
value equal to the Option Price (or such portion thereof). In addition, a
cashless exercise of such Options is permitted.
Stock Appreciation Rights. An Award of a stock appreciation right ("SAR")
may be granted under the LTIP. Generally, one SAR is granted with respect to one
share of our common stock. The SAR entitles the participant, upon the exercise
of the SAR, to receive an amount equal to the appreciation in the underlying
share of common stock. The appreciation is equal to the difference between (i)
the "base value" of the SAR (i.e., the Option Price on the date the SAR is
granted), and (ii) the closing sale price of our common stock on the New York
Stock Exchange on the date the SAR is exercised. Upon the exercise of a vested
SAR, the exercising participant will be entitled to receive the appreciation in
the value of one share of common stock as so determined, payable at the
discretion of the participant in cash, shares of common stock, or some
combination thereof, subject to the availability of our shares of common stock.
84
<PAGE>
SARs will expire not later than 10 years after the date on which they are
granted. SARs become exercisable at such times and in such installments as
determined by the administrator of the LTIP.
Tandem Options/SARs. An Option and a SAR may be granted "in tandem" with
each other (a "Tandem Option/SAR"). An Option and a SAR are considered to be in
tandem with each other because the exercise of the Option aspect of the tandem
unit automatically cancels the right to exercise the SAR aspect of the tandem
unit, and vice versa. The Option may be an incentive stock option or a
nonqualified stock option, as determined by the Committee. Descriptions of the
terms of the Option and the SAR aspects of a Tandem Option/SAR are provided
above.
Restricted Stock. An Award of restricted stock ("Restricted Stock") is an
Award of common stock that is subject to such restrictions as the compensation
committee deems appropriate, including forfeiture conditions and restrictions
against transfer for a specified period. Restricted Stock Awards may be granted
under the LTIP for services rendered. Restrictions on Restricted Stock may lapse
in installments based on factors selected by the administrator of the LTIP.
Prior to the expiration of the restriction period, a grantee who has received a
Restricted Stock Award generally has the rights of a stockholder of Visteon,
including the right to vote and to receive cash dividends on the shares subject
to the Award. Stock dividends issued with respect to a Restricted Stock Award
may be treated as additional shares under the Award and may be subject to the
same restrictions and other terms and conditions that apply to the shares under
the same Award.
Termination of Employment. In general, outstanding Options and Restricted
Stock Awards are forfeited in the event the participant terminates employment
due to voluntary quit, discharge or release in the best interest of Visteon.
Certain Federal Income Tax Consequences of Options. Awards granted under
the LTIP may result in federal income tax consequences to LTIP participants and
Visteon. Some of those federal income tax consequences are generally set forth
in the following summary.
An employee to whom an Option which is an incentive stock option ("ISO")
that qualifies under Section 422 of the Code is granted will not recognize
income at the time of grant or exercise of such Option. No federal income tax
deduction will be allowable to Visteon upon the grant or exercise of such ISO.
However, upon the exercise of an ISO, any excess in the fair market price of the
common stock over the Option Price constitutes a tax preference item that may
have alternative minimum tax consequences for the employee. When the employee
sells the shares more than one year after the date of transfer of the shares and
more than two years after the date of grant of the ISO, the employee will
normally recognize a long-term capital gain or loss equal to the difference, if
any, between the sales price of the shares and the aggregate Option Price. In
such event, we will not be entitled to a federal income tax deduction with
respect to the exercise of the ISO or the sale of the shares. If the employee
does not hold the shares for the required period, when the employee sells the
shares, the employee will recognize ordinary compensation income and possibly
capital gains or losses in such amounts as are prescribed by the Code and we
will generally be entitled to a federal income tax deduction in the amount of
such ordinary compensation income.
An employee to whom an Option which is a nonqualified stock option ("NSO")
is granted will not recognize income at the time of grant of such Option. In
general, when the employee exercises such NSO, the employee will recognize
ordinary compensation income equal to the difference, if any, between the Option
Price paid and the fair market value, as of the date of Option exercise, of the
shares of common stock the employee receives. The tax basis of such shares to
such employee will be equal to the Option Price paid plus the amount includible
in the employee's gross income, and the employee's holding period for such
shares will commence on the date of exercise. Subject to the Code, we will
generally be entitled to a federal income tax deduction in respect of an NSO in
an amount equal to the ordinary compensation income recognized by the employee
upon the exercise of the NSO.
Performance Stock Rights and Related Stock Awards. A Stock Right is the
right to receive up to the number of shares of common stock described therein,
if specific business objectives are met. The Committee may grant Stock Rights to
our officers and other key salaried employees. Beginning in 2001, it is
anticipated that about 25 employees
85
<PAGE>
annually will be eligible to receive Stock Rights under the LTIP, including
about 20 officers. This reflects our commitment to tie executive compensation
with the interests of the stockholders.
The Committee determines the performance period for a Stock Right. In
general, we expect grants of Stock Rights to be made annually and have a
three-year performance period.
Within 90 days of the beginning of a performance period, the compensation
committee decides the targeted performance level at which a target award may be
earned. The compensation committee decides the target award based on the
employee's level of responsibility and other factors. The target award,
designated as a number of shares, is based on achieving 100% of the performance
goals established by the compensation committee for the performance period. The
compensation committee also decides any minimum performance level below which no
stock award would be paid, and a maximum which cannot exceed 150% of the target
award.
The performance goals for a Stock Right granted to an executive officer
may be based on one or more of the Performance Criteria defined in the LTIP. It
is anticipated that the goals for Stock Rights to be granted in 2001 will be
based on total stockholder returns relative to the companies in the S&P 500
Index.
The compensation committee also decides the formula to apply against the
performance goals in deciding the percentage of the target award that is earned.
This amount may not exceed 150% of the target award, as adjusted under the LTIP.
If the Committee determines, during the Performance Period relating to a
Stock Right, the participant will receive dividend equivalents. (These are equal
to cash dividends that the participant would have received if he or she had
owned the number of shares equal to 100% of the related target award, as
adjusted under the LTIP.)
The maximum number of shares of our common stock that may be available as
stock awards to any of the covered employees pursuant to Stock Rights in any
year under the LTIP is _________. This limit, as adjusted under the LTIP, is
called the Stock Right Limit.
The number of shares which ultimately may be paid out to any covered
employee pursuant to the Stock Rights to be granted in 2001 cannot be determined
at this time. However, it is subject to both the Stock Right Limit and the
Overall Limit and cannot exceed 150% of the related target award.
If the compensation committee determines, the shares of common stock
awarded after the end of the related performance period will be restricted from
sale or other disposition for a period determined by the compensation committee.
Certificates for the shares of common stock representing any Final Award
will be distributed to the participant free of all restrictions on the earlier
of (1) the expiration of any related restriction period, (2) the acceleration of
distribution of the Final Award by the compensation committee or (3) the
termination of employment, provided the participant's employment terminates for
any reason other than discharge, release in the best interest of Visteon,
voluntary quit or retirement without the approval of Visteon. If the
participant's employment terminates for any of these reasons, all the
participant's undistributed Final Awards and outstanding Rights will be
forfeited unless a waiver is granted.
We recognize a contingent liability equal to the market value of our
common stock on the date of grant of any Stock Right. The amount of this
liability will be amortized and charged to income over the related Performance
Period. The total liability will be increased or decreased quarterly to reflect
changes in such market value and will be subject to adjustment in certain other
events. Dividend equivalents will be charged to income. The maximum number of
shares that can be earned under Stock Rights will be treated as outstanding for
purposes of calculating fully diluted earnings per share.
Stockholder Approval Condition. Subject to completion of the spin-off,
we intend to grant, under the LTIP, Restricted Stock to the executive officers
and certain other officers and Options to certain key employees.
86
<PAGE>
We intend to seek approval of the LTIP at our 2001 annual meeting of
stockholders. Subject to that approval, we plan to grant Options and Stock
Rights to a larger group of employees beginning in 2001. Awards granted prior to
stockholder approval will be subject to approval of the LTIP by our
stockholders. If our stockholders approve the terms of the LTIP, including the
Overall Limit, the Option Limit and the Stock Right Limit, these terms will
become effective for Awards to executive officers for 2000 and future years
under the LTIP.
Additional Information. Under the LTIP, in the event of a merger,
consolidation, reorganization, stock split, stock dividend or other event
affecting our common stock, such adjustments as may be necessary (as determined
by the compensation committee) to reflect such change will be made to prevent
dilution or enlargement of the rights with respect to the Overall Limit, the
Option Limit, the Stock Right Limit, the number of shares of common stock
covered by each outstanding Award, any other references in the LTIP to a number
of shares and the price per share in respect thereof. Unless otherwise
determined by the compensation committee, an individual's rights under the LTIP
may not be assigned or transferred (except in the event of death). An
individual's rights under the LTIP are subject to forfeiture for competitive
activity or activity that is not in our best interest.
The LTIP will remain in effect until it is terminated by the board of
directors or until all Awards are satisfied under their terms, whichever occurs
last. Regardless, no Awards may be granted under the LTIP after the fifth
anniversary of the effective date of the LTIP. The board of directors may at any
time terminate, modify or amend the LTIP, and the compensation committee may
modify or amend the LTIP; provided, however, that neither the board nor the
compensation committee may take certain actions specified in the LTIP without
stockholder approval.
We plan to ask the compensation committee to approve provisions for
acceleration of vesting and distribution of certain plan awards under the LTIP
in the event of a change of control. See "--Change in Control Agreements."
Ownership Goals
We plan to adopt stock ownership goals for officers at the vice
president level and above. The goal will be for these officers to own common
stock worth a multiple of salary, ranging from one times salary to up to seven
times salary for the chief executive officer, within three years. We plan to
adopt similar goals for certain other key employees and our directors who are
not officers of Visteon or Ford.
Annual Incentive Compensation Plan
We plan to adopt, for 2001 and beyond, an Annual Incentive Compensation
Plan ("AICP"), subject to stockholder approval, for our officers and certain
other key employees. The AICP is an annual plan where awards are based on the
level of achievement of goals relating to individual, business unit or Visteon
performance. If performance goals are achieved, then the target incentive
awards, expressed as a percentage of salary, are paid. Smaller or greater
amounts are earned if objectives are under- or over-achieved, as applicable. The
relationship between performance objectives and award opportunities is
determined and communicated early each year.
The AICP will be administered by the compensation committee. The
compensation committee may delegate authority to senior management to determine
individual final awards for employees who are not officers of Visteon, subject
to limits approved by the compensation committee.
Under the AICP, the maximum amount that may be awarded to any covered
employee for any calendar year is $10,000,000. Initially, we anticipate that
about 650 employees will participate in the AICP, including about 20 officers.
Under the AICP, early each year and starting in 2001, the compensation
committee will select the performance criteria and establish the related goals
to be used to measure performance. It also will decide the method for
determining the extent to which goals are met and the amount of the target award
that is earned. It also may establish a threshold or minimum performance level
below which no award will be paid. In determining the performance criteria
applicable to Visteon and business unit components, the compensation committee
may use one or more of the objective business criteria to be listed in the AICP.
87
<PAGE>
The percentage of each annual target award earned will be determined by
the compensation committee and will be based on actual performance results
relative to the goals. Discretion to increase award amounts based on individual
performance is permitted for employees who are not covered employees. Awards
may be decreased, on the other hand, based on individual performance. Final
awards actually paid to an employee may be less than or greater than 100% of the
target award. Final awards may be paid in cash, common stock, restricted stock
or a combination, or deferred under a Deferred Compensation Plan to be adopted
by Visteon. A Visteon Stock Fund will be one of the investment options for
purposes of measuring the value of the deferral.
In general, the compensation committee may amend, modify, suspend or
terminate the AICP as long as it does not adversely affect awards previously
made.
We plan to establish an interim bonus program for the remainder of 2000,
following the spin-off. See note 1 to the Summary Compensation Table above.
Change in Control Agreements
We plan to enter into change in control agreements ("Change in Control
Agreements") with each of the executive officers and certain other officers
(each, a "Participant"). The Change in Control Agreements, which are expected to
have a five year term and would be subject to a rolling annual renewal,
generally provide monetary compensation and other benefits to each Participant
upon the occurrence of certain triggering events involving a change in control
of Visteon.
The Change in Control Agreements specify two triggering events:
o a change in control (as defined below); and
o within three years (executive officers) or two years (other selected
officers) after the change in control, one of the following events
occur:
o the Participant's employment is terminated without cause;
o a negative fundamental, material change is made in the
Participant's duties or responsibilities;
o the Participant's salary, annual or other material compensation
or benefits are decreased (and such decrease is unrelated to
company or individual performance);
o the Participant is required to materially relocate his or her
residence or principal office location against his or her will;
or
o the Participant is not offered a comparable position with the
successor entity.
Each of the executive officers and certain other officers also has 30
days at the end of the first year after a change of control to terminate his or
her employment for any reason and still receive the benefits outlined herein.
"Change in Control" means:
o acquisition by any individual, entity or group, other than the company
or any subsidiary of the company, of the beneficial ownership of 40%
or more of the outstanding common stock; or
o a change in the majority of the board within any twelve month period
without approval of the board; or
o major corporate transaction, such as a merger, sale of greater than
50% of Visteon's assets or a liquidation, which results in a change in
the majority of the board or a majority of stockholders; or
88
<PAGE>
o discretionary determination by the board
Each Participant is entitled to the following benefits upon the occurrence
of the triggering events:
o all of the Participant's unvested options will vest and become
immediately exercisable in accordance with their terms;
o all of the Participant's Awards under the LTIP will become payable
immediately on a pro rated basis, calculated based on current
forecasted payouts;
o any compensation previously deferred at the election of the
Participant, together with accrued interest or earnings thereon, will
be distributed as a lump sum payout;
o the Participant's Supplemental Executive Retirement Program benefits
will be funded through a trust or other mechanism which is protected
from the persons controlling Visteon after the occurrence of a change
in control; and
o the Participant's health, dental and life insurance coverage under
Visteon's then existing executive health and welfare benefit plans
will remain in force over the cash severance benefit period (see
discussion below), subject to mitigation.
Upon the occurrence of the triggering events described above, or for
selected officers eligible for payments in the event of a voluntary
termination of employment during the 13th month after a Change in Control, in
addition to the payments and benefits described above, Participants will receive
monetary compensation and certain other benefits. Each Participant is entitled
to receive in addition to their base salary, prorated annual bonus and any
accrued vacation pay through the date of their termination, the following amount
of monetary compensation:
o executive officers: three times base salary plus target bonus
o certain other officers: one and one-half to two times base salary plus
target bonus
Change in Control payments, as described above, for executive
officers will be grossed-up for the payment, if any, of additional
federal taxes (Code Section 280(G) "Excess Parachute Payment").
Other officers will not be grossed up; however, any officer whose
contractual entitlements would be greater if such entitlements were
reduced to the officer's safe harbor level under the golden parachute
excise tax provisions of the Code (thereby avoiding the imposition of
the excise tax), will have his or her payment so reduced. An officer
in this group whose contractual entitlements after payment of
applicable excise taxes would be greater than his or her safe harbor
amount will not incur such a reduction.
Any lump sum payment shall be reduced by the amount of cash severance or
salary continuation benefits paid to the executive under any other plan or
policy of Visteon or a written employment agreement between Visteon (or one of
its affiliates) and the officer.
In addition, at the time of the second triggering event:
o the Participant may receive reimbursement ranging from 15% to 25% of
his or her most recent annualized salary plus target annual bonus for
expenses related to outplacement services;
o the Participant's legal fees and expenses will be paid if litigation
is required to enforce these change in control rights; and
89
<PAGE>
o the Participant will be able to retain his or her company car and club
memberships, if any, for six months thereafter.
Restrictive Covenants. The Change in Control Agreements provide that, for
the executive officers, for a period of two years (one and one-half years for
other officers) immediately following the Participant's termination of
employment resulting from a Change in Control with us or any of our
subsidiaries, the Participant agrees not to, without the prior written consent
of our chairman and chief executive officer, engage in or perform any services
of a similar nature to those performed at Visteon for any other corporation or
business engaged in the design, manufacture, development, promotion, sale or
financing of automobile or truck components as well as any other products or
services for which Visteon offers, within North America, Latin America, Asia,
Australia or Europe in competition with us, any of our subsidiaries or
affiliates, or any joint ventures to which we or any of our subsidiaries are a
party. The Change in Control Agreements also provide that the Participant, in
perpetuity, shall not disclose any knowledge, information or materials, whether
tangible or intangible, regarding proprietary matters relating to Visteon.
90
<PAGE>
SECURITY OWNERSHIP OF FORD AND VISTEON
Ford beneficially and of record holds, and will hold before the spin-off,
all of the outstanding shares of our common stock. Holders of Ford common and
Class B stock, including our directors and executive officers (see "Management
- -- Stock Ownership of Directors and Executive Officers"), will receive ____
shares of Visteon common stock for each share of Ford common or Class B stock
they hold as of the close of business on _______________, 2000. After giving
effect to the spin-off, to our knowledge, no person will beneficially own 5% or
more of the outstanding shares of our common stock.
91
<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
The authorized capital stock of Visteon will consist of shares of common
stock, par value $1.00 per share, and _____ shares of preferred stock, par value
$1.00 per share. Following the spin-off, we will have _____ shares of common
stock outstanding, none of which will be owned by Ford, including _____ shares
of restricted stock issued to officers of Visteon in connection with the
spin-off. In addition, there will be no preferred stock outstanding. A
description of the material terms and provisions of Visteon's charter affecting
the relative rights of the common stock is set forth below. The following
description of the capital stock of Visteon is intended as a summary only and is
qualified in its entirety by reference to the forms of Visteon's charter and
by-laws filed as exhibits to the registration statement of which this
information statement is a part and to Delaware corporate law.
Common Stock
Voting Rights
Holders of common stock are entitled to one vote per share. Holders of
shares of common stock are not entitled to cumulate their votes in the election
of directors. Generally, all matters to be voted on by stockholders must be
approved by a majority (or, in the case of election of directors, by a
plurality) of the votes entitled to be cast by all shares of common stock
present in person or represented by proxy, subject to any voting rights granted
to holders of any then outstanding preferred stock. Except as otherwise provided
by law, and subject to any voting rights granted to holders of any outstanding
preferred stock, amendments to Visteon's charter must be approved by holders of
a majority of all outstanding shares of common stock.
Dividends
Holders of common stock will share ratably in any dividend declared by our
board of directors, subject to any preferential rights of any outstanding
preferred stock.
Other Rights
In the event of any merger or consolidation of Visteon with or into
another company in connection with which shares of common stock are converted
into or exchangeable for shares of stock, other securities or property
(including cash), all holders of common stock will be entitled to receive the
same kind and amount of shares of stock and other securities and property
(including cash).
On liquidation, dissolution or winding up of Visteon, after payment in
full of the amounts required to be paid to holders of preferred stock, if any,
all holders of common stock are entitled to share ratably in any assets
available for distribution to holders of shares of common stock.
No shares of common stock are subject to redemption or have preemptive
rights to purchase additional shares of common stock.
Upon consummation of the spin-off, all the outstanding shares of common
stock will be legally issued, fully paid and nonassessable.
Preferred Stock
Preferred stock is issuable from time to time in one or more classes or
series and with such voting powers, if any, designations and preferences for
each series as shall be stated in the resolutions providing for the designation
and issue of each such class or series adopted by the board of directors of
Visteon. The board of directors is authorized by Visteon's charter to determine,
among other things, the voting, dividend, redemption, conversion and liquidation
powers, rights and preferences and the limitations thereon pertaining to such
class or series. The board of
92
<PAGE>
directors, without stockholder approval, may issue preferred stock with voting
and other rights that could adversely affect the voting power and other rights
of the holders of the common stock. The ability of the board of directors to
issue preferred stock without stockholder approval could also have the effect of
delaying, deferring or preventing a change in control of Visteon or the removal
of existing management. Visteon has no present plans to issue any shares of
preferred stock.
Certificate of Incorporation and By-law Provisions That May Have an
Anti-Takeover Effect
Certain provisions of Visteon's charter and by-laws summarized below may
be deemed to have an anti-takeover effect and may delay, deter or prevent a
tender offer or takeover attempt that a stockholder might consider to be in its
best interest, including attempts that might result in a premium being paid over
the market price for the common stock.
Visteon's charter will provide that, subject to any rights of holders of
preferred stock to elect additional directors under specified circumstances, the
number of directors of Visteon shall consist of not less than one nor more than
15 members, the exact number of which shall be fixed from time to time by
resolution adopted by the affirmative vote of a majority of the board of
directors. The directors shall be divided into three classes, as nearly equal in
number as possible, serving staggered three year terms so that the directors'
initial term will expire on the date of the annual meeting of stockholders held
in 2001, 2002 and 2003. At each succeeding annual meeting of stockholders,
beginning in 2001, successors to the class of directors whose term expires at
that annual meeting shall be elected for a three-year term. With a classified
board, at least two annual meetings of stockholders will generally be required
to effect a change in a majority of the members of the board; this has the
effect of delaying any attempt by a stockholder seeking a takeover of Visteon to
elect a majority of directors to our board. The by-laws will provide that,
subject to any rights of holders of preferred stock to elect directors under
specified circumstances, the number of directors will be fixed from time to time
exclusively by resolution of the board of directors. In addition, the charter
and by-laws will provide that, subject to any rights of holders of preferred
stock, and unless Visteon's board of directors otherwise determines, any vacancy
on the board of directors that results from an increase in the number of
directors may be filled by a majority of the directors then in office, provided
that a quorum is present, and any other vacancy occurring on the board of
directors may be filled by a majority of the board of directors then in office,
even if less than a quorum, or by a sole remaining director; except as otherwise
provided by law, any such vacancy may not be filled by the stockholders.
Visteon's by-laws provide for an advance notice procedure for the
nomination, other than by or at the direction of the board of directors, of
candidates for election as directors as well as for other stockholder proposals
to be considered at annual meetings of stockholders. In general, notice of
intent to nominate a director or raise matters at such meetings will have to be
received in writing by Visteon not less than 60 nor more than 90 days prior to
the anniversary of the previous year's annual meeting of stockholders, and must
contain certain information concerning the person to be nominated or the matters
to be brought before the meeting and concerning the stockholder submitting the
proposal. Visteon's charter and by-laws will also provide that special meetings
of stockholders may be called only by certain specified officers of Visteon or
by a majority of the directors then in office. Any action required or permitted
to be taken by stockholders may be effected only at a duly called annual or
special meeting of stockholders and may not be effected by a written consent by
stockholders in lieu of such a meeting.
The charter and by-laws provide that the by-laws may be altered, amended
or repealed only by Visteon's board of directors.
Section 203 of the Delaware General Corporation Law
Visteon is a Delaware corporation subject to Section 203 of the Delaware
General Corporation Law. Section 203 provides that, subject to certain
exceptions, a corporation shall not engage in any business combination with any
"interested stockholder" for a three-year period following the time that such
stockholder becomes an interested stockholder unless (i) prior to such time, the
board of directors of the corporation approved either the business combination
or the transaction which resulted in the stockholder becoming an interested
stockholder, (ii) upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested
93
<PAGE>
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding certain shares) or
(iii) at or subsequent to such time, the business combination is approved by the
board of directors of the corporation and by the affirmative vote of at least
66- 2/3% of the outstanding voting stock which is not owned by the interested
stockholder. Except as specified in Section 203, an interested stockholder is
generally defined as (x) any person that is the owner of 15% or more of the
outstanding voting stock of the corporation, or is an affiliate or associate of
the corporation and was the owner of 15% or more of the outstanding voting stock
of the corporation, at any time within the three-year period immediately prior
to the relevant date and (y) the affiliates and associates of any such person.
Under certain circumstances, Section 203 makes it more difficult for an
"interested stockholder" to effect various business combinations with a
corporation for a three-year period, although the stockholders may elect to
exclude a corporation from the restrictions imposed thereunder.
Limitation on Directors' Liability
Visteon's charter provides that no director of Visteon shall be personally
liable to Visteon or any of its stockholders for monetary damages for breach of
fiduciary duty as a director, except to the extent that exemption from liability
or limitation of liability is not permitted under the Delaware General
Corporation Law, as now in effect or as amended in the future. If the Delaware
General Corporation Law is amended in the future to authorize the further
elimination or limitation of director liability, the liability of directors will
be limited or eliminated in accordance with those changes. Any repeal or
modification of the director liability provisions of our charter will not have
any effect on directors' liability with respect to acts or omissions occurring
prior to the repeal or modification.
Pursuant to our charter, we have agreed to indemnify our directors and
officers to the fullest extent authorized or permitted by law, as now in effect
or as in effect at a future date. Any repeal or modification of the director and
officer indemnification provisions of our charter will not have any effect on
directors' or officers' rights to indemnification with respect to acts or
omissions occurring prior to the repeal or modification.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is EquiServe Trust
Company, N.A., and its address is 525 Washington Boulevard, Jersey City, New
Jersey 07310.
94
<PAGE>
INDEMNIFICATION OF DIRECTORS AND OFFICERS
General Corporation Law
Visteon is incorporated under the laws of the State of Delaware. Section
145 ("Section 145") of the General Corporation Law of the State of Delaware, as
the same exists or may hereafter be amended (the "General Corporation Law"),
inter alia, provides that a Delaware corporation may indemnify any persons who
were, are or are threatened to be made, parties to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of such corporation), by
reason of the fact that such person is or was an officer, director, employee or
agent of such corporation, or is or was serving at the request of such
corporation as a director, officer, employee or agent of another corporation or
enterprise. The indemnity may include expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or proceeding, provided such
person acted in good faith and in a manner he or she reasonably believed to be
in or not opposed to the corporation's best interests and, with respect to any
criminal action or proceeding, had no reasonable cause to believe that his
conduct was illegal. A Delaware corporation may indemnify any persons who are,
were or threatened to be made, a party to any threatened, pending or completed
action or suit by or in the right of the corporation by reason of the fact that
such person was a director, officer, employee or agent of such corporation, or
is or was serving at the request of such corporation as a director, officer,
employee or agent of another corporation or enterprise. The indemnity may
include expenses (including attorneys' fees) actually and reasonably incurred by
such person in connection with the defense or settlement of such action or suit,
provided such person acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the corporation's best interests, provided
that no indemnification is permitted without judicial approval if the officer,
director, employee or agent is adjudged to be liable to the corporation. Where
an officer, director, employee or agent is successful on the merits or otherwise
in the defense of any action referred to above, the corporation must indemnify
him or her against the expenses which such officer or director has actually and
reasonably incurred.
Section 145 further authorizes a corporation to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of
the corporation as a director, officer, employee or agent of another
corporation or enterprise, against any liability asserted against him or her
and incurred by him or her in any such capacity, arising out of his or her
status as such, whether or not the corporation would otherwise have the power
to indemnify him or her under Section 145.
Certificate of Incorporation
Visteon's Restated Certificate of Incorporation and Bylaws provide for the
indemnification of directors and officers to the fullest extent permitted by the
General Corporation Law.
All of Visteon's directors and officers will be covered by insurance
policies maintained by Visteon against certain liabilities for actions taken in
their capacities as such, including liabilities under the Securities Act of
1933, as amended.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form 10 with the SEC with
respect to the shares of our common stock that Ford stockholders will receive in
the spin-off. This information statement is a part of that registration
statement and, as allowed by SEC rules, does not include all of the information
you can find in the registration statement or the exhibits to the registration
statement. For additional information relating to us and the spin-off, reference
is made to the registration statement and the exhibits to the registration
statement. Statements contained in this information statement as to the contents
of any contract or document referred to are not necessarily complete and in each
instance, if the contract or document is filed as an exhibit to the registration
statement, reference is made to the copy of the contract or other document filed
as an exhibit to the registration statement. Each statement is qualified in all
respects by the relevant reference.
95
<PAGE>
After the spin-off, we will file annual, quarterly and special reports,
proxy statements and other information with the SEC. We intend to furnish our
stockholders with annual reports containing consolidated financial statements
certified by an independent public accounting firm. The registration statement
is, and any of these future filings with the SEC will be, available to the
public over the Internet at the SEC's website at http://www.sec.gov. You may
read and copy any filed document at the SEC's public reference rooms in
Washington, D.C. at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C.
20549, and at the SEC's regional offices in New York at 7 World Trade Center,
13(th) Floor, New York, NY 10048, and in Chicago at Suite 1400, Northwestern
Atrium Center, 14(th) Floor, 500 W. Madison Street, Chicago, IL 60661. Please
call the SEC at 1-800-SEC-0330 for further information about the public
reference rooms.
We maintain an Internet site at http://www.visteon.com. Our website and
the information contained on that site, or connected to that site, is not
incorporated into this information statement or the registration statement.
96
<PAGE>
Visteon Corporation and Subsidiaries
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Accountants..........................................F-2
Consolidated Statement of Income for Each of the
Three Years in the Period Ended December 31, 1999 .......................F-3
Consolidated Balance Sheet as of December 31, 1999 and 1998................F-4
Consolidated Statement of Cash Flows for Each of the
Three Years in the Period Ended December 31, 1999 .......................F-5
Consolidated Statement of Equity for Each of the Three
Years in the Period Ended December 31, 1999 .............................F-6
Notes to Financial Statements..............................................F-7
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Ford Motor Company
The transfers and recapitalization described in Note 1 to the financial
statements have not been consummated at April 14, 2000. When consummated, we
will be in a position to furnish the following report:
/s/ PricewaterhouseCoopers LLP
"In our opinion, the accompanying consolidated balance sheet and the
related consolidated statements of income, equity and cash flows present
fairly, in all material respects, the financial position of Visteon
Corporation and Subsidiaries (the wholly-owned automotive components and
systems business of Ford Motor Company - See Notes 1 and 2) at December
31, 1999 and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1999,
in conformity with accounting principles generally accepted in the
United States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits
of these statements in accordance with auditing standards generally
accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above."
April 7, 2000, except as to Note 1
for which the date is _____, 2000
Detroit, Michigan
F-2
<PAGE>
Visteon Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------------------
1999 1998 1997
--------- -------- ---------
(in millions, except per share amounts)
<S> <C> <C> <C>
Sales (Notes 3 and 14)
Ford and affiliates......................................... $ 17,105 $ 16,350 $ 16,003
Other customers............................................. 2,261 1,412 1,217
-------- --------- ---------
Total sales............................................... 19,366 17,762 17,220
Costs and expenses (Notes 2, 3, 13 and 14):
Costs of sales.............................................. 17,503 15,969 15,794
Selling, administrative and other expenses.................. 674 659 575
-------- --------- ---------
Total costs and expenses.................................. 18,177 16,628 16,369
Operating income............................................. 1,189 1,134 851
Interest income............................................. 79 38 17
Interest expense............................................ 143 82 82
-------- --------- ---------
Net interest expense...................................... (64) (44) (65)
Equity in net income of affiliated companies (Note 2)........ 47 26 29
-------- --------- ---------
Income before income taxes................................... 1,172 1,116 815
Provision for income taxes (Note 7).......................... 422 416 305
-------- --------- ---------
Income before minority interests............................. 750 700 510
Minority interests in net income/(loss) of subsidiaries...... 15 (3) (1)
-------- --------- ---------
Net income................................................... $ 735 $ 703 $ 511
======== ========= =========
Earnings per share (Note 1)
Basic and diluted........................................... $ $ $
======== ========= =========
</TABLE>
The accompanying notes are part of the financial statements.
F-3
<PAGE>
VISTEON CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
----------------------
1999 1998
----------- --------
(in millions)
<S> <C> <C>
ASSETS
Cash and cash equivalents (Note 4)............................ $ 1,849 $ 542
Accounts and notes receivable - Ford and affiliates........... 1,578 1,429
Accounts receivable - other customers......................... 613 332
-------- ---------
Total receivables........................................... 2,191 1,761
Inventories (Note 5).......................................... 751 606
Deferred income taxes......................................... 110 139
Prepaid expenses and other current assets..................... 295 143
-------- ---------
Total current assets........................................ 5,196 3,191
Equity in net assets of affiliated companies (Note 2)......... 205 214
Net property (Note 6)......................................... 5,789 5,391
Deferred income taxes......................................... 362 356
Other assets.................................................. 897 221
-------- ---------
Total assets................................................... $ 12,449 $ 9,373
======== =========
LIABILITIES AND EQUITY
Trade payables - Ford and affiliates.......................... $ 1,414 $ 544
Trade payables - other suppliers.............................. 1,736 1,319
-------- ---------
Total trade payables........................................ 3,150 1,863
Accrued liabilities (Note 8).................................. 1,211 960
Income taxes payable.......................................... 153 32
Debt payable within one year - Ford and affiliates (Note 11).. 697 142
Debt payable within one year - other (Note 11)................ 264 167
-------- ---------
Total debt payable within one year.......................... 961 309
-------- ---------
Total current liabilities................................. 5,475 3,164
Long-term debt - Ford and affiliates (Note 11)................ 1,214 745
Long-term debt - other (Note 11).............................. 144 71
-------- ---------
Total long-term debt........................................ 1,358 816
Other liabilities (Note 8).................................... 3,964 3,586
Deferred income taxes......................................... 153 152
-------- ---------
Total liabilities........................................... 10,950 7,718
Equity
Ford's net investment......................................... 1,566 1,680
Accumulated other comprehensive income........................ (67) (25)
-------- ---------
Total equity................................................ 1,499 1,655
-------- ---------
Total liabilities and equity.................................. $ 12,449 $ 9,373
======== =========
</TABLE>
The accompanying notes are part of the financial statements.
F-4
<PAGE>
Visteon Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------------------
1999 1998 1997
------------ -------------- ------------
(in millions)
<S> <C> <C> <C>
Cash and cash equivalents at January 1...................... $ 542 $ 344 $ 137
Cash flows from operating activities
(Note 15)................................................. 2,482 1,376 1,411
Cash flows from investing activities
Capital expenditures....................................... (876) (861) (917)
Acquisitions and investments in joint ventures, net........ (579) (108) --
Other...................................................... 2 29 (26)
--------- --------- --------
Net cash used in investing activities.................... (1,453) (940) (943)
Cash flows from financing activities
Cash distributions to Ford................................. (775) (267) (194)
Cash contributions from Ford............................... 217 -- --
Changes in short-term debt................................. 493 34 29
Proceeds from issuance of other term debt.................. 285 96 154
Principal payments on other term debt...................... (361) (149) (66)
Net changes in revolving loan with Ford.................... 531 -- (128)
Other...................................................... (100) 52 (46)
--------- --------- --------
Net cash provided by/(used in) financing activities...... 290 (234) (251)
Effect of exchange rate changes on cash.................. (12) (4) (10)
--------- --------- --------
Net increase in cash and cash equivalents................... 1,307 198 207
--------- --------- --------
Cash and cash equivalents at December 31.................... $ 1,849 $ 542 $ 344
========= ========= ========
</TABLE>
The accompanying notes are part of the financial statements.
