Visteon(VC) - 2022 Q4 - Annual Report

Part I Business Visteon is a global automotive technology company specializing in cockpit electronics and connected car solutions for major OEMs, operating through a single Electronics segment - Visteon is a global automotive technology company focused on creating digital, electric, and autonomous solutions for major automotive customers like BMW, Ford, GM, and Mercedes-Benz[11] - The company's business is aligned with major automotive industry trends, including the growth of electronic content, electric vehicles, ADAS, and vehicle standardization[12] Key Product Offerings | Product Category | Description | | :--- | :--- | | Instrument Clusters | Full range from analog to all-digital, 3D display-based devices | | Information Displays | High-performance displays including large, curved multi-display modules and microZone™ technology | | Audio/Infotainment | Android-based systems with seamless connectivity and AI-based voice assistants | | Battery Management Systems (BMS) | Configurable systems supporting both wired and wireless battery sensing | | SmartCore™ Domain Controller | Integrates infotainment, cluster, and other features on a single multi-core chip | Sales Concentration - Ford Motor Company | Year | Percentage of Total Net Sales | | :--- | :--- | | 2022 | 22% | | 2021 | 22% | | 2020 | 22% | - The company's workforce consists of approximately 10,000 employees, with 39% being female globally as of December 31, 2022, and Visteon has a multi-year roadmap for ESG initiatives[33][36][41] Risk Factors Visteon faces significant risks from supply chain disruptions like the semiconductor shortage, industry cyclicality, customer dependency, and cybersecurity threats - The company is highly dependent on single or limited sources for certain components, including semiconductor chips, and expects shortages to persist into 2023, which could impact production schedules and financial results[52] - Substantial international operations expose the company to risks such as trade tariffs, currency fluctuations, and political instability, with significant investments in Chinese joint ventures[58][60][61] - The automotive industry's cyclical nature and significant declines in customer production levels can harm profitability, and the company is highly dependent on Ford, which accounted for 22% of sales in 2022, 2021, and 2020[66][71] - The company faces inherent risks of warranty claims, product liability, and recalls, which could have materially adverse effects, while increasing software content elevates cybersecurity risks[74] - The company's ability to fully utilize its U.S. net operating losses (NOLs) and other tax attributes could be limited if a change of ownership under IRC Sections 382 and 383 were to occur[82] - A disruption in IT systems due to a cyberattack could result in business disruption, theft of intellectual property, and unauthorized access to personal information, adversely affecting the company's reputation and financial performance[85] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None[89] Properties Visteon operates 30 leased technical centers and 14 manufacturing facilities globally, with the majority of these facilities being leased - As of December 31, 2022, the Company owned or leased 30 corporate offices, technical/engineering centers, and customer service centers in 13 countries (all leased) and 14 manufacturing/assembly facilities in nine countries (11 leased, 3 owned)[89][90] Legal Proceedings The company is involved in various legal proceedings, with detailed information provided in Note 18 of the consolidated financial statements - Details regarding legal proceedings are discussed in Note 18, "Commitments and Contingencies" to the consolidated financial statements in Part II, Item 8 of this Form 10-K[90] Mine Safety Disclosures The company reports no mine safety disclosures - None[90] Executive Officers This section provides information about the executive officers of Visteon Corporation as of February 1, 2023 Executive Officers as of February 1, 2023 | Name | Age | Position | | :--- | :--- | :--- | | Sachin S. Lawande | 55 | Director, President and Chief Executive Officer | | Jerome J. Rouquet | 55 | Senior Vice President and Chief Financial Officer | | Abigail S. Fleming | 41 | Vice President and Chief Accounting Officer | | Brett D. Pynnonen | 54 | Senior Vice President and Chief Legal Officer | | Joao Paulo Ribeiro | 53 | Senior Vice President, Manufacturing, Supply Chain, and Purchasing | | Kristin E. Trecker | 57 | Senior Vice President and Chief People Officer | | Robert R. Vallance | 62 | Senior Vice President, Global Customer Business Groups, New Technology Product Lines, and General Manager APAC Region | Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Visteon's common stock (NASDAQ: VC) performance is presented, noting no dividends were paid in 2021-2022 due to credit agreement limits - No dividends were paid on common stock during the years ended December 31, 2022 and 2021, as the company's credit agreements limit cash payments for dividends[102] Stock Performance Comparison (2017-2022) | | Dec 31, 2017 | Dec 31, 2018 | Dec 31, 2019 | Dec 31, 2020 | Dec 31, 2021 | Dec 31, 2022 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Visteon Corporation | $100.00 | $48.17 | $69.19 | $100.30 | $88.81 | $104.55 | | Dow Jones U.S. Auto Parts Index | $100.00 | $68.30 | $85.56 | $99.27 | $118.94 | $87.05 | | S&P 500 | $100.00 | $93.76 | $120.84 | $140.49 | $178.27 | $143.61 | Selected Financial Data This item is not applicable as the company has not provided selected financial data - None[109] Management's Discussion and Analysis of Financial Condition and Results of Operations Net sales rose to $3.76 billion in 2022, driven by higher volumes and pricing, with strong liquidity and $6 billion in new business wins Executive Summary The company's strategy drove 2022 sales to $3.76 billion and Adjusted EBITDA to $348 million, securing $6 billion in new business wins - Strategic priorities include technology innovation in cockpit electronics, achieving long-term growth, and enhancing shareholder returns while maintaining a strong balance sheet[112] 2022 Company Highlights | Metric | Value | Note | | :--- | :--- | :--- | | Net Sales | $3,756 million | 40% YoY increase (excluding currency) | | Adjusted EBITDA | $348 million | 9.3% of sales | | New Products Launched | 45 | - | | New Business Wins | $6 billion | Strong performance across all product categories | Results of Operations Net sales increased by $983 million to $3.76 billion in 2022, boosting gross margin and net income, with Adjusted EBITDA rising to $348 million Consolidated Results of Operations (2022 vs. 2021) | (In millions) | 2022 | 2021 | Change | | :--- | :--- | :--- | :--- | | Net sales | $3,756 | $2,773 | $983 | | Gross margin | $368 | $254 | $114 | | Net income attributable to Visteon | $124 | $41 | $83 | | Adjusted EBITDA | $348 | $228 | $120 | Net Sales Change Analysis (2021 to 2022) | (In millions) | Amount | Description | | :--- | :--- | :--- | | 2021 Net Sales | $2,773 | - | | Volume, mix, and net new business | +$722 | Increased customer production and market outperformance | | Customer pricing, net | +$395 | Primarily customer recoveries | | Currency | -$136 | Unfavorable impact from EUR, CNY, JPY | | 2022 Net Sales | $3,756 | - | - Cost of sales increased by $869 million in 2022, primarily due to higher volumes and $390 million in unfavorable cost performance related to supply chain and material costs from the semiconductor shortage[120] - In 2022, the company closed its Russian facility due to the geopolitical situation, resulting in a $5 million non-cash impairment charge and a $3 million charge for foreign currency translation losses[123][127] Adjusted EBITDA Reconciliation (2022 vs. 2021) | (In millions) | 2022 | 2021 | Change | | :--- | :--- | :--- | :--- | | Net income attributable to Visteon | $124 | $41 | $83 | | Depreciation and amortization | $108 | $108 | $0 | | Restructuring and impairment | $14 | $14 | $0 | | Provision for income taxes | $45 | $31 | $14 | | Non-cash, stock-based compensation | $26 | $18 | $8 | | Interest expense, net | $10 | $8 | $2 | | Other adjustments | $21 | $8 | $13 | | Adjusted EBITDA | $348 | $228 | $120 | Liquidity and Capital Resources The company maintains strong liquidity with $523 million in cash and a fully available $400 million revolving credit facility as of year-end 2022 - As of December 31, 2022, the company had total cash and equivalents of $523 million, with $356 million held in jurisdictions outside the U.S[149] - The company has access to a $400 million revolving credit facility, which was fully available as of year-end 2022, and affiliate working capital lines had an additional $192 million of availability[148] Cash Flow Summary (2022 vs. 2021) | (In millions) | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided from operating activities | $167 | $58 | | Net cash used by investing activities | ($68) | ($63) | | Net cash used by financing activities | ($9) | ($29) | Critical Accounting Estimates Key estimates include impairment of long-lived assets, revenue recognition, product warranties, restructuring, pension obligations, and deferred tax asset valuation - Key critical accounting estimates include: Impairment of Long-lived Assets, Revenue Recognition, Product Warranty and Recall, Restructuring, Pension Plans, Income Taxes, and Fair Value Measurements[166] - In 2022, the company recorded a $5 million non-cash impairment charge related to the closure of its Russian facility, and in 2021, a $9 million impairment charge was recorded for long-lived assets in Brazil[168][169] - The determination of pension obligations is highly dependent on assumptions for discount rates and the expected long-term rate of return on plan assets, with approximately $92 million in unfunded net pension liabilities as of Dec 31, 2022[174] Pension Assumption Sensitivity (2023 Pretax Expense) | Change in Assumption | Impact on U.S. Pretax Pension Expense | Impact on Non-U.S. Pretax Pension Expense | | :--- | :--- | :--- | | 25 bps decrease in discount rate | Less than -$1 million | Less than -$1 million | | 25 bps increase in discount rate | Less than +$1 million | Less than +$1 million | | 25 bps decrease in expected return on assets | +$1.6 million | Less than +$1 million | | 25 bps increase in expected