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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
________________
FORM 10-Q
(Mark One)
☑
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to
____________
Commission file number 001-15827
VISTEON CORPORATION
(Exact name of registrant as specified in its charter)
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State of |
Delaware |
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38-3519512 |
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(State or other jurisdiction of incorporation or
organization) |
(I.R.S. Employer
Identification No.) |
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One Village Center Drive, |
Van Buren Township, |
Michigan |
48111 |
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(Address of principal executive offices) |
(Zip code) |
Registrant’s telephone number, including area code:
(800)-VISTEON
Securities registered pursuant to Section 12(b) of the
Act:
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Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
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Common Stock, Par Value $.01 Per Share |
VC |
The NASDAQ Stock Market LLC |
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes
ü
No__
Indicate by check mark whether the registrant: has submitted
electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files). Yes
ü
No __
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, a smaller reporting company, or an emerging growth company.
See the definitions of “large accelerated
filer," "accelerated filer,” "smaller reporting company"
and “emerging growth company" in Rule 12b-2 of the Exchange
Act.
Large accelerated filer
ü
Accelerated filer ☐
Non-accelerated filer
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Smaller reporting company
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Emerging growth company
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If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange
Act.
☐
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes
☐
No
ü
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13 or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
Yes
ü
No
☐
As of October 21, 2022, the registrant had outstanding
28,142,789 shares of common stock.
Exhibit index located on page number 38.
Visteon Corporation and Subsidiaries
Index
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Condensed Consolidated Statements of Changes in Equity
(Unaudited) |
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Part I
Financial Information
Item 1.Condensed
Consolidated Financial Statements
VISTEON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(LOSS)
(In millions except per share amounts)
(Unaudited)
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Three Months Ended
September 30, |
|
Nine Months Ended
September 30, |
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
Net sales
|
$ |
1,026 |
|
|
$ |
631 |
|
|
$ |
2,692 |
|
|
$ |
1,987 |
|
|
Cost of sales
|
(922) |
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|
(584) |
|
|
(2,438) |
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|
(1,832) |
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Gross margin
|
104 |
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|
47 |
|
|
254 |
|
|
155 |
|
|
Selling, general and administrative expenses
|
(47) |
|
|
(42) |
|
|
(134) |
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|
(131) |
|
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Restructuring and impairment
|
(1) |
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|
2 |
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|
(12) |
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|
2 |
|
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Interest expense
|
(3) |
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|
(2) |
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|
(10) |
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|
(8) |
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Interest income
|
1 |
|
|
— |
|
|
3 |
|
|
2 |
|
|
Equity in net (loss) income of non-consolidated
affiliates
|
(1) |
|
|
2 |
|
|
3 |
|
|
2 |
|
|
Other income, net
|
5 |
|
|
4 |
|
|
15 |
|
|
13 |
|
|
Income (loss) before income taxes
|
58 |
|
|
11 |
|
|
119 |
|
|
35 |
|
|
Provision for income taxes
|
(9) |
|
|
(4) |
|
|
(24) |
|
|
(20) |
|
|
Net income (loss)
|
49 |
|
|
7 |
|
|
95 |
|
|
15 |
|
|
Less: Net (income) loss attributable to non-controlling
interests
|
(5) |
|
|
(2) |
|
|
(5) |
|
|
(5) |
|
|
Net income (loss) attributable to Visteon Corporation
|
$ |
44 |
|
|
$ |
5 |
|
|
$ |
90 |
|
|
$ |
10 |
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Comprehensive income (loss)
|
$ |
15 |
|
|
$ |
1 |
|
|
$ |
21 |
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|
$ |
10 |
|
|
Less: Comprehensive (income) loss attributable to
non-controlling interests |
— |
|
|
(1) |
|
|
4 |
|
|
(6) |
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|
Comprehensive income (loss) attributable to Visteon
Corporation
|
$ |
15 |
|
|
$ |
— |
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$ |
25 |
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|
$ |
4 |
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Basic earnings (loss) per share attributable to Visteon
Corporation
|
$ |
1.57 |
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|
$ |
0.18 |
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$ |
3.20 |
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$ |
0.36 |
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Diluted earnings (loss) per share attributable to Visteon
Corporation
|
$ |
1.54 |
|
|
$ |
0.18 |
|
|
$ |
3.16 |
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|
$ |
0.35 |
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|
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|
See accompanying notes to the condensed consolidated financial
statements.
VISTEON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
|
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(Unaudited) |
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September 30, |
|
December 31, |
|
2022 |
|
2021 |
|
ASSETS |
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Cash and equivalents
|
$ |
362 |
|
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$ |
452 |
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Restricted cash
|
3 |
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|
3 |
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Accounts receivable, net
|
733 |
|
|
549 |
|
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Inventories, net
|
341 |
|
|
262 |
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Other current assets
|
155 |
|
|
158 |
|
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Total current assets
|
1,594 |
|
|
1,424 |
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Property and equipment, net
|
336 |
|
|
388 |
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Intangible assets, net
|
101 |
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|
118 |
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Right-of-use assets
|
120 |
|
|
139 |
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Investments in non-consolidated affiliates
|
51 |
|
|
54 |
|
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Other non-current assets
|
124 |
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|
111 |
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Total assets
|
$ |
2,326 |
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|
$ |
2,234 |
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LIABILITIES AND EQUITY |
|
Short-term debt
|
$ |
9 |
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$ |
4 |
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Accounts payable
|
645 |
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|
522 |
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Accrued employee liabilities
|
79 |
|
|
80 |
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Current lease liability
|
27 |
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|
28 |
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Other current liabilities
|
220 |
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|
218 |
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Total current liabilities
|
980 |
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|
852 |
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Long-term debt, net
|
340 |
|
|
349 |
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Employee benefits
|
171 |
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|
198 |
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Non-current lease liability
|
97 |
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|
117 |
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Deferred tax liabilities
|
26 |
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|
27 |
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Other non-current liabilities
|
63 |
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|
75 |
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Stockholders’ equity:
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Preferred stock (par value 0.01, 50 million shares authorized, none
outstanding as of September 30, 2022 and December 31,
2021)
|
— |
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|
— |
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|
Common stock (par value $0.01, 250 million shares authorized, 55
million shares issued, 28.1 and 28.0 million shares outstanding as
of September 30, 2022 and December 31, 2021,
respectively)
|
1 |
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|
1 |
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Additional paid-in capital
|
1,351 |
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|
1,349 |
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Retained earnings
|
1,754 |
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|
1,664 |
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Accumulated other comprehensive loss
|
(294) |
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|
(229) |
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Treasury stock
|
(2,257) |
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|
(2,269) |
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Total Visteon Corporation stockholders’ equity
|
555 |
|
|
516 |
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Non-controlling interests
|
94 |
|
|
100 |
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Total equity
|
649 |
|
|
616 |
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Total liabilities and equity
|
$ |
2,326 |
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$ |
2,234 |
|
See accompanying notes to the condensed consolidated financial
statements.
VISTEON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
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Nine Months Ended September 30, |
|
2022 |
|
2021 |
|
Operating Activities
|
|
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Net income (loss)
|
$ |
95 |
|
|
$ |
15 |
|
|
Adjustments to reconcile net income (loss) to net cash provided
from (used by) operating activities:
|
|
|
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Depreciation and amortization
|
79 |
|
|
82 |
|
|
Non-cash stock-based compensation
|
19 |
|
|
13 |
|
|
Equity in net loss (income) of non-consolidated affiliates, net of
dividends remitted
|
— |
|
|
14 |
|
|
Impairments
|
4 |
|
|
— |
|
|
Other non-cash items
|
(2) |
|
|
4 |
|
|
Changes in assets and liabilities:
|
|
|
|
|
Accounts receivable
|
(244) |
|
|
50 |
|
|
Inventories
|
(112) |
|
|
(82) |
|
|
Accounts payable
|
173 |
|
|
(68) |
|
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Other assets and other liabilities
|
(10) |
|
|
(40) |
|
|
Net cash (used by) provided from operating activities
|
2 |
|
|
(12) |
|
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Investing Activities
|
|
|
|
|
Capital expenditures, including intangibles
|
(54) |
|
|
(54) |
|
|
Contributions to equity method investments |
(1) |
|
|
(3) |
|
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Settlement of derivative contracts |
9 |
|
|
— |
|
|
Loan repayments from non-consolidated affiliates |
— |
|
|
2 |
|
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Other |
2 |
|
|
5 |
|
|
Net cash used by investing activities
|
(44) |
|
|
(50) |
|
|
Financing Activities
|
|
|
|
|
Borrowings on term debt facility |
350 |
|
|
— |
|
|
Payments on term debt facility |
(350) |
|
|
— |
|
|
Dividends to non-controlling interests |
— |
|
|
(33) |
|
|
Short-term debt, net |
(4) |
|
|
6 |
|
|
Other |
(3) |
|
|
1 |
|
|
Net cash (used by) provided from financing activities
|
(7) |
|
|
(26) |
|
|
Effect of exchange rate changes on cash
|
(41) |
|
|
(11) |
|
|
Net decrease in cash, equivalents, and restricted cash
|
(90) |
|
|
(99) |
|
|
Cash, equivalents, and restricted cash at beginning of the
period
|
455 |
|
|
500 |
|
|
Cash, equivalents, and restricted cash at end of the
period
|
$ |
365 |
|
|
$ |
401 |
|
See accompanying notes to the condensed consolidated financial
statements.
