Edgar Filing: VISTEON CORP

Visteon10Q Q3 2012

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

________________

FORM 10-Q

(Mark One)


þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2012,


¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________

Commission file number 001-15827

VISTEON CORPORATION

(Exact name of registrant as specified in its charter)



State of Delaware	38-3519512
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
One Village Center Drive, Van Buren Township, Michigan	48111
(Address of principal executive offices)	(Zip code)

Registrant’s telephone number, including area code: (800)-VISTEON

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ü No__

Indicate by check mark whether the registrant: has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ü No __

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer," "accelerated filer” and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ü Accelerated filer __ Non-accelerated filer __ Smaller reporting company __

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes __ No ü

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ü No__

As of October 26, 2012, the registrant had outstanding 52,801,763 shares of common stock.

Exhibit index located on page number 55.

INDEX



Part I - Financial Information
	Item 1 - Consolidated Financial Statements	1
	Consolidated Statements of Comprehensive Income (Unaudited)	1
	Consolidated Balance Sheets (Unaudited)	2
	Consolidated Statements of Cash Flows (Unaudited)	3
	Notes to Consolidated Financial Statements (Unaudited)	4
	Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations	31
	Item 3 - Quantitative and Qualitative Disclosures about Market Risk	51
	Item 4 - Controls and Procedures	52
Part II - Other Information
	Item 1 - Legal Proceedings	52
	Item 1A - Risk Factors	52
	Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds	52
	Item 6 - Exhibits	53
Signature		53
Exhibit Index		55

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PART I

FINANCIAL INFORMATION


ITEM 1.	CONSOLIDATED FINANCIAL STATEMENTS

VISTEON CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in Millions Except Per Share Amounts)

(Unaudited)



	Three Months Ended						Nine Months Ended
	September 30						September 30
	2012			2011			2012			2011

Sales	$	1,624		$	1,909		$	5,034		$	5,805
Cost of sales	1,495			1,770			4,643			5,331
Gross margin	129			139			391			474
Selling, general and administrative expenses	89			95			267			291
Interest expense	17			10			39			37
Interest income	4			5			11			16
Loss on debt extinguishment	4			—			4			24
Equity in net income of non-consolidated affiliates	38			43			183			130
Restructuring and other (income) expenses	(11		)	1			63			29
Income from continuing operations before income taxes	72			81			212			239
Provision for income taxes	33			25			102			87
Income from continuing operations	39			56			110			152
(Loss) income from discontinued operations, net of tax	(5		)	4			(3		)	8
Net income	34			60			107			160
Net income attributable to non-controlling interests	19			19			46			54
Net income attributable to Visteon Corporation	$	15		$	41		$	61		$	106

Basic earnings (loss) per share:
Continuing operations	$	0.37		$	0.72		$	1.21		$	1.92
Discontinued operations	(0.09		)	0.08			(0.06		)	0.15
Basic earnings attributable to Visteon Corporation	$	0.28		$	0.80		$	1.15		$	2.07
Diluted earnings (loss) per share:
Continuing operations	$	0.37		$	0.71		$	1.20		$	1.89
Discontinued operations	(0.09		)	0.08			(0.06		)	0.15
Diluted earnings attributable to Visteon Corporation	$	0.28		$	0.79		$	1.14		$	2.04

Comprehensive income:
Comprehensive income (loss)	$	96		$	(102	)	$	163		$	110
Comprehensive income (loss) attributable to Visteon Corporation	$	63		$	(84	)	$	103		$	74

See accompanying notes to the consolidated financial statements.

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VISTEON CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in Millions)

(Unaudited)



	September 30			December 31
	2012			2011

ASSETS
Cash and equivalents	$	901		$	723
Restricted cash	19			23
Accounts receivable, net	1,168			1,071
Inventories	408			381
Other current assets	265			296
Total current assets	2,761			2,494

Property and equipment, net	1,278			1,412
Equity in net assets of non-consolidated affiliates	734			644
Intangible assets, net	324			353
Other non-current assets	73			66
Total assets	$	5,170		$	4,969

LIABILITIES AND SHAREHOLDERS’ EQUITY
Short-term debt, including current portion of long-term debt	$	89		$	87
Accounts payable	1,077			1,010
Accrued employee liabilities	162			189
Other current liabilities	248			267
Total current liabilities	1,576			1,553

Long-term debt	506			512
Employee benefits	413			495
Deferred tax liabilities	202			187
Other non-current liabilities	251			225

Shareholders’ equity:
Preferred stock (par value $0.01, 50 million shares authorized, none outstanding at September 30, 2012 and December 31, 2011)	—			—
Common stock (par value $0.01, 250 million shares authorized, 54 million and 52 million shares issued, 53 million and 52 million shares outstanding at September 30, 2012 and December 31, 2011, respectively)	1			1
Stock warrants	13			13
Additional paid-in capital	1,258			1,165
Retained earnings	227			166
Accumulated other comprehensive income (loss)	17			(25		)
Treasury stock	(17		)	(13		)
Total Visteon Corporation shareholders’ equity	1,499			1,307
Non-controlling interests	723			690
Total shareholders’ equity	2,222			1,997
Total liabilities and shareholders’ equity	$	5,170		$	4,969

See accompanying notes to the consolidated financial statements.

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VISTEON CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in Millions)

(Unaudited)



	Nine Months Ended
	September 30
	2012			2011
Operating Activities
Net income	$	107		$	160
Adjustments to reconcile net income to net cash provided from operating activities:
Depreciation and amortization	196			248
Equity in net income of non-consolidated affiliates, net of dividends remitted	(107		)	(88		)
Loss on debt extinguishment	4			24
Other non-cash items	33			26
Changes in assets and liabilities:
Accounts receivable	(58		)	(131		)
Inventories	(54		)	(50		)
Accounts payable	41			(19		)
Other assets and other liabilities	1			(115		)
Net cash provided from operating activities	163			55

Investing Activities
Capital expenditures	(146		)	(185		)
Proceeds from business divestitures	100			—
Proceeds from asset sales	88			11
Other	(2		)	(13		)
Net cash provided from (used by) investing activities	40			(187		)

Financing Activities
Short-term debt, net	2			11
Proceeds from issuance of debt, net of issuance costs	812			503
Principal payments on debt	(824		)	(513		)
Cash restriction, net	—			52
Rights offering fees	—			(33		)
Dividends to non-controlling interests	(23		)	(29		)
Other	—			3
Net cash used by financing activities	(33		)	(6		)
Effect of exchange rate changes on cash and equivalents	8			(9		)
Net increase (decrease) in cash and equivalents	178			(147		)
Cash and equivalents at beginning of period	723			905
Cash and equivalents at end of period	$	901		$	758

See accompanying notes to the consolidated financial statements.

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VISTEON CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. Basis of Presentation

Description of Business: Visteon Corporation (the “Company” or “Visteon”) is a supplier of climate, interiors and electronics systems, modules and components to global automotive original equipment manufacturers (“OEMs”). Headquartered in Van Buren Township, Michigan, Visteon has a workforce of approximately 22,000 employees and a network of manufacturing operations, technical centers and joint ventures in every major geographic region of the world.

Interim Financial Statements: The unaudited consolidated financial statements of the Company have been prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States ("GAAP") have been condensed or omitted pursuant to such rules and regulations. These interim consolidated financial statements include all adjustments (consisting of normal recurring adjustments, except as otherwise disclosed) that management believes are necessary for a fair presentation of the results of operations, financial position and cash flows of the Company for the interim periods presented. Interim results are not necessarily indicative of full-year results.

