- Financial performance
- Sales of $2.04 billion ($1.78 billion excluding discontinued operations)
- Record quarterly adjusted EBITDA of $193 million ($175 million excluding discontinued operations)
- Cash from operations of $31 million
- Continued progress under comprehensive shareholder value creation plan
- Reached agreement to sell majority of interiors business
- Completed acquisition of Johnson Controls’ electronics business on July 1
- Completed HVCC acquisition of thermal and emissions product line of Cooper-Standard Automotive
- Purchased group annuity contract settling about one-third of U.S. pension liability at cost approximately equivalent to balance sheet liability
- Launched $500 million share repurchase via an accelerated stock buyback
- Refinanced 6.75 percent bonds with 7-year Libor + 275 bps term loan
- Increased full-year 2014 guidance for adjusted EBITDA, adjusted free cash flow and adjusted earnings per share
- Reflects improved performance and impact of discontinued operations, addition of newly acquired Johnson Controls electronics for second half, and other transactions
- Announced preliminary guidance for 2015 reflecting 13 percent increase in revenue and 16 percent increase in adjusted EBITDA compared with 2014
Visteon Corporation (NYSE: VC) today announced second-quarter 2014 results, reporting sales of $1.78 billion and a net loss attributable to Visteon of $155 million, or a loss of $3.35 per diluted share, which includes a $173 million loss related to the agreement to sell a majority of the interiors business. Adjusted EBITDA, a non-GAAP financial measure as defined below, was $193 million, compared with $163 million in the same period last year. As a result of the previously announced agreement to divest a majority of its interiors business, Visteon reclassified a significant portion of interiors results to discontinued operations and recast prior periods accordingly.
“We achieved record quarterly adjusted EBITDA on the underlying strength of our core thermal energy management and cockpit electronics businesses,” said Tim Leuliette, president and CEO. “Our performance was buoyed by some positive customer agreements, and we also completed several actions under our value creation strategy – most notably the acquisition of Johnson Controls’ electronics business. With our two profitable, technology-focused core businesses, Visteon is nicely positioned for growth and for continuing to deliver exceptional value to customers and shareholders.”
Cash from operating activities including discontinued operations in the second quarter totaled $31 million, compared to $36 million from the same period in 2013. Adjusted free cash flow, a non-GAAP financial measure as defined below, including discontinued operations, was a use of $18 million for the second quarter of 2014.
Continued Progress on Shareholder Value Creation Plan
Johnson Controls Electronics Acquisition
On July 1, Visteon completed the purchase of the automotive electronics business of Johnson Controls in a cash transaction valued at $265 million, subject to adjustment. The newly combined electronics enterprise has annual sales of more than $3 billion and holds the No. 2 global position in driver information, with above-average growth rates for the cockpit electronics segment.
HVCC Acquisition of Thermal and Emissions Product Line of Cooper-Standard Automotive
On July 31, Halla Visteon Climate Control Corp. (HVCC) completed the purchase of the automotive thermal and emissions product line of Cooper-Standard Automotive Inc., a subsidiary of Cooper-Standard Holdings Inc., in a move that expands HVCC’s thermal energy management product portfolio and further diversifies its customer base. HVCC, which is 70 percent owned by Visteon, announced the cash transaction, valued at $46 million, on June 30.
Purchase of Group Annuity Contract for Certain U.S. Pension Assets
Visteon on July 16 announced that it had entered into an agreement to transfer certain U.S. pension assets to Prudential Insurance Company of America, a subsidiary of Prudential Financial, Inc., to settle approximately $350 million of Visteon’s $1.1 billion in outstanding U.S. pension obligations. The transaction furthers Visteon’s objective of reducing risk in the pension plan and better managing the ongoing cost volatility of such plans, while continuing to meet its obligation to all current participants. The annuity purchase requires no immediate cash contribution from the company and will be funded by existing plan assets.
