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EX-10.12.1 - EXHIBIT 10.12.1 - VISTEON CORPex-10121201710xk.htm
EX-32.2 - EXHIBIT 32.2 - VISTEON CORPex-322201710xk.htm
EX-32.1 - EXHIBIT 32.1 - VISTEON CORPex-321201710xk.htm
EX-31.2 - EXHIBIT 31.2 - VISTEON CORPex-312201710xk.htm
EX-31.1 - EXHIBIT 31.1 - VISTEON CORPex-311201710xk.htm
EX-24.1 - EXHIBIT 24.1 - VISTEON CORPex-241201710xk.htm
EX-23.1 - EXHIBIT 23.1 - VISTEON CORPex-231201710xk.htm
EX-21.1 - EXHIBIT 21.1 - VISTEON CORPex-211201710xk.htm
EX-14.1 - EXHIBIT 14.1 - VISTEON CORPex141201710k.htm
EX-12.1 - EXHIBIT 12.1 - VISTEON CORPex-121201710xk.htm



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K
(Mark One)
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 001-15827
VISTEON CORPORATION
(Exact name of registrant as specified in its charter)
State of Delaware
38-3519512
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
One Village Center Drive, Van Buren Township, Michigan
48111
(Address of principal executive offices)
(Zip code)
Registrant’s telephone number, including area code: (800)-VISTEON
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Name of Each Exchange on which Registered
Common Stock, par value $0.01 per share
The NASDAQ Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act:

Warrants, each exercisable for 1.3 shares of Common Stock at an exercise price of $0.01 (expiring October 1, 2020) 
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ü No __
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.
Yes __ No ü
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ü No__
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ü No __
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ü
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer," "accelerated filer” and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ü Accelerated filer  __   Non-accelerated filer __   Smaller reporting company __ Emerging growth company __
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. __
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes __ No ü
The aggregate market value of the registrant’s voting and non-voting common equity held by non-affiliates of the registrant on June 30, 2017 (the last business day of the most recently completed second fiscal quarter) was approximately $3.2 billion.
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ü No__

As of February 15, 2018, the registrant had outstanding 30,919,267 shares of common stock.
Document Incorporated by Reference
Document
Where Incorporated
2018 Proxy Statement
Part III (Items 10, 11, 12, 13 and 14)


1




Visteon Corporation and Subsidiaries
Index

Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2




Part I


Item 1.
Business

Description of Business

Visteon Corporation (the "Company" or "Visteon") is a global automotive supplier that designs, engineers and manufactures innovative electronics products for nearly every original equipment vehicle manufacturer ("OEM") worldwide including Ford, Mazda, Renault/Nissan, General Motors, Jaguar/Land Rover, Honda, Volkswagen, BMW and Daimler. Visteon is headquartered in Van Buren Township, Michigan, and has an international network of manufacturing operations, technical centers and joint venture operations, supported by approximately 10,000 employees, dedicated to the design, development, manufacture and support of its product offerings and its global customers. The Company's manufacturing and engineering footprint is principally located outside of the U.S., with a heavy concentration in low-cost geographic regions.

Visteon provides value for its customers and stockholders through its technology-focused vehicle cockpit electronics business, by delivering a rich, connected cockpit experience for every car from luxury to entry. The Company's cockpit electronics business is one of the broadest portfolios in the industry and includes instrument clusters, information displays, infotainment systems, audio systems, telematics solutions, and head-up displays. The Company's vehicle cockpit electronics business comprises and is reported under the Electronics segment. In addition to the Electronics segment, the Company had residual operations in South America and Europe previously associated with the Interiors and Climate businesses, sold or exited by December 31, 2016, but not subject to discontinued operations classification that comprised Other.

The Company’s History

The Company was incorporated in Delaware in January 2000 as a wholly owned subsidiary of Ford Motor Company (“Ford” or “Ford Motor Company”). Subsequently, Ford transferred the assets and liabilities comprising its automotive components and systems business to Visteon. The Company separated from Ford in June 2000 when all of the Company’s common stock was distributed by Ford to its shareholders. After filing for bankruptcy in 2009 as a result of the recession, the Company emerged from bankruptcy in 2010, and in 2012 implemented a comprehensive shareholder value creation plan that involved the transformation milestones below.

Transformation Milestones

The Company previously operated Climate, Interiors, and Electronics product lines. Over the last five years, the Company has transformed the business operations into a pure-play supplier of automotive cockpit electronics and connected car solutions.

A summary of the milestones completing the transformation are summarized below:

Exit of Climate Business - On June 9, 2015, Visteon Corporation and its wholly owned subsidiary, VIHI, LLC (collectively, “Visteon”) completed the sale of its shares of Halla Visteon Climate Control Corporation, a Korean corporation (“HVCC”) (the “Climate Transaction”). The Company received net cash proceeds of approximately $2.7 billion and recognized a pretax gain of approximately $2.3 billion in connection with the closing of the Climate Transaction in the second quarter of 2015.

During the fourth quarter of 2016, the Company sold its South Africa climate operations with 2015 annual sales of $9 million for proceeds of $2 million, and recorded a loss of $11 million related to foreign currency translation amounts recorded in accumulated other comprehensive loss.

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 the settlement of purchase commitment contingencies.

Exit of Interiors Business - During 2014, the Company divested the majority of its global Interiors business (the "Interiors Divestiture"). Subsequently, Visteon completed the sale of its Interiors operations in Thailand on February 2, 2015. On December 1, 2016, the Company completed the sale of its Interiors operations in Argentina and Brazil, incurring a loss of $19 million representing the final working capital cash contribution and related contractual obligations, marking the completion of the Interiors Divestiture.


3




On December 1, 2015, Visteon completed the sale and transfer of its equity ownership in Visteon Deutschland GmbH, which operated the Berlin, Germany interiors plant ("Germany Interiors Divestiture"). The Company contributed cash of approximately $141 million, assets of $27 million, and liabilities of $198 million including pension related liabilities. The Company made a final contribution payment of approximately $35 million during December 2017 upon the fulfillment of certain buyer contractual commitments, that had been included in the Company's consolidated balance sheet as "Other current liabilities" as of December 31, 2016.

Enhance Shareholder Returns - In connection with the Climate Transaction, the Company returned approximately $2.75 billion of cash to shareholders from 2015 through 2016 via a series of actions including share buybacks and special distributions.

During 2015, the Company entered an accelerated stock buyback ("ASB") program for an aggregate purchase price of $500 million. Under this program the Company repurchased 4,771,262 shares of common stock for an average settlement price of $104.79.
   
On December 9, 2015, the Company declared a special distribution of $43.40 per share of its common stock outstanding as of January 15, 2016, or approximately $1.75 billion in the aggregate. On January 22, 2016 approximately $1.74 billion was distributed to shareholders. An additional amount of $14 million will be paid upon vesting and settlement of restricted stock units and performance-based share units previously granted to the Company's employees. The special cash distribution was funded from the Climate Transaction proceeds.

During 2016, Visteon entered into stock buyback programs with a third-party financial institution to purchase shares of common stock for an aggregate purchase price of $500 million. Under these programs, Visteon purchased 7,190,506 shares at an average price of $69.48.

The Company's strategic priorities going forward are outlined in Item 7 "Executive Summary" of this Report.

The Company’s Industry

The Company operates in the automotive industry, which is cyclical and highly sensitive to general economic conditions. The Company believes that future success in the automotive industry is, in part, dependent on alignment with customers to support their efforts to effectively meet the challenges associated with the following significant trends and developments in the global automotive industry.

Electronic content and connectivity - The electronic content of vehicles continues to increase due to various regulatory requirements and consumer demand for increased vehicle performance and functionality. The use of electronic components can reduce weight, expedite assembly, enhance fuel economy, improve emissions, increase safety and enhance vehicle performance. Additionally, digital and portable technologies have dramatically influenced the lifestyle of today’s consumers, who expect products that enable such a lifestyle. This requires increased electronic and technical content such as in-vehicle communication, navigation and entertainment capabilities. While OEMs are taking different paths to connect their vehicles to high-speed broadband internet connections in the short-term, future vehicles are expected to be built with vehicle-to-vehicle connectivity systems. There is momentum by OEMs to integrate discrete electronic control units into a multi-core domain controller to increase efficiency and reduce power consumption, cost and weight. Vehicle cockpits are becoming increasingly digitized.
Advanced driver assistance systems ("ADAS") and autonomous driving - The industry continues to advance toward semi-autonomous and autonomous vehicles. The Society of Automotive Engineers has defined five levels of autonomy ranging from levels one and two with driver-assist functions whereby the driver is responsible for monitoring the environment, to level five with full autonomy under all conditions. Levels one and two are already popular in the market while levels three and above require multiple sensors, radars, camera and LiDARs, requiring sensor fusion and machine learning technologies, as the system assumes the role of monitoring the environment. Level three includes features such as highway pilot and parking assist technology, for which a high market penetration rate is expected over the next several years.
Safety and security - Governments continue to focus regulatory efforts on safer transportation. Accordingly, OEMs are working to improve occupant and pedestrian safety by incorporating more safety-oriented technology in their vehicles. Additionally, in-vehicle connectivity has increased the need for robust cybersecurity systems to protect data, applications and associated infrastructure. Security features are evolving with advances in sensors and silicon. Suppliers must enable the security/safety initiatives of their customers including the development of new technologies.    



4




Vehicle standardization - OEMs continue to standardize vehicle platforms on a global basis, resulting in a lower number of individual vehicle platforms, design cost savings and further scale of economies through the production of a greater number of models from each platform. Having operations in the geographic markets in which OEMs produce global platforms enables suppliers to meet OEMs’ needs more economically and efficiently, thus making global coverage a source of significant competitive advantage for suppliers with a diversified global footprint. Additionally, OEMs are looking to suppliers for increased collaboration to lower costs, reduce risks and decrease overall time to market. Suppliers that can provide fully engineered solutions, systems and pre-assembled combinations of component parts are positioned to leverage the trend toward system sourcing. As vehicles become more connected and cockpits more digitized, suppliers that can deliver modular hardware architectures, “open” software architectures and a software platform approach will be poised to help OEMs achieve greater reuse of validated hardware circuitry, design scalability and faster development cycles.
Financial Information about Segments

The Company’s current reportable segment is Electronics. The Company's Electronics segment provides vehicle cockpit electronics products to customers, including instrument clusters, information displays, infotainment systems, audio systems, telematics solutions, and head-up displays. Prior to 2017, the Company also had Other operations consisting primarily of South Africa and South America climate operations substantially exited during the fourth quarter of 2016. Future impacts of such legacy operations will be included with the Company's continuing Electronics operations.

Refer to Note 22 “Segment Information” in Item 8 of this Report for more information about the Company’s reportable segment.

The Company’s Products

The Company designs and manufactures vehicle cockpit electronics components, modules and systems further described as follows:

Instrument Clusters

The Company offers a full line of instrument clusters, from standard analog gauge clusters to high-resolution, all-digital, fully reconfigurable, 2-D and 3-D display-based devices. The Company uses a platform approach to accelerate development and manage multiple vehicle variants. These clusters can use a wide range of display technologies, graphic capabilities and decorative elements, including organic light-emitting diode ("OLED"), free-form and curved displays. Premium clusters support complex 3-D graphics and feature embedded functionality such as driver monitoring, camera inputs and ambient lighting.

Information Displays

The Company offers a range of information displays for various applications within the cockpit, incorporating a sleek profile, craftsmanship and touch sensors, designed to deliver high performance for the automotive market. These displays can integrate a range of user interface technologies and graphics management capabilities, such as 3-D, dual view, cameras, optics, haptic feedback, light effects and dual (OLED) displays.

Infotainment/Audio Systems

The Company offers a range of infotainment solutions, including Phoenix™ display audio and embedded infotainment platform, and Android embedded infotainment - an open-source system based on Android Automotive. Visteon’s Phoenix™ display audio entry offering is designed to allow vehicle occupants to easily connect their mobile devices to the system and safely access phone functions, listen to music, stream media and enable mobile connectivity applications through Apple CarPlay®, Android Auto and Baidu CarLife. Phoenix™ embedded infotainment enables third-party developers to create apps easily through a software development kit and software simulation of the target hardware system. The Phoenix™ platform delivers built-in security and over-the-air updates. It consists of Phoenix InfoCore™ - in-vehicle middleware that maximizes software reuse and upgrades, and Phoenix Studio 2.0 - a PC-based development tool for apps.


5




Telematics Solutions

The Company provides a cost-optimized, high-speed telematics control unit to enable secure connected car services, software updates and data. The Company’s telematics solution uses a single hardware and flexible software architecture to support regional telematics service providers and mobile networks. The Company’s wireless gateway platform is designed to meet future connectivity requirements including 4G, V2X, Wi-Fi® and next-generation mobile standards such as 5G. The Company also offers a hands-free telephone unit that provides Bluetooth® and Universal Serial Bus ("USB") connectivity.

Head-Up Displays

The Company provides a complete line of head-up displays ("HUD") that present critical information to the driver in a convenient location and at a comfortable focal distance. Combiner HUD projects a virtual image in front of the driver using a compact, transparent screen mounted on top of the instrument panel. Windshield HUD projects the image directly on the vehicle windscreen. The Company has demonstrated an augmented reality system that overlays graphics in the driver’s line of sight to represent objects in the vehicle’s path; provide navigation guidance; and display relevant information, such as a lane departure warning.

SmartCore™ Domain Controller

The Company offers an automotive-grade, integrated domain controller approach, called SmartCore™, which can independently operate the infotainment system, instrument cluster, head-up display and potentially other features on a single, multi-core chip to improve efficiency and reduce power consumption and cost. Included are: SmartCore™ Runtime, middleware, enabling communication between domains and apps to be shown on any display; and SmartCore™ Studio, a PC-based configuration tool to generate hypervisor configurations.

DriveCore™ Autonomous Driving Controller

DriveCore™ is a complete technology platform consisting of the hardware, middleware and frameworks to develop machine learning algorithms for autonomous driving applications of Level 3 and above. It provides an open platform for the development of sensor-based solutions for the auto industry - through three main components:
Compute - A modular and scalable computing hardware platform designed to be adapted to all levels of automated driving
Runtime - In-vehicle middleware that provides a secure framework enabling applications and algorithms to communicate in a real time, high-performance environment
Studio - A PC-based development environment that enables automakers to create an ecosystem of developers for rapid algorithm development.

The Company’s Customers

The Company's ultimate customers are global vehicle manufacturers including Ford, Mazda, Renault/Nissan, General Motors, Jaguar / Land Rover, Honda, Volkswagen, BMW and Daimler. Ford, Mazda and Renault/Nissan are the Company's largest customers and in 2017 accounted for sales of approximately 28%, 17% and 14%, respectively. In 2016 and 2015, Ford accounted for 30% and 34% of sales, respectively, Mazda accounted for 17% and 16% of sales in 2016 and 2015, respectively and Renault/Nissan accounted for 15% and 14% of sales for 2016 and 2015, respectively.

The Company records revenue when persuasive evidence of an arrangement exists, delivery occurs, the sales price or fee is fixed or determinable and collectibility is reasonably assured. Price reductions are typically negotiated on an annual basis between suppliers and OEMs. Such reductions are intended to take into account expected annual reductions in the overall cost to the supplier of providing products and services to the customer, through such factors as manufacturing productivity enhancements, material cost-reductions and design-related cost improvements. The Company has an aggressive cost-reduction program that focuses on reducing its total costs, which are intended to offset customer price reductions. However, there can be no assurance that the Company’s cost-reduction efforts will be sufficient to fully offset such price reductions. The Company records price reductions when probable and reasonably estimable.