VISTEON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In millions)
(Unaudited)
|
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Total Visteon Corporation Stockholders' Equity |
|
|
|
|
|
Common
Stock |
|
Additional
Paid-In
Capital |
|
Retained
Earnings |
|
Accumulated
Other
Comprehensive
Income (Loss) |
|
Treasury
Stock |
|
Total Visteon Corporation Stockholders' Equity |
|
Non-Controlling Interests |
|
Total Equity |
|
December 31, 2021
|
$ |
1 |
|
|
$ |
1,349 |
|
|
$ |
1,664 |
|
|
$ |
(229) |
|
|
$ |
(2,269) |
|
|
$ |
516 |
|
|
$ |
100 |
|
|
$ |
616 |
|
|
Net income (loss) |
— |
|
|
— |
|
|
22 |
|
|
— |
|
|
— |
|
|
22 |
|
|
1 |
|
|
23 |
|
|
Other comprehensive income (loss) |
— |
|
|
— |
|
|
— |
|
|
4 |
|
|
— |
|
|
4 |
|
|
— |
|
|
4 |
|
|
Stock-based compensation, net |
— |
|
|
(10) |
|
|
— |
|
|
— |
|
|
9 |
|
|
(1) |
|
|
— |
|
|
(1) |
|
|
March 31, 2022
|
$ |
1 |
|
|
$ |
1,339 |
|
|
$ |
1,686 |
|
|
$ |
(225) |
|
|
$ |
(2,260) |
|
|
$ |
541 |
|
|
$ |
101 |
|
|
$ |
642 |
|
|
Net income (loss) |
— |
|
|
— |
|
|
24 |
|
|
— |
|
|
— |
|
|
24 |
|
|
(1) |
|
|
23 |
|
|
Other comprehensive income (loss) |
— |
|
|
— |
|
|
— |
|
|
(40) |
|
|
— |
|
|
(40) |
|
|
(4) |
|
|
(44) |
|
|
Stock-based compensation, net |
— |
|
|
6 |
|
|
— |
|
|
— |
|
|
1 |
|
|
7 |
|
|
— |
|
|
7 |
|
|
Dividends to non-controlling interest |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(2) |
|
|
(2) |
|
|
June 30, 2022 |
$ |
1 |
|
|
$ |
1,345 |
|
|
$ |
1,710 |
|
|
$ |
(265) |
|
|
$ |
(2,259) |
|
|
$ |
532 |
|
|
$ |
94 |
|
|
$ |
626 |
|
|
Net income (loss) |
— |
|
|
— |
|
|
44 |
|
|
— |
|
|
— |
|
|
44 |
|
|
5 |
|
|
49 |
|
|
Other comprehensive income (loss) |
— |
|
|
— |
|
|
— |
|
|
(29) |
|
|
— |
|
|
(29) |
|
|
(5) |
|
|
(34) |
|
|
Stock-based compensation, net |
— |
|
|
6 |
|
|
— |
|
|
— |
|
|
2 |
|
|
8 |
|
|
— |
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2022 |
$ |
1 |
|
|
$ |
1,351 |
|
|
$ |
1,754 |
|
|
$ |
(294) |
|
|
$ |
(2,257) |
|
|
$ |
555 |
|
|
$ |
94 |
|
|
$ |
649 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Visteon Corporation Stockholders' Equity |
|
|
|
|
|
Common
Stock |
|
Additional
Paid-In
Capital |
|
Retained
Earnings |
|
Accumulated
Other
Comprehensive
Income (Loss) |
|
Treasury
Stock |
|
Total Visteon Corporation Stockholders' Equity |
|
Non-Controlling Interests |
|
Total Equity |
|
December 31, 2020
|
$ |
1 |
|
|
$ |
1,348 |
|
|
$ |
1,623 |
|
|
$ |
(304) |
|
|
$ |
(2,281) |
|
|
$ |
387 |
|
|
$ |
123 |
|
|
$ |
510 |
|
|
Net income (loss)
|
— |
|
|
— |
|
|
16 |
|
|
— |
|
|
— |
|
|
16 |
|
|
3 |
|
|
19 |
|
|
Other comprehensive income (loss)
|
— |
|
|
— |
|
|
— |
|
|
(17) |
|
|
— |
|
|
(17) |
|
|
(1) |
|
|
(18) |
|
|
Stock-based compensation, net |
— |
|
|
(11) |
|
|
— |
|
|
— |
|
|
9 |
|
|
(2) |
|
|
— |
|
|
(2) |
|
|
Dividends to non-controlling interest |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(3) |
|
|
(3) |
|
|
March 31, 2021
|
$ |
1 |
|
|
$ |
1,337 |
|
|
$ |
1,639 |
|
|
$ |
(321) |
|
|
$ |
(2,272) |
|
|
$ |
384 |
|
|
$ |
122 |
|
|
$ |
506 |
|
|
Net income (loss) |
— |
|
|
— |
|
|
(11) |
|
|
— |
|
|
— |
|
|
(11) |
|
|
— |
|
|
(11) |
|
|
Other comprehensive income (loss) |
— |
|
|
— |
|
|
— |
|
|
16 |
|
|
— |
|
|
16 |
|
|
3 |
|
|
19 |
|
|
Stock-based compensation, net |
— |
|
|
4 |
|
|
— |
|
|
— |
|
|
1 |
|
|
5 |
|
|
— |
|
|
5 |
|
|
Cash dividend |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(1) |
|
|
(1) |
|
|
Dividends to non-controlling interest |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(31) |
|
|
(31) |
|
|
June 30, 2021 |
$ |
1 |
|
|
$ |
1,341 |
|
|
$ |
1,628 |
|
|
$ |
(305) |
|
|
$ |
(2,271) |
|
|
$ |
394 |
|
|
$ |
93 |
|
|
$ |
487 |
|
|
Net income (loss) |
— |
|
|
— |
|
|
5 |
|
|
— |
|
|
— |
|
|
5 |
|
|
2 |
|
|
7 |
|
|
Other comprehensive income (loss) |
— |
|
|
— |
|
|
— |
|
|
(5) |
|
|
— |
|
|
(5) |
|
|
(1) |
|
|
(6) |
|
|
Stock-based compensation, net |
— |
|
|
3 |
|
|
— |
|
|
— |
|
|
2 |
|
|
5 |
|
|
— |
|
|
5 |
|
|
September 30, 2021 |
$ |
1 |
|
|
$ |
1,344 |
|
|
$ |
1,633 |
|
|
$ |
(310) |
|
|
$ |
(2,269) |
|
|
$ |
399 |
|
|
$ |
94 |
|
|
$ |
493 |
|
See accompanying notes to the condensed consolidated financial
statements.
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. Summary of Significant Accounting Policies
Basis of Presentation - Interim Financial Statements
The condensed consolidated financial statements of Visteon
Corporation and Subsidiaries (the "Company" or "Visteon") have been
prepared in accordance with accounting principles generally
accepted in the United States ("U.S. GAAP"). Certain information
and footnote disclosures normally included in financial statements
prepared in accordance with the rules and regulations of the United
States Securities and Exchange Commission ("SEC") have been
condensed or omitted pursuant to such rules and regulations. These
interim condensed consolidated financial statements include all
adjustments (consisting of normal recurring adjustments, except as
otherwise disclosed) that management believes are necessary for a
fair presentation of the results of operations, financial position,
stockholders' equity, and cash flows of the Company for the interim
periods presented. Interim results are not necessarily indicative
of full-year results.
Use of Estimates:
The preparation of financial statements in conformity with U.S.
GAAP requires management to make estimates and assumptions that
affect amounts reported herein. Considerable judgment is involved
in making these determinations and the use of different estimates
or assumptions could result in significantly different results.
Management believes its assumptions and estimates are reasonable
and appropriate. However, actual results could differ from those
reported herein. Events and changes in circumstances arising after
September 30, 2022, including those resulting from the impacts
of COVID-19 and the subsequent semiconductor supply shortage, as
further described in Note 14, "Commitments and Contingencies", will
be reflected in management's estimates in future
periods.
Allowance for Doubtful Accounts:
The Company
establishes an allowance for doubtful accounts for accounts
receivable based on the current expected credit loss impairment
model (“CECL”). The Company applies a historical loss rate based on
historic write-offs by region to aging categories. The historical
loss rate is adjusted for current conditions and reasonable and
supportable forecasts of future losses, as necessary.
The Company may also record a specific reserve
for individual accounts when the Company becomes aware of specific
customer circumstances, such as in the case of a bankruptcy filing
or deterioration in the customer's operating results or financial
position. The allowance for doubtful accounts was $5 million and $4
million of September 30, 2022 and December 31, 2021,
respectively.
Recently Adopted Accounting Pronouncements
Government Assistance - In November 2021, the FASB issued ASU
2021-10, "Government Assistance (Topic 832) - Disclosures by
Business Entities about Government Assistance." to increase the
transparency of government assistance including the disclosure of
the types of assistance, an entity’s accounting for the assistance,
and the effect of the assistance on an entity’s financial
statements. The amendments in this update are effective for all
entities within their scope for financial statements issued for
annual periods beginning after December 15, 2021. The adoption of
the guidance did not have a material impact on the Company’s
condensed consolidated financial statements.
NOTE 2. Non-Consolidated Affiliates
Investments in Affiliates
The Company's investments in non-consolidated equity method
affiliates include the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
December 31, |
|
(In millions) |
2022 |
|
2021 |
|
Yanfeng Visteon Investment Co., Ltd. ("YFVIC") (50%)
|
$ |
30 |
|
|
$ |
36 |
|
|
Limited partnerships |
13 |
|
|
10 |
|
|
Other
|
8 |
|
|
8 |
|
|
Total investments in non-consolidated affiliates
|
$ |
51 |
|
|
$ |
54 |
|
Variable Interest Entities
The Company evaluates whether joint ventures in which it has
invested are Variable Interest Entities (“VIE”) at the start
of each new venture and when a reconsideration event
has occurred. The Company consolidates a VIE if it is
determined to be the primary beneficiary of the VIE having both the
power to direct the activities of the VIE that most significantly
impact the entity’s economic performance and the obligation to
absorb losses or the right to receive benefits from the VIE that
could potentially be significant to the VIE.
The Company determined that YFVIC is a VIE. The Company holds a
variable interest in YFVIC primarily related to its ownership
interests and subordinated financial support. The Company and
Yangfeng Automotive Trim Systems Co. Ltd. ("YF") each own 50% of
YFVIC and neither entity has the power to control the operations of
YFVIC; therefore, the Company is not the primary beneficiary of
YFVIC and does not consolidate the joint venture.
The Company's investments in YFVIC consists of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
December 31, |
|
(In millions) |
2022 |
|
2021 |
|
Payables due to YFVIC
|
$ |
41 |
|
|
$ |
20 |
|
|
Exposure to loss in YFVIC:
|
|
|
|
|
Investment in YFVIC
|
$ |
30 |
|
|
$ |
36 |
|
|
Receivables due from YFVIC
|
48 |
|
|
48 |
|
|
Maximum exposure to loss in
YFVIC
|
$ |
78 |
|
|
$ |
84 |
|
The Company recorded a $9 million settlement charge related to a
one-time contract dispute with a joint venture partner during the
second quarter 2022. This charge is recorded within Cost of
Sales.
Equity Investments
In 2018, 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 a limited partner in each fund, the Company will periodically
make capital contributions toward this total commitment amount. As
of September 30, 2022, the Company has contributed a total of
approximately $10 million toward the aggregate investment
commitments. These limited partnerships are classified as equity
method investments.
NOTE 3. Restructuring and Impairments
Given the economically-sensitive and highly competitive nature of
the automotive electronics industry, the Company continues to
closely monitor current market factors and industry trends,
including potential impacts related to COVID-19, taking action as
necessary which may include restructuring actions. However, there
can be no assurance that any such actions will be sufficient to
fully offset the impact of adverse factors on the Company or its
results of operations, financial position, and cash
flows.
Current restructuring actions include the following:
•During
2022, the Company approved and recorded $5 million of
restructuring expense, primarily impacting Europe, in order to
improve efficiencies and rationalize the Company's footprint,
including the indefinite suspension of operations in Russia. As of
September 30, 2022, $4 million remains accrued related to
these actions.
•During
2020, the Company approved various restructuring programs impacting
engineering, administrative and manufacturing functions to improve
efficiency and rationalize the Company’s footprint. During the
first nine months of 2022 the Company recorded $2 million of
costs related to these programs. As of September 30, 2022, $4
million remains accrued related to these programs.