Refinancing Actions
In April, Visteon entered into a credit agreement for a total commitment of $800 million, including a $600 million seven-year delayed draw term loan B with a final maturity date of April 9, 2021, and a $200 million five-year revolving credit facility with a maturity date of April 9, 2019. On June 23, 2014, Visteon drew the $600 million term loan. In the second quarter of 2014, Visteon also redeemed its remaining $400 million of outstanding 6.75 percent senior notes due April 15, 2019.
Share Repurchase Program
In May, Visteon entered into agreements with a third-party financial institution to repurchase $500 million of its common shares under an accelerated stock buyback (ASB) program. Visteon subsequently paid the $500 million and received initial share deliveries totaling 4,523,158 shares in May. The total number of shares that the company ultimately will receive will be determined when the ASB program is completed, based generally on the daily volume-weighted average share price of the company’s common stock during a period of up to approximately 12 months, minus an agreed discount, 50 percent of which will be subject to a maximum per share price.
Second Quarter in Review
Visteon reported second-quarter sales of $1.78 billion, an increase of $172 million compared with the same quarter a year earlier. Climate sales totaled $1.33 billion, an increase of $85 million from the second quarter last year; electronics sales of $443 million were up $89 million year-over-year. Hyundai-Kia accounted for approximately 39 percent of Visteon’s second-quarter sales and Ford Motor Company accounted for 30 percent. On a regional basis, Asia accounted for 51 percent of sales, including the impacts of Yanfeng Visteon Electronics Co. Ltd. (YFVE), in which Visteon acquired a controlling ownership interest effective in November 2013; Europe represented 27 percent; North America 19 percent; and South America 3 percent. An additional $258 million of sales were reclassified as discontinued operations.
Gross margin for the second quarter of 2014 was $194 million, compared with $163 million a year earlier. The $31 million increase included YFVE consolidation impacts, higher sales volume and new business impacts, partially offset by exchange. Selling, general and administrative (SG&A) expenses were $84 million, or 4.7 percent of sales, for the second quarter of 2014 compared with $77 million, or 4.8 percent of sales, a year earlier. Equity in net income of non-consolidated affiliates decreased by $31 million as a result of the 2013 sale of the company’s 50 percent ownership interest in Yanfeng Automotive Trim Systems Co., Ltd.
For the second quarter of 2014, the company reported net loss attributable to Visteon of $155 million, or a loss of $3.35 per diluted share. Net income attributable to Visteon decreased $220 million compared with the same period a year ago, reflecting an impairment loss on long-lived assets held for sale of $173 million, included in loss from discontinued operations; lower equity in net income of non-consolidated affiliates of $31 million; and a loss on debt extinguishment of $23 million relating to the redemption of the 6.75 percent senior notes due April 2019. Adjusted EBITDA for the second quarter of 2014 was $193 million, compared with $163 million for the same period a year earlier, primarily reflecting the impact of YFVE, favorable volume and new business, partially offset by currency impacts.
Cash and Debt Balances
As of June 30, 2014, Visteon had global cash balances totaling $1.4 billion, including restricted cash of $12 million, cash held for sale of $114 million, and restricted cash held for sale of $14 million. Total debt as of June 30 was $960 million, including debt held for sale of $32 million.
For the second quarter of 2014, Visteon generated $31 million of cash from operations including discontinued operations, compared with $36 million in the same period a year earlier. The $5 million decrease was primarily driven by timing of working capital, partially offset by higher non-consolidated affiliate dividends. Capital expenditures including discontinued operations in the quarter were $75 million, up from $51 million in the second quarter of 2013. Adjusted free cash flow including discontinued operations was a use of $18 million in the quarter, compared with $2 million generated in the second quarter of 2013.
Full-Year 2014 Outlook
Visteon adjusted its full-year 2014 guidance for its key financial metrics to reflect improved performance and the impact of discontinued operations and several transactions, including the Johnson Controls electronics acquisition. The company projects 2014 sales of $7.6 billion, adjusted EBITDA including discontinued operations in the range of $700 million to $730 million, adjusted free cash flow in the range of $125 million to $165 million, and adjusted earnings per share in the range of $2.98 to $3.62.
