Washington D.C. 20549
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer," "accelerated filer,” "smaller reporting company" and “emerging growth company" in Rule 12b-2 of the Exchange Act.
The Company determined that 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.
NOTE 8.5. Goodwill and Other Intangible Assets
Intangible assets, net are comprised of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | September 30, 2021 | | December 31, 2020 |
(In millions) | Estimated Weighted Average Useful Life (years) | | Gross Intangibles | | Accumulated Amortization | | Net Intangibles | | Gross Intangibles | | Accumulated Amortization | | Net Intangibles |
Definite-Lived: | | | | | | |
Developed technology | 10 | | $ | 40 | | | $ | (38) | | | $ | 2 | | | $ | 41 | | | $ | (38) | | | $ | 3 | |
Customer related | 10 | | 95 | | | (71) | | | 24 | | | 95 | | | (64) | | | 31 | |
Capitalized software development | 5 | | 47 | | | (9) | | | 38 | | | 44 | | | (7) | | | 37 | |
Other | 32 | | 15 | | | (8) | | | 7 | | | 14 | | | (7) | | | 7 | |
Subtotal | | | 197 | | | (126) | | | 71 | | | 194 | | | (116) | | | 78 | |
Indefinite-Lived: | | | | | | |
Goodwill | | | 49 | | | — | | | 49 | | | 49 | | | — | | | 49 | |
Total | | | $ | 246 | | | $ | (126) | | | $ | 120 | | | $ | 243 | | | $ | (116) | | | $ | 127 | |
Capitalized software development consists of software development costs intended for integration into customer products.
NOTE 6. Other Assets
Other current assets are comprised of the following components:
| | | | | | | | | | | |
| September 30, | | December 31, |
(In millions) | 2021 | | 2020 |
Recoverable taxes | $ | 52 | | | $ | 52 | |
Joint venture receivables | 37 | | | 53 | |
Contractually reimbursable engineering costs | 34 | | | 31 | |
Prepaid assets and deposits | 24 | | | 18 | |
Royalty agreements | 4 | | | 7 | |
China bank notes | — | | | 15 | |
Other | 5 | | | 4 | |
| $ | 156 | | | $ | 180 | |
|
| | | | | | | |
| September 30 | | December 31 |
| 2017 | | 2016 |
| (Dollars in Millions) |
Recoverable taxes | $ | 61 |
| | $ | 60 |
|
Joint venture receivables | 37 |
| | 39 |
|
Prepaid assets and deposits | 36 |
| | 35 |
|
Notes receivable | 28 |
| | 18 |
|
Contractually reimbursable engineering costs | 15 |
| | 7 |
|
Foreign currency hedges | 1 |
| | 6 |
|
Other | 3 |
| | 5 |
|
| $ | 181 |
| | $ | 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 $11 million during the nine months ended September 30, 2017 to financial institutions, $5 million of which occurred in the third quarter and will mature within the first half of 2018. The collection 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 $114 million and $104 million of China bank notes during the nine months ended September 30, 2021 and 2020, respectively. Remaining amounts outstanding at third-party institutions related to sold bank notes will mature by the end of the first quarter of 2022.
Other non-current assets are comprised of the following components:
|
| | | | | | | |
| September 30 | | December 31 |
| 2017 | | 2016 |
| (Dollars in Millions) |
Deferred tax assets | $ | 49 |
| | $ | 48 |
|
Recoverable taxes | 36 |
| | 34 |
|
Joint venture receivables | 26 |
| | 25 |
|
Contractually reimbursable engineering costs | 19 |
| | 11 |
|
Long term notes receivable | 10 |
| | 10 |
|
Other | 14 |
| | 18 |
|
| $ | 154 |
| | $ | 146 |
|
In conjunction with the Interiors Divestiture, the Company entered into a three year term loan with the buyer for $10 million, which matures on December 1, 2019.
| | | | | | | | | | | |
| September 30, | | December 31, |
(In millions) | 2021 | | 2020 |
Deferred tax assets | $ | 54 | | | $ | 55 | |
Contractually reimbursable engineering costs | 35 | | | 31 | |
Recoverable taxes | 11 | | | 21 | |
Royalty agreements | 2 | | | 8 | |
Joint venture notes receivable | — | | | 7 | |
Other | 15 | | | 13 | |
| $ | 117 | | | $ | 135 | |
Current and non-current contractually reimbursable engineering costs of $15 million and $19 million, respectively, as of September 30, 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 $8$10 million during the remainder of 2017, $102021, $31 million in 2018, $92022, $18 million in 2019, $22023, $6 million in 20202024 and $5$4 million in 2021.2025 and beyond.
NOTE 9. Intangible Assets, net
Intangible assets, net as of September 30, 2017 and December 31, 2016, are comprised of the following:
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | September 30, 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) |
Definite-Lived: | | |
Developed technology | 10 | | $ | 41 |
| | $ | 28 |
| | $ | 13 |
| | $ | 40 |
| | $ | 25 |
| | $ | 15 |
|
Customer related | 9 | | 85 |
| | 31 |
| | 54 |
| | 83 |
| | 25 |
| | 58 |
|
Capitalized software development | 3 | | 6 |
| | — |
| | 6 |
| | 4 |
| | — |
| | 4 |
|
Other | 32 | | 10 |
| | 1 |
| | 9 |
| | 8 |
| | 1 |
| | 7 |
|
Subtotal | | | 142 |
| | 60 |
| | 82 |
| | 135 |
| | 51 |
| | 84 |
|
Indefinite-Lived: | | |
Goodwill | | | 46 |
| | — |
| | 46 |
| | 45 |
| | — |
| | 45 |
|
Total | | | $ | 188 |
| | $ | 60 |
| | $ | 128 |
| | $ | 180 |
| | $ | 51 |
| | $ | 129 |
|
The Company recorded approximately $3 million and $9 million of amortization expense related to definite-lived intangible assets for the three and nine months ended September 30, 2017. The Company currently estimates annual amortization expense to be $13 million for 2017, $14 million for 2018 and 2019, $11 million for 2020, and $9 million for 2021. Indefinite-lived intangible assets are 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. There were no indicators of potential impairment during the nine months ended September 30, 2017.
During the three months ended September 30, 2017, the Company contributed $2 million to a non-profit corporation who is building a state of the art research and development facility. The contribution provides the Company certain rights regarding access to the facility for three years. The Company will use the facility for autonomous driving research and development activities for multiple products and therefore capitalized the contribution as an intangible asset. The Company expects to make a second contribution of $2 million during the first half of 2018 when the facility is substantially complete. The asset will be amortized over a 36 month period on a straight-line basis beginning in January 2018 when the term of the arrangement begins.
The Company capitalizes software development costs after the software product development reaches technological feasibility and until the software product becomes releasable to customers. During the nine months ended September 30, 2017, the Company capitalized $2 million related to software development cost intended for external use. The capitalized software development costs are amortized over the useful life of the technology on a straight-line basis.
A roll-forward of the carrying amounts of intangible assets is presented below:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Definite-lived intangibles | | Indefinite-lived intangibles | | |
| Developed Technology | | Customer Related | | Capitalized Software Development | | Other | | Goodwill | Total |
| (Dollars in Millions) |
December 31, 2016 | $ | 15 |
| | $ | 58 |
| | $ | 4 |
| | $ | 7 |
| | $ | 45 |
| | $ | 129 |
|
Additions | — |
| | — |
| | 2 |
| | 2 |
| | — |
| | 4 |
|
Foreign currency | 1 |
| | 2 |
| | — |
| | — |
| | 1 |
| | 4 |
|
Amortization | (3 | ) | | (6 | ) | | — |
| | — |
| | — |
| | (9 | ) |
September 30, 2017 | $ | 13 |
| | $ | 54 |
| | $ | 6 |
| | $ | 9 |
| | $ | 46 |
| | $ | 128 |
|
NOTE 10.7. Other Liabilities
Other current liabilities are summarized as follows:
| | | | | | | | | | | |
| September 30, | | December 31, |
(In millions) | 2021 | | 2020 |
Product warranty and recall accruals | $ | 46 | | | $ | 52 | |
Deferred income | 45 | | | 46 | |
Non-income taxes payable | 18 | | | 15 | |
Restructuring reserves | 15 | | | 39 | |
Royalty reserves | 14 | | | 13 | |
Joint venture payables | 11 | | | 9 | |
Income taxes payable | 8 | | | 5 | |
Dividends payable to non-controlling interests | 3 | | | 2 | |
| | | |
Other | 27 | | | 28 | |
| $ | 187 | | | $ | 209 | |
|
| | | | | | | |
| September 30 | | December 31 |
| 2017 | | 2016 |
| (Dollars in Millions) |
Product warranty and recall accruals | $ | 39 |
| | $ | 43 |
|
Contribution payable | 35 |
| | 31 |
|
Restructuring reserves | 26 |
| | 40 |
|
Rent and royalties | 23 |
| | 23 |
|
Foreign currency hedges | 22 |
| | 7 |
|
Deferred income | 14 |
| | 14 |
|
Distribution payable | 14 |
| | 15 |
|
Dividends payable | 12 |
| | 5 |
|
Income taxes payable | 11 |
| | 22 |
|
Joint venture payables | 10 |
| | 22 |
|
Non-income taxes payable | 3 |
| | 8 |
|
Electronics operations repurchase commitment | — |
| | 50 |
|
Other | 26 |
| | 29 |
|
| $ | 235 |
| | $ | 309 |
|
On December 1, 2015, Visteon completed the sale and transfer of its equity ownership in Visteon Deutschland GmbH, which operated the Berlin, Germany interiors plant ("Germany Interiors Divestiture"). The Company contributed cash, of approximately $141 million, assets of $27 million, and liabilities of $198 million including pension related liabilities. The Company will make a final contribution payment of approximately $35 million anticipated during 2017 upon fulfillment of buyer contractual commitments.
On January 22, 2016 the Company paid to shareholders a special distribution of $1.74 billion, an additional $14 million will be paid over a two-year period upon vesting and settlement of restricted stock units and performance-based share units previously granted to the Company's employees. The special cash distribution was funded from the Climate Transaction proceeds.
Following the initial sale as part of the Climate Transaction, the Company repurchased an Electronics operation located in India on March 27, 2017 as further described in Note 4, "Discontinued Operations."
Other non-current liabilities are summarized as follows:
| | | | | | | | | | | |
| September 30, | | December 31, |
(In millions) | 2021 | | 2020 |
Derivative financial instruments | $ | 18 | | | $ | 38 | |
Product warranty and recall accruals | 12 | | | 12 | |
Deferred income | 12 | | | 7 | |
Income tax reserves | 7 | | | 6 | |
Royalty agreements | 5 | | | 6 | |
Restructuring reserves | 2 | | | 10 | |
Other | 15 | | | 13 | |
| $ | 71 | | | $ | 92 | |
|
| | | | | | | |
| September 30 | | December 31 |
| 2017 | | 2016 |
| (Dollars in Millions) |
Deferred income | $ | 16 |
| | $ | 18 |
|
Product warranty and recall accruals | 12 |
| | 12 |
|
Income tax reserves | 11 |
| | 14 |
|
Non-income tax reserves | 8 |
| | 10 |
|
Other | 15 |
| | 15 |
|
| $ | 62 |
| | $ | 69 |
|
NOTE 11.8. Debt
The Company’s short and long-term debt consists of the following:
| | | | | | | | September 30, | | December 31, |
| September 30 | | December 31 | |
| 2017 | | 2016 | |
| (Dollars in Millions) | |
(In millions) | | (In millions) | 2021 | | 2020 |
Short-Term Debt: | | | | Short-Term Debt: | | | |
Current portion of long-term debt | $ | 1 |
| | $ | 3 |
| |
Short-term borrowings | 43 |
| | 33 |
| Short-term borrowings | $ | 5 | | | $ | — | |
| $ | 44 |
| | $ | 36 |
| | | | |
Long-Term Debt: | | | | Long-Term Debt: | |
Term debt facility | $ | 347 |
| | $ | 346 |
| |
| Term debt facility, net | | Term debt facility, net | $ | 349 | | | $ | 349 | |
Short-Term Debt
Short-term borrowings are primarily related to the Company's non-U.S. consolidated joint venturesaffiliate borrowings and are primarily payable primarily in U.S. Dollars, Chinese Renminbi and India Rupee, or Russian Ruble. The Company had short-term borrowings of $43 million and $33 million asBrazilian real. As of September 30, 20172021, the Company has $5 million short-term borrowing and December 31, 2016, respectively. Short-term borrowings increased in the third quarter of 2017 primarily due to changes in working capital needs.
Available borrowings on outstandingthere is $191 million available capacity under affiliate credit facilities asfacilities.
Long-Term Debt
As of September 30, 2017 are approximately $24 million and certain of these facilities have pledged assets as security.
Long-Term Debt
As of December 31, 2016,2021, the Company hadhas an amended credit agreement (the “Credit Agreement”("Credit Agreement") which includedincludes a $350 million Term Facility maturing April 9, 2021March 24, 2024 and a $400 million Revolving Credit Facility with capacitywhich matures the earlier of $200 million maturing April 9, 2019. Borrowings under(i) December 24, 2024, (ii) 90 days prior to the scheduled maturity of the Term Facility, accrued interest ator (iii) the greaterdate of LIBOR or 0.75%, plus 2.75%, with an option bythe termination of the Company's credit agreement.
On March 19, 2020, the Company to specifyborrowed the LIBOR tenorentire amount of either 1, 2, 3, or 6 months. Loans drawnrevolving loans available under the Revolving Credit Facility had an interest rate equal to LIBOR plus a margin ranging from 2.00%increase its cash position and maximize its flexibility in response to 2.75% as specified by a ratings grid contained inunprecedented uncertainty related to the Credit Agreement. Asimpact of December 31, 2016, borrowingsCOVID-19. On September 24, 2020, the Company fully repaid the amount borrowed under the Revolving Credit Facility would accrue interest at LIBOR plus 2.50%. There werefollowing stronger than expected industry recovery and improved Company performance in the third quarter of 2020. The Company has no outstanding borrowings at year-end.
On March 24, 2017, the Company entered into a second amendment to the Credit Agreement to, among other things, extend the maturity dates of both facilities by three years and increaseon the Revolving Credit Facility capacity to $300 million. The amended Revolving Credit Facility will matureas of September 30, 2021.
Interest on March 24, 2022 and the amended Term Facility will mature on March 24, 2024. The amendment reduced the LIBOR spread applicable to each of the Revolving Credit Facility and the Term Facility by 0.50% and reduced the LIBOR floor relatedloans accrue at a rate equal to the Term Facility from 0.75% to 0.00%. The $350 milliona LIBOR-based rate plus an applicable margin of borrowings1.75% per annum. Loans under the amended TermCompany's Revolving Credit Facility accrue interest at a rate equal to a LIBOR-based rate plus an applicable margin of LIBOR plus 2.25%. In conjunctionbetween 1.00% - 2.00%, as determined by the Company's total gross leverage ratio.
The Credit Agreement requires compliance 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 amendedcustomary affirmative and negative covenants and contains customary events of default. The Revolving Credit Facility agreement,also requires that the Company maintain a total net leverage ratio no greater than 3.50:1.00. During any borrowing thereunder shall accrue interest at LIBOR plus 1.75%.period when the Company’s corporate and family ratings meet investment grade ratings, certain of the negative covenants are suspended. As of September 30, 2017, there were no outstanding borrowings under2021, the amended Revolving Credit Facility.Company was in compliance with all its debt covenants.
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 principal 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.
The Credit Agreement requires the Company and its subsidiaries to comply with customary affirmative and negative covenants, and contains customary events of default. The Revolving Credit Facility also requires that the Company maintain a total net leverage ratio no greater than 3.00:1.00. During any period when the Company’s corporate and family ratings meet investment
grade ratings, certain of the negative covenants shall be suspended. As of September 30, 2017, the Company was in compliance with all its debt covenants.
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,security agreement, subject to certain limitations.
In connection with amending both the Term Facility and Revolving Credit Facility, the
Other
The Company recorded $1has a $5 million of interest expense and deferred $2 million of costs as a non-current asset. The deferred costs will be amortized over the term of the debt facilities. As of September 30, 2017, the amended Term Facility remains at $350 million of aggregate principal and there were no outstanding borrowings under the amended Revolving Credit Facility.
