UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 20202023
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 | | 38-3519512 |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| One Village Center Drive, | Van Buren Township, | Michigan | 48111 |
| (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 |
| Common Stock, par value $0.01 per share | VC | The NASDAQ Stock Market LLC |
Securities registered pursuant to Section 12(g) of the Act:
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☑ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.
Yes ☐ No ☑
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 ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ 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 ☑ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes ☑ No
The aggregate market value of the registrant’s voting and non-voting common equity held by non-affiliates of the registrant on June 30, 20202023 (the last business day of the most recently completed second fiscal quarter) was approximately $1.9$4.0 billion.
As of February 11, 2021,8, 2024, the registrant had outstanding 27,915,66127,491,477 shares of common stock.
Document Incorporated by Reference
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| Document | Where Incorporated |
20212024 Proxy Statement | Part III (Items 10, 11, 12, 13 and 14) |
Visteon Corporation and Subsidiaries
Index
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| Part I | Page |
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| Item 1A. Risk Factors | |
| Item 1B. Unresolved Staff Comments | |
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| Item 2. Properties | |
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| Part II | |
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| Item 7A. Quantitative and Qualitative Disclosures About Market Risk | |
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| Item 9A. Controls and Procedures | |
| Part III | |
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| Item 11. Executive Compensation | |
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| Part IV | |
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| Signatures | |
Part I
Item 1.Business
Description of Business
Visteon Corporation (the "Company" or "Visteon") is a global automotive suppliertechnology company serving the mobility industry, dedicated to creating more enjoyable, connected, and safe driving experiences. The Company's platforms leverage proven, scalable hardware and software solutions that designs, engineers,enable the digital, electric, and manufactures innovativeautonomous evolution of the Company's global automotive electronics and connected car solutions for the world's major vehicle manufacturerscustomers, including BMW, Ford, Mazda, Volkswagen,Geely, General Motors, Renault/Nissan, BMW,Honda, Jaguar/Land Rover, Daimler,Mahindra, Mazda, Mercedes-Benz, Mitsubishi, Nissan, Renault, Stellantis, Tata, Toyota, and Stellantis.Volkswagen. Visteon is a global leader in cockpit electronic products includingalign with key industry trends and include digital instrument clusters, information displays, infotainment, head-up displays, telematics, SmartCore™ cockpit domain controllers the DriveCore™with integrated advanced safety platformdriver assistance systems ("ADAS"), displays, Android-based infotainment systems, and battery management systems. Visteon is headquartered in Van Buren Township, Michigan, and has an international network of manufacturing operations, technical centers, and joint venture operations dedicated to the design, development, manufacture, and support of its product offerings and its global customers. The Company's manufacturing and engineering footprint is principallyprimarily located in Brazil, Bulgaria, China, India, Japan, Mexico, Bulgaria, Portugal, Germany, India,Slovakia, Thailand, and China.Tunisia.
The Company’s Industry
The Company operates in the automotive industry which is cyclical and highly sensitive to general economic conditions. The Company believes that future success in the automotive industry is, in part, dependent on alignment with customers to support their efforts to effectively meet the challenges associated with the following significant trends and developments in the global automotive industry:
•Electronic content and connectivity - The electronic content of vehicles continues to increase due to various regulatory requirements and consumer demand for increased vehicle performance and functionality. The use of electronic components can reduce weight, expedite assembly, enhance fuel economy, improve emissions, increase safety, and enhance vehicle performance. These benefits coincide with vehicles becoming more electric, connected, and automated. Additionally, digital and portable technologies have dramatically influenced the lifestyle of today’s consumers, who expect products that enable such a lifestyle. Consequently, the vehicle cockpit is transforming into a fully digital and connected environment with multi-display systems incorporating larger, curved, and more complex displays and the consolidation of discrete electronic control units into a multi-core domain controller.
•Electric vehicles – The trend towards electrification is accelerating,continues, driven by government incentives and standards, announced restrictions of internal combustion engine vehicles in multiple cities and countries, and the significant increase of investmentinvestments in electrification by Original Equipment Manufacturers ("OEMs"). The shift toBattery electric vehicles increases thecan have increased digital content of a vehicle as the majority ofwith all-digital cockpit electronics will be all-digital to support the new electrical architecture. In addition, all battery electric vehicles willand require a battery management system to manage the rechargeable battery pack.
•Advanced driver assistance systems ("ADAS") and autonomous driving - The industry continues to advance toward semi-autonomous and autonomous vehicles. The Society of Automotive Engineers has defined five levels of autonomy ranging from levels one and two with driver-assist functions whereby the driver is responsible for monitoring the environment, to level five with full autonomy under all conditions. Levels one and two are already popular in the market while levelsmarket. Levels three and above utilize a combination of sensors, radars, cameras and LiDARs, requiring sensor fusion and machine learning technologies, as the system assumes the role of monitoring the environment. Level three includes features such as highway pilot and parking assist technology, for which an increased market penetration rate is expected over the next several years.
•Safety and security - Governments continue to focus regulatory efforts on safer transportation. Accordingly, OEMs are working to improve occupant and pedestrian safety by incorporating more safety-oriented technology in their vehicles. Additionally, in-vehicle connectivity has increased the need for robust cybersecurity systems to protect data, applications, and associated infrastructure. Security features are evolving with advances in sensors and silicon. Supplierssuppliers must enable the security/safety initiatives of their customers including the development of such new technologies.advances.
•Vehicle standardization - OEMs continue to standardize vehicle platforms on a global basis, resulting in a lower number of individual vehicle platforms, design cost savings, and further scale of economies through the production of a greater number of models from each platform. Having operations in the geographic markets in whichwhere OEMs produce global platforms enables suppliers to meet OEMs’ needs more economically and efficiently, thus making global coverage a source of significant competitive advantage for suppliers with a diversified global footprint. Additionally, OEMs are looking to suppliers for increased collaboration to lower costs, reduce risks, and decrease overall time to market. Suppliers that can provide fully
provide fully engineered solutions, systems and pre-assembled combinations of component parts are positioned to leverage the trend toward system sourcing. As vehicles become more connected and cockpits more digitized, suppliers that can deliver modular hardware architectures, “open” software architectures, and a software platform approach will be poised to help OEMs achieve greater reuse of validated hardware circuitry, design scalability, and faster development cycles.
Financial Information about SegmentsThe Company's Segment
The Company reports operating and financial results in a single segment based on the consolidated information used by management in evaluating the financial performance of our business and allocating resources. This single segment reflects the Company’s reportable segment iscore business; Electronics. The Company's Electronics segment provides automotivevehicle cockpit electronics products to customers, including digital instrument clusters, informationdomain controllers with integrated advanced driver assistance systems ("ADAS") displays, Android-based infotainment systems, audio systems, telematics solutions, head-up displays, and battery management systems. As the Company has one reportable segment, net sales, total assets, depreciation, amortization and capital expenditures are equal to consolidated results.
Refer to Note 20, “Segment Information and Revenue Recognition” to the Company's consolidated financial statements included in Part II, Item 8 of this Form 10-K for more information about the Company’s reportable segment.
The Company’s Products
The Company designs and manufactures innovative automotive electronics and connected car solutions further described below:
Instrument Clusters
The Company offers a full line of instrument clusters, from standard analog gauge clusters to high-resolution, all-digital, fully reconfigurable, 2-D and 3-D display-based devices. The Company uses a platform approach to accelerate development and manage multiple vehicle variants. These clusters can use a wide range of display technologies, graphic capabilities, and decorative elements, and free-form and curved displays. Premium clusters support complex 3-D graphics and feature embedded functionality such as driver monitoring, camera inputs, and ambient lighting.
Information Displays
The Company offers a range of information displays for various applications within the cockpit, incorporating a sleek profile, high perception quality displays and touch sensors designed to deliver high performance for the automotive market. These displays can integrate a range of user interface technologies and graphics management capabilities, such as 3-D, dual view,active privacy, TrueColorTM enhancement, local dimming, cameras, optics, haptic feedback, and light effects and dual displays.effects. The Company offers a new generation of large, curved, complex multi-display modules with optical performance designed to be competitive with mobile devices. The Company's microZone™ display technology offers high contrast and brightness and a wide color gamut that enables automotive displays to cost-effectively achieve life-like imaging capability on par with consumer mobile devices, without sacrificing reliability or life span. The Company also developed the first bendable glass multi-display cockpit in the automotive industry.
Audio and
Infotainment Systems
The Company offers a range of infotainment and connected car solutions, including scalable Android infotainment for seamless connectivity including integration with Android Auto and Apple CarPlay technology for wireless smartphone projection. Phoenix™, the company'sThe company offers a display audio and embedded infotainment platform that is based on Android automotive operating system, Phoenix™, the company's display audio and embedded infotainment platform that is based on Android automotive operating system. Phoenix embedded infotainment offers Android App Store that enablesenabling third-party developers to create apps easily through a software development kit and software simulation of the target hardware system. Additionally, Visteon offers an onboard artificial intelligence ("AI")(“AI ”)-based voice assistant with natural language understanding.
SmartCore Cockpit Domain Controller
The Company offers SmartCore™, an automotive-grade, integrated domain controller approach, which can independently operate the infotainment system, instrument cluster, head-up display, rear-seat displays, and other features on a single, multi-core chip to improve efficiency, create a unified experience across products, and reduce power consumption and cost. The SmartCore domain controller includes: SmartCore Runtime, middleware enabling communication between domains and apps to be shown on any display; and SmartCore Studio, a PC-based configuration tool to generate hypervisor configurations. The SmartCore domain controller seamlessly connects the human machine interaction ("HMI") across an increasing number of display domains, such as surround view and in-cabin sensing of driver drowsiness, attentiveness, and facial recognition. The latest generation of SmartCore utilizes high performance computing technology and integrates processing of multiple camera
inputs to deliver a set of advance driver assistance features. The latest generation of SmartCore is offered with a suite of connected services including an over the air ("OTA") update solution and an automotive App Store.
Battery Management Systems (“BMS”)
The Company offers configurable battery management systems that support both wired and wireless battery management systems that include controlsensing and sensing sub system hardware and software.control. Visteon’s wireless BMS reliably and securely replaces wired connectionscommunication between battery modules to improve the sub systems with securelifetime enterprise cost, battery weight, and reliable wireless communication technology. This solution supportspackaging efficiency, and facilitates second-life battery repurposing. By providing a platform approach that can support multiple charging protocols with modular and scalable design to meet OEM cost, weight,flexible battery pack configuration, and packaging requirements. Visteon’s wireless BMS solution can more easily be connected to the OEM's thermal management systems and other vehicle controls.architectures, Visteon provides a robust design-to-production strategy that enables advanced features that are fast-to-market.
4High-Voltage Power Electronics
The Company offers integrated and scalable power electronics units that support conversion of grid-to-battery pack electric current. Visteon’s integrated power electronics solutions combine a bi-directional on-board charging module with a DC-to-DC converter to ensure a systems approach that maximizes power conversion efficiency. Visteon’s solution is scalable to support between 400-volt to 800-volt systems with higher rate battery charging speeds. Visteon’s design provides a solution that allows for fast-charging and high-efficiency in a packaging that reduces weight and space to improve overall system cost.
Telematics Solutions
The Company provides a cost-optimized, high-speed telematics control unit to enable secure connected car services, software updates, and data. The Company’s telematics solution uses a single hardware and flexible software architecture to support regional telematics service providers and mobile networks. The Company’s wireless gateway platform is designed to meet future connectivity requirements including 4G, V2X, Wi-Fi® and next-generation mobile standards such as 5G. The Company also offers a hands-free telephone unit that provides Bluetooth® and Universal Serial Bus ("USB") connectivity.requirements.
Head-Up Displays
The Company provides a complete line of head-up displays ("HUD") that present critical information to the driver in a convenient location, at a comfortable focal distance. Combiner HUD projects a virtual image in front of the driver using a compact, transparent screen mounted on top of the instrument panel. Windshield HUD projects the image directly on the vehicle windscreen. The Company has demonstrated an augmented reality system that overlays graphics in the driver’s line of sight to represent objects in the vehicle’s path; provide navigation guidance; and display relevant information, such as a lane departure warning.
SmartCore CockpitBody Domain Controller
The Company offers SmartCore™, an automotive-grade, integrateda range of body domain controller approach,modules which can independently operate the infotainment system, instrument cluster, head-up display, rear-seat displays, and other features on a single, multi-core chip to improve efficiency, create a unified experience across products, and reduce power consumption and cost. Included are: SmartCore Runtime, middleware, enabling communication between domains and apps to be shown on any display; and SmartCore Studio, a PC-based configuration tool to generate hypervisor configurations. The latest generation of SmartCore seamlessly connects the human machine interaction ("HMI") across an increasing number of display domains,integrate several functions such as surround viewcentral gateway, body controls, comfort, and in-cabin sensing of driver drowsiness, attentiveness,vehicle access solutions into one device. This computing module allows Visteon's customers to implement in-house applications software into body controls for brand and facial recognition.
DriveCore Advanced Safety Driving Controller
DriveCore™ is an open, scalable platform for addressing multiple levels of vehicle automation, with a focus on Level 2-plus. DriveCore consists of the centralized computing unit, middleware framework, and software applications process AI/machine learning algorithms for Level 2-plus functionality. DriveCore provides an open platform for the development of sensor-based solutions for the auto industry, through three main components:market differentiation.
•Compute - A modular and scalable cost-efficient computing hardware platform designed to be adapted to Level 2-plus and above levels of automated driving;
•Runtime - In-vehicle middleware that provides a secure framework enabling applications and algorithms to communicate in a real time, high-performance environment; and
•Studio - A PC and cloud based development environment that enables automakers to create an ecosystem of developers for rapid algorithm development.
The Company’s Customers
The Company's ultimate customers are global vehicle manufacturers including BMW, Ford, BMW, Mazda, Volkswagen, Renault/Nissan, Daimler,Geely, General Motors, Fiat,Honda, Jaguar/Land Rover, Mahindra, Mazda, Mercedes-Benz, Mitsubishi, Nissan, Renault, Stellantis, Tata, Toyota, and Jaguar/Land Rover. Ford, Renault/Nissan, Mazda, and BMW are the Company's largest ultimate customers.
The following is a summary of their percentagecustomers representing greater than 10 percent of the Company's annual net sales:
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| Percentage of Total Net Sales | |
| December 31, | |
| 2020 | | 2019 | | 2018 | |
| Ford | 22 | % | | 22 | % | | 26 | % | |
| Mazda | 11 | % | | 14 | % | | 18 | % | |
| Renault/Nissan | 11 | % | | 13 | % | | 12 | % | |
| BMW | 11 | % | | 8 | % | | 3 | % | |
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| Percentage of Total Net Sales |
| December 31, |
| 2023 | | 2022 | | 2021 |
| Ford | 22 | % | | 22 | % | | 22 | % |
| General Motors | 12 | % | | 9 | % | | 7 | % |
The Company typically supplies products to OEM customers through purchase orders, which are generallyusually governed by general terms and conditions established by each OEM. Although the terms and conditions vary from customer to customer, they typically contemplate a relationship under which customers place orders for their requirements of specific components supplied for particular vehicles but are not required to purchase any minimum quantities. Individual purchase orders can be cancelled for cause, non-performance, and, in most cases, insolvency or certain change in control events. Additionally, many of ourVisteon's OEM customers have the option to terminate contracts for convenience; this option permits the OEM customers to impose pressure on pricing during the life of the vehicle program or issue purchase contractsorders for less than the duration of the vehicle program. This has the potential to reduce the Company’s profit margin and increases the risk of loss of future sales under those purchase contracts.
The Company manufactures and ships based on customer release schedules, normally provided on a weekly basis, which can vary based on OEM automotive production or dealer inventory levels. Although customer programs typically extend to future periods and although there is an expectation that the Company will supply certain levels of OEM production in those future periods, customer agreements (including the applicable terms and conditions) do not necessarily constitute firm orders.
The price related to these products are typically initially negotiated on an annual basis. Anybasis over the vehicle platform's life cycle. To the extent there are subsequent contractual price reductions, these reductions are intended to take into account expected annualreflect the Company's ability to reduce cost reductions to the supplier of providing products and services to the customer, through such factors as manufacturing productivity enhancements, material cost reductions, and design-related cost improvements. Certain products may be excluded from such reductions or experience price increases due to shortages of material or other increases in supply chain or other related costs. The Company has an aggressive cost reductioncontrol program that focuses on reducing its total costs which are intended to offset customer price reductions.reductions or negotiating recoveries for increases. However, there can be no assurance that the Company’s cost reduction or recovery efforts will be sufficient to fully offset such price reductions. These relationships typically extend over the life of the related vehicle.changes.
The terms and conditions generally require a warranty on products sold; insold. In most cases, the warranty period is the same as the warranty offered by the OEM to the ultimate customer. The Company may also be required to share in all or part of recall costs if the OEM recalls vehicles for defects attributable to Visteon products.
The Company’s Competition
The automotive sector continues to remainremains highly competitive resulting from the ongoing industry consolidation. OEMs rigorously evaluate suppliers on the basis of financial viability, product quality, price competitiveness, technical expertise, development capability, new product innovation, reliability and timeliness of delivery, product design, manufacturing capability, flexibility, customer service, and overall management. The Company's primary independent competitors include, but are not limited to, Alpine Electronics, Aptiv PLC, Continental AG, Denso Corporation, Forvia, Harman International Industries, Incorporated (a subsidiary of Samsung Group,Electronics Co. Ltd.), Hitachi Ltd., Hyundai Mobis, Innolux Corporation, LG Corporation,Electronics, Marelli Holdings Co., Ltd., Nippon Seiki, Panasonic Corporation, Hyundai Mobis, Innolux Corporation, Magneti Marelli, andPreh GmbH, Robert Bosch GmbH.GmbH, and Vitesco Technologies.
The Company’s Business Seasonality and Cyclicality
Historically, theThe Company’s business has beenis moderately seasonal because its largest North American customers typically cease production for approximately two weeks in July for model year changeovers and approximately one week in December during the winter holidays. Customers in Europe historically shut down vehicle production during a portion of August and one week in December. In China, customers typically shut down approximately one week in early October and one week in January or February. Additionally, third-quarter automotive production is traditionally lower as new vehicle models enter production.
The Company’s Human Capital Resources, Workforce,Corporate Sustainability and Employee RelationsSocial Responsibility
Attract and Retain
The Company’s ability to sustain and grow its business requires the recruitment, retention, and development of a highly skilled and diverse workforce. The Company’s Chief Human ResourcesPeople Officer, ("CHRO"), reporting directly to Chief Executive Officer ("CEO"), oversees its global talent processes to attract, develop, and retain its employees. To attract the best talent, the Company offers market competitive compensation and benefits around the globe, annual and long-term incentive programs, as well asand health and wellness benefits. The Company also provides a variety of resources to help its employees grow in their current roles and build new skills. Hundreds of online courses are available in the Company’s learning management system whereand individual development is emphasized as partplans are encouraged for all of the annual goal setting process.our employees. The Company continues to build tools forto be used by leaders to develop employees in their teams on the jobcurrent role and in roles to create new opportunities within the organization to learn and grow. Because retention of the employee base is significant to its business strategy, executive management discusses it with the Board of Directors on a regular basis.
Workforce
Visteon’s strength comes from a workforce of approximately 10,000 employees operating in approximately 1817 countries globally. OurThe Company's workforce is globally distributed andwith 28% of employees located in 26% in the Americas, 32%30% in Europe, 21%14% in China, and 21%28% in the Asia Pacific region.Visteon believes that all employees are leaders and expects leaders to drive operational and financial results and build strong teams.
Many of the Company’s employees are members of industrial trade unions and confederations within their respective countries. Often these organizations operate under collectively bargained contracts that are not specific to any one employer. The Company constantly works to establish and maintain positive, cooperative relations with its unions and work representatives around the world.
Diversity and Inclusion
Diversity represents an environment of open communication where the contributions of all employees are encouraged and valued. As a multiculturalglobal organization, the Company embraces human differences and harnesses the power of its employees’ varied backgrounds, cultures, and experiences because it is the right thing to createdo for its people and it creates a competitive edge. business advantage. As of December 31, 2023, the percentage of Visteon's global workforce represented by females was approximately 39%.
The Company encourages many forms of corporate communication such as global town hall employee meetings, informal small-group employee discussions, and an open-door policy so all employees have direct access to senior leadership and have the opportunity to ask questions, make suggestions, and provide input. Our goal is to create a culture where we value,As stated in one of the Company's four core beliefs and values, “We treat each other with respect and provide fair treatment and equal opportunities for all employees.embrace our differences.”
Workplace Safety
The Company requires protective equipment, enforces comprehensive safety policies and procedures, and encourages its employees and leaders to continually look for ways to improve workplace safety. It has implemented and maintains a health and safety management system that is certified to the OHSAS 18001 or ISO 45001 standard. The Company provides regular health and safety reports to the Board of Directors, which during fiscal 2020, included updates on the return to work health and safety protocols globally as a result of COVID-19. To protect its employees and maintain operations during the COVID-19 pandemic, the Company implemented a number of new health-related measures including a requirement to wear face-masks at all times while on its property, temperature taking protocols, increased hygiene, cleaning and sanitizing procedures, social-distancing, restrictions on visitors to its facilities, and limiting in-person meetings.
Regulation
Visteon operates in a constantly evolving global regulatory environment and is subject to numerous and varying regulatory requirements for its product performance and material content. Visteon’sVisteon strives to identify potential regulatory and quality risks early in the design and development process and proactively manage them throughout the product lifecycle through the use of routine assessments, protocols, standards, performance measures, and audits. New regulations and changes to existing regulations are managed in collaboration with the OEM customers and implemented through Visteon’s global systems and procedures designed to ensure compliance with existing laws and regulations.
Visteon works collaboratively with a number of stakeholder groups including government agencies, its customers, and its suppliers to proactively engage in federal, state, and international public policy processes.
Environmental, Health, Safety, and Legal Matters
Visteon is involved in various lawsuits, claims and proceedings incidentrelated to the operation of its businesses, including those pertaining to product liability, environmental, safety and health, intellectual property, employment, commercial and contractual matters, tax, and various other matters. Although the outcome of such lawsuits, claims and proceedings cannot be predicted with certainty and some may be disposed of unfavorably to Visteon, it is management's opinion that none of these will have a material adverse effect on Visteon's financial position, results of operations, or cash flows. Costs related to such matters were not material to the periods presented. Further details are provided in Part II, Item 8 of this Form 10-K in Note 19,18, "Commitments and Contingencies," of the notes to consolidated financial statements.
Board Oversight of Environmental, Social, and Governance Practices
The Company and its Board of Directors believe positive and responsible business practices strengthen the Company, increase its connection with the stockholders, and helps it to better serve its customers and the communities in which it operates. The Company’s commitment to social responsibility extends to a variety of areas including the environment, anti-corruption and trade compliance, responsible sourcing, human rights, labor practices, and worker health and safety. In light of the continued importance of these matters, the Board of Directors and management have developed a multi-year road map to enhance the Company’s sustainability and social responsibility programs and disclosures, including assessment of the potential risks associated with climate change. This road map includes near-term environmental targets for 2025 aimed at reducing energy consumption, solid waste, water and the reduction of scope 1 and scope 2 CO2 emissions through the use of renewable energy. The Company’s longer term greenhouse gas (GHG) emission reduction target for 2030 which includes scope 3 CO2 emissions, has been validated by the Science Based Targets initiative (SBTi) and the Company is working to be carbon neutral by 2040. Management provides regular reports and presentations to the Corporate Sustainability and Governance Committee regarding progress toward achieving these targets, and the full Board of Directors has oversight of the Company’s environmental and social initiatives as part of its strategic review of the Company’s operations, products and technologies.
The Company’s Product Research and Development
The Company’s research and development efforts are intended to maintain leadership positions in core products and provide the Company with a competitive edge as it seeks additional business with new and existing customers. The Company also works with technology development partners, including customers, to develop technological capabilities and new products and applications.
The Company’s Intellectual Property
The Company owns significant intellectual property, including a number of patents, copyrights, proprietary tools and technologies, and trade secrets, and is involved in numerous licensing arrangements. Although the Company’s intellectual property plays an important role in maintaining its competitive position, no single patent, copyright, proprietary tool or technology, trade secret or license, or group of related patents, copyrights, proprietary tools or technologies, trade secrets or licenses is in the opinion of management, of such value to the Company that its business would be materially affected by the expiration or termination thereof. The Company’s general policy is to apply for patents on an ongoing basis, in appropriate countries, on its patentable developments that are considered to have commercial significance. The Company also views its name and mark as significant to its business as a whole. In addition, the Company holds rights in a number of other trade names and marks applicable to certain of its businesses and products that it views as important to such businesses and products.
The Company’s International Operations
Financial information about sales and net property by major geographic region can be found in Note 20, "Segment Information19, "Revenue recognition and Revenue Recognition,"Geographical Information" to the Company's consolidated financial statements included in Part II, Item 8 of this Form 10-K.
The Company’s Raw Materials and Suppliers
Raw materials used by the Company in the manufacture of its products include electronics components, resins, copper, and precious metals. While generally the supply of the materials used are available from numerous sources, semiconductor suppliers and silicon wafer production is concentrated. In general, the Company does not carry inventories of raw materials in excess of those reasonably required to meet production, shipping schedules, and shipping schedules.customer safety stock requirements. The Company monitors its supply base and endeavors to work with suppliers and customers to mitigate the impact of potential material shortages and supply disruptions.
The Company, along with automotive companies around the world, has in recent years experienced a shortage in semiconductors as a result of the inability of semiconductor suppliers to rapidly reallocate production to serve the automotive industry during a time of increased demand. The Company's semiconductor suppliers, along with most automotive component supply companies that use semiconductors, were unable to fully meet the vehicle production demands of its customers due to events which were outside the Company's control. While the supply situation has improved, the Company has not experienced any significant interruption in the supplycontinues to work closely with suppliers and customers to minimize potential adverse impacts of raw materials in 2020, it has experienced semiconductor shortages in 2021 and there can be no assurance that sufficient sources or amounts of all necessary raw materials, and specifically semiconductors, as disclosed in "Note 1, Accounting Policies," to the Company's consolidated financial statements, included in Part II, Item 8 of this Form 10-K, will be available in required volumes in the future.these events.
The automotive supply industry is subject to inflationary pressures with respect to raw materials, labor, and associated freight costs, which have historically placedcan place operational and financial burdens on the entire supply chain. Accordingly, the Company continues to take actions with its customers and suppliers to mitigate the impact of these inflationary pressures in the future. Actions to mitigate inflationary pressures with customers include collaboration on alternative product designs and material specifications, contractual price escalation clauses, and negotiated customer recoveries. Actions to mitigate inflationary pressures with suppliers include aggregation of purchase requirements to achieve optimal volume benefits, negotiation of cost-reductions,cost reductions, and identification of more cost competitive suppliers. While these actions are designed to offset the impact of inflationary pressures, the Company cannot provide assurance that it will be successful in fully offsetting increased costs resulting from inflationary pressures.
The Company’s Website and Access to Available Information
The Company’s current and periodic reports filed with the United States Securities and Exchange Commission (“SEC”), including amendments to those reports, may be obtained through its internet website at www.visteon.com free of charge as soon as reasonably practicable after the Company files these reports with the SEC. A copy of the Company’s code of business conduct and ethics for directors, officers and employees of Visteon and its subsidiaries, entitled “Ethics and Integrity Policy,” the Corporate Governance Guidelines adopted by the Company’s Board of Directors and the charters of each committee of the Board of Directors are also available on the Company’s website. A printed copy of the Company’s Ethics and Integrity Policy may be requested by contacting the Company’s Investor Relations department in writing at One Village Center Drive, Van Buren Township, MI 48111; by phone (734) 710-7893; or via email at investor@visteon.com. The Company’s website and the information contained therein or connected thereto are not intended to be incorporated by reference into this Annual Report on Form 10-K.
Item 1A.Risk Factors
TheSet forth below are some of the most significant risks and uncertainties described below are not the only ones facing the Company. Risks attributable to all registrants are not included below. Additional risks and uncertainties, including those not presently known or that the Company believes to be immaterial, also may adversely affect the Company’s results of operations and financial condition.Company. Should any such risks and uncertainties develop into actual events, these developments could have material adverse effects on the Company’s business, operating results, financial condition, cash flow and/or the value of the Company’s securities. This information should be considered in connection with the description of the Company’s business, Management’s Discussion & Analysis, and the Company’s financial results.statements and accompanying notes.
Operations Related Risk Factors
The Company’s business, results of operations, and financial condition have been, and may continue to be, adversely affected by the recent COVID-19 pandemic
The COVID-19 pandemic poses the risk that the Company or its affiliates and joint ventures, employees, suppliers, customers, and others may be restricted or prevented from conducting business activities for indefinite or intermittent periods of time, including as a result of employee health and safety concerns, shutdowns, shelter in place orders, travel restrictions, and other actions and restrictions that may be requested or mandated by governmental authorities. In addition, the Company has experienced, and may continue to experience, disruptions or delays in our supply chain as a result of such actions, which is likely to result in higher supply chain costs to us in order to maintain the supply of materials and components for our products. While the Company has implemented measures to mitigate the impact on its results of operations, there can be no assurance that these measures will be successful. The Company cannot predict the degree to, or the period over, which its financials and operations will be affected by this outbreak and preventative measures, and the effects could be material.
The Company may also experience impacts from market downturns and changes in consumer behavior related to pandemic fears and impacts on its workforce as a result of COVID-19. In the first half of 2020 the Company experienced a significant decline in demand from its customers as a result of the impact of efforts to contain the spread of COVID-19 and this pattern could repeat. In addition, some customers may choose to delay or abandon projects on which the Company provides products and/or services in response to the adverse impact of the COVID-19 pandemic.The extent to which the COVID-19 outbreak continues to impact the Company’s financial condition will depend on future developments that are highly uncertain and cannot be predicted, including new government actions or restrictions, new information that may emerge concerning the severity of COVID-19, the longevity of COVID-19, and the impact of COVID-19 on economic activity. Even after the COVID-19 pandemic has subsided, the Company may continue to experience adverse impacts on its business and financial performance as a result of its global economic impact, including a recession that has occurred or may occur in the future. To the extent the COVID-19 pandemic materially adversely affects the Company’s business and financial results, it may also have the effect of significantly heightening many of the other risks associated with the Company’s business, liquidity, and indebtedness.
The Company could be negatively impacted by theshortages in deliveries from its supply base, other supplier distress, of itsor suppliers or other shortagesdemanding price increases
In an effort to manage and reduce the costs of purchased goods and services, the Company, like many automotive suppliers and automakers, has been consolidating its supply base. As a result, the Company is dependent on single or limited sources of supply for certain components used in the manufacture of its products including semiconductor chips, which are integral components of new vehicles and are embedded in multiple vehicle systems, including automotive and cockpit electronics. The significant vehicle production slowdown in the first half of 2020 aselectronics. As a result of COVID-19, was followed by increased consumer demandthe semiconductor shortages in recent years, the Company continues to work closely with its suppliers and customers to minimize any potential adverse impacts of the semiconductor supply shortage and monitor the availability of semiconductor microchips and other component parts and raw materials, customer vehicle production schedules, in the second half of 2020, particularly in the fourth quarter. This surge in demand ledand any other supply chain inefficiencies that may arise, due to a worldwide semiconductor supply shortage in early 2021, as semiconductor suppliers have been unable to rapidly reallocate production lines to serve the automotive industry. In 2021, the Company has experienced semiconductor shortages
and if suchthis or any other issue. If shortages of semiconductors or other critical components from other suppliers develop, continue longer than anticipated, or worsen, it willcould impact the Company's ability to meet its production schedules for some of its key products or to ship such products to its customers in a timely fashion. Furthermore, unfavorable economic or industry conditions could result in financial distress within the Company's supply base, thereby increasing the risk of supply disruption.
Such disruptions could be caused by any one of a myriad of potential problems, such as closures of one of the Company’s or its suppliers’ plants or critical manufacturing lines due to strikes, manufacturing quality issues, mechanical breakdowns, electrical outages, fires, explosions, or political upheaval, as well as logistical complications due to weather, global climate change, volcanic eruptions, or other natural or nuclear disasters, mechanical failures, delayed customs processing, the spread of an infectious disease, virus or other widespread illness and more. Additionally, as the Company grows in best cost countries, the risk for such disruptions is heightened. The lack of even a small single subcomponent necessary to manufacture one of the Company’s products, for whatever reason, could force the Company to cease production, even for a prolonged period. Similarly, a potential quality issue could force the Company to halt deliveries while it validates the products. Even where products are ready to be shipped, or have been shipped, delays may arise before they reach the customer. The Company’s customers may halt or delay production for the same reason if one of their other suppliers fails to deliver necessary components. This may cause the Company’s customers in turn to suspend their orders or instruct us to suspend delivery of ourthe Company's products, which may adversely affect ourthe Company's financial performance.
If the Company were to fail to make timely deliveries in accordance with contractual obligations, the Company generally must absorb its own costs for identifying and solving the “root cause” problem as well as expeditiously producing replacement components or products. Generally, the Company must also carryabsorb the costs associated with “catching up,” such as overtime and premium freight.Additionally, if the Company is the cause for a customer being forced to halt production the customer may seek to recoup all of its losses and expenses from the Company. TheseCertain customers have communicated that they expect such reimbursement and are reserving their rights to claim damages arising from supply shortages. The Company believes it has a number of legal defenses to such claims and intends to defend any potential claims vigorously. Should the company be unsuccessful in their defense, these losses and expenses could be significant, and may include consequential losses such as lost
profits. Any supply-chain disruption, however small, could potentially cause the complete shutdown of an assembly line of one of the Company’s customers, and any such shutdown could lead to material claims offor compensation.
The Company continues to work closely withhas experienced and may in the future experience supplier price increases that could negatively affect its operations and profitability. The price increases are often driven by raw material pricing and availability, component or part availability, manufacturing capacity, industry allocations, logistics capacity, natural disasters or pandemics, the effects of climate change, inflation, and significant changes in the financial or business condition of its suppliers and customers to minimize any potential adverse impacts of the semiconductor supply shortage and monitor the availability of semiconductor microchips and other component parts and raw materials, customer vehicle production schedules and any other supply chain inefficiencies that may arise, due to this or any other issue. However, if the Company is not able to mitigate the semiconductor shortage impact, any direct or indirect supply chain disruptions may have a material adverse impact on our financial condition, results of operations or cash flows.
The Company’s substantial international operations make it vulnerable to risks associated with doing business in foreign countries
The Company has manufacturing and distribution facilities in many foreign locations. International operations are subject to certain risks inherent in doing business abroad, including:including, but not limited to:
•changes to international trade agreements;
•local economic conditions, expropriation and nationalization, foreign exchange rate fluctuations, and currency controls;
•withholding, border, and other taxes on remittances and other payments by subsidiaries;
•investment restrictions or requirements;
•export and import restrictions, including increases in border tariffs;
•the ability to effectively enforce intellectual property rights;
•new or additional governmental sanctions on doing business with or in certain countries or with certain persons; and
•increases in working capital requirements related to long supply chains.
Additionally, the Company’s global operations may also be adversely affected by political events, domestic or international terrorist events, and hostilities or complications due to natural or other disasters.These or any further political or governmental developments or health concerns in Mexico, China, or other countries in which the Company operates or where its suppliers are located could result in social, economic, and labor instability. These uncertainties could have a material adverse effect on the continuity of the Company’s business, results of operations, and financial condition.
While we have worked to mitigate any adverse impact, existing free trade laws and regulations, such as the United States-Mexico-Canada Agreement, provide certain beneficial duties and tariffs for qualifying imports and exports, subject to compliance with the applicable classification and other requirements.Despite recent tradeTrade negotiations are ongoing, notably between the U.S. and Chinese governments and between the U.S. and European governments,governments. However, given the uncertainty regarding the scope and duration of the imposed tariffs, as well asnegotiations, including the potential for additional tariffs or trade barriers by or between the U.S., China (including but not limited to the Uyghur Forced Labor Prevention Act), or other countries, the Company can provide no assurance that any strategies we implement to mitigate the impact of such tariffs or otherany trade actions will be successful.
The Company has invested significantly and is expected to continue to invest significantly in joint ventures with other parties to conduct business in China and elsewhere in Asia.These investments may include manufacturing operations, and technical centers, as well asand research and development activities, to support anticipated growth in the region. If the Company is not able to strengthen existing relationships, secure additional customers, and develop market-relevant electrification, advanced driver assistance, and semi-autonomous and autonomous vehicle technologies, it may fail to realize expected rates of return on these investments. The Company’s ability to repatriate funds from these joint ventures depends not only upon their uncertain cash flows and profits but also upon the terms
In addition, failure of particular agreements with the Company’s joint venture partners and maintenance of the legal and political status quo. As a result,to comply with contractual commitments or to exert influence or pressure in China may impact the Company’s exposureoperations, financial condition and cash flow. For example, as previously disclosed, during the second quarter of 2022, the Company recorded a settlement charge related to a contract dispute with a joint venture partner in China and during the fourth quarter of 2022 the Company incurred approximately $19 million of program management costs and other charges with that joint venture partner. Although those disputes were resolved, the Company cannot predict the outcome of future interactions and it is possible that any future disputes and/or changes to the risks described above is substantial. The likelihood of such occurrences and its potential effect oncontractual obligations with the Company vary from country to country and are unpredictable. However, any such occurrencesjoint venture partner could be harmful to the Company’s business, profitability, and financial condition.
On December 31, 2020, the United Kingdom (“U.K.”) officially withdrew from the European Union (“E.U.”), commonly referred to as “Brexit”.The long-term effects of Brexit are uncertain andmay adversely affect European and worldwide economic and market conditions, including vehicle production, significantly reduce global market liquidity, restrict the ability of key market participants to operate in certain financial markets, and could contribute to instability in global financial and foreign exchange markets.While the Company's overall footprint in the U.K. is not significant, the potential impacts of Brexit could adversely impact other global economies, and in particular, the European economy,have a region which accounted for approximately 36% of the Company’s total net sales for the year ended December 31, 2020. The Company will continue to actively monitor the ongoing potential impacts of Brexit and will seek to minimize itsmaterial impact on the Company’s business, through review of its existing contractual arrangements and obligations, particularly in the European region. Any of these effects of Brexit, among others, could adversely affect the Company’s business, business opportunities,operating results, of operations, financial condition, and cash flows.flow.
The Company’s ability to effectively operate could be hindered if it fails to attract and retain key personnel
The Company’s ability to operate its business and implement its strategies effectively depends, in part, on the efforts of its executive officers and other key employees. In addition, the Company’s future success will depend on, among other factors, the ability to attract and retain qualified personnel, particularly engineers and other employees with critical expertise and skills that support key customers and products or in emerging regions. The loss of the services of any key employees, and particularly the Company’s Chief Executive Officer, or the failure to attract or retain other qualified personnel could have a material adverse effect on the Company’s business.
The Company may incur significant restructuring charges
The Company has taken, and expectsbusiness, ability to take, restructuring actions to realign its engineering organization and to realign and resize its production capacity and cost structure to meet current and projected operational and market requirements. The extent to which these strategies will achieve the desired efficiencies and goals in 2021 and beyond is uncertain because their success depends on a number of factors, some of which are beyond the Company’s control.Charges related to these actions could have a material adverse effect on the Company'ssecure future programs, operating results, financial condition, operating results and cash flows. Moreover, there can be no assurances that any future restructuring will be completed as planned or achieve the desired results.flow.
Work stoppages and similar events could significantly disrupt the Company’s business
Because the automotive industry relies heavily on just-in-time delivery of components during the assembly and manufacture of vehicles, a work stoppage at one or more of the Company’s manufacturing and assembly facilities could have material adverse effects on the business. Similarly, if one or more of the Company’s customers were to experience a work stoppage, that customer would likely halt or limit purchases of the Company’s products, which could result in the shutdown of the related manufacturing facilities. A significant disruption in the supply of a key component due to a work stoppage at oneany of the
Company’s suppliers or any other suppliersub-suppliers, or reduced orders from the Company’s customers as a result of work stoppages, could have the same consequences, and accordingly, have a material adverse effect on the Company’s business, operating results, financial results.condition, and cash flow.
Industry and Competition Related Risk Factors
The automotive industry is cyclical and significant declines in the production levels of the Company’s major customers could reduce the Company’sCompany may not realize sales and harm its profitabilityrepresented by awarded business
Demand for the Company’s products is directly related to the automotive vehicle production of the Company’s major customers.AutomotiveThe Company estimates awarded business using certain assumptions, including projected future sales and production are cyclical and can be affected by general economic or industry conditions, labor relations issues, fuel prices, regulatory requirements, government initiatives, trade agreements, the cost and availability of credit, and other factors.Due to overall global economic conditions, including COVID-19, in 2020, the automotive industry experienced decreased global customer sales and production schedules. Compared to 2019, global light vehicle production in 2020 decreased by 5% in China, 22% in the Americas, 21% in Europe and 16% globally. As a result, the Company has experienced and may continue to experience reductions in ordersvolumes based on data from OEM customers and industry benchmarks. The OEM customers do not generally guarantee production volumes. In addition, awarded business may include business under arrangements that OEM customers have the right to terminate, at any time, without penalty. Therefore, the Company’s actual sales volumes, and thus the ultimate amount of revenue that it derives from such sales, are not guaranteed. If actual production orders from its customers are not consistent with the projections used by the Company in certain regions.calculating the amount of its awarded business, the Company could realize substantially less revenue over the life of these projects than the projected estimate.