F-5
<PAGE>
Visteon Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF EQUITY
<TABLE>
<CAPTION>
Other
Ford's Net Comprehensive
Investment Income Total
---------- ------------- --------
(in millions)
YEAR ENDED DECEMBER 31, 1997
<S> <C> <C> <C>
Balance at beginning of year.. $ 986 $ (3) $ 983
Comprehensive income
Net income.................. 511 -- 511
Foreign currency translation -- (50) (50)
--------
Comprehensive income...... 461
Net transfers to Ford......... (240) -- (240)
--------- ---------- --------
Balance at end of year........ $ 1,257 $ (53) $ 1,204
========= ========== ========
YEAR ENDED DECEMBER 31, 1998
Balance at beginning of year.. $ 1,257 $ (53) $ 1,204
Comprehensive income
Net income.................. 703 -- 703
Foreign currency translation -- 28 28
--------
Comprehensive income...... 731
Net transfers to Ford......... (280) -- (280)
--------- ---------- --------
Balance at end of year........ $ 1,680 $ (25) $ 1,655
========= ========== ========
YEAR ENDED DECEMBER 31, 1999
Balance at beginning of year.. $ 1,680 $ (25) $ 1,655
Comprehensive income
Net income.................. 735 -- 735
Foreign currency translation -- (42) (42)
--------
Comprehensive income...... 693
Net transfers to Ford......... (849) -- (849)
--------- ---------- --------
Balance at end of year........ $ 1,566 $ (67) $ 1,499
========= ========== ========
</TABLE>
The accompanying notes are part of the financial statements.
F-6
<PAGE>
Visteon Corporation and Subsidiaries
NOTES TO FINANCIAL STATEMENTS
NOTE 1. General Information and Background
In January 2000, Ford Motor Company ("Ford") announced the goal for
Visteon, Ford's global automotive components and systems business, to achieve
independence. Towards achieving this goal, Ford established Visteon Corporation
("Visteon") as a wholly-owned subsidiary of Ford. Ford has contributed or
otherwise transferred to Visteon the assets and liabilities comprising Ford's
automotive components and systems business.
Visteon was incorporated in Delaware as of January 1, 2000 with an initial
capitalization of 10,000 shares of $1.00 par value common stock authorized and
1,000 shares of common stock outstanding. Through a subsequent recapitalization
of Visteon, the number of shares authorized and outstanding was increased to
___________ and _________, respectively. To complete the goal of independence,
on _____ __, 2000, a special committee of Ford's Board of Directors, pursuant to
full Board authorization, approved a pro rata distribution (or spin-off) to Ford
common and Class B stockholders of record at the close of business on ________,
2000, the record date for the spin-off, of all shares of Visteon common stock
owned by Ford. In this spin-off, Ford will distribute ___ shares of Visteon
common stock for each share of Ford common or Class B stock held at the close of
business on the record date.
For purposes of Notes to Financial Statements, Visteon means Ford's global
automotive components and systems business, regardless of the form of legal
ownership, which has been treated by Ford as a separate operating segment,
unless the context requires otherwise. Visteon is comprised of over 81,000
designated employees located in 49 technical facilities and sales offices and 83
owned and leased plants in 21 countries throughout the world. Approximately 41%
of Visteon-designated hourly employees are represented by the United Auto
Workers ("UAW") union under collective bargaining agreements with Ford (75% are
associated with a union of one form or another). For purposes of the earnings
per share calculation, the ______ shares outstanding, which reflect the
recapitalization discussed above, are treated as outstanding for all periods
presented. There were no potentially dilutive securities outstanding during the
periods presented. For purposes of Notes to Financial Statements, Ford means
Ford Motor Company and its majority-owned, consolidated subsidiaries unless the
context requires otherwise.
NOTE 2. Basis of Presentation
Principles of Consolidation
The consolidated financial statements include the operating results,
assets, liabilities and cash flows of all significant Ford activities and
activities majority-owned by Ford comprising the Visteon business. Intra-Visteon
transactions have been eliminated in this consolidation. Visteon activities that
are 20% to 50% owned by Ford are included and accounted for on an equity basis
in these statements. Use of estimates and assumptions as determined by
management are required in the preparation of financial statements in conformity
with generally accepted accounting principles. Actual results could differ from
those estimates and assumptions.
Visteon-designated Employee Costs and Benefit Plans
Ford allocates the cost of Visteon-designated employees to Visteon in
these financial statements. The costs include compensation and benefits for all
persons who are employed by Visteon's manufacturing, sales, engineering and
technical centers around the world, as well as costs for employees that retired
from those Visteon sites. In addition, costs for other employees of Ford who
periodically provide services to Visteon are included in the operating cost
allocations.
F-7
<PAGE>
Visteon Corporation and Subsidiaries
NOTES TO FINANCIAL STATEMENTS (Continued)
The cost of employee retirement plans for Visteon-designated employees of
Ford has been measured and allocated to Visteon on an actuarial basis. No
significant portion of the funded status of Ford's retirement plans have been
allocated to Visteon.
Ford's unfunded obligation for Visteon-designated employees for
postretirement health care and life insurance programs have been measured on an
actuarial basis and allocated to Visteon. See Note 10 for further information.
Operating Costs
Operating costs and expenses include other allocations of general
corporate overhead related to Ford's corporate headquarters and common support
activities including information systems, product development, accounting and
finance, corporate insurance programs, treasury, facilities, legal and human
resources. These costs are assessed to Visteon based on usage or similar
allocation methodologies.
Environmental costs are allocated to Visteon if the site incurring the
cost is part of the Visteon business and for any historical Visteon products or
processes responsible for the environmental claim or remediation. Visteon also
bears the cost and responsibility for any general litigation matters related to
the historical Visteon businesses, products and employees.
Although Visteon management believes the allocations and charges for such
services to be reasonable, the costs of these services charged to Visteon are
not necessarily indicative of the costs that would have been incurred had
Visteon been a stand-alone entity or what they will be in the future.
Product Liability, Warranty and Recall
The statement of income includes expenses for accruals relating to product
liability, warranty and recall claims involving Visteon products. These accruals
have been made based on an analysis of Ford's claim experience against other
component suppliers. In conjunction with the establishment of Visteon as a
separate business unit, Visteon and Ford have agreed on a division of
responsibility for product liability, warranty and recall matters as follows:
(a) Ford will retain liability for all product liability, warranty or recall
claims that involve parts made or sold by Visteon for 1996 or earlier model year
Ford vehicles, (b) Visteon is liable for all product liability, warranty or
recall claims that involve parts made or sold by Visteon for 1997 or later model
year Ford vehicles in accordance with Ford's global standard purchase order
terms as applied to other Tier 1 suppliers, and (c) Visteon has assumed all
responsibility for product liability, warranty or recall claims relating to
parts made or sold by Visteon to any non-Ford customers.
NOTE 3. ACCOUNTING POLICIES
Revenue Recognition
Sales are recorded when products are shipped. Frequently, design
modifications to products produced are implemented in advance of completing the
process for negotiating a change in prices. These retroactive price adjustments
are measured and included in revenue in the period in which Visteon reaches
agreement with its customers.
F-8
<PAGE>
Visteon Corporation and Subsidiaries
NOTES TO FINANCIAL STATEMENTS (Continued)
Other Costs
Advertising and sales promotion costs are expensed as incurred.
Advertising costs were $42 million in 1999, $39 million in 1998, and $35 million
in 1997.
Research and development costs are expensed as incurred and were $1,115
million in 1999, $1,004 million in 1998 and $855 million in 1997.
Derivative Financial Instruments
Visteon has operations in over 20 countries and sells component parts
around the world, and is exposed to a variety of market risks, including the
effects of changes in foreign currency exchange rates, interest rates and
commodity prices. Visteon's primary non-U.S. currency exposures are in the euro,
Mexican Peso and Canadian Dollar. Visteon's primary commodity-price exposures
are aluminum and copper. These financial exposures are monitored and managed for
Visteon by Ford as an integral part of Ford's overall risk management program,
which recognizes the unpredictability of financial markets and seeks to reduce
the potentially adverse effect on results. Ford's policy, which applies to
Visteon, specifically prohibits the use of leveraged derivatives or use of any
derivatives for speculative purposes.
Gains and losses on derivative financial instruments are deferred and
recognized in cost of sales during the settlement period of the related
transactions. Commodity exposures are managed substantially through fixed-price
contracts with suppliers. After consideration of the amounts of currency
exposures, Visteon management, in consultation with Ford treasury management,
did not place any significant Visteon specific hedges of non-U.S. currency
exposures in 1997 or 1998. During 1999, Visteon entered into certain
transactions to hedge foreign currency exposures in foreign countries. The fair
value of foreign currency instruments were estimated using current market rates
provided by outside quotation services. The estimated notional amount and fair
value of foreign currency instruments at December 31, 1999 were $410 million and
$16 million, respectively.
Foreign Currency Translation
Assets and liabilities of Visteon's non-U.S. businesses generally are
translated to U.S. Dollars at end-of-period exchange rates. The effects of this
translation for Visteon are reported in other comprehensive income.
Remeasurement of assets and liabilities of Visteon's non-U.S. businesses that
use the U.S. Dollar as their functional currency are included in income as
transaction gains and losses. Income statement elements of Visteon's non-U.S.
businesses are translated to U.S. Dollars at average-period exchange rates and
are recognized as part of revenues, costs and expenses. Also included in income
are gains and losses arising from transactions denominated in a currency other
than the functional currency of the business involved. Net transaction gains and
losses, as described above, decreased net income $24 million in 1999, increased
net income $13 million in 1998, and decreased net income $20 million in 1997.
Impairment of Long-Lived Assets and Certain Identifiable Intangibles
Visteon evaluates the carrying value of goodwill for potential impairment
on an ongoing basis. Such evaluations compare operating income before
amortization of goodwill to the amortization recorded for the operations to
which the goodwill relates. Visteon also periodically evaluates the carrying
value of long-lived assets and long-lived assets to be disposed of for potential
impairment. Visteon considers projected future operating results, cash flows,
trends and other circumstances in making such estimates and evaluations.
F-9
<PAGE>
Visteon Corporation and Subsidiaries
NOTES TO FINANCIAL STATEMENTS (Continued)
Accrued Commitments Under Loss Contracts
Management periodically evaluates the profitability of contractual
commitments on a customer basis, and will establish a reserve whenever expected
costs exceed related revenues, based upon a reasonable estimate of the costs and
product pricing expected to exist over the course of the contract period.
Goodwill
Goodwill represents the excess of the purchase price over the fair value
of the net assets of acquired companies and is amortized using the straight-line
method for periods up to 20 years. Total goodwill included in other assets was
$409 million at December 31, 1999. Goodwill is primarily related to the 1999
acquisition of the automotive interior division of Compagnie Plastic Omnium.
NOTE 4. Cash and Cash Equivalents
Cash and cash equivalents consist primarily of a share of Ford's cash and
cash equivalents. In addition, Visteon considers all highly liquid investments
purchased with an original maturity of three months or less, including
short-term time deposits and government agency and corporate obligations, to be
cash equivalents. Investment earnings on Visteon's combined net cash position
have been based on Ford's average rates of return on its cash and cash
equivalents.
NOTE 5. Inventories
<TABLE>
<CAPTION>
December 31,
---------------------
1999 1998
----------- --------
(in millions)
<S> <C> <C>
Raw materials, work-in-process and supplies $ 653 $ 567
Finished products.......................... 98 39
------ ------
Total inventories....................... $ 751 $ 606
====== ======
U.S. inventories........................... $ 434 $ 363
</TABLE>
Inventories are stated at the lower of cost or market. The cost of most
U.S. inventories is determined by the last-in, first-out ("LIFO") method. The
cost of the remaining inventories is determined primarily by the first-in,
first-out ("FIFO") method.
If the FIFO method had been used instead of the LIFO method, inventories
would have been higher by $101 million and $114 million at December 31, 1999 and
1998, respectively.
F-10
<PAGE>
Visteon Corporation and Subsidiaries
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 6. Net Property, Depreciation and Amortization
<TABLE>
<CAPTION>
December 31,
--------------------
1999 1998
------- --------
(in millions)
<S> <C> <C>
Land................................ $ 85 $ 44
Buildings and land improvements..... 1,343 1,261
Machinery, equipment and other...... 8,540 7,872
Construction in progress............ 427 446
------- --------
Total land, plant and equipment... 10,395 9,623
Accumulated depreciation............ (4,856) (4,444)
------- --------
Net land, plant and equipment..... 5,539 5,179
Special tools, net of amortization.. 250 212
------- --------
Net property...................... $ 5,789 $ 5,391
======= ========
</TABLE>
Property, equipment and special tools are stated at cost, less accumulated
depreciation and amortization. Property and equipment placed in service before
January 1, 1993 are depreciated using an accelerated method that results in
accumulated depreciation of approximately two-thirds of asset cost during the
first half of the estimated life of the asset. Property and equipment placed in
service after December 31, 1992 are depreciated using the straight-line method
of depreciation over the estimated useful life of the asset. On average,
buildings and land improvements are depreciated based on a 30-year life;
machinery and equipment are depreciated based on a 14-year life. Cost of
computer software developed or obtained for internal use is capitalized
beginning January 1, 1999. Special tools placed in service before January 1,
1999 are amortized using an accelerated method over periods of time representing
the estimated life of those tools. Special tools placed in service after
December 31, 1998 are amortized using the straight-line method. For property and
equipment retired before January 1, 1999, the general policy was to charge the
cost of those assets, reduced by net salvage proceeds, to accumulated
depreciation. For property and equipment retired after December 31, 1998, the
general policy is to charge the net book value of those assets, reduced by net
salvage proceeds, to gain or loss on disposal of assets. These changes did not
have a material impact on the financial statements.
Depreciation and amortization expenses related to property, equipment and
special tools were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(in millions)
<S> <C> <C> <C>
Depreciation.......... $ 572 $ 503 $ 539
Amortization.......... 66 56 53
------ ------ ------
Total............... $ 638 $ 559 $ 592
====== ====== ======
</TABLE>
Maintenance, repairs and rearrangement costs are expensed as incurred and
were $549 million in 1999, $493 million in 1998 and $537 million in 1997.
Expenditures that increase the value or productive capacity of assets are
capitalized. Preproduction costs related to new facilities are expensed as
incurred.
F-11
<PAGE>
Visteon Corporation and Subsidiaries
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 7. Income Taxes
Visteon businesses are generally included in Ford's tax returns in each
significant country of operation. Visteon measures income tax expense by
calculating its annual provision on a separate company basis.
Income before income taxes for U.S. and non-U.S. operations, excluding
equity in net income of affiliated companies, was as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
(in millions)
<S> <C> <C> <C>
U.S.................................. $ 974 $ 746 $ 471
Non-U.S.............................. 151 344 315
------- ------- -------
Total income before income taxes... $ 1,125 $ 1,090 $ 786
======= ======= =======
</TABLE>
The provision for income taxes was calculated as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
(in millions)
<S> <C> <C> <C>
Current tax provision
U.S. federal....................... $ 264 $ 165 $ (40)
Non-U.S............................ 112 149 80
State and local.................... 26 26 17
------- ------- -------
Total current..................... 402 340 57
Deferred tax provision
U.S. federal............... 47 71 181
Non-U.S.................... (27) 5 63
State and local............ -- -- 4
------- ------- -------
Total deferred............ 20 76 248
------- ------- -------
Total provision.............. $ 422 $ 416 $ 305
======= ======= =======
</TABLE>
The provision includes estimated taxes payable on that portion of retained
earnings of non-U.S. Visteon businesses which are planned to be remitted. No
provision has been made on $158 million of retained earnings (primarily prior to
1998) which are considered to be indefinitely invested in the non-U.S.
businesses.
It is not practical to estimate the amount of unrecognized deferred tax
liability for the undistributed non-U.S. earnings.
F-12
<PAGE>
Visteon Corporation and Subsidiaries
NOTES TO FINANCIAL STATEMENTS (Continued)
A reconciliation of the provision for income taxes compared with the
amounts at the U.S. statutory tax rate is shown below:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Tax provision at U.S. statutory rate of 35%.. 35% 35% 35%
Effect of:
Tax on non-U.S. income................. 2 3 4
State and local income taxes........... 2 2 2
Other.................................. (1) (2) (2)
-- -- --
Provision for income taxes.................. 38% 38% 39%
== == ==
</TABLE>
Deferred tax assets and liabilities reflect the estimated tax effect of
accumulated temporary differences between assets and liabilities for financial
reporting purposes and those amounts as measured by tax laws and regulations.
The components of deferred income tax assets and liabilities at December
31 were as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(in millions)
<S> <C> <C>
Deferred tax assets
Employee benefit plans................. $1,152 $1,398
Customer allowances and claims......... 58 57
All other.............................. 148 138
------ ------
Total deferred tax assets............. 1,358 1,593
Deferred tax liabilities
Depreciation and amortization.......... 931 992
Employee benefit plans................. 34 184
All other.............................. 91 94
------ ------
Total deferred tax liabilities........ 1,056 1,270
------ ------
Net deferred tax assets............. $ 302 $ 323
====== ======
</TABLE>
F-13
<PAGE>
Visteon Corporation and Subsidiaries
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 8. Liabilities
Current Liabilities
Included in accrued liabilities at December 31 were the following:
<TABLE>
<CAPTION>
1999 1998
--------- -------
(in millions)
<S> <C> <C>
Salaries, wages and employer taxes.............. $ 514 $ 329
Employee benefit plans.......................... 239 315
Postretirement benefits other than pensions..... 186 30
Other........................................... 272 286
------- -------
Total accrued liabilities..................... $ 1,211 $ 960
======= =======
</TABLE>
Noncurrent Liabilities
Included in other liabilities at December 31 were the following:
<TABLE>
<CAPTION>
1999 1998
------ ------
(in millions)
<S> <C> <C>
Postretirement benefits other than pensions........ $3,300 $3,220
Employee benefit plans............................. 331 119
Minority interests in net assets of subsidiaries... 91 16
Other.............................................. 242 231
------ ------
Total other liabilities.......................... $3,964 $3,586
====== ======
</TABLE>
F-14
<PAGE>
Visteon Corporation and Subsidiaries
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 9. Employee Retirement Plans
In the U.S., Visteon-designated employees of Ford participate in two
principal retirement plans, the Ford-UAW Retirement Plan and the General
Retirement Plan, both sponsored by Ford, and also in pension plans sponsored by
Ford Electronics and Refrigeration LLC. The hourly plans provide noncontributory
benefits related to employee service. The salaried plans provide similar
noncontributory and contributory benefits related to pay and service. In
addition, certain Visteon-designated executives participate in unfunded defined
benefit plans, also sponsored by Ford.
Visteon-designated employees of Ford also participate in pension plans
outside the U.S.; these generally are funded by Ford, except in Germany, where
an unfunded liability exists. Also outside the U.S., Visteon activities either
sponsor pension plans or participate in pension plans sponsored by subsidiaries
of Ford.
The employee benefit plan expense allocated from Ford and charged to
Visteon was as follows:
<TABLE>
<CAPTION>
U.S. Plans Non-U.S. Plans
---------------------------------- -----------------------------------
1999 1998 1997 1999 1998 1997
-------- -------- -------- -------- -------- --------
(in millions)
<S> <C> <C> <C> <C> <C> <C>
Costs Recognized in Income
Service cost................................ $ 140 $ 121 $ 119 $ 34 $ 30 $ 28
Interest cost............................... 418 390 402 67 65 62
Expected return on plan assets.............. (611) (539) (514) (95) (88) (80)
Amortization of:
Transition (asset)/obligation............. 1 1 2 (1) (2) (2)
Plan amendments........................... 104 133 110 13 11 10
(Gains)/losses and other.................. 5 3 5 12 2 (2)
----- ----- ----- ----- ----- -----
Net pension expense......................... $ 57 $ 109 $ 124 $ 30 $ 18 $ 16
===== ===== ===== ===== ===== =====
Discount rate for expense................... 6.25% 6.75% 7.25% 5.70% 6.50% 7.10%
Assumed long-term rate of return on assets.. 9.00% 9.00% 9.00% 9.30% 9.20% 9.20%
</TABLE>
Pension expense in 1999 and 1998 decreased for U.S. plans primarily as a
result of increased return on plan assets partially offset by lower discount
rates and the year-to-year change in the cost of certain employee separation
programs.
F-15
<PAGE>
Visteon Corporation and Subsidiaries
NOTES TO FINANCIAL STATEMENTS (Continued)
The retirement obligations of Ford Electronics and Refrigeration LLC and
Ford Electronics and Manufacturing Company, Inc. are entirely the responsibility
of Visteon. The summarized funded status of these plans at December 31 was as
follows:
<TABLE>
<CAPTION>
1999 1998
--------- --------
(in millions)
<S> <C> <C>
Plan assets at fair value...................................................... $ 786 $ 725
Projected benefit obligation................................................... 501 556
--------- --------
Plan assets in excess of projected benefit obligation ......................... 285 169
Unrecognized amounts for transition and prior service.......................... 33 27
Unamortized net gain........................................................... (210) (99)
--------- --------
Net prepaid asset recognized and included in Visteon's balance sheet........... $ 108 $ 97
========= ========
Assumptions as of December 31
Discount rate................................................................ 7.75% 6.25%
Expected return on assets.................................................... 9.00% 9.00%
Average rate of increase in compensation..................................... 5.00% 5.00%
</TABLE>
NOTE 10. Postretirement Health Care and Life Insurance Benefits
Ford and certain of its subsidiaries sponsor unfunded plans to provide
selected health care and life insurance benefits for retired employees.
Visteon-designated employees in the U.S. may become eligible for these benefits
if they retire; benefits and eligibility rules may be modified from time to
time.
The estimated cost for these benefits is accrued over periods of employee
service on an actuarially determined basis. Ford has prepaid a portion of hourly
U.S. retiree health benefits by contributing to a Voluntary Employees'
Beneficiary Association ("VEBA"). At December 31, 1999, $419 million of VEBA
assets were allocated to Visteon.
Increasing the assumed health care cost trend rates by one percentage
point is estimated to increase the aggregate service and interest cost
components of Visteon's net postretirement benefit expense for 1999 by $57
million and the accumulated postretirement benefit obligation at December 31,
1999 by $508 million. A decrease of one percentage point would reduce service
and interest costs by $44 million and decrease the December 31, 1999 obligation
by $423 million.
F-16
<PAGE>
Visteon Corporation and Subsidiaries
NOTES TO FINANCIAL STATEMENTS (Continued)
The amounts primarily allocated from Ford and charged to Visteon expense
for postretirement health care and life insurance benefits were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(in millions)
<S> <C> <C> <C>
Costs Recognized in Income
Service cost....................... $ 81 $ 59 $ 54
Interest cost...................... 261 245 266
Expected return on plan assets..... (27) (11) --
Amortization of:
Plan amendments................ (9) (10) (11)
Losses and other............... 9 10 1
---- ---- ----
Net cost recognized................ $315 $293 $310
==== ==== ====
</TABLE>
The year-end status of these plans was as follows:
<TABLE>
<CAPTION>
1999 1998
------ ------
(in millions)
<S> <C> <C>
Change in Benefit Obligation
Benefit obligation at January 1......................................... $ 4,203 $ 3,665
Service cost.......................................................... 81 59
Interest cost......................................................... 261 245
Termination programs.................................................. 6 7
Benefits paid......................................................... (179) (179)
Actuarial loss/(gain)................................................. (231) 406
------- -------
Benefit obligation at December 31....................................... $ 4,141 $ 4,203
======= =======
Change in Plan Assets
Fair value of plan assets at January 1.................................. $ 500 $ 171
Actual return on plan assets.......................................... 18 10
Company contributions................................................. 33 425
Benefits paid......................................................... (132) (106)
------- -------
Fair value of plan assets at December 31................................ $ 419 $ 500
======= =======
Funded Status of the Plans
Plan assets less than projected benefits................................ $(3,722) $(3,703)
Unamortized amendments.................................................. 8 (30)
Unamortized net losses.................................................. 228 483
------- -------
Net amount recognized as an accrued liability in the balance sheet... $(3,486) $(3,250)
======= =======
Assumptions as of December 31
Discount rate............................................................ 7.75% 6.50%
Expected return on assets................................................ 6.00% 6.00%
Initial health care cost trend rate...................................... 8.75% 7.00%
Ultimate health care cost trend rate..................................... 5.14% 5.00%
Number of years to ultimate trend rate................................... 8 9
</TABLE>
F-17
<PAGE>
Visteon Corporation and Subsidiaries
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 11. Debt
Debt at December 31, 1999 and 1998 was as follows:
<TABLE>
<CAPTION>
Weighted-Average
Maturity Interest Rate Book Value
-------- --------------------- ------------------
1999 1998 1999 1998
------ ------ ------ ------
(in millions)
<S> <C> <C> <C> <C> <C>
Term debt payable within one year
Ford and affiliates............................... 4.8% 5.5% $ 697 $ 142
Other............................................. 7.6% 8.0% 264 167
------ ------
Total debt payable within one year.............. 961 309
Long-term debt
Ford and affiliates............................... 2001-
2007 6.9% 5.0% 115 177
Other............................................. 2001-
2005 8.3% 6.6% 144 71
------ ------
Total term debt................................. 1,220 557
Borrowings under revolving loan arrangement with
Ford.............................................. 2001 7.9% 8.0% 1,099 568
------ ------
Total debt...................................... $2,319 $1,125
====== ======
</TABLE>
Term debt consists of various arrangements. The portion of these loans
payable in non-U.S. currencies at December 31, 1999 and 1998, was $147 million
and $183 million, respectively. The fair value of term debt approximated book
value at December 31, 1999 and 1998 and was estimated based on quoted market
prices or current rates for similar debt with the same remaining maturities.
Debt also includes borrowings under an intracompany revolving loan
arrangement with Ford. Under this arrangement, Visteon may borrow up to $1,250
million. Borrowings under this revolving loan arrangement are due on the first
business day following the first anniversary of the date demand for repayment is
made by Ford. Interest on this debt is determined quarterly based on Ford's
average interest rate on its U.S. Dollar denominated, publicly traded automotive
debt. No fair value has been estimated on this debt.
Debt at December 31, 1999 included maturities as follows (in millions):
2000 - $961; 2001 - $1,185; 2002 - $53; 2003 - $44; 2004 - $4; thereafter - $72.
Additional Support Facilities
Certain Visteon receivables are sold to Ford Motor Credit Company ("Ford
Credit"), a wholly owned subsidiary of Ford. Under the terms of this agreement,
Visteon provides loss protection to Ford Credit up to twelve percent of the
average amount of receivables sold. The amount of such receivables sold was $89
million and $91 million at December 31, 1999 and 1998, respectively.
F-18
<PAGE>
Visteon Corporation and Subsidiaries
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 12. Litigation and Claims
Various legal actions, governmental investigations and proceedings and
claims are pending or may be instituted or asserted in the future against
Visteon, including those arising out of alleged defects in Visteon's products;
governmental regulations relating to safety; employment-related matters;
customer, supplier and other contractual relationships; intellectual property
rights; product warranties; and environmental matters. Some of the foregoing
matters involve or may involve compensatory, punitive, or antitrust or other
treble damage claims in very large amounts, or demands for recall campaigns,
environmental remediation programs, sanctions, or other relief which, if
granted, would require very large expenditures.
Litigation is subject to many uncertainties, and the outcome of individual
litigated matters is not predictable with assurance. Reserves have been
established by Visteon for certain matters discussed in the foregoing paragraph
where losses are deemed probable. It is reasonably possible, however, that some
of the matters discussed in the foregoing paragraph for which reserves have not
been established could be decided unfavorably to the Visteon business involved
and could require Visteon to pay damages or make other expenditures in amounts,
or a range of amounts that cannot be estimated at December 31, 1999. Visteon
does not reasonably expect, based on its analysis, that any adverse outcome from
such matters would have a material effect on future Visteon consolidated
financial statements for a particular year, although such an outcome is
possible.
NOTE 13. Acquisitions and Restructuring
In June 1999, Visteon acquired the automotive interior division of
Compagnie Plastic Omnium for approximately 2.9 billion French Francs, net of
cash acquired. This business has 14 facilities located in four countries:
France, Spain, Italy and the United Kingdom, and generated 1998 revenues of
approximately 2.8 billion French Francs. The acquisition has been accounted for
as a purchase. The purchase price has been allocated to the assets acquired and
liabilities assumed based on estimated fair values as of the acquisition date.
The excess of the purchase price over the estimated fair value of the net assets
acquired is approximately $300 million and is being amortized on a straight-line
basis over 20 years. The assets purchased, liabilities assumed and the results
of operations, since the date of acquisition, are included in the financial
statements on a consolidated basis. Assuming the acquisition had taken place
January 1, 1999 and 1998, Visteon's pro forma revenue and net income for the
related periods would not be materially affected.
Visteon recorded a pre-tax charge of approximately $40 million in fourth
quarter 1998 for Visteon-designated employees that were part of special
voluntary and involuntary retirement and separation programs announced by Ford.
During fourth quarter 1997, Visteon recorded a pre-tax expense totaling
approximately $60 million reflecting the restructuring and rationalization of
Glass Division in the U.S. These actions are related to the windshield
manufacturing facilities in the U.S. and the closure of the Dearborn Glass
Plant.
NOTE 14. Transactions with Ford and its Affiliates
Revenues from Ford and its affiliates approximated 88% in 1999, 92% in
1998, and 93% in 1997. The majority of significant transactions regarding
employee matters, financing, warranty and product liability, environmental
costs, litigation claims and tax sharing with Ford and its affiliates are
disclosed throughout these financial statements. In addition, Ford has provided
Visteon with various corporate and administrative services, the most significant
of which include information technology, product development, accounting and
finance, corporate insurance programs, treasury, facilities, legal and human
resources. For 1999 and 1998, assessments for these services totaled
approximately $211 million and $185 million, respectively. For 1997, data are
not readily available to determine the assessments related to these services.
F-19
<PAGE>
Visteon Corporation and Subsidiaries
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 15. Cash Flows
The reconciliation of net income to cash flows from operating activities
is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
(in millions)
<S> <C> <C> <C>
Net income........................................................................ $ 735 $ 703 $ 511
Adjustments to reconcile net income to cash flows from operating activities:
Depreciation and amortization.................................................... 651 565 590
Earnings of affiliated companies in excess of dividends remitted................. (23) (9) (13)
Foreign currency adjustments..................................................... 32 (16) 32
Provision for deferred income taxes.............................................. 20 76 248
Changes in assets and liabilities:
Increases in accounts receivable and other current assets ..................... (285) (137) (211)
(Increase)/decrease in inventory............................................... (62) (81) 27
Increases in accounts payable, accrued and other liabilities................... 1,494 436 278
Other............................................................................ (80) (161) (51)
------ ------ ------
Cash flows from operating activities.............................................. $2,482 $1,376 $1,411
====== ====== ======
</TABLE>
Cash paid for interest and income taxes was as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
(in millions)
Interest.......... $143 $ 81 $ 95
Income taxes...... 281 308 84
</TABLE>
NOTE 16. Stock Options
Visteon-designated employees participate in the stock option plans of Ford
and have stock options outstanding under Ford's 1990 Long-Term Incentive Plan
and the 1998 Long-Term Incentive Plan. Options granted in 1997 under the 1990
Plan and options granted under the 1998 Plan become exercisable 33% after one
year from the date of grant, 67% after two years and in full after three years.
In general, options granted prior to 1997 under the 1990 Plan become exercisable
25% after one year from the date of grant, 50% after two years, 75% after three
years, and in full after four years. Options under both Plans expire after 10
years from the date of grant.
The estimated fair value as of date of grant of options granted in 1999,
1998, and 1997, using the Black-Scholes option-pricing model, was as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Estimated fair value per share of options granted
during the year...................................... $17.53 $9.25 $5.76
Assumptions:
Annualized dividend yield............................. 3.2% 4.1% 4.8%
Common Stock price volatility......................... 36.5% 28.1% 22.1%
Risk-free rate of return.............................. 5.2% 5.7% 6.7%
Expected option term (in years)....................... 5 5 5
</TABLE>
Visteon measures compensation cost using the intrinsic value method.
Accordingly, no compensation cost for stock options has been recognized. If
compensation cost had been determined based on the estimated fair value of
options granted since 1995, the pro forma effects on Visteon's net income would
not have been material.
F-20
<PAGE>
Visteon Corporation and Subsidiaries
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 17. Segment Information
Statement of Financial Accounting Standards No. 131 ("SFAS 131"),
"Disclosures about Segments of an Enterprise and Related Information"
establishes standards for reporting information about operating segments in
annual financial statements and requires reporting selected information about
operating segments in interim financial reports. It also establishes standards
for related disclosures about products and services and geographic operations.
Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision makers, or a decision making group, in deciding how to
allocate resources and in assessing performance. Visteon's chief operating
decision-making group is the Strategy Council, which is comprised of the
Chairman and Chief Executive Officer and five other senior executives.
Visteon's reportable operating segments are Dynamics & Energy Conversion;
Comfort, Communication & Safety; and Glass. The Dynamics & Energy Conversion
segment supplies various chassis and energy transformation components and
systems mainly to OEM customers. The Comfort, Communication & Safety segment
supplies various interior, exterior, and climate control components and systems
mainly to OEM customers. The Glass segment supplies architectural and flat glass
to a broad customer base, including OEMs.
The accounting policies for the operating segments are the same as those
described in Note 3, "Accounting Policies". Visteon evaluates the performance of
its operating segments based primarily on sales, profit before taxes and net
income.