Use of Estimates: The preparation of the financial statements in conformity with GAAP requires management to make estimates, judgments and assumptions that affect amounts reported herein. Management believes that such estimates, judgments and assumptions are reasonable and appropriate. However, due to the inherent uncertainty involved, actual results may differ from those provided in the Company's consolidated financial statements.

Reclassifications: Certain prior period amounts have been reclassified to conform to the current period presentation.

Principles of Consolidation: The consolidated financial statements include the accounts of the Company and all subsidiaries that are more than 50% owned and over which the Company exercises control. Investments in affiliates of greater than 20% and for which the Company exercises significant influence but does not exercise control are accounted for using the equity method.

Revenue Recognition: The Company records revenue when persuasive evidence of an arrangement exists, delivery occurs or services are rendered, the sales price is fixed or determinable and collectibility is reasonably assured. The Company ships product and records revenue pursuant to commercial agreements with its customers generally in the form of an approved purchase order, including the effects of contractual customer price productivity. The Company does negotiate discrete price changes with its customers, which are generally the result of unique commercial issues between the Company and its customers. The Company records amounts associated with discrete price changes as a reduction to revenue when specific facts and circumstances indicate that a price reduction is probable and the amounts are reasonably estimable. The Company records amounts associated with discrete price changes as an increase to revenue upon execution of a legally enforceable contractual agreement and when collectibility is reasonably assured.

Reorganization under Chapter 11 of the U.S. Bankruptcy Code: On May 28, 2009, Visteon and certain of its U.S. subsidiaries (the “Debtors”) filed voluntary petitions for reorganization relief under chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the District of Delaware (the “Court”) in response to sudden and severe declines in global automotive production during the latter part of 2008 and early 2009 and the resulting adverse impact on the Company’s cash flows and liquidity. On August 31, 2010, the Court entered an order confirming the Debtors’ joint plan of reorganization. On October 1, 2010 (the “Effective Date”), all conditions precedent to the effectiveness of the Plan and related documents were satisfied or waived and the Company emerged from bankruptcy. The Company adopted fresh-start accounting upon emergence from the Chapter 11 Proceedings and became a new entity for financial reporting purposes as of the Effective Date.

Restricted Cash: Restricted cash represents amounts designated for uses other than current operations and includes $9 million of collateral for the Letter of Credit Facility with US Bank National Association, and $10 million related to cash collateral for other corporate purposes at September 30, 2012.

New Accounting Pronouncements: In June 2011, the Financial Accounting Standards Board ("FASB") issued guidance amending comprehensive income disclosures retrospectively, for fiscal years, and interim reporting periods within those years, beginning after December 15, 2011. This guidance requires disclosures of all non-owner changes (components of comprehensive income) in stockholders’ equity to be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The Company adopted these new disclosure requirements with effect from January 1, 2012.

In July 2012, the FASB issued guidance on testing indefinite-lived intangible assets for impairment. This guidance allows the

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option first to assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the indefinite-lived intangible asset is impaired or the option to bypass the qualitative assessment for any indefinite-lived intangible asset in any period and proceed directly to performing the quantitative impairment test. The Company does not expect this guidance to have a material impact on its consolidated financial statements.

NOTE 2. Discontinued Operations

In March 2012, the Company entered into an agreement for the sale of assets and liabilities associated with the Company's Lighting operations to Varroccorp Holding BV and Varroc Engineering Pvt. Ltd. (together, "Varroc Group") for proceeds of approximately $90 million, including $20 million related to the Company's 50% equity interest in Visteon TYC Corporation (“VTYC”) (collectively the "Lighting Transaction"). On August 1, 2012, the Company completed the Lighting Transaction, excluding the Company's investment in VTYC, for proceeds of approximately $70 million, subject to purchase price adjustments. During the quarterly period ended March 31, 2012, the Company determined that assets and liabilities subject to the Lighting Transaction, excluding the Company's investment in VTYC, met the "held for sale" criteria under U.S. GAAP. The Company recorded related asset impairment charges of approximately $6 million and $19 million, respectively, during the three and nine-month periods ended September 30, 2012.

The Lighting operations represent a component of the Company's business. Accordingly, the results of operations of the Lighting business have been reclassified to “(Loss) income from discontinued operations, net of tax” in the Consolidated Statements of Comprehensive Income for the three and nine-month periods ended September 30, 2012 and 2011. Discontinued operations are summarized as follows:



	Three Months Ended					Nine Months Ended
	September 30					September 30
	2012			2011		2012			2011
	(Dollars in Millions)
Sales	$	32		$	128	$	297		$	383
Cost of sales	28			119		264			363
Gross margin	4			9		33			20
Selling, general and administrative expenses	1			3		7			9
Asset impairments	6			—		19			—
Interest expense	1			—		2			1
Other expenses	1			2		4			2
(Loss) income from discontinued operations before income taxes	(5		)	4		1			8
Provision for income taxes	—			—		4			—
Net (loss) income from discontinued operations attributable to Visteon Corporation	$	(5	)	$	4	$	(3	)	$	8

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Note 3. Restructuring and Other (Income) / Expenses

Restructuring and other (income) / expenses consist of the following:



	Three Months Ended					Nine Months Ended
	September 30					September 30
	2012			2011		2012			2011
	(Dollars in Millions)
Restructuring expenses	$	2		$	1	$	44		$	18
Loss on asset contribution	—			—		14			—
Transformation costs	5			—		23			3
Bankruptcy-related costs	1			—		1			8
Gain on sale of joint venture interest	(19		)	—		(19		)	—
	$	(11	)	$	1	$	63		$	29

Restructuring Activities

The Company has undertaken various restructuring activities to achieve its strategic and financial objectives. Restructuring activities include, but are not limited to, plant closures, production relocation, administrative cost structure realignment and consolidation of available capacity and resources. The Company expects to finance restructuring programs through cash on hand, cash generated from its ongoing operations, reimbursements pursuant to customer accommodation and support agreements or through cash available under its existing debt agreements, subject to the terms of applicable covenants. Restructuring costs are recorded when elements of a plan are finalized and the timing of activities and the amount of related costs are not likely to change. However, such costs are estimated based on information available at the time such charges are recorded. In general, management anticipates that restructuring activities will be completed within a time frame such that significant changes to the plan are not likely. Due to the inherent uncertainty involved in estimating restructuring expenses, actual amounts paid for such activities may differ from amounts initially estimated.

Given the economically-sensitive and highly competitive nature of the automotive industry, the Company continues to closely monitor current market factors and industry trends taking action as necessary, including but not limited to, additional restructuring actions. However, there can be no assurance that any such actions will be sufficient to fully offset the impact of adverse factors on the Company or its results of operations, financial position and cash flows.

At September 30, 2012 and December 31, 2011, restructuring liabilities of $8 million and $26 million, respectively, are classified as other current liabilities in the consolidated balance sheets. The Company anticipates that the activities associated with these reserves will be substantially completed by the end of 2012. The following is a summary of the Company's restructuring reserves and related activity for the nine months ended September 30, 2012.



