Financial Information by Geographic Region
Sales by geographic region for the years ended December 31, 2019, 2018 and 2017 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
(In millions)
|
2019
|
|
2018
|
|
2017
|
United States
|
$
|
663
|
|
|
$
|
654
|
|
|
$
|
776
|
|
Mexico
|
38
|
|
|
67
|
|
|
70
|
|
Total North America
|
701
|
|
|
721
|
|
|
846
|
|
Portugal
|
602
|
|
|
563
|
|
|
508
|
|
Slovakia
|
237
|
|
|
235
|
|
|
294
|
|
Tunisia
|
71
|
|
|
96
|
|
|
109
|
|
France
|
53
|
|
|
70
|
|
|
84
|
|
Other Europe
|
16
|
|
|
20
|
|
|
20
|
|
Intra-region eliminations
|
(1
|
)
|
|
(3
|
)
|
|
(11
|
)
|
Total Europe
|
978
|
|
|
981
|
|
|
1,004
|
|
China Domestic
|
527
|
|
|
405
|
|
|
381
|
|
China Export
|
262
|
|
|
309
|
|
|
363
|
|
Total China
|
789
|
|
|
714
|
|
|
744
|
|
Japan
|
393
|
|
|
494
|
|
|
495
|
|
India
|
110
|
|
|
114
|
|
|
92
|
|
Thailand
|
57
|
|
|
69
|
|
|
81
|
|
Korea
|
—
|
|
|
2
|
|
|
12
|
|
Intra-region eliminations
|
—
|
|
|
(1
|
)
|
|
(1
|
)
|
Total Other Asia-Pacific
|
560
|
|
|
678
|
|
|
679
|
|
South America
|
91
|
|
|
79
|
|
|
68
|
|
Inter-region eliminations
|
(174
|
)
|
|
(189
|
)
|
|
(195
|
)
|
|
$
|
2,945
|
|
|
$
|
2,984
|
|
|
$
|
3,146
|
|
Company sales based on geographic region where sale originates and not where customer is located.
|
Tangible long-lived assets by geographic region as of December 31, 2019 and 2018 are as follows:
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
(In millions)
|
2019
|
|
2018
|
Europe
|
$
|
207
|
|
|
$
|
152
|
|
North America
|
186
|
|
|
74
|
|
China
|
93
|
|
|
86
|
|
Other Asia-Pacific
|
86
|
|
|
60
|
|
South America
|
29
|
|
|
25
|
|
|
$
|
601
|
|
|
$
|
397
|
|
Tangible long-lived assets include property, plant and equipment and right-of-use assets.
|
NOTE 4. 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
|
(In millions, except per share amounts)
|
2019
|
|
2018
|
|
2017
|
Numerator:
|
|
|
|
|
|
Net income from continuing operations attributable to Visteon
|
$
|
71
|
|
|
$
|
163
|
|
|
$
|
159
|
|
Net income (loss) from discontinued operations attributable to Visteon
|
(1
|
)
|
|
1
|
|
|
17
|
|
Net income attributable to Visteon
|
$
|
70
|
|
|
$
|
164
|
|
|
$
|
176
|
|
Denominator:
|
|
|
|
|
|
Average common stock outstanding - basic
|
28.1
|
|
|
29.5
|
|
|
31.6
|
|
Dilutive effect of performance based share units and other
|
0.1
|
|
|
0.2
|
|
|
0.6
|
|
Diluted shares
|
28.2
|
|
|
29.7
|
|
|
32.2
|
|
|
|
|
|
|
|
Basic and Diluted Per Share Data:
|
|
|
|
|
|
Basic earnings (loss) per share attributable to Visteon:
|
|
|
|
|
|
Continuing operations
|
$
|
2.53
|
|
|
$
|
5.53
|
|
|
$
|
5.03
|
|
Discontinued operations
|
(0.04
|
)
|
|
0.03
|
|
|
0.54
|
|
|
$
|
2.49
|
|
|
$
|
5.56
|
|
|
$
|
5.57
|
|
Diluted earnings (loss) per share attributable to Visteon:
|
|
|
|
|
|
Continuing operations
|
$
|
2.52
|
|
|
$
|
5.49
|
|
|
$
|
4.94
|
|
Discontinued operations
|
(0.04
|
)
|
|
0.03
|
|
|
0.53
|
|
|
$
|
2.48
|
|
|
$
|
5.52
|
|
|
$
|
5.47
|
|
NOTE 5. Restructuring Activities
The Company has undertaken various restructuring activities to achieve its strategic and financial objectives. Restructuring activities include, but are not limited to, plant closures, production relocation, administrative cost structure realignment and consolidation of available capacity and resources. The Company expects to finance restructuring programs through cash on hand, cash generated from operations, reimbursements pursuant to customer accommodation and support agreements or through cash available under its existing debt agreements, subject to the terms of applicable covenants. Restructuring costs are recorded as elements of a plan are finalized and the timing of activities and the amount of related costs are not likely to change. However, such costs are estimated based on information available at the time such charges are recorded. In general, management anticipates that restructuring activities will be completed within a time frame such that significant changes to the plan are not likely. Due to the inherent uncertainty involved in estimating restructuring expenses, actual amounts paid for such activities may differ from amounts initially estimated.
Including amounts associated with discontinued operations, the Company recorded net restructuring expenses of $3 million, $30 million and $14 million during the years ended December 31, 2019, 2018 and 2017, respectively. Significant restructuring programs are summarized below by product group.
Electronics
During the first quarter of 2020, the Company approved a restructuring program impacting engineering and administrative functions to improve the Company’s efficiency and optimize its footprint. The Company expects to incur costs between $18 million and $24 million related to this action.
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 approximately $2 million net restructuring expenses. As of December 31, 2019, less than a million remains accrued and the program is considered substantially complete.
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 approximately approximately $1 million and $19 million of net restructuring expenses. As of December 31, 2019, approximately $5 million remains accrued and the program is considered substantially complete.
During the second quarter of 2018, the Company recorded employee severance and termination benefit expenses of approximately $3 million related to legacy employees at a South America facility and $2 million of net restructuring expenses associated with employees at North America manufacturing facilities due to the wind-down of certain products. During the year ended December 31, 2019, the Company recorded approximately $1 million of restructuring expense under the programs and approximately $3 million remains accrued as of December 31, 2019.
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. The Company has recorded approximately $5 million and $14 million of net restructuring expenses, respectively under this program during the years ended December 31, 2018 and 2017. The Company has recorded approximately $45 million of restructuring expenses since inception of this program and it is considered complete.
Other and Discontinued Operations
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.
As of December 31, 2019, the Company has retained restructuring reserves as part of the Company's divestiture of the majority of its global Interiors business (the "Interiors Divestiture") of approximately $2 million, associated with previously announced programs for the fundamental reorganization of operations at facilities in Brazil and France.
Restructuring Reserves
Restructuring reserve balances of $10 million and $23 million as of December 31, 2019 and 2018, respectively, are classified as Other current liabilities on the consolidated balance sheets. The Company anticipates that the activities associated with the restructuring reserve balance as of December 31, 2019 will be substantially complete within one year. The Company’s consolidated restructuring reserves and related activity are summarized below including amounts associated with discontinued operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Electronics
|
|
Other
|
|
Total
|
December 31, 2016
|
$
|
31
|
|
|
$
|
9
|
|
|
$
|
40
|
|
Expense
|
7
|
|
|
—
|
|
|
7
|
|
Change in estimates
|
8
|
|
|
(1
|
)
|
|
7
|
|
Utilization
|
(30
|
)
|
|
(2
|
)
|
|
(32
|
)
|
Foreign currency
|
2
|
|
|
—
|
|
|
2
|
|
December 31, 2017
|
18
|
|
|
6
|
|
|
24
|
|
Expense
|
24
|
|
|
—
|
|
|
24
|
|
Change in estimates
|
5
|
|
|
1
|
|
|
6
|
|
Utilization
|
(26
|
)
|
|
(4
|
)
|
|
(30
|
)
|
Foreign currency
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
December 31, 2018
|
20
|
|
|
3
|
|
|
23
|
|
Expense
|
5
|
|
|
—
|
|
|
5
|
|
Change in estimates
|
(1
|
)
|
|
(1
|
)
|
|
(2
|
)
|
Utilization
|
(15
|
)
|
|
—
|
|
|
(15
|
)
|
Foreign currency
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
December 31, 2019
|
$
|
8
|
|
|
$
|
2
|
|
|
$
|
10
|
|
Given the economically-sensitive and highly competitive nature of the automotive industry, the Company continues to closely monitor current market factors, industry trends and opportunities to streamline the Company's operations, including but not limited to, additional 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.
NOTE 6. Non-Consolidated Affiliates
Non-Consolidated Affiliate Transactions
On October 15, 2018, the Company completed the purchase of a 12.5% equity investment in a private radar imaging firm for $1 million, as further described in Note 18, "Fair Value Measurements."
On September 1, 2018, Visteon acquired an additional 1% ownership interest in VFAE resulting in a total 51% controlling interest and a non-cash gain of $4 million, classified as "Other income (expense), net", as further described in Note 20, "Business Acquisitions."
During 2017, the Company completed the sale and disposal of its 50% interest in an equity method investment for proceeds of $7 million, consistent with its carrying value.
During 2017, the Company disposed of its remaining cost method investments for proceeds of approximately $8 million and recorded a net pretax gain of $4 million, classified as "Other income (expense), net" during the year ended December 31, 2017.
Investments in Affiliates
The Company recorded equity in the net income of non-consolidated affiliates of $6 million, $13 million and $7 million for the years ended December 31, 2019, 2018 and 2017, respectively.
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, 2019, the Company determined that no such indicators were present.
A summary of the Company's investments in non-consolidated equity method affiliates is provided below:
|
|
|
|
|
|
|
|
|
|
December 31
|
(In millions)
|
2019
|
|
2018
|
YFVIC (50%)
|
$
|
43
|
|
|
$
|
38
|
|
Others
|
5
|
|
|
4
|
|
Total investments in non-consolidated affiliates
|
$
|
48
|
|
|
$
|
42
|
|
A summary of transactions with affiliates is shown below:
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
(In millions)
|
2019
|
|
2018
|
Billings to affiliates (a)
|
$
|
75
|
|
|
$
|
52
|
|
Purchases from affiliates (b)
|
$
|
73
|
|
|
$
|
79
|
|
(a) Primarily relates to parts production and engineering reimbursement
|
(b) Primarily relates to engineering services as well as selling, general and administrative expenses
|
Variable Interest Entities
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, were paid in 2019.