Other
On September 29, 2017 the Company amended certain terms of its letter of credit facility. The amended agreement reduced the facility, amount from $15 million to $5 million and extended the expiration date by three years to September 30, 2020. Under the agreementwhereby the Company is required to maintain a cash collateral account equal to 103% (110% for non-U.S. dollar denominated letters)of the aggregate stated amount of issued letters of credit (or 110% for non-U.S. currencies) and must reimburse any amounts drawn under issued letters of credit. The Company had $2 million of outstanding letters of credit issued under this facility secured by restricted cash, as of September 30, 2017.
2021. Additionally, the Company had $18$11 million of locally issued letters of credit with less than $1 million of collateral as of September 30, 2017,2021, to support various tax appeals, customs arrangements and other obligations at its local affiliates.
NOTE 12.9. Employee Benefit Plans
Defined Benefit Plans
The Company's net periodic benefit costs for all defined benefit plans for the three month periods ended September 30, 20172021 and 20162020 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| U.S. Plans | | Non-U.S. Plans |
(In millions) | 2021 | | 2020 | | 2021 | | 2020 |
Costs Recognized in Income: | | | | | | | |
Pension service cost: | | | | | | | |
Service cost | $ | — | | | $ | — | | | $ | (1) | | | $ | — | |
Pension financing benefits (cost): | | | | | | | |
Interest cost | $ | (5) | | | $ | (6) | | | $ | (1) | | | $ | (2) | |
Expected return on plan assets | 9 | | | 10 | | | 2 | | | 2 | |
Amortization of losses and other | — | | | — | | | (1) | | | (1) | |
Total pension financing benefits: | 4 | | | 4 | | | — | | | (1) | |
Restructuring related pension cost: | | | | | | | |
Special termination benefits | — | | | (1) | | | — | | | — | |
Net pension benefit (cost) | $ | 4 | | | $ | 3 | | | $ | (1) | | | $ | (1) | |
|
| | | | | | | | | | | | | | | |
| U.S. Plans | | Non-U.S. Plans |
| 2017 | | 2016 | | 2017 | | 2016 |
| (Dollars in Millions) |
Costs Recognized in Income: | | | | | | | |
Service cost | $ | — |
| | $ | — |
| | $ | 1 |
| | $ | 1 |
|
Interest cost | 7 |
| | 7 |
| | 2 |
| | 3 |
|
Expected return on plan assets | (10 | ) | | (10 | ) | | (2 | ) | | (3 | ) |
Net pension (income) expense | $ | (3 | ) | | $ | (3 | ) | | $ | 1 |
| | $ | 1 |
|
Pension financing benefits, net of $4 million and $3 million for the three months ended September 30, 2021 and 2020, respectively, are classified as Other income, net on the Company's condensed consolidated statements of comprehensive income.
The Company's net periodic benefit costs for all defined benefit plans for the nine month periods ended September 30, 20172021 and 20162020 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| U.S. Plans | | Non-U.S. Plans |
(In millions) | 2021 | | 2020 | | 2021 | | 2020 |
Costs Recognized in Income: | | | | | | | |
Pension service cost: | | | | | | | |
Service cost | $ | — | | | $ | — | | | $ | (1) | | | $ | (1) | |
Pension financing benefits (costs): | | | | | | | |
Interest cost | $ | (13) | | | $ | (18) | | | $ | (4) | | | $ | (5) | |
Expected return on plan assets | 28 | | | 29 | | | 6 | | | 6 | |
Amortization of losses and other | (2) | | | — | | | (2) | | | (2) | |
Total pension financing benefits: | 13 | | | 11 | | | — | | | (1) | |
Restructuring related pension cost: | | | | | | | |
Special termination benefits | — | | | (3) | | | — | | | (1) | |
Net pension benefit (cost) | $ | 13 | | | $ | 8 | | | $ | (1) | | | $ | (3) | |
|
| | | | | | | | | | | | | | | |
| U.S. Plans | | Non-U.S. Plans |
| 2017 | | 2016 | | 2017 | | 2016 |
| (Dollars in Millions) |
Costs Recognized in Income: | | | | | | | |
Service cost | $ | — |
| | $ | — |
| | $ | 2 |
| | $ | 2 |
|
Interest cost | 21 |
| | 21 |
| | 7 |
| | 9 |
|
Expected return on plan assets | (30 | ) | | (31 | ) | | (7 | ) | | (9 | ) |
Settlements and curtailments | — |
| | — |
| | — |
| | 1 |
|
Amortization of losses and other | — |
| | — |
| | 1 |
| | — |
|
Net pension (income) expense | $ | (9 | ) | | $ | (10 | ) | | $ | 3 |
| | $ | 3 |
|
$13 million and $10 million for the nine months ended September 30, 2021 and 2020, respectively, are classified as Other income, net on the Company's condensed consolidated statements of comprehensive income.
During the nine months ended September 30, 2017,2021, cash contributions to the Company's defined benefit plans were less than aapproximately $12 million for the U.S. plans and $5 million for the non-U.S. plans. The Company expects to makeestimates that total cash contributions to its defined benefit pension plans of $7 million in 2017.during 2021 will be $19 million.
On April 28, 2016, the Company purchased a non-participating annuity contract for all participants of the Canada non-represented plan. The annuity purchase covered 52 participants and resulted in the use of $5 million of plan assets for pension benefit obligation settlements of approximately $5 million. In connection with the annuity purchase, the Company recorded a settlement loss of approximately $1 million during the the three months ended September 30, 2016.
NOTE 13.10. Income Taxes
During the three and nine month periodsperiod ended September 30, 2017,2021, the Company recorded a provision for income tax on continuing operations of $8$4 million and $34$20 million, respectively, which reflects income tax expense in countries where the Company is profitable; accrued withholding taxes; changes inongoing assessments related to the recognition and measurement of uncertain tax benefits; and the inability to record a tax benefit for pretax losses and/or recognize expense for pretax income in certain jurisdictions (including the U.S.) due to valuation allowances.allowances; and other non-recurring tax items, including enacted tax law changes. Pretax losses from continuing operations in jurisdictions where valuation allowances are maintained and no income tax benefits are recognized totaled
$13 $48 million and $38$106 million for the nine monthsmonth periods ended September 30, 20172021 and September 30, 2016,2020, respectively, resulting in an increase in the Company's effective tax rate in those years.
The Company provides for U.S. and non-U.S. income taxes and non-U.S. withholding taxes on the projected future repatriations of the earnings from its non-U.S. operations that are not considered permanently reinvested at each tier of the legal entity structure.
During the nine month periods ended September 30, 2017 and 2016, the Company recognized expense primarily related to non-U.S. withholding taxes of $6 million and $3 million, respectively, reflecting the Company's forecasts which contemplate numerous financial and operational considerations that impact future repatriations.
The Company's provision for income taxes in interim periods is computed by applying an estimated annual effective tax rate against income before income taxes, excluding equity in net income of non-consolidated affiliates for the period. Effective tax rates vary from period to period as separate calculations are performed for those countries where the Company's operations are profitable and whose results continue to be tax-effected and for those countries where full deferred tax valuation allowances exist and are maintained. In determining the estimated annual effective tax rate, the Company analyzes various factors, including but not limited to, forecasts of projected annual earnings, taxing jurisdictions in which the pretax income and/or pretax losses will be generated and available tax planning strategies. The changing and volatile macro-economic conditions connected with the ongoing COVID-19 pandemic including the semiconductor supply shortage and other supply chain impacts may cause fluctuations in forecasted earnings before income taxes. As such, the Company's effective tax rate could be subject to volatility as forecasted earnings before income taxes are impacted by events which cannot be predicted. The Company’s estimated annual effective tax rate is updated each quarter and may be significantly impacted by changes to the mix of forecasted earnings by tax jurisdiction. The tax impact of adjustments to the estimated annual effective tax rate are recorded in the period such estimates are revised. The Company is also required to record the tax impact of certain other non-recurring tax items, including changes in judgment about valuation allowances and uncertain tax positions, and changes in tax laws or rates, in the interim period in which they occur, rather than include them in the estimated annual effective tax rate.occur.
The need to maintain valuation allowances against deferred tax assets in the U.S. and other affected countries will cause variability in the Company’s quarterly and annual effective tax rates. Full valuation allowances against deferred tax assets in the U.S. and applicable foreign countries will be maintained until sufficient positive evidence exists to reduce or eliminate them. The factors considered by management inCompany evaluates its determinationdeferred income taxes quarterly to determine if valuation allowances are required or should be adjusted. This assessment considers, among other matters, the nature, frequency, and amount of recent losses, the probabilityduration of the realization of the deferred tax assets include, but are not limited to, recent historical financial results, historical taxable income, projected future taxable income, the expected timing of the reversals of existing temporary differencesstatutory carryforward periods, and tax planning strategies. If, based upon theIn making such judgments, significant 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 maythat can be objectively verified. As such, it is generally difficult for positive evidence regarding projected future taxable income exclusiveIf (i) recent improvements to financial results continue in the U.S., or (ii) recovery 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 againstglobal economy after the U.S. net deferred tax assets,COVID-19 pandemic including the cumulative U.S. pretax book loss adjusted for significant permanent items incurred over the three-year period ended December 31, 2016 limits the ability to consider other subjective evidence such as the Company’s plans to improve U.S. profits, and as such,semiconductor shortages occurs faster than expected, the Company continues to maintain a full valuation allowance against the U.S. net deferred tax assets. Based on the Company’s current assessment,believes it is possible that withinsufficient positive evidence may be available to release all, or a portion, of its U.S. valuation allowance in the next 12nine 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 release 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.
months.
Unrecognized Tax Benefits
Gross unrecognized tax benefits as of September 30, 20172021 and December 31, 2016, including amounts attributable to discontinued operations,2020 were $17$15 million and $35$14 million, respectively. Of these amounts, approximately $8 million and $12$7 million, as of September 30, 2017 and December 31, 2016, 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. IfDuring the uncertainty is resolved whilenine months ended September 30, 2021, the Company recorded a full valuation allowance is maintained, these$2 million increase in tax expense related to uncertain tax positions should not impact the effective tax rate in current or future periods.attributable to certain related party transactions. The Company records interest and penalties related to uncertain tax positions as a component of income tax expense and related amounts accrued at September 30, 20172021 and December 31, 2016 were $3 million and $4 million, respectively.
During the first quarter of 2017, the IRS completed the audit of the Company's U.S. tax returns for the 2012 and 2013 tax years. The closing of the audit did not have a material impact on the Company's effective tax rate due to the valuation allowances maintained against the Company's U.S. tax attributes resulting in a decrease in unrecognized tax benefits of $16 million. Also during the first quarter of 2017, the Company settled tax assessments from the Mexican tax authorities in the amount of2020 was $2 million related to certain transfer pricing-related issues. During the third quarter of 2017, the Company settled tax assessments in connection with the Company’s former operations in Spain and France in the amount of $1 million.both years.
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 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 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 $11$7 million is included in Other non-current liabilities on the condensed consolidated balance sheet, while $3 million is reflected as a reduction of a deferred tax asset related to a net operating loss included in Other non-current assets on the condensed consolidated balance sheet.
A reconciliation of the beginning and ending amount of unrecognized tax benefits including amounts attributable to discontinued operations is as follows:
|
| | | |
| Nine Months Ended September 30, 2017 |
| (Dollars in Millions) |
Beginning balance | $ | 35 |
|
Tax positions related to current period: | |
Additions | 2 |
|
Tax positions related to prior periods: | |
Reductions | (21 | ) |
Effect of exchange rate changes | 1 |
|
Ending balance | $ | 17 |
|
During 2012, Brazil tax authorities issued tax assessment notices to Visteon Sistemas Automotivos (“Sistemas”) related to the sale of its chassis business, in connection with this assessment the Company recorded a long-term tax deposit during 2013. During the third quarter of 2021, the Company received a favorable judgement related to a third party, which required a deposit in the amount of $15 million during 2013 necessary to open a judicial proceeding against the government in order to suspend the debt and allow Sistemas to operate regularly before the tax authorities after attempts to reopen an appeal of the administrative decision failed. Adjusted for currency impacts and accrued interest, the deposit amount is approximately $16 million, as of September 30, 2017.this deposit. The Company believes thatreclassified $9 million associated with this deposit to other current assets and expects to receive settlement during the riskfourth quarter of a negative outcome is remote once2021. The remaining deposit of approximately $2 million has been applied against other long-term labor-related tax debts pursuant to the matter is fully litigated at the highest judicial level. These appeal payments, as well as incomejudgement. Income tax refund claims associated with other jurisdictions, total $19$5 million as of September 30, 2017,2021, and are included in "OtherOther non-current assets"assets on the condensed consolidated balance sheet.sheets.
NOTE 14.11. Stockholders’ Equity and Non-controlling Interests
Non-Controlling Interests
The Company's non-controlling interests are as follows:
| | | | | | | | | | | |
| September 30, | | December 31, |
(In millions) | 2021 | | 2020 |
Shanghai Visteon Automotive Electronics, Co., Ltd. | $ | 44 | | | $ | 44 | |
Yanfeng Visteon Automotive Electronics Co., Ltd. | 29 | | | 57 | |
Changchun Visteon FAWAY Automotive Electronics, Co., Ltd. | 19 | | | 20 | |
Other | 2 | | | 2 | |
| $ | 94 | | | $ | 123 | |
Accumulated Other Comprehensive Income (Loss)
Changes in equityAccumulated other comprehensive income (loss) (“AOCI”) and reclassifications out of AOCI by component include:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(In millions) | 2021 | | 2020 | | 2021 | | 2020 |
Changes in AOCI: | | | | | | | |
Beginning balance | $ | (305) | | | $ | (299) | | | $ | (304) | | | $ | (267) | |
Other comprehensive income (loss) before reclassification, net of tax | (7) | | | 18 | | | (11) | | | (13) | |
Amounts reclassified from AOCI | 2 | | | (1) | | | 5 | | | (2) | |
Ending balance | $ | (310) | | | $ | (282) | | | $ | (310) | | | $ | (282) | |
Changes in AOCI by Component: | | | | | | | |
Foreign currency translation adjustments | | | | | | | |
Beginning balance | $ | (131) | | | $ | (185) | | | $ | (115) | | | $ | (153) | |
Other comprehensive income (loss) before reclassification, net of tax (a) | (13) | | | 28 | | | (29) | | | (4) | |
Ending balance | (144) | | | (157) | | | (144) | | | (157) | |
Net investment hedge | | | | | | | |
Beginning balance | (5) | | | 9 | | | (15) | | | 4 | |
Other comprehensive income (loss) before reclassification, net of tax (a) | 5 | | | (9) | | | 18 | | | (1) | |
Amounts reclassified from AOCI | (1) | | | (2) | | | (4) | | | (5) | |
Ending balance | (1) | | | (2) | | (1) | | | (2) |
Benefit plans | | | | | | | |
Beginning balance | (162) | | | (111) | | | (165) | | | (114) | |
Other comprehensive income (loss) before reclassification, net of tax (b) | 1 | | | (2) | | | 1 | | | — | |
Amounts reclassified from AOCI | 1 | | | 1 | | | 4 | | | 2 | |
Ending balance | (160) | | | (112) | | | (160) | | | (112) | |
Unrealized hedging gain (loss) | | | | | | | |
Beginning balance | (7) | | | (12) | | | (9) | | | (4) | |
Other comprehensive income (loss) before reclassification, net of tax (c) | — | | | 1 | | | (1) | | | (8) | |
Amounts reclassified from AOCI | 2 | | | — | | | 5 | | | 1 | |
Ending balance | (5) | | | (11) | | | (5) | | | (11) | |
Total AOCI | $ | (310) | | | $ | (282) | | | $ | (310) | | | $ | (282) | |
(a) There were no income tax effects for either period due to the valuation allowance.