	Electronics			Interiors			Climate			Total
	(Dollars in Millions)
December 31, 2011	$	19		$	6		$	1		$	26
Expenses	36			4			1			41
Utilization	(49		)	(3		)	(1		)	(53		)
March 31, 2012	6			7			1			14
Expenses	—			—			1			1
Utilization	(5		)	—			(1		)	(6		)
June 30, 2012	1			7			1			9
Expenses	—			—			2			2
Utilization	—			(1		)	(2		)	(3		)
September 30, 2012	$	1		$	6		$	1		$	8

During the first quarter of 2012, the Company recorded $41 million of restructuring expenses, including $36 million in connection with the previously announced closure of the Company's Cadiz Electronics operation in El Puerto de Santa Maria, Spain. In January

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2012 the Company reached agreements with the local unions and Spanish government for the closure of its Cadiz operation, which were subsequently ratified by the employees in February 2012. Pursuant to the agreements, the Company agreed to pay one-time termination benefits, in excess of the statutory minimum requirement, of approximately $31 million. Additionally, the Company agreed to transfer land, building and machinery with a net book value of approximately $14 million for the benefit of the employees. The Company also recorded $5 million of other exit costs related to the Cadiz exit including amounts payable to the Spanish government in connection with the asset contribution. Utilization during the three months ended March 31, 2012 includes $48 million of payments to former Cadiz employees for employee severance and termination benefits. Payment of $4 million to the Spanish government in connection with the asset contribution was included in utilization for the three months ended June 30, 2012. The Company recovered approximately $19 million of such costs during the first half of 2012 pursuant to the Release Agreement with Ford for an aggregate recovery of $23 million when considering the $4 million received during 2011. Amounts recovered have been recorded as deferred revenue on the Company's consolidated balance sheet as further described in Note 9, "Other Liabilities".

During the nine months ended September 30, 2011, the Company recorded approximately $27 million of restructuring expenses, including $22 million for severance and termination benefits representing the minimum amount of employee separation costs pursuant to statutory regulations related to the closure of its Cadiz Electronics operation and $5 million for employee severance and termination benefits associated with previously announced actions at two European Interiors facilities. Additionally, the Company reversed approximately $9 million of previously recorded restructuring expenses, including $7 million for employee severance and termination benefits at a European Interiors facility pursuant to a March 2011 contractual agreement to cancel the related social plan and $2 million due to lower than estimated severance and termination benefit costs associated with the consolidation of the Company's Electronics operations in South America.

Other Activities

Business transformation costs of $5 million and $23 million were incurred during the three and nine months ended September 30, 2012, respectively, related to financial and advisory fees associated with the Company's transformation of its business portfolio and rationalization of its cost structure including, among other things, the investigation of potential transactions for the sale, merger or other combination of certain businesses.

The Company recorded bankruptcy-related costs of $1 million and $8 million during the nine-month periods ended September 30, 2012 and 2011, respectively, which were the result of amounts directly associated with the bankruptcy claims settlement process under Chapter 11.

In August 2012, the Company sold its 50% ownership interest in R-Tek Limited, a UK-based Interiors joint venture, for cash proceeds of approximately $30 million, resulting in a gain of $19 million.

NOTE 4. Inventories

Inventories are stated at the lower of cost, determined on a first-in, first-out basis, or market. A summary of inventories is provided below:



	September 30			December 31
	2012			2011
	(Dollars in Millions)
Raw materials	$	163		$	167
Work-in-process	181			174
Finished products	89			64
	433			405
Valuation reserves	(25		)	(24		)
	$	408		$	381

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NOTE 5. Other Assets

Other current assets are summarized as follows:



	September 30		December 31
	2012		2011
	(Dollars in Millions)
Recoverable taxes	$	92	$	99
Pledged accounts receivable	47		82
Deposits	31		32
Deferred tax assets	24		30
Non-consolidated affiliate receivables	19		32
Prepaid assets	19		17
Foreign currency hedges	17		—
Other	16		4
	$	265	$	296

Other non-current assets are summarized as follows:



	September 30		December 31
	2012		2011
	(Dollars in Millions)
Deferred tax assets	$	17	$	18
Reimbursable engineering costs	12		—
Income tax receivable	10		11
Deposits	7		7
Debt issuance costs	6		8
Other	21		22
	$	73	$	66

NOTE 6. Property and Equipment

Property and equipment, net consists of the following:



	September 30			December 31
	2012			2011
	(Dollars in Millions)
Land	$	158		$	184
Buildings and improvements	264			311
Machinery, equipment and other	1,082			985
Construction in progress	73			106
	1,577			1,586
Accumulated depreciation	(374		)	(254		)
	1,203			1,332
Product tooling, net of amortization	75			80
Property and equipment, net	$	1,278		$	1,412

Property and equipment is depreciated principally using the straight-line method of depreciation over estimated useful lives. Generally, buildings and improvements are depreciated over a 40-year estimated useful life and machinery, equipment and other assets are depreciated over estimated useful lives ranging from 3 to 15 years. Product tooling is amortized using the straight-line

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method over the estimated life of the tool, generally not exceeding 6 years. Depreciation and amortization expenses are summarized as follows:



	Three Months Ended				Nine Months Ended
	September 30				September 30
	2012		2011		2012		2011
	(Dollars in Millions)
Depreciation	$	51	$	69	$	158	$	200
Amortization	3		5		8		14
	$	54	$	74	$	166	$	214

On April 17, 2012, the Company sold its corporate headquarters, which had a net book value of approximately $60 million, for proceeds of approximately $80 million. In connection with the sale, the Company entered into an agreement to lease back the corporate offices over a period of 15 years. The resulting gain on the sale of $20 million is being recognized into income over the lease term on a straight-line basis.

NOTE 7. Non-Consolidated Affiliates

The Company recorded equity in net income of non-consolidated affiliates of $38 million and $43 million for the three-month periods ended September 30, 2012 and 2011, respectively. For the nine-month periods ended September 30, 2012 and 2011, the Company recorded equity in net income of non-consolidated affiliates of $183 million and $130 million, respectively. Equity in net income of non-consolidated affiliates for the nine months ended September 30, 2012 includes $63 million representing Visteon's equity interest in a non-cash gain recorded by Yanfeng Visteon Automotive Trim Systems Co., Ltd (“Yanfeng”), a 50% owned non-consolidated affiliate of the Company. The gain resulted from the excess of fair value over carrying value of a former equity investee of Yanfeng that was consolidated effective June 1, 2012 pursuant to changes in the underlying joint venture agreement. The amounts recorded by Yanfeng are based on preliminary estimates of enterprise value, which remain subject to finalization. Final determination of the values may result in adjustments to the amount of the gain reported herein. The Company had $734 million and $644 million of equity in the net assets of non-consolidated affiliates at September 30, 2012 and December 31, 2011, respectively. The following table presents summarized financial data for the Company’s non-consolidated affiliates and reflects 100% of the operating results of such affiliates.



	Three Months Ended September 30
	Net Sales				Gross Margin				Net Income
	2012		2011		2012		2011		2012		2011
	(Dollars in Millions)
Yanfeng	$	1,582	$	740	$	257	$	125	$	62	$	68
All other	404		211		46		38		15		19
	$	1,986	$	951	$	303	$	163	$	77	$	87



	Nine Months Ended September 30
	Net Sales				Gross Margin				Net Income
	2012		2011		2012		2011		2012		2011
	(Dollars in Millions)
Yanfeng	$	3,366	$	2,199	$	557	$	362	$	319	$	200
All other	1,284		603		140		108		59		60
	$	4,650	$	2,802	$	697	$	470	$	378	$	260

Yanfeng sales and gross margin for the three months ended September 30, 2012 include approximately $727 million and $130 million, respectively, related to activity of a former equity investee that was consolidated effective June 1, 2012. Yanfeng sales and gross margin for the nine months ended September 30, 2012 include approximately $927 million and $170 million, respectively, related to post-consolidation activity of the aforementioned equity investee. Yanfeng net income for the nine months ended September 30, 2012 includes approximately $130 million associated with a non-cash gain on the consolidation of a former equity investee. Net sales for all other non-consolidated affiliates for the three and nine-month periods ended September 30, 2012 included

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$163 million and $571 million, respectively, related to Duckyang. The Company commenced equity method accounting for Duckyang from October 2011 following the sale of a controlling ownership interest and deconsolidation from the Company's financial statements.