F-21
<PAGE>
Visteon Corporation and Subsidiaries
NOTES TO FINANCIAL STATEMENTS (Continued)
Financial information for the reportable operating segments is summarized
as follows (in millions):
<TABLE>
<CAPTION>
Dynamics & Comfort,
Energy Communication
Conversion & Safety Glass Total Visteon
---------- ------------- ----- -------------
<S> <C> <C> <C> <C>
1999
Revenues........................... $ 9,216 $ 9,377 $ 773 $ 19,366
Income/(loss) before taxes......... 549 676 2 1,172
Net income......................... 344 422 3 735
Depreciation/amortization.......... 278 338 35 651
Capital expenditures............... 388 444 44 876
Unconsolidated affiliates:
Equity in net income.............. -- 39 8 47
Investments in.................... -- 184 21 205
Average assets..................... 5,048 5,204 682 10,934
</TABLE>
<TABLE>
<CAPTION>
Dynamics & Comfort,
Energy Communication
Conversion & Safety Glass Total Visteon
---------- ------------- ----- -------------
<S> <C> <C> <C> <C>
1998
Revenues........................... $ 8,673 $ 8,337 $ 752 $ 17,762
Income/(loss) before taxes......... 473 716 (29) 1,116
Net income......................... 294 452 (15) 703
Depreciation/amortization.......... 263 268 34 565
Capital expenditures............... 399 378 84 861
Unconsolidated affiliates:
Equity in net income.............. -- 17 9 26
Investments in.................... -- 190 24 214
Average assets..................... 4,306 4,070 548 8,924
</TABLE>
<TABLE>
<CAPTION>
Dynamics & Comfort,
Energy Communication
Conversion & Safety Glass Total Visteon
---------- ------------- ----- -------------
<S> <C> <C> <C> <C>
1997
Revenues........................... $ 7,918 $ 8,545 $ 757 $ 17,220
Income/(loss) before taxes......... 223 704 (47) 815
Net income......................... 136 439 (25) 511
Depreciation/amortization.......... 295 247 48 590
Capital expenditures............... 414 451 52 917
Unconsolidated affiliates:
Equity in net income.............. -- 20 9 29
Investments in.................... -- 172 23 195
Average assets..................... 3,936 3,747 507 8,190
</TABLE>
Total income/(loss) before taxes in the table above includes $55 million,
$44 million and $65 million of net interest expense not allocated to the
reportable operating segments for 1999, 1998 and 1997, respectively. Total net
income in the table above includes $34 million, $28 million and $39 million of
expense related to net interest expense not allocated to the reportable
operating segments for 1999, 1998 and 1997, respectively.
F-22
<PAGE>
Visteon Corporation and Subsidiaries
NOTES TO FINANCIAL STATEMENTS (Continued)
Visteon's major geographic areas are the United States and Europe. Other
geographic areas (primarily Canada, Mexico, South America and Asia Pacific)
individually are not material. Financial information segregated by geographic
area is as follows (in millions).
<TABLE>
<CAPTION>
Total
Geographic Areas United States Europe All Other Company
- ---------------- ------------- -------- --------- -------
<S> <C> <C> <C> <C>
1999
Sales............. $ 14,814 $ 2,732 $ 1,820 $ 19,366
Net property...... 3,592 1,274 923 5,789
1998
Sales............. $ 13,543 $ 2,638 $ 1,581 $ 17,762
Net property...... 3,494 1,244 653 5,391
1997
Sales............. $ 12,960 $ 2,627 $ 1,633 $ 17,220
Net property...... 3,324 1,075 517 4,916
</TABLE>
NOTE 18. Summary Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
1999 1998
------------------------------------------- -------------------------------------------
(in millions)
First Second Third Fourth First Second Third Fourth
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales........................ $4,772 $5,063 $4,600 $4,931 $4,378 $4,725 $4,097 $4,562
Operating income............. 298 461 280 150 303 377 243 211
Income before income taxes... 313 449 260 150 286 384 240 206
Net income................... 205 280 155 95 187 239 148 129
</TABLE>
NOTE 19. Subsequent Events (Unaudited)
In connection with Visteon's separation from Ford, Visteon and Ford have
entered into, or expect to enter into, a series of agreements. These agreements
include a master transfer agreement and certain related ancillary agreements.
The following summary is qualified in all respects by the terms of the master
transfer agreement and other related agreements.
Master Transfer Agreement
The master transfer agreement, effective as of April 1, 2000, provides for
Ford to transfer to Visteon and/or its subsidiaries, prior to its spin-off,
generally, all assets used exclusively in the Visteon business, including but
not limited to real property interests, personal property and ownership
interests in subsidiaries and joint ventures. Visteon and Ford have agreed to
transfer legal title to any remaining assets and any remaining liabilities of
the Visteon business not transferred prior to the spin-off, most of which are
foreign assets and liabilities subject to regulatory and other delays, as soon
as practicable. In the interim, Visteon will operate and receive the economic
benefit of (and bear the economic burdens of) these assets.
In addition, Visteon and Ford have agreed to a division of certain
liabilities including liabilities related to product liability, warranty and
recall, environmental, intellectual property claims and other general litigation
claims.
F-23
<PAGE>
Visteon Corporation and Subsidiaries
NOTES TO FINANCIAL STATEMENTS (Continued)
Supply Agreement and Pricing Letter Agreement
The supply agreement provides that Visteon's existing purchase orders with
Ford as of January 1, 2000 will generally remain in effect at least through the
end of 2003, subject to Ford's right to terminate any particular purchase order
for quality or certain other reasons. In addition, the pricing letter requires a
one-time 5% price reduction on products that Visteon was supplying to Ford as of
January 1, 2000 based on a market pricing review conducted by Ford and Visteon.
The pricing letter also requires productivity price adjustments in each of 2000,
2001, 2002 and 2003 to reflect competitive price reductions obtained each year
by Ford from its other Tier 1 suppliers. Visteon and Ford have agreed on a 3.5%
productivity price reduction for 2000 on such products, which is consistent with
(i) price reductions between Visteon and Ford in prior years and (ii) the amount
of annual productivity improvement that Ford generally expects from its other
Tier 1 suppliers.
Until May 2003, Visteon has the right of last refusal to meet competitive
terms, including with respect to price, on replacement products that (i) Visteon
produces in the United States, Canada, Europe and Mexico, and (ii) Visteon
supplied to Ford on January 1, 2000, subject to certain conditions and
exceptions.
Master Separation Agreement - Transition Services
The master separation agreement provides for Ford to provide certain
transitional services to Visteon until December 31, 2001. These services include
information technology, human resources, accounting, customs, product
development technology and real estate services which have been historically
provided to Visteon by Ford. Visteon has agreed to pay Ford amounts which
reflect its fully accounted cost for these services, including a reasonable
allocation of internal overhead costs, as well as any direct costs incurred from
outside suppliers. Visteon may terminate any transitional service upon six
months' written notice. Transitional services may be extended an additional six
months to June 30, 2002, provided Visteon notifies Ford by June 30, 2001.
Aftermarket Relationship Agreement
The aftermarket relationship agreement covers components supplied by
Visteon to Ford's aftermarket business. The agreement addresses pricing, tooling
and other matters, and provides that any components purchased by Ford's
aftermarket business from Visteon for vehicles currently in production will be
governed by the supply agreement and pricing letter agreements discussed above.
Hourly Employee Assignment Agreement
The hourly employee assignment agreement sets forth certain rights and
obligations with respect to about 23,580 United States hourly employees of Ford
who (i) are represented by the UAW, (ii) are covered by the Ford UAW Master
Collective Bargaining Agreement dated as of September 30, 1999, (iii) as of
__________, 2000, are employed in one of Visteon's facilities, and (iv) after
Visteon's spin-off will remain Ford employees indefinitely but will be assigned
to work for Visteon.
Under this agreement, Visteon will exercise day-to-day supervision over
the covered individuals and Ford will continue to provide the same employee
benefits generally offered to other hourly employees of Ford who are represented
by the UAW. Visteon will reimburse Ford for the wage, benefit and other costs
incurred by Ford related to these individuals. However, Visteon's liability for
profit sharing based on Ford's profits is limited to $50 million per year in
each of 2000-2004. After 2004, Visteon will be liable for the full amount of
profit sharing based on Ford's profits.
F-24
<PAGE>
Visteon Corporation and Subsidiaries
NOTES TO FINANCIAL STATEMENTS (Continued)
Employee Transition Agreement
The employee transition agreement covers the transfer of employment to
Visteon of the all employees engaged in the Visteon business, other than the
employees covered by the hourly employee assignment agreement discussed above.
This agreement provides for the transition of employee benefit plans and
programs. Visteon has agreed to adopt substantially comparable benefit plans and
programs as were in effect at Ford and to continue such programs for at least
four years after the spin-off, subject to certain conditions.
With respect to pensions, Visteon will provide the pension related to
future service for all such employees. Ford will retain the pension obligations
for those employees who had worked in the Visteon business and had retired prior
to the spin-off. Ford also will retain the pension obligations for the past
service of two groups of transferred employees: (a) those active employees who
are eligible to retire under Ford's pension plan, and (b) those active employees
that meet certain minimum age and years of service requirements.
Ford will retain the liability to provide postretirement health and life
insurance benefits for those employees who had worked in the Visteon business
and had retired prior to the spin-off. For all continuing active employees,
Visteon will be responsible for these postretirement benefits.
In addition, the employee transition agreement addresses certain matters
related to other non-qualified retirement plans sponsored by Ford.
Tax Sharing Agreement
The tax sharing agreement provides, among other things, for the allocation
of tax liabilities arising prior to, as a result of, and subsequent to the
spin-off. Generally, Visteon will be liable for taxes attributable to the
Visteon business determined as though Visteon were to file separate federal,
state and local income tax returns as the common parent of an affiliated group
of corporations filing consolidated or combined federal state or local returns.
Ford has received an opinion of Davis Polk & Wardwell to the effect that
the spin-off should be tax-free to Ford and its stockholders for U.S. federal
income tax purposes under Section 355 of Internal Revenue Code. Visteon has
agreed, within two years after completion of the spin-off, not to take any
actions or enter into any transactions that would cause the spin-off not to
qualify as tax-free. Visteon also has agreed to indemnify Ford to the extent
that any action Visteon takes gives rise to a tax incurred by Ford with respect
to the spin-off.
Stock Option Plan
Management intends to sponsor a stock-based incentive plan ("Long-Term
Incentive Compensation Plan" or "LTIP") contingent upon the successful
completion of the spin-off. The LTIP will be administered by a compensation
committee. The LTIP provides for the grant of incentive and nonqualified stock
options, stock appreciation rights, performance stock rights, and stock and
various other rights based on stock (collectively referred to as "Awards"). The
total number of shares of Visteon common stock that may be subject to Awards
under the LTIP is __________ shares, including Awards granted prior to, and
subject to completion of, the spin-off.
F-25
EXHIBIT 10.2
MASTER TRANSFER AGREEMENT
THIS MASTER TRANSFER AGREEMENT is entered into as of the 30th day of
March, 2000, by and among VISTEON CORPORATION, a corporation organized under
the laws of Delaware, U.S.A., with offices at 5500 Auto Club Drive, Dearborn,
Michigan 48126 ("Visteon"), and FORD MOTOR COMPANY, a corporation organized
under the laws of Delaware, U.S.A., with offices at The American Road,
Dearborn, Michigan 48121 ("Ford").
R E C I T A L S
WHEREAS, Ford has determined it would be appropriate and beneficial to
separate the activities now being conducted under the name "Visteon Automotive
Systems, an enterprise of Ford Motor Company", including those activities
conducted by any entity in which Ford, directly or indirectly, owns or controls
50% or more of its stock or other equity interests (a "Subsidiary") and by any
entity in which Ford, directly or indirectly, owns or controls less than 50%
but more than 20% of its stock or other equity interests (an "Affiliate") which
is aligned with such enterprise, which presently includes the Chassis Systems,
Climate Control Systems, Interior and Exterior Systems, Energy Transformation
Systems, Glass Division, and the Visteon Technology Office (collectively, with
historic operations, including the former Automotive Products Operations,
Automotive Components Division, Electronics, Plastics and Trim, Climate
Control, Chassis, Electrical and Fuel Handling, and Glass Divisions, the
"Business");
WHEREAS, Ford has concluded that the separation of the Business from
its automaking business would (i) alleviate competitive barriers to expanding
the Business beyond sales to Ford, Ford Subsidiaries and Ford Affiliates, (ii)
allow Ford to overcome competitive barriers to making purchases from
third-party automotive suppliers, and (iii) enhance the Business' ability to
attract employees and permit the Business to offer employee incentives more
directly tied to the performance of the Business;
WHEREAS, Ford has caused Visteon to be formed for the purpose of
carrying on and conducting the Business;
WHEREAS, Ford desires to transfer to Visteon certain entities and
assets of Ford (or its Subsidiaries) now devoted to the Business and to have
Visteon assume certain liabilities associated with the Business, as are more
particularly described below (the "Transfer");
WHEREAS, Visteon wishes to acquire such entities and assets from Ford
and is therefore willing to assume said liabilities;
WHEREAS, after the Transfer, the parties intend to either (i) effect
an initial public offering of shares of common stock of Visteon ("IPO"), have
Visteon distribute the proceeds of such offering to Ford, and use the proceeds
of such offering to pay Ford's creditors or
<PAGE>
2
shareholders, or (ii) not effect an IPO, but in either case, Ford intends to
effect a distribution of all of the shares of Visteon stock then owned by Ford
to Ford's shareholders (the "Distribution");
WHEREAS, the parties intend that the transactions contemplated by this
Agreement (including the intended Distribution) shall be treated as tax-free
transactions under Sections 351, 368(a) and 355 of the Internal Revenue Code of
1986, as amended (the "Code"); and
WHEREAS, in connection with the transactions contemplated by the
parties, and in order to support the purposes contemplated thereby, Ford and
certain of its Subsidiaries and Affiliates are entering into several ancillary
agreements with Visteon and its Subsidiaries and Affiliates, including, without
limitation, a Master Separation Agreement between Ford and Visteon, a Tax
Sharing Agreement between Ford and Visteon, an Hourly Employee Assignment
Agreement between Ford and Visteon, an Employee Transition Agreement between
Ford and Visteon, Information Technology Services Agreement between Ford and
Visteon, a Purchase and Supply Agreement between Ford and Visteon, an
Aftermarket Relationship Agreement between Visteon and the Automotive Consumer
Services Group of Ford, a Patent Cross-License Agreement, between Visteon
Global Technologies, Inc. ("VGTI") and Ford Global Technologies, Inc. ("FGTI"),
a Technology Cross-License Agreement between VGTI and FGTI and various real
estate leases. (The foregoing agreements described above are collectively
referred to as the "Ancillary Agreements.")
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties agree as follows:
1. TRANSFERS TO VISTEON.
Ford shall assign, transfer, and convey to Visteon all of Ford's right,
title and interest in and to the following properties and assets relating to
the Business as a capital contribution (collectively, the items listed in
Section 1 (a) through (l) are referred to as the "Visteon Assets"):
(a) Capital Stock. All of the capital stock owned by Ford in the
entities listed in Exhibit 1(a) attached hereto, to be effective as of the
dates specified on such Exhibit 1(a).
(b) Membership Interests. Ford's entire membership interest in the
entities listed in Exhibit 1(b) attached hereto, to be effective as of the date
specified on such Exhibit 1(b).
(c) Joint Ventures. Effective as of 12:01 a.m., Eastern Standard Time,
on April 1, 2000, (the "US Transfer Date"), Ford's equity interest (including
Ford's membership interest or capital stock and Ford's interest in all related
joint venture agreements) in the entities listed in Exhibit 1(c) attached
hereto.
(d) Owned Real Property. Effective as of 12:01 a.m., Eastern Standard
Time, on the US Transfer Date, all of Ford's right, title and interest in and
to the real property located and identified in Schedule A, attached hereto, and
all buildings, improvements and appurtenances thereto.
<PAGE>
3
(e) Leased Real Property. Effective as of 12:01 a.m., Eastern Standard
Time, on the US Transfer Date, the leasehold interests in real property held by
Ford under leases identified in Schedule B, attached
hereto.
(f) Owned Tangible Personal Property. Effective as of 12:01 a.m.,
Eastern Standard Time, on the US Transfer Date, except as otherwise provided
herein, all tangible personal property, including all equipment, machinery,
vehicles, leasehold improvements, furniture, fixtures, signs, inventories,
tools (other than customer owned tools) and other personal property owned by
Ford and (i) reflected on the combined balance sheet for the Business as of
March 31, 2000, as prepared by Ford (the "Balance Sheet"), including assets
written off or expensed but still used exclusively by the Business, or (ii)
which are located on the properties referred to in Schedules A and B and used
exclusively in the Business, provided, however, with respect to inventories,
including raw materials, stores, spare parts, containers, work in process,
finished goods and other supplies and materials, those (A) located on the
properties referred to in Schedules A and B or in transit to or from such
locations or in the possession of the suppliers of the Business as of the US
Transfer Date and (B) either reflected on the Balance Sheet or used exclusively
in the Business, are included, or (iii) used exclusively in the Business,
wherever located, to the extent that Visteon identifies and requests, in
writing prior to October 1, 2000, such assets from Ford and Ford determines
such assets are not useful to Ford for its operations. In the event Visteon
requests assets pursuant to clause (iii) immediately above, and Ford determines
not to transfer any such assets, Visteon will be provided with the use of such
assets under the terms of the Master Separation Agreement for the provision of
transitional services. The Balance Sheet will be prepared using the same
accounting principles under which the balance sheet of the Business, at
December 31, 1999, was prepared.
(g) Leased Personal Property. Effective as of 12:01 a.m., Eastern
Standard Time, on the US Transfer Date, except as otherwise provided herein,
all leasehold interests in equipment, vehicles, machinery, furniture, fixtures,
signs and other tangible personal property held by Ford and used exclusively in
the Business as of the US Transfer Date.
(h) Contract Rights and Other Intangible Property. Effective as of
12:01 a.m., Eastern Standard Time, on the US Transfer Date, except as otherwise
provided herein, (i) cash, accounts receivable, accruals, interests as
beneficiary under letters of credit, prepaid expenses, deposits and other
retentions held by third parties owned by Ford and reflected on the Balance
Sheet, and (ii) Ford's rights under all contracts, agreements, licenses,
equipment leases, sales orders, purchase orders, understandings, arrangements,
plans and documents relating to the Business and existing on the US Transfer
Date, together with the right to purchase goods and services under existing
blanket purchase orders of Ford relating to the Business.
(i) Claims. Effective as of 12:01 a.m., Eastern Standard Time, on the
US Transfer Date, claims, causes of action, rights of recovery, rights of set
off and rights of subrogation to the extent they are related to the Visteon
Assets, the Visteon Liabilities or the Business. Visteon acknowledges that Ford
has entered into settlements with its insurance carriers with respect to
<PAGE>
4
existing and future environmental conditions and claims and Visteon has been
allocated $15 million of the proceeds of such settlements. Neither Ford nor
Visteon have any remaining rights under those policies to make claims and
Visteon agrees that it will not attempt to make any claims under such policies.
(j) Permits. Effective as of 12:01 a.m., Eastern Standard Time, on the
US Transfer Date, except as otherwise provided herein, and the rights of Ford
under all licenses, franchises, permits, authorizations and approvals used
exclusively in the Business.
(k) Intellectual Property. Effective as of 12:01 a.m., Eastern
Standard Time, on the US Transfer Date, the name "Visteon" and associated logo,
and all the trademarks (including the applications and registrations for
trademarks) listed on the attached Schedule D, together with all goodwill and
going concern value of the Business.
(l) Records. Financial, accounting and operating data and records
relating exclusively to the Business and located in the locations listed on
Schedules A or B, or at the Dearborn Glass Plant, or located in record storage
locations maintained by Ford and sent to storage by personnel associated with
the Business, including, without limitation, books, records, electronic data,
financial and corporate systems manuals, notes, sales and sales product data,
advertising materials, credit information, cost and pricing information,
customer and supplier lists, facility blueprints and plant layouts.
Additionally, Ford shall transfer to Visteon all minute books, stock ledgers,
and other corporate documents of Visteon Subsidiaries and Visteon Affiliates,
to the extent in the possession of Ford. In addition, Visteon may copy any
other records relating to the Business in the possession of Ford, at Visteon's
expense.
2. OTHER TRANSFERS AND ACTIONS.
(a) Ford has or will assign, transfer, and convey the properties and
assets listed on Exhibit 2(a), attached hereto, to the applicable Visteon
Subsidiaries by the dates specified on such exhibit;
(b) In addition, Ford has caused or will cause the actions listed on
Exhibit 2(b), attached hereto, to be taken by its Subsidiaries by the dates
specified on such exhibit;
(c) As a result of the transfers described in this Agreement, the
parties acknowledge and agree that Visteon will also have an indirect interest
in the entities listed on Exhibit 2(c) attached hereto; and
(d) Each entitiy that is to be transferred under Section 1 above or is
described in Exhibits 2(a), 2(b) or 2(c) will be operated for the benefit of
Visteon on and after the US Transfer Date.
<PAGE>
5
3. EXCLUDED ASSETS.
Notwithstanding anything, express or implied, to the contrary
contained herein, the following properties, assets and rights used in, or
related to, the Business are excluded from the Transfer:
(a) Certain real property and related improvements thereon known as
the Dearborn Glass Plant (provided Visteon will be given the right to continue
to occupy such plant until July 31, 2000 as it winds up operations in
accordance with the applicable lease agreement) and the Canton Forge Plant and
the vacant land associated therewith;
(b) All of the assets primarily associated with Ford's
telecommunications network, such as the Ford Communications Network, that are
located at any of the Visteon facilities;
(c) Tooling which is owned by Ford or other third party customers and
is not carried on the Balance Sheet, wherever located;
(d) Vehicles provided by Ford or Ford Motor Credit Company for use by
the Business and not carried on the Balance Sheet, including management lease,
executive, commercial, sales, pool, prototype and quality focus test fleet
vehicles;
(e) All blanket purchase orders issued by Ford with respect to goods
and services purchased both for the Business and for other operations at Ford
(with the understanding that Ford will continue to provide the benefit of
existing blanket purchase orders to the Business, at the cost of Visteon with
respect to such goods and services); and
(f) All contracts and agreements of Ford relating to employees of the
Business, including, without limitation, collective bargaining agreements,
employee benefit plans, and other commitments to such employees, subject to the
terms of the Hourly Employee Assignment Agreement and the Employee Transition
Agreement.
4. ASSUMED LIABILITIES.
(a) General Assumption. Except as otherwise specifically retained by
Ford in writing, including those retained in this Section 4, Section 5 below
and in any Ancillary Agreement, Visteon will, as of the US Transfer Date,
assume, and agrees to perform, the debts, liabilities, guarantees, indemnities,
contingencies, and obligations of Ford, whether asserted or unasserted, fixed
or contingent, accrued or unaccrued, known or unknown, and howsoever arising,
relating to the Business, that are (i) reflected in the Balance Sheet and which
remain outstanding on the US Transfer Date, (ii) arise in connection with the
Business between the date of the Balance Sheet and the US Transfer Date and
would be reflected on the financial statements of Visteon as of the US Transfer
Date if such statements were prepared as of the US Transfer Date in accordance
with the same accounting principles on which the Balance Sheet was prepared,
(iii) are expressly provided by this Agreement, any Ancillary Agreement or
other
<PAGE>
5
written agreement signed by Visteon in connection with the Separation (as
hereafter defined) to be transferred to and assumed by Visteon, or (iv) are
related to or arise out of or in connection with the Visteon Assets or the
Business, whether before or after the date of the Balance Sheet (collectively
referred to as the "Visteon Liabilities").
(b) Limitations on General Assumption. Notwithstanding the
foregoing,the Visteon Liabilities are subject to and shall not be deemed to
include any item specifically excluded or retained by Ford pursuant to this
Section 4(b).
(i) Product Liability. All liabilities for any causes of
action, however presented, alleging that parts, components or systems
that have been (i) manufactured by the Business or (ii) manufactured
by a third party, whether sold or otherwise supplied separately, or
incorporated into components or systems of the Business ("Visteon
Products"), in each case, which have been sold or otherwise supplied
by the Business, have caused personal injuries, injuries to property
or other damages regardless of the theory of liability on which the
claim is based ("Visteon Product Claims") to the extent that such
parts, components or systems were provided to Ford or Ford
Subsidiaries for model year 1996 and before, will be retained by Ford.
Visteon's liability for all other Visteon Product Claims for parts,
components or systems supplied to Ford or Ford Subsidiaries for
vehicles in model year 1997 and thereafter will be governed in
accordance with the terms of Ford's global purchase order terms and
conditions promulgated by Ford with respect to its supply contracts
with third parties as in effect at the time such parts, components or
systems were delivered, as customarily applied to Tier 1 suppliers in
the automotive parts industry by Ford.
(ii) Warranty and Recall. All Visteon Products, in each case,
which have been sold or otherwise supplied by the Business for use in
model year 1997 vehicles (or later model years) manufactured or sold
by Ford or Ford Subsidiaries are deemed to be subject to the warranty
provisions of the global purchase order terms and conditions
promulgated by Ford with respect to its supply contracts with third
parties as in effect at the time such parts, components or systems
were delivered. Visteon agrees it will be liable to Ford and the Ford
Subsidiaries for all warranty claims for such parts, components or
systems to the same extent as another Tier 1 supplier would be liable
if it had supplied such parts, components or systems, and Ford agrees
it will apply the same customary practices to Visteon as Ford applies
to other Tier 1 suppliers in the automotive parts industry.
(iii) Environmental Claims. The Visteon Liabilities include
any existing or future Environmental Claims to the extent they relate
to or arise from the ownership of or operations on (at any time) the
sites listed on Schedules A and B (other than the Monroe Plant, which
is treated separately below). In addition, the Visteon Liabilities
include the Environmental Claims listed on the attached Schedule E, to
the extent of the allocation of such claim to Visteon reflected on
such Schedule. Notwithstanding anything to the contrary herein, Ford
shall retain, and Visteon will have no liability for, any
Environmental Claims which relate to or arise from (A) the ownership
of or operations on (at any time) the sites listed on the attached
Schedule C or (B) Ford's allocation of
<PAGE>
7
liability as reflected on Schedule E. Each party shall have the
control over any investigation, remediation activities, litigation or
claim process relating to the sites for which it has full
responsibility hereunder. For sites with shared liability, control
will be given to the party with the majority of the liability. For
purposes of this Agreement, the following definitions apply:
"Environmental Claims" shall mean any cleanup, response or removal
activities or any claim, action, cause of action, investigation or
notice (written or oral) by any person or entity alleging potential
liability (including, without limitation, potential liability for
investigation costs, cleanup costs, governmental response costs,
natural resource damages, property damages, personal injuries, or
penalties) arising out of or resulting from: (i) the presence or
release, or threatened release, of any Hazardous Substance; (ii)
circumstances forming the basis of any violation or alleged violation
of any Environmental Law; or (iii) on-site or off-site disposal or
dumping activities.
"Environmental Law" shall mean any and all applicable laws (including
all common law, consents, licenses, permits, certificates, variances,
exemptions, franchises and other approvals issued, granted, given,
required or otherwise made available by any governmental authority)
issued, promulgated or entered into by any governmental authority
relating to the environment or the protection or preservation of human
health or safety.
"Hazardous Substance" shall mean any pollutant, hazardous, acutely
hazardous, or toxic substance, waste or contaminant, or any other
material, including, without limitation, petroleum hydrocarbons and
asbestos, regulated under any Environmental Law.
(iv) Monroe Environmental Claims. All liability for
Environmental Claims relating to the ownership or operations of the
Monroe, Michigan plant will be subject to the agreement of the parties
set forth on the attached Schedule F.
(v) Current Claims. The Visteon Liabilities specifically
include, without limitation, the existing litigation identified on
Schedule G, attached hereto.
(vi) Intellectual Property. Except as provided on the
attached Exhibit I, for any causes of action, however presented,
alleging that Visteon Products infringe or otherwise violate the
intellectual property interests of others ("IP Claims"), (A) for
Visteon Products sold or supplied to Ford or Ford Subsidiaries on or
prior to July 31, 1999, liability shall be retained by Ford, (B)
Visteon will be liable for such IP Claims related to Visteon Products
sold or supplied to Ford or Ford Subsidiaries after July 31, 1999, to
the same extent as other Tier 1 suppliers would be liable if they had
supplied such parts, components or systems to Ford, and (C) for
Visteon Products sold to third parties at any time, any liability will
be included in the Visteon Liabilities. Ford and Visteon agree to
cooperate to establish defenses against liabilities arising from sales
to Ford and identify any licenses to Ford or Visteon which would be
useful in such defenses.
<PAGE>
8
(vii) Topics Not Covered. The parties have reached agreement
with respect to certain Visteon Liabilities in the area of employee
matters which are covered in the Hourly Employee Assignment Agreement
and the Employee Transition Agreement. They have also entered into
certain other agreements with respect to taxes which are covered in
the Tax Sharing Agreement.
(c) The parties acknowledge and agree that they have undertaken a good
faith effort to identify all material outstanding liabilities of the Business
pertaining to the substantive areas identified in Section 4(b) above. To the
extent that, subsequent to the US Transfer Date, and prior to December 31,
2001, the parties discover additional material liabilities or potential
material liabilities of the Business relating to pre-Transfer events, actions
or occurrences, in the areas governed by subsections (iii), (v), (vi) or (vii)
of Section 4(b), or the business operations of the Business, the parties
undertake that they will consider a mutually agreeable allocation of
responsibility for such items. However, nothing herein obligates Ford to accept
any such liability and Ford will only be liable to the extent it signs a
written agreement accepting all or a portion of the liabilities. The parties
agree that they will consider such allocation through meetings of persons with
appropriate decision making authority, and in no event will the parties be
required to pursue the matter beyond the Vice President level of authority. For
purposes of this section, a claim (or series of related claims) must have a
potential exposure exceeding $50,000,000 (including defense costs) to be
considered material.
5. RETAINED LIABILITIES/CONFLICTS.
(a) Retained Liabilities. Notwithstanding anything to the contrary
contained in Section 4 hereof, Visteon shall not assume any obligation or
liability of Ford with respect to the following (collectively referred to as
the "Retained Liabilities"): (i) cases or claims arising out of the production
or sale of thick film ignition modules which were sold prior to the US Transfer
Date, including, without limitation, those listed on Schedule H hereto, (ii)
Michael Jones, et al. v Ford Motor Company, filed on June 9, 1993 in U.S.
District Court, District of Minnesota, alleging race discrimination, (iii) J.
A. Jones Co. v Ford, filed in July, 1999 in U.S. District Court, Eastern
Division, Michigan regarding construction litigation arising out of
environmental remediation of environmental site at Monroe, Michigan, and (iv)
liabilities of the Business explicitly retained by Ford with respect to such
matters as are identified in Section 4(b) above, in any Ancillary Agreement or
in any other writing between the parties.
(b) Conflicts. The parties acknowledge and agree that, except to the
extent this Agreement specifically provides that other agreements control (such
as employment and tax matters), the allocation of liabilities between the
parties and their respective Subsidiaries and Affiliates in connection with the
transfer of the various parts of the Business as contemplated in Sections 1 and
2 above, will be governed and controlled by the principles of allocation set
forth in Section 4 hereof, with appropriate changes for fact specific
differences, as agreed to by the parties, such as the applicable locations of
the Business, and any specific litigation or other claims identified in the
agreement which are peculiar to that Subsidiary or Affiliate or the laws of
<PAGE>
9
the applicable jurisdiction. In that regard, that parties acknowledge that
Exhibit E contains a description of existing global environmental liabilities
that apply to certain Visteon Subsidiaries as well as to Visteon itself and
this list will control over general assumption language in any other agreements.
In accordance with the foregoing, this Agreement supersedes any prior or
subsequent agreements executed in connection with the Transfer to the contrary
and Ford and Visteon agree that they will each cause their respective
Subsidiaries to abide by these allocation principles, regardless of the actual
wording of the operative transfer documents.
6. COVENANTS.
(a) Ford agrees that to the extent that Ford has not transferred to
Visteon all of the assets needed to conduct the Business as conducted
immediately prior to the US Transfer Date, Ford will provided transitional
services to Visteon which are necessary for the conduct of the Business on such
date, with the exception of services which Ford would not be legally permitted
to provide to Visteon (or its Affiliates) from time to time. The terms under
which such transitional services will be provided are to be set forth in the
Master Separation Agreement between Ford and Visteon. Visteon further agrees
that to the extent Ford or a Ford Subsidiary or Ford Affiliate has guaranteed
any obligations of a Visteon Subsidiary or Visteon Affiliate ("Ford Guaranty"),
(i) Visteon will execute a guaranty of such obligations as requested by Ford,
(ii) Visteon will take reasonable steps to release Ford (or the applicable Ford
Subsidiary or Ford Affiliate) from any Ford Guaranty, and (iii) Visteon
indemnifies Ford and any applicable Ford Subsidiary or Ford Affiliate for any
claims made on a Ford Guaranty.
(b) Visteon agrees to take such steps to replace any indemnities,
bonds or other assurances given by Ford (or Ford Subsidiaries that are not
Visteon Subsidiaries) to any governmental authorities for the Business,
including those issued in connection with environmental permits and licenses,
and customs and import/export laws, as soon as practicable, but in any event,
on or before December 31, 2000, and will be liable to Ford for any claims made
against such indemnities, bonds or assurances by such authorities relating to
the Business. Ford acknowledges that until such indemnities, bonds or other
assurances are replaced, it will continue to honor them subject to Visteon's
foregoing agreement.
(c) Ford agrees that it will, and will cause its Subsidiaries to, not
pursue any product liability and warranty and recall claims against Visteon,
the Visteon Subsidiaries and Visteon Affiliates transferred to Visteon as part
of the Transfer to the extent Ford would have no claim against Visteon under
the allocation of liabilities set forth in Sections 4(b)(i) and (ii) if Visteon
had supplied the parts, components or systems.
(d) It is anticipated by the parties that Ford and Visteon, either
directly or indirectly through their respective Subsidiaries or Affiliates, may
provide services to the other which involve the discharge of waste (i)
generated by Visteon, Visteon Subsidiaries or Visteon Affiliates from Ford
controlled facilities under environmental permits issued to Ford or (ii)
generated by Ford, Ford Subsidiaries or Ford Affiliates from Visteon controlled
facilities under environmental permits issued to Visteon, Visteon Subsidiaries
or Visteon Affiliates. Visteon agrees that it will reimburse Ford for any
Losses (defined in Section 7 below) resulting from any
<PAGE>
10
violations of such environmental permits issued to Ford, a Ford Subsidiary or a
Ford Affiliate caused by changes in the discharge of waste associated with the
operations of Visteon, any Visteon Subsidiary or any Visteon Affiliate, as
applicable, to the extent the violation is caused by such discharge. Ford
agrees that it will reimburse Visteon for any Losses resulting from any
violations of such environmental permits issued to Visteon, a Visteon
Subsidiary or a Visteon Affiliate caused by changes in the discharge of waste
associated with the operations of Ford, any Ford Subsidiary or any Ford
Affiliate, as applicable, to the extent the violation is caused by such
discharge. To the extent a violation is caused by actions of both parties, the
liability will be split proportionally to the amount of changes made by the
parties. The parties intend to investigate and identify sites that this will
apply to and enter into an agreement to cover these situations in more detail.