(b) Net tax expense was less than $1 million related to benefit plans for the three and nine months ended September 30, 20172021 and 2016 are as follows:2020.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| 2017 | | 2016 |
| Visteon | | NCI | | Total | | Visteon | | NCI | | Total |
| (Dollars in Millions) |
Three Months Ended September 30 | | | | | | | | | | | |
Beginning balance | $ | 569 |
| | $ | 136 |
| | $ | 705 |
| | $ | 616 |
| | $ | 148 |
| | $ | 764 |
|
Net income from continuing operations | 43 |
| | 4 |
| | 47 |
| | 21 |
| | 4 |
| | 25 |
|
Net income from discontinued operations | — |
| | — |
| | — |
| | 7 |
| | — |
| | 7 |
|
Net income | 43 |
| | 4 |
| | 47 |
| | 28 |
| | 4 |
| | 32 |
|
Other comprehensive income (loss) | | | | | | | | | | | |
Foreign currency translation adjustments | 17 |
| | 2 |
| | 19 |
| | 7 |
| | — |
| | 7 |
|
Net investment hedge | (7 | ) | | — |
| | (7 | ) | | (4 | ) | | — |
| | (4 | ) |
Benefit plans | (1 | ) | | — |
| | (1 | ) | | — |
| | — |
| | — |
|
Unrealized hedging gain | 1 |
| | — |
| | 1 |
| | — |
| | — |
| | — |
|
Total other comprehensive income | 10 |
| | 2 |
| | 12 |
| | 3 |
| | — |
| | 3 |
|
Stock-based compensation, net | 3 |
| | — |
| | 3 |
| | 1 |
| | — |
| | 1 |
|
Share repurchase
| (10 | ) | | — |
| | (10 | ) | | — |
| | — |
| | — |
|
Dividends to non-controlling interests | — |
| | (24 | ) | | (24 | ) | | — |
| | (6 | ) | | (6 | ) |
Ending balance | $ | 615 |
| | $ | 118 |
| | $ | 733 |
| | $ | 648 |
| | $ | 146 |
| | $ | 794 |
|
(c) There were no income tax effects related to unrealized hedging gain (loss) for either period due to the valuation allowance. |
| | | | | | | | | | | | | | | | | | | | | | | |
| 2017 | | 2016 |
| Visteon | | NCI | | Total | | Visteon | | NCI | | Total |
| (Dollars in Millions) |
Nine Months Ended September 30 | | | | | | | | | | | |
Beginning balance | $ | 586 |
| | $ | 138 |
| | $ | 724 |
| | $ | 1,057 |
| | $ | 142 |
| | $ | 1,199 |
|
Net income from continuing operations | 143 |
| | 11 |
| | 154 |
| | 88 |
| | 12 |
| | 100 |
|
Net income (loss) from discontinued operations | 8 |
| | — |
| | 8 |
| | (15 | ) | | — |
| | (15 | ) |
Net income | 151 |
| | 11 |
| | 162 |
| | 73 |
| | 12 |
| | 85 |
|
Other comprehensive income (loss) | | | | | | | | | | | |
Foreign currency translation adjustments | 57 |
| | 4 |
| | 61 |
| | 32 |
| | (2 | ) | | 30 |
|
Net investment hedge | (20 | ) | | — |
| | (20 | ) | | (6 | ) | | — |
| | (6 | ) |
Benefit plans | (2 | ) | | — |
| | (2 | ) | | 1 |
| | — |
| | 1 |
|
Unrealized hedging gain (loss) | 4 |
| | — |
| | 4 |
| | (4 | ) | | — |
| | (4 | ) |
Total other comprehensive income (loss) | 39 |
| | 4 |
| | 43 |
| | 23 |
| | (2 | ) | | 21 |
|
Stock-based compensation, net | 9 |
| | — |
| | 9 |
| | (5 | ) | | — |
| | (5 | ) |
Share repurchase | (170 | ) | | — |
| | (170 | ) | | (500 | ) | | — |
| | (500 | ) |
Dividends to non-controlling interests | — |
| | (35 | ) | | (35 | ) | | — |
| | (6 | ) | | (6 | ) |
Ending balance | $ | 615 |
| | $ | 118 |
| | $ | 733 |
| | $ | 648 |
| | $ | 146 |
| | $ | 794 |
|
Share Repurchase Program
During 2016, Visteon completed two stock buyback programs withthe first quarter of 2020, the Company purchased a third-party financial institution to purchasetotal of 233,769 shares of Visteon common stock for an aggregate purchase price of $500 million. Under these programs, Visteon purchased 7,190,506 shares at an average price of $69.48.
On January 10, 2017, the Company's board$67.87 for an aggregate purchase amount of directors authorized $400$16 million of share repurchase of its shares of common stock through. On February 27, 2017 the Company entered intopursuant to an accelerated share buyback ("ASB") programagreement with a third-party financial institution to purchase shares of Visteon common stock for an aggregate purchase price of $125 million. On March 2, 2017, the Company received an initial delivery of 1,062,022 shares of common stock using a reference price of $94.16. Theinstitution.
program was concluded in May 2017 and the Company received an additional 238,344 shares. In total, the Company purchased 1,300,366 shares at an average price of $96.13 under this ASB program.
During the second quarter of 2017, the Company entered into a brokerage agreement with a third party financial institution to execute open market share purchases of the Company's common stock. The Company paid approximately $35 million to repurchase 359,100 shares at an average price of $97.44.
During the third quarter of 2017, the Company paid approximately $10 million to repurchase 82,513 shares on the open market at an average price of $121.25.
The Company anticipates that additional repurchases of common stock, if any, would occur from time to time in open market transactions or in privately negotiated transactions depending on market and economic conditions, share price, trading volume, alternative uses of capital and other factors.
Non-Controlling Interests
Non-controlling interests in the Visteon Corporation economic entity are as follows: |
| | | | | | | |
| September 30 | | December 31 |
| 2017 | | 2016 |
| (Dollars in Millions) |
Yanfeng Visteon Automotive Electronics Co., Ltd. | $ | 73 |
| | $ | 97 |
|
Shanghai Visteon Automotive Electronics, Co., Ltd. | 43 |
| | 39 |
|
Other | 2 |
| | 2 |
|
| $ | 118 |
| | $ | 138 |
|
Accumulated Other Comprehensive (Loss) Income
Changes in Accumulated other comprehensive (loss) income (“AOCI”) and reclassifications out of AOCI by component include: |
| | | | | | | | | | | | | | | |
| Three Months Ended September 30 | | Nine Months Ended September 30 |
| 2017 | | 2016 | | 2017 | | 2016 |
| (Dollars in Millions) |
Changes in AOCI: | | | | | | | |
Beginning balance | $ | (204 | ) | | $ | (170 | ) | | $ | (233 | ) | | $ | (190 | ) |
Other comprehensive income (loss) before reclassification, net of tax | 8 |
| | 2 |
| | 34 |
| | 24 |
|
Amounts reclassified from AOCI | 2 |
| | 1 |
| | 5 |
| | (1 | ) |
Ending balance | $ | (194 | ) | | $ | (167 | ) | | $ | (194 | ) | | $ | (167 | ) |
Changes in AOCI by Component: | | |
Foreign currency translation adjustments | | | | | | | |
Beginning balance | $ | (123 | ) | | $ | (134 | ) | | $ | (163 | ) | | $ | (159 | ) |
Other comprehensive income before reclassification, net of tax (a) | 17 |
| | 7 |
| | 57 |
| | 32 |
|
Ending balance | (106 | ) | | (127 | ) | | (106 | ) | | (127 | ) |
Net investment hedge | | | | | | | |
Beginning balance | (3 | ) | | 2 |
| | 10 |
| | 4 |
|
Other comprehensive loss before reclassification, net of tax (a) | (7 | ) | | (4 | ) | | (20 | ) | | (6 | ) |
Ending balance | (10 | ) | | (2) |
| | (10 | ) | | (2) |
|
Benefit plans | | | | | | | |
Beginning balance | (76 | ) | | (35) |
| | (75 | ) | | (36) |
|
Other comprehensive income before reclassification, net of tax (a) | (1 | ) | | — |
| | (2 | ) | | — |
|
Amounts reclassified from AOCI | — |
| | — |
| | — |
| | 1 |
|
Ending balance | (77 | ) | | (35 | ) | | (77 | ) | | (35 | ) |
Unrealized hedging (loss) gain | | | | | | | |
Beginning balance | (2 | ) | | (3 | ) | | (5 | ) | | 1 |
|
Other comprehensive income (loss) before reclassification, net of tax (b) | (1 | ) | | (1 | ) | | (1 | ) | | (2 | ) |
Amounts reclassified from AOCI | 2 |
| | 1 |
| | 5 |
| | (2 | ) |
Ending balance | (1 | ) | | (3 | ) | | (1 | ) | | (3 | ) |
Total AOCI | $ | (194 | ) | | $ | (167 | ) | | $ | (194 | ) | | $ | (167 | ) |
(a) Net tax expense was less than $1 million for the nine month period ending September 30, 2017. Income tax effects are zero for all other periods due to the recording of the valuation allowance.
(b) Net tax expense of less than $1 million and $1 million are related to unrealized hedging gain for the three and nine month periods ended September 30, 2017, respectively. Net tax benefits of $1 million and less than $1 million are related to unrealized hedging gain for the three and nine month periods ended September 30, 2016, respectively.
NOTE 15.12. Earnings Per Share
Basic earnings per share is calculated by dividing net income attributable to Visteon by the weighted average number of shares of common stock outstanding. Diluted earnings per share is computedcalculated by dividing net income by the weighted average number of common and potentially dilutive common shares outstanding. Performance based share units are considered contingently issuable shares and are included in the computation of diluted earnings per share based on the number of shares that would be issuable if the reporting date were the end of the contingency period and if the result would be dilutive.
The table below provides details underlying the calculations of basic and diluted earnings (loss) per share:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(In millions, except per share amounts) | 2021 | | 2020 | | 2021 | | 2020 |
Numerator: | | | | | | | |
| | | | | | | |
| | | | | | | |
Net income (loss) attributable to Visteon | $ | 5 | | | $ | 6 | | | $ | 10 | | | $ | (74) | |
Denominator: | | | | | | | |
Average common stock outstanding - basic | 28.0 | | | 27.8 | | | 27.9 | | | 27.9 | |
Dilutive effect of performance based share units and other | 0.4 | | | 0.2 | | | 0.4 | | | — | |
Diluted shares | 28.4 | | | 28.0 | | | 28.3 | | | 27.9 | |
Basic and Diluted Per Share Data: | | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Basic earnings (loss) per share attributable to Visteon | $ | 0.18 | | | $ | 0.22 | | | $ | 0.36 | | | $ | (2.65) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Diluted earnings (loss) per share attributable to Visteon: | $ | 0.18 | | | $ | 0.21 | | | $ | 0.35 | | | $ | (2.65) | |
Performance based share units of approximately 181,000 were excluded from the calculation of diluted loss per share because the effect of including them would have been anti-dilutive for the nine months ended September 30, 2020.
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30 | | Nine Months Ended September 30 |
| 2017 | | 2016 | | 2017 | | 2016 |
| (In Millions, Except Per Share Amounts) |
Numerator: | | | | | | | |
Net income from continuing operations attributable to Visteon | $ | 43 |
| | $ | 21 |
| | $ | 143 |
| | $ | 88 |
|
Income (loss) from discontinued operations, net of tax | — |
| | 7 |
| | 8 |
| | (15 | ) |
Net income attributable to Visteon | $ | 43 |
| | $ | 28 |
| | $ | 151 |
| | $ | 73 |
|
Denominator: | | | | | | | |
Average common stock outstanding - basic | 31.2 |
| | 34.0 |
| | 31.8 |
| | 35.6 |
|
Dilutive effect of performance based share units and other | 0.6 |
| | 0.4 |
| | 0.5 |
| | 0.4 |
|
Diluted shares | 31.8 |
| | 34.4 |
| | 32.3 |
| | 36.0 |
|
| | | | | | | |
Basic and Diluted Per Share Data: | | | | | | | |
Basic earnings (loss) per share attributable to Visteon: | | | | | | | |
Continuing operations | $ | 1.38 |
| | $ | 0.62 |
| | $ | 4.50 |
| | $ | 2.47 |
|
Discontinued operations | — |
| | 0.21 |
| | 0.25 |
| | (0.42 | ) |
| $ | 1.38 |
| | $ | 0.83 |
| | $ | 4.75 |
| | $ | 2.05 |
|
Diluted earnings (loss) per share attributable to Visteon: | | | | | | | |
Continuing operations | $ | 1.35 |
| | $ | 0.61 |
| | $ | 4.43 |
| | $ | 2.44 |
|
Discontinued operations | — |
| | 0.20 |
| | 0.25 |
| | (0.41 | ) |
| $ | 1.35 |
| | $ | 0.81 |
| | $ | 4.68 |
| | $ | 2.03 |
|
NOTE 16.13. Fair Value Measurements and Financial Instruments
Fair Value Measurements
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.
Items Measured at Fair Value on a NonrecurringRecurring Basis
Certain assets and liabilities are measured at fair value on a nonrecurring basis. The fair value measurements are generally determined using unobservable inputs and are classified within Level 3 of the fair value hierarchy. These assets include long-lived assets, intangible assets and investments in affiliates, which may be written down to fair value as a result of impairment. During the third quarter there were no items measured at fair value on a nonrecurring basis.
Items Not Carried at Fair Value
The Company's fair value of debt was approximately $397 million and $389 million as of September 30, 2017 and December 31, 2016, respectively. Fair value estimates were based on the current rates offered to the Company for debt of the same remaining maturities. Accordingly, the Company's debt fair value disclosures are classified as Level 2, "Other Observable Inputs" in the fair value hierarchy.
The Company is exposed to various market risks including, but not limited to, changes in currency exchange rates arising from the sale of products in countries other than the manufacturing source, foreign currency denominated supplier payments, debt, dividends and market interest rates.investments in subsidiaries. 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 related to transactions, excluding those transactions as related to the payment of variable interest on existing debt, is eighteen months. The maximum length of time over which the Company hedges forecasted transactions related to variable interest payments is the term of the underlying debt. The use
Hedge instruments are measured at fair value on a recurring basis under an income approach using industry-standard models that consider various assumptions, including time value, volatility factors, current market and contractual prices for the
underlying and non-performance risk. Substantially all of financial derivative instruments may pose risk of lossthese assumptions are observable in the eventmarketplace throughout the full term of nonperformance by the transaction counter-party.
instrument or may derived from observable data. Accordingly, the Company's currency instruments are classified as Level 2 in the fair value hierarchy.
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 the Company’s condensed consolidated balance sheets. There is no cash collateral on any of these derivatives.
Items Measured at Fair Value on a Recurring Basis
Foreign currency hedge instruments are measured at fair value on a recurring basis under an income approach using industry-standard models that consider various assumptions, including time value, volatility factors, current market and contractual prices for the underlying and non-performance risk. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data, or are supported by observable levels at which transactions are executed in the marketplace. Accordingly, the Company's foreign currency instruments are classified as Level 2, "Other Observable Inputs" in the fair value hierarchy.
Interest rate swaps are valued 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, and can be derived from observable data or supported by observable levels at which transactions are executed in the marketplace. Accordingly, the Company's interest rate swaps are classified as Level 2, "Other Observable Inputs" in the fair value hierarchy.
ForeignCurrency Exchange 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 and investments in subsidiaries. Rate Instruments: The Company primarily uses foreign currency derivative instruments, including forward contracts denominated in euro, Japanese yen, Thai baht, Brazilian real, and option contracts,Mexican peso intended to mitigate the variability of the value of cash flows denominated in currency other than the hedging entity's functional currency. Foreign currency exposures are reviewed periodically and any natural offsets are considered prior to entering into a derivative financial instrument. The Company’s current hedged foreign currency exposures include the Euro, Japanese Yen, Thailand Bhat and Mexican Peso.
As of September 30, 2017,2021 and December 31, 2016,2020, the Company had foreign currency economic derivative instruments with aggregate notional valueamounts of approximately $133$21 million and $169$18 million, respectively. At September 30, 2017, approximately $89 million2021, these instruments are undesignated hedges of local currency value of recognized net monetary balances that are denominated in a currency other than the hedge instruments have been designated as cash flow hedges. Accordingly, the effective portion of changes in theparticular entity's functional currency. The aggregate fair value of the transactions are initially recognized in other comprehensive income, a componentthese derivative instruments is an asset of shareholders' equity. Upon settlementless than $1 million and an asset of the transactions, the accumulated gains and losses are reclassified to income in the same periods during which the hedged cash flows impact earnings. The ineffective portion of changes in the fair value of the transactions, if any, is recognized directly in income. There was no ineffectiveness associated with such derivatives$1 million as of September 30, 20172021 and December 31, 2016 and the fair value of these derivatives was a liability of $3 million and a liability of $6 million,2020, respectively.
Cross Currency Swaps: The difference between the gross and net value of these derivatives after offset by counter party is not material. The estimated AOCI that is expected to be reclassified into earnings within the next 12 months is an approximate loss of $1 million.