The Company monitors its investments in the net assets of non-consolidated affiliates for indicators of other-than-temporary declines in value on an ongoing basis. If the Company determines that such a decline has occurred, an impairment loss is recorded, which is measured as the difference between carrying value and fair value.

NOTE 8. Intangible Assets

Intangible assets, net are comprised of the following:



	September 30, 2012						December 31, 2011
	Gross Carrying Value		Accumulated Amortization		Net Carrying Value		Gross Carrying Value		Accumulated Amortization		Net Carrying Value
	(Dollars in Millions)
Definite-lived intangible assets
Developed technology	$	203	$	52	$	151	$	204	$	32	$	172
Customer related	121		26		95		119		16		103
Other	21		4		17		20		3		17
Total	$	345	$	82	$	263	$	343	$	51	$	292

Goodwill and indefinite-lived intangible assets (a)
Goodwill					$	36					$	36
Trade names					25						25
Total					61						61
					$	324					$	353

(a) Goodwill and trade names, substantially all of which relate to the Company's Climate reporting unit.

The Company recorded approximately $10 million and $30 million of amortization expense related to definite-lived intangible assets for the three and nine-month periods ended September 30, 2012, respectively. The Company recorded approximately $12 million and $34 million of amortization expense related to definite-lived intangible assets for the three and nine-month periods ended September 30, 2011, respectively. The Company estimates annual amortization expense to be approximately $40 million through 2016. Goodwill and trade names are not amortized but are assessed for impairment annually, or earlier when events and circumstances indicate that it is more likely than not that such assets have been impaired.

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NOTE 9. Other Liabilities

Other current liabilities are summarized as follows:



	September 30		December 31
	2012		2011
	(Dollars in Millions)
Product warranty and recall reserves	$	40	$	42
Deferred income	37		21
Non-income taxes payable	36		41
Payables to non-consolidated affiliates	31		24
Accrued interest payable	16		7
Income taxes payable	13		29
Restructuring reserves	8		26
Accrued legal reserves	7		8
Claims settlement accruals	2		9
Foreign currency hedges	—		16
Other accrued liabilities	58		44
	$	248	$	267

Other non-current liabilities are summarized as follows:



	September 30		December 31
	2012		2011
	(Dollars in Millions)
Income tax reserves	$	106	$	97
Deferred income	60		42
Non-income taxes payable	45		44
Product warranty and recall reserves	25		24
Legal and environmental reserves	7		8
Other accrued liabilities	8		10
	$	251	$	225

Current and non-current deferred income at September 30, 2012 of $17 million and $37 million, respectively, relate to various customer accommodation, support and other agreements. Revenue associated with these agreements is being recorded in relation to the delivery of associated products in accordance with the terms of the underlying agreement or over the estimated period of benefit to the customer, generally representing the duration of remaining production on current vehicle platforms. The Company recorded $5 million and $15 million of revenue associated with these payments during the three and nine-month periods ended September 30, 2012, respectively. The Company expects to record approximately $5 million, $16 million, $14 million, $10 million and $9 million of deferred amounts in the remainder of 2012 and the annual periods of 2013, 2014, 2015 and 2016, respectively.

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NOTE 10. Debt

As of September 30, 2012, the Company had debt outstanding of $89 million and $506 million classified as short-term debt and long-term debt, respectively. The Company’s short and long-term debt balances consist of the following:



	September 30		December 31
	2012		2011
	(Dollars in Millions)
Short-term debt
Current portion of long-term debt	$	—	$	1
Other – short-term	89		86
Total short-term debt	89		87

Long-term debt
6.75% senior notes due April 15, 2019	495		494
Other	11		18
Total long-term debt	506		512
Total debt	$	595	$	599

As of September 30, 2012, the Company's revolving loan credit agreement had a borrowing capacity of $156 million, and no amounts were outstanding. On April 3, 2012, the Company entered into an amendment to the revolving loan credit agreement to allow for the potential sale of the Lighting assets as well as the sale and leaseback of the Company's U.S. corporate headquarters. On July 3, 2012, the Company entered into an amendment to the revolving loan credit agreement to, among other things, reduce the aggregate lending commitment to $175 million and modify certain restrictive covenants to permit certain asset dispositions, hedging and similar arrangements and the incurrence of limited categories of indebtedness.

In connection with the Company's $15 million Letter of Credit ("LOC") Facility with US Bank National Association, the Company must continue to maintain a collateral account equal to 103% of the aggregated stated amount of the LOCs with reimbursement of any draws. As of September 30, 2012 and December 31, 2011, the Company had $9 million and $11 million of outstanding letters of credit issued under this facility and secured by restricted cash, respectively. In addition, the Company had $13 million of locally issued letters of credit to support various customs arrangements and other obligations at its local affiliates of which $8 million are securitized by cash collateral as of September 30, 2012.

As of September 30, 2012, the Company had affiliate debt outstanding of $100 million, with $89 million and $11 million classified in short-term and long-term debt, respectively. These balances are primarily related to the Company’s non-U.S. operations and are payable in non-U.S. currencies including, but not limited to, the Euro, Chinese Yuan, and Korean Won. Remaining availability on outstanding affiliate credit facilities is approximately $193 million and certain of these facilities have pledged receivables, inventory or equipment as security. Included in the Company's affiliate debt is an arrangement, through a subsidiary in France, to sell accounts receivable on an uncommitted basis. The amount of financing available is contingent upon the amount of receivables less certain reserves. The Company pays a 30 basis point servicing fee on all receivables sold, as well as a financing fee of 3-month Euribor plus 75 basis points on the advanced portion. At September 30, 2012, there was $13 million of outstanding borrowings under the facility with $47 million of receivables pledged as security, which are recorded as Other current assets on the consolidated balance sheet.

On July 4, 2012 the Company's wholly owned subsidiary, Visteon Korea Holdings Corp., commenced a cash tender offer to purchase 32.0 million shares of Halla Climate Control Corporation (“Halla”), a 70% owned subsidiary of the Company, representing the remaining 30% outstanding ownership interest. The tender offer and related costs were to be funded through a fully committed Korean debt facility of 1 trillion KRW or $881 million (the "Bridge Loan"), under which Visteon Korea Holdings Corp. borrowed 925 billion KRW or $815 million. The Bridge Loan was secured by a pledge of all of the shares of capital stock of Halla owned directly or indirectly by Visteon. On July 24, 2012 the tender offer expired without acceptance of the tendered shares. During August 2012 Visteon Korea Holdings Corp. repaid amounts previously borrowed and permanently reduced the available commitments under the Bridge Loan without penalty after following certain advance notice and other procedures. The Company incurred debt extinguishment costs of approximately $4 million and interest of $5 million during the three and nine-month periods ended September 30, 2012 in connection with this financing arrangement.

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The fair value of debt was approximately $621 million at September 30, 2012 and $587 million at December 31, 2011. Fair value estimates were based on quoted market prices or current rates for the same or similar issues, or on the current rates offered to the Company for debt of the same remaining maturities.

NOTE 11. Employee Retirement Benefits

Defined Contribution Plans

Most U.S. salaried employees and certain non-U.S. employees are eligible to participate in defined contribution plans by contributing a portion of their compensation, which is partially matched by the Company. Effective January 1, 2012, matching contributions for the U.S. defined contribution plan are 100% on the first 6% of pay contributed. The expense related to matching contributions was approximately $3 million and $11 million for the three-month and nine-month periods ended September 30, 2012, respectively. The expense related to matching contributions was approximately $2 million and $4 million for the three-month and nine-month periods ended September 30, 2011, respectively.