(e) A certain press located at the Monroe, Michigan plant ("Monroe
Facility") and identified as TLSE 3000 Transfer Press, Vendor/Mfg.: Verson, Tag
No. F733872 (the "Monroe Press") is leased by Ford pursuant to a Lease dated as
of August 15, 1991, between Ford, as Lessee, and Wilmington Trust Company and
William J. Wade, as Owner Trustees for AT&T Capital Holdings International Inc.
[Equipment Trust No. 1991 F] (the "ATT Lease"). The ATT Lease covers various
equipment used by Ford at other locations as well as the Monroe Press. Ford
will retain its leasehold interest in the Monroe Press and the Monroe Press
will be located at its present location at the Monroe Facility. If Ford becomes
the legal owner of the Monroe Press in the future, Ford will be deemed to
automatically transfer title to the Monroe Press to Visteon, all at no charge
to Visteon. Visteon, as transferee of legal title to the Monroe Facility,
acknowledges and agrees with respect to the Monroe Press: (i) the Monroe Press
is subject to the ATT Lease subject to the Lessor Parties' interests,
inspection, and other rights, including rights to exercise remedies under the
ATT Lease and the Indenture (including the remedy to repossess the Monroe
Press), (ii) Visteon will not move the Monroe Press from the Monroe Facility
without Ford's written consent, (iii) Visteon has not and will not subject the
Monroe Press to any liens, (iv) Visteon will not interfere with the Lessor
Parties' rights to the Monroe Press, and (v) Visteon will maintain and repair
the Monroe Press, and will otherwise abide by the terms of the ATT Lease that
apply to the Monroe Press and its use thereof. Capitalized terms used herein
that are not otherwise defined shall have the meanings ascribed to them in the
ATT Lease.
(f) Ford is pursuing a license from Bosch for the ETC Microprocessor
Monitor (i.e., Quizzer), and Ford agrees to make a license inquiry on behalf of
Visteon as well.
7. INDEMNIFICATION.
(a) Visteon agrees to indemnify and save and hold harmless Ford, all
Ford Subsidiaries and all Ford Affiliates, and the officers, directors,
employees, agents, consultants, attorneys, accountants and other
representatives thereof (collectively, the "Ford Indemnitees") from and against
any damages, liabilities, obligations, losses, investigation and remediation of
Environmental Claims, penalties, claims, actions, disputes or settlements
(collectively, "Losses"),
<PAGE>
11
arising out of or resulting from or in connection with (i) any Visteon
Liabilities or other obligations or liabilities assumed by Visteon or any
entity controlled by Visteon (collectively, the "Visteon Group") pursuant to
this Agreement or any other agreement executed by Visteon or any member of the
Visteon Group in connection with the legal separation of the Visteon Group as
contemplated in this Agreement and the offering and/or distribution of the
shares of Visteon (collectively, the "Separation"), (ii) any failure of any of
the Visteon Group to perform any agreement or covenant contained herein or
therein, (iii) the costs of operating, maintaining and carrying any Restricted
Interests during the Restricted Period (defined below), and (iv) any tax
consequences suffered by the Ford Group as a result of the failure of the
transfer of any Restricted Interests (defined below) to be treated, for U.S.
federal income tax purposes, as transfers to Visteon as of the date on which
Visteon International Holdings, Inc. is transferred to Visteon. Visteon agrees
to reimburse, or cause a member of the Visteon Group to reimburse, each of the
Ford Indemnitees for any reasonable attorneys' fees or any other expenses
reasonably incurred by any of them in connection with investigating and/or
defending any Loss.
(b) Ford agrees to indemnify and save and hold harmless Visteon, all
Visteon Subsidiaries and all Visteon Affiliates, and the officers, directors,
employees, agents, consultants, attorneys, accountants and other
representatives thereof (collectively, the "Visteon Indemnitees") from and
against any Losses, arising out of or resulting from or in connection with (i)
any Retained Liabilities or other obligations or liabilities of Ford or any
entity controlled by Ford (collectively, the "Ford Group") not assumed by
Visteon or any member of the Visteon Group pursuant to the Agreement or any
other agreement executed by Visteon or any member of the Visteon Group in
connection with the Separation, (ii) any Environmental Claims arising from
ownership or operation of the plant in Lansdale, Pennsylvania which has been
shut down by Ford Electronics and Refrigeration LLC, or (iii) any failure of
any of the Ford Group to perform any agreement or covenant contained herein or
therein. Ford agrees to reimburse, or cause a member of the Ford Group to
reimburse, each of the Visteon Indemnitees for any reasonable attorneys' fees
or any other expenses reasonably incurred by any of them in connection with
investigating and/or defending any Loss.
(c) The Ford Indemnitees or the Visteon Indemnitees (in either case,
an "Indemnitee"), as applicable, shall promptly give the party giving the
indemnification (the "Indemnifying Party") written notification of any third
party claim or any other indemnification claim, together with a copy of any
legal pleadings or other written demands from such third party, if applicable;
provided, however, that the failure to give such notice will not relieve an
Indemnifying Party of its obligations hereunder, except to the extent that the
Indemnifying Party is actually and materially prejudiced by such failure to
give notice. In particular, in case of any investigation or audit, the
Indemnitees shall inform the Indemnifying Party at the beginning of such
investigation or audit, to the extent practical, so that the Indemnifying Party
may participate therein.
(d) Except where a Ford Indemnitee has reserved or been given the
right to manage or defend a Loss or claim in a written instrument signed by
Visteon (or other member of the Visteon Group involved in such Loss or claim),
Visteon shall be entitled, at its own expense, to conduct the defense of any
third party claim with counsel of its own choice. However, the respective
<PAGE>
12
Ford Indemnitees shall always be entitled to participate in such defense with
counsel of their own choice and at their own expense and Visteon will cooperate
with the Ford Indemnitees and will consult with the Ford Indemnitees (and give
reasonable consideration to all proposals and suggestions made by the Ford
Indemnitees in connection with all material matters arising in the conduct of
such defense). The Ford Indemnitees shall comply with Visteon's instructions in
the defense unless the Ford Indemnitees believe the instruction to be
unreasonable. The Ford Indemnitees will use reasonable efforts to mitigate the
amount of any Losses that may give rise to indemnification hereunder. In the
event the Ford Indemnitees have the right to manage or defend the Loss, the
involved member of the Visteon Group shall always be entitled to participate in
such defense with counsel of its own choice and at its own expense and the Ford
Indemnitees will cooperate with the Visteon Group and will consult with the
Visteon Group (and give reasonable consideration to all proposals and
suggestions made by the Visteon Group) in connection with all material matters
arising in the management of such Loss or conduct of such defense.
(e) The Visteon Group may not settle any other third party claims
covered by this Section without the prior written consent of the Ford
Indemnitees involved therein and the Ford Group may not settle any other third
party claims covered by this Section without the prior written consent of the
Visteon Indemnitees involved therein; except, in either case, if such
settlement is solely for money damages and the applicable Indemnitees are
reasonably satisfied that the responsible party will directly pay such amount
in full.
(f) For tax purposes, the parties agree to treat any payment pursuant
to this Section as a capital contribution by Ford to Visteon or a distribution
by Visteon to Ford made in the last taxable period beginning before the
Distribution and, accordingly, as not includible in the taxable income of the
recipient or deductible by the payor.
(g) A party's liability with respect to any Loss for which an
Indemnitee actually recovered amounts from third parties (including, without
limitation, proceeds under any policy of insurance available for the purpose)
shall be reduced to the extent of the amounts actually recovered. A party's
Loss shall not include any consequential damages or lost profits that may be
suffered by such party. The parties will also take into account the time cost
of money (using the then-current LIBOR, or any replacement index, as the
applicable rate) in determining amount of the Loss suffered by the any
Indemnitee.
(h) The amount of any Loss for which indemnification is provided under
this Agreement shall be first reduced by the tax benefit (determined in the
reasonable judgment of the Indemnitee) to any Indemnitee of the applicable loss
item, and such net loss amount shall then be increased to take account of the
net tax cost, including interest and penalties (the "Tax Cost"), if any,
incurred by an Indemnitee arising from the receipt or accrual of an indemnity
payment hereunder (grossed up for such increase). The computation of such Tax
Cost shall reflect the hypothetical tax consequences of the receipt or accrual
of any indemnity payment, defined using the maximum statutory rate (or rates,
in the case of an item that affects more than one tax) applicable to the
Indemnitee for the relevant taxable periods, and reflecting, for example, the
effect of the deductions available for interest paid or accrued and for taxes
such as state and local
<PAGE>
13
income taxes. Any indemnity payment hereunder shall initially be made without
regard to this paragraph (h) and shall be increased or reduced to reflect any
such Tax Cost (including gross-up) only after the Indemnitee has actually
realized or received such cost. The amount of any Tax Cost payment hereunder
shall be adjusted to reflect any final determination (which shall include the
execution of Form 870-AD or successor form) with respect to the Indemnitee's
liability for taxes, and payments between Ford and Visteon to reflect such
adjustment shall be made if necessary.
(i) Ford has the right to offset any amounts owed by Visteon, any
Visteon Subsidiary or any Visteon Affiliate to any member of the Ford Group
against any amounts owed by Ford to Visteon pursuant to this Section 7. Visteon
has the right to offset any amounts owed by Ford, any Ford Subsidiary or any
Ford Affiliate to any member of the Visteon Group against any amounts owed by
Visteon to Ford pursuant to this Section 7.
(j) For purposes of this Agreement, the term "controls" or
"controlled" means the possession, directly or indirectly, of the power to
direct or cause management to direct the policies of an entity, whether through
the ownership of equity, by contract or otherwise. "Visteon Subsidiary" means
any entity that is or would be a subsidiary of Visteon after the completion of
the transactions described in Section 1 or described on Exhibits 2(a), 2(b) or
2(c). "Visteon Affiliate" means any entity that is or would be an Affiliate of
Visteon after the completion of the transactions described in Section 1 or
described on Exhibits 2(a), 2(b) or 2(c). "Ford Subsidiary" means any
Subsidiary of Ford, other than Visteon or a Visteon Subsidiary. "Ford
Affiliate" means any Affiliate of Ford other than a Visteon Affiliate.
8. FURTHER ASSURANCES/EFFECT OF ASSIGNMENTS.
(a) Each party shall execute and deliver to the other such
undertakings, assumption agreements, assignments, deeds, leases, bills of sale,
stock certificates, endorsements, notices, consents and other instruments as
shall be necessary or appropriate to transfer, convey or assign the those
properties, assets and interests of the Business as are described in Sections 1
and 2 hereof to be transferred to Visteon or any Visteon Subsidiary and for
Visteon to carry out and perform its obligations under this Agreement. Further,
the parties agree that they shall undertake such further actions, consistent
with the terms of this Agreement and the Ancillary Agreements, as may be
reasonably necessary to assure that Visteon has access to the assets and
services needed to conduct the Business in substantially the same manner as
conducted on the US Transfer Date, subject to the time limitations in the
Master Separation Agreement or other Ancillary Agreement for transitional
services. If any assets are transferred to Visteon as part of the Separation
which are not part of the Visteon Assets described herein, then Visteon will
reconvey such assets to Ford, at the request and expense of Ford.
(b) To the extent that any interest in the shares, equity, interests,
contracts, lease permits, or other assets, properties, rights, or interests
comprising a part of the Transfer is not capable of being assigned,
transferred, or conveyed without the consent, waiver, or authorization of a
third party to such transfer or
<PAGE>
14
conveyance, or if an attempted assignment, transfer, or conveyance would
constitute a breach of any of the contracts, lease permits, or other assets,
properties, rights, or interests, or a violation of any law, statute, decree,
rule, regulation, or other governmental edict or is not immediately
practicable, then this Agreement shall not constitute an assignment, transfer,
or conveyance of such interest, or an attempted assignment, transfer, or
conveyance of such interest (collectively, the "Restricted Interests"). The
entire beneficial interest in any asset or entity subject to a restriction as
described above, and any other interest in such asset or entity, which are
transferable notwithstanding such restriction, shall be deemed transferred. To
the extent that the consents, waivers, and authorizations referred to above are
not obtained by Ford or Visteon, or until the impracticalities of transfer
referred to therein are resolved to Visteon's reasonable satisfaction, Ford
shall use commercially reasonable efforts, at the expense of Visteon to (i)
provide to Visteon the benefits and burdens of any Restricted Interests
(including, without limitation, the benefit of all voting rights related to any
Restricted Entity, as defined below), and (ii) enforce, at the request of
Visteon for the account of Visteon, any rights of Ford arising from any
Restricted Interests (including the right to elect to terminate such Restricted
Interest in accordance with the terms thereof upon the advice of Visteon). In
addition, from the time during the period commencing on the latest date such
Restricted Interest was to have been transferred under the terms of this
Agreement and terminating at the close of business on the date such Restricted
Interests are legally transferred (the "Restricted Period"), Ford will give
Visteon exclusive rights to manage the Restricted Interests (including the
right to run operations without consultation with Ford) until such time as the
Restricted Interests are legally transferred. In the event that prior to the
transfer of a Restricted Interest, the legal holder of such Restricted Interest
is the subject of any bankruptcy action, assignment for the benefit of
creditors or other insolvency proceeding, then such Restricted Interest will be
deemed to be legally transferred immediately prior to the onset of such
proceeding, regardless of any restrictions.
(c) In the event that a Restricted Interest applies to the transfer of
Ford's or a Ford Subsidiary's interest in a legal entity ("Restricted Entity"),
then during the Restricted Period, if the Restricted Entity makes any
distributions to Ford or a Ford Subsidiary (collectively, the "Ford Entity")
with respect to profits, or in liquidation or otherwise, whether in cash or in
kind, the Ford Entity shall (i) within 60 days following receipt of the
distribution, remit the amount of any such cash distributions by wire transfer
in the currency in which such distribution was received to an account
designated by Visteon, and (ii) with respect to any in-kind distributions, take
all steps reasonably necessary to cause the transfer, by no later than 60 days
following the date of such distribution to the Ford Entity, of all of Ford's
right and title to and interest in each such distribution to Visteon. Visteon
shall bear the costs and expenses incurred in connection with the transfer of
such distributions. In the event that, at any time during the Restricted
Period, (I) the Ford Entity is obligated to make a capital contribution
(whether in cash or in kind) with respect to, or other payment arising out of
its ownership of, the Restricted Entity, or (II) any indemnification obligation
of Visteon becomes payable because of its management of the Restricted Entity,
Visteon shall remit the amount of any such capital contribution or
indemnification obligation by wire transfer to an account designated by Ford
within 60 days following receipt by Visteon of notice of such obligation from
Ford. In the event that any obligation of the Ford Entity arises hereunder with
respect to an in-kind capital contribution by the Ford Entity, the amount to be
remitted by Visteon hereunder with respect to such capital
<PAGE>
15
contribution shall equal the fair market value of such in-kind contribution,
and, notwithstanding the foregoing, shall, in the event the parties are unable
to agree on the fair market value of the contribution, be remitted within 30
days following the issuance of an appraisal by the independent appraiser
mutually agreeable by Ford and Visteon.
9. EMPLOYEES.
It is contemplated that certain employees of Ford assigned to the
Business shall become employees of Visteon. The transition of such employees to
Visteon is provided for in the Employee Transition Agreement. In addition, Ford
will provide certain other employees to Visteon under the terms of the Hourly
Employee Assignment Agreement.
10. MISCELLANEOUS.
(a) This Agreement, including all Exhibits and Schedules attached
hereto, constitutes the entire agreement between the parties with respect to
the subject matter hereof and supersedes all prior written and oral and all
contemporaneous oral agreements and understandings with respect to the subject
matter hereof. The covenants, representations, and indemnities of the parties
herein shall survive the closing and the transfer of the Visteon Assets, and
continue in full force and effect.
(b) This Agreement shall be governed by and construed in accordance
with the internal laws of the State of Michigan.
(c) This Agreement is for the sole benefit of the Parties hereto and
no third party may claim any right, or enforce any obligation of the Parties,
hereunder.
(d) All notices and other communications hereunder shall be in writing
and shall be deemed to have been duly given when delivered in person, by fax
with confirmation of receipt, by express or overnight mail delivered by a
nationally recognized air courier (delivery charges prepaid), or by registered
or certified mail (postage prepaid, return receipt requested) to the respective
parties as follows:
If to Ford:
Ford Motor Company
The American Road
Dearborn, MI 48121
Attention: Secretary
Fax: (313) 337-9591
If to Visteon:
Visteon Corporation
5500 Auto Club Drive
Dearborn, MI
<PAGE>
16
Attention: General Counsel
Fax: (313) 390-2718
or to such other address as the party to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
Any notice or communication delivered in person shall be deemed effective on
delivery. Any notice or communication sent by fax or by overnight courier shall
be deemed effective on the next business day. Any notice or communication sent
by registered or certified mail shall be deemed effective on the fifth business
day after such notice or communication was mailed.
(e) This Agreement shall be binding upon and inure to the benefit of
each party hereto and the respective successors and assignees of the parties.
In no event will a party be released from their indemnity obligations without
the written consent of the other party.
(f) If a dispute arises between the Parties relating to this
Agreement, the following procedure shall be implemented except that either
Party may seek injunctive relief from a court where appropriate in order to
maintain the status quo while this procedure is being followed:
(i) The Parties shall hold a meeting promptly, attended by
persons with decision-making authority regarding the
dispute, to attempt in good faith to negotiate a
resolution of the dispute; provided, however, that no
such meeting shall be deemed to vitiate or reduce the
obligations and liabilities of the Parties or be deemed
a waiver by a party hereto of any remedies to which
such Party would otherwise be entitled.
(ii) If within thirty (30) days after such meeting, the
Parties have not succeeded in negotiating a resolution
of the dispute, they agree to submit the dispute to
mediation in accordance with the then-current Model
Procedure for Mediation of Business Disputes of the CPR
Institute for Dispute Resolution ("CPR") and to bear
equally the costs of the mediation. The Parties will
jointly appoint a mutually acceptable mediator, seeking
assistance in such regard from the CPR if they have
been unable to agree upon such appointment within
twenty (20) days from the conclusion of the negotiation
period.
(iii) The Parties agree to participate in good faith in the
mediation and negotiations related thereto for a period
of thirty (30) days. If the Parties are not successful
in resolving the dispute through the mediation, then
the Parties agree to submit the matter to binding
arbitration in accordance with the CPR Rules for
Non-Administered Arbitration, by a sole arbitrator.
(iv) Mediation or arbitration shall take place in the City of
Dearborn, Michigan. Equitable remedies shall be
available in any arbitration. Punitive or exemplary
damages shall not be awarded. This clause is subject to
the Federal Arbitration Act, 9 U.S.C.A. Section 1 et
seq., or comparable
<PAGE>
17
legislation in non-U.S. jurisdictions, and judgment upon
the award rendered by the arbitrator, if any, may be
entered by any court having jurisdiction thereof.
(g) If any term or other provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of law or public policy, all
other conditions and provisions of this Agreement shall nevertheless remain in
full force and effect so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that transactions contemplated hereby are fulfilled to the fullest extent
possible.
(h) No failure or delay on the part of any party hereto in the
exercise of any right hereunder shall impair such right or be construed to be a
waiver of agreement herein, nor shall any single or partial exercise of any
such right preclude other or further exercise thereof or of any other right.
All rights and remedies existing under this Agreement are cumulative to, and
not exclusive of, any rights or remedies otherwise available.
(i) The descriptive headings herein are for reference only and are not
intended to be part of or to affect the meaning or interpretation of this
Agreement.
( j) No change or amendment will be made to this Agreement except by
an instrument in writing signed on behalf of each of the parties to such
agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Master
Transfer Agreement to be executed by their fully authorized representatives as
of the day and year first above written.
VISTEON CORPORATION
By:
---------------------------------
Name: Dan R. Coulson
Title: Executive Vice President and
Chief Financial Officer
FORD MOTOR COMPANY
By:
---------------------------------
Name: Malcolm Macdonald
Title: Vice President and Treasurer
<PAGE>
DEFINED TERMS
Affiliate Recitals
Ancillary Agreements Recitals
ATT Lease Sec. 6(e)
Balance Sheet Sec. 1(c)
Business Recitals
Code Recitals
Controls Sec. 7(j)
CPR Sec. 10(f)(i)
Distribution Recitals
Environmental Claims Sec. 4(b)(iii)
Environmental Law Sec. 4(b)(iii)
FGTI Recitals
Ford Introduction
Ford Affiliate Sec. 7(j)
Ford Entity Sec. 8(c)
Ford Group Sec. 7(b)
Ford Guaranty Sec. 6(a)
Ford Indemnitees Sec. 7(a)
Ford Subsidiary Sec. 7(j)
Fuchang Ex. 2(a), Sec. (xii)
Fu Hua Ex. 2(b), Sec. (vii)
Hazardous Substance Sec. 4(b)(iii)
Indemnitee Sec. 7(c)
Indemnifying Party Sec. 7(c)
IPO Recitals
Losses Sec. 7(a)
Monroe Facility Sec. 6(e)
Monroe Press Sec. 6(e)
Retained Liabilities Sec. 5(a)
Restricted Entity Sec. 8(c)
Restricted Interests Sec. 8(b)
Restricted Period Sec. 8(b)
Separation Sec. 7(a)
Subsidiary Recitals
Subsidiary Transfer Date Ex. 1(a), Sec. (i)
Tax Cost Sec. 7(h)
Transfer Recitals
UARCO Ex. 2(a), Sec. (C)(ix)
US Transfer Date Sec. 1(c)
VDH Ex. 2(a), Sec. (b)(v)
VGTI Recitals
<PAGE>
VIHI Ex. 1(a), Sec. (i)
Visteon Introduction
Visteon Affiliate Sec. 7(j)
Visteon Assets Sec. 1
Visteon Group Sec. 7(a)
Visteon Indemnitees Sec. 7(b)
Visteon Liabilities Sec. 4(a)
Visteon Products Sec. 4(b)(i)
Visteon Product Claims Sec. 4(b)(i)
Visteon Subsidiary Sec. 7(j)
VPCSI Ex. 2(a), Sec. (A)(vi)
Yan Feng Ex. 2(a), Sec. (C)(viii)
EXHIBIT 10.3
PURCHASE AND SUPPLY AGREEMENT
This Purchase and Supply Agreement ("Agreement") dated as of January 1 2000
(the Effective Date") is entered into by and between Visteon Corporation., a
Delaware corporation ("Visteon"), and FORD MOTOR COMPANY ("FORD "), a Delaware
corporation.
RECITALS
A. Ford and its subsidiaries and affiliates worldwide are engaged in, among
other things, the design, manufacture, and sale of motor vehicles and motor
vehicle related products. Prior to the Effective Date, all of the business
operations which are owned by Visteon were controlled by Ford. As of the
Effective Date, Visteon has separated from Ford and become an independent
entity.
B. Visteon and its subsidiaries and affiliates worldwide are engaged in among
other things, the design, manufacture, and sale of motor vehicle related
components and systems on certain Ford vehicles.
C. Following the separation of Visteon from Ford, Visteon wishes to continue to
supply and to assure that its subsidiaries and affiliates have the right, under
certain circumstances, to continue to supply Ford and certain of its
subsidiaries with motor vehicle related components and systems and Ford wishes
to continue acquiring such components and systems on a competitive basis from
Visteon and its subsidiaries and affiliates. Further, the parties believe that
cooperation with respect to restructuring actions during and after the
separation of Visteon from Ford is desirable.
D. Ford and Visteon desire to have Visteon positioned as a viable independent
supplier, treated in line with other Tier 1 suppliers of Ford with respect to
Ford's general purchasing policies and practices.
E. Ford and Visteon acknowledge that in order for Visteon to achieve this
objective and to remain competitive with other Tier 1 suppliers, they will need
to cooperate with each other to effectively and efficiently implement product,
process and design technologies identified and secured by Visteon into
components purchased by Ford.
NOW, THEREFORE, in consideration of the mutual promises contained in this
Agreement and intending to be legally bound, Visteon and Ford agree:
1. PRIOR PURCHASE AND SUPPLY AGREEMENTS
1.1 Subject only to the termination provisions of paragraph 4, Visteon and Ford
shall continue to honor the terms and conditions of all Purchase Orders, Long
Term Supply Agreements, Target Agreements, and Sourcing Confirmation Letters in
existence as of the Effective Date entered into by Ford on behalf of itself and
as agent for its affiliated companies ("Existing Agreements") regarding the
purchase and supply of motor vehicle related components and systems
("Components"), including all Components that have been awarded to Visteon
regardless of whether production for such program has commenced, as if Visteon
and Ford were separate legal entities at the time such agreements were made,
provided, however that the term of each Existing Agreement shall extend through
the later of (i) its stated term, or (ii) December 31, 2003. Ford agrees that
such Existing Agreements shall transfer to Visteon and shall issue amendments
to such documents as may be required by Ford's accounts payable system to
include the Visteon name.
1.2 The terms and conditions of Ford's standard Purchase Order (FGT26 rev.
4/97) are incorporated herein and in the Existing Agreements by this reference;
provided, however, that in the event the specific agreed upon terms of an
Existing Agreement conflict with the terms of Ford's standard Purchase Order
terms, including the express omission of some or all of Ford's standard terms,
the specific agreed upon terms (including agreed upon omissions), of the
Existing Agreement shall control. In the event of a conflict between the terms
of an Existing Agreement and this Agreement, then the terms of this Agreement
shall control.
<PAGE>
-2-
Additionally, the parties agree that in situations where the
parties are silent with respect to the applicability of all of the standard
Ford Purchase Order terms and conditions, it shall be presumed that such terms
and conditions apply.
1.3 The unit prices for each Component produced for each program will be equal
to the existing prices already established by Existing Agreements, and the
parties have mutually agreed to certain price reductions which are described in
a separate side letter agreement entered into contemporaneously with this
Agreement.
1.4 Unless otherwise provided in Existing Agreements, no adjustments will be
made for changes in economics, including increases in Visteon's costs for
labor, material, or overhead. In the event of an unforeseen extraordinary
occurrence which is not the fault of either party and which may significantly
affect Visteon's cost of manufacturing and supplying Components to Ford or
which otherwise may place a significant financial burden on either party, Ford
and Visteon will negotiate in good faith an adjustment to the pricing terms,
taking into account all of the circumstances, with the view toward ensuring
profitability with respect to Components, as well as the vehicles incorporating
Components, to both Ford and Visteon.
2. NEW BUSINESS
2.1 Ford shall treat Visteon in the same manner as it treats its other Tier 1
suppliers with respect to Ford's general sourcing policies and practices,
including new purchasing and sourcing initiatives.
2.2 All new business agreements not constituting Existing Agreements hereunder
("New Business Agreements") awarded to Visteon will be governed by Ford's
standard Purchase Order terms and conditions (FGT 26 rev. 4/97 or subsequent
revisions), the applicable terms of this Agreement and any other specific terms
and conditions under which that business is awarded. During the term of this
Agreement, Visteon will continue to be included on Ford's list of suppliers
receiving Requests for Proposals, including Requests for Quotations, design
competitions and advanced technology development activities.
2.3 Other than business awarded pursuant to Visteon's exercise of its right of
last refusal, New Business Agreements awarded to Visteon, if any, will be at
Ford's sole discretion.
3. PAYMENT TERMS
3.1 The payment terms of all Existing Agreements shall remain unchanged as of
the Effective Date, however, Visteon recognizes its need to remain competitive
and agrees to participate with Ford, consistent with the participation of
Ford's other Tier 1 suppliers, as and when Ford moves to different supply chain
models and payment term constructs. Payments will be made to Visteon in the
currency of the country of final manufacture or assembly of the Components to
the extent consistent with payment terms applied to Ford's other Tier 1
suppliers. The parties will continue the present monthly billing process for
material shipments until such time as the accounting functions for Visteon have
been sufficiently transitioned so that there is no longer the ability to
continue the present billing practices. After Visteon has transitioned from the
Ford accounting services necessary for the present billing process, Visteon
will be reimbursed based on normal Ford Tier 1 supplier payment terms and
practices in effect at that time.
4. RIGHT TO TERMINATE FOR NON-COMPETITIVENESS
4.1 If during the term of any Existing Agreement or New Business Agreement
relating to a given Component (collectively "Purchase and Supply Agreement"),
(a) there is a demonstrable decline in the overall quality of Visteon's
products or services, or (b) Visteon does not remain competitive in design,
quality, service, technology and delivery on any Component thereunder with
other responsible suppliers or potential suppliers, or (c) Ford can substitute
supplies of significantly advanced design or processing, Ford may terminate its
purchase obligations with respect to such Component in whole or in part without
further liability. Ford shall provide written notice to Visteon which outlines
its causes for termination and specifies a termination date at
<PAGE>
-3-
least three months after the date of the notice. If Visteon demonstrates to
Ford, at least one month prior to the specified date of termination, that
Visteon will correct the causes by the termination date or a subsequent date
acceptable to Ford, termination of the Purchase and Supply Agreement with
respect to the affected Component will be suspended and that agreement will
continue.
4.2 Ford will not be responsible for any supplemental or compensatory payments
to Visteon in the event that a Purchase and Supply Agreement is terminated
because of non-competitiveness, provided however that this provision shall not
vitiate any separate agreement between Ford and Visteon relating to ongoing
employee relationships.
5. QUALITY/COST IMPROVEMENT INITIATIVES
5.1 To insure a robust quality improvement process, Visteon will participate in
Ford quality improvement programs and Ford can require Visteon to achieve
reasonable increased quality standards, consistent with the current practice of
Ford's other Tier 1 suppliers All Visteon facilities that produce Components
for Ford shall achieve and retain Q1 status and shall also maintain ISO9000
compliance during the terms of any applicable Purchase and Supply Agreement.
5.2 Visteon will participate with Ford on its cost, warranty and customer
satisfaction improvement programs on all Components, whether covered by
Existing Agreements or New Business Agreements, including sharing the necessary
information requested by Ford, consistent with the current practice of Ford's
other Tier 1 suppliers.
6. RIGHT OF LAST REFUSAL ON REPLACEMENT BUSINESS
6.1 Beginning January 1, 2000 (the "Effective Date") and continuing through May
31, 2003 (the "ROLR Term"), Visteon shall be granted a right of last refusal
under competitive purchase order terms for the first replacement cycle of
existing product programs (in the United States, Europe, Canada, and Mexico
production for export to the United States) for those Components currently
provided by Visteon pursuant to Existing Agreements provided that it is
competitive in terms of quality, service and delivery on those Components at
the time it wishes to exercise the right of last refusal, and further provided
that it can demonstrate to Ford's reasonable satisfaction its capability to be
competitive in design and technology for the replacement cycle Components. For
Visteon's manufacturing operations not covered by the foregoing sentence,
Visteon shall be deemed to be the "incumbent" supplier and will be treated by
Ford in the same manner as Ford treats its other incumbent suppliers. The
parties agree that right of last refusal for those Components produced in
Mexico for use in the United States shall not be subject to the Sourcing
Council process. The right of last refusal for Components supplied by Visteon
facilities in Western Europe will be administered to be consistent with Ford's
sourcing obligations described in the Agreement Governing the Separation of the
Ford Visteon Organization dated January 25, 2000 as it may be amended from time
to time. The mechanics of Visteon's right of last refusal shall operate in
accordance with Exhibit I provided, however, that any Visteon manufacturing
operation that has not achieved Q1 status, or whose Q1 status has been revoked
will be considered to be on New Business Hold and during such period, the right
of last refusal may not be invoked for Components that would be produced at
that manufacturing operation.
6.2 Except as specifically provided above, the right of last refusal does not
apply to Asia, new markets, Mexico (other than production of Components for
export for use in the United States and Components assembled into vehicles in
Mexico that will be exported to the United States), or South America.
<PAGE>
-4-
7. TOOLING
7.1 The ownership of tooling for the production of Components is governed by
the Master Transfer Agreement.
7.2 Use of Ford-owned tooling for the production of service and replacement
parts and other aftermarket applications is governed by the Relationship
Agreement Between Automotive Consumer Services Group and Visteon Corporation.
7.3 Visteon shall not use Ford-owned tooling to produce products for other
customers if such tooling is used to produce products for serial production for
Ford; provided, however, that Visteon shall be allowed to continue the use of
such tooling to the extent necessary to satisfy already awarded contracts or
extensions of such contracts, where Visteon has previously used such tooling to
produce such products. Visteon will have the burden of establishing, upon
Ford's reasonable request, the existence of a binding contract with other
customer(s) and prior use of particular tooling for those specific customer(s)
prior to the Effective Date. If Visteon is unable to establish such facts with
respect to particular tooling, Visteon will not have the right to use
the applicable tooling. Moreover, Visteon agrees that it will not expand the
use of any tooling described in this Section to new products, new customers or
new contracts, other than for or with Ford.
7.4 In the event that (i) any Excusable Delay (as defined in Ford's standard
Purchase Order terms) prevents Visteon from producing or delivering products,
or (ii) Ford resources products to another supplier as permitted under this
Agreement Visteon will permit Ford to take possession of all Ford-owned tooling
which is used to produce serial production parts for Ford in accordance with
Ford's Purchase Order Terms and Conditions; provided, however, that in the
event such tooling is being used by Visteon to produce products for other
customers (as permitted pursuant to Section 7.3 above, it being understood and
agreed that Visteon shall have the burden of proving such eligibility), Ford
will to the extent practicable, allow the new supplier to use such tooling to
produce products for sale to Visteon to permit Visteon to satisfy Visteon's
pre-existing contractual commitments to other customers.
7.5 Ford agrees to return to Visteon all tooling of which Ford obtains
possession as a result of an event constituting an Excusable Delay as promptly
as commercially reasonable under the circumstances, following the cessation of
that Excusable Delay event; provided, however, that Ford shall not be required
to return any such tooling to Visteon until after Ford has satisfied any
contractual commitments that Ford may have made to other suppliers regarding
products produced from such tooling.
7.6 Nothing contained in this Article 7 shall be construed to restrict
Visteon's use of tooling beyond the specific rights herein granted, to the
extent that Ford may in the future, expand such rights with respect to Tier 1
suppliers generally.
8. PROCESS FOR VISTEON TO EXIT CERTAIN BUSINESSES
Visteon shall not sell or exit any of its business operations engaged in the
production of Components for Ford without first advising Ford of its intent to
do so, providing sufficient detail with respect to the means by which Visteon
expects to assure Ford of a continued supply of affected Components on the same
terms and conditions, through the remaining terms of the affected Purchase
Orders and Long Term Supply Agreements. Visteon will reasonably consider Ford's
input and concerns and Ford will cooperate in good faith with Visteon in any
restructuring actions.
