NOTE 8.5. Goodwill and Other Intangible Assets
Intangible assets, net are comprised of the following:
| September 30, 2023 | December 31, 2022 | ||||||||||||||||||||||||||||||||||||||||
| (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 | $ | (39) | $ | 1 | $ | 40 | $ | (39) | $ | 1 | ||||||||||||||||||||||||||||
| Customer related | 10 | 84 | (80) | 4 | 88 | (77) | 11 | ||||||||||||||||||||||||||||||||||
| Capitalized software development | 5 | 51 | (21) | 30 | 50 | (16) | 34 | ||||||||||||||||||||||||||||||||||
| Other | 32 | 17 | (12) | 5 | 17 | (9) | 8 | ||||||||||||||||||||||||||||||||||
| Subtotal | 192 | (152) | 40 | 195 | (141) | 54 | |||||||||||||||||||||||||||||||||||
| Indefinite-Lived: | |||||||||||||||||||||||||||||||||||||||||
| Goodwill | 43 | — | 43 | 45 | — | 45 | |||||||||||||||||||||||||||||||||||
| Total | $ | 235 | $ | (152) | $ | 83 | $ | 240 | $ | (141) | $ | 99 | |||||||||||||||||||||||||||||
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) | 2023 | 2022 | |||||||||
| Recoverable taxes | $ | 54 | $ | 55 | |||||||
| Contractually reimbursable engineering costs | 34 | 35 | |||||||||
| Joint venture receivables | 26 | 49 | |||||||||
| Prepaid assets and deposits | 19 | 18 | |||||||||
| China bank notes | — | 6 | |||||||||
| Other | 7 | 4 | |||||||||
| $ | 140 | $ | 167 | ||||||||
| 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 $208 million and $101 million of China bank notes during the nine months ended September 30, 2023 and 2022, respectively. Remaining amounts outstanding at third-party institutions related to sold bank notes will mature by the end of the first quarter of 2024.
10
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 | ||||
| September 30, | December 31, | ||||||||||
| (In millions) | 2023 | 2022 | |||||||||
| Deferred tax assets | $ | 41 | $ | 42 | |||||||
| Contractually reimbursable engineering costs | 22 | 25 | |||||||||
| Recoverable taxes | 11 | 11 | |||||||||
| Derivative financial instruments | 8 | 2 | |||||||||
| Pension assets | 4 | 4 | |||||||||
| Other | 38 | 20 | |||||||||
| $ | 124 | $ | 104 | ||||||||
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$12 million during the remainder of 2017,2023, $31 million in 2024, $10 million in 2018, $9 million in 2019,2025, $2 million in 20202026, and $5$1 million in 2021.2027 and beyond.
| 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 | |||||||||||||
| 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) | 2023 | 2022 | |||||||||
| Deferred income | $ | 54 | $ | 55 | |||||||
| Product warranty and recall accruals | 43 | 31 | |||||||||
| Non-income taxes payable | 26 | 35 | |||||||||
| Joint venture payable | 21 | 39 | |||||||||
| Income taxes payable | 17 | 22 | |||||||||
| Royalty reserves | 15 | 14 | |||||||||
| Restructuring reserves | 4 | 6 | |||||||||
| Dividends payable | 2 | 1 | |||||||||
| Other | 37 | 43 | |||||||||
| $ | 219 | $ | 246 | ||||||||
| 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 | ||||
Other non-current liabilities are summarized as follows:
| September 30, | December 31, | ||||||||||
| (In millions) | 2023 | 2022 | |||||||||
| Product warranty and recall accruals | $ | 23 | $ | 20 | |||||||
| Deferred income | 11 | 14 | |||||||||
| Income tax reserves | 6 | 7 | |||||||||
| Restructuring reserves | 3 | 5 | |||||||||
| Derivative financial instruments | — | 2 | |||||||||
| Other | 21 | 16 | |||||||||
| $ | 64 | $ | 64 | ||||||||
11
| 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 | ||||||
| 2017 | 2016 | ||||||
| (Dollars in Millions) | |||||||
| Short-Term Debt: | |||||||
| Current portion of long-term debt | $ | 1 | $ | 3 | |||
| Short-term borrowings | 43 | 33 | |||||
| $ | 44 | $ | 36 | ||||
| Long-Term Debt: | |||||||
| Term debt facility | $ | 347 | $ | 346 | |||
| September 30, | December 31, | ||||||||||
| (In millions) | 2023 | 2022 | |||||||||
| Short-Term Debt: | |||||||||||
| Current portion of long-term debt | $ | 18 | $ | 13 | |||||||
| Long-Term Debt: | |||||||||||
| Term debt facility, net | $ | 323 | $ | 336 | |||||||
As of December 31, 2016,2021, the Company had an amendedCompany's credit agreement (the “Credit Agreement”("Credit Agreement") which included a $350 million Term Facility maturing April 9, 2021March 24, 2024 and a $400 million Revolving Credit Facility with capacity of $200 million maturing April 9, 2019. Borrowings under the Term Facility accrued interest at the greater of LIBOR or 0.75%, plus 2.75%, with an option by the Company to specify the LIBOR tenor of either 1, 2, 3, or 6 months. Loans drawn under the Revolving Credit Facility had an interest rate equal to LIBOR plus a margin ranging from 2.00% to 2.75% as specified by a ratings grid contained in the Credit Agreement. As of December 31, 2016, borrowings under the Revolving Credit Facility would accrue interest at LIBOR plus 2.50%. There were no outstanding borrowings at year-end.
Facility.
On March 24, 2017,July 19, 2022, the Company entered into a secondnew amendment to the Credit Agreement to, among other things, extend the maturity dates of both facilities by three years and increase the Revolving Credit Facility capacity to $300 million.facilities. The amended Revolving Credit Facility will mature on March 24, 2022 and the amended Term Facility will mature on March 24, 2024.July 19, 2027. The amendment reducedchanged the LIBOR spread applicablemethod the Term Loan and Revolving Credit Facility accrue interest from a LIBOR-based rate to eacha Secured Overnight Financing Rate ("SOFR") based rate.
On June 28, 2023, the Company amended the existing Credit Agreement to, among other things, amend certain affirmative and negative covenants.
Short-Term Debt
Terms of the amended credit facility require a quarterly principal payment equal to 1.25% of the original term debt balance. The first required payment was paid during the second quarter of 2023.
As of September 30, 2023, the Company has no other short-term borrowings at the Company's subsidiaries. The Company's subsidiaries have access to $32 million of capacity under short-term credit facilities.
Long-Term Debt
The Company has no outstanding borrowings on the Revolving Credit Facility andas of September 30, 2023.
Interest on the Term Facility by 0.50% and reduced the LIBOR floor related to the Term Facility from 0.75% to 0.00%. The $350 million of borrowings under the amended Termloans and Revolving Credit Facility accrue interest at a rate equal to a SOFR-based rate plus an applicable margin of LIBOR plus 2.25%. In conjunction withbetween 1.00% and 1.75%, as determined by the refinancing theCompany's total gross leverage ratio. The Company receivedcan benefit from a credit rating upgrade from Standard & Poor's to BB from BB-. Pursuant5 basis point decrease to the ratings grid contained withinapplicable margin due to a sustainability-linked pricing provision based on the amendedCompany's annual performance on reducing GHG emissions.