The Company determined that YFVIC is a VIE. The Company holds a variable interest in YFVIC primarily related to its ownership interests and subordinated financial support. The Company and 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 YFVIC is provided below:
|
|
|
|
|
|
|
|
|
|
December 31
|
(In millions)
|
2019
|
|
2018
|
Payables due to YFVIC
|
$
|
9
|
|
|
$
|
17
|
|
Exposure to loss in YFVIC
|
|
|
|
Investment in YFVIC
|
$
|
43
|
|
|
$
|
38
|
|
Receivables due from YFVIC
|
41
|
|
|
36
|
|
Subordinated loan receivable
|
8
|
|
|
20
|
|
Loan guarantee
|
—
|
|
|
11
|
|
Maximum exposure to loss in YFVIC
|
$
|
92
|
|
|
$
|
105
|
|
NOTE 7. Inventories
Inventories, net consist of the following components:
|
|
|
|
|
|
|
|
|
|
December 31
|
(In millions)
|
2019
|
|
2018
|
Raw materials
|
$
|
100
|
|
|
$
|
124
|
|
Work-in-process
|
28
|
|
|
26
|
|
Finished products
|
41
|
|
|
34
|
|
|
$
|
169
|
|
|
$
|
184
|
|
NOTE 8. Property and Equipment
Property and equipment, net consists of the following:
|
|
|
|
|
|
|
|
|
|
December 31
|
(In millions)
|
2019
|
|
2018
|
Land
|
$
|
12
|
|
|
$
|
13
|
|
Buildings and improvements
|
83
|
|
|
76
|
|
Machinery, equipment and other
|
599
|
|
|
531
|
|
Construction in progress
|
80
|
|
|
56
|
|
Total property and equipment
|
774
|
|
|
676
|
|
Accumulated depreciation
|
(362
|
)
|
|
(303
|
)
|
|
412
|
|
|
373
|
|
Product tooling, net of amortization
|
24
|
|
|
24
|
|
Property and equipment, net
|
$
|
436
|
|
|
$
|
397
|
|
Depreciation and amortization expenses are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
(In millions)
|
2019
|
|
2018
|
|
2017
|
Depreciation
|
$
|
78
|
|
|
$
|
73
|
|
|
$
|
71
|
|
Amortization
|
6
|
|
|
3
|
|
|
3
|
|
|
$
|
84
|
|
|
$
|
76
|
|
|
$
|
74
|
|
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.
The net book value of capitalized internal use software costs was approximately $21 million and $19 million as of December 31, 2019 and 2018, respectively. Related amortization expense was approximately $9 million, $7 million and $4 million for the years ended 2019, 2018 and 2017. Amortization expense of approximately $9 million, $7 million, $4 million and $1 million is expected for the annual periods ended December 31, 2020, 2021, 2022 and 2023, respectively.
NOTE 9. Intangible Assets
Intangible assets as of December 31, 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
(In millions)
|
Estimated Weighted Average Useful Life (years)
|
|
Gross Intangibles
|
|
Accumulated Amortization
|
|
Net Intangibles
|
Definite-Lived:
|
|
|
Developed technology
|
7
|
|
$
|
40
|
|
|
$
|
(35
|
)
|
|
$
|
5
|
|
Customer related
|
10
|
|
89
|
|
|
(51
|
)
|
|
38
|
|
Capitalized software development
|
4
|
|
32
|
|
|
(5
|
)
|
|
27
|
|
Other
|
20
|
|
15
|
|
|
(4
|
)
|
|
11
|
|
Subtotal
|
|
|
176
|
|
|
(95
|
)
|
|
81
|
|
Indefinite-Lived:
|
|
|
Goodwill
|
|
|
46
|
|
|
—
|
|
|
46
|
|
Total
|
|
|
$
|
222
|
|
|
$
|
(95
|
)
|
|
$
|
127
|
|
A roll-forward of the net carrying amounts of intangible assets is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
December 31, 2019
|
(In millions)
|
Gross Intangibles
|
|
Accumulated Amortization
|
|
Net Intangible
|
|
Additions
|
|
Foreign Currency
|
|
Amortization Expense
|
|
Net Intangibles
|
Definite-Lived:
|
|
|
|
|
Developed technology
|
$
|
40
|
|
|
$
|
(31
|
)
|
|
$
|
9
|
|
|
$
|
—
|
|
|
$
|
(1
|
)
|
|
$
|
(3
|
)
|
|
$
|
5
|
|
Customer related
|
90
|
|
|
(42
|
)
|
|
48
|
|
|
—
|
|
|
(1
|
)
|
|
(9
|
)
|
|
38
|
|
Capitalized software development
|
16
|
|
|
(3
|
)
|
|
13
|
|
|
16
|
|
|
—
|
|
|
(2
|
)
|
|
27
|
|
Other
|
14
|
|
|
(2
|
)
|
|
12
|
|
|
1
|
|
|
—
|
|
|
(2
|
)
|
|
11
|
|
Subtotal
|
160
|
|
|
(78
|
)
|
|
82
|
|
|
17
|
|
|
(2
|
)
|
|
(16
|
)
|
|
81
|
|
Indefinite-Lived:
|
|
|
|
|
Goodwill
|
47
|
|
|
—
|
|
|
47
|
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
46
|
|
Total
|
$
|
207
|
|
|
$
|
(78
|
)
|
|
$
|
129
|
|
|
$
|
17
|
|
|
$
|
(3
|
)
|
|
$
|
(16
|
)
|
|
$
|
127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
December 31, 2018
|
(In millions)
|
Gross Intangibles
|
|
Accumulated Amortization
|
|
Net Intangibles
|
|
Additions
|
|
Foreign Currency
|
|
Amortization Expense
|
|
Net Intangibles
|
Definite-Lived:
|
|
|
|
|
Developed technology
|
$
|
40
|
|
|
$
|
(27
|
)
|
|
$
|
13
|
|
|
$
|
—
|
|
|
$
|
(1
|
)
|
|
$
|
(3
|
)
|
|
$
|
9
|
|
Customer related
|
88
|
|
|
(35
|
)
|
|
53
|
|
|
7
|
|
|
(3
|
)
|
|
(9
|
)
|
|
48
|
|
Capitalized software development
|
8
|
|
|
(1
|
)
|
|
7
|
|
|
8
|
|
|
—
|
|
|
(2
|
)
|
|
13
|
|
Other
|
13
|
|
|
(1
|
)
|
|
12
|
|
|
2
|
|
|
(1
|
)
|
|
(1
|
)
|
|
12
|
|
Subtotal
|
149
|
|
|
(64
|
)
|
|
85
|
|
|
17
|
|
|
(5
|
)
|
|
(15
|
)
|
|
82
|
|
Indefinite-Lived:
|
|
|
|
|
Goodwill
|
47
|
|
|
—
|
|
|
47
|
|
|
2
|
|
|
(2
|
)
|
|
—
|
|
|
47
|
|
Total
|
$
|
196
|
|
|
$
|
(64
|
)
|
|
$
|
132
|
|
|
$
|
19
|
|
|
$
|
(7
|
)
|
|
$
|
(15
|
)
|
|
$
|
129
|
|
Capitalized software development consists of software development costs intended for integration into customer products.
The Company recorded approximately $16 million, $15 million and $13 million of amortization expense related to definite-lived intangible assets for the years ended December 31, 2019, 2018 and 2017, respectively. The Company currently estimates annual amortization expense to be $16 million for each of the years 2020, 2021, and 2022, $13 million for 2023, and $6 million for 2024.
During 2018, in connection with the VFAE acquisition, the Company recorded customer related intangible assets of $7 million. These definite lived intangible assets are being amortized using the straight-line method over their estimated useful lives of 10 to 12 years. Additionally, the Company recorded goodwill of $2 million for the excess of the total consideration over the fair values of the identifiable assets and liabilities acquired. These gross additions were partially offset by foreign currency related impacts in Customer related and Other intangibles of $5 million and $1 million, respectively.
During 2017, the Company contributed $2 million to American Center for Mobility, a non-profit corporation who is building a state of the art research and development facility. The contribution provides the Company certain rights regarding access to the facility for three years. The Company will use the facility for autonomous driving research and development activities for multiple products and therefore capitalized the contribution as an intangible asset. The Company made a second contribution of $2 million during the third quarter of 2018 when the facility was substantially complete. The $4 million intangible asset, classified as "Other", is being amortized over a 36 month period on a straight-line basis beginning in January 2018 when the term of the arrangement began.
NOTE 10. Other Assets
Other current assets are comprised of the following components:
|
|
|
|
|
|
|
|
|
|
December 31
|
(In millions)
|
2019
|
|
2018
|
Recoverable taxes
|
$
|
61
|
|
|
$
|
46
|
|
Joint venture receivables
|
41
|
|
|
37
|
|
Contractually reimbursable engineering costs
|
29
|
|
|
40
|
|
Prepaid assets and deposits
|
22
|
|
|
20
|
|
Royalty agreements
|
17
|
|
|
—
|
|
China bank notes
|
16
|
|
|
12
|
|
Other
|
7
|
|
|
4
|
|
|
$
|
193
|
|
|
$
|
159
|
|
The Company sold $81 million, $36 million and $16 million of China bank notes to financial institutions during 2019, 2018 and 2017, respectively. As of December 31, 2019, $18 million remains outstanding and will mature by the end of the second quarter of 2020, and as of December 31, 2018, $3 million remained outstanding which matured during the second quarter of 2019.
Other non-current assets are comprised of the following components:
|
|
|
|
|
|
|
|
|
|
December 31
|
(In millions)
|
2019
|
|
2018
|
Deferred tax assets
|
$
|
59
|
|
|
$
|
45
|
|
Recoverable taxes
|
28
|
|
|
33
|
|
Contractually reimbursable engineering costs
|
24
|
|
|
29
|
|
Royalty agreements
|
11
|
|
|
—
|
|
Joint venture note receivables
|
8
|
|
|
20
|
|
Other
|
20
|
|
|
16
|
|
|
$
|
150
|
|
|
$
|
143
|
|
During 2019, the Company amended royalty agreements with certain suppliers as part of cost reduction efforts. The Company recorded $17 million in other current assets and $11 million in other non-current assets, with an offsetting amount of $20 million in accounts payable and $13 million in other non-current liabilities as of December 31, 2019. The Company recorded approximately $5 million of royalty expense during 2019 associated with such arrangements.