Defined Benefit Plans

The components of the Company’s net periodic benefit costs for the three-month periods ended September 30, 2012 and 2011 were as follows:



	Retirement Plans												Health Care and Life Insurance Benefits
	U.S. Plans						Non-U.S. Plans						Health Care and Life Insurance Benefits
	2012			2011			2012			2011			2012		2011
	(Dollars in Millions)
Costs recognized in income
Service cost	$	—		$	2		$	2		$	2		$	—	$	—
Interest cost	17			18			6			7			—		—
Expected return on plan assets	(20		)	(19		)	(4		)	(5		)	—		—
Special termination benefits	—			1			—			—			—		—
Visteon sponsored plan net pension (income) expense	$	(3	)	$	2		$	4		$	4		$	—	$	—

The components of the Company’s net periodic benefit costs for the nine-month periods ended September 30, 2012 and 2011 were as follows:



	Retirement Plans												Health Care and Life Insurance Benefits
	U.S. Plans						Non-U.S. Plans						Health Care and Life Insurance Benefits
	2012			2011			2012			2011			2012		2011
	(Dollars in Millions)
Costs recognized in income
Service cost	$	—		$	4		$	5		$	5		$	—	$	—
Interest cost	52			55			20			21			—		—
Expected return on plan assets	(59		)	(56		)	(13		)	(14		)	—		—
Reinstatement (termination) of benefits	—			—			—			—			—		(2		)
Special termination benefits	—			3			—			—			—		—
Visteon sponsored plan net pension (income) expense	$	(7	)	$	6		$	12		$	12		$	—	$	(2	)

On January 9, 2012 the Company completed a contribution of approximately 1.5 million shares of Visteon Corporation common stock valued at approximately $73 million to its two largest U.S. defined benefit plans. This contribution was in excess of 2011 and 2012 plan year minimum required contributions for those plans by approximately $40 million. As of September 30, 2012, all shares previously contributed to the plans had been sold, with an average share price of approximately $44.

During the nine-month period ended September 30, 2012, cash contributions to the Company's U.S. and non-U.S. retirement plans

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were $3 million and $9 million, respectively. The Company anticipates additional cash contributions to its non-U.S. retirement plans of $7 million during 2012. The Company’s expected 2012 contributions may be revised.

On September 19, 2012, Visteon announced a lump sum payment option to certain former U.S. employees who are vested defined benefit plan participants not currently receiving monthly payments. The lump sum payment option, to be funded with pension plan assets, is offered from October 1 to November 9, 2012. The Company expects to record a non-cash settlement charge in connection with the lump sum payments, the amount of which will depend upon participation rate, value of assets and discount rate at year-end.

NOTE 12. Share Based Compensation

The Company, in connection with the appointment of a new Chief Executive Officer and President effective September 30, 2012, made an equity grant under the Visteon Corporation 2010 Incentive Plan consisting of 85,256 time-based restricted stock units and 345,914 performance based stock units. The restricted stock units vest in three equal annual installments on August 10, 2013, 2014, and 2015 subject to continued employment. The performance based stock units vest based on the Company's total shareholder return for the period between the grant date and December 31, 2015 and are subject to continued employment.

NOTE 13. Income Taxes

The Company's provision for income taxes in interim periods is computed by applying an estimated annual effective tax rate against income before income taxes, excluding equity in net income of non-consolidated affiliates for the period. Effective tax rates vary from period to period as separate calculations are performed for those countries where the Company's operations are profitable and whose results continue to be tax-effected and for those countries where full deferred tax valuation allowances exist and are maintained. The Company is also required to record the tax impact of certain other non-recurring tax items, including changes in judgment about valuation allowances and effects of changes in tax laws or rates, in the interim period in which they occur. The need to maintain valuation allowances against deferred tax assets in the U.S. and other affected countries will continue to cause variability in the Company's quarterly and annual effective tax rates. Full valuation allowances against deferred tax assets in the U.S. and applicable foreign countries will be maintained until sufficient positive evidence exists to reduce or eliminate them. In this regard, it is reasonably possible that existing valuation allowances on approximately $5 million of deferred tax assets could be eliminated during 2012 as the Company continues to monitor the ability to generate the necessary taxable earnings to recover the deferred tax assets in certain foreign jurisdictions.

The Company provides for U.S. and non-U.S. income taxes and non-U.S. withholding taxes on the projected future repatriations of the earnings from its non-U.S. operations at each tier of the legal entity structure. During the three-month and nine-month periods ended September 30, 2012, the Company recognized expense of $5 million and $16 million, respectively, reflecting the Company's forecasts which contemplate numerous financial and operational considerations that impact future repatriations.

The Company's provision for income taxes for the three-month and nine-month periods ended September 30, 2012 of $33 million and $102 million, respectively, includes income tax expense in countries where the Company is profitable, withholding taxes, changes in uncertain tax benefits, and the inability to record a tax benefit for pre-tax losses in the U.S. and certain other jurisdictions to the extent not offset by other categories of income.

The amount of income tax expense or benefit allocated to continuing operations is generally determined without regard to the tax effects of other categories of income or loss, such as other comprehensive income. However, an exception to the general rule is provided when there is a pre-tax loss from continuing operations and net pre-tax income from other categories in the current year. In such instances, net pre-tax income from other categories must offset the current loss from operations, the tax benefit of such offset being reflected in continuing operations even when a valuation allowance has been established against the deferred tax assets. In instances where a valuation allowance is established against current year operating losses, net pre-tax income from other sources, including other comprehensive income, is considered when determining whether sufficient future taxable income exists to realize the deferred tax assets.

Unrecognized Tax Benefits

Gross unrecognized tax benefits were $135 million at September 30, 2012 and $123 million at December 31, 2011, of which approximately $72 million and $69 million, respectively, in each period represent the amount of unrecognized benefits that, if recognized, would impact the effective tax rate. The gross unrecognized tax benefit differs from that which would impact the effective tax rate due to uncertain tax positions embedded in other deferred tax attributes carrying a full valuation allowance. Since the uncertainty is expected to be resolved while a full valuation allowance is maintained, these uncertain tax positions should not

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impact the effective tax rate in current or future periods. During the three-month and nine-month periods ended September 30, 2012, the Company increased its gross unrecognized tax benefits for positions expected to be taken in future tax returns, primarily related to the allocation of costs among our global operations, and foreign currency impacts. The Company records interest and penalties related to uncertain tax positions as a component of income tax expense. Accrued interest and penalties related to uncertain tax positions was $34 million at September 30, 2012 and $28 million at December 31, 2011.

The Company operates in multiple jurisdictions throughout the world and the income tax returns of its subsidiaries in various tax jurisdictions are subject to periodic examination by respective tax authorities. The Company regularly assesses the status of these examinations and the potential for adverse and/or favorable outcomes to determine the adequacy of its provision for income taxes. The Company believes that it has adequately provided for tax adjustments that it believes are more likely than not to be realized as a result of any ongoing or future examination.

Specifically, in June 2012, the Korean tax authorities commenced a review of Visteon's controlled subsidiary, Halla Climate Control Corporation ("Halla") for the tax years 2007 through 2011. In October 2012, the tax authorities issued a pre-assessment of approximately $18 million for alleged underpayment of withholding tax on dividends paid and other items, including certain management service fees charged by Visteon Corporation. The Company is considering potential next steps if the pre-assessment becomes finalized, including filing an appeal with the Korean Tax Tribunal. Pursuant to the Korean tax rules, it is possible a payment of the final assessment will need to be made in full in the fourth quarter of 2012 to pursue the appeals process. The Company believes it is more likely than not it will receive a favorable ruling when all of the available appeals have been exhausted.