The Credit Agreement requires compliance with customary 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 than3.50:1.00. During any borrowing thereunder shall accrue interest at LIBOR plus 1.75%. Asperiod when the Company’s corporate and family ratings meet investment grade ratings, certain of September 30, 2017, there were no outstanding borrowings under the amended Revolving Credit Facility.negative covenants are suspended.
The Revolving Credit Facility also provides $75 million availability for the issuance of letters of credit and a maximum of $20 million for swing line borrowing.borrowings. Any amount of the facility utilized for letters of credit or swing line loans outstanding will reduce the amount available under the amendedexisting Revolving Credit Facility. The Company may request increases in the limits under the amended Term Facility and the amended Revolving Credit FacilityAgreement and may request the addition of one or more term loan facilities under the Credit Agreement.facilities. Outstanding borrowings may be prepaid without penalty (other than borrowings made for the purpose of reducing the effective interest rate margin or weighted average yield of the loans). There are mandatory prepayments of principal in connection with: (i) excess cash flow sweeps above certain leverage thresholds, (ii) certain asset sales or other dispositions, (iii)(ii) certain refinancing of indebtedness and (iv)(iii) over-advances under the Revolving Credit Facility. There are no excess cash flow sweeps required at the Company’s current leverage level.
All obligations under the Credit Agreement and obligations inwith respect ofto certain cash management services and swap transaction agreements withbetween the lendersCompany and their affiliatesits lenders are unconditionally guaranteed by certain of the Company’s subsidiaries. Under the terms of the Credit Agreement, all obligations under the Credit Agreementany amounts outstanding are secured by a first-priority perfected lien (subject to certain exceptions) on substantially all property of the Company and the subsidiaries party to the Security Agreement,security agreement, subject to certain limitations.
12
Other
The Company recorded $1has a $4 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.
2023 and December 31, 2022. Additionally, the Company had $18$2 million and $3 million of locally issued bank guarantees and letters of credit with $1 million of collateral as of September 30, 2017,2023 and December 31, 2022, respectively, to support various tax appeals, customs arrangements and other obligations at its local affiliates.
NOTE 12.9. Employee Benefit Plans
The Company's net periodic benefit costs for all defined benefit plans for the three month periods ended September 30, 20172023 and 20162022 were as follows:
| U.S. Plans | Non-U.S. Plans | |||||||||||||||||||||||||||||||||||||
| (In millions) | (In millions) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||||||||||
| Costs Recognized in Income: | Costs Recognized in Income: | |||||||||||||||||||||||||||||||||||||
| Pension service (cost): | Pension service (cost): | |||||||||||||||||||||||||||||||||||||
| Service cost | Service cost | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||||||||||||||
| Pension financing benefits (cost): | Pension financing benefits (cost): | |||||||||||||||||||||||||||||||||||||
| Interest cost | Interest cost | $ | (8) | $ | (5) | $ | (3) | $ | (2) | |||||||||||||||||||||||||||||
| Expected return on plan assets | Expected return on plan assets | 11 | 10 | 3 | 2 | |||||||||||||||||||||||||||||||||
| Amortization of losses and other | Amortization of losses and other | — | — | — | — | |||||||||||||||||||||||||||||||||
| Total pension financing benefits: | Total pension financing benefits: | 3 | 5 | — | — | |||||||||||||||||||||||||||||||||
| 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 | ||||||||||||||||||||||||||||
| Net pension benefit (cost) | Net pension benefit (cost) | $ | 3 | $ | 5 | $ | — | $ | — | |||||||||||||||||||||||||||||
The Company's net periodic benefit costs for all defined benefit plans for the nine month periods ended September 30, 20172023 and 20162022 were as follows:
| U.S. Plans | Non-U.S. Plans | ||||||||||||||||||||||
| (In millions) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
| Costs Recognized in Income: | |||||||||||||||||||||||
| Pension service (cost): | |||||||||||||||||||||||
| Service cost | $ | — | $ | — | $ | (1) | $ | (1) | |||||||||||||||
| Pension financing benefits (costs): | |||||||||||||||||||||||
| Interest cost | $ | (24) | $ | (15) | $ | (7) | $ | (5) | |||||||||||||||
| Expected return on plan assets | 31 | 30 | 7 | 6 | |||||||||||||||||||
| Amortization of losses and other | 1 | — | — | (1) | |||||||||||||||||||
| Total pension financing benefits: | 8 | 15 | — | — | |||||||||||||||||||
| Net pension benefit (cost) | $ | 8 | $ | 15 | $ | (1) | $ | (1) | |||||||||||||||
| 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 | |||||
comprehensive income.
During the nine months ended September 30, 2017,2023, cash contributions to the Company's defined benefit plans were less than a$4 million for the U.S. plans and $5 million for therelated to its non-U.S. plans. The Company expects to makeestimates that total cash contributions to its non-U.S. defined benefit pension plans of $7 million in 2017.
13
NOTE 10. Income Taxes
During the annuity purchase, the Company recorded a settlement loss of approximately $1 million during the the three monthsnine month period ended September 30, 2016.
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 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.
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 determination of the probability of the realization of the deferred tax assets include, butincome taxes quarterly to determine if valuation allowances are not limited to, recent historical financial results, historical taxable income, projected future taxable income, the expected timing of the reversals of existing temporary differences and tax planning strategies. If, based upon the weight of available evidence, it is more likely than not the deferred tax assets will notrequired or should be realized, a valuation allowance is recorded. The weight given to the positive and negative evidence is commensurate with the extent to which the evidence may be objectively verified. As such, it is generally difficult for positive evidence regarding projected future taxable income exclusive of reversing taxable temporary differences to outweigh objective negative evidence of recent financial reporting losses, in particular, when there is a cumulative loss incurred over a three-year period. In regards to the full valuation allowance recorded against the U.S. net deferred tax assets, the cumulative U.S. pretax book loss adjusted for significant permanent items incurred over the three-year period ended December 31, 2016 limits the ability to consider other subjective evidence such as the Company’s plans to improve U.S. profits, and as such, the Company continues to maintain a full valuation allowance against the U.S. net deferred tax assets.adjusted. Based on the Company’s current assessment, it is possible that withinsufficient positive evidence may be available to support the next 12 to 24 months, the existingrelease of all, or a portion, of its U.S. 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 suchthree to twelve months. Release of all, or a releaseportion, of the valuation allowance were to occur, it could have a significant impact on net incomewould result in the quarterrecognition of certain deferred tax assets and a decrease to income tax expense for the period the release is recorded.
There were no material changes in which it is deemed appropriate to partially release the reserve.
| 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 | |
sheets.