6




The Company’s Competition

The automotive sector is concentrated, but operates under highly competitive conditions resulting from the globalized nature of the industry, high fixed costs and the resulting need for scale economies, market dynamics including share in mature economies and positioning in emerging economies, and the low cost of switching for the end consumer. Accordingly, OEMs rigorously evaluate suppliers on the basis of financial viability, product quality, price competitiveness, technical expertise and development capability, new product innovation, reliability and timeliness of delivery, product design and manufacturing capability and flexibility, customer service and overall management. The Company's primary independent competitors include but are not limited to Alpine Electronics, Aptiv PLC, Continental AG, Denso Corporation, Harman International, LG Corporation, Nippon Seiki, Panasonic Corporation, Pioneer Corporation, and Robert Bosch GmbH.

The Company’s Product Sales Backlog

The Company defines backlog as cumulative remaining awarded life-of-program expected booked sales, to be delivered in future periods. The Company’s Electronics segment backlog was $19.4 billion as of December 31, 2017, compared with $16.5 billion as of December 31, 2016, reflecting an increase of 18%. The Company’s estimated net sales may be impacted by various assumptions, including new program vehicle production levels, customer price reductions, currency exchange rates and program launch timing. In addition, the Company typically enters into customer agreements at the beginning of a vehicle life cycle with the intent to fulfill purchasing requirements for the entire vehicle production life cycle. These agreements may be terminated by customers at any time and, accordingly, expected net sales information does not represent firm orders or firm commitments.

The Company’s Business is Seasonal and Cyclical

Historically, the Company’s business has been moderately seasonal because its largest North American customers typically cease production for approximately two weeks in July for model year changeovers and approximately one week in December during the winter holidays. Customers in Europe historically shut down vehicle production during a portion of August and one week in December. In China, customers typically shut down approximately one week in early October and one week in January or February.  Additionally, third-quarter automotive production traditionally is lower as new vehicle models enter production.

The Company’s Workforce and Employee Relations

The Company’s workforce as of December 31, 2017 included approximately 10,000 persons, of which approximately 5,000 were salaried employees and 5,000 were hourly workers. Many of the Company’s employees are members of industrial trade unions and confederations within their respective countries, including Europe, Asia and South America. Many of these organizations operate under collectively bargained contracts that are not specific to any one employer. The Company constantly works to establish and maintain positive, cooperative relations with its unions and work representatives around the world and believes that its relationships with unionized employees are satisfactory.

The Company’s Product Research and Development

The Company’s research and development efforts are intended to maintain leadership positions in core products and provide the Company with a competitive edge as it seeks additional business with new and existing customers. The Company also works with technology development partners, including customers, to develop technological capabilities and new products and applications. Total research and development expenses, net of recoveries, were approximately $253 million, $295 million and $294 million in 2017, 2016 and 2015, respectively.

The Company’s Intellectual Property

The Company owns significant intellectual property, including a number of patents, copyrights, proprietary tools and technologies and trade secrets and is involved in numerous licensing arrangements. Although the Company’s intellectual property plays an important role in maintaining its competitive position, no single patent, copyright, proprietary tool or technology, trade secret or license, or group of related patents, copyrights, proprietary tools or technologies, trade secrets or licenses is, in the opinion of management, of such value to the Company that its business would be materially affected by the expiration or termination thereof. The Company’s general policy is to apply for patents on an ongoing basis, in appropriate countries, on its patentable developments that are considered to have commercial significance.

The Company also views its name and mark as significant to its business as a whole. In addition, the Company holds rights in a number of other trade names and marks applicable to certain of its businesses and products that it views as important to such businesses and products.

7





The Company’s Raw Materials and Suppliers

Raw materials used by the Company in the manufacture of its products include electronics components, resins, copper, and precious metals. All of the materials used are generally available from numerous sources. In general, the Company does not carry inventories of raw materials in excess of those reasonably required to meet production and shipping schedules. As of December 31, 2017, the Company had not experienced significant shortages of raw materials. The Company monitors its supply base and endeavors to work with suppliers and customers to attempt to mitigate the impact of potential material shortages and supply disruptions. While the Company does not anticipate any significant interruption in the supply of raw materials, there can be no assurance that sufficient sources or amounts of all necessary raw materials will be available in the future.
 
The automotive supply industry is subject to inflationary pressures with respect to raw materials, which have historically placed operational and financial burdens on the entire supply chain. Accordingly, the Company continues to take actions with its customers and suppliers to mitigate the impact of these inflationary pressures in the future. Actions to mitigate inflationary pressures with customers include collaboration on alternative product designs and material specifications, contractual price escalation clauses and negotiated customer recoveries. Actions to mitigate inflationary pressures with suppliers include aggregation of purchase requirements to achieve optimal volume benefits, negotiation of cost-reductions and identification of more cost competitive suppliers. While these actions are designed to offset the impact of inflationary pressures, the Company cannot provide assurance that it will be successful in fully offsetting increased costs resulting from inflationary pressures.


8




The Company’s International Operations

Financial information about sales and net property by major geographic region can be found in Note 22, Segment Information, included in Item 8 “Financial Statements and Supplementary Data” of this Report. The attendant risks of the Company’s international operations are primarily related to currency fluctuations, changes in local economic and political conditions, and changes in laws and regulations. The following table presents the Company’s sales and net property and equipment by geographic region as a percentage of such consolidated total amounts.
 
Sales (a)
 
Property and Equipment, Net
 
Year Ended December 31
 
December 31
 
2017
 
2016
 
2015
 
2017
 
2016
United States
25
 %
 
26
 %
 
26
 %
 
3
%
 
4
%
Mexico
2
 %
 
2
 %
 
2
 %
 
14
%
 
14
%
Total North America
27
 %
 
28
 %
 
28
 %
 
17
%
 
18
%
Portugal
16
 %
 
14
 %
 
13
 %
 
20
%
 
18
%
Slovakia
9
 %
 
8
 %
 
8
 %
 
10
%
 
8
%
Tunisia
3
 %
 
4
 %
 
6
 %
 
3
%
 
3
%
France
3
 %
 
4
 %
 
4
 %
 
2
%
 
6
%
Germany
 %
 
 %
 
3
 %
 
1
%
 
1
%
Other Europe
1
 %
 
2
 %
 
3
 %
 
3
%
 
2
%
Intra-region eliminations
 %
 
(1
)%
 
(2
)%
 
%
 
%
Total Europe
32
 %
 
31
 %
 
35
 %
 
39
%
 
38
%
China
23
 %
 
23
 %
 
21
 %
 
23
%
 
22
%
Japan
16
 %
 
16
 %
 
15
 %
 
6
%
 
5
%
Thailand
3
 %
 
3
 %
 
3
 %
 
3
%
 
3
%
India
3
 %
 
2
 %
 
2
 %
 
6
%
 
7
%
Korea
 %
 
1
 %
 
1
 %
 
%
 
%
Intra-region eliminations
(5
)%
 
(5
)%
 
(5
)%
 
%
 
%
Total Asia
40
 %
 
40
 %
 
37
 %
 
38
%
 
37
%
South America
2
 %
 
3
 %
 
4
 %
 
6
%
 
7
%
Inter-region eliminations
(1
)%
 
(2
)%
 
(4
)%
 
%
 
%
 
100
 %
 
100
 %
 
100
 %
 
100
%
 
100
%
(a) Company sales based on geographic region where sale originates and not where customer is located.

The Company’s Website and Access to Available Information

The Company’s current and periodic reports filed with the United States Securities and Exchange Commission (“SEC”), including amendments to those reports, may be obtained through its internet website at www.visteon.com free of charge as soon as reasonably practicable after the Company files these reports with the SEC. A copy of the Company’s code of business conduct and ethics for directors, officers and employees of Visteon and its subsidiaries, entitled “Ethics and Integrity Policy,” the Corporate Governance Guidelines adopted by the Company’s Board of Directors and the charters of each committee of the Board of Directors are also available on the Company’s website. A printed copy of the foregoing documents may be requested by contacting the Company’s Investor Relations department in writing at One Village Center Drive, Van Buren Township, MI 48111; by phone (734) 710-8349; or via email at investor@visteon.com.

9




Item 1A.
Risk Factors

The risks and uncertainties described below are not the only ones facing the Company. Risks attributable to all registrants are not included below. Additional risks and uncertainties, including those not presently known or that the Company believes to be immaterial, also may adversely affect the Company’s results of operations and financial condition. Should any such risks and uncertainties develop into actual events, these developments could have material adverse effects on the Company’s business and financial results.
The Company’s substantial international operations make it vulnerable to risks associated with doing business in foreign countries.
The Company has manufacturing and distribution facilities in many foreign countries, including Mexico and countries in Europe, South America and Asia. International operations are subject to certain risks inherent in doing business abroad, including:
changes to international trade agreements;
local economic conditions, expropriation and nationalization, foreign exchange rate fluctuations and currency controls;
withholding, border, and other taxes on remittances and other payments by subsidiaries;
investment restrictions or requirements;
export and import restrictions, including increases in border tariffs; and
increases in working capital requirements related to long supply chains.

In particular, if the United States withdraws from or materially modifies the North American Free Trade Agreement, or any other international trade agreement with one of the countries in which the Company operates, or implements increases in border tariffs, there could be a significantly adverse effect on the Company's financial condition, operating results and cash flows.
The Company has and is expected to continue to invest significantly in joint ventures with other parties to conduct business in China and elsewhere in Asia. These investments may include manufacturing operations and technical centers as well as research and development activities to support anticipated growth in the region. If the Company is not able to strengthen existing relationships, secure additional customers and develop market-relevant advanced driver assistance and autonomous vehicle technologies, it may fail to realize expected rates of return on these investments. The Company’s ability to repatriate funds from these joint ventures depends not only upon their uncertain cash flows and profits, but also upon the terms of particular agreements with the Company’s joint venture partners and maintenance of the legal and political status quo. As a result, the Company’s exposure to the risks described above is substantial. The likelihood of such occurrences and its potential effect on the Company vary from country to country and are unpredictable. However, any such occurrences could be harmful to the Company’s business and the Company’s profitability and financial condition.
The Company must continue to develop, introduce and achieve market acceptance of new and enhanced products in order to grow its sales in the future.
The growth of the Company's business will be dependent on the demand for innovative automotive electronics products, including but not limited to advanced driver assistance and autonomous vehicle technologies. In order to increase sales in current markets and gain entry into new markets, the Company must innovate to maintain and improve existing products, including software, while successfully developing and introducing distinctive new and enhanced products that anticipate changing customer and consumer preferences and capitalize upon emerging software technologies. However, the Company may experience difficulties that delay or prevent the development, introduction or market acceptance of its new or enhanced products, or undiscovered software errors, bugs and defects in its products may injure the Company's reputation. Furthermore, these new technologies have also attracted increased competition from outside the traditional automotive industry, and any of these competitors may develop and introduce technologies that gain greater customer or consumer acceptance, which could adversely affect the future growth of the Company.
The Company’s ability to effectively operate could be hindered if it fails to attract and retain key personnel.
The Company’s ability to operate its business and implement its strategies effectively depends, in part, on the efforts of its executive officers and other key employees. In addition, the Company’s future success will depend on, among other factors, the ability to attract and retain qualified personnel, particularly engineers and other employees with critical expertise and skills that support key customers and products or in emerging regions. The loss of the services of any key employees or the failure to attract or retain other qualified personnel could have a material adverse effect on the Company’s business.


10




Warranty claims, product liability claims and product recalls could harm the Company’s business, results of operations and financial condition.
The Company faces the inherent business risk of exposure to warranty and product liability claims in the event that its products fail to perform as expected or such failure results, or is alleged to result, in bodily injury or property damage (or both). In addition, if any of the Company’s designed products are defective or are alleged to be defective, the Company may be required to participate in a recall campaign. As suppliers become more integrally involved in the vehicle design process and assume more of the vehicle assembly functions, automakers are increasingly expecting them to warrant their products and are increasingly looking to suppliers for contributions when faced with product liability claims or recalls. A successful warranty or product liability claim against the Company in excess of its available insurance coverage and established reserves, or a requirement that the Company participate in a product recall campaign, could have materially adverse effects on the Company’s business, results of operations and financial condition.
Developments or assertions by or against the Company relating to intellectual property rights could materially impact its business.
The Company owns significant intellectual property, including a number of patents, trademarks, copyrights and trade secrets, and is involved in numerous licensing arrangements. The Company’s intellectual property plays an important role in maintaining its competitive position in a number of the markets served. The Company may utilize intellectual property in its products that requires a license from a third-party. While the Company believes that such licenses generally can be obtained, there is no assurance that the necessary licenses can be obtained on commercially acceptable terms or at all. Failure to obtain the right to use third-party intellectual property could preclude the Company from selling certain products and have materially adverse effects on the Company’s business, results of operations and financial condition. Developments or assertions by or against the Company relating to intellectual property rights could materially impact the Company’s business. Recently, the Company has seen an increase in patent claims related to connectivity-enabled products where other patent-holding companies are seeking royalties and often enter into litigation based on patent infringement allegations. Significant technological developments by others also could materially and adversely affect the Company’s business and results of operations and financial condition.
The discontinuation or loss of business, or lack of commercial success, with respect to a particular vehicle model for which the Company is a significant supplier could reduce the Company’s sales and harm its profitability.
Although the Company has purchase orders from many of its customers, these purchase orders generally provide for the supply of a customer’s annual requirements for a particular vehicle model and assembly plant, or in some cases, for the supply of a customer’s requirements for the life of a particular vehicle model, rather than for the purchase of a specific quantity of products. In addition, it is possible that customers could elect to manufacture components internally that are currently produced by outside suppliers, such as the Company. The discontinuation of, the loss of business with respect to or a lack of commercial success of a particular vehicle model for which the Company is a significant supplier, could reduce the Company’s sales and harm the Company’s profitability.
The automotive industry is cyclical and significant declines in the production levels of the Company’s major customers could reduce the Company’s sales and harm its profitability.
Demand for the Company’s products is directly related to the automotive vehicle production of the Company’s major customers. Automotive sales and production are cyclical and can be affected by general economic or industry conditions, labor relations issues, fuel prices, regulatory requirements, government initiatives, trade agreements, the cost and availability of credit and other factors.
A disruption in the Company's information technology systems could adversely affect its business and financial performance.
The Company relies on the accuracy, capacity and security of its information technology systems as well as those of its customers, suppliers, partners, and service providers to conduct its business. Despite the security and risk-prevention measures the Company has implemented, the Company's systems could be breached, damaged or otherwise interrupted by a system failure, cyber attack, malicious computer software (malware), unauthorized physical or electronic access or other natural or man-made incidents or disasters. The Company is also susceptible to security breaches that may go undetected. Such a breach or interruption could result in business disruption, theft of the Company intellectual property or trade secrets and unauthorized access to personnel information. To the extent that business is interrupted or data is lost, destroyed or inappropriately used or disclosed, such disruptions could adversely affect the Company’s competitive position, relationships with customers, financial condition, operating results and cash flows.


11




The Company is highly dependent on Ford Motor Company and decreases in this customer’s vehicle production volumes would adversely affect the Company.

Ford is one of the Company’s largest ultimate customers and accounted for 28%, 30% and 34% of sales in 2017, 2016 and 2015, respectively. Accordingly, any change in Ford's vehicle production volumes may have a significant impact on the Company’s sales volume and profitability.

The Company's inability to effectively manage the timing, quality and costs of new program launches could adversely affect its financial performance.