During 2015, the Company entered into cross currency swapshas executed cross-currency swap transactions intended to mitigate the variability of the U.S. dollar value of the Company'sits investment in certain of its non-U.S. entities. In April 2017, the Company terminated the cross currency swaps and received $5 million of proceeds upon settlement. There was no ineffectiveness associated with such derivatives at the time of the termination. The Company subsequently entered into new cross currency swap transactions with an aggregate notional amount of $150 million. TheThese transactions are designated as net investment hedges of certain ofand the Company's European affiliates.Company has elected to assess hedge effectiveness under the spot method. Accordingly, the effective portion of periodic changes in the fair value of the transactions is recognizedderivative instruments attributable to factors other than spot exchange rate variability are excluded from the measurement of hedge ineffectiveness and reported directly in other comprehensive income, a component of shareholders' equity. There was no ineffectiveness associated with such derivatives asearnings each reporting period.
As of September 30, 20172021 and December 31, 2016 and the fair value of these derivatives was a liability of $19 million and an asset of $6 million, respectively.
Interest Rate Risk: The Company is subject to interest rate risk principally in relation to variable-rate debt. The Company uses financial derivative instruments to manage exposure to fluctuations in interest rates in connection with its risk management policies.
During 2015,2020, the Company entered into interest ratehad cross currency swaps to manage interest rate risk associated with the Term Facility. In April 2017 the Company terminated the interest rate swaps and paid $1 million to settle the contracts.
During the second quarter of 2017, the Company entered into interest rate swap contracts with an aggregate notional value of $150 million to effectively convert designated interest payments related to the amended Term Facility from variable to fixed cash flows.$250 million. The maturitiesaggregate fair value of these swaps do not exceedderivatives is a non-current liability of $12 million and $27 million as of September 30, 2021 and December 31, 2020, respectively. As of September 30, 2021, a gain of $5 million is expected to be reclassified out of accumulated other comprehensive income into earnings within the underlying obligations undernext 12 months.
Interest Rate Swaps: The Company utilizes interest rate swap instruments to manage its exposure and to mitigate the amended Term Facility.impact of interest rate variability. The instruments have beenare designated as cash flow hedges, andaccordingly, the effective portion of the periodic changes in the fair value of the swap transactions is recognized in accumulated other comprehensive income, a component of shareholders' equity. Subsequently, the accumulated gains and losses recorded in equity are reclassified to income in the period during which the hedged cash transactionflow impacts earnings. The ineffective portion of changes in the fair value of the swap transactions, if any, is recognized directly in income.
As of September 30, 20172021 and December 31, 2016,2020, the Company had interest rate swaps with an aggregate notional value of $300 million. The aggregate fair value was an asset of less than $1these derivative transactions is a non-current liability of $6 million and $11 million as of September 30, 2021 and December 31, 2020, respectively. As of September 30, 2021, a liabilityloss of $1$6 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 loss of less than $1 million.twelve months.
Financial Statement Presentation
Gains and losses on derivative financial instruments for the three and nine months ended September 30, 20172021 and 20162020 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Recorded Income (Loss) into AOCI, net of tax | | Reclassified from AOCI into Income (Loss) | | Recorded in (Income) Loss | | |
(In millions) | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 | | | | |
Three months ended September 30, | | | | | | | | | | | | | | | |
Foreign currency risk - Cost of sales: | | | | | | | | | | | | | | | |
Cash flow hedges | $ | — | | | $ | 1 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | | | |
Interest rate risk - Interest expense, net: | | | | | | | | | | | | | | | |
Interest rate swap | — | | | — | | | (2) | | | — | | | — | | | — | | | | | |
Net investment hedges | 5 | | | (9) | | | 1 | | | 2 | | | — | | | — | | | | | |
| $ | 5 | | | $ | (8) | | | $ | (1) | | | $ | 2 | | | $ | — | | | $ | — | | | | | |
Nine months ended September 30, | | | | | | | | | | | | | | | |
Foreign currency risk - Cost of sales: | | | | | | | | | | | | | | | |
Cash flow hedges | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 1 | | | $ | — | | | | | |
Interest rate risk - Interest expense, net: | | | | | | | | | | | | | | | |
Interest rate swap | (1) | | | (8) | | | (5) | | | (1) | | | — | | | — | | | | | |
Net investment hedges | 18 | | | (1) | | | 4 | | | 5 | | | — | | | — | | | | | |
| $ | 17 | | | $ | (9) | | | $ | (1) | | | $ | 4 | | | $ | 1 | | | $ | — | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Recorded (Loss) Income into AOCI, net of tax | | Reclassified from AOCI into (Income) Loss | | Recorded in (Income) Loss |
| | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 |
| | (Dollars in Millions) |
Three Months Ended September 30 | | | | | | | | | | | | |
Foreign currency risk - Cost of sales: | | | | | | | | | | | | |
Cash flow hedges | | $ | (1 | ) | | $ | (3 | ) | | $ | 2 |
| | $ | — |
| | $ | — |
| | $ | — |
|
Net investment hedges | | (7 | ) | | (1 | ) | | — |
| | — |
| | — |
| | — |
|
Non-designated cash flow hedges | | — |
| | — |
| | — |
| | — |
| | 1 |
| | (2 | ) |
Interest rate risk - Interest expense, net: | | | | | | | | | | | | |
Interest rate swap | | — |
| | 2 |
| | — |
| | 1 |
| | — |
| | — |
|
| | $ | (8 | ) | | $ | (2 | ) | | $ | 2 |
| | $ | 1 |
| | $ | 1 |
| | $ | (2 | ) |
Nine Months Ended September 30 | | | | | | | | | | | | |
Foreign currency risk - Cost of sales: | | | | | | | | | | | | |
Cash flow hedges | | $ | (1 | ) | | $ | — |
| | $ | 5 |
| | $ | (3 | ) | | $ | — |
| | $ | — |
|
Net investment hedges | | (20 | ) | | (3 | ) | | — |
| | — |
| | — |
| | — |
|
Non-designated cash flow hedges | | — |
| | — |
| | — |
| | — |
| | (2 | ) | | (3 | ) |
Interest rate risk - Interest expense, net: | | | | | | | | | | | | |
Interest rate swap | | — |
| | (2 | ) | | 1 |
| | 1 |
| | — |
| | — |
|
| | $ | (21 | ) | | $ | (5 | ) | | $ | 6 |
| | $ | (2 | ) | | $ | (2 | ) | | $ | (3 | ) |
Items Not Carried at Fair Value
The Company's fair value of debt was $353 million and $347 million as of September 30, 2021 and December 31, 2020, respectively. Fair value estimates were based on the current rates offered to the Company for debt of the same remaining maturities. Accordingly, the Company's debt fair value disclosures are classified as Level 2 in the fair value hierarchy.
Concentrations of Credit Risk
Financial instruments including cash equivalents, derivative contracts, and accounts receivable, expose the Company to counter-party credit risk for non-performance. The Company’s counterparties for cash equivalents and derivative contracts are banks and financial institutions that meet the Company’s credit rating requirements. The Company’s counterparties for derivative contracts are substantial investment and commercial banks with significant experience using such derivatives. The Company manages its credit risk throughpursuant to written policies requiringthat specify minimum counterparty credit standingprofile and by limiting the concentration of credit exposure to any one counter-party and through monitoring counter-party credit risks.
amongst its multiple counterparties.
The Company's credit risk with any individualsingle customer does not exceed ten percent of total accounts receivable except for Ford and its affiliates which represents 17%represent 16% and 16%13% of the Company's balance as of September 30, 20172021 and December 31, 2016, respectively, Mazda which represents 11% and 10% of the balance as of September 30, 2017 and December 31, 2016, and Nissan/Renault which represents 11% and 10% of the balance as of September 30, 2017 and December 31, 2016,2020, respectively.
NOTE 17.14. 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 continue to negotiate in good faith with the Township, pursuant to the terms of the Settlement Agreement, 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 vigorously defend the matter.matter vigorously. The Company is not able to estimate the possible loss or range of loss in connection with this matter.
The Company is currently involved in disputes with its former President and Chief Executive Officer, Timothy D. Leuliette. Mr. Leuliette filed an arbitration demand against the Company with the American Arbitration Association, alleging claims relating to the cessation of his employment. The Company subsequently filed a complaint against Mr. Leuliette in the U.S. District Court for the Eastern District of Michigan, seeking to enjoin the arbitration and asserting additional claims. The federal litigation is currently stayed pending a ruling in the arbitration. The Company disputes the factual and legal assertions made by Mr. Leuliette, has asserted counterclaims against him in the arbitration, and, although there can be no assurances, the Company does not currently believe that the resolution of these disputes will have a material adverse impact on its results of operations or financial condition.
In November 2013, the Company and Halla Visteon Climate Control Corporation a Korean 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 imposed, but at this timethe Company is not able 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 our 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 September 30, 2017, theThe Company maintained accruals of approximately $12 million and $4$9 million for claims aggregating approximately $57 million and $5$54 million in Brazil and Argentina, respectively.as of September 30, 2021. 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, particularly in the fourth quarter. 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 our 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.
Guarantees and Commitments
The Company provided a $15 million loan guarantee to YFVIC. 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.
As part of the agreements involving the divestiture of the Climate Transactionbusiness (the "Climate Transaction") and Interiors Divestiture, the Company continues to provide lease guarantees to divested Climate and Interiors entities. AtAs of September 30, 20172021, the Company has approximately $7$5 million and $2 million of outstanding guarantees, related to each of the divested Climate and Interiors entities, respectively, totaling $14 million. Theserespectively. 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. The guarantees will generally cease upon expiration of current lease agreements.agreement which expire in 2026 and 2024 for the Climate and Interiors entities, respectively.
Product Warranty and Recall
Amounts accrued for product warranty and recall claims are based on management’s best estimates of the amounts that will ultimately be required to settle such items. The Company’s estimates for product warranty and recall obligations are developed with support from its sales, engineering, quality and legal functions and include due consideration of contractual arrangements, past experience, current claims and related information, production changes, industry and regulatory developments, and various other considerations. The Company can provide no assurances that it will not experience material claims in the future or that it will not incur significant costs to defend or settle such claims beyond the amounts accrued or beyond what the Company may recover from its suppliers.
The following table provides a reconciliationrollforward of changes in the product warranty and recall claims liability:
| | | | | | | | | | | |
| Nine Months Ended September 30, |
(In millions) | 2021 | | 2020 |
Beginning balance | $ | 64 | | | $ | 49 | |
Provisions | 12 | | | 16 | |
Changes in estimates | 1 | | | (2) | |
Currency/other | (3) | | | 1 | |
Settlements | (16) | | | (14) | |
Ending balance | $ | 58 | | | $ | 50 | |
|
| | | | | | | |
| Nine Months Ended September 30 |
| 2017 | | 2016 |
| (Dollars in Millions) |
Beginning balance | $ | 55 |
| | $ | 38 |
|
Accruals for products shipped | 15 |
| | 12 |
|
Changes in estimates | 5 |
| | 4 |
|
Specific cause actions | 3 |
| | 7 |
|
Recoverable warranty/recalls | — |
| | 6 |
|
Foreign currency | 2 |
| | 1 |
|
Settlements | (29 | ) | | (13 | ) |
Ending balance | $ | 51 |
| | $ | 55 |
|
Other Contingent Matters
The Company is actively negotiating the possible exit of a European facility that would involve contributing cash, inventory, and fixed assets to a third party. The potential transaction is subject to governmental and legal approvals. While the terms have yet to be finalized, the potential contribution includes cash and working capital ranging from $15 million to $20 million and long term assets of approximately $10 million to $15 million. As of September 30, 2017, the Company did not meet the specific criteria necessary for the assets to be considered held for sale.
Various legal actions, governmental investigations and proceedings and claims are pending or may be instituted or asserted in the future against the Company, including those arising out of alleged defects in the Company’s products; governmental regulations relating to safety; employment-related matters; customer, supplier and other contractual relationships; intellectual property rights; product warranties; product recalls; product liability claims; 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 paragraphparagraphs where losses are deemed probable and reasonably estimable. It is possible, however, that some of the matters discussed in the foregoing paragraphparagraphs 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 September 30, 20172021 and that are in excess of established reserves. The Company does not reasonably expect, except as otherwise described herein, based on its analysis, that any adverse outcome
from such matters would have a material effect on the Company’s financial condition, results of operations or cash flows, although such an outcome is possible.
NOTE 18.15. Segment Information and Revenue Recognition
The Company’s single reportable segment is Electronics. The Company's Electronics segment provides vehicle cockpit electronics products to customers, including instrument clusters, information displays, infotainment systems, audio systems, telematics solutions, head-up displays, as well as battery monitoring systems. As the Company has 1 reportable segment, total assets, depreciation, amortization, and capital expenditures are equal to consolidated results.
Financial results for the Company's reportable segment have been prepared using a management approach, which is consistent with the basis and manner in which financial information is evaluated by the Company's chief operating decision maker in allocating resources and in assessing performance. The Company’s chief operating decision maker, the Chief Executive Officer, evaluates the performance of the Company’s segment primarily based on net sales, before elimination of inter-company shipments, Adjusted EBITDA (a non-GAAPnon-U.S. GAAP financial measure, as defined below), and operating assets.
The Company’s current reportable segment is Electronics. The Company's Electronics segment provides vehicle cockpit electronics products to customers, including audio systems, information displays, instrument clusters, head up displays, infotainment systems, and telematics solutions. Prior to 2017, the Company also had Other operations consisting primarily of South Africa and South America climate operations substantially exited during the fourth quarter of 2016. As the Company ceased Other operations in 2016, future legacy impacts will be associated with the Company's continuing Electronics operations.
Segment Sales
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30 | | Nine Months Ended September 30 |
| 2017 | | 2016 | | 2017 | | 2016 |
| (Dollars in Millions) |
Electronics | $ | 765 |
| | $ | 749 |
| | $ | 2,349 |
| | $ | 2,304 |
|
Other | — |
| | 21 |
| | — |
| | 41 |
|
Total consolidated sales | $ | 765 |
| | $ | 770 |
| | $ | 2,349 |
| | $ | 2,345 |
|
Segment Adjusted EBITDA
The Company defines Adjusted EBITDA as net income attributable to the Company adjusted to eliminate the impact of depreciation and amortization, restructuring expense, net interest expense, loss on debt extinguishment, equity in net income of non-consolidated affiliates, gain and loss on divestiture, gain on non-consolidated affiliate transactions, other net expense, provision for income taxes, discontinued operations, net income attributable to non-controlling interests, non-cash stock-based compensation expense, pension settlement gains, and other gains and losses not reflective of the Company's ongoing operations.
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, theThe Company uses Adjusted EBITDA (i) as a factor in incentive compensation decisions (ii)and to evaluate the effectiveness of the Company's business strategies and (iii)strategies. In addition, the Company's credit agreements use measures similar to Adjusted EBITDA to measure compliance with certain covenants.
Segment Adjusted EBITDA is summarized below:
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30 | | Nine Months Ended September 30 |
| 2017 | | 2016 | | 2017 | | 2016 |
| (Dollars in Millions) |
Electronics | $ | 83 |
| | $ | 75 |
| | $ | 268 |
| | $ | 248 |
|
Other | — |
| | — |
| | — |
| | (7 | ) |
Adjusted EBITDA | $ | 83 |
| | $ | 75 |
| | $ | 268 |
| | $ | 241 |
|
Theand reconciliation of Adjusted EBITDA to net income (loss) attributable to Visteon is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(In millions) | 2021 | | 2020 | | 2021 | | 2020 |
Net income (loss) attributable to Visteon Corporation | $ | 5 | | | $ | 6 | | | $ | 10 | | | $ | (74) | |
Depreciation and amortization | 27 | | | 25 | | | 82 | | | 75 | |
Non-cash, stock-based compensation expense | 4 | | | 4 | | | 13 | | | 13 | |
Provision for income taxes | 4 | | | 12 | | | 20 | | | 19 | |
Interest expense, net | 2 | | | 5 | | | 6 | | | 10 | |
Net income (loss) attributable to non-controlling interests | 2 | | | 4 | | | 5 | | | 6 | |
Restructuring, net | (2) | | | 32 | | | (2) | | | 69 | |
Equity in net income of non-consolidated affiliates | (2) | | | (2) | | | (2) | | | (4) | |
Other | 2 | | | 1 | | | 4 | | | 3 | |
Adjusted EBITDA | $ | 42 | | | $ | 87 | | | $ | 136 | | | $ | 117 | |
Revenue Recognition
Disaggregated net sales by geographical market and product lines is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(In millions) | 2021 | | 2020 | | 2021 | | 2020 |
Geographical Markets | | | | | | | |
Europe | $ | 212 | | | $ | 281 | | | $ | 707 | | | $ | 667 | |
Americas | 158 | | | 192 | | | 519 | | | 446 | |
China Domestic | 145 | | | 140 | | | 384 | | | 323 | |
China Export | 51 | | | 58 | | | 148 | | | 145 | |
Other Asia-Pacific | 94 | | | 107 | | | 309 | | | 261 | |
Eliminations | (29) | | | (31) | | | (80) | | | (81) | |
| $ | 631 | | | $ | 747 | | | $ | 1,987 | | | $ | 1,761 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(In millions) | 2021 | | 2020 | | 2021 | | 2020 |
Product Lines | | | | | | | |
Instrument clusters | $ | 345 | | | $ | 388 | | | $ | 1,062 | | | $ | 901 | |
Audio and infotainment | 122 | | | 134 | | | 369 | | | 333 | |
Information displays | 71 | | | 135 | | | 282 | | | 298 | |
Body and security | 25 | | | 28 | | | 88 | | | 66 | |
Telematics | 15 | | | 14 | | | 49 | | | 43 | |
Climate controls | 13 | | | 14 | | | 42 | | | 31 | |
Other | 40 | | | 34 | | | 95 | | | 89 | |
| $ | 631 | | | $ | 747 | | | $ | 1,987 | | | $ | 1,761 | |
During the three and nine months ended September 30, 2021, revenue recognized related to performance obligations satisfied in previous periods represented less than 1% of consolidated net sales. The Company has no material contract assets, contract liabilities, or capitalized contract acquisition costs as of September 30, 2021.
