Part I
Item 1.Business
Description of Business
Visteon Corporation (the "Company" or "Visteon") is a global automotive suppliertechnology company serving the mobility industry, dedicated to creating more enjoyable, connected, and safe driving experiences. The Company's platforms leverage proven, scalable hardware and software solutions that designs, engineersenable the digital, electric, and manufactures innovative electronics products for nearly every original equipment vehicle manufacturer ("OEM") worldwideautonomous evolution of the Company's global automotive customers, including BMW, Ford, Mazda, Renault/Nissan,Geely, General Motors, Honda, Jaguar/Land Rover, Honda, Volkswagen, BMWMahindra, Mazda, Mercedes-Benz, Mitsubishi, Nissan, Renault, Stellantis, Tata, Toyota, and Daimler.Volkswagen. Visteon products align with key industry trends and include digital instrument clusters, domain controllers with integrated advanced driver assistance systems ("ADAS"), displays, Android-based infotainment systems, and battery management systems. Visteon is headquartered in Van Buren Township, Michigan, and has an international network of manufacturing operations, technical centers, and joint venture operations supported by approximately 10,000 employees, dedicated to the design, development, manufacture, and support of its product offerings and its global customers. The Company's manufacturing and engineering footprint is principally located outside of the U.S., with a heavy concentration in low-cost geographic regions.
The Company’s Industry
The Company operates in the automotive industry which is cyclical and highly sensitive to general economic conditions. The Company believes that future success in the automotive industry is, in part, dependent on alignment with customers to support their efforts to effectively meet the challenges associated with the following significant trends and developments in the global automotive industry.industry:
•Electronic content and connectivity - The electronic content of vehicles continues to increase due to various regulatory requirements and consumer demand for increased vehicle performance and functionality. The use of electronic components can reduce weight, expedite assembly, enhance fuel economy, improve emissions, increase safety, and enhance vehicle performance. These benefits coincide with vehicles becoming more electric, connected, and automated. Additionally, digital and portable technologies have dramatically influenced the lifestyle of today’s consumers, who expect products that enable such a lifestyle. This requires increased electronicConsequently, the vehicle cockpit is transforming into a fully digital and technical content such as in-vehicle communication, navigationconnected environment with multi-display systems incorporating larger, curved, and entertainment capabilities. While OEMs are taking different paths to connect their vehicles to high-speed broadband internet connections inmore complex displays and the short-term, future vehicles are expected to be built with vehicle-to-vehicle connectivity systems. There is momentum by OEMs to integrateconsolidation of discrete electronic control units into a multi-core domain controllercontroller.
•Electric vehicles – The trend towards electrification continues to accelerate, driven by government incentives and standards, announced restrictions of internal combustion engine vehicles in multiple cities and countries, and the significant increase efficiency and reduce power consumption, cost and weight. Vehicle cockpits are becoming increasingly digitized.
of investment in electrification by Original Equipment Manufacturers ("OEMs"). The shift to electric vehicles increases the digital content of a vehicle as the majority of cockpit electronics will be all-digital to support the new electrical architecture. In addition, all battery electric vehicles will require a battery management system to manage the rechargeable battery pack.•Advanced driver assistance systems ("ADAS") and autonomous driving - The industry continues to advance toward semi-autonomous and autonomous vehicles. The Society of Automotive Engineers has defined five levels of autonomy ranging from levels one and two with driver-assist functions whereby the driver is responsible for monitoring the environment, to level five with full autonomy under all conditions. Levels one and two are already popular in the market while levelsmarket. Levels three and above require multipleutilize a combination of sensors, radars, cameracameras and LiDARs, requiring sensor fusion and machine learning technologies, as the system assumes the role of monitoring the environment. Level three includes features such as highway pilot and parking assist technology, for which a highan increased market penetration rate is expected over the next several years.
•Safety and security - Governments continue to focus regulatory efforts on safer transportation. Accordingly, OEMs are working to improve occupant and pedestrian safety by incorporating more safety-oriented technology in their vehicles. Additionally, in-vehicle connectivity has increased the need for robust cybersecurity systems to protect data, applications, and associated infrastructure. Security features are evolving with advances in sensors and silicon. Supplierssuppliers must enable the security/safety initiatives of their customers including the development of such new technologies.
advances.•Vehicle standardization - OEMs continue to standardize vehicle platforms on a global basis, resulting in a lower number of individual vehicle platforms, design cost savings, and further scale of economies through the production of a greater number of models from each platform. Having operations in the geographic markets in which OEMs produce global platforms enables suppliers to meet OEMs’ needs more economically and efficiently, thus making global coverage a source
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of significant competitive advantage for suppliers with a diversified global footprint. Additionally, OEMs are looking to suppliers for increased collaboration to lower costs, reduce risks, and decrease overall time to market. Suppliers that can provide fully engineered solutions, systems and pre-assembled combinations of component parts are positioned to leverage the trend toward system sourcing. As vehicles become more connected and cockpits more digitized, suppliers that can deliver modular hardware architectures, “open” software architectures, and a software platform approach will be poised to help OEMs achieve greater reuse of validated hardware circuitry, design scalability, and faster development cycles.
The Company's Segment
The Company’s current reportable segment is Electronics. The Company's Electronics segment provides vehicle cockpit electronics products to customers, including digital instrument clusters, informationdomain controllers with integrated advanced driver assistance systems ("ADAS"), displays, Android-based infotainment systems, audio systems, telematics solutions, and head-up displays. Prior to 2017,battery management systems. As the Company also had Other operations consisting primarily of South Africahas one reportable segment, net sales, total assets, depreciation, amortization and South America climate operations substantially exited during the fourth quarter of 2016. Future impacts of such legacy operations will be included with the Company's continuing Electronics operations.capital expenditures are equal to consolidated results.
The Company’s Products
The Company designs and manufactures vehicle cockpitinnovative automotive electronics components, modules and systemsconnected car solutions further described as follows:below:
Instrument Clusters
The Company offers a full line of instrument clusters, from standard analog gauge clusters to high-resolution, all-digital, fully reconfigurable, 2-D and 3-D display-based devices. The Company uses a platform approach to accelerate development and manage multiple vehicle variants. These clusters can use a wide range of display technologies, graphic capabilities, and decorative elements, including organic light-emitting diode ("OLED"),and free-form and curved displays. Premium clusters support complex 3-D graphics and feature embedded functionality such as driver monitoring, camera inputs, and ambient lighting.
Information Displays
The Company offers a range of information displays for various applications within the cockpit, incorporating a sleek profile, craftsmanshiphigh perception quality displays and touch sensors designed to deliver high performance for the automotive market. These displays can integrate a range of user interface technologies and graphics management capabilities, such as 3-D, dual view,active privacy, TrueColorTM enhancement, local dimming, cameras, optics, haptic feedback, and light effectseffects. The Company offers a new generation of large, curved, complex multi-display modules with optical performance designed to be competitive with mobile devices. The Company's microZone™ display technology offers high contrast and dual (OLED) displays.brightness and a wide color gamut that enables automotive displays to cost-effectively achieve life-like imaging capability on par with consumer mobile devices, without sacrificing reliability or life span. The Company also developed the first bendable glass multi-display cockpit in the automotive industry.
The Company offers a range of infotainment and connected car solutions, including Phoenix™scalable Android infotainment for seamless connectivity including integration with Android Auto and Apple CarPlay technology for wireless smartphone projection. The company offers a display audio and embedded infotainment platform and Android embedded infotainment - an open-source systemthat is based on Android Automotive. Visteon’s Phoenix™ display audio entry offering is designed to allow vehicle occupants to easily connect their mobile devices to theautomotive operating system, and safely access phone functions, listen to music, stream media and enable mobile connectivity applications through Apple CarPlay®, Android Auto and Baidu CarLife. Phoenix™ embedded infotainment enablesenabling third-party developers to create apps easily through a software development kit and software simulation of the target hardware system. Additionally, Visteon offers an onboard artificial intelligence ("AI")-based voice assistant with natural language understanding.
Battery Management Systems (“BMS”)
The Phoenix™Company offers configurable battery management systems that support both wired and wireless battery sensing and control. Visteon’s wireless BMS reliably and securely replaces wired communication between battery modules to improve the lifetime enterprise cost, battery weight, and packaging efficiency, and facilitates second-life battery repurposing. By providing a platform delivers built-in securityapproach that can support multiple charging protocols and over-the-air updates. It consistsflexible battery pack architectures, Visteon provides a robust design-to-production strategy that enables advanced features that are fast-to-market.
High-Voltage Power Electronics
The Company offers integrated and scalable power electronics units that support conversion of Phoenix InfoCore™ - in-vehicle middlewaregrid-to-battery pack electric current. Visteon’s integrated power electronics solutions combine a bi-directional on-board charging module with a DC-to-DC
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converter to ensure a systems approach that maximizes software reusepower conversion efficiency. Visteon’s solution is scalable to support between 400-volt to 800-volt systems with higher rate battery charging speeds. Visteon’s design provides a solution that allows for fast-charging and upgrades,high-efficiency in a packaging that reduces weight and Phoenix Studio 2.0 - a PC-based development tool for apps.space to improve overall system cost.
Telematics Solutions
The Company provides a cost-optimized, high-speed telematics control unit to enable secure connected car services, software updates, and data. The Company’s telematics solution uses a single hardware and flexible software architecture to support regional telematics service providers and mobile networks. The Company’s wireless gateway platform is designed to meet future connectivity requirements including 4G, V2X, Wi-Fi® and next-generation mobile standards such as 5G. The Company also offers a hands-free telephone unit that provides Bluetooth® and Universal Serial Bus ("USB") connectivity.requirements.
The Company offers SmartCore™, an automotive-grade, integrated domain controller approach, called SmartCore™, which can independently operate the infotainment system, instrument cluster, head-up display, rear-seat displays, and potentially other features on a single, multi-core chip to improve efficiency, create a unified experience across products, and reduce power consumption and cost. Included are: SmartCore™The SmartCore domain controller includes: SmartCore Runtime, middleware enabling communication between domains and apps to be shown on any display; and SmartCore™SmartCore Studio, a PC-based configuration tool to generate hypervisor configurations. The SmartCore domain controller seamlessly connects the human machine interaction ("HMI") across an increasing number of display domains, such as surround view and in-cabin sensing of driver drowsiness, attentiveness, and facial recognition. The latest generation of SmartCore utilizes high performance computing technology and integrates processing of multiple camera inputs to deliver a set of advance driver assistance features. The latest generation of SmartCore is offered with a suite of connected services including over the air update solution and Automotive App Store.
The Company offers a range of body domain modules which integrate several functions such as central gateway, body controls, comfort, and vehicle access solutions into one device. This computing module allows Visteon's customers to implement in-house applications software into body controls for brand and market differentiation.
The Company’s Customers
The Company's ultimate customers are global vehicle manufacturers including BMW, Ford, Mazda, Renault/Nissan,Geely, General Motors, Jaguar / Honda, Jaguar/Land Rover, Honda, Volkswagen, BMWMahindra, Mazda, Mercedes-Benz, Mitsubishi, Nissan, Renault, Stellantis, Tata, Toyota, and Daimler. Ford, Mazda and Renault/Nissan areVolkswagen.
The following is a summary of customers representing greater than 10 percent of the Company's largest customers and in 2017 accounted for sales of approximately 28%, 17% and 14%, respectively. In 2016 and 2015, Ford accounted for 30% and 34% of sales, respectively, Mazda accounted for 17% and 16% of sales in 2016 and 2015, respectively and Renault/Nissan accounted for 15% and 14% of sales for 2016 and 2015, respectively.annual net sales:
| Percentage of Total Net Sales | ||||||||||||||||||||
| December 31, | ||||||||||||||||||||
| 2022 | 2021 | 2020 | ||||||||||||||||||
| Ford | 22 | % | 22 | % | 22 | % | ||||||||||||||
The Company records revenue when persuasive evidencetypically supplies products to OEM customers through purchase orders, which are usually governed by general terms and conditions established by each OEM. Although the terms and conditions vary from customer to customer, they typically contemplate a relationship under which customers place orders for their requirements of specific components supplied for particular vehicles but are not required to purchase any minimum quantities. Individual purchase orders can be cancelled for cause, non-performance, and, in most cases, insolvency or certain change in control events. Additionally, many of Visteon's OEM customers have the option to terminate contracts for convenience; this option permits the OEM customers to impose pressure on pricing during the life of the vehicle program or issue purchase orders for less than the duration of the vehicle program. This has the potential to reduce the Company’s profit margin and increases the risk of loss of future sales under those purchase contracts.
The Company manufactures and ships based on customer release schedules, normally provided on a weekly basis, which can vary based on OEM automotive production or dealer inventory levels. Although customer programs typically extend to future periods and although there is an arrangement exists, delivery occurs,expectation that the salesCompany will supply certain levels of OEM production in those future periods, customer agreements (including the applicable terms and conditions) do not necessarily constitute firm orders.
The price or fee is fixed or determinable and collectibility is reasonably assured. Price reductionsrelated to these products are typically initially negotiated on an annual basis between suppliers and OEMs. Suchover the vehicle platform's life cycle. To the extent there are subsequent contractual price reductions, these reductions are intended to take into account expected annual reductions inreflect the overallCompany's ability to
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reduce cost to the supplier of providing products and services to the customer, through such factors as manufacturing productivity enhancements, material cost-reductionscost reductions, and design-related cost improvements. Certain products may be excluded from such reductions or experience price increases due to shortages of material or other increases in supply chain or other related costs. The Company has an aggressive cost-reductioncost control program that focuses on reducing its total costs which are intended to offset customer price reductions.reductions or negotiating recoveries for increases. However, there can be no assurance that the Company’s cost-reductioncost reduction or recovery efforts will be sufficient to fully offset such price reductions.changes.
The terms and conditions generally require a warranty on products sold. In most cases, the warranty period is the same as the warranty offered by the OEM to the ultimate customer. The Company records price reductions when probable and reasonably estimable.may also be required to share in all or part of recall costs if the OEM recalls vehicles for defects attributable to Visteon products.
The Company’s Competition
The automotive sector is concentrated, but operates undercontinues to remain highly competitive conditions resulting from the globalized nature of theongoing industry high fixed costs and the resulting need for scale economies, market dynamics including share in mature economies and positioning in emerging economies, and the low cost of switching for the end consumer. Accordingly,consolidation. OEMs rigorously evaluate suppliers on the basis of financial viability, product quality, price competitiveness, technical expertise, and development capability, new product innovation, reliability and timeliness of delivery, product design, and manufacturing capability, and flexibility, customer service, and overall management. The Company's primary independent competitors include, but are not limited to, Alpine Electronics, Aptiv PLC, Continental AG, Denso Corporation, Forvia, Harman International LGIndustries, Incorporated (a subsidiary of Samsung Electronics Co. Ltd.), Hitachi Ltd., Hyundai Mobis, Innolux Corporation, Marelli Holdings Co., Ltd., Nippon Seiki, Panasonic Corporation, Pioneer Corporation, andPreh GmbH, Robert Bosch GmbH.
Vitesco Technologies.
The Company’s Business is SeasonalSeasonality and CyclicalCyclicality
Historically, the Company’s business has been moderately seasonal because its largest North American customers typically cease production for approximately two weeks in July for model year changeovers and approximately one week in December during the winter holidays. Customers in Europe historically shut down vehicle production during a portion of August and one week in December. In China, customers typically shut down approximately one week in early October and one week in January or February. Additionally, third-quarter automotive production is traditionally is lower as new vehicle models enter production. However, starting in 2020, the standard cyclicality of the business was altered due to the global COVID-19 pandemic and associated supply chain challenges creating rolling shutdowns amongst multiple customer production facilities.
Environmental, Social, and Governance
Attract and Retain
The Company’s Workforceability to sustain and Employee Relations
grow its business requires the recruitment, retention, and development of a highly skilled and diverse workforce. The Company’s Chief People Officer, reporting directly to Chief Executive Officer ("CEO"), oversees its global talent processes to attract, develop, and retain its employees. To attract the best talent, the Company offers market competitive compensation and benefits around the globe, annual and long-term incentive programs, and health and wellness benefits. The Company also provides a variety of resources to help its employees grow in their current roles and build new skills. Hundreds of online courses are available in the Company’s learning management system where individual development is emphasized as part of the annual goal setting process. The Company continues to build tools to be used by leaders to develop employees in their current role and create new opportunities within the organization to learn and grow. Because retention of the employee base is significant to its business strategy, executive management discusses it with the Board of Directors on a regular basis.
Workforce
Visteon’s strength comes from a workforce as of December 31, 2017 included approximately 10,000 persons,employees operating in approximately 18 countries globally. The Company's workforce is globally distributed with 29% of which approximately 5,000 were salaried employees located in the Americas, 31% in Europe, 14% in China, and 5,000 were hourly workers. 26% in the Asia Pacific region. Visteon believes that all employees are leaders and expects leaders to drive operational and financial results and build strong teams.
Many of the Company’s employees are members of industrial trade unions and confederations within their respective countries, including Europe, Asia and South America. Many ofcountries. Often these organizations operate under collectively bargained contracts that are not specific to any one employer. The Company constantly works to establish and maintain positive, cooperative relations with its unions and work representatives around the worldworld.
Diversity and believes that its relationships with unionizedInclusion
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Diversity represents an environment where the contributions of all employees are satisfactory.encouraged and valued. As a global organization, the Company embraces human differences and harnesses the power of its employees’ varied backgrounds, cultures, and experiences because it is the right thing to do for its people and it creates a competitive business advantage. As of December 31, 2022, the percentage of Visteon's global workforce represented by females was approximately 39%.
The Company encourages many forms of communication such as global town hall employee meetings, informal small-group employee discussions, and an open-door policy so all employees have direct access to senior leadership and have the opportunity to ask questions, make suggestions, and provide input. As stated in one of the Company's four core beliefs and values, “We treat each other with respect and embrace our differences.”
Workplace Safety
The Company requires protective equipment, enforces comprehensive safety policies and procedures, and encourages its employees and leaders to continually look for ways to improve workplace safety. It has implemented and maintains a health and safety management system that is certified to the OHSAS 18001 or ISO 45001 standard. The Company provides regular health and safety reports to the Board of Directors including updates on the return to work health and safety protocols globally as a result of COVID-19.
Regulation
Visteon operates in a constantly evolving global regulatory environment and is subject to numerous and varying regulatory requirements for its product performance and material content. Visteon strives to identify potential regulatory and quality risks early in the design and development process and proactively manage them throughout the product lifecycle through the use of routine assessments, protocols, standards, performance measures, and audits. New regulations and changes to existing regulations are managed in collaboration with the OEM customers and implemented through Visteon’s global systems and procedures designed to ensure compliance with existing laws and regulations.
Visteon works collaboratively with a number of stakeholder groups including government agencies, customers, and suppliers to proactively engage in federal, state, and international public policy processes.
Environmental, Health, Safety, and Legal Matters
Visteon is involved in various lawsuits, claims and proceedings related to the operation of its businesses, including those pertaining to product liability, environmental, safety and health, intellectual property, employment, commercial and contractual matters, tax, and various other matters. Although the outcome of such lawsuits, claims and proceedings cannot be predicted with certainty and some may be disposed of unfavorably to Visteon, it is management's opinion that none of these will have a material adverse effect on Visteon's financial position, results of operations, or cash flows. Costs related to such matters were not material to the periods presented. Further details are provided in Part II, Item 8 of this Form 10-K in Note 18, "Commitments and Contingencies," of the notes to consolidated financial statements.
Board Oversight of Environmental, Social, and Governance Practices
The Company and its Board of Directors believe positive environmental, social, and governance-related business practices strengthens the Company, increases its connection with the stockholders, and helps it to better serve its customers and the communities in which it operates. The Company’s commitment to social responsibility extends to the environment, anti-corruption and trade compliance, responsible sourcing, human rights, labor practices, and worker health and safety. In light of the continued importance of these matters, the Board of Directors and management have developed a multi-year road map to enhance the Company’s environmental, social and governance-related programs and disclosures, including assessment of the potential risks associated with climate change. This road map includes near-term environmental targets for 2025 aimed at reducing energy consumption, solid waste, water and the reduction of scope 1 and scope 2 CO2 emissions through the use of renewable energy. The Company has also submitted its longer term greenhouse gas (GHG) emission reduction target for 2030 which includes scope 3 CO2 emissions to the science based targets initiative (SBTi) for validation. Management provides regular reports and presentations to the Corporate Sustainability and Governance Committee regarding progress toward achieving these targets, and the full Board of Directors has oversight of the Company’s environmental and social initiatives as part of its strategic review of the Company’s operations, products and technologies.
The Company’s Product Research and Development
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The Company’s research and development efforts are intended to maintain leadership positions in core products and provide the Company with a competitive edge as it seeks additional business with new and existing customers. The Company also works with technology development partners, including customers, to develop technological capabilities and new products and applications. Total research and development expenses, net of recoveries, were approximately $253 million, $295 million and $294 million in 2017, 2016 and 2015, respectively.
The Company’s Intellectual Property
The Company owns significant intellectual property, including a number of patents, copyrights, proprietary tools and technologies, and trade secrets, and is involved in numerous licensing arrangements. Although the Company’s intellectual property plays an important role in maintaining its competitive position, no single patent, copyright, proprietary tool or technology, trade secret or license, or group of related patents, copyrights, proprietary tools or technologies, trade secrets or licenses is in the opinion of management, of such value to the Company that its business would be materially affected by the expiration or termination thereof. The Company’s general policy is to apply for patents on an ongoing basis, in appropriate countries, on its patentable developments that are considered to have commercial significance.
The Company also views its name and mark as significant to its business as a whole. In addition, the Company holds rights in a number of other trade names and marks applicable to certain of its businesses and products that it views as important to such businesses and products.
Financial information about sales and net property by major geographic region can be found in Note 19, "Revenue recognition and Geographical Information" to the Company's consolidated financial statements included in Part II, Item 8 of this Form 10-K.
The Company’s Raw Materials and Suppliers
Raw materials used by the Company in the manufacture of its products include electronics components, resins, copper, and precious metals. AllWhile generally the supply of the materials used are generally available from numerous sources.sources, semiconductor suppliers and silicon wafer production is concentrated. In general, the Company does not carry inventories of raw materials in excess of those reasonably required to meet production, shipping schedules, and shipping schedules. As of December 31, 2017, the Company had not experienced significant shortages of raw materials.customer safety stock requirements. The Company monitors its supply base and endeavors to work with suppliers and customers to attempt to mitigate the impact of potential material shortages and supply disruptions. While
The Company, along with automotive companies around the world, has experienced a shortage in semiconductors as a result of suppliers inability to rapidly reallocate production to serve the automotive industry during a time of increased demand. The Company's semiconductor suppliers, along with most automotive component supply companies that use semiconductors, have been unable to fully meet the vehicle production demands of its customers due to events which are outside the Company's control, including but not limited to, the COVID-19 pandemic, the global semiconductor shortage, and other extraordinary events. The Company does not anticipate any significant interruption in the supplyis working closely with suppliers and customers to attempt to minimize potential adverse impacts of raw materials, there can be no assurance that sufficient sources or amounts of all necessary raw materials will be available in the future.these events.
The automotive supply industry is subject to inflationary pressures with respect to raw materials, labor, and associated freight costs, which have historically placedcan place operational and financial burdens on the entire supply chain. Accordingly, the Company continues to take actions with its customers and suppliers to mitigate the impact of these inflationary pressures in the future. Actions to mitigate inflationary pressures with customers include collaboration on alternative product designs and material specifications, contractual price escalation clauses, and negotiated customer recoveries. Actions to mitigate inflationary pressures with suppliers include aggregation of purchase requirements to achieve optimal volume benefits, negotiation of cost-reductionscost reductions, and identification of more cost competitive suppliers. While these actions are designed to offset the impact of inflationary pressures, the Company cannot provide assurance that it will be successful in fully offsetting increased costs resulting from inflationary pressures.
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Sales (a) | Property and Equipment, Net | |||||||||||||
| Year Ended December 31 | December 31 | |||||||||||||
| 2017 | 2016 | 2015 | 2017 | 2016 | ||||||||||
| United States | 25 | % | 26 | % | 26 | % | 3 | % | 4 | % | ||||
| Mexico | 2 | % | 2 | % | 2 | % | 14 | % | 14 | % | ||||
| Total North America | 27 | % | 28 | % | 28 | % | 17 | % | 18 | % | ||||
| Portugal | 16 | % | 14 | % | 13 | % | 20 | % | 18 | % | ||||
| Slovakia | 9 | % | 8 | % | 8 | % | 10 | % | 8 | % | ||||
| Tunisia | 3 | % | 4 | % | 6 | % | 3 | % | 3 | % | ||||
| France | 3 | % | 4 | % | 4 | % | 2 | % | 6 | % | ||||
| Germany | — | % | — | % | 3 | % | 1 | % | 1 | % | ||||
| Other Europe | 1 | % | 2 | % | 3 | % | 3 | % | 2 | % | ||||
| Intra-region eliminations | — | % | (1 | )% | (2 | )% | — | % | — | % | ||||
| Total Europe | 32 | % | 31 | % | 35 | % | 39 | % | 38 | % | ||||
| China | 23 | % | 23 | % | 21 | % | 23 | % | 22 | % | ||||
| Japan | 16 | % | 16 | % | 15 | % | 6 | % | 5 | % | ||||
| Thailand | 3 | % | 3 | % | 3 | % | 3 | % | 3 | % | ||||
| India | 3 | % | 2 | % | 2 | % | 6 | % | 7 | % | ||||
| Korea | — | % | 1 | % | 1 | % | — | % | — | % | ||||
| Intra-region eliminations | (5 | )% | (5 | )% | (5 | )% | — | % | — | % | ||||
| Total Asia | 40 | % | 40 | % | 37 | % | 38 | % | 37 | % | ||||
| South America | 2 | % | 3 | % | 4 | % | 6 | % | 7 | % | ||||
| Inter-region eliminations | (1 | )% | (2 | )% | (4 | )% | — | % | — | % | ||||
| 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | |||||
| (a) Company sales based on geographic region where sale originates and not where customer is located. | ||||||||||||||
The Company’s Website and Access to Available Information
The Company’s current and periodic reports filed with the United States Securities and Exchange Commission (“SEC”), including amendments to those reports, may be obtained through its internet website at www.visteon.com free of charge as soon as reasonably practicable after the Company files these reports with the SEC. A copy of the Company’s code of business conduct and ethics for directors, officers and employees of Visteon and its subsidiaries, entitled “Ethics and Integrity Policy,” the Corporate Governance Guidelines adopted by the Company’s Board of Directors and the charters of each committee of the Board of Directors are also available on the Company’s website. A printed copy of the foregoing documentsCompany’s Ethics and Integrity Policy may be requested by contacting the Company’s Investor Relations department in writing at One Village Center Drive, Van Buren Township, MI 48111; by phone (734) 710-8349;710-7893; or via email at investor@visteon.com.
Item 1A.Risk Factors
Operations Related Risk Factors
The Company could be negatively impacted by shortages in deliveries from its supply base, other supplier distress, or suppliers demanding price increases
In an effort to manage and reduce the costs of purchased goods and services, the Company, like many automotive suppliers and automakers, has been consolidating its supply base. As a result, the Company is dependent on single or limited sources of supply for certain components used in the manufacture of its products including semiconductor chips, which are integral components of new vehicles and are embedded in multiple vehicle systems including automotive and cockpit electronics. In 2022, the Company continued to experience semiconductor shortages and once again expects such shortages to persist in 2023. If such shortages of semiconductors or other critical components from other suppliers continue longer than anticipated, or worsen, it could impact the Company's ability to meet its production schedules for some of its key products or to ship such products to its customers in a timely fashion. Furthermore, unfavorable economic or industry conditions could result in financial results.distress within the Company's supply base, thereby increasing the risk of supply disruption.
Such disruptions could be caused by any one of a myriad of potential problems, such as closures of one of the Company’s or its suppliers’ plants or critical manufacturing lines due to strikes, manufacturing quality issues, mechanical breakdowns, electrical outages, fires, explosions, or political upheaval, as well as logistical complications due to weather, global climate change, volcanic eruptions, or other natural or nuclear disasters, mechanical failures, delayed customs processing, the spread of an infectious disease, virus or other widespread illness and more. Additionally, as the Company grows in best cost countries, the risk for such disruptions is heightened. Similarly, a potential quality issue could force the Company to halt deliveries while it validates the products. Even where products are ready to be shipped, or have been shipped, delays may arise before they reach the customer. The Company’s customers may halt or delay production for the same reason if one of their other suppliers fails to deliver necessary components. This may cause the Company’s customers, in turn to suspend their orders, or instruct us to suspend delivery of Visteon's products, which may adversely affect the Company's financial performance.
The Company continues to work closely with its suppliers and customers to minimize any potential adverse impacts of the semiconductor supply shortage and monitor the availability of semiconductor microchips and other component parts and raw materials, customer vehicle production schedules, and any other supply chain inefficiencies that may arise, due to this or any other issue. However, if the Company is not able to mitigate the semiconductor shortage impact, any direct or indirect supply chain disruptions may have a material adverse impact on its business, operating results, financial condition, or cash flows.
If the Company were to fail to make timely deliveries in accordance with contractual obligations, the Company generally must absorb its own costs for identifying and solving the “root cause” problem as well as expeditiously producing replacement components or products. Generally, the Company must also absorb the costs associated with “catching up,” such as overtime and premium freight. Additionally, if the Company is the cause for a customer being forced to halt production the customer may seek to recoup all of its losses and expenses from the Company. Certain customers have communicated that they expect such reimbursement and are reserving their rights to claim damages arising from supply shortages. The Company believes it has a number of legal defenses to such claims and intends to defend any potential claims vigorously. Should the company be unsuccessful in their defense, these losses and expenses could be significant, and may include consequential losses such as lost profits. Any supply-chain disruption, however small, could cause the complete shutdown of an assembly line of one of the Company’s customers, and any such shutdown could lead to material claims for compensation.
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The Company has experienced and may in the future experience supplier price increases that could negatively affect its operations and profitability. The price increases are often driven by raw material pricing and availability, component or part availability, manufacturing capacity, industry allocations, logistics capacity, natural disasters or pandemics, the effects of climate change, inflation, and significant changes in the financial or business condition of its suppliers
The Company’s business, operating results, financial condition, and cash flows have been, and may continue to be, adversely affected by the COVID-19 pandemic
The COVID-19 pandemic poses the risk that the Company or its affiliates and joint ventures, employees, suppliers, customers, and others may be restricted or prevented from conducting business activities for indefinite or intermittent periods of time, including as a result of employee health and safety concerns, shutdowns, shelter in place orders, travel restrictions, and other actions and restrictions that may be requested or mandated by governmental authorities. In addition, the Company has experienced, and may continue to experience, disruptions or delays in the supply chain as a result of such actions, which is likely to result in higher supply chain costs to us in order to maintain the supply of materials and components for Visteon's products. The Company cannot predict the degree to which, or the period over which, its financial condition and operations will be affected by this pandemic and related safety measures, the effects of which could have a material adverse impact on the Company’s business, financial condition and results of operations.
The Company’s substantial international operations make it vulnerable to risks associated with doing business in foreign countries.countries
The Company has manufacturing and distribution facilities in many foreign countries, including Mexico and countries in Europe, South America and Asia.locations. International operations are subject to certain risks inherent in doing business abroad, including:including, but not limited to:
•changes to international trade agreements;
•local economic conditions, expropriation and nationalization, foreign exchange rate fluctuations, and currency controls;
•withholding, border, and other taxes on remittances and other payments by subsidiaries;
•investment restrictions or requirements;
•export and import restrictions, including increases in border tariffs;
•the ability to effectively enforce intellectual property rights;
•new or additional governmental sanctions on doing business with or in certain countries or with certain persons; and
•increases in working capital requirements related to long supply chains.
Trade negotiations between the U.S. and cash flows.Chinese governments, and between the U.S. and European governments, remain ongoing. However, given the uncertainty regarding the scope and duration of existing tariffs, as well as the potential for additional tariffs or trade barriers by or between the U.S., China, or other countries, the Company can provide no assurance that any strategies we implement to mitigate the impact of such tariffs or other trade actions will be successful.
The Company has invested significantly and is expected to continue to invest significantly in joint ventures with other parties to conduct business in China and elsewhere in Asia. These investments may include manufacturing operations, and technical centers, as well asand research and development activities, to support anticipated growth in the region. If the Company is not able to strengthen existing relationships, secure additional customers, and develop market-relevant electrification, advanced driver assistance, and semi-autonomous and autonomous vehicle technologies, it may fail to realize expected rates of return on these investments. The Company’s ability to repatriate funds from these joint ventures depends not only upon their uncertain cash flows and profits, but also upon the terms
In addition, failure of particular agreements with the Company’s joint venture partners and maintenance of the legal and political status quo. As a result,to comply with contractual commitments or to exert influence or pressure in China may impact the Company’s exposureoperations, financial condition and cash flow. For example, as previously disclosed, during the second quarter of 2022, the Company recorded a settlement charge related to a contract dispute with a joint venture partner in China and during the fourth quarter of 2022 the Company incurred approximately $19 million of program management costs and other charges with that joint venture partner. Although those disputes were resolved, the Company cannot predict the outcome of future interactions and it is possible that any future disputes and/or changes to the risks described above is substantial. The likelihood of such occurrences and its potential effectcontractual obligations with the joint venture partner could have a material impact on the Company vary from country to country and are unpredictable. However, any such occurrences could be harmful to the Company’s business, operating results, financial condition, and the Company’s profitability and financial condition.cash flow.
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The Company’s ability to effectively operate could be hindered if it fails to attract and retain key personnel.personnel
The Company’s ability to operate its business and implement its strategies effectively depends, in part, on the efforts of its executive officers and other key employees. In addition, the Company’s future success will depend on, among other factors, the ability to attract and retain qualified personnel, particularly engineers and other employees with critical expertise and skills that support key customers and products or in emerging regions. The loss of the services of any key employees, and particularly the Company’s Chief Executive Officer, or the failure to attract or retain other qualified personnel could have a material adverse effect on the Company’s business.business, ability to secure future programs, operating results, financial condition, and cashflow.
Work stoppages and similar events could significantly disrupt the Company’s business
Because the automotive industry relies heavily on just-in-time delivery of components during the assembly and manufacture of vehicles, a work stoppage at one or more of the Company’s manufacturing and assembly facilities could have material adverse effects on the business. Similarly, if one or more of the Company’s customers were to experience a work stoppage, that customer would likely halt or limit purchases of the Company’s products, which could result in the shutdown of the related manufacturing facilities. A significant disruption in the supply of a key component due to a work stoppage at any of the Company’s suppliers or subsuppliers could have the same consequences, and accordingly, have a material adverse effect on the Company’s business, operating results, financial condition, and cash flow.
Industry and Competition Related Risk Factors
The Company may not realize sales represented by awarded business
The Company estimates awarded business using certain assumptions, including projected future sales volumes based on data from OEM customers and industry benchmarks. The OEM customers generally do not guarantee production volumes. In addition, awarded business may include business under arrangements that OEM customers have the right to terminate, at any time, without penalty. Therefore, the Company’s actual sales volumes, and thus the ultimate amount of revenue that it derives from such sales, are not guaranteed. If actual production orders from its customers are not consistent with the projections used by the Company in calculating the amount of its awarded business, the Company could realize substantially less revenue over the life of these projects than the projected estimate.
The Company must continue to develop, introduce, and achieve market acceptance of new and enhanced products in order to grow its sales in the future
The growth of the Company's business will be dependent on the demand for innovative automotive electronics products, including but not limited to electrification, advanced driver assistance, semi-autonomous and autonomous vehicle technologies. In order to increase sales in current markets and gain entry into new markets, the Company must innovate to maintain and improve existing products, including software, while successfully developing and introducing distinctive new and enhanced products that anticipate changing customer and consumer preferences and capitalize upon emerging software technologies. However, the Company may experience difficulties that delay or prevent the development, introduction, or market acceptance of its new or enhanced products. Furthermore, these new technologies have also attracted increased competition from outside the traditional automotive industry, and any of these competitors may develop and introduce technologies that gain greater customer or consumer acceptance, which could have a material adverse effect on the future growth of the Company.
The automotive industry is cyclical and significant declines in the production levels of the Company’s major customers could reduce the Company’s sales and harm its profitability
Demand for the Company’s products is directly related to the automotive vehicle production of the Company’s major customers. Automotive sales and production are cyclical and can be affected by general economic or industry conditions, labor relations issues, fuel prices, regulatory requirements, government initiatives, trade agreements, the cost and availability of credit, and other factors. Due to overall global economic conditions, including semiconductor shortages that continued in 2022, the automotive industry experienced constrained production schedules. Such shortages and constrained production schedules had and may in the future have a material adverse effect on the Company’s business, profitability, financial condition and results of operations.
The discontinuation or loss of business, or lack of commercial success, with respect to a particular product for which the Company is a significant supplier could reduce the Company’s sales and harm its profitability
Although the Company has purchase orders from many of its customers, these purchase orders generally provide for the supply of a customer’s annual requirements for a particular vehicle model and assembly plant, or in some cases, for the supply of a
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customer’s requirements for the life of a particular vehicle model, rather than for the purchase of a specific quantity of products. In addition, certain customers have communicated an intent to manufacture components internally that are currently produced by outside suppliers, such as the Company. If the Company's OEM customers successfully insource products currently manufactured by the Company the discontinuation or loss of business for products which the Company is a significant supplier could reduce the Company’s sales and harm the Company’s profitability.
Price pressures from customers may adversely affect the Company’s business
Downward pricing pressures by automotive OEMs, while characteristic of the automotive industry, are increasing. Virtually all automakers have implemented aggressive price-reduction initiatives and objectives each year with their suppliers, and such actions are expected to continue in the future. In addition, estimating such amounts is subject to risk and uncertainties because any price reductions are a result of negotiations and other factors. Accordingly, suppliers must be able to reduce their operating costs in order to maintain profitability. Price reductions have impacted the Company’s sales and profit margins and are expected to continue to do so in the future. If the Company is unable to offset customer price reductions in the future through improved operating efficiencies, new manufacturing processes, sourcing alternatives, and other cost-reduction initiatives, the Company’s business, operating results, financial condition, and cash flow could be adversely affected.
The Company is highly dependent on Ford Motor Company and decreases in this customer’s vehicle production volumes would adversely affect the Company
Ford is one of the Company’s largest ultimate customers and accounted for 22% of sales for each of the years 2022, 2021 and 2020, respectively. Accordingly, any change in Ford's vehicle production volumes may have a significant impact on the Company’s sales volume and profitability.
The Company’s pension expense and funding levels of pension plans could materially deteriorate, or the Company may be unable to generate sufficient excess cash flow to meet increased pension benefit obligations
The Company’s assumptions used to calculate pension obligations as of the annual measurement date directly impact the expense to be recognized in future periods. While the Company’s management believes that these assumptions are appropriate, significant differences in actual experience or significant changes in these assumptions may materially affect the Company’s pension obligations and future expense. For more information on sensitivities to changing assumptions, please see “Critical Accounting Estimates” in Item 7 and Note 11, “Employee Benefit Plans” in Part II, Item 8 of this Form 10-K.