9. RAW MATERIALS AND PURCHASED COMPONENTS
To the extent mutually practical and consistent with all applicable laws and
regulations and consistent with the terms of all Existing Agreements, Visteon
will participate in Ford's raw materials supply system or
<PAGE>
-5-
directed buy programs for raw materials as amended from time to time, in the
same manner as Ford's other Tier 1 suppliers
10. TERM AND TERMINATION
10.1 The term of this Agreement shall commence on the Effective Date and
continue as long as any Existing Agreement is in effect, including any
extensions of any Existing Agreement.
10.2 Either Ford or Visteon may terminate this Agreement in the event that (a)
the other party materially breaches this Agreement; (b) the other party becomes
insolvent or enters bankruptcy, receivership, liquidation, composition of
creditors, dissolution or similar proceeding; or (c) a significant portion of
the assets of the other party necessary for the performance of this Agreement
becomes subject to attachment, embargo or expropriation. In addition, Ford may
terminate this Agreement in the following events: (i) thirty-five percent or
more of the voting shares of Visteon become owned or controlled, directly or
indirectly, by a competitor of Ford in the business of manufacturing motor
vehicles; or (ii) all of the Existing Agreements become subject to termination
or cancellation pursuant to their terms.
10.3 A party intending to terminate this Agreement pursuant to this Article 10
shall first notify the other party of the grounds for the intended termination.
If the other party fails to remedy such grounds for termination within sixty
(60) days of such notice (or any longer period of time as mutually agreed by
the parties), then the terminating party may terminate this Agreement effective
upon notice to the other party without the need for any judicial action.
10.4 The provisions of this Article 10 are without prejudice to any other
rights or remedies either party may have by reason of the default of the other
party.
10.5 In the event a competitor of Ford in the business of manufacturing motor
vehicles acquires a significant interest in Visteon (directly or indirectly)
Visteon will provide Ford with reasonable assurances that Visteon will utilize
its best efforts to preserve the confidentiality of all information related to
products produced for Ford and Ford product programs.
11. GENERAL PROVISIONS
11.1 No Agency. This Agreement does not constitute either party the agent or
legal representative of the other party. Neither party is authorized to create
any obligation on behalf of the other party.
11.2 Notices. Any notice under this Agreement must be in writing (letter,
facsimile) and will be effective when received by the addressee at its address
indicated below.
(a) Notice sent to Visteon will be addressed as follows:
Visteon: Visteon Corporation
Auto Club Drive
Dearborn, MI 48126
Attention: General Counsel
Fax: (313) 390-2718
(b) Notice sent to Ford will be addressed as follows:
Ford Motor Company
Office of the Secretary
One American Road
12th Floor World Headquarters
Dearborn, Michigan 48126
Fax: (313) 248-7036
<PAGE>
-6-
(c) The parties by notice hereunder may designate other addresses to which
notices will be sent.
11.3 Subsidiaries and Affiliates. The following Ford subsidiaries and
affiliates are bound to this Agreement: Volvo Car Corporation ("Volvo"), Mazda
Motor Corporation ("Mazda"), and Jaguar Cars Ltd. ("Jaguar"); provided, however
that the Right of Last Refusal as described in Appendix I shall not apply to
Mazda brand sourcing regardless of whether Ford Motor Company is the entity
that issued the Existing Agreements on behalf of Mazda, and further provided
that Ford will use reasonable efforts to secure a similar commitment from
Mazda. With respect to Jaguar and Volvo, the Right of Last Refusal shall only
apply to sourcing that is placed by Ford from the U.S. and shall not be subject
to the Sourcing Council process. Ford will use reasonable efforts to ensure
that Visteon is given the opportunity by Jaguar and Volvo to quote on all new
business for components that it is able to produce and which are not covered by
the foregoing sentence. Ford will not transfer sourcing responsibility to an
entity that is not bound by the Right of Last Refusal for the purpose of
avoiding such obligation. No other subsidiaries or affiliates of Ford are
parties to this Agreement and they are not bound by the provisions herein
unless and until they separately agree to be so bound.
11.4 Amendments. No amendment to this Agreement will be binding upon either
party unless it is in writing and is signed by a duly authorized representative
of each party. This Agreement supersedes any prior agreements between the
parties concerning the subject matter herein.
l1.5 Assignments. This Agreement shall be binding upon and inure to the
benefit of the parties, and their respective successors and permitted assigns,
but no rights, interests or obligations of either party herein may be assigned
without the prior written consent of the other, which consent shall not be
unreasonably withheld.
11.6 Severability. If any provision of this Agreement, or portion thereof, is
invalid or unenforceable under any statute, regulation, ordinance, executive
order or other rule of law, such provision, or portion thereof, shall be deemed
reformed or deleted, but only to the extent necessary to comply with such
statute, regulation, ordinance, order or rule, and the remaining provisions of
this Agreement shall remain in full force and effect.
11.7 Governing Law. This Agreement will be construed and enforced in accordance
with the laws of the State of Michigan, excluding its conflict of laws rules.
Each party consents, for purposes of enforcing this Agreement, to personal
jurisdiction, service of process and venue in any state or federal court within
the State of Michigan having jurisdiction over the subject matter. The parties
exclude the application of the 1980 United Nations Convention on Contracts for
the International Sale of Goods, if otherwise applicable.
If a dispute arises between the Parties relating to this Agreement, the
following procedure shall be implemented except that either Party may seek
injunctive relief from a court where appropriate in order to maintain the
status quo while this procedure is being followed:
(1) The Parties shall hold a meeting promptly, attended by persons
with decision-making authority regarding the dispute, to attempt in
good faith to negotiate a resolution of the dispute; provided,
however, that no such meeting shall be deemed to vitiate or reduce
the obligations and liabilities of the Parties or be deemed a waiver
by a party hereto of any remedies to which such Party would otherwise
be entitled.
(2) If within thirty (30) days after such meeting, the Parties have
not succeeded in negotiating a resolution of the dispute, they agree
to submit the dispute to mediation in accordance with the
then-current Model Procedure for Mediation of Business Disputes of
the Center for Public Resources and to bear equally the costs of the
mediation. The Parties will jointly appoint a mutually acceptable
mediator, seeking assistance in such regard from the Center for
Public Resources if they have been unable to agree upon such
appointment within twenty (20) days from the conclusion of the
negotiation period.
<PAGE>
-7-
(3) The Parties agree to participate in good faith in the mediation
and negotiations related thereto for a period of thirty (30) days. If
the Parties are not successful in resolving the dispute through the
mediation, then the Parties agree to submit the matter to binding
arbitration in accordance with the Center for Public Resources Rules
for Non-Administered Arbitration, by a sole arbitrator.
(4) Mediation or arbitration shall take place in the City of
Dearborn, Michigan. Equitable remedies shall be available in any
arbitration. Punitive or exemplary damages shall not be awarded. This
clause is subject to the Federal Arbitration Act, 9 U.S.C.A. Section
1 et seq., or comparable legislation in non-U.S. jurisdictions, and
judgment upon the award rendered by the arbitrator, if any, may be
entered by any court having jurisdiction thereof.
11.8 Counterparts. This Agreement may be executed by the parties in separate
counterparts, each of which when so executed and delivered will be an original,
but all such counterparts will together constitute one and the same instrument.
IN WITNESS WHEREOF, Ford and Visteon have caused this Agreement to be executed
in multiple counterparts by their duly authorized representatives.
VISTEON CORPORATION FORD MOTOR COMPANY
By:
-------------------------------- -------------------------------
Carlos Mazzorin
Title: Group Vice President
----------------------------- Global Purchasing and
South America
Date: Date:
------------------------------ --------------------------
-------------------------------
By: Malcolm S. Macdonald
-------------------------------- Vice President-Treasurer
Title:
----------------------------- Date:
--------------------------
Date:
------------------------------
<PAGE>
Appendix I
Right of Last Refusal
In order to invoke the right of last refusal, Visteon must be competitive in
terms of quality, service and delivery with respect to the Components for which
Visteon is exercising its right of last refusal.
(a) Upon commencement of a product program covered by the right of last
refusal specified in Section 6.1 (a "ROLR Product"), Ford will submit to
prospective suppliers, including Visteon, a request for proposal in accordance
with its customary procedures including but not limited to, the bundling of
ROLR Products for any Component with ROLR Products for other Components;
provided, however, that the bundling of ROLR Products will involve naturally
related components, systems and modules, consistent with Ford's standard
commodity sourcing practices.
(b) When such bundled sourcing packages including two or more ROLR
Products are offered, Visteon will have the right of last refusal on any such
ROLR Product(s) in the bundle. For those products in the bundle not currently
provided by Visteon, the right of last refusal shall not apply.
(c) If Visteon wishes to exercise the right of last refusal with regard
to a ROLR Product, Visteon must participate in the sourcing process, including
developmental work, the advance purchasing/engineering process, and the
submission of bids, all on the same basis as other potential suppliers.
(d) In the event Ford determines that a proposal submitted by an entity
other than Visteon is the most favorable (the "Favorable Proposal"), Ford will
notify Visteon in writing of the material terms (including price, other
financial considerations (including, without limitation, the economic impact of
price reductions on other current and future products) material content,
investment, timing, non-proprietary technology, and the existence of
proprietary technology) of the Favorable Proposal (the "Terms Notice"), and
will request that Visteon notify Ford in writing whether Visteon wishes to
supply such ROLR Product(s) on terms the same as or substantially the same as
(as mutually determined by the parties in their reasonable discretion) the
terms of the Terms Notice.
(e) Following receipt by Visteon of the Terms Notice from Ford, Visteon
must notify Ford in writing of its willingness and ability to supply such ROLR
Products on such terms within seven (7) business days if no new technology is
included in the Favorable Proposal, or fifteen (15) business days if new
technology is included in the Favorable Proposal. Visteon must demonstrate to
Ford's reasonable satisfaction that it has the capability to be competitive in
design and technology with the Favorable Proposal.
(f) If Visteon so notifies Ford that it is willing and able to supply
such ROLR Product(s) on such terms, then Visteon will be awarded the sourcing
of such ROLR Product(s) for the relevant Purchase and Supply Agreement term.
(g) If Visteon fails to so notify Ford or notifies Ford that it is
unwilling or unable to supply such ROLR Product(s) on such terms, Ford may
source the ROLR Product(s) on terms no less favorable to Ford than those set
forth in the Terms Notice.
(h) If for any reason Ford determines to source such ROLR Product(s) on
terms less favorable to Ford than the terms of the Terms Notice, then Visteon
will again have the right of last refusal to supply such ROLR Product(s) in the
manner described in this Appendix.
(i) Under no circumstances will Ford be responsible for any supplemental
or compensatory payments to Visteon in the event Visteon fails to exercise its
right of last refusal or can not provide the Components on a competitive basis.
The right of last refusal for those Components produced in Mexico for use in
the United
<PAGE>
-2-
States shall not be subject to the Sourcing Council process. The
right of last refusal for Components supplied by Visteon facilities in Western
Europe will be administered to be consistent with Ford's sourcing obligations
described in the Agreement Governing the Separation of the Ford Visteon
Organization dated January 25, 2000 as it may be amended from time to time.
EXHIBIT 10.5
RELATIONSHIP AGREEMENT
between
AUTOMOTIVE CONSUMER SERVICES GROUP
and
VISTEON CORPORATION
THIS RELATIONSHIP AGREEMENT is entered into effective as of the 1st day of
January, 2000, by the Automotive Consumer Services Group ("ACSG", formerly Ford
Customer Service Division) of Ford Motor Company ("Ford"), and Visteon
Corporation ("Visteon").
WHEREAS, Ford has determined it would be appropriate and beneficial to
separate the activities being conducted under the name Visteon Automotive
Systems, an enterprise of Ford, including those activities conducted by the
subsidiaries and affiliates aligned with such enterprise (collectively, with
historic operations, the "Business"); and to that end, Ford has set up a
separate legal structure for Visteon and will be operating Visteon as a
separate legal entity;
WHEREAS, it is anticipated that Visteon will be spun-off from Ford,
and become a separate, independent enterprise;
WHEREAS, ACSG and Visteon, in recognition of the impending separation
of Visteon from Ford, wish to set forth their agreement as to how they will
conduct business between ACSG and Visteon going forward.
NOW THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties agree as follows:
1. Purchase of Current Production Parts. Purchase by ACSG from Visteon of any
service, accessory, warranty and /or replacement parts (collectively "Service
Parts") already covered by a Ford production purchase order or other Existing
Agreement (as defined below) will be governed by the terms of the Purchase and
Supply Agreement between Ford and Visteon, dated as of January 1, 2000, which
incorporates by reference the Ford standard Purchase Order terms and conditions
(FGT26 rev. 4/97) (the "Supply Agreement"), as it may be modified by Ford and
Visteon from time to time. Accordingly, the terms of the Supply Agreement are
incorporated herein by reference. For such purposes, all such Service Parts (if
covered by an Existing Agreement) shall be deemed Components and Current
Business as those terms are defined and used under the Supply Agreement.
2. Service Parts and Services. Subject to Visteon remaining at all times
competitive in terms of quality, service and delivery, ACSG agrees that Visteon
will not be desourced during the term of this agreement with respect to any
non-production
<PAGE>
service parts or services currently supplied by Visteon to ACSG or Ford.
Accordingly, ACSG shall honor the terms and conditions of all non-production
purchase orders, long term supply agreements, sourcing confirmation letters,
ESTA's and other formal and verifiable informal agreements in existence as of
the date of this Agreement relating to the sale by Visteon of non-production
Service Parts or related Services ("Existing Service Parts Agreements").
Service parts and services purchased by ACSG from Visteon hereunder will be
governed by the applicable Existing Service Parts Agreement, except to the
extent they are modified by the following:
a. FCSD Service Parts Guide. ACSG and Visteon agree that all
purchases under this Section 2 shall be governed by the FCSD Service
Parts Guide (Attachment 1), as such may be updated from time to time.
b. Global FCSD Full Service Supplier Statement of Work Generic
Requirements. ACSG and Visteon agree that all purchases under this
Section 2 shall be governed by the requirements set forth in the ACSG
document "Global FCSD Full Service Supplier Statement of Work Generic
Requirements" (Attachment 2) as it may be modified from time to time.
c. Parts Branding Directive. ACSG and Visteon agree that all
purchases under this Section 2 shall be in compliance with the "Parts
Branding Directive" set forth in a letter issued by Ford Motor Company
President and CEO on October 7, 1999 (Attachment 3).
d. Performance Goals. ACSG and Visteon agree that all purchases
under this Section 2 shall be subject to the ACSG Performance Goals as
periodically determined and published by ACSG Purchasing.
e. Pricing. ACSG and Visteon have agreed to the pricing principles
in this subsection (e), to be effective as of January 1, 2000 and
through December 31, 2004. Except as provided in this Section, pricing
on all Current Business shall be fixed at the current pricing set
forth in the Existing Service Parts Agreements. Thereafter, prices for
newly-sourced (non-Current Business) Service Parts shall be determined
on a competitive basis in accordance with ACSG's customary practice
with its suppliers. Prior to implementing price changes, Visteon will
consult with ACSG to ensure that individual component price changes
effected under this subsection (e) do not cause ACSG to become
uncompetitive in price on such individual components. The agreed upon
pricing principles are not superceded by terms of any Existing Service
Parts Agreement nor the Supply Agreement and are as follows:
1) Price Increase. Visteon may increase pricing on certain
Service Parts such that the total amount of such increase
multiplied by the volume of affected Service Parts
purchased by ACSG does not exceed $4 million in calendar
year 2000.
2
<PAGE>
2) Price Decrease - 2000. Effective January 1, 2000, Visteon
shall provide to ACSG a 1.5% price reduction on certain
Service Parts such that the net average price reduction
across all production Service Parts, non-production
Service Parts and Remanufactured Parts (as hereinafter
defined) sold to ACSG for such period shall equal 1.5%.
The 1.5% price reduction will be calculated on the
immediately prior year Visteon sales to ACSG.
3) Price Decrease - 2001-2004. Effective January 1, 2001 and
each anniversary thereafter through 2004, Visteon shall
provide to ACSG a 2% price reduction on certain Service
Parts such that the net average price reduction across
all production Service Parts, non-production Service
Parts and Remanufactured Parts (as hereafter defined)
sold to ACSG for such period shall equal 2%. The 2% price
reduction will be calculated on the immediately prior
year Visteon sales to ACSG.
4) Exclusion of Newly Sourced Service Parts. The foregoing
price reductions during the years 2001 through 2004 do
not include newly sourced Service Parts first sold to
ACSG after July 1 of the prior year in calculation.
5) Credit for Cost Savings. Visteon shall receive credit from
ACSG for 100% of the materials cost savings resulting from
changes initiated by Visteon and approved by ACSG. Such
cost savings will be credited against the above-required
cost reductions. With each design change that Visteon
initiates, Visteon must furnish information and data that
demonstrate, in conformance with standard industry
engineering practices, the feasibility of the change. ACSG
may conduct its own engineering analysis of the change and
shall not be obligated to approve any change that ACSG
believes causes a deviation from original product
specifications.
6) Credit for Remanufactured Service Parts. For purposes of
calculating the amount of price reduction achieved in
connection with any volume of Service Parts sales for any
relevant sales period hereunder, Visteon shall be entitled
to include the entire volume of Remanufactured Parts (as
defined below) sold to ACSG in that period.
f. Tooling - Visteon may continue to use ACSG tooling as follows:
(i) Aftermarket Suppliers - Visteon may continue to
use ACSG-owned tooling ("ACSG Tooling") for production of
Service Parts for automotive aftermarket suppliers through
2004. Any new/additional customers, Service Parts or
tooling use requires prior ACSG approval. Use of ACSG
Tooling in 2000 will be free of any additional charge. In
2001, Visteon shall pay a 2% tooling use and maintenance
fee on net sales of components manufactured from ACSG
Tooling and sold to automotive
3
<PAGE>
aftermarket suppliers. In 2002 through 2004, Visteon shall
pay a 2.5% tooling use and maintenance fee on net sales of
components manufactured from ACSG Tooling and sold to
automotive aftermarket suppliers. Use is subject to the
Ford standard Purchaser Order terms and conditions (FGT26
Rev. 4/97) except as otherwise set forth herein. ACSG will
notify Visteon as to ACSG's determination regarding
disposition of ACSG Tooling after 12/31/04.
(ii) Warehouse Distributors - Visteon may continue
to use ACSG Tooling for production of Service Parts for
warehouse distributors through 2004. Any new/additional
customers, Service Parts or ACSG Tooling use requires prior
ACSG approval. Use of ACSG Tooling in 2000 will be free of
any additional charge. In 2001, Visteon shall pay a 3.5%
tooling use and maintenance fee on net sales of Service
Parts manufactured from ACSG tooling and sold to
distributors other than through ACSG. In 2002 through 2004,
Visteon shall pay a 4% tooling use and maintenance fee on
net sales of components manufactured from ACSG Tooling and
sold to distributors other than through ACSG. Use is
subject to the Ford standard Purchaser Order terms and
conditions (FGT26 Rev. 4/97) except as otherwise set forth
herein. ACSG will notify Visteon as to ACSG's determination
regarding disposition of ACSG Tooling after 12/31/04.
(iii) Special Use of Tooling. In addition to the
foregoing, ACSG and Visteon agree that Visteon may continue
to use ACSG tooling on a royalty free basis, consistent
with current business practice for the following programs:
a. Climate Control Service Part (unbranded) sales to
Midas.
b. Freightliner Service Parts sales (only as
required to support Sterling (HN-80).
c. Current programs to supply OE (no aftermarket)
Service Parts to Mazda, Nissan, and Volkswagen.
d. Export component sales to Ford dealers in the
Middle East (no new Service Parts - only existing
Service Parts being sold will continue to be
offered).
ACSG and Visteon agree that the approved uses of
tooling in subsections (a) through (d) above may continue
(i) for the term of any binding contract (in effect as of
the effective date of this Agreement and entered into by
Visteon) that requires Visteon to supply Service Parts for
the transactions described in (a) through (d) above, or if
no such contract term is in place, (ii) for the term of
this Agreement, after which time ACSG and Visteon will
mutually agree if such tooling use will continue,
4
<PAGE>
under new or prior terms. If ACSG and Visteon agree to
discontinue such tooling use, they will create a reasonable
transition and/or discontinuation plan.
3. Remanufacturing Programs. Subject to Visteon remaining at all times
competitive in terms of quality, service and delivery, ACSG and Visteon agree
that, for a period of two (2) years from the date hereof, Visteon shall be the
exclusive supplier to ACSG and ACSG shall be the exclusive customer of Visteon,
for the remanufactured Service Parts ("Remanufactured Parts") currently
manufactured by Visteon for ACSG. In the event that Visteon elects to supply
Remanufactured Parts to ACSG under the Right of Last Refusal described in
Section 4 (ii) below, such supply will be subject to the same two-year mutual
exclusivity provisions described above.
4. Right of Last Refusal for Replacement and New Business. For a period equal
to three (3) years from the effective date of this Agreement, provided that
Visteon is competitive in terms of quality, service and delivery, Visteon will
be granted a right of last refusal ("Right of Last Refusal") under Ford's then
standard Purchase Order terms, for (i) the replacement cycle of all Current
Business; (ii) all Remanufactured Parts under the Program as of the effective
date of this Agreement (as described above) and for any other remanufactured
parts which ACSG wishes to purchase during the period to the extent Visteon
manufactures such parts; and (iii) any new Service Parts requirements of ACSG
which arise during the period, to the extent that Visteon manufactures such
Parts. The Right of Last Refusal shall be governed in accordance with the terms
the Right of Last Refusal as described in Section 6 and Exhibit I of the Supply
Agreement.
5. Carlite Glass Business. ACSG and Visteon acknowledge and agree that all
assets and liabilities related to the Carlite-branded glass manufacturing,
distribution and service/installation business the ("Carlite Brand Glass
Business") have been transferred to Visteon pursuant to the Master Transfer
Agreement between Ford and Visteon dated as of March 30, 2000. Accordingly,
ACSG has no continuing right or interest to or in the Carlite Brand Glass
Business. It is the intention of the parties that Visteon shall be permitted to
continue to operate the Carlite Brand Glass Business substantially as it has in
the past, including without limitation, Visteon's ability to continue to
represent such business as an authorized Ford-OEM replacement glass supplier in
the North American market (for so long as it continues to be so sourced), and
the right in connection therewith to continue to label the Carlite brand with
Ford range of brands on replacement glass in accordance with the licensing
guidelines set forth in Exhibit 5 hereto.
6. Visteon Service Distributor Network. ACSG and Visteon agree that the Visteon
Service Distributor Network covering audio systems and equipment, instrument
clusters and speedometers (the "Network") will continue as currently operated
and/or managed by Visteon under previously agreed upon guidelines and
principles, whereby Visteon acts as an authorized service center and
distributor for ACSG and Ford Service Parts and service. For the term of this
Agreement, ACSG will continue to recognize Visteon as its sole authorized
service center and distributor, but only for those Ford Service Parts that
Visteon manufactures for ACSG during the term of this Agreement and only if
Visteon adheres to customary standards of quality and timing for service for a
5
<PAGE>
particular Ford Service Part. After the term of this Agreement, neither ACSG
nor Visteon will be obligated to support the Network unless both mutually agree
such should continue, under mutually agreed upon terms. If ACSG and Visteon
agree to terminate Visteon's status as an authorized service center and
distributor, ACSG and Visteon will create a reasonable transition plan to
ensure there is no gap in service coverage to Ford dealers. Additionally, ACSG
has no obligation to expand the Network relationship to include components
other than those currently covered by the Network.
7. Transfer of Tier 2 Supplier Purchase Orders. Within the North American
market, ACSG agrees to transfer certain ACSG Tier 2 purchase orders to Visteon.
ACSG and Visteon will mutually determine which purchase orders will be
transferred dependent on what is appropriate and beneficial to both entities.
ACSG and Visteon will mutually agree on the timeline for the transfer with a
targeted completion date of June 30, 2000. The volume of components represented
by the purchase orders transferred to Visteon on or before June 30, 2000 will
be included under the terms of the pricing agreement set forth in Section 2(e)
from January 1, 2001. The volume of components represented by the purchase
orders transferred to Visteon after June 30, 2000 will be included under the
terms of the pricing agreement set forth in Section 2(e) from January 1, 2002.
As relates to these transferred purchase orders, Ford will provide reasonable
assistance to Visteon to ensure Visteon has access to all tools related to
production of the Service Parts covered by such purchase orders.
ACSG and Visteon also agree to explore Visteon taking control of the supply of
certain aftermarket projects currently supplied directly to ACSG by Ryken Tube
Manufacturing ("Ryken") and Findlay Industries ("Findlay"). The intention is to
complete this analysis by June 30, 2000. If the decision is made to transfer to
Visteon the business currently handled by these two suppliers, Visteon and ACSG
will mutually agree to a pricing agreement which will be treated as an addendum
to Section 2(e) of this Agreement. Should Visteon and ACSG agree to not
transfer control of this business, then the Ryken and Findlay business will be
exempt from the Section 2(e) pricing agreement.
8. Logistics. ACSG and Visteon have been in discussions relating to the
provision by ACSG to Visteon of certain logistics and transportation services,
to be provided to Visteon beginning January 2001. ACSG will submit a bid to
Visteon for supplying such services by September 30, 2000. Visteon agrees to
give preferred consideration to the ACSG bid and will provide to ACSG an
initial response to the bid within 30 days after its receipt.
9. Term of Agreement. This Agreement shall be in effect from January 1, 2000
through December 31, 2004.
10. Miscellaneous.
a. Entire Agreement. This Agreement, including all Exhibits and
Schedules attached hereto, constitutes the entire agreement between
the parties with respect to the subject matter hereof and supersedes
all prior written and oral and all
6
<PAGE>
contemporaneous oral agreements and understandings with respect to the
subject matter hereof.
b. Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Michigan.
c. Benefit of the Parties. This Agreement is for the sole benefit of
the Parties hereto and no third party may claim any right, or enforce
any obligation of the Parties, hereunder.
d. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given when delivered in
person, by fax with confirmation of receipt, by express or overnight
mail delivered by a nationally recognized air courier (delivery
charges prepaid), or by registered or certified mail (postage prepaid,
return receipt requested) to the respective parties as follows:
If to Ford:
Ford Motor Company
The American Road
Dearborn, MI 48121
Attention: Secretary
Fax: (313) 248-7036
If to Visteon:
Visteon Corporation
Auto Club Drive
Dearborn, MI
Attention: General Counsel
Fax: (313) 390-9277
or to such other address as the party to whom notice is given may have
previously furnished to the others in writing in the manner set forth
above. Any notice or communication delivered in person shall be deemed
effective on delivery. Any notice or communication sent by fax or by
air courier shall be deemed effective on the next business day. Any
notice or communication sent by registered or certified mail shall be
deemed effective on the fifth business day after such notice or
communication was mailed.
e. Successsors and Assignees. This Agreement shall be binding upon and
inure to the benefit of each party hereto and their respective
successors and assignees of the parties. In no event will a party be
released from their indemnity obligations without the written consent
of the other party.
7
<PAGE>
f. Dispute Resolution. If a dispute arises between the Parties
relating to this Agreement, the following procedure shall be
implemented except that either Party may seek injunctive relief from a
court where appropriate in order to maintain the status quo while this
procedure is being followed:
The Parties shall hold a meeting promptly, attended by
persons with decision-making authority regarding the
dispute, to attempt in good faith to negotiate a
resolution of the dispute; provided, however, that no such
meeting shall be deemed to vitiate or reduce the
obligations and liabilities of the Parties or be deemed a
waiver by a party hereto of any remedies to which such
Party would otherwise be entitled.
If within thirty (30) days after such meeting, the Parties
have not succeeded in negotiating a resolution of the
dispute, they agree to submit the dispute to mediation in
accordance with the then-current Model Procedure for
Mediation of Business Disputes of the Center for Public
Resources and to bear equally the costs of the mediation.
The Parties will jointly appoint a mutually acceptable
mediator, seeking assistance in such regard from the
Center for Public Resources if they have been unable to
agree upon such appointment within twenty (20) days from
the conclusion of the negotiation period.
The Parties agree to participate in good faith in the
mediation and negotiations related thereto for a period of
thirty (30) days. If the Parties are not successful in
resolving the dispute through the mediation, then the
Parties agree to submit the matter to binding arbitration
in accordance with the Center for Public Resources Rules
for Non-Administered Arbitration, by a sole arbitrator.
Mediation or arbitration shall take place in the City of
Dearborn, Michigan. Equitable remedies shall be available
in any arbitration. Punitive or exemplary damages shall
not be awarded. This clause is subject to the Federal
Arbitration Act, 9 U.S.C.A. Section 1 et seq., or
comparable legislation in non-U.S. jurisdictions, and
judgment upon the award rendered by the arbitrator, if
any, may be entered by any court having jurisdiction
thereof.
g. Invalidity of Individual Terms. If any term or other provision of
this Agreement is invalid, illegal or incapable of being enforced by
any rule of law or public policy, all other conditions and provisions
of this Agreement shall nevertheless remain in full force and effect
so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse
to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect
the original intent
8
<PAGE>
of the parties as closely as possible in an acceptable manner to the
end that transactions contemplated hereby are fulfilled to the fullest
extent possible.
h. Non-Waiver of Rights. No failure or delay on the part of any party
hereto in the exercise of any right hereunder shall impair such right
or be construed to be a waiver of agreement herein, nor shall any
single or partial exercise of any such right preclude other or further
exercise thereof or of any other right. All rights and remedies
existing under this Agreement are cumulative to, and not exclusive of,
any rights or remedies otherwise available.
i. Headings. The descriptive headings herein are for reference only
and are not intended to be part of or to affect the meaning or
interpretation of this Agreement.
j. Amendment. No change or amendment will be made to this Agreement
except by an instrument in writing signed on behalf of each of the
parties to such agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their fully authorized representatives as of the day and year
first above written.
VISTEON CORPORATION FORD MOTOR COMPANY
- -------------------------------- ----------------------------------
Name: Name:
--------------------------- -----------------------------
Title: Title:
-------------------------- ----------------------------
EXHIBIT 10.6
HOURLY EMPLOYEE ASSIGNMENT AGREEMENT
This Assignment Agreement (the "Agreement") is entered into as
of the first day of April, 2000, by and among Visteon Corporation, a corporation
organized under the laws of the state of Delaware, with offices at 5500 Auto
Club Drive, Dearborn, Michigan 48126 ("Visteon"), and Ford Motor Company, a
corporation organized under the laws of the state of Delaware, with offices at
The American Road, Dearborn, Michigan 48121 ("Ford"). Ford and Visteon are
referred to herein individually as a "Party" and collectively as the "Parties".
RECITALS
A. Ford employs directly approximately 23,580 U.S. hourly employees
("Ford Hourly Employees") who are engaged in the business of manufacturing and
assembling automotive parts and services now being conducted under the name of
Visteon Automotive Systems, an enterprise of Ford Motor Company, including those
activities conducted by its subsidiaries and affiliates (the "Business");
B. The Ford Hourly Employees are represented by the International
Union, United Automobile, Aerospace and Agricultural Implement Workers of
America, UAW and its affiliated Locals 228, 400, 600, 723, 737, 848, 849, 892,
898, 1111, 1216 and 1895 (collectively, "UAW") and are covered under the terms
and conditions of the Ford-UAW Collective Bargaining Agreement dated as of
September 30, 1999 between Ford and the UAW and various local agreements by and
between Ford and UAW ("Ford-UAW CBA"). For purposes of this Agreement, the Ford
Hourly Employees do not include the hourly employees of subsidiaries or
affiliates of Ford which are included in the Business.
C. Pursuant to a Master Transfer Agreement dated as of even date
herewith by and among Visteon and Ford ("Master Transfer Agreement"), Visteon
will acquire the assets and assume the liabilities of the Business from Ford;
D. Visteon desires to continue to utilize the services of the Ford
Hourly Employees for its Business; and
E. Ford desires to assign its Ford Hourly Employees to Visteon for the
purpose of enabling Visteon to conduct the Business in accordance with the terms
set forth below.
NOW, THEREFORE, in consideration of the premises and mutual
promises herein made, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the Parties agree as follows:
<PAGE>
1. Term. The term of this Agreement shall commence on a date to be
agreed by Ford and Visteon, but no later than the date that Ford will distribute
to the holders of its common stock and Class B stock, by means of an exchange
offer and/or a prorata distribution, all of the shares of Visteon common stock
owned by Ford, such date being referred to hereafter as the Effective Date, and
shall terminate at the earlier to occur of (a) the termination of employment of
all of the Ford Assigned Employees, as defined in Paragraph 2 below, or (b) the
agreement of the Parties to terminate. The term shall be known as the "Assigned
Period." Nothing herein contained shall be construed to imply that Visteon's
obligations to hourly employees represented by the UAW and hired by Visteon
after the Effective Date ("Visteon Hourly Employees") extend beyond the Mirror
Period, as defined in Paragraph 13.
2. Purchased Services. During the Assigned Period, Ford shall supply
Visteon with those Ford Assigned Employees who are assigned to the Business as
of the Effective Date, including any inactive employees (the "Initial Ford
Assigned Employees"). On the Effective Date, Ford shall provide to Visteon a
preliminary list of the Initial Ford Assigned Employees as of the Effective
Date, together with their base hourly wage rate, Ford service date, job
classification, location code, social security number, and the reason for any
absence of an inactive employee and the date any leave expires. Ford shall
finalize the list of Initial Ford Assigned Employees as of the Effective Date no
later than thirty (30) days after the Effective Date, subject to Visteon review.
Ford shall update such list at least monthly for employee quits, retirements,
transfers from Ford facilities to Visteon's facilities, transfers from Visteon's
facilities to Ford facilities or transfers between hourly and salaried status at
Visteon, in connection with the invoice procedure specified in Section 8. The
Initial Ford Assigned Employees and any replacement employees under the process
described above, shall be known for purposes of this Agreement as the "Ford
Assigned Employees." Ford Assigned Employees and all other hourly employees
employed by Ford and covered by the Ford-UAW CBA shall retain their transfer
rights under the Ford-UAW CBA including rights to placement in Visteon or Ford
facilities.