In connection with the award of new business, the Company often obligates itself to deliver new products and services that are subject to its customers’ timing, performance and quality standards. Additionally, as a Tier 1 supplier, the Company must effectively coordinate the activities of numerous suppliers in order to launch programs successfully. Given the complexity of new program launches, especially involving new and innovative technologies, the Company may experience difficulties managing product quality, timeliness and associated costs. In addition, new program launches require a significant ramp up of costs; however, the sales related to these new programs generally are dependent upon the timing and success of the introduction of new vehicles by the Company's customers. The Company's inability to effectively manage the timing, quality and costs of these new program launches could adversely affect its financial condition, operating results and cash flows.

The Company’s pension expense and funding levels of pension plans could materially deteriorate or the Company may be unable to generate sufficient excess cash flow to meet increased pension benefit obligations.

The Company’s assumptions used to calculate pension obligations as of the annual measurement date directly impact the expense to be recognized in future periods. While the Company’s management believes that these assumptions are appropriate, significant differences in actual experience or significant changes in these assumptions may materially affect the Company’s pension obligations and future expense. For more information on sensitivities to changing assumptions, please see “Critical Accounting Estimates” in Item 7 and Note14 “Employee Benefit Plans” in Item 8 of this report.

The Company’s expected annual effective tax rate could be volatile and could materially change as a result of changes in mix of earnings and other factors.

Changes in the Company’s debt and capital structure, among other items, may impact its effective tax rate. The Company is in a position whereby losses incurred in certain tax jurisdictions generally provide no current financial statement benefit. In addition, certain jurisdictions have statutory rates greater than or less than the United States statutory rate. As such, changes in the mix and source of earnings between jurisdictions could have a significant impact on the Company’s overall effective tax rate in future periods. Changes in tax law and rates, changes in rules related to accounting for income taxes or adverse outcomes from tax audits that regularly are in process in any of the jurisdictions in which the Company operates could also have a significant impact on the Company’s overall effective rate in future periods.

The Company may not be able to fully utilize its U.S. net operating losses and other tax attributes.

Visteon's emergence from bankruptcy in 2010 resulted in a change of ownership within the meaning of Internal Revenue Code (“IRC”) Sections 382 and 383, causing the use of Visteon's pre-emergence U.S. federal net operating loss (“NOL”) and various other tax attributes to be limited in the post-emergence period. However, NOLs and other tax attributes generated in the post-emergence period are generally not limited by the emergence from bankruptcy, but could be limited if there is a subsequent change of ownership. If the Company were to have another change of ownership within the meaning of IRC Sections 382 and 383, its post-emergence NOL and other tax attributes could be limited to an amount equal to its market capitalization at the time of the subsequent ownership change multiplied by the federal long-term tax exempt rate. The Company cannot provide any assurance that such an ownership change will not occur, in which case the availability of the Company's NOLs and other tax attributes could be significantly limited or possibly eliminated. Certain tax benefit preservation provisions of its corporate documents could delay or prevent a change of control, even if that change would be beneficial to stockholders.

Recent changes in the U.S. federal income tax rules could adversely affect us and our shareholders.

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Act”) was signed into law, making significant changes to the U.S. Internal Revenue Code. Changes include, but are not limited to, a corporate income 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 tax system with a one-time transition tax on cumulative post-1986 foreign earnings, a modification of the characterization and treatment of certain intercompany transactions, and the creation of a new U.S. corporate minimum tax on certain earnings of foreign subsidiaries. 

12




The Company has reflected the necessary impact of the Act in our financial statements for 2017, the year of enactment. The Company continues to examine the impact the Act may have on its business. The impact the Act may have on holders of Visteon common stock is uncertain and could be adverse. The Company urges its shareholders to consult with their legal and tax advisors with respect to the Act and the potential tax consequences of investing in our common stock.

Privacy and security concerns relating to the Company's current or future products and services could damage its reputation and deter current and potential users from using them.

The Company may gain access to sensitive, confidential or personal data or information that is subject to privacy and security laws, regulations and customer-imposed controls. Concerns about the Company's practices with regard to the collection, use, disclosure, or security of personal information or other privacy related matters, even if unfounded, could damage its reputation and adversely affect its operating results.
Furthermore, regulatory authorities around the world are considering a number of legislative and regulatory proposals concerning cybersecurity and data protection. In addition, the interpretation and application of consumer and data protection laws in the U.S., Europe and elsewhere are often uncertain and in flux. Complying with these various laws could cause the Company to incur substantial costs.
Escalating price pressures from customers may adversely affect the Company’s business.
Downward pricing pressures by automotive manufacturers, while characteristic of the automotive industry, are increasing. Virtually all automakers have implemented aggressive price-reduction initiatives and objectives each year with their suppliers, and such actions are expected to continue in the future. In addition, estimating such amounts is subject to risk and uncertainties because any price reductions are a result of negotiations and other factors. Accordingly, suppliers must be able to reduce their operating costs in order to maintain profitability. The Company has taken steps to reduce its operating costs and other actions to offset customer price reductions; however, price reductions have impacted the Company’s sales and profit margins and are expected to continue to do so in the future. If the Company is unable to offset customer price reductions in the future through improved operating efficiencies, new manufacturing processes, sourcing alternatives and other cost-reduction initiatives, the Company’s results of operations and financial condition will likely be adversely affected.
The Company could be negatively impacted by the distress of its supplier or other shortages.

In an effort to manage and reduce the costs of purchased goods and services, the Company, like many suppliers and automakers, has been consolidating its supply base. In addition, certain materials and components used by the Company are in high demand but of limited availability. As a result, the Company is dependent on single or limited sources of supply for certain components used in the manufacture of its products. The Company selects its suppliers based on total value (including price, delivery and quality), taking into consideration production capacities and financial condition. However, there can be no assurance that strong demand, capacity limitations or other problems experienced by the Company’s suppliers will not result in occasional shortages or delays in the supply of components. If the Company were to experience a significant or prolonged shortage of critical components from any of its suppliers, particularly those who are sole sources, and could not procure the components from other sources, the Company would be unable to meet its production schedules for some of its key products or to ship such products to its customers in a timely fashion, which would adversely affect sales, margins, and customer relations. Furthermore, unfavorable economic or industry conditions could result in financial distress within the Company's supply base, thereby increasing the risk of supply disruption. Although market conditions generally have improved in recent years, uncertainty remains and another economic downturn or other unfavorable industry conditions in one or more of the regions in which the Company operates could cause a supply disruption and thereby adversely affect the Company's financial condition, operating results and cash flows.

Work stoppages and similar events could significantly disrupt the Company’s business.

Because the automotive industry relies heavily on just-in-time delivery of components during the assembly and manufacture of vehicles, a work stoppage at one or more of the Company’s manufacturing and assembly facilities could have material adverse effects on the business. Similarly, if one or more of the Company’s customers were to experience a work stoppage, that customer would likely halt or limit purchases of the Company’s products, which could result in the shutdown of the related manufacturing facilities. A significant disruption in the supply of a key component due to a work stoppage at one of the Company’s suppliers or any other supplier could have the same consequences, and accordingly, have a material adverse effect on the Company’s financial results.


13




The Company may incur significant restructuring charges.

The Company has taken, and expects to take, restructuring actions to realign and resize its production capacity and cost structure to meet current and projected operational and market requirements. Charges related to these actions could have a material adverse effect on the Company's financial condition, operating results and cash flows. Moreover, there can be no assurances that any future restructuring will be completed as planned or achieve the desired results.

The Company is involved from time to time in legal proceedings and commercial or contractual disputes, which could have an adverse effect on its business, results of operations and financial position.

The Company is involved in legal proceedings and commercial or contractual disputes that, from time to time, are significant. These are typically claims that arise in the normal course of business including, without limitation, commercial or contractual disputes (including disputes with suppliers), intellectual property matters, personal injury claims and employment matters. No assurances can be given that such proceedings and claims will not have a material adverse impact on the Company’s profitability and financial position.

The Company is subject to significant foreign currency risks and foreign exchange exposure.

As a result of Visteon's global presence, a significant portion of the Company's revenues and expenses is denominated in currencies other than the U.S. dollar. The Company is therefore subject to foreign currency risks and foreign exchange exposure. The Company's primary exposures are to the Euro, Japanese Yen, and Chinese Renminbi. While the Company employs financial instruments to hedge transactional foreign exchange exposure, including multi-year contracts, exchange rates are difficult to predict and such actions may not insulate the Company' completely from those exposures. As a result, volatility in certain exchange rates could adversely impact Visteon financial results and comparability of results from period to period.

Item 1B.
Unresolved Staff Comments

None

Item 2.    Properties

The Company's principal executive offices are located in Van Buren Township, Michigan.  At December 31, 2017, the Company and its consolidated subsidiaries owned or leased approximately:

34 corporate offices, technical and engineering centers and customer service centers in eleven countries around the world, of which 33 were leased and 1 was owned.

15 Electronics manufacturing and/or assembly facilities in  Mexico, Portugal, Russia, Slovakia, Tunisia, India, Japan, South Korea, China, Thailand and Brazil, of which 12 were leased and 3 were owned.

In addition, the Company's non-consolidated affiliates operate approximately 6 manufacturing and/or assembly locations, primarily in the Asia Pacific region. The Company considers its facilities to be adequate for its current uses.

Item 3.
Legal Proceedings

Certain legal proceedings in which the Company is involved are discussed in Note 21 - "Commitments and Contingencies" of Part II, Item 8 "Financial Statements and Supplementary Data" and should be considered an integral part of Part I, Item 3 "Legal Proceedings." 

Item 4.
Mine Safety Disclosures

None

14




Item 4A. Executive Officers and Key Employees

The following table shows information about the executive officers of the Company and other key employees. Ages are as of February 1, 2018:
Name
 
Age
 
Position
Sachin S. Lawande
 
50
 
Director, President and Chief Executive Officer
Christian A. Garcia
 
54
 
Executive Vice President and Chief Financial Officer
Sunil K. Bilolikar

 
56
 
Senior Vice President, Operations and Procurement

Matthew M. Cole

 
48
 
Senior Vice President, Product Development Engineering

Brett D. Pynnonen

 
49
 
Senior Vice President and General Counsel

Markus J. Schupfner

 
48
 
Senior Vice President and Chief Technology Officer

Robert R. Vallance

 
57
 
Senior Vice President, Customer Business Groups

Stephanie S. Marianos

 
49
 
Vice President and Chief Accounting Officer



Sachin S. Lawande has been Visteon’s Chief Executive Officer, President and a director of the Company since June 29, 2015. Before joining Visteon, Mr. Lawande served as Executive Vice President and President, Infotainment Division of Harman International Industries, Inc., an automotive supplier, from July 2013 to June 2015. From July 2011 to June 2013, he served as Executive Vice President and President of Harman’s Lifestyle Division, and from July 2010 to June 2011 as Executive Vice President and Co-President, Automotive Division. Prior to that he served as Harman’s Executive Vice President and Chief Technology Officer since February 2009. Mr. Lawande joined Harman International in 2006, following senior roles at QNX Software Systems and 3Com Corporation. He also serves on the board of directors of DXC Technology Company

Christian A. Garcia has been Visteon’s Executive Vice President and Chief Financial Officer since October 2016. Prior to joining the Company, Mr. Garcia served as Senior Vice President, Finance and Interim Chief Financial Officer of Halliburton Company, a global provider of products and services to the energy sector, from January 2015 to August 2016. From January 2014 to December 2015, he served as Halliburton’s Chief Accounting Officer and from September 2011 to December 2014 as Halliburton’s Treasurer. Prior to that, he was Senior Vice President, Investor Relations of Halliburton from January 2011 to August 2011. He also held a series of senior financial positions with Landmark Graphics, a software and consulting provider that was acquired by Halliburton. Prior to joining Landmark Graphics, he worked at Bell and Howell and San Miguel Corp. in the Philippines in various roles. Mr. Garcia also serves on the board of directors of Keane Group, Inc.

Sunil K. Bilolikar has been Visteon’s Senior Vice President, Operations and Purchasing since December 2016. Prior to that, he was Group Vice President, Operations and Purchasing since July 2014, Global Director, Operations and Purchasing from January 2012 to June 2014, and Global Director, Operations from 2005 to 2012. During his career with Visteon and Ford Motor Company, he has held several engineering and operations leadership positions in the U.S., Canada, India, Portugal and Germany.

Matthew M. Cole has been Visteon’s Senior Vice President, Product Development since December 2016. Prior to that, he was Vice President, Product Development upon rejoining the Company in July 2014. From July 2011 to June 2014, he served as Vice President, Engineering at Johnson Controls, Inc., an automotive supplier. From July 2010 to June 2011, he served as Johnson Controls' Vice President, Product Management. Prior to that, he spent 19 years at Ford Motor Company and Visteon in product development, engineering and leadership positions in the U.S. and Asia.

Brett D. Pynnonen has been Visteon’s Senior Vice President and General Counsel since December 2016. Prior to that, he was Vice President and General Counsel since joining the Company in March 2016. Before joining Visteon he was Senior Vice President, General Counsel and Corporate Secretary of Federal-Mogul Holdings Corporation, a global automotive supplier, from November 2007 to March 2016. Prior to that, he was General Counsel and Secretary of Covansys Corporation, a technology services company, and an attorney at the law firm of Butzel Long.

Markus J. Schupfner has been Visteon’s Senior Vice President and Chief Technology Officer since December 2016.  Prior to that, he was Vice President and Chief Technology Officer since joining the Company in April 2016. Before joining Visteon he was Executive Vice President of Operations at Elektrobit Automotive GmbH, a supplier of embedded software solutions and services, since February 2014, and from November 2009 to January 2014, he was Elektrobit’s Vice President, Infotainment Solutions. Prior to that, he served as Vice President of Navigation for the Infotainment Division of Harman International Industries and held director-level roles at Siemens VDO and Siemens.


15




Robert R. Vallance has been Visteon’s Senior Vice President, Customer Business Groups since December 2016. Prior to that, he was Vice President, Customer Business Groups upon rejoining the Company in July 2014. From February 2008 to June 2015, he served as Vice President, Electronics Business Group of Johnson Controls, Inc., an automotive supplier. Prior to that, he spent 23 years at Ford Motor Company and Visteon in product development, program and commercial management, strategy and planning, product marketing and manufacturing.

Stephanie S. Marianos has been Visteon’s Vice President and Chief Accounting Officer since February 2017. Prior to that, she was Chief Accounting Officer since June 2015; Assistant Corporate Controller since July 2014; Associate Director, Corporate Finance since May 2012; Associate Director, Corporate Accounting since April 2008; and Senior Manager, Corporate Accounting since joining the Company in September 2005. Before joining Visteon, she was an independent accounting consultant serving manufacturing, insurance and health care companies. Ms. Marianos began her career at Ernst & Young LLP and is a certified public accountant.

16




Part II

Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

On December 14, 2017, the Company's Board of Directors (the "Board") approved the Company to be voluntarily delisted from The New York Stock Exchange (“NYSE”) at the close of trading on December 26, 2017 and transfer the listing of its common stock to The NASDAQ Stock Market (“NASDAQ”) to commence trading on December 27, 2017. Visteon’s common stock will continue to trade under the stock symbol “VC”.

As of February 15, 2018, the Company had 30,919,267 shares of its common stock, $0.01 par value per share, outstanding, which were owned by 4,261 shareholders of record. The table below shows the high and low sales prices per share for the Company’s common stock as reported by the stock exchange for each quarterly period for the last two years.
 