Product Related Risk Factors
The Company's inability to effectively manage the timing, quality, and costs of new program launches could adversely affect its financial performance
In connection with the award of new business, the Company often obligates itself to deliver new products and services that are subject to its customers’ timing, performance, and quality standards. Additionally, as a Tier 1 supplier, the Company must effectively coordinate the activities of numerous suppliers in order to launch programs successfully. Given the complexity of new program launches, especially involving new and innovative technologies, the Company may experience difficulties managing timeliness and detecting undiscovered software errors, bugs, and other defects in its products which may injure the Company's reputation. In addition, new program launches require a significant ramp up of costs; however, the sales related to these new programs generally are dependent upon the timing and success of the introduction of new vehicles by the Company's customers. The Company's inability to effectively manage the timing, quality, and costs of these new program launches could have a material adverse effect on its business, operating results, financial condition, and cash flow.
Warranty claims, product liability claims, and product recalls could harmadversely affect the Company’s business, results of operations and financial condition.Company
The Company faces the inherent business risk of exposure to warranty and product liability claims in the event that its products fail to perform as expected or such failure results, or is alleged to result, in bodily injury or property damage (or both). In addition, if any of the Company’s designedsupplied products are defective or are alleged to be defective, the Company may be required to participate in a recall campaign. The Company’s products contain increasingly significant amounts of software and a successful cyberattack on such products could cause materially adverse effects on the Company’s business, operating results, financial condition, cash flow, and reputation. In addition, as the Company expands its electrification product offering, including its battery management systems, such products will present a different warranty and product liability risk profile. As suppliers become more integrally involved in the vehicle design process and assume more of the vehicle assembly functions, automakers are increasingly expecting them to warrant their products and are increasingly looking to suppliers for contributions when faced with product liability claims or recalls. A successful warranty or product liability claim against the Company, in excess of its available insurance coverage and established reserves, or a
12
requirement that the Company participate in a product recall campaign, could have materially adverse effects on the Company’s business, operating results, of operationsfinancial condition, and financial condition.cash flow.
Developments or assertions by or against the Company relating to intellectual property rights could materially impact its business.business
The Company owns significant intellectual property, including a number of patents, trademarks, copyrights, and trade secrets and is involved in numerous licensing arrangements. The Company’s intellectual property plays an important role in maintaining its competitive position in a number of the markets served. The Company may utilize intellectual property in its products that requires a license from a third-party. While the Company believes that such licenses generally can be obtained, there is no assurance that the necessary licenses can be obtained on commercially acceptable terms or at all. Failure to obtain the right to use third-party intellectual property could preclude the Company from selling certain products, and have materially adverse effects on the Company’s business, results of operations and financial condition. Developmentsdevelopments or assertions by or against the Company relating to intellectual property rights, could have materially impactadverse effects on the Company’s business. Recently,business, operating results, financial condition, and cash flow.
The Company also derives significant revenue from countries outside the U.S. (including China) and significant intellectual property assets are licensed to joint ventures and customers in foreign jurisdictions. If a material intellectual property theft or forced transfer were to occur, it could materially and adversely affect the Company’s business, operating results, financial condition, and cash flow. In addition, the Company has seencontinued to see an increase in patent claims related to connectivity-enabled products where other patent-holding companies are seeking royalties and often enter into litigation based on patent infringement allegations. Significant technological developments by others also could materially and adversely affect the Company’s business, andoperating results, of operations and financial condition.
Privacy and security concerns relating to the Company's current or future products and services could damage its reputation and deter current and potential users from using them.them
The Company may gain access to sensitive, confidential, or personal data or information that is subject to privacy and security laws, regulations, and customer-imposed controls. Concerns about the Company's practices with regard to the collection, use, disclosure, or security of personal information or other privacy related matters, even if unfounded, could damage its reputation and adversely affect its operating results.
Furthermore, regulatory authorities around the world are considering a number of legislative and regulatory proposals concerning cybersecurity and data protection. In addition, the interpretation and application of consumer and data protection laws in the U.S., Europe, and elsewhere are often uncertain and in flux. Complying with these various laws could cause the Company to incur substantial costs.
Tax Related Risk Factors
The Company’s business.
We are subject to income taxes in the U.S. and various international jurisdictions. Changes in tax rates or tax laws by U.S. and international jurisdictions and tax audits could adversely impact Visteon’s financial results. The Company is in a position whereby losses incurred in certain tax jurisdictions generally provide no current financial statement benefit. In addition, certain jurisdictions have statutory rates greater than or less than the United States statutory rate. As such, changes in the mix and source of earnings between jurisdictions, including changes in tax rates in those jurisdictions, could have a significant impact on the Company’s overall effective tax rate in future periods. Additionally, in the ordinary course of business, we are subject to examinations by various tax authorities. Tax authorities in various jurisdictions could also open new examinations and expand existing examinations for which the outcomes cannot be predicted with certainty. Furthermore, changes in U.S. or foreign tax laws and regulations, or their interpretation and application, could also have a significant impact on the Company’s overall effective rate in future periods.
The Company may not be able to reduce theirfully utilize its U.S. net operating costs in order to maintain profitability. losses and other tax attributes
The Company has taken steps to reduce itsnet operating costslosses ("NOLs") and other actions to offset customer price reductions; however, price reductions have impacted the Company’s sales and profit margins and are expected to continue to do so in the future. If the Company is unable to offset customer price reductions in the future through improved operating efficiencies, new manufacturing processes, sourcing alternatives and other cost-reduction initiatives, the Company’s results of operations and financial condition will likely be adversely affected.
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possibly eliminated. Certain tax benefit preservation provisions of its corporate documents could delay or prevent a change of control, even if that change would be beneficial to stockholders.
Market Related Risk Factors
The Company is subject to significant foreign currency risks and foreign exchange exposure
As a result of Visteon's global presence, a significant or prolonged shortageportion of critical componentsthe Company's revenues and expenses are denominated in currencies other than the U.S. dollar. The Company is therefore subject to foreign currency risks and foreign exchange exposure. The Company's primary exposures are to the euro, Chinese renminbi, Brazilian real, Mexican peso, Thai bhat, Indian rupee, Japenese yen, and Bulgarian lev. Exchange rates are difficult to predict, and the Company’s financial instruments designed to hedge against foreign exchange exposure may not completely insulate the Company from anythose exposures. As a result, volatility in certain exchange rates could adversely impact Visteon financial results and comparability of results from period to period.
General Risk Factors
A disruption in the Company's information technology systems, including because of cyberattack, could adversely affect its business and financial performance
The Company relies on the accuracy, capacity, and security of its information technology systems as well as those of its customers, suppliers, particularly those who are sole sources,partners, and could not procureservice providers to conduct its business. Despite the components from other sources,security and risk-prevention measures the Company wouldhas implemented, the Company's systems could be unablebreached, damaged, or otherwise interrupted by a system failure, cyberattack, malicious computer software (including malware or ransomware), unauthorized physical or electronic access, or other natural or man-made incidents or disasters. The Company is also susceptible to meet its production schedules for some of its key productssecurity breaches that may go undetected. Such a breach or to ship such products to its customers in a timely fashion, which would adversely affect sales, margins, and customer relations. Furthermore, unfavorable economic or industry conditionsinterruption could result in financial distress withinbusiness disruption, theft of the Company's supply base, thereby increasingintellectual property or trade secrets, and unauthorized access to personal information. To the risk of supply disruption. Although market conditions generally have improved in recent years, uncertainty remains and another economic downturnextent that business is interrupted or other unfavorable industry conditions in onedata is lost, destroyed, or more of the regions in whichinappropriately used or disclosed, such disruptions could lead to legal claims against the Company operates could cause a supply disruption and thereby adversely affect the Company'sCompany’s competitive position, reputation, relationships with customers, financial condition, operating results, and cash flows.
The Company is involved from time to time in legal proceedings and commercial or contractual disputes, which could have an adverse effect on its business, results of operations and financial position.the Company
The Company is involved in legal proceedings and commercial or contractual disputes that, from time to time, are significant. These are typically claims that arise in the normal course of business including, without limitation, commercial or contractual disputes (including disputes with suppliers), intellectual property matters, personal injury claims, and employment matters. No assurances can be given that such proceedings and claims will not have a material adverse impact on the Company’s profitability and financial position.
Increased attention to climate change and its association with greenhouse gas emissions, expectations for companies to establish short and long-term emissions reduction targets, and changes in consumer preferences may result in increased costs, reduced profits, risks associated with new regulatory requirements, and the potential for increased litigation and governmental investigations. The U.S. federal government, certain U.S. states, and certain other countries and regions have adopted or are considering legislation or regulation imposing overall caps or taxes on greenhouse gas emissions from certain sectors including automotive. Failure to comply with any legislation or regulation could result in substantial fines, criminal sanctions, or operational changes. Moreover, even without such legislation or regulation, increased awareness of, or any adverse publicity regarding, the effects of greenhouse gases could harm the Company’s reputation or reduce customer demand for its products and services.
Additionally, as severe weather events become increasingly common, operations of the Company, its customers, and/or suppliers may be disrupted, which could result in increased operational costs or reduced demand for products and services. Natural disasters could cause disruption to the Company’s ability to serve its customers and communities in times of need and extended periods of disruption could have an adverse effect on its results and comparability of results from period to period.operations.
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Item 1B. Unresolved Staff Comments
None
Item 2. Properties
The Company's principal executive offices are located in Van Buren Township, Michigan. At December 31, 2017,2022, the Company and its consolidated subsidiaries owned or leased approximately:leased:
In addition, the Company's non-consolidated affiliates operate approximately 6 manufacturing and/or assembly locations, primarily in the Asia Pacific region. The Company considers its facilities to be adequate for its current uses.
Item 3.Legal Proceedings
Certain legal proceedings in which the Company is involved are discussed in Note 21 -18, "Commitments and Contingencies" ofto the Company's consolidated financial statements included in Part II, Item 8 of this Form 10-K, "Financial Statements and Supplementary Data" and should be considered an integral part of Part I, Item 3, "Legal Proceedings."
Item 4.Mine Safety Disclosures
None
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Item 4A. Executive Officers and Key Employees
The following table shows information about the executive officers of the Company and other key employees. Ages are as of February 1, 2018:
2023:
| Name | Age | Position | ||||||||||||
| Sachin S. Lawande | Director, President and Chief Executive Officer | |||||||||||||
Vice President and Chief Accounting Officer | ||||||||||||||
| Brett D. Pynnonen | 54 | Senior Vice President and Chief Legal Officer | ||||||||||||
| Joao Paulo Ribeiro | 53 | Senior Vice President, Manufacturing, Supply Chain, and Purchasing | ||||||||||||
| Kristin E. Trecker | 57 | Senior Vice President and Chief People Officer | ||||||||||||
| Robert R. Vallance | 62 | Senior Vice President, Global Customer Business Groups, New Technology Product Lines, and General Manager APAC Region | ||||||||||||
Sachin S. Lawande has been Visteon’s Chief Executive Officer, President, and a director of the Company since June 29, 2015. Before joining Visteon, Mr. Lawande served as Executive Vice President and President, Infotainment Division of Harman International Industries, Inc., an automotive supplier, from July 2013 to June 2015. From July 2011 to June 2013, he served as Executive Vice President and President of Harman’s Lifestyle Division, and from July 2010 to June 2011 as Executive Vice President and Co-President, Automotive Division. Prior to that he served as Harman’s Executive Vice President and Chief Technology Officer since February 2009. Mr. Lawande joined Harman International in 2006, following senior roles at QNX Software Systems and 3Com Corporation. He also serves on the board of directors of Cognex Corporation, a leading worldwide provider of machine vision products that are widely used in automotive, consumer electronics, life sciences, and logistics industries. Within the last five years, he also served on the board of directors of DXC Technology CompanyCompany.
Abigail S. Fleming has been Visteon’s Vice President and Chief Accounting Officer and from September 2011 to December 2014 as Halliburton’s Treasurer. Prior to that, he was Senior Vice President, Investor Relations of Halliburton from January 2011 tosince joining the Company in August 2011. He also held a series of senior financial positions with Landmark Graphics, a software and consulting provider that was acquired by Halliburton.2020. Prior to joining Landmark Graphics, he workedVisteon, Ms. Fleming was Executive Director and Assistant Controller of Tenneco Inc. (formerly Federal-Mogul, LLC), a global automotive supplier, from March 2017 to August 2020, and Director, Capital Markets and Accounting Advisory Services at BellPricewaterhouseCoopers LLP from March 2015 to March 2017. Ms. Fleming began her career at PricewaterhouseCoopers in August 2004 and Howell and San Miguel Corp. in the Philippines in various roles. Mr. Garcia also serves on the board of directors of Keane Group, Inc.is a certified public accountant.
Brett D. Pynnonen has been Visteon’s Senior Vice President and General CounselChief Legal Officer since December 2016. Prior to that, he was Vice President and General Counsel since joining the Company in March 2016. Before joining Visteon he was Senior Vice President, General Counsel and Corporate Secretary of Federal-Mogul Holdings Corporation, a global automotive supplier, from November 2007 to March 2016. Prior to that, he was General Counsel and Secretary of Covansys Corporation, a technology services company, and an attorney at the law firm of Butzel Long.
Joao Paulo Ribeiro has been Visteon’s Senior Vice President, Manufacturing, Supply Chain and Purchasing since November 2021. Prior to that he was Vice President, Manufacturing and Supply Chain since March 2020, Vice President, Manufacturing Operations since March 2014, and Managing Director, European Operations from October 2010 to March 2014. During his career with Visteon and Ford Motor Company, he has held management positions of increasing responsibility in manufacturing and operations.
Kristin E. Trecker has been Visteon’s Senior Vice President and Chief Technology Officer since December 2016. Prior to that, he was Vice President and Chief TechnologyPeople Officer since joining the Company in April 2016.May 2018. Before joining Visteon, he wasshe served as Executive Vice President of Operations at Elektrobit Automotive GmbH,and Chief Human Resources Officer (“CHRO”) for Integer Holdings Corp. (formerly Greatbatch, Inc.), a supplier of embedded software solutions and services, since February 2014, andmedical device outsource manufacturer, from November 20092015 to January 2014, he was Elektrobit’sMay 2017, and as Senior Vice President Infotainment Solutions.and CHRO of MTS Systems Corp., a global engineering firm, from February 2012 to October 2015. Prior to that he served asMs. Trecker spent 16 years with Lawson Software, Inc. in roles of increasing responsibility, ranging from Director of Compensation and Benefits to Senior Vice President of Navigation for the Infotainment Division of Harman International Industries and held director-level roles at Siemens VDO and Siemens.Human Resources.
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Robert R. Vallance has been Visteon’s Senior Vice President, Global Customer Business Groups, New Technology Product Lines, and General Manager APAC Region since January 2022, and prior to that, he was Senior Vice President, Customer Business Groups since December 2016. Prior to that, he wasHe also served as Vice President, Customer Business Groups upon rejoining the Company in July 2014. From February 2008 to June 2015,2014, he served as Vice President, Electronics Business Group of Johnson Controls, Inc., an automotive supplier. Prior to that, he spent 23 years at Ford Motor Company and Visteon in product development, program and commercial management, strategy and planning, product marketing, and manufacturing.
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Part II
Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
As of February 15, 2018,9, 2023, the Company had 30,919,267 shares 2,981 shareholders of its common stock, $0.01 par value per share, outstanding, which were owned by 4,261 shareholders of record. The table below shows the high and low sales prices per share for the Company’s common stock as reported by the stock exchange for each quarterly period for the last two years.
| 2017 | |||||||
First Quarter | Second Quarter | Third Quarter | Fourth Quarter | ||||
| High | $101.12 | $103.58 | $125.46 | $132.42 | |||
| Low | $80.94 | $92.37 | $101.27 | $121.99 | |||
| 2016 | |||||||
First Quarter* | Second Quarter | Third Quarter | Fourth Quarter | ||||
| High | $80.85 | $81.04 | $73.13 | $84.48 | |||
| Low | $54.71 | $64.11 | $63.04 | $64.95 | |||
No dividends were paid by the Company on its common stock during the years ended December 31, 20172022 and 2016.2021. The Company’s Board evaluates the Company’s dividend policy based on all relevant factors. The Company’s credit agreements limit the amount of cash payments for dividends that may be made. Additionally, the ability of the Company’s subsidiaries to transfer assetsdividends is subject to various restrictions, including regulatory requirements and governmental restraints. Refer to Note 17, “Stockholders’ Equity and Non-controlling Interests,” in Item 8
No sales of this Report.
Period | Total Number of Shares (or Units) Purchased (1) | Average Price Paid per Share (or Unit) | Total Number of Shares (or units) Purchased as Part of Publicly Announced Plans or Programs (2) | Approximate Dollar Value of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs (3) | |||||
| Oct. 1, 2017 to Oct. 31, 2017 | — | $0.00 | — | $0.00 | |||||
| Nov. 1, 2017 to Nov. 30, 2017 | 98,283 | $125.10 | — | $0.00 | |||||
| Dec. 1, 2017 to Dec. 31, 2017 | 138,101 | $128.37 | — | $0.00 | |||||
| Total | 236,384 | $127.01 | — | $0.00 | |||||
2022.
The following information in Item 5 is not deemed to be “soliciting material” or be “filed” with the SEC or subject to Regulation 14A or 14C under the Securities Exchange Act of 1934 (“Exchange Act”) or to the liabilities of Section 18 of the Exchange Act, and
will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except to the extent the Company specifically incorporates it by reference into such a filing.
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Performance Graph
The following graph compares the cumulative total stockholder return from December 31, 2013,2017 through December 31, 2017,2022, for Visteon's existing common stock, the S&P 500 Index and the Dow Jones U.S. Auto Parts Index. The graph below assumes that $100 was invested on December 31, 2013,2017 in each of the Company's common stock, the stocks comprising the S&P 500 Index and the stocks comprising the Dow Jones U.S. Auto Parts Index, and that all that dividends have been reinvested.
| December 31, 2013 | December 31, 2014 | December 31, 2015 | December 31, 2016 | December 31, 2017 | December 31, 2017 | December 31, 2018 | December 31, 2019 | December 31, 2020 | December 31, 2021 | December 31, 2022 | |||||||||||||||
| Visteon Corporation | $100.00 | $130.49 | $139.82 | $166.65 | $259.58 | Visteon Corporation | $100.00 | $48.17 | $69.19 | $100.30 | $88.81 | $104.55 | |||||||||||||
| Dow Jones U.S. Auto & Parts Index | $100.00 | $106.36 | $103.44 | $105.35 | $129.22 | ||||||||||||||||||||
| Dow Jones U.S. Auto Parts Index | Dow Jones U.S. Auto Parts Index | $100.00 | $68.30 | $85.56 | $99.27 | $118.94 | $87.05 | ||||||||||||||||||
| S&P 500 | $100.00 | $113.68 | $115.24 | $129.02 | $157.17 | S&P 500 | $100.00 | $93.76 | $120.84 | $140.49 | $178.27 | $143.61 | |||||||||||||
The above comparisons are required by the Securities and Exchange Commission and are not intended to forecast or be indicative of possible future performance of the Company's common stock or the referenced indices.
Item 6. Selected Financial Data |
| Year Ended December 31 | Year Ended December 31 | Year Ended December 31 | Year Ended December 31 | Year Ended December 31 | |||||||||||||||
| 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
| (Dollars in Millions, Except Per Share Amounts) | |||||||||||||||||||
| Statement of Operations Data: | |||||||||||||||||||
| Net sales | $ | 3,146 | $ | 3,161 | $ | 3,245 | $ | 2,586 | $ | 1,724 | |||||||||
| Net income (loss) from continuing operations | 175 | 131 | 42 | (75 | ) | 555 | |||||||||||||
| Net income (loss) from discontinued operations, net of tax | 17 | (40 | ) | 2,286 | (131 | ) | 220 | ||||||||||||
| Net income (loss) attributable to Visteon Corporation | $ | 176 | $ | 75 | $ | 2,284 | $ | (295 | ) | $ | 690 | ||||||||
| Basic earnings (loss) per share | |||||||||||||||||||
| Continuing operations | $ | 5.03 | $ | 3.28 | $ | 0.52 | $ | (2.14 | ) | $ | 11.10 | ||||||||
| Discontinued operations | 0.54 | (1.14 | ) | 53.48 | (4.30 | ) | 2.70 | ||||||||||||
| Basic earnings (loss) attributable to Visteon Corporation | $ | 5.57 | $ | 2.14 | $ | 54.00 | $ | (6.44 | ) | $ | 13.80 | ||||||||
| Diluted earnings (loss) per share | |||||||||||||||||||
| Continuing operations | $ | 4.94 | $ | 3.25 | $ | 0.51 | $ | (2.14 | ) | $ | 10.86 | ||||||||
| Discontinued operations | 0.53 | (1.13 | ) | 52.12 | (4.30 | ) | 2.64 | ||||||||||||
| Diluted earnings (loss) attributable to Visteon Corporation | $ | 5.47 | $ | 2.12 | $ | 52.63 | $ | (6.44 | ) | $ | 13.50 | ||||||||
| Balance Sheet Data: | |||||||||||||||||||
| Total assets | $ | 2,304 | $ | 2,373 | $ | 4,681 | $ | 5,323 | $ | 6,027 | |||||||||
| Total debt, excluding held for sale | $ | 393 | $ | 382 | $ | 383 | $ | 616 | $ | 399 | |||||||||
| Total Visteon Corporation stockholders' equity | $ | 637 | $ | 586 | $ | 1,057 | $ | 865 | $ | 1,920 | |||||||||
| Statement of Cash Flows Data: | |||||||||||||||||||
| Cash provided from operating activities | $ | 217 | $ | 120 | $ | 338 | $ | 284 | $ | 312 | |||||||||
| Cash (used by) provided from investing activities | $ | (175 | ) | $ | 302 | $ | 2,358 | $ | (740 | ) | $ | 698 | |||||||
| Cash used by financing activities | $ | (233 | ) | $ | (2,262 | ) | $ | (774 | ) | $ | (359 | ) | $ | (141 | ) | ||||
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Item 7.Management's Discussion and Analysis of Financial Condition and Results of Operations
Management’s Discussion and Analysis (“MD&A”) is intended to help the reader understand the results of operations, financial condition, and cash flows of Visteon Corporation (“Visteon” or the “Company”).Company. MD&A is provided as a supplement to, and should be read in conjunction with, the Company’s consolidated financial statements and related notes appearing in Item 8 of this Form 10-K “Financial Statements and Supplementary Data” of this Report..
Strategic Priorities
Visteon Corporation (the "Company" or "Visteon") is a global automotive supplier that designs, engineers and manufactures innovative electronics products for nearly every original equipment vehicle manufacturer ("OEM") worldwide including Ford, Mazda, Renault/Nissan, General Motors, Jaguar / Land Rover, Honda, Volkswagen, BMW and Daimler. Visteon is headquartered in Van Buren Township, Michigan, and has an international network of manufacturing operations, technical centers and joint venture operations, supported by approximately 10,000 employees,technology company serving the mobility industry, dedicated to creating more enjoyable, connected, and safe driving experiences. The Company's platforms leverage proven, scalable hardware and software solutions that enable the design, development, manufacturedigital, electric, and supportautonomous evolution of its product offerings and its global automotive customers. The Company's manufacturing and engineering footprintautomotive mobility market is principally located outside of the United States.
safety features.
The Company has laid out the following strategic priorities:
•Long-Term Growth - The Company is developinghas continued to win business at a Level 3/4 secure autonomous driving domain controller platform with an open framework based on neural networks. Level 3+ system requirements include systems with environmental monitoring radar, camerarate that exceeds current sales levels by demonstrating product quality, technical and LiDAR sensors, late fusion of sensor data, scalable centralized computingdevelopment capability, new product innovation, reliability, timeliness, product design, manufacturing capability, and machine learning algorithms.flexibility, as well as overall customer service.
•Enhance Shareholder Returns While Maintaining a Strong Balance Sheet - The Company is taking a disciplined approachhas returned approximately $3.3 billion to progress autonomous technology via collaborations with key partners, customer partnerships and strategic investments.
shareholders since 2015. In addition, to the ASB program, the Company purchased 677,778 shares in the open market at an average price of $110.63. Through the end of December 31, 2017, the Company purchased 1,978,144 shares at an average price of $101.10 per share for a total of $200 million in share repurchases during 2017. At December 31, 2017, $200 million of the share repurchase authorization remained outstanding.
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Financial Results
The pie charts below highlight the sales breakdown for Visteon's Electronics segmentVisteon for the year ended December 31, 2017.2022.
*Regional sales are based on the geographic region where sale originates and not where customer is located (excludes inter-regional eliminations).
Global Automotive Market Conditions and Production Levels
Company Highlights
Visteon continued to focus on execution throughout 2022, building a foundation of sustainable growth, margin expansion, and cash flow generation. To address the same period last year. near-term challenges created from the worldwide semiconductor and supply chain shortages, Visteon implemented a series of proactive initiatives aimed at increasing product availability for its customers while minimizing the impact of incremental costs to the business.
As a result of these actions and continued growth-over-market, Visteon reported sales of $3,756 million, a year-over-year increase of 40% when excluding the negative impact from currency. This represents a continued out-performance compared to industry and customer production levelsvolumes. Adjusted EBITDA1 was $348 million, or 9.3% of sales. Visteon continued to build the foundation for 2017sustainable growth launching 45 new products during 2022. Visteon's next-generation products continue to be featured on its customer's key vehicles and 2016 by geographic region are provided below (unitsplatforms. Additionally, Visteon was awarded $6 billion in millions):new business wins with strong performance in all product categories. Wins included multiple large multi-display wins bringing total displays wins in excess of $1.6 billion for the year, multiple SmartCore™ domain wins with lifetime revenue in excess of $1 billion, discrete cluster wins of approximately $1 billion, and incremental battery management system wins that extend the scope of previous customer wins.
1Adjusted EBITDA is a Non-U.S. GAAP financial measure, as defined below.
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| Light Vehicle Production | ||||||||
| 2017 | 2016 | Change | ||||||
| Global | 95.1 | 93.1 | 2.1 | % | ||||
| Asia Pacific | 50.0 | 48.7 | 2.6 | % | ||||
| Europe | 22.2 | 21.6 | 3.2 | % | ||||
| North America | 17.1 | 17.8 | (4.3 | )% | ||||
| South America | 3.3 | 2.7 | 20.4 | % | ||||
| Other | 2.5 | 2.3 | 11.6 | % | ||||
| Source: IHS Automotive | ||||||||
Results of Operations
Year ended December 31, 2022 Compared to Year ended December 31, 2021
The Company's consolidated results of operations for the years ended December 31, 20172022 and 20162021 were as follows:
| Year Ended December 31, | |||||||||||||||||
| (In millions) | 2022 | 2021 | Change | ||||||||||||||
| Net sales | $ | 3,756 | $ | 2,773 | $ | 983 | |||||||||||
| Cost of sales | (3,388) | (2,519) | (869) | ||||||||||||||
| Gross margin | 368 | 254 | 114 | ||||||||||||||
| Selling, general and administrative expenses | (188) | (175) | (13) | ||||||||||||||
| Restructuring and impairment | (14) | (14) | — | ||||||||||||||
| Interest expense, net | (10) | (8) | (2) | ||||||||||||||
| Equity in net (loss) income of non-consolidated affiliates | (1) | 6 | (7) | ||||||||||||||
| Other income, net | 20 | 18 | 2 | ||||||||||||||
| Income (loss) before income taxes | 175 | 81 | 94 | ||||||||||||||
| Provision for income taxes | (45) | (31) | (14) | ||||||||||||||
| Net income (loss) | 130 | 50 | 80 | ||||||||||||||
| Less: Net (income) loss attributable to non-controlling interests | (6) | (9) | 3 | ||||||||||||||
| Net income (loss) attributable to Visteon Corporation | $ | 124 | $ | 41 | $ | 83 | |||||||||||
| Adjusted EBITDA | $ | 348 | $ | 228 | $ | 120 | |||||||||||
| Year Ended December 31 | |||||||||||
| 2017 | 2016 | Change | |||||||||
| (Dollars in Millions) | |||||||||||
| Sales | $ | 3,146 | $ | 3,161 | $ | (15 | ) | ||||
| Cost of sales | 2,647 | 2,697 | (50 | ) | |||||||
| Gross margin | 499 | 464 | 35 | ||||||||
| Selling, general and administrative expenses | 222 | 220 | 2 | ||||||||
| Restructuring expense, net | 14 | 49 | (35 | ) | |||||||
| Interest expense | 21 | 18 | 3 | ||||||||
| Interest income | 5 | 6 | (1 | ) | |||||||
| Equity in net income of non-consolidated affiliates | 7 | 2 | 5 | ||||||||
| Loss on divestiture | 33 | — | 33 | ||||||||
| Gain on non-consolidated affiliate transactions, net | 4 | — | 4 | ||||||||
| Other expense, net | 2 | 24 | (22 | ) | |||||||
| Provision for income taxes | 48 | 30 | 18 | ||||||||
| Net income from continuing operations | 175 | 131 | 44 | ||||||||
| Net income (loss) from discontinued operations, net of tax | 17 | (40 | ) | 57 | |||||||
| Net income | 192 | 91 | 101 | ||||||||
| Net income attributable to non-controlling interests | 16 | 16 | — | ||||||||
| Net income attributable to Visteon Corporation | $ | 176 | $ | 75 | $ | 101 | |||||
| Adjusted EBITDA* | $ | 370 | $ | 337 | $ | 33 | |||||
* Adjusted EBITDA is a Non-GAAP financial measure, as defined in Note22. | |||||||||||
Sales
| (In millions) | Net Sales | Cost of Sales | Gross Margin | ||||||||||||||
| December 31, 2021 | $ | 2,773 | $ | (2,519) | $ | 254 | |||||||||||
| Volume, mix, and net new business | 722 | (573) | 149 | ||||||||||||||
| Customer pricing, net | 395 | — | 395 | ||||||||||||||
| Currency | (136) | 109 | (27) | ||||||||||||||
| Engineering costs, net | — | (15) | (15) | ||||||||||||||
| Cost performance, design changes and other | 2 | (390) | (388) | ||||||||||||||
| December 31, 2022 | $ | 3,756 | $ | (3,388) | $ | 368 | |||||||||||
| Electronics | Other | Total | |||||||||
| (Dollars in Millions) | |||||||||||
| December 31, 2016 | $ | 3,107 | $ | 54 | $ | 3,161 | |||||
| Volume, mix, and net new business | 127 | — | 127 | ||||||||
| Currency | 5 | — | 5 | ||||||||
| Exit of climate operations | — | (54 | ) | (54 | ) | ||||||
| Other | (93 | ) | — | (93 | ) | ||||||
| December 31, 2017 | $ | 3,146 | $ | — | $ | 3,146 | |||||
| Electronics | Other | Total | |||||||||
| (Dollars in Millions) | |||||||||||
| December 31, 2016 | $ | 2,634 | $ | 63 | $ | 2,697 | |||||
| Volume, mix, and net new business | 123 | — | 123 | ||||||||
| Currency | 12 | — | 12 | ||||||||
| Exit of climate operations | — | (63 | ) | (63 | ) | ||||||
| Other | (122 | ) | — | (122 | ) | ||||||
| December 31, 2017 | $ | 2,647 | $ | — | $ | 2,647 | |||||
Cost of sales decreased $50increased $869 million for the year ended December 31, 2017,2022, when compared with the same period in 2016. Increased volumes, product2021. Volume, mix and net new business increased cost of sales by $123$573 million. Foreign currency decreased cost of sales by $109 million, primarily attributable to the euro, Chinese renminbi, and Japanese yen. Unfavorable cost performance, design changes and other increased cost of sales by $12$390 million primarily attributabledue to supply chain and material cost impacts associated with the Euro, Brazilian Real, and Thai Baht, partially offset by the Chinese Renminbi, Japanese Yen, and Mexican Peso. The exit and wind-downworldwide semiconductor supply shortage.
22
A summary of other climate operations decreased cost of sales by $63 million. Net efficiencies, including material, design and usage economics, higher engineering recoveries and lower gross engineering expense, warranty costs, and certain intellectual property settlements, partially offset by higher manufacturing and other cost performance, decreased cost of sales by $122 million.
| Year Ended December 31, | |||||||||||
| (In millions) | 2022 | 2021 | |||||||||
| Gross engineering costs | $ | (341) | $ | (325) | |||||||
| Engineering recoveries | 145 | 134 | |||||||||
| Engineering costs, net | $ | (196) | $ | (191) | |||||||
Gross engineering expenses relatedcosts relate to forward model program development and advanced engineering activities partially offset byand exclude contractually reimbursable engineering cost recoveries from customers. Electronics grosscosts. Net engineering expenses were $386costs of $196 million for the year ended December 31, 2017, a decrease2022, including the impacts of $13currency, were $5 million compared tohigher than the same period of 2016. Engineering recoveries were $133 million for the year ended December 31, 2017, $29 million2021. This increase is primarily related to higher than the recoveries recorded in the same period of 2016. Engineering cost recoveries can fluctuate period to period depending on underlying contractual terms and conditions and achievement of related development milestones.
recoveries.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses were $222$188 million, or 7.1%5.0% of net sales, and $220$175 million, or 7.0%6.3% of net sales, during the years ended December 31, 20172022 and 2016,2021, respectively. The increase is primarily due to increased employee related compensation, bad debt and travel and consulting expenses, partially offset by foreign currency.
Restructuring and Impairment
During 2022, the Company recorded $9 million of $2 million isrestructuring expense primarily related to increased equity, based incentive compensation costs and an increaseemployee severance.
Due to the current geopolitical situation in allowance for doubtful accounts, partially offset by net cost efficiencies.
Interest Expense, Net
Net interest expense for the year ended December 31, 2017,2022, was $16$10 million, representing an increase of $4$2 million whenas compared to $12 million for the same period of 2016. Interest expense was $21 million and $18 million for the years ended December 31, 2017 and 2016, respectively.2021. The increase in net interest expense includes lower interest incomeas compared to 2021 is primarily due to lower cash balances, refinancing fees forinterest on the amended credit facilities as further described in Note 13, "Debt" and termination impactsCompany's SOFR based facility partially offset by the settlement of the Company'sderivatives associated with the terminated LIBOR based debt as well as increased interest rate swap as further described in Note 20, "Financial Instruments."
income.
Equity in Net Income of Non-Consolidated Affiliates
Equity in net income of non-consolidated affiliates was $7a $1 million loss and $2a $6 million gain for the years ended December 31, 20172022 and 2016,2021, respectively. The decrease in equity in net income is primarily attributable to the Company's equity interest in Yanfeng Visteon Investment Company, which increased due to sales volume as well as higher royaltyvarious operational and engineering recoveries.non-operational charges incurred at an affiliate.
Other Income, Net
| Year Ended December 31, | |||||||||||
| (In millions) | 2022 | 2021 | |||||||||
| Pension financing benefits, net | $ | 20 | $ | 18 | |||||||
| Gain on sale of investment | 3 | — | |||||||||
| Foreign currency translation charge | (3) | — | |||||||||
| $ | 20 | $ | 18 | ||||||||
The Company recorded pre-tax lossesa sale of approximately $33 million includingan equity investment during the year ended December 31, 2022, resulting in a cash contributiongain of $13 million, long-lived asset impairment charges of $13 million and other working capital and transaction related impacts of $7$3 million.
During the year ended December 31, 2017, the Company completed the sale of its 50% interest in an equity method investment for proceeds of $7 million, consistent with its carrying value. Also in 2017, the Company disposed of its remaining cost method investments for proceeds of approximately $8 million and recorded a pretax gain of $4 million.
| Year Ended December 31 | |||||||
| 2017 | 2016 | ||||||
| (Dollars in Millions) | |||||||
| Transformation initiatives | $ | 2 | $ | 9 | |||
| Foreign currency translation charge | — | 11 | |||||
| Transaction hedging and exchange losses | — | 1 | |||||
| Integration costs | — | 2 | |||||
Loss on asset contributions | — | 2 | |||||
| Recoverable taxes | — | (1 | ) | ||||
| $ | 2 | $ | 24 | ||||
Russian facility.
23
Income Taxes
The Company's provision for income taxtaxes was $48$45 million for year ended December 31, 2017 and reflects income2022, an increase of $14 million when compared with 2021. The increase in tax expense relatedis primarily attributable to those countries wherethe increase in pretax income, changes in the year-over-year mix of earnings, as well as establishing full valuation allowances on the deferred tax assets of two foreign subsidiaries. Other changes in the Company's deferred tax asset valuation allowances did not materially impact net tax expense during the years ended December 31, 2022 or 2021.
Adjusted EBITDA
The Company defines Adjusted EBITDA as net income attributable to the Company is profitable; accrued withholding taxes; ongoing assessments relatedadjusted to eliminate the recognitionimpact of depreciation and measurement of uncertain tax benefits; the inability to record a tax benefit for pretax losses and/or recognize taxamortization, restructuring and impairment expense, for pretax income in certain jurisdictions (including the U.S.) due to valuation allowances, and other non-recurring tax items.
Adjusted EBITDA is presented as a supplemental measure of the Company's financial performance that management believes is useful to investors because the excluded items may vary significantly in timing or amounts and/or may obscure trends useful in evaluating and comparing the Company's operating activities across reporting periods. Not all companies use identical calculations and, accordingly, the Company's presentation of Adjusted EBITDA may not be comparable to other similarly titled measures of other companies. Adjusted EBITDA is not a recognized term under U.S. GAAP and does not purport to be a substitute for net income as an indicator of operating performance or cash flows from operating activities as a measure of liquidity. Adjusted EBITDA has limitations as an analytical tool and is not intended to be a measure of cash flow available for management's discretionary use, as it does not consider certain cash requirements such as interest payments, tax payments and debt service requirements. In addition, the Company uses Adjusted EBITDA (i) as a factor in incentive compensation decisions, (ii) to evaluate the effectiveness of the Company's business strategies and (iii) the Company's credit agreements use measures similar to Adjusted EBITDA to measure compliance with certain covenants.
The reconciliation of Adjusted EBITDA to net income attributable to Visteon for the years ended December 31, 2022 and 2021 is as follows:
| Year Ended December 31, | |||||||||||||||||
| (In millions) | 2022 | 2021 | Change | ||||||||||||||
| Net income (loss) attributable to Visteon Corporation | $ | 124 | $ | 41 | $ | 83 | |||||||||||
| Depreciation and amortization | 108 | 108 | — | ||||||||||||||
| Restructuring and impairment | 14 | 14 | — | ||||||||||||||
| Provision for income taxes | 45 | 31 | 14 | ||||||||||||||
| Non-cash, stock-based compensation expense | 26 | 18 | 8 | ||||||||||||||
| Interest expense, net | 10 | 8 | 2 | ||||||||||||||
| Net (income) loss attributable to non-controlling interests | 6 | 9 | (3) | ||||||||||||||
| Equity in net loss (income) of non-consolidated affiliates | 1 | (6) | 7 | ||||||||||||||
| Other, net | 14 | 5 | 9 | ||||||||||||||
| Adjusted EBITDA | $ | 348 | $ | 228 | $ | 120 | |||||||||||
Adjusted EBITDA was $348 million for the year ended December 31, 2017,2022, representing an increase of $120 million when compared with 2016. The increase isAdjusted EBITDA of $228 million for 2021. Favorable volumes and mix increased Adjusted EBITDA by $149 million. Foreign currency decreased Adjusted EBITDA by $19 million, primarily attributable to the euro, Chinese renminbi, and Japanese yen. Lower warranty expense and net engineering costs, excluding currency, decreased Adjusted EBITDA by $4 million and $15 million, respectively.