return on assets | -$1.6 million | Less than -$1 million | Quantitative and Qualitative Disclosures About Market Risk The company is exposed to foreign currency, interest rate, and commodity price risks, which it manages using derivative instruments for non-speculative purposes - The company's primary market risks are changes in foreign currency exchange rates, interest rates, and commodity prices, which are managed through derivative instruments and operational actions[190] - Primary foreign currency exposures are to the euro, Chinese renminbi, Brazilian real, Mexican peso, Thai baht, Indian rupee, Japanese yen, and Bulgarian lev[84] - A hypothetical 10% adverse change in quoted currency exchange rates would result in a pretax loss of approximately $21 million on the fair value of foreign currency derivative financial instruments as of December 31, 2022[193] Financial Statements and Supplementary Data This section presents the audited consolidated financial statements for 2022, reporting net sales of $3.76 billion and net income of $124 million Consolidated Statements of Operations Highlights | (In millions) | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Net sales | $3,756 | $2,773 | $2,548 | | Gross margin | $368 | $254 | $245 | | Net income (loss) attributable to Visteon | $124 | $41 | ($56) | | Diluted earnings (loss) per share | $4.35 | $1.44 | ($2.01) | Consolidated Balance Sheets Highlights | (In millions) | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Total current assets | $1,710 | $1,424 | | Total assets | $2,450 | $2,234 | | Total current liabilities | $1,035 | $852 | | Total liabilities | $1,676 | $1,618 | | Total equity | $774 | $616 | Consolidated Statements of Cash Flows Highlights | (In millions) | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Net cash provided from operating activities | $167 | $58 | $168 | | Net cash used by investing activities | ($68) | ($63) | ($98) | | Net cash used by financing activities | ($9) | ($29) | ($58) | Note 2: Non-Consolidated Affiliates The company's primary non-consolidated affiliate is YFVIC, and in 2022 it incurred $19 million in program costs and a $9 million settlement charge - The company's investment in its 50%-owned joint venture, Yanfeng Visteon Investment Co., Ltd. (YFVIC), was valued at $25 million as of December 31, 2022[268] - In the fourth quarter of 2022, the company incurred approximately $19 million in charges for program management costs and other items associated with a joint venture, recorded within Cost of Sales[275] - In the second quarter of 2022, a $9 million settlement charge related to a one-time contract dispute with a joint venture partner was recorded in Cost of Sales[276] Note 3: Restructuring and Impairments The company initiated a restructuring plan in 2022, resulting in $6 million in costs and a $5 million impairment charge for its Russian facility - In 2022, due to the geopolitical situation in Eastern Europe, the company closed its Russian facility, resulting in a $5 million non-cash impairment charge and a $3 million charge for related foreign currency translation losses[283] - The company approved a restructuring plan in 2022, mainly impacting Europe, and recorded $6 million in restructuring expenses for severance and termination costs[279] Restructuring Reserve Activity | (In millions) | Amount | | :--- | :--- | | Balance at Dec 31, 2021 | $18 | | Expense | $6 | | Change in estimates | $3 | | Utilization | ($15) | | Foreign currency | ($1) | | Balance at Dec 31, 2022 | $11 | Note 10: Debt Total debt was $349 million at year-end 2022, and the company extended its credit facility maturity to 2027, transitioning from LIBOR to SOFR - On July 19, 2022, the company amended its Credit Agreement, extending the maturity of its Term Facility and Revolving Credit Facility to July 19, 2027, and changing the interest rate base from LIBOR to SOFR[301] - The company has no outstanding borrowings on its $400 million Revolving Credit Facility as of December 31, 2022[305] Debt Structure as of Dec 31, 2022 | (In millions) | Carrying Value | | :--- | :--- | | Current portion of long-term debt | $13 | | Term facility, net | $336 | | Total Debt | $349 | Note 11: Employee Benefit Plans The company's pension plans had a net unfunded status of $92 million at year-end 2022, with most U.S. and UK plans frozen - The company expects to make contributions of $5 million to its non-U.S. defined benefit pension plans during 2023[316] - Expense for defined contribution plans was approximately $3 million in 2022, $6 million in 2021, and $5 million in 2020[322] Pension Plan Funded Status (as of Dec 31) | (In millions) | 2022 | 2021 | | :--- | :--- | :--- | | U.S. Plans | | | | Benefit Obligation | $603 | $829 | | Plan Assets | $532 | $693 | | Funded Status | ($71) | ($136) | | Non-U.S. Plans | | | | Benefit Obligation | $178 | $299 | | Plan Assets | $157 | $258 | | Funded Status | ($21) | ($41) | Note 12: Stock-Based Compensation Total stock-based compensation expense was $27 million in 2022, with $29 million of unrecognized expense remaining to be recognized over 1.7 years - As of December 31, 2022, there was $29 million in total unrecognized stock-based compensation