14
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) | 2023 | 2022 | |||||||||
| Shanghai Visteon Automotive Electronics, Co., Ltd. | $ | 49 | $ | 45 | |||||||
| Yanfeng Visteon Automotive Electronics Co., Ltd. | 13 | 37 | |||||||||
| Changchun Visteon FAWAY Automotive Electronics, Co., Ltd. | 13 | 15 | |||||||||
| Other | 2 | 2 | |||||||||
| $ | 77 | $ | 99 | ||||||||
15
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) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
| Changes in AOCI: | |||||||||||||||||||||||
| Beginning balance | $ | (213) | $ | (265) | $ | (213) | $ | (229) | |||||||||||||||
| Other comprehensive income (loss) before reclassification, net of tax | (14) | (29) | (18) | (66) | |||||||||||||||||||
| Amounts reclassified from AOCI | 2 | — | 6 | 1 | |||||||||||||||||||
| Ending balance | $ | (225) | $ | (294) | $ | (225) | $ | (294) | |||||||||||||||
| Changes in AOCI by Component: | |||||||||||||||||||||||
| Foreign currency translation adjustments | |||||||||||||||||||||||
| Beginning balance | $ | (208) | $ | (206) | $ | (210) | $ | (149) | |||||||||||||||
| Other comprehensive income (loss) before reclassification, net of tax (a) | (19) | (45) | (17) | (102) | |||||||||||||||||||
| Ending balance | (227) | (251) | (227) | (251) | |||||||||||||||||||
| Net investment hedge | |||||||||||||||||||||||
| Beginning balance | 9 | 18 | 12 | 4 | |||||||||||||||||||
| Other comprehensive income (loss) before reclassification, net of tax (a) | 5 | 5 | 2 | 20 | |||||||||||||||||||
| Amounts reclassified from AOCI | — | — | — | (1) | |||||||||||||||||||
| Ending balance | 14 | 23 | 14 | 23 | |||||||||||||||||||
| Benefit plans | |||||||||||||||||||||||
| Beginning balance | (26) | (79) | (25) | (81) | |||||||||||||||||||
| Other comprehensive income (loss) before reclassification, net of tax (b) | — | 2 | — | 3 | |||||||||||||||||||
| Amounts reclassified from AOCI | (1) | — | (2) | 1 | |||||||||||||||||||
| Ending balance | (27) | (77) | (27) | (77) | |||||||||||||||||||
| Unrealized hedging gain (loss) | |||||||||||||||||||||||
| Beginning balance | 12 | 2 | 10 | (3) | |||||||||||||||||||
| Other comprehensive income (loss) before reclassification, net of tax (c) | — | 9 | (3) | 13 | |||||||||||||||||||
| Amounts reclassified from AOCI | 3 | — | 8 | 1 | |||||||||||||||||||
| Ending balance | 15 | 11 | 15 | 11 | |||||||||||||||||||
| Total AOCI | $ | (225) | $ | (294) | $ | (225) | $ | (294) | |||||||||||||||
(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, 20172023 and 2016 are as follows:2022.
| 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 | |||||||||||
| 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
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| 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 | ||||
| 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 | ) | |||
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) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Net income (loss) attributable to Visteon | $ | 66 | $ | 44 | $ | 120 | $ | 90 | |||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Average common stock outstanding - basic | 28.1 | 28.1 | 28.2 | 28.1 | |||||||||||||||||||
| Dilutive effect of performance based share units and other | 0.4 | 0.4 | 0.4 | 0.4 | |||||||||||||||||||
| Diluted shares | 28.5 | 28.5 | 28.6 | 28.5 | |||||||||||||||||||
| Basic and Diluted Per Share Data: | |||||||||||||||||||||||
| Basic earnings (loss) per share attributable to Visteon | $ | 2.35 | $ | 1.57 | $ | 4.26 | $ | 3.20 | |||||||||||||||
| Diluted earnings (loss) per share attributable to Visteon: | $ | 2.32 | $ | 1.54 | $ | 4.20 | $ | 3.16 | |||||||||||||||
| 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
The Company is exposed to various market risks including, but not limited to, changes in foreign currency exchange rates and market interest rates. The Company manages these risks, in part, through the use of derivative financial instruments. The maximum length of time over which the Company hedges the variability in the future cash flows 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 of derivative financial derivative instruments may pose risk ofcreates exposure to credit loss in the event of nonperformance by the transaction counter-party.
counterparty to the derivative financial instruments. The Company limits this exposure by entering into agreements including master netting arrangements directly with a variety of major highly rated financial institutions that are expected to fully satisfy their obligations under the contracts. Additionally, the Company’s ability to utilize derivatives to manage risks is dependent on credit and market conditions. The Company presents its derivative positions and any related material collateral under master netting arrangements that provide for the net settlement of contracts, by counterparty, in the event of default or termination. Derivative financial instruments designated and non-designated as hedging instruments are included in the Company’s consolidated balance sheets. There is no cash collateral on any of these derivatives.
17
instruments are classified as Level 2, "Other Observable Inputs" in the fair value hierarchy.
During 2022, the hedged cash flows impact earnings. The ineffective portionCompany terminated existing cross currency swaps and received $9 million upon settlement. Subsequently, the Company executed new cross-currency swap transactions. As of changesSeptember 30, 2023, the Company had cross-currency swaps with aggregate notional amounts of $200 million intended to mitigate the variability of U.S. dollar value investment in the fair valuecertain of the transactions, if any, is recognized directly in income.its non-U.S. entities. These swaps are designated as net investment hedges. There was no ineffectiveness associated with such derivatives as of September 30, 20172023, and the fair value of these derivatives is a non-current liability of $6 million. As of September 30, 2023, a gain of approximately $3 million is expected to be reclassified out of accumulated other comprehensive income into earnings within the next 12 months.
As of December 31, 2016 and2022, the fair value of these derivatives was a non-current liability of $3 million and a liability of $6 million, respectively. 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$8 million.
During 2022, the fair value ofCompany terminated existing interest rate swaps and received less than $1 million upon settlement. Subsequently, the Company executed new interest rate swap transactions, if any, is recognized directly in income.instruments. As of September 30, 2017 and December 31, 2016,2023, the Company had interest rate swaps with aggregate notional amounts of $250 million. The fair value was anof these derivatives is a non-current asset of less than $1$14 million andas of September 30, 2023. As of September 30, 2023, a liabilitygain of $1approximately $7 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 istwelve months.
As of December 31, 2022, the fair value of these derivatives was a lossnon-current asset of less than $1$10 million.
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Financial Statement Presentation
Gains and losses on derivative financial instruments for the three and nine months ended September 30, 20172023 and 20162022 are as follows:
| Recorded Income (Loss) into AOCI, net of tax | Reclassified from AOCI into Income (Loss) | Recorded in (Income) Loss | |||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||||||||||||||||||
| Three months ended September 30, | |||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency risk - Cost of sales: | |||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency derivative | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||||||||||||||||||||
| Interest rate risk - Interest expense, net: | |||||||||||||||||||||||||||||||||||||||||||||||
| Interest rate swaps | — | 9 | (3) | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Net investment hedges | 5 | 5 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| $ | 5 | $ | 14 | $ | (3) | $ | — | $ | — | $ | — | ||||||||||||||||||||||||||||||||||||
| Nine months ended September 30, | |||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency risk - Cost of sales: | |||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency derivative | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 3 | |||||||||||||||||||||||||||||||||||
| Interest rate risk - Interest expense, net: | |||||||||||||||||||||||||||||||||||||||||||||||
| Interest rate swaps | (3) | 13 | (8) | (1) | — | — | |||||||||||||||||||||||||||||||||||||||||
| Net investment hedges | 2 | 20 | — | 1 | — | — | |||||||||||||||||||||||||||||||||||||||||
| $ | (1) | $ | 33 | $ | (8) | $ | — | $ | — | $ | 3 | ||||||||||||||||||||||||||||||||||||
| 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 | ) | ||||||||
The Company's fair value of debt was $337 million and $336 million as of September 30, 2023 and December 31, 2022, 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-partycounterparty 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 whichGM and their affiliates. Ford represents 17%18% and 16% of the Company's balance as of September 30, 20172023 and December 31, 2016, respectively, Mazda which2022, respectively. GM represents 11%13% and 10%9% of the Company's balance as of September 30, 20172023 and December 31, 2016, and Nissan/Renault which represents 11% and 10% of the balance as of September 30, 2017 and December 31, 2016,2022, 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. The Settlement Agreement also provided that the Company would continue to negotiate in good faith with the Township inif 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, the Township notified the Company in writing that it is estimating a shortfall in tax revenues of between $25 million and $36 million, which could render it unable to satisfy its payment obligations under the bonds. 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,Michigan’s Wayne County Circuit Court. On
19
June 27, 2023, Visteon and the Township dismissedentered into a Settlement and Mutual Release Agreement pursuant to which Visteon, without admitting wrongdoing, will pay the proceeding before the Delaware Bankruptcy CourtTownship $12 million. Payment will be made in two installments. One payment was made on July 3, 2023. The second payment is scheduled to be paid on July 1, 2024 and re-commenced the proceeding against the Companyis classified as a current liability. The litigation commenced in the MichiganMichigan’s Wayne County Circuit Court for the State of Michigan on July 2, 2015. The Township sought damages or, alternatively, declaratory judgment that, among other things, the Company is responsible under the Settlement Agreement for payment of any shortfall in the bond debt service payments. On February 2, 2016, the Wayne County Circuit Courtand has been 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. The Company disputes the factual and legal assertions made by the Township and intends to vigorously defend the matter. The Company is not able to estimate the possible loss or range of loss in connection with this matter.