In conjunction with the Interiors Divestiture, the Company entered into a three year term loan with the buyer, classified as "Joint venture note receivable" with an original maturity of December 1, 2019. This loan was settled, prior to maturity, including $1 million of interest income.
Current and non-current contractually reimbursable engineering costs of $29 million and $24 million, respectively, as of December 31, 2019, and $40 million and $29 million, respectively, as of December 31, 2018, 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 $29 million in 2020, $10 million in 2021, $8 million in 2022, $3 million in 2023 and $3 million in 2024 and beyond.
NOTE 11. Leases
The Company has operating leases primarily for corporate offices, technical and engineering centers, customer centers, vehicles and certain equipment. As of December 31, 2019 assets and related accumulated depreciation recorded under finance leasing arrangements were not material.
The Company elected the package of practical expedients permitted under the transition guidance within the new lease standard, which among other things, allows the Company to carryforward the historical lease classification. The Company elected to combine
lease components (e.g., fixed payments including rent, real estate taxes and insurance costs) with non-lease components (e.g., fixed common-area maintenance costs). The Company also elected to apply the practical expedient related to land easements, allowing the Company to carry forward its current accounting treatment for land easements on existing agreements.
Certain leases include one or more options to renew, with renewal terms that can extend the lease term from one to 30 years or more, leases may also include options to purchase the leased property or to terminate the leases. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.
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 to the Company’s principal executive offices in Van Buren Township, Michigan.
Leases with an initial term of 12 months or less are not recorded on the balance sheet; the Company recognizes lease expense for these leases on a straight-line basis over the lease term. As most of the Company's leases do not provide an implicit rate, the Company must estimate the incremental borrowing rate to discount the lease payments based on information available at lease commencement. The incremental borrowing rate is derived from Visteon's Term Loan B floating rate converted to a fixed rate utilizing the prevailing US swap curve to arrive at the equivalent fixed rates that have similar duration to the lease payments. The incremental borrowing rate is applied to the tranches of leases based on lease term, regardless of the asset class. For the year ended December 31, 2019, the weighted average remaining lease term and discount rate were 7 years and 4.5%, respectively.
The components of lease expense is as follows:
|
|
|
|
|
|
Year Ended
December 31
|
(In millions)
|
2019
|
Operating lease cost (includes immaterial variable lease costs)
|
$
|
(41
|
)
|
Short-term lease cost
|
(1
|
)
|
Sublease income
|
5
|
|
Total lease cost
|
$
|
(37
|
)
|
Other information related to leases is as follows:
|
|
|
|
|
|
Year Ended
December 31
|
(In millions)
|
2019
|
Cash out flows from operating leases
|
$
|
38
|
|
Right-of-use assets obtained in exchange for lease obligations
|
$
|
38
|
|
NOTE 14. 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
|
(In millions, except percentages)
|
2019
|
|
2018
|
|
2017
|
|
2019
|
|
2018
|
|
2017
|
Costs Recognized in Income:
|
|
|
|
|
|
|
|
|
|
|
|
Pension service cost:
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(2
|
)
|
|
$
|
(2
|
)
|
|
$
|
(2
|
)
|
Pension financing benefit (cost):
|
|
|
|
|
|
|
|
|
|
|
|
Interest cost
|
(30
|
)
|
|
(27
|
)
|
|
(29
|
)
|
|
(8
|
)
|
|
(8
|
)
|
|
(9
|
)
|
Expected return on plan assets
|
40
|
|
|
41
|
|
|
41
|
|
|
10
|
|
|
9
|
|
|
9
|
|
Amortization of losses and other
|
—
|
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
(2
|
)
|
|
(2
|
)
|
Settlements and curtailments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
Restructuring related pension cost:
|
|
|
|
|
|
|
|
|
|
|
|
Special termination benefits (a)
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
(2
|
)
|
Net pension income (expense)
|
$
|
10
|
|
|
$
|
12
|
|
|
$
|
12
|
|
|
$
|
(2
|
)
|
|
$
|
(3
|
)
|
|
$
|
(4
|
)
|
Weighted Average Assumptions:
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
4.33
|
%
|
|
3.65
|
%
|
|
4.12
|
%
|
|
3.34
|
%
|
|
3.28
|
%
|
|
3.51
|
%
|
Compensation increase
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
3.51
|
%
|
|
3.62
|
%
|
|
3.66
|
%
|
Long-term return on assets
|
6.78
|
%
|
|
6.74
|
%
|
|
6.73
|
%
|
|
4.73
|
%
|
|
4.86
|
%
|
|
5.24
|
%
|
(a) Primarily related to restructuring actions
|
The Company previously recorded service cost with other components of net pension income (expense) in cost of sales and selling, general and administrative expenses. Adoption of ASU 2017-07, “Compensation - Retirement Benefits (Topic 715)," during 2018 resulted in the reclassification of pension financing benefits into "Other income (expense), net" for all periods presented.
The Company's total accumulated benefit obligations for all defined benefit plans was $1,116 million and $990 million as of December 31, 2019 and 2018, 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
|
(In millions)
|
2019
|
|
2018
|
Accumulated benefit obligation
|
$
|
1,088
|
|
|
$
|
813
|
|
Projected benefit obligation
|
$
|
1,107
|
|
|
$
|
818
|
|
Fair value of plan assets
|
$
|
830
|
|
|
$
|
582
|
|
Assumptions used by the Company in determining its defined benefit pension obligations as of December 31, 2019 and 2018 are summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
Weighted Average Assumptions
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Discount rate
|
|
3.34
|
%
|
|
4.33
|
%
|
|
2.39
|
%
|
|
3.34
|
%
|
Rate of increase in compensation
|
|
N/A
|
|
|
N/A
|
|
|
3.16
|
%
|
|
3.51
|
%
|
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
|
(In millions)
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Change in Benefit Obligation:
|
|
|
|
|
|
|
|
Benefit obligation — beginning
|
$
|
760
|
|
|
$
|
840
|
|
|
$
|
250
|
|
|
$
|
281
|
|
Service cost
|
—
|
|
|
—
|
|
|
2
|
|
|
2
|
|
Interest cost
|
30
|
|
|
27
|
|
|
8
|
|
|
8
|
|
Actuarial loss (gain)
|
88
|
|
|
(63
|
)
|
|
40
|
|
|
(17
|
)
|
Special termination benefits
|
—
|
|
|
2
|
|
|
1
|
|
|
—
|
|
Foreign exchange translation
|
—
|
|
|
—
|
|
|
4
|
|
|
(16
|
)
|
Benefits paid and other
|
(40
|
)
|
|
(46
|
)
|
|
(5
|
)
|
|
(8
|
)
|
Benefit obligation — ending
|
$
|
838
|
|
|
$
|
760
|
|
|
$
|
300
|
|
|
$
|
250
|
|
Change in Plan Assets:
|
|
|
|
|
|
|
|
|
|
Plan assets — beginning
|
$
|
567
|
|
|
$
|
647
|
|
|
$
|
200
|
|
|
$
|
220
|
|
Actual return on plan assets
|
102
|
|
|
(35
|
)
|
|
26
|
|
|
(5
|
)
|
Sponsor contributions
|
1
|
|
|
1
|
|
|
7
|
|
|
7
|
|
Foreign exchange translation
|
—
|
|
|
—
|
|
|
4
|
|
|
(14
|
)
|
Benefits paid and other
|
(40
|
)
|
|
(46
|
)
|
|
(5
|
)
|
|
(8
|
)
|
Plan assets — ending
|
$
|
630
|
|
|
$
|
567
|
|
|
$
|
232
|
|
|
$
|
200
|
|
Total funded status at end of period
|
$
|
(208
|
)
|
|
$
|
(193
|
)
|
|
$
|
(68
|
)
|
|
$
|
(50
|
)
|
Balance Sheet Classification:
|
|
|
|
|
|
|
|
|
|
Other non-current assets
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3
|
|
|
$
|
4
|
|
Accrued employee liabilities
|
—
|
|
|
—
|
|
|
(2
|
)
|
|
(1
|
)
|
Employee benefits
|
(208
|
)
|
|
(193
|
)
|
|
(69
|
)
|
|
(53
|
)
|
Accumulated other comprehensive loss:
|
|
|
|
|
|
|
|
Actuarial loss
|
79
|
|
|
53
|
|
|
50
|
|
|
27
|
|
Tax effects/other
|
(1
|
)
|
|
—
|
|
|
(14
|
)
|
|
(9
|
)
|
|
$
|
78
|
|
|
$
|
53
|
|
|
$
|
36
|
|
|
$
|
18
|
|
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, 2019 and 2018, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
(In millions)
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Actuarial loss (gain)
|
$
|
26
|
|
|
$
|
13
|
|
|
$
|
23
|
|
|
$
|
(4
|
)
|
Deferred taxes
|
(1
|
)
|
|
—
|
|
|
(5
|
)
|
|
1
|
|
Currency/other
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
Reclassification to net income
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
(2
|
)
|
|
$
|
25
|
|
|
$
|
13
|
|
|
$
|
18
|
|
|
$
|
(5
|
)
|
Actuarial losses for the year ended December 31, 2019 are primarily related to a decrease in discount rates partially offset by an increase in return on assets. Actuarial losses of $2 million for the non-U.S. retirement plans are expected to be amortized to income during 2020. Actuarial gains and losses are amortized using the 10% corridor approach representing 10% times the greater of plan assets and the projected benefit obligation. Generally, the expected return is determined using a market-related value of assets where gains (losses) are recognized in a systematic manner over five years. For less significant plans, fair value is used.
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
|
2020
|
$
|
40
|
|
|
$
|
6
|
|
2021
|
39
|
|
|
6
|
|
2022
|
40
|
|
|
7
|
|
2023
|
41
|
|
|
8
|
|
2024
|
40
|
|
|
10
|
|
Years 2025 - 2029
|
217
|
|
|
54
|
|
During the year ended December 31, 2019, cash contributions to the Company's U.S. defined benefit plans were $1 million and non-U.S. defined benefit pension plans were $7 million. Additionally, the Company expects to make contributions to its U.S. defined benefit pension plans of $19 million and non-US defined benefit pension plans of $7 million during 2020. The Company’s expected 2020 contributions may be revised.