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30 | | Nine Months Ended September 30 |
| 2017 | | 2016 | | 2017 | | 2016 |
| (Dollars in Millions) |
Adjusted EBITDA | $ | 83 |
| | $ | 75 |
| | $ | 268 |
| | $ | 241 |
|
Depreciation and amortization | 21 |
| | 21 |
| | 62 |
| | 62 |
|
Restructuring expense | 6 |
| | 5 |
| | 10 |
| | 22 |
|
Interest expense, net | 3 |
| | 5 |
| | 12 |
| | 10 |
|
Equity in net income of non-consolidated affiliates | (1 | ) | | — |
| | (6 | ) | | (3 | ) |
Other (income) expense, net | (1 | ) | | 12 |
| | (3 | ) | | 16 |
|
Provision for income taxes | 8 |
| | 5 |
| | 34 |
| | 27 |
|
(Income) loss from discontinued operations, net of tax | — |
| | (7 | ) | | (8 | ) | | 15 |
|
Net income attributable to non-controlling interests | 4 |
| | 4 |
| | 11 |
| | 12 |
|
Non-cash, stock-based compensation expense | 3 |
| | 2 |
| | 9 |
| | 6 |
|
Other | (3 | ) | | — |
| | (4 | ) | | 1 |
|
Net income attributable to Visteon Corporation | $ | 43 |
| | $ | 28 |
| | $ | 151 |
| | $ | 73 |
|
| |
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations |
Item 2.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”). MD&A is provided as a supplement to, and should be read in conjunction with, the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 20162020 filed with the Securities and Exchange Commission on February 23, 2017,18, 2021 and the financial statements and accompanying notes to the financial statements included elsewhere herein.
Description of BusinessExecutive Summary
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, Honda, 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, 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 United States.
Visteon provides value for its customers and stockholders through its technology-focused vehicle cockpit electronics business, by delivering a rich, connected cockpit experience for every car from luxury to entry. The Company's cockpit electronics business is one of the broadest portfolios in the industry and includes instrument clusters, information displays, infotainment systems, audio systems, telematics solutions, and head up displays. The Company's vehicle cockpit electronics business comprises and is reported under the Electronics segment. In addition to the Electronics segment, the Company had residual operations in South America and South Africa previously associated with the Climate business, sold or exited by December 31, 2016, but not subject to discontinued operations classification that comprised Other.
Strategic Initiatives
Visteon is a technology-focused, pure-play supplier of automotive cockpit electronics and connected car solutions. solutions for the world’s major vehicle manufacturers. The automotive electronics market is expected to grow faster than underlying vehicle production volumes as the vehicle shifts from analog to digital and towards device and cloud connectivity, electric vehicles, and more advanced safety features.
The Company has laid out the following strategic initiatives for 2017 and beyond:priorities:
Strengthen the Core•Technology Innovation - Visteon offers technology and related manufacturing operations for audio, head-up displays, information displays, infotainment, instrument clusters and telematics products. During the first nine months of 2017, the Company won $4.6 billion in new business, $0.5 billion higher than the first nine months of 2016. The third quarter 2017 new business wins includes the first award of Phoenix™ infotainment technology, designed to unlock innovation by enabling third-party developers to create apps easily, while delivering built-in cybersecurity and over-the-air ("OTA") updates. Earlier in the year, awards included the third and fourth awards of SmartCore™ cockpit technology which represents the industry-first automotive grade cockpit domain controller, consolidating separate cockpit electronics products on a single, multi-core chip, accessible through integrated human machine interface ("HMI") technology. The Company's backlog, defined as cumulative remaining life of program booked sales, is approximately $18.0 billion as of September 30, 2017, or 5.7 times the last twelve months of sales, reflecting a strong booked sales base on which to launch future growth.
Core business financial results continue to improve with Adjusted EBITDA margin for electronics of 10.8% in third quarter 2017 compared with 10.0% in the same period of 2016. The Company expects to deliver cost efficiencies by streamlining selling, general and administration costs and engineering costs, improving free cash flow, optimizing the capital structure and driving savings benefits as revenue grows.
During 2016, the Company initiated a restructuring of its engineering and administration organization to focus on technology and execution and also to align the engineering and administrative footprint with its core technologies and customers. The organization will be comprised of customer regional engineering, product management and advanced technologies, and global centers of competence.
Move Selectively to Adjacent Products - As consumer demand continues to evolve with an increase in electronics content per vehicle, the Company is advancing its expertise in the areas of cockpit domain controllers, next generation safety applications, and vehicle cybersecurity. Each of these areas require careful assessments of shifting consumer needs and how these new products complement Visteon's core products.
Expand into Autonomous Driving - The Company's approach to autonomous driving is to feature fail-safe centralized domain hardware, designed for algorithmic developers, and applying artificial intelligence for object detection and other functions.
The Company is developing a secure autonomous driving domain controller platform with an open framework based on neural networks.established global leader in automotive electronics and is positioned to provide solutions as the industry transitions to the next generation automotive experience. The Company projects a launchcockpit is becoming fully digital, connected, automated, learning, and voice enabled while vehicles are also becoming electric and featuring more advanced safety capabilities. Visteon's broad portfolio of cockpit electronics technology, the industry's first wireless battery management system, and the development of the technologyDriveCore™ advanced safety platform positions Visteon to support these macro trends in 2018.the automotive industry.
During the third quarter of 2017, the Company entered into a contribution agreement with a non-profit corporation who is building a state of the art research•Long-Term Growth and development facility for testing and validating connected and automated vehicles, the acceleration of standards, and the education of the workforce and public. The Company will use the future facility for the Company's autonomous driving research and development activities.
Accelerate China BusinessMargin Expansion - The Company planshas continued to accelerate its Chinawin business at a rate that exceeds current sales levels by demonstrating product quality, technical and development capability, new product innovation, reliability, timeliness, product design, manufacturing capability, and flexibility, as China’s economic environment offers significant growth opportunities in sales and new technology launches. Visteon will continue to leverage joint venture relationships to drive adoption of new offerings. Approximately 37% of the Company's $18 billion of backlog is expected to be manufactured in China and other countries in Asia.
well as overall customer service.
•Enhance Shareholder Returns- On January 10, 2017, the Company's board of directors authorized management to purchase $400 million of Visteon common stock. On February 27, 2017, the Company entered into an accelerated share buyback ("ASB") program with a third-party financial institution to purchase shares of Visteon common stock for an aggregate purchase price of $125 million. Through conclusion of the program on May 8, 2017, the Company acquired 1,300,366 shares at an average price of $96.13 per share. In addition to the ASB program, theThe Company has purchasedreturned approximately $3.3 billion to shareholders since 2015 through a combination of 441,613 shares in the open market. Through the end of the third quarter, the Company has purchased 1,741,979 shares at an average price of $97.59 per share for a total of $170 million inongoing share repurchases during 2017.and a onetime $1.75 billion special distribution in 2016.
Financial Results
The Company anticipates that additional share repurchases, if any, would occur from time to time in open market transactions or in privately negotiated transactions depending on market and economic conditions, share price, trading volume, alternative uses of capital and other factors.
Executive Summary
The Company's Electronics sales for the three months ended September 30, 2017 totaled $765 million, the pie charts below highlight the net sales breakdown for Visteon for the three and nine months ended September 30, 2017.
2021.
Three Months Ended September 30, 20172021
Nine Months Ended September 30, 20172021
*Regional net sales are based on the geographic region where sales originate and not where customer is located (excludes inter-regional eliminations).
Global Automotive Market Conditions
Third quarter 2017 global light vehicle production increased 2.1% over the same period last year. Production increased year, over yearfollowed by a faster than anticipated recovery in all regions duringthe second half of 2020. The recovery continued throughout the first three quarters of 2021, although retail demand has been muted in the third quarter except for North America which was down (9.7%) as manufacturers cut production to reduce higher than optimal levels of unsold inventory.
Light vehicle production levels for the three and nine months ended September 30, 2017 and 2016, by geographic region are provided below:
|
| | | | | | | | | | | | | | | | | |
| Three Months Ended September 30 | | Nine Months Ended September 30 |
| 2017 | | 2016 | | Change | | 2017 | | 2016 | | Change |
| (Units in Millions) |
Global | 22.4 |
| | 22.0 |
| | 2.1 | % | | 69.8 |
| | 68.0 |
| | 2.6 | % |
Asia Pacific | 11.9 |
| | 11.5 |
| | 3.5 | % | | 36.0 |
| | 34.7 |
| | 3.6 | % |
Europe | 5.0 |
| | 4.8 |
| | 5.2 | % | | 16.5 |
| | 16.1 |
| | 2.4 | % |
North America | 4.0 |
| | 4.4 |
| | (9.7 | )% | | 13.0 |
| | 13.5 |
| | (3.7 | )% |
South America | 0.9 |
| | 0.7 |
| | 26.1 | % | | 2.4 |
| | 2.0 |
| | 20.9 | % |
Other | 0.6 |
| | 0.6 |
| | 11.6 | % | | 1.9 |
| | 1.7 |
| | 12.9 | % |
Source: IHS Automotive
|
Significant aspects of the Company's financial results during the three and nine months periods ended September 30, 2017 include the following:
The Company recorded sales of $765 million for the three months ended September 30, 2017, representing a decrease of $5 million when compared with the same period of 2016. The decrease is attributable to the exit of other climate operations in 2016, representing a decrease of $21 million. Electronics sales increased by $16 million, primarily due to new business, favorable volumes, product mix, and currency, partially offset by customer pricing net of design changes.
The Company recorded sales of $2,349 million for the nine months ended September 30, 2017, representing an increase of $4 million when compared with the same period of 2016. The increase was primarily due to new business, favorable volumes, and product mix, partially offset by customer pricing net of design changes, unfavorable currency, and the exit of other climate operations in 2016.
Gross margin was $116 million or 15.2% of sales for the three months ended September 30, 2017, compared to $105 million or 13.6% of sales for the same period of 2016. The increase was primarily attributable to improved cost performance including higher engineering recoveries and favorable volumes and currency, partially offset by customer pricing and product mix.
Gross margin was $359 million or 15.3% of sales for the nine months ended September 30, 2017, compared to $335 million or 14.3% of sales for the same period of 2016. The increase was primarily attributable to the exit of the Company's other climate operations in 2016, favorable volumes, net new business and improved cost performance including higher engineering recoveries, partially offset by customer pricing, currency impacts, and product mix.
Net income attributable to Visteon was $43 million for the three months ended September 30, 2017, compared to net income of $28 million for the same period of 2016. The increase of $15 million includes improved gross margin of $11 million and the non-recurrence of charges associated with the 2016 South Africa climate disposition of $11 million. These increases were partially offset by an increase in the provision for income taxes of $3 million and the non-recurrence of 2016 discontinued operations net income of $7 million.
Net income attributable to Visteon was $151 million for the nine months ended September 30, 2017, compared to net income of $73 million for the same period of 2016. The increase of $78 million includes higher net incomeongoing inventory shortages at many dealerships due to the non-recurrenceworldwide semiconductor supply shortage.
The surge in demand in the second half of 2016 losses from discontinued operations2020 has led to a worldwide semiconductor supply shortage, both in automotive and in other industries, through the third quarter of $15 million, 2017 income from discontinued operations2021. In addition, unusual events during the first quarter of $8 million, lower restructuring charges2021 including unusually cold weather in Austin, Texas in February and a supplier fire in Japan have led to reduced semiconductor availability. These factors have been further exacerbated by the continued COVID-19 pandemic, which has disrupted many parts of $12 million, the non-recurrencesupply chain, including the back-end processing of charges associated withsemiconductors in Malaysia. The magnitude of the 2016 South Africa climate disposition of $11 million, lower selling, general and administrative expenses of $5 million, higher equity in net income of non-consolidated affiliates of $3 million and gainsimpact on the salefinancial statements and results of non-consolidated affiliates of $3 million. Gross margin improved $24 million including $17 million for electronics operations and $7 million related tocash flows will depend on the 2016 exitevolution of the climate operations. These improvements were partially offset by higher income taxessemiconductor supply shortage, related plant production schedules and supply chain impacts.
Results of $7 million.
Including discontinued operations, the Company generated $131 million of cash in operating activities during the nine months endedOperations - Three Months Ended September 30, 2017, compared to cash provided by operations of $38 million during the same period of 2016 representing a $93 million improvement. The increase in operating cash flows is attributable to higher net income of $77 million2021 and lower cash tax payments, net of expense of $67 million primarily due to the non-recurrence of
transaction related taxes incurred in 2016, partially offset by higher warranty payments net of expense of $21 million, higher working capital use of approximately $10 million and an increase in China bank notes of $11 million.
Total cash was $735 million, including $3 million of restricted cash as of September 30, 2017, $147 million lower than $882 million as of December 31, 2016, primarily attributable to share repurchases of $170 million, $69 million of capital expenditures, and the repurchase of the India electronics operations sold in connection with the Climate Transaction of $47 million, partially offset by the change in cash provided by operating activities of $93 million and $15 million proceeds from business divestiture.
2020
The Company's consolidated results of operations for the three months ended September 30, 20172021 and 20162020 were as follows:
| | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
(In millions) | 2021 | | 2020 | | Change |
Net sales | $ | 631 | | | $ | 747 | | | $ | (116) | |
Cost of sales | (584) | | | (648) | | | 64 | |
Gross margin | 47 | | | 99 | | | (52) | |
Selling, general and administrative expenses | (42) | | | (45) | | | 3 | |
Restructuring, net | 2 | | | (32) | | | 34 | |
Interest expense, net | (2) | | | (5) | | | 3 | |
Equity in net income of non-consolidated affiliates | 2 | | | 2 | | | — | |
Other income, net | 4 | | | 3 | | | 1 | |
Provision for income taxes | (4) | | | (12) | | | 8 | |
| | | | | |
| | | | | |
Net income (loss) | 7 | | | 10 | | | (3) | |
Less: Net (income) loss attributable to non-controlling interests | (2) | | | (4) | | | 2 | |
Net income (loss) attributable to Visteon Corporation | $ | 5 | | | $ | 6 | | | $ | (1) | |
Adjusted EBITDA* | $ | 42 | | | $ | 87 | | | $ | (45) | |
* Adjusted EBITDA is a Non-GAAP financial measure, as further discussed below. |
|
| | | | | | | | | | | |
| Three Months Ended September 30 |
| 2017 | | 2016 | | Change |
| (Dollars in Millions) |
Sales | $ | 765 |
| | $ | 770 |
| | $ | (5 | ) |
Cost of sales | 649 |
| | 665 |
| | (16 | ) |
Gross margin | 116 |
| | 105 |
| | 11 |
|
Selling, general and administrative expenses | 54 |
| | 53 |
| | 1 |
|
Restructuring expense | 6 |
| | 5 |
| | 1 |
|
Interest expense, net | 3 |
| | 5 |
| | (2 | ) |
Equity in net income of non-consolidated affiliates | 1 |
| | — |
| | 1 |
|
Other (income) expense, net | (1 | ) | | 12 |
| | (13 | ) |
Provision for income taxes | 8 |
| | 5 |
| | 3 |
|
Net income from continuing operations | 47 |
| | 25 |
| | 22 |
|
Income from discontinued operations | — |
| | 7 |
| | (7 | ) |
Net income | 47 |
| | 32 |
| | 15 |
|
Net income attributable to non-controlling interests | 4 |
| | 4 |
| | — |
|
Net income attributable to Visteon Corporation | $ | 43 |
| | $ | 28 |
| | $ | 15 |
|
Adjusted EBITDA* | $ | 83 |
| | $ | 75 |
| | $ | 8 |
|
| | | | | |
* Adjusted EBITDA is a Non-GAAP financial measure, as further discussed below. |
Net Sales, Cost of Sales and Gross Margin | | | | | | | | | | | | | | | | | | |
(In millions) | Net Sales | | Cost of Sales | | Gross Margin | |
Three months ended September 30, 2020 | $ | 747 | | | $ | (648) | | | $ | 99 | | |
Volume, mix, and net new business | (130) | | | 88 | | | (42) | | |
Currency | 13 | | | (11) | | | 2 | | |
Customer pricing | 8 | | | — | | | 8 | | |
Engineering costs, net * | — | | | (2) | | | (2) | | |
Cost performance, design changes and other | (7) | | | (11) | | | (18) | | |
Three months ended September 30, 2021 | $ | 631 | | | $ | (584) | | | $ | 47 | | |
*Excludes the impact of currency. | | | | | | |
Results of Operations - Three Months Ended September 30, 2017 and 2016
Prior to 2017, the Company also had Other operations consisting primarily of the South Africa and the South America climate operations exited during the fourth quarter of 2016.