2017
 
First
Quarter
 
Second
Quarter
 
Third
Quarter
 
Fourth
Quarter
High
$101.12
 
$103.58
 
$125.46
 
$132.42
Low
$80.94
 
$92.37
 
$101.27
 
$121.99

 
2016
 
First
Quarter*
 
Second
Quarter
 
Third
Quarter
 
Fourth
Quarter
High
$80.85
 
$81.04
 
$73.13
 
$84.48
Low
$54.71
 
$64.11
 
$63.04
 
$64.95
*The Company paid a special distribution of $43.40 per share of common stock on January 22, 2016. The stock price before the distribution has been adjusted to proforma distribution as of January 1, 2016.

No dividends were paid by the Company on its common stock during the years ended December 31, 2017 and 2016. The Company’s Board evaluates the Company’s dividend policy based on all relevant factors. The Company’s credit agreements limit the amount of cash payments for dividends that may be made. Additionally, the ability of the Company’s subsidiaries to transfer assets is subject to various restrictions, including regulatory requirements and governmental restraints. Refer to Note 17, “Stockholders’ Equity and Non-controlling Interests,” in Item 8 of this Report.

The following table summarizes information relating to purchases made by or on behalf of the Company, or an affiliated purchaser, of shares of the Company’s common stock during the fourth quarter of 2017.
 
Period
Total Number of Shares (or Units) Purchased (1)
 
Average Price Paid per Share (or Unit)
 
Total Number of Shares (or units) Purchased as Part of Publicly Announced Plans or Programs (2)
 
Approximate Dollar Value of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs (3)
Oct. 1, 2017 to Oct. 31, 2017

 
$0.00
 

 
$0.00
Nov. 1, 2017 to Nov. 30, 2017
98,283

 
$125.10
 

 
$0.00
Dec. 1, 2017 to Dec. 31, 2017
138,101

 
$128.37
 

 
$0.00
Total
236,384

 
$127.01
 

 
$0.00
(1)
This column includes 219 shares surrendered to the Company by employees to satisfy tax withholding obligations in connection with the vesting of restricted stock units made pursuant to the Visteon Corporation 2010 Incentive Plan.
(2)
On January 9, 2017, the Company's Board of Directors authorized $400 million of share repurchases. As of December 31, 2017, there is $200 million remaining on this authorization. Additional repurchases of common stock, if any, may occur at the discretion of the Company.
(3)
On January 15, 2018, the Company's Board authorized an additional $500 million share repurchases to be completed through 2020.


The following information in Item 5 is not deemed to be “soliciting material” or be “filed” with the SEC or subject to Regulation 14A or 14C under the Securities Exchange Act of 1934 (“Exchange Act”) or to the liabilities of Section 18 of the Exchange Act, and

17




will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except to the extent the Company specifically incorporates it by reference into such a filing.

Performance Graph
The following graph compares the cumulative total stockholder return from December 31, 2013, through December 31, 2017, for Visteon's existing common stock, the S&P 500 Index and the Dow Jones U.S. Auto Parts Index. The graph below assumes that $100 was invested on December 31, 2013, in each of the Company's common stock, the stocks comprising the S&P 500 Index and the stocks comprising the Dow Jones U.S. Auto Parts Index, and that all that dividends have been reinvested.
visteon2016_chart-14194a01.jpg
 
December 31, 2013
December 31, 2014
December 31, 2015
December 31, 2016
December 31, 2017
Visteon Corporation
$100.00
$130.49
$139.82
$166.65
$259.58
Dow Jones U.S. Auto & Parts Index
$100.00
$106.36
$103.44
$105.35
$129.22
S&P 500
$100.00
$113.68
$115.24
$129.02
$157.17
The above comparisons are required by the Securities and Exchange Commission and are not intended to forecast or be indicative of possible future performance of the Company's common stock or the referenced indices.

18




Item 6.
Selected Financial Data

The following statement of operations, statement of cash flows and balance sheet data were derived from the Company's consolidated financial statements for the years ended December 31, 2017, 2016, 2015, 2014 and 2013. This information should be read in conjunction with Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” and Item 8, “Financial Statements and Supplementary Data” in this Report.
 
Year Ended December 31
 
Year Ended December 31
 
Year Ended December 31
 
Year Ended December 31
 
Year Ended December 31
 
2017
 
2016
 
2015
 
2014
 
2013
 
(Dollars in Millions, Except Per Share Amounts)
Statement of Operations Data:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net sales
$
3,146

 
$
3,161

 
$
3,245

 
$
2,586

 
$
1,724

Net income (loss) from continuing operations
175

 
131

 
42

 
(75
)
 
555

Net income (loss) from discontinued operations, net of tax
17

 
(40
)
 
2,286

 
(131
)
 
220

Net income (loss) attributable to Visteon Corporation
$
176

 
$
75

 
$
2,284

 
$
(295
)
 
$
690

Basic earnings (loss) per share
 
 
 
 
 
 
 
 
 
      Continuing operations
$
5.03

 
$
3.28

 
$
0.52

 
$
(2.14
)
 
$
11.10

      Discontinued operations
0.54

 
(1.14
)
 
53.48

 
(4.30
)
 
2.70

Basic earnings (loss) attributable to Visteon Corporation
$
5.57

 
$
2.14

 
$
54.00

 
$
(6.44
)
 
$
13.80

 
 
 
 
 
 
 
 
 
 
Diluted earnings (loss) per share
 
 
 
 
 
 
 
 
 
      Continuing operations
$
4.94

 
$
3.25

 
$
0.51

 
$
(2.14
)
 
$
10.86

      Discontinued operations
0.53

 
(1.13
)
 
52.12

 
(4.30
)
 
2.64

Diluted earnings (loss) attributable to Visteon Corporation
$
5.47

 
$
2.12

 
$
52.63

 
$
(6.44
)
 
$
13.50

 
 
 
 
 
 
 
 
 
 
Balance Sheet Data:
 
 
 
 
 
 
 
 
 
Total assets
$
2,304

 
$
2,373

 
$
4,681

 
$
5,323

 
$
6,027

Total debt, excluding held for sale
$
393

 
$
382

 
$
383

 
$
616

 
$
399

Total Visteon Corporation stockholders' equity
$
637

 
$
586

 
$
1,057

 
$
865

 
$
1,920

 
 
 
 
 
 
 
 
 
 
Statement of Cash Flows Data:
 
 
 
 
 
 
 
 
 
Cash provided from operating activities
$
217

 
$
120

 
$
338

 
$
284

 
$
312

Cash (used by) provided from investing activities
$
(175
)
 
$
302

 
$
2,358

 
$
(740
)
 
$
698

Cash used by financing activities
$
(233
)
 
$
(2,262
)
 
$
(774
)
 
$
(359
)
 
$
(141
)

Year Ended December 31, 2017

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 of $13 million and other working capital and transaction related impacts of $7 million.

Year Ended December 31, 2016

On December 1, 2016, the Company completed the sale of its Interiors operations in Argentina and Brazil, incurring a loss of $19 million representing the final working capital cash contribution and related contractual obligations, completing the Interiors Divestiture.

During the fourth quarter of 2016, the Company sold its South Africa climate operations and recorded a loss of $11 million related to foreign currency translation amounts previously recorded in accumulated other comprehensive loss.

On December 9, 2015, the Company declared a special distribution of $43.40 per share of its common stock outstanding as of January 15, 2016, or approximately $1.75 billion in the aggregate. On January 22, 2016 approximately $1.74 billion was paid.

19




Year Ended December 31, 2015

On June 9, 2015, Visteon completed the sale of all of its shares of Halla Visteon Climate Control Corporation, a Korean corporation (“HVCC”). The Company received net cash proceeds of approximately $2.7 billion and recognized a pretax gain of approximately $2.3 billion in connection with the closing of the Climate Transaction in the second quarter of 2015.

On December 1, 2015, Visteon completed the Germany Interiors Divestiture. The Company recognized a pretax loss on divestiture of $105 million during the year ended December 31, 2015, related to foreign currency translation and pension benefit plan amounts previously recorded in accumulated other comprehensive loss in 2015. Although the divestiture represented a continuation of the Company’s exit from the Interiors business, the divestiture was not considered a strategic shift given the size of the operations representing $86 million in 2015 sales. Therefore, the operations did not qualify for discontinued operations presentation and operating results prior to the sale were classified within Other as continuing operations. 
Year Ended December 31, 2014

During 2014, the Company divested the majority of its global Interiors business (the "Interiors Divestiture"). The Company recorded losses totaling $326 million during the year ended December 31, 2014. The operating results of Interiors businesses subject to the Interiors Divestiture have been reclassified to Net income (loss) from discontinued operations, net of tax for all periods presented. These losses included an asset impairment loss of $190 million recorded during the second quarter of 2014 pursuant to execution of the Purchase Agreement and additional losses of $136 million during the fourth quarter of 2014 pursuant to the Master Closing on November 1, 2014 and the completion of the sale of an Interiors operation in India on December 1, 2014. The operating results of Interiors businesses subject to the Interiors Divestiture were reclassified to Net income (loss) from discontinued operations, net of tax for all periods presented.

On July 1, 2014, the Company completed the acquisition of substantially all of the global automotive electronics business of Johnson Controls Inc. for an aggregate purchase price of $299 million, including $31 million of cash and equivalents at the acquired business. The Company commenced consolidation of the acquired business from date of acquisition.

20




Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations

Management’s Discussion and Analysis (“MD&A”) is intended to help the reader understand the results of operations, financial condition and cash flows of Visteon Corporation (“Visteon” or the “Company”). MD&A is provided as a supplement to, and should be read in conjunction with, the Company’s consolidated financial statements and related notes appearing in Item 8 “Financial Statements and Supplementary Data” of this Report.

Description of Business

Visteon Corporation (the "Company" or "Visteon") is a global automotive supplier that designs, engineers and manufactures innovative electronics products for nearly every original equipment vehicle manufacturer ("OEM") worldwide including Ford, Mazda, Renault/Nissan, General Motors, Jaguar / Land Rover, Honda, Volkswagen, BMW and Daimler. Visteon is headquartered in Van Buren Township, Michigan, and has an international network of manufacturing operations, technical centers and joint venture operations, supported by approximately 10,000 employees, dedicated to the design, development, manufacture and support of its product offerings and its global customers. The Company's manufacturing and engineering footprint is principally located outside of the United States.

Visteon provides value for its customers and stockholders through its technology-focused vehicle cockpit electronics business, by delivering a rich, connected cockpit experience for every car from luxury to entry. The Company's cockpit electronics business is one of the broadest portfolios in the industry and includes instrument clusters, information displays, infotainment systems, audio systems, telematics solutions, and head-up displays. The Company's vehicle cockpit electronics business comprises and is reported under the Electronics segment. Prior to 2017, the Company also had Other operations consisting primarily of South Africa and South America climate operations substantially exited during the fourth quarter of 2016. As the Company ceased Other operations in 2016, future impacts of such legacy operations will be included with the Company's continuing Electronics operations.

Executive Summary

Strategic Priorities

Visteon is a technology-focused, pure-play supplier of automotive cockpit electronics. The cockpit electronics business is growing faster than underlying vehicle production, expected to grow by more than 1.5 times over the next five years. Key drivers of the growth include connected car, advanced driver assistance systems ("ADAS") and electrification technologies.

The Company has laid out the following strategic priorities:

Long-Term Growth and Margin Expansion - Visteon offers technology and related manufacturing operations for instrument clusters, information displays, infotainment systems, audio systems, telematics solutions, and head-up displays. Backlog, defined as cumulative remaining life of program booked sales, is approximately $19.4 billion as of December 31, 2017, or 6.1 times the last twelve months of sales, reflecting a strong booked sales base on which to launch future growth. This is $2.9 billion higher than the $16.5 billion backlog as of December 31, 2016.

2017 new business wins included the third and fourth awards of SmartCore™ cockpit technology which represents the industry-first automotive grade cockpit domain controller, consolidating separate cockpit electronics products on a single, multi-core chip, accessible through integrated human machine interface ("HMI") technology.

Core business financial results continue to improve with Adjusted EBITDA margin for electronics of 11.8% in 2017 compared with 11.1% in the same period of 2016. The Company expects to continue to deliver cost efficiencies by streamlining selling, general and administration costs and engineering costs, improving free cash flow, optimizing the capital structure and driving savings benefits as revenue grows.

Transformation from Digital to Autonomous - The Company is an established global leader in cockpit electronics technologies and is positioned to provide solutions as the industry transitions to autonomous technology. The Company's approach to autonomous driving is to feature fail-safe centralized domain hardware, designed for algorithmic developers, and to apply artificial intelligence for object detection and other functions. The Company is developing a Level 3/4 secure autonomous driving domain controller platform with an open framework based on neural networks. Level 3+ system requirements include systems with environmental monitoring radar, camera and LiDAR sensors, late fusion of sensor data, scalable centralized computing and machine learning algorithms. The Company is taking a disciplined approach to progress autonomous technology via collaborations with key partners, customer partnerships and strategic investments.


21




The Company is partnering with technology organizations in connection with the DriveCore™ introduction, with the goal of creating an open collaboration model for automakers. The DriveCore™ technology, introduced in 2018, includes three components:

Compute - A modular and scalable computing hardware platform designed to be adapted to all levels of automated driving
Runtime - In-vehicle middleware that provides a secure framework enabling applications and algorithms to communicate in a real time, high-performance environment
Studio - A PC-based development environment that enables automakers to create an ecosystem of developers for rapid algorithm development.

In January 2018, the Company announced a strategic cooperation agreement with a leading China-based vehicle manufacturer, to develop and deploy autonomous driving and other cockpit electronics solutions. Visteon will continue to leverage joint venture relationships to drive adoption of new offerings.

In 2017, the Company entered into a contribution agreement with the American Center for Mobility, a non-profit corporation that is building a state of the art research and development facility for testing and validating connected and automated vehicles, the acceleration of standards, and the education of the workforce and public. The Company will use the future facility for the Company's autonomous driving research and development activities.

Return Enhancement through Capital Deployment - On January 9, 2017, the Company's Board of Directors authorized management to purchase $400 million of Visteon common stock. On February 27, 2017, the Company entered into an accelerated share buyback ("ASB") program with a third-party financial institution to purchase shares of Visteon common stock for an aggregate purchase price of $125 million. Through conclusion of the program on May 8, 2017, the Company acquired 1,300,366 shares at an average price of $96.13 per share.

In addition to the ASB program, the Company purchased 677,778 shares in the open market at an average price of $110.63. Through the end of December 31, 2017, the Company purchased 1,978,144 shares at an average price of $101.10 per share for a total of $200 million in share repurchases during 2017. At December 31, 2017, $200 million of the share repurchase authorization remained outstanding.

On January 15, 2018, the Company announced that its Board of Directors has authorized additional share repurchases of up to $500 million, for a total authorization amount of $700 million, of common stock to be purchased through 2020.

On December 19, 2017, the Company entered into a forward-starting share repurchase agreement with a third-party financial institution to purchase up to $100 million shares of its common stock complying with the provisions of Rule 10b5-1 and Rule 10b-18 under the Securities Exchange Act of 1934. Share purchases under the program commenced January 2, 2018 and will expire on February 26, 2018. As of February 15, 2018, the Company paid $13 million to purchase a total of 109,190 shares with an average price of $120.41. As of February 15, 2018, the Company has an outstanding authorization to purchase up to $687 million of its shares through 2020.


Financial Results

Significant aspects of the Company's financial results for the year ended December 31, 2017, include the following.

The Company recorded sales of $3,146 million representing a decrease of $15 million compared with the year ended December 31, 2016. The decrease is attributable to the exit of other climate operations in 2016, representing a decrease of $54 million. Electronics sales increased by $39 million, primarily due to new business, favorable volumes, product mix, and currency, partially offset by customer pricing net of design changes.