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Year ended December 31, 2021 Compared to Year ended December 31, 2020
The Company's consolidated results of operations for the years ended December 31, 2021 and 2020 were as follows:
| Year Ended December 31, | |||||||||||||||||
| (In millions) | 2021 | 2020 | Change | ||||||||||||||
| Net sales | $ | 2,773 | $ | 2,548 | $ | 225 | |||||||||||
| Cost of sales | (2,519) | (2,303) | (216) | ||||||||||||||
| Gross margin | 254 | 245 | 9 | ||||||||||||||
| Selling, general and administrative expenses | (175) | (193) | 18 | ||||||||||||||
| Restructuring and impairment | (14) | (76) | 62 | ||||||||||||||
| Interest expense, net | (8) | (11) | 3 | ||||||||||||||
| Equity in net income of non-consolidated affiliates | 6 | 6 | — | ||||||||||||||
| Other income, net | 18 | 9 | 9 | ||||||||||||||
| Income (loss) before income taxes | 81 | (20) | 101 | ||||||||||||||
| Provision for income taxes | (31) | (28) | (3) | ||||||||||||||
| Net income (loss) | 50 | (48) | 98 | ||||||||||||||
| Net (income) loss attributable to non-controlling interests | (9) | (8) | (1) | ||||||||||||||
| Net income (loss) attributable to Visteon Corporation | $ | 41 | $ | (56) | $ | 97 | |||||||||||
| Adjusted EBITDA* | $ | 228 | $ | 192 | $ | 36 | |||||||||||
* Adjusted EBITDA is a Non-U.S. GAAP financial measure, as defined above. | |||||||||||||||||
Net Sales and Cost of Sales
| (In millions) | Net Sales | Cost of Sales | Gross Margin | ||||||||||||||
| December 31, 2020 | $ | 2,548 | $ | (2,303) | $ | 245 | |||||||||||
| Volume, mix, and net new business | 185 | (168) | 17 | ||||||||||||||
| Customer pricing, net | 8 | — | 8 | ||||||||||||||
| Currency | 52 | (41) | 11 | ||||||||||||||
| Engineering costs, net | — | 20 | 20 | ||||||||||||||
| Cost performance, design changes and other | (20) | (27) | (47) | ||||||||||||||
| December 31, 2021 | $ | 2,773 | $ | (2,519) | $ | 254 | |||||||||||
Net sales for the year ended December 31, 2021 totaled $2,773 million, which represents an increase of $225 million compared with 2020. Favorable volumes and net new business increased net sales by $185 million. Customer pricing increased net sales by $8 million, primarily due to customer recoveries. Favorable currency increased net sales by $52 million, primarily attributable to the euro, Brazilian real, and Chinese renminbi. Other cost performance, primarily related to design changes, reduced sales by $20 million.
Cost of sales increased $216 million for the year ended December 31, 2021, when compared with 2020. Volume, mix and net new business increased cost of sales by $168 million. Foreign currency increased cost of sales by $41 million, primarily attributable to the euro, Brazilian real, and Chinese renminbi. Net engineering costs, excluding currency, decreased cost of sales by $20 million. Unfavorable cost performance, design changes and other increased cost of sales by $27 million primarily due supply chain and material cost impacts associated with the worldwide semiconductor supply shortage and the non-recurrence of an $11certain 2020 temporary austerity measures.
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A summary of net engineering costs is shown below:
| Year Ended December 31, | |||||||||||
| (In millions) | 2021 | 2020 | |||||||||
| Gross engineering costs | $ | (325) | $ | (335) | |||||||
| Engineering recoveries | 134 | 134 | |||||||||
| Engineering costs, net | $ | (191) | $ | (201) | |||||||
Gross engineering costs relate to forward model program development and advanced engineering activities and exclude contractually reimbursable engineering costs. Net engineering costs of $191 million tax benefit recognized in 2016for the year ended December 31, 2021, including the impacts of currency, were $10 million lower than the same period of 2020. This decrease is primarily related to the abilitybenefits of previously announced restructuring actions and ongoing cost reduction efforts, partially offset by the reclassification of expenses in 2021 related to carrybackprogram management from selling, general, and administrative to align with the 2016 U.S. tax loss against 2015 U.S. tax liabilities (both currentCompany's optimized structure.
Selling, General and FIN 48) asAdministrative Expenses
Selling, general, and administrative expenses were $175 million, or 6.3% of net sales, and $193 million, or 7.6% of net sales, during the years ended December 31, 2021 and 2020, respectively. Selling, general, and administrative expenses decreased due to the reclassification of expenses in 2021 related to program management to gross engineering costs to align with the Company's optimized structure and restructuring savings, partially offset by the non-recurrence of 2020 temporary austerity measures.
Restructuring and Impairment
During 2021, the Company approved various global restructuring actions impacting engineering, administrative, and manufacturing functions primarily in South America and Europe to improve efficiency and rationalize the Company's footprint. The Company recorded $4 million of restructuring expense for cash severance, and termination costs for the year ended December 31, 2021 related to these programs.
During 2020, the Company approved various restructuring programs impacting engineering, administrative, and manufacturing functions to improve efficiency and rationalize the Company’s footprint. The Company recorded $1 million and $76 million of restructuring expense for cash severance, retention, and termination costs for the years ended December 31, 2021 and 2020, respectively related to these programs.
During the fourth quarter of 2021, the Company identified an impairment of certain long-lived assets in Brazil due to rising costs and deteriorating business conditions. As a result, the Company recorded a non-cash impairment charge of triggering$9 million to write-down property and equipment to its fair value as of December 31, 2021.
Interest Expense, Net
Net interest expense for the year ended December 31, 2021, was $8 million, representing a worthless stock deduction (“WSD”)decrease of $3 million as compared to 2020. The decrease is primarily due to 2020 interest expense related to borrowings on the Company's $400 million revolving credit facility.
26
Equity in Net Income of Non-Consolidated Affiliates
Equity in net income of non-consolidated affiliates was $6 million for the years ended December 31, 2021 and 2020.
Other Income, Net
Other income, net consists of the following:
| Year Ended December 31, | |||||||||||
| (In millions) | 2021 | 2020 | |||||||||
| Pension financing benefits, net | $ | 18 | $ | 14 | |||||||
| Pension settlement charge | — | (5) | |||||||||
| $ | 18 | $ | 9 | ||||||||
During 2020, the Company transferred a portion of the benefit obligation related to its defined benefit U.S. tax purposes relatingpension plan to Visteon SA. Other increases includea third-party issuer. The transaction met the overallcriteria for settlement accounting, and accordingly the Company recognized a $5 million pension settlement charge in the fourth quarter of 2020.
Income Taxes
The Company's provision for income taxes was $31 million for year ended December 31, 2021, an increase of $3 million when compared with 2020. The increase in year-over-yeartax expense reflects $7 million attributable to changes in the year-over-year mix of earnings and differing tax rates between jurisdictions which reflects the overall increase in earnings in jurisdictions where the Company is profitable and withholding taxes, as well as changes in valuation allowance$3 million related to revised profit projectionsthe year-over-year impact of various tax law changes primarily in MexicoIndia and France.uncertain tax positions. The increases described above were partially offset by the non-recurrence of $7 million related to the reassessment of the valuation allowances in connection with the realization of deferred tax assets in Germany and Brazil. Other changes in the Company’s deferred tax asset valuation allowances did not materially impact net tax expense during the years ended December 31, 20172021 or 2016.
2020.
Adjusted EBITDA
The reconciliation of Adjusted EBITDA to net income attributable to Visteon for the years ended December 31, 20172021 and 20162020 is as follows:
| Year Ended December 31, | |||||||||||||||||
| (In millions) | 2021 | 2020 | Change | ||||||||||||||
| Net income (loss) attributable to Visteon Corporation | $ | 41 | $ | (56) | $ | 97 | |||||||||||
| Depreciation and amortization | 108 | 104 | 4 | ||||||||||||||
| Restructuring and impairment | 14 | 76 | (62) | ||||||||||||||
| Provision for income taxes | 31 | 28 | 3 | ||||||||||||||
| Non-cash, stock-based compensation expense | 18 | 18 | — | ||||||||||||||
| Interest expense, net | 8 | 11 | (3) | ||||||||||||||
| Net (income) loss attributable to non-controlling interests | 9 | 8 | 1 | ||||||||||||||
| Equity in net income of non-consolidated affiliates | (6) | (6) | — | ||||||||||||||
| Other, net | 5 | 9 | (4) | ||||||||||||||
| Adjusted EBITDA | $ | 228 | $ | 192 | $ | 36 | |||||||||||
| Year Ended December 31 | |||||||||||
| 2017 | 2016 | Change | |||||||||
| (Dollars in Millions) | |||||||||||
| Adjusted EBITDA | $ | 370 | $ | 337 | $ | 33 | |||||
| Depreciation and amortization | 87 | 84 | 3 | ||||||||
| Restructuring expense, net | 14 | 49 | (35 | ) | |||||||
| Interest expense, net | 16 | 12 | 4 | ||||||||
| Equity in net income of non-consolidated affiliates | (7 | ) | (2 | ) | (5 | ) | |||||
| Loss on divestiture | 33 | — | 33 | ||||||||
Gain on non-consolidated affiliate transactions, net | (4 | ) | — | (4 | ) | ||||||
| Other expense, net | 2 | 24 | (22 | ) | |||||||
| Provision for income taxes | 48 | 30 | 18 | ||||||||
| Net (income) loss from discontinued operations, net of tax | (17 | ) | 40 | (57 | ) | ||||||
| Net income attributable to non-controlling interests | 16 | 16 | — | ||||||||
| Non-cash, stock-based compensation expense | 12 | 8 | 4 | ||||||||
| Other | (6 | ) | 1 | (7 | ) | ||||||
| Net income attributable to Visteon Corporation | $ | 176 | $ | 75 | $ | 101 | |||||
| Year Ended December 31 | |||||||||||
| 2016 | 2015 | Change | |||||||||
| (Dollars in Millions) | |||||||||||
| Sales | $ | 3,161 | $ | 3,245 | $ | (84 | ) | ||||
| Cost of sales | 2,697 | 2,815 | (118 | ) | |||||||
| Gross margin | 464 | 430 | 34 | ||||||||
| Selling, general and administrative expenses | 220 | 245 | (25 | ) | |||||||
| Restructuring expense | 49 | 36 | 13 | ||||||||
| Interest expense | 18 | 19 | (1 | ) | |||||||
| Interest income | 6 | 5 | 1 | ||||||||
| Equity in net income of non-consolidated affiliates | 2 | 7 | (5 | ) | |||||||
| Loss on debt extinguishment | — | 5 | (5 | ) | |||||||
| Loss on divestiture | — | 105 | (105 | ) | |||||||
Gain on non-consolidated affiliate transactions, net | — | 62 | (62 | ) | |||||||
| Other expense, net | 24 | 25 | (1 | ) | |||||||
| Provision for income taxes | 30 | 27 | 3 | ||||||||
| Net income from continuing operations | 131 | 42 | 89 | ||||||||
| Net income (loss) from discontinued operations, net of tax | (40 | ) | 2,286 | (2,326 | ) | ||||||
| Net income | 91 | 2,328 | (2,237 | ) | |||||||
| Net income attributable to non-controlling interests | 16 | 44 | (28 | ) | |||||||
| Net income attributable to Visteon Corporation | $ | 75 | $ | 2,284 | $ | (2,209 | ) | ||||
| Adjusted EBITDA* | $ | 337 | $ | 282 | $ | 55 | |||||
* Adjusted EBITDA is a Non-GAAP financial measure, as described in Note 22. | |||||||||||
| Electronics | Other | Eliminations | Total | ||||||||||||
| (Dollars in Millions) | |||||||||||||||
| December 31, 2015 | $ | 3,107 | $ | 153 | $ | (15 | ) | $ | 3,245 | ||||||
| Volume and mix | 115 | (11 | ) | 15 | 119 | ||||||||||
| Currency | (27 | ) | (1 | ) | — | (28 | ) | ||||||||
| Germany Interiors Divestiture | — | (86 | ) | — | (86 | ) | |||||||||
| Other | (88 | ) | (1 | ) | — | (89 | ) | ||||||||
| December 31, 2016 | $ | 3,107 | $ | 54 | $ | — | $ | 3,161 | |||||||
| Electronics | Other | Eliminations | Total | ||||||||||||
| (Dollars in Millions) | |||||||||||||||
| December 31, 2015 | $ | 2,666 | $ | 164 | $ | (15 | ) | $ | 2,815 | ||||||
| Currency | (37 | ) | (7 | ) | — | (44 | ) | ||||||||
| Volume, mix, and net new business | 100 | (10 | ) | 15 | 105 | ||||||||||
| Germany Interiors Divestiture | — | (83 | ) | — | (83 | ) | |||||||||
| Other | (95 | ) | (1 | ) | — | (96 | ) | ||||||||
| December 31, 2016 | $ | 2,634 | $ | 63 | $ | — | $ | 2,697 | |||||||
| Year Ended December 31 | |||||||
| 2016 | 2015 | ||||||
| (Dollars in Millions) | |||||||
Foreign currency translation charge | $ | 11 | $ | — | |||
| Transformation initiatives | 9 | 25 | |||||
| Transaction hedging and exchange loss (income) | 1 | (15 | ) | ||||
| Integration costs | 2 | 14 | |||||
| Loss on asset contribution | 2 | 1 | |||||
| Recoverable taxes | (1 | ) | — | ||||
| $ | 24 | $ | 25 | ||||
| Electronics | Other | Total | |||||||||
| (Dollars in Millions) | |||||||||||
| December 31, 2015 | $ | 294 | $ | (12 | ) | $ | 282 | ||||
| Volume and mix | 15 | (4 | ) | 11 | |||||||
| Currency | 12 | 6 | 18 | ||||||||
| Other | 25 | 1 | 26 | ||||||||
| December 31, 2016 | $ | 346 | $ | (9 | ) | $ | 337 | ||||
respectively.
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| Year Ended December 31 | |||||||||||
| 2016 | 2015 | Change | |||||||||
| (Dollars in Millions) | |||||||||||
| Adjusted EBITDA | $ | 337 | $ | 282 | $ | 55 | |||||
| Depreciation and amortization | 84 | 85 | (1 | ) | |||||||
| Restructuring expense | 49 | 36 | 13 | ||||||||
| Interest expense, net | 12 | 14 | (2 | ) | |||||||
| Loss on debt extinguishment | — | 5 | (5 | ) | |||||||
| Equity in net income of non-consolidated affiliates | (2 | ) | (7 | ) | 5 | ||||||
| Gain on non-consolidated affiliate transactions | — | (62 | ) | 62 | |||||||
| Loss on divestiture | — | 105 | (105 | ) | |||||||
| Other expense, net | 24 | 25 | (1 | ) | |||||||
| Provision for income taxes | 30 | 27 | 3 | ||||||||
| Net loss (income) loss from discontinued operations, net of tax | 40 | (2,286 | ) | 2,326 | |||||||
| Net income attributable to non-controlling interests | 16 | 44 | (28 | ) | |||||||
| Non-cash, stock-based compensation expense | 8 | 8 | — | ||||||||
| Other | 1 | 4 | (3 | ) | |||||||
| Net income (loss) attributable to Visteon Corporation | $ | 75 | $ | 2,284 | $ | (2,209 | ) | ||||
Liquidity
Overview
The Company's primary sources of liquidity are cash flows from operations, existing cash balances, and borrowings under available credit facilities, if necessary.facilities. The Company believes that funds generated from these sources will be adequate to fund its liquidity for current business requirements.Company's intra-year needs are normally impacted by seasonal effects in the industry, such as mid-year shutdowns, the ramp-up of new model production, and year-end shutdowns at key customers.
A substantial portion of the Company's cash flows from operations are generated by operations located outside of the U.S.United States. Accordingly, the Company utilizes a combination of cash repatriation strategies, including dividends and distributions, royalties, intercompany loan arrangements and other distributions and advancesintercompany arrangements to provide the funds necessary to meet obligations globally. The Company’s ability to access funds from its subsidiaries is subject to, among other things, customary regulatory and statutory requirements and contractual arrangements including joint venture agreements and local credit facilities. Moreover, repatriation efforts may be modified by the Company according to prevailing circumstances.
Access to additional capital through the debt or equity markets is influenced by the Company's credit ratings. On March 7, 2017,As of December 31, 2022, the Company’s corporate credit rating is Ba3 and BB- by Moody’s and Standard & Poor's Ratings Services upgraded the Company to 'BB', from 'BB-', with stable outlook. Moody's has reaffirmed the Company's credit rating of Ba3.Poor’s, respectively. See Note 1310, "Debt" toin the accompanyingCompany's consolidated financial statements included in Item 8 of this Form 10-K for a more comprehensive discussion of the Company's debt facilities. Incremental funding requirements of the Company's consolidated foreign entities are primarily accommodated by intercompany cash pooling structures. Affiliate working capital lines, which are primarily usedutilized by the Company's consolidated joint ventures. ventures, had availability of $192 million and the Company had $400 million of available credit under the revolving credit facility as of December 31, 2022.
Cash Balances
As of December 31, 2017, these lines had availability of approximately $22 million.
During the year ended December 31, 2017,2022, cash contributions to the Company's non-U.S. employee retirement plans were approximately $7 million. Contributions related to certain non-U.S. plans of approximately $2 million have been deferred until 2024 due to COVID-19 relief measures. Additionally, the Company expects to make contributions to its non-US defined benefit pension plans of $5 million during 2023.
During the year ended December 31, 2022, the Company paid $31$15 million related to restructuring activities. SeeAdditional discussion regarding the Company's restructuring activities is provided in Note 7 "Restructuring" to3, "Restructuring and Impairments" in the Company's consolidated financial statements included in Item 8 of this Report for further information.Form 10-K.
Purchase Obligations
As of December 31, 2022, the Company has contractual purchase obligations of approximately $51 million through 2025.
Leases
The Company has operating leases primarily for corporate offices, technical and engineering centers, vehicles, and certain equipment with future lease obligations ranging from 2023 to 2033. Additional discussion regarding the Company's leasing activities is provided in Note 17, "Stockholders' Equity8, "Leases" in the Company's consolidated financial statements included in Item 8 of this Form 10-K.
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Taxes
The Company may be required to make significant cash outlays related to its unrecognized tax benefits, including interest and Non-Controlling Interests"penalties. As of December 31, 2022, the Company had unrecognized tax benefits, including interest and penalties, that would be expected to result in a cash outlay of $7 million. Given the number of years, jurisdictions and positions subject to examination, the Company is unable to estimate the period of cash settlement, if any, with the respective taxing authorities. For further information related to the Company’s unrecognized tax benefits, see Note 13, “Income Taxes,” to the consolidated financial statements.statements included in this Report.
Cash Flows
Operating Activities
The Company generated $217$167 million of cash from operating activities during the year ended December 31, 2017,2022, as compared to $120$58 million during the same period of 2016 for an increase of $97 million. The increase in2021 representing a $109 million increase.
Increased operating cash flowsactivities is attributable to higher net income of $101 million and lower cash tax payments, net of expense of $79 million primarily due to the non-recurrence of transaction related taxes incurred in 2016, partially offset by higher working capital use of approximately $48 million, higher warranty payments net of expense of $23 million and an increase in China bank notesAdjusted EBITDA and lower working capital outflows as compared December 2021. Working capital outflows of $5 million. $115 million primarily related to higher inventory levels resulting from the worldwide semiconductor supply shortage and increased sales volume during 2022.
Unfavorable cash provided byflows from operating activities is primarily attributabledue to lower working capital outflows partially offset by increased net income. Lower working capital out flows of $178 million as compared to the divestiture of climate operations which provided $186 million in the first half of 2015. The remaining $32 million decrease in cash from operating activities reflects higher income tax payments of approximately $51 millionprior year are primarily related to Japan, Chinahigher inventory levels resulting from the worldwide semiconductor supply shortage and Europe, partially offset by the non-recurrence of taxes withheld in connection with the 2015 sale of a non-consolidated affiliate. The decrease in cash from operating activities is also impacted byincreased accounts receivable due to higher information technology transition agreements payments of $15 millionvolume and higher restructuring paymentsthan anticipated customer receipts during December 2020 of $13$40 million. These decreasesunfavorable impacts were partially offset by the non-recurrencehigher net income of Climate Transaction related labor$98 million and incentive paymentsdividends received from non-consolidated affiliates of $48$18 million.
Investing Activities
Net cash used by investing activities during the year ended December 31, 20162021 totaled $302$63 million, as compared to net cash provided from investing activities of $2,358$98 million in the same period in 2015 for2020, representing a decrease of $2,056$35 million. NetThe decrease is primarily due to lower cash provided from investing activities during the year ended December 31, 2016, includes the Climate Transaction withholding tax recovery of $356 million, liquidation of short-term investments of $47 million, and proceeds from a cost-basis investment of $11 million. These increases were partially offset bypaid for capital expenditures of $75 million, payments related to the South America interiors divestiture of $10 million and a three-year term loan of $10 million provided to the buyer, the acquisition of AllGo Embedded Systems Private Limited of $15 million and net loans to non-consolidated affiliates of $8$34 million.
Financing Activities
Net cash used by financing activities during the year ended December 31, 2017, included2021 totaled $29 million, as compared to $58 million for 2020, representing a decrease of $29 million. The decrease is primarily due to 2020 share repurchases of $200$16 million and debt repayments of $37 million partially offset by higher dividends paid to non-controlling interests of $38$28 million.
Debt and Capital Structure
See "Liquidity" above and also see Note 1310, "Debt" and Note 1714, "Stockholders' Equity and Non-controlling Interests" to the Company's consolidated financial statements included in Item 8 of this ReportForm 10-K for further information.
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Fair Value Measurements
| Total | 2018 | 2019-2020 | 2021-2022 | 2023 & After | |||||||||||||||
| (Dollars in Millions) | |||||||||||||||||||
| Debt, including capital leases | $ | 396 | $ | 46 | $ | — | $ | — | $ | 350 | |||||||||
| Purchase obligations | 116 | 41 | 51 | 21 | 3 | ||||||||||||||
| Interest payments on long-term debt | 101 | 15 | 32 | 33 | 21 | ||||||||||||||
| Operating leases | 213 | 36 | 62 | 42 | 73 | ||||||||||||||
| Total contractual obligations | $ | 826 | $ | 138 | $ | 145 | $ | 96 | $ | 447 | |||||||||
Critical Accounting Estimates
The Company’s significant accounting policies have been disclosed in the consolidated financial statements and accompanying notes under Note 21, “Summary of Significant Accounting Policies.”Policies” to the Company's consolidated financial statements included in Item 8 of this Form 10-K. Certain policies relate to estimates that involve matters that are highly uncertain at the time the accounting estimate is made and different estimates or changes to an estimate could have a material impact on the reported financial position, changes in financial condition or results of operations. Such critical estimates are discussed below. For these, materially different amounts could be reported under varied conditions and assumption.assumptions. Other items in the Company's consolidated financial statements require estimation, however, in our judgment,the Company's opinion, they are not as critical as those discussed below.
Impairment of Long-lived Assets
The Company monitors long-lived assets for impairment indicators on an ongoing basis. If an impairment indicator exists, the Company will test the long-lived asset group for recoverability by comparing the undiscounted cash flows expected to be generated from the long-lived assets compared to the related net book values. If the net book value of the asset group exceeds the undiscounted cash flows, the asset group is written down to its fair value and an impairment loss recognized. Fair value is determined using appraisals, management estimates or discounted cash flow calculations.
In 2022, due to the current geopolitical situation in Eastern Europe the Company elected to close the Russian facility resulting in a non-cash impairment charge of $5 million to fully impair property and equipment and reduce inventory to its net realizable value. Additionally, as a result of the closure, during the fourth quarter of 2022, the Company recorded a charge of approximately $3 million related to foreign currency translation amounts recorded in accumulated other comprehensive loss.
During the fourth quarter of 2021, the Company recorded an impairment of certain long-lived assets in Brazil due to rising costs and deteriorating business conditions. As a result, the Company recorded a non-cash impairment charge of $9 million to write-down property and equipment to its fair value as of December 31, 2021.
See Note 3, "Restructuring and Impairments” in the Company's consolidated financial statements included in Item 8 of this Form 10-K for additional information.
Revenue Recognition
Revenue is measured based on the transaction price and the quantity of parts specified in a contract with a customer. Discrete price adjustments may occur during the vehicle production period in order for the Company to remain competitive with market prices or based on changes in product specifications. Some of these price adjustments are non-routine in nature and require estimation. In the event the Company concludes that a portion of the revenue for a given part may vary from the purchase order, the Company records consideration at the most likely amount to which the Company expects to be entitled based on historical experience and input from customer negotiations. See Note 1, "Summary of Significant Accounting Policies” in the Company's consolidated financial statements included in Item 8 of this Form 10-K for additional information.
Product Warranty and Recall
The Company accrues for warranty obligations for products sold based on management estimates, with support from the Company’s sales, engineering, quality, and legal functions, of the amount that eventually will be required to settle such obligations. This accrual is based on several factors including contractual arrangements, past experience, current claims, production changes, industry developments, and various other considerations. The Company accrues for product recall claims related to potential financial participation in customer actions to provide remedies as a result of actual or threatened regulatory or court actions or the Company’s determination of the potential for such actions. The Company's accrual for recall claims is based on specific facts and circumstances underlying individual claims with support from the Company’s engineering, quality, and legal functions. Amounts accrued are based upon management’s best estimate of the amount that will ultimately be required to settle such claims. See Note 2118, "Commitments and Contingencies" in the Company's consolidated financial statements included in Item 8 of this ReportForm 10-K for additional information.
Restructuring
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The Company accruedaccrues costs in connection with its restructuring of the engineering, administration, and administration organization.manufacturing organizations. These accruals include estimates primarily related to employee headcount, local statutory benefits, and other employee termination costs. Actual costs may vary from these estimates. These accruals are reviewed on a quarterly basis and changes to restructuring actions are appropriately recognized when identified. See Note 7 “Restructuring”3, “Restructuring and Impairments” in the Company's consolidated financial statements included in Item 8 of this reportForm 10-K for additional information.
Pension Plans
obligations and expense for its pension plans is dependent on assumptions set by the Company’s selection of certain assumptionsCompany used by actuaries in calculating such amounts. Selected assumptions are described in Note 14 “Employee Retirement Benefits” to the Company’s consolidated financial statements included in Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K, which are incorporated herein by reference,Assumptions, including the discount rate, expected long-term rate of return on plan assets, and rate of increase in compensation.
compensation, are described in Note 11, “Employee Benefit Plans” to the Company’s consolidated financial statements included in Item 8 of this Form 10-K, which are incorporated herein by reference.
Actual results that differ from assumptions used are accumulated and amortized over future periods and, accordingly, generally affect recognized expense in future periods. Therefore, assumptions used to calculate benefit obligations as of the annual measurement date directly impact the expense to be recognized in future periods. The primary assumptions affecting the Company’s accounting for employee benefits, as of December 31, 2017,2022, are as follows:
The expected long-term rate of return is used to calculate net periodic pension cost. The required use of the expected long-term rate of return on plan assets may result in recognized returns that are greater or less than the actual returns on those plan assets in any given year. Over time the expected long-term rate of return on plan assets is designed to approximate actual returns. The expected long-term rate of return for pension assets has been estimated based on various inputs, including historical returns for the different asset classes held by the Company’s trusts and its asset allocation, as well as inputs from internal and external sources regarding expected capital market returns, inflation, and other variables.
| U.S. Plans | Non-U.S. Plans | ||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||
| Expected Rate of Return | 6.23% | 6.15% | 2.00% - 8.90% | 2.00% to 7.00% | |||||||||||||
| Long-Term Rates of Return | 6.90% | 6.23% | 2.00% - 9.45% | 2.00% to 7.00% | |||||||||||||
| Actual Rates of Return | (17.10)% | 9.40% | (31.10)% | 5.77% | |||||||||||||
Discount rate: The discount rate is used to calculate pension obligations. The discount rate assumption is based on market rates for a hypothetical portfolio of high-quality corporate bonds rated Aa or better with maturities closely matched to the timing of projected benefit payments for each plan at its annual measurement date.
The Company used discount rates ranging from .4% to 9.75% to determine its pension and other benefit obligations as of December 31, 2017, including weighted average discount rates of 3.65% for U.S. pension plans, and 3.28% for non-U.S. pension plans.
| U.S. Plans | Non-U.S. Plans | ||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||
| Weighted Average Discount Rates | 2.48% | 1.99% | 2.23% | 1.66% | |||||||||||||
| Discount Rates | 2.48% | 1.99% | 0.55% to 9.55% | 0.8% to 8.75% | |||||||||||||
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While the Company believes that these assumptions are appropriate, significant differences in actual experience or significant changes in these assumptions may materially affect the Company’s pension benefit obligations and its future expense. The following table illustrates the sensitivity to a change in certain assumptions for Company sponsored U.S. and non-U.S. pension plans on its 20172022 funded status and 20182023 pretax pension expense.
| Impact on U.S. | Impact on U.S. Plan 2022 Funded Status | Impact on Non-U.S. | Impact on Non-U.S. Plan 2022 Funded Status | ||||||||||||||||||||||||
| 25 basis point decrease in discount rate (a)(b) | Less than -$1 million | -$ | Less than -$1 million | -$6 million | |||||||||||||||||||||||
| 25 basis point increase in discount rate (a)(b) | Less than +$1 million | +$ | Less than +$1 million | +$6 million | |||||||||||||||||||||||
| 25 basis point decrease in expected return on assets (a) | Less than +$1 million | ||||||||||||||||||||||||||
| 25 basis point increase in expected return on assets (a) | Less than -$1 million | ||||||||||||||||||||||||||
| (a) Assumes all other assumptions are held constant. | |||||||||||||||||||||||||||
| (b) Excludes impact of assets used to hedge discount rate volatility. | |||||||||||||||||||||||||||
Income Taxes
The Company is subject to income taxes in the U.S. and numerous non-U.S. jurisdictions. Significant judgment is required in determining the Company’s worldwide provision for income taxes, deferred tax assets and liabilities, and the valuation allowanceallowances recorded against the Company’s net deferred tax assets. Deferred tax assets and liabilities are recorded for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company records a valuation allowance to reduce deferred tax assets when based on all available evidence, both positive and negative, it is more likely than not that such assets will not be realized. This assessment, which is completed onIn the event the Company's operating performance improves or deteriorates in a jurisdiction-by-jurisdiction basis, requires significant judgment, and in making this evaluation,filing jurisdiction or entity, future assessments could conclude a smaller or larger valuation allowance will be needed. Due to the evidence considered bycomplexity of some of these uncertainties, the Company includes, historical and projected financial performance, as well asultimate resolution may be materially different from the nature, frequency and severity of recent losses along with any other pertinent information.current estimate.
In the ordinary course of the Company’s business, there are many transactions and calculations where the final tax determination is uncertain. The Company is regularly audited by tax authorities. Where appropriate, the Company accrues for contingencies related to income tax risks and non-income tax risks. See Note 1613, "Income Taxes" in the Company's consolidated financial statements included in Item 8 of this ReportForm 10-K for additional information.
Fair Value Measurements
The Company uses fair value measurements in the preparation of its financial statements, utilizing various inputs including those that can be readily observable, corroboratedindirectly observable or are generally unobservable. The Company utilizes market-based data and valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Additionally, the Company applies assumptions that market participants would use in pricing an asset or liability, including assumptions about risk. See Note 1916, "Fair Value Measurements" and Note 6, "Property and Equipment" in the Company's consolidated financial statements included in Item 8 of this ReportForm 10-K for additional information.
Recent Accounting Pronouncements
See Note 21, “Summary of Significant Accounting Policies” to the accompanyingCompany's consolidated financial statements under Item 8 of this ReportForm 10-K for a discussion of recent accounting pronouncements.
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Forward-Looking Statements
Certain statements contained or incorporated in this Annual Report on Form 10-K which are not statements of historical fact constitute “Forward-Looking Statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Reform Act”). Forward-looking statements give current expectations or forecasts of future events. Words such as “anticipate”, “expect”, “intend”, “plan”, “believe”, “seek”, “estimate” and other words and terms of similar meaning in connection with discussions of future operating or financial performance signify forward-looking statements. These statements reflect the Company’s current views with respect to future events and are based on assumptions and estimates, which are subject to risks and uncertainties including those discussed in Item 1A under the heading “Risk Factors” and elsewhere in this report.Form 10-K. Accordingly, undue reliance should not be placed on these forward-looking statements. Also, these forward-looking statements represent the Company’s estimates and assumptions only as of the date of this report.Form 10-K. The Company does not intend to update any of these forward-looking statements to reflect circumstances or events that occur after the statement is made and qualifies all of its forward-looking statements by these cautionary statements.
You should understand that various factors, in addition to those discussed elsewhere in this document, could affect the Company’s future results and could cause results to differ materially from those expressed in such forward-looking statements, including:
•Significant or prolonged shortage of critical components from Visteon’s suppliers including, but not limited to semiconductors and those components from suppliers who are sole or primary sources.
•Continued and future impacts related to the conflict between Russia and the Ukraine including supply chain disruptions, reduction in customer demand, and the imposition of sanctions on Russia.
•Continued and future impacts of the coronavirus ("COVID-19") pandemic on Visteon’s financial condition and business operations including global supply chain disruptions, market downturns, reduced consumer demand, and new government actions or restrictions.
•Failure of the Company’s joint venture partners to comply with contractual obligations or to exert influence or pressure in China.
•Significant changes in the competitive environment in the major markets where Visteon procures materials, components, or supplies or where its products are manufactured, distributed, or sold.
•Visteon’s ability to satisfy its future capital and liquidity requirements; Visteon’s ability to access the credit and capital markets at the times and in the amounts needed and on terms acceptable to Visteon; Visteon’s ability to comply with covenants applicable to it; and the continuation of acceptable supplier payment terms.
•Visteon’s ability to access funds generated by its foreign subsidiaries and joint ventures on a timely and cost-effective basis.
•Changes in the operations (including products, product planning, and part sourcing), financial condition, results of operations, or market share of Visteon’s customers.
•Changes in vehicle production volume of Visteon’s customers in the markets where it operates.
•Increases in commodity costs and the Company's ability to offset or recover these costs or disruptions in the supply of commodities, including resins, copper, fuel, and natural gas.
•Visteon’s ability to generate cost savings to offset or exceed agreed-upon price reductions or price reductions to win additional business and, in general, improve its operating performance; to achieve the benefits of its restructuring actions; and to recover engineering and tooling costs and capital investments.
•Visteon’s ability to compete favorably with automotive parts suppliers with lower cost structures and greater ability to rationalize operations; and to exit non-performing businesses on satisfactory terms, particularly due to limited flexibility under existing labor agreements.
•Restrictions in labor contracts with unions that restrict Visteon’s ability to close plants, divest unprofitable, noncompetitive businesses, change local work rules and practices at a number of facilities, and implement cost-saving measures.
•The costs and timing of facility closures or dispositions, business or product realignments, or similar restructuring actions, including potential asset impairment or other charges related to the implementation of these actions or other adverse industry conditions and contingent liabilities.
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•Legal and administrative proceedings, investigations, and claims, including shareholder class actions, inquiries by regulatory agencies, product liability, warranty, employee-related, environmental and safety claims, and any recalls of products manufactured or sold by Visteon.
•Changes in economic conditions, currency exchange rates, interest rates and fuel prices, changes in foreign laws, regulations or trade policies, or political stability in foreign countries where Visteon procures materials, components, or supplies or where its products are manufactured, distributed, or sold.
•Shortages of materials or interruptions in transportation systems, labor strikes, work stoppages, or other interruptions to or difficulties in the employment of labor in the major markets where Visteon purchases materials, components, or supplies to manufacture its products or where its products are manufactured, distributed, or sold.
•Visteon’s ability to satisfy its pension and other postretirement employee benefit obligations, and to retire outstanding debt and satisfy other contractual commitments, all at the levels and times planned by management.
•Changes in laws, regulations, policies or other activities of governments, agencies and similar organizations, domestic and foreign, that may tax or otherwise increase the cost of, or otherwise affect, the manufacture, licensing, distribution, sale, ownership, or use of Visteon’s products or assets.
•Possible terrorist attacks or acts of war, which could exacerbate other risks such as slowed vehicle production, interruptions in the transportation system, orchanges in fuel prices, and disruptions of supply.
•The cyclical and seasonal nature of the automotive industry.
•Visteon’s ability to comply with environmental, safety, and other regulations applicable to it and any increase in the requirements, responsibilities, and associated expenses and expenditures of these regulations.
•Disruptions in information technology systems including, but not limited to, system failure, cyber-attack, malicious computer software (malware including ransomware), unauthorized physical or electronic access, or other natural or man-made incidents or disasters.
•Visteon’s ability to protect its intellectual property rights and to respond to changes in technology and technological risks and to claims by others that Visteon infringes their intellectual property rights.
•Visteon’s ability to quickly and adequately remediate control deficiencies in its internal control over financial reporting.
•Other factors, risks and uncertainties detailed from time to time in Visteon’s Securities and Exchange Commission filings.
Item 7A.Quantitative and Qualitative Disclosures About Market Risk
The primary market risks to which the Company is exposed include changes in foreign currency exchange rates, interest rates and certain commodity prices. The Company manages these risks through the use of derivative instruments and various operating actions including fixed price contracts with suppliers and cost sourcing arrangements with customers. The Company's use of derivative instruments is limited to mitigation of market risks, including hedging activities. However, derivativerisks. Derivative instruments are not used for speculative or trading purposes, as per clearly defined risk management policies. Additionally, the Company's use of derivative instruments creates exposure to credit loss in the event of non-performancenonperformance by the counter-partycounterparty to the derivative financial instruments. The Company limits this exposure by entering into agreements directly with a variety of majorhighly rated financial institutions with high credit standards and that are expected to fully satisfy their obligations under the contracts. Additionally, the Company's ability to utilize derivatives to manage market risk is dependent on credit conditions and market conditions given the current economic environment.
Foreign Currency Risk
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, investments in subsidiaries, and anticipated foreign currency denominated transaction proceeds. Where possible, the Company utilizes derivative financial instruments to manage foreign currency exchange rate risks. Forward and option contracts may be utilized to reduce the impact to the Company's cash flow from adverse movements in exchange rates. Foreign currency exposures are reviewed periodically, and any natural offsets are considered prior to entering into a derivative financial instrument. The Company’s current primary hedged foreign currency exposures include the Japanese Yen, Euro, Thai Baht,euro and Mexican Peso.Brazilian real. Where possible, the Company utilizes a strategy of partial coverage for transactions in these currencies. The Company's policy requires that hedge transactions relate to a specific portion of the exposure not to exceed the aggregate amount of the underlying transaction.
In addition to the transactional exposure described above, the Company's operating results are impacted by the translation of its foreign operating income into U.S. dollars. The Company does not enter into foreign exchange contracts to mitigate this exposure.
The hypothetical pretax gain or loss in fair value from a 10% favorable or adverse change in quoted currency exchange rates would be approximately $29$21 million and $31$29 million for foreign currency derivative financial instruments as of December 31, 20172022 and 2016,2021, respectively. These estimated changes assume a parallel shift in all currency exchange rates and include the gain or loss on financial instruments used to hedge investments in subsidiaries. Because exchange rates typically do not all move in the same direction, the estimate may overstate the impact of changing exchange rates on the net fair value of the Company's financial derivatives. It is also important to note that gains and losses indicated in the sensitivity analysis would generally be offset by gains and losses on the underlying exposures being hedged.