The Company must continue to develop, introduce, and achieve market acceptance of new and enhanced products in order to grow its sales in the future
The growth of the Company's business will be dependent on the demand for innovative automotive electronics products, including but not limited to electrification, advanced driver assistance, semi-autonomous and autonomous vehicle technologies. In order to increase sales in current markets and gain entry into new markets, the Company must innovate to maintain and improve existing products, including software, while successfully developing and introducing distinctive new and enhanced products that anticipate changing customer and consumer preferences and capitalize upon emerging software technologies. However, the Company may experience difficulties that delay or prevent the development, introduction, or market acceptance of its new or enhanced products, or undiscovered software errors, bugs, and defects in its products may injure the Company's reputation.products. Furthermore, these new technologies have also attracted increased competition from outside the traditional automotive industry, and any of these competitors may develop and introduce technologies that gain greater customer or consumer acceptance, which could adversely affecthave a material adverse effect on the future growth of the Company.
The Company may not realizeautomotive industry is cyclical and significant declines in the production levels of the Company’s major customers could reduce the Company’s sales represented by awarded businessand harm its profitability
The Company estimates awarded business using certain assumptions, including projected future sales volumes. The OEM customers generally do not guarantee production volumes. In addition, awarded business may include business under arrangements that OEM customers have the right to terminate without penalty. Therefore,Demand for the Company’s actualproducts is directly related to the automotive vehicle production of the Company’s major customers. Automotive sales volumes, and thusproduction are cyclical and can be affected by general economic or industry conditions, labor relations issues, fuel prices, regulatory requirements, government initiatives, trade agreements, the ultimate amountcost and availability of revenue that it derives from such sales, are not committed. If actualcredit, and other factors. Due to overall global economic conditions, including semiconductor shortages and supply chain disruptions, the automotive industry experienced constrained production orders from its customers are not consistent withschedules in recent years. Such shortages and constrained production schedules had and may in the projections used byfuture have a material adverse effect on the Company in calculating the amountCompany’s business, profitability, financial condition and results of its awarded business, the Company could realize substantially less revenue over the life of these projects than the projected estimate.operations.
The discontinuation or loss of business, or lack of commercial success, with respect to a particular product for which the Company is a significant supplier could reduce the Company’s sales and harm its profitability
Although the Company has purchase orders from many of its customers, these purchase orders generally provide for the supply of a customer’s annual requirements for a particular vehicle model and assembly plant, or in some cases, for the supply of a customer’s requirements for the life of a particular vehicle model, rather than for the purchase of a specific quantity of products.In addition, certain customers have communicated an intent to manufacture components internally that are currently produced by outside suppliers, such as the Company. If the Company's OEM customers successfully insource products currently manufactured by the Company the discontinuation or loss of business for products which the Company is a significant supplier could reduce the Company’s sales and harm the Company’s profitability.
Escalating pricePrice pressures from customers may adversely affect the Company’s business
Downward pricing pressures by automotive manufacturers,OEMs, while characteristic of the automotive industry, are increasing.Virtually all automakers have implemented aggressive price-reduction initiatives and objectives each year with their suppliers, and such actions are expected to continue in the future. In addition, estimating such amounts is subject to risk and uncertainties because any price reductions are a result of negotiations and other factors. Accordingly, suppliers must be able to reduce their
operating costs in order to maintain profitability. The Company has taken steps to reduce its operating costs and other actions to offset customer price reductions; however, pricePrice reductions have impacted the Company’s sales and profit margins and are expected to continue to do so in the future. If the Company is unable to offset customer price reductions in the future through improved operating efficiencies, new manufacturing processes, sourcing alternatives, and other cost-reduction initiatives, the Company’s business, operating results, of operations and financial condition, will likelyand cash flow could be adversely affected.
The Company is highly dependent on Ford Motor Company and decreases in this customer’s vehicle production volumes would adversely affect the Company
Ford is one of the Company’s largest ultimate customers and accounted for 22%, 22% and 26% of sales in 2020, 2019for each of the years 2023, 2022 and 2018,2021, respectively. Accordingly, any change in Ford's vehicle production volumes may have a significant impact on the Company’s sales volume and profitability.
The Company’s pension expense and funding levels of pension plans could materially deteriorate, or the Company may be unable to generate sufficient excess cash flow to meet increased pension benefit obligations
The Company’s assumptions used to calculate pension obligations as of the annual measurement date directly impact the expense to be recognized in future periods. While the Company’s management believes that these assumptions are appropriate, significant differences in actual experience or significant changes in these assumptions may materially affect the Company’s pension obligations and future expense. For more information on sensitivities to changing assumptions, please see “Critical Accounting Estimates” in Item 7 and Note 11, “Employee Benefit Plans” in Part II, Item 8 of this Form 10-K.
Product Related Risk Factors
The Company's inability to effectively manage the timing, quality, and costs of new program launches could adversely affect its financial performance
In connection with the award of new business, the Company often obligates itself to deliver new products and services that are subject to its customers’ timing, performance, and quality standards. Additionally, as a Tier 1 supplier, the Company must effectively coordinate the activities of numerous suppliers in order to launch programs successfully. Given the complexity of new program launches, especially involving new and innovative technologies, the Company may experience difficulties managing product quality, timeliness and associated costs.detecting undiscovered software errors, bugs, and other defects in its products which may injure the Company's reputation. In addition, new program launches require a significant ramp up of costs; however, the sales related to these new programs generally are dependent upon the timing and success of the introduction of new vehicles by the Company's customers. The Company's inability to effectively manage the timing, quality, and costs of these new program launches could adversely affecthave a material adverse effect on its business, operating results, of operations, financial condition, and cash flows from operations.flow.
Warranty claims, product liability claims, and product recalls could harmadversely affect the Company’s business, results of operations, and financial conditionCompany
The Company faces the inherent business risk of exposure to warranty and product liability claims in the event that its products fail to perform as expected or such failure results, or is alleged to result, in bodily injury or property damage (or both). In addition, if any of the Company’s designedsupplied products are defective or are alleged to be defective, the Company may be required to participate in a recall campaign. The Company’s products contain increasingly significant amounts of software and a successful cyberattack on such products could cause materially adverse effects on the Company’s business, operating results, of operations,financial condition, cash flow, and reputation. In addition, as the Company expands its electrification product offering, including its battery management systems, such products will present a different warranty and product liability risk profile. As suppliers become more integrally involved in the vehicle design process and assume more of the vehicle assembly functions, automakers are increasingly expecting them to warrant their products and are increasingly looking to suppliers for contributions when faced with product liability claims or recalls. A successful warranty or product liability claim against the Company, in excess of its available insurance coverage and established reserves, or a requirement that the Company participate in a product recall campaign, could have materially adverse effects on the Company’s business, operating results, of operations,financial condition, and financial condition.cash flow.
Developments or assertions by or against the Company relating to intellectual property rights could materially impact its business
The Company owns significant intellectual property, including a number of patents, trademarks, copyrights, and trade secrets and is involved in numerous licensing arrangements. The Company’s intellectual property plays an important role in maintaining its competitive position in a number of the markets served. The Company may directly or through a supplied component utilize intellectual property in its products that requires a license from a third-party. While the Company believes that such licenses generally can be obtained by the Company, or supplier if a supplied component, there is no assurance that the necessary licenses can be obtained on commercially acceptable terms or at all.Failure by the Company or its suppliers to obtain the right to use third-party intellectual property could preclude the Company from selling certain products, and have materially adverse effects on the Company’s business, results of operations, and financial condition. Developmentsdevelopments or assertions by or against the Company relating to intellectual property rights, could have materially impactadverse effects on the Company’s business.business, operating results, financial condition, and cash flow.
The Company also derives significant revenue from countries outside the U.S. (including China) and significant intellectual property assets are licensed to joint ventures and customers in foreign jurisdictions.While the Company is not aware of any If a material intellectual property theft or forced transfer and believes it has appropriate protections in place, if such action were to
occur, it could materially and adversely affect the Company’s business, operating results, of operations,financial condition, and financial condition.cash flow. In addition, the Company has continued to see an increase in patent claims related to connectivity-enabled products where other patent-holding companies are seeking royalties and often enter into litigation based on patent infringement allegations. Significant technological developments by others also could materially and adversely affect the Company’s business, operating results, financial condition, and cash flow.
Advances in AI technology may generate developments against which existing intellectual property laws may not adequately protect and which may also give rise to a proliferation of operations, and financial condition.infringement which we may not be able to address effectively.
Privacy and security concerns (including cyber security) relating to the Company's current or future products and services could have a material adverse impact on our business, damage its reputation and deter current and potential users from using them
The Company’s products and services contain digital technology designed to support connected vehicles, and for some products may also collect and store sensitive end-user data (that may include personally identifiable information). Despite the security and risk-prevention measures the Company has implemented, including related to cybersecurity, our products or services could be breached, damaged, taken over, or otherwise interrupted by a system failure, cyberattack, malicious computer software (including malware or ransomware), unauthorized physical or electronic access, or other natural or man-made incidents or disasters. Failure of the Company’s products or services to effectively protect against these vulnerabilities can damage its reputation and adversely affect its operating results.
Further, through our products or services, the Company may gain access to sensitive, confidential, or personal data or information that is subject to privacy and security laws, regulations, and customer-imposed controls. Concerns about the Company's practices with regard to the collection, use, disclosure, or security of personal information or other privacy related matters, even if unfounded, could damage its reputation and adversely affect its operating results.
Furthermore, regulatoryRegulatory authorities around the world are considering a number of legislative and regulatory proposals concerning cybersecurity and data protection. In addition, the interpretation and application of consumer and data protection laws in the U.S., Europe, and elsewhere are often uncertain and in flux. Complying with these various laws could cause the Company to incur substantial costs.
Tax Related Risk Factors
The Company’s expected annual effective tax rate could be volatile and could materially change as a result of changes in mix of earnings and other factors, including changes in tax laws and tax audits
We are subject to income taxes in the U.S. and various international jurisdictions. Changes in the Company’s debttax rates or tax laws by U.S. and capital structure, among other items, mayinternational jurisdictions and tax audits could adversely impact its effective tax rate.Visteon’s financial results. The Company is in a position whereby losses incurred in certain tax jurisdictions generally provide no current financial statement benefit. In addition, certain jurisdictions have statutory rates greater than or less than the United States statutory rate. As such, changes in the mix and source of earnings between jurisdictions, including changes in tax rates in those jurisdictions, could have a significant impact on the Company’s overall effective tax rate in future periods.Changes Additionally, in the ordinary course of business, we are subject to examinations by various tax lawauthorities. Tax authorities in various jurisdictions could also open new examinations and rates,expand existing examinations for which the outcomes cannot be predicted with certainty. Furthermore, changes in rules related to accounting for income taxes,U.S. or adverse outcomes fromforeign tax audits that are regularly in process in any of the jurisdictions in which the Company operateslaws and regulations, or their interpretation and application, could also have a significant impact on the Company’s overall effective rate in future periods. For example, the Organization for Economic Cooperation and Development (the "OECD"), the European Union and other countries (including countries in which the Company operates) have committed to enacting
substantial changes to numerous long-standing tax principles impacting how large multinational enterprises are taxed. In particular, the OECD's Pillar Two initiative introduces a 15% global minimum tax applied on a country-by-country basis and for which many jurisdictions have now committed to an effective enactment date starting January 1, 2024. The impact of these potential new rules as well as any other changes in domestic and international tax rules and regulations could have a material effect on the Company’s overall effective tax rate.
The Company may not be able to fully utilize its U.S. net operating losses and other tax attributes
The Company has net operating losses ("NOLs") and other tax attributes which could be limited if there is a subsequent change of ownership. If the Company were to have a change of ownership within the meaning of IRC Sections 382 and 383, its NOLs and other tax attributes could be limited to an amount equal to its market capitalization at the time of the ownership change multiplied by the federal long-term tax exempt rate. The Company cannot provide any assurance that such an ownership change will not occur, in which case the availability of the Company's NOLs and other tax attributes could be significantly limited or possibly eliminated. Certain tax benefit preservation provisions of its corporate documents could delay or prevent a change of control, even if that change would be beneficial to stockholders.
Recent changes in the U.S. federal income tax rules could adversely affect us and our shareholders
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Act”) was signed into law, making significant changes to the U.S. Internal Revenue Code. Changes included, but were not limited to, a corporate income tax rate decrease, the migration from a worldwide tax system to a territorial tax system with a one-time transition tax on cumulative post-1986 foreign earnings, a modification of the characterization and treatment of certain intercompany transactions, and the creation of a new U.S. corporate minimum tax on certain earnings of foreign subsidiaries.Any future changes in U.S. federal income tax rules could adversely impact Visteon’s financial results.
Market Related Risk Factors
The Company is subject to significant foreign currency risks and foreign exchange exposure
As a result of Visteon's global presence, a significant portion of the Company's revenues and expenses isare denominated in currencies other than the U.S. dollar. The Company is therefore subject to foreign currency risks and foreign exchange exposure. The Company's primary exposures are to the euro, Chinese renminbi, Brazilian real, Mexican peso, Thai bhat, Indian rupee, and Bulgarian lev. While the Company employs financial instruments to mitigate transactional foreign exchange exposure, including multi-year contracts, exchange rates are difficult to predict and such actions may not completely insulate the Company from those exposures. As a result, volatilityJapanese yen. Volatility in certain exchange rates could adversely impact Visteon financial results and comparability of results from period to period.
General Risk Factors
A disruption into the Company's infrastructure of information technology systems, or those of our customers, supplies, sub-suppliers, partners, service providers or other contract parties, including because of cyberattack, could adversely affect its business and financial performance
The Company relies on the accuracy, capacity, and security of its infrastructure and information technology systems as well as those of its customers, suppliers, partners, and service providers to conduct its business. Despite the security and risk-prevention measures the Company has implemented, theThe Company's systems have in the past and could in the future be breached, damaged, taken over, or otherwise interrupted by a system failure, cyber-attack,cyberattack, malicious computer software (malware)(including malware or ransomware), unauthorized physical or electronic access, or other natural or man-made incidents or disasters. TheFor example, on July 3, 2023, the Company is also susceptibleexperienced a disruption of certain IT services and assets at its third-party data center provider that resulted in some IT services experiencing interruptions and loss of data. These events have occurred with more frequency within our industry and are expected to security breaches that may go undetected.Such a breach or interruptioncontinue (and possibly increase) moving forward. Any of these events could result in, amongst other things, the following to the Company or its customers, suppliers, sub-suppliers, or other contract parties: (i) a business disruption, including plant operations, (ii) theft of the Company intellectual property, orincluding trade secrets, andor (iii) unauthorized access to personnelpersonal information, including employee or end consumer personal information. Although the Company has placed a high priority on cybersecurity and continues to enhance (through investments) our controls, processes and practices designed to protect our operational systems and products from a breach, the company’s actions may not be quick enough to fully protect our operational systems and products against all vulnerabilities, including technologies developed to bypass our security measures. In addition, the company’s employees or customers may accidentally provide their access credentials or other sensitive information to bad actors who could gain access to our secure systems and networks. Nothing ensures that the company’s actions or investments to improve its systems, products, processes and risk management framework or remediate vulnerabilities will be sufficient or deployed quickly enough to prevent or limit the impact of any breach. Undetected or unrecognized breaches also create a risk to the Company since it takes time to first discover the breach and then patch the vulnerability. The Company also cannot anticipate all the various methods of attacks and have defenses prepared in advance against these types of attacks, and it cannot predict the extent, frequency or impact these attacks may have. To the extent that business is interrupteda breach occurs as noted above, or data is lost, destroyed, or inappropriately used or disclosed, such disruptions could lead to legal claims against the Company and adversely affect the Company’s competitive position, reputation, relationships with customers, financial condition, operating results, and cash flows.flows and/or subject us to regulatory actions, including those contemplated by data privacy laws and regulations. Moreover, the Company may be required to incur significant costs to protect against the damage caused by these disruptions or security breaches in the future. The Company is also dependent on the security measures implemented by our customers, suppliers, and other third-party service providers to protect their own systems, infrastructures, and products. A breach that impacts any of these third-parties' systems could result in unauthorized access to the Company’s or
its customers' or suppliers' sensitive data or the Company’s own information technology systems. It could also cause the Company to be non-compliant with applicable laws, subject us to legal claims, disrupt our operations, damage our reputation, or cause a loss of confidence in our products or services, any of which could adversely affect our financial condition, operating results, or cash flow.
The Company is involved from time to time in legal proceedings and commercial or contractual disputes, which could have an adverse effect on its business, results of operations, and financial positionthe Company
The Company is involved in legal proceedings and commercial or contractual disputes that, from time to time, are significant.These are typically claims that arise in the normal course of business including, without limitation, commercial or contractual disputes (including disputes with suppliers), intellectual property matters, personal injury claims, and employment matters. No assurances can be given that such proceedings and claims will not have a material adverse impact on the Company’s profitability and financial position.
Climate change, climate change regulations, and greenhouse gas effects could adversely impact the Company’s operations and markets
ClimateIncreased attention to climate change and its association with greenhouse gas emissions, is receivingexpectations for companies to establish short and long-term emissions reduction targets, and changes in consumer preferences may result in increased attention fromcosts, reduced profits, risks associated with new regulatory requirements, and the scientificpotential for increased litigation and political communities.governmental investigations. The U.S. federal government, certain U.S. states, and certain other countries and regions have adopted or are considering legislation or regulation imposing overall caps or taxes on greenhouse gas emissions from certain sectors including automotive. Failure to comply with any legislation or regulation could potentially result in substantial fines, criminal sanctions, or operational changes. Moreover, even without such legislation or regulation, increased awareness of, or any adverse publicity regarding, the effects of greenhouse gases could harm the Company’s reputation or reduce customer demand for ourits products and services.
Legislation Automakers have also started implementing climate-related initiatives and objectives each year with their suppliers, and such actions are expected to address global climate change, including but not limitedcontinue in the future. If the Company is unable to CO2 emission restrictionsmeet these new requirements in Europe, may lead to early termination of current production contracts and/or reduced vehicle sales.the future through improved operating efficiencies, new manufacturing processes, sourcing alternatives, and other sustainability initiatives, the Company’s business could be adverselyaffected.
Additionally, as severe weather events become increasingly common, operations of the Company, its customers, and/or suppliers may be disrupted, which could result in increased operational costs or reduced demand for products and services. While the Company has invested in administration of programs and physical loss prevention improvements to mitigate the risk of naturalNatural disasters causingcould cause disruption to itsthe Company’s ability to serve its customers and communities in times of need and extended periods of disruptionsdisruption could have an adverse effect on its results of operations.
The Company’s pension expense and funding levels of pension plans could materially deteriorate or the Company may be unable to generate sufficient excess cash flow to meet increased pension benefit obligations
The Company’s assumptions used to calculate pension obligations as of the annual measurement date directly impact the expense to be recognized in future periods. While the Company’s management believes that these assumptions are appropriate, significant differences in actual experience or significant changes in these assumptions may materially affect the Company’s
pension obligations and future expense. For more information on sensitivities to changing assumptions, please see “Critical Accounting Estimates” in Item 7 and Note 12, “Employee Benefit Plans” in Part II, Item 8 of this Form 10-K.
Item 1B. Unresolved Staff Comments
None
Item 1C. Cybersecurity
Governance
Responsibility for assessing cybersecurity risk includes, but is not limited to, input from our Board of Directors (the "Board"), including the Audit Committee of the Board (the “Audit Committee”), senior management and the Crisis Management Team (a taskforce comprised of representatives from primary corporate and operational functions). These groups devote significant resources to cybersecurity and the risk management processes to adapt to the changing cybersecurity landscape and respond to emerging threats in a timely and effective manner. Visteon’s internal cyber information technology (“IT”) security team oversees and works collaboratively with various information security service providers using the National Institute of Standards and Technology (NIST) framework to regularly assess the threat landscape and support a layered cybersecurity strategy based on prevention, detection and mitigation.
The Company’s Chief Information Officer is responsible for developing and implementing our information security program and reporting on cybersecurity matters to the Audit Committee and to the full Board. Our Chief Information Officer has over two decades of experience leading cyber security oversight. The Cyber IT security team has multiple years of experience and/or are security certified (e.g., CISSP).
Risk Management, Strategy and Testing
The Audit Committee and the full Board actively participate in discussions with management and amongst themselves regarding cybersecurity risks. The Audit Committee is updated quarterly on the Company’s cybersecurity status including discussion of management’s actions to identify and detect threats, as well as planned actions in the event of a response or recovery situation. The Audit Committee’s review also includes review of recent enhancements to the Company’s defenses and management’s progress on its cybersecurity strategic roadmap. In addition, at least two times per year, the full Board reviews key performance indicators, test results and related remediation, and recent threats and how the Company is managing those threats.
The Company’s cybersecurity risk management program incorporates external guidance and expertise through the use of third-party service providers to assist in the identification, assessment and management of risks specific to cybersecurity threats, including vendors providing threat intelligence, risk mitigation, dark web monitoring, external scanning and scoring, threat and reputation monitoring, forensics, cyber-insurance, advisory services and legal counsel. Visteon engages a managed security service provider to augment its cyber IT security team and to provide additional monitoring capabilities. Visteon’s cyber IT security team reviews enterprise risk management-level cybersecurity risks regularly, and key cybersecurity risks are incorporated into the annual corporate-wide Enterprise Risk Management assessment. In addition, we have a set of Company-wide policies and procedures concerning cybersecurity matters, which include an IT security manual as well as other policies that directly or indirectly relate to cybersecurity, such as policies related to encryption standards, antivirus protection, remote access, multifactor authentication, confidential information and the use of the internet, social media, email and wireless devices. The Company has also obtained Trusted Information Security Assessment Exchange (TISAX) certification labels at multiple global locations.
The Company periodically performs simulations and tabletop exercises at a management level and incorporates external resources and advisors as needed. All employees are required to periodically complete cybersecurity training and have access to more frequent cybersecurity training through online modules.
The company regularly tests defenses by performing simulations and drills at both a technical level (including through penetration tests) and by reviewing its operational policies and procedures with third-party experts. At the management level, our cyber IT security team regularly monitors alerts and meets to discuss threat levels, trends and remediation. Our cyber IT security team conducts regular reviews of third-party hosted applications with a specific focus on any sensitive data shared with third parties. Internal audit works with internal business owners of the hosted applications to document user access reviews annually and receive from the vendor a System and Organization Controls (“SOC”) report. If a third-party vendor is not able to provide a SOC 1 report, the Company takes additional steps to assess their cybersecurity preparedness and assess our relationship on that basis.
The Company has certain products it manufactures that are more susceptible to cybersecurity threats and for those products the Company has additional specific cybersecurity risk assessments and management processes in place that aligns our internal policies, standards and development practices with customer requirements and industry standards, including the International Organization for Standardization ("ISO") 21434 control framework specific to road vehicle cybersecurity engineering. Visteon’s product level cybersecurity management is led by a separate team within the engineering department with the leader of that team reporting at least twice per-year to the Technology Committee of the Board on the risks and processes related to product level cybersecurity threats.
Visteon faces a number of cybersecurity risks in connection with its business. Although such risks have not, to date, materially affected the Company or the results of operations or financial condition the Company has from time-to-time experienced threats to and breaches of its data and systems, including malware and computer virus attacks. Despite the extensive approach Visteon takes to cybersecurity, the Company may not be successful in preventing or mitigating a cybersecurity incident that could have a material adverse effect on the Company or its stakeholders. See Item 1A. “Risk Factors” for a discussion of cybersecurity risks.
Item 2. Properties
The Company's principal executive offices are located in Van Buren Township, Michigan. At December 31, 2020,2023, the Company and its consolidated subsidiaries owned or leased approximately:leased:
•3027 corporate offices, technical and engineering centers and customer service centers in 1413 countries around the world, all of which were leased. .
•1514 Electronics manufacturing and/or assembly facilities in Brazil, China, India, Japan, Mexico, Portugal, Russia, Slovakia, Tunisia, India, Japan, China,and Thailand, and Brazil, of which 1211 were leased and 3 were owned.
In addition, the Company's non-consolidated affiliates operate approximately 6 manufacturing and/or assembly locations, primarily in the Asia Pacific region. The Company considers its facilities to be adequate for its current uses.
Item 3.Legal Proceedings
From time to time, the Company is involved in various legal matters and proceedings arising in the ordinary course of business. While the Company incurs costs, including but not limited to, attorneys’ fees, the Company does not currently expect any of these matters or proceedings to have a material effect on its results of operations, financial position or cash flows. Certain legal proceedings in which the Company is involved are discussed in Note 19, "Commitments18, “Commitments and Contingencies"Contingencies” to the Company's consolidated financial statements included in Part II, Item 8 of this Form 10-K, "Financial“Financial Statements and Supplementary Data"Data” and should be considered an integral part of Part I, Item 3, "Legal“Legal Proceedings."”
Item 4.Mine Safety Disclosures
None
Item 4A. Information about Our Executive Officers and Key Employees
The following table shows information about the executive officers of the Company and other key employees as of February 1, 2021:2024:
| | | | | | | | | | | | | | |
| Name | | Age | | Position |
| Sachin S. Lawande | | 5356 | | Director, President and Chief Executive Officer |
| Jerome J. Rouquet | | 5356 | | Senior Vice President and Chief Financial Officer |
Abigail S. FlemingColleen E. Myers | | 3948 | | Vice President and Chief Accounting Officer |
Matthew M. Cole | | 51 | | Senior Vice President, Product Delivery |
Jochen Ladwig | | 47 | | Senior Vice President, Global Quality and Procurement |
| Brett D. Pynnonen | | 5255 | | Senior Vice President and General CounselChief Legal Officer |
| Joao Paulo Ribeiro | | 5154 | | Senior Vice President, OperationsManufacturing, Supply Chain, and Supply ChainPurchasing |
| Qais M. Sharif | | 61 | | Senior Vice President, and General Manager of the Americas and Energy Storage Solutions |
| Kristin E. Trecker | | 5558 | | Senior Vice President and Chief Human ResourcesPeople Officer |
| Robert R. Vallance | | 6063 | | Senior Vice President, Global Customer Business Groups, New Technology Product Lines, and General Manager APAC Region |
Sachin S. Lawande has been Visteon’s Chief Executive Officer, President, and a director of the Company since June 29, 2015. Before joining Visteon, Mr. Lawande served as Executive Vice President and President, Infotainment Division of Harman International Industries, Inc., an automotive supplier, from July 2013 to June 2015. From July 2011 to June 2013, he served as Executive Vice President and President of Harman’s Lifestyle Division, and from July 2010 to June 2011 as Executive Vice President and Co-President, Automotive Division. Prior to that he served as Harman’s Executive Vice President and Chief Technology Officer since February 2009. Mr. Lawande joined Harman International in 2006, following senior roles at QNX Software Systems and 3Com Corporation. He also serves on the board of directors of Cognex Corporation, a leading worldwide provider of machine vision products that are widely used in automotive, consumer electronics, life sciences, and logistics industries. Within the last five years, he also served on the board of directors of DXC Technology Company.
Jerome J. Rouquet has been Visteon’s Senior Vice President and Chief Financial Officer since February 2020 (after joining the Company as Senior Vice President, Finance in January 2020). Prior to that, he held leadership roles of increasing responsibility at Federal-Mogul, LLC (a global supplier of automotive and industrial products)supplier), including Senior Vice President and Chief Financial Officer from January 2016 to September 2018, Chief Accounting Officer and Controller from July 2010 to January 2016, and Finance Director from March 1999 to July 2010. Following the acquisition of Federal-Mogul by Tenneco, Inc., he most recently served as Senior Vice President Finance, Motorparts from October 2018 to December 2019. From 1990 to 1996, Mr. Rouquet served in various roles at Imaje SA, from Logistics Manager to Financial Controller.
Abigail S. FlemingColleen E. Myers has been Visteon’s Vice President and Chief Accounting Officer since January 2024. Prior to the appointment, she was Assistant Controller since May 2021 and Senior Manager, Reporting and Consolidations since joining the Company in August 2020.June 2015. Prior to joining Visteon, Ms. Fleming was Executive Directorthat, she served as a financial reporting and Assistant Controller of Tenneco Inc. (formerly Federal-Mogul, LLC), an automotive supplier, from March 2017 to August 2020, and Director, Capital Markets and Accounting Advisory Servicesinternal audit supervisor at PricewaterhouseCoopers LLP from March 2015 to March 2017. Ms. Fleming began her career at PricewaterhouseCoopers in August 2004,Masco Corporation and is a certified public accountant.
Matthew M. Cole has been Visteon’s Senior Vice President, Product Delivery since January 2020 and Senior Vice President, Product Development from December 2016 to December 2019. Prior to that, he was Vice President, Product Development upon rejoining the Company in July 2014. From July 2011 to June 2014, he served as Vice President, Engineering at Johnson Controls, Inc., an automotive supplier. From July 2010 to June 2011, he served as Johnson Controls' Vice President, Product Management. Prior to that, he spent 19 years at Ford Motor Company and Visteon in product development, engineering and leadership positions in the U.S. and Asia.
Jochen Ladwig has been Visteon’s Senior Vice President, Global Quality and Procurement since January 2020. Prior to that, he was Vice President, Global Procurement and Supplier Quality since joining the Company in October 2017. From April 2014 to September 2017, he served as Head of Procurement & Supplier Quality Connected Systems, Displays & Digital Content for Daimler AG. Prior to that, he held management positions of increasing responsibility at Daimler AG and DaimlerChrysler in procurement and supplier quality.
Brett D. Pynnonen has been Visteon’s Senior Vice President and General CounselChief Legal Officer since December 2016. Prior to that, he was Vice President and General Counsel since joining the Company in March 2016. Before joining Visteon, he was Senior Vice President, General Counsel and Corporate Secretary of Federal-Mogul Holdings Corporation, a global automotive supplier,
from November 2007 to March 2016. Prior to that, he was General Counsel and Secretary of Covansys Corporation, a technology services company, and an attorney at the law firm of Butzel Long.
Joao Paulo Ribeiro has been Visteon’s Senior Vice President, Manufacturing, Supply Chain and Purchasing since November 2021. Prior to that he was Vice President, Manufacturing and Supply Chain since March 2020. Prior to that, he was2020, Vice President, Manufacturing Operations since March 2014, and Managing Director, European Operations from October 2010 to March 2014. During his career with Visteon and Ford Motor Company, he has held management positions of increasing responsibility in manufacturing and operations.
Qais Sharif has been Visteon’s Senior Vice President and General Manager of the Americas and Energy Storage Solutions since November 2023. Prior to that he was, Vice President and General Manager of the Americas since December 2021, Vice President Displays Product Line since November 2019 and Vice President, Product Management Driver Information and Displays since joining the Company in August 2016. Prior to joining Visteon, Mr. Sharif was Vice President, Information Technology and Mobile USA Sales and Marketing at LG Display Company, an automotive supplier, and Global Vice President of Sales at TE Connectivity, a consumer electronics company.
Kristin E. Trecker has been Visteon’s Senior Vice President and Chief Human ResourcesPeople Officer ("CHRO") since joining the Company in May 2018. Before joining Visteon, she served as Executive Vice President and CHROChief Human Resources Officer (“CHRO”) for Integer Holdings Corp. (formerly Greatbatch, Inc.), a medical device outsource manufacturer, from November 2015 to May 2017, and as Senior Vice President and CHRO of MTS Systems Corp., a global engineering firm, from February 2012 to October 2015. Prior to that Ms. Trecker spent 16 years with Lawson Software, Inc. in roles of increasing responsibility, ranging from Director of Compensation and Benefits to Senior Vice President of Human Resources.
Robert R. Vallance has been Visteon’s Senior Vice President, Global Customer Business Groups, New Technology Product Lines, and General Manager APAC Region since January 2022, and prior to that, he was Senior Vice President, Customer Business Groups since December 2016. Prior to that, he wasHe also served as Vice President, Customer Business Groups upon rejoining the Company in July 2014. From February 2008 to June 2015,2014, he served as Vice President, Electronics Business Group of Johnson Controls, Inc., an automotive supplier. Prior to that, he spent 23 years at Ford Motor Company and Visteon in product development, program and commercial management, strategy and planning, product marketing, and manufacturing.
18
Part II
Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
As of February 11, 2021, the Company had 27,915,661 shares of itsThe Company's common stock, $0.01 par value per share, outstanding, which were owned bytrades on the Nasdaq Global Select Market under the symbol "VC". As of February 8, 2024, the Company had 3,3842,725 shareholders of record.
No dividends were paid by the Company on its common stock during the years ended December 31, 20202023 and 2019.2022. The Company’s Board evaluates the Company’s dividend policy based on all relevant factors. The Company’s credit agreements limit the amount of cash payments for dividends that may be made. Additionally, the ability of the Company’s subsidiaries to transfer assetsdividends is subject to various restrictions, including regulatory requirements and governmental restraints.
No sales of the Company’s common stock were made by or on behalf of the Company or an affiliated purchaser during the fourth quarter of 2020.2023.
On March 2, 2023 the Company's board of directors authorized a share repurchase program of $300 million of common stock through December 31, 2026. Under this program, the Company will repurchase shares at the prevailing market prices pursuant to specified share price and daily volume limits. As of December 31, 2023, the Company has $194 million of authorized purchases of common stock remaining.
The following table summarizes information relating to purchases made by or on behalf of the Company, or an affiliated purchaser, of shares of the Company’s common stock during the fourth quarter of 2023.
| | | | | | | | | | | | | | | | | | | | | | | |
| Period | Total Number of Shares (or Units) Purchased (1) | | Average Price Paid per Share (or Unit) | | Total Number of Shares (or units) Purchased as Part of Publicly Announced Plans or Programs (2) | | Approximate Dollar Value of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs (in millions) |
| October 1 to October 31, 2023 | 76,515 | | | 132.76 | | | 76,515 | | | 214 | |
| November 1 to November 31, 2023 | — | | | — | | | — | | | 214 | |
| December 1 to December 31, 2023 | 161,238 | | | 124.04 | | | 161,238 | | | 194 | |
| Total | 237,753 | | | 126.85 | | | 237,753 | | | 194 | |
(1) The Company does not include shares surrendered to pay taxes incurred upon exercises of stock options for purposes of this Item 5 of Part II of this Annual Report on Form 10-K.
(2) The Inflation Reduction Act of 2022, which was enacted into law on August 16, 2022, imposed a nondeductible 1% excise tax on the net value of certain stock repurchases made after December 31, 2022. All dollar amounts presented exclude such excise taxes, as applicable.
The following information in Item 5 is not deemed to be “soliciting material” or be “filed” with the SEC or subject to Regulation 14A or 14C under the Securities Exchange Act of 1934 (“Exchange Act”) or to the liabilities of Section 18 of the Exchange Act, and will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except to the extent the Company specifically incorporates it by reference into such a filing.
Performance Graph
The following graph compares the cumulative total stockholder return from December 31, 2015,2018 through December 31, 2020,2023, for Visteon's existing common stock, the S&P 500 Index and the Dow Jones U.S. Auto Parts Index. The graph below assumes that $100 was invested on December 31, 2015,2018 in each of the Company's common stock, the stocks comprising the S&P 500 Index and the stocks comprising the Dow Jones U.S. Auto Parts Index, and that all that dividends have been reinvested.
| | December 31, 2015 | December 31, 2016 | December 31, 2017 | December 31, 2018 | December 31, 2019 | December 31, 2020 |
| December 31, 2018 | | | December 31, 2018 | December 31, 2019 | December 31, 2020 | December 31, 2021 | December 31, 2022 | December 31, 2023 |
| Visteon Corporation | Visteon Corporation | $100.00 | $121.14 | $188.69 | $90.89 | $130.56 | $189.26 | Visteon Corporation | $100.00 | $143.65 | $208.23 | $184.37 | $217.04 | $207.20 |
| Dow Jones U.S. Auto & Parts Index | $100.00 | $99.16 | $118.75 | $89.79 | $108.33 | $327.60 |
| Dow Jones U.S. Auto Parts Index | | Dow Jones U.S. Auto Parts Index | $100.00 | $121.42 | $145.84 | $166.84 | $123.06 | $125.33 |
| S&P 500 | S&P 500 | $100.00 | $109.54 | $130.81 | $122.65 | $158.07 | $183.77 | S&P 500 | $100.00 | $128.88 | $149.83 | $190.13 | $153.16 | $190.27 |
The above comparisons are required by the Securities and Exchange Commission and are not intended to forecast or be indicative of possible future performance of the Company's common stock or the referenced indices.
Item 6. Selected Financial Data
None
Item 7.Management's Discussion and Analysis of Financial Condition and Results of Operations
Management’s Discussion and Analysis (“MD&A”) is intended to help the reader understand the results of operations, financial condition, and cash flows of the Company. MD&A is provided as a supplement to, and should be read in conjunction with, the Company’s consolidated financial statements and related notes appearing in Item 8 of this Form 10-K “Financial Statements and Supplementary Data”. For discussion related to changes in financial condition and the results of operations for fiscal year 2022-related items, refer to Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company's Annual Report on Form 10-K for fiscal year 2022, which was filed with the Securities and Exchange Commission on February 16, 2023.
Executive Summary
Strategic Priorities
Visteon is a global automotive suppliertechnology company serving the mobility industry, dedicated to creating more enjoyable, connected, and safe driving experiences. The Company's platforms leverage proven, scalable hardware and software solutions that designs, engineersenable the digital, electric, and manufactures innovativeautonomous evolution of its global automotive electronics and connected car solutions for the world’s major vehicle manufacturers.customers. The automotive electronicsmobility market is expected to grow faster than underlying vehicle production volumes as the vehicle shifts from analog to digital and towards device and cloud connectivity,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 platformtechnology integrated into its domain controllers positions Visteon to support these macro trends in the automotive industry.
•Long-Term Growth and Margin Expansion- 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 billioncontinued to shareholders since 2015 throughmaintain a combinationstrong balance sheet to withstand industry volatility while providing a foundation for future growth and shareholder returns. In March 2023, the Company announced a $300 million share repurchase program maturing at the end of ongoing share repurchases and a onetime $1.75 billion special distribution in 2016.2026. The Company repurchased $106 million of Company common stock during 2023 as part of this program.
Financial Results
The pie charts below highlight the sales breakdown for Visteon for the year ended December 31, 2020.2023.
*Regional sales are based on the geographic region where sale originates and not where customer is located (excludes inter-regional eliminations).
Global Automotive Market Conditions and Production Levels
During 2020 global light vehicle production decreased 16.2% as compared to 2019 primarily due to closed or significantly reduced production at manufacturing facilities due to COVID-19.
Light vehicle production levels for 2020 and 2019 by geographic region are provided below:
| | | | | | | | | | | | | | | | | |
| Light Vehicle Production |
| (In millions) | 2020 | | 2019 | | Change |
| Global | 74.5 | | 88.9 | | (16.2) | % |
| China | 23.6 | | 24.7 | | (4.5) | % |
| Other Asia-Pacific | 17.3 | | 21.5 | | (19.5) | % |
| Europe | 16.6 | | 21.1 | | (21.3) | % |
| Americas | 15.3 | | 19.6 | | (21.9) | % |
| Other | 1.7 | | 2.0 | | (15.0) | % |
| Source: IHS Automotive, January 2021 |
The automotiveFor the last few years, the industry washas been negatively impacted in 2020 by the COVID-19 pandemic, withworldwide semiconductor and other supply related shortages, a UAW strike, and increased geopolitical challenges. Industry vehicle volumes increased in 2022 and again in 2023 as the worldwide semiconductor and other supply related shortages have eased. However, industry production comingvolumes of approximately 90 million units in 2023 remained below recent industry production levels that peaked in 2017 and risks related to a stop at most locations at varying times throughout the first half of the year, followed by a faster than anticipated recovery in the second half of the year.
This recovery has led to a worldwide semiconductor supply shortage in early 2021, as semiconductor suppliers have been unable to rapidly reallocate production lines to serve the automotive industry.vehicle affordability, economic uncertainty, potential geopolitical challenges, and customer market share changes create ongoing uncertainties. The magnitude of the impact on the Company's 2021 financial statements, and results of operations, and cash flows will depend on the evolution of the semiconductor supply, shortage, related plant production schedules, and supply chain impacts, and global economic impacts.