•During
prior periods the Company approved various restructuring programs
to improve efficiencies which do not relate to the programs
described above. As of
September 30, 2022, $5 million
remains accrued related to these previously announced
actions.
Restructuring Reserves
The Company’s restructuring reserves and related activity are
summarized below.
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
|
|
|
|
|
|
December 31, 2021 |
$ |
18 |
|
|
|
|
|
|
Expense |
2 |
|
|
|
|
|
|
Change in estimate |
1 |
|
|
|
|
|
|
Payments |
(5) |
|
|
|
|
|
|
March 31, 2022 |
$ |
16 |
|
|
|
|
|
|
Expense |
2 |
|
|
|
|
|
|
Change in estimate |
2 |
|
|
|
|
|
|
Payments |
(4) |
|
|
|
|
|
|
Foreign exchange |
(1) |
|
|
|
|
|
|
June 30, 2022 |
$ |
15 |
|
|
|
|
|
|
Expense |
1 |
|
|
|
|
|
|
Payments |
(3) |
|
|
|
|
|
|
September 30, 2022 |
$ |
13 |
|
|
|
|
|
Impairments
During the nine months ended September 30, 2022, due to the current
geopolitical situation in Eastern Europe the Company indefinitely
suspended operations in Russia beginning in the second quarter
2022. As such, the Company recognized a non-cash impairment charge
of $2 million
to fully impair property and equipment as of September 30, 2022.
The
Company also recorded a
$2 million
charge to reduce certain inventory in Russia to its net realizable
value based on the Company’s suspension of operations in
Russia
during the second quarter 2022.
NOTE 4. Inventories
Inventories, net consist of the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
December 31, |
|
(In millions) |
2022 |
|
2021 |
|
Raw materials
|
$ |
294 |
|
|
$ |
206 |
|
|
Work-in-process
|
16 |
|
|
29 |
|
|
Finished products
|
31 |
|
|
27 |
|
|
|
$ |
341 |
|
|
$ |
262 |
|
NOTE 5. Goodwill and Other Intangible Assets
Intangible assets, net are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2022 |
|
December 31, 2021 |
|
(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 |
|
|
$ |
41 |
|
|
$ |
(39) |
|
|
$ |
2 |
|
|
Customer related |
10 |
|
87 |
|
|
(74) |
|
|
13 |
|
|
96 |
|
|
(75) |
|
|
21 |
|
|
Capitalized software development |
5 |
|
49 |
|
|
(13) |
|
|
36 |
|
|
48 |
|
|
(10) |
|
|
38 |
|
|
Other |
32 |
|
15 |
|
|
(9) |
|
|
6 |
|
|
15 |
|
|
(8) |
|
|
7 |
|
|
Subtotal |
|
|
191 |
|
|
(135) |
|
|
56 |
|
|
200 |
|
|
(132) |
|
|
68 |
|
|
Indefinite-Lived: |
|
|
|
|
|
|
|
Goodwill |
|
|
45 |
|
|
— |
|
|
45 |
|
|
50 |
|
|
— |
|
|
50 |
|
|
Total |
|
|
$ |
236 |
|
|
$ |
(135) |
|
|
$ |
101 |
|
|
$ |
250 |
|
|
$ |
(132) |
|
|
$ |
118 |
|
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) |
2022 |
|
2021 |
|
Receivables from non-consolidated affiliates
|
$ |
51 |
|
|
$ |
48 |
|
|
Recoverable taxes
|
48 |
|
|
40 |
|
|
Contractually reimbursable engineering costs
|
33 |
|
|
34 |
|
|
Prepaid assets and deposits
|
19 |
|
|
21 |
|
|
Royalty agreements |
2 |
|
|
4 |
|
|
China bank notes |
— |
|
|
3 |
|
|
Other
|
2 |
|
|
8 |
|
|
|
$ |
155 |
|
|
$ |
158 |
|
The Company receives bank notes from certain customers in China to
settle trade accounts receivable. 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 $101 million and $114 million of China bank notes during
the nine months ended September 30, 2022 and 2021,
respectively. Remaining amounts outstanding at third-party
institutions related to sold bank notes will mature by the end of
the first quarter of 2023.
During 2022, the Company terminated derivative financial
instruments and received approximately $9 million of proceeds upon
settlement. See Note 13, "Fair Value Measurements and Financial
Instruments" for further details.
Other non-current assets are comprised of the following
components:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
December 31, |
|
(In millions) |
2022 |
|
2021 |
|
Deferred tax assets |
$ |
45 |
|
|
$ |
47 |
|
|
Contractually reimbursable engineering costs |
30 |
|
|
34 |
|
|
Derivative financial instruments |
14 |
|
|
— |
|
|
Recoverable taxes |
8 |
|
|
9 |
|
|
Pension assets |
5 |
|
|
7 |
|
|
Royalty agreements |
— |
|
|
2 |
|
|
Other
|
22 |
|
|
12 |
|
|
|
$ |
124 |
|
|
$ |
111 |
|
Current and non-current contractually reimbursable engineering
costs 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 $7
million during the remainder of 2022, $35 million in 2023, $17
million in 2024, $3 million in 2025, and $1 million in 2026 and
beyond.
NOTE 7. Other Liabilities
Other current liabilities are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
December 31, |
|
(In millions) |
2022 |
|
2021 |
|
Deferred income
|
$ |
48 |
|
|
$ |
69 |
|
|
Payables to non-consolidated affiliates
|
42 |
|
|
20 |
|
|
Non-income taxes payable
|
34 |
|
|
26 |
|
|
Product warranty and recall accruals
|
28 |
|
|
30 |
|
|
Income taxes payable
|
13 |
|
|
8 |
|
|
Royalty reserves
|
12 |
|
|
12 |
|
|
Restructuring reserves
|
9 |
|
|
16 |
|
|
Other
|
34 |
|
|
37 |
|
|
|
$ |
220 |
|
|
$ |
218 |
|
Other non-current liabilities are summarized as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
December 31, |
|
(In millions) |
2022 |
|
2021 |
|
Product warranty and recall accruals
|
$ |
19 |
|
|
$ |
20 |
|
|
Deferred income
|
16 |
|
|
15 |
|
|
Income tax reserves
|
8 |
|
|
8 |
|
|
Restructuring reserves |
4 |
|
|
2 |
|
|
Royalty agreements
|
3 |
|
|
5 |
|
|
Derivative financial instruments
|
— |
|
|
13 |
|
|
Other
|
13 |
|
|
12 |
|
|
|
$ |
63 |
|
|
$ |
75 |
|
NOTE 8. Debt
The Company’s debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
December 31, |
|
(In millions) |
2022 |
|
2021 |
|
Short-Term Debt: |
|
|
|
|
Current portion of long-term debt |
$ |
9 |
|
|
$ |
— |
|
|
Short-term borrowings |
— |
|
|
4 |
|
|
$ |
9 |
|
|
$ |
4 |
|
|
|
|
|
|
|
Long-Term Debt: |
|
|
|
|
|
|
|
|
|
|
|
|
Term debt facility, net |
$ |
340 |
|
|
$ |
349 |
|
As of December 31, 2021, the Company had an amended credit
agreement ("Credit Agreement") which included a $350 million
Term Facility maturing March 24, 2024 and a $400 million
Revolving Credit Facility.
On July 19, 2022, the Company entered into a new amendment to the
Credit Agreement to, among other things, extend the maturity dates
of both facilities. The amended Revolving Credit Facility and Term
Facility will mature on July 19, 2027. The amendment changed the
method the Term Loan and Revolving Credit Facility accrue interest
from a LIBOR-based rate to a Secured Overnight Financing Rate
("SOFR") based rate.
In connection with amending both the Term Facility and Revolving
Credit Facility, the Company recorded $1 million of interest
expense. The Company also deferred $2 million of costs as a
non-current asset and $1 million of costs net of Long-term debt.
The deferred costs will be amortized over the term of the debt
facilities.
Short-Term Debt
Terms of the amended credit facility require a quarterly principal
payment equal to 1.25% of the original term debt balance. The first
required payment is due during the second quarter
2023.
Short-term borrowings at December 31, 2021 are related to
subsidiary borrowings.
As of September 30, 2022, the Company has no other short-term
borrowings, including at the Company's subsidiaries. The Company's
subsidiaries have access to $178 million of capacity under
short-term credit facilities.
Long-Term Debt
The Company has no outstanding borrowings on the Revolving Credit
Facility as of September 30, 2022.
Interest on the Term Facility and Revolving Credit Facility accrue
interest at a rate equal to a SOFR-based rate plus an applicable
margin of between 1.00% and 1.75%, as determined by the Company's
total gross leverage ratio.
The Credit Agreement requires compliance with customary affirmative
and negative covenants and contains customary events of
default. The Revolving Credit Facility also requires that the
Company maintain a total net leverage ratio no greater than
3.50:1.00. During any period when the Company’s corporate and
family ratings meet investment grade ratings, certain of the
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 borrowings. Any amount
of the facility utilized for letters of credit or swing line loans
outstanding will reduce the amount available under the existing
Revolving Credit Facility. The Company may request increases in the
limits under the Credit Agreement and may request the addition of
one or more term loan 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 principle
in connection with: (i) excess cash flow sweeps above certain
leverage thresholds, (ii) certain asset sales or other
dispositions, (iii) certain refinancing of indebtedness and
(iv) over-advances under the Revolving Credit Facility. There
are no excess cash flow sweeps required at the Company’s current
leverage level.
All obligations under the Credit Agreement and obligations with
respect to certain cash management services and swap transaction
agreements between the Company and its lenders are unconditionally
guaranteed by certain of the Company’s subsidiaries. Under the
terms of the Credit Agreement, any amounts outstanding are secured
by a first-priority perfected lien on substantially all property of
the Company and the subsidiaries party to the security agreement,
subject to certain limitations.
Other
The Company has a $5 million letter of credit facility, whereby the
Company is required to maintain a cash collateral account equal to
103% (110% for non-U.S. dollar denominated letters)
of the aggregate stated amount of issued letters of credit and must
reimburse any amounts drawn under issued letters of credit. The
Company had $2 million of outstanding letters of credit issued
under this facility secured by restricted cash, as of
September 30, 2022. Additionally, the Company had $3 million
of locally issued bank guarantees and letters of credit as of
September 30, 2022, to support various tax appeals, customs
arrangements and other obligations at its local
affiliates.