Interest Rate Risk
See Note 2017, "Financial Instruments" to the Company's consolidated financial statements included in Item 8 of this Form 10-K for additional information.
Commodity Risk
The Company's exposures to market risk from changes in the price of production material are managed primarily through negotiations with suppliers and customers, although there can be no assurance that the Company will recover all such costs. The Company continues to evaluate derivatives available in the marketplace and may decide to utilize derivatives in the future to manage select commodity risks if an acceptable hedging instrument is identified for the Company's exposure level at that time, as well as the effectiveness of the financial hedge among other factors.
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Item 8.Financial Statements and Supplementary Data
Visteon Corporation and Subsidiaries
Index to Consolidated Financial Statements
| Page No. | |||||
Report of Independent Registered Public Accounting Firm(PCAOB ID: 0042) | |||||
36
Report of Independent Registered Public Accounting Firm
To the stockholders and the Board of Directors of Visteon Corporation
Opinions on the Financial Statements and Internal Control Overover Financial Reporting
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company atas of December 31, 2017 and 2016,2022, and the results of its operations and its cash flows for each of the three years in the periodyear ended December 31, 2017,2022, in conformity with U.S.accounting principles generally accepted accounting principles.
Basis for OpinionOpinions
The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’sManagement Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based on our audit.audits. We are a public accounting firm registered with the PCAOBPublic Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our auditaudits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the auditaudits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audit of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, andrisk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit providesaudits provide a reasonable basis for our opinion.opinions.
Definition and Limitations of Internal Control Overover Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that
37
are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue Recognition — Refer to Note 1 to the financial statements
Critical Audit Matter Description
As discussed in Note 1, Summary of Significant Accounting Policies, the Company’s revenue is measured based on the transaction price and the quantity of parts specified in a contract with a customer. Discrete price adjustments may occur during the vehicle production period in order for the Company to remain competitive with market prices or based on changes in product specifications. Some of these price adjustments are non-routine in nature and require estimation. In the event the Company concludes that a portion of the revenue for a given part may vary from the purchase order, the Company records consideration at the most likely amount to which the Company expects to be entitled based on historical experience and input from customer negotiations.
Auditing the consideration that the Company expects to be entitled to in exchange for certain of its products which are subject to non-routine price adjustments is judgmental as it relates to evaluating the sufficiency of evidence available from commercial negotiations to support the ultimate consideration that the Company is entitled to in exchange for those products.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the accounting for non-routine revenue pricing adjustments were, among others:
•We tested the effectiveness of controls over the identification of and accounting for pricing adjustments to revenue.
•We tested pricing adjustments recorded and compared such adjustments to underlying supporting documentation.
•We inspected pricing-related communications between the Company and its customers.
•We compared current year adjustments to pricing accruals established in prior periods to evaluate management’s process for estimating pricing accruals.
•We made inquiries of Company executives responsible for customer relationships.
•We obtained written representations regarding the completeness and accuracy of pricing adjustments with Company executives that are responsible for customer relationships.
/s/ Deloitte & Touche LLP
Detroit, Michigan
February 16, 2023
We have served as the Company's auditor since 2022.
38
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Visteon Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Visteon Corporation and subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income (loss), cash flows and changes in equity for each of the three years in the period ended December 31, 2021, and the related notes and financial statement schedule included in Item 15(a)(2) (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework),and our report dated February 17, 2022 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.
39
| Revenue Recognition | ||||||||
| Description of the Matter | As discussed in Note 1, Summary of Significant Accounting Policies, the Company’s sales contracts with its customers may provide for discrete price adjustments during the vehicle production period in order for the Company to remain competitive with market prices or based on changes in production specifications. Some of these price adjustments are non-routine in nature and require estimation. In the event the Company concludes that a portion of the revenue for a given part may vary from the purchase order, the Company records consideration at the most likely amount to which the Company expects to be entitled based on historical experience and input from customer negotiations. Auditing the consideration the Company expects to be entitled to in exchange for certain of its products which are subject to non-routine price adjustments is highly judgmental due to changes in production specifications and commercial negotiations with customers throughout the life of the production periods. | |||||||
| How We Addressed the Matter in Our Audit | We identified and tested controls relating to the identification and evaluation of non-routine pricing adjustments including management’s evaluation of the commercial facts and circumstances to support the most likely consideration to which the Company expects to be entitled. Our audit procedures included, among others, inspecting communications between the Company and its customers related to the pricing arrangements, making inquiries of the sales representatives who are responsible for negotiations with customers, testing any subsequent adjustments for appropriate amount and timing, obtaining written representations from management regarding customer agreements, and performing retrospective reviews of management’s estimates to identify any contrary evidence. | |||||||
| Impairment of Long-lived Assets - Property and Equipment | ||||||||
| Description of the Matter | As of December 31, 2021, the Company's property and equipment, net balance was $388 million. As discussed in Note 4, Restructuring and Impairments, during the fourth quarter of 2021, the Company recorded an impairment of certain long-lived assets in Brazil due to rising costs and deteriorating business conditions. The Company evaluated its property and equipment in Brazil for recoverability and concluded that certain assets were impaired. The Company recognized a $9 million impairment charge, which is the amount by which the carrying value exceeded the estimated fair value of these assets. Auditing the Company’s impairment measurement involved a high degree of judgment as estimates underlying the determination of fair value of the long-lived assets were based on assumptions affected by current market and economic conditions. To determine the fair value of the long-lived asset group, the Company utlized a cost and market approach, measuring fair value on the standalone basis value premise. | |||||||
| How We Addressed the Matter in Our Audit | We identified and tested controls relating to the determination of the asset group's fair value and measurement of the related impairment. We also tested controls over the Company's review of the significant assumptions and methodologies used in the calculation of fair value of the related assets. Our audit procedures included, among others, evaluating the valuation methodology, significant assumptions and data used in the valuation, and testing the mathematical accuracy of the impairment charge. We also involved our valuation specialists to assist in evaluating the approach and key assumptions used to estimate the fair value. | |||||||
/s/ Ernst & Young LLP
We served as the Company's auditor from 2012 to 2022.
Detroit, Michigan
February 22, 201817, 2022
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VISTEON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share amounts)
| Year Ended December 31 | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| (Dollars in Millions, Except Per Share Amounts) | |||||||||||
| Sales | $ | 3,146 | $ | 3,161 | $ | 3,245 | |||||
| Cost of sales | 2,647 | 2,697 | 2,815 | ||||||||
| Gross margin | 499 | 464 | 430 | ||||||||
| Selling, general and administrative expenses | 222 | 220 | 245 | ||||||||
| Restructuring expense, net | 14 | 49 | 36 | ||||||||
| Interest expense | 21 | 18 | 19 | ||||||||
| Interest income | 5 | 6 | 5 | ||||||||
| Equity in net income of non-consolidated affiliates | 7 | 2 | 7 | ||||||||
| Loss on divestiture | 33 | — | 105 | ||||||||
| Gain on sale of non-consolidated affiliates | 4 | — | 62 | ||||||||
| Loss on debt extinguishment | — | — | 5 | ||||||||
| Other expense, net | 2 | 24 | 25 | ||||||||
| Income before income taxes | 223 | 161 | 69 | ||||||||
| Provision for income taxes | 48 | 30 | 27 | ||||||||
| Net income from continuing operations | 175 | 131 | 42 | ||||||||
| Net income (loss) from discontinued operations, net of tax | 17 | (40 | ) | 2,286 | |||||||
| Net income | 192 | 91 | 2,328 | ||||||||
| Net income attributable to non-controlling interests | 16 | 16 | 44 | ||||||||
| Net income attributable to Visteon Corporation | $ | 176 | $ | 75 | $ | 2,284 | |||||
| Basic earnings (loss) per share: | |||||||||||
| Continuing operations | $ | 5.03 | $ | 3.28 | $ | 0.52 | |||||
| Discontinued operations | 0.54 | (1.14 | ) | 53.48 | |||||||
| Basic earnings per share attributable to Visteon Corporation | $ | 5.57 | $ | 2.14 | $ | 54.00 | |||||
| Diluted earnings (loss) per share: | |||||||||||
| Continuing operations | $ | 4.94 | $ | 3.25 | $ | 0.51 | |||||
| Discontinued operations | 0.53 | (1.13 | ) | 52.12 | |||||||
| Diluted earnings per share attributable to Visteon Corporation | $ | 5.47 | $ | 2.12 | $ | 52.63 | |||||
| Year Ended December 31, | ||||||||||||||||||||
| 2022 | 2021 | 2020 | ||||||||||||||||||
| Net sales | $ | 3,756 | $ | 2,773 | $ | 2,548 | ||||||||||||||
| Cost of sales | (3,388) | (2,519) | (2,303) | |||||||||||||||||
| Gross margin | 368 | 254 | 245 | |||||||||||||||||
| Selling, general and administrative expenses | (188) | (175) | (193) | |||||||||||||||||
| Restructuring and impairment | (14) | (14) | (76) | |||||||||||||||||
| Interest expense | (14) | (10) | (16) | |||||||||||||||||
| Interest income | 4 | 2 | 5 | |||||||||||||||||
| Equity in net (loss) income of non-consolidated affiliates | (1) | 6 | 6 | |||||||||||||||||
| Other income, net | 20 | 18 | 9 | |||||||||||||||||
| Income (loss) before income taxes | 175 | 81 | (20) | |||||||||||||||||
| Provision for income taxes | (45) | (31) | (28) | |||||||||||||||||
| Net income (loss) | 130 | 50 | (48) | |||||||||||||||||
| Less: Net (income) loss attributable to non-controlling interests | (6) | (9) | (8) | |||||||||||||||||
| Net income (loss) attributable to Visteon Corporation | $ | 124 | $ | 41 | $ | (56) | ||||||||||||||
| Basic earnings (loss) per share attributable to Visteon Corporation | $ | 4.41 | $ | 1.46 | $ | (2.01) | ||||||||||||||
| Diluted earnings (loss) per share attributable to Visteon Corporation | $ | 4.35 | $ | 1.44 | $ | (2.01) | ||||||||||||||
See accompanying notes to the consolidated financial statements.
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VISTEON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In millions)
| Year Ended December 31 | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| (Dollars in Millions) | |||||||||||
| Net income | $ | 192 | $ | 91 | $ | 2,328 | |||||
| Foreign currency translation adjustments | 68 | (11 | ) | (37 | ) | ||||||
| Net investment hedge | (22 | ) | 6 | 4 | |||||||
Benefit plans, net of tax (a) | 12 | (39 | ) | 121 | |||||||
Unrealized hedging (losses) gains and other, net of tax (b) | 6 | (6 | ) | 8 | |||||||
| Other comprehensive income (loss), net of tax | 64 | (50 | ) | 96 | |||||||
| Comprehensive income | 256 | 41 | 2,424 | ||||||||
| Comprehensive income attributable to non-controlling interests | 21 | 9 | 31 | ||||||||
| Comprehensive income attributable to Visteon Corporation | $ | 235 | $ | 32 | $ | 2,393 | |||||
| Year Ended December 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Net income (loss) | $ | 130 | $ | 50 | $ | (48) | |||||||||||
| Foreign currency translation adjustments | (66) | (31) | 45 | ||||||||||||||
| Net investment hedge | 8 | 19 | (19) | ||||||||||||||
Benefit plans, net of tax (a) | 56 | 84 | (51) | ||||||||||||||
Unrealized hedging gains (losses), net of tax (b) | 13 | 6 | (5) | ||||||||||||||
| Other comprehensive income (loss), net of tax | 11 | 78 | (30) | ||||||||||||||
| Comprehensive income (loss) | 141 | 128 | (78) | ||||||||||||||
| Comprehensive income (loss) attributable to non-controlling interests | 1 | 12 | 15 | ||||||||||||||
| Comprehensive income (loss) attributable to Visteon Corporation | $ | 140 | $ | 116 | $ | (93) | |||||||||||
(a) Other comprehensive income (loss) isBenefit plans, net of tax reflects tax expense of $4 million for the year ended December 31, 2022, tax expense of $4 million for the year ended December 31,2021, and tax expense of less than $1 million for the year ended December 31, 2017,2020.
(b) Unrealized hedging gains (losses), net of tax benefit of $3 millionreflects no income tax effects for the year ended December 31,2016, and a tax expense of $3 million for the yearyears ended December 31, 2015.2022, 2021, and 2020.
See accompanying notes to the consolidated financial statements.
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VISTEON CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions)
| December 31 | ||||||||||||||||||
| 2017 | 2016 | December 31, | ||||||||||||||||
| (Dollars in Millions) | 2022 | 2021 | ||||||||||||||||
| ASSETS | ASSETS | ASSETS | ||||||||||||||||
| Cash and equivalents | $ | 706 | $ | 878 | Cash and equivalents | $ | 520 | $ | 452 | |||||||||
| Restricted cash | 3 | 4 | Restricted cash | 3 | 3 | |||||||||||||
| Accounts receivable, net | 530 | 505 | Accounts receivable, net | 672 | 549 | |||||||||||||
| Inventories, net | 189 | 151 | Inventories, net | 348 | 262 | |||||||||||||
| Other current assets | 175 | 170 | Other current assets | 167 | 158 | |||||||||||||
| Total current assets | 1,603 | 1,708 | Total current assets | 1,710 | 1,424 | |||||||||||||
| Property and equipment, net | 377 | 345 | Property and equipment, net | 364 | 388 | |||||||||||||
| Intangible assets, net | 132 | 129 | Intangible assets, net | 99 | 118 | |||||||||||||
| Right-of-use assets | Right-of-use assets | 124 | 139 | |||||||||||||||
| Investments in non-consolidated affiliates | 41 | 45 | Investments in non-consolidated affiliates | 49 | 54 | |||||||||||||
| Other non-current assets | 151 | 146 | Other non-current assets | 104 | 111 | |||||||||||||
| Total assets | $ | 2,304 | $ | 2,373 | Total assets | $ | 2,450 | $ | 2,234 | |||||||||
| LIABILITIES AND EQUITY | LIABILITIES AND EQUITY | LIABILITIES AND EQUITY | ||||||||||||||||
| Short-term debt, including current portion of long-term debt | $ | 46 | $ | 36 | ||||||||||||||
| Short-term debt | Short-term debt | $ | 13 | $ | 4 | |||||||||||||
| Accounts payable | 470 | 463 | Accounts payable | 657 | 522 | |||||||||||||
| Accrued employee liabilities | 105 | 103 | Accrued employee liabilities | 90 | 80 | |||||||||||||
| Current lease liability | Current lease liability | 29 | 28 | |||||||||||||||
| Other current liabilities | 180 | 309 | Other current liabilities | 246 | 218 | |||||||||||||
| Total current liabilities | 801 | 911 | Total current liabilities | 1,035 | 852 | |||||||||||||
| Long-term debt | 347 | 346 | ||||||||||||||||
| Long-term debt, net | Long-term debt, net | 336 | 349 | |||||||||||||||
| Employee benefits | 277 | 303 | Employee benefits | 115 | 198 | |||||||||||||
| Non-current lease liability | Non-current lease liability | 99 | 117 | |||||||||||||||
| Deferred tax liabilities | 23 | 20 | Deferred tax liabilities | 27 | 27 | |||||||||||||
| Other non-current liabilities | 95 | 69 | Other non-current liabilities | 64 | 75 | |||||||||||||
| Stockholders’ equity: | Stockholders’ equity: | |||||||||||||||||
| Preferred stock (par value $0.01, 50 million shares authorized, none outstanding as of December 31, 2017 and 2016) | — | — | ||||||||||||||||
| Common stock (par value $0.01, 250 million shares authorized, 55 million shares issued, 31 million and 33 million shares outstanding as of December 31, 2017 and 2016, respectively) | 1 | 1 | ||||||||||||||||
| Preferred stock (par value $0.01, 50 million shares authorized, none outstanding as of December 31, 2022 and 2021) | Preferred stock (par value $0.01, 50 million shares authorized, none outstanding as of December 31, 2022 and 2021) | — | — | |||||||||||||||
| Common stock (par value $0.01, 250 million shares authorized, 55 million shares issued, 28.2 and 28.0 million shares outstanding as of December 31, 2022 and December 31, 2021, respectively) | Common stock (par value $0.01, 250 million shares authorized, 55 million shares issued, 28.2 and 28.0 million shares outstanding as of December 31, 2022 and December 31, 2021, respectively) | 1 | 1 | |||||||||||||||
| Additional paid-in capital | 1,339 | 1,327 | Additional paid-in capital | 1,352 | 1,349 | |||||||||||||
| Retained earnings | 1,445 | 1,269 | Retained earnings | 1,788 | 1,664 | |||||||||||||
| Accumulated other comprehensive loss | (174 | ) | (233 | ) | Accumulated other comprehensive loss | (213) | (229) | |||||||||||
| Treasury stock | (1,974 | ) | (1,778 | ) | Treasury stock | (2,253) | (2,269) | |||||||||||
| Total Visteon Corporation stockholders’ equity | 637 | 586 | Total Visteon Corporation stockholders’ equity | 675 | 516 | |||||||||||||
| Non-controlling interests | 124 | 138 | Non-controlling interests | 99 | 100 | |||||||||||||
| Total equity | 761 | 724 | Total equity | 774 | 616 | |||||||||||||
| Total liabilities and equity | $ | 2,304 | $ | 2,373 | Total liabilities and equity | $ | 2,450 | $ | 2,234 | |||||||||
See accompanying notes to the consolidated financial statements.
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VISTEON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS1
(In millions)
| Year Ended December 31 | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| (Dollars in Millions) | |||||||||||
| Operating Activities | |||||||||||
| Net income | $ | 192 | $ | 91 | $ | 2,328 | |||||
| Adjustments to reconcile net income to net cash provided from operating activities: | |||||||||||
| Depreciation and amortization | 87 | 84 | 169 | ||||||||
| Losses on divestitures and impairments | 33 | 22 | 121 | ||||||||
| Non-cash stock-based compensation | 12 | 8 | 8 | ||||||||
| Gain on non-consolidated affiliate transactions | (4 | ) | — | (62 | ) | ||||||
| Equity in net (income) loss of non-consolidated affiliates, net of dividends remitted | (7 | ) | (1 | ) | 1 | ||||||
| Gain on India operations repurchase | (7 | ) | — | — | |||||||
| Loss (gain) on Climate Transaction | — | 2 | (2,324 | ) | |||||||
| Loss on debt extinguishment | — | — | 5 | ||||||||
| Other non-cash items | 15 | 24 | 6 | ||||||||
| Changes in assets and liabilities: | |||||||||||
| Accounts receivable | 10 | (19 | ) | 1 | |||||||
| Inventories | (3 | ) | 30 | (20 | ) | ||||||
| Accounts payable | (54 | ) | (10 | ) | 33 | ||||||
| Other assets and other liabilities | (57 | ) | (111 | ) | 72 | ||||||
| Net cash provided from operating activities | 217 | 120 | 338 | ||||||||
| Investing Activities | |||||||||||
| Capital expenditures, including intangibles | (99 | ) | (75 | ) | (187 | ) | |||||
| Proceeds from asset sales and business divestitures | 15 | 17 | 92 | ||||||||
| Settlement of net investment hedge | 5 | — | — | ||||||||
| Acquisition of businesses, net of cash acquired | (2 | ) | (15 | ) | (4 | ) | |||||
| India operations repurchase | (47 | ) | — | — | |||||||
| Payments on divestiture of businesses | (48 | ) | (10 | ) | (157 | ) | |||||
| Short-term investments, net | — | 47 | (47 | ) | |||||||
| Loans to non-consolidated affiliate, net of repayments | — | (8 | ) | (9 | ) | ||||||
| Net proceeds from Climate Transaction, including withholding tax refund | — | 356 | 2,664 | ||||||||
| Other, net | 1 | (10 | ) | 6 | |||||||
| Net cash (used by) provided from investing activities | (175 | ) | 302 | 2,358 | |||||||
| Financing Activities | |||||||||||
| Short-term debt, net | 10 | — | 2 | ||||||||
| Exercised warrants and stock options | 2 | — | 40 | ||||||||
| Distribution payments | (1 | ) | (1,736 | ) | — | ||||||
| Stock based compensation tax withholding payments | (1 | ) | (11 | ) | (10 | ) | |||||
| Principal payments on debt | (2 | ) | (2 | ) | (250 | ) | |||||
| Dividends paid to non-controlling interests | (38 | ) | (13 | ) | (55 | ) | |||||
| Repurchase of common stock | (200 | ) | (500 | ) | (500 | ) | |||||
| Other | (3 | ) | — | (1 | ) | ||||||
| Net cash used by financing activities | (233 | ) | (2,262 | ) | (774 | ) | |||||
| Effect of exchange rate changes on cash and equivalents | 19 | (11 | ) | (20 | ) | ||||||
| Net (decrease) increase in cash and equivalents | (172 | ) | (1,851 | ) | 1,902 | ||||||
| Cash and equivalents at beginning of the year | 878 | 2,729 | 827 | ||||||||
| Cash and equivalents at end of the year | $ | 706 | $ | 878 | $ | 2,729 | |||||
| Supplemental Disclosures: | |||||||||||
| Cash paid for interest | $ | 16 | $ | 14 | $ | 24 | |||||
| Cash paid for income taxes, net of refunds | $ | 49 | $ | 92 | $ | 67 | |||||
| Year Ended December 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Operating Activities | |||||||||||||||||
| Net income (loss) | $ | 130 | $ | 50 | $ | (48) | |||||||||||
| Adjustments to reconcile net income (loss) to net cash provided from operating activities: | |||||||||||||||||
| Depreciation and amortization | 108 | 108 | 104 | ||||||||||||||
| Non-cash stock-based compensation | 26 | 18 | 18 | ||||||||||||||
| Gain on sale of investment | (3) | — | — | ||||||||||||||
| Foreign currency translation charge | 3 | — | — | ||||||||||||||
| Equity in net income of non-consolidated affiliates, net of dividends remitted | 4 | 12 | (5) | ||||||||||||||
| Impairments | 5 | 9 | — | ||||||||||||||
| Other non-cash items | (1) | 14 | 7 | ||||||||||||||
| Changes in assets and liabilities: | |||||||||||||||||
| Accounts receivable | (156) | (78) | 51 | ||||||||||||||
| Inventories | (105) | (92) | (2) | ||||||||||||||
| Accounts payable | 146 | 28 | (13) | ||||||||||||||
| Other assets and other liabilities | 10 | (11) | 56 | ||||||||||||||
| Net cash provided from operating activities | 167 | 58 | 168 | ||||||||||||||
| Investing Activities | |||||||||||||||||
| Capital expenditures, including intangibles | (81) | (70) | (104) | ||||||||||||||
| Contributions to equity method investments | (3) | (5) | (2) | ||||||||||||||
| Proceeds from sale of investment | 4 | — | — | ||||||||||||||
| Net investment hedge transactions | 12 | 4 | 8 | ||||||||||||||
| Loan repayments from non-consolidated affiliates | — | 6 | 2 | ||||||||||||||
| Other, net | — | 2 | (2) | ||||||||||||||
| Net cash used by investing activities | (68) | (63) | (98) | ||||||||||||||
| Financing Activities | |||||||||||||||||
| Borrowings on debt | 350 | — | 400 | ||||||||||||||
| Principal payments on debt | (350) | — | (400) | ||||||||||||||
| Repurchase of common stock | — | — | (16) | ||||||||||||||
| Short-term debt, net | (4) | 4 | (37) | ||||||||||||||
| Payment of debt fees | (3) | — | — | ||||||||||||||
| Dividends paid to non-controlling interests | (2) | (35) | (7) | ||||||||||||||
| Other | — | 2 | 2 | ||||||||||||||
| Net cash used by financing activities | (9) | (29) | (58) | ||||||||||||||
| Effect of exchange rate changes on cash | (22) | (11) | 19 | ||||||||||||||
| Net increase (decrease) in cash, equivalents, and restricted cash | 68 | (45) | 31 | ||||||||||||||
| Cash, equivalents, and restricted cash at beginning of the period | 455 | 500 | 469 | ||||||||||||||
| Cash, equivalents, and restricted cash at end of the period | $ | 523 | $ | 455 | $ | 500 | |||||||||||
| Supplemental Disclosures: | |||||||||||||||||
| Cash paid for interest | $ | 12 | $ | 15 | $ | 18 | |||||||||||
| Cash paid for income taxes, net of refunds | $ | 29 | $ | 15 | $ | 19 | |||||||||||
See accompanying notes to the consolidated financial statements.
44
VISTEON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In millions)
| Total Visteon Corporation Stockholders' Equity | |||||||||||||||||||||||||||||||||||
Common Stock | Stock Warrants | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Treasury Stock | Total Visteon Corporation Stockholders' Equity | Non-Controlling Interests | Total Equity | |||||||||||||||||||||||||||
| (Dollars in Millions) | |||||||||||||||||||||||||||||||||||
| December 31, 2014 | $ | 1 | $ | 3 | $ | 1,246 | $ | 661 | $ | (299 | ) | $ | (747 | ) | $ | 865 | $ | 956 | $ | 1,821 | |||||||||||||||
| Net income | — | — | — | 2,284 | — | — | 2,284 | 44 | 2,328 | ||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | 109 | — | 109 | (13 | ) | 96 | |||||||||||||||||||||||||
| Stock-based compensation, net | — | — | (9 | ) | — | — | 17 | 8 | — | 8 | |||||||||||||||||||||||||
Stock-based compensation tax windfall | — | — | 8 | — | — | — | 8 | — | 8 | ||||||||||||||||||||||||||
| Repurchase of shares of common stock | — | — | 63 | — | — | (563 | ) | (500 | ) | — | (500 | ) | |||||||||||||||||||||||
| Warrant exercises | — | (3 | ) | 37 | — | — | — | 34 | — | 34 | |||||||||||||||||||||||||
Distribution payable | — | — | — | (1,751 | ) | — | — | (1,751 | ) | — | (1,751 | ) | |||||||||||||||||||||||
| Cash dividends | — | — | — | — | — | — | — | (60 | ) | (60 | ) | ||||||||||||||||||||||||
| Acquisition of business | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||
| Business divestiture | — | — | — | — | — | — | — | (785 | ) | (785 | ) | ||||||||||||||||||||||||
| December 31, 2015 | $ | 1 | $ | — | $ | 1,345 | $ | 1,194 | $ | (190 | ) | $ | (1,293 | ) | $ | 1,057 | $ | 142 | $ | 1,199 | |||||||||||||||
| Net income | — | — | — | 75 | — | — | 75 | 16 | 91 | ||||||||||||||||||||||||||
| Other comprehensive (loss) | — | — | — | — | (43 | ) | — | (43 | ) | (7 | ) | (50 | ) | ||||||||||||||||||||||
| Stock-based compensation, net | — | — | (18 | ) | — | — | 15 | (3 | ) | — | (3 | ) | |||||||||||||||||||||||
| Repurchase of shares of common stock | — | — | — | — | — | (500 | ) | (500 | ) | — | (500 | ) | |||||||||||||||||||||||
| Cash dividends | — | — | — | — | — | — | — | (13 | ) | (13 | ) | ||||||||||||||||||||||||
| December 31, 2016 | $ | 1 | $ | — | $ | 1,327 | $ | 1,269 | $ | (233 | ) | $ | (1,778 | ) | $ | 586 | $ | 138 | $ | 724 | |||||||||||||||
| Net income | — | — | — | 176 | — | — | 176 | 16 | 192 | ||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | 59 | — | 59 | 5 | 64 | ||||||||||||||||||||||||||
| Stock-based compensation, net | — | — | 12 | — | — | 4 | 16 | — | 16 | ||||||||||||||||||||||||||
| Repurchase of shares of common stock | — | — | — | — | — | (200 | ) | (200 | ) | — | (200 | ) | |||||||||||||||||||||||
| Dividends payable | — | — | — | — | — | — | — | (2 | ) | (2 | ) | ||||||||||||||||||||||||
| Cash dividends | — | — | — | — | — | — | — | (33 | ) | (33 | ) | ||||||||||||||||||||||||
| December 31, 2017 | $ | 1 | $ | — | $ | 1,339 | $ | 1,445 | $ | (174 | ) | $ | (1,974 | ) | $ | 637 | $ | 124 | $ | 761 | |||||||||||||||
| Total Visteon Corporation Stockholders' Equity | |||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Treasury Stock | Total Visteon Corporation Stockholders' Equity | Non-Controlling Interests | Total Equity | ||||||||||||||||||||||||||||||||||||||||
| December 31, 2019 | $ | 1 | $ | 1,342 | $ | 1,679 | $ | (267) | $ | (2,275) | $ | 480 | $ | 115 | $ | 595 | |||||||||||||||||||||||||||||||
| Net income (loss) | — | — | (56) | — | — | (56) | 8 | (48) | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | (37) | — | (37) | 7 | (30) | |||||||||||||||||||||||||||||||||||||||
| Stock-based compensation, net | — | 6 | — | — | 10 | 16 | — | 16 | |||||||||||||||||||||||||||||||||||||||
| Repurchase of shares of common stock | — | — | — | — | (16) | (16) | — | (16) | |||||||||||||||||||||||||||||||||||||||
| Cash dividends | — | — | — | — | — | — | (7) | (7) | |||||||||||||||||||||||||||||||||||||||
| December 31, 2020 | $ | 1 | $ | 1,348 | $ | 1,623 | $ | (304) | $ | (2,281) | $ | 387 | $ | 123 | $ | 510 | |||||||||||||||||||||||||||||||
| Net income (loss) | — | — | 41 | — | — | 41 | 9 | 50 | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | 75 | — | 75 | 3 | 78 | |||||||||||||||||||||||||||||||||||||||
| Stock-based compensation, net | — | 1 | — | — | 12 | 13 | — | 13 | |||||||||||||||||||||||||||||||||||||||
| Cash dividends | — | — | — | — | — | — | (35) | (35) | |||||||||||||||||||||||||||||||||||||||
| December 31, 2021 | $ | 1 | $ | 1,349 | $ | 1,664 | $ | (229) | $ | (2,269) | $ | 516 | $ | 100 | $ | 616 | |||||||||||||||||||||||||||||||
| Net income (loss) | — | — | 124 | — | — | 124 | 6 | 130 | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | 16 | — | 16 | (5) | 11 | |||||||||||||||||||||||||||||||||||||||
| Stock-based compensation, net | — | 3 | — | — | 16 | 19 | — | 19 | |||||||||||||||||||||||||||||||||||||||
| Cash dividends | — | — | — | — | — | — | (2) | (2) | |||||||||||||||||||||||||||||||||||||||
| December 31, 2022 | $ | 1 | $ | 1,352 | $ | 1,788 | $ | (213) | $ | (2,253) | $ | 675 | $ | 99 | $ | 774 | |||||||||||||||||||||||||||||||
See accompanying notes to the consolidated financial statements.
45
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2.1. Summary of Significant Accounting Policies
Basis of Presentation: The Company'sVisteon Corporation (the "Company" or "Visteon") financial statements have been prepared in conformity with accounting principles generally accepted in the United States ("U.S. GAAP") on a going concern basis, which contemplates the continuity of operations, realization of assets, and satisfaction of liabilities in the normal course of business.
Principles of Consolidation: The consolidated financial statements include the accounts of the Company and its subsidiaries that are more than 50% owned and over which the Company exercisesit exerts control. Investments in affiliates of greater than 20% and forover which the Company does not exercise control, but does have the ability to exercise significant influence over operating and financial policies, are accounted for using the equity method. All other investments are measured at cost, less impairment, with changes in non-consolidated affiliates are accounted for using the cost method.
fair value recognized in net income.
The Company determines whether the joint venturesventure in which it has invested is a Variable Interest Entity (“VIE”) at the start of each new venture and when a reconsideration event has occurred. An enterprise must consolidate a VIE if it is determined to be the primary beneficiary of the VIE. The primary beneficiary has both the power to direct the activities of the VIE that most significantly impact the entity’s economic performance and the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE.
Use of Estimates: The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect amounts reported herein. Considerable judgment is involved in making these determinations and the use of different estimates or assumptions could result in significantly different results. Management believes its assumptions and estimates are reasonable and appropriate. However, actual results could differ from those reported herein. Events and changes in circumstances arising after December 31, 2022, including those resulting from the impacts of COVID-19 and related subsequent semiconductor supply shortage, as further described in Note 18, "Commitments and Contingencies", will be reflected in management's estimates for future periods.
Foreign Currency: Assets and liabilities for most of We translate the Company’s non-U.S. businesses are translated into U.S. Dollars at end-of-period exchange rates, income and expense accounts of the Company’s non-U.S. businesses are translated into U.S. Dollars at average-period exchange rates, and the related translation adjustments are recorded in accumulated other comprehensive income (loss) ("AOCI") in the consolidated balance sheets. The effects of remeasuring monetary assets and liabilities of foreign subsidiaries to United States (U.S.) dollars at end-of-period exchange rates. We translate the Company’s businesses denominated in currencies other thanincome statement elements of foreign subsidiaries to U.S. dollars at average-period exchange rates. We report the effect of translation for foreign subsidiaries that use the local currency as their functional currency as a separate component of stockholders' equity. Gains and losses resulting from the remeasurement of assets and liabilities in a currency other than the functional currency of a subsidiary are recorded as transactionreported in current period income. We also report any gains and losses in the consolidated statements of operations. Additionally, gains and losses resultingarising from transactions denominated in a currency other
than the functional currency are recorded as transaction gains and lossesof a subsidiary in the consolidated statements of operations.current period income. Net transaction gains and losses inclusive of amounts associated with discontinued operations, decreasedincreased net income by $9 million, $10$5 million and $10$2 million for the years ended December 31, 2017, 20162022 and 20152021, respectively. Net transaction gains and losses decreased net income by $2 million for the year ended December 31, 2020.
The Company’s contracts with customers involve various governing documents (sourcing agreements, master purchase agreements, terms and conditions agreements, etc.) which do not reach the level of a performance obligation of the Company until the Company receives either a purchase order and/or a customer release for a specific number of parts at a specified price, at which point the collective group of documents represent an enforceable contract. While the long-term supply agreements generally range from three to five years, customers make no commitments to volumes, and pricing or specifications can change prior to or during production. The Company recognizes revenue when control of the parts produced are transferred to the customer according to the terms of the contract, which is usually when the parts are shipped or delivered to the customer’s premises. Customers are generally invoiced upon shipment or delivery and payment generally occurs within 45 to 90 days and do not include significant financing components. Customers in China are often invoiced one month after shipment or delivery. Customer returns, when they occur, relate to quality rework issues and are not connected to any repurchase obligation of the Company. As of December 31, 2022, all unfulfilled performance obligations are expected to be fulfilled within the next twelve months.
Revenue is measured based on the transaction price and the quantity of parts specified in a contract with a customer. Discrete price adjustments may occur during the vehicle production period in order for the Company to remain competitive with market
46
prices or based on changes in product specifications. Some of these price adjustments are non-routine in nature and require estimation. In the event the Company concludes that a portion of the revenue for a given part may vary from the purchase order, the Company records consideration at the most likely amount to which the Company expects to be entitled based on historical experience and input from customer negotiations. The Company records such estimates within Net sales and Accounts receivable, net, within the Consolidated Statements of Operations and Consolidated Balance Sheets, respectively. The Company adjusts its pricing reserves at the earlier of when the most likely amount of consideration changes or when the consideration becomes fixed. In 2022, revenue recognized related to performance obligations satisfied in previous periods represented less than 1% of consolidated net sales.
Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction that are collected by the Company from a customer are excluded from revenue. Shipping and handling costs associated with outbound freight after control of the parts has transferred to a customer are accounted for as a fulfillment cost and are included in Cost of sales.
Segment: The Company’s reportable segment is Electronics. The Electronics segment provides vehicle cockpit electronics products to customers, including digital instrument clusters, domain controllers with integrated advanced driver assistance systems ("ADAS"), displays, Android-based infotainment systems , and battery management systems. As the Company has one reportable segment, net sales, total assets, depreciation, amortization and capital expenditures are equal to consolidated results.
Restructuring Expense: Restructuring expense to includeincludes costs directly associated with exit or disposal activities. Such costs include employee severance and termination benefits, special termination benefits, contract termination fees and penalties, and other exit or disposal costs. In general, the Company records involuntary employee-related exit and disposal costs when there is a substantive plan for employee severance and related costs are probable and estimable. For one-time termination benefits (i.e., no substantive plan) and employee retention costs, expense is recorded when the employees are entitled to receive such benefits and the amount can be reasonably estimated. Contract termination fees and penalties and other exit and disposal costs are generally recorded when incurred.
Debt Issuance Costs: The costs related to issuance or modification of long-term debt are deferred and amortized into interest expense over the life of each respective debt issue. Deferred amounts associated with debt extinguished prior to maturity are expensed upon extinguishment.
Other Costs within Cost of Goods Sold: Sales: Repair and maintenance costs, pre-production costs, and research and development costs, and pre-production operating costsexpenses are expensed as incurred. Pre-production costs expensed represent engineering and development costs that are not contractually guaranteed for reimbursement by the customer. Research and development expenses include salary and related employee benefits, contractor fees, information technology, occupancy, telecommunications, depreciation, forward model program development, and depreciation.advanced engineering activities. Research and development expenses net of recoveries were $253$196 million, $295$191 million, and $294$201 million in 2017, 20162022, 2021 and 2015, respectively. Shipping and handling costs are recorded in the Company's consolidated statements2020, respectively, which includes recoveries from customers of operations as "Cost of sales."
| Year Ended December 31 | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| (Dollars in Millions) | |||||||||||
| Transformation initiatives | $ | 2 | $ | 9 | $ | 25 | |||||
| Foreign currency translation charge | — | 11 | — | ||||||||
| Transaction hedging and exchange losses (gains) | — | 1 | (15 | ) | |||||||
| Integration costs | — | 2 | 14 | ||||||||
| Loss on asset contributions | — | 2 | 1 | ||||||||
| Recoverable taxes | — | (1 | ) | — | |||||||
| $ | 2 | $ | 24 | $ | 25 | ||||||
Net Earnings (Loss) Per Share Attributable to Visteon: Basic earnings (loss) per share is calculated by dividing net income (loss) attributable to Visteon by the average number of shares of common stock outstanding. Diluted earnings (loss) per share is computed by dividing
net income (loss) attributable to Visteon by the average number of common and potential dilutive common shares outstanding after deducting undistributed income allocated to participating securities. Performance based share units are considered contingently issuable shares and are included in the computation of diluted earnings per share if their conditions have been satisfied as if the reporting date was the end of the contingency period.
Cash and Equivalents: The Company considers all highly liquid investments purchased with aan original maturity of three months or less, including short-term time deposits, commercial paper, repurchase agreements, and money market funds to be cash and cash equivalents. As of December 31, 20172022, the Company's cash balances are invested in a diversified portfolio of cash and highly liquid cash equivalents including money market funds commercial paper rated A2/P2 and above with maturity under three months, time deposits and other short-term cash investments, which mature under three months with highly rated banking institutions.institutions with maturities less than three months. The cost of such funds approximates fair value based on the nature of the investment.
Restricted Cash: Restricted cash represents amounts designated for uses other than current operations and includes $2$2 million related to a Letter of Credit Facility, and $1$1 million related to cash collateral for other corporate purposes as of December 31, 2017.2022. As of December 31, 2021, restricted cash includes $2 million related to a Letter of Credit Facility and $1 million related to cash collateral for other corporate purposes.
47
Accounts Receivable:Accounts receivable are stated at costthe invoiced amount, less an allowance for doubtful accounts. Anaccounts for estimated amounts not expected to be collected, and do not bear interest.