Gross margin was $499 million or 15.9% of sales for the year ended December 31, 2017, compared to $464 million or 14.7% of sales for the same period of 2016. The increase was primarily attributable to the exit of other climate operations in 2016, improved cost performance including engineering expense (including higher engineering recoveries), and favorable volumes, partially offset by unfavorable currency, customer pricing, and product mix.

Net income attributable to Visteon was $176 million for the year ended December 31, 2017, compared to net income of $75 million for the same period of 2016. The increase of $101 million includes higher net income due to the non-recurrence of 2016 losses from discontinued operations of $40 million, the 2017 income from discontinued operations of $17 million,

22




lower restructuring charges of $35 million, the non-recurrence of charges associated with the 2016 South Africa climate disposition of $11 million, higher equity in net income of non-consolidated affiliates of $5 million and gains on the sale of non-consolidated affiliates of $4 million. These improvements were partially offset by higher income taxes of $18 million and loss on divestiture of $33 million in 2017.

Total cash and cash equivalents was $709 million, including $3 million of restricted cash as of December 31, 2017, $173 million lower than $882 million, including $4 million of restricted cash as of December 31, 2016. The lower cash balance is primarily attributable to share repurchases of $200 million, $99 million of capital expenditures, $35 million final contribution payment related to the Germany Interiors Divestiture, the repurchase of the India electronics operations sold in connection with the Climate Transaction of $47 million, and the France Divestiture contribution of $13 million, partially offset by the change in cash provided by operating activities of $217 million.

Including discontinued operations, the Company generated $217 million of cash from operating activities during the year ended December 31, 2017, compared to $120 million during the same period of 2016, for an increase of $97 million. The increase in operating cash flows is attributable to higher net income of $101 million and lower cash tax payments, net of expense of $79 million primarily due to the non-recurrence of transaction-related taxes incurred in 2016, partially offset by higher working capital use of approximately $48 million, higher warranty payments net of expense of $23 million and an increase in China bank notes of $5 million. 

The pie charts below highlight the sales breakdown for Visteon's Electronics segment for the year ended December 31, 2017.


producta01.jpgregiona02.jpgcustomersales2017v2a02.jpg

Global Automotive Market Conditions and Production Levels

During 2017 global light vehicle production increased 2.1% over the same period last year. 

Light vehicle production levels for 2017 and 2016 by geographic region are provided below (units in millions):
 
Light Vehicle Production
 
2017
 
2016
 
Change
Global
95.1

 
93.1

 
2.1
 %
Asia Pacific
50.0

 
48.7

 
2.6
 %
Europe
22.2

 
21.6

 
3.2
 %
North America
17.1

 
17.8

 
(4.3
)%
South America
3.3

 
2.7

 
20.4
 %
Other
2.5

 
2.3

 
11.6
 %
Source: IHS Automotive

23




The Company's consolidated results of operations for the years ended December 31, 2017 and 2016 were as follows:
 
Year Ended December 31
 
2017
 
2016
 
Change
 
(Dollars in Millions)
 
 
 
 
 
 
Sales
$
3,146

 
$
3,161

 
$
(15
)
Cost of sales
2,647

 
2,697

 
(50
)
Gross margin
499

 
464

 
35

Selling, general and administrative expenses
222

 
220

 
2

Restructuring expense, net
14

 
49

 
(35
)
Interest expense
21

 
18

 
3

Interest income
5

 
6

 
(1
)
Equity in net income of non-consolidated affiliates
7

 
2

 
5

Loss on divestiture
33

 

 
33

Gain on non-consolidated affiliate transactions, net
4

 

 
4

Other expense, net
2

 
24

 
(22
)
Provision for income taxes
48

 
30

 
18

Net income from continuing operations
175

 
131

 
44

Net income (loss) from discontinued operations, net of tax
17

 
(40
)
 
57

Net income
192

 
91

 
101

Net income attributable to non-controlling interests
16

 
16

 

Net income attributable to Visteon Corporation
$
176

 
$
75

 
$
101

Adjusted EBITDA*
$
370

 
$
337

 
$
33

 
 
 
 
 
 
* Adjusted EBITDA is a Non-GAAP financial measure, as defined in Note22.

Results of Operations - 2017 Compared with 2016

Prior to 2017, the Company also had Other operations consisting primarily of the South Africa and the South America climate operations substantially exited during the fourth quarter of 2016.

Sales


Electronics
 
Other
 
Total
 
(Dollars in Millions)
December 31, 2016
$
3,107

 
$
54

 
$
3,161

Volume, mix, and net new business
127

 

 
127

Currency
5

 

 
5

Exit of climate operations

 
(54
)
 
(54
)
Other
(93
)
 

 
(93
)
December 31, 2017
$
3,146

 
$

 
$
3,146


Sales for the year ended December 31, 2017 totaled $3,146 million, which represents a decrease of $15 million compared with the same period of 2016. Favorable volumes, product mix, and net new business increased sales by $127 million. Product mix reflects the Company-specific content across product lines. Favorable currency increased sales by $5 million, primarily attributable to the Euro, Brazilian Real and Indian Rupee, partially offset by the Chinese Renminbi. The exit of other climate operations in 2016 decreased sales by $54 million. Other reductions were primarily associated with customer pricing.


24




Cost of Sales


Electronics
 
Other
 
Total
 
(Dollars in Millions)
December 31, 2016
$
2,634

 
$
63

 
$
2,697

Volume, mix, and net new business
123

 

 
123

Currency
12

 

 
12

Exit of climate operations

 
(63
)
 
(63
)
Other
(122
)
 

 
(122
)
December 31, 2017
$
2,647

 
$

 
$
2,647


Cost of sales decreased $50 million for the year ended December 31, 2017, when compared with the same period in 2016. Increased volumes, product mix, and net new business increased cost of sales by $123 million. Foreign currency increased cost of sales by $12 million primarily attributable to the Euro, Brazilian Real, and Thai Baht, partially offset by the Chinese Renminbi, Japanese Yen, and Mexican Peso. The exit and wind-down of other climate operations decreased cost of sales by $63 million. Net efficiencies, including material, design and usage economics, higher engineering recoveries and lower gross engineering expense, warranty costs, and certain intellectual property settlements, partially offset by higher manufacturing and other cost performance, decreased cost of sales by $122 million.

Cost of sales includes net engineering costs, comprised of gross engineering expenses related to forward model program development and advanced engineering activities, partially offset by engineering cost recoveries from customers. Electronics gross engineering expenses were $386 million for the year ended December 31, 2017, a decrease of $13 million compared to the same period of 2016. Engineering recoveries were $133 million for the year ended December 31, 2017, $29 million higher than the recoveries recorded in the same period of 2016. Engineering cost recoveries can fluctuate period to period depending on underlying contractual terms and conditions and achievement of related development milestones.

Gross Margin

The Company's gross margin was $499 million or 15.9% of sales for the year ended December 31, 2017, compared to $464 million or 14.7% of sales for the same period of 2016. The $35 million increase in gross margin included $4 million from favorable volumes and net new business partially offset by product mix, and $9 million related to the exit of climate operations. Currency decreased gross margin by $7 million as the impact of the Chinese Renminbi and Euro more than offset the impact of the Indian Rupee, Mexican Peso, and Brazilian Real. Gross margin also included net cost efficiencies of $29 million, including favorable material cost efficiencies, lower gross engineering expense and higher engineering recoveries, and certain intellectual property settlements, partially offset by customer pricing reductions, and higher manufacturing costs.
 
Selling, General and Administrative Expenses

Selling, general, and administrative expenses were $222 million, or 7.1% of sales, and $220 million, or 7.0% of sales, during the years ended December 31, 2017 and 2016, respectively. The increase of $2 million is primarily related to increased equity, based incentive compensation costs and an increase in allowance for doubtful accounts, partially offset by net cost efficiencies.

Restructuring Expense

Electronics: During the fourth quarter of 2016, the Company announced a restructuring program impacting engineering and administrative functions to further align the Company's engineering and related administrative footprint with its core product technologies and customers. The Company expects to incur up to $45 million of restructuring costs for this program. For the years ended December 31, 2017 and 2016, the Company recorded restructuring expenses under this program associated with 250 employees, which amounted to approximately $14 million and $26 million, net of reversals, respectively.

During the first quarter of 2016, the Company announced a restructuring program to transform the Company's engineering organization and supporting functional areas to focus on execution and technology. The organization will be comprised of regional engineering, product management and advanced technologies, and global centers of competence. During 2016, the Company recorded approximately $11 million, net of reversals of restructuring expenses, under this program, associated with approximately 100 employees. As of December 31, 2017, the plan is considered substantially complete.


25




Other and Discontinued Operations: During the year ended December 31, 2016, the Company recorded $16 million of restructuring expenses related to severance and termination benefits related to the wind-down of certain operations in South America. As of December 31, 2017, this program is considered substantially complete.

Interest Expense, Net

Net interest expense for the year ended December 31, 2017, was $16 million, an increase of $4 million when compared to $12 million for the same period of 2016. Interest expense was $21 million and $18 million for the years ended December 31, 2017 and 2016, respectively. The increase in net interest expense includes lower interest income due to lower cash balances, refinancing fees for the amended credit facilities as further described in Note 13, "Debt" and termination impacts of the Company's interest rate swap as further described in Note 20, "Financial Instruments."

Equity in Net Income of Non-Consolidated Affiliates

Equity in net income of non-consolidated affiliates was $7 million and $2 million for the years ended December 31, 2017 and 2016, respectively. The income is primarily attributable to the Company's equity interest in Yanfeng Visteon Investment Company, which increased due to sales volume as well as higher royalty and engineering recoveries.

Loss on Divestiture

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 of $13 million and other working capital and transaction related impacts of $7 million.

Gain on Non-Consolidated Affiliate Transactions, Net

During the year ended December 31, 2017, the Company completed the sale of its 50% interest in an equity method investment for proceeds of $7 million, consistent with its carrying value. Also in 2017, the Company disposed of its remaining cost method investments for proceeds of approximately $8 million and recorded a pretax gain of $4 million.

During 2016, the Company agreed to sell a 50% interest in an equity investment for approximately $7 million and recorded an impairment loss of approximately $5 million related to this transaction. Also in 2016, the Company sold a cost method investment to a third party for proceeds of approximately $11 million. The Company recorded a pre-tax gain of $5 million related to this transaction during the year ended December 31, 2016.

Other Expense, Net

Other expense, net consists of the following:
 
Year Ended December 31
 
2017
 
2016
 
(Dollars in Millions)
Transformation initiatives
$
2

 
$
9

Foreign currency translation charge

 
11

Transaction hedging and exchange losses

 
1

Integration costs

 
2

Loss on asset contributions


 
2

Recoverable taxes

 
(1
)
 
$
2

 
$
24

Transformation initiative costs include information technology separation costs, integration of acquired businesses, and financial and advisory services incurred in connection with the Company's transformation into a pure play cockpit electronics business.

During the year ended December 31, 2016, the Company recorded a charge of approximately $11 million related to foreign currency translation amounts recorded in accumulated other comprehensive loss associated with the sale of the Company's South Africa climate operations.


26




During the year ended December 31, 2016, the Company recorded $2 million of costs to integrate the businesses associated with the acquisition of substantially all of the global automotive electronics business of Johnson Controls Inc. (the "Electronics Acquisition"). Integration costs included re-branding, facility modification, information technology readiness and related professional services.

In connection with the closure of the Climate facility in Argentina, the Company contributed land and buildings with a net book value of $2 million to the local municipality for the benefit of former employees.

Income Taxes

The Company's provision for income tax was $48 million for year ended December 31, 2017 and reflects income tax expense related to those countries where the Company is profitable; accrued withholding taxes; ongoing assessments related to the recognition and measurement of uncertain tax benefits; the inability to record a tax benefit for pretax losses and/or recognize tax expense for pretax income in certain jurisdictions (including the U.S.) due to valuation allowances, and other non-recurring tax items.

The Company's provision for income taxes increased $18 million for the year ended December 31, 2017, compared with 2016. The increase is primarily attributable to the non-recurrence of an $11 million tax benefit recognized in 2016 related to the ability to carryback the 2016 U.S. tax loss against 2015 U.S. tax liabilities (both current and FIN 48) as a result of triggering a worthless stock deduction (“WSD”) for U.S. tax purposes relating to Visteon SA. Other increases include the overall increase in year-over-year changes in the mix of earnings and differing tax rates between jurisdictions, as well as changes in valuation allowance related to revised profit projections primarily in Mexico and France. Other changes in the Company’s deferred tax asset valuation allowances did not materially impact net tax expense during the years ended December 31, 2017 or 2016.

The increases in the tax provision were partially offset by $2 million of year-over-year changes in unrecognized tax benefits, including interest and penalties, related primarily to the non-recurrence of unfavorable adjustments in 2016, primarily in connection with intercompany transactions between the U.S. and non-U.S. taxing jurisdictions.

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 creates a new U.S. corporate minimum tax on certain earnings of foreign subsidiaries. The Company has calculated its best estimate of the impact of the Act in its year-end income tax provision in accordance with the guidance available as of the date of this filing. Accordingly, the Company has recognized a provisional income tax charge of $250 million, the impact of which was entirely offset by a corresponding income tax benefit associated with a reduction in the U.S. valuation allowance. The provisional amount related to the remeasurement of certain deferred tax assets and liabilities, based on the rates at which they are expected to reverse in the future, was $267 million. The provisional amount related to the one-time transition tax on the mandatory deemed repatriation of foreign earnings was $19 million, which was more than 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 Company continues to gather information related to estimates surrounding the remeasurement of deferred taxes and information related to unremitted earnings from foreign affiliates to more precisely analyze and compute the remeasurement of deferred taxes and the impact of the transition tax under the Act. Any subsequent adjustment to these amounts is not expected to have a significant impact to income tax expense due to the U.S. valuation allowance.

Discontinued Operations

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.

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.


27




Net Income

Net income attributable to Visteon was $176 million for the year ended December 31, 2017, compared to net income of $75 million for the same period of 2016. The increase of $101 million includes higher net income due to the non-recurrence of 2016 losses from discontinued operations of $40 million, 2017 income from discontinued operations of $17 million, lower restructuring charges of $35 million, the non-recurrence of charges associated with the 2016 South Africa climate disposition of $11 million, higher equity in net income of non-consolidated affiliates of $5 million and gains on the sale of non-consolidated affiliates of $4 million. These improvements were partially offset by higher income taxes of $18 million and a loss on the France divestiture of $33 million in 2017.

Adjusted EBITDA

Adjusted EBITDA (a non-GAAP financial measure, as defined in Note 22) was $370 million for the year ended December 31, 2017, representing an increase of $33 million when compared with Adjusted EBITDA of $337 million for the same period of 2016. The increase is primarily attributable to favorable volumes, improved net cost performance including higher engineering recoveries, partially offset by exchange, customer pricing and product mix.