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 relatively long time horizon of these 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, 2019 and 2018 and target allocation for 2020 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Target Allocation
|
|
Percentage of Plan Assets
|
|
U.S.
|
|
Non-U.S.
|
|
U.S.
|
|
Non-U.S.
|
|
2020
|
|
2020
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Equity securities
|
38
|
%
|
|
34
|
%
|
|
37
|
%
|
|
30
|
%
|
|
38
|
%
|
|
27
|
%
|
Fixed income
|
15
|
%
|
|
43
|
%
|
|
18
|
%
|
|
18
|
%
|
|
39
|
%
|
|
41
|
%
|
Alternative strategies
|
46
|
%
|
|
14
|
%
|
|
44
|
%
|
|
51
|
%
|
|
14
|
%
|
|
19
|
%
|
Cash
|
1
|
%
|
|
3
|
%
|
|
1
|
%
|
|
1
|
%
|
|
4
|
%
|
|
8
|
%
|
Other
|
—
|
%
|
|
6
|
%
|
|
—
|
%
|
|
—
|
%
|
|
5
|
%
|
|
5
|
%
|
|
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 18, "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 0.45% to 8.95% to determine its pension and other benefit obligations as of December 31, 2019, including weighted average discount rates of 3.34% for U.S. pension plans and 2.39% for non-U.S. pension plan.
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. The expense related to all matching contributions was approximately $8 million in 2019, $7 million in 2018, and $8 million in 2017.
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 as of December 31, 2019 and 2018.
NOTE 15. Income Taxes
Income Tax Provision
Details of the Company's income tax provision from continuing operations are provided in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
(In millions)
|
2019
|
|
2018
|
|
2017
|
Income (Loss) Before Income Taxes: (a)
|
|
|
|
|
|
U.S
|
$
|
5
|
|
|
$
|
76
|
|
|
$
|
84
|
|
Non-U.S
|
95
|
|
|
127
|
|
|
132
|
|
Total income before income taxes
|
$
|
100
|
|
|
$
|
203
|
|
|
$
|
216
|
|
Current Tax Provision:
|
|
|
|
|
|
Non-U.S
|
$
|
29
|
|
|
42
|
|
|
$
|
42
|
|
Deferred Tax Provision (Benefit):
|
|
|
|
|
|
Non-U.S
|
(5
|
)
|
|
1
|
|
|
6
|
|
Total deferred tax provision (benefit)
|
(5
|
)
|
|
1
|
|
|
6
|
|
Provision for income taxes
|
$
|
24
|
|
|
$
|
43
|
|
|
$
|
48
|
|
|
|
|
|
|
|
(a) Income (loss) before income taxes excludes equity in net income of non-consolidated affiliates.
|
A summary of the differences between the provision for income taxes calculated at the U.S. statutory tax rate of 21% for 2019 and 2018, and 35% for 2017 and the consolidated income tax provision from continuing operations is shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
(In millions)
|
2019
|
|
2018
|
|
2017
|
Tax provision (benefit) at U.S. statutory rate of 21% for 2019 and 2018, and 35% for 2017
|
$
|
21
|
|
|
$
|
43
|
|
|
$
|
76
|
|
Impact of foreign operations
|
23
|
|
|
16
|
|
|
(5
|
)
|
Non-U.S withholding taxes
|
10
|
|
|
14
|
|
|
15
|
|
Tax holidays in foreign operations
|
(5
|
)
|
|
(5
|
)
|
|
(7
|
)
|
State and local income taxes
|
—
|
|
|
3
|
|
|
(1
|
)
|
Tax reserve adjustments
|
2
|
|
|
(6
|
)
|
|
(14
|
)
|
Change in valuation allowance
|
(10
|
)
|
|
(81
|
)
|
|
(270
|
)
|
Impact of U.S. tax reform
|
(18
|
)
|
|
33
|
|
|
250
|
|
Impact of tax law change
|
—
|
|
|
35
|
|
|
5
|
|
Research credits
|
(1
|
)
|
|
(5
|
)
|
|
(1
|
)
|
Other
|
2
|
|
|
(4
|
)
|
|
—
|
|
Provision for income taxes
|
$
|
24
|
|
|
$
|
43
|
|
|
$
|
48
|
|
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 include, but are 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 institutes 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 earnings of foreign subsidiaries. As of December 31, 2017, the Company calculated its best estimate of the impact of the Act in its year-end income tax provision in accordance with the guidance available as described below. 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. At December 31, 2018, the Company had completed its accounting for the tax effects of the Act summarized as follows:
|
|
•
|
As a result of the Act, the Company remeasured its U.S. federal deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future. The Company recorded a cumulative income tax charge of $267 million (less than $1 million income tax charge in 2018 and $267 million income tax charge in 2017); the impact of which was entirely offset by a corresponding income tax benefit associated with a reduction in the U.S. valuation allowance in those years.
|
|
|
•
|
The Act requires a mandatory deemed repatriation of post-1986 undistributed foreign earnings, which results in a one- time transition tax. The Company recorded a cumulative charge of $52 million ($33 million in 2018 and $19 million charge in 2017) related to the one-time transition tax, which was partially offset by the $36 million reversal of the Company’s existing deferred tax liability (net of foreign tax credits) associated with repatriation of unremitted foreign earnings. The cumulative $16 million income tax charge was entirely offset by a corresponding income tax benefit associated with a reduction in the U.S. valuation allowance in those years.
|
|
|
•
|
For tax years beginning after December 31, 2017, the Act introduces new provisions for U.S. taxation of certain global intangible low-taxed income (“GILTI”). The Company has made the policy election to record any liability associated with GILTI in the period in which it is incurred.
|
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. Other items impacting the Company’s 2019 effective tax rate include the unfavorable impact of foreign operations of $23 million which reflects a $6 million unfavorable variance due to income taxes on foreign earnings taxed at rates higher than the U.S. statutory rate; $8 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; and $9 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 described above; these amounts were offset by a corresponding $18 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.
Other items impacting the Company’s 2018 effective tax rate include the unfavorable impact of foreign operations of $16 million which reflects a $8 million unfavorable variance due to income taxes on foreign earnings taxed at rates higher than the U.S. statutory rate and $8 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 described above, entirely offset by a corresponding $8 million decrease 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.
Other items impacting the Company's 2017 effective tax rate include the favorable impact of foreign operations of $5 million which includes a $34 million favorable variance due to income taxes on foreign earnings taxed at rates lower than the U.S. statutory rate partially offset by $29 million related to U.S. income taxes in connection with repatriation of earnings, excluding the transition tax on the deemed repatriation of foreign earnings described above, entirely offset by a corresponding $29 million decrease in the U.S. valuation allowance. Tax reserve adjustments of $14 million primarily reflects the $16 million decrease in uncertain tax benefits in connection with the Internal Revenue Service completing its audit during the first quarter of 2017 which was fully offset by the U.S. valuation allowance, while adverse tax reserve adjustments of $2 million related to various matters in the U.S. and India for which the uncertainty is expected to be resolved while a full valuation allowance is maintained, and thus, are entirely offset by a corresponding reduction in the valuation allowance. The $5 million unfavorable impact of tax law change in 2017 (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 rates in France and Argentina, which were entirely offset by the related valuation allowances in those jurisdictions.
Deferred Income Taxes and Valuation Allowances
The Company recorded deferred tax liabilities, net of valuation allowances, for U.S. and non-U.S. income taxes and non-U.S. withholding taxes of approximately $26 million and $21 million as of December 31, 2019 and 2018, respectively; on the undistributed earnings of certain consolidated and unconsolidated foreign affiliates as such earnings are intended to be repatriated in the foreseeable 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 the Company has in the U.S. and this practice has not changed following incurring the transition tax under the Act. The Company has not provided for deferred income taxes or foreign withholding 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 need to maintain valuation allowances against deferred tax assets in the U.S. and other affected countries will cause variability in the Company’s quarterly and annual effective tax rates. Full valuation allowances against deferred tax assets in the U.S. and applicable foreign countries will be maintained until sufficient positive evidence exists to reduce or eliminate them. The factors considered by management in its determination of the probability of the realization of the deferred tax assets include, but are not limited to, recent historical financial results, historical taxable income, projected future taxable income, the expected timing of the reversals of existing temporary differences, tax planning strategies and projected future impacts attributable to the Act. If, based upon the weight of available evidence, it is more likely than not the deferred tax assets will not be realized, a valuation allowance is recorded. The weight given to the positive and negative evidence is commensurate with the extent to which the evidence may be objectively verified. As such, it is generally difficult for positive evidence regarding projected future taxable income exclusive of reversing taxable temporary differences to outweigh objective negative evidence of recent financial reporting losses, in particular, when there is a cumulative loss incurred over a three-year period. However, the three-year loss position is not solely determinative and, accordingly, management considers all other available positive and negative evidence in its analysis. In regards to the full valuation allowance recorded against the U.S. net deferred tax assets, despite recent improvement in the U.S. financial results, management concluded that the weight of negative evidence continues to outweigh the positive evidence, in part attributable to the reduction in the U.S. profitability during 2019, as well as the expectation that global production volumes are expected to continue to decline in 2020. These factors contribute to the relative uncertainty surrounding the ability that the U.S. operations will demonstrate sustained profitability in the future. Additionally, the Company has made a policy election to apply the incremental cash tax savings approach when analyzing the impact GILTI could have on its U.S. valuation allowance assessment. As a result of future expected GILTI inclusions, and because of the Act’s ordering rules, U.S. companies may now expect to utilize tax attribute carryforwards (e.g. net operating losses and foreign tax credits) for which a valuation allowance has historically been recorded (this is referred to as the “tax law ordering approach”). However, due to the mechanics of the GILTI rules, companies that have a GILTI inclusion may realize a reduced (or no) cash tax savings from utilizing such tax attribute carryforwards (this view is referred to as the “incremental cash tax savings approach”). These positions, along with management’s analysis of all other
available evidence, resulted in the conclusion that the Company maintain the valuation allowance against deferred tax assets in the U.S. Based on the Company’s current assessment, it is possible that within the next 12 to 24 months, the existing valuation allowance against the U.S. net deferred tax assets could be partially released. Any such release is dependent upon the sustained improvement in U.S. operating results, and, if such a release of the valuation allowance were to occur, it could have a significant impact on net income in the quarter in which it is deemed appropriate to partially release the reserve.
