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Old 01-21-2005, 07:07   #1 (permalink)
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US:Ford sounds Visteon benefits alarm

AUTO SUPPLIER WOES: Ford sounds Visteon benefits alarm

BY JAMIE BUTTERS
FREE PRESS BUSINESS WRITER

Accounting might not be the most scintillating discipline in business, but sometimes it forces bold statements to be made -- even if that boldness is not apparent.

Consider this devastating comment that Ford Motor Co. made Thursday morning about Visteon Corp., the parts division it spun off in 2000:

The automaker said its profits were "affected" by a charge taken to "reduce the value of a receivable" that Visteon is to pay Ford. Specifically, Visteon's share of health care and life insurance on UAW members who work for Ford but are assigned, or leased, to Visteon.

That $600-million charge -- worth $399 million after taxes -- effectively acknowledges the likelihood that Visteon would not be able to pay much of the $835 million needed by 2049 to cover retirement benefits for those leased employees.

Visteon's troubles are not a surprise. Just over a year ago, the Fortune 100-size company renegotiated the terms of its spin-off from Ford, an automaker that still accounts for two-thirds of Visteon's sales.

One aspect of it was that the automaker assumed responsibility for employee benefits earned before the spin-off, and Visteon would pay the rest. But to make that obligation a little more palatable, Ford let Visteon spread the payments out over more than 40 years.

But now, less than 14 months later, Ford doesn't believe Visteon could handle the bill.

Don Leclair, Ford's chief financial officer, explained repeatedly that this is not part of a new restructuring of the relationship between the two companies, though such negotiations are under way.

Those negotiations are ongoing and constructive, Leclair said, and he stressed that Visteon is current in all its payments to Ford and that this move did not constitute forgiving the debt.

But as part of a regular review of collectibility of accounts receivable, he said, it is prudent to write down most of the obligation.

And he acknowledged that this was a case of the former owner recognizing a growing risk of default sometime "in the next 45 years, on that particular item, given our view of everything else, right."

Visteon spokeswoman Kim Welch said the parts maker has no comment on Ford's accounting treatment.

"We are reviewing strategic and structural changes to our U.S.-based businesses, and we are having active discussions with Ford," she said.

Visteon is current on its bills and has no intention of defaulting in the future, she said.

But the idea that Ford, which presumably knows Visteon better than anyone else, is reserving against a default has to be disturbing for other investors.

"There's no question that, if you're a Visteon bondholder, this should not come as welcome news," said B. Craig Hutson, senior bond analyst at Gimme Credit in New York.

But he said it is too soon to reach any sweeping conclusions about Visteon based just on this move by Ford.

"It's a little preliminary until we know more about the resolution of their current discussions," Hutson said.

Ford shares fell 47 cents, or 3.4 percent, Thursday to $13.46. Visteon shares lost 66 cents, or 7.8 percent, to $7.82.
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