Company Highlights
Visteon proactively implemented actions early in 2020 focusedcontinued to focus on actively generatingexecution throughout 2023, building a foundation of sustainable growth, margin expansion, and cash and aggressively adjusting its cost base. To mitigateflow generation. Visteon reported sales of $3,954 million, a year-over-year increase of 5%, which represents continued out-performance compared to customer production. When excluding the impact caused byof pricing from supply chain recoveries, Visteon’s base sales grew 12% from the COVID-19 pandemic, Visteon implemented a seriesprior year. Adjusted EBITDA* was $434 million, or 11% of restructuring programs, introduced strict cost controls, reduced discretionary spending, and enacted a temporary salary reduction for all salaried employees. In addition, Visteon implemented a comprehensive set of safety protocols to protect the health and safety of employees and manufactured and donated approximately 50,000 protective face shields to front line workers around the world.
Assales as a result Adjusted EBITDA (a non-U.S. GAAP financial measure,of operational leverage from higher volumes as defined in Note 20, "Segment Informationwell as commercial and Revenue Recognition" to the Company's consolidated financial statements included in Item 8 of this Form 10-K) was $192 million or 7.5% of net sales for the year ended December 31, 2020. As of December 31, 2020, cash, equivalents, and restricted cash was $500 million and debt was $349 million, equating to a net cash position of $151 million.
Visteon also made significant progress towards its long-term strategic priorities of technology innovation, long-term growth, and margin expansion. In 2020,cost discipline. Visteon continued to setbuild the groundworkfoundation for sustainable market out-performance driven bygrowth launching 129 new business winsproducts during 2023. Visteon's next-generation products continue to be featured on its customer's key vehicles and new product launches. For the full-year,platforms. Additionally, Visteon was awarded $4.6$7.2 billion in new business wins with strong representation in all product categories. Wins included cluster wins of approximately $1.6 billion, driven primarily by digital clusters, multiple SmartCore™ wins with lifetime revenue in excess of $1.3 billion, multiple large multi-display wins bringing total displays wins in excess of $0.8 billion for the year, momentum in connected services with the Company's first App Store win, first power electronics win for an integrated battery junction box, and 55 new product launches, despite the challenges caused by COVID-19.
Visteon also continued to enhance its technology capabilities through its software platform strategy, which creates scalable, cost-efficient, and quick to market products while also introducing innovative new products. In 2020, Visteon introduced the industry’s first wirelessincremental battery management system which replaces wired connections betweenwins that extend the subsystemsscope of previous customer wins.
To address the near-term challenges created from the worldwide semiconductor and supply chain shortages, Visteon continued the proactive initiatives aimed at increasing product availability for its customers while minimizing the impact of incremental costs to the business. Visteon continued to work with highly secure and reliable wireless communication technology. This solution supports multiple charging protocols with a safe, modular, and scalable designits customers to meet OEM cost, weight, battery pack configuration, and packaging requirements.pass along the elevated costs caused by semiconductor shortages.
22
* Adjusted EBITDA is a Non-GAAP financial measure, as defined below.
Results of Operations
Year ended December 31, 2023 Compared to Year ended December 31, 2022
The Company's consolidated results of operations for the years ended December 31, 20202023 and 20192022 were as follows:
| | Year Ended December 31, |
| Year Ended December 31, | | | Year Ended December 31, |
| (In millions) | (In millions) | 2020 | | 2019 | | Change | (In millions) | 2023 | | 2022 | | Change |
| Net sales | Net sales | $ | 2,548 | | | $ | 2,945 | | | $ | (397) | |
| Cost of sales | Cost of sales | (2,303) | | | (2,621) | | | 318 | |
| Gross margin | Gross margin | 245 | | | 324 | | | (79) | |
| Selling, general and administrative expenses | Selling, general and administrative expenses | (193) | | | (221) | | | 28 | |
| Restructuring expense, net | (76) | | | (4) | | | (72) | |
| Restructuring and impairment | |
| Interest expense, net | Interest expense, net | (11) | | | (9) | | | (2) | |
| Equity in net income of non-consolidated affiliates | 6 | | | 6 | | | — | |
| Equity in net (loss) income of non-consolidated affiliates | |
| Other income, net | Other income, net | 9 | | | 10 | | | (1) | |
| Income (loss) before income taxes | Income (loss) before income taxes | (20) | | | 106 | | | (126) | |
| Provision for income taxes | (28) | | | (24) | | | (4) | |
| Net income (loss) from continuing operations | (48) | | | 82 | | | (130) | |
| Net income (loss) from discontinued operations, net of tax | — | | | (1) | | | 1 | |
| Benefit from (provision for) income taxes | |
| Net income (loss) | Net income (loss) | (48) | | | 81 | | | (129) | |
| Net (income) loss attributable to non-controlling interests | (8) | | | (11) | | | 3 | |
| Less: Net (income) loss attributable to non-controlling interests | |
| Net income (loss) attributable to Visteon Corporation | Net income (loss) attributable to Visteon Corporation | $ | (56) | | | $ | 70 | | | $ | (126) | |
| Adjusted EBITDA* | $ | 192 | | | $ | 234 | | | $ | (42) | |
| * Adjusted EBITDA is a Non-U.S. GAAP financial measure, as defined in Note 20, "Segment Information and Revenue Recognition" to the Company's consolidated financial statements included in Item 8 of this Form 10-K. | | Adjusted EBITDA | |
Results2023 includes a non-cash tax benefit of Operations - 2020 Compared with 2019$313 million related to a reduction in the valuation allowance against the U.S. deferred tax assets.
Net Sales and Cost of Sales
| | (In millions) | (In millions) | Net Sales | | Cost of Sales | | Gross Margin | (In millions) | Net Sales | | Cost of Sales | | Gross Margin |
| December 31, 2019 | $ | 2,945 | | | $ | (2,621) | | | $ | 324 | |
| December 31, 2022 | |
| Volume, mix, and net new business | Volume, mix, and net new business | (318) | | | 128 | | | (190) | |
| Customer pricing, net | Customer pricing, net | (58) | | | — | | | (58) | |
| Currency | Currency | (13) | | | 5 | | | (8) | |
| Engineering costs, net | Engineering costs, net | — | | | 93 | | | 93 | |
| Cost performance, design changes and other | (8) | | | 92 | | | 84 | |
| December 31, 2020 | $ | 2,548 | | | $ | (2,303) | | | $ | 245 | |
| Cost performance, design changes, and other | |
| December 31, 2023 | |
|
Net sales for the year ended December 31, 20202023 totaled $2,548$3,954 million, which represents a decreasean increase of $397$198 million compared with 2019. Unfavorable volumes, primarily due to the impacts of COVID-19,2022. Volumes and mix, partially offset by net new business decreasedincreased net sales by $318 million.$500 million due to increases in customer production and continued market outperformance as a result of recent product launches. Customer pricing decreased net sales by $58 million.$256 million primarily as a result of lower customer recoveries due to improving supply chain dynamics related to the worldwide semiconductor supply shortage. Unfavorable currency decreased net sales by $13$44 million, primarily attributable to the euro, Chinese renminbi, Brazilian realJapanese yen, and Indian rupee.rupee, partially offset by the euro. Other cost performance, primarily related to design changes, reduceddecreased sales by $8$2 million.
Cost of sales decreased $318increased $79 million for the year ended December 31, 2020,2023, when compared with 2019. Lower volumes, primarily due to the impacts of COVID-19, partially offset by unfavorable product2022. Volume, mix decreasedand net new business increased cost of sales by $128 million. Engineering costs, excluding currency, decreased cost of sales by $93$386 million. Foreign currency decreased cost of sales by $5$19 million, primarily attributable to the euro, Chinese renminbi Indianand India rupee, Brazilian real, and Bulgarian lev.partially offset by the Mexican peso. Net engineering costs, excluding currency, increased cost of sales by $14 million. Favorable cost performance, including material design usage,changes and economicsother decreased cost of sales by $92 million.
A summary of net engineering costs is shown below:
| | Year Ended December 31, |
| Year Ended December 31, | | | Year Ended December 31, |
| (In millions) | (In millions) | 2020 | | 2019 | (In millions) | 2023 | | 2022 |
| Gross engineering costs | Gross engineering costs | $ | (335) | | | $ | (440) | |
| Engineering recoveries | Engineering recoveries | 134 | | | 140 | |
| Engineering costs, net | Engineering costs, net | $ | (201) | | | $ | (300) | |
|
Gross engineering includescosts relate to forward model program development costs and advanced engineering activities excludingand exclude contractually reimbursable engineering costs. Net engineering costs of $201$210 million for the year ended December 31, 2020,2023, including the impacts of currency, were $99$14 million lowerhigher than 2019,the same period of 2022. This increase is primarily related to short-termlower recoveries, higher personnel cost, and long-term cost reduction initiatives includinginflation; partially offset by the benefitstiming of previously announced restructuring actions implemented to optimize the structure while supporting future growth.project expense.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses were $193$207 million, or 7.6%5.2% of net sales, and $221$188 million, or 7.5%5.0% of net sales, during the years ended December 31, 20202023 and 2019,2022, respectively. The decrease of $28 millionincrease is primarily relateddue to temporary salary reductions in 2020, other cost reduction initiatives,increased personnel costs and the impacts of previously announced restructuring actions.reserves for bad debt.
Restructuring Expense, Netand Impairment
Restructuring actions initiated during 2020 include the following:
•In January, the Company approved a plan primarily related to European engineering and administrative functions to improve the Company’s efficiency and rationalize its footprint. The Company incurred $26recorded $5 million and $9 million of net restructuring expense for cash severance, retention,the years ended December 31, 2023 and termination costs2022, respectively, primarily related to this plan.
•In March, the Company approved a global restructuring plan impacting engineering, administrative and manufacturing functions to improve the Company’s efficiency and rationalize its footprint. The Company incurred $16 million of net restructuring expense for cash severance, retention, and termination costs related to this plan.
•In September, the Company approved a plan to respond to COVID-19 impacts while at the same time improving efficiency and rationalizing the Company’s footprint. The Company has incurred $32 million of net restructuring expense related to this plan.employee severance.
•In December,2022, due to the geopolitical situation in Eastern Europe the Company approvedelected to close the Russian facility resulting in a plan relatednon-cash impairment charge of $5 million to engineering, administrative,fully impair property and manufacturing functions in Asiaequipment and reduce inventory to improve the Company's efficiency and rationalize its footprints. The Company has incurred $2 million in restructuring costs relation to this plan.
During 2019, the Company recorded approximately $4 million of net restructuring expenses related to end of life of certain products and the optimization of certain operations.realizable value.
Interest Expense, Net
Net interest expense for the year ended December 31, 2020,2023, was $11$7 million, representing an increasea decrease of $2$3 million as compared to 2019. The increase2022. Interest expense for these periods is primarily duerelated to the first quarter 2020 borrowing of $400 million under the Company's revolving credit facility. The Company fully repaid the amount borrowed during the third quarter of 2020 following stronger than expected industry recovery and improved Company performance.
term debt facility partially offset by cash balances invested at higher interest rates.Equity in Net Income of Non-Consolidated Affiliates
Equity in net income of non-consolidated affiliates was $6a loss of $10 million and $1 million for the years ended December 31, 20202023 and 2019.2022, respectively. The decrease is primarily due to various operational and non-operational charges incurred at an affiliate.
Other Income, Net
Other income, net consists of the following:
| | Year Ended December 31, |
| Year Ended December 31, | | | Year Ended December 31, |
| (In millions) | (In millions) | 2020 | | 2019 | (In millions) | 2023 | | 2022 |
| Pension financing benefits, net | Pension financing benefits, net | $ | 14 | | | $ | 10 | |
| Pension settlement charge | (5) | | | — | |
| $ | 9 | | | $ | 10 | |
| Gain on sale of investment | |
| Foreign currency translation charge | |
| Township settlement | |
| $ | |
During 2020, the Company transferred a portion of the benefit obligation related to its defined benefit U.S. pension plan to
a third-party issuer. The transaction met the criteria for settlement accounting, and accordingly the Company recognized a $5 million pension settlement charge in the fourth quarter of 2020.
Income Taxes
The Company's provision forbenefit from income taxes was $28$248 million for year ended December 31, 2020 and reflects2023, an increased benefit of $293 million when compared with income tax expense related to those countries wherein 2022. During the fourth quarter of 2023, the Company is profitable; accrued withholding taxes; ongoing assessments related to the recognition and measurementreleased $313 million of uncertain tax benefits; the inability to record a tax benefit for pretax losses (including the U.S.) and/or recognize tax expense for pretax income in certain jurisdictions due to valuation allowances; and other non-recurring tax items.
The Company's provision for income taxes increased $4 million for the year ended December 31, 2020, compared with 2019. The increase in tax expense reflects the reassessment of the 2020 valuation allowances in connection with the realization ofits deferred tax assets in Germany and Brazil, as well as the non-recurrence of a 2019 discrete income tax valuation allowance release in Germany, resulting in anrelated to its U.S. federal and certain state deferred tax assets. Excluding this item, the $20 million year-over-year increase in income tax expense of $19 million. Other changesis primarily attributable to the overall increase in the Company’s deferred tax asset valuation allowances did not materially impact net tax expense during the years ended December 31, 2020 or 2019. The increases described above were partially offset by approximately $15 million decrease inpre-tax income, tax expense primarily due toincluding changes in the mix of earnings and differing tax rates between jurisdictions which reflects the overall decrease in earnings in jurisdictions where the Company is profitable andas well as withholding taxes.
Discontinued OperationsAdjusted EBITDA
During 2019,The Company defines Adjusted EBITDA as net income attributable to the Company recorded a $1 million charge for legal expenses relatedadjusted to former employees at a closed plant in Brazil.
Net Income (Loss) Attributable to Visteon
Net loss attributable to Visteon was $56 million foreliminate the year ended December 31, 2020, compared to net incomeimpact of $70 million for 2019. The decrease of $126 million is related to a decrease in gross margin of $79 million, higher restructuringdepreciation and amortization, non-cash stock-based compensation expense, of $72 million, and higher provision for income taxes, net interest expense, net income attributable to non-controlling interests, restructuring and impairment expense, equity in net income of $4 million. These decreases were partially offset by lower selling, generalnon-consolidated affiliates, and administrative expenseother gains and losses not reflective of $28 million, and lower other income, net of $1 million.the Company's ongoing operations.
Adjusted EBITDA
Adjusted EBITDA was $192 million foris presented as a supplemental measure of the year ended December 31, 2020, representing a decreaseCompany'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 $42 million when compared with Adjusted EBITDA may not be comparable to other similarly titled measures of $234 million for 2019. Unfavorable volumes, primarily due to the impacts of COVID-19, and mix reducedother companies. Adjusted EBITDA by $190 million. Foreign currency decreasedis 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 by $7 million, primarily attributablehas limitations as an analytical tool and is not intended to the euro, Chinese renminbi, Brazilian realbe 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 Japanese yen, partially offset by the Mexican peso and Bulgarian lev. Lower net engineering costs, excluding currency, increaseddebt service requirements. The Company uses Adjusted EBITDA by $93 million. Favorable cost performanceas a factor in incentive compensation decisions and to evaluate the effectiveness of $128 million, including material, design, and usage economics, lower manufacturing costs, lower selling and general and administrative expenses more than offset annual customer pricing of $58 million.
the Company's business strategies. In addition, the Company's credit agreements use measures similar to Adjusted EBITDA to measure compliance with certain covenants.The reconciliation of Adjusted EBITDA to net income attributable to Visteon for the years ended December 31, 20202023 and 20192022 is as follows:
| | Year Ended December 31, |
| Year Ended December 31, | | | Year Ended December 31, |
| (In millions) | (In millions) | 2020 | | 2019 | | Change | (In millions) | 2023 | | 2022 | | Change |
| Net income (loss) attributable to Visteon Corporation | Net income (loss) attributable to Visteon Corporation | $ | (56) | | | $ | 70 | | | $ | (126) | |
| Depreciation and amortization | Depreciation and amortization | 104 | | | 100 | | | 4 | |
| Restructuring expense, net | 76 | | | 4 | | | 72 | |
| Provision for income taxes | 28 | | | 24 | | | 4 | |
| Restructuring and impairment | |
| (Benefit from) provision for income tax | |
| Non-cash, stock-based compensation expense | Non-cash, stock-based compensation expense | 18 | | | 17 | | | 1 | |
| Interest expense, net | Interest expense, net | 11 | | | 9 | | | 2 | |
| Net (income) loss attributable to non-controlling interests | 8 | | | 11 | | | (3) | |
| Net income (loss) from discontinued operations, net of tax | — | | | 1 | | | (1) | |
| Equity in net income of non-consolidated affiliates | (6) | | | (6) | | | — | |
| Net income (loss) attributable to non-controlling interests | |
| | Equity in net loss (income) of non-consolidated affiliates | |
| Equity in net loss (income) of non-consolidated affiliates | |
| Equity in net loss (income) of non-consolidated affiliates | |
| Other, net | Other, net | 9 | | | 4 | | | 5 | |
| Adjusted EBITDA | Adjusted EBITDA | $ | 192 | | | $ | 234 | | | $ | (42) | |
2023 includes a non-cash tax benefit of $313 million related to a reduction in the valuation allowance against the U.S. deferred tax assets.
The Company's consolidated results of operations for the years ended December 31, 2019 and 2018 were as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (In millions) | 2019 | | 2018 | | Change |
| Net sales | $ | 2,945 | | | $ | 2,984 | | | $ | (39) | |
| Cost of sales | (2,621) | | | (2,573) | | | (48) | |
| Gross margin | 324 | | | 411 | | | (87) | |
| Selling, general and administrative expenses | (221) | | | (193) | | | (28) | |
| Restructuring expense, net | (4) | | | (29) | | | 25 | |
| Interest expense, net | (9) | | | (7) | | | (2) | |
| Equity in net income of non-consolidated affiliates | 6 | | | 13 | | | (7) | |
| Other income, net | 10 | | | 21 | | | (11) | |
| Income (loss) before income taxes | 106 | | | 216 | | | (110) | |
| Provision for income taxes | (24) | | | (43) | | | 19 | |
| Net income (loss) from continuing operations | 82 | | | 173 | | | (91) | |
| Net (income) loss from discontinued operations, net of tax | (1) | | | 1 | | | (2) | |
| Net income (loss) | 81 | | | 174 | | | (93) | |
| Net income attributable to non-controlling interests | (11) | | | (10) | | | (1) | |
| Net income (loss) attributable to Visteon Corporation | $ | 70 | | | $ | 164 | | | $ | (94) | |
| Adjusted EBITDA* | $ | 234 | | | $ | 330 | | | $ | (96) | |
| | | | | |
* Adjusted EBITDA is a Non-U.S. GAAP financial measure, as defined in Note 20, "Segment Information and Revenue Recognition" to the Company's consolidated financial statements included in Item 8 of this Form 10-K. |
Results of Operations - 2019 Compared with 2018
Net Sales and Cost of Sales
| | | | | | | | | | | | | | | | | |
| (In millions) | Net Sales | | Cost of Sales | | Gross Margin |
| December 31, 2018 | $ | 2,984 | | | $ | (2,573) | | | $ | 411 | |
| Volume, mix, and net new business | 22 | | | (91) | | | (69) | |
| Currency | (59) | | | 47 | | | (12) | |
| VFAE consolidation | 38 | | | (32) | | | 6 | |
| Customer pricing and other | (71) | | | — | | | (71) | |
| Engineering cost, net | — | | | (21) | | | (21) | |
| Cost performance | 31 | | | 49 | | | 80 | |
| December 31, 2019 | $ | 2,945 | | | $ | (2,621) | | | $ | 324 | |
Net sales for the year ended December 31, 2019 totaled $2,945 million, which represents a decrease of $39 million compared with 2018. Unfavorable currency decreased net sales by $59 million, primarily attributable to the euro, Chinese renminbi, Brazilian real and Indian rupee. Net new business, partially offset by unfavorable volumes and mix, increased net sales by $22 million. Mix reflects the Company-specific content across programs. The consolidation of a previously non-consolidated affiliate, Changchun Visteon FAWAY Auto Electronics Co., Ltd, ("VFAE"), during the third quarter 2018 increased net sales $38 million. Other reductions, primarily associated with customer pricing, decreased net sales by $71 million. Design changes and other revenue claims increased net sales by $31 million.
Cost of sales increased $48Adjusted EBITDA was $434 million for the year ended December 31, 2019, when compared with 2018. Net new business and mix, partially offset by unfavorable volumes, increased cost of sales by $91 million. Foreign currency decreased cost of sales by $47 million primarily attributable to the euro, Chinese renminbi, Indian rupee, Brazilian real, and Bulgarian lev. Engineering costs, excluding currency and the consolidation of VFAE, increased cost of sales by $21 million. Favorable cost performance including material, design and usage economics, decreased cost of sales by $49 million in 2019. The consolidation of VFAE during 2018 increased cost of sales $32 million.
A summary of net engineering costs is shown below:
| | | | | | | | | | | |
| Year Ended December 31, |
| (In millions) | 2019 | | 2018 |
| Gross engineering costs | $ | (440) | | | $ | (431) | |
| Engineering recoveries | 140 | | | 145 | |
| Engineering costs, net | $ | (300) | | | $ | (286) | |
Gross engineering includes program development costs and advanced engineering activities, excluding contractually reimbursable engineering costs. Net engineering costs, of $300 million for the year ended December 31, 2019, including the impacts of currency and the consolidation of VFAE, were $14 million higher than 2018, primarily related to costs to support the Company's new business wins.
Selling, General and Administrative Expenses
Selling, general, and administrative expenses were $221 million, or 7.5% of net sales, and $193 million, or 6.5% of net sales, during the years ended December 31, 2019 and 2018, respectively. The increase of $28 million is related to higher stock compensation expense due to the 2018 resolution of a legal matter as further described in Note 19, "Commitments and Contingencies," to the Company's consolidated financial statements included in Item 8 of this Form 10-K, along with higher incentive compensation costs, bad debt expense, personnel costs, and the consolidation of VFAE, partially offset by favorable currency.
Restructuring Expense, Net
During the first quarter of 2019, the Company approved a restructuring program impacting two European manufacturing facilities due to the end of life of certain product lines. During the year ended December 31, 2019, the Company recorded net restructuring expense of $2 million related to this program.
During the third quarter of 2018, the Company approved a restructuring program impacting engineering and administrative functions to optimize operations. During the years ended December 31, 2019 and December 31, 2018, the Company recorded net restructuring expense of $1 million and $19 million related to this program.
During the second quarter of 2018, the Company approved a restructuring program impacting legacy employees at a South America facility and employees at North America manufacturing facilities due to the wind-down of certain products. During, the years ended December 31, 2019 and December 31, 2018, the Company recorded net restructuring expense of $1 million and $5 million related to this plan.
During 2016, the Company approved a restructuring program impacting engineering and administrative functions to further align the Company's footprint with its core product technologies and customers. During the year ended December 31, 2018, the Company recorded net restructuring expense of $5 million related to this program.
During the year ended December 31, 2018, the Company recorded approximately $1 million associated with a former European Interiors facility related to settlement of employee severance litigation.
Interest Expense, Net
Net interest expense for the year ended December 31, 2019, was $9 million,2023, representing an increase of $2 million when compared to 2018. The increase is primarily due to lower interest income on short-term investments.
Equity in Net Income of Non-Consolidated Affiliates
Equity in net income of non-consolidated affiliates was $6 million and $13 million for the years ended December 31, 2019 and 2018, respectively. The decrease in income is primarily attributable to the Company's equity interest in Yanfeng Visteon Investment Company due to decreases in engineering services, and to the elimination of equity income due to the consolidation of VFAE in the third quarter of 2018.
Other Income, Net
Other income, net consists of the following:
| | | | | | | | | | | |
| Year Ended December 31, |
| (In millions) | 2019 | | 2018 |
| Pension financing benefits, net | $ | 10 | | | $ | 13 | |
| Transformation initiatives | — | | | 4 | |
| Gain on non-consolidated affiliate transactions, net | — | | | 4 | |
| $ | 10 | | | $ | 21 | |
Transformation initiatives during the year ended December 31, 2018 include a $4 million benefit related to the resolution of a legal matter as further described in Note 19, "Commitments and Contingencies" to the Company's consolidated financial statements included in Item 8 of this Form 10-K.
On September 1, 2018, Visteon acquired an additional 1% ownership interest in VFAE, a former non-consolidated affiliate, resulting in a total 51% controlling interest and a non-cash gain of $4 million as further described in Note 2, "Discontinued Operations" to the Company's consolidated financial statements included in Item 8 of this Form 10-K.
Income Taxes
The Company's provision for income taxes was $24 million for year ended December 31, 2019 and reflects income tax expense related to those countries where the Company is profitable; accrued withholding taxes; ongoing assessments related to the recognition and measurement of uncertain tax benefits; the inability to record a tax benefit for pretax losses and/or recognize tax expense for pretax income in certain jurisdictions (including the U.S.) due to valuation allowances; and other non-recurring tax items.
The Company's provision for income taxes decreased $19 million for the year ended December 31, 2019, compared with 2018. The decrease in tax expense includes approximately $15 million primarily attributable to the overall decrease in year-over-year earnings, including changes in the mix of earnings and differing tax rates between jurisdictions, and withholding taxes. During the first quarter of 2019, the closure of tax audits in Germany allowed the Company to initiate a tax planning strategy previously determined not to be prudent. This strategy provided the necessary positive evidence to support the future utilization of a portion of the Company's deferred tax assets in Germany resulting in a $12 million income tax benefit recognized in 2019.
Other changes in the Company’s deferred tax asset valuation allowances did not materially impact net tax expense during the years ended December 31, 2019 or 2018. These decreases in the tax provision were partially offset by the $8 million increase in tax expense related to uncertain tax positions, primarily attributable by the non-recurrence of a $6 million income tax benefit in connection with uncertain tax positions related to goodwill tax amortization at an affiliate in Asia, and $2 million income tax expense primarily related to certain transfer pricing positions taken between affiliates in Europe and the U.S.
Discontinued Operations
During 2019, the Company recorded a $1 million charge for legal expenses related to former employees at a closed plant in Brazil.
During the first quarter of 2018, the Company recognized a $3 million benefit related to the resolution of a legal matter as further described in Note 19, "Commitments and Contingencies" in the Company's consolidated financial statements included in Item 8 of this Form 10-K. During 2018 the Company recorded a $4 million charge for legal expenses related to former employees at a closed plant in Brazil.
The Company recorded a $4 million income tax benefit during 2018 related to uncertain tax positions in connection with the Climate transaction, resulting from statute expiration.
Net Income
Net income attributable to Visteon was $70 million for the year ended December 31, 2019, compared to net income of $164 million for 2018. The decrease of $94 million includes a decrease in gross margin of $87 million, higher selling, general and administrative expense of $28 million, lower other income, net of $11 million, and lower equity in net income of non-consolidated affiliates of $7 million. These decreases were partially offset by lower restructuring expense of $25 million, and lower provision for income taxes of $19 million.
Adjusted EBITDA
Adjusted EBITDA was $234 million for the year ended December 31, 2019, representing a decrease of $96$86 million when compared with Adjusted EBITDA of $330$348 million for 2018. Unfavorable2022. Favorable volumes and mix reducedincreased Adjusted EBITDA by $69$114 million. Foreign currency decreased Adjusted EBITDA by $7$24 million, primarily attributable to the euro, Chinese renminbi, Brazilian real and Japanese yen partially offset by theand Mexican peso and Bulgarian lev. Higher netpeso. Net engineering costs, excluding currency, and the consolidation of VFAE, decreased Adjusted EBITDA by $21$12 million. Customer pricing decreased Adjusted EBITDA was negatively impacted by annual$256 million primarily as a result of lower semiconductor open market purchases and the associated customer pricing of $71 million, which was partially offset by favorablerecoveries due to improving supply chain dynamics related to the worldwide semiconductor supply shortage. Other cost performance of $68 million. The consolidation of VFAE, during the third quarter of 2018, increased Adjusted EBITDA by $4 million.$261 million primarily related to design changes and improved supply chain dynamics related to the worldwide semiconductor supply shortage as well as manufacturing efficiencies.
The reconciliation of Adjusted EBITDA to net income attributable to Visteon for the years ended December 31, 2019 and 2018 is as follows: | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (In millions) | 2019 | | 2018 | | Change |
| Net income (loss) attributable to Visteon Corporation | $ | 70 | | | $ | 164 | | | $ | (94) | |
| Depreciation and amortization | 100 | | | 91 | | | 9 | |
| Restructuring expense, net | 4 | | | 29 | | | (25) | |
| Interest expense, net | 9 | | | 7 | | | 2 | |
| Equity in net income of non-consolidated affiliates | (6) | | | (13) | | | 7 | |
| Provision for income taxes | 24 | | | 43 | | | (19) | |
| Net (income) loss from discontinued operations, net of tax | 1 | | | (1) | | | 2 | |
| Net income attributable to non-controlling interests | 11 | | | 10 | | | 1 | |
| Non-cash, stock-based compensation expense | 17 | | | 8 | | | 9 | |
| Other, net | 4 | | | (8) | | | 12 | |
| Adjusted EBITDA | $ | 234 | | | $ | 330 | | | $ | (96) | |
Liquidity
Overview
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 confront the many challenges caused by the impact of COVID-19, including governmental actions to mitigate the pandemic and supply chain disruptions, the Company believes that funds from these sources will be sufficient to sustain ongoing operations and support investment in differentiating technologies. The Company will continue to closely monitor and preserve its available liquidity and maintain access to additional liquidity to as needed. 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.
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.
On March 19, 2020, the Company borrowed the entire $400 million amount available under the revolving credit facility. On September 24, 2020, the Company fully repaid the amount borrowed under the Revolving Credit Facility following stronger than expected industry recovery and improved Company performance in the third quarter of 2020.
Access to additional capital through the debt or equity markets is influenced by the Company's credit ratings. As of December 31, 2020,2023, the Company’s corporate credit rating is Ba3 and BB- by Moody’s and Standard & Poor’s, respectively.Poor’s. See Note 11,10, "Debt" in the Company's consolidated financial statements included in Item 8 of this Form 10-K 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 are
utilized by the Company's consolidated joint ventures, had availability of $151 million$182 million and the Company had $400 million of available credit under the revolving credit facility as of December 31, 2020.2023.
Cash Balances
As of December 31, 2020,2023, the Company had total cash and equivalents of $500$518 million, including $4$3 million of restricted cash. Cash balances totaling $406$383 million were located in jurisdictions outside of the United States, of which approximately $190$85 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, but2017. However, the Company would be required to accrue additional tax expense primarily related to foreign withholding taxes.
Other Items Affecting Liquidity
During the year ended December 31, 2020,2023, cash contributions to the Company's U.S. defined benefit pension plans were $18 million and cash contributions of $6 million related to its non-U.S. employee retirement plans. Contributions related to certain non-U.S. plans ofwere approximately $2 million have been deferred until 2024 due to COVID-19 relief measures.$7 million. Additionally, the Company expects to make contributions to its U.S. defined benefit pension plans of $17 millionUS and non-US defined benefit pension plans of $9 and $7 million, respectively, during 2021. The Company’s expected 2021 contributions may be revised.2024.
During the year ended December 31, 2020,2023, the Company paid $32$8 million related to restructuring activities. Additional discussion regarding the Company's restructuring activities is provided in Note 4,3, "Restructuring Activities"and Impairments" in the Company's consolidated financial statements included in Item 8 of this Form 10-K.
The Company has committed to make ainvestments totaling $15 million investment in two entities principally focused on the automotive sector pursuant to limited partnership agreements. As of December 31, 2020,2023, the Company has contributed $5$12 million toward the aggregate investment commitments. As a limited partner in each entity, the Company will periodically make capital contributions toward this total commitment amount.
On March 2, 2023 the Company's board of directors authorized a share repurchase program of $300 million of common stock through December 31, 2026. Under this program, the Company will repurchase shares at the prevailing market prices pursuant to specified share price and daily volume limits. During the year ended December 31, 2023, the Company has purchased 783,290 shares at an average price of $135.22 related to this program.
Purchase Obligations
As of December 31, 2020,2023, the Company has contractual purchase obligations of approximately $75$22 million through 2023.2028.
Leases
The Company has operating leases primarily for corporate offices, technical and engineering centers, vehicles, and certain equipment with future lease obligations ranging from 2024 to 2033. Additional discussion regarding the Company's leasing
activities is provided in Note 8, "Leases" in the Company's consolidated financial statements included in Item 8 of this Form 10-K.
Taxes
The Company may be required to make significant cash outlays related to its unrecognized tax benefits, including interest and penalties. As of December 31, 2023, the Company had unrecognized tax benefits, including interest and penalties, that would be expected to result in a cash outlay of $17 million. Given the number of years, jurisdictions and positions subject to examination, the Company is unable to estimate the period of cash settlement, if any, with the respective taxing authorities. For further information related to the Company’s unrecognized tax benefits, see Note 13, “Income Taxes,” to the consolidated financial statements included in this Report.
Cash Flows
Operating Activities
Notwithstanding the significant actions implemented by the Company to substantially mitigate the impacts of the COVID-19 pandemic, theThe Company generated $168$267 million of cash from operating activities during the year ended December 31, 2020,2023, as compared to $183$167 million during 20192022 representing a $15$100 million decrease.increase.
LowerThe increase in cash flow from operating activities wasoperations in 2023 when compared to the prior period is primarily due to lower net income of $129 million. Favorable changes in accounts receivable, partially attributable to $40higher Adjusted EBITDA of $86 million and improved working capital usage of higher than anticipated$50 million, primarily related to customer receipts during the final month of 2020, were more thancollections and improved inventory management, offset by unfavorable changes in inventory and accounts payable balances resulting in lower trade working capital of $17 million in 2020 as compared to 2019. These unfavorable impacts weredecreased payables. The increases are partially offset by lower cash tax payments, higher net recoveriesan increase of reimbursable taxes and higher net proceeds received from customers to fund the Company's pre-production design, engineering and tooling costs necessary to support current and future programs.
The Company generated $183$39 million of cash from operating activities during the year ended December 31, 2019, as compared to $204 million during 2018, representing a $21 million decrease in cash provided from operations. The decrease in operating cash flows is due to lower net income of $93 million, partially offset by higher depreciation, increased stock based compensation expense, lower equity income of non-consolidated affiliates, net of dividends and other non-cash adjustments totaling $38 million. In addition, improved trade working capital performance of $27 million and favorable changes of other assets and other liabilities of $7 million further reduced the impact of lower net income on net cash from operating activities during the year ended December 31, 2019.
Investing Activities
Net cash used by investing activities during the year ended December 31, 20202023 totaled $98$123 million, as compared to $128cash used of $68 million in 2019,2022, representing a decreaseincreased usage of $30$55 million. Net cash used by investing activities during the year ended December 31, 2020 is primarily attributable to capital expenditures of $104 million to support new business, offset by proceeds from net investment hedging transactions and loan repayments received from a non-consolidated affiliate.
Net cash used by investing activities during the year ended December 31, 2019 totaled $128 million, as compared to $98 million in 2018, representing anThis increase in cash used by investing activities of $30 million. Net cash used by investing activities during the year ended December 31, 2019 is primarily attributabledue to increased capital expenditures of $142 million, partially offset by net loan repayment proceeds received from non-consolidated affiliates of $11$44 million. Net cash used by investing activities during year ended December 31, 2018, included capital expenditures of $127, partially offset by cash acquired from the consolidation of VFAE of $16 million and $13 million of other net proceeds primarily attributable to the settlement of certain agreements related to the Interiors Divestiture.
Financing Activities
Net cash used by financing activities during the year ended December 31, 2020,2023 totaled $58$156 million, as compared to $49 million for 2019, representing an increasea use of $9 million for 2022, representing increased usage of $147 million. This increase is primarily attributable to an increase in short-term debt repayment partially offset by a decreaserepurchases of common stock repurchases.
Net cash used by financing activitiesof $106 million and dividends paid to non-controlling interest of $29 million during the year ended December 31, 2019, totaled $492023. The Company also repaid $13 million compared to $335 million for 2018, representing a decrease in net cash used by financing activities of $286 million. Lower net cash used by financing activities duringprincipal on the year ended December 31, 2019 as compared to 2018 is primarily attributable to lower share repurchase transactions of $280 million. Activity during 2018 also includes dividends paid to non-controlling interests of $28 million, distribution payments of $14 million and proceeds from an increase in short-termterm debt of $12 million.facility.
Debt and Capital Structure
See "Liquidity" above and also see Note 11,10, "Debt" and Note 15,14, "Stockholders' Equity and Non-controlling Interests" to the Company's consolidated financial statements included in Item 8 of this Form 10-K for further information.
Fair Value Measurements
See Note 17,16, "Fair Value Measurements" to the Company's consolidated financial statements included in Item 8 of this Form 10-K for additional information.
Critical Accounting Estimates
The Company’s significant accounting policies have been disclosed in the consolidated financial statements and accompanying notes under Note 1, “Summary of Significant Accounting Policies” to the Company's consolidated financial statements included in Item 8 of this Form 10-K for further information.10-K. Certain policies relate to estimates that involve matters that are highly uncertain at the time the accounting estimate is made and different estimates or changes to an estimate could have a material impact on the reported financial position, changes in financial condition or results of operations. Such critical estimates are discussed below. For these, materially different amounts could be reported under varied conditions and assumption.assumptions. Other items in the Company's consolidated financial statements require estimation, however, in our judgment,the Company's opinion, they are not as critical as those discussed below.
Impairment of Long-lived Assets
The Company monitors long-lived assets for impairment indicators on an ongoing basis. If an impairment indicator exists, the Company will test the long-lived asset group for recoverability by comparing the undiscounted cash flows expected to be generated from the long-lived assets compared to the related net book values. If the net book value of the asset group exceeds the undiscounted cash flows, the asset group is written down to its fair value and an impairment loss recognized. Fair value is determined using appraisals, management estimates or discounted cash flow calculations.
In 2022, due to the geopolitical situation in Eastern Europe the Company elected to close the Russian facility resulting in a non-cash impairment charge of $5 million to fully impair property and equipment and reduce inventory to its net realizable value. Additionally, as a result of the closure, during the fourth quarter of 2022, the Company recorded a charge of approximately $3 million related to foreign currency translation amounts recorded in accumulated other comprehensive loss.
During the fourth quarter of 2021, the Company recorded an impairment of certain long-lived assets in Brazil due to rising costs and deteriorating business conditions. As a result, the Company recorded a non-cash impairment charge of $9 million to write-down property and equipment to its fair value as of December 31, 2021.
See Note 3, "Restructuring and Impairments” in the Company's consolidated financial statements included in Item 8 of this Form 10-K for additional information.
Revenue Recognition
Revenue is measured based on the transaction price and the quantity of parts specified in a contract with a customer. Discrete price adjustments may occur during the vehicle production period in order for the Company to remain competitive with market prices or based on changes in product specifications. Some of these price adjustments are non-routine in nature and require estimation. In the event the Company concludes that a portion of the revenue for a given part may vary from the purchase order, the Company records consideration at the most likely amount to which the Company expects to be entitled based on historical experience and input from customer negotiations. See Note 1, "Summary of Significant Accounting Policies” in the Company's consolidated financial statements included in Item 8 of this Form 10-K for additional information.
Product Warranty and Recall
The Company accrues for warranty obligations for products sold based on management estimates, with support from the Company’s sales, engineering, quality, and legal functions, of the amount that eventually will be required to settle such obligations. This accrual is based on several factors including contractual arrangements, past experience, current claims, production changes, industry developments, and various other considerations. The Company accrues for product recall claims related to potential financial participation in customer actions to provide remedies as a result of actual or threatened regulatory or court actions or the Company’s determination of the potential for such actions. The Company's accrual for recall claims is based on specific facts and circumstances underlying individual claims with support from the Company’s engineering, quality, and legal functions. Amounts accrued are based upon management’s best estimate of the amount that will ultimately be required to settle such claims. See Note 19,18, "Commitments and Contingencies" in the Company's consolidated financial statements included in Item 8 of this Form 10-K for additional information.
Restructuring
The Company accrues costs in connection with its restructuring of the engineering, administration, organization and manufacturing.manufacturing organizations. These accruals include estimates primarily related to employee headcount, local statutory benefits, and other employee termination costs. Actual costs may vary from these estimates. These accruals are reviewed on a quarterly basis and changes to restructuring actions are appropriately recognized when identified. See Note 4,3, “Restructuring Activities”and Impairments” in the Company's consolidated financial statements included in Item 8 of this Form 10-K for additional information.
Pension Plans
Certain Company employees participate in defined benefit pension plans or retirement/termination indemnity plans. The Company has approximately $304$142 million in unfunded net pension liabilities as of December 31, 2020,2023, of which approximately $232$113 million and $72$29 million are attributable to U.S. and non-U.S. pension plans, respectively. The determination of the Company’s obligations and expense for its pension plans is dependent on assumptions set by the Company used by actuaries in calculating such amounts. Assumptions, including the discount rate, expected long-term rate of return on plan assets, and rate of increase in compensation, are described in Note 12,11, “Employee Benefit Plans” to the Company’s consolidated financial statements included in Item 8 of this Form 10-K, which are incorporated herein by reference, including the discount rate, expected long-term rate of return on plan assets, and rate of increase in compensation.reference.