NOTE 9. Employee Benefit Plans
The Company's net periodic benefit costs for all defined benefit
plans for the three month periods ended September 30, 2022 and
2021 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans |
|
Non-U.S. Plans |
|
(In millions) |
2022 |
|
2021 |
|
2022 |
|
2021 |
|
Costs Recognized in Income:
|
|
|
|
|
|
|
|
|
Pension service (cost):
|
|
|
|
|
|
|
|
|
Service cost
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(1) |
|
|
Pension financing benefits (cost):
|
|
|
|
|
|
|
|
|
Interest cost
|
$ |
(5) |
|
|
$ |
(5) |
|
|
$ |
(2) |
|
|
$ |
(1) |
|
|
Expected return on plan assets |
10 |
|
|
9 |
|
|
2 |
|
|
2 |
|
|
Amortization of losses and other
|
— |
|
|
— |
|
|
— |
|
|
(1) |
|
|
Total pension financing benefits: |
5 |
|
|
4 |
|
|
— |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net pension benefit (cost) |
$ |
5 |
|
|
$ |
4 |
|
|
$ |
— |
|
|
$ |
(1) |
|
The Company's net periodic benefit costs for all defined benefit
plans for the nine month periods ended September 30, 2022 and
2021 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans |
|
Non-U.S. Plans |
|
(In millions) |
2022 |
|
2021 |
|
2022 |
|
2021 |
|
Costs Recognized in Income:
|
|
|
|
|
|
|
|
|
Pension service (cost):
|
|
|
|
|
|
|
|
|
Service cost
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(1) |
|
|
$ |
(1) |
|
|
Pension financing benefits (costs):
|
|
|
|
|
|
|
|
|
Interest cost
|
$ |
(15) |
|
|
$ |
(13) |
|
|
$ |
(5) |
|
|
$ |
(4) |
|
|
Expected return on plan assets |
30 |
|
|
28 |
|
|
6 |
|
|
6 |
|
|
Amortization of losses and other
|
— |
|
|
(2) |
|
|
(1) |
|
|
(2) |
|
|
Total pension financing benefits: |
15 |
|
|
13 |
|
|
— |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Net pension benefit (cost) |
$ |
15 |
|
|
$ |
13 |
|
|
$ |
(1) |
|
|
$ |
(1) |
|
Pension financing benefits are classified as Other income, net on
the Company's condensed consolidated statements of comprehensive
income.
During the nine months ended September 30, 2022, cash
contributions to the Company's defined benefit plans were $5
million related to its non-U.S. plans. The Company estimates that
total cash contributions to its non-U.S. defined benefit pension
plans during 2022 will be $6 million.
NOTE 10. Income Taxes
During the nine month period ended September 30, 2022, the Company
recorded a provision for income tax of $24 million which
reflects income tax expense in countries where the Company is
profitable, accrued withholding taxes, and the inability to record
a tax benefit for pretax losses and/or recognize expense for pretax
income in certain jurisdictions, including the United States
("U.S."), due to valuation allowances. Pre-tax losses in
jurisdictions where valuation allowances are maintained and no
income tax benefits are recognized totaled $16 million and
$48 million for the nine month periods ended September 30,
2022 and 2021, respectively, resulting in an increase in the
Company's effective tax rate.
The Company's provision for income taxes in interim periods is
computed by applying an estimated annual effective tax rate against
income before income taxes, excluding equity in net income of
non-consolidated affiliates for the period. Effective tax rates
vary from period to period as separate calculations are performed
for those countries where the Company's operations are profitable
and whose results continue to be tax-effected and for those
countries where full deferred tax valuation allowances exist and
are maintained.
The 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 Company evaluates its deferred income taxes quarterly to
determine if valuation allowances are required or should be
adjusted.
During the third quarter of 2022, there were no material changes in
unrecognized tax benefits. The long-term portion of uncertain
income tax positions (including interest) of $8 million is
included in other non-current liabilities on the condensed
consolidated balance sheet, while $3 million is reflected as a
reduction of a deferred tax asset related to a net operating loss
included in other non-current assets on the condensed consolidated
balance sheet. Outstanding income tax refund claims, related
primarily to India and Brazil jurisdictions, total $6 million
as of September 30, 2022 and are included in other non-current
assets on the condensed consolidated balance sheets.
NOTE 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) |
2022 |
|
2021 |
|
Shanghai Visteon Automotive Electronics, Co., Ltd. |
$ |
43 |
|
|
$ |
45 |
|
|
Yanfeng Visteon Automotive Electronics Co., Ltd. |
32 |
|
|
33 |
|
|
Changchun Visteon FAWAY Automotive Electronics, Co.,
Ltd.
|
17 |
|
|
20 |
|
|
Other
|
2 |
|
|
2 |
|
|
|
$ |
94 |
|
|
$ |
100 |
|
Accumulated Other Comprehensive Income (Loss)
Changes in Accumulated 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) |
2022 |
|
2021 |
|
2022 |
|
2021 |
|
Changes in AOCI:
|
|
|
|
|
|
|
|
|
Beginning balance
|
$ |
(265) |
|
|
$ |
(305) |
|
|
$ |
(229) |
|
|
$ |
(304) |
|
|
Other comprehensive income (loss) before reclassification, net of
tax
|
(29) |
|
|
(7) |
|
|
(66) |
|
|
(11) |
|
|
Amounts reclassified from AOCI
|
— |
|
|
2 |
|
|
1 |
|
|
5 |
|
|
Ending balance
|
$ |
(294) |
|
|
$ |
(310) |
|
|
$ |
(294) |
|
|
$ |
(310) |
|
|
Changes in AOCI by Component:
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
Beginning balance
|
$ |
(206) |
|
|
$ |
(131) |
|
|
$ |
(149) |
|
|
$ |
(115) |
|
|
Other comprehensive income (loss) before reclassification, net of
tax (a)
|
(45) |
|
|
(13) |
|
|
(102) |
|
|
(29) |
|
|
Ending balance
|
(251) |
|
|
(144) |
|
|
(251) |
|
|
(144) |
|
|
Net investment hedge
|
|
|
|
|
|
|
|
|
Beginning balance
|
18 |
|
|
(5) |
|
|
4 |
|
|
(15) |
|
|
Other comprehensive income (loss) before
reclassification, net of tax (a)
|
5 |
|
|
5 |
|
|
20 |
|
|
18 |
|
|
Amounts reclassified from AOCI
|
— |
|
|
(1) |
|
|
(1) |
|
|
(4) |
|
|
Ending balance
|
23 |
|
|
(1) |
|
|
23 |
|
(1) |
|
|
Benefit plans
|
|
|
|
|
|
|
|
|
Beginning balance
|
(79) |
|
|
(162) |
|
|
(81) |
|
|
(165) |
|
|
Other comprehensive income (loss) before
reclassification, net of tax (b)
|
2 |
|
|
1 |
|
|
3 |
|
|
1 |
|
|
Amounts reclassified from AOCI |
— |
|
|
1 |
|
|
1 |
|
|
4 |
|
|
Ending balance
|
(77) |
|
|
(160) |
|
|
(77) |
|
|
(160) |
|
|
Unrealized hedging gain (loss)
|
|
|
|
|
|
|
|
|
Beginning balance
|
2 |
|
|
(7) |
|
|
(3) |
|
|
(9) |
|
|
Other comprehensive income (loss) before
reclassification, net of tax (c)
|
9 |
|
|
— |
|
|
13 |
|
|
(1) |
|
|
Amounts reclassified from AOCI |
— |
|
|
2 |
|
|
1 |
|
|
5 |
|
|
Ending balance
|
11 |
|
|
(5) |
|
|
11 |
|
|
(5) |
|
|
Total AOCI
|
$ |
(294) |
|
|
$ |
(310) |
|
|
$ |
(294) |
|
|
$ |
(310) |
|
(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, 2022
and 2021.
(c) There were no income tax effects related to unrealized hedging
gain (loss) for either period due to the valuation
allowance.
NOTE 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 calculated
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 per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended
September 30, |
|
(In millions, except per share amounts) |
2022 |
|
2021 |
|
2022 |
|
2021 |
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Visteon
|
$ |
44 |
|
|
$ |
5 |
|
|
$ |
90 |
|
|
$ |
10 |
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Average common stock outstanding - basic
|
28.1 |
|
|
28.0 |
|
|
28.1 |
|
|
27.9 |
|
|
Dilutive effect of performance based share units and
other
|
0.4 |
|
|
0.4 |
|
|
0.4 |
|
|
0.4 |
|
|
Diluted shares
|
28.5 |
|
|
28.4 |
|
|
28.5 |
|
|
28.3 |
|
|
Basic and Diluted Per Share Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share attributable to
Visteon
|
$ |
1.57 |
|
|
$ |
0.18 |
|
|
$ |
3.20 |
|
|
$ |
0.36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share attributable to
Visteon:
|
$ |
1.54 |
|
|
$ |
0.18 |
|
|
$ |
3.16 |
|
|
$ |
0.35 |
|
NOTE 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 Recurring Basis
The Company is exposed to various market risks including, but not
limited to, changes in currency exchange rates arising from the
sale of products in countries other than the manufacturing source,
foreign currency denominated supplier payments, debt, dividends,
and investments in subsidiaries. The Company manages these risks,
in part, through the use of derivative financial instruments. The
maximum length of time over which the Company hedges the
variability in the future cash flows related to transactions,
excluding those transactions as related to the payment of variable
interest on existing debt, is eighteen months. The maximum length
of time over which the Company hedges forecasted transactions
related to variable interest payments is the term of the underlying
debt.
Hedge instruments are measured at fair value on a recurring basis
under an income approach using industry-standard models that
consider various assumptions, including time value, volatility
factors, current market and contractual prices for the underlying
and non-performance risk. Substantially all of these assumptions
are observable in the marketplace throughout the full term of the
instrument or may be derived from observable data. Accordingly, the
Company's currency instruments are classified as Level 2 in the
fair value hierarchy.
The Company presents its derivative positions and any related
material collateral under master netting arrangements that provide
for the net settlement of contracts, by counterparty, in the event
of default or termination. Derivative financial instruments are
included in the Company’s condensed consolidated balance sheets.
There is no cash collateral on any of these
derivatives.
Currency Exchange Rate Instruments:
The Company primarily uses forward contracts denominated in euro,
Japanese yen, Thai baht, Brazilian real, and Mexican peso intended
to mitigate the variability of cash flows denominated in currency
other than the hedging entity's functional currency.
As of September 30, 2022 the Company had no foreign currency
economic derivative instruments. At December 31, 2021, the
Company had economic foreign currency derivative instruments with
notional amounts of $32 million and an aggregate fair value of a
liability of less than $1 million.
Cross Currency Swaps:
During the first nine months of 2022, the Company terminated
existing cross currency swaps and received $9 million upon
settlement. During the third quarter 2022, subsequent to
terminations, the Company executed cross-currency swap transactions
with aggregate notional amounts of $200 million intended to
mitigate the variability of U.S. dollar value investment in certain
of its non-U.S. entities. These transactions are designated as net
investment hedges. There was no ineffectiveness associated with
such derivatives as of September 30, 2022, and the fair value
of these derivatives is an asset of $3 million.
As of December 31, 2021, the Company had cross currency swaps
with an aggregate notional value of $250 million. The fair value of
these derivatives was an asset of $2 million and a non-current
liability of $9 million.