With few exceptions, the Company is no longer subject to U.S. federal tax examinations for years before 2008 or state and local, or non-U.S. income tax examinations for years before 2002. Although it is not possible to predict the timing of the resolution of all ongoing tax audits with accuracy, it is reasonably possible that certain tax proceedings in Europe and Asia could conclude within the next twelve months and result in a significant change in the balance of gross unrecognized tax benefits. Given the number of years, jurisdictions and positions subject to examination, the Company is unable to estimate the full range of possible adjustments to the balance of unrecognized tax benefits. However, the Company believes it is reasonably possible that it will reduce the amount of its existing unrecognized tax benefits impacting the effective tax rate by $1 million to $3 million due to the lapse of statute of limitations.

NOTE 14. Shareholders’ Equity and Non-controlling Interests

The tables below provide a reconciliation of the carrying amount of total shareholders' equity, including shareholders' equity attributable to Visteon and equity attributable to non-controlling interests ("NCI") for the three and nine months ended September 30, 2012 and 2011.



	Three Months Ended September 30
	2012									2011
	Visteon			NCI			Total			Visteon			NCI			Total
	(Dollars in Millions)
Shareholders' equity beginning balance	$	1,433		$	695		$	2,128		$	1,443		$	713		$	2,156
Income from continuing operations	20			19			39			37			19			56
(Loss) income from discontinued operations	(5		)	—			(5		)	4			—			4
Net income	15			19			34			41			19			60
Other comprehensive income (loss)
Foreign currency translation adjustment	44			13			57			(102		)	(31		)	(133		)
Pension and other postretirement benefits	2			—			2			(3		)	—			(3		)
Unrealized hedging gains and other	2			1			3			(20		)	(6		)	(26		)
Total other comprehensive income (loss)	48			14			62			(125		)	(37		)	(162		)
Stock-based compensation, net	3			—			3			10			—			10
Warrant exercises	—			—			—			4			—			4
Dividends to non-controlling interests	—			(5		)	(5		)	—			(1		)	(1		)
Shareholders' equity ending balance	$	1,499		$	723		$	2,222		$	1,373		$	694		$	2,067

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	Nine Months Ended September 30
	2012									2011
	Visteon			NCI			Total			Visteon			NCI			Total
	(Dollars in Millions)
Shareholders' equity beginning balance	$	1,307		$	690		$	1,997		$	1,260		$	690		$	1,950
Income from continuing operations	64			46			110			98			54			152
(Loss) income from discontinued operations	(3		)	—			(3		)	8			—			8
Net income	61			46			107			106			54			160
Other comprehensive income (loss)
Foreign currency translation adjustment	25			10			35			(18		)	(13		)	(31		)
Pension and other postretirement benefits	1			—			1			—			—			—
Unrealized hedging gains and other	16			4			20			(14		)	(5		)	(19		)
Total other comprehensive income (loss)	42			14			56			(32		)	(18		)	(50		)
Stock-based compensation, net	16			—			16			30			—			30
Common stock contribution to U.S. pension plans	73			—			73			—			—			—
Warrant exercises	—			—			—			9			—			9
Dividends to non-controlling interests	—			(27		)	(27		)	—			(32		)	(32		)
Shareholders' equity ending balance	$	1,499		$	723		$	2,222		$	1,373		$	694		$	2,067

On July 30, 2012, Visteon's board of directors authorized the repurchase of up to $100 million of the Company's common stock over the subsequent two year period. The Company anticipates that repurchases of common stock, if any, would occur from time to time in open market transactions or in privately negotiated transactions depending on market and economic conditions, share price, trading volume, alternative uses of capital and other factors.

Non-controlling Interests

Non-controlling interests in the Visteon Corporation economic entity are as follows:



	September 30		December 31
	2012		2011
	(Dollars in Millions)
Halla Climate Control Corporation	$	692	$	660
Visteon Interiors Korea Ltd	19		20
Other	12		10
Total non-controlling interests	$	723	$	690

The Company holds a 70% interest in Halla, a consolidated subsidiary. Halla is headquartered in South Korea with operations in North America, Europe and Asia. Halla designs, develops and manufactures automotive climate control products, including air conditioning systems, modules, compressors, and heat exchangers for sale to global OEMs.

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Accumulated Other Comprehensive Income (Loss)

The Accumulated other comprehensive income (loss) (“AOCI”) category of Shareholders’ equity, net of tax, includes:



	September 30			December 31
	2012			2011
	(Dollars in Millions)
Foreign currency translation adjustments	$	(16	)	$	(41	)
Pension and other postretirement benefit adjustments	26			25
Unrealized gains (losses) on derivatives	7			(9		)
Total accumulated other comprehensive income (loss)	$	17		$	(25	)

NOTE 15. Earnings (Loss) Per Share

Basic earnings (loss) per share of common stock is calculated by dividing reported net income (loss) attributable to Visteon by the average number of shares of common stock outstanding during the applicable period, adjusted for participating securities. Diluted earnings (loss) per share is computed by dividing net income (loss) attributable to Visteon by the average number of shares of common stock outstanding during the applicable period, adjusted for participating securities and the effect of dilutive potential common stock, such as stock warrants and stock options. The impact of participating securities and other dilutive potential common stock is not taken into consideration in a loss period as the impact would be anti-dilutive. Accordingly, participating securities and other dilutive potential common stock have been excluded from the computation of basic and diluted loss per share as applicable.

The table below provides details underlying the calculations of basic and diluted earnings (loss) per share.



	Three Months Ended					Nine Months Ended
	September 30					September 30
	2012			2011		2012			2011
	(Dollars in Millions, Except Per Share Amounts)
Numerator:
Income from continuing operations	$	20		$	37	$	64		$	98
(Loss) income from discontinued operations	(5		)	4		(3		)	8
Net income attributable to Visteon	$	15		$	41	$	61		$	106
Denominator:
Average common stock outstanding	53.3			51.5		53.1			51.1
Dilutive effect of warrants	0.5			0.5		0.4			0.9
Diluted shares	53.8			52.0		53.5			52.0

Basic and Diluted Earnings (Loss) Per Share Data:
Basic earnings (loss) per share:
Continuing operations	$	0.37		$	0.72	$	1.21		$	1.92
Discontinued operations	(0.09		)	0.08		(0.06		)	0.15
Basic earnings per share attributable to Visteon	$	0.28		$	0.80	$	1.15		$	2.07
Diluted earnings (loss) per share:
Continuing operations	$	0.37		$	0.71	$	1.20		$	1.89
Discontinued operations	(0.09		)	0.08		(0.06		)	0.15
Diluted earnings per share attributable to Visteon	$	0.28		$	0.79	$	1.14		$	2.04

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NOTE 16. Fair Value Measurements and Financial Instruments

Fair Value Hierarchy

Financial assets and liabilities are categorized, based on the inputs to the valuation technique, into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to the quoted prices in active markets for identical assets and liabilities and lowest priority to unobservable inputs.


•	Level 1 – Financial assets and liabilities whose values are based on unadjusted quoted market prices for identical assets and liabilities in an active market that the Company has the ability to access.


•	Level 2 – Financial assets and liabilities whose values are based on quoted prices in markets that are not active or model inputs that are observable for substantially the full term of the asset or liability.


•	Level 3 – Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement.