Actual results that differ from assumptions used are accumulated and amortized over future periods and, accordingly, generally affect recognized expense in future periods. Therefore, assumptions used to calculate benefit obligations as of the annual measurement date directly impact the expense to be recognized in future periods. The primary assumptions affecting the Company’s accounting for employee benefits, as of December 31, 2020,2023, are as follows:
•Expected long-term rate of return on plan assets: assets
The expected long-term rate of return is used to calculate net periodic pension cost. The required use of the expected long-term rate of return on plan assets may result in recognized returns that are greater or less than the actual returns on those plan assets in any given year. Over time the expected long-term rate of return on plan assets is designed to approximate actual returns. The expected long-term rate of return for pension assets has been estimated based on various inputs, including historical returns for the different asset classes held by the Company’s trusts and its asset allocation, as well as inputs from internal and external sources regarding expected capital market returns, inflation, and other variables.
In determining its pension expense for 2020, the Company used long-term rates of return on plan assets. For U.S. plans, the Company used an expected rate of return of 6.6%. For non-U.S. plans, the Company used expected rates of return ranging from 2.0% to 7.25%. | | | | | | | | | | | | | | | | | |
| U.S. Plans | | Non-U.S. Plans |
| 2023 | 2022 | | 2023 | 2022 |
| Expected Rate of Return | 6.87% | 6.23% | | 2.00% - 9.45% | 2.00% - 8.90% |
| Long-Term Rates of Return | 7.23% | 6.90% | | 2.00% - 9.60% | 2.00% - 9.45% |
| Actual Rates of Return | 3.22% | (17.10)% | | 4.78% | (31.10)% |
The Company has set the long-term rates of return assumptions for its 20212024 pension expense which range from 2.0%2.00% to 7.0%9.60% outside the U.S. and 6.15%7.23% in the U.S. Actual returns on U.S. pension assets for 2020, 2019 and 2018 were 15.0%, 19.9% and (4.5%), respectively.
•Discount rate: rate
The Company uses the spot rate method to estimate the service and interest components of net periodic benefit cost for pension benefits for its U.S. and certain non-U.S. plans. The Company has elected to utilize an approach that discounts individual expected cash flows underlying interest and service costs using the applicable spot rates derived from the yield curve used to determine the benefit obligation to the relevant projected cash flows. The discount rate assumption is based on market rates for a hypothetical portfolio of high-quality corporate bonds rated Aa or better with maturities closely matched to the timing of projected benefit payments for each plan at its annual measurement date. The Company used discount rates ranging from 0.8% to 8.75% to determine its pension and other benefit obligations as of December 31, 2020, including weighted average discount rates of 2.60% for U.S. pension plans and 1.78% for non-U.S. pension plan.
| | | | | | | | | | | | | | | | | |
| U.S. Plans | | Non-U.S. Plans |
| 2023 | 2022 | | 2023 | 2022 |
| Weighted Average Discount Rates | 5.40% | 2.48% | | 5.33% | 2.23% |
| Discount Rates | 5.40% | 2.48% | | 1.20% - 11.50% | 0.55% to 9.55% |
While the Company believes that these assumptions are appropriate, significant differences in actual experience or significant changes in these assumptions may materially affect the Company’s pension benefit obligations and its future expense. The following table illustrates the sensitivity to a change in certain assumptions for Company sponsored U.S. and non-U.S. pension plans on its 20202023 funded status and 20212024 pretax pension expense.
| | | | | | | | | | | | | | | | | | | | | | | |
| Impact on U.S. 20212024 Pretax Pension Expense | | Impact on
U.S. Plan 20202023
Funded Status | | Impact on Non-U.S. 20212024 Pretax Pension Expense | | Impact on
Non-U.S. Plan 20202023
Funded Status |
| 25 basis point decrease in discount rate (a)(b) | Less than -$1 million | | -$2917 million | | Less than -$1 million | | -$167 million |
| 25 basis point increase in discount rate (a)(b) | Less than +$1 million | | +$2816 million | | Less than +$1 million | | +$156 million |
| 25 basis point decrease in expected return on assets (a) | +$1.6 million | | | | Less than +$1 million | | |
| 25 basis point increase in expected return on assets (a) | -$1.6 million | | | | Less than -$1 million | | |
| (a) Assumes all other assumptions are held constant. |
| (b) Excludes impact of assets used to hedge discount rate volatility. |
Income Taxes
The Company is subject to income taxes in the U.S. and numerous non-U.S. jurisdictions. Significant judgment is required in determining the Company’s worldwide provision for income taxes, deferred tax assets and liabilities, and valuation allowances recorded against the Company’s net deferred tax assets. Deferred tax assets and liabilities are recorded for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company records a valuation allowance to reduce deferred tax assets when based on all available evidence, both positive and negative, it is more likely than not that such assets will not be realized. This assessment, which is completed onIn the event the Company's operating performance improves or deteriorates in a jurisdiction-by-jurisdiction basis, requires significant judgment, and in making this evaluation,filing jurisdiction or entity, future assessments could conclude a smaller or larger valuation allowance will be needed. Due to the evidence considered bycomplexity of some of these uncertainties, the Company includes historical, and projected financial performance, as well asultimate resolution may be materially different from the nature, frequency, and severity of recent losses along with any other pertinent information.current estimate.
In the ordinary course of the Company’s business, there are many transactions and calculations where the final tax determination is uncertain. The Company is regularly audited by tax authorities. Where appropriate, the Company accrues for contingencies related to income tax risks and non-income tax risks. See Note 14,13, "Income Taxes" in the Company's consolidated financial statements included in Item 8 of this Form 10-K for additional information.
Fair Value Measurements
The Company uses fair value measurements in the preparation of its financial statements, utilizing various inputs including those that can be readily observable, indirectly observable or are unobservable. The Company utilizes market-based data and valuation techniques that maximize the use of observable inputs. Additionally, the Company applies assumptions that market participants would use in pricing an asset or liability, including assumptions about risk. See Note 17,16, "Fair Value Measurements" and Note 6, "Property and Equipment" in the Company's consolidated financial statements included in Item 8 of this Form 10-K for additional information.
Recent Accounting Pronouncements
See Note 1, “Summary of Significant Accounting Policies” to the Company's consolidated financial statements under Item 8 of this Form 10-K for a discussion of recent accounting pronouncements.
Forward-Looking Statements
Certain statements contained or incorporated in this Annual Report on Form 10-K which are not statements of historical fact constitute “Forward-Looking Statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Reform Act”). Forward-looking statements give current expectations or forecasts of future events. Words such as “anticipate”, “expect”, “intend”, “plan”, “believe”, “seek”, “estimate” and other words and terms of similar meaning in connection with discussions of future operating or financial performance signify forward-looking statements. These statements reflect the Company’s current views with respect to future events and are based on assumptions and estimates, which are subject to risks and uncertainties including those discussed in Item 1A under the heading “Risk Factors” and elsewhere in this Form 10-K. Accordingly, undue reliance should not be placed on these forward-looking statements. Also, these forward-looking statements represent the Company’s estimates and assumptions only as of the date of this Form 10-K. The Company does not intend to update any of these forward-looking statements to reflect circumstances or events that occur after the statement is made and qualifies all of its forward-looking statements by these cautionary statements.
You should understand that various factors, in addition to those discussed elsewhere in this document, could affect the Company’s future results and could cause results to differ materially from those expressed in such forward-looking statements, including:
•Continued and future impacts of the coronavirus ("COVID-19") pandemic on the Visteon’s financial condition and business operations including global supply chain disruptions, market downturns, reduced consumer demand, and new government actions or restrictions.
•Significant or prolonged shortage of critical components from Visteon’s suppliers including, but not limited to semiconductors and particularly those components from suppliers who are sole or primary sources.
•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.
•Failure of the Company’s joint venture partners to comply with contractual obligations or to exert undue influence in China.
•Significant changes in the competitive environment in the major markets where Visteon procures materials, components, or supplies or where its products are manufactured, distributed, or sold.
•Visteon’s ability to satisfy its future capital and liquidity requirements; Visteon’s ability to access the credit and capital markets at the times and in the amounts needed and on terms acceptable to Visteon; Visteon’s ability to comply with covenants applicable to it; and the continuation of acceptable customer and supplier payment terms.
•Visteon's ability to avoid or continue to operate during a strike, or partial work stoppage or slow down at any of Visteon's principal customers
•Visteon’s ability to access funds generated by its foreign subsidiaries and joint ventures on a timely and cost-effective basis.
•Changes in the operations (including products, product planning, and part sourcing), financial condition, results of operations, or market share of Visteon’s customers.
•Changes in vehicle production volume of Visteon’s customers in the markets where it operates.
•Increases in commodity costs and the Company's ability to offset or recover these costs or disruptions in the supply of commodities, including resins, copper, fuel, and natural gas.
•Visteon’s ability to generate cost savings to offset or exceed agreed-upon price reductions or price reductions to win additional business and, in general, improve its operating performance; to achieve the benefits of its restructuring actions; and to recover engineering and tooling costs and capital investments.
•Visteon’s ability to compete favorably with automotive parts suppliers with lower cost structures and greater ability to rationalize operations; and to exit non-performing businesses on satisfactory terms, particularly due to limited flexibility under existing labor agreements.
•Restrictions in labor contracts with unions that restrict Visteon’s ability to close plants, divest unprofitable, noncompetitive businesses, change local work rules and practices at a number of facilities, and implement cost-saving measures.
•The costs and timing of facility closures or dispositions, business or product realignments, or similar restructuring actions, including potential asset impairment or other charges related to the implementation of these actions or other adverse industry conditions and contingent liabilities.
•Legal and administrative proceedings, investigations, and claims, including shareholder class actions, inquiries by regulatory agencies, product liability, warranty, employee-related, environmental and safety claims, and any recalls of products manufactured or sold by Visteon.
•Changes in economic conditions, currency exchange rates, interest rates, 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 including ransomware), unauthorized physical or electronic access, or other natural or man-made incidents or disasters.
•Visteon’s ability to protect its intellectual property rights and to respond to changes in technology and technological risks and to claims by others that Visteon infringes their intellectual property rights.
•Visteon’s ability to quickly and adequately remediate control deficiencies in its internal control over financial reporting.
•Other factors, risks and uncertainties detailed from time to time in Visteon’s Securities and Exchange Commission filings.
Item 7A.Quantitative and Qualitative Disclosures About Market Risk
The primary market risks to which the Company is exposed include changes in foreign currency exchange rates, interest rates and certain commodity prices. The Company manages these risks through derivative instruments and various operating actions including fixed price contracts with suppliers and cost sourcing arrangements with customers.customers and through various derivative instruments. The Company's use of derivative instruments is limitedstrictly intended for hedging purposes to mitigation ofmitigate market risks including hedging activities. However,pursuant to written risk management policies. Accordingly, derivative instruments are not used for speculative or trading purposes, as per clearly defined risk management policies. Additionally, thepurposes. 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, and market conditions, given the currentand prevailing economic environment.
Foreign Currency Risk
The Company’s net cash inflows and outflows exposed to the risk of changes in foreign currency exchange rates arise from the sale of products in countries other than the manufacturing source, foreign currency denominated customer receipts, supplier payments, debt and other payables, subsidiary dividends, investments in subsidiaries, and anticipated foreign currency denominated transaction proceeds. Where possible, theThe Company utilizesmay utilize derivative financial instruments to manage foreign currency exchange rate risks. Forward and option contracts may be utilized to reduce the impact to the Company's cash flow from adverse movements in exchange rates. Foreign currency exposures are reviewed periodically, and any natural offsets are considered prior to entering into a derivative financial instrument. The Company’s primary hedged foreign currency exposures include the euro and Mexican peso and Brazilian real. Where possible, the Company utilizes a strategy of partial coverage for transactions in these currencies. The Company's policy requires that hedge transactions relate to a specific portion of the exposure not to exceed the aggregate amount of the underlying transaction.
In addition to the transactional exposure described above, the Company's operating results are impacted by the translation of its foreign operating income into U.S. dollars. The Company does not enter into foreign exchange contracts to mitigate this exposure.
The hypothetical pretax gain or loss in fair value from a 10% favorable or adverse change in quoted currency exchange rates would be approximately $31 million and $32$21 million for foreign currency derivative financial instruments as of December 31, 20202023 and 2019, respectively.2022. 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 18,17, "Financial Instruments" to the Company's consolidated financial statements included in Item 8 of this Form 10-K for additional information.
Commodity Risk
The Company's exposures to market risk from changes in the price of production material are managed primarily through negotiations with suppliers and customers, although there can be no assurance that the Company will recover all such costs. The Company continues to evaluate derivatives available in the marketplace and may decide to utilize derivatives in the future to manage select commodity risks if an acceptable hedging instrument is identified for the Company's exposure level at that time, as well as the effectiveness of the financial hedge among other factors.
Item 8.Financial Statements and Supplementary Data
Visteon Corporation and Subsidiaries
Index to Consolidated Financial Statements
Management's Report of Independent Registered Public Accounting Firm
To the stockholders and the Board of Directors of Visteon Corporation
Opinions on the Financial Statements and Internal Control Overover Financial Reporting
Management is responsible for establishing
We have audited the accompanying consolidated balance sheets of Visteon Corporation and maintaining adequate internal control over financial reporting as such term is defined under Rule 13a-15(f) of the Securities Exchange Act of 1934. Under the supervision and with the participation of the principal executive and financial officers of the Company, an evaluation of the effectiveness of internal control over financial reporting was conducted based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations (“the COSO 2013 Framework”subsidiaries (the "Company") of the Treadway Commission.
Based on the evaluation performed under the COSO 2013 Framework as of December 31, 2020, management has concluded that2023 and 2022, the Company’s internal control over financial reporting is effective. Additionally, Ernst & Young LLP, an independent registered public accounting firm, hasrelated consolidated statements of operations, comprehensive income (loss), cash flows, and changes in equity, for each of the two years in the period ended December 31, 2023, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the "financial statements"). We also have audited the effectiveness of the Company’s internal control over financial reporting as of December 31, 2020, as stated2023, based on criteria established in their report which is included herein.Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
Basis for Opinions
The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Revenue Recognition - Non-routine price adjustments - Refer to Note 1 to the financial statements
Critical Audit Matter Description
The Company’s revenue is measured based on the transaction price and the quantity of parts specified in a contract with a customer. Discrete price adjustments may occur during the vehicle production period in order for the Company to remain competitive with market prices or based on changes in product specifications. Some of these price adjustments are non-routine in nature and require estimation. In the event the Company concludes that a portion of the revenue for a given part may vary from the purchase order, the Company records consideration at the most likely amount to which the Company expects to be entitled based on historical experience and input from customer negotiations.
Auditing non-routine price adjustments requires auditor judgment to evaluate the evidence available from customer negotiations.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to non-routine price adjustments including the following, among others:
•We tested the effectiveness of controls over non-routine price adjustments.
•We tested a sample of non-routine price adjustments recorded and compared such adjustments to underlying supporting documentation.
•We inspected pricing-related communications between the Company and its customers.
•We evaluated management’s process for estimating non-routine price adjustments by comparing current year adjustments to accruals established in prior periods.
•We made inquiries of Company executives responsible for customer relationships regarding customer negotiations and non-routine price adjustments.
Income Taxes - U.S. net deferred tax asset valuation allowance - Refer to Note 1 and Note 13 to the financial statements
Critical Audit Matter Description
The Company records a valuation allowance to reduce deferred tax assets when it is more likely than not that such assets will not be realized. In determining the need for a valuation allowance, all available positive and negative evidence, including historical and projected financial performance, is considered along with any other pertinent information.
In the fourth quarter of 2023, the Company released $313 million of valuation allowance against its U.S. net deferred tax assets (“valuation allowance release”) resulting in a non-cash benefit to income tax expense. In determining the amount of the U.S. valuation allowance to release, the Company applied the incremental economic benefit approach.
Auditing the valuation allowance release required a high degree of auditor judgment and an increased extent of effort, including the need to involve our income tax specialists, due to the complexity in applying the incremental economic benefit approach.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the Company’s valuation allowance release included the following, among others:
•We tested the effectiveness of controls over management’s application of the incremental economic benefit approach to determine the amount of the valuation allowance release.
•We tested the application of the incremental economic benefit approach including the underlying data and assumptions used by management.
•With the assistance of our income tax specialists, we developed an independent expectation of the amount of the valuation allowance release and compared it to management’s calculation of the valuation allowance release.
/s/ Deloitte & Touche LLP
Detroit, Michigan
February 20, 2024
We have served as the Company's auditor since 2022.
Report of Independent Registered Public Accounting Firm
To the ShareholdersStockholders and the Board of Directors of Visteon Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Visteon Corporation and subsidiaries (the Company) as of December 31, 20202021 and 2019,2020, the related consolidated statements of operations, comprehensive income (loss), cash flows and changes in equity for each of the three years in the period ended December 31, 2020,2021, and the related notes and financial statement schedule included in Item 15(a)(2) (collectively referred to as the “consolidated"consolidated financial statements”statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 20202021 and 2019,2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020,2021, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020,2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 18, 202117, 2022 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit MatterMatters
The critical audit mattermatters communicated below is a matterare matters arising from the current period audit of the consolidated financial statements that waswere communicated or required to be communicated to the audit committee and that: (1) relatesrelate to accounts or disclosures that are material to the consolidated financial statements and (2) involved especially challenging, subjective, or complex judgments. The communication of a critical audit mattermatters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit mattermatters below, providing a separate opinion on the critical audit mattermatters or on the accounts or disclosures to which it relates.
40they relate.
| | | | | | | | |
| | Revenue Recognition |
| Description of the Matter | | As discussed in Note 1, Summary of Significant Accounting Policies, the Company’s sales contracts with its customers may provide for discrete price adjustments during the vehicle production period in order for the Company to remain competitive with market prices or based on changes in production specifications. Some of these price adjustments are non-routine in nature and require estimation. In the event the Company concludes that a portion of the revenue for a given part may vary from the purchase order, the Company records consideration at the most likely amount to which the Company expects to be entitled based on historical experience and input from customer negotiations. Auditing the consideration the Company expects to be entitled to in exchange for certain of its products which are subject to non-routine price adjustments is highly judgmental due to changes in production specifications and commercial negotiations with customers throughout the life of the production periods. |
| How We Addressed the Matter in Our Audit | | We identified and tested controls relating to the identification and evaluation of non-routine pricing adjustments including management’s evaluation of the commercial facts and circumstances to support the most likely consideration to which the Company expects to be entitled. Our audit procedures included, among others, inspecting communications between the Company and its customers related to the pricing arrangements, making inquiries of the sales representatives who are responsible for negotiations with customers, testing any subsequent adjustments for appropriate amount and timing, obtaining written representations from management regarding customer agreements, and performing retrospective reviews of management’s estimates to identify any contrary evidence. |
| | |
| | Impairment of Long-lived Assets - Property and Equipment |
| Description of the Matter | | As of December 31, 2021, the Company's property and equipment, net balance was $388 million. As discussed in Note 4, Restructuring and Impairments, during the fourth quarter of 2021, the Company recorded an impairment of certain long-lived assets in Brazil due to rising costs and deteriorating business conditions. The Company evaluated its property and equipment in Brazil for recoverability and concluded that certain assets were impaired. The Company recognized a $9 million impairment charge, which is the amount by which the carrying value exceeded the estimated fair value of these assets. Auditing the Company’s impairment measurement involved a high degree of judgment as estimates underlying the determination of fair value of the long-lived assets were based on assumptions affected by current market and economic conditions. To determine the fair value of the long-lived asset group, the Company utlized a cost and market approach, measuring fair value on the standalone basis value premise. |
| How We Addressed the Matter in Our Audit | | We identified and tested controls relating to the determination of the asset group's fair value and measurement of the related impairment. We also tested controls over the Company's review of the significant assumptions and methodologies used in the calculation of fair value of the related assets. Our audit procedures included, among others, evaluating the valuation methodology, significant assumptions and data used in the valuation, and testing the mathematical accuracy of the impairment charge. We also involved our valuation specialists to assist in evaluating the approach and key assumptions used to estimate the fair value. |
/s/ Ernst & Young LLP
We have served as the Company’sCompany's auditor since 2012.from 2012 to 2022.
Detroit, Michigan
February 18, 2021
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Visteon Corporation
Opinion on Internal Control Over Financial Reporting
We have audited Visteon Corporation and subsidiaries’ internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Visteon Corporation and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the 2020 consolidated financial statements of the Company and our report dated February 18, 2021 expressed an unqualified opinion.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Detroit, Michigan
February 18, 2021
VISTEON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share amounts)
| | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | |
| 2020 | | 2019 | | 2018 | |
| Net sales | $ | 2,548 | | | $ | 2,945 | | | $ | 2,984 | | |
| Cost of sales | (2,303) | | | (2,621) | | | (2,573) | | |
| Gross margin | 245 | | | 324 | | | 411 | | |
| Selling, general and administrative expenses | (193) | | | (221) | | | (193) | | |
| Restructuring expense, net | (76) | | | (4) | | | (29) | | |
| Interest expense | (16) | | | (13) | | | (14) | | |
| Interest income | 5 | | | 4 | | | 7 | | |
| Equity in net income of non-consolidated affiliates | 6 | | | 6 | | | 13 | | |
| Other income, net | 9 | | | 10 | | | 21 | | |
| Income (loss) before income taxes | (20) | | | 106 | | | 216 | | |
| Provision for income taxes | (28) | | | (24) | | | (43) | | |
| Net income (loss) from continuing operations | (48) | | | 82 | | | 173 | | |
| Net income (loss) from discontinued operations, net of tax | 0 | | | (1) | | | 1 | | |
| Net income (loss) | (48) | | | 81 | | | 174 | | |
| Net (income) loss attributable to non-controlling interests | (8) | | | (11) | | | (10) | | |
| Net income (loss) attributable to Visteon Corporation | $ | (56) | | | $ | 70 | | | $ | 164 | | |
| Basic earnings (loss) per share: | | | | | | |
| Continuing operations | $ | (2.01) | | | $ | 2.53 | | | $ | 5.53 | | |
| Discontinued operations | 0 | | | (0.04) | | | 0.03 | | |
| Basic earnings (loss) per share attributable to Visteon Corporation | $ | (2.01) | | | $ | 2.49 | | | $ | 5.56 | | |
| Diluted earnings (loss) per share: | | | | | | |
| Continuing operations | $ | (2.01) | | | $ | 2.52 | | | $ | 5.49 | | |
| Discontinued operations | 0 | | | (0.04) | | | 0.03 | | |
| Diluted earnings (loss) per share attributable to Visteon Corporation | $ | (2.01) | | | $ | 2.48 | | | $ | 5.52 | | |
| | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | |
| 2023 | | 2022 | | 2021 | |
| Net sales | $ | 3,954 | | | $ | 3,756 | | | $ | 2,773 | | |
| Cost of sales | (3,467) | | | (3,388) | | | (2,519) | | |
| Gross margin | 487 | | | 368 | | | 254 | | |
| Selling, general and administrative expenses | (207) | | | (188) | | | (175) | | |
| Restructuring and impairment | (5) | | | (14) | | | (14) | | |
| Interest expense | (17) | | | (14) | | | (10) | | |
| Interest income | 10 | | | 4 | | | 2 | | |
| Equity in net (loss) income of non-consolidated affiliates | (10) | | | (1) | | | 6 | | |
| Other (loss) income, net | (1) | | | 20 | | | 18 | | |
| Income (loss) before income taxes | 257 | | | 175 | | | 81 | | |
| Benefit from (provision for) income taxes | 248 | | | (45) | | | (31) | | |
| Net income (loss) | 505 | | | 130 | | | 50 | | |
| Less: Net (income) loss attributable to non-controlling interests | (19) | | | (6) | | | (9) | | |
| Net income (loss) attributable to Visteon Corporation | $ | 486 | | | $ | 124 | | | $ | 41 | | |
| | | | | | |
| Basic earnings (loss) per share attributable to Visteon Corporation | $ | 17.30 | | | $ | 4.41 | | | $ | 1.46 | | |
| | | | | | |
| Diluted earnings (loss) per share attributable to Visteon Corporation | $ | 17.05 | | | $ | 4.35 | | | $ | 1.44 | | |
See accompanying notes to the consolidated financial statements.
VISTEON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In millions)
| | Year Ended December 31, |
| 2020 | | 2019 | | 2018 |
| Year Ended December 31, | | | Year Ended December 31, |
| 2023 | | | 2023 | | 2022 | | 2021 |
| Net income (loss) | Net income (loss) | $ | (48) | | | $ | 81 | | | $ | 174 | |
| | Foreign currency translation adjustments | Foreign currency translation adjustments | 45 | | | (13) | | | (46) | |
| Foreign currency translation adjustments | |
| Foreign currency translation adjustments | |
| Net investment hedge | Net investment hedge | (19) | | | 9 | | | 7 | |
Benefit plans, net of tax (a) | Benefit plans, net of tax (a) | (51) | | | (43) | | | (8) | |
Unrealized hedging gains (losses), net of tax (b) | (5) | | | (6) | | | 1 | |
Unrealized hedging gains (losses), net of tax (a) | |
| Other comprehensive income (loss), net of tax | Other comprehensive income (loss), net of tax | (30) | | | (53) | | | (46) | |
| Comprehensive income (loss) | Comprehensive income (loss) | (78) | | | 28 | | | 128 | |
| Comprehensive income (loss) attributable to non-controlling interests | Comprehensive income (loss) attributable to non-controlling interests | 15 | | | 9 | | | 6 | |
| Comprehensive income (loss) attributable to Visteon Corporation | Comprehensive income (loss) attributable to Visteon Corporation | $ | (93) | | | $ | 19 | | | $ | 122 | |
(a) Benefit plans,These amounts are net of tax reflects tax expense of less than $1 million for the year ended December 31, 2020, tax benefit of $5 million for the year ended December 31,2019, and tax expense of $1 million for the year ended December 31, 2018.
(b) Unrealized hedging gains (losses), net of tax reflects 0income tax effects for the years ended December 31, 2020 and 2019, respectively, and tax expense of less than $1 million for the year ended December 31, 2018.effects.
See accompanying notes to the consolidated financial statements.
VISTEON CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions)
| | December 31, |
| 2020 | | 2019 |
| December 31, | | | December 31, |
| 2023 | | | 2023 | | 2022 |
| ASSETS | ASSETS | ASSETS |
| Cash and equivalents | Cash and equivalents | $ | 496 | | | $ | 466 | |
| Restricted cash | Restricted cash | 4 | | | 3 | |
| Accounts receivable, net | Accounts receivable, net | 484 | | | 514 | |
| Inventories, net | Inventories, net | 177 | | | 169 | |
| Other current assets | Other current assets | 180 | | | 193 | |
| Total current assets | Total current assets | 1,341 | | | 1,345 | |
| Property and equipment, net | Property and equipment, net | 436 | | | 436 | |
| Intangible assets, net | Intangible assets, net | 127 | | | 127 | |
| Right-of-use assets | Right-of-use assets | 172 | | | 165 | |
| Investments in non-consolidated affiliates | Investments in non-consolidated affiliates | 60 | | | 48 | |
| Deferred tax assets | |
| Other non-current assets | Other non-current assets | 135 | | | 150 | |
| Total assets | Total assets | $ | 2,271 | | | $ | 2,271 | |
| LIABILITIES AND EQUITY | LIABILITIES AND EQUITY | LIABILITIES AND EQUITY |
| Short-term debt | Short-term debt | $ | 0 | | | $ | 37 | |
| Accounts payable | Accounts payable | 500 | | | 511 | |
| Accrued employee liabilities | Accrued employee liabilities | 83 | | | 73 | |
| Current lease liability | Current lease liability | 32 | | | 30 | |
| Other current liabilities | Other current liabilities | 209 | | | 147 | |
| Total current liabilities | Total current liabilities | 824 | | | 798 | |
| Long-term debt, net | Long-term debt, net | 349 | | | 348 | |
| Employee benefits | Employee benefits | 322 | | | 292 | |
| Non-current lease liability | Non-current lease liability | 146 | | | 139 | |
| Deferred tax liabilities | Deferred tax liabilities | 28 | | | 27 | |
| Other non-current liabilities | Other non-current liabilities | 92 | | | 72 | |
| Stockholders’ equity: | Stockholders’ equity: | |
| Preferred stock (par value $0.01, 50 million shares authorized, NaN outstanding as of December 31, 2020 and 2019) | 0 | | | 0 | |
| Common stock (par value $0.01, 250 million shares authorized, 55 million shares issued, 28 million shares outstanding as of December 31, 2020 and 2019) | 1 | | | 1 | |
| Preferred stock (par value $0.01, 50 million shares authorized, none outstanding as of December 31, 2023 and 2022) | |
| Preferred stock (par value $0.01, 50 million shares authorized, none outstanding as of December 31, 2023 and 2022) | |
| Preferred stock (par value $0.01, 50 million shares authorized, none outstanding as of December 31, 2023 and 2022) | |
| Common stock (par value $0.01, 250 million shares authorized, 55 million shares issued, 27.7 and 28.2 million shares outstanding as of December 31, 2023 and December 31, 2022, respectively) | |
| Additional paid-in capital | Additional paid-in capital | 1,348 | | | 1,342 | |
| Retained earnings | Retained earnings | 1,623 | | | 1,679 | |
| Accumulated other comprehensive loss | Accumulated other comprehensive loss | (304) | | | (267) | |
| Treasury stock | Treasury stock | (2,281) | | | (2,275) | |
| Total Visteon Corporation stockholders’ equity | Total Visteon Corporation stockholders’ equity | 387 | | | 480 | |
| Non-controlling interests | Non-controlling interests | 123 | | | 115 | |
| Total equity | Total equity | 510 | | | 595 | |
| Total liabilities and equity | Total liabilities and equity | $ | 2,271 | | | $ | 2,271 | |
See accompanying notes to the consolidated financial statements.
VISTEON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS1
(In millions)
| | Year Ended December 31, |
| 2020 | | 2019 | | 2018 |
| Year Ended December 31, | | | Year Ended December 31, |
| 2023 | | | 2023 | | 2022 | | 2021 |
| Operating Activities | Operating Activities | | | | | |
| Net income (loss) | $ | (48) | | | $ | 81 | | | $ | 174 | |
| Net income | |
| Net income | |
| Net income | |
| Adjustments to reconcile net income (loss) to net cash provided from operating activities: | Adjustments to reconcile net income (loss) to net cash provided from operating activities: | |
| Depreciation and amortization | Depreciation and amortization | 104 | | | 100 | | | 91 | |
| Depreciation and amortization | |
| Depreciation and amortization | |
| Non-cash stock-based compensation | Non-cash stock-based compensation | 18 | | | 17 | | | 8 | |
| Transaction gains | 0 | | | 0 | | | (8) | |
| Equity in net income of non-consolidated affiliates, net of dividends remitted | Equity in net income of non-consolidated affiliates, net of dividends remitted | (5) | | | (6) | | | (13) | |
| Impairments | |
| U.S. tax valuation allowance benefit | |
| Other non-cash items | Other non-cash items | 7 | | | 8 | | | 3 | |
| Changes in assets and liabilities: | Changes in assets and liabilities: | |
| Accounts receivable | |
| Accounts receivable | |
| Accounts receivable | Accounts receivable | 51 | | | (33) | | | 44 | |
| Inventories | Inventories | (2) | | | 13 | | | 1 | |
| Accounts payable | Accounts payable | (13) | | | 73 | | | (19) | |
| Other assets and other liabilities | Other assets and other liabilities | 56 | | | (70) | | | (77) | |
| Net cash provided from operating activities | Net cash provided from operating activities | 168 | | | 183 | | | 204 | |
| Investing Activities | Investing Activities | |
| Capital expenditures, including intangibles | Capital expenditures, including intangibles | (104) | | | (142) | | | (127) | |
| Capital expenditures, including intangibles | |
| Capital expenditures, including intangibles | |
| Contributions to equity method investments | |
| Net investment hedge transactions | Net investment hedge transactions | 8 | | | 0 | | | 0 | |
| Loans to non-consolidated affiliate, net of repayments | 2 | | | 11 | | | 0 | |
| Acquisition of businesses, net of cash acquired | 0 | | | 0 | | | 16 | |
| Other, net | Other, net | (4) | | | 3 | | | 13 | |
| Net cash used by investing activities | Net cash used by investing activities | (98) | | | (128) | | | (98) | |
| Financing Activities | Financing Activities | |
| Borrowings on debt | 400 | | | 0 | | | 0 | |
| Principal payments on debt | (400) | | | 0 | | | 0 | |
| Borrowings on term debt facility | |
| Borrowings on term debt facility | |
| Borrowings on term debt facility | |
| Payments on term debt facility | |
| Short-term debt, net | |
| Principal repayment of term debt facility | |
| Dividends paid to non-controlling interests | |
| Repurchase of common stock | Repurchase of common stock | (16) | | | (20) | | | (300) | |
| Short-term debt, net | (37) | | | (19) | | | 12 | |
| Dividends paid to non-controlling interests | (7) | | | (9) | | | (28) | |
| Distribution payments | 0 | | | 0 | | | (14) | |
| Stock-based compensation tax withholding payments | 0 | | | 0 | | | (7) | |
| Stock based compensation tax withholding payments | |
| Proceeds from the exercise of stock options | |
| Other | Other | 2 | | | (1) | | | 2 | |
| Net cash used by financing activities | Net cash used by financing activities | (58) | | | (49) | | | (335) | |
| Effect of exchange rates | 19 | | | (4) | | | (13) | |
| Effect of exchange rate changes on cash | |
| Net increase (decrease) in cash, equivalents, and restricted cash | Net increase (decrease) in cash, equivalents, and restricted cash | 31 | | | 2 | | | (242) | |
| Cash, equivalents, and restricted cash at beginning of the period | Cash, equivalents, and restricted cash at beginning of the period | 469 | | | 467 | | | 709 | |
| Cash, equivalents, and restricted cash at end of the period | Cash, equivalents, and restricted cash at end of the period | $ | 500 | | | $ | 469 | | | $ | 467 | |
| | Supplemental Disclosures: | Supplemental Disclosures: | |
| Cash paid for interest | $ | 18 | | | $ | 14 | | | $ | 15 | |
| Supplemental Disclosures: | |
| Supplemental Disclosures: | |
| Cash paid for interest, net | |
| Cash paid for interest, net | |
| Cash paid for interest, net | |
| Cash paid for income taxes, net of refunds | Cash paid for income taxes, net of refunds | $ | 19 | | | $ | 40 | | | $ | 47 | |
|
1 The Company has combined cash flows from discontinued operations with cash flows from continuing operations within the operating, investing and financing categories.
See accompanying notes to the consolidated financial statements.
VISTEON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In millions)
| | Total Visteon Corporation Stockholders' Equity | |
| Common
Stock | | Stock
Warrants | | Additional
Paid-In
Capital | | Retained
Earnings | | Accumulated
Other
Comprehensive
Income (Loss) | | Treasury
Stock | | Total Visteon Corporation Stockholders' Equity | | Non-Controlling Interests | | Total Equity |
| December 31, 2017 | $ | 1 | | | $ | — | | | $ | 1,339 | | | $ | 1,445 | | | $ | (174) | | | $ | (1,974) | | | $ | 637 | | | $ | 124 | | | $ | 761 | |
| Total Visteon Corporation Stockholders' Equity | |
| Common
Stock | |
| Common
Stock | |
| 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 | |
| Net income (loss) | Net income (loss) | — | | | — | | | — | | | 164 | | | — | | | — | | | 164 | | | 10 | | | 174 | |
| Other comprehensive income (loss) | Other comprehensive income (loss) | — | | | — | | | — | | | — | | | (42) | | | — | | | (42) | | | (4) | | | (46) | |
| Stock-based compensation, net | Stock-based compensation, net | — | | | — | | | (4) | | | — | | | — | | | 10 | | | 6 | | | — | | | 6 | |
| Repurchase of shares of common stock | — | | | — | | | — | | | — | | | — | | | (300) | | | (300) | | | — | | | (300) | |
| Cash dividends | Cash dividends | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (28) | | | (28) | |
| Business acquisition | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 15 | | | 15 | |
| December 31, 2018 | $ | 1 | | | $ | — | | | $ | 1,335 | | | $ | 1,609 | | | $ | (216) | | | $ | (2,264) | | | $ | 465 | | | $ | 117 | | | $ | 582 | |
| December 31, 2021 | |
| Net income (loss) | Net income (loss) | — | | | — | | | — | | | 70 | | | — | | | — | | | 70 | | | 11 | | | 81 | |
| Other comprehensive income (loss) | Other comprehensive income (loss) | — | | | — | | | — | | | — | | | (51) | | | — | | | (51) | | | (2) | | | (53) | |
| Stock-based compensation, net | Stock-based compensation, net | — | | | — | | | 5 | | | — | | | — | | | 9 | | | 14 | | | — | | | 14 | |
| Repurchase of shares of common stock | — | | | — | | | — | | | — | | | — | | | (20) | | | (20) | | | — | | | (20) | |
| Cash dividends | Cash dividends | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (9) | | | (9) | |
| Acquisition of non-controlling interest | — | | | — | | | 2 | | | — | | | — | | | — | | | 2 | | | (2) | | | 0 | |
| December 31, 2019 | $ | 1 | | | $ | 0 | | | $ | 1,342 | | | $ | 1,679 | | | $ | (267) | | | $ | (2,275) | | | $ | 480 | | | $ | 115 | | | $ | 595 | |
| December 31, 2022 | |
| Net income (loss) | Net income (loss) | — | | | — | | | — | | | (56) | | | — | | | — | | | (56) | | | 8 | | | (48) | |
| Other comprehensive income (loss) | Other comprehensive income (loss) | — | | | — | | | — | | | — | | | (37) | | | 0 | | | (37) | | | 7 | | | (30) | |
| Stock-based compensation, net | Stock-based compensation, net | — | | | — | | | 6 | | | — | | | — | | | 10 | | | 16 | | | — | | | 16 | |
| Repurchase of shares of common stock | — | | | — | | | — | | | — | | | — | | | (16) | | | (16) | | | — | | | (16) | |
| Cash dividends | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (7) | | | (7) | |
| December 31, 2020 | $ | 1 | | | $ | 0 | | | $ | 1,348 | | | $ | 1,623 | | | $ | (304) | | | $ | (2,281) | | | $ | 387 | | | $ | 123 | | | $ | 510 | |
| Share repurchase | |
| Dividends to non-controlling interest | |
| December 31, 2023 | |
See accompanying notes to the consolidated financial statements.
VISTEON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. Summary of Significant Accounting Policies
Basis of Presentation:Visteon Corporation (the "Company" or "Visteon") financial statements have been prepared in conformity with accounting principles generally accepted in the United States ("U.S. GAAP") on a going concern basis, which contemplates the continuity of operations, realization of assets, and satisfaction of liabilities in the normal course of business.
Principles of Consolidation: The consolidated financial statements include the accounts of the Company and its consolidated subsidiaries.subsidiaries over which it exerts control. Investments in affiliates over which the Company does not exercise control, but does have the ability to exercise significant influence over operating and financial policies, are accounted for using the equity method. All other investments are measured at cost, less impairment, with changes in fair value recognized in net income.
The Company determines whether the joint venture in which it has invested is a Variable Interest Entity (“VIE”) at the start of each new venture and when a reconsideration event has occurred. An enterprise must consolidate a VIE if it is determined to be the primary beneficiary of the VIE. The primary beneficiary has both the power to direct the activities of the VIE that most significantly impact the entity’s economic performance and the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE.
Use of Estimates: The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect amounts reported herein. Considerable judgment is involved in making these determinations and the use of different estimates or assumptions could result in significantly different results. Management believes its assumptions and estimates are reasonable and appropriate. However, actual results could differ from those reported herein. Events and changes in circumstances arising after December 31, 2020, including those resulting from the impacts of COVID-19 and related subsequent semiconductor supply shortage, as described below,2023 will be reflected in management's estimates for future periods.
The adverse impacts of the COVID-19 pandemic led to a significant vehicle production slowdown 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. This surge in demand has led to a worldwide semiconductor supply shortage in early 2021, as semiconductor suppliers have been unable to rapidly reallocate production lines to serve the automotive industry. The Company is working closely with suppliers and customers to minimize any potential adverse impacts, and continues to closely monitor the availability of semiconductor microchips and other component parts and raw materials, customer vehicle production schedules and any other supply chain inefficiencies that may arise, due to this or any other issue. However, any direct or indirect supply chain disruptions may have a material adverse impact on the Company's financial condition and results of operations or cash flows. The Company continues to actively monitor the potential supply chain impacts of this worldwide shortage and other ongoing potential impacts of COVID-19 and will seek to aggressively mitigate and minimize its impact on our business.
Foreign Currency: AssetsWe translate the assets and liabilities for most of the Company’s non-U.S. businesses are translated into U.S.foreign subsidiaries to United States (U.S.) dollars at end-of-period exchange rates. Income and expense accountsWe translate the income statement elements of the Company’s non-U.S. businesses are translated intoforeign subsidiaries to U.S. dollars at average-period exchange rates. The relatedWe report the effect of translation adjustments are recorded in accumulated other comprehensive income (loss) ("AOCI") infor foreign subsidiaries that use the Consolidated Balance Sheets.