The reconciliation of Adjusted EBITDA to net income attributable to Visteon for the years ended December 31, 2017 and 2016 is as follows:
 
Year Ended December 31
 
2017
 
2016
 
Change
 
(Dollars in Millions)
Adjusted EBITDA
$
370

 
$
337

 
$
33

  Depreciation and amortization
87

 
84

 
3

  Restructuring expense, net
14

 
49

 
(35
)
  Interest expense, net
16

 
12

 
4

  Equity in net income of non-consolidated affiliates
(7
)
 
(2
)
 
(5
)
  Loss on divestiture
33

 

 
33

  Gain on non-consolidated affiliate transactions, net

(4
)
 

 
(4
)
  Other expense, net
2

 
24

 
(22
)
  Provision for income taxes
48

 
30

 
18

  Net (income) loss from discontinued operations, net of tax
(17
)
 
40

 
(57
)
  Net income attributable to non-controlling interests
16

 
16

 

  Non-cash, stock-based compensation expense
12

 
8

 
4

  Other
(6
)
 
1

 
(7
)
Net income attributable to Visteon Corporation
$
176

 
$
75

 
$
101


28




Results of Operations - 2016 Compared with 2015

The Company's consolidated results of operations for the years ended December 31, 2016 and 2015 were as follows:
 
Year Ended December 31
 
2016
 
2015
 
Change
 
(Dollars in Millions)
Sales
$
3,161

 
$
3,245

 
$
(84
)
Cost of sales
2,697

 
2,815

 
(118
)
Gross margin
464

 
430

 
34

Selling, general and administrative expenses
220

 
245

 
(25
)
Restructuring expense
49

 
36

 
13

Interest expense
18

 
19

 
(1
)
Interest income
6

 
5

 
1

Equity in net income of non-consolidated affiliates
2

 
7

 
(5
)
Loss on debt extinguishment

 
5

 
(5
)
Loss on divestiture

 
105

 
(105
)
Gain on non-consolidated affiliate transactions, net


 
62

 
(62
)
Other expense, net
24

 
25

 
(1
)
Provision for income taxes
30

 
27

 
3

Net income from continuing operations
131

 
42

 
89

Net income (loss) from discontinued operations, net of tax
(40
)
 
2,286

 
(2,326
)
Net income
91

 
2,328

 
(2,237
)
Net income attributable to non-controlling interests
16

 
44

 
(28
)
Net income attributable to Visteon Corporation
$
75

 
$
2,284

 
$
(2,209
)
Adjusted EBITDA*
$
337

 
$
282

 
$
55

 
 
 
 
 
 
* Adjusted EBITDA is a Non-GAAP financial measure, as described in Note 22.

Prior to 2017, the Company also had Other operations consisting primarily of the South Africa and the South America climate operations exited during the fourth quarter of 2016. During 2015, Other also included the Berlin, Germany operations previously associated with the Interiors business and sold during the fourth quarter of 2015.

Sales


Electronics
 
Other
 
Eliminations
 
Total
 
(Dollars in Millions)
December 31, 2015
$
3,107

 
$
153

 
$
(15
)
 
$
3,245

Volume and mix
115

 
(11
)
 
15

 
119

Currency
(27
)
 
(1
)
 

 
(28
)
Germany Interiors Divestiture

 
(86
)
 

 
(86
)
Other
(88
)
 
(1
)
 

 
(89
)
December 31, 2016
$
3,107

 
$
54

 
$

 
$
3,161

Electronics sales were $3,107 million for the year ended December 31, 2016, consistent with prior year sales. Higher production volumes and new business increased sales by $115 million. Volume, mix, and net new business improved in Asia Pacific and Europe. Volumes were consistent in North America, while South America deteriorated. Unfavorable currency, primarily related to the Chinese Renminbi and Euro partially offset by the Japanese Yen, decreased sales by $27 million. Other reductions reflected customer pricing net of design changes.

Other sales decreased during the year ended December 31, 2016, by $99 million. The Germany Interiors Divestiture, effective December 1, 2015, resulted in a decrease in sales of $86 million. Lower production volumes related to the wind-down of certain South America businesses reduced sales by $11 million.


29




Cost of Sales


Electronics
 
Other
 
Eliminations
 
Total
 
(Dollars in Millions)
December 31, 2015
$
2,666

 
$
164

 
$
(15
)
 
$
2,815

Currency
(37
)
 
(7
)
 

 
(44
)
Volume, mix, and net new business
100

 
(10
)
 
15

 
105

Germany Interiors Divestiture

 
(83
)
 

 
(83
)
Other
(95
)
 
(1
)
 

 
(96
)
December 31, 2016
$
2,634

 
$
63

 
$

 
$
2,697

Electronics cost of sales decreased during the year ended December 31, 2016, by $32 million when compared with the same period in 2015. Cost of sales increased $100 million attributable to higher volumes as well as changes in product mix, representing the variable nature of material and labor costs. Foreign currency decreased cost of sales by $37 million primarily attributable to the Chinese Renminbi, Euro, and Mexican Peso, partially offset by the Japanese Yen. Additionally, the Company recognized $95 million of net efficiencies related to material and manufacturing costs.

Cost of sales for Other decreased $101 million, reflecting the impacts of the Germany Interiors Divestiture during the fourth quarter of 2015, and lower production volumes related to the wind-down of certain businesses in South America.

Cost of sales includes net engineering costs, comprised of gross engineering expenses related to forward model program development and advanced engineering activities, partially offset by engineering cost recoveries from customers. Electronics gross engineering expenses were $399 million for the year ended December 31, 2016, an increase of $23 million compared to the same period of 2015. Engineering recoveries were $104 million for the year ended December 31, 2016, an increase of $22 million compared to the same period of 2015. Engineering cost recoveries can fluctuate period to period depending on underlying contractual terms and conditions and achievement of related development milestones.

Gross Margin

The Company's gross margin was $464 million or 14.7% of sales for the year ended December 31, 2016 compared to $430 million or 13.3% of sales for the same period of 2015. Electronics gross margin increased year-over-year by $32 million while Other gross margin increased year-over-year by $2 million. The increase in the Electronics gross margin included $15 million from favorable volumes, net new business and product mix and $10 million from favorable currency. Electronics gross margin also included $7 million of favorable net cost performance, driven by material and manufacturing cost efficiencies, which more than offset customer pricing reductions.

Selling, General and Administrative Expenses

Selling, general, and administrative expenses were $220 million or 7.0% of sales and $245 million or 7.6% of sales during the years ended December 31, 2016 and 2015, respectively. The decrease of $25 million is primarily related to net efficiencies and lower incentive compensation expense.
  
Restructuring Expense

Electronics: During the fourth quarter of 2016, the Company announced a restructuring program impacting engineering and administrative functions to further align the Company's engineering and related administrative footprint with its core product technologies and customers. The Company expects to incur up to $45 million of restructuring costs for this program. The Company recorded approximately $26 million of restructuring expenses under this program during 2016, associated with approximately 250 employees.

During the first quarter of 2016, the Company announced a restructuring program to transform the Company's engineering organization and supporting functional areas to focus on execution and technology. The organization will be comprised of regional engineering, product management and advanced technologies, and global centers of competence. During 2016, the Company recorded approximately $11 million, net of reversals, of restructuring expenses under this program, associated with approximately 100 employees.


30




In connection with the Electronics Acquisition, the Company commenced a restructuring program designed to achieve cost savings through transaction synergies. During the year ended December 31, 2015, the Company recorded $20 million, net of reversals, of severance and termination benefits under this program associated with approximately 1,100 employees.

During 2015 the Company announced a restructuring program designed to reduce the workforce at a European Electronics facility. The Company recorded $12 million of severance and termination benefits under this program associated with approximately 100 employees.

The Company previously announced a restructuring program designed to reduce fixed costs and to improve operational efficiencies by addressing certain under-performing operations. In connection with that program, the Company announced plans to realign its corporate and administrative functions directly to their corresponding operational beneficiary. During 2015, the Company recorded $4 million of restructuring expenses, primarily related to severance and termination benefits associated with certain executives.

Other and Discontinued Operations: During the year ended December 31, 2016, the Company recorded $16 million of restructuring expenses related to severance and termination benefits for the wind-down of certain operations in South America.

In connection with the reorganization of the Company's Climate operations in France, the Company recorded and paid cash to settle employee severance and termination benefits of $2 million during 2015, associated with approximately 135 employees.

Interest Expense, Net

Net interest expense for the year ended December 31, 2016 was $12 million, a decrease of $2 million when compared to $14 million for the same period of 2015. Interest expense of $18 million and $19 million, respectively, for the years ended December 31, 2016 and December 31, 2015 is primarily associated with the Company's Term Facility due April 9, 2021, with original principal of $600 million and prepaid down to $350 million following the Climate Transaction in June 2015.

Equity in Net Income of Non-Consolidated Affiliates

Equity in net income of non-consolidated affiliates was $2 million and $7 million for the years ended December 31, 2016 and 2015, respectively. The income in 2015 was primarily attributable to dividend recognition for a cost basis investment.

Loss on Debt Extinguishment

Loss on debt extinguishment of $5 million during the year ended December 31, 2015 included unamortized original issue discount, debt fees and other debt costs. The loss on debt extinguishment was related to the $246 million repayment of the Company's Term Facility, reducing the outstanding aggregate principal to $350 million.

Loss on Divestiture

On December 1, 2015, Visteon completed the Germany Interiors Divestiture by contributing cash of approximately $141 million, assets of $27 million, and liabilities of $198 million, including pension related liabilities. The Company recognized a pretax loss on divestiture of $105 million related to foreign currency translation and pension benefit plan amounts previously recorded in accumulated other comprehensive loss. The Company made a final contribution payment of approximately $35 million during December 2017.

Gain on Non-Consolidated Affiliate Transactions, Net

During the year ended December 31, 2016, Visteon agreed to sell its 50% interest in an equity method investment for approximately $7 million and has recorded an impairment loss of approximately $5 million.  

On July 22, 2016, the Company sold a cost method investment to a third party for proceeds of approximately $11 million and recorded a pretax gain on sale of approximately $5 million.

During the year ended December 31, 2015, the Company completed the sale of its 12.5% ownership interest in Yanfeng Visteon Jinqiao Automotive Trim Systems Company, Limited, a Chinese automotive interiors supplier, for proceeds of $91 million and recorded a pretax gain on sale of $62 million.


31




Other Expense, Net

Other expense, net consists of the following:
 
Year Ended December 31
 
2016
 
2015
 
(Dollars in Millions)
Foreign currency translation charge

$
11

 
$

Transformation initiatives
9

 
25

Transaction hedging and exchange loss (income)
1

 
(15
)
Integration costs
2

 
14

Loss on asset contribution
2

 
1

Recoverable taxes
(1
)
 

 
$
24

 
$
25

During the year ended December 31, 2016, the Company recorded a charge of approximately $11 million related to foreign currency translation amounts recorded in accumulated other comprehensive loss associated with the sale of the Company's South Africa climate operations.

Transformation initiatives include information technology separation costs and financial and advisory services incurred in connection with the execution of the Company's comprehensive value creation plan and certain severance costs associated with the Electronics Acquisition and the Climate Transaction. Transaction hedging and exchange losses (gains) of $1 million and $(15) million for the years ended December 31, 2016 and 2015, respectively, relate to the Climate Transaction proceeds and the Germany Interiors Divestiture contribution.

During the years ended December 31, 2016 and 2015, the Company recorded $2 million and $14 million, respectively, of costs to integrate the businesses associated with the Electronics Acquisition. Integration costs included re-branding, facility modification, information technology readiness and related professional services.

In connection with the closure of the Climate facility in Argentina, the Company contributed land and buildings with a net book value of $2 million to the local municipality for the benefit of former employees. The Company also recorded gains of $1 million during the year ended December 31, 2016, to adjust recoverable value-added taxes to net realizable value attributable to business exit activities.

Income Taxes

The Company's provision for income tax was $30 million for year ended December 31, 2016 and reflects income tax expense related to those countries where the Company is profitable; accrued withholding taxes; ongoing assessments related to the recognition and measurement of uncertain tax benefits; the inability to record a tax benefit for pretax losses and/or recognize tax expense for pretax income in certain jurisdictions (including the U.S.) due to valuation allowances, and other non-recurring tax items.

The Company's provision for income taxes decreased $3 million for the year ended December 31, 2016, compared with 2015. The increase included an $11 million year-over-year increase in unrecognized tax benefits, including interest and penalties, related primarily to the non-recurrence of favorable audit developments and statute expirations during 2015, and unfavorable adjustments in 2016, primarily in connection with intercompany transactions between the U.S. and non-U.S. taxing jurisdictions. Other increases include the non-recurrence of an $18 million income tax benefit on pretax U.S. losses from continuing operations recognized during 2015. Although the Company maintains a full valuation allowance against net deferred tax assets in the U.S., the level of other categories of income generated in the U.S. during 2015 (primarily related to discontinued operations) resulted in a charge to discontinued operations income tax expense of $18 million with the offsetting benefit recognized in continuing operations, effectively resulting from a reduction in the valuation allowance against deferred tax assets. These increases were partially offset by the non-recurrence of $8 million income tax expense related to the withholding tax associated with the sale of its non-consolidated affiliate located in China and favorable developments in connection with certain Portuguese income tax incentives formally approved during 2016 resulting in a discrete income tax benefit of $3 million, and year-over-year tax benefits of $3 million resulting from the partial elimination of valuation allowances in Mexico and France. Other changes in the Company’s deferred tax asset valuation allowances did not materially impact net tax expense during the years ended December 31, 2016 or 2015. Other decreases reflect the year-over-year changes in the mix of earnings and differing tax rates between jurisdictions. Additionally, during 2016,

32




the Company recorded an $11 million income tax benefit in connection with the recognition of a worthless stock deduction (“WSD”) for U.S. income tax purposes related to Visteon SA (the Company’s wholly owned subsidiary associated with the Company’s Climate facility in Argentina where manufacturing operations have ceased), which resulted in an estimated current year U.S. net operating loss ("NOL") allowing the Company to carryback such NOL against its 2015 U.S. taxable income. Consequently, the Company recorded a $3 million income tax receivable which represents the remaining income tax paid in 2015 relating to the Climate sale (which should be refunded after carrying back the current year NOL to 2015 and filing a refund claim), and an $8 million reduction in unrecognized tax benefits that impact the effective rate.
 
Discontinued Operations

The operations subject to the Interiors Divestiture and Climate Transaction met conditions required to qualify for discontinued operations reporting. Accordingly, the results of operations for the Interiors and Climate businesses have been reclassified to Net income (loss) from discontinued operations, net of tax in the Consolidated Statements of Operations for the years ended December 31, 2016 and 2015. See Note 5 "Discontinued Operations" for additional disclosures.

Net Income

Net income attributable to Visteon was $75 million for the year ended December 31, 2016, which included a net loss from discontinued operations of $40 million, restructuring expense of $49 million, higher year over year gross margin of $34 million, and lower year-over-year selling, general and administrative expenses of $25 million. Net income attributable to Visteon was $2,284 million for the year ended December 31, 2015, which included net income from discontinued operations of $2,286 million including the Climate Transaction gain, a gain on sale of non-consolidated affiliates of $62 million, partially offset by a loss on the Germany Divestiture of $105 million, and restructuring expense of $36 million.

Adjusted EBITDA


Electronics
 
Other
 
Total
 
(Dollars in Millions)
December 31, 2015
$
294

 
$
(12
)
 
$
282

  Volume and mix
15

 
(4
)
 
11

  Currency
12

 
6

 
18

  Other
25

 
1

 
26

December 31, 2016
$
346

 
$
(9
)
 
$
337


Electronics Adjusted EBITDA increased $52 million for the year ended December 31, 2016 when compared to the same period of 2015. Higher volumes and new business, primarily in Asia, increased Adjusted EBITDA by $15 million. Currency increased adjusted EBITDA by $12 million primarily related to the Mexican Peso, partially offset by the Japanese Yen. Net cost performance increased adjusted EBITDA by $25 million primarily reflecting material, manufacturing, and selling, general and administrative efficiencies, partially offset by customer pricing.

Other Adjusted EBITDA for the year ended December 31, 2016 increased by $3 million compared to the same period of 2015, primarily reflecting favorable currency related to the Argentine Peso and net cost efficiencies related to the wind-down of the legacy Climate facilities, partially offset by the impact of the Germany Interiors Divestiture during the fourth quarter of 2015.