prejudice.
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$8 million for claims aggregating approximately $57 million and $5$39 million in Brazil and Argentina, respectively.as of September 30, 2023. 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 the Company's 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
As part of 2015 divestitures involving the agreements of the Climate TransactionCompany's former climate and Interiors Divestiture,interiors businesses, the Company continues to provide lease guarantees to divested Climate and Interiors entities. AtAs of September 30, 20172023, the Company has approximately $7$2 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.
20
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) | 2023 | 2022 | |||||||||
| Beginning balance | $ | 51 | $ | 50 | |||||||
| Provisions | 26 | 13 | |||||||||
| Changes in estimates | 2 | 1 | |||||||||
| Currency | (1) | (6) | |||||||||
| Settlements, net | (12) | (11) | |||||||||
| Ending balance | $ | 66 | $ | 47 | |||||||
| 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 | |||
The Company has recorded $15 million of expense during the nine months ended September 30, 2023 related to a recall campaign for certain vehicles involving instrument panel clusters manufactured by the Company. The cause for the instrument panel cluster failures was resolved by the Company in April 2023 and the recall relates to certain parts shipped prior to that time. The amount recorded represents the Company’s best estimate and the ultimate resolution of these matters could have a further negative effect on the Company's financial position, results of operations, and cash flow.
Other Contingent Matters
Various legal actions, governmental investigations and proceedings and claims are pending or may be instituted or asserted in the future against the Company, including those arising out of alleged defects in the Company’s products; governmental regulations relating to safety; employment-related matters; customer, supplier and other contractual relationships; intellectual property rights; product warranties; customs and international trade regulations; 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, 20172023 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. Segment15. Revenue Recognition and Geographical Information
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 evaluatedInformation 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 onGeographic Region
Disaggregated net sales before elimination of inter-company shipments, Adjusted EBITDA (a non-GAAP financial measure, as defined below)by geographical market and operating assets.
| 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 | |||||||
| 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 | |||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (In millions) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
| Geographical Markets | |||||||||||||||||||||||
| Europe | $ | 321 | $ | 335 | $ | 997 | $ | 929 | |||||||||||||||
| Americas | 311 | 308 | 879 | 828 | |||||||||||||||||||
| China Domestic | 162 | 180 | 442 | 431 | |||||||||||||||||||
| China Export | 88 | 72 | 259 | 166 | |||||||||||||||||||
| Other Asia-Pacific | 170 | 175 | 508 | 439 | |||||||||||||||||||
| Eliminations | (38) | (44) | (121) | (101) | |||||||||||||||||||
| $ | 1,014 | $ | 1,026 | $ | 2,964 | $ | 2,692 | ||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (In millions) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
| Product Lines | |||||||||||||||||||||||
| Instrument clusters | $ | 494 | $ | 481 | $ | 1,445 | $ | 1,286 | |||||||||||||||
| Cockpit domain controller | 146 | 130 | 397 | 313 | |||||||||||||||||||
| Infotainment | 136 | 141 | 397 | 357 | |||||||||||||||||||
| Information displays | 87 | 122 | 274 | 376 | |||||||||||||||||||
| Body and electrification electronics | 83 | 67 | 226 | 143 | |||||||||||||||||||
| Other | 68 | 85 | 225 | 217 | |||||||||||||||||||
| $ | 1,014 | $ | 1,026 | $ | 2,964 | $ | 2,692 | ||||||||||||||||
22
| 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
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, 20162022 filed with the Securities and Exchange Commission on February 23, 2017,16, 2023 and the financial statements and accompanying notes to the financial statements included elsewhere herein.
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,technology company serving the mobility industry, dedicated to creating more enjoyable, connected, and safe driving experiences. The Company's platforms leverage proven, scalable hardware and software solutions that enable the design, development, manufacturedigital, electric and supportautonomous evolution of its product offerings and itsthe Company's global automotive customers. The Company's manufacturingautomotive mobility market is expected to grow faster than underlying vehicle production volumes as the vehicle shifts from analog to digital and engineering footprint is principally located outside of the United States.towards device and cloud connected, electric vehicles, and vehicles with more advanced safety features.
•Technology Innovation - The Company is an established global leader in cockpit electronics and is positioned to provide solutions as the industry transitions to the next generation automotive cockpit experience. The cockpit is becoming fully digital, connected, automated, learning, and voice enabled. Visteon's broad portfolio of cockpit electronics technology, the industry's first wireless battery management system, and the development of safety technology integrated into its domain controllers positions Visteon to support these macro trends in the automotive industry.
•Long-Term Growth - The Company has continued to win 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 well as overall customer service.
•Enhance Shareholder Returns While Maintaining a Strong Balance Sheet - The Company has continued to maintain a strong balance sheet to withstand near-term industry volatility while providing a foundation for 2017future growth and beyond:
this program.
23
Financial Results
The Company is developing a secure autonomous driving domain controller platform with an open framework based on neural networks. The Company projects a launch of the technology in 2018.
2023.
Three Months Ended September 30, 20172023
Nine Months Ended September 30, 20172023
*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 and Production Levels
For the last few years, the industry has been negatively impacted by the COVID-19 pandemic, worldwide semiconductor and other supply related shortages, and increased geopolitical challenges. Industry vehicle volumes increased in 2022 and are forecasted to increase again in 2023 as the worldwide semiconductor and other supply related shortages have eased. However, industry production volumes remain well below recent industry production levels that peaked in 2017 and risks related to vehicle affordability, economic uncertainty, and potential geopolitical challenges create ongoing uncertainties. The magnitude of the impact on the financial statements, results of operations, and cash flows will depend on the evolution of the semiconductor supply shortage, plant production schedules, supply chain impacts, and global economic impacts.
The current United Autoworkers (UAW) work stoppages at certain customer facilities exposes the Company to the risk of reduced customer orders due to labor disruptions affecting its customers' production and operations. A protracted UAW strike, or strikes by other labor unions at customer facilities, may lead to decreased demand for the Company's products or services, as its customers' production schedules may be adversely impacted. The Company intends to closely monitor the UAW strike and any related developments, including their impact on customer relationships and financial results.