The effectslocal currency as their functional currency as a separate component of remeasuring monetarystockholders' equity. Gains and losses resulting from the remeasurement of assets and liabilities of the Company’s businesses denominated in currenciesa currency other than theirthe functional currency of a subsidiary are recorded as transactionreported in current period income. We also report any gains and losses in the Consolidated Statements of Operations. Additionally, gains and losses resultingarising from transactions denominated in a currency other than the functional currency are recorded as transaction gains and lossesof a subsidiary in the Consolidated Statements of Operations.current period income. Net transaction gains and losses inclusive of amounts associated with discontinued operations, decreased net income by $2 million $3for the year ended December 31, 2023. Net transaction gains and losses increased net income by $5 million and $6$2 million for the years ended December 31, 2020, 20192022 and 20182021, respectively.
Revenue Recognition: The Company generates revenue from the production of automotive vehicle cockpit electronics parts sold to Original Equipment Manufacturers ("OEMs"), or Tier 1 suppliers at the direction of the OEM, under long-term supply agreements supporting new vehicle production. Such agreements may also require related production for service parts subsequent to initial vehicle production periods.
The Company’s contracts with customers involve various governing documents (sourcing agreements, master purchase agreements, terms and conditions agreements, etc.) which do not reach the level of a performance obligation of the Company until the Company receives either a purchase order and/or a customer release for a specific number of parts at a specified price, at which point the collective group of documents represent an enforceable contract. While the long-term supply agreements generally range from three to five years, customers make no commitments to volumes, and pricing or specifications can change prior to or during production. The Company recognizes revenue when control of the parts produced are transferred to the customer according to the terms of the contract, which is usually when the parts are shipped or delivered to the customer’s premises. Customers are generally invoiced upon shipment or delivery and payment generally occurs within 45 to 90 days and do not include significant financing components. Customers in China are often invoiced one month after shipment or delivery. Customer returns, when they occur, relate to quality rework issues and are not connected to any repurchase obligation of the Company. As of December 31, 2020,2023, all unfulfilled performance obligations are expected to be fulfilled within the next twelve months.
Revenue is measured based on the transaction price and the quantity of parts specified in a contract with a customer. Discrete price adjustments may occur during the vehicle production period in order for the Company to remain competitive with market prices or based on changes in product specifications. Some of these price adjustments are non-routine in nature and require
estimation. In the event the Company concludes that a portion of the revenue for a given part may vary from the purchase order, the Company records revenueconsideration at the most likely amount to which the Company expects to be entitled based on historical experience and input from customer negotiations. The Company records such estimates within Net sales and Accounts receivable, net, within the Consolidated Statements of Operations and Consolidated Balance Sheets, respectively. The Company adjusts its pricing reserves at the earlier of when the most likely amount of consideration changes or when the consideration becomes fixed. In 2020,2023, revenue recognized related to performance obligations satisfied in previous periods represented less than 1% of consolidated net sales. The Company has no material contracts assets, contract liabilities or capitalized contract acquisition costs as of December 31, 2020.
Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction that are collected by the Company from a customer are excluded from revenue. Shipping and handling costs associated with outbound freight after control of the parts has transferred to a customer are accounted for as a fulfillment cost and are included in costCost of sales.
Segment: The Company reports operating and financial results in a single segment based on the consolidated information used by management in evaluating the financial performance of our business and allocating resources. This single segment reflects the Company’s core business; Electronics. The Electronics segment provides vehicle cockpit electronics products to customers, including digital instrument clusters, domain controllers with integrated advanced driver assistance systems (“ADAS”), displays, Android-based infotainment systems, and battery management systems. As the Company has one reportable segment, net sales, total assets, depreciation, amortization and capital expenditures are equal to consolidated results.
Restructuring Expense: Restructuring expense includes costs directly associated with exit or disposal activities. Such costs include employee severance and termination benefits, special termination benefits, contract termination fees and penalties, and other exit or disposal costs. In general, the Company records involuntary employee-related exit and disposal costs when there is a substantive plan for employee severance and related costs are probable and estimable. For one-time termination benefits (i.e., no substantive plan) and employee retention costs, expense is recorded when the employees are entitled to receive such benefits and the amount can be reasonably estimated. Contract termination fees and penalties and other exit and disposal costs are generally recorded when incurred.
Debt Issuance Costs: The costs related to issuance or modification of long-term debt are deferred and amortized into interest expense over the life of each respective debt issue. Deferred amounts associated with debt extinguished prior to maturity are expensed upon extinguishment.
Other Costs within Cost of Sales: Repair and maintenance costs, certain pre-production costs, and research and development expenses are expensed as incurred. Pre-production costs expensed represent engineering and development costs that are not contractually guaranteed for reimbursement by the customer. Research and development expenses include salary and related employee benefits, contractor fees, information technology, occupancy, telecommunications, depreciation, forward model program development, and advanced engineering activities. Research and development expenses were $201$210 million, $300$196 million, and $286$191 million in 2020, 20192023, 2022 and 2018,2021, respectively, which includes recoveries from customers of $120 million, $145 million and $134 million, $140 million and $146 million. Shipping and handling costs are recorded in the Company's Consolidated Statements of Operations as "Cost of sales."respectively.
Net Earnings (Loss) Per Share Attributable to Visteon: Basic earnings (loss) per share is calculated by dividing net income (loss) attributable to Visteon by the average number of shares of common stock outstanding. Diluted earnings (loss) per share is computed by dividing net income (loss) attributable to Visteon by the average number of common and potential dilutive common shares outstanding after deducting undistributed income allocated to participating securities. Performance based share units are considered contingently issuable shares and are included in the computation of diluted earnings per share if their conditions have been satisfied as if the reporting date was the end of the contingency period.
Cash and Equivalents: The Company considers all highly liquid investments purchased with an original maturity of three months or less, including short-term time deposits, commercial paper, repurchase agreements, and money market funds to be cash and cash equivalents. As of December 31, 20202023, the Company's cash balances are invested in a diversified portfolio of cash and highly liquid cash equivalents including money market funds commercial paper rated A2/P2 and above with maturity under three months, time deposits and other short-term cash investments, which mature under three months with highly rated banking institutions.institutions with maturities less than three months. The cost of such funds approximates fair value based on the nature of the investment.
Restricted Cash: Restricted cash represents amounts designated for uses other than current operations and includes $3$2 million related to a Letter of Credit Facility, and $1 million related to cash collateral for other corporate purposes as of December 31, 2020. As of December 31, 2019, restricted cash includes $2 million related to a Letter of Credit Facility2023 and $1 million related to cash collateral for other corporate purposes.2022.
Accounts Receivable: Accounts receivable are stated at the invoiced amount, less an allowance for doubtful accounts for estimated amounts not expected to be collected, and do not bear interest.
The Company receives bank notes from certain customers in China to settle trade accounts receivable. The collection on such bank notes are included in operating cash flows based on the substance of the underlying transactions, which are operating in nature. The Company may hold such bank notes until maturity, exchange them with suppliers to settle liabilities, or sell them to third-party financial institutions in exchange for cash. The Company has entered into arrangements with financial institutions to sell certain bank notes, generally maturing within nine months. Bank notes are sold with recourse but qualify as a sale as all rights to the notes have passed to the financial institution. The Company redeemed $272 million of China bank notes during the year ended December 31, 2023. Remaining amounts outstanding at third-party institutions related to sold bank notes will mature by June 30, 2024.
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 elected to applyapplies a historical loss rate based on historic write-offs by region to aging categories. The historical loss rate will be adjusted for current conditions and reasonable and supportable forecasts of future losses, as necessary. The Company may also record a specific 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 related to accounts receivable and related activity are summarized below:
| | December 31, |
| December 31, | | | December 31, |
| (In millions) | (In millions) | 2020 | | 2019 | | 2018 | (In millions) | 2023 | | 2022 | | 2021 |
| Balance at beginning of year | Balance at beginning of year | $ | 10 | | | $ | 6 | | | $ | 8 | |
| Provision | Provision | 1 | | | 6 | | | 2 | |
| Recoveries | (3) | | | (1) | | | 0 | |
| Write-offs charged against the allowance | (4) | | | (1) | | | (4) | |
| Balance at end of year | Balance at end of year | $ | 4 | | | $ | 10 | | | $ | 6 | |
Provision for estimated uncollectible accounts receivable are included in Selling, general and administrative expenses in the Company's Consolidated Statements of Operations.
Inventories: Inventories are stated at the lower of cost, determined on a first-in, first-out (“FIFO”) basis, or net realizable value. Cost includes the cost of materials, direct labor, in-bound freight and the applicable share of manufacturing overhead. The cost of inventories is reduced for excess and obsolete inventories based on management’s review of on-hand inventories compared to historical and estimated future sales and usage.
Product Tooling: Product tooling includes molds, dies, and other tools used in production of a specific part or parts of the same basic design owned either by the Company or its customers. Company owned tooling is capitalized and depreciated over the shorter of the expected useful life of the assetstooling or the term of the supply arrangement, generally not exceeding six years. The Company had receivables of $26$22 million and $31$20 million as of December 31, 20202023 and 2019,2022, respectively, related to product tools which will not be owned by the Company and for which there is a contractual agreement for reimbursement from the customer.
Contractually Reimbursable Engineering Costs: Engineering, testing, and other costs incurred in the design and development of production parts are expensed as incurred, unless the cost reimbursement is contractually guaranteed in a customer contract, in which case costs are capitalized as incurred and subsequently reduced upon lump sum or piece price recoveries.
Property and Equipment: Property and equipment is stated at cost or fair value for impaired assets. Property and equipment is depreciated principally using the straight-line method of depreciation over the related asset's estimated useful life. Generally, buildings and improvements are depreciated over a 40-year estimated useful life, leasehold improvements are depreciated on a straight-line basis over the initial lease term period, and machinery, equipment and other are depreciated over estimated useful lives ranging from 3 to 15 years. Certain costs incurred in the acquisition or development of software for internal use are capitalized. Capitalized software costs are amortized using the straight-line method over estimated useful lives generally ranging from 3 to 5 years.
Asset impairment charges are recorded for assets held-in-use when events and circumstances indicate that such assets may not be recoverable and the undiscounted net cash flows estimated to be generated by those assets are less than their carrying amounts. If estimated future undiscounted cash flows are not sufficient to recover the carrying value of the assets, an impairment charge is recorded for the amount by which the carrying value of the assets exceeds fair value. Fair value is determined using appraisals, management estimates, or discounted cash flow calculations. The Company classifies assetsFor further detail on asset impairments see Note 3, "Restructuring and liabilities as held for sale when management approves and commits to a formal plan of sale, generally following board of director approval, and it is probable that the sale will be completed within one year. The carrying value of assets and liabilities held for sale is recorded at the lower of carrying value or fair value less cost to sell, and the recording of depreciation is ceased.Impairments."
Leases: The Company determines if an arrangement is a lease at contract inception. ROURight-of-use ("ROU") assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company's leases do not provide an implicit rate, the Company estimates the incremental borrowing rate to discount the lease payments based on information available at lease commencement. The Company's lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options. Lease expense is recognized on a straight-line basis over the lease term. The Company has lease agreements containing lease and non-lease components which are accounted for as a single lease component.
Goodwill:The Company performs either a qualitative or quantitative assessment of goodwill for impairment on an annual basis. Goodwill impairment testing is performed at the reporting unit level. The qualitative assessment considers several factors at the reporting unit level including the excess of fair value over carrying value as of the last quantitative impairment test, the length of time since the last fair value measurement, the current carrying value, market and industry metrics, actual performance compared to forecast performance, and the Company's current outlook on the business. If the qualitative assessment indicates it is more likely than not that goodwill is impaired, the reporting unit is quantitatively tested for impairment. To quantitatively test goodwill for impairment, the fair value of eachthe reporting unit is determined and compared to the carrying value. An impairment charge is recognized for the amount by which the reporting unit's carrying value exceeds its fair value. Management has tested for impairment using a quantitative assessment and concluded that 0 impairment exists as of December 31, 2020.
Intangible Assets: Definite-lived intangible assets are amortized over their estimated useful lives, and tested for impairment in
accordance with the methodology discussed above under "Property and Equipment." Definite-lived intangible assets include:
•Government Incentives: Developed technology intangible assets whichThe Company receives certain incentives from governments primarily related to research and development programs. The Company records incentives in accordance with their purpose as a reduction of expense or an offset to the related property and equipment. The benefit is recorded when all conditions related to the incentive have been met or are amortized over average, estimated useful lives generally ranging from 6expected to 12 years;
•Customer-related intangible assets which are amortized over average, estimated useful lives generally ranging from 7 to 12 years;
•Software development costs which are capitalized afterbe met and there is reasonable assurance of their receipt. The Company recorded incentive benefits of less than $1 million and $1 million for the software product development reaches technological feasibilityyears ended December 31, 2023 and until the software product becomes releasable to customers. These intangible assets are amortized using the straight-line method over estimated useful lives generally ranging from 3 to 5 years;2022, respectively, while also reported deferred income of $1 million and
•Other intangible assets which are amortized using the straight-line method over estimated useful lives based on the nature $2 million as of the intangible asset.December 31, 2023 and 2022, respectively.
Product Warranty and Recall: Amounts accrued for product warranty and recall claims are based on management’s best estimates of the amounts that will ultimately be required to settle such items. The Company’s estimates for product warranty and recall obligations are developed with support from its sales, engineering, quality, and legal functions and include due consideration of contractual arrangements, past experience, current claims and related information, production changes, industry and regulatory developments and various other considerations. For further detail on the Company’s warranty obligations see Note 19,18, "Commitments and Contingencies."
Income Taxes: Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company records a valuation allowance to reduce deferred tax assets when it is more likely than not that such assets will not be realized. This assessment requires significant judgment, and must be done on a jurisdiction-by-jurisdiction basis. The Company monitors the realizability of its deferred tax assets taking into account all relevant factors at each reporting period. In determining the need for a valuation allowance, all available positive and negative evidence, including historical and projected financial performance, is considered along with any other pertinent information. The Company valuation allowance assessment is based on its best estimate of future results considering all available information.
The Company operates in multiple jurisdictions throughout the world and the income tax returns of its subsidiaries in various tax jurisdictions are subject to periodic examination by respective tax authorities. The Company regularly assesses the status of these examinations and the potential for adverse and/or favorable outcomes to determine the adequacy of its provision for income taxes. The Company believes that it has adequately provided for tax adjustments that it believes are more likely than not to be realized as a result of any ongoing or future examination. Accounting estimates associated with uncertain tax positions requires the Company to make judgments regarding the sustainability of each uncertain tax position based on its technical merits. If the Company determines it is more likely than not a tax position will be sustained based on its technical merits, the Company records the largest amount that is greater than 50% likely of being realized upon ultimate settlement. These estimates are updated at each reporting date based on the facts, circumstances and information available. Due to the complexity of these uncertainties, the ultimate resolution may result in a payment that is materially different from the Company's current estimate of the liabilities recorded. Accrued interest and penalties related to unrecognized tax benefits are classified as income tax expense.
Value Added Taxes: The Company reports value added taxes collected from customers and remitted to government authorities, on a net basis within Cost of sales.
Fair Value Measurements: The Company uses fair value measurements in the preparation of its financial statements, which utilize various inputs including those that can be readily observable, corroborated or are generally unobservable. The Company utilizes market-based data and valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Additionally, the Company applies assumptions that market participants would use in pricing an asset or liability, including assumptions about risk.
Financial Instruments: The Company uses derivative financial instruments, including forward contracts, swaps, and options to manage exposures to changes in currency exchange rates and interest rates. The Company's policy specifically prohibits the use of derivatives for speculative or trading purposes.
Accounting Pronouncements Not Yet Adopted
Business Combinations: In accounting for business combinations, the purchase price of an acquired business is allocated to its identifiable assets and liabilities based on estimated fair values. The excess of the purchase price over the amount allocated to the assets and liabilities, if any, is recorded as goodwill. Determining the fair values of assets acquired and liabilities assumed requires management's judgment, the utilization of independent appraisal firms and often involves the use of estimates and assumptions with respect to the timing and amount of future cash flows, market rate assumptions, actuarial assumptions, and appropriate discount rates, among other items.
Recently Adopted Accounting Pronouncements
Credit LossesBusiness Combinations - The Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-13, "Credit Losses (Topic 326)Joint Venture - Measurement of Credit Losses on Financial Instruments", effective for fiscal years beginning after December 15, 2019. The guidance requires financial assets (or a group of financial assets) measured onIn August 2023, the basis of amortized cost to be presented at the net amount expected to be collected. The guidance also requires that the statement of operations reflect the measurement of credit losses for newly recognized financial assets as well as the expected increases or decreases of expected credit losses that have taken place during the period. Additionally, the guidance limits the credit loss to the amount by which fair value is below amortized cost. The Company adopted the guidance effective January 1, 2020. The adoption of the guidance did not have a material impact on the Company's consolidated financial statements.
Income Taxes - The FASB issued ASU 2019-12, "Income Taxes (Topic 740)2023-05, "Joint Venture Formation (Subtopic 805-60) - Simplifying the Accounting for Income Taxes.Recognition and initial measurement." The new guidance simplifies the accounting for income taxes by eliminating certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxesprovide decision-useful information to investors and other allocators of capital (collectively, investors) in an interim period, hybrid taxesa joint venture’s financial statements and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other aspects of the accounting for income taxes.to create consistency in presentation. The amendments in this ASU are effective for fiscal years beginning after December 15, 2020January 1, 2025 and interim periods within those fiscal years. Early adoptionThe Company is permitted in interim or annual periods with any adjustments reflected ascurrently evaluating the impacts of the beginningprovisions of the annual period that includes that interim period. Additionally, entities that elect early adoption must adopt all the amendments in the same period. Amendments are to be applied prospectively, except for certain amendments that are to be applied either retrospectively or with a modified retrospective approach through a cumulative effect adjustment recorded to retained earnings. The Company adopted the guidance effective January 1, 2020. The adoption of the guidance did not have a material impact on the Company's consolidated financial statements.ASU 2023-05.
Retirement BenefitsDisclosure Improvements - In August 2018,October 2023, the FASB issued ASU 2018-14, "Compensation - Retirement Benefits - Defined Benefit Plans - General (Topic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans.2023-06, "Disclosure Improvements (Release No. 33-10532)." The guidance (i) removes disclosures that are no longer considered cost beneficial, (ii) clarifiesamendments in this update modify the specificdisclosure or presentation requirements of disclosures and (iii) adds disclosure requirements including reasons for significant gains and losses related to changesa variety of topics in the benefit obligation.codification. Certain of the amendments represent clarifications to or technical corrections of the current requirements. The amendments in this ASU are effective for the interim period June 30, 2027. The Company is currently evaluating the impacts of the provisions of ASU 2023-06.
Segment Reporting - In November 2023, the FASB issued ASU 2023-07, "Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures" to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The amendments in this ASU are effective for all public entities for fiscal years endingbeginning after December 15, 20202023 and interim
periods within those fiscal years.years beginning after December 15, 2024. The adoptionCompany is currently evaluating the impacts of the guidance did not have a material impact on the Company's consolidated financial statements.provisions of ASU 2023-07.
Reference Rate ReformEnhanced Income Tax Disclosures - In March 2020,December 2023, the FASB issued ASU 2020-04, "Reference Rate ReformNo. 2023-09 (“ASU 2023-09”), Income Taxes (Topic 848) - Facilitation740): Improvement to Income Tax Disclosures to enhance the transparency and decision usefulness of the Effects of Reference Rate Reform on Financialincome tax disclosures. ReportingASU 2023-09 is effective for annual periods beginning after December 15, 2024 on a prospective basis and early adoption is permitted.." The guidance provides optional expedients and exceptions related to certain contract modifications and hedging relationships that reference the London Interbank Offered Rate ("LIBOR") or another rate that is expected to be discontinued. The guidance was effective upon issuance and generally can be applied to applicable contract modifications and hedge relationships prospectively through December 31, 2022. The adoptionCompany is currently evaluating the potential effect of the guidance did not have a material impactthis accounting standard update on the Company'sits consolidated financial statements.statements and related disclosures.
NOTE 2. Discontinued Operations
During 2014 and 2015, the Company completed its divestiture of the majority of its global Interiors business (the "Interiors Divestiture") and completed the sale of its Argentina and Brazil interiors operations on December 1, 2016. Separately, the Company completed the sale of the majority of its global Climate business (the "Climate Transaction") during 2015. These transactions met the conditions required to qualify for discontinued operations reporting and accordingly the results of operations and the settlement of retained contingencies have been classified in income (loss) from discontinued operations, net of tax, in the Consolidated Statements of Operations.
Discontinued operations are summarized as follows:
| | | | | | | | | | | | | | |
| Year Ended December 31, |
| (In millions) | | 2019 | | 2018 |
| Net sales | | $ | 0 | | | $ | 0 | |
| Cost of sales | | (2) | | | (5) | |
| Gross margin | | (2) | | | (5) | |
| Selling, general and administrative expenses | | 0 | | | (1) | |
| Gain on Climate Transaction | | 0 | | | 4 | |
| Restructuring expense | | 1 | | | (1) | |
| Income (loss) from discontinued operations before income taxes | | (1) | | | (3) | |
| Benefit for income taxes | | 0 | | | 4 | |
| Net income (loss) from discontinued operations | | (1) | | | 1 | |
| Net income (loss) from discontinued operations attributable to Visteon | | $ | (1) | | | $ | 1 | |
There were no discontinued operations during 2020.
During 2019 the Company recognized approximately $2 million of corrections of judicial deposits related to former employees at a closed plant in Brazil.
During 2018, the Company recognized a $3 million benefit on settlement of litigation matters with its former CEO as further described in Note 19, "Commitments and Contingencies." The Company also recorded a $4 million charge for legal expenses related to former employees at a closed plant in Brazil. Lastly, the Company recorded a $4 million income tax benefit during 2018 related to uncertain tax positions in connection with the Climate Transaction, resulting from statute expiration.
NOTE 3.2. Non-Consolidated Affiliates
A summary of the Company's investments in non-consolidated equity method affiliates is provided below:
| | | | | | | | | | | |
| December 31, |
| (In millions) | 2023 | | 2022 |
Yanfeng Visteon Investment Co., Ltd. ("YFVIC") (50%) | $ | 8 | | | $ | 25 | |
| Limited partnerships | 15 | | | 13 | |
| Others | 12 | | | 11 | |
| Total investments in non-consolidated affiliates | $ | 35 | | | $ | 49 | |
Investments in Affiliates
The Company recorded equity in the net loss of non-consolidated affiliates of $10 million and $1 million for the year ended December 31, 2023 and 2022, respectively. The Company recorded equity in the net income of non-consolidated affiliates of $6 million for the year ended December 31, 2021.
The Company monitors its investments in affiliates for indicators of other-than-temporary declines in value on an ongoing basis. If the Company determines that an other-than-temporary decline in value has occurred, an impairment loss will be recorded, which is measured as the difference between the recorded book value and the fair value of the investment. As of December 31, 2023, the Company determined that no such indicators were present.
Non-Consolidated Affiliate Transactions
Visteon and Yangfeng Automotive Trim Systems Co. Ltd. ("YF") each own 50% of a joint venture under the name of Yanfeng Visteon Investment Co., Ltd. ("YFVIC"). In October 2014, YFVIC completed the purchase of YF’s 49% direct ownership in Yanfeng Visteon Automotive Electronics Co., Ltd ("YFVE") a consolidated joint venture of the Company ("The YFVIC Transaction"). The purchase by YFVIC was financed through a shareholder loan from YF and external borrowings, guaranteed by Visteon, which were paid in 2019.
In 2018, the Company committed to make a $15 million investment in two entities principally focused on the automotive sector pursuant to limited partnership agreements. As a limited partner in each entity, the Company will periodically make capital contributions toward this total commitment amount. Through December 31, 2020,2023, the Company had contributed approximately $5$12 million to these entities. These investments wereare classified as equity method investments beginning in 2020.investments.
InvestmentsIn 2022, the Company made an investment in Affiliates
The Company recorded equity in the net income of non-consolidated affiliates of $6 million, $6 million and $13 milliona private limited company focused on technology development for the years ended December 31, 2020, 2019 and 2018, respectively.
The Company monitors its investments in affiliates for indicatorsautomotive industry of other-than-temporary declines in value on an ongoing basis. If the Company determines that an “other-than-temporary” decline in value has occurred, an impairment loss will be recorded, which is measured$1 million. There have been no further contributions as the difference between the recorded book value and the fair value of the investment. As of December 31, 2020, the Company determined that no such indicators were present.2023.
Variable Interest Entities
The Company determined that its 50% investment in YFVIC is a VIE. The Company holds a variable interest in YFVIC primarily related to its ownership interests and subordinated financial support. The Company and YFYangfeng Automotive Trim Systems Co. Ltd., ("YF") each own 50% of YFVIC and neither entity has the power to control the operations of YFVIC; therefore, the Company is not the primary beneficiary of YFVIC and does not consolidate the joint venture.
A summary of the Company's investments in non-consolidated equity method affiliates is provided below:
| | | | | | | | | | | |
| December 31, |
| (In millions) | 2020 | | 2019 |
YFVIC (50%) | $ | 50 | | | $ | 43 | |
| Others | 10 | | | 5 | |
| Total investments in non-consolidated affiliates | $ | 60 | | | $ | 48 | |
A summary of transactions with affiliates is shown below:
| | Year Ended December 31, |
| Year Ended December 31, | | | Year Ended December 31, |
| (In millions) | (In millions) | 2020 | | 2019 | (In millions) | 2023 | | 2022 |
| Billings to affiliates (a) | Billings to affiliates (a) | $ | 95 | | | $ | 75 | |
| Purchases from affiliates (b) | Purchases from affiliates (b) | $ | 58 | | | $ | 73 | |
(a) Primarily relates to parts production and engineering reimbursement | (b) Primarily relates to engineering services as well as selling, general and administrative expenses |
A summary of the Company's investments in YFVIC is provided below:
| | December 31, |
| December 31, | | | December 31, |
| (In millions) | (In millions) | 2020 | | 2019 | (In millions) | 2023 | | 2022 |
| Payables due to YFVIC | Payables due to YFVIC | $ | 9 | | | $ | 9 | |
| Exposure to loss in YFVIC | Exposure to loss in YFVIC | | | |
| Investment in YFVIC | Investment in YFVIC | $ | 50 | | | $ | 43 | |
| Investment in YFVIC | |
| Investment in YFVIC | |
| Receivables due from YFVIC | Receivables due from YFVIC | 53 | | | 41 | |
| Subordinated loan receivable | 6 | | | 8 | |
| Maximum exposure to loss in YFVIC | Maximum exposure to loss in YFVIC | $ | 109 | | | $ | 92 | |
During the fourth quarter of 2022 the Company incurred approximately $19 million of charges related to program management costs and other charges associated with a joint venture. This charge is recorded within Cost of sales.
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.
NOTE 43. Restructuring Activitiesand 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.
RestructuringDuring the year ended December 31, 2023 2022, and 2021, the Company recorded $5 million, $9 million, and $5 million, respectively, of net restructuring expense primarily related to employee severance.
Current restructuring actions initiated during 2020 include the following:
•In January,During 2023, the Company approved a plan primarily related to European engineering and administrative functions to improve the Company’s efficiency and rationalize its footprint. The Company incurred $26recorded $5 million of net restructuring expense for cash severance, retention,globally to improve efficiencies and termination costs related to this plan.rationalize the Company's footprint. As of December 31, 2020, $112023, $3 million remains accrued related to this action.these actions.
•During prior periods the Company approved various restructuring programs to improve efficiencies across the organization. As of December 31, 2023, $2 million remains accrued related to these programs.
•In March, the Company approved a global restructuring plan impacting engineering, administrative, and manufacturing functions to improve the Company’s efficiency and rationalize its footprint. The Company incurred $16 million of net restructuring expense for cash severance, retention, and termination costs related to this plan. As of December 31, 2020, $2 million remains accrued related to this action.
•2023, In September, the Company approved a plan in response to COVID-19 and to improve efficiency and rationalize the Company’s footprint. The Company incurred $32 million of net restructuring expense for cash severance, retention and termination costs related to this plan. As of December 31, 2020, $30 million remains accrued related to this action.
•In December, the Company approved a plan impacting engineering, administrative, and manufacturing functions in Asia to improve the Company's efficiency and rationalize its footprint. The Company incurred $2 million of net restructuring expense for cash severance, retention, and termination costs related this plan. As of December 31, 2020, $2 million remains accrued related to this action.
•During the year ended December 31, 2020, the Company incurred $1 million of restructuring expense for cash severance payments at two North American manufacturing facilities.
During 2019, the Company approved a restructuring program impacting 2 European manufacturing facilities due to the end of certain product lines. During the year ended December 31, 2019, the Company recorded net restructuring expense of $2 million related to this program.
During 2018, the Company approved various restructuring actions due to end of certain products and optimization of certain operations. During the years ended December 31, 2019 and December 31, 2018, the Company recorded net restructuring expense of $2 million and $24 million, respectively, related to these programs. As of December 31, 2020, $2 million remains accrued.
During 2016, the Company approved a restructuring program impacting engineering and administrative functions to further align the Company's footprint with its core product technologies and customers. During the year ended December 31, 2018, the Company recorded net restructuring expense of $5 million related to this program.
During the year ended December 31, 2018, the Company recorded net restructuring expense of approximately $1 million associated with a former European Interiors facility related to settlement of employee severance litigation.
As of December 31, 2020, the Company retained restructuring reserves as part of the Company's divestiture of the majority of its global Interiors Divestiturebusiness (the "Interiors Divestiture") and legacy operations of $2 $3 million associated with completed programs for the fundamental reorganization of operations at facilities in Brazil and France.
Restructuring Reserves
Restructuring reserve balances of $39$5 million and $10$3 million as of December 31, 20202023 are classified as Other current liabilities and Other non-current liabilities, respectively. The restructuringRestructuring reserve balancebalances of $10$6 million and $5 million as of December 31, 2019 is2022 are classified as Other current liabilities. The Company anticipates that the activities associated with the current restructuring reserve balance will be substantially complete by end of 2022.
liabilities and Other non-current liabilities, respectively.The Company’s consolidated restructuring reserves and related activity are summarized below, including amounts associated with discontinued operations.
| | | | | |
| (In millions) | |
December 31, 2017 | $ | 24 | |
Expense | 24 | |
Change in estimates | 6 | |
Utilization | (30) | |
Foreign currency | (1) | |
December 31, 2018 | 23 | |
Expense | 5 | |
Change in estimates | (2) | |
Utilization | (15) | |
Foreign currency | (1) | |
December 31, 2019 | 10 | |
Expense | 67 | |
Change in estimates | 9 | |
Utilization | (39) | |
Foreign currency | 2 | |
| December 31, 2020 | $ | 49 | |
| Expense | 4 | |
| Change in estimates | 1 | |
| Utilization | (34) | |
| Foreign currency | (2) | |
| December 31, 2021 | $ | 18 | |
| Expense | 6 | |
| Change in estimates | 3 | |
| Utilization | (15) | |
| Foreign currency | (1) | |
| December 31, 2022 | $ | 11 | |
| Expense | 6 | |
| Change in estimates | (1) | |
| Utilization | (8) | |
| Foreign currency | $ | — | |
| December 31, 2023 | $ | 8 | |
Impairments
The Company evaluates its long-lived assets for impairment whenever events or circumstances indicate the value of these long-lived asset groups are not recoverable.
In 2022, due to the geopolitical situation in Eastern Europe the Company elected to close the Russian facility resulting in a non-cash impairment charge of $5 million to fully impair property and equipment and reduce inventory to its net realizable value. Additionally, as a result of the closure, during the fourth quarter of 2022, the Company recorded expense of approximately $3 million related to foreign currency translation amounts recorded in accumulated other comprehensive loss.
During 2021, the Company concluded impairment triggers had occurred for a long-lived asset group in Brazil due to rising costs and deteriorating business conditions. The Company determined the cash flows related to certain long-lived assets were not sufficient to recover the carrying value. As such, the Company estimated the fair values of this asset group at December 31, 2021 and compared the fair value to its net carrying value. As the net carrying value of the long-lived asset group exceeded the fair value, the Company recorded a non-cash impairment charge of $9 million to write-down property and equipment to its fair value as of December 31, 2021.
NOTE 5.4. Inventories
Inventories, net consist of the following components:
| | December 31, |
| December 31, | | | December 31, |
| (In millions) | (In millions) | 2020 | | 2019 | (In millions) | 2023 | | 2022 |
| Raw materials | Raw materials | $ | 114 | | | $ | 100 | |
| Work-in-process | Work-in-process | 25 | | | 28 | |
| Finished products | Finished products | 38 | | | 41 | |
| $ | 177 | | | $ | 169 | |
| $ | |
NOTE 6.5. Other Assets
Other current assets are comprised of the following components:
| | | | | | | | | | | |
| December 31, |
| (In millions) | 2020 | | 2019 |
| Joint venture receivables | $ | 53 | | | $ | 41 | |
| Recoverable taxes | 52 | | | 61 | |
| Contractually reimbursable engineering costs | 31 | | | 29 | |
| Prepaid assets and deposits | 18 | | | 22 | |
| China bank notes | 15 | | | 16 | |
| Royalty agreements | 7 | | | 17 | |
| Other | 4 | | | 7 | |
| $ | 180 | | | $ | 193 | |
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 $163 million and $81 million of China bank notes during the years ended December 31, 2020 and 2019, respectively. Remaining amounts outstanding at third-party institutions relate to sold bank notes will mature by June 30, 2021.
| | | | | | | | | | | |
| December 31, |
| (In millions) | 2023 | | 2022 |
| Recoverable taxes | $ | 51 | | | $ | 55 | |
| Contractually reimbursable engineering costs | 33 | | | 35 | |
| Prepaid assets and deposits | 24 | | | 18 | |
| Joint venture receivables | 19 | | | 49 | |
| Contractual payments | 3 | | | — | |
| Other | 4 | | | 10 | |
| $ | 134 | | | $ | 167 | |
| | | |
Other non-current assets are comprised of the following components:
|
|
| December 31, |
| December 31, |
| (In millions) | (In millions) | 2020 | | 2019 | (In millions) | 2023 | | 2022 |
| Deferred tax assets | $ | 55 | | | $ | 59 | |
| Contractual payments | |
| Contractually reimbursable engineering costs | Contractually reimbursable engineering costs | 31 | | | 24 | |
| Recoverable taxes | Recoverable taxes | 21 | | | 28 | |
| Royalty agreements | 8 | | | 11 | |
| Joint venture note receivables | 7 | | | 8 | |
| Other | Other | 13 | | | 20 | |
| $ | 135 | | | $ | 150 | |
| $ | |
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 approximately $31 million in 2021, $16 million in 2022, $8 million in 2023, $3$33 million in 2024, and $4$15 million in 2025, $5 million in 2026, $1 million in 2027 and less than $1 million in 2028 and beyond.
NOTE 7.6. Property and Equipment
Property and equipment, net consists of the following:
| | December 31, |
| | | December 31, | | | | | December 31, |
| (In millions) | (In millions) | 2020 | | 2019 | (In millions) | Estimated Useful Life (years) | | 2023 | | 2022 |
| Land | Land | $ | 12 | | | $ | 12 | |
| Buildings and improvements | Buildings and improvements | 96 | | | 83 | |
| Machinery, equipment and other | Machinery, equipment and other | 706 | | | 599 | |
| Product tooling | |
| Construction in progress | Construction in progress | 44 | | | 80 | |
| Product tooling | 62 | | | 53 | |
| Total property and equipment | Total property and equipment | 920 | | | 827 | |
| Accumulated depreciation and amortization | Accumulated depreciation and amortization | (484) | | | (391) | |
| Property and equipment, net | Property and equipment, net | $ | 436 | | | $ | 436 | |
Depreciation and product tooling amortization expenses are summarized as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (In millions) | 2020 | | 2019 | | 2018 |
| Depreciation | $ | 83 | | | $ | 78 | | | $ | 73 | |
| Amortization | 7 | | | 6 | | | 3 | |
| $ | 90 | | | $ | 84 | | | $ | 76 | |
For the year ended December 31, 2019, the Company recorded non-cash asset impairment charges of $2 million in cost of sales related to declines in the fair values of certain fixed assets. | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (In millions) | 2023 | | 2022 | | 2021 |
| Depreciation | $ | 77 | | | $ | 83 | | | $ | 88 | |
| Amortization | 7 | | | 7 | | | 6 | |
| $ | 84 | | | $ | 90 | | | $ | 94 | |
The net book value of capitalized internal use software costs was approximately $18 million and $21$8 million as of December 31, 20202023 and 2019, respectively.2022. Related amortization expense was approximately $9$3 million, $9$5 million and $7$8 million for the years ended 2020, 20192023, 2022 and 2018, respectively. Amortization expense of approximately $7 million, $5 million, $3 million, $2 million, and $1 million is expected for the annual periods ended December 31, 2021, 2022, 2023, 2024, and 2025 respectively.
Amortization expense related to internal use software expected for the future annual periods are as follows:
| | | | | |
| (In millions) | |
| 2024 | $ | 3 | |
| 2025 | 2 | |
| 2026 | 2 | |
| 2027 | 1 | |
| |
NOTE 8.7. Intangible Assets
Intangible assets consisted of the following:
| | December 31, 2020 | | December 31, 2019 |
| | | December 31, 2023 | | | | | December 31, 2023 | | December 31, 2022 |
| (In millions) | (In millions) | Estimated Weighted Average Useful Life (years) | Gross Intangibles | | Accumulated Amortization | | Net Intangible | | Gross Intangibles | | Accumulated Amortization | | Net Intangible | (In millions) | Estimated Useful Life | Estimated Weighted Average Remaining Useful Life (years) | Gross Intangibles | | Accumulated Amortization | | Net Intangibles | | Gross Intangibles | | Accumulated Amortization | | Net Intangibles |
| Definite-Lived: | Definite-Lived: | | | | | | | | | | | |
| Developed technology | |
| Developed technology | |
| Developed technology | Developed technology | 6 | $ | 41 | | | $ | (38) | | | $ | 3 | | | $ | 40 | | | $ | (35) | | | $ | 5 | |
| Customer related | Customer related | 10 | 95 | | | (64) | | | 31 | | | 89 | | | (51) | | | 38 | |
| Capitalized software development | Capitalized software development | 3 | 44 | | | (7) | | | 37 | | | 32 | | | (5) | | | 27 | |
| Other | Other | 20 | 14 | | | (7) | | | 7 | | | 15 | | | (4) | | | 11 | |
| Subtotal | Subtotal | | 194 | | | (116) | | | 78 | | | 176 | | | (95) | | | 81 | |
| Indefinite-Lived: | Indefinite-Lived: | | |
| Goodwill | Goodwill | | 49 | | | — | | | 49 | | | 46 | | | — | | | 46 | |
| Goodwill | |
| Goodwill | |
| Total | Total | | $ | 243 | | | $ | (116) | | | $ | 127 | | | $ | 222 | | | $ | (95) | | | $ | 127 | |
Capitalized software development consists of software development costs intended for integration into customer products.
The Company recorded amortization expense of approximately $19 million, $18 million, and $14 million $16 million and $15 million of amortization expense related to definite-lived intangible assets for the years ended December 31, 2020, 20192023, 2022, and 2018, respectively. 2021, respectively, related to definite-lived intangible assets.
The Company currently estimates annual amortization expense to be $18 million for both 2021 and 2022, $15 million for 2023, $9 million for 2024, and $8 million for 2025.as follows:
| | | | | |
| (In millions) | |
| 2024 | $ | 12 | |
| 2025 | 12 | |
| 2026 | 10 | |
| 2027 | 6 | |
| 2028 | 1 | |
| |
| |
NOTE 9.8. Leases
The Company has operating leases primarily for corporate offices, technical and engineering centers, customer centers,plants, vehicles, and certain equipment. As of December 31, 20202023 and 2022 the Company had $7 million of net assets and related accumulated depreciation recorded under finance leasing arrangements were not material.arrangements.
Certain of the Company's lease agreements include rental payments adjusted periodically primarily for inflation. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. The Company subleases certain real estate to third parties, which primarily consists of operating leases related toin the Company’s principal executive offices in Van Buren Township, Michigan.United States, Germany, and Brazil.
For the years ended December 31, 20202023 and 2019,2022, the weighted average remaining lease term and discount rate were 64 years and 4.1%4.14% and 75 years and 4.5%4.03%, respectively.