Interest Rate Swaps:
During 2022, the Company terminated existing interest rate swaps
and received less than $1 million upon settlement. Subsequent to
these terminations, during the third quarter, the Company executed
new interest rate swap instruments. The Company utilizes interest
rate swap instruments to manage its exposure and to mitigate the
impact of interest rate variability. The instruments are designated
as cash flow hedges, accordingly, the effective portion of the
periodic changes in fair value is recognized in accumulated other
comprehensive income, a component of shareholders' equity.
Subsequently, the accumulated gains and losses recorded in equity
are reclassified to income in the period during which the hedged
cash flow impacts earnings.
As of September 30, 2022 the Company had interest rate swaps
of $250 million. The fair value of these derivatives is an asset of
$11 million as of September 30, 2022. As of September 30,
2022, a gain of less than $1 million is expected to be reclassified
out of accumulated other comprehensive income into earnings within
the next twelve months.
As of December 31, 2021, the Company had interest rate swaps
with an aggregate notional value of $300 million. The fair value of
these derivatives was a non-current liability of $4
million.
Financial Statement Presentation
Gains and losses on derivative financial instruments for the three
and nine months ended September 30, 2022 and 2021 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded Income (Loss) into AOCI, net of tax |
|
Reclassified from AOCI into Income (Loss)
|
|
Recorded in (Income) Loss |
|
|
|
(In millions) |
2022 |
|
2021 |
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
|
|
|
|
Three months ended September 30, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency risk - Cost of sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency derivative instruments |
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
Interest rate risk - Interest expense, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
9 |
|
|
— |
|
|
— |
|
|
(2) |
|
|
— |
|
|
— |
|
|
|
|
|
|
Cross currency swaps
|
5 |
|
|
5 |
|
|
— |
|
|
1 |
|
|
— |
|
|
— |
|
|
|
|
|
|
|
$ |
14 |
|
|
$ |
5 |
|
|
$ |
— |
|
|
$ |
(1) |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
Nine months ended September 30, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency risk - Cost of sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency derivative instruments |
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
3 |
|
|
$ |
1 |
|
|
|
|
|
|
Interest rate risk - Interest expense, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
13 |
|
|
(1) |
|
|
(1) |
|
|
(5) |
|
|
— |
|
|
— |
|
|
|
|
|
|
Cross currency swaps
|
20 |
|
|
18 |
|
|
1 |
|
|
4 |
|
|
— |
|
|
— |
|
|
|
|
|
|
|
$ |
33 |
|
|
$ |
17 |
|
|
$ |
— |
|
|
$ |
(1) |
|
|
$ |
3 |
|
|
$ |
1 |
|
|
|
|
|
Items Not Carried at Fair Value
The Company's fair value of debt was $323 million and $354 million
as of September 30, 2022 and December 31, 2021,
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
counterparty 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 pursuant to written policies that specify minimum
counterparty credit profile and by limiting the concentration of
credit exposure amongst its multiple counterparties.
The Company's credit risk with any single customer does not exceed
ten percent of total accounts receivable except for Ford and GM and
their affiliates. Ford represents 16% and 18% of the Company's
balance as of September 30, 2022 and December 31, 2021,
respectively. GM represents 12% and 8% of the Company's balance as
of September 30, 2022 and December 31, 2021,
respectively.
NOTE 14. Commitments and Contingencies
Litigation and Claims
In 2003, the Local Development Finance Authority of the Charter
Township of Van Buren, Michigan 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. The Settlement Agreement also
provided that the Company would negotiate in good faith with the
Township, pursuant to the terms of the Settlement Agreement, in the
event that property tax payments were inadequate to permit the
Township to meet its payment obligations with respect to the bonds.
In October 2019, the Township notified the Company that the
Township had incurred a shortfall under the bonds of less than $1
million and requested that the Company meet to discuss payment. The
parties met in November 2019 but no agreement was reached. On
December 9, 2019, the Township commenced litigation against the
Company in Michigan’s Wayne County Circuit Court claiming damages
of $28 million related to what the Township alleges to be the
current shortfall and projected future shortfalls under the bonds.
The Company disputes the factual and legal assertions made by the
Township and intends to defend the matter vigorously. The Company
is not able to estimate the possible loss or range of loss in
connection with this matter.
In November 2013, the Company and Halla Visteon Climate Control
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 $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 the 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 its business, operating results and
financial condition. The Company cannot predict when OFAC will
conclude its own review of voluntary self-disclosures or whether it
may impose any of the potential penalties described
above.
The Company's operations in Brazil are subject to highly complex
labor, tax, customs and other laws. While the Company believes that
it is in compliance with such laws, it is periodically engaged in
litigation regarding the application of these laws. The Company
maintained accruals of $9 million for claims aggregating $56
million in Brazil as of September 30, 2022. The amounts
accrued represent claims that are deemed probable of loss and are
reasonably estimable based on the Company's assessment of the
claims and prior experience with similar matters.
The adverse impacts of the COVID-19 pandemic led to a significant
reduction in vehicle production in the first half of 2020, which
was followed by increased consumer demand and vehicle production
schedules in the second half of 2020, particularly in the fourth
quarter. Because semiconductor suppliers have been unable to
rapidly reallocate production to serve the automotive industry, the
surge in demand has led to a worldwide semiconductor supply
shortage. The Company's semiconductor suppliers, along with most
automotive component supply companies that use semiconductors, have
been unable to fully meet the vehicle production demands of our
customers due to events which are outside the Company's control,
including but not limited to, the COVID-19 pandemic, the global
semiconductor shortage, a fire at a semiconductor fabrication
facility in Japan, significant weather events impacting
semiconductor supplier facilities in the southern United States,
and other extraordinary events. The Company is working closely with
suppliers and customers to attempt to minimize potential adverse
impacts of these events. Certain customers have communicated that
they expect the Company to absorb some of the financial impact of
their reduced production and are reserving their rights to claim
damages arising from supply shortages, however, the Company
believes it has a number of legal defenses to such claims and
intends to defend any such claims vigorously. The Company has also
notified semiconductor suppliers that it will seek compensation
from them for failure to deliver sufficient quantities. The Company
is not able to estimate the possible loss or range of loss in
connection with this matter at this time.
While the Company believes its accruals for litigation and claims
are adequate, the final amounts required to resolve such matters
could differ materially from recorded estimates and the Company's
results of operations and cash flows could be materially
affected.
Guarantees and Commitments
As part of 2015 divestitures involving the Company's former climate
and interiors businesses, the Company continues to provide lease
guarantees to divested Climate and Interiors entities. As of
September 30, 2022, the Company has $2 million and $2 million
of outstanding guarantees, related to the divested Climate and
Interiors entities, respectively. 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 agreement which expire in 2026 and 2024
for the Climate and Interiors entities, respectively.
The Company also guarantees certain lease obligations of
affiliates. Expiration dates vary and guarantees will terminate on
payment and/or cancellation of the underlying
obligation.
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 rollforward of changes in the
product warranty and recall claims liability:
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
(In millions) |
2022 |
|
2021 |
|
Beginning balance |
$ |
50 |
|
|
$ |
64 |
|
|
Provisions |
13 |
|
|
12 |
|
|
Changes in estimates
|
1 |
|
|
1 |
|
|
Currency |
(6) |
|
|
(3) |
|
|
Settlements, net |
(11) |
|
|
(16) |
|
|
Ending balance |
$ |
47 |
|
|
$ |
58 |
|
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 paragraphs where losses are deemed
probable and reasonably estimable. It is possible, however, that
some of the matters discussed in the foregoing paragraphs 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, 2022 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 15. Segment Information and Revenue Recognition
The Company’s single reportable segment is Electronics. The
Company's Electronics segment provides vehicle cockpit electronics
products to customers, including instrument clusters, information
displays, infotainment systems, audio systems, telematics
solutions, head-up displays, as well as battery monitoring systems.
As the Company has one reportable segment, total assets,
depreciation, amortization, and capital expenditures are equal to
consolidated results.
Financial results for the Company's reportable segment have been
prepared using a management approach, which is consistent with the
basis and manner in which financial information is evaluated by the
Company's chief operating decision maker in allocating resources
and in assessing performance. The Company’s chief operating
decision maker, the Chief Executive Officer, evaluates the
performance of the Company’s segment primarily based on net sales,
before elimination of inter-company shipments, Adjusted EBITDA (a
non-U.S. GAAP financial measure, as defined below), and operating
assets.
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 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 addition, the Company's credit agreements
use measures similar to Adjusted EBITDA to measure compliance with
certain covenants.
Segment Adjusted EBITDA and reconciliation to net income (loss)
attributable to Visteon is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
(In millions) |
2022 |
|
2021 |
|
2022 |
|
2021 |
|
Net income (loss) attributable to Visteon Corporation |
$ |
44 |
|
|
$ |
5 |
|
|
$ |
90 |
|
|
$ |
10 |
|
|
Depreciation and amortization |
27 |
|
|
27 |
|
|
79 |
|
|
82 |
|
|
Provision for income taxes |
9 |
|
|
4 |
|
|
24 |
|
|
20 |
|
|
Non-cash, stock-based compensation expense |
6 |
|
|
4 |
|
|
19 |
|
|
13 |
|
|
Restructuring and impairment |
1 |
|
|
(2) |
|
|
12 |
|
|
(2) |
|
|
Interest expense, net |
2 |
|
|
2 |
|
|
7 |
|
|
6 |
|
|
Net income (loss) attributable to non-controlling
interests |
5 |
|
|
2 |
|
|
5 |
|
|
5 |
|
|
Equity in net income of non-consolidated
affiliates |
1 |
|
|
(2) |
|
|
(3) |
|
|
(2) |
|
|
Other |
— |
|
|
2 |
|
|
12 |
|
|
4 |
|
|
Adjusted EBITDA |
$ |
95 |
|
|
$ |
42 |
|
|
$ |
245 |
|
|
$ |
136 |
|
Revenue Recognition
Disaggregated net sales by geographical market and product lines is
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
(In millions) |
2022 |
|
2021 |
|
2022 |
|
2021 |
|
Geographical Markets |
|
|
|
|
|
|
|
|
Europe |
$ |
335 |
|
|
$ |
212 |
|
|
$ |
929 |
|
|
$ |
707 |
|
|
Americas |
308 |
|
|
158 |
|
|
828 |
|
|
519 |
|
|
China Domestic |
180 |
|
|
145 |
|
|
431 |
|
|
384 |
|
|
China Export |
72 |
|
|
51 |
|
|
166 |
|
|
148 |
|
|
Other Asia-Pacific |
175 |
|
|
94 |
|
|
439 |
|
|
309 |
|
|
Eliminations |
(44) |
|
|
(29) |
|
|
(101) |
|
|
(80) |
|
|
|
$ |
1,026 |
|
|
$ |
631 |
|
|
$ |
2,692 |
|
|
$ |
1,987 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
(In millions) |
2022 |
|
2021 |
|
2022 |
|
2021 |
|
Product Lines |
|
|
|
|
|
|
|
|
Instrument clusters |
$ |
481 |
|
|
$ |
309 |
|
|
$ |
1,286 |
|
|
$ |
958 |
|
|
Information Displays |
122 |
|
|
86 |
|
|
376 |
|
|
301 |
|
|
Infotainment |
141 |
|
|
86 |
|
|
357 |
|
|
281 |
|
|
Cockpit domain controller |
130 |
|
|
60 |
|
|
313 |
|
|
149 |
|
|
Body and security |
58 |
|
|
25 |
|
|
127 |
|
|
88 |
|
|
Telematics |
14 |
|
|
15 |
|
|
51 |
|
|
49 |
|
|
Other |
80 |
|
|
50 |
|
|
182 |
|
|
161 |
|
|
|
$ |
1,026 |
|
|
$ |
631 |
|
|
$ |
2,692 |
|
|
$ |
1,987 |
|
During the nine months ended September 30, 2022, revenue
recognized related to performance obligations satisfied in previous
periods represented less than 1% of consolidated net sales. The
Company has no material contract assets, contract liabilities, or
capitalized contract acquisition costs as of September 30,
2022.