The Company receives bank notes from certain customers in China to settle trade accounts receivable. The collection on such bank notes are included in operating cash flows based on the substance of the underlying transactions, which are operating in nature. The Company may hold such bank notes until maturity, exchange them with suppliers to settle liabilities, or sell them to third-party financial institutions in exchange for cash. The Company has entered into arrangements with financial institutions to sell certain bank notes, generally maturing within nine months. Bank notes are sold with recourse but qualify as a sale as all rights to the notes have passed to the financial institution.
Allowance for Doubtful Accounts: The Company establishes an allowance for doubtful accounts is recorded when it is probable amounts will not be collectedfor accounts receivable based on the current expected credit loss impairment model (“CECL”). The Company applies a historical loss rate based on historic write-offs by region to aging categories. The historical loss rate will be adjusted for current conditions and reasonable and supportable forecasts of future losses, as necessary.The Company may also record a specific identificationreserve for individual accounts when the Company becomes aware of specific customer circumstances, such as in the case of a bankruptcy filing or age ofdeterioration in the receivable. customer's operating results or financial position.
The allowance for doubtful accounts balance was $8 millionrelated to accounts receivable and $10 million as of December 31, 2017 and 2016, respectively. Included in selling, general and administrative expensesrelated activity are provisionssummarized below:
| December 31, | |||||||||||||||||
| (In millions) | 2022 | 2021 | 2020 | ||||||||||||||
| Balance at beginning of year | $ | 4 | $ | 4 | $ | 10 | |||||||||||
| Provision | 1 | — | 1 | ||||||||||||||
| Recoveries | — | — | (3) | ||||||||||||||
| Write-offs charged against the allowance | — | — | (4) | ||||||||||||||
| Balance at end of year | $ | 5 | $ | 4 | $ | 4 | |||||||||||
Provision for estimated uncollectible accounts receivable are included in Selling, general and administrative expenses in the Company's Consolidated Statements of $3 million, $2 million and $4 million for the years ended December 31, 2017 and 2016, and 2015. Accounts are written off against the allowance when collection efforts have been exhausted.Operations.
Inventories: Inventories are stated at the lower of cost, determined on a first-in, first-out (“FIFO”) basis, or market.net realizable value. Cost includes the cost of materials, direct labor, in-bound freight and the applicable share of manufacturing overhead. The cost of inventories is reduced for excess and obsolete inventories based on management’s review of on-hand inventories compared to historical and estimated future sales and usage.
Product Tooling: Product tooling includes molds, dies, and other tools used in production of a specific part or parts of the same basic design. It is generally required that non-reimbursable design and development costs for products to be sold under long-term supply arrangements be expensed as incurred and costs incurred for molds, dies and other tools that will be owned either by the Company or its customers and used in producing the products under long-term supply arrangements becustomers. Company owned tooling is capitalized and amortizeddepreciated over the shorter of the expected useful life of the assetstooling or the term of the supply arrangement. Product tooling owned by the Company is capitalized as property and equipment and is amortized to cost of sales over its estimated economic life,arrangement, generally not exceeding six years. The Company had receivables of $18$20 million and $14$21 million as of December 31, 20172022 and 2016,2021, respectively, related to productionproduct tools in progress, which will not be owned by the Company and for which there is a contractual agreement for reimbursement from the customer.
Contractually Reimbursable Engineering Costs: Engineering, testing, and other costs incurred in the design and development of production parts are expensed as incurred, unless the costscost reimbursement is contractually guaranteed in a customer contract, forin which case costs are capitalized as an asset as incurred and subsequently reduced upon lump sum or piece price recoveries.
Property and Equipment: Property and equipment is stated at cost or fair value for impaired assets. Property and equipment is depreciated principally using the straight-line method of depreciation over the related asset's estimated useful life. Generally, buildings and improvements are depreciated over a 40-year estimated useful life, leasehold improvements are depreciated on a straight-line basis over the initial lease term period, and machinery, equipment and other are depreciated over estimated useful lives ranging from 3 to 15 years. Certain costs incurred in the acquisition or development of software for internal use are capitalized. Capitalized software costs are amortized using the straight-line method over estimated useful lives generally ranging from 3 to 5 years.
Asset impairment charges are recorded for assets held-in-use when events and circumstances indicate that such assets may not be recoverable and the undiscounted net cash flows estimated to be generated by those assets are less than their carrying amounts. If estimated future undiscounted cash flows are not sufficient to recover the carrying value of the assets, an impairment charge is recorded for the amount by which the carrying value of the assets exceeds fair value. The Company classifies assets and liabilities as held for sale when management approves and commits to a formal plan of sale, generally following board of director approval, and it is probable that the sale will be completed within one year. The carrying value of assets and liabilities held for sale is recorded at the lower of carrying value or fair value less cost to sell, and the recording of depreciation is ceased. For impairment purposes, fairFair value is determined using appraisals, management estimates, or discounted cash flow calculations.
For further detail on asset impairments see Note 3, "Restructuring and Impairments."
48
Leases: The Company determines if an arrangement is a lease at contract inception. Right-of-use ("ROU") assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company's leases do not provide an implicit rate, the Company estimates the incremental borrowing rate to discount the lease payments based on information available at lease commencement. The Company's lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options. Lease expense is recognized on a straight-line basis over the lease term. The Company has lease agreements containing lease and non-lease components which are accounted for as a single lease component.
Goodwill:The Company performs either a qualitative or quantitative assessment of goodwill for impairment on an annual basis. Goodwill impairment testing is performed at the reporting unit level. The qualitative assessment considers several factors at the reporting unit level including the excess of fair value over carrying value as of the last quantitative impairment test, the length of time since the last fair value measurement, the current carrying value, market and industry metrics, actual performance compared to forecast performance, and the Company's current outlook on the business. If the qualitative assessment indicates it is more likely than not that goodwill is impaired, the reporting unit is quantitatively tested for impairment. To quantitatively test goodwill for impairment, the fair value of eachthe reporting unit is determined and compared to the carrying value. An impairment charge is recognized for the amount by which the reporting unit's carrying value exceeds its fair value.
Intangible Assets: Definite-lived intangible assets are amortized over their estimated useful lives, and tested for impairment in
accordance with the methodology discussed above under "Property and Equipment." Definite-lived intangible assets include:
Government Incentives: The Company receives certain incentives from governments primarily related to research and development programs. The Company records incentives in accordance with their purpose as a reduction of expense or an offset to the related property and equipment. The benefit is recorded when all conditions related to the incentive have been met or are amortized over average, estimated useful lives generally ranging from 6expected to 12 years.be met and there is reasonable assurance of their receipt. The Company recorded incentive benefits of $1 million for the year ended December 31, 2022 and deferred income of $2 million as of December 31, 2022.
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. For further detail on warranty obligations see Note 18, "Commitments and Contingencies."
Income Taxes: Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company records a valuation allowance to reduce deferred tax assets when it is more likely than not that such assets will not be realized. This assessment requires significant judgment, and must be done on a jurisdiction-by-jurisdiction basis. In determining the need for a valuation allowance, all available positive and negative evidence, including historical and projected financial performance, is considered along with any other pertinent information.
Value Added Taxes: The Company follows a net basis policy with regard toreports value added taxes collected from customers and remitted to government authorities, which excludes them from bothon a net sales and expenses.basis within Cost of sales.
Financial Instruments: The Company uses derivative financial instruments, including forward contracts, swaps, and options to manage exposures to changes in currency exchange rates and interest rates. The Company's policy specifically prohibits the use of derivatives for speculative or trading purposes.
Recently Adopted Accounting Pronouncements
49
through December 15, 2016, with early adoption permitted.31, 2022. The Company's prospective adoption of this standard on January 1, 2017the guidance did not have a material impact on itsthe Company’s consolidated financial statements.
Government Assistance - In November 2021, the FASB issued ASU 2021-10, "Government Assistance (Topic 832) - Disclosures by Business Entities about Government Assistance." to increase the transparency of government assistance including the disclosure of the types of assistance, an entity’s accounting for the assistance, and the effect of the assistance on an entity’s financial statements. The Company has adopted an entity-wide accounting policy election to account for forfeitures in compensation cost when they occur.
| Assets Acquired: | Liabilities Assumed: | |||||||
| Accounts receivable | $ | 1 | Deferred tax liabilities | $ | 2 | |||
| Intangible assets | 7 | Total liabilities assumed | 2 | |||||
| Goodwill | 11 | |||||||
| Total assets acquired | $ | 19 | Purchase price | $ | 17 | |||
| Gross proceeds | (1) | $ | 3,423 | |
| Korea withholding tax | (2) | (377 | ) | |
| Professional fees | (3) | (20 | ) | |
| Korea security transaction tax | (4) | (17 | ) | |
| Divested cash balances | (5) | (345 | ) | |
| Net cash provided from investing activities | 2,664 | |||
| Net assets divested, excluding cash balances | (5) | (565 | ) | |
| Information technology separation and service obligations | (6) | (53 | ) | |
| Employee related charges | (7) | (45 | ) | |
| Electronics business repurchase obligation | (8) | (50 | ) | |
| Professional fees | (3) | (4 | ) | |
| Korea withholding tax recoverable | (2) | 377 | ||
| Net gain on Climate Transaction | $ | 2,324 | ||
| Year Ended December 31 | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| (Dollars in Millions) | |||||||||||
| Sales | $ | — | $ | 45 | $ | 2,199 | |||||
| Cost of sales | — | 59 | 2,039 | ||||||||
| Gross margin | — | (14 | ) | 160 | |||||||
| Selling, general and administrative expenses | — | 5 | 77 | ||||||||
| (Gain) loss on Climate Transaction | (7 | ) | 2 | (2,324 | ) | ||||||
| Long-lived asset impairment | — | 1 | 4 | ||||||||
| (Gain) loss on Interiors Divestiture | (8 | ) | 19 | 12 | |||||||
| Restructuring expense | — | 4 | 2 | ||||||||
| Interest expense, net | — | — | 2 | ||||||||
| Equity in net income of non-consolidated affiliates | — | — | 6 | ||||||||
| Other expense, net | — | 2 | 10 | ||||||||
| Income (loss) from discontinued operations before income taxes | 15 | (47 | ) | 2,383 | |||||||
| (Benefit) provision for income taxes | (2 | ) | (7 | ) | 97 | ||||||
| Net (loss) income from discontinued operations | 17 | (40 | ) | 2,286 | |||||||
| Net income attributable to non-controlling interests | — | — | 24 | ||||||||
| Net (loss) income from discontinued operations attributable to Visteon | $ | 17 | $ | (40 | ) | $ | 2,262 | ||||
| Year Ended December 31 | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| (Dollars in Millions) | |||||||||||
| Depreciation and amortization | $ | — | $ | — | $ | 85 | |||||
| Asset impairments and (gains) losses on divestitures | $ | (8 | ) | $ | 14 | $ | 16 | ||||
| Capital expenditures | $ | — | $ | 1 | $ | 81 | |||||
NOTE 6.2. Non-Consolidated Affiliates
| December 31, | |||||||||||
| (In millions) | 2022 | 2021 | |||||||||
YFVIC (50%) | $ | 25 | $ | 36 | |||||||
| Limited partnerships | 13 | 10 | |||||||||
| Others | 11 | 8 | |||||||||
| Total investments in non-consolidated affiliates | $ | 49 | $ | 54 | |||||||
Investments in Affiliates
The purchase by YFVIC was financed through a shareholder loan from YF and external borrowings which were guaranteed by Visteon,Company recorded equity in the net loss of which $15non-consolidated affiliates of $1 million is outstanding as of December 31, 2017. The guarantee contains standard non-payment provisions to cover the borrowers in event of non-payment of principal, accrued interest, and other fees, and the loan is expected to be fully paid by September 2019.
2022. The Company recorded equity in the net income of non-consolidated affiliates of $7$6 million $2 million and $7 million for each of the years ended December 31, 2017, 20162021 and 2015, respectively.
2020.
The Company monitors its investments in affiliates for indicators of other-than-temporary declines in value on an ongoing basis. If the Company determines that an “other-than-temporary”other-than-temporary decline in value has occurred, an impairment loss will be recorded, which is measured as the difference between the recorded book value and the fair value of the investment. As of December 31, 20172022, the Company's retained earnings did not contain any undistributed income of non-consolidated affiliates accounted for usingCompany determined that no such indicators were present.
Non-Consolidated Affiliate Transactions
In 2018, the equity method.
In 2022, the Company made an investment in affiliates accounteda private limited company focused on technology development for under the equity method totaled $41 million and $40 million, respectively. Asautomotive industry of December 31, 2016 investment in affiliates accounted for under the cost method totaled $5$1 million.
| December 31 | |||||||
| 2017 | 2016 | ||||||
| (Dollars in Millions) | |||||||
YFVIC (50%) | $ | 28 | $ | 22 | |||
Changchun FAWAY Auto Electronics Co., Ltd. (50%) | 10 | 8 | |||||
| Others | 3 | 8 | |||||
Chongqing Changan Visteon Engine Control Systems Co., Ltd. (50%) | — | 7 | |||||
| Total investments in non-consolidated affiliates | $ | 41 | $ | 45 | |||
| Year Ended December 31 | |||||||
| 2017 | 2016 | ||||||
| (Dollars in Millions) | |||||||
| Billings to affiliates (a) | $ | 52 | $ | 41 | |||
| Purchases from affiliates (b) | $ | 64 | $ | 63 | |||
(a) Primarily relates to parts production and engineering reimbursement | |||||||
(b) Primarily relates to engineering services as well as selling, general, and administrative expenses | |||||||
Variable Interest Entities
The Company determined that it's 50% investment in Yanfeng Visteon Electronics (China) Investment Co., Ltd. ("YFVIC"), is a VIE. The Company holds a variable interest in YFVIC primarily related to its ownership interests and subordinated financial support. The Company and YFYangfeng Automotive Trim Systems Co. Ltd., ("YF") each own 50% of YFVIC and neither entity has the power to control the operations of YFVIC,YFVIC; therefore, the Company is not the primary beneficiary of YFVIC and does not consolidate the joint venture.
A summary of transactions with affiliates is shown below:
| Year Ended December 31, | |||||||||||
| (In millions) | 2022 | 2021 | |||||||||
| Billings to affiliates (a) | $ | 72 | $ | 76 | |||||||
| Purchases from affiliates (b) | $ | 78 | $ | 61 | |||||||
| (a) Primarily relates to parts production and engineering reimbursement | |||||||||||
| (b) Primarily relates to engineering services as well as selling, general and administrative expenses | |||||||||||
50
A summary of the Company's investments in YFVIC is provided below.below:
| December 31 | |||||||
| 2017 | 2016 | ||||||
| (Dollars in Millions) | |||||||
| Payables due to YFVIC | $ | 12 | $ | 14 | |||
| Exposure to loss in YFVIC | |||||||
| Investment in YFVIC | $ | 28 | $ | 22 | |||
| Receivables due from YFVIC | 35 | 15 | |||||
| Subordinated loan receivable | 22 | 22 | |||||
| Loan guarantee | 15 | 22 | |||||
| Maximum exposure to loss in YFVIC | $ | 100 | $ | 81 | |||
| December 31, | |||||||||||
| (In millions) | 2022 | 2021 | |||||||||
| Payables due to YFVIC | $ | 38 | $ | 20 | |||||||
| Exposure to loss in YFVIC | |||||||||||
| Investment in YFVIC | $ | 25 | $ | 36 | |||||||
| Receivables due from YFVIC | 48 | 48 | |||||||||
| Maximum exposure to loss in YFVIC | $ | 73 | $ | 84 | |||||||
During the fourth quarter of 2016,2022 the Company announced a restructuring program impacting engineering and administrative functions to further align the Company's engineering and related administrative footprint with its core product technologies and customers. The Company expects to incur up to $45incurred approximately $19 million of restructuringcharges related to program management costs for this program. The Company has recorded
NOTE 3. Restructuring and termination benefits associated with certain executives. This program is considered complete.
| Electronics | Other | Total | |||||||||
| (Dollars in Millions) | |||||||||||
| December 31, 2014 | $ | 30 | $ | 9 | $ | 39 | |||||
| Expense | 40 | 2 | 42 | ||||||||
| Reversals | (4 | ) | — | (4 | ) | ||||||
| Utilization | (31 | ) | (3 | ) | (34 | ) | |||||
Business divestiture | — | (1 | ) | (1 | ) | ||||||
| Foreign currency | (2 | ) | (2 | ) | (4 | ) | |||||
| December 31, 2015 | 33 | 5 | 38 | ||||||||
| Expense | 41 | 16 | 57 | ||||||||
| Reversals | (4 | ) | — | (4 | ) | ||||||
| Utilization | (38 | ) | (12 | ) | (50 | ) | |||||
| Foreign currency | (1 | ) | — | (1 | ) | ||||||
| December 31, 2016 | 31 | 9 | 40 | ||||||||
| Expense | 19 | — | 19 | ||||||||
| Reversals | (4 | ) | (1 | ) | (5 | ) | |||||
| Utilization | (30 | ) | (2 | ) | (32 | ) | |||||
| Foreign currency | 2 | — | 2 | ||||||||
| December 31, 2017 | $ | 18 | $ | 6 | $ | 24 | |||||
Impairments
Given the economically-sensitive and highly competitive nature of the automotive electronics industry, the Company continues to closely monitor current market factors and industry trends and opportunities to streamline the Company's operations, including but not limited to, additionaltaking action as necessary which may include 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.
•During 2022, the Company approved a restructuring plan, primarily impacting Europe, in order to improve efficiencies and rationalize the Company's footprint, including the indefinite suspension of operations in Russia. The Company recorded $6 million of restructuring expense for cash severance and termination costs related to this plan, As of December 31, 2022, $3 million remains accrued related to these actions.
•During 2021, the Company approved various restructuring programs impacting engineering, administrative, and manufacturing functions to improve efficiency and rationalize the Company’s footprint. During 2022 the Company recorded less than $1 million of costs for cash severance and termination costs related to these programs. As of December 31, 2022, $2 million remains accrued related to these programs.
•During 2020, the Company approved various restructuring programs impacting engineering, administrative, and manufacturing functions to improve efficiency and rationalize the Company’s footprint. During 2022 the Company recorded $2 million of costs for cash severance and termination costs related to these programs. As of December 31, 2022, $3 million remains accrued related to these programs.
•During prior periods the Company approved various restructuring programs to improve efficiencies which do not relate to the programs described above. As of December 31, 2022, $2 million remains accrued related to these previously announced actions.
As of December 31, 2022, the Company retained restructuring reserves as part of the Company's divestiture of the majority of its Interiors Divestiture of $1 million associated with completed programs for the fundamental reorganization of operations at facilities in Brazil and France.
Restructuring Reserves
Restructuring reserve balances of $6 million and $5 million as of December 31, 2022 are classified as Other current liabilities and Other non-current liabilities, respectively. Restructuring reserve balances of $16 million and $2 million as of December 31, 2021 are classified as Other current liabilities and Other non-current liabilities, respectively.
51
The Company’s consolidated restructuring reserves and related activity are summarized below, including amounts associated with discontinued operations.
| (In millions) | |||||
| December 31, 2019 | $ | 10 | |||
| Expense | 67 | ||||
| Change in estimates | 9 | ||||
| Utilization | (39) | ||||
| Foreign currency | 2 | ||||
| December 31, 2020 | $ | 49 | |||
| Expense | 4 | ||||
| Change in estimates | 1 | ||||
| Utilization | (34) | ||||
| Foreign currency | (2) | ||||
| December 31, 2021 | $ | 18 | |||
| Expense | 6 | ||||
| Change in estimates | 3 | ||||
| Utilization | (15) | ||||
| Foreign currency | (1) | ||||
| December 31, 2022 | $ | 11 | |||
Impairments
The Company evaluates its long-lived assets for impairment whenever events or circumstances indicate the value of these long-lived asset groups are not recoverable.
In 2022, due to the geopolitical situation in Eastern Europe the Company elected to close the Russian facility resulting in a non-cash impairment charge of $5 million to fully impair property and equipment and reduce inventory to its net realizable value. Additionally, as a result of the closure, during the fourth quarter of 2022, the Company recorded expense of approximately $3 million related to foreign currency translation amounts recorded in accumulated other comprehensive loss.
During 2021, the Company concluded impairment triggers had occurred for a long-lived asset group in Brazil due to rising costs and deteriorating business conditions. The Company determined the cash flows related to certain long-lived assets were not sufficient to recover the carrying value. As such, the Company estimated the fair values of this asset group at December 31, 2021 and compared the fair value to its net carrying value. As the net carrying value of the long-lived asset group exceeded the fair value, the Company recorded a non-cash impairment charge of $9 million to write-down property and equipment to its fair value as of December 31, 2021.
NOTE 8.4. Inventories
Inventories, net consist of the following components:
| December 31, | |||||||||||
| (In millions) | 2022 | 2021 | |||||||||
| Raw materials | $ | 291 | $ | 206 | |||||||
| Work-in-process | 26 | 29 | |||||||||
| Finished products | 31 | 27 | |||||||||
| $ | 348 | $ | 262 | ||||||||
52
| December 31 | |||||||
| 2017 | 2016 | ||||||
| (Dollars in Millions) | |||||||
| Raw materials | $ | 109 | $ | 83 | |||
| Work-in-process | 49 | 34 | |||||
| Finished products | 31 | 34 | |||||
| $ | 189 | $ | 151 | ||||
NOTE 9.5. Other Assets
Other current assets are comprised of the following components:
| December 31, | |||||||||||
| (In millions) | 2022 | 2021 | |||||||||
| Recoverable taxes | $ | 55 | $ | 40 | |||||||
| Joint venture receivables | 49 | 48 | |||||||||
| Contractually reimbursable engineering costs | 35 | 34 | |||||||||
| Prepaid assets and deposits | 18 | 21 | |||||||||
| China bank notes | 6 | 3 | |||||||||
| Royalty agreements | 1 | 4 | |||||||||
| Other | 3 | 8 | |||||||||
| $ | 167 | $ | 158 | ||||||||
| December 31 | |||||||
| 2017 | 2016 | ||||||
| (Dollars in Millions) | |||||||
| Recoverable taxes | $ | 56 | $ | 60 | |||
| Joint venture receivables | 43 | 39 | |||||
| Prepaid assets and deposits | 36 | 35 | |||||
| Notes receivable | 23 | 18 | |||||
| Contractually reimbursable engineering costs | 14 | 7 | |||||
| Foreign currency hedges | 1 | 6 | |||||
| Other | 2 | 5 | |||||
| $ | 175 | $ | 170 | ||||
The Company receives bank notes from certain of its customers in China to settle trade accounts receivable. The Company may hold such bank notes until maturity, exchange them with suppliers to settle liabilities, or sell them to third party financial institutions in exchange for cash. The Company has entered into arrangements with financial institutions to sell certain bank notes, generally maturing within nine months. Notes are sold with recourse, but qualify as a sale as all rights to the notes have passed to the financial institution. The Company sold $16 million during the year ended December 31, 2017 to financial institutions, $10 million of which remain outstanding and will mature within the first quarter of 2018. The collectionscollection of such bank notes are included in operating cash flows based on the substance of the underlying transactions, which are operating in nature. The Company redeemed $160 million and $149 million of China bank notes during the years ended December 31, 2022 and 2021, respectively. Remaining amounts outstanding at third-party institutions relate to sold bank notes and will mature by June 30, 2023.
During 2022, the Company terminated derivative financial instruments and received approximately $9 million of proceeds upon settlement in conjunction with the refinancing of the Company's Term Loan. See Note 10, "Debt" and Note 16, "Fair Value Measurements" for further details.
Other non-current assets are comprised of the following components:
| December 31, | ||||||||||||||||||
| December 31 | ||||||||||||||||||
| 2017 | 2016 | |||||||||||||||||
| (Dollars in Millions) | ||||||||||||||||||
| (In millions) | (In millions) | 2022 | 2021 | |||||||||||||||
| Deferred tax assets | $ | 46 | $ | 48 | Deferred tax assets | $ | 42 | $ | 47 | |||||||||
| Contractually reimbursable engineering costs | Contractually reimbursable engineering costs | 25 | 34 | |||||||||||||||
| Recoverable taxes | 35 | 34 | Recoverable taxes | 11 | 9 | |||||||||||||
| Joint venture note receivables | 26 | 25 | ||||||||||||||||
| Contractually reimbursable engineering costs | 24 | 11 | ||||||||||||||||
| Long term notes receivable | 10 | 10 | ||||||||||||||||
| Pension assets | Pension assets | 4 | 7 | |||||||||||||||
| Royalty agreements | Royalty agreements | — | 2 | |||||||||||||||
| Other | 10 | 18 | Other | 22 | 12 | |||||||||||||
| $ | 151 | $ | 146 | $ | 104 | $ | 111 | |||||||||||
Current and non-current contractually reimbursable engineering costs of $14 million and $24 million, respectively, as of December 31, 2017, and $7 million and $11 million, respectively, as of December 31, 2016, are related to pre-production design and development costs incurred pursuant to long-term supply arrangements that are contractually guaranteed for reimbursement by customers. The Company expects to receive cash reimbursement payments of approximately $14$35 million in 2018, $162023, $19 million in 2019, $2 million in 2020, $2 million in 2021, and2024, $4 million in 20222025, $1 million in 2026 and less than $1 million in 2027 and beyond.
53
NOTE 10.6. Property and Equipment
Property and equipment, net consists of the following:
| December 31, | |||||||||||||||||
| (In millions) | Estimated Useful Life (years) | 2022 | 2021 | ||||||||||||||
| Land | $ | 9 | $ | 10 | |||||||||||||
| Buildings and improvements | 40 | 88 | 91 | ||||||||||||||
| Machinery, equipment and other | 3-15 | 713 | 716 | ||||||||||||||
| Product tooling | 3-5 | 72 | 66 | ||||||||||||||
| Construction in progress | 52 | 47 | |||||||||||||||
| Total property and equipment | 934 | 930 | |||||||||||||||
| Accumulated depreciation and amortization | (570) | (542) | |||||||||||||||
| Property and equipment, net | $ | 364 | $ | 388 | |||||||||||||
| December 31 | |||||||
| 2017 | 2016 | ||||||
| (Dollars in Millions) | |||||||
| Land | $ | 13 | $ | 16 | |||
| Buildings and improvements | 73 | 65 | |||||
| Machinery, equipment and other | 471 | 401 | |||||
| Construction in progress | 65 | 54 | |||||
| Total property and equipment | 622 | 536 | |||||
| Accumulated depreciation | (269 | ) | (210 | ) | |||
| 353 | 326 | ||||||
| Product tooling, net of amortization | 24 | 19 | |||||
| Property and equipment, net | $ | 377 | $ | 345 | |||
Depreciation and product tooling amortization expenses for property and equipment, excluding discontinued operations, are summarized as follows:
| Year Ended December 31, | |||||||||||||||||
| (In millions) | 2022 | 2021 | 2020 | ||||||||||||||
| Depreciation | $ | 83 | $ | 88 | $ | 83 | |||||||||||
| Amortization | 7 | 6 | 7 | ||||||||||||||
| $ | 90 | $ | 94 | $ | 90 | ||||||||||||
| Year Ended December 31 | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| (Dollars in Millions) | |||||||||||
| Depreciation | $ | 71 | $ | 66 | $ | 66 | |||||
| Amortization | 3 | 3 | 4 | ||||||||
| $ | 74 | $ | 69 | $ | 70 | ||||||
The net book value of capitalized internal use software costs was approximately $11$8 million and $7$12 million as of December 31, 20172022 and 2016,2021, respectively. Related amortization expense was approximately $4$5 million, $8 million and $9 million for the years ended 2017, 20162022, 2021 and 2015. 2020, respectively.
Amortization expense of approximately $4 million, $3 million, $2 million, $1 million and less than $1 million isrelated to internal use software expected for the future annual periods ended December 31, 2018, 2019, 2020, 2021, and 2022, respectively.are as follows:
54
NOTE 11.7. Intangible Assets
Intangible assets asconsisted of December 31, 2017 and 2016, were as follows:the following:
| December 31, 2022 | December 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2017 | December 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Estimated Weighted Average Useful Life (years) | Gross Carrying Value | Accumulated Amortization | Net Carrying Value | Gross Carrying Value | Accumulated Amortization | Net Carrying Value | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in Millions) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | (In millions) | Estimated Useful Life | Estimated Weighted Average Useful Life (years) | Gross Intangibles | Accumulated Amortization | Net Intangibles | Gross Intangibles | Accumulated Amortization | Net Intangibles | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Definite-Lived: | Definite-Lived: | Definite-Lived: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Developed technology | 8 | $ | 40 | $ | 27 | $ | 13 | $ | 40 | $ | 25 | $ | 15 | Developed technology | 10-12 years | 10 | $ | 40 | $ | (39) | $ | 1 | $ | 41 | $ | (39) | $ | 2 | ||||||||||||||||||||||||||||||||||||||
| Customer related | 10 | 88 | 35 | 53 | 83 | 25 | 58 | Customer related | 7-12 years | 10 | 88 | (77) | 11 | 96 | (75) | 21 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Capitalized software development | 4 | 8 | 1 | 7 | 4 | — | 4 | Capitalized software development | 3-5 years | 5 | 50 | (16) | 34 | 48 | (10) | 38 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Other | 23 | 13 | 1 | 12 | 8 | 1 | 7 | Other | 32 | 17 | (9) | 8 | 15 | (8) | 7 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Subtotal | 149 | 64 | 85 | 135 | 51 | 84 | Subtotal | 195 | (141) | 54 | 200 | (132) | 68 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Indefinite-Lived: | Indefinite-Lived: | Indefinite-Lived: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Goodwill | 47 | — | 47 | 45 | — | 45 | Goodwill | 45 | — | 45 | 50 | — | 50 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 196 | $ | 64 | $ | 132 | $ | 180 | $ | 51 | $ | 129 | Total | $ | 240 | $ | (141) | $ | 99 | $ | 250 | $ | (132) | $ | 118 | |||||||||||||||||||||||||||||||||||||||||
Capitalized software development consists of software development costs intended for integration into customer products.
The Company currently estimates annual amortization expense to be $16 millionas follows:
| (In millions) | |||||
| 2023 | $ | 18 | |||
| 2024 | 10 | ||||
| 2025 | 9 | ||||
| 2026 | 7 | ||||
| 2027 | 1 | ||||
NOTE 8. Leases
The Company has operating leases primarily for years 2018corporate offices, technical and 2019, $13 million for 2020,engineering centers, plants, vehicles, and $10 million for yearscertain equipment. As of December 31, 2022 and 2021 assets and 2022. Indefinite-lived intangible assets arerelated accumulated depreciation recorded under finance leasing arrangements were not amortized but are tested for impairment at least annually, or earlier when events and circumstances indicate that it is more likely than not that such assets have been impaired.material.
For the years ended December 31, 2022 and 2021, the weighted average remaining lease term and discount rate were 5 years and 4.03% and 6 years and 4.01%, respectively.
55
| Definite-lived intangibles | Indefinite-lived intangibles | ||||||||||||||||||||||
| Developed Technology | Customer Related | Capitalized Software Development | Other | Goodwill | Total | ||||||||||||||||||
| (Dollars in Millions) | |||||||||||||||||||||||
| Electronics: | |||||||||||||||||||||||
| December 31, 2015 | $ | 19 | $ | 67 | $ | — | $ | 7 | $ | 40 | $ | 133 | |||||||||||
| Additions | 2 | 5 | 4 | — | 11 | 22 | |||||||||||||||||
| Foreign currency | — | (5 | ) | — | — | (2 | ) | (7 | ) | ||||||||||||||
| Amortization | (6 | ) | (9 | ) | — | — | — | (15 | ) | ||||||||||||||
| YFVE purchase adjustment | — | — | — | — | (4 | ) | (4 | ) | |||||||||||||||
| December 31, 2016 | $ | 15 | $ | 58 | $ | 4 | $ | 7 | $ | 45 | $ | 129 | |||||||||||
| Additions | — | — | 4 | 4 | — | 8 | |||||||||||||||||
| Foreign currency | 1 | 4 | — | 1 | 2 | 8 | |||||||||||||||||
| Amortization | (3 | ) | (9 | ) | (1 | ) | — | — | (13 | ) | |||||||||||||
| December 31, 2017 | $ | 13 | $ | 53 | $ | 7 | $ | 12 | $ | 47 | $ | 132 | |||||||||||
The components of lease expense are as follows:
| Year Ended December 31, | |||||||||||||||||
| (In millions) | 2022 | 2021 | 2020 | ||||||||||||||
| Operating lease expense (includes immaterial variable lease costs) | $ | (36) | $ | (42) | $ | (42) | |||||||||||
| Short-term lease expense | (1) | (1) | (1) | ||||||||||||||
| Sublease income | 2 | 5 | 5 | ||||||||||||||
| Total lease expense | $ | (35) | $ | (38) | $ | (38) | |||||||||||
Other information related to leases is as follows:
| Year Ended December 31, | |||||||||||
| (In millions) | 2022 | 2021 | |||||||||
| Cash flows used for operating leases | $ | 33 | $ | 37 | |||||||
| Right-of-use assets obtained in exchange for lease obligations | $ | 17 | $ | 6 | |||||||
Future minimum lease payments under non-cancellable leases are as follows:
| (In millions) | |||||
| 2023 | $ | 33 | |||
| 2024 | 29 | ||||
| 2025 | 25 | ||||
| 2026 | 22 | ||||
| 2027 | 12 | ||||
| 2027 and thereafter | 23 | ||||
| Total future minimum lease payments | 144 | ||||
| Less imputed interest | (16) | ||||
| Total lease liabilities | $ | 128 | |||
56
NOTE 12.9. Other Liabilities
Other current liabilities are summarized as follows:
| December 31, | ||||||||||||||||||
| December 31 | ||||||||||||||||||
| 2017 | 2016 | |||||||||||||||||
| (Dollars in Millions) | ||||||||||||||||||
| Product warranty and recall accruals | $ | 33 | $ | 43 | ||||||||||||||
| Restructuring reserves | 24 | 40 | ||||||||||||||||
| Rents and royalties | 24 | 23 | ||||||||||||||||
| (In millions) | (In millions) | 2022 | 2021 | |||||||||||||||
| Deferred income | 18 | 14 | Deferred income | $ | 55 | $ | 69 | |||||||||||
| Distribution payable | 14 | 15 | ||||||||||||||||
| Income taxes payable | 12 | 22 | ||||||||||||||||
| Joint venture payables | 12 | 22 | Joint venture payables | 39 | 20 | |||||||||||||
| Non-income taxes payable | 10 | 8 | Non-income taxes payable | 35 | 26 | |||||||||||||
| Dividends payable | 3 | 5 | ||||||||||||||||
| Foreign currency hedges | 1 | 7 | ||||||||||||||||
| Electronics operations repurchase commitment | — | 50 | ||||||||||||||||
| Contribution payable | — | 31 | ||||||||||||||||
| Product warranty and recall accruals | Product warranty and recall accruals | 31 | 30 | |||||||||||||||
| Income taxes payable | Income taxes payable | 22 | 8 | |||||||||||||||
| Royalty reserves | Royalty reserves | 14 | 12 | |||||||||||||||
| Restructuring reserves | Restructuring reserves | 6 | 16 | |||||||||||||||
| Other | 29 | 29 | Other | 44 | 37 | |||||||||||||
| $ | 180 | $ | 309 | $ | 246 | $ | 218 | |||||||||||
Other non-current liabilities are summarized as follows:
| December 31, | |||||||||||
| (In millions) | 2022 | 2021 | |||||||||
| Product warranty and recall accruals | $ | 20 | $ | 20 | |||||||
| Deferred income | 14 | 15 | |||||||||
| Income tax reserves | 7 | 8 | |||||||||
| Restructuring reserves | 5 | 2 | |||||||||
| Royalty agreements | 3 | 5 | |||||||||
| Derivative financial instruments | 2 | 13 | |||||||||
| Other | 13 | 12 | |||||||||
| $ | 64 | $ | 75 | ||||||||
| December 31 | |||||||
| 2017 | 2016 | ||||||
| (Dollars in Millions) | |||||||
| Foreign currency hedges | $ | 23 | $ | — | |||
| Deferred income | 16 | 18 | |||||
| Product warranty and recall accruals | 16 | 12 | |||||
| Income tax reserves | 12 | 14 | |||||
| Non-income tax reserves | 7 | 10 | |||||
| Other | 21 | 15 | |||||
| $ | 95 | $ | 69 | ||||
NOTE 13.10. Debt
The Company’s short and long-term debt consists of the following:
| Weighted Average Interest Rate | Carrying Value | ||||||||||||||||||||||
| (In millions) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Short-Term Debt: | |||||||||||||||||||||||
| Current portion of long-term debt | 5.16% | —% | $ | 13 | $ | — | |||||||||||||||||
| Short-term borrowings | —% | 8.1% | — | 4 | |||||||||||||||||||
| $ | 13 | $ | 4 | ||||||||||||||||||||
| Long-Term Debt: | |||||||||||||||||||||||
| Term facility, net | 5.16% | 1.9% | $ | 336 | $ | 349 | |||||||||||||||||
Weighted Average Interest Rate | Carrying Value | ||||||||||||
| Maturity | 2017 | 2016 | 2017 | 2016 | |||||||||
| (Dollars in Millions) | |||||||||||||
| Short-Term Debt: | |||||||||||||
| Current portion of long-term debt | 3.9% | 4.2% | $ | 2 | $ | 3 | |||||||
| Short-term borrowings | 3.9% | 2.6% | 44 | 33 | |||||||||
| $ | 46 | $ | 36 | ||||||||||
| Long-Term Debt: | |||||||||||||
| Term facility due March 24, 2024 | 2024 | 3.6% | 4.0% | $ | 347 | $ | 346 | ||||||
| $ | 347 | $ | 346 | ||||||||||
As of December 31, 2016,2021, the Company had an amendedCompany's credit agreement (the “Credit Agreement”("Credit Agreement") which includedincludes a $350 million Term Facility maturing April 9, 2021March 24, 2024 and a Revolving Credit Facility with capacity of $200$400 million maturing April 9, 2019. Borrowings under the Term Facility accrued interest at the greater of LIBOR or 0.75%, plus 2.75%, with an option by the Company to specify the LIBOR tenor of either 1, 2, 3, or 6 months. Loans drawn under the Revolving Credit Facility had an interest rate equal to LIBOR plus a margin ranging from 2.00% to 2.75% as specified by a ratings grid contained in the Credit Agreement. As of December 31, 2016, borrowings under the Revolving Credit Facility would accrue interest at LIBOR plus 2.50%. As of December 31, 2016, the Term Facility had $350 million of aggregate principal outstanding and there were no outstanding borrowings under the Revolving Credit Facility.
On March 24, 2017,July 19, 2022, the Company entered into a secondnew amendment to the Credit Agreement to, among other things, extend the maturity dates of both facilities by three years and increase the Revolving Credit Facility capacity to $300 million.facilities. The amended Revolving Credit Facility and the amended Term Facility will mature on March 24, 2022 and March 24, 2024, respectively.July 19, 2027. The amendment reducedchanged the LIBOR spread applicablemethod the Term Loan and Revolving Credit Facility accrue interest from a LIBOR-based rate to eacha Secured Overnight Financing Rate ("SOFR") based rate.
