Visteon(VC) - 2022 Q2 - Quarterly Report

Part I - Financial Information Condensed Consolidated Financial Statements The company achieved significant net sales growth and profitability in Q2 and H1 2022, with negative operating cash flow from working capital Condensed Consolidated Statements of Comprehensive Income (Loss) Visteon reported a significant increase in net sales and a return to profitability for Q2 and H1 2022, driven by strong sales growth Condensed Consolidated Statements of Comprehensive Income (Loss) (in millions) | | Three Months Ended June 30, | Six Months Ended June 30, | | :--- | :--- | :--- | | | 2022 | 2021 | 2022 | 2021 | | Net sales | $848 | $610 | $1,666 | $1,356 | | Gross margin | $74 | $35 | $150 | $108 | | Net income (loss) attributable to Visteon | $24 | $(11) | $46 | $5 | | Diluted earnings (loss) per share | $0.85 | $(0.39) | $1.61 | $0.18 | Condensed Consolidated Balance Sheets Total assets slightly decreased to $2,146 million as of June 30, 2022, while total equity modestly increased to $626 million Balance Sheet Highlights (in millions) | | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total current assets | $1,399 | $1,424 | | Total assets | $2,146 | $2,234 | | Total current liabilities | $801 | $852 | | Total liabilities | $1,520 | $1,618 | | Total equity | $626 | $616 | Condensed Consolidated Statements of Cash Flows Operating activities resulted in a $72 million net cash outflow for H1 2022, primarily due to increased working capital needs Six Months Ended June 30, Cash Flow Summary (in millions) | | 2022 | 2021 | | :--- | :--- | :--- | | Net cash (used by) provided from operating activities | $(72) | $1 | | Net cash used by investing activities | $(31) | $(31) | | Net cash (used by) provided from financing activities | $(4) | $6 | | Net decrease in cash, equivalents, and restricted cash | $(130) | $(30) | Notes to Condensed Consolidated Financial Statements Notes detail accounting policies, investments, restructuring, and financial instruments, including Russia operations suspension and segment reporting for Electronics - The company suspended operations in Russia, resulting in a $2 million non-cash impairment charge on property and equipment and a $2 million charge to reduce inventory to its net realizable value[35][36] - The company's single reportable segment is Electronics, which includes products like instrument clusters, information displays, and infotainment systems[94] Product Line Net Sales (in millions) | Product Lines | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Instrument clusters | $805 | $649 | | Information displays | $254 | $215 | | Infotainment | $216 | $195 | | Cockpit domain controller | $183 | $89 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes strong Q2 and H1 2022 performance to higher sales and customer recoveries, maintaining liquidity despite supply chain challenges - Strategic priorities include technology innovation in cockpit electronics, securing long-term growth through new business wins, and enhancing shareholder returns while maintaining a strong balance sheet[103] - Q2 2022 net sales increased by $238 million YoY, driven by a $137 million increase from volume and new business, and $122 million from favorable customer pricing related to supply chain cost recoveries[108] - Adjusted EBITDA for Q2 2022 was $79 million, a $49 million increase from Q2 2021, primarily due to higher sales volumes and customer recoveries[117] Results of Operations - Three Months Ended June 30, 2022 and 2021 Q2 2022 net sales increased to $848 million, driving gross margin improvement and a return to $24 million net income from a prior-year loss Q2 2022 vs. Q2 2021 Results (in millions) | | 2022 | 2021 | Change | | :--- | :--- | :--- | :--- | | Net sales | $848 | $610 | $238 | | Gross margin | $74 | $35 | $39 | | Net income (loss) attributable to Visteon | $24 | $(11) | $35 | | Adjusted EBITDA | $79 | $30 | $49 | Results of Operations - Six Months Ended June 30, 2022 and 2021 H1 2022 net sales increased by $310 million to $1,666 million, leading to significant growth in gross margin and net income H1 2022 vs. H1 2021 Results (in millions) | | 2022 | 2021 | Change | | :--- | :--- | :--- | :--- | | Net sales | $1,666 | $1,356 | $310 | | Gross margin | $150 | $108 | $42 | | Net income (loss) attributable to Visteon | $46 | $5 | $41 | | Adjusted EBITDA | $150 | $94 | $56 | Liquidity and Capital Resources The company maintains sufficient liquidity through $325 million cash and $400 million credit facility, despite H1 2022 operating cash outflows - As of June 30, 2022, the company had cash and equivalents of $325 million and availability of $400 million under its revolving credit facility and $187 million under affiliate working capital lines[140][141] - A significant portion of cash ($273 million) is located outside the U.S., with $45 million considered permanently reinvested[141] - The company used $72 million of cash from operating activities in H1 2022, primarily due to an $88 million increase in working capital outflows compared to the prior year[146] Quantitative and Qualitative Disclosures About Market Risk Visteon manages market risks from currency, interest rates, and commodities using derivative instruments, with a $5 million potential loss from a 10% adverse currency change - The company's primary market risks are foreign currency exchange rates, interest rates, and commodity prices[156] - Derivative instruments are used for hedging, not speculation; primary hedged currency exposures include EUR, CNY, BRL, INR, and BGN[156][157] - A hypothetical 10% adverse change in quoted currency exchange rates would result in a pre-tax loss of $5 million in the fair value of currency derivative financial instruments as of June 30, 2022[159] Controls and Procedures Management concluded disclosure controls and procedures were effective as of June 30, 2022, with no material changes to internal control over financial reporting - Management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective as of June 30, 2022[163] - No changes occurred in the Company's internal control over financial reporting during Q2 2022 that have materially affected, or are reasonably likely to materially affect, these controls[164] Part II - Other Information Legal Proceedings Ongoing legal matters include a $28 million lawsuit, a pending OFAC review regarding Iran sales, and $9 million accrued for Brazilian claims - The company is involved in litigation with the Charter Township of Van Buren, Michigan, claiming damages of $28 million related to alleged shortfalls on bonds for the company's headquarters[82][83] - The U.S. Treasury's Office of Foreign Assets Control (OFAC) is reviewing a voluntary self-disclosure regarding $12 million in sales by a former Chinese joint venture into Iran, with potential loss not estimable[84] - The company has accrued $9 million for various legal claims in Brazil, which total an aggregate of $56 million[85] Risk Factors Significant macroeconomic uncertainty, exacerbated by geopolitical events and COVID, is increasing costs and supply chain challenges, potentially impacting operations - The company is operating in a period of significant macro-economic uncertainty, including supply-chain disruptions, COVID-related lockdowns, and increasing inflationary pressures[169] - The conflict in Ukraine and COVID lockdowns in China are exacerbating component cost increases, supply chain challenges, and volatility with customer production schedules[169] - Negative impacts may lead to increased costs for raw materials, transportation, and energy, and commercial negotiations with customers may not fully offset these higher costs[171] Unregistered Sales of Equity Securities and Use of Proceeds No purchases of the company's common stock were made by or on behalf of the company or any affiliated purchaser during Q1 2022 - There were no purchases of the Company's common stock made by or on behalf of the Company during the first quarter of 2022[173] Exhibits Exhibits, including CEO/CFO certifications and XBRL data files, are filed with the report or incorporated by reference as listed in the Exhibit Index - The exhibits listed in the Exhibit Index are filed with the report, including CEO/CFO certifications and XBRL Interactive Data Files[174][177]