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, 2021 filed with the
Securities and Exchange Commission on February 17, 2022 and the
financial statements and accompanying notes to the financial
statements included elsewhere herein.
Executive Summary
Strategic Priorities
Visteon is a global automotive technology company serving the
mobility industry, dedicated to creating more enjoyable, connected,
and safe driving experiences. Our platforms leverage proven,
scalable hardware and software solutions that enable the digital,
electric and autonomous evolution of our global automotive
customers. The automotive mobility market is expected to grow
faster than underlying vehicle production volumes as the vehicle
shifts from analog to digital and towards device and cloud
connected, electric vehicles, and vehicles with more advanced
safety features.
The Company has laid out the following strategic
priorities:
•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 the DriveCore™ advanced
safety platform 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 returned approximately $3.3 billion to
shareholders since 2015. In addition, the Company has continued to
maintain a strong balance sheet to withstand near-term industry
volatility while providing a foundation for future growth and
shareholder returns.
Financial Results
The pie charts below highlight the net sales breakdown for Visteon
for the three and nine months ended September 30,
2022.
Three Months Ended September 30, 2022
Nine Months Ended September 30, 2022
*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
The automotive industry has been negatively impacted by the
COVID-19 pandemic and the ongoing semiconductor shortage. Industry
vehicle volumes have increased in 2022 however remain at
historically low levels despite strong consumer demand due to the
ongoing semiconductor shortage. Vehicle production volumes will
continue to be negatively impacted by the on-going shortages of
semiconductors, disruptions caused by the geopolitical situation in
Eastern Europe, and the COVID-19 related lockdowns in China through
mid-2023. The magnitude of the impact on the financial statements
and results of operations and cash flows will depend on the
evolution of the semiconductor supply shortage, plant production
schedules, and supply chain impacts.
Results of Operations - Three Months Ended September 30, 2022
and 2021
The Company's consolidated results of operations for the three
months ended September 30, 2022 and 2021 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
(In millions) |
2022 |
|
2021 |
|
Change |
|
Net sales |
$ |
1,026 |
|
|
$ |
631 |
|
|
$ |
395 |
|
|
Cost of sales |
(922) |
|
|
(584) |
|
|
(338) |
|
|
Gross margin |
104 |
|
|
47 |
|
|
57 |
|
|
Selling, general and administrative expenses |
(47) |
|
|
(42) |
|
|
(5) |
|
|
Restructuring and impairment |
(1) |
|
|
2 |
|
|
(3) |
|
|
Interest expense, net |
(2) |
|
|
(2) |
|
|
— |
|
|
Equity in net income of non-consolidated affiliates |
(1) |
|
|
2 |
|
|
(3) |
|
|
Other income, net |
5 |
|
|
4 |
|
|
1 |
|
|
Provision for income taxes |
(9) |
|
|
(4) |
|
|
(5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
49 |
|
|
7 |
|
|
42 |
|
|
Less: Net (income) loss attributable to non-controlling
interests |
(5) |
|
|
(2) |
|
|
(3) |
|
|
Net income (loss) attributable to Visteon Corporation |
$ |
44 |
|
|
$ |
5 |
|
|
$ |
39 |
|
|
Adjusted EBITDA* |
$ |
95 |
|
|
$ |
42 |
|
|
$ |
53 |
|
|
*
Adjusted EBITDA is a Non-GAAP financial measure, as further
discussed
below.
|
Net Sales, Cost of Sales and Gross Margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
Net Sales |
|
Cost of Sales |
|
Gross Margin |
|
|
Three months ended September 30, 2021 |
$ |
631 |
|
|
$ |
(584) |
|
|
$ |
47 |
|
|
|
Volume, mix, and net new business |
319 |
|
|
(250) |
|
|
69 |
|
|
|
Currency |
(43) |
|
|
34 |
|
|
(9) |
|
|
|
Customer pricing |
125 |
|
|
— |
|
|
125 |
|
|
|
Engineering costs, net * |
— |
|
|
(9) |
|
|
(9) |
|
|
|
Cost performance, design changes and other |
(6) |
|
|
(113) |
|
|
(119) |
|
|
|
Three months ended September 30, 2022 |
$ |
1,026 |
|
|
$ |
(922) |
|
|
$ |
104 |
|
|
|
*Excludes the impact of currency. |
|
|
|
|
|
|
Net sales for the three months ended September 30, 2022
totaled $1,026 million, representing an increase of $395 million
compared with the same period of 2021. Volumes and net new business
increased net sales by $319 million. Unfavorable currency decreased
net sales by $43 million, primarily attributable to the euro,
Chinese renminbi, and Japanese yen. Favorable customer pricing
increased net sales by $125 million primarily driven by customer
pricing recoveries related to material cost increases.
Cost of sales increased by $338 million for the three months ended
September 30, 2022 compared with the same period in 2021.
Volume, mix and net new business increased cost of sales by $250
million. Foreign currency decreased cost of sales by $34 million,
primarily attributable to the euro, Chinese renminbi, and Japanese
yen. Net engineering costs, excluding currency, increased cost of
sales by $9 million. Unfavorable cost performance, design changes,
and other increased cost of sales by $113 million primarily due to
material cost increases.
A summary of net engineering costs is shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
(In millions) |
2022 |
|
2021 |
|
Gross engineering costs |
$ |
(83) |
|
|
$ |
(80) |
|
|
Engineering recoveries |
25 |
|
|
28 |
|
|
Engineering costs, net |
$ |
(58) |
|
|
$ |
(52) |
|
Gross engineering costs relate to forward model program development
and advanced engineering activities and exclude contractually
reimbursable engineering costs. Net engineering costs of $58
million for the three months ended September 30, 2022,
including the impacts of currency, were $6 million higher than the
same period of 2021. This increase is primarily related to lower
engineering recoveries during the third quarter of
2022.
Selling, General and Administrative Expenses
Selling, general, and administrative expenses was $47 million for
the three months ended September 30, 2022. The increase of $5
million as compared to the three months ended and 2021 is primarily
due to increased employee related expenses.
Restructuring and impairment
During the third quarter 2022, the Company recorded $1 million of
restructuring expense primarily related to employee
severance.
Interest Expense, Net
Interest expense, net, for the three months ended
September 30, 2022 and 2021 was $2 million. Interest expense
for these periods is primarily related to the Company's term debt
facility.
Equity in Net Income of Non-Consolidated Affiliates
Equity in net income of non-consolidated affiliates was $1 million
loss and $2 million income for the three months ended
September 30, 2022 and 2021, respectively. The decrease in
income is primarily attributable due to decreased volumes at the
Company's non-consolidated affiliates.
Other Income, Net
Other income, net of $5 million and $4 million for the three-month
periods ending September 30, 2022 and 2021 is primarily due to
net pension financing benefits.
Income Taxes
The Company's provision for income taxes of $9 million for the
three months ended September 30, 2022 represents an increase
of $5 million compared with $4 million in the same period of 2021.
The increase in tax expense is attributable to the overall year
over year increase in profit before tax excluding equity income,
including changes in the mix of earnings and differing rates
between jurisdictions.
Adjusted EBITDA
Adjusted EBITDA (a non-GAAP financial measure, as defined in Note
15, "Segment Information") was $95 million for the three months
ended September 30, 2022. The increase of $53 million, when
compared to $42 million for the same period of 2021 was primarily
driven by higher sales volumes.
The reconciliation of net income (loss) attributable to Visteon to
Adjusted EBITDA for the three months ended September 30, 2022
and 2021, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
(In millions) |
2022 |
|
2021 |
|
Change |
|
Net income (loss) attributable to Visteon Corporation |
$ |
44 |
|
|
$ |
5 |
|
|
$ |
39 |
|
|
Depreciation and amortization |
27 |
|
|
27 |
|
|
— |
|
|
Provision for income taxes |
9 |
|
|
4 |
|
|
5 |
|
|
Non-cash, stock-based compensation expense |
6 |
|
|
4 |
|
|
2 |
|
|
Net income attributable to non-controlling
interests |
5 |
|
|
2 |
|
|
3 |
|
|
Interest expense, net |
2 |
|
|
2 |
|
|
— |
|
|
Restructuring and impairment |
1 |
|
|
(2) |
|
|
3 |
|
|
|
|
|
|
|
|
Equity in net income of non-consolidated
affiliates |
1 |
|
|
(2) |
|
|
3 |
|
|
Other |
— |
|
|
2 |
|
|
(2) |
|
|
Adjusted EBITDA |
$ |
95 |
|
|
$ |
42 |
|
|
$ |
53 |
|
Results of Operations - Nine Months Ended September 30, 2022
and 2021
The Company's consolidated results of operations for the nine
months ended September 30, 2022 and 2021 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
(In millions) |
2022 |
|
2021 |
|
Change |
|
Net sales |
$ |
2,692 |
|
|
$ |
1,987 |
|
|
$ |
705 |
|
|
Cost of sales |
(2,438) |
|
|
(1,832) |
|
|
(606) |
|
|
Gross margin |
254 |
|
|
155 |
|
|
99 |
|
|
Selling, general and administrative expenses |
(134) |
|
|
(131) |
|
|
(3) |
|
|
Restructuring and impairment |
(12) |
|
|
2 |
|
|
(14) |
|
|
Interest expense, net |
(7) |
|
|
(6) |
|
|
(1) |
|
|
Equity in net income of non-consolidated affiliates |
3 |
|
|
2 |
|
|
1 |
|
|
Other income, net |
15 |
|
|
13 |
|
|
2 |
|
|
Provision for income taxes |
(24) |
|
|
(20) |
|
|
(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
95 |
|
|
15 |
|
|
80 |
|
|
Less: Net (income) loss attributable to non-controlling
interests |
(5) |
|
|
(5) |
|
|
— |
|
|
Net income (loss) attributable to Visteon Corporation |
$ |
90 |
|
|
$ |
10 |
|
|
$ |
80 |
|
|
Adjusted EBITDA* |
$ |
245 |
|
|
$ |
136 |
|
|
$ |
109 |
|
|
*
Adjusted EBITDA is a Non-GAAP financial measure, as further
discussed
below.
|
Net Sales, Cost of Sales and Gross Margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
Net Sales |
|
Cost of Sales |
|
Gross Margin |
|
|
Nine Months Ended September 30, 2021 |
$ |
1,987 |
|
|
$ |
(1,832) |
|
|
$ |
155 |
|
|
|
Volume, mix, and net new business |
501 |
|
|
(389) |
|
|
112 |
|
|
|
Currency |
(76) |
|
|
66 |
|
|
(10) |
|
|
|
Customer pricing |
288 |
|
|
— |
|
|
288 |
|
|
|
Engineering costs, net * |
— |
|
|
5 |
|
|
5 |
|
|
|
Cost performance, design changes and other |
(8) |
|
|
(288) |
|
|
(296) |
|
|
|
Nine Months Ended September 30, 2022 |
$ |
2,692 |
|
|
$ |
(2,438) |
|
|
$ |
254 |
|
|
|
*Excludes the impact of currency. |
|
|
|
|
|
|
Net sales for the nine months ended September 30, 2022 totaled
$2,692 million, representing an increase of $705 million compared
with the same period of 2021. Volumes and net new business
increased net sales by $501 million. Unfavorable currency decreased
net sales by $76 million, primarily attributable to the euro,
Chinese renminbi, and Japanese yen. Favorable customer pricing
increased net sales by $288 million primarily driven by customer
pricing recoveries related to material cost increases.