Sales
|
| | | | | | | | | | | |
| Electronics | | Other | | Total |
| (Dollars in Millions) |
Three months ended September 30, 2016 | $ | 749 |
| | $ | 21 |
| | $ | 770 |
|
Volume, mix, and net new business | 26 |
| | — |
| | 26 |
|
Currency | 9 |
| | — |
| | 9 |
|
Customer pricing and other | (19 | ) | | — |
| | (19 | ) |
Exit and wind-down | — |
| | (21 | ) | | (21 | ) |
Three months ended September 30, 2017 | $ | 765 |
| | $ | — |
| | $ | 765 |
|
SalesNet sales for the three months ended September 30, 20172021 totaled $765$631 million, which represents anrepresenting a decrease of $5$116 million compared with the same period of 2016. Favorable volumes, product mix,2020. Volumes and net new business increaseddecreased net sales by $26$130 million. Product mix reflects the Company specific content across product lines. Favorable currency increased net sales by $9$13 million, primarily attributable to the Euroeuro, Brazilian real, and Indian Rupee. The exitChinese renminbi. Favorable customer pricing increased net sales by $8 million primarily driven by customer recoveries related to supply chain and material cost increases associated with the worldwide semiconductor supply shortage. Cost performance, design changes and other decreased net sales by $7 million, primarily as a result of the non-recurrence of other climate operations in 2016 decreased sales by $21 million. Other reductions were associated with customer pricing, net of design savings.
Cost of Sales
|
| | | | | | | | | | | |
| Electronics | | Other | | Total |
| (Dollars in Millions) |
Three months ended September 30, 2016 | $ | 644 |
| | $ | 21 |
| | $ | 665 |
|
Currency | 7 |
| | — |
| | 7 |
|
Volume, mix, and net new business | 30 |
| | — |
| | 30 |
|
Exit and wind-down | — |
| | (21 | ) | | (21 | ) |
Net cost performance | (32 | ) | | — |
| | (32 | ) |
Three months ended September 30, 2017 | $ | 649 |
| | $ | — |
| | $ | 649 |
|
revenue claims.
Cost of sales decreased $16by $64 million for the three months ended September 30, 2017 when2021 compared with the same period in 2016. Increased volumes, product2020. Volume, mix and net new business increaseddecreased cost of sales by $30$88 million. Foreign currency increased cost of sales by $7$11 million, primarily attributable to the Euroeuro, Brazilian real, and Brazilian Real. The exit and wind down of other climate operations decreasedChinese renminbi. Net engineering costs, by $21 million. Net efficiencies, including material, design and usage economics and higher engineering recoveries, partially offset byexcluding currency, increased manufacturing expense, decreased cost of sales by $29$2 million. CostUnfavorable cost performance, design changes and other increased cost of sales also included a $3by $11 million benefit related to legacy South America climate operations for freight recoveriesprimarily due supply chain and a favorable ruling on a litigation matter.material cost impacts associated with the worldwide semiconductor supply shortage and the non-recurrence of certain 2020 temporary austerity measures.
A summary of sales includes net engineering costs comprised of grossis shown below:
| | | | | | | | | | | |
| Three Months Ended September 30, |
(In millions) | 2021 | | 2020 |
Gross engineering costs | $ | (80) | | | $ | (79) | |
Engineering recoveries | 28 | | | 31 | |
Engineering costs, net | $ | (52) | | | $ | (48) | |
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 $99costs of $52 million for the three months ended September 30, 2017, consistent with2021, including the same periodimpacts of 2016. Engineering recoveriescurrency, were $33 million for the three months ended September 30, 2017, $9$4 million higher than the same period of 2016. Engineering2020. This increase is primarily related to the reclassification of certain program expenses from selling, general and administrative expenses to align with the Company's optimized structure and the non-recurrence of certain 2020 temporary austerity measures. These increases were partially offset by the benefits of previously announced restructuring actions and ongoing cost recoveries can fluctuate period to period depending on underlying contractual terms and conditions and achievement of related development milestones.reduction efforts.
Gross Margin
GrossThe Company's gross margin was $116$47 million or 15.2%7.4% of net sales for the three months ended September 30, 20172021 compared to $105$99 million or 13.6%13.3% of net sales for the same period of 2016. The increase in gross margin2020. Unfavorable volumes of $10$42 million included $9 million ofwere partially offset by favorable net cost performance reflecting material cost efficiencies and higher engineering recoveries which more than offset customer pricing and higher manufacturing costs.of $8 million primarily due to customer recoveries. Favorable foreign currency of $2 million reflected the impact of the Indian Rupee and Brazilian Real. Favorable volumes and net new business were offset by product mix reducingimpacts increased gross margin by $4 million. The year-over-year change in$2 million, primarily attributable to the euro, Brazilian real, and Chinese renminbi. Unfavorable cost performance, design changes and other decreased gross margin also included a $3by $18 million benefit relatedprimarily due to legacy South America climate operations for freight recoveriessupply chain and a favorable ruling on a litigation matter.
material cost impacts associated with the worldwide semiconductor supply shortage and the non-recurrence of certain 2020 austerity measures and revenue claims.
Selling, General and Administrative Expenses
Selling, general, and administrative expenses were $54$42 million or 7.1% and $53$45 million, or 6.9% during the three months ended September 30, 20172021 and 2016,2020, respectively. The increase is relatedSelling, general, and administrative expenses benefited from the reclassification of certain expenses to higher incentive compensation costsgross engineering and economicsrestructuring savings, partially offset by cost efficiencies.the non-recurrence of temporary austerity measures.
Restructuring, Expense
Net
During the fourththird quarter of 2016,2021, the Company announced a restructuring program impacting the engineering and administrative functions to further align the Company's engineering and related administrative footprint with its core product technologies and customers. During the three months ended September 30, 2017, the Company recorded $6released $2 million of restructuring expenses net of reversals, under this program. Through September 30, 2017, the Company recorded approximately $37 million of restructuring expenses under this program, and expectsrelated to incur up to $45 million of restructuring costs associated with approximately 250 employees.various 2020 programs based on a change in estimate.
During the three months ended September 30, 2016,third quarter of 2020, in response to COVID-19 and to improve efficiency and rationalize the Company’s footprint, the Company recorded $4 million of restructuring expenses primarilyapproved a plan related to cash severance, retention, and termination benefits,costs. The Company has incurred $30 million in connection with the wind-down of certain operations in South America.restructuring costs related to this plan.
Interest Expense, Net
Interest expense, net, was $3 million and $5 million for the three months ended September 30, 20172021 and 2016,2020 was $2 million and $5 million, respectively. InterestThe decrease in interest expense for the three months ended September 30, 2017 includes termination impactsis primarily due to the non-recurrence of interest expense incurred during the third quarter of 2020 related to the borrowings on the Company's interest rate swap as further described in Note 16, "Fair Value Measurements and Financial Instruments."
$400 million revolving credit facility.
Equity in Net Income of Non-Consolidated Affiliates
Equity in net income of non-consolidated affiliates was $1 million for the three month period ending September 30, 2017.
Other (Income) Expense, Net
Other (income) expense, net consists of the following:
|
| | | | | | | |
| Three Months Ended September 30 |
| 2017 | | 2016 |
| (Dollars in Millions) |
Transformation initiatives | $ | 1 |
| | $ | — |
|
Gain on non-consolidated affiliate transactions, net | (2 | ) | | (1 | ) |
Foreign currency translation charge | — |
| | 11 |
|
Loss on asset contribution | — |
| | 2 |
|
| $ | (1 | ) | | $ | 12 |
|
Transformation initiative costs include information technology separation costs, integration of acquired business, and financial and advisory services incurred in connection with the Company's transformation into a pure play cockpit electronics business. The gain on non-consolidated affiliate transactions, net are described in Note 5, "Non-Consolidated Affiliates."
The Company recorded an impairment charge of $11 million during the three months ended September 30, 2016, related to foreign currency translation amounts recorded in accumulated other comprehensive loss associated with the agreement to sell the Company's South Africa climate operations. In connection with the closure of the Climate facility in Argentina, the Company entered an agreement to contribute land and building with a net book value of $2 million to the local municipality.
Income Taxes
The Company's provision for income taxes of $8 million for the three months ended September 30, 2017, represents an increase2021 and 2020. The decrease in income is primarily attributable due to decreased volumes at the Company's equity investment in Yanfeng Visteon Investment Co., Ltd.
Other Income, Net
Other income, net of $4 million and $3 million whenfor the three-month periods ending September 30, 2021 and 2020 is primarily due to net pension financing benefits.
Income Taxes
The Company's provision for income taxes of $4 million for the three months ended September 30, 2021 represents a decrease of $8 million compared with $5$12 million in the same period of 2016.2020. The increasedecrease in tax expense is primarilyincludes approximately $4 attributable to the overall decrease in year-over-year earnings, including changes in the mix of earnings and differing tax rates between jurisdictions. In this regard,jurisdictions, and withholding taxes. The decrease also reflects the non-recurrence of a $4 million income tax expense adjustment recorded during the three months ended September 30, 2016,2020 related to the Company reflected favorable adjustments due to incorporating certain transfer pricing adjustments betweenreassessment of the U.S. and Japan consistent with the anticipated transfer pricing methodology expected to be agreed uponvaluation allowances in connection with the pursuitrealization of a bilateral advance pricing agreement (“APA”) with the U.S. and Japandeferred tax authorities.assets in Germany.
Discontinued Operations
The operations subject to the Interiors Divestiture and Climate Transaction met conditions required to qualify for discontinued operations reporting. Accordingly, the results of operations for the Interiors business have been reclassified to income (loss) from discontinued operations, net of tax in the consolidated statements of comprehensive income for the three month periods ended September 30, 2017 and 2016. See Note 4 “Discontinued Operations" for additional disclosures.
Net Income
Net income attributable to Visteon was $43 million for the three months ended September 30, 2017, compared to net income of $28 million for the same period of 2016. The increase of $15 million includes improved gross margin of $11 million and the non-recurrence of charges associated with the 2016 South Africa climate disposition of $11 million. These increases were partially offset by an increase in the provision for income taxes of $3 million and the non-recurrence of 2016 discontinued operations net income of $7 million.
Adjusted EBITDA
Adjusted EBITDA (a non-GAAP financial measure, as defined in Note 18)15, "Segment Information") was $83$42 million for the three months ended September 30, 2017,2021, representing an increasea decrease of $8$45 million when compared with Adjusted EBITDA of $75to $87 million for the same period of 2016. The increase includes favorable net cost performance2020. Unfavorable volumes of $10$42 million reflectingand increased costs due to supply chain and material cost efficienciesimpacts associated with the worldwide semiconductor supply shortage as well as the non-recurrence of 2020 temporary austerity measures and higher engineering recoveries which more thanrevenue claims were partially offset by favorable customer pricing and higher manufacturing costs. Foreign currency increased Adjusted EBITDA by $2 million attributable to the Brazilian Real and Indian Rupee. Favorable volumes and net new business were offset by product mix, reducing adjusted EBITDA by $4of $8 million.
The reconciliation of Adjusted EBITDA to net income (loss) attributable to Visteon to Adjusted EBITDA for the three months ended September 30, 20172021 and 2016,2020, is as follows:
| | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
(In millions) | 2021 | | 2020 | | Change |
Net income (loss) attributable to Visteon Corporation | $ | 5 | | | $ | 6 | | | $ | (1) | |
Depreciation and amortization | 27 | | | 25 | | | 2 | |
Provision for income taxes | 4 | | | 12 | | | (8) | |
Non-cash, stock-based compensation expense | 4 | | | 4 | | | — | |
Interest expense, net | 2 | | | 5 | | | (3) | |
Net income (loss) attributable to non-controlling interests | 2 | | | 4 | | | (2) | |
Restructuring expense, net | (2) | | | 32 | | | (34) | |
| | | | | |
Equity in net income of non-consolidated affiliates | (2) | | | (2) | | | — | |
Other | 2 | | | 1 | | | 1 | |
Adjusted EBITDA | $ | 42 | | | $ | 87 | | | $ | (45) | |
|
| | | | | | | | | | | |
| Three Months Ended September 30 |
| 2017 | | 2016 | | Change |
| (Dollars in Millions) |
Adjusted EBITDA | $ | 83 |
| | $ | 75 |
| | $ | 8 |
|
Depreciation and amortization | 21 |
| | 21 |
| | — |
|
Restructuring expense | 6 |
| | 5 |
| | 1 |
|
Interest expense, net | 3 |
| | 5 |
| | (2 | ) |
Equity income of non-consolidated affiliates | (1 | ) | | — |
| | (1 | ) |
Other (income) expense, net | (1 | ) | | 12 |
| | (13 | ) |
Provision for income taxes | 8 |
| | 5 |
| | 3 |
|
Income from discontinued operations, net of tax | — |
| | (7 | ) | | 7 |
|
Net income attributable to non-controlling interests | 4 |
| | 4 |
| | — |
|
Non-cash, stock-based compensation | 3 |
| | 2 |
| | 1 |
|
Other | (3 | ) | | — |
| | (3 | ) |
Net income attributable to Visteon Corporation | $ | 43 |
| | $ | 28 |
| | $ | 15 |
|
Results of Operations - Nine Months Ended September 30, 2021 and 2020 The Company's consolidated results of operations for the nine months ended September 30, 20172021 and 20162020 were as follows:
| | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
(In millions) | 2021 | | 2020 | | Change |
Net sales | $ | 1,987 | | | $ | 1,761 | | | $ | 226 | |
Cost of sales | (1,832) | | | (1,605) | | | (227) | |
Gross margin | 155 | | | 156 | | | (1) | |
Selling, general and administrative expenses | (131) | | | (140) | | | 9 | |
Restructuring, net | 2 | | | (69) | | | 71 | |
Interest expense, net | (6) | | | (10) | | | 4 | |
Equity in net income of non-consolidated affiliates | 2 | | | 4 | | | (2) | |
Other income, net | 13 | | | 10 | | | 3 | |
Provision for income taxes | (20) | | | (19) | | | (1) | |
| | | | | |
| | | | | |
Net income (loss) | 15 | | | (68) | | | 83 | |
Less: Net (income) loss attributable to non-controlling interests | (5) | | | (6) | | | 1 | |
Net income (loss) attributable to Visteon Corporation | $ | 10 | | | $ | (74) | | | $ | 84 | |
Adjusted EBITDA* | $ | 136 | | | $ | 117 | | | $ | 19 | |
* Adjusted EBITDA is a Non-GAAP financial measure, as further discussed below. |
Net Sales, Cost of Sales and Gross Margin |
| | | | | | | | | | | |
| Nine Months Ended September 30 |
| 2017 | | 2016 | | Change |
| (Dollars in Millions) |
Sales | $ | 2,349 |
| | $ | 2,345 |
| | $ | 4 |
|
Cost of sales | 1,990 |
| | 2,010 |
| | (20 | ) |
Gross margin | 359 |
| | 335 |
| | 24 |
|
Selling, general and administrative expenses | 158 |
| | 163 |
| | (5 | ) |
Restructuring expense | 10 |
| | 22 |
| | (12 | ) |
Interest expense, net | 12 |
| | 10 |
| | 2 |
|
Equity in net income of non-consolidated affiliates | 6 |
| | 3 |
| | 3 |
|
Other (income) expense, net | (3 | ) | | 16 |
| | (19 | ) |
Provision for income taxes | 34 |
| | 27 |
| | 7 |
|
Net income from continuing operations | 154 |
| | 100 |
| | 54 |
|
Income (loss) from discontinued operations | 8 |
| | (15 | ) | | 23 |
|
Net income | 162 |
| | 85 |
| | 77 |
|
Net income attributable to non-controlling interests | 11 |
| | 12 |
| | (1 | ) |
Net income attributable to Visteon Corporation | $ | 151 |
| | $ | 73 |
| | $ | 78 |
|
Adjusted EBITDA* | $ | 268 |
| | $ | 241 |
| | $ | 27 |
|
| | | | | |
* Adjusted EBITDA is a Non-GAAP financial measure, as further discussed below. |
| | | | | | | | | | | | | | | | | | |
(In millions) | Net Sales | | Cost of Sales | | Gross Margin | |
Nine months ended September 30, 2020 | $ | 1,761 | | | $ | (1,605) | | | $ | 156 | | |
Volume, mix, and net new business | 208 | | | (181) | | | 27 | | |
Currency | 49 | | | (37) | | | 12 | | |
Customer pricing | (24) | | | — | | | (24) | | |
Engineering costs, net * | — | | | 15 | | | 15 | | |
Cost performance, design changes and other | (7) | | | (24) | | | (31) | | |
Nine months ended September 30, 2021 | $ | 1,987 | | | $ | (1,832) | | | $ | 155 | | |
*Excludes the impact of currency. | | | | | | |
Results of Operations - Nine Months Ended September 30, 2017 and 2016
Prior to 2017, the Company also had Other operations consisting of the South Africa and the South America climate operations exited during the fourth quarter of 2016.