24
Results of Contents
| 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 | |||||||||||||||||
2022
The Company's consolidated results of operations for the three months ended September 30, 20172023 and 20162022 were as follows:
| Three Months Ended September 30, | |||||||||||||||||
| (In millions) | 2023 | 2022 | Change | ||||||||||||||
| Net sales | $ | 1,014 | $ | 1,026 | $ | (12) | |||||||||||
| Cost of sales | (871) | (922) | 51 | ||||||||||||||
| Gross margin | 143 | 104 | 39 | ||||||||||||||
| Selling, general and administrative expenses | (52) | (47) | (5) | ||||||||||||||
| Restructuring and impairment | — | (1) | 1 | ||||||||||||||
| Interest expense, net | (1) | (2) | 1 | ||||||||||||||
| Equity in net income of non-consolidated affiliates | (1) | (1) | — | ||||||||||||||
| Other income, net | 3 | 5 | (2) | ||||||||||||||
| Provision for income taxes | (21) | (9) | (12) | ||||||||||||||
| Net income (loss) | 71 | 49 | 22 | ||||||||||||||
| Less: Net (income) loss attributable to non-controlling interests | (5) | (5) | — | ||||||||||||||
| Net income (loss) attributable to Visteon Corporation | $ | 66 | $ | 44 | $ | 22 | |||||||||||
| Adjusted EBITDA* | $ | 128 | $ | 95 | $ | 33 | |||||||||||
* 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. | |||||||||||
| (In millions) | Net Sales | Cost of Sales | Gross Margin | |||||||||||||||||
| Three months ended September 30, 2022 | $ | 1,026 | $ | (922) | $ | 104 | ||||||||||||||
| Volume, mix, and net new business | 91 | (76) | 15 | |||||||||||||||||
| Currency | (2) | 5 | 3 | |||||||||||||||||
| Customer pricing | (102) | — | (102) | |||||||||||||||||
| Engineering costs, net * | — | 5 | 5 | |||||||||||||||||
| Cost performance, design changes and other | 1 | 117 | 118 | |||||||||||||||||
| Three months ended September 30, 2023 | $ | 1,014 | $ | (871) | $ | 143 | ||||||||||||||
| *Excludes the impact of currency. | ||||||||||||||||||||
| 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 | |||||
| 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 | |||||
Cost of sales decreased $16by $51 million for the three months ended September 30, 2017 when2023 compared with the same period in 2016. Increased volumes, product2022. Volume, mix and net new business increased cost of sales by $30$76 million. Foreign currency increaseddecreased cost of sales by $7$5 million, primarily attributable to the Euroeuro, Chinese renminbi, and Brazilian Real. The exit and wind down of other climate operations decreasedJapanese yen. Net engineering costs, by $21 million. Net efficiencies, including material, design and usage economics and higher engineering recoveries, partially offset by increased manufacturing expense,excluding currency, decreased cost of sales by $29$5 million. CostFavorable cost performance, design changes, and other decreased cost of sales also included a $3by $117 million benefit relatedprimarily due to legacy South America climate operations for freight recoveriesimproving supply chain and a favorable ruling on a litigation matter.material cost impacts associated with the worldwide semiconductor supply shortage as well as manufacturing efficiencies.
25
A summary of sales includes net engineering costs comprised of grossis shown below:
| Three Months Ended September 30, | |||||||||||
| (In millions) | 2023 | 2022 | |||||||||
| Gross engineering costs | $ | (79) | $ | (83) | |||||||
| Engineering recoveries | 25 | 25 | |||||||||
| Engineering costs, net | $ | (54) | $ | (58) | |||||||
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 $54 million for the three months ended September 30, 2017, consistent with2023, including the impacts of currency, were $4 million lower than the same period of 2016. Engineering recoveries were $332022. This decrease is primarily related to timing of project expenses, partially offset by increased personnel costs.
Selling, General and Administrative Expenses
Selling, general, and administrative expenses was $52 million for the three months ended September 30, 2017, $92023. The increase of $5 million higher than the same period of 2016. Engineering cost recoveries can fluctuate periodas compared to period depending on underlying contractual terms and conditions and achievement of related development milestones.
Restructuring Expenseand impairment
Interest Expense, Net
Interest expense, net, for the three months ended September 30, 2017 includes termination impacts of2023 and 2022 was $1 million and $2 million, respectively. Interest expense for these periods is primarily related to the Company's term debt facility partially offset by higher interest rate swapincome as further described in Note 16, "Fair Value Measurements and Financial Instruments."a result of higher interest rates.
Equity in Net Income of Non-Consolidated Affiliates
Equity in net income of non-consolidated affiliates was a loss of $1 million income for the three month period ending September 30, 2017.
| 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 | |||
Other Income, Net
Other income of $3 million and $5 million for the three-months ended September 30, 2023 and 2022, respectively, was primarily 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.pension financing benefits.
Income Taxes
The Company's provision for income taxes of $8$21 million for the three months ended September 30, 2017,2023 represents an increase of $3$12 million when compared with $5$9 million in the same period of 2016.2022. The increase in tax expense is primarily attributable to the year-over-yearoverall increase in pre-tax income, including changes in the mix of earnings and differing tax rates between jurisdictions.jurisdictions as well as withholding taxes.
Adjusted EBITDA
The Company defines Adjusted EBITDA as net income attributable to the Company adjusted to eliminate the impact of depreciation and amortization, non-cash stock-based compensation expense, provision for income taxes, net interest expense, net income attributable to non-controlling interests, restructuring and impairment expense, equity in net income of non-consolidated affiliates, 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
26
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. The Company uses Adjusted EBITDA as a factor in incentive compensation decisions and to evaluate the effectiveness of the Company's business strategies. In this regard, duringaddition, the Company's credit agreements use measures similar to Adjusted EBITDA to measure compliance with certain covenants.
The reconciliation of net income (loss) attributable to Visteon to Adjusted EBITDA for the three months ended September 30, 2016, the Company reflected favorable adjustments due to incorporating certain transfer pricing adjustments between the U.S.2023 and Japan consistent with the anticipated transfer pricing methodology expected to be agreed upon in connection with the pursuit of a bilateral advance pricing agreement (“APA”) with the U.S. and Japan tax authorities.2022, is as follows:
| Three Months Ended September 30, | |||||||||||||||||
| (In millions) | 2023 | 2022 | Change | ||||||||||||||
| Net income (loss) attributable to Visteon Corporation | $ | 66 | $ | 44 | $ | 22 | |||||||||||
| Depreciation and amortization | 24 | 27 | (3) | ||||||||||||||
| Provision for income taxes | 21 | 9 | 12 | ||||||||||||||
| Non-cash, stock-based compensation expense | 9 | 6 | 3 | ||||||||||||||
| Net income attributable to non-controlling interests | 5 | 5 | — | ||||||||||||||
| Interest expense, net | 1 | 2 | (1) | ||||||||||||||
| Restructuring and impairment | — | 1 | (1) | ||||||||||||||
| Equity in net income of non-consolidated affiliates | 1 | 1 | — | ||||||||||||||
| Other | 1 | — | 1 | ||||||||||||||
| Adjusted EBITDA | $ | 128 | $ | 95 | $ | 33 | |||||||||||
mix increased Adjusted EBITDA (a non-GAAP financial measure, as defined in Note 18) was $83 million for the three months ended September 30, 2017, representing an increase of $8 million when compared with Adjusted EBITDA of $75 million for the same period of 2016. The increase includes favorable net cost performance of $10 million reflecting material cost efficiencies and higher engineering recoveries which more than offset customer pricing and higher manufacturing costs.by $15 million. Foreign currency increased Adjusted EBITDA by $2 million, primarily attributable to the Brazilian Realeuro, Chinese renminbi, and Indian Rupee. Favorable volumes and net new business were offset by product mix, reducing adjustedJapanese yen. Net engineering costs, excluding currency, increased Adjusted EBITDA by $4$5 million.