The components of lease expense are as follows:
| | | | | | | | | | | |
| Year Ended December 31, |
| (In millions) | 2020 | | 2019 |
| Operating lease cost (includes immaterial variable lease costs) | $ | (42) | | | $ | (41) | |
| Short-term lease cost | (1) | | | (1) | |
| Sublease income | 5 | | | 5 | |
| Total lease cost | $ | (38) | | | $ | (37) | |
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (In millions) | 2023 | | 2022 | | 2021 |
| Operating lease expense (includes immaterial variable lease costs) | $ | (38) | | | $ | (36) | | | $ | (42) | |
| Short-term lease expense | (2) | | | (1) | | | (1) | |
| Sublease income | 2 | | | 2 | | | 5 | |
| Total lease expense | $ | (38) | | | $ | (35) | | | $ | (38) | |
Other information related to leases is as follows:
| | Year Ended December 31, |
| Year Ended December 31, | | | Year Ended December 31, |
| (In millions) | (In millions) | 2020 | | 2019 | (In millions) | 2023 | | 2022 | | 2021 |
| Cash out flows from operating leases | $ | 40 | | | $ | 38 | |
| Cash flows used for operating leases | |
| Right-of-use assets obtained in exchange for lease obligations | Right-of-use assets obtained in exchange for lease obligations | $ | 38 | | | $ | 38 | |
Future minimum lease payments under non-cancellable leases isare as follows:
| | (In millions) | (In millions) | |
| 2021 | $ | 38 | |
| 2022 | 35 | |
| 2023 | 32 | |
| 2024 | |
| 2024 | |
| 2024 | 2024 | 29 | |
| 2025 | 2025 | 24 | |
| 2026 and thereafter | 43 | |
| 2026 | |
| 2027 | |
| 2028 | |
| 2029 and thereafter | |
| Total future minimum lease payments | Total future minimum lease payments | 201 | |
| Less imputed interest | Less imputed interest | (23) | |
| Total lease liabilities | Total lease liabilities | $ | 178 | |
|
NOTE 10.9. Other Liabilities
Other current liabilities are summarized as follows:
| | December 31, |
| December 31, | | | December 31, |
| (In millions) | (In millions) | 2020 | | 2019 | (In millions) | 2023 | | 2022 |
| Product warranty and recall accruals | $ | 52 | | | $ | 34 | |
| Deferred income | Deferred income | 46 | | | 22 | |
| Product warranty and recall | |
| Joint venture payables | |
| Non-income taxes payable | |
| Income taxes payable | |
| Royalty reserves | |
| Restructuring reserves | Restructuring reserves | 39 | | | 10 | |
| Non-income taxes payable | 15 | | | 17 | |
| Royalty reserves | 13 | | | 19 | |
| Joint venture payables | 9 | | | 9 | |
| Income taxes payable | 5 | | | 7 | |
| Other | Other | 30 | | | 29 | |
| $ | 209 | | | $ | 147 | |
| $ | |
Other non-current liabilities are summarized as follows:
| | December 31, |
| December 31, | | | December 31, |
| (In millions) | (In millions) | 2020 | | 2019 | (In millions) | 2023 | | 2022 |
| Product warranty and recall accruals | |
| Deferred income | |
| Income tax reserves | |
| Derivative financial instruments | Derivative financial instruments | $ | 38 | | | $ | 14 | |
| Product warranty and recall accruals | 12 | | | 15 | |
| Restructuring reserves | Restructuring reserves | 10 | | | 0 | |
| Deferred income | 7 | | | 9 | |
| Royalty agreements | 6 | | | 13 | |
| Income tax reserves | 6 | | | 5 | |
| Other | Other | 13 | | | 16 | |
| $ | 92 | | | $ | 72 | |
| $ | |
NOTE 11.10. Debt
The Company’s short and long-term debt consists of the following:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Weighted Average
Interest Rate | | Carrying Value |
| (In millions) | 2020 | | 2019 | | 2020 | | 2019 |
| Short-Term Debt: | | | | | | | |
| | | | | | | |
| Short-term borrowings | 0% | | 4.3% | | $ | 0 | | | $ | 37 | |
| | | | | | | |
| Long-Term Debt: | | | | | | | |
| Term facility, net | 1.9% | | 3.2% | | $ | 349 | | | $ | 348 | |
Short-Term Debt
Short-term borrowings, primarily related to the Company's non-U.S. joint ventures, were fully repaid during the third quarter of 2020. As of December 31, 2020, the available borrowings under these affiliate credit facilities are $182 million.
Long-Term Debt | | | | | | | | | | | | | | | | | | | | | | | |
| | Weighted Average
Interest Rate | | Carrying Value |
| (In millions) | 2023 | | 2022 | | 2023 | | 2022 |
| Short-Term Debt: | | | | | | | |
| Current portion of long-term debt | 6.53% | | 5.16% | | $ | 18 | | | $ | 13 | |
| | | | | | | |
| Long-Term Debt: | | | | | | | |
| Term facility, net | 6.53% | | 5.16% | | $ | 318 | | | $ | 336 | |
As of December 31, 2020,19, 2019, the Company has an amendedCompany's credit agreement ("Credit Agreement") which includes a $350 million Term Facility maturing March 24, 2024 and a $400 million Revolving Credit Facility which matures the earlier of December 24, 2024, 90 days prior to the scheduled maturity of the Term Facility, or the date of the termination of the Company's credit agreement.Facility.
On MarchJuly 19, 2020,2022, the Company borrowedentered into a new amendment to the entire amountCredit Agreement to, among other things, extend the maturity dates of revolving loans available underboth facilities. The amended Revolving Credit Facility and Term Facility 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.
On June 28, 2023, the Company amended the existing Credit Agreement to, among other things, amend certain affirmative and negative covenants.
In connection with amending both the Term Facility and Revolving Credit Facility, the Company recorded $1 million of interest expense due to the write-off of deferred debt fees. The Company also deferred $2 million of costs as a non-current asset related the Revolving Credit Facility to increase its cash position and maximize its flexibility in response to unprecedented uncertainty$1 million of costs related to the impactTerm Loan recorded in Long-term debt, net. The deferred costs will be amortized over the term of COVID-19. On September 24, 2020,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.
As of December 31, 2023, the Company fully repaidhas no other short-term borrowings, including at the amount borrowedCompany's subsidiaries. The Company's subsidiaries have access to $151 million of capacity under the Revolving Credit Facility following stronger than expected industry recovery and improved Company performance in the third quarter of 2020. short-term credit facilities.
Long-Term Debt
The Company has 0no outstanding borrowings on the Revolving Credit Facility as of December 31, 2020.2023 and 2022.
Interest on the Term Facility loans accrue at a rate equal to a LIBOR-based rate plus an applicable margin of 1.75% per annum. Loans under the Company'snd Revolving Credit Facility accrue interest at a rate equal to a LIBOR-basedSOFR-based rate plus an applicable margin of between 1.00% - 2.00%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. As of December 31, 2020, the Company was in compliance with all its debt covenants.
The Revolving Credit Facility also provides $75 million availability for the issuance of letters of credit and a maximum of $20 million for swing line 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 principal in connection with: (i) excess cash flow sweeps above certain leverage thresholds, (ii) certain asset sales or other dispositions, (iii)(ii) certain refinancing of indebtedness and (iv)(iii) over-advances under the Revolving Credit Facility. There are no excess cash flow sweeps required at the Company’s current leverage level.
All obligations under the Credit Agreement and obligations 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.
60The principal maturities of long-term debt as of December 31, 2023 is as follows:
| | | | | |
| (In millions) | |
| 2024 | $ | 18 | |
| 2025 | 18 | |
| 2026 | 18 | |
| 2027 | 283 | |
Other
The Company has a $5$4 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 $3$2 million of outstanding letters of credit issued under this facility secured by restricted cash, as of December 31, 2020.2023 and 2022. Additionally, the Company had
$2 million and $3 million of locally issued bank guarantees and letters of credit with less than $1 million of collateral as of December 31, 2020,2023 and 2022, respectively, to support various tax appeals, customs arrangements and other obligations at its local affiliates.
NOTE 12.11. Employee Benefit Plans
Defined Benefit Plans
The Company sponsors pay related benefit plans for employees in the U.S., UK, Germany, Brazil, France, Mexico, Japan, and Canada. Employees in the U.S. and UK are no longer accruing benefits under the Company's defined benefit plans as these plans were frozen. The Company’s defined benefit plans are partially funded with the exception of certain supplemental benefit plans for executives and certain non-U.S. plans, primarily in Germany, which are unfunded.
The Company's expense for all defined benefit pension plans, is as follows:
| | U.S. Plans | | Non-U.S. Plans |
| Year Ended December 31, | | Year Ended December 31, |
| U.S. Plans | | | U.S. Plans | | Non-U.S. Plans |
| Year Ended December 31, | | | Year Ended December 31, |
| (In millions, except percentages) | (In millions, except percentages) | 2020 | | 2019 | | 2018 | | 2020 | | 2019 | | 2018 | (In millions, except percentages) | 2023 | | 2022 | | 2021 | | 2023 | | 2022 | | 2021 |
| Costs Recognized in Income: | Costs Recognized in Income: | | | | | | | | | | | |
| Pension service cost: | Pension service cost: | |
| Pension service cost: | |
| Pension service cost: | |
| Service cost | |
| Service cost | |
| Service cost | Service cost | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | (2) | | | $ | (2) | | | $ | (2) | |
| Pension financing benefit (cost): | Pension financing benefit (cost): | |
| Interest cost | |
| Interest cost | |
| Interest cost | Interest cost | (24) | | | (30) | | | (27) | | | (7) | | | (8) | | | (8) | |
| Expected return on plan assets | Expected return on plan assets | 40 | | | 40 | | | 41 | | | 8 | | | 10 | | | 9 | |
| Amortization of losses and other | Amortization of losses and other | (1) | | | 0 | | | 0 | | | (2) | | | (1) | | | (2) | |
| Settlements and curtailments | Settlements and curtailments | (5) | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Restructuring related pension cost: | Restructuring related pension cost: | |
| Special termination benefits (a) | (3) | | | 0 | | | (2) | | | (4) | | | (1) | | | 0 | |
| Special termination benefits | |
| Special termination benefits | |
| Special termination benefits | |
| Net pension income (expense) | Net pension income (expense) | $ | 7 | | | $ | 10 | | | $ | 12 | | | $ | (7) | | | $ | (2) | | | $ | (3) | |
| Weighted Average Assumptions: | Weighted Average Assumptions: | | | | | | | | | | |
| Discount rate | Discount rate | 3.34 | % | | 4.33 | % | | 3.65 | % | | 2.39 | % | | 3.34 | % | | 3.28 | % |
| Discount rate | |
| Discount rate | | 5.51 | % | | 2.93 | % | | 2.60 | % | | 5.30 | % | | 2.31 | % | | 1.78 | % |
| Compensation increase | Compensation increase | N/A | | N/A | | N/A | | 3.16 | % | | 3.51 | % | | 3.62 | % | Compensation increase | NA | | NA | | N/A | | 2.69 | % | | 2.30 | % | | 2.14 | % |
| Long-term return on assets | Long-term return on assets | 6.60 | % | | 6.78 | % | | 6.74 | % | | 3.98 | % | | 4.73 | % | | 4.86 | % | Long-term return on assets | 6.87 | % | | 6.23 | % | | 6.15 | % | | 4.60 | % | | 3.70 | % | | 3.30 | % |
(a) Primarily related to restructuring actions |
The Company's total accumulated benefit obligations for all defined benefit plans was $1,199$818 million and $1,116$777 million as of
December 31, 20202023 and 2019,2022, respectively. The benefit plan obligations for employee retirement plans with accumulated benefit obligations in excess of plan assets were as follows:
| | Year Ended December 31, |
| Year Ended December 31, | | | Year Ended December 31, |
| (In millions) | (In millions) | 2020 | | 2019 | (In millions) | 2023 | | 2022 |
| Accumulated benefit obligation | Accumulated benefit obligation | $ | 1,177 | | | $ | 1,088 | |
| Projected benefit obligation | Projected benefit obligation | $ | 1,190 | | | $ | 1,107 | |
| Fair value of plan assets | Fair value of plan assets | $ | 886 | | | $ | 830 | |
Assumptions used by the Company in determining its defined benefit pension obligations as of December 31, 20202023 and 20192022 are summarized in the following table:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | U.S. Plans | | Non-U.S. Plans |
| | Year Ended December 31, | | Year Ended December 31, |
| Weighted Average Assumptions | | 2023 | | 2022 | | 2023 | | 2022 |
| Discount rate | | 5.16 | % | | 5.51 | % | | 5.07 | % | | 5.30 | % |
| Rate of increase in compensation | | NA | | NA | | 2.89 | % | | 2.69 | % |
| Cash balance interest crediting rate | | 4.28 | % | | 3.13 | % | | 1.25 | % | | 0.95 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | U.S. Plans | | Non-U.S. Plans |
| Weighted Average Assumptions | | 2020 | | 2019 | | 2020 | | 2019 |
| Discount rate | | 2.60 | % | | 3.34 | % | | 1.78 | % | | 2.39 | % |
| Rate of increase in compensation | | N/A | | N/A | | 2.14 | % | | 3.16 | % |
The Company’s obligation for all defined benefit pension plans, is as follows:
| | U.S. Plans | | Non-U.S. Plans |
| Year Ended December 31, | | Year Ended December 31, |
| U.S. Plans | | | U.S. Plans | | Non-U.S. Plans |
| Year Ended December 31, | | | Year Ended December 31, |
| (In millions) | (In millions) | 2020 | | 2019 | | 2020 | | 2019 | (In millions) | 2023 | | 2022 | | 2023 | | 2022 |
| Change in Benefit Obligation: | Change in Benefit Obligation: | | | | | | | |
| Benefit obligation — beginning | |
| Benefit obligation — beginning | |
| Benefit obligation — beginning | Benefit obligation — beginning | $ | 838 | | | $ | 760 | | | $ | 300 | | | $ | 250 | |
| Service cost | Service cost | 0 | | | 0 | | | 2 | | | 2 | |
| Interest cost | Interest cost | 24 | | | 30 | | | 7 | | | 8 | |
| Actuarial loss (gain) | Actuarial loss (gain) | 97 | | | 88 | | | 15 | | | 40 | |
| Settlements (and curtailments) | (37) | | | 0 | | | (4) | | | 0 | |
| Settlements | |
| Special termination benefits | Special termination benefits | 3 | | | 0 | | | 4 | | | 1 | |
| Foreign exchange translation | Foreign exchange translation | 0 | | | 0 | | | 8 | | | 4 | |
| Benefits paid and other | Benefits paid and other | (34) | | | (40) | | | (10) | | | (5) | |
| Benefit obligation — ending | Benefit obligation — ending | $ | 891 | | | $ | 838 | | | $ | 322 | | | $ | 300 | |
| Change in Plan Assets: | Change in Plan Assets: | | | | | | | |
| Plan assets — beginning | |
| Plan assets — beginning | |
| Plan assets — beginning | Plan assets — beginning | $ | 630 | | | $ | 567 | | | $ | 232 | | | $ | 200 | |
| Actual return on plan assets | Actual return on plan assets | 82 | | | 102 | | | 21 | | | 26 | |
| Sponsor contributions | Sponsor contributions | 18 | | | 1 | | | 6 | | | 7 | |
| Settlements | Settlements | (37) | | | 0 | | | (2) | | | 0 | |
| Foreign exchange translation | Foreign exchange translation | 0 | | | 0 | | | 3 | | | 4 | |
| Benefits paid and other | Benefits paid and other | (34) | | | (40) | | | (10) | | | (5) | |
| Plan assets — ending | Plan assets — ending | $ | 659 | | | $ | 630 | | | $ | 250 | | | $ | 232 | |
| Total funded status at end of period | Total funded status at end of period | $ | (232) | | | $ | (208) | | | $ | (72) | | | $ | (68) | |
| Balance Sheet Classification: | Balance Sheet Classification: | | | | | | | |
| Other non-current assets | Other non-current assets | $ | 0 | | | $ | 0 | | | $ | 2 | | | $ | 3 | |
| Other non-current assets | |
| Other non-current assets | |
| Accrued employee liabilities | Accrued employee liabilities | 0 | | | 0 | | | (1) | | | (2) | |
| Employee benefits | Employee benefits | (232) | | | (208) | | | (73) | | | (69) | |
| | Accumulated other comprehensive loss: | |
| Accumulated other comprehensive loss: | |
| Accumulated other comprehensive loss: | Accumulated other comprehensive loss: | |
| Actuarial loss | Actuarial loss | 127 | | | 79 | | | 52 | | | 50 | |
| Actuarial loss | |
| Actuarial loss | |
| Tax effects/other | Tax effects/other | 0 | | | (1) | | | (14) | | | (14) | |
| $ | 127 | | | $ | 78 | | | $ | 38 | | | $ | 36 | |
| $ | |
Components of the net change in AOCI related to all defined benefit pension plans, exclusive of amounts attributable to non-controlling interests on the Company’s Consolidated Statements of Changes in Equity for the years ended December 31, 20202023 and 2019,2022, are as follows:
| | U.S. Plans | | Non-U.S. Plans |
| U.S. Plans | | | U.S. Plans | | Non-U.S. Plans |
| Year Ended December 31, | | | Year Ended December 31, |
| (In millions) | (In millions) | 2020 | | 2019 | | 2020 | | 2019 | (In millions) | 2023 | | 2022 | | 2023 | | 2022 |
| Actuarial loss | $ | 55 | | | $ | 26 | | | $ | 1 | | | $ | 23 | |
| Actuarial (gain) loss | |
| Deferred taxes | Deferred taxes | 0 | | | (1) | | | 0 | | | (5) | |
| Currency/other | Currency/other | 0 | | | 0 | | | 3 | | | 1 | |
| Reclassification to net income | Reclassification to net income | (1) | | | 0 | | | (2) | | | (1) | |
| Settlements | Settlements | (5) | | | 0 | | | 0 | | | 0 | |
| $ | 49 | | | $ | 25 | | | $ | 2 | | | $ | 18 | |
| $ | |
Actuarial loss for the year ended December 31, 20202023 is primarily related to a decrease in discount rates partially offset by an increase in return on assets. Actuarial gains and losses are amortized using the 10% corridor approach representing 10% times the greater of plan assets andor the projected benefit obligation. Generally, the expected return is determined using a market-
relatedmarket-related value of assets where gains (losses) are recognized in a systematic manner over five years. For less significant plans, fair value is used.
During 2020 the Company transferred a portion of the benefit obligation related to its defined benefit U.S. pension plan to a third-party issuer. The transaction met the criteria for settlement accounting, and accordingly, the Company recognized a $5 million pension settlement charge.
Benefit payments, which reflect expected future service, are expected to be paid by the Company plans as follows:
| | | | | | | | | | | |
| (In millions) | U.S. Plans | | Non-U.S. Plans |
| 2021 | $ | 41 | | | $ | 6 | |
| 2022 | 39 | | | 7 | |
| 2023 | 39 | | | 8 | |
| 2024 | 39 | | | 10 | |
| 2025 | 40 | | | 9 | |
| Years 2026 - 2030 | 216 | | | 53 | |
| | | | | | | | | | | |
| (In millions) | U.S. Plans | | Non-U.S. Plans |
| 2024 | $ | 38 | | | $ | 9 | |
| 2025 | 39 | | | 8 | |
| 2026 | 39 | | | 8 | |
| 2027 | 40 | | | 9 | |
| 2028 | 41 | | | 10 | |
| Years 2029 - 2033 | 221 | | | 57 | |
During the year ended December 31, 2020, cash contributions to2023, the Company's U.S. employee retirement pension plans were $18Company contributed $7 million and cash contributions of $6 million related to its non-U.S. employee retirement pension plans. Contributions related to certain non-U.S. plans of approximately $2 million have been deferred until 2024 due to COVID-19 relief measures. Additionally, the Company expects to make contributions to its U.S. defined benefit pension plans of $17 millionUS and non-US defined benefit pension plans of $9 million and $7 million, respectively during 2021. The Company’s expected 2021 contributions may be revised.2024.
Substantially all of the Company’s defined benefit pension plan assets are managed by external investment managers and held in trust by third-party custodians. The selection and oversight of these external service providers is the responsibility of the investment committees of the Company and their advisers. The selection of specific securities is at the discretion of the investment manager and is subject to the provisions set forth by written investment management agreements and related policy guidelines regarding permissible investments, risk management practices, and the use of derivative securities. Derivative securities may be used by investment managers as efficient substitutes for traditional securities, to reduce portfolio risks, or to hedge identifiable economic exposures. The use of derivative securities to engage in unrelated speculation is expressly prohibited.
The primary objective of the pension funds is to pay the plans’ benefit and expense obligations when due. Given the long-term nature of these plan obligations and their sensitivity to interest rates, the investment strategy is intended to improve the funded status of its U.S. and non-U.S. plans over time while maintaining a prudent level of risk. Risk is managed primarily by diversifying each plan’s target asset allocation across equity, fixed income securities, and alternative investment strategies, and then maintaining the allocation within a specified range of its target. In addition, diversification across various investment subcategories within each plan is also maintained within specified ranges.
The Company’s retirement plan asset allocation as of December 31, 20202023 and 20192022 and target allocation for 20212024 are as follows:
| | Target Allocation | | Percentage of Plan Assets |
| U.S. | | Non-U.S. | | U.S. | | Non-U.S. |
| 2021 | | 2021 | | 2020 | | 2019 | | 2020 | | 2019 |
| Target Allocation | | | Target Allocation | | Percentage of Plan Assets |
| U.S. | | | U.S. | | Non-U.S. | | U.S. | | Non-U.S. |
| 2024 | | | 2024 | | 2023 | | 2022 | | 2023 | | 2022 |
| Equity securities | Equity securities | 38 | % | | 34 | % | | 41 | % | | 37 | % | | 29 | % | | 38 | % | Equity securities | 38 | % | | 10 | % | | 30 | % | | 31 | % | | 10 | % | | 9 | % |
| Fixed income | Fixed income | 15 | % | | 43 | % | | 15 | % | | 18 | % | | 51 | % | | 39 | % | Fixed income | 28 | % | | 64 | % | | 17 | % | | 11 | % | | 65 | % | | 65 | % |
| Alternative strategies | Alternative strategies | 46 | % | | 14 | % | | 39 | % | | 44 | % | | 12 | % | | 14 | % | Alternative strategies | 33 | % | | 11 | % | | 51 | % | | 56 | % | | 11 | % | | 12 | % |
| Cash | Cash | 1 | % | | 3 | % | | 5 | % | | 1 | % | | 2 | % | | 4 | % | Cash | 1 | % | | 4 | % | | 2 | % | | 2 | % | | 3 | % | | 2 | % |
| Other | Other | 0 | % | | 6 | % | | 0 | % | | 0 | % | | 6 | % | | 5 | % | Other | — | % | | 11 | % | | — | % | | — | % | | 11 | % | | 12 | % |
| 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % |
| 100 | | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % |
The expected long-term rate of return for defined benefit pension plan assets was selected based on various inputs, including returns projected by various external sources for the different asset classes held by and to be held by the Company’s trusts and its targeted asset allocation. These projections incorporate both historical returns and forward-looking views regarding capital market returns, inflation, and other variables. Pension plan assets are valued at fair value using various inputs and valuation
techniques. A description of the inputs and valuation techniques used to measure the fair value for each class of plan assets is included in Note 17,16, "Fair Value Measurements."
Discount Rate for Estimated Service and Interest Cost
The Company uses the spot rate method to estimate the service and interest components of net periodic benefit cost for pension benefits for its U.S. and certain non-U.S. plans. The Company has elected to utilize an approach that discounts individual
expected cash flows underlying interest and service costs using the applicable spot rates derived from the yield curve used to determine the benefit obligation to the relevant projected cash flows. The discount rate assumption is based on market rates for a hypothetical portfolio of high-quality corporate bonds rated Aa or better with maturities closely matched to the timing of projected benefit payments for each plan at its annual measurement date. The Company used discount rates ranging from 0.8%1.2% to 8.75%11.5% to determine its pension and other benefit obligations as of December 31, 2020, including weighted average discount rates of 2.60% for U.S. pension plans and 1.78% for non-U.S. pension plan.2023.
Defined Contribution Plans
Most U.S. salaried employees and certain non-U.S. employees are eligible to participate in defined contribution plans by contributing a portion of their compensation which is partially matched by the Company. Matching contributions for the U.S. defined contribution plan are 100% on the first 6% of pay contributed. Matching contributions were suspended from May 1, 2020 to September 30, 2020 as a part of the cost saving actions in response to the COVID-19 pandemic. The expense related to all matching contributionsdefined contribution plans was approximately $5$6 million in 2020, $82023, $3 million in 2019,2022, and $7$6 million in 2018.
Other Postretirement Employee Benefit Plans
In Canada, the Company has a financial obligation for the cost of providing other postretirement health care and life insurance benefits to certain of its employees under Company-sponsored plans. These plans generally pay for the cost of health care and life insurance for retirees and dependents, less retiree contributions and co-pays. Other postretirement benefit obligations were $1 million at December 31, 2020 and 2019.2021.
NOTE 13.12. Stock-Based Compensation
The Visteon Corporation 2010 Incentive Plan (the “2010 Incentive Plan”) provided for the grant of up to 4.75 million shares of common stock for restricted stock awards (“RSAs”), restricted stock units (“RSUs”),non-qualified stock options ("Stock Options"), stock appreciation rights (“SARs”), performance based share units ("PSUs"), and other stock based awards. At the Company’s annual meeting of shareholders in June 2020, the shareholders approved the Visteon Corporation 2020 Incentive Plan (the “2020 Incentive Plan”), replacing the 2010 Incentive Plan.stock incentive plan and providing for an additional grant of up to 1.5 million shares. Pursuant to the 2020 Incentive Plan, the Company may grant up to 1.5 million shares of common stock for RSA, RSUs, restricted stock awards (“RSAs”), restricted stock units (“RSUs”),non-qualified stock options ("Stock Options, SARs, PSUs,Options"), stock appreciation rights (“SARs”), performance-based share units ("PSUs"), and other stock based awards.The Company's stock-based compensation instruments are accounted for as equity awards or liability awards based on settlement intention as follows:
•For equity settled stock-based compensation instruments, compensation cost is measured based on grant date fair value of the award and is recognized over the applicable service period. For equity settled stock-based compensation instruments, the delivery of Company shares may be on a gross settlement basis or a net settlement basis. The Company's policy is to deliver such shares using treasury shares or issuing new shares.
•Cash settled stock-based compensation instruments are subject to liability accounting. At the end of each reporting period, the vested portion of the obligation for cash settled stock-based compensation instruments is adjusted to fair value based on the period-ending market prices of the Company's common stock. Related compensation expense is recognized based on changes to the fair value over the applicable service period.
Generally, the Company's stock-based compensation instruments are subject to graded vesting and recognized on an accelerated basis. The settlement intention of the awards is at the discretion of the Organization and Compensation Committee of the Company's Board of Directors. These stock-based compensation awards generally provide for accelerated vesting upon a change-in-control, which isas defined in the 2020 Incentive Plan, which requires a double-trigger. Accordingly, the Company may be required to accelerate recognition of related expenses in future periods in connection with the change-in-control events and subsequent changes in employee responsibilities, if any.
The total recognized and unrecognized stock-based compensation expense is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | Unrecognized Stock-Based Compensation Expense |
| (In millions) | 2020 | | 2019 | | 2018 | | December 31, 2020 |
| Performance based share units | $ | 6 | | | $ | 6 | | | $ | (2) | | | $ | 7 | |
| Restricted stock units | 10 | | | 9 | | | 8 | | | 13 | |
| Stock options | 2 | | | 2 | | | 2 | | | 1 | |
| Total stock-based compensation expense | $ | 18 | | | $ | 17 | | | $ | 8 | | | $ | 21 | |
During 2018, the Company recognized a $10 million benefit on forfeiture of unvested shares due to the settlement of a litigation matter as further described in Note 19, "Commitments and Contingencies."
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | Unrecognized Stock-Based Compensation Expense |
| (In millions) | 2023 | | 2022 | | 2021 | | December 31, 2023 |
| Performance based share units | $ | 9 | | | $ | 7 | | | $ | 5 | | | $ | 14 | |
| Restricted stock units | 27 | | | 20 | | | 12 | | | 24 | |
| Stock options | — | | | — | | | 1 | | | — | |
| Total stock-based compensation expense | $ | 36 | | | $ | 27 | | | $ | 18 | | | $ | 38 | |
Performance Based Share Units
The number of PSUs that will vest, ranging from 0% to 200% of the target award, is based on the Company's achievement of a pre-established relative total shareholder return goal compared to its peer group of companies over a period of three years which may range from 0% to 200% of the target award.three-year period.
A summary of PSU activity is provided below:
| | A summary of PSU activity is provided below: | | A summary of PSU activity is provided below: | PSUs | | Weighted Average Grant Date Fair Value |
| PSUs | | Weighted Average Grant Date Fair Value |
| | (In thousands) | | |
| Non-vested as of December 31, 2017 | 461 | | | $ | 58.76 | |
| (In thousands) | |
| (In thousands) | |
| (In thousands) | |
| (In thousands) | |
| (In thousands) | |
| (In thousands) | |
| (In thousands) | |
| (In thousands) | |
| (In thousands) | |
| (In thousands) | |
| (In thousands) | |
| (In thousands) | |
| Non-vested as of December 31, 2020 | |
| Non-vested as of December 31, 2020 | |
| Non-vested as of December 31, 2020 | |
| Granted | Granted | 87 | | | 124.90 | |
| Vested | Vested | (63) | | | 105.29 | |
| Forfeited | Forfeited | (290) | | | 33.85 | |
| Non-vested as of December 31, 2018 | 195 | | | 110.42 | |
| Non-vested as of December 31, 2021 | |
| Granted | Granted | 71 | | | 111.98 | |
| Vested | Vested | (73) | | | 89.74 | |
| Forfeited | Forfeited | (23) | | | 118.87 | |
| Non-vested as of December 31, 2019 | 170 | | | 118.77 | |
| Non-vested as of December 31, 2022 | |
| Granted | Granted | 94 | | | 84.20 | |
| Vested | Vested | (66) | | | 116.35 | |
| Forfeited | Forfeited | (18) | | | 100.51 | |
| Non-vested as of December 31, 2020 | 180 | | | $ | 106.48 | |
| Non-vested as of December 31, 2023 | |
The grant date fair value for PSUs was determined using the Monte Carlo valuation model. Unrecognized compensation expense as of December 31, 20202023 for PSUs to be settled in shares of the Company's common stock was $7$13 million for the non-vested portion and will be recognized over the remaining vesting period of approximately 1.71.9 years. The Company made cash settlement payments of less than th$1an $1 million for PSU for PSUs expected to bes settled in cash during each of the years ended December 31, 20202023 and 2019.2022. Unrecognized compensation expense as of December 31, 20202023 was less than $1 million for the non-vested portion of these awards and will be recognized over the remaining vesting period of approximately 2.01.8 years.
The Monte Carlo valuation model requires management to make various assumptions including the expected volatility, risk-free interest rate, and dividend yield. Volatility is based on the Company’s stock history using daily stock prices over a period commensurate with the expected life of the award. The risk-free rate was based on the U.S. Treasury yield curve in relation to the contractual life of the stock-based compensation instrument. The dividend yield was based on historical patterns and future expectations for Company dividends.
Weighted average assumptions used to estimate the fair value of PSUs granted during the years ended as of December 31, 20202023 and 20192022 are as follows:
| | | | | | | | | | | |
| Year Ended December 31, |
| 2020 | | 2019 |
| Expected volatility | 41.88 | % | | 31.20 | % |
| Risk-free rate | 0.67 | % | | 2.43 | % |
| Expected dividend yield | 0 | % | | 0 | % |
| | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 |
| Expected volatility | 51.72 | % | | 52.12 | % |
| Risk-free rate | 4.56 | % | | 1.46 | % |
| Expected dividend yield | — | % | | — | % |
Restricted Stock Units
The grant date fair value of RSUs is measured as the average of the high and low market closing price of the Company's common stock on the date of grant. These awards generally vest in one-third increments on the grant date anniversary over a three yearthree-year vesting period.
| | | | | | | | | | | | | | | | | |
| Share Settled RSUs for the Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
| Granted | 221,000 | | 276,000 | | 110,000 |
| Weighted average grant date fair value | $159.95 | | $114.17 | | $116.71 |
The Company granted 223,000, 133,000 and 70,000 RSUs, expected to be settled in shares, during the years ended December 31, 2020, 2019 and 2018, respectively, at a weighted average grant date fair value of $75.52, $79.88 and $123.52 per share, respectively. Unrecognized compensation expense as of December 31, 20202023 was $12$22 million for non-vested share settled RSUs and will be recognized over the remaining vesting period of approximately 1.71.5 years.
| | | | | | | | | | | | | | | | | |
| Cash Settled RSUs for the Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
| Granted | 15,000 | | 17,000 | | 6,000 |
| Weighted average grant date fair value | $125.30 | | $130.47 | | $112.52 |
The Company granted 8,000 RSUs, expected to be settled in cash, during each of the years ended December 31, 2020 and 2019, at weighted average grant date fair values of $76.27 and $75.02 per share, respectively. The Company made cash settlement payments of $1 million during the year ended December 31, 2023, and less than $1$1 million during for the years ended December 31, 2020, 2019,2022, and 2018.2021. Unrecognized compensation expense as of December 31, 20202023 was $1$2 million for non-vested cash settled RSUs and will be recognized on a weighted average basis over the remaining vesting period of approximately 1.7 years.
A summary of RSU activity is provided below:
| | RSUs | | Weighted Average Grant Date Fair Value |
| (In thousands) | | |
| Non-vested as of December 31, 2017 | 230 | | $ | 87.09 | |
| RSUs | | | RSUs | | Weighted Average Grant Date Fair Value |
| (In thousands) | |
| Unissued shares as of December 31, 2020 | |
| Unissued shares as of December 31, 2020 | |
| Unissued shares as of December 31, 2020 | |
| Granted | Granted | 70 | | | 123.52 | |
| Vested | Vested | (102) | | | 96.34 | |
| Forfeited | Forfeited | (34) | | | 61.69 | |
| Non-vested as of December 31, 2018 | 164 | | | 105.24 | |
| Unissued shares as of December 31, 2021 | |
| Granted | Granted | 141 | | | 79.61 | |
| Vested | Vested | (71) | | | 93.60 | |
| Forfeited | Forfeited | (18) | | | 92.18 | |
| Non-vested as of December 31, 2019 | 216 | | | 90.98 | |
| Unissued shares as of December 31, 2022 | |
| Granted | Granted | 231 | | | 77.57 | |
| Vested | Vested | (84) | | | 95.70 | |
| Forfeited | Forfeited | (46) | | | 77.47 | |
| Non-vested as of December 31, 2020 | 317 | | | $ | 82.31 | |
| Unissued shares as of December 31, 2023 | |
Additionally, as of December 31, 2020, the Company has 85,000 outstanding RSU's awarded at a weighted average grant date fair value of $81.05 under the Non-Employee Director Stock Unit Plan which vested immediately but are not settled until the participant terminates board service. Beginning in the third quarter 2020, non-employee director RSU awards were granted under the terms and conditions of the 2020 Incentive Plan, and these awards vest approximately one year from the date of grant. Activity related to non-employee director grants under the 2020 Incentive Plan is included in RSU table above.
Additionally, as of December 31, 2023, the Company has approximately 89,000 outstanding RSU's awarded at a weighted average grant date fair value of $103.27 under the Non-Employee Director Stock Unit Plan which vest within one year or less but are not settled until the participant terminates board service. Total RSU's outstanding as of December 31, 2023 is approximately 474,000 inclusive of the table above.
Stock Options and Stock Appreciation Rights
Stock Options and SARs are recorded with an exercise price equal to the average of the high and low market price of the Company's common stock on the date of grant. The grant date fair value of these awards is measured using the Black-Scholes option pricing model. Stock Options and SARs generally vest in one-third increments on the grant date anniversary over a three yearthree-year vesting period and have an expiration date 7 or 10 years from the date of grant.
The Company received payments of $6 million, $2 million, less than $1 million and $3$2 million related to the exercise of Stock Options with total intrinsic value of options exercised of less than $1$4 million, less than $1$3 million, and $2$1 million during the years ended December 31, 2020, 2019,2023, 2022, and 2018,2021, respectively. UnrecognizedThere is no remaining unrecognized compensation expense for non-vested Stock Options as of December 31, 2020 was approximately $1 million and is expected to be recognized over a weighted average period of 1.5 years.2023.
The Black-Scholes option pricing model requires management to make various assumptions including the expected term, risk-free interest rate, dividend yield, and expected volatility. The expected term represents the period of time that granted awards are expected to be outstanding and is estimated based on considerations including the vesting period, contractual term, and anticipated employee exercise patterns. The risk-free rate is based on the U.S. Treasury yield curve in relation to the contractual life of the stock-based compensation instrument. The dividend yield is based on historical patterns and future expectations for Company dividends. Volatility is based on the Company’s stock history using daily stock prices over a period commensurate with the expected life of the award.
Weighted average assumptions used to estimate the fair value of awardsNo stock options or SARs were granted during the years ended December 31, 2020, 2019 and 2018 are as follows:
| | | | | | | | | | | | | | | | | |
| Stock Options |
| 2020 | | 2019 | | 2018 |
| Expected term (in years) | 5 | | 5 | | 5 |
| Expected volatility | 35.23 | % | | 27.69 | % | | 22.95 | % |
| Risk-free interest rate | 0.75 | % | | 2.43 | % | | 2.58 | % |
| Expected dividend yield | 0 | % | | 0 | % | | 0 | % |
| | | | | |
A summary of Stock Options and SAR activity is provided below:
| | | | | | | | | | | | | | | | | | | | | | | |
| Stock Options | | Weighted Average
Exercise Price | | SARs | | Weighted Average
Exercise Price |
| (In thousands) | | | | (In thousands) | | |
| December 31, 2017 | 166 | | | $ | 81.72 | | | 8 | | | $ | 69.21 | |
| Granted | 78 | | | 124.35 | | | 0 | | | 0 | |
| Exercised | (31) | | | 68.02 | | | (1) | | | 51.25 | |
| December 31, 2018 | 213 | | | 99.36 | | | 7 | | | 72.84 | |
| Granted | 106 | | | 80.97 | | | 0 | | | 0 | |
| Exercised | (4) | | | 59.37 | | | 0 | | | 0 | |
| Forfeited or expired | (32) | | | 96.02 | | | 0 | | | 0 | |
| December 31, 2019 | 283 | | | 93.51 | | | 7 | | | 72.84 | |
| Granted | 112 | | | 66.98 | | | 0 | | | 0 | |
| Exercised | (27) | | | 84.98 | | | (1) | | | 56.59 | |
| Forfeited or expired | (20) | | | 96.12 | | | 0 | | | 0 | |
| December 31, 2020 | 348 | | | $ | 85.46 | | | 6 | | | $ | 74.77 | |
| | | | | | | |
| Exercisable at December 31, 2020 | 162 | | | $ | 94.53 | | | 6 | | | $ | 74.77 | |
67 | | | | | | | | | | | | | | | | | | | | | | | |
| Stock Options | | Weighted Average
Exercise Price | | SARs | | Weighted Average
Exercise Price |
| (In thousands) | | | | (In thousands) | | |
| December 31, 2020 | 348 | | | $ | 85.46 | | | 6 | | | $ | 74.77 | |
| Exercised | (19) | | | 80.74 | | | (6) | | | 74.77 | |
| Forfeited or expired | (17) | | | 89.17 | | | — | | | — | |
| December 31, 2021 | 312 | | | 85.56 | | | — | | | — | |
| Exercised | (51) | | | 75.05 | | | — | | | — | |
| December 31, 2022 | 261 | | | 87.62 | | | — | | | — | |
| Exercised | (71) | | | 91.44 | | | — | | | — | |
| December 31, 2023 | 190 | | | $ | 86.21 | | | — | | | $ | — | |
| | | | | | | |
| Exercisable at December 31, 2023 | 190 | | | $ | 86.21 | | | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | |
| | Stock Options |
| Exercise Price | | Number Outstanding | | Weighted
Average
Remaining Life | | Weighted
Average
Exercise Price |
| | (In thousands) | | (In years) | | |
| $60.01 - $80.00 | | 78 | | | 3.3 | | $ | 66.98 | |
| $80.01 - $100.00 | | 64 | | | 2.3 | | $ | 80.97 | |
| $100.01 - $130.00 | | 48 | | | 1.3 | | $ | 124.35 | |
| | 190 | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | Stock Options and SARs Outstanding |
| Exercise Price | | Number Outstanding | | Weighted
Average
Remaining Life | | Weighted
Average
Exercise Price |
| | (In thousands) | | (In years) | | |
| $10.00 - $60.00 | | 4 | | | 0.9 | | $ | 51.19 | |
| $60.01 - $80.00 | | 146 | | | 5.2 | | $ | 68.52 | |
| $80.01 - $100.00 | | 143 | | | 4.4 | | $ | 86.71 | |
| $100.01 - $130.00 | | 61 | | | 4.3 | | $ | 124.35 | |
| | 354 | | | | | |
NOTE 14.13. Income Taxes
Income Tax Provision
Details of the Company's income tax provisionbenefit from continuing operations are provided in the table below:
| | Year Ended December 31, |
| Year Ended December 31, | | | Year Ended December 31, |
| (In millions) | (In millions) | 2020 | | 2019 | | 2018 | (In millions) | 2023 | | 2022 | | 2021 |
Income (Loss) Before Income Taxes: (a) | Income (Loss) Before Income Taxes: (a) | | | | | |
| U.S | U.S | $ | (65) | | | $ | 5 | | | $ | 76 | |
| U.S | |
| U.S | |
| Non-U.S. | |
| Total income (loss) before income taxes | |
| Current Tax Provision (Benefit): | |
| | Non-U.S. | |
| | Non-U.S. | |
| | Non-U.S. | |
| U.S. state and local | |
| Total current tax provision (benefit) | |
| Deferred Tax Provision (Benefit): | |
| U.S. federal | |
| U.S. federal | |
| U.S. federal | |
| Non-U.S | Non-U.S | 39 | | | 95 | | | 127 | |
| Total income (loss) before income taxes | $ | (26) | | | $ | 100 | | | $ | 203 | |
| Current Tax Provision: | | | | | |
| U.S. state and local | |
| Total deferred tax provision (benefit) | |
| Provision for (benefit from) for income taxes | |
| | Non-U.S | $ | 21 | | | 29 | | | $ | 42 | |
| | Deferred Tax Provision (Benefit): | | | | | |
| | Non-U.S | 7 | | | (5) | | | 1 | |
| | Total deferred tax provision (benefit) | 7 | | | (5) | | | 1 | |
| Provision for income taxes | $ | 28 | | | $ | 24 | | | $ | 43 | |
| (a) Income (loss) before income taxes excludes equity in net income of non-consolidated affiliates. | (a) Income (loss) before income taxes excludes equity in net income from non-consolidated affiliates. | |
(a) Income (loss) before income taxes excludes equity in net income from non-consolidated affiliates. | |
(a) Income (loss) before income taxes excludes equity in net income from non-consolidated affiliates. | |
A summary of the differences between the provision (benefit) for income taxes calculated at the U.S. statutory tax rate of 21% and the consolidated income tax provisionbenefit from continuing operations is shown below:
| | Year Ended December 31, |
| Year Ended December 31, | | | Year Ended December 31, |
| (In millions) | (In millions) | 2020 | | 2019 | | 2018 | (In millions) | 2023 | | 2022 | | 2021 |
| Tax provision (benefit) at U.S. statutory rate of 21% for 2020, 2019, and 2018 | $ | (5) | | | $ | 21 | | | $ | 43 | |
| Tax provision (benefit) at U.S. statutory rate of 21% | |
| Impact of foreign operations | Impact of foreign operations | (15) | | | 23 | | | 16 | |
| Non-U.S withholding taxes | Non-U.S withholding taxes | 5 | | | 10 | | | 14 | |
| Tax holidays in foreign operations | Tax holidays in foreign operations | (4) | | | (5) | | | (5) | |
| State and local income taxes | State and local income taxes | 0 | | | 0 | | | 3 | |
| Tax reserve adjustments | Tax reserve adjustments | 1 | | | 2 | | | (6) | |
| Change in valuation allowance | Change in valuation allowance | 46 | | | (10) | | | (81) | |
| Impact of U.S. tax reform | 0 | | | (18) | | | 33 | |
| Impact of tax law change | 0 | | | 0 | | | 35 | |
| | Research credits | (1) | | | (1) | | | (5) | |
| | Other | Other | 1 | | | 2 | | | (4) | |
| Provision for income taxes | $ | 28 | | | $ | 24 | | | $ | 43 | |
| Provision for (benefit from) for income taxes | |
The Company’s provision forbenefit from income taxes for continuing operations was $28$248 million for the year ended December 31, 2020. The tax benefit related to foreign operations2023. In the fourth quarter of $152023, the Company released $313 million reflects $10 million income tax benefit related to electing to deduct expiring foreign tax credits previously derecognized;of valuation allowance against its U.S. federal and $5 million income tax benefit to reflect reduction in outside basisstate deferred tax liabilities and foreign tax credits associated with income from foreign subsidiaries treated as branches for U.S. income tax purposes. These amounts were entirely offset byassets, resulting in a corresponding $15 millionnon-cash benefit to income tax expense associated with an increase(discussed in the U.S. valuation allowance.