Sales
|
| | | | | | | | | | | |
| Electronics | | Other | | Total |
| (Dollars in Millions) |
Nine months ended September 30, 2016 | $ | 2,304 |
| | $ | 41 |
| | $ | 2,345 |
|
Volume, mix, and net new business | 117 |
| | — |
| | 117 |
|
Currency | (14 | ) | | — |
| | (14 | ) |
Customer pricing and other | (58 | ) | | — |
| | (58 | ) |
Exit and wind-down | — |
| | (41 | ) | | (41 | ) |
Nine months ended September 30, 2017 | $ | 2,349 |
| | $ | — |
| | $ | 2,349 |
|
SalesNet sales for the nine months ended September 30, 20172021 totaled $2,349$1,987 million, which representsrepresenting an increase of $4$226 million compared with the same period of 2016. Favorable volumes, product2020. Volume, mix, and net new business increased net sales by $117$208 million. Product mix reflects the Company specific content across product lines. UnfavorableFavorable currency decreasedincreased net sales by $14$49 million, primarily attributable to the euro, Brazilian real, and Chinese Renminbi and Eurorenminbi. Annual customer pricing partially offset by the Brazilian Real and Indian Rupee. The exit of other climate operations in 2016customer recoveries decreased net sales by $41$24 million. Other reductions were associated with customer pricing,Cost performance, design changes and other decreased net sales by $7 million primarily due to the non-recurrence of design savings.
Cost of Sales
|
| | | | | | | | | | | |
| Electronics | | Other | | Total |
| (Dollars in Millions) |
Nine months ended September 30, 2016 | $ | 1,962 |
| | $ | 48 |
| | $ | 2,010 |
|
Currency | (12 | ) | | — |
| | (12 | ) |
Volume, mix, and net new business | 112 |
| | — |
| | 112 |
|
Exit and wind-down | — |
| | (48 | ) | | (48 | ) |
Net cost performance | (72 | ) | | — |
| | (72 | ) |
Nine months ended September 30, 2017 | $ | 1,990 |
| | $ | — |
| | $ | 1,990 |
|
revenue claims.
Cost of sales decreased $20increased by $227 million for the nine months ended September 30, 2017 when2021 compared with the same period in 2016. Increased volumes, product2020. Volume, mix and net new business increased cost of sales by $112$181 million. Foreign currency increased cost of sales by $37 million, primarily attributable to the euro, Brazilian real, and Chinese renminbi. Net engineering costs, excluding currency, decreased cost of sales by $12$15 million. Unfavorable cost performance of $24 million was primarily attributabledue to supply chain and material cost impacts associated with the Chinese Renminbi, Japanese Yen,worldwide semiconductor supply shortage and Mexican Peso, partially offset by the Euro, Brazilian Real,non-recurrence of certain 2020 austerity measures and Thai Bhat. The exit and wind downrevenue claims.
A summary of other climate operations decreased cost of sales by $48 million. Net efficiencies, including material, design and usage economics, and higher engineering recoveries, partially offset by higher manufacturing and warranty costs, decreased cost of sales by $68 million. Cost of sales during the nine months ended September 30, 2017 also includes a $4 million benefit related to legacy South America climate operations for freight recoveries and a favorable litigation matter ruling.
Cost of sales includes net engineering costs comprised of grossis shown below:
| | | | | | | | | | | |
| Nine Months Ended September 30, |
(In millions) | 2021 | | 2020 |
Gross engineering costs | $ | (246) | | | $ | (257) | |
Engineering recoveries | 88 | | | 91 | |
Engineering costs, net | $ | (158) | | | $ | (166) | |
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 $288costs of $158 million for the nine months ended September 30, 2017, a decrease2021, including the impacts of $3currency, were $8 million compared tolower than the same period of 2016. Engineering recoveries were $79 million for2020. This decrease is primarily related to the nine months ended September 30, 2017, $19 million higher thanbenefits of previously announced restructuring actions and ongoing cost reduction efforts and the recoveries recorded innon-recurrence of certain 2020 temporary austerity measures, partially offset by the same periodreclassification of 2016. Engineering cost recoveries can fluctuate periodcertain program expenses from selling, general and administrative expenses to period depending on underlying contractual terms and conditions and achievement of related development milestones.align with the Company's optimized structure.
Gross Margin
GrossThe Company's gross margin was $359$155 million or 15.3%7.8% of net sales for the nine months ended September 30, 20172021 compared to $335$156 million or 14.3%8.9% of net sales for the same period of 2016. The $242020. Favorable volumes of $27 million increase in gross margin included $5 million from favorable volumes and net new business,were partially offset by product mix and $7 million related to the exitunfavorable net customer pricing of climate operations. Currency decreased$24 million. Lower net engineering costs excluding currency, increased gross margin by $2$15 million. Unfavorable cost performance, design changes and other increased cost of sales $31 million due to supply chain and material cost impacts associated with the worldwide semiconductor shortage as well as the impactnon-recurrence of the Chinese Renminbi2020 temporary austerity measures and Euro more than offset the impact of the Japanese Yen, Mexican Peso, and Brazilian Real. Gross margin also included net cost efficiencies of $10 million, including favorable material
cost efficiencies and higher engineering recoveries partially offset by customer pricing reductions, and higher manufacturing costs. The year-over-year change in gross margin also included a $4 million benefit related to legacy South America climate operations.
revenue claims.
Selling, General and Administrative Expenses
Selling, general, and administrative expenses were $158$131 million or 6.7% of sales and $163$140 million or 7.0% of sales during the nine months ended September 30, 20172021 and 2016,2020, respectively. The decrease is primarily related to net efficiencies including lower bad debt expensepreviously announced restructuring actions and impactsthe reclassification of restructuring actions.
certain program expenses to gross engineering costs to align with the Company's optimized structure partially offset by the non-recurrence of certain 2020 temporary austerity measures.
Restructuring, Expense
Net
During the fourth quarter of 2016,2020 the Company announced aapproved various restructuring programprograms impacting engineering, administrative and administrativemanufacturing functions to further alignimprove efficiency and rationalize the Company's engineering and related administrative footprint with its core product technologies and customers. Through September 30, 2017, the Company has recorded approximately $37 million of restructuring expenses, net of reversals, under this program, associated with approximately 250 employees, and expects to incur up to $45 million of restructuring costs for this program.footprint. During the nine months ended September 30, 2017,2021 and 2020 the Company hasreleased $2 million and recorded approximately $10$69 million of net restructuring expenses, net of reversals, under this program.
During the first quarter of 2016, the Company announced a restructuring program to transform the Company's engineering organization and supporting functional areas to focus on execution and technology. The organization will be comprised of regional engineering, product management and advanced technologies, and global centers of competence. Through the first nine months of 2016, the Company recorded approximately $13 million of restructuring expenses, net of reversals, under this program, associated with approximately 100 employees.
During the nine months ended September 30, 2016, the Company recorded $11 million of restructuring expenses,expense, respectively, related to severance and termination benefits, in connection with the wind-down of certain operations in South America.these programs.
Interest Expense, Net
Interest expense, net, was $12 million and $10 million for the nine months ended September 30, 20172021 and 2016,2020, was $6 million and $10 million, respectively. The increasedecrease in net interest expense results from lower interest incomefor the nine months is primarily due to lower cash balances, financing fees for the Amended Credit Facilities as further described in Note 11, "Debt" and termination impactsnon-recurrence of interest expense incurred during 2020 related to the borrowings on the Company's interest rate swap as further described in Note 16, "Fair Value Measurements and Financial Instruments."
$400 million revolving credit facility.
Equity in Net Income of Non-Consolidated Affiliates
Equity in net income of non-consolidated affiliates was $6$2 million and $3$4 million for the nine month periods endedending September 30, 20172021 and 2016 respectively.2020. The decrease in income is primarily attributable due to decreased volumes at the Company's equity interestinvestment in Yanfeng Visteon Investment Company and increased primarily related to the timing of engineering recoveries.Co., Ltd.
Other (Income) Expense,Income, Net
Other (income) expense,income, net consists of $13 million and $10 million for the following:nine-month periods ending September 30, 2021 and 2020 is primarily due to net pension financing benefits.
31
|
| | | | | | | |
| Nine Months Ended September 30 |
| 2017 | | 2016 |
| (Dollars in Millions) |
Transformation initiatives | $ | 1 |
| | $ | 3 |
|
Gain on non-consolidated affiliate transactions, net | (4 | ) | | (1 | ) |
Foreign currency translation charge | — |
| | 11 |
|
Loss on asset contribution | — |
| | 2 |
|
Transaction exchange losses
| — |
| | 1 |
|
| $ | (3 | ) | | $ | 16 |
|
Transformation initiative costs include information technology separation costs, integration of acquired business, and financial and advisory services incurred in connection with the Company's transformation into a pure play cockpit electronics business. The gain on non-consolidated affiliate transactions, net are described in Note 5, "Non-Consolidated Affiliates."
During the nine months ended September 30, 2016, the Company recorded an impairment charge of $11 million related to foreign currency translation amounts recorded in accumulated other comprehensive loss associated with the agreement to sell the Company's South Africa climate operations. In connection with the closure of the Climate facility in Argentina, the Company entered an agreement to contribute land and building with a net book value of $2 million to the local municipality.
Income Taxes
The Company's provision for income taxes of $34$20 million for the nine months ended September 30, 20172021, represents an increase of $7$1 million, when compared with $27$19 million in the same period of 2016.2020. The increase in tax expense isincludes approximately $3 million attributable to several items including the year-over-yearoverall increase in pretax earnings, as well asincluding changes in the mix of earnings and differing tax rates between jurisdictions, and withholding taxes,taxes. Other year-over-year increases include $2 million related to uncertain tax positions attributable to certain related party transactions and non-recurrence of certain tax law changes in India. These increases were largely offset by the non-recurrence of a $3$4 million discrete income tax benefitexpense adjustment recorded during the three months ended September 30, 2020 related to the reassessment of the valuation allowances in connection with certain income tax incentives formally approved by the Portuguese tax authorities during the first quarter of 2016, and $2 million resulting from changes in assessments regarding the potential realization of deferred tax assets. These increases were partially offset by the year-over-year decrease for uncertain tax positions, including interest, of approximately $3 million.
Discontinued Operations
The operations subject to the Interiors Divestiture and Climate Transaction met conditions required to qualify for discontinued operations reporting. Accordingly, the results of operations for the Interiors and Climate businesses have been reclassified to income (loss) from discontinued operations, net of taxassets in the consolidated statements of comprehensive income for the nine month periods ended September 30, 2017 and 2016. The nine months ending September 30, 2017 included a $7 million gain on the repurchase of the India electronics operations associated with the 2015 Climate Transaction. The nine months ending September 30, 2016 primarily included results of the South America interiors operations divested on December 1, 2016 and a tax benefit related to previously divested climate operations.
Net Income
Net income attributable to Visteon was $151 million for the nine months ended September 30, 2017, compared to net income of $73 million for the same period of 2016. The increase of $78 million includes discontinued operations impacts of $23 million, lower restructuring charges of $12 million, the non-recurrence of charges associated with the 2016 South Africa climate disposition of $11 million, lower selling, general and administrative expenses of $5 million, higher equity in net income of non-consolidated affiliates of $3 million and gains on the sale of non-consolidated affiliates of $3 million. Gross margin improved $24 million including $17 million for electronics operations and $7 million related to the 2016 exit of the climate operations. These improvements were partially offset by higher income taxes of $7 million.Germany.
Adjusted EBITDA
Adjusted EBITDA (a non-GAAP financial measure, as defined in Note 18)15, "Segment Information") was $268$136 million for the nine months ended September 30, 2017,2021, representing an increase of $27$19 million when compared with Adjusted EBITDA of $241$117 million for the same period of 2016. The increase includes $52020. Adjusted EBITDA was favorably impacted by higher volumes of $27 million, from favorable volumesforeign currency impacts of $8 million primarily attributable to the euro, Brazilian real, and Chinese renminbi and lower net new businessengineering costs, excluding currency, of $15 million. These increases were partially offset by product mix and $7unfavorable net customer pricing of $24 million, related to other climate operations exited in 2016 . Foreign currency decreased Adjusted EBITDA by $1 million attributable to the Chinese Renminbi and Euro partially offset by the Japanese Yen, Mexican Peso, and Brazilian Real. Net cost performance, of $16 million includesdesign changes and other primarily due to supply chain and material cost efficiencies, higher engineering recoveries,impacts associated with the semiconductor supply shortage and lower selling, generalthe non-recurrence of certain 2020 temporary austerity measures and administrative costs, offset by unfavorable customer pricing reductions, higher manufacturing costs, and increased warranty costs.
revenue claims.
The reconciliation of Adjusted EBITDA to net income (loss) attributable to Visteon to Adjusted EBITDA for the nine months ended September 30, 20172021 and 2016,2020, is as follows:
| | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
(In millions) | 2021 | | 2020 | | Change |
Net income (loss) attributable to Visteon Corporation | $ | 10 | | | $ | (74) | | | $ | 84 | |
Depreciation and amortization | 82 | | | 75 | | | 7 | |
Provision for income taxes | 20 | | | 19 | | | 1 | |
Non-cash, stock-based compensation expense | 13 | | | 13 | | | — | |
Interest expense, net | 6 | | | 10 | | | (4) | |
Net income (loss) attributable to non-controlling interests | 5 | | | 6 | | | (1) | |
Restructuring expense, net | (2) | | | 69 | | | (71) | |
| | | | | |
Equity in net income of non-consolidated affiliates | (2) | | | (4) | | | 2 | |
Other | 4 | | | 3 | | | 1 | |
Adjusted EBITDA | $ | 136 | | | $ | 117 | | | $ | 19 | |
|
| | | | | | | | | | | |
| Nine Months Ended September 30 |
| 2017 | | 2016 | | Change |
| (Dollars in Millions) |
Adjusted EBITDA | $ | 268 |
| | $ | 241 |
| | $ | 27 |
|
Depreciation and amortization | 62 |
| | 62 |
| | — |
|
Restructuring expense | 10 |
| | 22 |
| | (12 | ) |
Interest expense, net | 12 |
| | 10 |
| | 2 |
|
Equity in net income of non-consolidated affiliates | (6 | ) | | (3 | ) | | (3 | ) |
Other (income) expense, net | (3 | ) | | 16 |
| | (19 | ) |
Provision for income taxes | 34 |
| | 27 |
| | 7 |
|
(Income) loss from discontinued operations, net of tax | (8 | ) | | 15 |
| | (23 | ) |
Net income attributable to non-controlling interests | 11 |
| | 12 |
| | (1 | ) |
Non-cash, stock-based compensation expense | 9 |
| | 6 |
| | 3 |
|
Other | (4 | ) | | 1 |
| | (5 | ) |
Net income attributable to Visteon Corporation | $ | 151 |
| | $ | 73 |
| | $ | 78 |
|
Liquidity
The Company's primary sources of liquidity are cash flows from operations, existing cash balances, and borrowings under available credit facilities, if necessary. Thefacilities. As we continue to evaluate ongoing impacts of the COVID-19 pandemic including the semiconductor supply shortage and other supply chain impacts, the Company believes that funds generated from these sources will be adequatecontinue to fundsufficiently sustain ongoing operations and support investment in differentiating technologies. The Company will continue to closely monitor its available liquidity for current businessand maintain access to additional liquidity to weather these challenging conditions. The 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. The ongoing COVID-19 pandemic and related semiconductor supply shortage may exacerbate the intra-year requirements.