Cost of sales increased by $606 million for the nine months ended
September 30, 2022 compared with the same period in 2021.
Volume, mix, and net new business increased cost of sales by $389
million. Foreign currency decreased cost of sales by $66 million,
primarily attributable to the euro, Chinese renminbi, and Japanese
yen. Net engineering costs, excluding currency, decreased cost of
sales by $5 million. Unfavorable cost performance, design changes
and other increased cost of sales by $288 million primarily due to
material cost increases.
A summary of net engineering costs is shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
(In millions) |
2022 |
|
2021 |
|
Gross engineering costs |
$ |
(245) |
|
|
$ |
(246) |
|
|
Engineering recoveries |
98 |
|
|
88 |
|
|
Engineering costs, net |
$ |
(147) |
|
|
$ |
(158) |
|
Gross engineering costs relate to forward model program development
and advanced engineering activities and exclude contractually
reimbursable engineering costs. Net engineering costs of $147
million for the nine months ended September 30, 2022,
including the impacts of currency, were $11 million lower than the
same period of 2021. This decrease is primarily related to
increased engineering recoveries during 2022.
Selling, General and Administrative Expenses
Selling, general, and administrative expenses was $134 million for
the nine months ended September 30, 2022. The increase of $3
million as compared to the nine months ended 2021 is primarily due
to increased employee related expenses.
Restructuring and impairment
During 2022, the Company approved and recorded $5 million of
restructuring expense, primarily impacting Europe, in order to
improve efficiencies and rationalize the Company's footprint,
including the indefinite suspension of operations in Russia. As of
September 30, 2022, $4 million remains accrued related to
these actions.
During the nine months ended September 30, 2022, due to the current
geopolitical situation in Eastern Europe the Company indefinitely
suspended operations in Russia beginning in the second quarter
2022. As such, the Company recognized a non-cash impairment charge
of $2 million
to fully impair property and equipment and a non-cash
$2 million
charge to reduce certain inventory in Russia to its net realizable
value
as of September 30, 2022.
Interest Expense, Net
Interest expense, net, for the nine months ended September 30,
2022 and 2021 was $7 million and $6 million, respectively. Interest
expense for these periods is primarily related to the borrowings on
the Company's term debt facility.
Equity in Net Income of Non-Consolidated Affiliates
Equity in net income of non-consolidated affiliates was $3 million
and $2 million for the nine months ended September 30, 2022
and 2021, respectively. The increase in income is primarily
attributable due to increased sales at the Company's
non-consolidated affiliates.
Other Income, Net
Other income, net of $15 million and $13 million for the nine-month
periods ending September 30, 2022 and 2021 is primarily due to
net pension financing benefits.
Income Taxes
The Company's provision for income taxes of $24 million for the
nine months ended September 30, 2022 represents an increase of
$4 million compared with $20 million in the same period of 2021.
The increase in tax expense includes approximately $7 million
primarily attributable to the overall increase in pretax earnings,
including changes in the mix of earnings and differing tax rates
between jurisdictions. These increases were partially offset by the
non-recurrence of a $2 million provision for income taxes related
to uncertain tax positions attributable to certain related party
transactions and the $1 million decrease in withholding taxes
driven primarily by favorable exchange.
Adjusted EBITDA
Adjusted EBITDA (a non-GAAP financial measure, as defined in Note
15, "Segment Information") was $245 million for the nine months
ended September 30, 2022. The increase of $109 million when
compared to $136 million for the same period of 2021 was primarily
driven by higher sales volumes.
The reconciliation of net income (loss) attributable to Visteon to
Adjusted EBITDA for the nine months ended September 30, 2022
and 2021, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
(In millions) |
2022 |
|
2021 |
|
Change |
|
Net income (loss) attributable to Visteon Corporation |
$ |
90 |
|
|
$ |
10 |
|
|
$ |
80 |
|
|
Depreciation and amortization |
79 |
|
|
82 |
|
|
(3) |
|
|
Provision for income taxes |
24 |
|
|
20 |
|
|
4 |
|
|
Non-cash, stock-based compensation expense |
19 |
|
|
13 |
|
|
6 |
|
|
Restructuring and impairment |
12 |
|
|
(2) |
|
|
14 |
|
|
Interest expense, net |
7 |
|
|
6 |
|
|
1 |
|
|
Net income (loss) attributable to non-controlling
interests |
5 |
|
|
5 |
|
|
— |
|
|
Equity in net income of non-consolidated
affiliates |
(3) |
|
|
(2) |
|
|
(1) |
|
|
Other |
12 |
|
|
4 |
|
|
8 |
|
|
Adjusted EBITDA |
$ |
245 |
|
|
$ |
136 |
|
|
$ |
109 |
|
Liquidity
The Company's primary sources of liquidity are cash flows from
operations, existing cash balances, and borrowings under available
credit facilities. As we continue to evaluate ongoing impacts of
the COVID-19 pandemic including the semiconductor supply shortage
and other supply chain impacts, the Company believes funds
generated from these sources will continue to sufficiently sustain
ongoing operations and support investment in differentiating
technologies. The Company will continue to closely monitor its
available liquidity and maintain access to additional liquidity to
weather these challenging conditions. The Company's intra-year
needs are normally impacted by seasonal effects in the industry,
such as mid-year shutdowns, the ramp-up of new model production,
and year-end shutdowns at key customers. The ongoing COVID-19
pandemic and related semiconductor supply shortage may exacerbate
the intra-year requirements.
A substantial portion of the Company's cash flows from operations
are generated by operations located outside of the United States.
Accordingly, the Company utilizes a combination of cash
repatriation strategies, including dividends and distributions,
royalties, and other intercompany arrangements to provide the funds
necessary to meet obligations globally. The Company’s ability to
access funds from its subsidiaries is subject to, among other
things, customary regulatory and statutory requirements and
contractual arrangements including joint venture agreements and
local credit facilities. Moreover, repatriation efforts may be
modified by the Company according to prevailing
circumstances.
Access to additional capital through the debt or equity markets is
influenced by the Company's credit ratings. As of
September 30, 2022, the Company’s corporate credit rating is
BB- by Standard & Poor’s. See Note 8, "Debt" for a
comprehensive discussion of the Company's debt facilities.
Incremental funding requirements of the Company's consolidated
foreign entities are primarily accommodated by intercompany cash
pooling structures. Affiliate working capital lines, which may be
utilized by the Company's local subsidiaries and consolidated joint
ventures, had availability of $178 million and the
Company had $400 million of available credit under the
revolving credit facility, as of September 30, 2022. As of
September 30, 2022, the Company was in compliance with all its
debt covenants.
Cash Balances
As of September 30, 2022, the Company had total cash and cash
equivalents of $365 million, including $3 million of restricted
cash. Cash balances totaling $280 million were located in
jurisdictions outside of the United States, of which approximately
$27 million is considered permanently reinvested for funding
ongoing operations outside of the U.S. If such permanently
reinvested funds were repatriated to 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, 2022, cash
contributions to the Company's defined benefit plans were $5
million related to its non-U.S. plans. The Company estimates that
total cash contributions to its non-U.S. defined benefit pension
plans during 2022 will be $6 million.
During the nine months ended September 30, 2022, the Company
paid $12 million related to restructuring activities. Additional
discussion regarding the Company's restructuring activities is
included in Note 3, "Restructuring Activities."
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, 2022, the Company contributed $10 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 outlays
related to its unrecognized tax benefits, including interest and
penalties. As of September 30, 2022, the Company had unrecognized
tax benefits, including interest and penalties, that would be
expected to result in a cash outlay of $8 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.
Cash Flows
Operating Activities
The Company provided $2 million of cash from operating activities
during the nine months ended September 30, 2022. The increase
in cash from operations of $14 million is primarily attributable to
an increase in Adjusted EBITDA (a non-GAAP financial measure, as
discussed in Note 15, "Segment Information") partially offset by
increased outflows in working capital of $83 million primarily
driven by the timing of customer pricing recoveries and higher
inventory levels due to uneven supply of
semiconductors.
Investing Activities
Net cash used by investing activities during the nine months ended
September 30, 2022 totaled $44 million as compared to cash
used of $50 million during the nine months ended September 30,
2021. The decreased use of cash was primarily due to the settlement
of net investment hedges of $9 million.
Financing Activities
Cash used by financing activities during the nine months ended
September 30, 2022 was $7 million as compared to the use of
cash of $26 million during the nine months ended September 30,
2021. The decreased use of cash was primarily due to non-recurrence
of dividend payments to non-controlling interests during the third
quarter 2022.
Debt and Capital Structure
See Note 8, “Debt” to the condensed consolidated financial
statements included in Item 1.
Significant Accounting Policies and Critical Accounting
Estimates
See Note 1, “Summary of Significant Accounting Policies” to the
accompanying condensed consolidated financial statements in Item
1.
Fair Value Measurements
See Note 13, “Fair Value Measurements and Financial Instruments” to
the condensed consolidated financial statements included in Item
1.
Recent Accounting Pronouncements
See Note 1, “Summary of Significant Accounting Policies” to the
accompanying condensed consolidated financial statements in Item
1.
Forward-Looking Statements
Certain statements contained or incorporated in this Quarterly
Report on Form 10-Q which are not statements of historical fact
constitute “Forward-Looking Statements” within the meaning of the
Private Securities Litigation Reform Act of 1995 (the “Reform
Act”). Forward-looking statements give current expectations or
forecasts of future events. Words such as “anticipate”, “expect”,
“intend”, “plan”, “believe”, “seek”, “estimate” and other words and
terms of similar meaning in connection with discussions of future
operating or financial performance signify forward-looking
statements. These statements reflect the Company’s current views
with respect to future events and are based on assumptions and
estimates, which are subject to risks and uncertainties.