Financial Instruments

The Company’s net cash inflows and outflows exposed to the risk of changes in foreign currency 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. Where possible, the Company utilizes derivative financial instruments, including forward and option contracts, to protect the Company’s cash flow from changes in exchange rates. Foreign currency exposures are reviewed monthly and natural offsets are considered prior to entering into a derivative financial instrument.

The Company’s primary foreign currency exposures include the Euro, Korean Won, Czech Koruna, Hungarian Forint and Mexican Peso. Where possible, the Company utilizes a strategy of partial coverage for transactions in these currencies. As of September 30, 2012 and December 31, 2011, the Company had forward contracts to hedge changes in foreign currency exchange rates with notional amounts of approximately $564 million and $741 million, respectively. Fair value estimates of these contracts are based on quoted market prices. A portion of these instruments has been designated as cash flow hedges with the effective portion of the gain or loss reported in the Accumulated other comprehensive income (loss) component of Shareholders’ equity in the Company’s consolidated balance sheets and the ineffective portion recorded as Cost of sales in the Company’s consolidated statements of comprehensive income.

Foreign currency hedge instruments are measured at fair value on a recurring basis under an income approach using industry-standard models that consider various assumptions, including time value, volatility factors, current market and contractual prices for the underlying and non-performance risk. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data, or are supported by observable levels at which transactions are executed in the marketplace. Accordingly, the Company's foreign currency instruments are classified as Level 2, “Other Observable Inputs” in the fair value hierarchy.

Financial Statement Presentation

The Company presents its derivative positions and any related material collateral under master netting agreements on a net basis. Derivative financial instruments designated and non-designated as hedging instruments are included in the Company’s consolidated balance sheets at September 30, 2012 and December 31, 2011 as follows:



Assets					Liabilities
	September 30		December 31			September 30		December 31
Classification	2012		2011		Classification	2012		2011
	(Dollars in Millions)					(Dollars in Millions)
Designated:					Designated:
Other current assets	$	16	$	—	Other current assets	$	2	$	—
Other current liabilities	—		8		Other current liabilities	—		24
Non-designated:					Non-designated:
Other current assets	3		—		Other current assets	—		—
	$	19	$	8		$	2	$	24

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Gains and losses associated with derivative financial instruments recorded in Cost of sales for the three-month periods ended September 30, 2012 and 2011 were as follows:



	Amount of Gain (Loss)
	Recorded in AOCI, net of tax					Reclassified from AOCI into Income				Recorded in Income
	Three months ended					Three months ended				Three months ended
	September 30					September 30				September 30
	2012		2011			2012		2011		2012			2011
	(Dollars in Millions)
Foreign currency risk – Cost of sales
Cash flow hedges	$	2	$	(20	)	$	6	$	1	$	—		$	—
Non-designated cash flow hedges	—		—			—		—		(3		)	—
	$	2	$	(20	)	$	6	$	1	$	(3	)	$	—

Gains and losses associated with derivative financial instruments recorded in Cost of sales and Interest expense for the nine-month periods ended September 30, 2012 and 2011 were as follows:



	Amount of Gain (Loss)
	Recorded in AOCI, net of tax					Reclassified from AOCI into Income				Recorded in Income
	Nine months ended					Nine months ended				Nine months ended
	September 30					September 30				September 30
	2012		2011			2012		2011		2012			2011
	(Dollars in Millions)
Foreign currency risk – Cost of sales
Cash flow hedges	$	16	$	(15	)	$	6	$	7	$	—		$	—
Non-designated cash flow hedges	—		—			—		—		(4		)	(4		)
	$	16	$	(15	)	$	6	$	7	$	(4	)	$	(4	)
Interest rate risk – Interest expense
Cash flow hedges	$	—	$	1		$	—	$	—	$	—		$	—

Concentrations of Credit Risk

Financial instruments, including cash equivalents, marketable securities, derivative contracts and accounts receivable, expose the Company to counterparty credit risk for non-performance. The Company’s counterparties for cash equivalents, marketable securities and derivative contracts are banks and financial institutions that meet the Company’s requirement of high credit standing. The Company’s counterparties for derivative contracts are with investment and commercial banks with significant experience using such derivatives and is assessed on a net basis. The Company manages its credit risk through policies requiring minimum credit standing and limiting credit exposure to any one counterparty and through monitoring counterparty credit risks. The Company’s concentration of credit risk related to derivative contracts at September 30, 2012 and December 31, 2011 is not significant. With the exception of the customers below, the Company’s credit risk with any individual customer does not exceed ten percent of total accounts receivable at September 30, 2012 and December 31, 2011, respectively.



	September 30	December 31
	2012	2011
Ford and affiliates	27%	24%
Hyundai Mobis Company	15%	14%
Hyundai Motor Company	9%	10%

Management periodically performs credit evaluations of its customers and generally does not require collateral.

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NOTE 17. Commitments and Contingencies

Guarantees and Commitments

The Company has guaranteed approximately $37 million of subsidiary lease payments under various arrangements generally spanning between one to ten years in duration, and $6 million for affiliate credit lines and other credit support agreements. In connection with an agreement entered in 2009 with the Pension Benefit Guarantee Corporation ("PBGC"), the Company agreed to provide a guarantee by certain affiliates of contingent pension obligations of up to $30 million, the term of this guarantee is dependent upon events as specifically set forth in the PBGC agreement.

Litigation and Claims

Several current and former employees of Visteon Deutschland GmbH (“Visteon Germany”) filed civil actions against Visteon Germany in various German courts beginning in August 2007 seeking damages for the alleged violation of German pension laws that prohibit the use of pension benefit formulas that differ for salaried and hourly employees without adequate justification. Several of these actions have been joined as pilot cases. In a written decision issued in April 2010, the Federal Labor Court issued a declaratory judgment in favor of the plaintiffs in the pilot cases. To date, more than 750 current and former employees have filed similar actions or have inquired as to or been granted additional benefits, and an additional 600 current and former employees are similarly situated. The Company's remaining reserve for unsettled cases is approximately $6 million and is based on the Company’s best estimate as to the number and value of the claims that will be made in connection with the pension plan. However, the Company’s estimate is subject to many uncertainties which could result in Visteon Germany incurring amounts in excess of the reserved amount of up to approximately $8 million.

The Company's operations in Brazil are subject to highly complex labor, tax, customs and other laws. While the Company believes that it is in compliance with such laws, it is periodically engaged in litigation regarding the application of these laws. As of September 30, 2012, the Company maintained accruals of approximately $9 million for claims aggregating approximately $141 million. The amounts accrued represent claims that are deemed probable of loss and are reasonably estimable based on the Company's assessment of the claims and prior experience with similar matters.

On May 28, 2009, the Debtors filed voluntary petitions in the Court seeking reorganization relief under the provisions of chapter 11 of the Bankruptcy Code. The Debtors’ chapter 11 cases have been assigned to the Honorable Christopher S. Sontchi and are being jointly administered as Case No. 09-11786. The Debtors continued to operate their business as debtors-in-possession under the jurisdiction of the Court and in accordance with the applicable provisions of the Bankruptcy Code and the orders of the Court until their emergence on October 1, 2010. Under section 362 of the Bankruptcy Code, the filing of a bankruptcy petition automatically stayed most actions against a debtor, including most actions to collect pre-petition indebtedness or to exercise control over the property of the debtor’s estate. Substantially all pre-petition liabilities and claims relating to rejected executory contracts and unexpired leases have been settled under the Debtor’s plan of reorganization, however, the ultimate amounts to be paid in settlement of each those claims will continue to be subject to the uncertain outcome of litigation, negotiations and Court decisions for a period of time after the Effective Date.