33




The reconciliation of Adjusted EBITDA to net income attributable to Visteon for the years ended December 31, 2016 and 2015 is as follows:
 
Year Ended December 31
 
2016
 
2015
 
Change
 
(Dollars in Millions)
Adjusted EBITDA
$
337

 
$
282

 
$
55

  Depreciation and amortization
84

 
85

 
(1
)
  Restructuring expense
49

 
36

 
13

  Interest expense, net
12

 
14

 
(2
)
  Loss on debt extinguishment

 
5

 
(5
)
  Equity in net income of non-consolidated affiliates
(2
)
 
(7
)
 
5

  Gain on non-consolidated affiliate transactions

 
(62
)
 
62

  Loss on divestiture

 
105

 
(105
)
  Other expense, net
24

 
25

 
(1
)
  Provision for income taxes
30

 
27

 
3

  Net loss (income) loss from discontinued operations, net of tax
40

 
(2,286
)
 
2,326

  Net income attributable to non-controlling interests
16

 
44

 
(28
)
  Non-cash, stock-based compensation expense
8

 
8

 

  Other
1

 
4

 
(3
)
Net income (loss) attributable to Visteon Corporation
$
75

 
$
2,284

 
$
(2,209
)

Liquidity

Overview

The Company's primary sources of liquidity are cash flows from operations, existing cash balances, and borrowings under available credit facilities, if necessary. The Company believes that funds generated from these sources will be adequate to fund its liquidity for current business requirements.

A portion of the Company's cash flows from operations are generated outside of the U.S. Accordingly, the Company utilizes a combination of cash repatriation strategies, including dividends, royalties, intercompany loan arrangements and other distributions and advances to provide the funds necessary to meet obligations globally. The Company’s ability to access funds from its subsidiaries is subject to, among other things, customary regulatory and statutory requirements and contractual arrangements including joint venture agreements and local credit facilities. Moreover, repatriation efforts may be modified by the Company according to prevailing circumstances.

The Company's ability to generate operating cash flow is dependent on the level, variability and timing of its customers' worldwide vehicle production, which may be affected by many factors including, but not limited to, general economic conditions, specific industry conditions, financial markets, competitive factors and legislative and regulatory changes. The Company monitors the macroeconomic environment and its impact on vehicle production volumes in relation to the Company's specific cash needs. The Company's intra-year needs are impacted by seasonal effects in the industry, such as mid-year shutdowns, the subsequent ramp-up of new model production and year-end shutdowns at key customers.

In the event that the Company's funding requirements exceed cash provided by its operating activities, the Company will meet such requirements by reduction of existing cash balances, by drawing on its $300 million Revolving Credit Facility or other affiliate working capital lines, by seeking additional capital through debt or equity markets, or some combination thereof.

Access to additional capital through the debt or equity markets is influenced by the Company's credit ratings. On March 7, 2017, Standard & Poor's Ratings Services upgraded the Company to 'BB', from 'BB-', with stable outlook. Moody's has reaffirmed the Company's credit rating of Ba3. See Note 13 "Debt" to the accompanying consolidated financial statements for a more comprehensive discussion of the Company's debt facilities. Incremental funding requirements of the Company's consolidated foreign entities are primarily accommodated by intercompany cash pooling structures. Affiliate working capital lines are primarily used by the Company's consolidated joint ventures. As of December 31, 2017, these lines had availability of approximately $22 million.


34




Cash Balances

As of December 31, 2017, the Company had total cash of $709 million, including $3 million of restricted cash. Cash balances totaling $295 million were located in jurisdictions outside of the United States, of which approximately $155 million is considered permanently reinvested for funding ongoing operations outside of the U.S. The Tax Cut and Jobs Act of 2017 included a one-time transition tax on the deemed repatriation of all foreign earnings as of December 31, 2017; however, the provisional transition tax amount of $19 million was completely offset by the Company’s available U.S. foreign tax credit carryforwards resulting in no cash tax liability recorded as of December 31, 2017.  If such permanently reinvested funds were repatriated to the U.S., no U.S. federal taxes would be imposed on the distribution of such foreign earnings, but the Company would be required to accrue additional tax expense, primarily related to foreign withholding taxes.

Restructuring
During the year ended December 31, 2017, the Company paid $31 million related to restructuring activities. See Note 7 "Restructuring" to the Company's consolidated financial statements included in Item 8 of this Report for further information.

Other Items Affecting Liquidity

On January 9, 2017, the Company's Board of Directors authorized repurchase of up to $400 million of Visteon common stock, of which $200 million remains outstanding as of December 31, 2017, as discussed in Note 17, "Stockholders' Equity and Non-Controlling Interests" of the consolidated financial statements.

On January 15, 2018, the Company announced that its Board of Directors has authorized an additional share repurchases of up to $500 million, for a total authorization amount of $700 million, of common stock to be executed through 2020.

On December 19, 2017, the Company entered into a forward-starting share repurchase agreement with a third-party financial institution to purchase up to $100 million of its common stock complying with the provisions of Rule 10b5-1 and Rule 10b-18 under the Securities Exchange Act of 1934. Share purchases under the program commenced January 2, 2018 and will expire on February 26, 2018. As of February 15, 2018, the Company has paid $13 million to purchase a total of 109,190 shares with an average price of $120.41. As of February 15, 2018, the Company has an outstanding authorization to purchase up to $687 million of its shares through 2020.

During the year ended December 31, 2017, cash contributions to the Company's U.S. and non-U.S. defined benefit pension plan were $9 million. The Company expects to make cash contributions to its defined benefit pension plans of $8 million in 2018.

Cash Flows

Operating Activities
Including discontinued operations, the Company generated $217 million of cash from operating activities during the year ended December 31, 2017, compared to $120 million during the same period of 2016 for an increase of $97 million. The increase in operating cash flows is attributable to higher net income of $101 million and lower cash tax payments, net of expense of $79 million primarily due to the non-recurrence of transaction related taxes incurred in 2016, partially offset by higher working capital use of approximately $48 million, higher warranty payments net of expense of $23 million and an increase in China bank notes of $5 million. 

Including discontinued operations, the Company generated $120 million of cash from operating activities during the year ended December 31, 2016, compared to $338 million during the same period of 2015 for a decrease of $218 million. The decrease in cash provided by operating activities is primarily attributable to the divestiture of climate operations which provided $186 million in the first half of 2015. The remaining $32 million decrease in cash from operating activities reflects higher income tax payments of approximately $51 million primarily related to Japan, China and Europe, partially offset by the non-recurrence of taxes withheld in connection with the 2015 sale of a non-consolidated affiliate. The decrease in cash from operating activities is also impacted by higher information technology transition agreements payments of $15 million and higher restructuring payments of $13 million. These decreases were partially offset by the non-recurrence of Climate Transaction related labor and incentive payments of $48 million.


35




Investing Activities

Cash used by investing activities during the year ended December 31, 2017 totaled $175 million, compared to net cash provided from investing activities of $302 million in the same period in 2016 for a decrease of $477 million. Net cash used by investing activities during the year ended December 31, 2017, includes the purchase of the India electronics operations associated with the Climate Transaction for $47 million, payments of $48 million primarily related to the Germany Interiors Divestiture and France Transaction and capital expenditures of $99 million. These outflows were partially offset by proceeds for divestitures of equity and cost based investments in China and Europe of $15 million and net investment hedge settlement proceeds of $5 million
Cash provided from investing activities during the year ended December 31, 2016 totaled $302 million, compared to net cash provided from investing activities of $2,358 million in the same period in 2015 for a decrease of $2,056 million. Net cash provided from investing activities during the year ended December 31, 2016, includes the Climate Transaction withholding tax recovery of $356 million, liquidation of short-term investments of $47 million, and proceeds from a cost-basis investment of $11 million. These increases were partially offset by capital expenditures of $75 million, payments related to the South America interiors divestiture of $10 million and a three-year term loan of $10 million provided to the buyer, the acquisition of AllGo Embedded Systems Private Limited of $15 million and net loans to non-consolidated affiliates of $8 million.
Cash provided from investing activities during the year ended December 31, 2015, included the impacts of divestiture activity including Climate Transaction net proceeds of $2,664 million and non-consolidated affiliate divestiture proceeds of $91 million, partially offset by the Germany Interiors Divestiture contribution of $141 million and other transaction-related payments of $15 million. Additional investing activity included capital expenditures of $187 million and short-term net investments of $47 million.
Financing Activities

Cash used by financing activities during the year ended December 31, 2017, totaled $233 million, compared to $2,262 million for the same period in 2016 for a decrease in cash used by financing activities of $2,029 million. Cash used by financing activities during the year ended December 31, 2017, included share repurchases of $200 million and dividends paid to non-controlling interests of $38 million.

Cash used by financing activities during the year ended December 31, 2016, totaled $2,262 million, compared to $774 million for the same period in 2015 for an increase in cash used by financing activities of $1,488 million. Cash used by financing activities during the year ended December 31, 2016 included a distribution payment of $1,736 million, share repurchases of $500 million, stock based compensation tax withholding payments of $11 million, non-controlling interest dividends of $13 million, and capital lease and net debt payments of $2 million.

Cash used by financing activities during the year ended December 31, 2015 included $500 million in share repurchases, the prepayment on the Company's term facility, including fees, of $250 million, non-controlling interest dividends of $55 million, partially offset by option and warrant exercises of $40 million.

Debt and Capital Structure

See "Liquidity" above and also see Note 13 "Debt" and Note 17 "Stockholders' Equity and Non-controlling Interests" to the Company's consolidated financial statements included in Item 8 of this Report for further information.

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements.

Fair Value Measurements

The Company uses fair value measurements in the preparation of its financial statements, utilizing various inputs including those that can be readily observable, corroborated or are generally unobservable. The Company utilizes market-based data and valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Additionally, the Company applies assumptions that market participants would use in pricing an asset or liability, including assumptions about risk. See Note 19 "Fair Value Measurements" to the consolidated financial statements included in Item 8 for additional information.

36




Contractual Obligations

The following table summarizes the Company's contractual obligations existing as of December 31, 2017:
 
Total
 
2018
 
2019-2020
 
2021-2022
 
2023 & After
 
(Dollars in Millions)
Debt, including capital leases
$
396

 
$
46

 
$

 
$

 
$
350

Purchase obligations
116

 
41

 
51

 
21

 
3

Interest payments on long-term debt
101

 
15

 
32

 
33

 
21

Operating leases
213

 
36

 
62

 
42

 
73

Total contractual obligations
$
826

 
$
138

 
$
145

 
$
96

 
$
447

Excluded from the contractual obligations table above are open purchase orders as of December 31, 2017, for raw materials and supplies in the normal course of business, joint venture agreements and other contracts without express funding requirements.

This table excludes amounts related to the Company's income tax liabilities associated with uncertain tax positions impacting the effective rate of $9 million as the Company is unable to make reasonable estimates for the periods in which these liabilities may become due.

The Company also has minimum funding requirements with respect to pension obligations. The Company may elect to make contributions in excess of the minimum funding requirements in response to investment performance or changes in interest rates. During 2018, the Company expects to make cash contributions to its U.S. defined benefit and non-U.S. defined benefit pension plans of $1 million and $7 million, respectively. The Company’s expected 2018 contributions may be revised.

Critical Accounting Estimates

The Company’s significant accounting policies have been disclosed in the consolidated financial statements and accompanying notes under Note 2 “Summary of Significant Accounting Policies.” Certain policies relate to estimates that involve matters that are highly uncertain at the time the accounting estimate is made and different estimates or changes to an estimate could have a material impact on the reported financial position, changes in financial condition or results of operations. Such critical estimates are discussed below. For these, materially different amounts could be reported under varied conditions and assumption. Other items in the Company's consolidated financial statements require estimation, however, in our judgment, they are not as critical as those discussed below.

Product Warranty and Recall

The Company accrues for warranty obligations for products sold based on management estimates, with support from the Company’s sales, engineering, quality and legal functions, of the amount that eventually will be required to settle such obligations. This accrual is based on several factors, including contractual arrangements, past experience, current claims, production changes, industry developments and various other considerations. The Company accrues for product recall claims related to potential financial participation in customer actions to provide remedies as a result of actual or threatened regulatory or court actions or the Company’s determination of the potential for such actions. The Company's accrual for recall claims is based on specific facts and circumstances underlying individual claims with support from the Company’s engineering, quality and legal functions. Amounts accrued are based upon management’s best estimate of the amount that will ultimately be required to settle such claims. See Note 21 "Commitments and Contingencies" in Item 8 of this Report for additional information.

Restructuring

The Company accrued costs in connection with its restructuring of the engineering and administration organization. These accruals include estimates primarily related to employee headcount, local statutory benefits, and other employee termination costs. Actual costs may vary from these estimates. These accruals are reviewed on a quarterly basis and changes to restructuring actions are appropriately recognized when identified. See Note 7 “Restructuring” in Item 8 of this report for additional information.

Pension Plans

Many of the Company’s employees participate in defined benefit pension plans or retirement/termination indemnity plans. The Company has approximately $254 million in unfunded net pension liabilities as of December 31, 2017, of which approximately $193 million and $61million are attributable to U.S. and non-U.S. pension plans, respectively. The determination of the Company’s

37




obligations and expense for its pension plans is dependent on the Company’s selection of certain assumptions used by actuaries in calculating such amounts. Selected assumptions are described in Note 14 “Employee Retirement Benefits” to the Company’s consolidated financial statements included in Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K, which are incorporated herein by reference, including the discount rate, expected long-term rate of return on plan assets and rate of increase in compensation.

Actual results that differ from assumptions used are accumulated and amortized over future periods and, accordingly, generally affect recognized expense in future periods. Therefore, assumptions used to calculate benefit obligations as of the annual measurement date directly impact the expense to be recognized in future periods. The primary assumptions affecting the Company’s accounting for employee benefits, as of December 31, 2017, are as follows:

Long-term rate of return on plan assets: The expected long-term rate of return is used to calculate net periodic pension cost. The required use of the expected long-term rate of return on plan assets may result in recognized returns that are greater or less than the actual returns on those plan assets in any given year. Over time the expected long-term rate of return on plan assets is designed to approximate actual returns. The expected long-term rate of return for pension assets has been estimated based on various inputs, including historical returns for the different asset classes held by the Company’s trusts and its asset allocation, as well as inputs from internal and external sources regarding expected capital market returns, inflation and other variables.

In determining its pension expense for 2017, the Company used long-term rates of return on plan assets. For non-U.S. plans, the Company used expected rates of return ranging from 2.9% to 11.05%. For U.S. plans, the Company used an expected rate of return of 6.75%. The Company has set the assumptions for its 2018 pension expense which range from 2.8% to 9.75% outside the U.S. and 6.75% in the U.S. Actual returns on U.S. pension assets for 2017, 2016 and 2015 were 16.1%, 8.4% and (3.8)%.

Discount rate: The discount rate is used to calculate pension obligations. 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 .4% to 9.75% to determine its pension and other benefit obligations as of December 31, 2017, including weighted average discount rates of 3.65% for U.S. pension plans, and 3.28% for non-U.S. pension plans.

2017 and 2016 Discount Rate for Estimated Service and Interest Cost: Through December 31, 2015, the Company recognized service and interest components of pension expense using a single weighted average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period. The single weighted average discount method represents the constant annual rate required to discount all future benefit payments related to past service from the date of expected future payment to the measurement date, such that the aggregate present value equals the obligation. The U.S. and certain non-U.S. frozen plans do not have a service component, as additional benefits are no longer accrued.