27
Results of Operations - Nine Months Ended September 30, 20172023 and 2016, is as follows:
| 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 | |||||
The Company's consolidated results of operations for the nine months ended September 30, 20172023 and 20162022 were as follows:
| Nine Months Ended September 30, | |||||||||||||||||
| (In millions) | 2023 | 2022 | Change | ||||||||||||||
| Net sales | $ | 2,964 | $ | 2,692 | $ | 272 | |||||||||||
| Cost of sales | (2,607) | (2,438) | (169) | ||||||||||||||
| Gross margin | 357 | 254 | 103 | ||||||||||||||
| Selling, general and administrative expenses | (156) | (134) | (22) | ||||||||||||||
| Restructuring and impairment | (2) | (12) | 10 | ||||||||||||||
| Interest expense, net | (7) | (7) | — | ||||||||||||||
| Equity in net income of non-consolidated affiliates | (8) | 3 | (11) | ||||||||||||||
| Other income, net | (4) | 15 | (19) | ||||||||||||||
| Provision for income taxes | (48) | (24) | (24) | ||||||||||||||
| Net income (loss) | 132 | 95 | 37 | ||||||||||||||
| Less: Net (income) loss attributable to non-controlling interests | (12) | (5) | (7) | ||||||||||||||
| Net income (loss) attributable to Visteon Corporation | $ | 120 | $ | 90 | $ | 30 | |||||||||||
| Adjusted EBITDA* | $ | 317 | $ | 245 | $ | 72 | |||||||||||
* 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, 2022 | $ | 2,692 | $ | (2,438) | $ | 254 | ||||||||||||||
| Volume, mix, and net new business | 494 | (382) | 112 | |||||||||||||||||
| Currency | (51) | 31 | (20) | |||||||||||||||||
| Customer pricing | (162) | — | (162) | |||||||||||||||||
| Engineering costs, net * | — | (27) | (27) | |||||||||||||||||
| Cost performance, design changes and other | (9) | 209 | 200 | |||||||||||||||||
| Nine Months Ended September 30, 2023 | $ | 2,964 | $ | (2,607) | $ | 357 | ||||||||||||||
| *Excludes the impact of currency. | ||||||||||||||||||||
| 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 | |||||
| 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 | |||||
Cost of sales decreased $20increased by $169 million for the nine months ended September 30, 2017 when2023 compared with the same period in 2016. Increased volumes, product2022. Volume, mix, and net new business increased cost of sales by $112$382 million. Foreign currency decreased cost of sales by $12$31 million, primarily attributable to the euro, Chinese Renminbi,renminbi, and Japanese Yen,yen. Net engineering costs, excluding currency, increased cost of sales by $27 million. Favorable cost performance, design changes and Mexican Peso, partially offset by the Euro, Brazilian Real, and Thai Bhat. The exit and wind down of other climate operations decreased cost of sales by $48 million. Net$209 million primarily due to reduced supply chain and material cost impacts associated with the worldwide semiconductor supply shortage as well as manufacturing efficiencies, including material, design and usage economics, and higher engineering recoveries, partially offset by higher manufacturing and warranty costs, decreased costa charge of sales by $68 million. Cost of sales during the nine months ended September 30, 2017 also includes a $4$15 million benefit related to legacy South America climate operations for freight recoveries and a favorable litigation matter ruling.product recall with one of the Company's customers.
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A summary of sales includes net engineering costs comprised of grossis shown below:
| Nine Months Ended September 30, | |||||||||||
| (In millions) | 2023 | 2022 | |||||||||
| Gross engineering costs | $ | (253) | $ | (245) | |||||||
| Engineering recoveries | 81 | 98 | |||||||||
| Engineering costs, net | $ | (172) | $ | (147) | |||||||
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 $172 million for the nine months ended September 30, 2017, a decrease2023, including the impacts of $3currency, were $25 million compared tohigher than the same period of 2016. Engineering recoveries were $792022. This increase is primarily related to further investments in engineering, inflation, and the timing of engineering recoveries.
Selling, General and Administrative Expenses
Selling, general, and administrative expenses was $156 million for the nine months ended September 30, 2017, $192023. The increase of $22 million higher thanas compared to the recoveriesnine months ended 2022 is primarily due to increased personnel costs, investments in information technology, and reserves for bad debt.
Restructuring and impairment
During the nine months ended September 30, 2023 and 2022, the Company recorded $2 million and $8 million, respectively, of restructuring expense primarily related to employee severance.
Due to the geopolitical situation in Eastern Europe, the same periodCompany closed its Russian facility resulting in a 2022 non-cash impairment charge of 2016. Engineering cost recoveries can fluctuate period $4 millionto period depending on underlying contractual termsfully impair property and conditionsequipment and achievement of related development milestones.reduce inventory to its net realizable value.
rates.
Equity in Net Income of Non-Consolidated Affiliates
Equity in net income of non-consolidated affiliates was $6a loss of $8 million and income of $3 million for the nine month periods ended September 30, 2017 and 2016 respectively. The income is primarily attributable to the Company's equity interest in Yanfeng Visteon Investment Company and increased primarily related to the timing of engineering recoveries.
| 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 | |||
Other Income (Expense), Net
Other expense, net of $4 million for the Company recorded an impairment charge of $11 millionnine-month periods ending September 30, 2023 was primarily related to foreign currency translation amounts recorded in accumulated other comprehensive loss associated witha litigation settlement expense partially offset by net pension financing benefits.
Other income, net of $15 million for the agreementnine-month periods ending September 30, 2022 is primarily due 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.pension financing benefits.
Income Taxes
The Company's provision for income taxes of $34$48 million for the nine months ended September 30, 20172023 represents an increase of $7$24 million when compared with $27$24 million in the same period of 2016.2022. The increase in tax expense is primarily attributable to several items including the year-over-yearoverall increase in earnings, as well aspre-tax income, including changes in the mix of earnings and differing tax rates between jurisdictions as well as withholding taxes, the non-recurrence of aand $3 million discrete income tax benefit 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 forrelated to uncertain tax positions including interest, of approximately $3 million.attributable to transfer pricing following new discussions with foreign tax authorities.