3. Employer Definition. During the Assigned Period, Ford shall retain
responsibility for all payments and benefits due to the Ford Assigned Employees
in connection with the work relating to the Business, including but not limited
to
(i) the payment of Ford Assigned Employees' base hourly wage or other
components of pay as required under the Ford-UAW CBA now in
existence or as modified hereafter (less any applicable
withholding or other taxes or any amounts deducted from such
wages pursuant to normal payroll practices of Ford);
(ii) the provision of all other employee benefits generally provided
by Ford to other hourly employees of Ford covered by the Ford-UAW
CBA;
2
<PAGE>
(iii) payment of all federal, state, or local taxes withheld or
otherwise required to be paid with respect thereto; and
(iv) the liability for statutory benefits, including workers'
compensation, payable to employees.
4. Management of Employees. While Ford will retain legal responsibility
for administering the terms of the Ford-UAW CBA with respect to the Ford
Assigned Employees, Visteon, as Ford's agent, will have full and complete
authority to exercise day to day supervision over the Ford Assigned Employees,
including assigning work and evaluating, supervising, disciplining and
discharging such employees in accordance with the terms of the Ford-UAW CBA. If
any of those decisions are challenged by a Ford Assigned Employee through a
grievance procedure, in judicial proceedings, or in any other forum, Visteon
will have the sole responsibility for determining how those challenges should be
handled and resolved (including but not limited to the sole authority for making
a decision whether to settle or defend the challenged matter), provided,
however, that Visteon shall comply with any decision rendered by an umpire,
arbitrator, officer of a state administrative agency or judge of any court of
competent jurisdiction with respect to such matter, subject to Visteon's right
of appeal. Notwithstanding the provision set forth above, Visteon will advise
Ford of any major issues that arise under the Ford-UAW CBA, or other major
employment related matters affecting or potentially affecting UAW hourly
represented Ford employees, or matters that could materially impact the Ford-UAW
relationship. If Visteon advises Ford of any such issue or matter, or if such
issue or matter otherwise comes to the attention of Ford and Ford in its sole
judgment considers the issue or matter to fit the criteria above, Ford will
notify Visteon that Ford desires to participate in the resolution of such issue
or matter. As soon as practical after such notice is given, Visteon and Ford
will meet to discuss the issue or matter through the Joint Advisory Board
described in Section 17 and determine the appropriate course of action for
handling or resolving the issue or matter. If a common approach cannot be agreed
and Ford decides to pursue its own resolution of the issue or matter, then Ford
shall relieve Visteon of its role as agent of Ford with respect to such issue or
matter and Ford shall pursue the issue or matter in Ford's sole discretion.
Visteon shall provide Ford on a weekly basis a summary of the hours of service
rendered by each of the Ford Assigned Employees during the preceding week. In
addition, Visteon shall provide Ford with such information or documents as Ford
may reasonably request with respect to Ford Assigned Employees. Visteon will
share any such information with Ford (other than non-job related personal care
received by the Ford Assigned Employees unless related to a legitimate business
interest of Ford) regardless of any claim of privilege or confidentiality
because Ford is an employer of the Ford Assigned Employees.
5. Payroll and Related Services. During the Assigned Period, Ford shall
provide payroll processing services for the Ford Assigned Employees including,
but not limited to, the following: weekly payroll, quarterly and annual payroll
tax deductions and filings, including deductions and payments for income and
Social Security tax requirements under local, state and federal laws; personnel
record maintenance,
3
<PAGE>
authorized income withholding orders, insurance or other withholdings; employee
verification; retirement plan processing and annual W-2 forms; and reporting of
hours by Visteon location for Visteon to administer the Visteon local training
funds.
6. Employee Benefit Plans.
6.1 Identification of Plans. During the Assigned Period, Ford shall
cover the Ford Assigned Employees under the same employee benefit and
fringe benefit plans and arrangements generally offered to other hourly
represented UAW employees of Ford, at the same time, and the Ford
Assigned Employees shall be ineligible to participate in any employee
benefit plan or fringe benefit program sponsored by Visteon. Ford
reserves the right to modify, terminate or suspend any plan applicable
to any Ford Assigned Employee, subject to the Ford-UAW CBA.
6.2 Administration of Plans. During the Assigned Period, Ford or its
designee shall maintain, administer and manage all employee benefit and
fringe benefit plans and arrangements offered to the Ford Assigned
Employees.
7. Fees. Unless otherwise specifically provided herein, Ford shall be
reimbursed monthly for the direct wage and benefit costs for the Ford Assigned
Employees, except with respect to reimbursement for item (iii) below with
respect to Retiree Health Care and Retiree Life Insurance, in which case any
such reimbursement shall be made directly to the applicable benefit plan. For
purposes of this Section 7, "direct wage and benefit costs" for which
reimbursement is required shall include:
(i) The weekly gross wage, and any other type of compensation, such
as Christmas bonus, moving allowance, and any other cash
compensation not included in the Standard Monthly Group Fringe
cost referred to in (ii) below, except with respect to profit
share, see item (viii) below, payable by Ford to each Ford
Assigned Employee for work performed during the Assigned Period;
(ii) A per-employee Standard Monthly Group Fringe cost as published
from time to time by Ford in the PF-4 (U.S. Labor Assumptions)
less the accrual rates for Retirement Plans-Pensions, Retiree
Health Care, and Retiree Life Insurance;
(iii) An annual payment for Retirement Plans-Pensions, Retiree Health
Care and Retiree Life Insurance related to the Ford Assigned
Employees, according to the methodology set forth in Attachment A
hereto;
(iv) Expenses incurred by Ford with respect to each Ford Assigned
Employee that are not included in (i) through (iii) above and
arises as a result of such employee's work for the Business, such
as reserves for any workers' compensation claims arising out of
any work accident while
4
<PAGE>
the Ford Assigned Employee was performing work for the Business,
regardless of when the claim occurred and disability claims with
respect to each Ford Assigned Employee to the extent such claims
are not covered by insurance. Visteon will assume responsibility
as Ford's agent, for accruing and administering the local
training funds pursuant to the Ford-UAW CBA. In the event Ford
incurs expense for local training funds relating to the Business,
Visteon shall reimburse Ford for such expense;
(v) Reasonable and necessary travel and business related expenses
related to Ford Assigned Employees incurred by Ford on behalf of
the Business and paid or reimbursed to such employee by Ford as
authorized by Ford's standard travel and business expense
reimbursement policy;
(vi) All assessments, premiums or other taxes incurred and paid by
Ford with respect to the Ford Assigned Employees not otherwise
paid under section (i) through (v) above, including the annual
Michigan Single Business Tax cost to Ford resulting from the
assignment of the Ford Assigned Employees to Visteon under this
Agreement;
(vii) Direct out-of-pocket incremental costs incurred by Ford in the
establishment and administration of benefit programs applicable
to Ford Assigned Employees including, but not limited to, legal
fees, record keeping, actuarial, and accounting fees not
otherwise payable from the Ford-UAW Retirement Plan trust or the
Tax Efficient Savings Plan for Hourly Employees; and
(viii) Annual profit share payable by Ford to each Ford Assigned
Employee, provided, however, that for each of calendar years 2000
through 2004, any aggregate profit share reimbursement shall be
limited to the lesser of (A) $50 million, or (B) the aggregate
actual profit share payable for such year with respect to the
Ford Assigned Employees.
8. Payment. Within fifteen (15) days after the end of each calendar
month during the Assigned Period, Ford shall render an invoice to Visteon in
such form and containing such detail as Visteon shall reasonably require, for
direct wage and benefit costs which Ford has incurred with respect to the Ford
Assigned Employees consistent with the Ford-UAW CBA and which were not
previously invoiced. In rendering such reports, Ford will not be required to
undertake any modifications to its information systems in order to render the
detail requested by Visteon. Unless some other form of payment is agreed between
Visteon and Ford, Visteon shall pay Ford this amount within ten (10) business
days of receipt of the invoice by wire transfer into a Ford designated account.
Visteon shall have a right to audit the invoices and related records of Ford
upon reasonable notice during normal business hours, at a place mutually agreed
by the Parties. To the extent the Parties agree the payment should be adjusted
5
<PAGE>
as a result of such audit, any overpayments will be applied to the next
payment(s) due from Visteon and any underpayments will be added to the next
invoice issued by Ford.
9. Workers' Compensation and Unemployment Insurance. Ford shall
continue to provide Workers' Compensation and Unemployment Compensation coverage
for the Ford Assigned Employees at all times during the term of this Agreement.
10. Work Environment.
10.1 Compliance With All Health and Safety Laws. Visteon shall maintain
its facilities at its sole cost and expense so as to provide a work environment
in conformance with legal requirements.
10.2 Compliance with Employment Laws. The Parties shall comply with all
applicable national, federal, state and local employment laws, including, but
not limited to, wage and hour, overtime, discrimination laws, and/or local
employment ordinances.
11. Noninterference. In the event that Visteon desires to hire a Ford
Assigned Employee to become a Visteon Hourly Employee or a Visteon salaried
employee, Ford shall not interfere or restrict such employee from accepting any
Visteon offer of employment.
12. Assumption of Liability. As of the Effective Date, Visteon will
assume liability and responsibility for all pending employment claims with
respect to the Ford Assigned Employees that relate to the Business, provided,
however, that Visteon shall not assume any obligation or liability of Ford with
respect to the following litigation: Michael Jones et al v. Ford Motor Company
filed on June 9, 1993 in U.S. District Court, District of Minnesota, regarding
discrimination allegations. With respect to those claims assumed, Visteon will
have sole responsibility for deciding how to defend the claims (e.g. whether to
settle or litigate).
13. Visteon Role in Ford-UAW Bargaining. Pursuant to the terms of a
Plant Closing and Sale Moratorium letter dated October 9, 1999 by and between
Ford and the UAW, the parties agreed that Ford would be permitted to spin-off,
sell or otherwise transfer the Business pursuant to certain conditions including
that (i) Visteon would agree to adopt a collective bargaining agreement for the
Visteon Hourly Employees that would mirror the Ford-UAW CBA for the 1999-2003
contract period and for the next two contract periods ("Restricted Period") and
(ii) in accordance with the Visteon-UAW CBA, Visteon Hourly Employees hired
during the Restricted Period are to be provided with wages, benefits and other
terms and conditions of employment by Visteon which are a mirror of the
successive Ford-UAW CBA's for the duration of their employment with and
retirement from Visteon ("Continuation Period") (the Restricted Period and the
Continuation Period to be known collectively as the "Mirror Period"). For a
period at least equal to the Mirror Period, Ford will include Visteon in
negotiations planning and
6
<PAGE>
strategy development and will consult in good faith with Visteon concerning the
terms of any CBA applicable to Ford Assigned Employees before entering into such
CBA. Nothing in this Agreement shall be construed to preclude Visteon and the
UAW or any other union from negotiating different terms and conditions of
employment for the Visteon Hourly Employees which are mutually satisfactory to
those parties.
14. Future Changes. Under the Ford-UAW CBA, the local parties may agree
to local continuous improvement initiatives to improve operational
effectiveness. Ford will support Visteon's efforts to secure appropriate changes
in work rules and practices, or other local continuous improvement initiatives,
to improve operational effectiveness. Nothing herein contained in this Agreement
shall be construed as to interfere with Visteon's rights as an employer to
pursue its own aims in the collective bargaining process with the UAW with
respect to Visteon Hourly Employees. If Visteon and the UAW agree that Ford
Assigned Employees should become Visteon Hourly Employees subject to the terms
of the Visteon-UAW CBA, Ford shall cooperate in transferring the employment of
the Ford Assigned Employees to Visteon, provided however, that Ford incurs no
additional cost with respect thereto.
15. Management of Worker's Compensation Claims. The Parties recognize
that because Ford will remain an employer of the Ford Assigned Employees,
Visteon may have limitations on its ability to control and manage worker's
compensation claims relating to the Ford Assigned Employees. Ford and Visteon
will work together to develop and implement a strategy and process for
minimizing and reducing those claims.
16. Business Costs Related to Insufficient Business and/or Business
Restructuring. The Parties recognize that significant business costs relating to
the Ford Assigned Employees will be incurred in the event that Visteon does not
have sufficient work to perform during the term of this Agreement ("Insufficient
Business"). The Parties further recognize that Visteon will seek ways to
restructure and streamline its business to improve competitiveness which may
also result in significant business costs relating to the Ford Assigned
Employees ("Business Restructuring"). Ford and Visteon agree to jointly work
together in good faith through the Joint Advisory Board to attempt to minimize
the business costs to Visteon and Ford in the event of Insufficient Business or
Business Restructuring. Ford shall consider in good faith proposals by Visteon
to minimize the cost impact, for example, considering placements of the Ford
Assigned Employees in Ford hourly open positions without a cost penalty to Ford
or accelerating the termination of this Agreement. To the extent that such a
proposal requires agreement by the UAW, Ford and Visteon shall use their
respective best efforts with the UAW to secure such approval. Nothing herein
contained however shall be construed as a Ford commitment to assume liability
for all or any part of such labor costs, or to take any specific action with
respect to any proposal.
7
<PAGE>
17. Joint Advisory Board. The Parties recognize that it is in their
mutual interest to establish and maintain cooperative working relationships with
each other not only from the point of view of ongoing reliability of competitive
supply, but also because of the continuing relationship of both Parties with
their employees, particularly those represented by the UAW. It is also
recognized that there will be instances in the future where each Party's labor
policy and negotiations strategy and practice may vary from each other's.
Similarly, the Parties recognize that as Visteon attempts to streamline its
operations, and adjust its workforce, there may be a need to cooperatively deal
with the effect of these efforts on the performance of each Party.
In order to achieve these objectives, the Parties agree to establish a
Joint Advisory Board for the purpose of assuring cooperative relationships
between the Parties and to be used as the forum to discuss significant issues
that may arise between the Parties as a result of their business relationships
that cannot otherwise be resolved through normal processes. The Advisory Board
will meet regularly and will consist of senior representatives of the labor
relations, purchasing, technology and general business functions of Ford and
Visteon. The Advisory Board will seek mutually beneficial solutions to resolve
significant issues that arise between the Parties in a fair and cooperative
manner and in the interest of securing a positive business relationship.
18. Indemnity.
18.1 Visteon Indemnity. Visteon shall indemnify Ford against and agrees
to hold it harmless from any and all damage, loss, claim, liability and
expense (including without limitation, reasonable attorneys' fees and
expense in connection with any action, suit or proceeding brought
against Ford) incurred or suffered by Ford arising out of (i) breach of
any agreement made by Visteon hereunder; (ii) any claim by Ford
Assigned Employees (or their dependents or beneficiaries) arising out
of or in connection with the operation, administration, funding or
termination of any of Visteon's employee benefit plans or programs,
whenever made, including, without limitation, claims made to the
Pension Benefit Guaranty Corporation ("PBGC"), the Department of Labor
("DOL"), or the Internal Revenue Service ("IRS"); or (iii) employment
claims of Ford Assigned Employees whenever made based on conditions or
actions arising prior to or during the Assigned Period, except as
provided in Section 18.2 (iii) below.
18.2 Ford Indemnity. Ford shall indemnify Visteon against and agrees to
hold it harmless from any and all damage, loss, claim, liability and
expense (including without limitation, reasonable attorneys' fees and
expenses in connection with any action, suit or proceeding brought
against Visteon) incurred or suffered by Visteon arising out of (i)
breach of any agreement made by Ford hereunder; (ii) any claim by Ford
Assigned Employees (or their dependents or beneficiaries) arising out
of or in connection with the operation, administration, funding or
termination of any of the employee benefit plans or programs applicable
to the Ford Assigned Employees, whenever made, including without
limitation, claims made to the PBGC, the DOL, or the IRS; or (iii)
employment claims of the Ford
8
<PAGE>
Assigned Employees that arise before or during the Assigned Period
where the liability, if any, is primarily the result of and arising
from conduct of a Ford supervisor or manager not employed by the
Business (as opposed to the actions or inaction of Visteon).
18.3 Procedure for Indemnity. The procedure for indemnification under
this Section 17 shall be as set forth in Section 7(c) through (j) of
the Master Transfer Agreement and shall be incorporated herein by
reference.
19. Dispute Resolution. If a dispute arises between the Parties
relating to this Agreement, the following procedure shall be implemented except
that either Party may seek injunctive relief from a court where appropriate in
order to maintain the status quo while this procedure is being followed:
19.1 Initial Meeting. The Parties shall hold a meeting promptly,
attended by persons with decision-making authority regarding the
dispute, to attempt in good faith to negotiate a resolution of the
dispute; provided, however, that no such meeting shall be deemed to
vitiate or reduce the obligations and liabilities of the Parties or be
deemed a waiver by a party hereto of any remedies to which such Party
would otherwise be entitled.
19.2 Mediation. If, within thirty (30) days after such meeting, the
Parties have not succeeded in negotiating a resolution of the dispute,
they agree to submit the dispute to mediation in accordance with the
then-current Model Procedure for Mediation of Business Disputes of the
Center for Public Resources and to bear equally the costs of the
mediation. The Parties will jointly appoint a mutually acceptable
mediator, seeking assistance in such regard from the Center for Public
Resources if they have been unable to agree upon such appointment
within twenty (20) days from the conclusion of the negotiation period.
19.3 Arbitration. The Parties agree to participate in good faith in
the mediation and negotiations related thereto for a period of thirty
(30) days. If the Parties are not successful in resolving the dispute
through the mediation, then the Parties agree to submit the matter to
binding arbitration in accordance with the Center for Public Resources
Rules for Non-Administered Arbitration, by a sole arbitrator.
19.4 Procedure. Mediation or arbitration shall take place in the City
of Dearborn, Michigan. Equitable remedies shall be available in any
arbitration. Punitive or exemplary damages shall not be awarded. This
clause is subject to the Federal Arbitration Act, 9 U.S.C.A. Section 1
et seq., or comparable legislation in non-U.S. jurisdictions, and
judgment upon the award rendered by the arbitrator, if any, may be
entered by any court having jurisdiction thereof.
9
<PAGE>
20. Miscellaneous.
20.1 Assignment. This Agreement has been executed in consideration of
the Parties involved and therefore may not be assigned or transferred
to a third party without the prior written consent of the other Party.
This Agreement will be binding on the agreed successors to or assignees
of either Party. In no event will a Party be released from their
indemnity obligations without the prior written consent of the other
Party.
20.2 Entire Agreement, Amendment, Waiver. This Agreement embodies the
entire agreement of the Parties and supersedes any other agreements or
understandings between them, whether oral or written, relating to this
subject matter. In the event of a conflict between this Agreement and
any other agreement between or among any of the Parties with respect to
the subject matter hereof, this Agreement shall control. No amendment
or modification or waiver of a breach of any term or condition of this
Agreement shall be valid unless in a writing signed by each of the
Parties. The failure of either Party to enforce, or the delay by either
of them in enforcing, any of its respective rights under this Agreement
will not be deemed a continuing waiver or a modification of any rights
hereunder and either Party may, within the time provided by applicable
law and consistent with the provisions of this Agreement, commence
appropriate legal proceedings to enforce any or all of its rights.
20.3 Notices. Any notice or other communication hereunder must be
given in writing and either (a) delivered in person, (b) transmitted
by facsimile transmission or other telecommunications mechanism, (c)
sent by a nationally recognized overnight courier service (delivery
charges prepaid) or (d) sent by registered or certified mail (postage
prepaid, return receipt requested) as follows:
If to Ford:
Ford Motor Company
Henry Ford II World Center
The American Road
Dearborn, Michigan 48121-1899
Attention: Secretary
Fax: (313) 248-7036
10
<PAGE>
If to Visteon:
Visteon Corporation
Auto Club Drive
Dearborn, Michigan 48121-1899
Attention: General Counsel
Fax: (313) 390-2718
All notices personally delivered shall be deemed received on the date
of delivery. Any notice sent via facsimile transmission shall be deemed
received on date shown on the confirmation advice. Any notice by
registered or certified mail shall be deemed to have been given on the
date of receipt or refusal thereof. The date of any notice by overnight
courier service shall be the date the airbill is signed by the
recipient. Any Party may change its address for the receipt of notices
by giving Notice thereof to the other.
20.4 Partial Invalidity. Any provision of this Agreement which is
found to be invalid or unenforceable by any court in any jurisdiction
will, as to that jurisdiction, be ineffective to the extent of such
invalidity or unenforceability, and the invalidity or unenforceability
of such provision will not affect the validity or enforceability of
the remaining provisions hereof.
20.5 Title and Headings. Titles and headings of Sections and
Subsections of this Agreement are for convenience only and will not
affect the construction of any provision of this Agreement.
20.6 Negotiated Terms. The Parties agree that the terms and conditions
of this Agreement are the result of negotiations between the Parties
and that this Agreement will not be construed in favor of or against
any Party by reason of the extent to which any Party or its
professional advisors participated in the preparation of this
Agreement.
20.7 Counterparts. This Agreement may be executed in counterparts,
each of which will be deemed an original, but all of which taken
together will constitute one and the same instrument.
20.8 Governing Laws. This Agreement is governed by the internal laws
of the State of Michigan.
20.9 Third Party Beneficiaries. This Agreement is for the sole benefit
of the Parties hereto and no third party may claim any right, or
enforce any obligation of the Parties, hereunder.
20.10 Relationship. Nothing contained in this Agreement will be
construed to make any of the Parties partners, principals, agents or
employees of the other,
11
<PAGE>
except as explicitly provided. None of the Parties will have any
right, power or authority, express or implied, to bind any of the
other Parties. Nothing contained in this Agreement shall be construed
to imply multiemployer bargaining with respect to the labor affairs of
the other Party.
20.11 Good Faith and Fair Dealing. In entering into this Agreement,
the Parties each acknowledge and agree that all aspects of the
relationship among the Parties contemplated by this Agreement,
including the performance of all obligations under this Agreement,
will be governed by the fundamental principle of good faith and fair
dealing.
20.12 Consents, Approvals and Requests. Except as specifically set
forth in this Agreement, all consents and approvals to be given by any
of the Parties under this Agreement will not be unreasonably withheld
or delayed.
20.13 Further Assurances. The Parties will execute such further
assurances and other documents and instruments and do such further and
other things as may be necessary to implement and carry out the intent
of this Agreement.
20.14 Excusable Delays. Neither Party will be liable for a failure to
perform any obligation under this Agreement that arises from causes or
events beyond its reasonable control and without its fault or
negligence, including labor disputes. The Party claiming the excusable
delay shall give notice in writing as soon as possible to the other
Party after the occurrence of the cause relied on and after termination
of the condition.
IN WITNESS WHEREOF, the Parties hereto have duly executed this
Agreement as __________, 2000.
FORD MOTOR COMPANY VISTEON CORPORATION
By: By:
-------------------------------- ------------------------------
Title: Title:
----------------------------- ---------------------------
12
<PAGE>
Attachment A
Pension, Retiree Health Care and Retiree Life Insurance Expense
For purposes of Section 7(iii) of the Hourly Employee Assignment Agreement, (the
"Agreement') the expense for Retirement Plans-Pension, Retiree Health Care and
Retiree Life Insurance for the Ford Assigned Employees shall be determined in
accordance with the methodology described in this Attachment A.
1. Retirement Plans-Pension. Visteon shall be responsible for
reimbursing Ford with cash for the Statement of Financial Accounting
Standards No. 87 ("SFAS No. 87") annual future pension accruals with
respect to the Ford Assigned Employees, determined as provided below.
1.1 Visteon Pension Account Established. Solely for purposes of
determining the correct reimbursement, and not for purposes of
establishing a separate trust or pension plan with respect to the Ford
Assigned Employees, a notional Visteon-UAW Pension Asset Account
("Visteon Pension Account") will be established, as if the Ford-UAW
Pension Plan in which the Ford Assigned Employees participate had been
segregated into a separate trust which continued to participate in the
Ford Master Trust. The Visteon Pension Account shall be established as
of the first of the month coincident with or prior to the date of the
distribution of Visteon stock to Ford shareholders ("Start Date"). The
opening balance of the Visteon Pension Account will be established by
crediting such account with assets equal in amount to the projected
benefit obligation as defined in SFAS No. 87 ("PBO") of the active
Ford Assigned Employees as of the Start Date ("Hourly PBO"). The
Hourly PBO shall be determined by an independent actuary appointed by
Ford ("Ford Actuary") using:
(i) the actuarial assumptions and methods used in the most
recent SFAS 87 actuarial valuation developed for accounting
purposes under the Ford-UAW Retirement Plan prepared by the
Ford Actuary; and
(ii) a discount rate as of the Start Date determined by Ford
using its normal methods for developing a SFAS 87 discount
rate but based on market interest rates as of the Start
Date.
An independent actuary appointed by Visteon ("Visteon Actuary") shall
have the opportunity to verify the calculation of the Hourly PBO.
1.2 Visteon Pension Account Activity. After the opening balance of
the Visteon Pension Account is determined in accordance with Section
1.1 above, it shall be managed as follows:
<PAGE>
It shall be credited with
(i) any cash contribution paid by Visteon to Ford under
this Section One; and
(ii) the Ford U.S. Pension Master Trust actual rate of
investment return.
It shall be debited with
(iii) the amount of retirement benefits payable to the Ford
Assigned Employees who retire after the Start Date; and
(iv) an allocable share of Ford-UAW Plan expenses based on
the ratio of PBO of the Ford Assigned Employees to the
total PBO of the Ford UAW Retirement Plan, unless Ford
and Visteon agree to another method.
If for administrative reasons, the exact amount of retirement
benefits payable to the Ford Assigned Employees cannot be
determined precisely, then Ford shall be able to substitute a
fair approximation of the retirement benefits paid. The Visteon
Actuary shall have the opportunity to verify the calculation.
1.3 Determination of Annual Cash Pension Reimbursement. The cash
payable by Visteon to Ford for any given year shall be equal to the
sum of (A), (B) and (C) where :
(A) is the SFAS 87 pension expense for that year (or, at the
outset, a part year) based on:
(i) as of each annual actuarial valuation date, the
liabilities of the Ford Assigned Employees;
(ii) the Ford-UAW Retirement Plan assumptions used in the
Ford Actuary`s SFAS 87 valuation of the Ford-UAW
Retirement Plan for the applicable year; and
(iii) the value of the Visteon Pension Account
(B) is the administration expenses as defined in Section 1.2
(iv) of this Attachment; and
2
<PAGE>
(C) SFAS 88 pension expense for Ford Assigned Employees related
to any termination incentive programs occurring in the year.
2. Retiree Health Care and Retiree Life Insurance. Visteon shall pay
the cost of providing post-retirement health and life benefits for Ford Assigned
Employees under the Ford-UAW Hospital-Surgical-Medical-Drug-Dental-Vision
Program and the Ford-UAW Group Life and Disability Insurance Plan (the "Plans")
("OPEB") beginning as of the Start Date as provided below.
2.1 Determination of Annual Cash OPEB Reimbursement. For the portion
of 2000 that follows the Start Date and for each calendar year
thereafter until the OPEB liability for the Ford Assigned Employees is
extinguished, the Annual Cash OPEB Reimbursement to the Plans for any
given year shall be an amount equal to the sum of (A) and (B) where
(A) is the estimated amount of OPEB claims paid during the
period to the Ford Assigned Employees who retire after the
Start Date, together with their spouses or dependents,
determined on the basis of average per contract claims costs
for Ford-UAW retirees; and
(B) is an allocable share of administration expenses based on
the ratio of OPEB liability for Ford Assigned Employees to
total Ford-UAW OPEB liability, unless Ford and Visteon agree
to another method.
The Annual Cash OPEB Reimbursement shall be determined by the Ford
Actuary; the Visteon Actuary will have the opportunity to verify the
calculation.
2.2 Pre-Funding of SFAS 106 Liability. Visteon will establish and
maintain a Voluntary Employees' Beneficiary Association ("VEBA") trust
whose purpose is to reimburse the Plans in respect of the claims and
administration costs described in Section 2.1 above. Visteon agrees
that it will make a series of cash payments to the VEBA so that by
December 31, 2020 the assets in the VEBA will equal Visteon's balance
sheet liability at the same date for OPEB benefits in respect of Ford
Assigned Employees The cash payment to the VEBA shall commence no later
than January 1, 2006 and shall be payable in advance in twelve equal
monthly installments. The amount of cash paid to the VEBA in each year
commencing no later than January 1, 2006 shall be an amount equal to
the sum of (A), (B) and (C ) where
(A) is the Visteon SFAS 106 expense for that year as computed by
the Ford Actuary (and verified by the Visteon Actuary) and
based on assumptions used by Ford for its Ford-UAW
employees;
(B) is an allocable share of expenses as described in Section
2.1(B) above; and
3
<PAGE>
(C) is the amount of Visteon's OPEB balance sheet liability in
respect of Ford Assigned Employees at the beginning of each
calendar year divided by the number of years remaining to
December 31, 2020.
Notwithstanding the above, Visteon may accelerate payments to the VEBA
in its discretion. In the event the tax law would not permit Visteon a current
deduction for the level of funding described above, Visteon may make only such
contributions to the VEBA that would be tax deductible, provided, however that
the balance of the funding obligation which exceeds the permitted deduction is
otherwise deposited into a separate trust. Visteon and Ford shall cooperate with
each other to design, and Visteon agrees it will take necessary action to
implement, an appropriate method approved by the Parties' respective auditors
that would have the effect of eliminating the Ford's FAS 106 OPEB balance sheet
liability for the Ford Assigned Employees beginning on the Start Date. In the
event that the tax benefits contemplated by the Parties as being available to
Visteon with respect to prefunding of OPEB liabilities are not or cease to be
available, Visteon and Ford agree to renegotiate the structure provided the new
structure does not increase Ford's costs or jeopardize Ford's security. If Ford
and Visteon cannot agree on a replacement structure, or if Visteon fails to
suggest a replacement structure, then Visteon will pay to Ford directly the
payments it otherwise would have paid to the VEBA. Ford shall credit interest on
such amount at the pretax rate of return on Ford's cash portfolio.
3. Recordkeeping. In connection with administering Section One and Two
above, Ford may decide to retain a third party service to maintain the notional
Visteon Pension Account and to determine the correct amount of Visteon
reimbursements according to the methodology set forth in this Attachment A. If
Ford decides to retain a third party service, Ford shall consult with Visteon
prior to appointing a third party service, but Ford shall retain the right to
appoint a third party service in its sole discretion. Ford shall pay the expense
of such third party service and Visteon shall reimburse Ford for such expense.
4. Continuation of Arrangements. The terms set forth in this Attachment
A shall be in force until the last survivors and dependents of Ford Assigned
Employees in service as of the Start Date who are eligible for Ford-UAW
retirement or OPEB benefits are deceased, or upon earlier termination agreed
jointly by Ford and Visteon, including any VEBA or other arrangements or methods
agreed in Section 2.2 (unless the Parties' respective auditors advise that joint
agreement to terminate would jeopardize the expected accounting treatment of
such arrangements or methods). As soon as practical following the death of the
last survivor and covered dependents of the Ford Assigned Employees who are
eligible for Ford-UAW retirement benefits, Ford shall pay to Visteon either cash
or provide equivalent monetary value, in an amount equal to the balance (if any)
remaining in the Visteon Pension Account.
4
<PAGE>
5. Ability to Substitute. The Parties may agree to substitute an
alternative method of computing reimbursement under this Attachment. The method
substituted shall have as its objective to produce a fair estimate of the
pension and OPEB expense and other reimbursement charges set forth in this
Attachment, and should preserve for each Party, to the extent possible, the
economic benefits bargained under this Attachment. Without limiting the rights
of Ford and Visteon as provided above, the Parties agree to jointly evaluate and
equitably refine the reimbursement mechanism described in this Attachment as
applied to periods following the earlier to occur of (A) termination of the
Agreement, and (B) the date, if any, on which all or a significant portion of
the Ford Assigned Employees become Visteon Hourly Employees.
6. Definitions. Unless otherwise specifically defined herein, the
capitalized terms herein shall have the same meanings as set forth in the
Agreement.
7. Actuarial Verification. If the Visteon Actuary and the Ford Actuary
are unable to agree on a verification, they shall jointly designate a third
independent actuary whose verification shall be final and binding. Ford and
Visteon shall each pay one-half of the cost of such third actuary.
8. Employee Transfers. In the event that an employee ceases to be a
Ford Assigned Employee, but remains an employee of Ford, then Visteon shall not
be responsible for the cost of pension, retiree health or retiree life benefits
for such employee. Ford will assume the obligation and Visteon will reimburse
Ford as follows:
(A) Pensions: The balance in the Visteon Pension Account will be
reduced by the amount of the SFAS 87 PBO transferred to Ford;
(B) Retiree health and life benefits: Visteon will pay Ford an amount
equal to the SFAS 106 APBO transferred to Ford.
All adjustments should be handled on a quarterly basis based on SFAS 87 and SFAS
106 assumptions appropriate for that quarter.
Visteon shall retain appropriate records in order to identify these transfers.
In the event that a Ford employee becomes a Ford Assigned Employee, then Visteon
shall assume the obligation for pensions, retiree health and retiree life
benefits for such employee, and the financial arrangements shall be the reverse
of those described above.
If the reimbursements for retiree health and life benefits exceeds $10 million
per year, the Party with the obligation shall have the option to pay $10 million
in the first year, and shall pay the balance in succeeding years in annual
installments of at least $5 million until the obligation is satisfied, together
with interest on the obligation at the 90 day Treasury Bill rate as quoted in
the Wall Street Journal for the relevant period.
5
EXHIBIT 10.7
EMPLOYEE TRANSITION AGREEMENT
This Employee Transition Agreement relating to certain employment
matters and employee benefit plans (this "Agreement") dated as of April 1, 2000
is made and entered into by and among Ford Motor Company, a Delaware
corporation ("Ford") and Visteon Corporation, a Delaware corporation and a
wholly owned subsidiary of Ford, ("Visteon"). Ford and Visteon are referred to
herein individually as a "Party" and collectively as the "Parties".
Recitals
1. Ford has determined that it would be appropriate and beneficial to separate
the activities now being conducted under the name of "Visteon Automotive
Systems, an enterprise of Ford Motor Company," including those activities
conducted by any entity in which Ford, directly or indirectly, owns or
controls 50% or more of its stock or other equity interests (a
"Subsidiary") and by any entity in which Ford, directly or indirectly,
owns or controls less than 50% but more than 20% of its stock or other
equity interests (an "Affiliate") which is aligned with such enterprise,
which presently includes the Chassis Systems, Climate Control Systems,
Interior and Exterior Systems, Energy Transformation Systems, Glass
Division, and the Visteon Technology Office (collectively, with historic
operations, including the former Automotive Products Operations,
Automotive Components Division, Electronics, Plastics and Trim, Climate
Control, Chassis, Electrical and Fuel Handling, and Glass Divisions, the
"Business");
2. Ford has concluded that the separation of the Business from its automaking
business would (i) alleviate competitive barriers to expanding the
Business beyond sales to Ford, Ford Subsidiaries and Ford Affiliates, (ii)
allow Ford to overcome competitive barriers to making purchases from
third-party automotive suppliers, and (iii) enhance the Business' ability
to attract employees and permit the Business to offer employee incentives
more directly tied to the performance of the Business;
3. Ford has caused Visteon to be formed for the purpose of carrying on and
conducting the Business;
4. Ford and Visteon have entered into various agreements, including a Master
Transfer Agreement dated as of even date herewith, to effect the
separation of the Business; and
5. The parties desire that Ford transfer to Visteon certain employees who are
presently engaged in doing work for the Business and to provide for the
orderly transition of employee benefit plans.