57
In connection with amending both the Term Facility and Revolving Credit Facility, the Company recorded $1 million of interest expense due to the write-off of deferred debt fees. The Company also deferred $2 million of costs as a non-current asset related the Revolving Credit Facility and the Term Facility by 0.50% and reduced the LIBOR floor$1 million of costs related to the Term Facility from 0.75%Loan recorded in Long-term debt, net. The deferred costs will be amortized over the term of the debt facilities.
Short-Term Debt
Terms of the amended credit facility require a quarterly principal payment equal to 0.00%.1.25% of the original term debt balance. The $350first required payment is due during the second quarter 2023.
Short-term borrowings at December 31, 2021 are related to subsidiary borrowings.
As of December 31, 2022, the Company has no other short-term borrowings, including at the Company's subsidiaries. The Company's subsidiaries have access to $192 million of capacity under short-term credit facilities.
Long-Term Debt
The Company has no outstanding borrowings underon the amended Term Facility accrued interest at a rate of LIBOR plus 2.25%. In conjunction with the refinancing, the Company received a credit rating upgrade from Standard & Poor's to BB from BB-. Pursuant to the ratings grid contained within the amended Revolving Credit Facility agreement, any borrowing thereunder shall accrue interest at LIBOR plus 1.75%.as of December 31, 2022 and 2021.
The Amendment did not modify any terms related to theCredit Agreement requires compliance with customary affirmative and negative covenants and contains customary events of default. The Revolving Credit Facility.
negative covenants are suspended.
The Revolving Credit Facility also provides $75 million availability for the issuance of letters of credit and a maximum of $20 million for swing line borrowing.borrowings. Any amount of the facility utilized for letters of credit or swing line loans outstanding will reduce the amount available under the amendedexisting Revolving Credit Facility. The Company may request increases in the limits under the amended Term Facility and the amended Revolving Credit FacilityAgreement and may request the addition of one or more term loan facilities under the Credit Agreement.facilities. Outstanding borrowings may be prepaid without penalty (other than borrowings made for the purpose of reducing the effective interest rate margin or weighted average yield of the loans). There are mandatory prepayments of principalprinciple in connection with: (i) excess cash flow sweeps above certain leverage thresholds, (ii) certain asset sales or other dispositions, (iii) certain refinancing of indebtedness and (iv) over-advances under the Revolving Credit Facility. There are no excess cash flow sweeps required at the Company’s current leverage level.
All obligations under the Credit Agreement and obligations inwith respect ofto certain cash management services and swap transaction agreements withbetween the lendersCompany and their affiliatesits lenders are unconditionally guaranteed by certain of the Company’s subsidiaries. Under the terms of the Credit Agreement, all obligations under the Credit Agreementany amounts outstanding are secured by a first-priority perfected lien (subject to certain exceptions) on substantially all property of the Company and the subsidiaries party to the security agreement, subject to certain limitations.
| (In millions) | |||||
| 2023 | $ | 13 | |||
| 2024 | 18 | ||||
| 2025 | 18 | ||||
| 2026 | 18 | ||||
| 2027 | 283 | ||||
Other
The Company has a $5 million of aggregate principal and there were no outstanding borrowings under the amended Revolving Credit Facility.
2021. Additionally, the Company had $17
58
$3 million and $10 million of locally issued bank guarantees and letters of credit as of December 31, 20172022 and 2016,2021, respectively, to support various tax appeals, customs arrangements and other obligations at its local affiliates, of which less than $1 million is secured by cash collateral for the years ended December 31, 2017 and 2016.affiliates.
NOTE 14.11. Employee Benefit Plans
Defined Benefit Plans
The Company sponsors pay related benefit plans for employees in the U.S., UK, Germany, Brazil, France, Mexico, Japan, India, and Canada. Employees in the U.S. and UK are no longer accruing benefits under the Company's defined benefit plans as these plans were frozen. The Company’s defined benefit plans are partially funded with the exception of certain supplemental benefit plans for executives and certain non-U.S. plans, primarily in Germany, which are unfunded.
The Company's expense for all defined benefit pension plans, is as follows:
| U.S. Plans | Non-U.S. Plans | ||||||||||||||||||||||||||||||||||
| Year Ended December 31, | Year Ended December 31, | ||||||||||||||||||||||||||||||||||
| (In millions, except percentages) | 2022 | 2021 | 2020 | 2022 | 2021 | 2020 | |||||||||||||||||||||||||||||
| Costs Recognized in Income: | |||||||||||||||||||||||||||||||||||
| Pension service cost: | |||||||||||||||||||||||||||||||||||
| Service cost | $ | — | $ | — | $ | — | $ | (1) | $ | (1) | $ | (2) | |||||||||||||||||||||||
| Pension financing benefit (cost): | |||||||||||||||||||||||||||||||||||
| Interest cost | (20) | (17) | (24) | (6) | (5) | (7) | |||||||||||||||||||||||||||||
| Expected return on plan assets | 39 | 37 | 40 | 9 | 8 | 8 | |||||||||||||||||||||||||||||
| Amortization of losses and other | (1) | (3) | (1) | (1) | (2) | (2) | |||||||||||||||||||||||||||||
| Settlements and curtailments | — | — | (5) | — | — | — | |||||||||||||||||||||||||||||
| Restructuring related pension cost: | |||||||||||||||||||||||||||||||||||
| Special termination benefits | — | — | (3) | — | (1) | (4) | |||||||||||||||||||||||||||||
| Net pension income (expense) | $ | 18 | $ | 17 | $ | 7 | $ | 1 | $ | (1) | $ | (7) | |||||||||||||||||||||||
| Weighted Average Assumptions: | |||||||||||||||||||||||||||||||||||
| Discount rate | 2.93 | % | 2.60 | % | 3.34 | % | 2.31 | % | 1.78 | % | 2.39 | % | |||||||||||||||||||||||
| Compensation increase | NA | N/A | N/A | 2.30 | % | 2.14 | % | 3.16 | % | ||||||||||||||||||||||||||
| Long-term return on assets | 6.23 | % | 6.15 | % | 6.60 | % | 3.70 | % | 3.30 | % | 3.98 | % | |||||||||||||||||||||||
| U.S. Plans | Non-U.S. Plans | ||||||||||||||||||||||
| Year Ended December 31 | Year Ended December 31 | ||||||||||||||||||||||
| 2017 | 2016 | 2015 | 2017 | 2016 | 2015 | ||||||||||||||||||
| (Dollars in Millions) | |||||||||||||||||||||||
| Costs Recognized in Income: | |||||||||||||||||||||||
| Service cost | $ | — | $ | — | $ | — | $ | 2 | $ | 3 | $ | 14 | |||||||||||
| Interest cost | 29 | 28 | 34 | 9 | 10 | 19 | |||||||||||||||||
| Expected return on plan assets | (41 | ) | (42 | ) | (42 | ) | (9 | ) | (10 | ) | (17 | ) | |||||||||||
| Amortization of losses and other | — | — | 1 | 2 | 1 | 8 | |||||||||||||||||
| Settlements and curtailments | — | — | — | (2 | ) | 1 | — | ||||||||||||||||
| Special termination benefits (a) | — | 6 | — | 2 | 1 | — | |||||||||||||||||
| Net pension (income) expense | $ | (12 | ) | $ | (8 | ) | $ | (7 | ) | $ | 4 | $ | 6 | $ | 24 | ||||||||
| Weighted Average Assumptions: | |||||||||||||||||||||||
| Discount rate | 4.12 | % | 4.37 | % | 4.00 | % | 3.51 | % | 4.60 | % | 3.17 | % | |||||||||||
| Compensation increase | N/A | N/A | N/A | 3.66 | % | 3.70 | % | 3.49 | % | ||||||||||||||
| Long-term return on assets | 6.73 | % | 7.00 | % | 7.00 | % | 5.24 | % | 4.87 | % | 4.87 | % | |||||||||||
(a) Primarily related to restructuring actions announced and recognized in during the fourth quarter of 2016 | |||||||||||||||||||||||
The Company's total accumulated benefit obligations for all defined benefit plans was $1,093$777 million and $1,047$1,121 million as of
December 31,20172022 and 2016,2021, respectively. The benefit plan obligations for employee retirement plans with accumulated benefit obligations in excess of plan assets were as follows:
December 31,
| Year Ended December 31, | |||||||||||
| (In millions) | 2022 | 2021 | |||||||||
| Accumulated benefit obligation | $ | 641 | $ | 892 | |||||||
| Projected benefit obligation | $ | 643 | $ | 895 | |||||||
| Fair value of plan assets | $ | 546 | $ | 711 | |||||||
| Year Ended December 31 | |||||||
| 2017 | 2016 | ||||||
| (Dollars in Millions) | |||||||
| Accumulated benefit obligation | $ | 892 | $ | 1,019 | |||
| Projected benefit obligation | 898 | 1,049 | |||||
| Fair value of plan assets | 661 | 764 | |||||
Assumptions used by the Company in determining its defined benefit pension obligations as of December 31, 20172022 and 20162021 are summarized in the following table:
| U.S. Plans | Non-U.S. Plans | |||||||||||
| Weighted Average Assumptions | 2017 | 2016 | 2017 | 2016 | ||||||||
| Discount rate | 3.65 | % | 4.12 | % | 3.28 | % | 4.39 | % | ||||
| Rate of increase in compensation | N/A | N/A | 3.62 | % | 3.70 | % | ||||||
| U.S. Plans | Non-U.S. Plans | |||||||||||||||||||||||||
| Year Ended December 31, | Year Ended December 31, | |||||||||||||||||||||||||
| Weighted Average Assumptions | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||
| Discount rate | 5.51 | % | 2.93 | % | 5.30 | % | 2.31 | % | ||||||||||||||||||
| Rate of increase in compensation | NA | N/A | 2.69 | % | 2.30 | % | ||||||||||||||||||||
59
The Company’s obligation for all defined benefit pension plans, is as follows:
| U.S. Plans | Non-U.S. Plans | ||||||||||||||||||||||
| Year Ended December 31, | Year Ended December 31, | ||||||||||||||||||||||
| (In millions) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Change in Benefit Obligation: | |||||||||||||||||||||||
| Benefit obligation — beginning | $ | 829 | $ | 891 | $ | 299 | $ | 322 | |||||||||||||||
| Service cost | — | — | 1 | 1 | |||||||||||||||||||
| Interest cost | 20 | 17 | 6 | 5 | |||||||||||||||||||
| Actuarial loss (gain) | (203) | (40) | (99) | (10) | |||||||||||||||||||
| Settlements | — | — | (1) | (4) | |||||||||||||||||||
| Special termination benefits | — | — | — | 1 | |||||||||||||||||||
| Foreign exchange translation | — | — | (23) | (9) | |||||||||||||||||||
| Benefits paid and other | (43) | (39) | (5) | (7) | |||||||||||||||||||
| Benefit obligation — ending | $ | 603 | $ | 829 | $ | 178 | $ | 299 | |||||||||||||||
| Change in Plan Assets: | |||||||||||||||||||||||
| Plan assets — beginning | $ | 693 | $ | 659 | $ | 258 | $ | 250 | |||||||||||||||
| Actual return on plan assets | (118) | 61 | (80) | 16 | |||||||||||||||||||
| Sponsor contributions | — | 12 | 7 | 8 | |||||||||||||||||||
| Settlements | — | — | (1) | (4) | |||||||||||||||||||
| Foreign exchange translation | — | — | (21) | (5) | |||||||||||||||||||
| Benefits paid and other | (43) | (39) | (6) | (7) | |||||||||||||||||||
| Plan assets — ending | $ | 532 | $ | 693 | $ | 157 | $ | 258 | |||||||||||||||
| Total funded status at end of period | $ | (71) | $ | (136) | $ | (21) | $ | (41) | |||||||||||||||
| Balance Sheet Classification: | |||||||||||||||||||||||
| Other non-current assets | — | $ | — | $ | 4 | $ | 7 | ||||||||||||||||
| Accrued employee liabilities | — | — | — | (1) | |||||||||||||||||||
| Employee benefits | (71) | (136) | (25) | (47) | |||||||||||||||||||
| Accumulated other comprehensive loss: | |||||||||||||||||||||||
| Actuarial loss | 14 | 59 | 17 | 32 | |||||||||||||||||||
| Tax effects/other | $ | — | — | (6) | (10) | ||||||||||||||||||
| $ | 14 | $ | 59 | $ | 11 | $ | 22 | ||||||||||||||||
| U.S. Plans | Non-U.S. Plans | ||||||||||||||
| Year Ended December 31 | Year Ended December 31 | ||||||||||||||
| 2017 | 2016 | 2017 | 2016 | ||||||||||||
| (Dollars in Millions) | |||||||||||||||
| Change in Benefit Obligation: | |||||||||||||||
| Benefit obligation — beginning | $ | 828 | $ | 803 | $ | 249 | $ | 231 | |||||||
| Service cost | — | — | 2 | 3 | |||||||||||
| Interest cost | 29 | 28 | 9 | 10 | |||||||||||
| Actuarial loss (gain) | 29 | 34 | 8 | 46 | |||||||||||
| Settlements and curtailments | — | — | (4 | ) | (5 | ) | |||||||||
| Special termination benefits | — | 6 | 2 | 1 | |||||||||||
| Foreign exchange translation | — | — | 26 | (27 | ) | ||||||||||
| Divestitures | — | — | (4 | ) | (4 | ) | |||||||||
| Benefits paid and other | (46 | ) | (43 | ) | (7 | ) | (6 | ) | |||||||
| Benefit obligation — ending | $ | 840 | $ | 828 | $ | 281 | $ | 249 | |||||||
| Change in Plan Assets: | |||||||||||||||
| Plan assets — beginning | $ | 608 | $ | 604 | $ | 190 | $ | 174 | |||||||
| Actual return on plan assets | 84 | 43 | 14 | 43 | |||||||||||
| Sponsor contributions | 1 | 4 | 8 | 8 | |||||||||||
| Settlements | — | — | (1 | ) | (4 | ) | |||||||||
| Foreign exchange translation | — | — | 16 | (21 | ) | ||||||||||
| Divestitures | — | — | — | (4 | ) | ||||||||||
| Benefits paid and other | (46 | ) | (43 | ) | (7 | ) | (6 | ) | |||||||
| Plan assets — ending | $ | 647 | $ | 608 | $ | 220 | $ | 190 | |||||||
| Total funded status at end of period | $ | (193 | ) | $ | (220 | ) | $ | (61 | ) | $ | (59 | ) | |||
| Balance Sheet Classification: | |||||||||||||||
| Other non-current assets | $ | — | $ | — | $ | 3 | $ | 6 | |||||||
| Accrued employee liabilities | — | — | (1 | ) | — | ||||||||||
| Employee benefits | (193 | ) | (220 | ) | (63 | ) | (67 | ) | |||||||
| Accumulated other comprehensive loss: | |||||||||||||||
| Actuarial loss | 40 | 54 | 33 | 31 | |||||||||||
| Tax effects/other | — | — | (10 | ) | (10 | ) | |||||||||
| $ | 40 | $ | 54 | $ | 23 | $ | 21 | ||||||||
Components of the net change in AOCI related to all defined benefit pension plans, exclusive of amounts attributable to non-controlling interests on the Company’s Consolidated Statements of Changes in Equity for the years ended December 31, 20172022 and 2016,2021, are as follows:
| U.S. Plans | Non-U.S. Plans | ||||||||||||||||||||||
| Year Ended December 31, | Year Ended December 31, | ||||||||||||||||||||||
| (In millions) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Actuarial (gain) loss | $ | (44) | $ | (65) | $ | (10) | $ | (18) | |||||||||||||||
| Deferred taxes | — | — | 4 | 4 | |||||||||||||||||||
| Currency/other | — | — | (3) | — | |||||||||||||||||||
| Reclassification to net income | (1) | (3) | (1) | (2) | |||||||||||||||||||
| Settlements | — | — | (1) | — | |||||||||||||||||||
| $ | (45) | $ | (68) | $ | (11) | $ | (16) | ||||||||||||||||
| U.S. Plans | Non-U.S. Plans | ||||||||||||||
| 2017 | 2016 | 2017 | 2016 | ||||||||||||
| (Dollars in Millions) | |||||||||||||||
| Actuarial (gain) loss | $ | (15 | ) | $ | 32 | $ | (6 | ) | $ | 15 | |||||
| Deferred taxes | — | — | — | (3 | ) | ||||||||||
| Currency/other | — | — | 6 | (4 | ) | ||||||||||
| Reclassification to net income | — | — | (2 | ) | (1 | ) | |||||||||
| Divestitures | — | — | 4 | — | |||||||||||
| $ | (15 | ) | $ | 32 | $ | 2 | $ | 7 | |||||||
Actuarial gainsloss for the year ended December 31, 2017 are2022 is primarily related to a decrease in discount rates partially offset by an increase in return on assets partially offset by a decrease in discount rates. Actuarial losses of $2 million for the non-U.S. retirement plans are expected to be amortized to income during 2018.assets. Actuarial gains and losses are amortized using the 10% corridor approach representing 10% times the greater of plan
assets and the projected benefit obligation. Generally, the expected return is determined using a market-related value of assets where gains (losses) are recognized in a systematic manner over five years. For less significant plans, fair value is used.
60
During 2020 the Company transferred a portion of the benefit obligation related to its defined benefit U.S. pension plan to a third-party issuer. The transaction met the criteria for settlement accounting, and accordingly, the Company recognized a $5 million pension settlement charge.
Benefit payments, which reflect expected future service, are expected to be paid by the Company plans as follows:
| (In millions) | U.S. Plans | Non-U.S. Plans | |||||||||
| 2023 | $ | 37 | $ | 7 | |||||||
| 2024 | 37 | 8 | |||||||||
| 2025 | 39 | 7 | |||||||||
| 2026 | 39 | 7 | |||||||||
| 2027 | 40 | 8 | |||||||||
| Years 2028 - 2032 | 219 | 50 | |||||||||
| U.S. Plans | Non-U.S. Plans | ||||||
| (Dollars in Millions) | |||||||
| 2018 | $ | 40 | $ | 5 | |||
| 2019 | 39 | 6 | |||||
| 2020 | 40 | 6 | |||||
| 2021 | 40 | 7 | |||||
| 2022 | 41 | 8 | |||||
| Years 2023 - 2027 | 212 | 52 | |||||
During the year ended December 31, 2017, cash contributions2022, the Company contributed $7 million to the Company's U.S. defined benefitits non-U.S. employee retirement pension plans. Contributions related to certain non-U.S. plans were $1of approximately $2 million and non-U.S. defined benefit pension plans were $8 million.have been deferred until 2024 due to COVID-19 relief measures. Additionally, the Company expects to make cash contributions to its U.S.non-US defined benefit pension plans of $1 million in 2018. Contributions to non-U.S. defined benefit pension plans are expected to be $7$5 million during 2018. The Company’s expected 2018 contributions may be revised.2023.
Substantially all of the Company’s defined benefit pension plan assets are managed by external investment managers and held in trust by third-party custodians. The selection and oversight of these external service providers is the responsibility of the investment committees of the Company and their advisers. The selection of specific securities is at the discretion of the investment manager and is subject to the provisions set forth by written investment management agreements and related policy guidelines regarding permissible investments, risk management practices, and the use of derivative securities. Derivative securities may be used by investment managers as efficient substitutes for traditional securities, to reduce portfolio risks, or to hedge identifiable economic exposures. The use of derivative securities to engage in unrelated speculation is expressly prohibited.
The primary objective of the pension funds is to pay the plans’ benefit and expense obligations when due. Given the relatively long time horizonlong-term nature of these plan obligations and their sensitivity to interest rates, the investment strategy is intended to improve the funded status of its U.S. and non-U.S. plans over time while maintaining a prudent level of risk. Risk is managed primarily by diversifying each plan’s target asset allocation across equity, fixed income securities, and alternative investment strategies, and then maintaining the allocation within a specified range of its target. In addition, diversification across various investment subcategories within each plan is also maintained within specified ranges.
The Company’s retirement plan asset allocation as of December 31, 20172022 and 20162021 and target allocation for 20182023 are as follows:
| Target Allocation | Percentage of Plan Assets | ||||||||||||||||||||||||||||||||||
| U.S. | Non-U.S. | U.S. | Non-U.S. | ||||||||||||||||||||||||||||||||
| 2023 | 2023 | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||||||
| Equity securities | 38 | % | 31 | % | 31 | % | 38 | % | 9 | % | 15 | % | |||||||||||||||||||||||
| Fixed income | 15 | % | 41 | % | 11 | % | 14 | % | 65 | % | 63 | % | |||||||||||||||||||||||
| Alternative strategies | 46 | % | 8 | % | 56 | % | 47 | % | 12 | % | 11 | % | |||||||||||||||||||||||
| Cash | 1 | % | 9 | % | 2 | % | 1 | % | 2 | % | 4 | % | |||||||||||||||||||||||
| Other | — | % | 11 | % | — | % | — | % | 12 | % | 7 | % | |||||||||||||||||||||||
| 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||||||||||||||||||
| Target Allocation | Percentage of Plan Assets | ||||||||||||||||
| U.S. | Non-U.S. | U.S. | Non-U.S. | ||||||||||||||
| 2018 | 2018 | 2017 | 2016 | 2017 | 2016 | ||||||||||||
| Equity securities | 38 | % | 32 | % | 41 | % | 38 | % | 35 | % | 25 | % | |||||
| Fixed income | 15 | % | 45 | % | 16 | % | 16 | % | 43 | % | 52 | % | |||||
| Alternative strategies | 46 | % | 14 | % | 42 | % | 45 | % | 12 | % | 10 | % | |||||
| Cash | 1 | % | 3 | % | 1 | % | 1 | % | 4 | % | 7 | % | |||||
| Other | — | % | 6 | % | — | % | — | % | 6 | % | 6 | % | |||||
| 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | ||||||
The expected long-term rate of return for defined benefit pension plan assets was selected based on various inputs, including returns projected by various external sources for the different asset classes held by and to be held by the Company’s trusts and its targeted asset allocation. These projections incorporate both historical returns and forward lookingforward-looking views regarding capital market returns, inflation, and other variables. Pension plan assets are valued at fair value using various inputs and valuation techniques. A description of the inputs and valuation techniques used to measure the fair value for each class of plan assets is included in Note 19 Fair16, "Fair Value Measurements."
61
Discount Rate for Estimated Service and Interest Cost: Through December 31, 2015,Cost
The Company uses the Company recognized service and interest cost components of pension expense using a single weighted average discountspot rate derived from the yield curve used to measure the benefit obligation at the beginning of the period. The single weighted average discount method represents the constant annual rate required to discount all future benefit payments related to past service from the date of expected future payment to the measurement date, such that the aggregate present value equals the obligation. The U.S. and certain non-U.S. frozen plans do not have a service component, as additional benefits are no longer accrued.
December 31, 2022.
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. Matching contributions for the U.S. defined contribution plan are 100% on the first 6% of pay contributed. Matching contributions were suspended from May 1, 2020 to September 30, 2020 as a part of the cost saving actions in response to the COVID-19 pandemic. The expense related to all matching contributionsdefined contribution plans was approximately $8$3 million in 2017,2022, $6 million in 2016,2021, and $10$5 million in 2015.2020.
NOTE 15.12. Stock-Based Compensation
•For equity settled stock-based compensation instruments, compensation cost is measured based on grant date fair value of the award and is recognized over the applicable service period. For equity settled stock-based compensation instruments, the delivery of Company shares may be on a gross settlement basis or on a net settlement basis, as determined by the recipient.basis. The Company's policy is to deliver such shares using treasury shares or issuing new shares.
•Cash settled stock-based compensation instruments are subject to liability accounting. At the end of each reporting period, the vested portion of the obligation for cash settled stock-based compensation instruments is adjusted to fair value based on the period-ending market prices of the Company's common stock. Related compensation expense is recognized based on changes to the fair value over the applicable service period.
Generally, the Company's stock-based compensation instruments are subject to graded vesting and recognized on an accelerated basis. The settlement intention of the awards is at the discretion of the Organization and Compensation Committee of the Company's Board of Directors. These stock-based compensation awards generally provide for accelerated vesting upon a change-in-control, which isas defined in the 20102020 Incentive Plan, andwhich requires a double-trigger. Accordingly, the Company may be required to accelerate
recognition of related expenses in future periods in connection with the change-in-control events and subsequent changes in employee responsibilities, if any.
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The total recognized and unrecognized stock-based compensation expense including discontinued operations, wasis as follows:
| Year Ended December 31, | Unrecognized Stock-Based Compensation Expense | |||||||||||||||||||||||||||||||||||||
| Year Ended December 31 | Unrecognized Stock-Based Compensation Expense | |||||||||||||||||||||||||||||||||||||
| 2017 | 2016 | 2015 | December 31, 2017 | |||||||||||||||||||||||||||||||||||
| (Dollars in Millions) | ||||||||||||||||||||||||||||||||||||||
| (In millions) | (In millions) | 2022 | 2021 | 2020 | December 31, 2022 | |||||||||||||||||||||||||||||||||
| Performance based share units | $ | 6 | $ | 4 | $ | 12 | $ | 8 | Performance based share units | $ | 7 | $ | 5 | $ | 6 | $ | 9 | |||||||||||||||||||||
| Restricted stock units | 11 | 6 | 4 | 8 | Restricted stock units | 20 | 12 | 10 | 20 | |||||||||||||||||||||||||||||
| Stock options | 2 | 2 | 1 | 1 | Stock options | — | 1 | 2 | — | |||||||||||||||||||||||||||||
| Total stock-based compensation expense | $ | 19 | $ | 12 | $ | 17 | $ | 17 | Total stock-based compensation expense | $ | 27 | $ | 18 | $ | 18 | $ | 29 | |||||||||||||||||||||
Performance Based Share Units
The number of PSUs that will vest, ranging from 0% to 200% of the target award, is based on the Company's achievement of a pre-established relative total shareholder return goal compared to its peer group of automotive companies over a three year period, which may range from 0% to 150% of the target award.three-year period.
| A summary of PSU activity is provided below: | PSUs | Weighted Average Grant Date Fair Value | |||||||||
| (In thousands) | |||||||||||
| Non-vested as of December 31, 2019 | 170 | $ | 118.77 | ||||||||
| Granted | 94 | 84.20 | |||||||||
| Vested | (66) | 116.35 | |||||||||
| Forfeited | (18) | 100.51 | |||||||||
| Non-vested as of December 31, 2020 | 180 | 106.48 | |||||||||
| Granted | 55 | 148.71 | |||||||||
| Vested | (52) | 131.48 | |||||||||
| Forfeited | (15) | 112.01 | |||||||||
| Non-vested as of December 31, 2021 | 168 | 112.24 | |||||||||
| Granted | 98 | 164.24 | |||||||||
| Vested | (86) | 115.70 | |||||||||
| Forfeited | (8) | 141.76 | |||||||||
| Non-vested as of December 31, 2022 | 172 | $ | 128.28 | ||||||||
| PSUs | Weighted Average Grant Date Fair Value | |||||
| (In Thousands) | ||||||
| Non-vested as of December 31, 2014 | 994 | $ | 35.25 | |||
| Granted | 44 | 104.81 | ||||
| Vested | (255 | ) | 36.57 | |||
| Forfeited | (121 | ) | 43.21 | |||
| Non-vested as of December 31, 2015 | 662 | 37.92 | ||||
| Granted | 82 | 89.79 | ||||
| Vested | (324 | ) | 32.58 | |||
| Forfeited | (6 | ) | 68.70 | |||
| Non-vested as of December 31, 2016 | 414 | 51.94 | ||||
| Granted | 78 | 110.66 | ||||
| Vested | (16 | ) | 90.45 | |||
| Forfeited | (15 | ) | 103.72 | |||
| Non-vested as of December 31, 2017 | 461 | $ | 58.76 | |||
The grant date fair value for PSUs was determined using the Monte Carlo valuation model. Unrecognized compensation expense as of December 31, 20172022 for PSUs to be settled in shares of the Company's common stock was $8$9 million for the non-vested
The Monte Carlo valuation model requires management to make various assumptions including the expected volatility, risk freerisk-free interest rate, and dividend yield. Prior to 2017, expected volatility was based on a rolling average of the daily stock closing prices of a peer group of companies with a period equal to the expected life of the award. The peer group of companies was used due to the relatively short history of the Company's common stock since its emergence from bankruptcy and due to the significant Company transformation between 2012 and 2016. Beginning in 2017, the Company elected to utilize the Company's own volatilityVolatility is based on the Company’s stock history using daily stock prices over a period commensurate with the expected life. The Company now has enough history as a pure play electronics automotive supplier to use its own volatility when applyinglife of the Monte Carlo Method.award. The risk-free rate was based on the U.S. Treasury yield curve in relation to the contractual life of the stock-based compensation instrument. The dividend yield was based on historical patterns and future expectations for Company dividends.
Weighted average assumptions used to estimate the fair value of PSUs granted during the years ended as of December 31, 20172022 and 20162021 are as follows:
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| Year Ended December 31 | Year Ended December 31, | |||||||||||||||
| 2017 | 2016 | 2022 | 2021 | |||||||||||||
| Expected volatility | 23.8 | % | 33.9 | % | Expected volatility | 52.12 | % | 54.17 | % | |||||||
| Risk-free rate | 1.59 | % | 0.83 | % | Risk-free rate | 1.46 | % | 0.31 | % | |||||||
| Expected dividend yield | — | % | — | % | Expected dividend yield | — | % | — | % | |||||||
Restricted Stock Units
The grant date fair value of RSUs is measured as the average of the high and low market closing price of the Company's common stock as traded on the public stock exchange on the date of grant. These awards generally vest in one-third increments on the grant date anniversary over a three yearthree-year vesting period.
| Share Settled RSUs for the Year Ended December 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Granted | 276,000 | 110,000 | 223,000 | ||||||||||||||
| Weighted average grant date fair value | $114.17 | $116.71 | $75.52 | ||||||||||||||
Unrecognized compensation expense as of December 31, 20172022 was $8$18 million for non-vested RSUs and will be recognized over the remaining vesting period of approximately 1.91.6 years.
| Cash Settled RSUs for the Year Ended December 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Granted | 17,000 | 6,000 | 8,000 | ||||||||||||||
| Weighted average grant date fair value | $130.47 | $112.52 | $76.27 | ||||||||||||||
The Company made cash settlement payments of less than $1 million less than $1 million and $7 million duringduring the years ended December 31, 2017, 20162022, 2021, and 2015, respectively.2020. Unrecognized compensation expense as of December 31, 20172022 was less than $1$2 million for non-vested RSUs and will be recognized on a weighted average basis over the remaining vesting period of approximately 1.51.8 years.
A summary of employeeRSU activity for RSUs is provided below:
| RSUs | Weighted Average Grant Date Fair Value | ||||||||||
| (In thousands) | |||||||||||
| Non-vested as of December 31, 2019 | 216 | $ | 90.98 | ||||||||
| Granted | 231 | 77.57 | |||||||||
| Vested | (84) | 95.70 | |||||||||
| Forfeited | (46) | 77.47 | |||||||||
| Non-vested as of December 31, 2020 | 317 | 82.31 | |||||||||
| Granted | 117 | 124.34 | |||||||||
| Vested | (106) | 84.80 | |||||||||
| Forfeited | (43) | 88.64 | |||||||||
| Non-vested as of December 31, 2021 | 285 | 97.68 | |||||||||
| Granted | 293 | 115.13 | |||||||||
| Vested | (171) | 91.48 | |||||||||
| Forfeited | (52) | 107.10 | |||||||||
| Non-vested as of December 31, 2022 | 355 | $ | 113.41 | ||||||||
| RSUs | Weighted Average Grant Date Fair Value | |||||
| Non-vested as of December 31, 2014 | 91 | $ | 54.64 | |||
| Granted | 55 | 103.66 | ||||
| Vested | (50 | ) | 54.47 | |||
| Forfeited | (10 | ) | 71.33 | |||
| Non-vested as of December 31, 2015 | 86 | 84.26 | ||||
| Granted | 112 | 81.05 | ||||
| Vested | (17 | ) | 90.45 | |||
| Forfeited | (11 | ) | 79.11 | |||
| Non-vested as of December 31, 2016 | 170 | 83.30 | ||||
| Granted | 99 | 94.73 | ||||
| Vested | (29 | ) | 83.46 | |||
| Forfeited | (10 | ) | 83.66 | |||
| Non-vested as of December 31, 2017 | 230 | $ | 87.09 | |||
Beginning in the third quarter 2020, non-employee director RSU awards were granted under the terms and conditions of the 2020 Incentive Plan, and these awards vest approximately one year from the date of grant. Activity related to non-employee director grants under the 2020 Incentive Plan is included in RSU table above.
Additionally, as of December 31, 2017,2022, the Company has 45,000approximately 79,000 outstanding RSUsRSU's awarded at a weighted average grant date fair value of $87.97$98.47 under the Non-Employee Director Stock Unit Plan which vestvested immediately but are not cash settled until the participant terminates board service. Total RSU's outstanding as of December 31, 2022 is approximately 434,000 inclusive of the table above.
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Stock Options and Stock Appreciation Rights
Stock Options and SARs are recorded with an exercise price equal to the average of the high and low market price at whichof the Company's common stock was traded on the public stock exchange on the date of grant. The grant date fair value of these awards is measured using the Black-Scholes option pricing model. Stock Options and SARs generally vest in one-third increments on the grant date anniversary over a three yearthree-year vesting period and have an expiration date 7 or 10 years from the date of grant.
The Company received payments of $2 million, less than $1$2 million, and $6$2 million related to the exercise of stock optionsStock Options with total intrinsic value of options exercised of $3 million, $1 million, and less than $1 million and $3 million during the years ended December 31, 2017, 20162022, 2021, and 2015,2020, respectively. UnrecognizedUnrecognized compensation expense for non-vested Stock Options and SARs as of December 31, 20172022 was approximately $1 million and less than $1 million respectively, and areis expected to be recognized over a weighted average period of 1.5 years and 1.4 years, respectively.in full by Q1 2023.
The Black-Scholes option pricing model requires management to make various assumptions including the expected term, risk-free interest rate, dividend yield, and expected volatility. The expected term represents the period of time that granted awards are expected to be outstanding and is estimated based on considerations including the vesting period, contractual term, and anticipated employee exercise patterns. The risk-free rate is based on the U.S. Treasury yield curve in relation to the contractual life of the stock-based compensation instrument. The dividend yield is based on historical patterns and future expectations for Company dividends.