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Act”) was signed into law making significant changes to the U.S. Internal Revenue Code. Changes included, but were not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, the migration from a worldwide tax system to a territorial system, which instituted a dividends received deduction for foreign earnings with a one-time transition tax on cumulative post-1986 foreign earnings, a modification of the characterization and treatment of certain intercompany transactions and the creation of a new U.S. corporate minimum tax on certain global intangible low-tax income (“GILTI”) of foreign subsidiaries. In accordance with Staff Accounting Bulletin 118 ("SAB 118"), income tax effects of the Act were refined upon obtaining, preparing, and analyzing additional information during the measurement period. During 2018, the Company recorded a $33 million charge related to the one-time transition tax, the impact of which was entirely offset by a corresponding income tax benefit associated with a reduction in the U.S. valuation allowance. During 2019, the Company further adjusted its estimate of the impact of U.S. tax reform primarily related to assumptions made in calculating its 2018 GILTI inclusion resulting in an $18 million income tax benefit, the impact of which was entirely offset by a corresponding income tax charge associated with an increase in the U.S. valuation allowance. The Company has made policy elections to account for the GILTI as a period cost when incurred and apply the incremental cash tax savings approach when analyzing the impact GILTI could have on its U.S. valuation allowance assessment.
Itemsdetail below). Other items impacting the Company’s 20192023 effective tax rate include tax expense related to foreign operations of $23$69 million which reflects $6$24 million tax expense on foreign earnings taxed at rates higher than therelated to U.S. statutory rate; $8income taxes in connection with global intangible low-tax income ("GILTI") and Subpart F inclusions; $2 million related to income tax expense, net of foreign tax credits, associated with income from foreign subsidiaries treated as branches for U.S. income tax purposes; net $39 million income tax expense related primarily to adjusting prior year tax returns to deduct foreign taxes prior to expiration; and $4 million tax expense on foreign earnings taxed at rates higher than the U.S. statutory rate.
Items impacting the Company’s 2022 effective tax rate include tax expense related to foreign operations of $63 million which reflects $11 million related to U.S. income taxes in connection with GILTI and Subpart F inclusions; $3 million related to income tax expense, net of foreign tax credits, associated with income from foreign subsidiaries treated as branches for U.S. income tax purposes; net $44 million income tax expense related primarily to adjusting prior year tax returns to deduct foreign
taxes prior to expiration; and $5 million tax expense on foreign earnings taxed at rates higher than the U.S. statutory rate. Of the $63 million income tax expense items above, $58 million were offset by a corresponding income tax benefit associated with a reduction in the U.S. valuation allowance.
Items impacting the Company’s 2021 effective tax rate include tax benefits related to foreign operations of $18 million which reflects $9 million related to U.S. income taxes in connection with GILTI and Subpart F inclusions,inclusions; $6 million related to income tax expense, net of foreign tax credits, excluding the transitionassociated with income from foreign subsidiaries treated as branches for U.S. income tax on the deemed repatriation of foreign earnings described above. These amounts were offset by a corresponding $17purposes; net $2 million income tax benefit associated with a reduction in the U.S. valuation allowance. Tax reserve adjustments of $2 million primarily relates to certain transfer pricing positions taken between affiliates in Europe and the U.S.
Items impacting the Company’s 2018 effective tax rate include tax expense related primarily to adjusting prior year tax returns to deduct foreign operations of $16 million which reflects $8taxes prior to expiration; and $1 million tax expense on foreign earnings taxed at rates higher than the U.S. statutory rate and $8rate. Of the $18 million related to U.S. income taxes in connection with GILTI and Subpart F inclusions, net of foreign tax credits, excluding the transition tax on the deemed repatriation of foreign earnings describedexpense items above, entirely$17 million were offset by a corresponding $8 million decreaseincome tax benefit associated with a reduction in the U.S. valuation allowance. Tax reserve adjustments of $6 million primarily reflects the favorable audit developments in connection with uncertain tax positions related to goodwill tax amortization at an affiliate in Asia. The $35 million unfavorable impact of tax law change in 2018 (excluding the Act) reflects the reduction in deferred tax assets, including net operating loss carryforwards, primarily attributable to the reduction in the corporate income tax rate in France, which was entirely offset by the related valuation allowance.
Deferred Income Taxes and Valuation Allowances
The Company recordedhas historically provided a valuation allowance against the U.S. net deferred tax liabilities, netassets. However, in the fourth quarter of 2023, the Company released $313 million of valuation allowances,allowance against its U.S. net deferred tax assets, resulting in a non-cash benefit to income tax expense. In making the determination to release the valuation allowance, the Company took into consideration its cumulative income position for the most recent three-year period and forecasts of future earnings, and determined there is sufficient positive evidence to conclude that it is more likely than not that a portion of the Company’s net deferred tax assets are realizable. In determining the amount of the U.S. valuation allowance to release, the Company considered its policy to apply the incremental economic benefit approach when analyzing the impact future GILTI inclusions could have when assessing the realizability of its deferred taxes. The Company continues to maintain a valuation allowance against approximately $399 million of U.S. federal and non-U.S. income taxes and non-U.S. withholding taxes of approximately $27 million and $26 millionstate deferred tax assets as of December 31, 2020 and 2019, respectively, on2023, because the undistributed earnings of certain consolidated and unconsolidated foreign affiliates as such earningsCompany has concluded they are intendednot more likely than not to be repatriatedrealized.
Also during the fourth quarter of 2023, the Company reassessed future taxable income and related expected utilization of deferred tax assets in Germany resulting in the foreseeablerelease of$9 million of valuation allowance.
As of December 31, 2023, valuation allowances totaling $355 million relate to deferred tax assets in certain foreign jurisdictions, primarily Germany and France.
The Company will continue to evaluate the available positive and negative evidence available in subsequent periods and adjust its remaining valuation allowances to an amount it determines to be more likely than not to be realized.
The Company has recorded the taxes associated with the foreign earnings it intends to repatriate in the future. The amount the Company expects to repatriate is based upon a variety of factors including current year earnings of the foreign affiliates, foreign investment needs, and the cash flow needs of the Company. As of December 31, 2023 and 2022, the Company has in the U.S.recorded withholding tax liabilities of $28 million and this practice has not changed following incurring the transition tax under the Act.$24 million, respectively related to these earnings. The Company has not provided for deferred income taxestax liabilities for foreign withholding or foreign withholdingother taxes on the remainder of undistributed earnings from consolidated foreign affiliates because such earnings are considered to be permanently reinvested. It is not practicable to determine the amount of deferred tax liability on such earnings as the actual tax liability, if any, is dependent on circumstances existing when remittance occurs.
The Company evaluates its deferred income taxes quarterly to determine if valuation allowances are required or should be adjusted.This assessment considers, among other matters, the nature, frequency, and amount of recent losses, the duration of
statutory carryforward periods, and tax planning strategies.In making such judgments, significant weight is given to evidence that can be objectively verified.If (i) recent improvements to financial results continue in the U.S., or (ii) recovery of the global economy after the COVID-19 pandemic occurs faster than expected, the Company believes it is possible that sufficient positive evidence may be available to release all, or a portion, of its U.S. valuation allowance in the next twelve to 24 months.
In March 2019, the closure of tax audits in Germany allowed the Company to initiate a tax planning strategy previously determined not to be prudent. This strategy provided the necessary positive evidence to support the future utilization of a portion of the Company's deferred tax assets in Germany resulting in a $12 million valuation allowance release during the first quarter of 2019. In September 2020, the Company approved a restructuring program impacting engineering and administrative functions globally, including German operations. The September action, combined with earlier 2020 actions, necessitated a reassessment of the future utilization of deferred tax assets in Germany resulting in recording a $4 million discrete income tax expense adjustment during the third quarter of 2020 to increase the valuation allowance. During the fourth quarter of 2020, the Company completed an analysis related to its Brazil affiliate, Visteon Amazonas (“Amazonas”), resulting in the permanent exclusion of certain incentive income from taxable profits. Consequently, the Company concluded the generation of future taxable income is no longer sufficient to realize the Company’s net deferred tax assets at Amazonas resulting in recording a $3 million valuation allowance during the fourth quarter of 2020.
The components of deferred income tax assets and liabilities are as follows:
| | December 31, |
| December 31, | | | December 31, |
| (In millions) | (In millions) | 2020 | | 2019 | (In millions) | 2023 | | 2022 |
| Deferred Tax Assets: | Deferred Tax Assets: | | | |
| Net operating losses and credit carryforwards | |
| Net operating losses and credit carryforwards | |
| Net operating losses and credit carryforwards | Net operating losses and credit carryforwards | $ | 1,192 | | | $ | 1,099 | |
| Employee benefit plans | Employee benefit plans | 80 | | | 73 | |
| Lease liability | Lease liability | 59 | | | 55 | |
| Fixed assets and intangibles | Fixed assets and intangibles | 12 | | | 14 | |
| Warranty | Warranty | 14 | | | 11 | |
| Inventory | Inventory | 9 | | | 9 | |
| Restructuring | Restructuring | 13 | | | 5 | |
| Capitalized expenditures for tax reporting | 5 | | | 5 | |
| Capitalized expenditures | |
| Deferred income | Deferred income | 10 | | | 4 | |
| Other | Other | 63 | | | 55 | |
| Gross deferred tax assets | |
| Valuation allowance | Valuation allowance | (1,263) | | | (1,132) | |
| Total deferred tax assets | Total deferred tax assets | $ | 194 | | | $ | 198 | |
| Deferred Tax Liabilities: | Deferred Tax Liabilities: | | | |
| Outside basis investment differences, including withholding tax | |
| Outside basis investment differences, including withholding tax | |
| Outside basis investment differences, including withholding tax | Outside basis investment differences, including withholding tax | $ | 65 | | | $ | 64 | |
| Right-of-use assets | Right-of-use assets | 57 | | | 54 | |
| Fixed assets and intangibles | Fixed assets and intangibles | 18 | | | 16 | |
| All other | All other | 27 | | | 32 | |
| Total deferred tax liabilities | Total deferred tax liabilities | 167 | | | 166 | |
| Net deferred tax assets | Net deferred tax assets | $ | 27 | | | $ | 32 | |
| Consolidated Balance Sheet Classification: | Consolidated Balance Sheet Classification: | | | |
| Other non-current assets | Other non-current assets | $ | 55 | | | $ | 59 | |
| Other non-current assets | |
| Other non-current assets | |
| | Deferred tax liabilities non-current | Deferred tax liabilities non-current | 28 | | | 27 | |
| | | Deferred tax liabilities non-current | |
| | Deferred tax liabilities non-current | |
| | Net deferred tax assets | Net deferred tax assets | $ | 27 | | | $ | 32 | |
| Net deferred tax assets | |
| Net deferred tax assets | |
At December 31, 2020,2023, the Company had available non-U.S. net operating loss carryforwards and capital loss carryforwards of $1.5$1.4 billion and $18$17 million, respectively, which have remaining carryforward periods ranging from 1 year to indefinite. The Company had available U.S. federal net operating loss carryforwards of $1.8$1.1 billion at December 31, 2020,2023, which have remaining carryforward periods ranging from 7 years to indefinite.11 years. U.S. foreign tax credit carryforwards are $385$304 million at December 31, 2020. These credits will begin2023, which have remaining carryforward periods ranging from 1 to expire in 2021.10 years. U.S. research tax credit carryforwards are $21$26 million at
December 31, 2020.2023. These credits will begin to expire in 2030. The Company had available tax-effected U.S. state operating loss carryforwards of $32$30 million at December 31, 2020,2023, which will expire at various dates between 20212024 and 2040.2043.
In connection with the Company's emergence from bankruptcy and resulting change in ownership on the Effective Date, an annual limitation was imposed on the utilization of U.S. net operating losses, U.S. credit carryforwards and certain U.S. built-in losses (collectively referred to as “tax attributes”) under Internal Revenue Code (“IRC”) Sections 382 and 383. The collective limitation is approximately $120$121 million per year on tax attributes in existence at the date of change in ownership. Additionally, the Company has approximately $385 million of U.S. foreign tax credits and approximately $18 million of U.S. federal net operating loss carryforwards that are not subject to any current limitation since they were realized after the Effective Date.
Unrecognized Tax Benefits Inclusive of Discontinued Operations
The Company operates in multiple jurisdictions throughout the world and the income tax returns of its subsidiaries in various tax jurisdictions are subject to periodic examination by respective tax authorities. The Company regularly assesses the status of these examinations and the potential for adverse and/or favorable outcomes to determine the adequacy of its provision for income taxes. The Company believes that it has adequately provided for tax adjustments that it believes are more likely than not to be realized as a result of any ongoing or future examination. Accounting estimates associated with uncertain tax positions require the Company to make judgments regarding the sustainability of each uncertain tax position based on its technical merits. If the Company determines it is more likely than not a tax position will be sustained based on its technical merits, the Company records the largest amount that is greater than 50% likely of being realized upon ultimate settlement. These estimates are updated at each reporting date based on the facts, circumstances and information available. Due to the complexity of these uncertainties, the ultimate resolution may result in a payment that is materially different from the Company's current estimate
A reconciliation of the liabilities recorded.beginning and ending amount of unrecognized tax benefits is as follows:
| | | | | | | | | | | |
| Year Ended December 31, |
| (In millions) | 2023 | | 2022 |
| Beginning balance | $ | 18 | | | $ | 16 | |
| Tax positions related to current period | | | |
| Additions | 8 | | | 3 | |
| Tax positions related to prior periods | | | |
| Reductions | (1) | | | (1) | |
| Ending balance | $ | 25 | | | $ | 18 | |
Gross unrecognized tax benefits at December 31, 20202023 and 20192022 were $14$25 million and $13$18 million, respectively. Of these amounts, approximately $7$18 million and $6$10 million respectively, represent the amount of unrecognized benefits that, if recognized, would impact the effective tax rate. The gross unrecognized tax benefit differs from that which would impact the effective tax rate due to uncertain tax positions embedded in other deferred tax attributes carrying a full valuation allowance. The Company records interest and penalties related to uncertain tax positions as a component of income tax expense and related amounts accrued at December 31, 20202023 and 2019 was2022 were $2 million in both years.
During 2020 and 2019, the Company recorded uncertain tax positions primarily related to certain transfer positions taken between affiliates in Europe and the U.S. During 2018, there were several items that impacted the Company’s unrecognized tax benefits resulting in a $10 million net reduction in income tax expense, inclusive of interest and penalties, of which $6 million and $4 million of income tax benefits were reflected in continuing operations and discontinued operations, respectively. The $6 million income tax benefit in continuing operations primarily reflects the favorable audit developments in connection with uncertain tax positions related to goodwill tax amortization at an affiliate in Asia. The $4 million income tax benefit in discontinued operations relates to expiring statutes in connection with former climate operations in Europe.
With few exceptions, the Company is no longer subject to U.S. federal tax examinations for years before 2014,2015, or state, local or non-U.S. income tax examinations for years before 2003, although U.S. net operating losses carried forward into open tax years technically remain open to adjustment. Although it is not possible to predict the timing of the resolution of all ongoing tax audits with accuracy, it is reasonably possible that certain tax proceedings in the U.S., Europe, Asia and Mexico could conclude within the next twelve months and result in a significantan increase or decrease in the balance of gross unrecognized tax benefits. Given the number of years, jurisdictions and positions subject to examination, the Company is unable to estimate the full range of possible adjustments to the balance of unrecognized tax benefits. The long-term portion of uncertain income tax positions (including interest) in the amount of $6$12 million is included in Other non-current liabilities on the Consolidated Balance Sheet,consolidated balance sheet, while $3$5 million is included Other current liabilities on the consolidated balance sheet, and $10 million is reflected as a reduction of a deferred tax asset related to a net operating lossassets included in Other non-current assets on the Consolidated Balance Sheets.
A reconciliation of the beginningassets. Outstanding income tax refund claims related primarily to India and ending amount of unrecognized tax benefits including amounts attributable to discontinued operations is as follows:
| | | | | | | | | | | |
| Year Ended December 31, |
| (In millions) | 2020 | | 2019 |
| Beginning balance | $ | 13 | | | $ | 10 | |
| Tax positions related to current period | | | |
| Additions | 0 | | | 3 | |
| Tax positions related to prior periods | | | |
| Additions | 1 | | | 1 | |
| Reductions | 0 | | | (1) | |
| Ending balance | $ | 14 | | | $ | 13 | |
During 2012, Brazil tax authorities issued tax assessment notices to Visteon Sistemas Automotivos (“Sistemas”) related to the sale of its chassis business to a third party, which required a deposit in the amount of $15 million during 2013 necessary to open a judicial proceeding against the government in order to suspend the debt and allow Sistemas to operate regularly before the tax authorities after attempts to reopen an appeal of the administrative decision failed. Adjusted for currency impacts and accrued interest, the deposit amount is approximately $11jurisdictions, total $7 million as of December 31, 2020. The Company believes that the risk of a negative outcome is remote once the matter is fully litigated at the highest judicial level. These appeal payments, as well as income tax refund claims associated with other jurisdictions, total $16 million as of December 31, 20202023, and are included in Otherother non-current assets on the Consolidated Balance Sheets.balance sheets.
Other Tax Matters
In January 2023, the Company received a decision by the Indian Tax Authority (“ITA”) that tax applies to certain IT-related services fees paid to the U.S. which spans several years. Until this matter is resolved, the Company will likely need to remit taxes on the services in question for which payments could be significant in the aggregate. The Company believes the ITA’s decision is without merit, and intends to defend its position vigorously, and expects to recoup any taxes paid. If this matter is adversely resolved, the Company would record additional tax expense, which would include any taxes ultimately paid.
NOTE 15.14. Stockholders’ Equity and Non-controlling Interests
Share Repurchase Program
In January 2018 the Company's Board of Directors authorized a total of $700 million of share repurchases which expired on December 31, 2020. Share repurchases under this authorization include:
•2,805,531 shares of common stock in 2018 at an average price of $106.92 for an aggregate purchase amount of $300 million pursuant to various programs with third-party financial institutions.
•322,120 shares of common stock in 2019 at an average price of $62.06 for an aggregate purchase amount of $20 million pursuant to various programs with third-party financial institutions.
•233,769 shares of common stock in 2020 at an average price of $67.87 for an aggregate purchase amount of $16 million pursuant to various programs with third-party financial institutions.
Treasury Stock
As of December 31, 20202023 and 2019,2022, respectively, the Company held 27,156,53727,354,274 and 27,044,00326,825,830 shares of common stock in treasury which may be used for satisfying obligations under employee incentive compensation arrangements. The Company values shares of common stock held in treasury at cost.
Non-Controlling Interests
Non-controlling interests in the Visteon Corporation economic entity are as follows:
| | December 31, |
| December 31, | | | December 31, |
| (In millions) | (In millions) | 2020 | | 2019 | (In millions) | 2023 | | 2022 |
| Shanghai Visteon Automotive Electronics Co., Ltd. | |
| Yanfeng Visteon Automotive Electronics Co., Ltd. | Yanfeng Visteon Automotive Electronics Co., Ltd. | $ | 57 | | | $ | 56 | |
| Shanghai Visteon Automotive Electronics Co., Ltd. | 44 | | | 41 | |
| Changchun Visteon FAWAY Automotive Electronics Co., Ltd. | Changchun Visteon FAWAY Automotive Electronics Co., Ltd. | 20 | | | 17 | |
| Other | Other | 2 | | | 1 | |
| $ | 123 | | | $ | 115 | |
| $ | |
In 2019, the Company paid less than $1 million to purchase the remaining shares of a previous non-controlling interest.
Stock Warrants
In October 2010, the Company issued ten-year warrants at an exercise price of $9.66 per share. Pursuant to the Ten-Year Warrant Agreement, the original exercise price of $9.66 for the ten-year warrants was subject to adjustment as a result of the special distribution of $43.40 per share to shareholders at the beginning of 2016. Remaining warrants of 909 expired unexercised as of December 31, 2020.
Accumulated Other Comprehensive Income (Loss)
Changes in AOCI and reclassifications out of AOCI by component includes:
| | Year Ended December 31, |
| Year Ended December 31, | | | Year Ended December 31, |
| (In millions) | (In millions) | 2020 | | 2019 | (In millions) | 2023 | | 2022 |
| Changes in AOCI: | Changes in AOCI: | | | |
| Beginning balance | |
| Beginning balance | |
| Beginning balance | Beginning balance | $ | (267) | | | $ | (216) | |
| Other comprehensive income (loss) before reclassification, net of tax | Other comprehensive income (loss) before reclassification, net of tax | (44) | | | (46) | |
| Amounts reclassified from AOCI | Amounts reclassified from AOCI | 7 | | | (5) | |
| | Ending balance | Ending balance | $ | (304) | | | $ | (267) | |
| Ending balance | |
| Ending balance | |
| Changes in AOCI by component: | Changes in AOCI by component: | | |
| Foreign currency translation adjustments | Foreign currency translation adjustments | |
| Foreign currency translation adjustments | |
| Foreign currency translation adjustments | |
| Beginning balance | Beginning balance | $ | (153) | | | $ | (142) | |
| Other comprehensive income (loss) before reclassification (a) | 38 | | | (11) | |
| | Ending balance | (115) | | | (153) | |
| Net investment hedge | |
| Beginning balance | |
| Beginning balance | Beginning balance | 4 | | | (5) | |
| Other comprehensive income (loss) before reclassification (a) | Other comprehensive income (loss) before reclassification (a) | (14) | | | 15 | |
| Amounts reclassified from AOCI (b) | Amounts reclassified from AOCI (b) | (5) | | | (6) | |
| Ending balance | Ending balance | (15) | | | 4 | |
| Net investment hedge | |
| Beginning balance | |
| Beginning balance | |
| Beginning balance | |
| Other comprehensive income (loss) before reclassification (a) | |
| Amounts reclassified from AOCI (c) | |
| Ending balance | |
| Benefit plans | Benefit plans | |
| Beginning balance | Beginning balance | (114) | | | (71) | |
| Other comprehensive loss before reclassification, net of tax (c) | (59) | | | (44) | |
| Beginning balance | |
| Beginning balance | |
| Other comprehensive income (loss) before reclassification, net of tax (a) | |
| Amounts reclassified from AOCI | Amounts reclassified from AOCI | 8 | | | 1 | |
| | Ending balance | Ending balance | (165) | | | (114) | |
| Ending balance | |
| Ending balance | |
| Unrealized hedging gain (loss) | Unrealized hedging gain (loss) | |
| Beginning balance | Beginning balance | (4) | | | 2 | |
| Other comprehensive income (loss) before reclassification, net of tax (d) | (9) | | | (6) | |
| Beginning balance | |
| Beginning balance | |
| Other comprehensive income (loss) before reclassification, net of tax (a) | |
| Amounts reclassified from AOCI | Amounts reclassified from AOCI | 4 | | | 0 | |
| Ending balance | Ending balance | (9) | | | (4) | |
| AOCI ending balance | AOCI ending balance | $ | (304) | | | $ | (267) | |
(a) There were noThese amounts are net of income tax effectseffects.
(b) Amount relates to foreign currency translation charge. (See Note, 20, "Other Income, net" for either period due to the valuation allowance.additional details.)
(b)(c) Amounts are included in "Interest expense" within the Consolidated Statements of Operations.
(c) Amount included in
Share Repurchase Program
On March 2, 2023 the computationCompany's board of net periodic pension cost. (See Note 12, "Employee Benefit Plans" for additional details.) Netdirectors authorized a share repurchase program of tax expense$300 million of less than $1 million,common stock through December 31, 2026. Under this program, the Company will repurchase shares at the prevailing market prices pursuant to specified share price and tax benefit of $5 million related to benefit plans fordaily volume limits. During the yearsyear ended December 31, 2020 and 2019, respectively.
(d) There were 0 income tax effects2023, the Company has purchased 783,290 shares at an average price of $135.22 related to this program. As of December 31, 2023, the Company has $194 million of authorized purchases of common stock remaining. Excise taxes incurred due to purchases under the program totaled $1 million for the periodsyear ended December 31, 2020 and 2019.
NOTE 16.15. Earnings Per Share
A summary of information used to compute basic and diluted earnings per share attributable to Visteon is as follows:
| | Year Ended December 31, | | | Year Ended December 31, |
| (In millions, except per share amounts) | | (In millions, except per share amounts) | 2023 | | 2022 | | 2021 |
| Numerator: | |
| | | Year Ended December 31, |
| (In millions, except per share amounts) | 2020 | | 2019 | | 2018 |
| Numerator: | | | | | |
| Net income (loss) from continuing operations attributable to Visteon | $ | (56) | | | $ | 71 | | | $ | 163 | |
| Net income (loss) from discontinued operations attributable to Visteon | 0 | | | (1) | | | 1 | |
| Net income (loss) attributable to Visteon | |
| | Net income (loss) attributable to Visteon | |
| | Net income (loss) attributable to Visteon | Net income (loss) attributable to Visteon | $ | (56) | | | $ | 70 | | | $ | 164 | |
| Denominator: | Denominator: | | | | | |
| Average common stock outstanding - basic | |
| Average common stock outstanding - basic | |
| Average common stock outstanding - basic | Average common stock outstanding - basic | 27.9 | | | 28.1 | | | 29.5 | 28.1 | | | 28.1 | | 28.1 | | | 28.0 | | 28.0 |
| Dilutive effect of performance based share units and other | Dilutive effect of performance based share units and other | 0 | | | 0.1 | | | 0.2 | |
| Diluted shares | Diluted shares | 27.9 | | | 28.2 | | | 29.7 | Diluted shares | 28.5 | | | 28.5 | | 28.5 | | | 28.4 | | 28.4 |
| | Basic and Diluted Per Share Data: | Basic and Diluted Per Share Data: | |
| Basic and Diluted Per Share Data: | |
| Basic and Diluted Per Share Data: | |
| | Basic earnings (loss) per share attributable to Visteon: | Basic earnings (loss) per share attributable to Visteon: | |
| Continuing operations | $ | (2.01) | | | $ | 2.53 | | | $ | 5.53 | |
| Discontinued operations | 0 | | | (0.04) | | | 0.03 | |
| | Basic earnings (loss) per share attributable to Visteon: | |
| | Basic earnings (loss) per share attributable to Visteon: | |
| | | $ | (2.01) | | | $ | 2.49 | | | $ | 5.56 | |
| Diluted earnings (loss) per share attributable to Visteon: | Diluted earnings (loss) per share attributable to Visteon: | | | | | |
| Continuing operations | $ | (2.01) | | | $ | 2.52 | | | $ | 5.49 | |
| Discontinued operations | 0 | | | (0.04) | | | 0.03 | |
| | $ | (2.01) | | | $ | 2.48 | | | $ | 5.52 | |
| | Diluted earnings (loss) per share attributable to Visteon: | |
| | Diluted earnings (loss) per share attributable to Visteon: | |
Performance based share units of approximately 276,000 were excluded from the calculation of diluted loss per share because the effect of including them would have been anti-dilutive for the year ended December 31, 2020.
NOTE 17.16. Fair Value Measurements
Fair Value Hierarchy
The Company uses a three-level fair value hierarchy that categorizes assets and liabilities measured at fair value based on the observability of the inputs utilized in the valuation. The fair value hierarchy gives the highest priority to the quoted prices in active markets for identical assets and liabilities and lowest priority to unobservable inputs.
•Level 1 – Financial assets and liabilities whose values are based on unadjusted quoted market prices for identical assets and liabilities in an active market that the Company has the ability to access.
•Level 2 – Financial assets and liabilities whose values are based on quoted prices in markets that are not active or model inputs that are observable for substantially the full term of the asset or liability.
•Level 3 – Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement.
Assets which are valued at net asset value per share ("NAV"), or its equivalent, as a practical expedient are reported outside the fair value hierarchy but are included in the total assets for reporting and reconciliation purposes.
The fair value hierarchy for assets and liabilities measured at fair value on a recurring basis are as follows:
| | December 31, 2020 |
| | December 31, 2023 | | | | December 31, 2023 |
| (In millions) | (In millions) | | Level 1 | | Level 2 | | Level 3 | | NAV | | Total | (In millions) | | Level 1 | | Level 2 | | Level 3 | | NAV | | Total |
| Asset Category: | Asset Category: | | | | | | | | | | |
| Retirement plan assets | Retirement plan assets | | $ | 114 | | | $ | 228 | | | $ | 18 | | | $ | 549 | | | $ | 909 | |
| Retirement plan assets | |
| Retirement plan assets | |
| | Foreign currency instruments | | $ | 0 | | | $ | 1 | | | $ | 0 | | | $ | 0 | | | $ | 1 | |
| Interest rate swaps | |
| Interest rate swaps | |
| Interest rate swaps | |
| Liability Category: | Liability Category: | |
| Foreign currency instruments | | $ | 0 | | | $ | 27 | | | $ | 0 | | | $ | 0 | | | $ | 27 | |
| Interest rate swaps | | $ | 0 | | | $ | 11 | | | $ | 0 | | | $ | 0 | | | $ | 11 | |
| | Cross currency swaps | |
| Cross currency swaps | |
| Cross currency swaps | |
| | December 31, 2019 |
| | December 31, 2022 | | | | December 31, 2022 |
| (In millions) | (In millions) | | Level 1 | | Level 2 | | Level 3 | | NAV | | Total | (In millions) | | Level 1 | | Level 2 | | Level 3 | | NAV | | Total |
| Asset Category: | Asset Category: | | | | | | | | | | |
| Retirement plan assets | Retirement plan assets | | $ | 131 | | | $ | 353 | | | $ | 15 | | | $ | 363 | | | $ | 862 | |
| Retirement plan assets | |
| Retirement plan assets | |
| Interest rate swaps | |
| Liability Category: | Liability Category: | |
| Foreign currency instruments | | $ | 0 | | | $ | 6 | | | $ | 0 | | | $ | 0 | | | $ | 6 | |
| Interest rate swaps | | $ | 0 | | | $ | 7 | | | $ | 0 | | | $ | 0 | | | $ | 7 | |
| Cross currency swaps | |
| Cross currency swaps | |
| Cross currency swaps | |
ForeignCross currency instrumentsswaps and interest rate swaps are valued using industry-standard models that consider various assumptions, including time value, volatility factors, current market, and contractual prices for the underlying and non-performance risk. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data, or are supported by observable levels at which transactions are executed in the marketplace. The carrying amounts of all other non-retirement plan financial instruments approximate their fair values due to their relatively short-term maturities.
Retirement plan assets pertain to a diverse set of securities and investment vehicles held by the Company’s defined benefit pension plans. These assets possess varying fair value measurement attributes such that certain portions are categorized within each level of the fair value hierarchy as based upon the level of observability of the inputs utilized in the valuation of the particular asset. The Company may, as a practical expedient, estimate the fair value of certain investments using NAV of the investment as of the reporting date. This practical expedient generally deals with investments that permit an investor to redeem its investment directly with, or receive distributions from, the investee at times specified in the investee’s governing documents. Examples of these investments (often referred to as alternative investments) may include ownership interests in real assets, certain credit strategies, and hedging and diversifying strategies. They are commonly in the form of limited partnership interests. The Company uses NAV as a practical expedient when valuing investments in alternative asset classes and funds which are a limited partnership or similar investment vehicle.
Derivative financial instruments
Derivative financial instruments are measured at fair value on a recurring basis under an income approach using industry-standard models that consider various assumptions, including time value, volatility factors, current market and contractual prices for the underlying, and non-performance risk. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument or may derived from observable data. Accordingly, the Company's derivative instruments are classified as Level 2, "Other Observable Inputs" in the fair value hierarchy.
Retirement Plan Assets
Retirement plan assets consist of the following:
•Short-term investments, such as cashCash and cash equivalents, are immediately available or are highly liquid and not subject to significant market risk. Assets comprised of cash, short-term sovereign debt, or high credit-quality money market securities and instruments held directly by the plan are categorized as Level 1. Assets in a registered money market fund are reported as registered investment companies. Assets in a short-term investment fund ("STIF") are categorized as Level 2. Cash and cash equivalent assets denominated in currencies other than the U.S. dollar are reflected in U.S. dollar terms at the exchange rate prevailing at the balance sheet dates.
•Registered investment companies are mutual funds that are registered with the Securities and Exchange Commission. Mutual funds may invest in various types of securities or combinations thereof including equities, fixed income securities, and other assets that are subject to varying levels of market risk and are categorized as Level 1. The share prices for mutual funds are published at the close of each business day.
•Treasury and government securities consist of debt securities issued by the U.S. and non-U.S. sovereign governments and agencies, thereof. Assets with a high degree of liquidity and frequent trading activity are categorized as Level 1
while others are valued by independent valuation firms that employ standard methodologies associated with valuing fixed-income securities and are categorized as Level 2.
•Corporate debt securities consist of fixed income securities issued by corporations. Assets with a high degree of liquidity and frequent trading activity are categorized as Level 1 while others are valued by independent valuation firms that employ standard methodologies associated with valuing fixed-income securities and are categorized as Level 2.
•Bond funds are comprised of corporate and municipal bonds. These securities are generally priced by independent pricing services. The spreads are sourced from broker/dealers, trade prices and the new issue market. As the significant inputs used to price corporate bonds are observable market inputs, the fair values of corporate bonds are included in the Level 2 fair value hierarchy.
•Common and preferred stocks consist of shares of equity securities. These are directly-held assets that are generally publicly traded in regulated markets that provide readily available market prices and are categorized as Level 1.
•Common trust funds are comprised of shares or units in commingled funds that are not publicly traded. The underlying assets in these funds, including equities and fixed income securities, are generally publicly traded in regulated markets that provide readily available market prices. The entire balance of an investment in a common trust fund that does not have a readily observable market prices as available on a third-party information source, notwithstanding whether the investment has daily liquidity, is categorized as Level 2; unless the investment fund has investment holdings significant to its valuation that are considered as Level 3; or the fund is considered as an alternative strategy (including hedge and diversifying strategies) for which valuation is established by NAV as a practical expedient.
•Liability Driven InvestingInvestments (“LDI”) is an investment strategyutilizes certain funds that utilizes certaininvest in instruments and securities, interest-rate swaps and other financial derivative instruments intended to hedge a portion of the changes in pension liabilities associated with changes in the actuarial discount rate as applied to the plan’s liabilities. The instruments and securities used typically include total return swaps and other financial derivative instruments. The valuation methodology of the financialfunds that invest in fixed income derivative instruments, the assets contained in this category of assets utilizesutilize standard pricing models associated with fixed income derivative instruments and are categorized as Level 2.
•Repurchase agreements represent the plans’ short-term borrowing to hedge against interest rate and inflation risks. The plans have an obligation to return the cash after the term of the agreements. Due to the short-term nature of the agreements, the outstanding balance of the obligation approximates fair value. These borrowings are categorized as Level 2.
•Other investmentsinvestment funds include miscellaneousfunds that hold various short-term, real-estate related, and fixed income assets and liabilities and are primarily comprised of pending transactions and collateral settlements and are categorized as Level 2.1, Level 2, and NAV, consistent with the valuation techniques of investment funds described above.
•Limited partnerships and hedge funds represent investment vehicles with underlying exposures in alternative credit, hedge and diversifying strategies (including hedge fund of funds), real assets, and certain equity exposures. The underlying assets in these funds may include securities transacted in active markets as well as other assets that have values less readily observable and may require valuation techniques that require inputs that are not readily observable. Investment in these funds may be subject to a specific notice period prior to the intended transaction date. In addition, transactions in these funds may require longer settlement terms than traditional mutual funds. These assets are valued based on their respective NAV as a practical expedient to estimate fair value due to the absence of readily available market prices.
•Insurance contracts are reported at cash surrender value and have significant unobservable inputs and are categorized as Level 3.