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.
32
The Company's ability to generate operating cash flow is dependent on the level, variability and timing of its customers' worldwide vehicle production, which may be affected by many factors including, but not limited to, general economic conditions, specific industry conditions, financial markets, competitive factors and legislative and regulatory changes. The Company monitors the macroeconomic environment and its impact on vehicle production volumes in relation to the Company's specific cash needs. The Company's intra-year needs are impacted by seasonal effects in the industry, such as mid-year shutdowns, the subsequent ramp-up of new model production and year-end shutdowns at key customers.
In the event that the Company's funding requirements exceed cash provided by its operating activities, the Company will meet such requirements by reduction of existing cash balances, by drawing on its $300 million Revolving Credit Facility or other affiliate working capital lines, by seeking additional capital through debt or equity markets, or some combination thereof.
Access to additional capital through the debt or equity markets is influenced by the Company's credit ratings. On March 7, 2017,As of September 30, 2021, 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 118, "Debt" to the accompanying consolidated financial statements 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, are primarily usedwhich may be utilized by the Company's local subsidiaries and consolidated joint ventures. Asventures, had availability of $191 million and the Company had $400 million of available credit under the revolving credit facility, as of September 30, 2017, these lines had availability of approximately $18 million.
2021.
Cash Balances
As of September 30, 2017,2021, the Company had total cash and cash equivalents of $735$401 million, including $3$4 million of restricted cash. Cash balances totaling $467$336 million were located in jurisdictions outside of the United States, of which approximately $195$130 million is considered permanently reinvested for funding ongoing operations outside of the U.S. If such permanently reinvested funds arewere repatriated to operations in the U.S., no U.S. federal taxes would be imposed on the distribution of such foreign earnings due to U.S. tax reform enacted in December 2017. However, the Company would be required to accrue additional tax expense, primarily related to foreign withholding taxes.
Other Items Affecting Liquidity
During 2017, the Company expects to make remaining payments of approximately $35 million related to the Germany interiors divestiture that closed on December 1, 2015. Also, as announced during the fourth quarter of 2016, the Company expects to incur restructuring costs to further align the Company's engineering and related administrative footprint with its core product technologies and customers. The Company estimates that it may incur up to $45 million in cumulative expenses to complete these actions of which $37 million has been expensed and $14 million has been paid since inception to date through September 30, 2017.
The Company is actively negotiating the possible exit of a European facility that may involve contributing cash working capital to the purchaser. The estimated contribution includes cash and working capital ranging from $15 million to $20 million .
Management continually seeks to streamline the Company's operations and may incur additional restructuring charges in the future.
The Company is authorized to spend an additional $230 million to repurchase Visteon common stock pursuant to the $400 million share repurchase authorization, as discussed in Note 14, "Stockholders' Equity and Non-Controlling Interests" of the consolidated financial statements under Item 1.
During the nine months ended September 30, 2017,2021, cash contributions to the Company's U.S. and non-U.S. defined benefit pension planplans were approximately $12 million for U.S. plans and $5 million.million for non-U.S. plans. The Company expects to makeestimates that total cash contributions to its defined benefit pension plans during 2021 will be approximately $19 million.
During the nine months ended September 30, 2021, the Company paid $29 million related to restructuring activities. Additional discussion regarding the Company's restructuring activities is included in Note 3, "Restructuring Activities." The Company estimates that total cash restructuring payments during 2021 will be approximately $35 million.
The Company committed to make a $15 million investment in two funds managed by venture capital firms principally focused on the automotive sector pursuant to limited partnership agreements. As of September 30, 2021, the Company contributed $7 million toward the aggregate investment commitments. As a limited partner in 2017.
each entity, the Company will periodically make capital contributions toward this total commitment amount.
Estimated cash contributions for 2018 through 2020, under current regulations and market assumptions are approximately $29 million.
Cash Flows
Operating Activities
Including discontinued operations, theThe Company generated $131used $12 million of cash infrom operating activities during the nine months ended September 30, 2017,2021. The decrease in cash from operations as compared to cash provided by operations of $38 million during the same period of 2016, representing a $93 million improvement. The increase in operating cash flowsprior year is primarily attributable to higher net incomelower Adjusted EBITDA (a non-GAAP financial measure, as discussed in Note 15, "Segment Information"), working capital outflows of $77 million and lower cash tax payments, net of expense of $67$100 million primarily duerelated to higher inventory levels resulting from the non-recurrenceworldwide semiconductor supply shortage and restructuring payments of transaction$29 million related taxes incurred in 2016,to previously announced restructuring actions. These decreases were partially offset by higher working capital use of approximately $10 million, higher warranty payments net of expense of $21 million anda dividend received from an increase in China bank notes of $11 million. equity method investment.
Investing Activities
Cash used from investing activities during the nine months ended September 30, 2017 totaled $97 million, compared to net cash provided by investing activities of $339 million for the same period in 2016, representing a decrease of $436 million. Net cash used by investing activities during the nine months ended September 30, 2017, includes2021 totaled $50 million, representing a $27 million decrease as compared to $77 million use of cash from investing activities during the purchase of the India electronics operations associated with the Climate Transaction for $47same period in 2020. Lower cash used from investing activities is primarily attributable to a $29 million andreduction in capital expenditures of $69 million. These outflows were partially offset by proceeds for divestitures of equity and cost based investments in China and Europe of $15 million and net investment hedge settlement proceeds of $5 million.
Net cash flow provided by investing activities forduring the nine months ended September 30, 2016 includes2021 as compared to the Climate Transaction withholding tax refund of $356 million, liquidation of investments of short-term securities of $47 million and proceeds from asset sales of $15 million, partially offset by capital expenditures of $56 million, the acquisition of AllGo Embedded Systems Private Limited of $15 million and an $8 million shareholder loan to a non-consolidated affiliate.
same period in 2020.
Financing Activities
Cash used by financing activities during the nine months ended September 30, 2017, totaled $1972021 was $26 million, as compared to $2,260$60 million cash used by financing activities forduring the same period in 2016, for2020, representing a decrease inof cash used by financing activities of $2,063$34 million. CashNet cash used during the nine months ended September 30, 2021 is attributable to $33 million of dividends paid to non-controlling interests, partially offset by short-term borrowings, primarily in Brazil.
Net cash used by financing activities during the nine months ended September 30, 2017 included2020 is attributable to the repayment of $37 million of short-term debt primarily at the Company's Chinese joint venture operations, $16 million of share repurchases, of $170and $7 million andof dividends paid to non-controlling interests of $29 million.interests.
Cash used by financing activities during the nine months ended September 30, 2016 of $2,260 million included a distribution payment of $1,736 million, share repurchases of $500 million, stock based compensation tax withholding payments of $11 million and net payments on debt of $13 million.
Debt and Capital Structure
See Note 11,8, “Debt” to the condensed consolidated financial statements included in Item 1.
Off-Balance Sheet ArrangementsSignificant Accounting Policies and Critical Accounting Estimates
See Note 1, “Summary of Significant Accounting Policies” to the accompanying condensed consolidated financial statements in Item 1.
The Company does not have any off-balance sheet financial arrangements that have or are reasonably likely to have a material current or future effect on financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Fair Value Measurement
Measurements
See Note 16,13, “Fair Value Measurements and Financial Instruments” to the condensed consolidated financial statements included in Item 1.
Recent Accounting Pronouncements
See Note 21, “Summary of Significant Accounting Policies” to the accompanying condensed consolidated financial statements in Item 1.
Forward-Looking Statements
Certain statements contained or incorporated in this Quarterly Report on Form 10-Q 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.uncertainties. 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. 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:
•Continued and future impacts of the coronavirus ("COVID-19") pandemic on the Visteon’s financial condition and business operations including global supply chain disruptions, market downturns, reduced consumer demand, and new government actions or restrictions.
•Significant or prolonged shortage of critical components from Visteon’s suppliers including, but not limited to semiconductors, and particularly those components from suppliers who are sole or primary sources.
•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 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.
•Visteon’s ability to access funds generated by its foreign subsidiaries and joint ventures on a timely and cost effectivecost-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, and in particular changes in Ford’s vehicle production volumes and platform mix.operates.
•Increases in our vendor's commodity costs or disruptions in the supply of commodities, including aluminum,resins, copper, fuel, and natural gas.
•Visteon’s ability to generate cost savings to offset or exceed agreed uponagreed-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.
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.
•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, 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.
•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.
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Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Item 3.Quantitative and Qualitative Disclosures About Market Risk
The primary market risks to which the Company is exposed includesinclude changes in foreign currency exchange rates, interest rates and certain commodity prices. The Company manages these risks through derivative instruments and various operating actions including fixed price contracts with suppliers and cost sourcing arrangements with customers.customers and through various derivative instruments. The Company's use of derivative instruments is limitedstrictly intended for hedging purposes to mitigation ofmitigate market risks including hedging activities. However,pursuant to written risk management policies. Accordingly, derivative instruments are not used for speculative or trading purposes, as per clearly defined risk management policies.purposes. The Company's use of derivative instruments may entail risk ofcreates exposure to credit loss in the event of non-performance of aby the counter-party to athe derivative financial derivative contract.instruments. The Company limits its counterpartythis exposure by entering into agreements directly with a variety of major financial institutions with high credit profilesstandards and that are expected to support an expectation that the counterparty is capable of meeting thefully satisfy their obligations under the contracts. In addition,Additionally, the Company's ability to utilize derivatives to manage market risk is dependent on credit conditions, and market conditions, given the currentand prevailing economic environment.
Foreign Currency Risk
The Company's net cash inflows and outflows thatflows are exposed to the risk of adverse changes in exchange rates as related to 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. TheWhere possible, the Company utilizes derivative financial instruments to manage foreign currency exchange rate risks. Forward and option contracts may be utilized to reducemitigate the impact toexchange rate variability on the Company's cash flows from adverse movements in exchange rates.flows. Foreign currency exposures are reviewed periodically and any natural offsets are considered prior to entering into a derivative financial derivative instrument. The Company’s current primary hedged foreign currency exposures include Euro,the Japanese Yen, Thailand Bhatyen, euro, Thai baht, and Mexican Peso.peso. 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. As of September 30, 2017, and December 31, 2016, the net fair value of foreign currency forward and option contracts was a net liability of $4 million and less than $1 million, respectively. Maturities of these instruments generally do not exceed eighteen months.
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.
During 2015, the The Company entereddoes not enter into cross currency swap transactionsexchange rate contracts to mitigate the variability of the value of the Company's investment in certain non-U.S. entities. In April 2017, the Company terminated and received $5 million of proceeds upon settlement. There was no ineffectiveness associated with such derivatives at the time of the termination. The Company subsequently entered into new cross currency swap transactions with an aggregate notional amount of $150 million. The transactions are designated as net investment hedges of certain of the Company's European affiliates. Accordingly, the effective portion of changes in the fair value of the transactions are recognized in other comprehensive income, a component of shareholders' equity. There was no ineffectiveness associated with such derivatives as of September 30, 2017 and December 31, 2016 and the fair value of these derivatives was a liability of $19 million and an asset of $6 million, respectively.
this exposure.
The hypothetical pre-tax gain or loss in fair value from a 10% favorable or adverse change in quoted currency exchange rates would be approximately $30 million and $31 million for foreign currency derivative financial instruments as of September 30, 20172021 and December 31, 2016,2020, 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 loans toinvestments in subsidiaries. AsBecause 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
The Company is subject to interest rate risk principally in relation to variable-rate debt. The Company uses financial derivative instruments to manage exposure to fluctuations in interest rates in accordance with its risk management policies. During 2015, the Company entered into interest rate swaps to manage interest rate risk relatedSee Note 13, "Fair Value Measurements and Financial Instruments" to the variable rate interest payments of the Term Facility. In April 2017, the Company terminated these swaps and paid $1 million to settle the contracts.
During the second quarter of 2017, the Company entered into new interest rate swap contracts with an aggregate notional value of $150 million to effectively convert designated interest payments related to the amended Term Facility from variable to fixed cash flows. The maturities of these swaps do not exceed the underlying amended Term Facility. The instruments have been designated as cash flow hedges and accordingly, the effective portion of the changescondensed consolidated financial statements included in the fair value of the swap transactions are initially recognized in other comprehensive income. Subsequently, the accumulated gains and losses recorded in equity are
reclassified to income in the period during which the hedged transaction impacts earnings. The ineffective portion of changes in the fair value of the swap transactions, if any, are recognized directly in income. As of September 30, 2017 and December 31, 2016, the fair value of the Company's interest rate swaps was an asset of less than $1 million and a liability of $1 million, respectively. There has been no ineffectiveness associated with these derivatives.
The Company significantly reduced interest rate exposure after entering the swap transactions in 2015. The variable rate basis of debt is approximately 60% and 59% as of September 30, 2017 and December 31, 2016, respectively.
Item 1 for additional information.
Commodity Risk
The Company's exposures to market risk arising 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 determinedecide to utilize derivatives in the future.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 4. | Controls and Procedures |
Item 4.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 ExecutiveSenior Vice President and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
As of September 30, 2017,2021, an evaluation was performed under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and Senior Vice President and Chief Financial Officer, of the effectiveness of the design and operation of disclosure controls and procedures. Based on that evaluation, the Chief Executive Officer and ExecutiveSenior Vice President and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2017.
2021.
Internal Control over Financial Reporting
There were no changes in the Company's internal control over financial reporting during the three months ended September 30, 20172021 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
Part II
Other Information
Item 1. Legal Proceedings
See the information above under Note 17,14, "Commitments and Contingencies," to the condensed consolidated financial statements which is incorporated herein by reference.
Item 1A.Risk Factors
For information regarding factors that could affect the Company's results of operations, financial condition and liquidity, see the risk factors discussed in Part I, "Item 1A. Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2016.2020. See also, "Forward-Looking Statements" included in Part I, Item 2 of this Quarterly Report on Form 10-Q.
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Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
PeriodItem 2.Unregistered Sales of Equity Securities and Use of Proceeds
The following table summarizes information relating toThere were no purchases made by or on behalf of the Company, or an affiliated purchaser, of shares of the Company’s common stock during the third quarter of 2017.2021.
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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) (in millions) |
Jul. 1, 2017 to Sep. 30, 2017 | 82,780 |
| | $121.24 | | 82,513 |
| | $230 |
Total | 82,780 |
| | $121.24 | | 82,513 |
| | $230 |
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(1) | Includes 267 shares surrendered to the Company by employees to satisfy tax withholding obligations in connection with the vesting of restricted share and stock unit awards made pursuant to the Visteon Corporation 2010 Incentive Plan. |
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(2) | During the third quarter 2017 the Company acquired 82,513 shares from the open market share repurchases. |
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(3) | On January 10, 2017, the Company's board of directors authorized $400 million of share repurchase of its shares of common stock. As of September 30, 2017, there is $230 million remaining on the authorization. Additional repurchases of common stock, if any, may occur at the discretion of the Company. |
Item 6.Exhibits
The exhibits listed on the "Exhibit Index" on Page 4940 hereof are filed with this report or incorporated by reference as set forth therein.
Exhibit Index
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Exhibit No. | | Description |
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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.** |
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* | Indicates that exhibit is a management contract or compensatory plan or arrangement. |
* 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.
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 Report to be signed on its behalf by the undersigned, thereunto duly authorized.
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| VISTEON CORPORATION |
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| VISTEON CORPORATIONBy: | /s/ Abigail S. Fleming |
| | Abigail S. Fleming |
| By: | /s/ Stephanie S. Marianos |
| | Stephanie S. Marianos |
| | Vice President and Chief Accounting Officer |
Date: October 26, 201728, 2021