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Adjusted EBITDA
The operations subjectCompany defines Adjusted EBITDA as net income attributable to the Interiors DivestitureCompany adjusted to eliminate the impact of depreciation and Climate Transaction met conditions requiredamortization, non-cash stock-based compensation expense, provision for income taxes, net interest expense, net income attributable to qualifynon-controlling interests, restructuring and impairment expense, equity in net income of non-consolidated affiliates, 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 discontinued operations reporting. Accordingly,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. The Company uses Adjusted EBITDA as a factor in incentive compensation decisions and to evaluate the resultseffectiveness of operations for the Interiors and Climate businesses have been reclassifiedCompany's business strategies. In addition, the Company's credit agreements use measures similar to Adjusted EBITDA to measure compliance with certain covenants
The reconciliation of net income (loss) from discontinued operations, net of tax in the consolidated statements of comprehensive incomeattributable to Visteon to Adjusted EBITDA for the nine month periodsmonths ended September 30, 20172023 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.2022, is as follows:
| Nine Months Ended September 30, | |||||||||||||||||
| (In millions) | 2023 | 2022 | Change | ||||||||||||||
| Net income (loss) attributable to Visteon Corporation | $ | 120 | $ | 90 | $ | 30 | |||||||||||
| Depreciation and amortization | 79 | 79 | — | ||||||||||||||
| Provision for income taxes | 48 | 24 | 24 | ||||||||||||||
| Non-cash, stock-based compensation expense | 26 | 19 | 7 | ||||||||||||||
| Restructuring and impairment | 2 | 12 | (10) | ||||||||||||||
| Interest expense, net | 7 | 7 | — | ||||||||||||||
| Net income (loss) attributable to non-controlling interests | 12 | 5 | 7 | ||||||||||||||
| Equity in net income of non-consolidated affiliates | 8 | (3) | 11 | ||||||||||||||
| Other | 15 | 12 | 3 | ||||||||||||||
| Adjusted EBITDA | $ | 317 | $ | 245 | $ | 72 | |||||||||||
mix increased Adjusted EBITDA (a non-GAAP financial measure, as defined in Note 18) was $268 million for the nine months ended September 30, 2017, representing an increase of $27 million when compared with Adjusted EBITDA of $241 million for the same period of 2016. The increase includes $5 million from favorable volumes and net new business partially offset by product mix and $7 million related to other climate operations exited in 2016 .$112 million. Foreign currency decreased Adjusted EBITDA by $1$19 million, primarily attributable to the euro, Chinese Renminbirenminbi, and EuroJapanese yen. Net engineering costs, excluding currency, decreased Adjusted EBITDA by $25 million. Customer pricing decreased Adjusted EBITDA by $162 million, primarily as a result of lower semiconductor open market purchases and the associated customer recoveries due to improving supply chain dynamics related to the worldwide semiconductor supply shortage. Other cost performance increased Adjusted EBITDA by $163 million, primarily due to reduced supply chain and material cost impacts associated with the worldwide semiconductor supply shortage as well as manufacturing efficiencies, partially offset by a charge of $15 million related to a product recall with one of the Japanese Yen, Mexican Peso, and Brazilian Real. Net cost performance of $16 million includes material cost efficiencies, higher engineering recoveries, and lower selling, general and administrative costs, offset by unfavorable customer pricing reductions, higher manufacturing costs, and increased warranty costs.Company's customers.
| 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.facilities. The Company believes that funds generated from these sources will be adequate to fund its liquidity for current business requirements.Company's intra-year needs are normally impacted by seasonal effects in the industry, such as mid-year shutdowns, the ramp-up of new model production, and year-end shutdowns at key customers.
A substantial portion of the Company's cash flows from operations are generated by operations located outside of the U.S.United States. Accordingly, the Company utilizes a combination of cash repatriation strategies, including dividends and distributions, royalties, intercompany loan arrangements and other distributions and advancesintercompany arrangements to provide the funds necessary to meet obligations globally. The Company’s ability to access funds from its subsidiaries is subject to, among other things, customary regulatory and statutory requirements
30
and contractual arrangements including joint venture agreements and local credit facilities. Moreover, repatriation efforts may be modified by the Company according to prevailing circumstances.
Access to additional capital through the debt or equity markets is influenced by the Company's credit ratings. On March 7, 2017,As of September 30, 2023, the Company’s corporate credit rating is BB- by 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. 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 $32 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.
2023.
Cash Balances
As of September 30, 2017,2023, the Company had total cash and cash equivalents of $735$485 million, including $3$4 million of restricted cash. Cash balances totaling $467$293 million were located in jurisdictions outside of the United States, of which approximately $195$30 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 the nine months ended September 30, 2017,2023, cash contributions to the Company's U.S. anddefined benefit plans were $4 million related to its non-U.S. plans. The Company estimates that total cash contributions to its non-U.S. defined benefit pension plan wereplans during 2023 will be $5 million.
During the nine months ended September 30, 2023, the Company paid $6 million related to restructuring activities. Additional discussion regarding the Company's restructuring activities is included in Note 3, "Restructuring and Impairments." The Company expectsestimates that total cash restructuring payments during the next twelve months will be approximately $4 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, 2023, the Company contributed $12 million toward the aggregate investment commitments. As a limited partner in each entity, the Company will periodically make capital contributions toward this total commitment amount.
The Company may be required to make significant cash contributionsoutlays related to its defined benefit pension plansunrecognized tax benefits, including interest and penalties. As of $7September 30, 2023, the Company had unrecognized tax benefits, including interest and penalties, that would be expected to result in a cash outlay of $10 million. Given the number of years, jurisdictions and positions subject to examination, the Company is unable to estimate the period of cash settlement, if any, with the respective taxing authorities.
On March 2, 2023 the Company's board of directors authorized a share repurchase program of $300 million in 2017.of common stock through December 31, 2026. As of September 30, 2023, the Company has purchased 545,537 shares at an average price of $138.87.
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Cash Flows
Operating Activities
Investing Activities
Financing Activities
Cash used by financing activities during the nine months ended September 30, 2017, totaled $1972023 was $119 million, representing a $112 million increase as compared to $2,260 million used by financing activities for the same period in 2016, for a decrease in cash used by financing activities2022. This increase is primarily attributable to repurchases of $2,063 million. Cash used by financing activitiescommon stock of $76 million and dividends paid to non-controlling interest of $27 million during the nine months ended September 30, 2017 included share repurchases of $170 million and dividends paid to non-controlling interests of $29 million.2023.
Debt and Capital Structure
See Note 11,8, “Debt” to the condensed consolidated financial statements included in Item 1.
See Note 1, “Summary of Significant Accounting Policies” to the accompanying condensed consolidated financial statements in Item 1.
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“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.
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You should understand that various factors, in addition to those discussed elsewhere in this document, could affect the Company’s future results and could cause results to differ materially from those expressed in such forward-looking statements, including:
•Significant or prolonged shortage of critical components from Visteon’s suppliers including, but not limited to semiconductors and those components from suppliers who are sole or primary sources.
•Continued and future impacts related to the conflict between Russia and the Ukraine including supply chain disruptions, reduction in customer demand, and the imposition of sanctions on Russia.
•Continued and future impacts of the coronavirus ("COVID-19") pandemic on Visteon’s financial condition and business operations including global supply chain disruptions, market downturns, reduced consumer demand, and new government actions or restrictions.
•Failure of the Company’s joint venture partners to comply with contractual obligations or to exert influence or pressure in China.
•Significant changes in the competitive environment in the major markets where Visteon procures materials, components, or supplies or where its products are manufactured, distributed, or sold.
•Visteon’s ability to satisfy its future capital and liquidity requirements; Visteon’s ability to access the credit and capital markets at the times and in the amounts needed and on terms acceptable to Visteon; Visteon’s ability to comply with covenants applicable to it; and the continuation of acceptable supplier payment terms.
•Visteon’s ability to access funds generated by its foreign subsidiaries and joint ventures on a timely and cost 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 and the Company's ability to offset or recover these 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.
•Legal and administrative proceedings, investigations, and claims, including shareholder class actions, inquiries by regulatory agencies, product liability, warranty, employee-related, environmental and safety claims, and any recalls of products manufactured or sold by Visteon.