expense, which will be recognized over a weighted-average period of approximately 1.7 years[326][327][332] Total Stock-Based Compensation Expense | (In millions) | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Performance based share units | $7 | $5 | $6 | | Restricted stock units | $20 | $12 | $10 | | Stock options | $0 | $1 | $2 | | Total | $27 | $18 | $18 | Note 13: Income Taxes The 2022 income tax provision was $45 million, and the company maintains a $1.12 billion valuation allowance against its deferred tax assets - The company has a valuation allowance of $1,120 million against its gross deferred tax assets of $1,265 million as of December 31, 2022[351] - As of December 31, 2022, the company had available U.S. federal net operating loss carryforwards of $1.4 billion[351] - Gross unrecognized tax benefits were $18 million at December 31, 2022, and the company is involved in a tax dispute with the Indian Tax Authority[355][358] Provision for Income Taxes | (In millions) | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Income (loss) before income taxes | $176 | $75 | ($26) | | Provision for income taxes | $45 | $31 | $28 | Note 18: Commitments and Contingencies The company faces legal contingencies including litigation over bond payments and potential claims related to supply chain disruptions - The company is in litigation with the Charter Township of Van Buren, Michigan, which is claiming damages of $28 million related to alleged shortfalls on bond payments for the company's headquarters[392] - Certain customers have reserved their rights to claim damages arising from supply shortages caused by the global semiconductor shortage, though the company believes it has legal defenses[396] Product Warranty and Recall Liability Reconciliation | (In millions) | 2022 | 2021 | | :--- | :--- | :--- | | Beginning balance | $50 | $64 | | Provisions | $21 | $16 | | Settlements | ($18) | ($25) | | Other (Currency, estimates) | ($2) | ($5) | | Ending balance | $51 | $50 | Note 19: Revenue and Geographical Information Instrument Clusters were the largest product line at $1.78 billion in 2022, while Europe was the largest geographic region with $1.30 billion in sales Net Sales by Geographic Region (where sale originates) | (In millions) | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | North America | $971 | $641 | $565 | | Europe | $1,297 | $962 | $967 | | Total China | $870 | $775 | $675 | | Other Asia-Pacific | $625 | $424 | $378 | | South America | $143 | $80 | $71 | | Total (after eliminations) | $3,756 | $2,773 | $2,548 | Net Sales by Product Line | (In millions) | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Instrument clusters | $1,782 | $1,356 | $1,197 | | Infotainment | $498 | $370 | $384 | | Information displays | $490 | $402 | $423 | | Cockpit domain controller | $473 | $226 | $155 | | Body and security | $205 | $127 | $99 | | Telematics | $67 | $64 | $57 | | Other | $241 | $228 | $233 | | Total | $3,756 | $2,773 | $2,548 | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[412] Controls and Procedures Management concluded that the company's disclosure controls, procedures, and internal control over financial reporting were effective as of December 31, 2022 - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of December 31, 2022[414] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2022, which was audited by Deloitte & Touche LLP[416] Part III Directors, Executive Officers and Corporate Governance Information is incorporated by reference from the 2023 Proxy Statement, except for executive officer details provided in Part I - Information required by this item is incorporated by reference from the company's 2023 Proxy Statement, with the exception of executive officer information which is located in Item 4A of this report[418] Executive Compensation Information regarding executive and director compensation is incorporated by reference from the company's 2023 Proxy Statement - Information required by this item is incorporated by reference from the company's 2023 Proxy Statement[420] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership is incorporated by reference from the company's 2023 Proxy Statement - Information required by this item is incorporated by reference from the company's 2023 Proxy Statement[421] Certain Relationships and Related Transactions, and Director Independence Information regarding related transactions and director independence is incorporated by reference from the company's 2023 Proxy Statement - Information required by this item is incorporated by reference from the company's 2023 Proxy Statement[422] Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the company's 2023 Proxy Statement - Information required by this item is incorporated by reference from the company's 2023 Proxy Statement[423] Part IV Exhibits and Financial Statement Schedules This section lists the financial statements, schedules, and exhibits filed as part of the Form 10-K - This section includes Financial Statements, Financial Statement Schedule II — Valuation and Qualifying Accounts, and a list of all filed exhibits[425][426] Form 10-K Summary The company has not provided a Form 10-K summary - None[427]