The components of deferred income tax assets and liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
December 31
|
(In millions)
|
2019
|
|
2018
|
Deferred Tax Assets:
|
|
|
|
Net operating losses and credit carryforwards
|
$
|
1,099
|
|
|
$
|
1,090
|
|
Employee benefit plans
|
73
|
|
|
64
|
|
Lease liability
|
55
|
|
|
—
|
|
Fixed assets and intangibles
|
14
|
|
|
9
|
|
Warranty
|
11
|
|
|
10
|
|
Inventory
|
9
|
|
|
9
|
|
Restructuring
|
5
|
|
|
8
|
|
Capitalized expenditures for tax reporting
|
5
|
|
|
3
|
|
Deferred income
|
4
|
|
|
5
|
|
Other
|
55
|
|
|
57
|
|
Valuation allowance
|
(1,132
|
)
|
|
(1,144
|
)
|
Total deferred tax assets
|
$
|
198
|
|
|
$
|
111
|
|
Deferred Tax Liabilities:
|
|
|
|
Outside basis investment differences, including withholding tax
|
$
|
64
|
|
|
$
|
57
|
|
Right-of-use assets
|
54
|
|
|
—
|
|
Fixed assets and intangibles
|
16
|
|
|
17
|
|
All other
|
32
|
|
|
15
|
|
Total deferred tax liabilities
|
166
|
|
|
89
|
|
Net deferred tax assets (liabilities)
|
$
|
32
|
|
|
$
|
22
|
|
Consolidated Balance Sheet Classification:
|
|
|
|
Other non-current assets
|
$
|
59
|
|
|
$
|
45
|
|
Deferred tax liabilities non-current
|
27
|
|
|
23
|
|
Net deferred tax assets (liabilities)
|
$
|
32
|
|
|
$
|
22
|
|
At December 31, 2019, the Company had available non-U.S. net operating loss carryforwards and capital loss carryforwards of $1.5 billion and $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 $1.4 billion at December 31, 2019, which will expire at various dates between 2028 and 2034. U.S. foreign tax credit carryforwards are $385 million at December 31, 2019. These credits will begin to expire in 2022. U.S. research tax credit carryforwards are $20 million at December 31, 2019. These credits will begin to expire in 2030. The Company had available tax-effected U.S. state operating loss carryforwards of $30 million at December 31, 2019, which will expire at various dates between 2020 and 2039.
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 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 that are not subject to any current limitation since they were realized after the Effective Date.
As of December 31, 2019, valuation allowances totaling $1.1 billion have been recorded against the Company’s deferred tax assets. Of this amount, $768 million relates to the Company’s deferred tax assets in the U.S. and $364 million relates to deferred tax assets in certain foreign jurisdictions, primarily Germany and France.
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 of the liabilities recorded.
Gross unrecognized tax benefits at December 31, 2019 and 2018 were $13 million and $10 million, respectively. Of these amounts, approximately $6 million and $4 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, 2019 and 2018 was $2 million in both years.
During 2019, the Company recorded uncertain tax positions 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 or state, local, or non-U.S. income tax examinations for years before 2003 although U.S. net operating losses and other tax attributes carried forward into open tax years technically remain open to adjustment. During the first quarter of 2018, the IRS informed the Company that the 2016 tax year would be added to the ongoing examination of the Company’s U.S. tax returns for 2014 and 2015. Although it is not possible to predict the timing of the resolution of all other ongoing tax audits with accuracy, it is reasonably possible that certain tax proceedings in Europe, Asia, and Mexico could conclude within the next twelve months and result in a significant 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 $5 million is included in Other non-current liabilities on the consolidated balance sheet, while $3 million is reflected as a reduction of a deferred tax asset related to a net operating loss included in Other-non current assets on the consolidated balance sheet.
A reconciliation of the beginning and ending amount of unrecognized tax benefits including amounts attributable to discontinued operations is as follows:
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
(In millions)
|
2019
|
|
2018
|
Beginning balance
|
$
|
10
|
|
|
$
|
18
|
|
Tax positions related to current period
|
|
|
|
Additions
|
3
|
|
|
—
|
|
Tax positions related to prior periods
|
|
|
|
Additions
|
1
|
|
|
—
|
|
Reductions
|
(1
|
)
|
|
(4
|
)
|
Lapses in statute of limitations
|
—
|
|
|
(4
|
)
|
Ending balance
|
$
|
13
|
|
|
$
|
10
|
|
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 $14 million, as of December 31, 2019. 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 $18 million as of December 31, 2019, and are included in Other non-current assets on the consolidated balance sheet.
NOTE 16. Stockholders’ Equity and Non-controlling Interests
Share Repurchase Program
In 2017, the Company purchased a total of 1,978,144 shares of Visteon common stock at an average price of $101.10 for an aggregate purchase amount of $200 million. pursuant to various programs with third-party financial institutions.
In 2018, the Company purchased a total of 2,805,531 shares of Visteon common stock at an average price of $106.92 for an aggregate purchase amount of $300 million pursuant to various programs with third-party financial institutions.
In 2019, the Company purchased a total of 322,120 shares of Visteon common stock at an average price of $62.06 for an aggregate purchase amount of $20 million pursuant to various programs with third-party financial institutions.
As of December 31, 2019, the Company has the capacity to repurchase up to an additional $380 million of the Company's shares under the Board authorization that expires on December 31, 2020. The Company anticipates that additional repurchases of common stock, if any, would occur from time to time in open market transactions or in privately negotiated transactions depending on market and economic conditions, share price, trading volume, alternative uses of capital and other considerations.
Treasury Stock
As of December 31, 2019 and 2018, respectively, the Company held 27,044,003 and 26,817,543 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
|
(In millions)
|
2019
|
|
2018
|
Yanfeng Visteon Automotive Electronics Co., Ltd.
|
$
|
56
|
|
|
$
|
56
|
|
Shanghai Visteon Automotive Electronics Co., Ltd.
|
41
|
|
|
43
|
|
Changchun Visteon FAWAY Automotive Electronics Co., Ltd.
|
17
|
|
|
15
|
|
Other
|
1
|
|
|
3
|
|
|
$
|
115
|
|
|
$
|
117
|
|
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 expiring October 1, 2020 at an exercise price of $9.66 per share. As of December 31, 2019, 2018, and 2017 there are 909 warrants outstanding. The warrants may be net share settled and are recorded as permanent equity in the Company’s consolidated balance sheets. These warrants were valued at $15.00 per share on the October 1, 2010 issue date using the Black-Scholes option pricing model.
Pursuant to the Ten Year Warrant Agreement, the original exercise price of $9.66 for the ten year warrants is subject to adjustment as a result of the special distribution of $43.40 per share to shareholders at the beginning of 2016. The new exercise price for each of the remaining 909 ten year warrants outstanding as of December 31, 2019 is reduced to a nominal $0.01 and each warrant is entitled to approximately 1.4 shares of stock upon exercise based on share price as of December 31, 2019.
Restricted Net Assets
Restricted net assets related to the Company’s non-consolidated affiliates were approximately $43 million and $38 million, respectively as of December 31, 2019 and 2018. Restricted net assets related to the Company’s consolidated subsidiaries were approximately $196 million and $177 million, respectively as of December 31, 2019 and 2018. Restricted net assets of consolidated subsidiaries are attributable to the Company’s consolidated joint ventures in China, where certain regulatory requirements and governmental restraints result in significant restrictions on the Company’s consolidated subsidiaries ability to transfer funds to the Company.
Accumulated Other Comprehensive Income (Loss)
Changes in AOCI and reclassifications out of AOCI by component includes:
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
(In millions)
|
2019
|
|
2018
|
Changes in AOCI:
|
|
|
|
Beginning balance
|
$
|
(216
|
)
|
|
$
|
(174
|
)
|
Other comprehensive loss before reclassification, net of tax
|
(46
|
)
|
|
(42
|
)
|
Amounts reclassified from AOCI
|
(5
|
)
|
|
—
|
|
Ending balance
|
$
|
(267
|
)
|
|
$
|
(216
|
)
|
Changes in AOCI by component:
|
|
|
Foreign currency translation adjustments
|
|
|
|
Beginning balance
|
$
|
(142
|
)
|
|
$
|
(100
|
)
|
Other comprehensive loss before reclassification (a)
|
(11
|
)
|
|
(42
|
)
|
Ending balance
|
(153
|
)
|
|
(142
|
)
|
Net investment hedge
|
|
|
|
Beginning balance
|
(5
|
)
|
|
(12
|
)
|
Other comprehensive income before reclassification (a)
|
15
|
|
|
9
|
|
Amounts reclassified from AOCI (b)
|
(6
|
)
|
|
(2
|
)
|
Ending balance
|
4
|
|
|
(5
|
)
|
Benefit plans
|
|
|
|
Beginning balance
|
(71
|
)
|
|
(63
|
)
|
Other comprehensive loss before reclassification, net of tax (c)
|
(44
|
)
|
|
(10
|
)
|
Amounts reclassified from AOCI
|
1
|
|
|
2
|
|
Ending balance
|
(114
|
)
|
|
(71
|
)
|
Unrealized hedging gain (loss)
|
|
|
|
Beginning balance
|
2
|
|
|
1
|
|
Other comprehensive income (loss) before reclassification, net of tax (d)
|
(6
|
)
|
|
1
|
|
Ending balance
|
(4
|
)
|
|
2
|
|
AOCI ending balance
|
$
|
(267
|
)
|
|
$
|
(216
|
)
|
(a) There were no income tax effects for either period due to the valuation allowance.
(b) Amounts are included in "Interest expense" within the consolidated statements of operations.
(c) Amount included in the computation of net periodic pension cost. (See Note 14, "Employee Benefit Plans" for additional details.) Net of tax benefit of $5 million, and tax expense of $1 million related to benefit plans for the years ended December 31, 2019 and 2018, respectively.
(d) There were no income tax effects for the period ended December 31, 2019, while net tax expense of less than $1 million million related to unrealized hedging gain (loss) for the year ended December 31, 2018.
NOTE 17. Stock-Based Compensation
The Visteon Corporation 2010 Incentive Plan (the “2010 Incentive Plan”) provides 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. 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 on a net settlement basis, as determined by the recipient. 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 is defined in the 2010 Incentive Plan and 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.
On June 7, 2018, the Company modified the accounting for certain cash settled stock-based compensation Restricted Stock Units ("RSUs") for non-employee directors of the Company. These awards, previously subject to liability accounting, are now expected to settle in stock. The liability of $6 million related to these awards has been reclassified to shareholders' equity as of June 30, 2018 and will be subject to equity method accounting going forward.
The total recognized and unrecognized stock-based compensation expense is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
Unrecognized Stock-Based Compensation Expense
|
(In millions)
|
2019
|
|
2018
|
|
2017
|
|
December 31, 2019
|
Performance based share units
|
$
|
6
|
|
|
$
|
(2
|
)
|
|
$
|
6
|
|
|
$
|
8
|
|
Restricted stock units
|
9
|
|
|
8
|
|
|
11
|
|
|
8
|
|
Stock options
|
2
|
|
|
2
|
|
|
2
|
|
|
1
|
|
Total stock-based compensation expense
|
$
|
17
|
|
|
$
|
8
|
|
|
$
|
19
|
|
|
$
|
17
|
|
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 23, "Commitments and Contingencies."