•Changes in economic conditions, currency exchange rates, interest rates and fuel prices, changes in foreign laws, regulations or trade policies, or political stability in foreign countries where Visteon procures materials, components, or supplies or where its products are manufactured, distributed, or sold.
•Shortages of materials or interruptions in transportation systems, labor strikes, work stoppages, or other interruptions to or difficulties in the employment of labor in the major markets where Visteon purchases materials, components, or supplies to manufacture its products or where its products are manufactured, distributed, or sold.
•Visteon’s ability to satisfy its pension and other postretirement employee benefit obligations, and to retire outstanding debt and satisfy other contractual commitments, all at the levels and times planned by management.
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•Changes in laws, regulations, policies or other activities of governments, agencies and similar organizations, domestic and foreign, that may tax or otherwise increase the cost of, or otherwise affect, the manufacture, licensing, distribution, sale, ownership, or use of Visteon’s products or assets.
•Possible terrorist attacks or acts of war, which could exacerbate other risks such as slowed vehicle production, interruptions in the transportation system, orchanges in fuel prices, and disruptions of supply.
•The cyclical and seasonal nature of the automotive industry.
•Visteon’s ability to comply with environmental, safety, and other regulations applicable to it and any increase in the requirements, responsibilities, and associated expenses and expenditures of these regulations.
•Disruptions in information technology systems including, but not limited to, system failure, cyber-attack, malicious computer software (malware including ransomware), unauthorized physical or electronic access, or other natural or man-made incidents or disasters.
•Visteon’s ability to protect its intellectual property rights and to respond to changes in technology and technological risks and to claims by others that Visteon infringes their intellectual property rights.
•Visteon’s ability to quickly and adequately remediate control deficiencies in its internal control over financial reporting.
•Other factors, risks and uncertainties detailed from time to time in Visteon’s Securities and Exchange Commission filings.
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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'sCompany’s net cash inflows and outflows that are exposed to the risk of adverse changes in foreign currency exchange rates as related toarise from the sale of products in countries other than the manufacturing source, foreign currency denominated supplier payments, debt and other payables, subsidiary dividends, investments in subsidiaries, and anticipated foreign currency denominated transaction proceeds. The Company utilizesmay utilize derivative financial instruments to manage foreign currency exchange rate risks. Forward and option contracts may be utilized to reduce the impact to the Company's cash flowsflow from adverse movements in exchange rates. Foreign currency exposures are reviewed periodically, and any natural offsets are considered prior to entering into a derivative financial derivative instrument. The Company’s primary hedged foreign currency exposures include Euro, Japanese Yen, Thailand Bhat and Mexican Peso. 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 offoreign currency risk related to its foreign operating income into U.S. dollars.
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$20 million and $31$21 million for foreign currency derivative financial instruments as of September 30, 20172023 and December 31, 2016,2022, 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
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.
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.
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As of September 30, 2017,2023, 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.
2023.
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, 20172023 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
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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
A disruption in the Company's information technology systems, including because of cyberattack, could adversely affect its business and financial performance
The Company relies on the accuracy, capacity, and security of its information technology systems as well as those of its customers, suppliers, partners, and service providers to conduct its business. Despite the security and risk-prevention measures the Company has implemented, the Company's systems could be breached, damaged, or otherwise interrupted by a system failure, cyberattack, malicious computer software (including malware or ransomware), unauthorized physical or electronic access, or other natural or man-made incidents or disasters. The Company is also "Forward-Looking Statements" includedsusceptible to security breaches that may go undetected. Such a breach or interruption could result in Part I, Item 2business disruption, theft of this Quarterly Reportthe Company's intellectual property or trade secrets, and unauthorized access to personal information. To the extent that business is interrupted or data is lost, destroyed, or inappropriately used or disclosed, such disruptions could lead to legal claims against the Company and adversely affect the Company’s competitive position, reputation, relationships with customers, financial condition, operating results, and cash flows.
On July 3, 2023, the Company experienced a disruption of certain IT services and assets at its third-party data center provider that resulted in some IT services experiencing interruptions and loss of data. Operations were not significantly impacted. The Company continues to work to restore the affected services and assets. There can be no guarantee that all information will be recovered, which may result in additional costs and inefficiencies.
Work stoppages and similar events could significantly disrupt the Company’s business
Because the automotive industry relies heavily on Form 10-Q.just-in-time delivery of components during the assembly and manufacture of vehicles, a work stoppage at one or more of the Company’s manufacturing and assembly facilities could have material adverse effects on the business. Similarly, if one or more of the Company’s customers were to experience a work stoppage, that customer would likely halt or limit purchases of the Company’s products, which could result in the shutdown of the related manufacturing facilities. A significant disruption in the supply of a key component due to a work stoppage at any of the Company’s suppliers or subsuppliers, or reduced orders from the Company’s customers as a result of work stoppages, could have a material adverse effect on the Company’s business, operating results, financial condition, and cash flow.
The current United Autoworkers (UAW) work stoppages at certain customer facilities exposes the Company to the risk of reduced customer orders due to labor disruptions affecting its customers' production and operations. A protracted UAW strike, or strikes by other labor unions at customer facilities, may lead to decreased demand for the Company's products or services, as its customers' production schedules may be adversely impacted. The Company intends to closely monitor the UAW strike and any related developments, including their impact on customer relationships and financial results.
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The following table summarizes information relating to 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 2017.2023.
| 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 (in millions) | |||||||||||||||||||
| July 1 to July 31, 2023 | — | — | — | 270 | |||||||||||||||||||
| August 1 to August 31, 2023 | 80,527 | 135.68 | 80,527 | 259 | |||||||||||||||||||
| September 1 to September 30, 2023 | 253,231 | 137.56 | 253,231 | 224 | |||||||||||||||||||
| Total | 333,758 | 137.11 | 333,758 | 224 | |||||||||||||||||||
(1) The Company does not include shares surrendered to pay taxes incurred upon exercises of stock options for purposes of this Item 2 of Part II of this Quarterly Report on Form 10-Q.
(2) The Inflation Reduction Act of 2022, which was enacted into law on August 16, 2022, imposed a nondeductible 1% excise tax on the net value of certain stock repurchases made after December 31, 2022. All dollar amounts presented exclude such excise taxes, as applicable.
Item 5. Other Information
| 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 | |||||
The Company's directors and officers (as defined in Exchange Act Rule 16a-1(f)) may from time to time enter into plans or other arrangements for the purchase or sale of the Company's shares that are intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or may represent a non-Rule 10b5-1 trading arrangement under the Exchange Act. During the quarter ended September 30, 2023, no such plans or other arrangements were adopted or terminated.
Item 6.Exhibits
The exhibits listed on the "Exhibit Index" on Page 4939 hereof are filed with this report or incorporated by reference as set forth therein.
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Exhibit Index
| Exhibit No. | Description | |||||||
| 101.INS | XBRL Instance Document.** | |||||||
| 101.SCH | XBRL Taxonomy Extension Schema Document.** | |||||||
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document.** | |||||||
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document.** | |||||||
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document.** | |||||||
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document.** | |||||||
* Indicates that exhibit is a management contract or compensatory plan or arrangement.
** Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files as Exhibit 101 hereto are deemed not filed or part of a registration
statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes
of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.
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.
| VISTEON CORPORATION | ||||||||
| /s/ Abigail S. Fleming | ||||||||
| Abigail S. Fleming | ||||||||
| Vice President and Chief Accounting Officer | ||||||||
Date: October 26, 20172023
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