During the fourth quarter of 2015, the Company changed the method used 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 election and adoption of this method provides a more precise measurement of service and interest costs by improving the correlation between projected benefit cash flows and the corresponding spot yield curve rates. The use of disaggregated discount rates results in a different amount of interest cost compared to the traditional single weighted-average discount rate approach because of different weightings given to each subset of payments. The use of disaggregated discount rates affects the amount of service cost because the benefit payments associated with new service credits for active employees tend to be of longer duration than the overall benefit payments associated with the plan’s benefit obligation. As a result, the payments would be associated with longer-term spot rates on the yield curve, resulting in lower present values than the calculations using the traditional single weighted-average discount rate.

This change does not affect the measurement of the total benefit obligation, but resulted in a decrease in the service and interest components of benefit cost beginning in 2016. Based on current economic conditions, the Company estimates that the service cost and interest cost for the affected plans was reduced by approximately $6 million in 2016 as a result of the change in method. The Company has accounted for this as a change in accounting estimate that is inseparable from a change in accounting principle, and accordingly has accounted for it on a prospective basis.

38




While the Company believes that these assumptions are appropriate, significant differences in actual experience or significant changes in these assumptions may materially affect the Company’s pension benefit obligations and its future expense. The following table illustrates the sensitivity to a change in certain assumptions for Company sponsored U.S. and non-U.S. pension plans on its 2017 funded status and 2018 pretax pension expense.
 
Impact on U.S. 2018 Pretax Pension Expense    
 
Impact on
U.S. Plan 2017
Funded Status
 
Impact on Non-U.S. 2018 Pretax Pension Expense     
 
Impact on
Non-U.S. Plan 2017
 Funded Status  
25 basis point decrease in discount rate (a)(b)
 -$1 million
 
-$28 million
 
Less than -$1 million
 
-$13 million
25 basis point increase in discount rate (a)(b)
 + $1 million
 
+$27 million
 
 Less than +$1 million
 
+$12 million
25 basis point decrease in expected return on assets (a)
 +$1.6 million
 
 
 
 Less than +$1 million
 
 
25 basis point increase in expected return on assets (a)
 -$1.6 million
 
 
 
 Less than -$1 million
 
 
____________
(a) Assumes all other assumptions are held constant.
(b) Excludes impact of assets used to hedge discount rate volatility.


Income Taxes

The Company is subject to income taxes in the U.S. and numerous non-U.S. jurisdictions. Significant judgment is required in determining the Company’s worldwide provision for income taxes, deferred tax assets and liabilities and the valuation allowance recorded against the Company’s net deferred tax assets. Deferred tax assets and liabilities are recorded for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company records a valuation allowance to reduce deferred tax assets when, based on all available evidence, both positive and negative, it is more likely than not that such assets will not be realized. This assessment, which is completed on a jurisdiction-by-jurisdiction basis, requires significant judgment, and in making this evaluation, the evidence considered by the Company includes, historical and projected financial performance, as well as the nature, frequency and severity of recent losses along with any other pertinent information.

In the ordinary course of the Company’s business, there are many transactions and calculations where the final tax determination is uncertain. The Company is regularly audited by tax authorities. Where appropriate, the Company accrues for contingencies related to income tax risks and non-income tax risks. See Note 16 "Income Taxes" in Item 8 of this Report for additional information.

Fair Value Measurements

The Company uses fair value measurements in the preparation of its financial statements, utilizing various inputs including those that can be readily observable, corroborated or are generally unobservable. The Company utilizes market-based data and valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Additionally, the Company applies assumptions that market participants would use in pricing an asset or liability, including assumptions about risk. See Note 19 "Fair Value Measurements" in Item 8 of this Report for additional information.

Recent Accounting Pronouncements

See Note 2 “Summary of Significant Accounting Policies” to the accompanying consolidated financial statements under Item 8 of this Report for a discussion of recent accounting pronouncements.

39




Forward-Looking Statements

Certain statements contained or incorporated in this Annual Report on Form 10-K which are not statements of historical fact constitute “Forward-Looking Statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Reform Act”). Forward-looking statements give current expectations or forecasts of future events. Words such as “anticipate”, “expect”, “intend”, “plan”, “believe”, “seek”, “estimate” and other words and terms of similar meaning in connection with discussions of future operating or financial performance signify forward-looking statements. These statements reflect the Company’s current views with respect to future events and are based on assumptions and estimates, which are subject to risks and uncertainties including those discussed in Item 1A under the heading “Risk Factors” and elsewhere in this report. Accordingly, undue reliance should not be placed on these forward-looking statements. Also, these forward-looking statements represent the Company’s estimates and assumptions only as of the date of this report. The Company does not intend to update any of these forward-looking statements to reflect circumstances or events that occur after the statement is made and qualifies all of its forward-looking statements by these cautionary statements.

You should understand that various factors, in addition to those discussed elsewhere in this document, could affect the Company’s future results and could cause results to differ materially from those expressed in such forward-looking statements, including:

Visteon’s ability to satisfy its future capital and liquidity requirements; Visteon’s ability to access the credit and capital markets at the times and in the amounts needed and on terms acceptable to Visteon; Visteon’s ability to comply with covenants applicable to it; and the continuation of acceptable supplier payment terms.
Visteon’s ability to satisfy its pension and other postretirement employee benefit obligations, and to retire outstanding debt and satisfy other contractual commitments, all at the levels and times planned by management.
Visteon’s ability to access funds generated by its foreign subsidiaries and joint ventures on a timely and cost-effective basis.
Changes in the operations (including products, product planning and part sourcing), financial condition, results of operations or market share of Visteon’s customers.
Changes in vehicle production volume of Visteon’s customers in the markets where it operates.
Increases in commodity costs or disruptions in the supply of commodities, including resins, copper, fuel and natural gas.
Visteon’s ability to generate cost savings to offset or exceed agreed-upon price reductions or price reductions to win additional business and, in general, improve its operating performance; to achieve the benefits of its restructuring actions; and to recover engineering and tooling costs and capital investments.
Visteon’s ability to compete favorably with automotive parts suppliers with lower cost structures and greater ability to rationalize operations; and to exit non-performing businesses on satisfactory terms, particularly due to limited flexibility under existing labor agreements.
Restrictions in labor contracts with unions that restrict Visteon’s ability to close plants, divest unprofitable, noncompetitive businesses, change local work rules and practices at a number of facilities and implement cost-saving measures.
The costs and timing of facility closures or dispositions, business or product realignments, or similar restructuring actions, including potential asset impairment or other charges related to the implementation of these actions or other adverse industry conditions and contingent liabilities.
Significant changes in the competitive environment in the major markets where Visteon procures materials, components or supplies or where its products are manufactured, distributed or sold.
Legal and administrative proceedings, investigations and claims, including shareholder class actions, inquiries by regulatory agencies, product liability, warranty, employee-related, environmental and safety claims and any recalls of products manufactured or sold by Visteon.
Changes in economic conditions, currency exchange rates, changes in foreign laws, regulations or trade policies or political stability in foreign countries where Visteon procures materials, components or supplies or where its products are manufactured, distributed or sold.
Shortages of materials or interruptions in transportation systems, labor strikes, work stoppages or other interruptions to or difficulties in the employment of labor in the major markets where Visteon purchases materials, components or supplies to manufacture its products or where its products are manufactured, distributed or sold.
Changes in laws, regulations, policies or other activities of governments, agencies and similar organizations, domestic and foreign, that may tax or otherwise increase the cost of, or otherwise affect, the manufacture, licensing, distribution, sale, ownership or use of Visteon’s products or assets.

40




Possible terrorist attacks or acts of war, which could exacerbate other risks such as slowed vehicle production, interruptions in the transportation system or fuel prices and supply.
The cyclical and seasonal nature of the automotive industry.
Visteon’s ability to comply with environmental, safety and other regulations applicable to it and any increase in the requirements, responsibilities and associated expenses and expenditures of these regulations.
Visteon’s ability to protect its intellectual property rights, and to respond to changes in technology and technological risks and to claims by others that Visteon infringes their intellectual property rights.
Visteon’s ability to quickly and adequately remediate control deficiencies in its internal control over financial reporting.
Other factors, risks and uncertainties detailed from time to time in Visteon’s Securities and Exchange Commission filings.

Item 7A.
Quantitative and Qualitative Disclosures About Market Risk

The primary market risks to which the Company is exposed include changes in foreign currency exchange rates, interest rates and certain commodity prices. The Company manages these risks through derivative instruments and various operating actions including fixed price contracts with suppliers and cost sourcing arrangements with customers. The Company's use of derivative instruments is limited to mitigation of market risks, including hedging activities. However, derivative instruments are not used for speculative or trading purposes, as per clearly defined risk management policies. Additionally, the Company's use of derivative instruments creates exposure to credit loss in the event of non-performance by the counter-party to the derivative financial instruments. The Company limits this exposure by entering into agreements directly with a variety of major financial institutions with high credit standards and that are expected to fully satisfy their obligations under the contracts. Additionally, the Company's ability to utilize derivatives to manage market risk is dependent on credit conditions and market conditions given the current economic environment.
Foreign Currency Risk

The Company’s net cash inflows and outflows exposed to the risk of changes in foreign currency exchange rates arise from the sale of products in countries other than the manufacturing source, foreign currency denominated supplier payments, debt and other payables, subsidiary dividends, investments in subsidiaries and anticipated foreign currency denominated transaction proceeds. Where possible, the Company utilizes derivative financial instruments to manage foreign currency exchange rate risks. Forward and option contracts may be utilized to reduce the impact to the Company's cash flow from adverse movements in exchange rates. Foreign currency exposures are reviewed periodically and any natural offsets are considered prior to entering into a derivative financial instrument. The Company’s current primary hedged foreign currency exposures include the Japanese Yen, Euro, Thai Baht, and Mexican Peso. Where possible, the Company utilizes a strategy of partial coverage for transactions in these currencies. The Company's policy requires that hedge transactions relate to a specific portion of the exposure not to exceed the aggregate amount of the underlying transaction.

In addition to the transactional exposure described above, the Company's operating results are impacted by the translation of its foreign operating income into U.S. dollars. The Company does not enter into foreign exchange contracts to mitigate this exposure.
The hypothetical pretax gain or loss in fair value from a 10% favorable or adverse change in quoted currency exchange rates would be approximately $29 million and $31 million for foreign currency derivative financial instruments as of December 31, 2017 and 2016, respectively. These estimated changes assume a parallel shift in all currency exchange rates and include the gain or loss on financial instruments used to hedge investments in subsidiaries. Because exchange rates typically do not all move in the same direction, the estimate may overstate the impact of changing exchange rates on the net fair value of the Company's financial derivatives. It is also important to note that gains and losses indicated in the sensitivity analysis would generally be offset by gains and losses on the underlying exposures being hedged.

41




Interest Rate Risk

See Note 20 "Financial Instruments" to the consolidated financial statements included in Item 8 for additional information.

Commodity Risk

The Company's exposures to market risk from changes in the price of production material are managed primarily through negotiations with suppliers and customers, although there can be no assurance that the Company will recover all such costs. The Company continues to evaluate derivatives available in the marketplace and may decide to utilize derivatives in the future to manage select commodity risks if an acceptable hedging instrument is identified for the Company's exposure level at that time, as well as the effectiveness of the financial hedge among other factors.

42




Item 8.
Financial Statements and Supplementary Data

Visteon Corporation and Subsidiaries

Index to Consolidated Financial Statements


43




Management's Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined under Rule 13a-15(f) of the Securities Exchange Act of 1934. Under the supervision and with the participation of the principal executive and financial officers of the Company, an evaluation of the effectiveness of internal control over financial reporting was conducted based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations (“the COSO 2013 Framework”) of the Treadway Commission.

Based on the evaluation performed under the COSO 2013 Framework as of December 31, 2017, management has concluded that the Company’s internal control over financial reporting is effective. Additionally, Ernst & Young LLP, an independent registered public accounting firm, has audited the effectiveness of the Company’s internal control over financial reporting as of December 31, 2017, as stated in their report which is included herein.

44




Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Visteon Corporation

Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Visteon Corporation and subsidiaries (the Company) as of December 31, 2017 and 2016, the related consolidated statements of operations, comprehensive income, cash flows and changes in equity for each of the three years in the period ended December 31, 2017, and the related notes and financial statement schedule included in Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 22, 2018 expressed an unqualified opinion thereon.

Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.




/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2012.
Detroit, Michigan
February 22, 2018




















45





Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Visteon Corporation

Opinion on Internal Control over Financial Reporting
We have audited Visteon Corporation and subsidiaries’ internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Visteon Corporation and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the 2017 consolidated financial statements of the Company and our report dated February 22, 2018 expressed an unqualified opinion thereon.

Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.




/s/ Ernst & Young LLP
Detroit, Michigan
February 22, 2018

46




VISTEON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
 
Year Ended December 31
 
2017
 
2016
 
2015
 
(Dollars in Millions, Except Per Share Amounts)
Sales
$
3,146

 
$
3,161

 
$
3,245

Cost of sales
2,647

 
2,697

 
2,815

Gross margin
499

 
464

 
430

Selling, general and administrative expenses
222

 
220

 
245

Restructuring expense, net
14

 
49

 
36

Interest expense
21

 
18

 
19

Interest income
5

 
6

 
5

Equity in net income of non-consolidated affiliates
7

 
2

 
7

Loss on divestiture
33

 

 
105

Gain on sale of non-consolidated affiliates
4

 

 
62

Loss on debt extinguishment

 

 
5

Other expense, net
2

 
24

 
25

Income before income taxes
223

 
161

 
69

Provision for income taxes
48

 
30

 
27

Net income from continuing operations
175

 
131

 
42

Net income (loss) from discontinued operations, net of tax
17

 
(40
)
 
2,286

Net income
192

 
91

 
2,328

Net income attributable to non-controlling interests
16

 
16

 
44

Net income attributable to Visteon Corporation
$
176

 
$
75

 
$
2,284

Basic earnings (loss) per share:
 
 
 
 
 
    Continuing operations
$
5.03

 
$
3.28

 
$
0.52

    Discontinued operations
0.54

 
(1.14
)
 
53.48

    Basic earnings per share attributable to Visteon Corporation
$
5.57

 
$
2.14

 
$
54.00

Diluted earnings (loss) per share:
 
 
 
 
 
    Continuing operations
$
4.94

 
$
3.25

 
$
0.51

    Discontinued operations
0.53

 
(1.13
)
 
52.12

    Diluted earnings per share attributable to Visteon Corporation
$
5.47

 
$
2.12

 
$
52.63


See accompanying notes to the consolidated financial statements.

47




VISTEON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 
Year Ended December 31
 
2017
 
2016
 
2015
 
(Dollars in Millions)
Net income
$
192

 
$
91

 
$
2,328

   Foreign currency translation adjustments
68

 
(11
)
 
(37
)
   Net investment hedge
(22
)
 
6

 
4

   Benefit plans, net of tax (a)
12

 
(39
)
 
121

   Unrealized hedging (losses) gains and other, net of tax (b)
6

 
(6
)
 
8

Other comprehensive income (loss), net of tax
64

 
(50
)
 
96

Comprehensive income
256

 
41

 
2,424

Comprehensive income attributable to non-controlling interests
21

 
9

 
31

Comprehensive income attributable to Visteon Corporation
$
235

 
$
32

 
$
2,393

(a) Other comprehensive income (loss) is net of tax expense of $1 million for the year ended December 31, 2017, tax benefit of $3 million for the year ended December 31,2016, and a tax expense of $3 million for the year ended December 31, 2015.
(b) Other comprehensive income (loss) is net of a tax expense of $1 million for the year ended December 31, 2017, tax benefit of $2 million for the year ended December 31, 2016, and a tax expense of $2 million for the year ended December 31, 2015.

See accompanying notes to the consolidated financial statements.

48

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