Performance Based Share Units
The number of PSUs that will vest 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.
A summary of employee activity for PSUs is provided below:
|
|
|
|
|
|
|
|
|
PSUs
|
|
Weighted Average Grant Date Fair Value
|
|
|
(In thousands)
|
|
|
Non-vested as of December 31, 2016
|
414
|
|
|
$
|
51.94
|
|
Granted
|
78
|
|
|
110.66
|
|
Vested
|
(16
|
)
|
|
90.45
|
|
Forfeited
|
(15
|
)
|
|
103.72
|
|
Non-vested as of December 31, 2017
|
461
|
|
|
58.76
|
|
Granted
|
87
|
|
|
124.90
|
|
Vested
|
(63
|
)
|
|
105.29
|
|
Forfeited
|
(290
|
)
|
|
33.85
|
|
Non-vested as of December 31, 2018
|
195
|
|
|
110.42
|
|
Granted
|
71
|
|
|
111.98
|
|
Vested
|
(73
|
)
|
|
89.74
|
|
Forfeited
|
(23
|
)
|
|
118.87
|
|
Non-vested as of December 31, 2019
|
170
|
|
|
$
|
118.77
|
|
The grant date fair value for PSUs was determined using the Monte Carlo valuation model. Unrecognized compensation expense as of December 31, 2019 for PSUs to be settled in shares of the Company's common stock was $7 million for the non-vested portion and will be recognized over the remaining vesting period of approximately 1.7 years. The Company made cash settlement payments of less than $1 million and $1 million for PSUs expected to be settled in cash during the years ended December 31, 2019 and 2018, respectively. Unrecognized compensation expense as of December 31, 2019 was less than $1 million for the non-vested portion of these awards and will be recognized over the remaining vesting period of approximately 1.7 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. 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, 2019 and 2018 are as follows:
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
2019
|
|
2018
|
Expected volatility
|
31.2
|
%
|
|
24.1
|
%
|
Risk-free rate
|
2.43
|
%
|
|
2.33
|
%
|
Expected dividend yield
|
—
|
%
|
|
—
|
%
|
Restricted Stock Units
The grant date fair value of RSUs is measured as the average of the high and low market price of the Company's common stock as traded on the public stock exchange on the date of grant. These awards generally vest in one-third increments on the grant date anniversary over a three year vesting period.
The Company granted 133,000, 70,000 and 76,000 RSUs, expected to be settled in shares, during the years ended December 31, 2019, 2018 and 2017, respectively, at a weighted average grant date fair value of $79.88, $123.52 and $94.51 per share, respectively. Unrecognized compensation expense as of December 31, 2019 was $8 million for non-vested RSUs and will be recognized over the remaining vesting period of approximately 1.5 years.
The Company granted 8,000 and 23,000 RSUs, expected to be settled in cash, during the years ended December 31, 2019 and 2017, respectively, at weighted average grant date fair values $75.02 and $95.45 per share, respectively. The Company made cash settlement payments of less than $1 million, less than $1 million and $1 million during the years ended December 31, 2019, 2018 and 2017, respectively. Unrecognized compensation expense as of December 31, 2019 was less than $1 million for non-vested RSUs and will be recognized on a weighted average basis over the remaining vesting period of approximately 1.6 years.
A summary of employee activity for RSUs is provided below:
|
|
|
|
|
|
|
|
|
RSUs
|
|
Weighted Average Grant Date Fair Value
|
|
|
|
|
Non-vested as of December 31, 2016
|
170
|
|
|
$
|
83.30
|
|
Granted
|
99
|
|
|
94.73
|
|
Vested
|
(29
|
)
|
|
83.46
|
|
Forfeited
|
(10
|
)
|
|
83.66
|
|
Non-vested as of December 31, 2017
|
230
|
|
|
87.09
|
|
Granted
|
70
|
|
|
123.52
|
|
Vested
|
(102
|
)
|
|
96.34
|
|
Forfeited
|
(34
|
)
|
|
61.69
|
|
Non-vested as of December 31, 2018
|
164
|
|
|
105.24
|
|
Granted
|
141
|
|
|
79.61
|
|
Vested
|
(71
|
)
|
|
93.60
|
|
Forfeited
|
(18
|
)
|
|
92.18
|
|
Non-vested as of December 31, 2019
|
216
|
|
|
$
|
90.98
|
|
Additionally, as of December 31, 2019, the Company has 82,000 outstanding RSUs awarded at a weighted average grant date fair value of $102.84 under the Non-Employee Director Stock Unit Plan which vest immediately but are not stock settled until the participant terminates service.
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 at which the Company's common stock was traded on the public stock exchange 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 year vesting period and have an expiration date 7 or 10 years from the date of grant.
The Company received payments of less than $1 million, $3 million and $2 million related to the exercise of stock options with total intrinsic value of options exercised of less than $1 million, $2 million and $1 million during the years ended December 31, 2019, 2018 and 2017, respectively. Unrecognized compensation expense for non-vested Stock Options and SARs as of December 31, 2019 was approximately $1 million and less than $1 million, respectively, and are expected to be recognized over a weighted average period of 1.5 years and less than 1.0 year, respectively.
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.
Weighted average assumptions used to estimate the fair value of awards granted during the years ended December 31, 2019, 2018 and 2017 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
|
SARs
|
|
2019
|
|
2018
|
|
2017
|
|
2019
|
|
2018
|
|
2017
|
Expected term (in years)
|
5
|
|
|
5
|
|
|
5
|
|
|
N/A
|
|
N/A
|
|
5
|
|
Expected volatility
|
27.69
|
%
|
|
22.95
|
%
|
|
27.31
|
%
|
|
N/A
|
|
N/A
|
|
27.31
|
%
|
Risk-free interest rate
|
2.43
|
%
|
|
2.58
|
%
|
|
2.03
|
%
|
|
N/A
|
|
N/A
|
|
2.03
|
%
|
A summary of employee activity for Stock Options and SARs is provided below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
|
Weighted Average
Exercise Price
|
|
SARs
|
|
Weighted Average
Exercise Price
|
|
(In thousands)
|
|
|
|
(In thousands)
|
|
|
December 31, 2016
|
115
|
|
|
$
|
68.37
|
|
|
13
|
|
|
$
|
51.10
|
|
Granted
|
84
|
|
|
94.77
|
|
|
2
|
|
|
94.77
|
|
Exercised
|
(26
|
)
|
|
65.79
|
|
|
(7
|
)
|
|
44.33
|
|
Forfeited or expired
|
(7
|
)
|
|
77.36
|
|
|
—
|
|
|
59.59
|
|
December 31, 2017
|
166
|
|
|
81.72
|
|
|
8
|
|
|
69.21
|
|
Granted
|
78
|
|
|
124.35
|
|
|
—
|
|
|
—
|
|
Exercised
|
(31
|
)
|
|
68.02
|
|
|
(1
|
)
|
|
51.25
|
|
December 31, 2018
|
213
|
|
|
99.36
|
|
|
7
|
|
|
72.84
|
|
Granted
|
106
|
|
|
80.97
|
|
|
—
|
|
|
—
|
|
Exercised
|
(4
|
)
|
|
59.37
|
|
|
—
|
|
|
—
|
|
Forfeited or expired
|
(32
|
)
|
|
96.02
|
|
|
—
|
|
|
—
|
|
December 31, 2019
|
283
|
|
|
$
|
93.51
|
|
|
7
|
|
|
$
|
72.84
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2019
|
129
|
|
|
$
|
91.65
|
|
|
6
|
|
|
$
|
70.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
7
|
|
|
2.1
|
|
$
|
54.80
|
|
$60.01 - $80.00
|
|
48
|
|
|
3.3
|
|
$
|
72.89
|
|
$80.01 - $100.00
|
|
166
|
|
|
5.3
|
|
$
|
87.40
|
|
$100.01 - $130.00
|
|
69
|
|
|
5.3
|
|
$
|
124.35
|
|
|
|
290
|
|
|
|
|
|
Tables above are reflective of the modified exercise price for stock options and SARs due to the special distribution of $43.40 in January 2016, where applicable.
NOTE 18. 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, 2019
|
(In millions)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
NAV
|
|
Total
|
Asset Category:
|
|
|
|
|
|
|
|
|
|
|
Retirement plan assets
|
|
$
|
131
|
|
|
$
|
353
|
|
|
$
|
15
|
|
|
$
|
363
|
|
|
$
|
862
|
|
Foreign currency instruments
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Liability Category:
|
|
|
|
|
|
|
|
|
|
|
Foreign currency instruments
|
|
$
|
—
|
|
|
$
|
6
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6
|
|
Interest rate swaps
|
|
$
|
—
|
|
|
$
|
7
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
(In millions)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
NAV
|
|
Total
|
Asset Category:
|
|
|
|
|
|
|
|
|
|
|
Retirement plan assets
|
|
$
|
112
|
|
|
$
|
271
|
|
|
$
|
14
|
|
|
$
|
370
|
|
|
$
|
767
|
|
Foreign currency instruments
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1
|
|
Liability Category:
|
|
|
|
|
|
|
|
|
|
|
Foreign currency instruments
|
|
$
|
—
|
|
|
$
|
16
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
16
|
|
Interest rate swaps
|
|
$
|
—
|
|
|
$
|
2
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2
|
|
Foreign currency instruments 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.