No stock options or SARs were granted in 2022 or 2021. Weighted average assumptions used to estimate the fair value of awards granted during the yearsyear ended December 31, 2017, 2016 and 20152020 are as follows:
| 2020 | |||||
| Expected term (in years) | 5 | ||||
| Expected volatility | 35.23 | % | |||
| Risk-free interest rate | 0.75 | % | |||
| Expected dividend yield | — | % | |||
| Stock Options | SARs | ||||||||||||||||
| 2017 | 2016 | 2015 | 2017 | 2016 | 2015 | ||||||||||||
| Expected term (in years) | 5.00 | 5.00 | 5.00 | 5.00 | 4.50 | 4.41 | |||||||||||
| Expected volatility | 27.31 | % | 36.84 | % | 38.19 | % | 27.31 | % | 34.65 | % | 37.19 | % | |||||
| Risk-free interest rate | 2.03 | % | 1.37 | % | 1.60 | % | 2.03 | % | 1.83 | % | 1.63 | % | |||||
| Expected dividend yield | — | % | — | % | — | % | — | % | — | % | — | % | |||||
A summary of employee activity for Stock Options and SARsSAR activity is provided below:
| Stock Options | Weighted Average Exercise Price | SARs | Weighted Average Exercise Price | |||||||||||||||||||||||||||||||||
| Stock Options | Weighted Average Exercise Price | SARs | Weighted Average Exercise Price | (In thousands) | (In thousands) | |||||||||||||||||||||||||||||||
| (In Thousands) | (In Thousands) | |||||||||||||||||||||||||||||||||||
| December 31, 2014 | 74 | $ | 71.22 | 46 | $ | 70.46 | ||||||||||||||||||||||||||||||
| December 31, 2019 | December 31, 2019 | 283 | $ | 93.51 | 7 | $ | 72.84 | |||||||||||||||||||||||||||||
| Granted | 54 | 60.60 | 9 | 59.59 | Granted | 112 | 66.98 | — | — | |||||||||||||||||||||||||||
| Exercised | (71 | ) | 71.12 | (38 | ) | 69.81 | Exercised | (27) | 84.98 | (1) | 56.59 | |||||||||||||||||||||||||
| Forfeited or expired | (9 | ) | 101.58 | (2 | ) | 98.46 | Forfeited or expired | (20) | 96.12 | — | — | |||||||||||||||||||||||||
| December 31, 2015 | 48 | 59.41 | 15 | 44.36 | ||||||||||||||||||||||||||||||||
| Granted | 96 | 73.02 | 2 | 78.24 | ||||||||||||||||||||||||||||||||
| December 31, 2020 | December 31, 2020 | 348 | 85.46 | 6 | 74.77 | |||||||||||||||||||||||||||||||
| Exercised | (6 | ) | 57.46 | (3 | ) | 31.28 | Exercised | (19) | 80.74 | (6) | 74.77 | |||||||||||||||||||||||||
| Forfeited or expired | (23 | ) | 72.01 | (1 | ) | 59.59 | Forfeited or expired | (17) | 89.17 | — | — | |||||||||||||||||||||||||
| December 31, 2016 | 115 | 68.37 | 13 | 51.10 | ||||||||||||||||||||||||||||||||
| Granted | 84 | 94.77 | 2 | 94.77 | ||||||||||||||||||||||||||||||||
| December 31, 2021 | December 31, 2021 | 312 | 85.56 | — | — | |||||||||||||||||||||||||||||||
| Exercised | (26 | ) | 65.79 | (7 | ) | 44.33 | Exercised | (51) | 75.05 | — | — | |||||||||||||||||||||||||
| Forfeited or expired | (7 | ) | 77.36 | — | 59.59 | |||||||||||||||||||||||||||||||
| December 31, 2017 | 166 | $ | 81.72 | 8 | $ | 69.21 | ||||||||||||||||||||||||||||||
| December 31, 2022 | December 31, 2022 | 261 | $ | 87.62 | — | $ | — | |||||||||||||||||||||||||||||
| Exercisable at December 31, 2017 | 25 | $ | 66.12 | 3 | $ | 49.19 | ||||||||||||||||||||||||||||||
| Exercisable at December 31, 2022 | Exercisable at December 31, 2022 | 227 | $ | 90.70 | — | $ | — | |||||||||||||||||||||||||||||
65
| Stock Options and SARs Outstanding | |||||||||
| Exercise Price | Number Outstanding | Weighted Average Remaining Life | Weighted Average Exercise Price | ||||||
| (In Thousands) | (In Years) | ||||||||
| $10.00 - $60.00 | 14 | 4.1 | $ | 53.12 | |||||
| $60.01 - $80.00 | 76 | 5.2 | $ | 71.48 | |||||
| $80.01 - $100.00 | 84 | 6.3 | $ | 94.77 | |||||
| 174 | |||||||||
| Stock Options | ||||||||||||||||||||
| Exercise Price | Number Outstanding | Weighted Average Remaining Life | Weighted Average Exercise Price | |||||||||||||||||
| (In thousands) | (In years) | |||||||||||||||||||
| $60.01 - $80.00 | 93 | 4.3 | $ | 66.98 | ||||||||||||||||
| $80.01 - $100.00 | 113 | 2.4 | $ | 86.76 | ||||||||||||||||
| $100.01 - $130.00 | 55 | 2.3 | $ | 124.35 | ||||||||||||||||
| 261 | ||||||||||||||||||||
NOTE 16.13. Income Taxes
Income Tax Provision
Details of the Company's income tax provision from continuing operations are provided in the table below:
| Year Ended December 31, | |||||||||||||||||
| (In millions) | 2022 | 2021 | 2020 | ||||||||||||||
Income (Loss) Before Income Taxes: (a) | |||||||||||||||||
| U.S | $ | 50 | $ | (26) | $ | (65) | |||||||||||
| Non-U.S | 126 | 101 | 39 | ||||||||||||||
| Total income (loss) before income taxes | $ | 176 | $ | 75 | $ | (26) | |||||||||||
| Current Tax Provision: | |||||||||||||||||
| Non-U.S | $ | 45 | 31 | $ | 21 | ||||||||||||
| U.S. state and local | 1 | — | — | ||||||||||||||
| Total current tax provision | 46 | 31 | 21 | ||||||||||||||
| Deferred Tax Provision (Benefit): | |||||||||||||||||
| Non-U.S | (1) | — | 7 | ||||||||||||||
| Total deferred tax provision (benefit) | (1) | — | 7 | ||||||||||||||
| Provision for income taxes | $ | 45 | $ | 31 | $ | 28 | |||||||||||
(a) Income (loss) before income taxes excludes equity in net income from non-consolidated affiliates. | |||||||||||||||||
| Year Ended December 31 | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| (Dollars in Millions) | |||||||||||
Income (Loss) Before Income Taxes: (a) | |||||||||||
| U.S | $ | 84 | $ | 41 | $ | (69 | ) | ||||
| Non-U.S | 132 | 118 | 131 | ||||||||
| Total income before income taxes | $ | 216 | $ | 159 | $ | 62 | |||||
| Current Tax Provision: | |||||||||||
| U.S. federal | $ | — | $ | (11 | ) | $ | (18 | ) | |||
| Non-U.S | 42 | 54 | 71 | ||||||||
| U.S. state and local | — | — | — | ||||||||
| Total current tax provision | 42 | 43 | 53 | ||||||||
| Deferred Tax Provision (Benefit): | |||||||||||
| U.S. federal | — | — | — | ||||||||
| Non-U.S | 6 | (13 | ) | (26 | ) | ||||||
| Total deferred tax provision (benefit) | 6 | (13 | ) | (26 | ) | ||||||
| Provision for income taxes | $ | 48 | $ | 30 | $ | 27 | |||||
(a) Income (loss) before income taxes excludes equity in net income of non-consolidated affiliates. | |||||||||||
A summary of the differences between the provision for income taxes calculated at the U.S. statutory tax rate of 35%21% and the consolidated income tax provision from continuing operations is shown below:
| Year Ended December 31, | |||||||||||||||||
| (In millions) | 2022 | 2021 | 2020 | ||||||||||||||
| Tax provision (benefit) at U.S. statutory rate of 21% | $ | 37 | $ | 16 | $ | (5) | |||||||||||
| Impact of foreign operations | 63 | 18 | (15) | ||||||||||||||
| Non-U.S withholding taxes | 9 | 8 | 5 | ||||||||||||||
| Tax holidays in foreign operations | (5) | (5) | (4) | ||||||||||||||
| State and local income taxes | (2) | — | — | ||||||||||||||
| Tax reserve adjustments | 3 | 2 | 1 | ||||||||||||||
| Change in valuation allowance | (61) | (10) | 46 | ||||||||||||||
| Impact of tax law change | — | 1 | — | ||||||||||||||
| Research credits | (1) | (1) | (1) | ||||||||||||||
| Other | 2 | 2 | 1 | ||||||||||||||
| Provision for income taxes | $ | 45 | $ | 31 | $ | 28 | |||||||||||
66
The Company’s provision for income taxes is shown below:
| Year Ended December 31 | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| (Dollars in Millions) | |||||||||||
| Tax provision (benefit) at U.S. statutory rate of 35% | $ | 76 | $ | 56 | $ | 22 | |||||
| Impact of foreign operations | (5 | ) | (26 | ) | 33 | ||||||
| Non-U.S withholding taxes | 15 | 13 | 9 | ||||||||
| Tax holidays in foreign operations | (7 | ) | (7 | ) | (10 | ) | |||||
| State and local income taxes | (1 | ) | (1 | ) | 1 | ||||||
| Tax reserve adjustments | (14 | ) | 5 | (9 | ) | ||||||
| Change in valuation allowance | (270 | ) | 25 | (53 | ) | ||||||
| Impact of U.S. tax reform | 250 | — | — | ||||||||
| Impact of tax law change | 5 | 26 | 2 | ||||||||
| Worthless stock deduction | — | (58 | ) | — | |||||||
| Research credits | (1 | ) | (3 | ) | — | ||||||
| Germany interiors divestiture | — | — | 48 | ||||||||
| Tax benefits allocated to loss from continuing operations | — | — | (18 | ) | |||||||
| Other | — | — | 2 | ||||||||
| Provision for income taxes | $ | 48 | $ | 30 | $ | 27 | |||||
Items impacting the Company’s existing deferred tax liability (net of foreign tax credits) associated with repatriation of unremitted foreign earnings. The Company continues to gather information related to estimates surrounding the remeasurement of deferred taxes and information related to unremitted earnings from foreign affiliates to more precisely analyze and compute the remeasurement of deferred taxes and the impact of the transition tax under the Act. Any subsequent adjustment to these amounts is not expected to have a significant impact to income tax expense due to the U.S. valuation allowance.
Items impacting the Company’s 2020 effective tax rate include tax benefits related to the repatriationforeign operations of earnings, and $31$15 million represents foreignwhich reflects $10 million income tax credit adjustments primarilybenefit related to electing to deduct expiring credits. Theforeign tax credits previously derecognized; and $5 million income tax benefit to reflect reduction in outside basis deferred tax liabilities and foreign tax credits associated with income from foreign subsidiaries treated as branches for U.S. income tax consequences of repatriation of earnings and foreign tax credit adjustment items approximate $58 million andpurposes. These amounts were entirely offset by the U.S. valuation allowance. Tax reserve adjustments of $9a corresponding $15 million primarily related to favorable audit developmentsincome tax expense associated with an increase in Asia during the first quarter of 2015, and statue expirations in Europe during the fourth quarter of 2015. The unfavorable $48 million variance related to the German interiors divestiture primarily reflects the inability to recognize the loss for German tax purposes, partially offset by a loss recognized for U.S. tax purposes and other adjustments which were fully offset by the U.S. valuation allowance.
Deferred Income Taxes and Valuation Allowances
The Company recorded deferred tax liabilities, net of valuation allowances, for U.S. and non-U.S. income taxes and non-U.S. withholding taxes of approximately $19 million and $16$24 million as of both December 31, 20172022 and 2016, respectively;2021, on the undistributed earnings of certain consolidated and unconsolidated foreign affiliates as such earnings are intended to be repatriated in the foreseeable future. The amount the Company expects to repatriate is based upon a variety of factors including current year earnings of the foreign affiliates, foreign investment needs, and the cash flow needs the Company has in the U.S. and this practice has not changed following incurring the transition tax under the Act.Tax Cuts and Jobs Act of 2017 (the “Act”). The Company has not provided for deferred income taxes or foreign withholding taxes on the remainder of undistributed earnings from consolidated foreign affiliates because such earnings are considered to be permanently reinvested. It is not practicable to determine the amount of deferred tax liability on such earnings as the actual tax liability, if any, is dependent on circumstances existing when remittance occurs.
The needCompany evaluates its deferred income taxes quarterly to maintaindetermine if valuation allowances are required or should be adjusted. This assessment considers, among other matters, the nature, frequency, and amount of recent losses, the duration of statutory carryforward periods, and tax planning strategies.In making such judgments, significant weight is given to evidence that can be objectively verified. If (i) recent improvements to financial results continue in the U.S., or (ii) recovery of the global economy after the COVID-19 pandemic including the related lockdowns in China, the geopolitical situation in Eastern Europe, and the ongoing semiconductor shortages, occurs faster than expected, the Company believes it is possible that sufficient positive evidence may be available to release all, or a portion, of its U.S. valuation allowance in the next six to 18 months. Release of all, or a portion, of the valuation allowance would result in the recognition of certain deferred tax assets and a decrease to income tax expense for the period the release is recorded.
During the fourth quarter of 2022, the Company determined that future taxable income at two foreign subsidiaries was not likely to be sufficient to realize net deferred tax assets due primarily to recent operating losses. Consequently, the Company recorded $9 million income tax expense related to establishing valuation allowances against deferred tax assets induring the U.S.fourth quarter of 2022.
In September 2020, the Company approved a restructuring program impacting engineering and other affected countries will cause variability inadministrative functions globally, including German operations. The September action, combined with earlier 2020 actions, necessitated a reassessment of the Company’s quarterly and annual effective tax rates. Full valuation allowances againstfuture utilization of deferred tax assets in Germany resulting in recording a $4 million discrete income tax expense adjustment during the U.S. and applicable foreign countries will be maintained until sufficient positive evidence existsthird quarter of 2020 to reduce or eliminate them. The factors considered by managementincrease the valuation allowance. During the fourth quarter of 2020, the Company completed an analysis related to its Brazil affiliate, Visteon Amazonas (“Amazonas”), resulting in its determinationthe permanent exclusion of certain incentive income from taxable profits. Consequently, the probabilityCompany concluded the generation of the realization of the deferred tax assets include, but are not limited to, recent historical financial results, historical future
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taxable income projected future taxable income,is no longer sufficient to realize the expected timing of the reversals of existing temporary differences and tax planning strategies. If, based upon the weight of available evidence, it is more likely than not the deferred tax assets will not be realized, a valuation allowance is recorded. The weight given to the positive and negative evidence is commensurate with the extent to which the evidence may be objectively verified. As such, it is generally difficult for positive evidence regarding projected future taxable income exclusive of reversing taxable temporary differences to outweigh objective negative evidence of recent financial reporting losses, in particular, when there is a cumulative loss incurred over a three-year period. In regards to the full valuation allowance recorded against the U.S.Company’s net deferred tax assets the cumulative U.S. pretax book loss adjusted for significant permanent items incurred over the three-year period ended December 31, 2017 limits the ability to consider other subjective evidence such as the Company’s plans to improve U.S. profits, and as such, the Company continues to maintainat Amazonas resulting in recording a full$3 million valuation allowance againstduring the U.S. net deferred tax assets. Based on the Company’s current assessment, it is possible that within the next 12 to 24 months, the existing valuation allowance against the U.S. net deferred tax assets could be partially released. Any such release is dependent upon the sustained improvement in U.S. operating results, and, if such a releasefourth quarter of the valuation allowance were to occur, it could have a significant impact on net income in the quarter in which it is deemed appropriate to partially release the reserve.2020.
The components of deferred income tax assets and liabilities are as follows:
| December 31, | |||||||||||
| (In millions) | 2022 | 2021 | |||||||||
| Deferred Tax Assets: | |||||||||||
| Net operating losses and credit carryforwards | $ | 1,030 | $ | 1,163 | |||||||
| Employee benefit plans | 28 | 46 | |||||||||
| Lease liability | 42 | 47 | |||||||||
| Fixed assets and intangibles | 19 | 17 | |||||||||
| Warranty | 10 | 11 | |||||||||
| Inventory | 13 | 9 | |||||||||
| Restructuring | 5 | 6 | |||||||||
| Capitalized expenditures | 58 | 5 | |||||||||
| Deferred income | 11 | 13 | |||||||||
| Other | 49 | 55 | |||||||||
| Gross deferred tax assets | 1,265 | 1,372 | |||||||||
| Valuation allowance | (1,120) | (1,207) | |||||||||
| Total deferred tax assets | $ | 145 | $ | 165 | |||||||
| Deferred Tax Liabilities: | |||||||||||
| Outside basis investment differences, including withholding tax | $ | 61 | $ | 63 | |||||||
| Right-of-use assets | 41 | 46 | |||||||||
| Fixed assets and intangibles | 11 | 14 | |||||||||
| All other | 17 | 22 | |||||||||
| Total deferred tax liabilities | 130 | 145 | |||||||||
| Net deferred tax assets | $ | 15 | $ | 20 | |||||||
| Consolidated Balance Sheet Classification: | |||||||||||
| Other non-current assets | $ | 42 | $ | 47 | |||||||
| Deferred tax liabilities non-current | 27 | 27 | |||||||||
| Net deferred tax assets | $ | 15 | $ | 20 | |||||||
| December 31 | |||||||
| 2017 | 2016 | ||||||
| (Dollars in Millions) | |||||||
| Deferred Tax Assets: | |||||||
| Employee benefit plans | $ | 74 | $ | 119 | |||
| Capitalized expenditures for tax reporting | 3 | 15 | |||||
| Net operating losses and credit carryforwards | 1,178 | 1,495 | |||||
Fixed assets and intangibles | 10 | 15 | |||||
| Restructuring | 7 | 26 | |||||
| Deferred income | 9 | 10 | |||||
| Warranty | 13 | 16 | |||||
| Other | 46 | 65 | |||||
| Valuation allowance | (1,242 | ) | (1,532 | ) | |||
| Total deferred tax assets | $ | 98 | $ | 229 | |||
| Deferred Tax Liabilities: | |||||||
| Fixed assets and intangibles | $ | 15 | $ | 21 | |||
| Outside basis investment differences, including withholding tax | 54 | 174 | |||||
| All other | 6 | 6 | |||||
| Total deferred tax liabilities | $ | 75 | $ | 201 | |||
| Net deferred tax assets (liabilities) | $ | 23 | $ | 28 | |||
| Consolidated Balance Sheet Classification: | |||||||
| Other non-current assets | 46 | 48 | |||||
| Deferred tax liabilities non-current | 23 | 20 | |||||
| Net deferred tax assets (liabilities) | $ | 23 | $ | 28 | |||
At December 31, 2017,2022, the Company had available non-U.S. net operating loss carryforwards and capital loss carryforwards of $1.5$1.3 billion and $5$16 million, respectively, which have remaining carryforward periods ranging from 5 yearshaving no carryforwards to indefinite.indefinite carryforwards. The Company had available U.S. federal net operating loss carryforwards of $1.5$1.4 billion at December 31, 2017,2022, which will expire at various dates between 2028 and 2030.have remaining carryforward periods ranging from 7 years to indefinite. U.S. foreign tax credit carryforwards are $393$331 million at December 31, 2017. These credits will begin2022, which have remaining carryforward periods ranging from 1 to expire in 2020.7 years. U.S. research tax credit carryforwards are $14$23 million at December 31, 2017.2022. These credits will begin to expire in 2030. The Company had available tax-effected U.S. state operating loss carryforwards of $33$30 million at December 31, 2017,2022, which will expire at various dates between 20182023 and 2037.2042.
In connection with the Company's emergence from bankruptcy and resulting change in ownership on the Effective Date, an annual limitation was imposed on the utilization of U.S. net operating losses, U.S. credit carryforwards and certain U.S. built-in losses (collectively referred to as “tax attributes”) under Internal Revenue Code (“IRC”) Sections 382 and 383. The collective limitation is approximately $120$121 million per year on tax attributes in existence at the date of change in ownership. Additionally, the Company has approximately $393$331 million of U.S. foreign tax credits and approximately $49 million of U.S. federal net operating loss carryforwards that are not subject to any current limitation since they were realized after the Effective Date.
Unrecognized Tax Benefits, Inclusive of Discontinued Operations
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
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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. Accounting estimates associated with uncertain tax positions require the Company to make judgments regarding the sustainability of each uncertain tax position based on its technical merits. If the Company determines it is more likely than not a tax position will be sustained based on its technical merits, the Company records the largest
amount that is greater than 50% likely of being realized upon ultimate settlement. These estimates are updated at each reporting date based on the facts, circumstances and information available. Due to the complexity of these uncertainties, the ultimate resolution may result in a payment that is materially different from the Company's current estimate of the liabilities recorded.
Gross unrecognized tax benefits at December 31, 20172022 and 20162021 were $18 million and $35$16 million, respectively. Of these amounts, approximately $9$10 million and $12$9 million respectively, 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. The Company records interest and penalties related to uncertain tax positions as a component of income tax expense and related amounts accrued at December 31, 20172022 and 20162021 were $3 million and $4 million, respectively.
With few exceptions, the Company is no longer subject to U.S. federal tax examinations for years before 2014, or state, local or non-U.S. income tax examinations for years before 2003, although U.S. net operating losses and other tax attributes carried forward into open tax years technically remain open to adjustment. During the second quarter of 2017, the IRS contacted the Company to begin the examination process of the Company’s U.S. tax returns for 2014 and 2015. Although it is not possible to predict the timing of the resolution of all other ongoing tax audits with accuracy, it is reasonably possible that certain tax proceedings in the U.S., Europe, Asia and Mexico could conclude within the next twelve months and result in a significant increase or decrease 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. The long-term portion of uncertain income tax positions (including interest) in the amount of $12$7 million is included in Other non-current liabilities on the consolidated balance sheet.sheet, while $5 million is reflected as a reduction of deferred tax assets included in Other non-current assets.Outstanding income tax refund claims related primarily to India and Brazil jurisdictions, total $6 million as of December 31, 2022, and are included in other non-current assets on the balance sheets.
A reconciliation of the beginning and ending amount of unrecognized tax benefits including amounts attributable to discontinued operations is as follows:
| Year Ended December 31, | |||||||||||
| (In millions) | 2022 | 2021 | |||||||||
| Beginning balance | $ | 16 | $ | 14 | |||||||
| Tax positions related to current period | |||||||||||
| Additions | 3 | 3 | |||||||||
| Tax positions related to prior periods | |||||||||||
| Additions | — | — | |||||||||
| Reductions | (1) | (1) | |||||||||
| Ending balance | $ | 18 | $ | 16 | |||||||
| Year Ended December 31 | |||||||
| 2017 | 2016 | ||||||
| (Dollars in Millions) | |||||||
| Beginning balance | $ | 35 | $ | 37 | |||
| Tax positions related to current period | |||||||
| Additions | 3 | 4 | |||||
| Tax positions related to prior periods | |||||||
| Additions | — | 3 | |||||
| Reductions | (18 | ) | (2 | ) | |||
| Settlements with tax authorities | (3 | ) | (7 | ) | |||
| Effect of exchange rate changes | 1 | — | |||||
| Ending balance | $ | 18 | $ | 35 | |||
Other Tax Matters
NOTE 17.14. Stockholders’ Equity and Non-controlling Interests
Treasury Stock
As of December 31, 2017, the Company's Board of Directors has authorized a total of $2.2 billion in share repurchases since July of 2012. Since then, the Company's treasury stock has increased by $1.96 billion. As of December 31, 20172022 and 2016,2021, respectively, the Company held 24,141,08826,825,830 and 22,211,41027,014,711 shares of common stock in treasury which may be used for use in satisfying obligations under employee incentive compensation arrangements. The Company values shares of common stock held in treasury at cost.
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Non-Controlling Interests
Non-controlling interests in the Visteon Corporation economic entity are as follows:
| December 31, | |||||||||||
| (In millions) | 2022 | 2021 | |||||||||
| Yanfeng Visteon Automotive Electronics Co., Ltd. | $ | 37 | $ | 33 | |||||||
| Shanghai Visteon Automotive Electronics Co., Ltd. | 45 | 45 | |||||||||
| Changchun Visteon FAWAY Automotive Electronics Co., Ltd. | 15 | 20 | |||||||||
| Other | 2 | 2 | |||||||||
| $ | 99 | $ | 100 | ||||||||
| December 31 | |||||||
| 2017 | 2016 | ||||||
| (Dollars in Millions) | |||||||
Yanfeng Visteon Automotive Electronics Co., Ltd. | $ | 77 | $ | 97 | |||
Shanghai Visteon Automotive Electronics, Co., Ltd. | 44 | 39 | |||||
| Other | 3 | 2 | |||||
| Total non-controlling interests | $ | 124 | $ | 138 | |||
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Accumulated Other Comprehensive Income (Loss)
Changes in AOCI and reclassifications out of AOCI by component includes:
| Year Ended December 31, | ||||||||||||||||||
| Year Ended December 31 | ||||||||||||||||||
| 2017 | 2016 | |||||||||||||||||
| (Dollars in Millions) | ||||||||||||||||||
| (In millions) | (In millions) | 2022 | 2021 | |||||||||||||||
| Changes in AOCI: | Changes in AOCI: | |||||||||||||||||
| Beginning balance | $ | (233 | ) | $ | (190 | ) | Beginning balance | $ | (229) | $ | (304) | |||||||
| Other comprehensive income (loss) before reclassification, net of tax | 49 | (58 | ) | Other comprehensive income (loss) before reclassification, net of tax | 9 | 70 | ||||||||||||
| Amounts reclassified from AOCI | 5 | 3 | Amounts reclassified from AOCI | 7 | 5 | |||||||||||||
| Divestitures | 5 | 12 | ||||||||||||||||
| Ending balance | $ | (174 | ) | $ | (233 | ) | Ending balance | $ | (213) | $ | (229) | |||||||
| Changes in AOCI by component: | Changes in AOCI by component: | Changes in AOCI by component: | ||||||||||||||||
| Foreign currency translation adjustments | Foreign currency translation adjustments | |||||||||||||||||
| Beginning balance | $ | (163 | ) | $ | (159 | ) | Beginning balance | $ | (149) | $ | (115) | |||||||
| Other comprehensive income (loss) before reclassification, net of tax (a) | 62 | (19 | ) | |||||||||||||||
| Amounts reclassified from AOCI | — | 3 | ||||||||||||||||
| Divestitures (b) | 1 | 12 | ||||||||||||||||
| Other comprehensive income (loss) before reclassification (a) | Other comprehensive income (loss) before reclassification (a) | (64) | (34) | |||||||||||||||
| Amounts reclassified from AOCI (b) | Amounts reclassified from AOCI (b) | 3 | — | |||||||||||||||
| Ending balance | (100 | ) | (163 | ) | Ending balance | (210) | (149) | |||||||||||
| Net investment hedge | Net investment hedge | |||||||||||||||||
| Beginning balance | 10 | 4 | Beginning balance | 4 | (15) | |||||||||||||
| Other comprehensive (loss) income before reclassification, net of tax (a) | (22 | ) | 6 | |||||||||||||||
| Other comprehensive income (loss) before reclassification (a) | Other comprehensive income (loss) before reclassification (a) | 11 | 25 | |||||||||||||||
| Amounts reclassified from AOCI (c) | Amounts reclassified from AOCI (c) | (3) | (6) | |||||||||||||||
| Ending balance | (12 | ) | 10 | Ending balance | 12 | 4 | ||||||||||||
| Benefit plans | Benefit plans | |||||||||||||||||
| Beginning balance | (75 | ) | (36 | ) | Beginning balance | (81) | (165) | |||||||||||
| Other comprehensive income (loss) before reclassification, net of tax (a) | 10 | (40 | ) | |||||||||||||||
| Amounts reclassified from AOCI (c) | (2 | ) | 1 | |||||||||||||||
| Divestitures (b) | 4 | — | ||||||||||||||||
| Other comprehensive income (loss) before reclassification, net of tax (d) | Other comprehensive income (loss) before reclassification, net of tax (d) | 54 | 79 | |||||||||||||||
| Amounts reclassified from AOCI | Amounts reclassified from AOCI | 2 | 5 | |||||||||||||||
| Ending balance | (63 | ) | (75 | ) | Ending balance | (25) | (81) | |||||||||||
| Unrealized hedging gain (loss) | Unrealized hedging gain (loss) | |||||||||||||||||
| Beginning balance | (5 | ) | 1 | Beginning balance | (3) | (9) | ||||||||||||
| Other comprehensive (loss) before reclassification, net of tax (d) | (1 | ) | (5 | ) | ||||||||||||||
| Other comprehensive income (loss) before reclassification, net of tax (e) | Other comprehensive income (loss) before reclassification, net of tax (e) | 8 | — | |||||||||||||||
| Amounts reclassified from AOCI | 7 | (1 | ) | Amounts reclassified from AOCI | 5 | 6 | ||||||||||||
| Ending balance | 1 | (5 | ) | Ending balance | 10 | (3) | ||||||||||||
| AOCI ending balance | $ | (174 | ) | $ | (233 | ) | AOCI ending balance | $ | (213) | $ | (229) | |||||||
(a) There were no income tax effects for either period.period due to the valuation allowance.
(b) Amount relates to foreign currency translation charge. (See Note, 20, "Other Income, net" for additional details.)
(c) Amounts are included in Cost of Goods Sold and Loss on Divestiture"Interest expense" within the Consolidated Statements of Operations.
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NOTE 18.15. Earnings (Loss) Per Share
A summary of information used to compute basic and diluted earnings (loss) per share attributable to Visteon is as follows:
| Year Ended December 31, | |||||||||||||||||
| (In millions, except per share amounts) | 2022 | 2021 | 2020 | ||||||||||||||
| Numerator: | |||||||||||||||||
| Net income (loss) attributable to Visteon | $ | 124 | $ | 41 | $ | (56) | |||||||||||
| Denominator: | |||||||||||||||||
| Average common stock outstanding - basic | 28.1 | 28.0 | 27.9 | ||||||||||||||
| Dilutive effect of performance based share units and other | 0.4 | 0.4 | — | ||||||||||||||
| Diluted shares | 28.5 | 28.4 | 27.9 | ||||||||||||||
| Basic and Diluted Per Share Data: | |||||||||||||||||
| Basic earnings (loss) per share attributable to Visteon: | $ | 4.41 | $ | 1.46 | $ | (2.01) | |||||||||||
| Diluted earnings (loss) per share attributable to Visteon: | $ | 4.35 | $ | 1.44 | $ | (2.01) | |||||||||||
For the year ended December 31, 2020, performance-based share units of approximately 276,000 were excluded from the calculation of diluted loss per share because the effect of including them would have been anti-dilutive.
| Year Ended December 31 | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| (In Millions, Except Per Share Amounts) | |||||||||||
| Numerator: | |||||||||||
| Net income from continuing operations attributable to Visteon | $ | 159 | $ | 115 | $ | 22 | |||||
| Net income (loss) from discontinued operations attributable to Visteon | 17 | (40 | ) | 2,262 | |||||||
| Net income attributable to Visteon | $ | 176 | $ | 75 | $ | 2,284 | |||||
| Denominator: | |||||||||||
| Average common stock outstanding - basic | 31.6 | 35.0 | 42.3 | ||||||||
| Dilutive effect of performance based share units and other | 0.6 | 0.4 | 1.1 | ||||||||
| Diluted shares | 32.2 | 35.4 | 43.4 | ||||||||
| Basic and Diluted Per Share Data: | |||||||||||
| Basic earnings (loss) per share attributable to Visteon: | |||||||||||
| Continuing operations | $ | 5.03 | $ | 3.28 | $ | 0.52 | |||||
| Discontinued operations | 0.54 | (1.14 | ) | 53.48 | |||||||
| $ | 5.57 | $ | 2.14 | $ | 54.00 | ||||||
| Diluted earnings (loss) per share attributable to Visteon: | |||||||||||
| Continuing operations | $ | 4.94 | $ | 3.25 | $ | 0.51 | |||||
| Discontinued operations | 0.53 | (1.13 | ) | 52.12 | |||||||
| $ | 5.47 | $ | 2.12 | $ | 52.63 | ||||||
NOTE 19.16. Fair Value Measurements
Fair Value Hierarchy
The Company uses a three-level fair value hierarchy that categorizes assets and liabilities measured at fair value based on the observability of the inputs utilized in the valuation. 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.
Assets which are valued at net asset value per share ("NAV"), or its equivalent, as a practical expedient are reported outside the fair value hierarchy but are included in the total assets for reporting and reconciliation purposes.
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The fair value hierarchy for assets and liabilities measured at fair value on a recurring basis are as follows:
| December 31, 2022 | ||||||||||||||||||||||||||||||||
| (In millions) | Level 1 | Level 2 | Level 3 | NAV | Total | |||||||||||||||||||||||||||
| Asset Category: | ||||||||||||||||||||||||||||||||
| Retirement plan assets | $ | 7 | $ | 152 | $ | 18 | $ | 512 | $ | 689 | ||||||||||||||||||||||
| Interest rate swaps | $ | — | $ | 10 | $ | — | $ | — | $ | 10 | ||||||||||||||||||||||
| Liability Category: | ||||||||||||||||||||||||||||||||
| Cross currency swaps | $ | — | $ | 8 | $ | — | $ | — | $ | 8 | ||||||||||||||||||||||
| December 31, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | NAV | Total | ||||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in Millions) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | (In millions) | Level 1 | Level 2 | Level 3 | NAV | Total | ||||||||||||||||||||||||||||||||||||||||||||||
| Asset Category: | Asset Category: | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Retirement plan assets | $ | 180 | $ | 328 | $ | 13 | $ | 346 | $ | 867 | Retirement plan assets | $ | 11 | $ | 303 | $ | 18 | $ | 619 | $ | 951 | |||||||||||||||||||||||||||||||
| Cross currency swaps | Cross currency swaps | $ | — | $ | 2 | $ | — | $ | — | $ | 2 | |||||||||||||||||||||||||||||||||||||||||
| Liability Category: | Liability Category: | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Cross currency swaps | Cross currency swaps | $ | — | $ | 9 | $ | — | $ | — | $ | 9 | |||||||||||||||||||||||||||||||||||||||||
| Interest rate swaps | — | 1 | — | — | 1 | Interest rate swaps | $ | — | $ | 4 | $ | — | $ | — | $ | 4 | ||||||||||||||||||||||||||||||||||||
| Liability Category: | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency instruments | $ | — | $ | 25 | $ | — | $ | — | $ | 25 | ||||||||||||||||||||||||||||||||||||||||||
| December 31, 2016 | ||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | NAV | Total | ||||||||||||||||
| (Dollars in Millions) | ||||||||||||||||||||
| Asset Category: | ||||||||||||||||||||
| Retirement plan assets | $ | 311 | $ | 380 | $ | 11 | $ | 96 | $ | 798 | ||||||||||
| Foreign currency instruments | — | 6 | — | — | 6 | |||||||||||||||
| Liability Category: | ||||||||||||||||||||
| Foreign currency instruments | $ | — | $ | 6 | $ | — | $ | — | $ | 6 | ||||||||||
Interest rate swaps | $ | — | $ | 1 | $ | — | $ | — | $ | 1 | ||||||||||
Retirement plan assets pertain to a diverse set of securities and investment vehicles held by the Company’s defined benefit pension plans. These assets possess varying fair value measurement attributes such that certain portions are categorized within each level of the fair value hierarchy as based upon the level of observability of the inputs utilized in the valuation of the particular asset. The Company may, as a practical expedient, estimate the fair value of certain investments using NAV of the investment as of the reporting date. This practical expedient generally deals with investments that permit an investor to redeem its investment directly with, or receive distributions from, the investee at times specified in the investee’s governing documents. Examples of these investments (often referred to as alternative investments) may include ownership interests in real assets, certain credit strategies, and hedging and diversifying strategies. They are commonly in the form of limited partnership interests. The Company uses NAV
as a practical expedient when valuing investments in alternative asset classes and funds which are a limited partnership or similar investment vehicle.
Derivative financial instruments
Derivative financial 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 or may derived from observable data. Accordingly, the Company's currency instruments are classified as Level 2, "Other Observable Inputs" in the fair value hierarchy.
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Retirement Plan Assets
Retirement plan assets consist of the following:
•Short-term investments, such as cash and cash equivalents, are immediately available or are highly liquid and not subject to significant market risk. Assets comprised of cash, short-term sovereign debt, or high credit-quality money market securities and instruments held directly by the plan are categorized as Level 1. Assets in a registered money market fund are reported as registered investment companies. Assets in a short-term investment fund ("STIF") are categorized as Level 2. Cash and cash equivalent assets denominated in currencies other than the U.S. dollar are reflected in U.S. dollar terms at the exchange rate prevailing at the balance sheet dates.
•Registered investment companies are mutual funds that are registered with the Securities and Exchange Commission. Mutual funds may invest in various types of securities or combinations thereof including equities, fixed income securities, and other assets that are subject to varying levels of market risk and are categorized as Level 1.2. The share prices for mutual funds are published at the close of each business day.
•Treasury and government securities consist of debt securities issued by the U.S. and non-U.S. sovereign governments and agencies, thereof. Assets with a high degree of liquidity and frequent trading activity are categorized as Level 1 while others are valued by independent valuation firms that employ standard methodologies associated with valuing fixed-income securities and are categorized as Level 2.
•Corporate debt securities consist of fixed income securities issued by corporations. Assets with a high degree of liquidity and frequent trading activity are categorized as Level 1 while others are valued by independent valuation firms that employ standard methodologies associated with valuing fixed-income securities and are categorized as Level 2.
•Bond funds are comprised of corporate and municipal bonds. These securities are generally priced by independent pricing services. The spreads are sourced from broker/dealers, trade prices and the new issue market. As the significant inputs used to price corporate bonds are observable market inputs, the fair values of corporate bonds are included in the Level 2 fair value hierarchy.
•Common and preferred stocks consist of shares of equity securities. These are directly-held assets that are generally publicly traded in regulated markets that provide readily available market prices and are categorized as Level 1.
•Common trust funds are comprised of shares or units in commingled funds that are not publicly traded. The underlying assets in these funds, including equities and fixed income securities, are generally publicly traded in regulated markets that provide readily available market prices. The entire balance of an investment in a common trust fund that does not have a readily observable market prices as available on a third-party information source, notwithstanding whether the investment has daily liquidity, is categorized as Level 2; unless the investment fund has investment holdings significant to its valuation that are considered as Level 3; or the fund is considered as an alternative strategy (including hedge and diversifying strategies) for which valuation is established by NAV as a practical expedient.
•Liability Driven InvestingInvestments (“LDI”) is an investment strategyutilizes certain funds that utilizes certaininvest in instruments and securities, interest-rate swaps and other financial derivative instruments intended to hedge a portion of the changes in pension liabilities associated with changes in the actuarial discount rate as applied to the plan’s liabilities. The instruments and securities used typically include total return swaps and other financial derivative instruments. The valuation methodology of the financialfunds that invest in fixed income derivative instruments, the assets contained in this category of assets utilizesutilize standard pricing models associated with fixed income derivative instruments and are categorized as Level 2.
•Other investments include miscellaneous assets and liabilities and are primarily comprised of pending transactions and collateral settlements and are categorized as Level 2.1, Level 2, and NAV.
•Limited partnerships and hedge funds represent investment vehicles with underlying exposures in alternative credit, hedge and diversifying strategies (including hedge fund of funds), real assets, and certain equity exposures. The underlying assets in these funds may include securities transacted in active markets as well as other assets that have values less readily observable and may require valuation techniques that require inputs that are not readily observable. Investment in these funds may be subject to a specific notice period prior to the intended transaction date. In addition, transactions in these funds may require longer settlement terms than traditional mutual funds. These assets are valued
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based on their respective NAV as a practical expedient to estimate fair value due to the absence of readily available market prices.
•Insurance contracts are reported at cash surrender value and have significant unobservable inputs and are categorized as Level 3.
The fair values of the Company’s U.S. retirement plan assets are as follows:
| (In millions) | December 31, 2022 | |||||||||||||||||||||||||
| Asset Category | Level 1 | Level 2 | NAV | Total | ||||||||||||||||||||||
| Common trust funds | $ | — | $ | — | $ | 343 | $ | 343 | ||||||||||||||||||
| LDI | — | 55 | — | 55 | ||||||||||||||||||||||
| Limited partnerships and hedge funds | — | — | 124 | 124 | ||||||||||||||||||||||
| Cash and cash equivalents | — | 10 | — | 10 | ||||||||||||||||||||||
| Total | $ | — | $ | 65 | $ | 467 | $ | 532 | ||||||||||||||||||
| December 31, 2017 | ||||||||||||||||||||||||||||||||||||||||||
| (In millions) | (In millions) | December 31, 2021 | ||||||||||||||||||||||||||||||||||||||||
| Asset Category | Level 1 | Level 2 | NAV | Total | Asset Category | Level 1 | Level 2 | NAV | Total | |||||||||||||||||||||||||||||||||
| (Dollars in Millions) | ||||||||||||||||||||||||||||||||||||||||||
| Registered investment companies | $ | 3 | $ | — | $ | — | $ | 3 | ||||||||||||||||||||||||||||||||||
| Common and preferred stocks | 27 | — | — | 27 | ||||||||||||||||||||||||||||||||||||||
| Common trust funds | — | 185 | 94 | 279 | Common trust funds | $ | — | $ | — | $ | 463 | $ | 463 | |||||||||||||||||||||||||||||
| LDI | — | 103 | — | 103 | LDI | — | 93 | — | 93 | |||||||||||||||||||||||||||||||||
| Limited partnerships | — | — | 226 | 226 | ||||||||||||||||||||||||||||||||||||||
| Short-term investments | — | 9 | — | 9 | ||||||||||||||||||||||||||||||||||||||
| Limited partnerships and hedge funds | Limited partnerships and hedge funds | — | — | 127 | 127 | |||||||||||||||||||||||||||||||||||||
| Cash and cash equivalents | Cash and cash equivalents | — | 10 | — | 10 | |||||||||||||||||||||||||||||||||||||
| Total | $ | 30 | $ | 297 | $ | 320 | $ | 647 | Total | $ | — | $ | 103 | $ | 590 | $ | 693 | |||||||||||||||||||||||||
| December 31, 2016 | ||||||||||||||||
| Asset Category | Level 1 | Level 2 | NAV | Total | ||||||||||||
| (Dollars in Millions) | ||||||||||||||||
| Registered investment companies | $ | 180 | $ | — | $ | — | $ | 180 | ||||||||
| Common trust funds | — | 296 | — | 296 | ||||||||||||
| LDI | — | 53 | — | 53 | ||||||||||||
| Limited partnerships | — | — | 76 | 76 | ||||||||||||
| Short-term investments | — | 3 | — | 3 | ||||||||||||
| Total | $ | 180 | $ | 352 | $ | 76 | $ | 608 | ||||||||
The fair values of the Company’s Non-U.S. retirement plan assets are as follows:
| (In millions) | December 31, 2022 | |||||||||||||||||||||||||||||||
| Asset Category | Level 1 | Level 2 | Level 3 | NAV | Total | |||||||||||||||||||||||||||
| Treasury and government securities | $ | — | $ | 8 | $ | — | $ | — | $ | 8 | ||||||||||||||||||||||
| Cash and cash equivalents | 3 | — | — | — | 3 | |||||||||||||||||||||||||||
| Corporate debt securities | — | 9 | — | — | 9 | |||||||||||||||||||||||||||
| Common and preferred stock | 3 | — | — | — | 3 | |||||||||||||||||||||||||||
| Common trust funds | — | 1 | — | — | 1 | |||||||||||||||||||||||||||
| Limited partnerships | — | — | — | 10 | 10 | |||||||||||||||||||||||||||
| Insurance contracts | — | — | 18 | — | 18 | |||||||||||||||||||||||||||
| Bond funds | — | 59 | — | — | 59 | |||||||||||||||||||||||||||
| Other investment funds | 1 | 10 | — | 35 | 46 | |||||||||||||||||||||||||||
| Total | $ | 7 | $ | 87 | $ | 18 | $ | 45 | $ | 157 | ||||||||||||||||||||||
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| December 31, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | (In millions) | December 31, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Asset Category | Level 1 | Level 2 | Level 3 | NAV | Total | Asset Category | Level 1 | Level 2 | Level 3 | NAV | Total | |||||||||||||||||||||||||||||||||||||||||
| (Dollars in Millions) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Registered investment companies | $ | 93 | $ | — | $ | — | $ | — | $ | 93 | Registered investment companies | $ | — | $ | 21 | $ | — | $ | — | $ | 21 | |||||||||||||||||||||||||||||||
| Treasury and government securities | 45 | 26 | — | — | 71 | Treasury and government securities | — | 10 | — | — | 10 | |||||||||||||||||||||||||||||||||||||||||
| Cash and cash equivalents | 7 | 1 | — | — | 8 | Cash and cash equivalents | 9 | 1 | — | — | 10 | |||||||||||||||||||||||||||||||||||||||||
| Corporate debt securities | 3 | 4 | — | — | 7 | Corporate debt securities | — | 7 | — | — | 7 | |||||||||||||||||||||||||||||||||||||||||
| Common and preferred stock | 2 | — | — | — | 2 | Common and preferred stock | 2 | — | — | — | 2 | |||||||||||||||||||||||||||||||||||||||||
| Common trust funds | Common trust funds | — | 138 | — | 5 | 143 | ||||||||||||||||||||||||||||||||||||||||||||||
| Limited partnerships | — | — | — | 26 | 26 | Limited partnerships | — | — | — | 24 | 24 | |||||||||||||||||||||||||||||||||||||||||
| Insurance contracts | — | — | 13 | — | 13 | Insurance contracts | — | — | 18 | — | 18 | |||||||||||||||||||||||||||||||||||||||||
| Derivative instruments | Derivative instruments | — | 23 | — | — | 23 | ||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 150 | $ | 31 | $ | 13 | $ | 26 | $ | 220 | Total | $ | 11 | $ | 200 | $ | 18 | $ | 29 | $ | 258 | |||||||||||||||||||||||||||||||
| December 31, 2016 | ||||||||||||||||||||
| Asset Category | Level 1 | Level 2 | Level 3 | NAV | Total | |||||||||||||||
| (Dollars in Millions) | ||||||||||||||||||||
| Registered investment companies | $ | 71 | $ | — | $ | — | $ | — | $ | 71 | ||||||||||
| Treasury and government securities | 47 | 23 | — | — | 70 | |||||||||||||||
| Cash and cash equivalents | 8 | — | — | — | 8 | |||||||||||||||
| Corporate debt securities | 3 | 5 | — | — | 8 | |||||||||||||||
| Common trust funds | 2 | — | — | — | 2 | |||||||||||||||
| Limited partnerships | — | — | — | 20 | 20 | |||||||||||||||
| Insurance contracts | — | — | 11 | — | 11 | |||||||||||||||
| Total | $ | 131 | $ | 28 | $ | 11 | $ | 20 | $ | 190 | ||||||||||
| Actual Return on Plan Assets | Insurance Contracts | |||
| (Dollars in Millions) | ||||
| December 31, 2014 | $ | 169 | ||
| Divestitures | (159 | ) | ||
| December 31, 2015 | $ | 10 | ||
| Purchases | 1 | |||
| December 31, 2016 | $ | 11 | ||
| Return on assets held at the reporting date, including currency impacts | 1 | |||
| Purchases | 1 | |||
| December 31, 2017 | $ | 13 | ||
Items Measured at Fair Value on a Non-recurring Basis
The Company evaluates its long-lived assets for impairment whenever events or circumstances indicate the value of these long-lived asset groups are not recoverable.