The fair values of the Company’s U.S. retirement plan assets are as follows:
| | (In millions) | (In millions) | | December 31, 2020 | (In millions) | | December 31, 2023 |
| Asset Category | Asset Category | | Level 1 | | Level 2 | | NAV | | Total | Asset Category | | Level 1 | | Level 2 | | NAV | | Total |
| Registered investment companies | | $ | 4 | | | $ | 0 | | | $ | 0 | | | $ | 4 | |
| Common trust funds | Common trust funds | | 0 | | | 0 | | | 436 | | | 436 | |
| LDI | LDI | | 0 | | | 100 | | | 0 | | | 100 | |
| Limited partnerships and hedge funds | Limited partnerships and hedge funds | | 0 | | | 0 | | | 84 | | | 84 | |
| Cash and cash equivalents | Cash and cash equivalents | | 1 | | | 34 | | | 0 | | | 35 | |
| Total | Total | | $ | 5 | | | $ | 134 | | | $ | 520 | | | $ | 659 | |
| | (In millions) | (In millions) | | December 31, 2019 | (In millions) | | December 31, 2022 |
| Asset Category | Asset Category | | Level 1 | | Level 2 | | NAV | | Total | Asset Category | | Level 1 | | Level 2 | | NAV | | Total |
| Registered investment companies | | $ | 3 | | | $ | 0 | | | $ | 0 | | | $ | 3 | |
| Common and preferred stock | | 27 | | | 0 | | | 0 | | | 27 | |
| Common trust funds | Common trust funds | | 0 | | | 152 | | | 123 | | | 275 | |
| LDI | LDI | | 0 | | | 111 | | | 0 | | | 111 | |
| Limited partnerships and hedge funds | Limited partnerships and hedge funds | | 0 | | | 0 | | | 206 | | | 206 | |
| Cash and cash equivalents | Cash and cash equivalents | | 1 | | | 7 | | | 0 | | | 8 | |
| Total | Total | | $ | 31 | | | $ | 270 | | | $ | 329 | | | $ | 630 | |
The fair values of the Company’s Non-U.S. retirement plan assets are as follows:
| | (In millions) | (In millions) | | December 31, 2020 | (In millions) | | December 31, 2023 |
| Asset Category | Asset Category | | Level 1 | | Level 2 | | Level 3 | | NAV | | Total | Asset Category | | Level 1 | | Level 2 | | Level 3 | | NAV | | Total |
| Registered investment companies | | $ | 10 | | | $ | 68 | | | $ | 0 | | | $ | 0 | | | $ | 78 | |
| Treasury and government securities | Treasury and government securities | | 91 | | | 13 | | | 0 | | | 0 | | | 104 | |
| Cash and cash equivalents | | 6 | | | 0 | | | 0 | | | 0 | | | 6 | |
| Bond funds | |
| Insurance contracts | |
| Limited partnerships | |
| Corporate debt securities | Corporate debt securities | | 0 | | | 6 | | | 0 | | | 0 | | | 6 | |
| Common and preferred stock | Common and preferred stock | | 2 | | | 0 | | | 0 | | | 0 | | | 2 | |
| Common trust funds | Common trust funds | | 0 | | | 11 | | | 0 | | | 14 | | | 25 | |
| Limited partnerships | | 0 | | | 1 | | | 1 | | | 15 | | | 17 | |
| Insurance contracts | | 0 | | | 0 | | | 17 | | | 0 | | | 17 | |
| Derivative instruments | | 0 | | | (5) | | | 0 | | | 0 | | | (5) | |
| Cash and cash equivalents | |
| Repurchase agreements | |
| Other investment funds | |
| Total | Total | | $ | 109 | | | $ | 94 | | | $ | 18 | | | $ | 29 | | | $ | 250 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In millions) | | December 31, 2022 |
| Asset Category | | Level 1 | | Level 2 | | Level 3 | | NAV | | Total |
| Treasury and government securities | | $ | — | | | $ | 8 | | | $ | — | | | $ | — | | | $ | 8 | |
| Cash and cash equivalents | | 3 | | | — | | | — | | | — | | | 3 | |
| Corporate debt securities | | — | | | 9 | | | — | | | — | | | 9 | |
| Common and preferred stock | | 3 | | | — | | | — | | | — | | | 3 | |
| Common trust funds | | — | | | 1 | | | — | | | — | | | 1 | |
| Limited partnerships | | — | | | — | | | — | | | 10 | | | 10 | |
| Insurance contracts | | — | | | — | | | 18 | | | — | | | 18 | |
| Bond Funds | | — | | | 59 | | | — | | | — | | | 59 | |
| Other investment funds | | 1 | | | 10 | | | — | | | 35 | | | 46 | |
| Total | | $ | 7 | | | $ | 87 | | | $ | 18 | | | $ | 45 | | | $ | 157 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In millions) | | December 31, 2019 |
| Asset Category | | Level 1 | | Level 2 | | Level 3 | | NAV | | Total |
| Registered investment companies | | $ | 59 | | | $ | 24 | | | $ | 0 | | | $ | 0 | | | $ | 83 | |
| Treasury and government securities | | 34 | | | 18 | | | 0 | | | 0 | | | 52 | |
| Cash and cash equivalents | | 4 | | | 1 | | | 0 | | | 0 | | | 5 | |
| Corporate debt securities | | 0 | | | 8 | | 0 | | | 0 | | | 8 | |
| Common and preferred stock | | 3 | | | 0 | | | 0 | | | 0 | | | 3 | |
| Common trust funds | | 0 | | | 35 | | | 0 | | | 18 | | | 53 | |
| Limited partnerships | | 0 | | | 0 | | | 0 | | | 16 | | | 16 | |
| Insurance contracts | | 0 | | | 0 | | | 15 | | | 0 | | | 15 | |
| Derivative instruments | | 0 | | | (3) | | | 0 | | | 0 | | | (3) | |
| Total | | $ | 100 | | | $ | 83 | | | $ | 15 | | | $ | 34 | | | $ | 232 | |
The change in fair value of insurance contracts which used significant unobservable inputs was primarily due to purchases during the years ended December 31, 2020 and 2019.
Items Measured at Fair Value on a Non-recurring Basis
The Company measures certain assets and liabilities at fair value on a non-recurring basis, which are not included in the table above. As these non-recurring fair value measurements are generally determined using unobservable inputs, these fair value measurements are classified within Level 3 of the fair value hierarchy. As further described in Note 7, "Property and Equipment",
The Company evaluates its long-lived assets for impairment whenever events or circumstances indicate the fair value of certain fixed assets was less than carrying value and therefore, impairment charges of $2 million were recorded in the year ended December 31, 2019. these long-lived asset groups are not recoverable.
No such impairment charges were recorded for the year ended December 31, 2020.2023.
In 2022, due to the geopolitical situation in Eastern Europe the Company closed the Russian facility resulting in a non-cash impairment charge of $5 million to fully impair property and equipment and reduce inventory to its net realizable value.
During 2021, the Company recognized an impairment charge of $9 million related to its long-lived asset group in Brazil. The fair value measurements related to the long-lived asset group rely primarily on Company-specific inputs and the Company’s assumptions about the use of the assets, as observable inputs are not available (Level 3). To determine the fair value of the long-lived asset group, the Company utilized a cost and market approach, measuring fair value on the standalone basis value premise. The Company believes the assumptions and estimates used to determine the estimated fair value of the long-lived asset group is reasonable; however, these estimates and assumptions are subject to a high degree of uncertainty. Due to many variables inherent in estimating fair value, differences in assumptions could have a material effect on the analysis. As the net carrying value of the long-lived asset group in Brazil exceeded its fair values, the Company recorded a long-lived asset impairment charge of $9 million related to property and equipment during the year ended December 31, 2022.
Fair Value of Debt
The fair value of debt was approximately $347$328 million and $390$336 million as of December 31, 20202023 and 2019,2022, respectively. Fair value estimates were based on quoted market prices or current rates for the same or similar issues or on the current rates offered to the Company for debt of the same remaining maturities. Accordingly, the Company's debt is classified as Level 1 "Market Prices" and Level 2 "Other Observable Inputs" in the fair value hierarchy, respectively.hierarchy.
NOTE 18.17. Financial Instruments
The Company is exposed to various market risks including, but not limited to, changes in foreign currency exchange rates and market interest rates. The Company manages these risks, in part, through the use of derivative financial instruments. The maximum length of time over which the Company hedges the variability in the future cash flows for forecast transactions, excluding those forecast transactions related to the payment of variable interest on existing debt, is eighteen months from the date of the forecast transaction. The maximum length of time over which the Company hedges forecast transactions related to the payment of variable interest on existing debt is the term of the underlying debt. The use of derivative financial instruments creates exposure to credit loss in the event of nonperformance by the counter-partycounterparty to the derivative financial instruments. The Company limits this exposure by entering into agreements including master netting arrangements directly with a variety of major highly rated financial institutions with high credit standards that are expected to fully satisfy their obligations under the contracts. Additionally, the Company’s ability to utilize derivatives to manage risks is dependent on credit and market conditions. The Company presents its derivative positions and any related material collateral under master netting arrangements that provide for the net settlement of contracts, by counterparty, in the event of default or termination. Derivative financial instruments designated and non-designated as hedging instruments are included in the Company’s Consolidated Balance Sheets at fair value. The Company is not required to maintain cash collateral with its counterparties in relation to derivative transactions.
Accounting for Derivative Financial Instruments
Derivative financial instruments are measured at fair value on a recurring basis under an income approach using industry-standard models that consider various assumptions, including time value, volatility factors, current market and contractual prices for the underlying and non-performance risk. Substantially all of these assumptions are observable in the marketplace
throughout the full term of the instrument or may derived from observable data. Accordingly, the Company's currency instruments are classified as Level 2, "Other Observable Inputs" in the fair value hierarchy.
For a designated cash flow hedge, the effective portion of the change in the fair value of the derivative instrument is recorded in AOCI in the Consolidated Balance Sheets. When the underlying hedged transaction is realized, the gain or loss previously included in AOCI is recorded in earnings and reflected in the Consolidated Statements of Operations on the same line as the gain or loss on the hedged item attributable to the hedged risk. The gain or loss associated with changes in the fair value of undesignated cash flow hedges are recorded immediately in the Consolidated Statements of Operations, on the same line as the associated risk. For a designated net investment hedge, the effective portion of the change in the fair value of the derivative instrument is recorded as a cumulative translation adjustment in AOCI in the Consolidated Balance Sheets. Derivatives not designated as a hedge are adjusted to fair value through operating results. Cash flows associated with designated hedges are reported in the same category as the underlying hedged item. Cash flows associated with derivatives are reported in net cash provided from operating activities in the Company’s Consolidated Statements of Cash Flows except for cash flows associated with net investment hedges, which are reported in net cash used by investing activities.
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 Consolidated Balance Sheets. There is no cash collateral on any of these derivatives.
Foreign Currency Exchange Rate Risk
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.
Currency Exchange Rate Instruments: The Company primarily uses forward contracts denominated in euro, Japanese yen, Thai baht and Mexican peso intended to mitigate the variability of cash flows denominated in currency other than the hedging entity's functional currency.
As of December 31, 2020 and 2019,During 2022, the Company had foreign currency hedge economic derivative instruments, with notional amounts of approximately $18 million$32 million. These instruments were settled during 2022 and $8 million, respectively. The aggregate fair value of these derivatives is an asset of $1 million and a liability of less than $1 millionthe Company had no balance as of December 31, 2020 and 2019, respectively. The difference between the gross and net value of these derivatives after offset by counter party is not material.2022.
Cross Currency Swaps: The Company has executed cross-currency swap transactions intended to mitigate the variability of the U.S. dollar value of its investment in certain of its non-U.S. entities. These transactionsswaps are designated as net investment hedges and the Company has elected to assess hedge effectiveness under the spot method.Accordingly, periodic changes in the fair value of the derivative instruments attributable to factor other than spot exchange rate variabilityswaps are excluded fromrecorded as a cumulative translation adjustment in AOCI in the measure of hedge ineffectiveness and reported directly in earnings each reporting period.Consolidated Balance Sheet.
As
During 2022, the Company terminated existing cross currency swaps and received $9 million upon settlement. Subsequently, 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 swaps are designated as net investment hedges. There was no ineffectiveness associated with such derivatives as of December 31, 20202023, and 2019, the Company had cross currency swaps with an aggregate notional value of $250 million. The aggregate fair value of these derivatives is a non-current liability of $27 million and $6 million as of December 31, 2020 and 2019, respectively.$15 million. As of December 31, 2020,2023, a gain of approximately $5$3 million is expected to be reclassified out of accumulated other comprehensive income into earnings within the next 12 months.months.
As of December 31, 2022, the fair value of these derivatives was a non-current liability of $8 million.
Interest Rate Risk
Swaps: The Company utilizes interest rate swap instruments to manage its exposure and to mitigate the impact of interest rate variability. The instrumentsswaps 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.income. Subsequently, the accumulated gains and losses recorded in equity are reclassified to income in the period during which the hedged cash flowexposure impacts earnings.
During 2022, the Company terminated existing interest rate swaps and received less than $1 million upon settlement. Subsequently, the Company executed new interest rate swap instruments. As of December 31, 2020 and 2019,2023, the Company had interest rate swaps with an aggregate notional valueamounts of $300 million and $250 million, respectively.million. The aggregate fair value of these derivative transactionsderivatives is aan non-current liabilityasset of approximately $11 million and $7 million as of December 31, 2020 and 2019, respectively.2023. As of December 31, 2020,2023, a loss of approximately $6approximately $7 million is expected to be reclassified out of accumulated other comprehensive income into earnings within the next 12twelve months.
As of December 31, 2022, the fair value of these derivatives was a non-current asset of $10 million.
Financial Statement Presentation
Gains and losses on derivative financial instruments for the years ended December 31, 20202023 and 20192022 are as follows:
| | Amount of Gain (Loss) |
| Recorded Income (Loss) in AOCI, net of tax | | Reclassified from AOCI into Income (Loss) | | Recorded in Income (Loss) |
| Amount of Gain (Loss) | | | Amount of Gain (Loss) |
| Recorded Income (Loss) in AOCI, net of tax | | | Recorded Income (Loss) in AOCI, net of tax | | Reclassified from AOCI into Income (Loss) | | Recorded in Income (Loss) |
| (In millions) | (In millions) | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 | (In millions) | 2023 | | 2022 | | 2023 | | 2022 | | 2023 | | 2022 |
| Foreign currency risk – Sales: | | | | | | | | | | | |
| Non-designated cash flow hedges | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 1 | |
| Foreign currency risk – Cost of sales: | Foreign currency risk – Cost of sales: | |
| Non-designated cash flow hedges | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | (1) | |
| Cash flow hedges | |
| Cash flow hedges | |
| Cash flow hedges | |
| Interest rate risk - Interest expense, net: | Interest rate risk - Interest expense, net: | |
| Net investment hedges | Net investment hedges | (14) | | | 15 | | | 5 | | | 6 | | | 0 | | | 0 | |
| Net investment hedges | |
| Net investment hedges | |
| Interest rate swap | Interest rate swap | (9) | | | (6) | | | (4) | | | 0 | | | 0 | | | 0 | |
| $ | (23) | | | $ | 9 | | | $ | 1 | | | $ | 6 | | | $ | 0 | | | $ | 0 | |
| $ | |
Concentrations of Credit Risk
Financial instruments including cash equivalents, derivative contracts, and accounts receivable, expose the Company to counter-party credit risk for non-performance. The Company’s counterparties for cash equivalents and derivative contracts are banks and financial institutions that meet the Company’s requirement of high credit standing. The Company’s counterparties for derivative contracts are substantially investment and commercial banks with significant experience using such derivatives. The Company manages its credit risk through policies requiring minimum credit standing and limiting credit exposure to any one counter-party and through monitoring counter-party credit risks. The Company’s concentration of credit risk related to derivative contracts as of December 31, 2020 and 2019 is not material.
The following is a summary of the percentage of net sales and accounts receivable from the Company's largest ultimate customers:customers with a percentage of net sales greater than 10 percent:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Percentage of Total Net Sales | | Percentage of Total Accounts Receivable |
| December 31, | | December 31, 2020 | | December 31, 2019 |
| 2020 | | 2019 | | 2018 | |
| Ford | 22 | % | | 22 | % | | 26 | % | | 13 | % | | 12 | % |
| Mazda | 11 | % | | 14 | % | | 18 | % | | 8 | % | | 5 | % |
| Renault/Nissan | 11 | % | | 13 | % | | 12 | % | | 11 | % | | 13 | % |
| BMW | 11 | % | | 8 | % | | 3 | % | | 8 | % | | 6 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Percentage of Total Net Sales | | Percentage of Total Accounts Receivable | | |
| December 31, | | December 31, | | |
| 2023 | | 2022 | | 2021 | | 2023 | | 2022 | | |
| Ford | 22 | % | | 22 | % | | 22 | % | | 16 | % | | 16 | % | | |
| General Motors | 12 | % | | 9 | % | | 7 | % | | 15 | % | | 10 | % | | |
NOTE 19.18. 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 Agreementvalue and also provided that the Company would negotiate in good faith with
the Township inif 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 whatCourt. On June 27, 2023, Visteon and the Township allegesentered into a Settlement and Mutual Release Agreement pursuant to which Visteon, without admitting wrongdoing, will pay the Township $12 million. Payment will be made in two installments. One payment was made on July 3, 2023. The second payment is scheduled to be the current shortfallpaid on July 1, 2024 and projected future shortfalls under the bonds. The Company disputes the factual and legal assertions made by the Township and will defend the matter vigorously. The Company is not able to estimate the possible loss or range of loss in connection with this matter.
The dispute between the Company and its former President and Chief Executive Officer, Timothy D. Leuliette, was resolved in the first quarter of 2018. Pursuant to the resolution, the Company recognized $17 million of pre-tax income, representing the forfeiture of stock based awards and release of other liabilities accrued during prior periods. The benefit is classified as a reduction to selling, generalcurrent liability. The litigation commenced in Michigan’s Wayne County Circuit Court and administrative expenses of $10 million, a benefit to Other income, net of $4 million, and a benefit to income (loss) from discontinued operations, net of tax of $3 million in the in the Consolidated Statements of Operations for the year ended December 31, 2018.
In November 2013, the Company and Halla Visteon Climate Corporation ("HVCC"), jointly filed an Initial Notice of Voluntary Self-Disclosure statementhas been dismissed with the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) regarding certain sales of automotive HVAC components by a minority-owned, Chinese joint venture of HVCC into Iran. The Company updated that notice in December 2013, and subsequently filed a voluntary self-disclosure regarding these sales with OFAC in March 2014. In May 2014, the Company voluntarily filed a supplementary self-disclosure identifying additional sales of automotive HVAC components by the Chinese joint venture, as well as similar sales involving an HVCC subsidiary in China, totaling approximately $12 million, and filed a final voluntary-self disclosure with OFAC on October 17, 2014. OFAC is currently reviewing the results of the Company’s investigation. Following that review, OFAC may conclude that the disclosed sales resulted in violations of U.S. economic sanctions laws and warrant the imposition of civil penalties, such as fines, limitations on the Company's ability to export products from the United States, and/or referral for further investigation by the U.S. Department of Justice. Any such fines or restrictions may be material to the Company’s financial results in the period in which they are imposed, but 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 our business, operating results and financial condition. The Company cannot predict when OFAC will conclude its own review of our voluntary self-disclosures or whether it may impose any of the potential penalties described above.prejudice.
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. As of December 31, 2020,2023, the Company maintained accruals of approximately $9$8 million for claims aggregating approximately $57$65 million in Brazil. The amounts accrued represent claims that are deemed probable of loss and are reasonably estimable based on the Company's assessment of the claims and prior experience with similar matters.
While the Company believes its accruals for litigation and claims are adequate, the final amounts required to resolve such matters could differ materially from recorded estimates and the Company's results of operations and cash flows could be materially affected.
Product Warranty and Recall
Amounts accrued for product warranty and recall provisions are based on management’s best estimates of the amounts that will ultimately be required to settle such items. The Company’s estimates for product warranty and recall obligations are developed with support from its sales, engineering, quality, and legal functions and include due consideration of contractual arrangements, past experience, current claims and related information, production changes, industry and regulatory developments, and various other considerations. These estimates do not include amounts which may ultimately be recovered from the Company's suppliers. The Company can provide no assurances that it will not experience material obligations in the future or that it will not incur significant costs to defend or settle such obligations beyond the amounts accrued or beyond what the Company may recover from its suppliers.
The following table provides a reconciliation of changes in the product warranty and recall liability:
| | Year Ended December 31, |
| Year Ended December 31, | | | Year Ended December 31, |
| (In millions) | (In millions) | 2020 | | 2019 | (In millions) | 2023 | | 2022 |
| Beginning balance | Beginning balance | $ | 49 | | | $ | 48 | |
| Provisions | Provisions | 38 | | | 26 | |
| Change in estimates | Change in estimates | (7) | | | (2) | |
| Currency/other | Currency/other | 3 | | | (1) | |
| Settlements | Settlements | (19) | | | (22) | |
| Ending balance | Ending balance | $ | 64 | | | $ | 49 | |
Guarantees and Commitments
During 2014, as part of the YFVIC Transaction, the Company guaranteed certain standard non-payment provisions to cover the lenders in event of non-payment of principal, accrued interest, and other fees due. The loan was fully paid by the borrower and the guarantee concurrently relieved during the year ended December 31, 2019.
As part of the agreements of the Climate Transaction and Interiors Divestiture, divestitures completed during 2015, the Company continues to provide lease guarantees to divested Climate and Interiors entities. As of December 31, 2020,2023, the Company has approximately $5$1 million million and $1$2 million million of outstanding guarantees related tofor each of 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. These guarantees will generally cease upon expiration of current lease agreement which expire in 2026 and 2024 for the Climate and Interiors entities, respectively.
Other Contingent Matters
Various legal actions, governmental investigations and proceedings and claims are pending or may be instituted or asserted in the future against the Company, including those arising out of alleged defects in the Company’s products; customs classifications; governmental regulations relating to safety; employment-related matters; customer, supplier and other contractual relationships; intellectual property rights; product warranties; product recalls; tax matters, including the ITA tax matter described in Note 13, "Income Taxes"; and environmental matters. Some of the foregoing matters may involve compensatory, punitive or antitrust, or other treble damage claims in very large amounts, or demands for recall campaigns, environmental remediation programs, sanctions, or other relief which, if granted, would require very large expenditures. The Company enters into agreements that contain indemnification provisions in the normal course of business for which the risks are considered nominal and impracticable to estimate.
Contingencies are subject to many uncertainties, and the outcome of individual litigated matters is not predictable with assurance. Reserves have been established by the Company for matters discussed in the immediately foregoing paragraph where losses are deemed probable and reasonably estimable. It is possible, however, that some of the matters discussed in the foregoing paragraph could be decided unfavorably to the Company and could require the Company to pay damages or make other expenditures in amounts, or a range of amounts, that cannot be estimated as of December 31, 20202023 and that are in excess of established reserves. TheBased on its analysis, the Company does not reasonably expect, except as otherwise described herein, based on its analysis, that any adverse outcome from such matters would have a material effect on the Company’s financial condition, results of operations or cash flows, although such an outcome is possible.
NOTE 20. Segment Information and Revenue Recognition
The Company’s current 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, battery monitoring system and head-up displays. As the Company has 1 reportable segment, total assets, depreciation, amortization and capital expenditures are equal to consolidated results.
Financial results for the Company's reportable segment have been prepared using a management approach, which is consistent with the basis and manner in which financial information is evaluated by the Company's chief operating decision maker in allocating resources and in assessing performance. The Company’s chief operating decision maker, the Chief Executive Officer, evaluates the performance of the Company’s segment primarily based on net sales, before elimination of inter-company shipments, Adjusted EBITDA (a non-U.S. GAAP financial measure, as defined below) and operating assets.
The accounting policies for the reportable segments are the same as those described in the Note 1, "Summary of Significant Accounting Policies” to the Company’s consolidated financial statements.NOTE 19. Revenue recognition and Geographical Information
Segment Net sales
Segment Net sales were $2,548 million, $2,945 million and $2,984 million for the years ended December 31, 2020, 2019 and 2018.
Segment Adjusted EBITDA
The Company defines Adjusted EBITDA as net income attributable to the Company adjusted to eliminate the impact of depreciation and amortization, restructuring expense, net interest expense, equity in net income of non-consolidated affiliates, loss on divestiture, provision for income taxes, discontinued operations, net income attributable to non-controlling interests, non-cash stock-based compensation expense, and other gains and losses not reflective of the Company's ongoing operations.
Adjusted EBITDA is presented as a supplemental measure of the Company's financial performance that management believes is useful to investors because the excluded items may vary significantly in timing or amounts and/or may obscure trends useful in evaluating and comparing the Company's operating activities across reporting periods. Not all companies use identical calculations and, accordingly, the Company's presentation of Adjusted EBITDA may not be comparable to other similarly titled measures of other companies. Adjusted EBITDA is not a recognized term under U.S. GAAP and does not purport to be a substitute for net income as an indicator of operating performance or cash flows from operating activities as a measure of liquidity. Adjusted EBITDA has limitations as an analytical tool and is not intended to be a measure of cash flow available for management's discretionary use, as it does not consider certain cash requirements such as interest payments, tax payments and debt service requirements. In addition, the Company uses Adjusted EBITDA (i) as a factor in incentive compensation decisions, (ii) to evaluate the effectiveness of the Company's business strategies and (iii) the Company's credit agreements use measures similar to Adjusted EBITDA to measure compliance with certain covenants.
Segment Adjusted EBITDA was $192 million, $234 million and $330 million for the years ended December 31, 2020, 2019 and 2018.
The reconciliation of Adjusted EBITDA to net income attributable to Visteon for the years ended December 31, 2020, 2019 and 2018 is as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (In millions) | 2020 | | 2019 | | 2018 |
| Net income (loss) attributable to Visteon Corporation | $ | (56) | | | $ | 70 | | | $ | 164 | |
| Depreciation and amortization | 104 | | | 100 | | | 91 | |
| Restructuring expense, net | 76 | | | 4 | | | 29 | |
| Provision for income taxes | 28 | | | 24 | | | 43 | |
| Non-cash, stock-based compensation expense | 18 | | | 17 | | | 8 | |
| Interest expense, net | 11 | | | 9 | | | 7 | |
| Net income attributable to non-controlling interests | 8 | | | 11 | | | 10 | |
| Net (income) loss from discontinued operations, net of tax | 0 | | | 1 | | | (1) | |
| Equity in net income of non-consolidated affiliates | (6) | | | (6) | | | (13) | |
| Other, net | 9 | | | 4 | | | (8) | |
| Adjusted EBITDA | $ | 192 | | | $ | 234 | | | $ | 330 | |
Financial Information by Geographic Region
Financial information about net sales and net tangible long-lived assets by country are as follows:
| | Net Sales (a) | | Tangible Long-Lived Assets, Net (b) |
| Year Ended December 31, | | December 31, |
| Net Sales (a) | | | Net Sales (a) | | Tangible Long-Lived Assets, Net (b) |
| Year Ended December 31, | | | Year Ended December 31, | | December 31, |
| (In millions) | (In millions) | 2020 | | 2019 | | 2018 | | 2020 | | 2019 | (In millions) | 2023 | | 2022 | | 2021 | | 2023 | | 2022 |
| United States | United States | $ | 536 | | | $ | 663 | | | $ | 654 | | | $ | 122 | | | $ | 81 | |
| Mexico | Mexico | 29 | | | 38 | | | 67 | | | 50 | | | 105 | |
| Total North America | Total North America | 565 | | | 701 | | | 721 | | | 172 | | | 186 | |
| Portugal | Portugal | 635 | | | 602 | | | 563 | | | 110 | | | 97 | |
| Slovakia | Slovakia | 251 | | | 237 | | | 235 | | | 51 | | | 45 | |
| Tunisia | Tunisia | 41 | | | 71 | | | 96 | | | 12 | | | 10 | |
| Other Europe | Other Europe | 40 | | | 68 | | | 87 | | | 59 | | | 55 | |
| Total Europe | Total Europe | 967 | | | 978 | | | 981 | | | 232 | | | 207 | |
| China Domestic | China Domestic | 479 | | | 527 | | | 405 | | |
| China Export | China Export | 196 | | | 262 | | | 309 | | |
| China Export | |
| China Export | |
| Total China | |
| Total China | |
| Total China | Total China | 675 | | | 789 | | | 714 | | | 85 | | | 93 | |
| Japan | Japan | 244 | | | 393 | | | 494 | | | 31 | | | 23 | |
| India | India | 93 | | | 110 | | | 114 | | | 51 | | | 50 | |
| Other Asia-Pacific | Other Asia-Pacific | 41 | | | 57 | | | 70 | | | 12 | | | 13 | |
| Total Other Asia-Pacific | Total Other Asia-Pacific | 378 | | | 560 | | | 678 | | | 94 | | | 86 | |
| South America | South America | 71 | | | 91 | | | 79 | | | 25 | | | 29 | |
| Inter-region eliminations | (108) | | | (174) | | | (189) | | |
| $ | 2,548 | | | $ | 2,945 | | | $ | 2,984 | | | $ | 608 | | | $ | 601 | |
| Eliminations | |
| $ | |
| $ | |
| $ | |
| (a) Company sales based on geographic region where sale originates and not where customer is located. | (a) Company sales based on geographic region where sale originates and not where customer is located. | (a) Company sales based on geographic region where sale originates and not where customer is located. |
(b) Tangible long-lived assets include property, plant and equipment and right-of-use assets. | | (b) Tangible long-lived assets include property, plant, and equipment and right-of-use assets. | | (b) Tangible long-lived assets include property, plant, and equipment and right-of-use assets. |
Disaggregated revenue by product lines is as follows:
| | Year Ended December 31, |
| Year Ended December 31, | | | Year Ended December 31, |
| (In millions) | (In millions) | 2020 | | 2019 | (In millions) | 2023 | | 2022 | | 2021 |
| Product Lines | Product Lines | | | |
| Instrument clusters | Instrument clusters | $ | 1,323 | | | $ | 1,314 | |
| Audio and infotainment | 478 | | | 721 | |
| Instrument clusters | |
| Instrument clusters | |
| Cockpit domain controller | |
| Infotainment | |
| Information displays | Information displays | 422 | | | 486 | |
| Body and security | 99 | | | 117 | |
| Telematics | 57 | | | 76 | |
| Climate controls | 49 | | | 72 | |
| Body and electrification electronics | |
| Other | Other | 120 | | | 159 | |
| $ | 2,548 | | | $ | 2,945 | |
| $ | |
NOTE 21.20. Other Income, Net
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (In millions) | 2020 | | 2019 | | 2018 |
| Pension financing benefits, net | $ | 14 | | | $ | 10 | | | $ | 13 | |
| Pension settlement charge | (5) | | | 0 | | | 0 | |
| Transformation initiatives | 0 | | | 0 | | | 4 | |
| Gain on non-consolidated transactions, net | 0 | | | 0 | | | 4 | |
| $ | 9 | | | $ | 10 | | | $ | 21 | |
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (In millions) | 2023 | | 2022 | | 2021 |
| Pension financing benefits, net | $ | 11 | | | $ | 20 | | | $ | 18 | |
| Gain on sale of investment | — | | | 3 | | | — | |
| Foreign currency translation charge | — | | | (3) | | | — | |
| Township settlement | (12) | | | — | | | — | |
| $ | (1) | | | $ | 20 | | | $ | 18 | |
Pension financing benefits, net include return on assets net of interest costs and other amortization.
During 2020the year ended December 31, 2023, the Company transferredrecorded a portioncharge of $12 million in regards to the benefit obligationCharter Township of Van Buren, Michigan settlement. See Note 18 for more information.
The gain on sale of investment represents the Company's sale of an equity investment recorded during the year ended December 31, 2022.
During the year ended December 31, 2022, the Company recorded a charge of $3 million related to its defined benefit U.S. pension plan a third-party issuer. The transaction met the criteria for settlement accounting, and accordingly, the Company recognized a $5 million pension settlement charge.
During 2018, the Company recognized a $4 million benefit on settlement of litigation mattersforeign currency translation amounts recorded in accumulated other comprehensive loss associated with the Company’s former President and Chief Executive Officer as further described in Note 19, "Commitments and Contingencies."
On September 1, 2018,close the Company invested approximately $300,000 and acquired an additional 1% ownership in Changchun Visteon FAWAY Auto Electronics Co., Ltd, ("VFAE"), a Chinese automotive electronic applications manufacturer in which the Company had previously been an equity investor. The Company's ownership interest increased to 51% and, because of the change in control, the assets and liabilities of VFAE were consolidated from the date of the transaction.
86Russian facility.
Item 9.Changes in and Disagreements Withwith Accountants on Accounting and Financial Disclosure
None.
Item 9A.Controls and Procedures
Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in periodic reports filed with the SEC under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
At December 31, 2020,2023, an evaluation was performed under the supervision and with the participation of the Company’s management, including its Chief Executive and Financial Officers, of the effectiveness of the design and operation of disclosure controls and procedures. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2020.2023.
Internal Control over Financial Reporting
Management’s report onManagement is responsible for establishing and maintaining adequate internal control over financial reporting as such term is presented in Item 8defined under Rule 13a-15(f) of this Form 10-K “Financial Statementsthe Securities Exchange Act of 1934. Under the supervision and Supplementary Data” of this Annual Report on Form 10-K along with the attestation reportparticipation of Ernst & Young LLP, the Company’s independent registered public accounting firm, onprincipal executive and financial officers of the Company, an evaluation of the effectiveness of internal control over financial reporting was conducted based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations (“the COSO 2013 Framework”) of the Treadway Commission.
Based on the evaluation performed under the COSO 2013 Framework as atof December 31, 2020. There were no changes in2023, management has concluded that the Company'sCompany’s internal control over financial reporting duringis effective. Additionally, Deloitte & Touche LLP, an independent registered public accounting firm, has audited the three months ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect,effectiveness of the Company'sCompany’s internal control over financial reporting.reporting as of December 31, 2023, as stated in their report which is included herein.
Item 9B.Other Information
The Company's directors and officers (as defined in Exchange Act Rule 16a-1(f)) may from time to time enter into plans or other arrangements for the purchase or sale of the Company's shares that are intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or may represent a non-Rule 10b5-1 trading arrangement under the Exchange Act. During the quarter ended December 31, 2023, no such plans or other arrangements were adopted or terminated.
Part III
Item 10.Directors, Executive Officers and Corporate Governance
Except as set forth herein, the information required by Item 10 regarding itsthe Company's directors is incorporated by reference from the information under the captions “Item - Election of Directors,” “Corporate Governance,” and "2021“2024 Stockholder Proposals and Nominations"Nominations” in its 20212024 Proxy Statement.Statement, which will be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the end of the Company’s 2023 fiscal year. The information required by Item 10 regarding itsthe Company's executive officers appears as Item 4A under Part I of this Form 10-K.
The Company has a code of ethics, as such phrase is defined in Item 406 of Regulation S-K, that applies to all directors, officers and employees of the Company and its subsidiaries, including the Chief Executive Officer, the Chief Financial Officer and the Chief Accounting Officer. The code, entitled “Ethics and Integrity Policy,” is available on the Company's website at www.visteon.com. The Company intends to notify investors of any amendment to or waiver of the provisions of the code of ethics applicable to its Chief Executive Officer, Chief Financial Officer, or Chief Accounting Officer at the same location on the Company’s website.
Item 11.Executive Compensation
The information required by Item 11 is incorporated by reference from the information under the captions “Compensation Committee Report,” “Executive Compensation” and “Director Compensation” in its 20212024 Proxy Statement.Statement, which will be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the end of the Company’s 2023 fiscal year..
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by Item 12 is incorporated by reference from the information under the caption “Security Ownership of Certain Beneficial Owners and Management” in its 20212024 Proxy Statement.Statement, which will be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the end of the Company’s 2023 fiscal year..
Item 13.Certain Relationships and Related Transactions, and Director Independence
The information required by Item 13 is incorporated by reference from the information under the captions “Corporate Governance - Director Independence” and “Transactions with Related Persons” in its 20212024 Proxy Statement.Statement, which will be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the end of the Company’s 2023 fiscal year..
Item 14.Principal Accountant Fees and Services
The information required by Item 14 is incorporated by reference from the information under the captions “Audit Fees” and “Audit Committee Pre-Approval Process and Policies” in its 20212024 Proxy Statement.Statement, which will be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the end of the Company’s 2023 fiscal year..
Part IV
Item 15.Exhibits and Financial Statement Schedules
(a) The following documents are filed as part of this Form 10-K:
1. Financial Statements
See “Index to Consolidated Financial Statements” in Part II, Item 8 of this Form 10-K hereof.
2. Financial Statement Schedules
Schedule II — Valuation and Qualifying Accounts
All other financial statement schedules are omitted because they are not required or applicable under instructions contained in Regulation S-X or because the information called for is shown in the financial statements and notes thereto.
3. Exhibits
The exhibits listed on the "Exhibit Index" on page 9187 hereof are filed with this Form 10-K or incorporated by reference as set forth therein.herein.
Item 16. Form 10-K Summary
None.
VISTEON CORPORATION AND SUBSIDIARIES
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
| | (In millions) | (In millions) | Balance at
Beginning
of Period | | (Benefits)/
Charges to
Income | |
Deductions(a) | |
Other( b) | | Balance
at End
of Period | (In millions) | Balance at
Beginning
of Period | | (Benefits)/
Charges to
Income | |
Deductions(a) | |
Other( b) | | Balance
at End
of Period |
| Year Ended December 31, 2020: | | | | | | | | | |
| Year Ended December 31, 2023: | |
| Allowance for doubtful accounts | |
| Allowance for doubtful accounts | |
| Allowance for doubtful accounts | Allowance for doubtful accounts | $ | 10 | | | $ | (2) | | | $ | (4) | | | $ | 0 | | | $ | 4 | |
| Valuation allowance for deferred taxes | Valuation allowance for deferred taxes | 1,132 | | | 46 | | | 0 | | | 85 | | | 1,263 | |
| Year Ended December 31, 2019: | |
| Year Ended December 31, 2022: | |
| Allowance for doubtful accounts | |
| Allowance for doubtful accounts | |
| Allowance for doubtful accounts | Allowance for doubtful accounts | $ | 6 | | | $ | 5 | | | $ | (1) | | | $ | 0 | | | $ | 10 | |
| Valuation allowance for deferred taxes | Valuation allowance for deferred taxes | 1,144 | | | (10) | | | 0 | | | (2) | | | 1,132 | |
| Year Ended December 31, 2018: | |
| Year Ended December 31, 2021: | |
| Allowance for doubtful accounts | |
| Allowance for doubtful accounts | |
| Allowance for doubtful accounts | Allowance for doubtful accounts | $ | 8 | | | $ | 2 | | | $ | (4) | | | $ | 0 | | | $ | 6 | |
| Valuation allowance for deferred taxes | Valuation allowance for deferred taxes | 1,242 | | | (81) | | | 0 | | | (17) | | | 1,144 | |
____________
(a)Deductions represent uncollectible accounts charged off.
(b)Deferred taxes valuation allowance - represents adjustments recorded through other comprehensive income, exchange, expiration of tax attribute carryforwards, and various tax return true-up adjustments, all of which impact deferred taxes and the related valuation allowances. In 2020,2023, the $85$11 million other increase in the valuation allowance for deferred taxes is comprised of $49$13 million related to valuation allowance benefits allocated to discontinued operations associated with electing to deduct expiring foreign tax credits previously derecognized for whichexchange, offset by a valuation allowance is maintained; $20 million related to exchange; and $16decrease of $2 million primarily related to other comprehensive income. In 2019,2022, the $2$26 million overallother decrease in the valuation allowance for deferred taxes is comprised of $7$15 million related to exchange partially offset by $5and $11 million primarily related to other comprehensive income. In 2018,2021, the $17$46 million overallother decrease in the valuation allowance for deferred taxes is comprised of $18$28 million related to exchange partially offset by $1and $18 million primarily related to other comprehensive income.
Exhibit Index
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| Exhibit No. | | Description |
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| | Amendment No. 1, dated as of March 25, 2015, to Credit Agreement, dated as of April 9, 2014, by and among Visteon Corporation, each lender from time to time party thereto and Citibank, N.A., as administrative agent (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of Visteon Corporation filed on March 27, 2015). |
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| Exhibit No. | | Description |
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| 101.INS | | XBRL Instance Document.** |
| 101.SCH | | XBRL Taxonomy Extension Schema Document.** |
| 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document.** |
| 101.LAB | | XBRL Taxonomy Extension Label Linkbase Document.** |
| 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document.** |
| 101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document.** |
* 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 Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
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| VISTEON CORPORATION | |
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| By: | /s/ ABIGAIL S. FLEMINGCOLLEEN E. MYERS | |
| | Abigail S. FlemingColleen E. Myers | |
| | Vice President and Chief Accounting Officer | |
Date: February 18, 202120, 2024
Pursuant to the requirements of the Securities Exchange Act of 1934, this Form 10-K has been signed below by the following persons on behalf of the registrant and in the capacities and the dates indicated.
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| Signature | Title |
| /s/ SACHIN LAWANDE | Director, President and Chief Executive Officer |
| Sachin Lawande | (Principal Executive Officer) |
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| /s/ JEROME J. ROUQUET | Senior Vice President and Chief Financial Officer |
| Jerome J. Rouquet | (Principal Financial Officer) |
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/s/ ABIGAIL S. FLEMINGCOLLEEN E. MYERS | Vice President and Chief Accounting Officer |
Abigail S. FlemingColleen E. Myers | (Principal Accounting Officer) |
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| /s/ JAMES J. BARRESE* | Director |
| James J. Barrese | |
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| /s/ NAOMI M. BERGMAN* | Director |
| Naomi M. Bergman | |
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| /s/ JEFFREY D. JONES* | Director |
| Jeffrey D. Jones | |
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| /s/ BUNSEI KURE* | Director |
| Bunsei Kure | |
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| /s/ JOANNE M. MAGUIRE* | Director |
| Joanne M. Maguire | |
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| /s/ ROBERT J. MANZO* | Director |
| Robert J. Manzo | |
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| /s/ FRANCIS M. SCRICCO* | Director |
| Francis M. Scricco | |
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| /s/ DAVID L. TREADWELL* | Director |
| David L. Treadwell | |
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| *By: | /s/ BRETT PYNNONEN | |
| Brett Pynnonen | |
| Attorney-in-Fact | |