Retirement Plan Assets
Retirement plan assets consist of the following:
|
|
•
|
Short-term investments, such as cash 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.
|
|
|
•
|
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 Investing (“LDI”) is an investment strategy that utilizes certain 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 financial derivative instruments contained in this category of assets utilizes standard pricing models associated with fixed income derivative instruments and are categorized as Level 2.
|
|
|
•
|
Other investments include miscellaneous assets and liabilities and are primarily comprised of pending transactions and collateral settlements and are categorized as Level 2.
|
|
|
•
|
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)
|
|
December 31, 2019
|
Asset Category
|
|
Level 1
|
|
Level 2
|
|
NAV
|
|
Total
|
Registered investment companies
|
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3
|
|
Common and preferred stocks
|
|
27
|
|
|
—
|
|
|
—
|
|
|
27
|
|
Common trust funds
|
|
—
|
|
|
152
|
|
|
123
|
|
|
275
|
|
LDI
|
|
—
|
|
|
111
|
|
|
—
|
|
|
111
|
|
Limited partnerships and hedge funds
|
|
—
|
|
|
—
|
|
|
206
|
|
|
206
|
|
Cash and cash equivalents
|
|
1
|
|
|
7
|
|
|
—
|
|
|
8
|
|
Total
|
|
$
|
31
|
|
|
$
|
270
|
|
|
$
|
329
|
|
|
$
|
630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
December 31, 2018
|
Asset Category
|
|
Level 1
|
|
Level 2
|
|
NAV
|
|
Total
|
Registered investment companies
|
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3
|
|
Common trust funds
|
|
—
|
|
|
100
|
|
|
127
|
|
|
227
|
|
LDI
|
|
—
|
|
|
104
|
|
|
—
|
|
|
104
|
|
Common and preferred stock
|
|
22
|
|
|
—
|
|
|
—
|
|
|
22
|
|
Limited partnerships and hedge funds
|
|
—
|
|
|
—
|
|
|
205
|
|
|
205
|
|
Cash and cash equivalents
|
|
—
|
|
|
6
|
|
|
—
|
|
|
6
|
|
Total
|
|
$
|
25
|
|
|
$
|
210
|
|
|
$
|
332
|
|
|
$
|
567
|
|
The fair values of the Company’s Non-U.S. retirement plan assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
December 31, 2019
|
Asset Category
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
NAV
|
|
Total
|
Registered investment companies
|
|
$
|
59
|
|
|
$
|
24
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
83
|
|
Treasury and government securities
|
|
34
|
|
|
18
|
|
|
—
|
|
|
—
|
|
|
52
|
|
Cash and cash equivalents
|
|
4
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
5
|
|
Corporate debt securities
|
|
—
|
|
|
8
|
|
|
—
|
|
|
—
|
|
|
8
|
|
Common and preferred stock
|
|
3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3
|
|
Common trust funds
|
|
—
|
|
|
35
|
|
|
—
|
|
|
18
|
|
|
53
|
|
Limited partnerships
|
|
—
|
|
|
—
|
|
|
—
|
|
|
16
|
|
|
16
|
|
Insurance contracts
|
|
—
|
|
|
—
|
|
|
15
|
|
|
—
|
|
|
15
|
|
Derivative instruments
|
|
—
|
|
|
(3
|
)
|
|
—
|
|
|
—
|
|
|
(3
|
)
|
Total
|
|
$
|
100
|
|
|
$
|
83
|
|
|
$
|
15
|
|
|
$
|
34
|
|
|
$
|
232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
December 31, 2018
|
Asset Category
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
NAV
|
|
Total
|
Registered investment companies
|
|
$
|
29
|
|
|
$
|
17
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
46
|
|
Treasury and government securities
|
|
50
|
|
|
24
|
|
|
—
|
|
|
—
|
|
|
74
|
|
Cash and cash equivalents
|
|
6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6
|
|
Corporate debt securities
|
|
—
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
3
|
|
Common and preferred stock
|
|
2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
Common trust funds
|
|
—
|
|
|
22
|
|
|
—
|
|
|
21
|
|
|
43
|
|
Limited partnerships
|
|
—
|
|
|
—
|
|
|
—
|
|
|
17
|
|
|
17
|
|
Insurance contracts
|
|
—
|
|
|
—
|
|
|
14
|
|
|
—
|
|
|
14
|
|
Derivative instruments
|
|
—
|
|
|
(5
|
)
|
|
—
|
|
|
—
|
|
|
(5
|
)
|
Total
|
|
$
|
87
|
|
|
$
|
61
|
|
|
$
|
14
|
|
|
$
|
38
|
|
|
$
|
200
|
|
The change in fair value of insurance contracts which used significant unobservable inputs was primarily due to purchases during the years ended December 31, 2019 and 2018.
Items Measured at Fair Value on a Non-recurring Basis
In addition to items that are measured at fair value on a 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. The Company utilized a third party to assist in the fair value determination of the purchase price allocation for the VFAE Acquisition. Management’s allocation of fair values to asset and liabilities was completed through a combination of cost, market and income approaches. As further described in Note 8, " Property and Equipment", 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. As further described in Note 21, "Divestitures", the fair value of the assets subject to the France Transaction was less than carrying value and therefore, the long-lived assets were reduced to zero and impairment charges of $13 million were recorded in the year ended December 31, 2017.
Fair Value of Debt
The fair value of debt, excluding amounts classified as held for sale, was approximately $390 million and $388 million as of December 31, 2019 and 2018, 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.
Investments
In the fourth quarter of 2018, the Company made an equity investment of $1 million in a private radar imaging firm for an ownership interest of 12.5%. This investment does not have a readily determinable fair value and is measured at cost, less impairments, adjusted for observable price changes in orderly transactions for identical or similar investments of the same issuer.
During the year end December 31, 2019, there were no material transactions, events or changes in circumstances requiring an impairment or an observable price change adjustment to the investment. The Company continues to monitor this investment to identify potential transactions which may indicate an impairment or an observable price change requiring an adjustment to its carrying value.
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. As of December 31, 2019 and December 31, 2018, the Company contributed approximately $3 million and $1 million, respectively. The Company does not have significant influence in either partnership. These investments are carried at cost and evaluated for impairment on an annual basis.
NOTE 19. 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 up to 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-party to the derivative financial instruments. The Company limits this exposure by entering into agreements including master netting arrangements directly with a variety of major 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
The Company formally designates and documents, at inception, the financial instrument as a hedge of a specific underlying exposure, as well as the risk management objectives and strategies for undertaking the hedge transaction, including designation
of the instrument as a fair value hedge, a cash flow hedge or a hedge of a net investment in a foreign operation. Additionally, at inception and at least quarterly thereafter, the Company formally assesses whether the financial instruments that are used in hedging transactions are effective at offsetting changes in either the fair value or cash flows of the related underlying exposure.
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 sheet. When the underlying hedged transaction is realized, the gain or loss previously included in AOCI is recorded in earnings and reflected in the consolidated statement 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 statement 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 sheet. 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.
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.
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.
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.
The Company had foreign currency hedge economic derivative instruments, with notional amounts of approximately $8 million and $23 million as of December 31, 2019 and 2018, respectively. The fair value of all derivatives was a liability of less than $1 million and an asset of $1 million as of December 31, 2019 and 2018, respectively. The difference between the gross and net value of these derivatives after offset by counter party is not material.
Cross Currency Swaps: The Company has executed cross-currency swap transactions intended to mitigate the the variability of the U.S. dollar value of its investment in certain of its non-U.S. entities. These transactions 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 variability are excluded from the measure of hedge ineffectiveness and reported directly in earnings each reporting period.
As of December 31, 2019 and 2018, 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 $6 million and $16 million as of December 31, 2019 and 2018, respectively. The amount of accumulated other income expected to be reclassified into earnings within the next 12 months is a gain of approximately $7 million.
Interest Rate Risk
The Company utilizes interest rate swap instruments to manage its exposure and to mitigate the impact of interest rate variability. The instruments are designated as cash flow hedges, accordingly, the effective portion of the periodic changes in fair value is recognized in accumulated other comprehensive income, a component of shareholders' equity. Subsequently, the accumulated gains and losses recorded in equity are reclassified to income in the period during which the hedged cash flow impacts earnings.
As of December 31, 2019 and 2018, the Company had an aggregate notional value of interest rate swap transactions of $250 million. The aggregate fair value of these derivative transactions as of December 31, 2019 and 2018, was a non-current liability of approximately $7 million and $2 million, respectively. As of December 31, 2019, a gain of approximately $3 million is expected to be reclassified out of accumulated other comprehensive income into earnings within the next 12 months.
Financial Statement Presentation
Gains and losses on derivative financial instruments for the years ended December 31, 2019 and 2018 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)
|
(In millions)
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Foreign currency risk – Sales:
|
|
|
|
|
|
|
|
|
|
|
|
Non-designated cash flow hedges
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
—
|
|
Foreign currency risk – Cost of sales:
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
Non-designated cash flow hedges
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
2
|
|
Interest rate risk - Interest expense, net:
|
|
|
|
|
|
|
|
|
|
|
|
Net investment hedges
|
15
|
|
|
9
|
|
|
6
|
|
|
2
|
|
|
—
|
|
|
—
|
|
Interest rate swap
|
(6
|
)
|
|
1
|
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
$
|
9
|
|
|
$
|
10
|
|
|
$
|
6
|
|
|
$
|
2
|
|
|
$
|
—
|
|
|
$
|
2
|
|
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, 2019 and 2018 is not material.
The following is a summary of the percentage of sales and accounts receivable from the Company's largest ultimate customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Total Net Sales
|
|
Percentage of Total Accounts Receivable
|
|
December 31,
|
|
December 31, 2019
|
|
December 31, 2018
|
|
2019
|
|
2018
|
|
2017
|
|
Ford
|
22
|
%
|
|
26
|
%
|
|
28
|
%
|
|
12
|
%
|
|
14
|
%
|
Mazda
|
14
|
%
|
|
18
|
%
|
|
17
|
%
|
|
5
|
%
|
|
9
|
%
|
Renault/Nissan
|
13
|
%
|
|
12
|
%
|
|
14
|
%
|
|
13
|
%
|
|
11
|
%
|
NOTE 20. Business Acquisitions
VFAE Acquisition
On September 1, 2018, the Company invested approximately $300,000 and acquired an additional 1% ownership in 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. The Company made this additional investment as part of its long-term strategic plan for VFAE. The investment will contribute to the business growth and enhanced economic performance of VFAE by leveraging Visteon’s manufacturing technology and engineering capabilities.
The VFAE acquisition has been accounted for as a purchase transaction. The total consideration, including the $300,000 paid and the fair value of the original 50% interest, has been allocated to the assets acquired, liabilities assumed and non-controlling shareholder interest based on their representative value at September 1, 2018. The excess consideration over the estimated fair value of the net assets acquired has been allocated to goodwill. The operating results of VFAE have been included in the consolidated financial statements of the Company since the date of the transaction.