In December of 2009, the Court granted the Debtors' motion in part authorizing them to terminate or amend certain other postretirement employee benefits, including health care and life insurance. On December 29, 2009, the IUE-CWA, the Industrial Division of the Communications Workers of America, AFL-CIO, CLC, filed a notice of appeal of the Court's order with the District Court. By order dated March 31, 2010, the District Court affirmed the Court's order in all respects. On April 1, 2010, the IUE filed a notice of appeal. On July 13, 2010, the Circuit Court reversed the order of the District Court as to the IUE-CWA and directed the District Court to, among other things, direct the Court to order the Company to take whatever action is necessary to immediately restore terminated or modified benefits to their pre-termination/modification levels. On July 27, 2010, the Company filed a Petition for Rehearing or Rehearing En Banc requesting that the Circuit Court review the panel’s decision, which was denied. By orders dated August 30, 2010, the Court ruled that the Company should restore certain other postretirement employee benefits to the appellant-retirees and also to salaried retirees and certain retirees of the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (“UAW”). On September 1, 2010, the Company filed a Notice of Appeal to the District Court of the Court's decision to include non-appealing retirees, and on September 15, 2010 the UAW filed a Notice of Cross-Appeal. On July 25, 2012, the District Court ruled in the Company's favor on both appeals. The Company reached an agreement with the original appellants in late-September 2010, which resulted in the Company not restoring other postretirement employee benefits of such retirees. On September 30, 2010, the UAW filed a complaint, which it amended on October 1, 2010, in the United States District Court for the Eastern District of Michigan seeking, among other things, a declaratory judgment to prohibit the Company from terminating certain other postretirement employee benefits for UAW retirees after the Effective Date. The Company has filed a motion to dismiss the UAW's complaint and a motion to transfer the case to the District of Delaware, which motions

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are pending. In July 2011, the Company engaged in mediation with the UAW, which was not successful. As of September 30, 2012, the Company maintains an accrual for claims that are deemed probable of loss and are reasonably estimable based on the Company's assessment of the claims and prior experience with similar matters.

While the Company believes its accruals for litigation and claims are adequate, the final amounts required to resolve such matters could differ materially from recorded estimates and the Company's results of operations and cash flows could be materially affected.

Product Warranty and Recall

Amounts accrued for product warranty and recall claims are based on management’s best estimates of the amounts that will ultimately be required to settle such items. The Company’s estimates for product warranty and recall obligations are developed with support from its sales, engineering, quality and legal functions and include due consideration of contractual arrangements, past experience, current claims and related information, production changes, industry and regulatory developments and various other considerations. The Company can provide no assurances that it will not experience material claims in the future or that it will not incur significant costs to defend or settle such claims beyond the amounts accrued or beyond what the Company may recover from its suppliers. The following table provides a reconciliation of changes in the product warranty and recall claims liability for the nine-month periods ended September 30, 2012 and 2011.



	Nine Months Ended September 30
	2012			2011
	(Dollars in Millions)
Beginning balance	$	66		$	75
Accruals for products shipped	15			16
Currency	(1		)	—
Changes in estimates	(1		)	(11		)
Settlements	(14		)	(12		)
Ending balance	$	65		$	68

Environmental Matters

The Company is subject to the requirements of federal, state, local and foreign environmental and occupational safety and health laws and regulations and ordinances. These include laws regulating air emissions, water discharge and waste management. The Company is also subject to environmental laws requiring the investigation and cleanup of environmental contamination at properties it presently owns or operates and at third-party disposal or treatment facilities to which these sites send or arranged to send hazardous waste. The Company is aware of contamination at some of its properties. These sites are in various stages of investigation and cleanup. The Company currently is, has been, and in the future may become the subject of formal or informal enforcement actions or procedures.

Costs related to environmental assessments and remediation efforts at operating facilities, previously owned or operated facilities, or other waste site locations are accrued when it is probable that a liability has been incurred and the amount of that liability can be reasonably estimated. Estimated costs are recorded at undiscounted amounts, based on experience and assessments, and are regularly evaluated. The liabilities are recorded in Other current liabilities and Other non-current liabilities in the consolidated balance sheets. At September 30, 2012, the Company had recorded a reserve of approximately $1 million for environmental matters. However, estimating liabilities for environmental investigation and cleanup is complex and dependent upon a number of factors beyond the Company’s control and which may change dramatically. Accordingly, although the Company believes its reserve is adequate based on current information, the Company cannot provide any assurance that its ultimate environmental investigation and cleanup costs and liabilities will not exceed the amount of its current reserve.

Other Contingent Matters

Various legal actions, governmental investigations and proceedings and claims are pending or may be instituted or asserted in the future against the Company, including those arising out of alleged defects in the Company’s products; governmental regulations relating to safety; employment-related matters; customer, supplier and other contractual relationships; intellectual property rights; product warranties; product recalls; and environmental matters. Some of the foregoing matters 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. The Company enters into agreements

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that contain indemnification provisions in the normal course of business for which the risks are considered nominal and impracticable to estimate.

Contingencies are subject to many uncertainties, and the outcome of individual litigated matters is not predictable with assurance. Reserves have been established by the Company for matters discussed in the immediately foregoing paragraph where losses are deemed probable and reasonably estimable. It is possible, however, that some of the matters discussed in the foregoing paragraph could be decided unfavorably to the Company and could require the Company to pay damages or make other expenditures in amounts, or a range of amounts, that cannot be estimated at September 30, 2012 and that are in excess of established reserves. The Company does not reasonably expect, except as otherwise described herein, based on its analysis, that any adverse outcome from such matters would have a material effect on the Company’s financial condition, results of operations or cash flows, although such an outcome is possible.

NOTE 18. Segment Information

Segments are defined as components of an enterprise for which discrete financial information is available that is evaluated regularly by the chief operating decision-maker, or a decision-making group, in deciding the allocation of resources and in assessing performance. The Company’s Chief Operating Decision Making Group ("CODM Group"), comprised of the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluates the performance of the Company’s segments primarily based on net sales, before elimination of inter-company shipments, gross margin, Adjusted EBITDA (as defined below) and operating assets. Gross margin is defined as total sales less costs to manufacture and product development and engineering expenses. The Company defines Adjusted EBITDA as net income attributable to the Company, plus net interest expense, provision for income taxes and depreciation as further adjusted to eliminate the impact of asset impairments, gains or losses on divestitures, net restructuring expenses and other reimbursable costs, certain charges, reorganization items and other non-operating gains and losses. Operating assets include inventories and property and equipment utilized in the manufacture of the segments’ products.

The Company’s operating structure is organized by global product lines, including: Climate, Electronics and Interiors. These global product lines have financial and operating responsibility over the design, development and manufacture of the Company’s product portfolio. Global customer groups are responsible for the business development of the Company’s product portfolio and overall customer relationships. Certain functions such as procurement, information technology and other administrative activities are managed on a global basis with regional deployment. The Company’s reportable segments are as follows:


•	Climate — The Company’s Climate product line includes climate air handling modules, powertrain cooling modules, heat exchangers, compressors, fluid transport and engine induction systems.


•	Electronics — The Company’s Electronics product line includes audio systems, infotainment systems, driver information systems, powertrain and feature control modules, climate controls, and electronic control modules.


•	Interiors — The Company’s Interiors product line includes instrument panels, cockpit modules, door trim and floor consoles.

Segment Sales and Gross Margin



Sales				Gross Margin
Three Months Ended		Nine Months Ended		Three Months Ended		Nine Months Ended
September 30		September 30		September 30		September 30
2012	2011	2012	2011	2012	2011	2012