<PAGE>
2
Agreement
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
Article I
Definitions
1.01 "Benefit Transition Date" shall mean the first day of the month coincident
with or preceding the Distribution Date except with respect to the Ford
Flexible Benefits Plan shall mean June 1, 2000.
1.02 "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.03 "Distribution Date" shall mean the date Ford will distribute to Ford
shareholders all of the shares of Visteon common stock then owned by Ford.
1.04 "DOL" shall mean the U.S. Department of Labor.
1.05 "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
1.06 "Ford Business Employees" shall mean
(i) Persons who are enrolled on the Ford salaried payroll (U.S.
or non-U.S) or enrolled on the Ford hourly payroll in non-U.S
jurisdictions and who are actively at work at the Business
the day prior to the Transfer Date including those on paid
time off (i.e. Jury Duty Pay, Bereavement Pay, Short Term
Military Pay, Vacation and Paid Holiday) and those on reduced
or alternate work schedules, but excluding Ford employees who
are on temporary assignment to the Business ("Active Ford
Business Employees"); and
(ii) Persons who are absent from such salaried or hourly
employment as of the day prior to the Transfer Date on
account of short term or long term disability leave or other
approved leaves of absence, or layoff ("Inactive Ford
Business Employees").
1.07 "Ford Retiree" shall mean a former Ford Business Employee, or a surviving
spouse or beneficiary of a former Ford Business Employee, who had terminated
service with Ford or Visteon and is receiving retirement benefits under a Ford
sponsored
<PAGE>
3
retirement plan as of the Benefit Transition Date or who terminated
employment with Ford or Visteon on or before the Benefit Transition Date and is
eligible on the Benefit Transition Date to receive immediate or future
retirement benefits (including deferred vested benefits) under the Ford
sponsored retirement plan.
1.08 "General Retirement Plan" or "GRP" shall mean the General Retirement Plan
of Ford Motor Company and its participating subsidiaries.
1.09 "Global Ford Business Employees" shall mean all employees of Ford or its
Subsidiaries or Affiliates who are engaged in the conduct of the Business prior
to the Transfer Date, including but not limited to
(i) Ford Business Employees; and
(ii) Persons who are enrolled on the payroll of a Subsidiary or
Affiliate of Ford engaged in the Business as of the Transfer
Date, or persons who are no longer active but who had been
employed by a Subsidiary or Affiliate engaged in the Business
at any time prior to the Transfer Date ("Subsidiary
Employees").
1.10 "Global Visteon Employees" shall mean all employees of Visteon or its
subsidiaries or affiliates who are engaged in the conduct of the Business after
the Transfer Date, including but not limited to
(i) Visteon Employees; and
(ii) Subsidiary Employees who as a result of the transfer of
Ford's interest in the Subsidiary or Affiliate to Visteon as
of the Transfer Date, became employed by, or became the
responsibility of, a subsidiary or affiliate of Visteon on
the Transfer Date.
For purposes of this Agreement, Global Visteon Employees shall not include any
employees hired directly by Visteon or its subsidiaries or affiliates after the
Transfer Date.
1.11 "Group I Employee" shall mean a U.S. Visteon Employee who as of the
Benefit Transition Date is eligible for immediate normal or regular early
retirement under the provisions of the GRP as in effect on the Benefit
Transition Date.
1.12 "Group II Employee" shall mean a U.S. Visteon Employee who
(i) is not a Group I Employee;
(ii) has as of the Benefit Transition Date a combination of age and
continuous service that equals or exceeds sixty (60) points (partial
<PAGE>
4
months disregarded); and
(iii) could become eligible for normal or regular early retirement
under the provisions of the GRP as in effect on the Benefit
Transition Date within the period after the Benefit
Transition Date equal to the employee's Ford service as of
the Benefit Transition Date.
1.13 "Group III Employee" shall mean any U.S. Visteon Employee who participates
in the GRP other than a Group I or II Employee.
1.14 "IRS" means the U.S. Internal Revenue Service.
1.15 "OSHA" shall mean the Occupational Safety and Health Act of 1970, as
amended.
1.16 "PBGC" shall mean the Pension Benefit Guaranty Corporation.
1.17 "SFAS No. 87" shall mean the Statement of Financial Accounting Standards
No. 87.
1.18 "SFAS No. 106" shall mean the Statement of Financial Accounting Standards
No. 106.
1.19 "Transfer Date" shall mean the date specified in the Master Transfer
Agreement with respect to each entity or interest to be transferred pursuant
thereto.
1.20 "Visteon Balance Sheet" shall mean the balance sheet for Visteon
Automotive Systems as of March 31, 2000, as prepared by Ford.
1.21 "Visteon Employees" shall mean
(i) Active Ford Business Employees who are transferred to Visteon
pursuant to the terms hereof and who are at work on the Transfer
Date including those on paid time off (i.e., Jury Duty Pay,
Bereavement Pay, Short Term Military Pay, Vacation Pay and Paid
Holiday) and those on reduced or alternate work schedules; and
(ii) Inactive Ford Business Employees or Ford Retirees on a disability
retirement who are transferred to Visteon pursuant to the terms
hereof on the Reinstatement Date or Disability Retiree
Reinstatement Date.
For purposes of this Agreement, Visteon Employees shall not include
any employees hired directly by Visteon after the Transfer Date, except for
those specified in (ii) above.
<PAGE>
5
1.22 "Visteon Retiree" shall mean a former Ford Business Employee, or a
surviving spouse or beneficiary of a former Ford Business Employee, who became
a Visteon Employee and who terminated service with Visteon after the Benefit
Transition Date and is receiving retirement benefits under a Ford sponsored
retirement plan and a Visteon sponsored retirement plan.
Article II
Employment Responsibility
2.01 Employee Census.
On the Transfer Date, Ford shall provide Visteon a preliminary
employee census ("Employee Census") containing the following information:
(i) a list of all Active Ford Business Employees by location;
(ii) a list of all Inactive Ford Business Employees by location;
(iii) the job classification of each Ford Business Employee;
(iv) the Ford Service Date of each Ford Business Employee;
(v) the base monthly salary of each Ford Business Employee;
(vi) the reason for any absence of any Ford Inactive Business Employee
and the date any leave expires.
Ford shall finalize the Employee Census no later than thirty (30) days after
the Transfer Date, subject to Visteon review. Ford shall not be responsible for
providing Visteon an Employee Census of the Global Ford Business Employees.
2.02 Employment Transfer.
Unless otherwise agreed, Ford shall transfer the employment of the
Active Ford Business Employees to Visteon effective on the Transfer Date and
the Active Ford Business Employees shall become Visteon Employees effective on
the Transfer Date. Ford shall transfer to Visteon the employment of an Inactive
Ford Business Employee who is recalled from layoff or other inactive status or
requests reinstatement on or before the date such employee's leave of absence
expires or as of the date such employee's medical disability ceases and such
employee is released by their personal physician to return to their former
position of employment or a comparable position consistent with any medical
restrictions, as applicable (the "Reinstatement Date"). In addition, Ford shall
transfer to Visteon employment responsibility for a Ford Retiree on a
disability retirement ("Disability Retiree") on the date the medical disability
ceases, such employee is released by their personal physician to return to
their former position of employment or a comparable position consistent with
any medical restrictions, and the retirement committee approves the return to
work ("Disability Retiree Reinstatement Date"). The Transfer Date, the
Reinstatement Date and the Disability Retiree
<PAGE>
6
Reinstatement Date shall be known as the "Employment Date". Notwithstanding the
above, Visteon shall remain financially responsible for any costs incurred by
Ford or its benefit plans and programs related to the Inactive Ford Business
Employees between the Transfer Date and the Employment Date, and Visteon shall
reimburse Ford for any such costs under a method to be mutually agreed by the
Parties. A Ford Business Employee who is on an international service assignment
to a non-Business activity as of the Distribution Date shall remain in such
assignment until scheduled to return and shall return to the originating
activity. A Ford employee who is on international service assignment to a
Business activity as of the Distribution Date shall remain in such assignment
until scheduled to return and shall return to the originating activity. Visteon
or Ford, as applicable, shall reimburse the other for the costs of such
employees after the Distribution Date under a method to be mutually agreed by
the Parties.
2.03 Recognition of Service.
Visteon shall recognize, or shall cause its subsidiaries or affiliates
to recognize, the Ford Service Date or Subsidiary Service Date, as applicable,
of each Global Visteon Employee in determining years of service under the
employee benefit plans and other compensation and benefit practices and polices
of Visteon or its subsidiaries or affiliates both prior to the Benefit
Transition Date and thereafter, except as otherwise provided in this Agreement.
2.04 Compensation and Benefit Plans.
Visteon shall pay each Global Visteon Employee at the same base salary
rate or hourly rate as was applicable to them as a Global Ford Business
Employee, and shall implement any merit, promotional or other increases that
were scheduled to go into effect as of the Transfer Date. Effective on the
Transfer Date, and except as otherwise provided in this Agreement, Visteon
shall adopt the same benefit plans and programs for Visteon Employees as are in
effect for Ford Business Employees as of the Transfer Date, and shall
participate in the Ford employee benefit plans and programs as a participating
subsidiary or its equivalent until the Benefit Transition Date. Visteon shall
reimburse Ford for any such cost and expense consistent with the methods
presently in effect for charging such expenses to participating subsidiaries or
their equivalents using methodology consistent with U.S. GAAP and acceptable to
both Parties. In addition, Visteon shall reimburse Ford for any costs and
expense incurred prior to the Benefit Transition Date and that relate to Ford
Retirees under an incentivized separation program. Effective on the Benefit
Transition Date, and except as otherwise provided herein, Visteon shall adopt,
or shall cause its subsidiaries or affiliates to maintain or adopt, benefit
plans and programs for the U.S. Global Visteon Employees that are substantially
comparable in the aggregate to those that were in effect on the day immediately
preceding the Benefit Transition Date and shall continue such programs
substantially in effect for at least four (4) years after the Distribution
Date, provided, however, if Ford makes changes in the benefit plans and
programs applicable to Ford employees during the four (4) year period, Visteon
or its subsidiaries or affiliates, as applicable, shall be permitted, but shall
not be required, to make a comparable change.
<PAGE>
7
The comparability period shall not be effective with respect to U.S. employees
of Visteon who were hired as new hires by Visteon after the Transfer Date or
with respect to non-U.S. Global Visteon Employees. Except as otherwise provided
in this Agreement, Ford shall take such action as is necessary to eliminate
Global Visteon Employees from Ford sponsored benefit plans and programs as of
the Benefit Transition Date unless otherwise agreed by the Parties, and
thereafter Global Visteon Employees shall have no rights under any such plans
or programs.
2.05 Paid Time Off.
Effective as of the Employment Date, each Global Visteon Employee
shall retain the same paid time off eligibility they had under Ford's paid time
off policy, or the policy of Ford's Subsidiaries or Affiliates. Any paid time
off used by a Global Ford Business Employee in 2000 prior to the Employment
Date shall be counted against such employee's entitlement as a Global Visteon
Employee after the Distribution Date until December 31, 2000.
2.06 Collective Bargaining Agreements.
Certain of the Ford Business Employees are covered under the terms of
the collective bargaining agreements listed on Attachment A. Effective as of
the Transfer Date, Visteon shall assume the obligation of Ford under the
collective bargaining agreements applicable to such employees, and Ford shall
be relieved of any further obligations under such agreements with respect to
such employees. The Agreement Governing the Separation of the Ford Visteon
Organization dated January 25, 2000 between Ford and the Ford European Works
Council, attached hereto as Attachment B, shall apply to the Ford Business
Employees represented by the Ford European Works Council, and Visteon agrees to
abide by its terms.
2.07 Reemployment Restriction.
Except with the consent of Visteon, Ford shall not hire any Global
Visteon Employee during the period commencing as of the Distribution Date and
terminating twelve months thereafter, unless otherwise required by law.
Article III
Employee Benefit Plans
3.01 U.S. Qualified Defined Benefit Retirement Plans.
a. GRP Participating Subsidiary. U.S. Ford Business Employees participate
in the GRP as employees of Ford. Effective as of the Transfer Date,
<PAGE>
8
Visteon shall take such corporate action as is necessary to
participate in the GRP as a "Participating Subsidiary" as defined in
the GRP with respect to the Visteon Employees until the Benefit
Transition Date. Ford hereby consents to such participation by
Visteon. Visteon shall reimburse Ford for the cost of any early
separation incentive programs applicable to U.S. Ford Business
Employees prior to the Benefit Transition Date.
b. Visteon Mirror GRP.
(i) Establishment of Plan. Effective on the Benefit Transition
Date, or such later date as the Parties may mutually agree,
Visteon shall establish its own defined benefit pension plan
that with respect to Group III Employees contains provisions
that duplicate the benefit provisions of the GRP as it pertains
to service prior to the Benefit Transition Date and with
respect to Group I and II Employees, contains substantially
comparable benefit provisions with respect to service after the
Benefit Transition Date ("Visteon Mirror GRP"). The Visteon
Mirror GRP shall be responsible for providing retirement
benefits for Group I and Group II Employees for service on or
after the Benefit Transition Date and, subject to receipt of
the asset transfer described below, for Group III Employees for
service recognized under the GRP prior to the Benefit
Transition Date and for service with Visteon after the Benefit
Transition Date. The Visteon Mirror GRP shall recognize
credited service of Visteon Employees under the GRP through the
Benefit Transition Date for purposes of eligibility to
participate and eligibility for benefits to the same extent as
such credited service (or ERISA service) was counted under the
GRP. Notwithstanding the above, for purposes of calculating the
Part B Contributory Benefit, only a total of thirty five (35)
years of combined Ford and Visteon service may be used.
(ii) Asset Transfer Valuation. Ford shall cause to be transferred
from the GRP assets in cash or cash equivalents, or marketable
securities reasonably acceptable to Visteon, that shall equal
the projected benefit obligation, as defined in SFAS No. 87, of
the liabilities related to the Group III Employees as of the
Benefit Transition Date ("GRP PBO Value") determined by an
independent actuary appointed by Ford ("Ford Actuary") in
accordance with the principles stated below:
(A) The present value of liabilities will be
determined under SFAS No. 87 as the projected
benefit obligation, using the actuarial
assumptions and methods that are published in
the most recent actuarial valuation for
accounting purposes for the GRP prepared by
Buck Consultants.
<PAGE>
9
(B) A discount rate as of the Benefit Transition
Date determined by Ford using its normal
methods for developing a SFAS No. 87 discount
rate but based on market interest rates as of
the Benefit Transition Date.
In no event shall the GRP PBO Value as calculated on the basis
described above result in an asset transfer less than the amount
necessary to reflect the requirements of the provisions of Code
Section 411(d) and 414(l) and the Treasury Regulations issued
thereunder and the actuarial methods and assumptions established by
the PBGC with respect to spin-offs of pension plans where
liabilities, for purposes of Code Section 411(d) and 414(l), are
calculated using a discount rate equal to the applicable rate or
rates published by the PBGC and in effect for plans terminating on
the Benefit Transition Date. The determination of the GRP PBO Value
by the Ford Actuary shall be submitted to an independent actuary
appointed by Visteon (the "Visteon Actuary") for verification but
such verification shall relate only to the calculation of the GRP
PBO Value on the basis set forth above. If the Visteon Actuary and
the Ford Actuary are unable to agree on a verification, they shall
jointly designate a third independent actuary whose verification
shall be final and binding. Ford and Visteon shall each pay
one-half of the costs of such third actuary.
(iii) Transfer to Qualified Plan. Within ninety (90) days of the
Transfer Date (but in no event later than the Benefit
Transition Date), Visteon shall provide Ford with the plan
document for the Visteon Mirror GRP, together with either (A)
an opinion letter of counsel reasonably acceptable to Ford that
the Visteon Mirror GRP satisfies the requirements for
qualification under Section 401(a) of the Code as of its
effective date or will be amended to meet the qualification
requirements in the event the IRS requires retroactive
amendments to the Visteon Mirror Plan as part of the
determination letter process and that the transfer of assets
provided in (iv) below shall not affect the qualification of
such plan, or (B) a favorable determination letter issued by
the IRS that the Visteon Mirror GRP satisfies the requirements
for qualification under Section 401(a) of the Code as of its
effective date.
(iv) Asset Transfer. As soon as practicable after the latest of (A)
the date on which the GRP PBO Value is determined and verified
pursuant to (ii) above, (B) the expiration of thirty days
following the filing of Forms 5310 with the IRS and PBGC in
respect of the GRP and the Visteon Mirror GRP or (C) the
receipt by Ford of the opinion or determination letters
described in (iii) above and determination by Ford that the
Visteon Mirror GRP satisfies the terms of this Agreement (the
"Asset Transfer Date"), Ford shall
<PAGE>
10
cause the trustee of the GRP to transfer assets and respective
liability therefor to the Visteon Mirror Pension Plan in such
amount and in such form as provided in (ii) above, together
with interest from the Benefit Transition Date to the first of
the month immediately preceding the Asset Transfer Date, at the
Ford Master Trust rate of return, and thereafter until the
Asset Transfer Date, interest at the 90-day Treasury Bill rate
on a bond equivalent yield in effect on the last business day
of the month immediately preceding or coincident with the Asset
Transfer Date as quoted in the Wall Street Journal.
(v) No Further Liability. Upon receipt of the transferred assets
from the GRP, neither Ford nor the GRP shall have any further
liability to the Group III Employees for benefits for service
under the GRP with respect to which liabilities and assets have
been transferred. Ford and Visteon shall use their respective
best efforts to make amendments to their respective plans and
trusts as may be necessary or appropriate to effect the
transfers contemplated by these provisions.
(vi) Pension Security. The assets of the Visteon Mirror GRP that are
transferred from the GRP trust as provided in section (iv)
above, and any earnings thereon, shall be held in a separate
trust for a period equal to five years commencing as of the
Benefit Transition Date. Such assets shall be available only
for the purposes of providing pension benefits for plan
participants and their beneficiaries for service under the Ford
GRP through the Benefit Transition Date ("Visteon Past Service
Trust"). In the event the assets in the Visteon Past Service
Trust are insufficient to pay the liability for accrued
benefits measured on a plan termination basis, determined as of
each year end, using PBGC assumptions, including the PBGC
discount rates, mortality tables and expected retirement ages
unless Ford agrees to such other rates, tables and assumptions
certified to by the Visteon Actuary as appropriate for
measuring liabilities on a plan termination basis. While such
Visteon Past Service Trust is maintained, Visteon shall
contribute sufficient cash within thirty days of the date the
year-end calculation is complete to restore the assets in the
Visteon Past Service Trust to be at least equal to such
termination liability; provided, however, that Visteon need not
contribute in any year an amount greater than the maximum tax
deductible contribution allowed for such year, and provided
further, that if the contribution required would exceed $10
million in any year, Visteon shall have the option to pay $10
million the first year, and shall pay the balance in succeeding
years in annual installments of at least $5 million until the
obligation is satisfied, together with interest on the
<PAGE>
11
obligation at the 90 day Treasury Bill rate as quoted in the
Wall Street Journal for the relevant period (the "Financial
Burden Formula"). Visteon shall not terminate the Visteon
Mirror GRP and revert assets to Visteon for a period of five
years after the Benefit Transition Date. Visteon shall not
invest any assets of the Visteon Past Service Trust in an
employer security as defined in Section 407(d)(1) of ERISA for
a period of five years after the Benefit Transition Date.
c. Ford GRP Pension Liability.
(i) Ford Retirees. The GRP shall retain liability for retirement
benefits for all Ford Retirees, and shall retain all GRP assets
with respect thereto. The benefits payable shall be based on
the benefit provisions applicable under the GRP as of the date
of retirement, and as may be subsequently amended. To the
extent that such benefit is based on final average salary under
the GRP, the GRP will take into account any base salary paid at
Visteon while an employee as of the December 31 prior to the
Benefit Transition Date. Ford shall amend the GRP to provide
that Ford Retirees may be employed at Visteon after the
Distribution Date and remain eligible to receive benefits under
the GRP.
(ii) Group I and Group II Employees For Pre-Benefit Transition Date
Service. The GRP shall retain liability for retirement benefits
of Group I and Group II Employees, but only for service through
the Benefit Transition Date. The GRP shall recognize credited
service (or ERISA service) of U.S. Visteon Employees under the
Visteon Mirror GRP for purposes of eligibility to participate
and eligibility for benefits to the same extent as if such
credited service (or ERISA service) was earned under the GRP,
but not for purposes of benefit calculation. The retirement
benefits paid to Group I and Group II Employees from the GRP
shall be based on the benefits in effect as of the retirement
date using the final average salary of the Group I or Group II
Employee at retirement from Visteon, giving effect to Visteon
base salary increases after the Benefit Transition Date.
Visteon shall reimburse Ford for the following additional
costs: (A) the cost of benefit increases under the GRP that
occur after the Benefit Transition Date and relate to service
prior to the Benefit Transition Date; (B) for the effect on the
PBO related to Group I and Group II Employees for any Visteon
average merit salary increase which exceeds the average Ford
merit increase by one-half percent in any given year, provided
Visteon shall receive credit if the Visteon average merit
salary increase is less than the average Ford merit increase by
one-half percent in any given year; and (C) for the effect on
the PBO related to Group I and Group II
<PAGE>
12
Employees as a result of Visteon's implementation of any early
separation incentive programs, provided however that Visteon
shall receive credit if the effect of such programs reduces the
PBO. The method of computing the reimbursements shall be as
described on Schedules X, Y and Z. The amount of reimbursement
shall be determined by Ford's Actuary and shall be subject to
verification by Visteon's Actuary. If the Visteon Actuary and
the Ford Actuary are unable to agree on a verification, they
shall jointly designate a third independent actuary whose
verification shall be final and binding. Ford and Visteon shall
each pay one-half of the cost of such third actuary. The
reimbursements shall be done annually within thirty days after
the annual actuarial valuation of the GRP is completed by the
Ford Actuary and verified by Visteon's Actuary. If the
reimbursements for either Party exceeds in the aggregate $10
million per year (relating to costs under (A), (B) and (C)
above and under (A), (B) and (C) of Section 3.02c(ii) incurred
in that year, but not including costs under (A), (B), and (C)
above or under (A), (B) and (C) of Section 3.02c(ii) incurred
in prior years) the Party with the obligation shall have the
option to pay the obligation according to the Financial Burden
Formula. Group I and Group II Employees who retire under the
GRP will be eligible for the same Ford postretirement benefits,
such as health care and life insurance and certain other Ford
sponsored programs on the same basis as other Ford employees
retiring at the same time.
d. Prorated GRP Supplements.
(i) Early Retirement Supplement. To the extent that any Early
Retirement Supplement is payable under the GRP to a Group I or
Group II Employee, the amount of the total monthly benefit used
for determining the Early Retirement Supplement shall be
determined as follows: The amount of the total monthly benefit
that would otherwise be used for determining the Early
Retirement Supplement under the GRP at the time the Group I or
Group II Employee retires shall be multiplied by a fraction,
the numerator of which is the number of years of credited
service, including fractions of a year, under the GRP not to
exceed thirty years, and the denominator of which is thirty. To
the extent that any Early Retirement Supplement is payable
under the Visteon Mirror GRP to a Group I or Group II Employee,
the amount of the total monthly benefit that would otherwise be
used for determining the Early Retirement Supplement under the
Visteon Mirror GRP at the time the Group I or Group II Employee
retires shall be multiplied by a fraction, the numerator of
which is thirty less the number of years (not to exceed thirty)
of credited service, including fractions of a year, under the
GRP to the Benefit Transition Date and the
<PAGE>
13
denominator of which is thirty. In the event the Group I or
Group II Employee has credited service under the GRP of thirty
or more years as of the Benefit Transition Date, no Visteon
Mirror Supplement shall be payable.
(ii) Interim Supplement or Temporary Benefit. To the extent that any
Interim Supplement or Temporary Benefit is payable under the
GRP to a Group I or Group II Employee, the amount of the
Interim Supplement or Temporary Benefit as applicable, shall be
determined by multiplying the number of years of credited
service (not to exceed 30), including fractions of a year,
under the GRP as of the Benefit Transition Date by the monthly
Interim Supplement Rate, or Temporary Benefit Rate, as
applicable, in effect at the time of retirement. To the extent
that any Interim or Temporary Benefit is payable under the
Visteon Mirror GRP to a Group I or Group II Employee, the
amount of the benefit shall be shall be determined by
multiplying the number of years of credited service (except if
the combined Ford and Visteon service exceeds thirty, then the
Visteon benefit shall be determined by subtracting from thirty
years the years of Ford credited service), including fractions
of a year, under the Visteon Mirror GRP by the monthly Interim
Supplement Rate, or Temporary Benefit Rate, as applicable, in
effect at the time of retirement. In the event a Group I or
Group II Employee has credited service under the GRP of thirty
or more years as of the Benefit Transition Date, no Visteon
Mirror Interim Supplement or Temporary Benefit shall be
payable.
e. Group II Employees Who Fail Grow-in. Except as otherwise provided by
law, for those Group II Employees who do not continue to be employed
by Visteon or a successor to Visteon until such time as their age and
combined service with Ford through the Benefit Transition Date and
with Visteon or its successor after the Benefit Transition Date would
be sufficient to result in eligibility for retirement under the GRP,
any benefit payable for years of service prior to the Benefit
Transition Date shall be based on the benefit rate and final average
salary, if applicable, in effect under the GRP on the date such
employee breaks service under the Visteon Mirror GRP. In such event,
such employee shall be treated as a "deferred vestee" under the GRP,
if otherwise eligible based on combined service. Benefits for service
at Visteon after the Benefit Transition Date shall be payable by
Visteon.
f. U.S. Master Trust. After the Transfer Date, the defined benefit plans
of Ford Electronics and Refrigeration, LLC. ("FE&R") may continue to
participate in the U.S. Ford Master Trust until the Benefit Transition
Date. Visteon shall establish a U.S. Visteon Master Trust no later
than the Benefit Transition Date and Ford shall cause the Trustee of
the U.S. Ford
<PAGE>
14
Master Trust to transfer the assets in such U.S. Ford Master Trust
allocable to FE&R's defined benefit plans to the trustee of the U.S.
Visteon Master Trust. Assets shall be valued at the end of the month
coincident with or following the Distribution Date ("Valuation Date")
and cash or cash equivalents, or marketable securities acceptable to
Visteon, shall be transferred within thirty (30) days thereafter,
together with interest from the Valuation Date to the asset transfer
date at the 90-day Treasury Bill rate on a bond equivalent yield in
effect on the last business day of the month immediately preceding the
asset transfer date as quoted in the Wall Street Journal. Assets
attributable to such plans that are held outside the Ford Master Trust
also shall be transferred to Visteon on or before the asset transfer
date, in such form as such assets are presently held. Nothing herein
contained shall be construed as to prohibit Ford from causing Visteon
to transfer assets and liabilities from FE&R sponsored salaried
defined benefit plans to Ford sponsored defined benefit plans prior to
the Benefit Transition Date for the purpose of aligning appropriate
liabilities with respect to the Business, provided such transfers
comply with applicable law and result in each such FE&R salaried
defined benefit plan having assets with a fair market value as of
January 1, 2000 equal to the projected benefit obligation, as defined
in SFAS No. 87, of the liabilities related to non-transferred
participants in each such plan as of January 1, 2000. Visteon shall
cooperate with Ford in effectuating such transfers in the period
between the Transfer Date and the Benefit Transition Date.
3.02 U.S. Non-Qualified Retirement Plans.
a. Participating Subsidiary. Ford maintains the following U.S.
non-qualified retirement plans in which certain U.S. Ford Business
Employees who are eligible under the terms of the plans participate:
The Benefit Equalization Plan ("BEP"), the Supplemental Executive
Retirement Plan ("SERP") and the Executive Separation Allowance Plan
("ESAP") and the Select Retirement Plan ("SRP"). As of the Transfer
Date, Visteon shall take such corporate action as is necessary to
become a Participating Subsidiary under the SERP, ESAP and SRP and
Ford hereby consents to such participation.
b. Visteon Mirror NQPs. Effective on the Benefit Transition Date,
Visteon shall establish for the benefit of the U.S. Visteon Employees
who are otherwise eligible as of the Benefit Transition Date for a
BEP, SERP or ESAP benefit, its own non-qualified retirement plans that
with respect to eligible Group III Employees contain provisions that
duplicate the benefit provisions of the BEP, SERP and ESAP as it
pertains to service prior to the Benefit Transition Date and with
respect to eligible Group I and Group II Employees, contains
substantially comparable benefit provisions with respect to service
after the Benefit Transition Date ("Visteon Mirror
<PAGE>
15
NQPs"). For eligible Group I and Group II Employees, Visteon shall be
responsible for paying a benefit for service after the Benefit
Transition Date under the Visteon Mirror NQPs. For eligible Group III
Employees, the liability for any service prior to the Benefit
Transition Date under the BEP, SERP and ESAP shall be transferred to
the respective Visteon Mirror NQPs, and Visteon shall be responsible
for paying a benefit based on combined service at Ford and Visteon.
Visteon's Mirror NQPs shall recognize service at Ford for purposes of
determining any minimum years of service to achieve eligibility for
benefits under such plans.
c. Ford Liability.
(i) Ford Retirees. Ford shall retain the liability for eligible Ford
Retirees. The benefit payable under the BEP, SERP, ESAP and SRP
shall be based on the benefit provisions applicable under such
plans as of the date of retirement, and as may be subsequently
amended. To the extent such benefit is based on final average
salary or final salary, the applicable plan will take into
account any base salary paid at Visteon prior to the Benefit
Transition Date. Ford Retirees may be employed at Visteon after
the Distribution Date and remain eligible to receive benefits
under the BEP, SERP, ESAP and SRP.
(ii) Group I and Group II Employees for Pre-Benefit Transition Date
Service. Ford shall retain the liability for benefits for Group
I or Group II Employees who have attained the minimum
Leadership Level required for such benefits as of the Benefit
Transition Date, but only for service through the Benefit
Transition Date. For example, a Group I or Group II Employee
who attains Leadership Level 1 or 2 on or after the Benefit
Transition Date shall have no benefit payable under the Ford
ESAP. As soon as practical after the Benefit Transition Date,
Visteon shall pay cash to Ford in an amount equal to the BEP,
SERP and ESAP projected benefit obligation with respect to the
eligible Group I or Group II Employees determined by the Ford
Actuary and verified by the Visteon Actuary as of the Benefit
Transition Date. If the Visteon Actuary and the Ford Actuary
are unable to agree on a verification, they shall jointly
designate a third independent actuary whose verification shall
be final and binding. Ford and Visteon shall each pay one-half
of the costs of such third actuary. The benefits paid to an
eligible Group I and Group II Employee from the BEP, SERP and
ESAP shall be based on the accrued benefits and eligibility, at
rates in effect as of the retirement date using the final
average salary, or final salary as applicable, of the eligible
Group I or Group II Employee at retirement, giving effect to
Visteon salary increases after the Benefit Transition Date.
Visteon shall reimburse Ford for the following additional
costs: (A) the cost of benefit increases under the BEP, SERP
and ESAP
<PAGE>
16
that occur after the Benefit Transition Date (including changes
in the accrual rate) and which relate to service prior to the
Benefit Transition Date, when such increases occur; (B) for the
effect on the PBO for any Visteon average merit salary increase
which exceeds the average Ford merit increase by one-half
percent in any given year provided that Visteon shall receive
credit if the Visteon average merit salary increase is less
than the average Ford merit increase by one-half percent in any
given year; and (C) for the effect of the PBO as a result of
Visteon's implementation of any early separation incentive
programs, provided however that Visteon shall receive credit if
the effect of such programs reduces the PBO. The method of
computing the reimbursements shall be as described on Schedules
X, Y and Z. The amount of reimbursement shall be determined by
Ford's Actuary and shall be subject to verification by
Visteon's Actuary. If the Visteon Actuary and the Ford Actuary
are unable to agree on a verification, they shall jointly
designate a third independent actuary whose verification shall
be final and binding. Ford and Visteon shall each pay one-half
of the costs of such third actuary. Such reimbursements shall
be done annually within thirty days after the annual actuarial
valuation of the BEP SERP and ESAP is completed by the Ford
Actuary and verified by the Visteon Actuary. If the
reimbursements for either Party exceeds in the aggregate $10
million per year (relating to costs under (A), (B) and (C)
above or under (A), (B) or (C) under Section 3.01c(ii) incurred
in that year, but not including costs under (A), (B) and (C)
above or under (A), (B) or (C) under Section 3.01c(ii) incurred
in prior years), the Party with the obligation shall have the
option to pay the obligation according to the Financial Burden
Formula.
(iii) Group III Employees. After the Benefit Transition Date, Ford
shall have no liability for benefits payable to eligible Group
III Employees with respect to service prior to the Benefit
Transition Date.
3.03 Retiree Health Care and Retiree Life Insurance.
Visteon shall pay the cost of providing post-retirement health and
life benefits for Group I and Group II Employees under the Ford Health and
Group Life and Disability Insurance Plan (the "Plans") ("OPEB") beginning as of
the Benefit Transition Date as provided below.
a. Determination of Annual Cash OPEB Reimbursement. For the
portion of 2000 that follows the Benefit Transition Date and
for each calendar year thereafter until the OPEB liability
for the Group I and Group II Employees is extinguished, the
annual cash OPEB reimbursement to the Plans for any given
year shall be an amount equal to the sum of (i) and (ii)
where
<PAGE>
17
(i) is the estimated amount of OPEB claims paid during
the period to the Group I and Group II Employees who
retire after the Benefit Transition Date, together
with their spouses or dependents, determined on the
basis of average per contract claims costs for Ford
salaried retirees; and
(ii) is an allocable share of administration expenses
based on ratio of OPEB Liability for Group I and II
Employees to the total Ford salaried OPEB liability
unless Ford and Visteon agree to another method.