A summary of the fair value of the assets acquired and liabilities assumed in conjunction with the transaction is shown below (in millions):
|
|
|
|
|
|
|
|
|
|
Assets Acquired
|
|
|
Liabilities Assumed
|
|
Cash and equivalents
|
$
|
16
|
|
|
Payable to Visteon Corporation
|
$
|
9
|
|
Accounts receivable, net
|
12
|
|
|
Accounts payable
|
6
|
|
Inventories, net
|
4
|
|
|
Other current liabilities
|
5
|
|
Other current assets
|
6
|
|
|
Income taxes payable
|
1
|
|
Property and equipment, net
|
5
|
|
|
Other non-current liabilities
|
2
|
|
Intangible assets including goodwill
|
9
|
|
|
Total liabilities assumed
|
23
|
|
Other non-current assets
|
1
|
|
|
Non-controlling interest
|
15
|
|
Total assets acquired
|
$
|
53
|
|
|
Visteon Corporation Consideration
|
$
|
15
|
|
The Company utilized a third party to assist in the fair value determination of certain components of the purchase price allocation, primarily intangible assets and non-controlling interest, as well as the fair value of the Company’s original 50% equity investment.
Fair values of equity investment and non-controlling interest, as of the acquisition date were estimated using the discounted cash flow technique of the income approach. Fair values of intangible assets were based on the excess earning method of the income approach. The income approach requires the Company to project related future cash inflows and outflows and apply an appropriate discount rate. The estimates used in determining fair values are based on assumptions believed to be reasonable but which are inherently uncertain.
In 2018, in connection with its increased investment in VFAE, the Company recorded a gain of approximately $4 million on its original investment, classified as "Other income (expense), net" in the consolidated income statement.
The acquisition does not meet the thresholds for a significant acquisition and therefore no pro forma financial information is presented.
NOTE 21. Divestitures
France Transaction
On December 1, 2017, the Company completed an asset sale related to an Electronics facility in France to a third party (the "France Transaction"). In connection with the France Transaction, the Company recorded pre-tax losses of approximately $33 million including a cash contribution of $13 million, long-lived asset impairment charges $13 million and other working capital and transaction related impacts of $7 million.
The Company entered into certain other agreements upon closing, including a transition agreement (pursuant to which the parties will provide certain transition services for a specified period following the closing), a manufacturing agreement (pursuant to which
the buyer will provide manufacturing services to Visteon), and a sourcing agreement (pursuant to which Visteon commits to a minimum purchase value for a two year period for prototypes and production equipment).
NOTE 22. Discontinued Operations
During 2014 and 2015, the Company completed the Interiors Divestiture and the 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 and comprehensive income.
Discontinued operations are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
(In millions)
|
2019
|
|
2018
|
|
2017
|
Sales
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Cost of sales
|
(2
|
)
|
|
(5
|
)
|
|
—
|
|
Gross margin
|
(2
|
)
|
|
(5
|
)
|
|
—
|
|
Selling, general and administrative expenses
|
—
|
|
|
(1
|
)
|
|
—
|
|
Gain on Climate Transaction
|
—
|
|
|
4
|
|
|
7
|
|
Gain on Interiors Divestiture
|
—
|
|
|
—
|
|
|
8
|
|
Restructuring expense
|
1
|
|
|
(1
|
)
|
|
—
|
|
Income (loss) from discontinued operations before income taxes
|
(1
|
)
|
|
(3
|
)
|
|
15
|
|
Benefit for income taxes
|
—
|
|
|
4
|
|
|
2
|
|
Net income (loss) from discontinued operations attributable to Visteon
|
$
|
(1
|
)
|
|
$
|
1
|
|
|
$
|
17
|
|
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 23, "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.
In connection with the Climate Transaction, the Company completed the repurchase of the electronics operations located in India during the first quarter of 2017 for $47 million, recognizing a $7 million gain on settlement of purchase commitment contingencies. The Company had previously consolidated the India operations based on the Company's controlling financial interest as a result of the repurchase obligation, operating control, and the obligation to fund losses or benefit from earnings.
In connection with the Interiors Divestiture, the Company negotiated a settlement with the Buyer for certain non-income tax items and recognized a gain on divestiture of $7 million for the year ended December 31, 2017.
NOTE 23. Commitments and Contingencies
Litigation and Claims
In 2003, the Local Development Finance Authority of the Charter Township of Van Buren, Michigan issued approximately $28 million in bonds finally maturing in 2032, the proceeds of which were used at least in part to assist in the development of the Company’s U.S. headquarters located in the Township. During January 2010, the Company and the Township entered into a settlement agreement (the “Settlement Agreement”) that, among other things, reduced the taxable value of the headquarters property to current market value. The Settlement Agreement also provided that the Company would negotiate in good faith with the Township in the event that property tax payments were inadequate to permit the Township to meet its payment obligations with respect to the bonds. In October 2019, the Township notified the Company that the Township had incurred a shortfall under the bonds of less than $1 million and requested that the Company meet to discuss payment. The parties met in November 2019 but no agreement was reached. On December 9, 2019, the Township commenced litigation against the Company in Michigan’s Wayne County Circuit Court claiming damages of $28 million related to what the Township alleges to be the current shortfall and projected future shortfalls
under the bonds. The Company disputes the factual and legal assertions made by the Township and 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, general and administrative expenses of $10 million, a benefit to "Other income (expense), net" of $4 million, and a benefit to discontinued operations of $3 million.
In November 2013, the Company and Halla Visteon Visteon Climate Corporation ("HVCC"), jointly filed an Initial Notice of Voluntary Self-Disclosure statement with the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) regarding certain sales of automotive HVAC components by a minority-owned, Chinese joint venture of HVCC into Iran. The Company updated that notice in December 2013, and subsequently filed a voluntary self-disclosure regarding these sales with OFAC in March 2014. In May 2014, the Company voluntarily filed a supplementary self-disclosure identifying additional sales of automotive HVAC components by the Chinese joint venture, as well as similar sales involving an HVCC subsidiary in China, totaling approximately $12 million, and filed a final voluntary-self disclosure with OFAC on October 17, 2014. OFAC is currently reviewing the results of the Company’s investigation. Following that review, OFAC may conclude that the disclosed sales resulted in violations of U.S. economic sanctions laws and warrant the imposition of civil penalties, such as fines, limitations on the Company's ability to export products from the United States, and/or referral for further investigation by the U.S. Department of Justice. Any such fines or restrictions may be material to the Company’s financial results in the period in which they are imposed, but 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.
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, 2019, the Company maintained accruals of approximately $11 million for claims aggregating approximately $78 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 claims are based on management’s best estimates of the amounts that will ultimately be required to settle such items. The Company’s estimates for product warranty and recall obligations are developed with support from its sales, engineering, quality and legal functions and include due consideration of contractual arrangements, past experience, current claims and related information, production changes, industry and regulatory developments and various other considerations. The Company can provide no assurances that it will not experience material claims in the future or that it will not incur significant costs to defend or settle such claims beyond the amounts accrued or beyond what the Company may recover from its suppliers. Specific cause actions represent customer actions related to defective supplier parts and related software.
The following table provides a reconciliation of changes in the product warranty and recall claims liability:
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
(In millions)
|
2019
|
|
2018
|
Beginning balance
|
$
|
48
|
|
|
$
|
49
|
|
Accruals for products shipped
|
20
|
|
|
19
|
|
Change in estimates
|
(2
|
)
|
|
(5
|
)
|
Specific cause actions
|
6
|
|
|
9
|
|
Currency/other
|
(1
|
)
|
|
2
|
|
Settlements
|
(22
|
)
|
|
(26
|
)
|
Ending balance
|
$
|
49
|
|
|
$
|
48
|
|
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 payed 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, the Company continues to provide lease guarantees to divested Climate and Interiors entities. As of December 31, 2019, the Company has approximately $5 million and $1 million of outstanding guarantees, related to the divested Climate and Interiors entities, respectively. These guarantees will generally cease upon expiration of current lease agreement which expire in 2026 and 2021 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; governmental regulations relating to safety; employment-related matters; customer, supplier and other contractual relationships; intellectual property rights; product warranties; product recalls; 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, 2019 and that are in excess of established reserves. The Company does not reasonably expect, except as otherwise described herein, based on its analysis, that any adverse outcome from such matters would have a material effect on the Company’s financial condition, results of operations or cash flows, although such an outcome is possible.
NOTE 24. Summary Quarterly Financial Data (Unaudited)
The following table presents summary quarterly financial data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
(In millions, except per share amounts)
|
First Quarter
|
|
Second Quarter
|
|
Third Quarter
|
|
Fourth Quarter
|
|
First Quarter
|
|
Second Quarter
|
|
Third Quarter
|
|
Fourth Quarter
|
Sales
|
$
|
737
|
|
|
$
|
733
|
|
|
$
|
731
|
|
|
$
|
744
|
|
|
$
|
814
|
|
|
$
|
758
|
|
|
$
|
681
|
|
|
$
|
731
|
|
Gross margin
|
66
|
|
|
70
|
|
|
84
|
|
|
104
|
|
|
129
|
|
|
104
|
|
|
82
|
|
|
96
|
|
Income from continuing operations before income taxes
|
11
|
|
|
16
|
|
|
31
|
|
|
48
|
|
|
88
|
|
|
49
|
|
|
32
|
|
|
47
|
|
Net income from continuing operations
|
16
|
|
|
8
|
|
|
18
|
|
|
40
|
|
|
67
|
|
|
37
|
|
|
23
|
|
|
46
|
|
Net income
|
16
|
|
|
8
|
|
|
18
|
|
|
39
|
|
|
69
|
|
|
36
|
|
|
24
|
|
|
45
|
|
Net income attributable to Visteon Corporation
|
$
|
14
|
|
|
$
|
7
|
|
|
$
|
14
|
|
|
$
|
35
|
|
|
$
|
65
|
|
|
$
|
35
|
|
|
$
|
21
|
|
|
$
|
43
|
|
Per Share Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share attributable to Visteon Corporation
|
$
|
0.50
|
|
|
$
|
0.25
|
|
|
$
|
0.50
|
|
|
$
|
1.24
|
|
|
$
|
2.14
|
|
|
$
|
1.19
|
|
|
$
|
0.71
|
|
|
$
|
1.50
|
|
Diluted earnings per share attributable to Visteon Corporation
|
$
|
0.49
|
|
|
$
|
0.25
|
|
|
$
|
0.50
|
|
|
$
|
1.24
|
|
|
$
|
2.11
|
|
|
$
|
1.17
|
|
|
$
|
0.71
|
|
|
$
|
1.49
|
|
The fourth quarter ended December 31, 2018, net income from continuing operations, net income, and net income attributable to Visteon Corporation includes expense of approximately $8 million, $11 million and $11 million, respectively, for corrections of judicial deposits related to former employees at a closed plant in Brazil.