Accordingly, undue reliance should not be placed on these
forward-looking statements. Also, these forward-looking statements
represent the Company’s estimates and assumptions only as of the
date of this report. The Company does not intend to update any of
these forward-looking statements to reflect circumstances or events
that occur after the statement is made and qualifies all of its
forward-looking statements by these cautionary
statements.
You should understand that various factors, in addition to those
discussed elsewhere in this document, could affect the Company’s
future results and could cause results to differ materially from
those expressed in such forward-looking statements,
including:
•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 the
Visteon’s financial condition and business operations including
global supply chain disruptions, market downturns, reduced consumer
demand, and new government actions or restrictions.
•Significant
changes in the competitive environment in the major markets where
Visteon procures materials, components, or supplies or where its
products are manufactured, distributed, or sold.
•Visteon’s
ability to satisfy its future capital and liquidity requirements;
Visteon’s ability to access the credit and capital markets at the
times and in the amounts needed and on terms acceptable to Visteon;
Visteon’s ability to comply with covenants applicable to it; and
the continuation of acceptable supplier payment terms.
•Visteon’s
ability to access funds generated by its foreign subsidiaries and
joint ventures on a timely and cost-effective basis.
•Changes
in the operations (including products, product planning and part
sourcing), financial condition, results of operations, or market
share of Visteon’s customers.
•Changes
in vehicle production volume of Visteon’s customers in the markets
where it operates.
•Increases
in commodity costs or disruptions in the supply of commodities,
including resins, copper, fuel, and natural gas.
•Visteon’s
ability to generate cost savings to offset or exceed agreed-upon
price reductions or price reductions to win additional business
and, in general, improve its operating performance; to achieve the
benefits of its restructuring actions; and to recover engineering
and tooling costs and capital investments.
•Visteon’s
ability to compete favorably with automotive parts suppliers with
lower cost structures and greater ability to rationalize
operations; and to exit non-performing businesses on satisfactory
terms, particularly due to limited flexibility under existing labor
agreements.
•Restrictions
in labor contracts with unions that restrict Visteon’s ability to
close plants, divest unprofitable, noncompetitive businesses,
change local work rules and practices at a number of facilities and
implement cost-saving measures.
•The
costs and timing of facility closures or dispositions, business or
product realignments, or similar restructuring actions, including
potential asset impairment or other charges related to the
implementation of these actions or other adverse industry
conditions and contingent liabilities.
•Legal
and administrative proceedings, investigations and claims,
including shareholder class actions, inquiries by regulatory
agencies, product liability, warranty, employee-related,
environmental and safety claims and any recalls of products
manufactured or sold by Visteon.
•Changes
in economic conditions, currency exchange rates, changes in foreign
laws, regulations or trade policies or political stability in
foreign countries where Visteon procures materials, components or
supplies or where its products are manufactured, distributed, or
sold.
•Shortages
of materials or interruptions in transportation systems, labor
strikes, work stoppages or other interruptions to or difficulties
in the employment of labor in the major markets where Visteon
purchases materials, components or supplies to manufacture its
products or where its products are manufactured, distributed or
sold.
•Visteon’s
ability to satisfy its pension and other postretirement employee
benefit obligations, and to retire outstanding debt and satisfy
other contractual commitments, all at the levels and times planned
by management.
•Changes
in laws, regulations, policies or other activities of governments,
agencies and similar organizations, domestic and foreign, that may
tax or otherwise increase the cost of, or otherwise affect, the
manufacture, licensing, distribution, sale, ownership, or use of
Visteon’s products or assets.
•Possible
terrorist attacks or acts of war, which could exacerbate other
risks such as slowed vehicle production, interruptions in the
transportation system, changes 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), unauthorized physical or electronic access, or other
natural or man-made incidents or disasters.
•Visteon’s
ability to protect its intellectual property rights and to respond
to changes in technology and technological risks and to claims by
others that Visteon infringes their intellectual property
rights.
•Visteon’s
ability to quickly and adequately remediate control deficiencies in
its internal control over financial reporting.
•Other
factors, risks and uncertainties detailed from time to time in
Visteon’s Securities and Exchange Commission filings.
Item 3.Quantitative
and Qualitative Disclosures About Market Risk
The primary market risks to which the Company is exposed include
changes in currency exchange rates, interest rates and certain
commodity prices. The Company manages these risks through operating
actions including fixed price contracts with suppliers and cost
sourcing arrangements with customers and through various derivative
instruments. The Company's use of derivative instruments is
strictly intended for hedging purposes to mitigate market risks
pursuant to written risk management policies. Accordingly,
derivative instruments are not used for speculative or trading
purposes. The Company's use of derivative instruments creates
exposure to credit loss in the event of non-performance by the
counter-party to the derivative financial instruments. The Company
limits this exposure by entering into agreements directly with a
variety of major financial institutions with high credit standards
and that are expected to fully satisfy their obligations under the
contracts. Additionally, the Company's ability to utilize
derivatives to manage market risk is dependent on credit
conditions, market conditions, and prevailing economic
environment.
Foreign Currency Risk
The Company's cash flows are exposed to the risk of adverse changes
in exchange rates as related to the sale of products in countries
other than the manufacturing source, foreign currency denominated
supplier payments, debt and other payables, dividends, investments
in subsidiaries, and anticipated foreign currency denominated
transaction proceeds. Where possible, the Company utilizes
derivative financial instruments to manage foreign currency
exchange rate risks. Forward and option contracts may be utilized
to mitigate the impact exchange rate variability on the Company's
cash flows. Foreign currency exposures are reviewed periodically
and any natural offsets are considered prior to entering into a
derivative financial instrument. The Company’s current primary
hedged currency exposures include the euro, Chinese renminbi,
Brazilian real, Indian rupee, and Bulgarian lev. The Company
utilizes a strategy of partial coverage for transactions in these
currencies. The Company's policy requires that hedge transactions
relate to a specific portion of the exposure not to exceed the
aggregate amount of the underlying transaction.
In addition to the transactional exposure described above, the
Company's operating results are impacted by foreign currency risk
related to its foreign operations. The Company has not entered into
currency exchange rate contracts to mitigate 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 $19 million and $29 million for currency derivative financial
instruments as of September 30, 2022 and December 31,
2021, respectively. These estimated changes assume a parallel shift
in all currency exchange rates and include the gain or loss on
financial instruments used to hedge investments in subsidiaries.
Because exchange rates typically do not all move in the same
direction, the estimate may overstate the impact of changing
exchange rates on the net fair value of the Company's financial
derivatives. It is also important to note that gains and losses
indicated in the sensitivity analysis would generally be offset by
gains and losses on the underlying exposures being
hedged.
Interest Rate Risk
See Note 13, "Fair Value Measurements and Financial Instruments" to
the condensed consolidated financial statements included in Item 1
for additional information.
Commodity Risk
The Company's exposures to market risk from changes in the price of
production material are managed primarily through negotiations with
suppliers and customers, although there can be no assurance that
the Company will recover all such costs. The Company continues to
evaluate derivatives available in the marketplace and may decide to
utilize derivatives in the future to manage select commodity risks
if an acceptable hedging instrument is identified for the Company's
exposure level at that time, as well as the effectiveness of the
financial hedge among other factors.
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 Senior Vice
President and Chief Financial Officer, as appropriate, to allow
timely decisions regarding required disclosure.
As of September 30, 2022, 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 Senior Vice
President and Chief Financial Officer concluded that the Company’s
disclosure controls and procedures were effective as of
September 30, 2022.
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, 2022 that have materially affected, or are
reasonably likely to materially affect, the Company's internal
control over financial reporting.
Part II
Other Information
Item 1. Legal Proceedings
See the information above under Note 14, "Commitments and
Contingencies," to the condensed consolidated financial statements
which is incorporated herein by reference.
Item 1A.Risk
Factors
Except as set forth below, as of September 30, 2022, there have
been no material changes to the risk factors that were previously
disclosed in Item 1A in the Company’s Form 10-K for the year ended
December 31, 2021 filed with the SEC on February 17,
2022.
We are currently operating in a period of significant
macro-economic uncertainty, including supply-chain disruptions and
COVID-related lockdowns and increasing inflationary pressures and
component costs. Although we have minimal operations in Russia, the
conflict in Ukraine and the current COVID-related lockdowns in
China are exacerbating component cost increases, supply chain
challenges including the availability of natural resources used in
production by our suppliers, and volatility with our customers’
production schedules. If the conflict in Ukraine continues for a
lengthy period or spreads or the COVID-related lockdowns in China
continue for a lengthy period or spread, it may have a materially
negative impact on our business and results of
operations.
The macro-economic uncertainty has been exacerbated by the conflict
in Ukraine. Although the length and impact of the ongoing conflict
is highly unpredictable, it has exacerbated the availability, and
volatility in prices, of commodities and components, inflationary
pressures, credit markets, foreign exchange rates and supply chain
disruptions. Furthermore, governments in the United States, United
Kingdom, Canada and European Union have each imposed financial and
economic sanctions on certain industry sectors and parties in
Russia. These sanctions include controls on the export, re-export,
and in-country transfer in Russia of certain goods, supplies, and
technologies, including some that we use in our business in Russia.
Existing or additional sanctions could further adversely affect the
global economy, lead to litigation related to compliance with such
sanctions, or further disrupt the global supply chain. Inflation is
also currently high world-wide and may continue for an unforeseen
time.
The negative impact of the conflict in Ukraine and the current
COVID lock-downs in China may exacerbate cost increases in raw
material, transportation, energy, and commodities. Although we are
negotiating with our customers with respect to these additional
cost increases, commercial negotiations with our customers may not
be successful or may not offset all of the adverse impact of higher
transportation, energy and commodity costs. Additionally, even if
we are successful with respect to negotiations with customers
relating to cost increases, there may be delay before we recover
any increased costs. These may have a material negative impact on
our business and results of operations.
For additional information see Part I, Item 1A, "Risk Factors" in
our Annual Report on Form 10-K for the year ended December 31, 2021
filed with the SEC on February 17, 2022. See also, "Forward-Looking
Statements" included in Part I, Item 2 of this Quarterly Report on
Form 10-Q.
Item 2.Unregistered
Sales of Equity Securities and Use of Proceeds
There were no purchases made by or on behalf of the Company, or an
affiliated purchaser, of shares of the Company’s common stock
during the third quarter of 2022.
Item 6.Exhibits
The exhibits listed on the "Exhibit Index" on Page 35 hereof are
filed with this report or incorporated by reference as set forth
therein.
Exhibit Index
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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.
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|
|
VISTEON CORPORATION |
|
|
|
|
By: |
/s/ Abigail S. Fleming |
|
|
Abigail S. Fleming |
|
|
Vice President and Chief Accounting
Officer |
Date: October 27, 2022
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