The Annual Cash OPEB Reimbursement shall be determined by the
Ford Actuary; the Visteon Actuary will have the opportunity
to verify the calculation.
b. Pre-Funding of SFAS 106 Liability. Visteon will establish and
maintain a Voluntary Employees' Beneficiary Association, other
tax-advantaged funded vehicle, such as a 401(h) medical account
under a qualified pension plan, or a similar bankruptcy remote
trust (collectively "VEBA") whose purpose is to reimburse the
Plans in respect of the claims and administration costs
described in Section 2.1 above. Visteon agrees that it will make
a series of cash payments to the VEBA with the intent that by
December 31, 2020 the assets in the VEBA will equal Visteon's
balance sheet liability at the same date for OPEB benefits in
respect of Group I and Group II Employees The cash payment to
the VEBA shall commence no later than January 1, 2011 and shall
be payable in advance in twelve equal monthly installments. The
amount of cash paid to the VEBA in each year commencing no later
than January 1, 2011 shall be an amount equal to the sum of (i),
(ii) and (iii) where
(i) is the Visteon SFAS 106 expense for that year as
computed by the Ford Actuary (and verified by the
Visteon Actuary) and based on assumptions used by
Ford for its salaried employees;
(ii) is an allocable share of expenses as described in Section a
(ii) above; and
(iii) is the amount of Visteon's OPEB balance sheet
liability in respect of Group I and Group II
Employees at the beginning of each calendar year
divided by the number of years remaining to December
31, 2020.
Notwithstanding the above, Visteon may accelerate payments to
the VEBA in its discretion. In the event tax law would not
permit Visteon a current deduction for the level of funding
described above, Visteon may make only such contributions to
the VEBA that would be tax deductible,
<PAGE>
18
provided, however that the balance of the funding obligation which
exceeds the permitted deduction is otherwise deposited into a
separate trust. Visteon and Ford shall cooperate with each other to
design, and Visteon agrees it will take necessary action to
implement, an appropriate method approved by the Parties'
respective auditors that would have the effect of eliminating
Ford's FAS 106 OPEB balance sheet liability for Group I and Group
II Employees beginning on the Benefit Transition Date. In the event
that the tax benefits contemplated by the Parties as being
available to Visteon with respect to prefunding of OPEB liabilities
are not or cease to be available, Visteon and Ford agree to
renegotiate the structure provided the new structure does not
increase Ford's costs or jeopardize Ford's security. If Ford and
Visteon cannot agree on a replacement structure, then Visteon will
pay to Ford directly the payments it otherwise would have paid to
the VEBA. Ford shall credit interest on such amount at the pretax
rate of return on Ford's cash portfolio.
c. Recordkeeping. In connection with administering Section 3.03
(a) above, Ford may decide to retain a third party service to
determine the correct amount of Visteon reimbursements
according to the methodology set forth in this Section 3.03.
If Ford decides to retain a third party service, Ford shall
consult with Visteon prior to appointing a third party
service, but Ford shall retain the right to appoint a third
party service in its sole discretion. Ford shall pay the
expense of such third party service and Visteon shall
reimburse Ford for such expense.
d. Continuation of Arrangements. The terms set forth in this
Section 3.03 shall be in force until the last survivors and
dependents of Group I and Group II Employees in service as of
the Benefit Transition Date who are eligible for GRP
retirement or OPEB benefits are deceased, or upon earlier
termination agreed jointly by Ford and Visteon, including any
VEBA or other arrangements or methods agreed in Section
3.03(b) (unless the Parties' respective auditors advise that
joint agreement to terminate would jeopardize the expected
accounting treatment of such arrangements or methods).
e. Ability to Substitute. The Parties may agree to substitute an
alternative method of computing reimbursement under this
Section 3.03. The method substituted shall have as its
objective to produce a fair estimate of the OPEB expense and
other reimbursement charges set forth in this Section, and
should preserve for each Party, to the extent possible, the
economic benefits bargained under this Section.
f. Actuarial Verification. If the Ford Actuary and the Visteon Actuary
are unable to agree on a verification, they shall jointly designate
a third independent actuary whose verification shall be final and
binding. Ford and Visteon shall each pay one-half of the cost of
such third actuary.
<PAGE>
19
3.04 U.S Defined Contribution Retirement Plans.
a. Participating Subsidiary. Ford sponsors the Ford Motor Company
Savings and Stock Investment Plan ("Ford SSIP") for the benefit of
the employees of Ford and its participating subsidiaries and
certain U.S. Ford Business Employees elect to participate in the
SSIP. Effective on the Transfer Date, Visteon shall take such
corporate action as is necessary to participate in the SSIP as a
"Participating Subsidiary" as defined in the SSIP with respect to
the U.S. Visteon Employees who participate in the SSIP until the
Benefit Transition Date. Ford hereby consents to such participation
by Visteon. Ford shall amend the SSIP to vest all U.S. Ford
Business Employees who participate in the SSIP in the Ford matching
contributions contained in their SSIP accounts as of the Benefit
Transition Date.
b. Visteon SSIP. Effective on the Benefit Transition Date, Visteon
shall establish its own defined contribution pension plan for the
benefit of U.S. Visteon Employees that had participated in the SSIP
that contains provisions substantially comparable to the SSIP,
except that the number of investment elections may be reduced and
the Ford Stock Fund election will be replaced with a Visteon Stock
Fund election. The Visteon SSIP shall provide benefits related to
contributions on or after the Benefit Transition Date. Within
ninety days after the Benefit Transition Date, U.S. Visteon
Employees who have accounts in the SSIP will be given a one time
opportunity to transfer no less than the entire balance in such
accounts to the Visteon SSIP. U.S. Visteon Employees who choose to
continue to participate in the SSIP with respect to contributions
made prior to the Benefit Transition Date shall be treated as
terminated employees under the provisions of the SSIP. However, no
distributions will be permitted until the U.S. Visteon Employee
separates from Visteon employment or a successor employer. Plan
loans will be permitted subject to the SSIP rules and U.S. Visteon
Employees who have SSIP loans currently or who take new SSIP Loans
after the Benefit Transition Date shall be issued coupon books for
their loan repayments. Hardship withdrawals will not be permitted.
3.05 Flexible Benefits Plan.
Visteon shall establish a Flexible Benefits Plan for the benefit of
U.S. Visteon Employees who participated in the Ford Flexible Benefits Plan
("Ford Flex Plan"), commencing on the Benefit Transition Date ("Visteon Flex
Plan"). The Visteon Flex Plan shall include health care, life and accident
insurance, health care spending account, dependent care spending account,
purchased vacation, the legal plan, vision care and financial planning on terms
identical to those provided under the Ford Flex Plan for plan year 2000, and
benefits substantially comparable thereafter, and shall be
<PAGE>
20
designed to comply with the requirements of Code Section 125 with respect to
those benefits that are eligible to be included in a Section 125 arrangement.
For plan year 2000, Visteon shall make available to U.S. Visteon Employees who
participated in the Ford Flex Plan at least the same amount of FCA dollars and
Bonus Flex Dollars as was made available under the Ford Flex Plan. For plan
years commencing 2001 through 2003, Visteon shall make available to U.S.
Visteon Employees who participated in the Ford Flex Plan at least the same
amount of FCA dollars as was available under the Ford Flex Plan and the amount
of Bonus Flex Dollars shall be determined on the basis of the same formula as
was applicable under the Ford Flex Plan, but shall be based on Visteon's before
tax return on sales.
3.06 Salaried Income Security Plan.
As of the Transfer Date, Visteon shall become a participating
subsidiary under the Ford Salaried Income Security Plan ("SISP"), and Ford
hereby consents to such participation. Effective on the Benefit Transition
Date, Visteon shall adopt its own severance plan with terms substantially
comparable to those under the Ford SISP. Ford's limit on liability under the
SISP shall be reduced prorata by the number of U.S. Global Visteon Employees.
Effective as of the Transfer Date, Visteon shall assume the liability for any
U.S. Visteon Business Employee who is receiving benefits under the Ford SISP.
Ford shall retain the responsibility for paying such benefit payments and
continuing any applicable insurance under the Ford SISP, and Visteon shall
reimburse Ford annually for any such cost.
3.07 Annual Incentive Compensation Plan.
Global Visteon Employees who are otherwise eligible to participate in
the Ford Annual Incentive Compensation Plan ("FAICP") shall continue to be
eligible to participate under the same terms applicable to Ford employees after
the Distribution Date through December 31, 2000, with awards for 2000 payable
in March, 2001, provided that the pro forma award amounts, adjusted for Ford
performance, under the FAICP for such Global Visteon Employees shall equal 50%
of the adjusted target amounts. Adjustments for individual performance may be
made to the extent of 50% of the amount of the Extraordinary Contribution Fund
that would normally be allocated to the Visteon Employees. Visteon shall
reimburse Ford for any amounts paid to Global Visteon Employees for 2000 under
the FAICP. Visteon shall establish an interim bonus program for the remainder
of 2000 following the Distribution Date for these Global Visteon Employees. If
the Distribution Date occurs prior to January 1, 2001, Visteon shall adopt a
Visteon Annual Incentive Compensation Plan ("VAICP"), subject to stockholder
approval effective January 1, 2001. The Global Visteon Employees who were
otherwise eligible to participate under the FAICP shall be eligible to
participate under the VAICP. If the Distribution Date occurs on or after
January 1, 2001, the Parties shall agree to alternate arrangements.
<PAGE>
21
3.08 Stock Option and Performance Stock Rights Programs.
a. Ford Stock Option and Performance Stock Rights Programs. Ford
Business Employees who are eligible to participate in the Ford 1998
Long-Term Incentive Plan ("FLTIP") shall be eligible for grants of
Ford stock options in March, 2000. In general, any options granted
in March, 2000 or in prior years under the FLTIP and the Ford 1990
Long-Term Incentive Plan to Ford Business Employees who become
Visteon Employees continue and shall accrue until five years after
the Distribution Date (provided that the Ford Business Employee had
remained an employee of Ford or its Subsidiaries for at least three
months after the date the option was granted) unless the option
expires earlier or such employee's employment with Visteon
terminates (other than due to disability, death or retirement with
Visteon approval). Outstanding Ford Options designated as
"incentive stock options" held by Visteon Employees will retain
their tax attributes only if exercised within three months after
the Distribution Date. Subject to approval of the Ford Compensation
and Option Committee, Ford Retirees who received option grants in
March, 2000 while employed by Ford but who retired from Ford prior
to the date six months after the option grant date, shall be
treated in accordance with the immediately preceding sentence with
respect to those grants. Ford Business Employees who are eligible
to participate under the FLTIP shall be eligible for grants of Ford
Performance Stock Rights ("FPSRs") in the first quarter of 2000.
Any grants of FPSRs to an eligible Ford Business Employee shall
continue to be earned out and shall be paid out under the FLTIP as
if such employee were still employed at Ford unless such employee's
employment at Visteon terminates.
b. Visteon Stock Option and Performance Stock Rights Programs. Visteon
shall adopt a Visteon Long-Term Incentive Plan ("VLTIP"), subject
to stockholder approval and regulatory restrictions. The Visteon
Employees who were otherwise eligible to participate under the
FLTIP shall be eligible to participate under the VLTIP in those
countries where it is practicable based on the number of employees
and difficulty and cost to comply with regulatory requirements.
Visteon shall make grants of Visteon stock options under the VLTIP
to eligible Visteon Employees in March 2001, and shall make grants
of Performance Stock Rights to eligible Visteon Employees in March,
2001.
3.09 U.S. Performance Bonus Plan.
U.S. Global Visteon Employees who are otherwise eligible to
participate in the U.S. Ford Performance Bonus Plan ("FPBP") shall continue to
be eligible to participate under the same terms as applicable to Ford Employees
after the Distribution Date through December 31, 2000, with awards for 2000
payable in March, 2001.
<PAGE>
22
Visteon shall reimburse Ford for any amounts paid to
U.S. Global Visteon Employees for 2000 under the FPBP. If the Distribution Date
occurs prior to January 1, 2001, Visteon shall adopt a Visteon Performance
Bonus Plan ("VPBP") effective January 1, 2001. The U.S. Global Visteon
Employees who were otherwise eligible to participate under the FPBP shall be
eligible to participate under the VPBP. If the Distribution Date occurs on or
after January 1, 2001 or later, the Parties shall agree to alternate
arrangements.
3.10 U.S. Deferred Compensation Plan.
Ford shall request the Ford Compensation and Option Committee to
approve effective as of the Transfer Date the participation of U.S. Visteon
Employees in the Ford Deferred Compensation Plan ("FDCP") and ability to make
new deferral elections under the FDCP until the pay ending immediately prior to
the Distribution Date. Visteon shall adopt a Visteon Deferred Compensation Plan
("VDCP") effective on the Distribution Date, and shall offer as an investment
option a Visteon Stock Fund. Any deferral of compensation on or after the
Distribution Date shall be made under the VDCP, even if the election to defer
was made prior to the Distribution Date, and unless the participant changes
his/her investment options for any such deferral, the VDCP shall honor any
investment elections that were in effect under the FDCP for such class year and
type of compensation to the extent the VDCP has the same investment choices. If
a U.S. Visteon Employee had made deferrals under the FDCP prior to the
Distribution Date, the book entry account balance of such employee's deferred
compensation account in the FDCP, valued as of 5:00 P.M. EST on the
Distribution Date, shall be transferred to the VDCP as of the Distribution Date
("Transferred Accounts"). The Transferred Account balances may not be
immediately available for further transfer to VDCP investment options until
account balances have been properly verified by the plan administrators.
Visteon shall cause the VDCP to offer a Ford Stock Fund investment option for
those Transferred Accounts that had deferrals based on the FDCP Ford Stock Fund
as of the Distribution Date, but the VDCP Ford Stock Fund shall be a "sell"
only fund, and would not be available for any new deferrals or redesignations
into such fund from other funds or for credits based on dividend earnings.
Visteon shall assume the liability with respect to the Transferred Accounts and
shall be responsible for making any subsequent distributions in the form
specified by the participant while employed by Ford from the Transferred
Accounts. If Visteon is unable to make distributions from the Transferred
Accounts at the end of any applicable deferral period due to insolvency or
otherwise, Ford shall make the appropriate distributions. Ford shall have no
responsibility with respect to any other VDCP accounts.
3.11 Non-U.S. Benefit Plans and Programs.
Unless provided otherwise in Schedule 3.11 attached hereto, Global
Ford Business Employees who participate in benefit plans and programs sponsored
by non-U.S. Subsidiaries or Affiliates of Ford, shall transition to the benefit
plans and programs of the non-U.S subsidiaries of Visteon as of the Benefit
Transition Date, except with respect to retirement liabilities as provided in
the next sentence. Ford shall retain liabilities for non-U.S. Ford Retirees as
of the Benefit Transition Date and Visteon shall
<PAGE>
23
assume liabilities for non-U.S. Visteon Employees with appropriate asset
transfers from funded plans. To the extent there are any benefit plans or
programs which are unfunded or underfunded, Visteon shall assume the liability
for the benefit payments in respect of the non-U.S. Visteon Employees and Ford
shall retain the liability for non-U.S. Ford Retirees.
3.12 Non-Embedded Plans.
Notwithstanding anything herein to the contrary, to the extent that
Ford has a Subsidiary or Affiliate that maintains pension, savings and or
welfare benefit plans separate and apart from the Ford plans, and such
Subsidiary or Affiliate becomes a subsidiary or affiliate of Visteon pursuant
to the Master Transfer Agreement, the plans of such Subsidiary or Affiliate
shall remain the responsibility of such Subsidiary or Affiliate, and no
division or allocation of such plans will occur as a result of such transfer on
the Transfer Date. After the Distribution Date, Ford shall have no
responsibility attributable to a parent corporation with respect to such plans,
except as otherwise may be required by law.
3.13 Future Benefit Changes.
Nothing contained herein shall be construed to prohibit Ford or its
Subsidiaries or Affiliates from amending, terminating or otherwise modifying
the terms of employee benefit plans or programs applicable to Global Visteon
Employees, Ford Retirees or Visteon Retirees, except as may otherwise be
provided by applicable law. Except as otherwise specifically provided herein or
by applicable law, no Global Visteon Employee, Ford Retiree or Visteon Retiree
shall have any vested right to any employee benefit plan or program sponsored
by Ford or its Subsidiaries or Affiliates. Except as provided in Sec.
3.01(b)(vi), and as may be provided by applicable law, nothing in this
Agreement shall prohibit Visteon or its subsidiaries or affiliates from
amending, modifying or terminating benefit plans or programs applicable to
Global Visteon Employees, Visteon Retirees or any other Visteon retirees or
employees.
Article IV
Vehicle Programs
4.01 U.S. Lease and Evaluation Programs.
Except as specifically provided herein, participation of the U.S.
Global Visteon Employees in Ford's U.S. Lease and Evaluation Vehicle Program
shall be terminated as of the Distribution Date. U.S. Global Visteon Employees
who participate in such programs shall be given a reasonable period of time
after the Benefit Transition Date not to exceed sixty (60) days or such other
time as the Parties mutually agree, to either
<PAGE>
24
purchase the vehicles leased or assigned to them or to return them to Ford, or
Ford's agents as provided below ("Vehicle Transition Period"). During the
Vehicle Transition Period, Ford shall offer for sale to each lessee and
assignee of such vehicles as are presently leased to such lessee or assignee
under the terms of Ford's Used Vehicle Purchase ("B") Plans, or to continue a
lease under the terms of the Ford Credit's Red Carpet Lease Plan, subject to
credit evaluation and dealer acceptance. In the event a lessee or assignee of a
lease or evaluation vehicle declines to purchase or continue to lease such
vehicle within the Vehicle Transition Period, the lessee or assignee shall
return such vehicle to its original servicing garage. Visteon shall collect, or
shall cause its subsidiaries or affiliates to collect, the applicable lease fee
from the Global U.S. Visteon Employees for such lease vehicles during the
Vehicle Transition Period. Visteon shall reimburse Ford in cash on a monthly
basis, within ten days of the last day of the month, an amount equal to (i) the
aggregate amount on the monthly lease fees for lease vehicles owed by U.S.
Global Visteon Employees and (ii) the aggregate amount of the monthly
evaluation vehicle fees, determined on the same basis as if the evaluation
vehicles were lease vehicles, and paid by Visteon. U.S. Ford Retirees shall
continue to be eligible to participate in Ford's U.S. Lease and Evaluation
Vehicle Programs according to the terms of such programs. Group I and Group II
Employees shall be eligible to participate in Ford's U.S. Lease and Evaluation
Vehicle Programs, if otherwise eligible under the terms of such Programs, on
the same terms as a Ford Retiree upon their retirement from Visteon or its
subsidiaries or affiliates.
4.02 Non-U.S. Lease and Evaluation Programs.
Participation of the Global Visteon Employees in Ford's Non-U.S. Lease
and Evaluation Programs shall terminate as of the Distribution Date, or such
other date as the Parties may agree. Ford shall cooperate with Visteon in
providing appropriate transition services comparable to those described in
Section 4.01 with respect to the U.S. Lease and Evaluation Programs.
4.03 Vehicle Purchase Plans.
U.S. Global Visteon Employees shall be permitted to participate in
Ford's Vehicle Purchase Plan consisting of the "A Plan" indefinitely. After the
Distribution Date, U.S. Global Visteon Employees shall not be eligible to
participate in Ford's "B Plan" (except as provided above in Section 4.01).
After the Distribution Date, U.S. Global Visteon Employees shall not be
eligible to nominate purchasers under the "X-Plan". Ford Retirees shall
continue to be eligible to participate in such plans after the Distribution
Date according to the terms of such plans.
4.04 U.S. Surviving Spouse Car Programs.
Visteon shall not be required to provide a benefit substantially
comparable to the U.S. Surviving Spouse Car Program after the Benefit
Transition Date. Ford shall have no responsibility to provide a benefit under
the U.S. Surviving Spouse Car Program to a spouse of any U.S. Global Visteon
Employee who dies after the Distribution Date.
<PAGE>
25
Article V
U.S. Workers Compensation
Visteon shall assume all liability for workers' compensation claims,
damages, expenses, liabilities or administrative expenses of any kind
whatsoever, related to U.S. Ford Business Employees regardless of when filed or
reported effective as of the Transfer Date. Visteon shall indemnify and hold
Ford harmless in respect of any such claims paid by Ford on Visteon's behalf
under any insured or self insured program operated by Ford. Effective on the
Distribution Date, and at such time as may be required thereafter, Visteon
shall transfer to Ford any reserves established in connection with claims which
applicable state workers' compensation laws require Ford to continue to pay on
behalf of Visteon. Effective on the Distribution Date, Ford shall transfer to
Visteon any reserves established in connection with claims for which Visteon
assumes payment responsibility to the extent allowed by state law and to the
extent such reserves are not reflected on Visteon's balance sheet. Where
transfer of claim liability is prohibited by state law, Ford will continue to
pay such claims on Visteon's behalf and shall be reimbursed by Visteon as
described herein. Effective on 12:01 a.m. on the Distribution Date, Visteon
shall cease to be covered by any of the workers compensation liability
insurance policies sponsored by Ford or any self insurance program of Ford
applicable to the U.S. Ford Business Employees for injuries or occupational
disablements occurring subsequent to the Distribution Date. Visteon shall
assume responsibility for its allocable share of future retrospective premium
adjustments for periods preceding the Distribution Date. Visteon shall take all
steps necessary under applicable law to provide workers compensation coverage
on or after the Distribution Date, either through self-insurance where
permissible under state law or by the purchase of insurance. Visteon shall
notify state and federal regulatory agencies of the above. Visteon shall
cooperate with Ford in obtaining the return or release of all bonds, letters of
credit, securities, indemnifications, cash or other assets given by Ford to any
state or federal agency in connection with workers compensation self-insurance
with respect to U.S. Ford Business Employees, and to the extent required by any
state or federal agency, post its own bonds, letters of credit,
indemnifications, securities, cash or other assets in substitution therefor.
Article VI
Employee Liabilities
Effective as of the Transfer Date, and except as otherwise provided
under the terms of this Agreement, Visteon will assume, and agrees to perform,
the debts, liabilities, guarantees, contingencies and obligations of Ford,
whether asserted or
<PAGE>
26
unasserted, fixed or contingent, accrued or unaccrued, known or unknown, and
howsoever arising, relating to the Global Visteon Employees. Ford shall
transfer any funded or unfunded reserves it may maintain with respect to such
liabilities, unless such reserves are reflected on the Visteon Balance Sheet.
Article VII
Indemnification
7.01 Visteon Indemnity.
Visteon shall indemnify Ford against and agrees to hold it harmless
from any and all damage, loss, claim, liability and expense (including without
limitation, reasonable attorneys' fees and expense in connection with any
action, suit or proceeding brought against Ford) incurred or suffered by Ford
arising out of (i) breach of any agreement made by Visteon hereunder; (ii) any
claim by a Global Visteon Employee (or such employee's dependents or
beneficiaries) arising out of or in connection with the operation,
administration, funding or termination of any of Visteon's employee benefit
plans or programs or the employee benefit plans or programs of a Visteon
subsidiary or affiliate, whenever made, including, without limitation, claims
made to the PBGC, the DOL, or the IRS; or (iii) employment claims of Global
Visteon Employees whenever made based on conditions or actions arising prior to
or after the Transfer Date, except as provided in Section 7.02 below (iii).
7.02 Ford Indemnity.
Ford shall indemnify Visteon against and agrees to hold it harmless
from any and all damage, loss, claim, liability and expense (including without
limitation, reasonable attorneys' fees and expenses in connection with any
action, suit or proceeding brought against Visteon) incurred or suffered by
Visteon (i) arising out of breach of any agreement made by Ford hereunder; (ii)
any claim made by a Global Visteon Employee (or such employee's dependents or
beneficiaries) arising out of or in connection with the operation,
administration, funding or termination of any of the benefit plans or programs
sponsored by Ford (excluding any programs sponsored by Ford subsidiaries that
have been transferred to Visteon), whenever made, including, without
limitation, claims made to the PBGC, DOL or the IRS; or (iii) employment claims
of Global Visteon Employees that arise prior to or after the Transfer Date
where the liability, if any, is primarily the result of and arising from
conduct of a Ford supervisor or manager not employed by the Business (as
opposed to the actions or inaction of Visteon or its subsidiaries or
affiliates).
<PAGE>
27
7.03 Procedure for Indemnity.
The procedure for indemnification under this Section 7 shall be the
same procedure as set forth in Section 7(C) through (j) of the Master Transfer
Agreement and shall be incorporated herein by reference.
7.04 Assumption of Liability.
As of the Transfer Date, Visteon will assume liability and
responsibility for all pending employment litigation by Global Ford Business
Employees transferred to Visteon pursuant to the terms hereof that relate to
the Business, provided, however that Visteon shall not assume any obligation or
liability and Ford with respect to the following litigation: Michael Jones et
al v. Ford Motor Company filed on June 9, 1993 in U.S. District Court, District
of Minnesota, regarding discrimination allegations. With respect to those cases
assumed, Visteon will have sole responsibility for deciding how to defend the
claims (e.g., whether to settle or litigate).
Article VIII
Miscellaneous
8.01 Dispute Resolution.
If a dispute arises between the Parties relating to this Agreement,
the following procedure shall be implemented except that either Party may seek
injunctive relief from a court where appropriate in order to maintain the
status quo while this procedure is being followed:
(a) Initial Meeting. The Parties shall hold a meeting promptly,
attended by persons with decision-making authority regarding the
dispute, to attempt in good faith to negotiate a resolution of
the dispute; provided, however, that no such meeting shall be
deemed to vitiate or reduce the obligations and liabilities of
the Parties or be deemed a waiver by a party hereto of any
remedies to which such Party would otherwise be entitled.
(b) Mediation. If, within thirty (30) days after such meeting, the
Parties have not succeeded in negotiating a resolution of the
dispute, they agree to submit the dispute to mediation in
accordance with the then-current Model Procedure for Mediation of
Business Disputes of the Center for Public Resources and to bear
equally the costs of the mediation. The Parties will jointly
appoint a mutually acceptable mediator, seeking assistance in
such regard from the Center for Public Resources if they have
been unable to agree upon such
<PAGE>
28
appointment within twenty (20) days from the conclusion of the
negotiation period.
(c) Arbitration. The Parties agree to participate in good faith in
the mediation and negotiations related thereto for a period of
thirty (30) days. If the Parties are not successful in resolving
the dispute through the mediation, then the Parties agree to
submit the matter to binding arbitration in accordance with the
Center for Public Resources Rules for Non-Administered
Arbitration, by a sole arbitrator.
(d) Procedure. Mediation or arbitration shall take place in the City
of Dearborn, Michigan. Equitable remedies shall be available in
any arbitration. Punitive or exemplary damages shall not be
awarded. This clause is subject to the Federal Arbitration Act, 9
U.S.C.A. Section 1 et seq., or comparable legislation in non-U.S.
jurisdictions, and judgment upon the award rendered by the
arbitrator, if any, may be entered by any court having
jurisdiction thereof.
8.02 Assignment.
This Agreement has been executed in consideration of the Parties
involved and therefore may not be assigned or transferred to a third party
without the prior written consent of the other Party. This Agreement will be
binding on the agreed successors to or assignees of either Party. In no event
will a Party be released from their indemnity obligations without the prior
written consent of the other Party.
8.03 Entire Agreement, Amendment, Waiver.
This Agreement embodies the entire agreement of the Parties and
supersedes any other agreements or understandings between them, whether oral or
written, relating to this subject matter. In the event of a conflict between
this Agreement and any other agreement between or among any of the Parties with
respect to the subject matter hereof, this Agreement shall control. No
amendment or modification or waiver of a breach of any term or condition of
this Agreement shall be valid unless in a writing signed by each of the
Parties. The failure of either Party to enforce, or the delay by either of them
in enforcing, any of its respective rights under this Agreement will not be
deemed a continuing waiver or a modification of any rights hereunder and either
Party may, within the time provided by applicable law and consistent with the
provisions of this Agreement, commence appropriate legal proceedings to enforce
any or all of its rights.
8.04 Notices.
Any notice or other communication hereunder must be given in writing
and either (a) delivered in person, (b) transmitted by facsimile transmission
or other telecommunications mechanism, (c) sent by a nationally recognized
<PAGE>
29
overnight courier service (delivery charges prepaid) or (d) sent by registered
or certified mail (postage prepaid, return receipt requested) as follows:
If to Ford:
Ford Motor Company
Henry Ford II World Center
The American Road
Dearborn, Michigan 48121-1899
Attention: Secretary
Fax: (313) 248-7036
If to Visteon:
Visteon Corporation
5500 Auto Club Drive
Dearborn, Michigan 48126
Attention: General Counsel
Fax: (313) 390-2718
All notices personally delivered shall be deemed received on the date
of delivery. Any notice sent via facsimile transmission shall be
deemed received on date shown on the confirmation advice. Any notice
by registered or certified mail shall be deemed to have been given on
the date of receipt or refusal thereof. The date of any notice by
overnight courier service shall be the date the airbill is signed by
the recipient. Any Party may change its address for the receipt of
notices by giving Notice thereof to the other.
8.05 Partial Invalidity.
Any provision of this Agreement which is found to be invalid or
unenforceable by any court in any jurisdiction will, as to that jurisdiction,
be ineffective to the extent of such invalidity or unenforceability, and the
invalidity or unenforceability of such provision will not affect the validity
or enforceability of the remaining provisions hereof.
8.06 Title and Headings.
Titles and headings of Sections and Subsections of this Agreement are
for convenience only and will not affect the construction of any provision of
this Agreement.
8.07 Negotiated Terms.
The Parties agree that the terms and conditions of this Agreement are
the result of negotiations between the Parties and that this Agreement will not
be construed in favor of or against any Party by reason of the extent to which
any Party or its professional advisors participated in the preparation of this
Agreement.
<PAGE>
30
8.08 Counterparts.
This Agreement may be executed in counterparts, each of which will be
deemed an original, but all of which taken together will constitute one and the
same instrument.
8.09 Governing Laws.
This Agreement is governed by the internal laws of the State of
Michigan.
8.10 Third Party Beneficiaries.
This Agreement is for the sole benefit of the Parties hereto and no
third party may claim any right, or enforce any obligation of the Parties,
hereunder.
8.11 Relationship.
Nothing contained in this Agreement will be construed to make any of
the Parties partners, principals, agents or employees of the other, except as
explicitly provided. None of the Parties will have any right, power or
authority, express or implied, to bind any of the other Parties. For purposes
of this Agreement, Affiliate means any individual, partnership, corporation,
limited liability company, trust, or other entity directly or indirectly,
through one or more intermediaries, controlling, controlled by or, under common
control with a Party.
8.12 Good Faith and Fair Dealing.
In entering into this Agreement, the Parties each acknowledge and
agree that all aspects of the relationship among the Parties contemplated by
this Agreement, including the performance of all obligations under this
Agreement, will be governed by the fundamental principle of good faith and fair
dealing.
8.13 Consents, Approvals and Requests.
Except as specifically set forth in this Agreement, all consents and
approvals to be given by any of the Parties or any of its respective Affiliates
under this Agreement will not be unreasonably withheld or delayed.
8.14 Further Assurances.
The Parties will execute such further assurances and other documents
and instruments and do such further and other things as may be necessary to
implement and carry out the intent of this Agreement.
<PAGE>
31
8.15. Sale of Visteon Business.
If Visteon sells all or part of the assets comprising the Business
after the Distribution Date, and transfers Global Visteon Employees to a
successor employer in connection with the sale of such Business assets, Visteon
shall attempt to negotiate in good faith with the successor employer provisions
with respect to benefit comparability and pension security no less favorable
than those set forth in Section 2.04 and Section 3.01 b.(vi).
IN WITNESS WHEREOF, the Parties hereto have duly executed
this Agreement as of the day and year first above written.
FORD MOTOR COMPANY VISTEON CORPORATION
By: By:
--------------------------------- ------------------------------
Title: Title:
------------------------------ ---------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
accompanying financial statements of Visteon Corporation for the three years
in the period ended December 31, 1999, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 1111335
<NAME> VISTEON CORPORATION
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 344
<SECURITIES> 0
<RECEIVABLES> 1,573
<ALLOWANCES> 0
<INVENTORY> 519
<CURRENT-ASSETS> 2,757
<PP&E> 9,239
<DEPRECIATION> 4,323
<TOTAL-ASSETS> 8,471
<CURRENT-LIABILITIES> 2,549
<BONDS> 1,136
0
0
<COMMON> 0
<OTHER-SE> 1,204
<TOTAL-LIABILITY-AND-EQUITY> 8,471
<SALES> 17,220
<TOTAL-REVENUES> 17,220
<CGS> 15,794
<TOTAL-COSTS> 16,369
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 82
<INCOME-PRETAX> 815
<INCOME-TAX> 305
<INCOME-CONTINUING> 511
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 511
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
accompanying financial statements of Visteon Corporation for the three years
in the period ended December 31, 1999, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 1111335
<NAME> VISTEON CORPORATION
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 542
<SECURITIES> 0
<RECEIVABLES> 1,761
<ALLOWANCES> 0
<INVENTORY> 606
<CURRENT-ASSETS> 3,191
<PP&E> 9,835
<DEPRECIATION> 4,444
<TOTAL-ASSETS> 9,373
<CURRENT-LIABILITIES> 3,164
<BONDS> 1,125
0
0
<COMMON> 0
<OTHER-SE> 1,655
<TOTAL-LIABILITY-AND-EQUITY> 9,373
<SALES> 17,762
<TOTAL-REVENUES> 17,762
<CGS> 15,969
<TOTAL-COSTS> 16,628
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 82
<INCOME-PRETAX> 1,116
<INCOME-TAX> 416
<INCOME-CONTINUING> 703
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 703
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
accompanying financial statements of Visteon Corporation for the three years
in the period ended December 31, 1999, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 1111335
<NAME> VISTEON CORPORATION
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,849
<SECURITIES> 0
<RECEIVABLES> 2,191
<ALLOWANCES> 0
<INVENTORY> 751
<CURRENT-ASSETS> 5,196
<PP&E> 10,645
<DEPRECIATION> 4,856
<TOTAL-ASSETS> 12,449
<CURRENT-LIABILITIES> 5,475
<BONDS> 2,319
0
0
<COMMON> 0
<OTHER-SE> 1,499
<TOTAL-LIABILITY-AND-EQUITY> 12,449
<SALES> 19,366
<TOTAL-REVENUES> 19,366
<CGS> 17,503
<TOTAL-COSTS> 18,177
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 143
<INCOME-PRETAX> 1,172
<INCOME-TAX> 422
<INCOME-CONTINUING> 735
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 735
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