In 2022, due to the geopolitical situation in Note 3, "Business Acquisitions",Eastern Europe the Company utilizedelected to close the Russian facility resulting in a third partynon-cash impairment charge of $5 million to assistfully impair property and equipment and reduce inventory to its net realizable value.
During 2021, the Company recognized an impairment charge of $9 million related to its long-lived asset group in the fair value determination of the purchase price allocation for the AllGo Acquisition. Management’s allocation of fair values to asset and liabilities was completed through a combination of cost, market and income approaches. TheseBrazil. The fair value measurements are classified within Level 3related to the long-lived asset group rely primarily on Company-specific inputs and the Company’s assumptions about the use of the fair value hierarchy. As further described in Note 4, "Divestitures",assets, as observable inputs are not available (Level 3). To determine the fair value of the assetslong-lived asset group, the Company utilized a cost and market approach, measuring fair value on the standalone basis value premise. The Company believes the assumptions and estimates used to determine the estimated fair value of the long-lived asset group is reasonable; however, these estimates and assumptions are subject to a high degree of uncertainty. Due to many variables inherent in estimating fair value, differences in assumptions could have a material effect on the France Transaction was less thananalysis. As the net carrying value and therefore,of the long-lived assets were reducedasset group in Brazil exceeded its fair values, the Company recorded a long-lived asset impairment charge of $9 million related to zeroproperty and impairment charges of $13 million were recorded inequipment during the year ended December 31, 2017. Additionally,2021.
No impairment charges were recorded for the fair value of assets and liabilities subject to the Interiors Divestiture was less than the carrying value. As a result, the long-lived assets were reduced to zero and impairment loss of $1 million and $4 million was recorded in the yearsyear ended December 31, 2016 and 2015, respectively. As the impairment was determined using other observable inputs, the fair value measurements are classified within Level 2 of the fair value hierarchy.2020.
Fair Value of Debt
The fair value of debt excluding amounts classified as held for sale, was approximately $401$336 million and $389$354 million as of December 31, 20172022 and 2016,2021, respectively. 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. Accordingly, the Company's debt is classified as Level 1 "Market Prices,"Prices" and Level 2 "Other Observable Inputs" in the fair value hierarchy, respectively.hierarchy.
NOTE 20.17. Financial Instruments
The Company is exposed to various market risks including, but not limited to, changes in foreign currency exchange rates and market interest rates. The Company manages these risks, in part, through the use of derivative financial instruments. The maximum length of time over which the Company hedges the variability in the future cash flows for forecast transactions excluding those forecast transactions related to the payment of variable interest on existing debt is up to eighteen months from the date of the forecast transaction. The maximum length of time over which the Company hedges forecast transactions related to the payment of variable interest on existing debt is the term of the underlying debt. The use of derivative financial instruments creates exposure to credit loss in the event of nonperformance by the counter-partycounterparty to the derivative financial instruments. The Company limits this exposure by entering into agreements including master netting arrangements directly with a variety of major highly rated financial institutions with high credit standards that are expected to fully satisfy their obligations under the contracts. Additionally, the Company’s ability to utilize derivatives to manage risks is dependent on credit and market conditions. The Company presents its derivative positions and any related material collateral under master netting arrangements that provide for the net settlement of contracts, by counterparty, in the event of default or termination. Derivative financial instruments designated and non-designated as hedging instruments are included in
Foreign Currency Exchange Rate Risk
The maximum length of time over which the Company’s consolidated balance sheets. ThereCompany hedges forecasted transactions related to variable interest payments is no cash collateral on any of these derivatives.
Currency Exchange Rate Instruments: The accounting for changesCompany primarily uses forward contracts denominated in euro, Japanese yen, Thai baht and Mexican peso intended to mitigate the variability of cash flows denominated in currency other than the hedging entity's functional currency.
As of December 31, 2022 the Company had no foreign currency economic derivative instruments. At December 31, 2021, the Company had foreign currency hedge economic derivative instruments, with notional amounts of $32 million and aggregate fair value of a derivative instrument depends on whether itliability of less than $1 million.
Cross Currency Swaps: The Company has beenexecuted cross-currency swap transactions intended to mitigate the variability of the U.S. dollar value of its investment in certain of its non-U.S. entities. These swaps are designated and qualifies as part of a hedging relationshipnet investment hedges and further, on the type of hedging relationship.
As of $1 million.
Interest Rate Risk: Risk
The Company is subject toutilizes interest rate risk principally in relation to variable-rate debt. The Company uses derivative financialswap instruments to manage its exposure and to fluctuations in interest rates in connection with its risk management policies.
changes in the fair value of the swap transactions is recognized in accumulated other comprehensive income, a component of shareholders' equity.income. Subsequently, the accumulated gains and losses recorded in equity are reclassified to income in the period during which the hedged cash transactionexposure impacts earnings. The ineffective portion of changes in
During 2022, the fair value ofCompany terminated existing interest rate swaps and received less than $1 million upon settlement. Subsequently, the Company executed new interest rate swap transactions, if any, is recognized directly in income.instruments. As of December 31, 2017 and 2016,2022, the Company had interest rate swaps with aggregate notional amounts of $250 million. The fair value wasof these derivatives is an non-current asset of $10 million as of December 31, 2022. As of December 31, 2022, a loss of approximately $1 million and a liability of $1 million, respectively, and there has been no ineffectiveness associated with these derivatives. AOCIis expected to be reclassified out of accumulated other comprehensive income into earnings within the next 12 months is a losstwelve months.
As of $1 million.
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Financial Statement Presentation
Gains and losses on derivative financial instruments for the yearyears ended December 31, 20172022 and 20162021 are as follows:
| Amount of Gain (Loss) | |||||||||||||||||||||||||||||||||||
| Recorded Income (Loss) in AOCI, net of tax | Reclassified from AOCI into Income (Loss) | Recorded in Income (Loss) | |||||||||||||||||||||||||||||||||
| (In millions) | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||||||
| Foreign currency risk – Cost of sales: | |||||||||||||||||||||||||||||||||||
| Cash flow hedges | — | — | — | — | (3) | 1 | |||||||||||||||||||||||||||||
| Interest rate risk - Interest expense, net: | |||||||||||||||||||||||||||||||||||
| Net investment hedges | 11 | 25 | 3 | 6 | — | — | |||||||||||||||||||||||||||||
| Interest rate swap | 8 | — | (5) | (6) | — | — | |||||||||||||||||||||||||||||
| $ | 19 | $ | 25 | $ | (2) | $ | — | $ | (3) | $ | 1 | ||||||||||||||||||||||||
| Amount of Gain (Loss) | |||||||||||||||||||||||
| Recorded (Loss) Income in AOCI, net of tax | Reclassified from AOCI into (Income) Loss | Recorded in (Income) Loss | |||||||||||||||||||||
| 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | ||||||||||||||||||
| (Dollars in Millions) | |||||||||||||||||||||||
| Foreign currency risk – Cost of sales: | |||||||||||||||||||||||
| Cash flow hedges | $ | (2 | ) | $ | (3 | ) | $ | 6 | $ | (3 | ) | $ | — | $ | — | ||||||||
| Net investment hedges | (22 | ) | 5 | — | — | — | — | ||||||||||||||||
| Non-designated cash flow hedges | — | — | — | — | (2 | ) | (2 | ) | |||||||||||||||
| Interest rate risk - Interest expense, net: | |||||||||||||||||||||||
| Interest rate swap | 1 | (2 | ) | 1 | 2 | — | — | ||||||||||||||||
| Foreign currency risk - Other expense, net: | |||||||||||||||||||||||
| Non-designated cash flow hedges | — | — | — | — | — | 2 | |||||||||||||||||
| $ | (23 | ) | $ | — | $ | 7 | $ | (1 | ) | $ | (2 | ) | $ | — | |||||||||
Concentrations of Credit Risk
| Percentage of Total Net Sales | Percentage of Total Accounts Receivable | ||||||||||||||||||||||||||||
| December 31, | December 31, 2022 | December 31, 2021 | |||||||||||||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||||||||||||||
| Ford | 22 | % | 22 | % | 22 | % | 16 | % | 18 | % | |||||||||||||||||||
NOTE 21.18. Commitments and Contingencies
Litigation and Claims
In 2003, the Local Development Finance Authority of the Charter Township of Van Buren, Michigan (the “Township”) issued approximately $28 million in bonds finally maturing in 2032, the proceeds of which were used at least in part to assist in the development of the Company’s U.S. headquarters located in the Township. During January 2010, the Company and the Township entered into a settlement agreement (the “Settlement Agreement”) that, among other things, reduced the taxable value of the headquarters property to current market value and facilitated certain claims of the Township in the Company’s chapter 11 proceedings.value. The Settlement Agreement also provided that the Company would negotiate in good faith with the Township in the event that property tax payments waswere inadequate to permit the Township to meet its payment obligations with respect to the bonds. In September 2013,October 2019, the Township notified the Company in writing that it is estimatingthe Township had incurred a shortfall in tax revenuesunder the bonds of between $25less than $1 million and $36 million, which could render it unablerequested that the Company meet to satisfy its payment obligations under the bonds.discuss payment. The parties met in November 2019 but no agreement was reached. On May 12, 2015,December 9, 2019, the Township commenced a proceedinglitigation against the Company in the U. S. Bankruptcy Court for the District of Delaware in connection with the foregoing. Upon the Company’s motion to dismiss, the Township dismissed the proceeding before the Delaware Bankruptcy Court and re-commenced the proceeding against the Company in the MichiganMichigan’s Wayne County Circuit Court forclaiming damages of $28 million related to what the State of Michigan on July 2, 2015. The Township sought damages or, alternatively, declaratory judgment that, among other things,alleges to be the Company is responsiblecurrent shortfall and projected future shortfalls under the Settlement Agreement for payment of any shortfall in the bond debt service payments. On February 2, 2016, the Wayne County Circuit Court dismissed the Township’s lawsuit without prejudice on the basis that the Township’s claims were not ripe for adjudication. The Township appealed the decision to the Michigan Court of Appeals, which affirmed the dismissal of the Township’s lawsuit. The Township has sought leave to appeal from the Michigan Supreme Court.bonds. The Company disputes the factual and legal assertions made by the Township and intends to vigorouslywill defend the matter.matter vigorously. The Company is not able to estimate the possible loss or range of loss in connection with this matter.
In November 2013, the Company and HVCC, Halla Visteon Climate Corporation ("HVCC"), jointly filed an Initial Notice of Voluntary Self-Disclosure statement with the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) regarding certain sales of automotive HVAC components by a minority-owned, Chinese joint venture of HVCC into Iran. The Company updated that notice in December 2013, and subsequently filed a voluntary self-disclosure regarding these sales with OFAC in March 2014. In May 2014, the Company voluntarily filed a supplementary self-disclosure identifying additional sales of automotive HVAC components by the Chinese joint venture, as well as similar sales involving an HVCC subsidiary in China, totaling approximately $12 million, and filed a final voluntary-self disclosure with OFAC on October 17, 2014. OFAC is currently reviewing the results of the Company’s investigation. Following that review, OFAC may conclude that the disclosed sales resulted in violations of U.S. economic sanctions laws and warrant the imposition of civil penalties, such as fines, limitations on the Company's ability to export products from the United States, and/or referral for further investigation by the U.S. Department of Justice. Any such fines or restrictions may be material to the Company’s financial results in the period in which they are
78
imposed, but is not ablepossible to estimate the possible loss or range of loss in connection with this matter. Additionally, disclosure of this conduct and any fines or other action relating to this conduct could harm the Company’s reputation and have a material adverse effect on ourits business, operating results and financial condition. The Company cannot predict when OFAC will conclude its own review of ourVisteon's voluntary self-disclosures or whether it may impose any of the potential penalties described above.
The Company's operations in Brazil and Argentina 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 December 31, 2017,2022, the Company maintained accruals of approximately $16 million and $4$8 million for claims aggregating approximately $114 million and $4$55 million in Brazil and Argentina, respectively.Brazil. 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.
The adverse impacts of the COVID-19 pandemic led to a significant reduction in vehicle production in the first half of 2020, which was followed by increased consumer demand and vehicle production schedules in the second half of 2020. Because semiconductor suppliers have been unable to rapidly reallocate production to serve the automotive industry, the surge in demand has led to a worldwide semiconductor supply shortage. The Company's semiconductor suppliers, along with most automotive component supply companies that use semiconductors, have been unable to fully meet the vehicle production demands of its customers due to events which are outside the Company's control, including but not limited to, the COVID-19 pandemic, the global semiconductor shortage, a fire at a semiconductor fabrication facility in Japan, significant weather events impacting semiconductor supplier facilities in the southern United States, and other extraordinary events. The Company is working closely with suppliers and customers to attempt to minimize potential adverse impacts of these events. Certain customers have communicated that they expect the Company to absorb some of the financial impact of their reduced production and are reserving their rights to claim damages arising from supply shortages, however, the Company believes it has a number of legal defenses to such claims and intends to defend any such claims vigorously. The Company has also notified semiconductor suppliers that it will seek compensation from them for failure to deliver sufficient quantities. The Company is not able to estimate the possible loss or range of loss in connection with this matter at this time.
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 claimsprovisions 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. These estimates do not include amounts which may ultimately be recovered from the Company's suppliers. The Company can provide no assurances that it will not experience material claimsobligations in the future or that it will not incur significant costs to defend or settle such claimsobligations beyond the amounts accrued or beyond what the Company may recover from its suppliers. Specific cause actions represent customer actions related to defective supplier parts and related software.
The following table provides a reconciliation of changes in the product warranty and recall claims liability:
| Year Ended December 31, | |||||||||||
| (In millions) | 2022 | 2021 | |||||||||
| Beginning balance | $ | 50 | $ | 64 | |||||||
| Provisions | 21 | 16 | |||||||||
| Change in estimates | 1 | (1) | |||||||||
| Currency/other | (3) | (4) | |||||||||
| Settlements | (18) | (25) | |||||||||
| Ending balance | $ | 51 | $ | 50 | |||||||
| Year Ended December 31 | |||||||
| 2017 | 2016 | ||||||
| (Dollars in Millions) | |||||||
| Beginning balance | $ | 55 | $ | 38 | |||
| Accruals for products shipped | 20 | 17 | |||||
| Change in estimates | 4 | 6 | |||||
| Specific cause actions | 6 | 15 | |||||
| Recoverable warranty/recalls | 3 | 2 | |||||
| Foreign currency translation | 2 | (2 | ) | ||||
| Settlements | (41 | ) | (21 | ) | |||
| Ending balance | $ | 49 | $ | 55 | |||
Guarantees and Commitments
As part of the agreements of the Climate Transaction and Interiors Divestiture, divestitures completed during 2015, the Company continues to provide lease guarantees to divested Climate and Interiors entities. As of December 31, 2017,2022, the
79
Company has approximately $5$2 million and $3 millionof outstanding guarantees respectively, related tofor each of the divested Climate and Interiors entities. The guarantees represent the maximum potential amount that the Company could be required to pay under the guarantees in the event of default by the guaranteed parties. These guarantees will generally cease upon expiration of current lease agreements.
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; customs classifications; governmental regulations relating to safety; employment-related matters; customer, supplier and other contractual relationships; intellectual property rights; product warranties; product recalls; tax matters, including the ITA tax matter described in Note 13, "Income Taxes"; 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 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 as of December 31, 20172022 and that are in excess of established reserves. TheBased on its analysis, 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.
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NOTE 22. Segment19. Revenue recognition and Geographical Information
| Year Ended December 31 | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| (Dollars in Millions) | |||||||||||
| Electronics | $ | 3,146 | $ | 3,107 | $ | 3,107 | |||||
| Other | — | 54 | 153 | ||||||||
| Eliminations | — | — | (15 | ) | |||||||
| Total consolidated sales | $ | 3,146 | $ | 3,161 | $ | 3,245 | |||||
| Year Ended December 31 | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| (Dollars in Millions) | |||||||||||
| Electronics | $ | 370 | $ | 346 | $ | 294 | |||||
| Other | — | (9 | ) | (12 | ) | ||||||
| Adjusted EBITDA | $ | 370 | $ | 337 | $ | 282 | |||||
| Year Ended December 31 | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| (Dollars in Millions) | |||||||||||
| Adjusted EBITDA | $ | 370 | $ | 337 | $ | 282 | |||||
| Depreciation and amortization | 87 | 84 | 85 | ||||||||
| Restructuring expense, net | 14 | 49 | 36 | ||||||||
| Interest expense, net | 16 | 12 | 14 | ||||||||
| Equity in net income of non-consolidated affiliates | (7 | ) | (2 | ) | (7 | ) | |||||
| Loss on debt extinguishment | — | — | 5 | ||||||||
| Loss on divestiture | 33 | — | 105 | ||||||||
| Gain on non-consolidated affiliate transactions | (4 | ) | — | (62 | ) | ||||||
| Other expense, net | 2 | 24 | 25 | ||||||||
| Provision for income taxes | 48 | 30 | 27 | ||||||||
| Net (income) loss from discontinued operations, net of tax | (17 | ) | 40 | (2,286 | ) | ||||||
| Net income attributable to non-controlling interests | 16 | 16 | 44 | ||||||||
| Non-cash, stock-based compensation expense | 12 | 8 | 8 | ||||||||
| Other | (6 | ) | 1 | 4 | |||||||
| Net income attributable to Visteon Corporation | $ | 176 | $ | 75 | $ | 2,284 | |||||
Total Assets | |||||||
| Year Ended December 31 | |||||||
| 2017 | 2016 | ||||||
(Dollars in Millions) | |||||||
| Electronics | $ | 2,304 | $ | 2,370 | |||
| Other | — | 3 | |||||
| Total segment operating assets | $ | 2,304 | $ | 2,373 | |||
| Depreciation and Amortization | Capital Expenditures | ||||||||||||||||||||||
| Year Ended December 31 | Year Ended December 31 | ||||||||||||||||||||||
| 2017 | 2016 | 2015 | 2017 | 2016 | 2015 | ||||||||||||||||||
| (Dollars in Millions) | |||||||||||||||||||||||
| Electronics | $ | 87 | $ | 84 | $ | 83 | $ | 99 | $ | 74 | $ | 102 | |||||||||||
| Other | — | — | 2 | — | — | 4 | |||||||||||||||||
| Total segment | $ | 87 | $ | 84 | $ | 85 | $ | 99 | $ | 74 | $ | 106 | |||||||||||
Financial Information by Geographic Region
Financial information about net sales and net tangible long-lived assets by country are as follows:
Net Sales (a) | Tangible Long-Lived Assets, Net (b) | ||||||||||||||||||||||||||||
| Year Ended December 31, | December 31, | ||||||||||||||||||||||||||||
| (In millions) | 2022 | 2021 | 2020 | 2022 | 2021 | ||||||||||||||||||||||||
| United States | $ | 875 | $ | 586 | $ | 536 | $ | 103 | $ | 110 | |||||||||||||||||||
| Mexico | 96 | 55 | 29 | 50 | 49 | ||||||||||||||||||||||||
| Total North America | 971 | 641 | 565 | 153 | 159 | ||||||||||||||||||||||||
| Portugal | 867 | 608 | 635 | 85 | 94 | ||||||||||||||||||||||||
| Slovakia | 347 | 257 | 251 | 36 | 49 | ||||||||||||||||||||||||
| Tunisia | 69 | 53 | 41 | 21 | 13 | ||||||||||||||||||||||||
| Other Europe | 14 | 44 | 40 | 32 | 40 | ||||||||||||||||||||||||
| Total Europe | 1,297 | 962 | 967 | 174 | 196 | ||||||||||||||||||||||||
| China Domestic | 625 | 576 | 479 | ||||||||||||||||||||||||||
| China Export | 245 | 199 | 196 | ||||||||||||||||||||||||||
| Total China | 870 | 775 | 675 | 64 | 74 | ||||||||||||||||||||||||
| Japan | 330 | 234 | 244 | 24 | 28 | ||||||||||||||||||||||||
| India | 227 | 151 | 93 | 54 | 50 | ||||||||||||||||||||||||
| Other Asia-Pacific | 68 | 39 | 41 | 9 | 10 | ||||||||||||||||||||||||
| Total Other Asia-Pacific | 625 | 424 | 378 | 87 | 88 | ||||||||||||||||||||||||
| South America | 143 | 80 | 71 | 10 | 10 | ||||||||||||||||||||||||
| Eliminations | (150) | (109) | (108) | ||||||||||||||||||||||||||
| $ | 3,756 | $ | 2,773 | $ | 2,548 | $ | 488 | $ | 527 | ||||||||||||||||||||
| (a) Company sales based on geographic region where sale originates and not where customer is located. | |||||||||||||||||||||||||||||
| (b) Tangible long-lived assets include property, plant, and equipment and right-of-use assets. | |||||||||||||||||||||||||||||
Disaggregated revenue by product lines is as follows:
| Year Ended December 31, | |||||||||||||||||
| (In millions) | 2022 | 2021 | 2020 | ||||||||||||||
| Product Lines | |||||||||||||||||
| Instrument clusters | $ | 1,782 | $ | 1,356 | $ | 1,197 | |||||||||||
| Infotainment | 498 | 370 | 384 | ||||||||||||||
| Information displays | 490 | 402 | 423 | ||||||||||||||
| Cockpit domain controller | 473 | 226 | 155 | ||||||||||||||
| Body and security | 205 | 127 | 99 | ||||||||||||||
| Telematics | 67 | 64 | 57 | ||||||||||||||
| Other | 241 | 228 | 233 | ||||||||||||||
| $ | 3,756 | $ | 2,773 | $ | 2,548 | ||||||||||||
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Sales (a) | Property and Equipment, net | ||||||||||||||||||
| Year Ended December 31 | |||||||||||||||||||
| 2017 | 2016 | 2015 | 2017 | 2016 | |||||||||||||||
| (Dollars in Millions) | |||||||||||||||||||
| United States | $ | 776 | $ | 822 | $ | 844 | $ | 11 | $ | 12 | |||||||||
| Mexico | 70 | 72 | 73 | 54 | 50 | ||||||||||||||
| North America | 846 | 894 | 917 | 65 | 62 | ||||||||||||||
| Portugal | 508 | 443 | 419 | 75 | 62 | ||||||||||||||
| Slovakia | 294 | 288 | 262 | 36 | 29 | ||||||||||||||
| Germany | — | — | 86 | 4 | 2 | ||||||||||||||
| Tunisia | 109 | 151 | 185 | 10 | 12 | ||||||||||||||
| France | 84 | 113 | 144 | 7 | 21 | ||||||||||||||
| Other Europe | 20 | 49 | 98 | 10 | 6 | ||||||||||||||
| Intra-region eliminations | (11 | ) | (31 | ) | (71 | ) | — | — | |||||||||||
| Europe | 1,004 | 1,013 | 1,123 | 142 | 132 | ||||||||||||||
| China | 751 | 711 | 688 | 86 | 75 | ||||||||||||||
| Japan | 495 | 516 | 498 | 21 | 16 | ||||||||||||||
| India | 92 | 66 | 73 | 29 | 26 | ||||||||||||||
| Thailand | 81 | 82 | 86 | 10 | 10 | ||||||||||||||
| Korea | 12 | 18 | 20 | — | 1 | ||||||||||||||
| Intra-region eliminations | (151 | ) | (163 | ) | (171 | ) | — | — | |||||||||||
| Asia | 1,280 | 1,230 | 1,194 | 146 | 128 | ||||||||||||||
| South America | 68 | 91 | 124 | 24 | 23 | ||||||||||||||
| Inter-region eliminations | (52 | ) | (67 | ) | (113 | ) | — | — | |||||||||||
| $ | 3,146 | $ | 3,161 | $ | 3,245 | $ | 377 | $ | 345 | ||||||||||
| (a) Company sales based on geographic region where sale originates and not where customer is located. | |||||||||||||||||||
NOTE 23. Summary Quarterly Financial Data (Unaudited)20. Other Income, Net
| Year Ended December 31, | |||||||||||||||||
| (In millions) | 2022 | 2021 | 2020 | ||||||||||||||
| Pension financing benefits, net | $ | 20 | $ | 18 | $ | 14 | |||||||||||
| Pension settlement charge | — | — | (5) | ||||||||||||||
| Gain on sale of investment | 3 | — | — | ||||||||||||||
| Foreign currency translation charge | (3) | — | — | ||||||||||||||
| $ | 20 | $ | 18 | $ | 9 | ||||||||||||
Pension financing benefits, net include return on assets net of interest costs and other amortization.
The following table presents summary quarterly financial data:gain on sale of investment represents the Company's sale of an equity investment recorded during the year ended December 31, 2022.
| 2017 | 2016 | ||||||||||||||||||||||||||||||
| First Quarter | Second Quarter | Third Quarter | Fourth Quarter | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | ||||||||||||||||||||||||
| (Dollars in Millions, Except Per Share Amounts) | |||||||||||||||||||||||||||||||
| Sales | $ | 810 | $ | 774 | $ | 765 | $ | 797 | $ | 802 | $ | 773 | $ | 770 | $ | 816 | |||||||||||||||
| Gross margin | 131 | 112 | 116 | 140 | 121 | 109 | 105 | 129 | |||||||||||||||||||||||
| Income from continuing operations before income taxes | 75 | 58 | 55 | 35 | 49 | 48 | 30 | 34 | |||||||||||||||||||||||
| Net income from continuing operations | 59 | 48 | 47 | 21 | 36 | 39 | 25 | 31 | |||||||||||||||||||||||
| Net income | 67 | 48 | 47 | 30 | 23 | 30 | 32 | 6 | |||||||||||||||||||||||
| Net income attributable to Visteon Corporation | $ | 63 | $ | 45 | $ | 43 | $ | 25 | $ | 19 | $ | 26 | $ | 28 | $ | 2 | |||||||||||||||
| Per Share Data: | |||||||||||||||||||||||||||||||
| Basic earnings per share attributable to Visteon Corporation | $ | 1.94 | $ | 1.43 | $ | 1.38 | $ | 0.81 | $ | 0.50 | $ | 0.77 | $ | 0.83 | $ | 0.06 | |||||||||||||||
| Diluted earnings per share attributable to Visteon Corporation | $ | 1.91 | $ | 1.41 | $ | 1.35 | $ | 0.79 | $ | 0.49 | $ | 0.76 | $ | 0.81 | $ | 0.06 | |||||||||||||||
During 2020, the Company transferred a cash contribution of $13 million, long-lived asset impairment charges $13 million and other working capital and transaction related impacts of $7 million.
benefit obligation related to its defined benefit U.S. pension plan to a third-party issuer. The transaction met the criteria for settlement accounting, and accordingly, the Company recognized a $5 million pension settlement charge.
82
Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A.Controls and Procedures
Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in periodic reports filed with the SEC under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
At December 31, 2017,2022, an evaluation was performed under the supervision and with the participation of the Company’s management, including its Chief Executive and Financial Officers, of the effectiveness of the design and operation of disclosure controls and procedures. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2017.
2022.
Internal Control over Financial Reporting
Based on the evaluation performed under the COSO 2013 Framework as atof December 31, 2017. There were no changes in2022, management has concluded that the Company'sCompany’s internal control over financial reporting duringis effective. Additionally, Deloitte & Touche LLP, an independent registered public accounting firm, has audited the year ended December 31, 2017 that have materially affected, or are reasonably likely to materially affect,effectiveness of the Company'sCompany’s internal control over financial reporting.reporting as of December 31, 2022, as stated in their report which is included herein.
Part III
Item 10.Directors, Executive Officers and Corporate Governance
Except as set forth herein, the information required by Item 10 regarding its directors is incorporated by reference from the information under the captions “Item 1.- Election of Directors,” “Corporate Governance, - Board Committees,” "2018and "2023 Stockholder Proposals and Nominations" and “Section 16(a) Beneficial Ownership Reporting Compliance” in its 20172023 Proxy Statement. The information required by Item 10 regarding its executive officers appears as Item 4A under Part I of this Report.
Form 10-K.
The Company has a code of ethics, as such phrase is defined in Item 406 of Regulation S-K, that applies to all directors, officers and employees of the Company and its subsidiaries, including the Chief Executive Officer, the Chief Financial Officer and the Chief Accounting Officer. The code, entitled “Ethics and Integrity Policy,” is available on the Company's website at www.visteon.com.
Item 11.Executive Compensation
The information required by Item 11 is incorporated by reference from the information under the captions “Compensation Committee Report,” “Executive Compensation” and “Director Compensation” in its 20182023 Proxy Statement.
83
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
| Plan Category | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (a)(1) | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights (b)(1) | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (excluding securities reflected in column (a)) (c)(2) | |||||||
| Equity compensation plans approved by security holders | 939,522 | $ | 81.13 | 1,541,975 | ||||||
| Equity compensation plans not approved by security holders | — | $ | — | — | ||||||
| Total | 939,522 | $ | 81.13 | 1,541,975 | ||||||
Item 13.Certain Relationships and Related Transactions, and Director Independence
The information required by Item 13 is incorporated by reference from the information under the captions “Corporate Governance - Director Independence” and “Transactions with Related Persons” in its 20182023 Proxy Statement.
Item 14.Principal Accountant Fees and Services
The information required by Item 14 is incorporated by reference from the information under the captions “Audit Fees” and “Audit Committee Pre-Approval Process and Policies” in its 20182023 Proxy Statement.
84
Part IV
Item 15.Exhibits and Financial Statement Schedules
(a) The following documents are filed as part of this Form 10-K:
1. Financial Statements
See “Index to Consolidated Financial Statements” in Part II, Item 8 of this Form 10-K hereof.
2. Financial Statement Schedules
Schedule II — Valuation and Qualifying Accounts
All other financial statement schedules are omitted because they are not required or applicable under instructions contained in Regulation S-X or because the information called for is shown in the financial statements and notes thereto.
3. Exhibits
The exhibits listed on the "Exhibit Index" on page 10687 hereof are filed with this reportForm 10-K or incorporated by reference as set forth therein.herein.
Item 16. Form 10-K Summary
None.
85
VISTEON CORPORATION AND SUBSIDIARIES
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
Balance at Beginning of Period | (Benefits)/ Charges to Income | Deductions(a) | Other( b) | Balance at End of Period | ||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in Millions) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Year Ended December 31, 2017: | ||||||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | (In millions) | Balance at Beginning of Period | (Benefits)/ Charges to Income | Deductions(a) | Other( b) | Balance at End of Period | ||||||||||||||||||||||||||||||||||||||||||
| Year Ended December 31, 2022: | Year Ended December 31, 2022: | |||||||||||||||||||||||||||||||||||||||||||||||
| Allowance for doubtful accounts | $ | 10 | $ | 3 | $ | (5 | ) | $ | — | $ | 8 | Allowance for doubtful accounts | $ | 4 | $ | 1 | $ | — | $ | — | $ | 5 | ||||||||||||||||||||||||||
| Valuation allowance for deferred taxes | 1,532 | (270 | ) | — | (20 | ) | 1,242 | Valuation allowance for deferred taxes | 1,207 | (61) | — | (26) | 1,120 | |||||||||||||||||||||||||||||||||||
| Year Ended December 31, 2016: | ||||||||||||||||||||||||||||||||||||||||||||||||
| Year Ended December 31, 2021: | Year Ended December 31, 2021: | |||||||||||||||||||||||||||||||||||||||||||||||
| Allowance for doubtful accounts | $ | 14 | $ | 2 | $ | (6 | ) | $ | — | $ | 10 | Allowance for doubtful accounts | $ | 4 | $ | — | $ | — | $ | — | $ | 4 | ||||||||||||||||||||||||||
| Valuation allowance for deferred taxes | 1,498 | 25 | — | 9 | 1,532 | Valuation allowance for deferred taxes | 1,263 | (10) | — | (46) | 1,207 | |||||||||||||||||||||||||||||||||||||
| Year Ended December 31, 2015: | ||||||||||||||||||||||||||||||||||||||||||||||||
| Year Ended December 31, 2020: | Year Ended December 31, 2020: | |||||||||||||||||||||||||||||||||||||||||||||||
| Allowance for doubtful accounts | $ | 15 | $ | 4 | $ | (3 | ) | $ | (2 | ) | $ | 14 | Allowance for doubtful accounts | $ | 10 | $ | (2) | $ | (4) | $ | — | $ | 4 | |||||||||||||||||||||||||
| Valuation allowance for deferred taxes | 1,687 | (53 | ) | — | (136 | ) | 1,498 | Valuation allowance for deferred taxes | 1,132 | 46 | — | 85 | 1,263 | |||||||||||||||||||||||||||||||||||
____________
(a)Deductions represent uncollectible accounts charged off.
(b)Deferred taxes valuation allowance - represents adjustments recorded through other comprehensive income, exchange, expiration of tax attribute carryforwards, and various tax return true-up adjustments, all of which impact deferred taxes and the related valuation allowances. In 2022, the $26 million other decrease in the valuation allowance for deferred taxes is comprised of $15 million related to exchange and $11 million primarily related to other comprehensive income. In 2021, the $46 million other decrease in the valuation allowance for deferred taxes is comprised of $28 million related to exchange and $18 million primarily related to other comprehensive income. In 2020, the $85 million other increase in the valuation allowance for deferred taxes is comprised of $49 million related to valuation allowance benefits allocated to discontinued operations associated with electing to deduct expiring foreign tax credits previously derecognized for which a valuation allowance is maintained; $20 million related to exchange; and $16 million primarily related to other comprehensive income.
86
Exhibit Index
| Exhibit No. | Description | |||||||
| Exhibit No. | Description | |||||||
| 101.INS | XBRL Instance Document.** | |||||||
| 101.SCH | XBRL Taxonomy Extension Schema Document.** | |||||||
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document.** | |||||||
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document.** | |||||||
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document.** | |||||||
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document.** | |||||||
* Indicates that exhibit is a management contract or compensatory plan or arrangement.
** Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files as Exhibit 101 hereto are deemed not filed or part of a registration
statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes
of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.
88
In lieu of filing certain instruments with respect to long-term debt of the kind described in Item 601(b)(4) of Regulation S-K, Visteon agrees to furnish a copy of such instruments to the Securities and Exchange Commission upon request.
Signatures
Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, Visteon Corporation has duly caused this ReportForm 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
| VISTEON CORPORATION | ||||||||
| By: | /s/ ABIGAIL S. FLEMING | |||||||
| Abigail S. Fleming | ||||||||
| Vice President and Chief Accounting Officer | ||||||||
Date: February 16, 2023
89
Pursuant to the requirements of the Securities Exchange Act of 1934, this Form 10-K has been signed below by the following persons on behalf of the registrant and in the capacities and the dates indicated.
| Signature | Title | |||||||
| /s/ SACHIN LAWANDE | Director, President and Chief Executive Officer | |||||||
| Sachin Lawande | (Principal Executive Officer) | |||||||
| /s/ JEROME J. ROUQUET | Senior Vice President and Chief Financial Officer | |||||||
| Jerome J. Rouquet | (Principal Financial Officer) | |||||||
| /s/ ABIGAIL S. FLEMING | Vice President and Chief Accounting Officer | |||||||
| Abigail S. Fleming | (Principal Accounting Officer) | |||||||
| /s/ JAMES J. BARRESE* | Director | |||||||
| James J. Barrese | ||||||||
| /s/ NAOMI M. BERGMAN* | ||||||||
| Naomi M. Bergman | ||||||||
| /s/ JEFFREY D. JONES* | Director | |||||||
| Jeffrey D. Jones | ||||||||
| /s/ BUNSEI KURE* | Director | |||||||
| Bunsei Kure | ||||||||
| /s/ JOANNE M. MAGUIRE* | Director | |||||||
| Joanne M. Maguire | ||||||||
| /s/ ROBERT J. MANZO* | Director | |||||||
| Robert J. Manzo | ||||||||
| /s/ FRANCIS M. SCRICCO* | Director | |||||||
| Francis M. Scricco | ||||||||
| /s/ DAVID L. TREADWELL* | Director | |||||||
| David L. Treadwell | ||||||||
| /s/ BRETT PYNNONEN | ||||||||
| Brett Pynnonen | ||||||||
| Attorney-in-Fact | ||||||||
90