Visteon Corporation — Fiscal 2021 Form 10-K Summary
Business Context and Reporting Period
Visteon is a global automotive electronics supplier with one reportable segment, Electronics. Its products include instrument clusters, displays, infotainment systems, battery management systems, telematics, cockpit and body domain controllers, and advanced driver-assistance platforms. The filing covers the fiscal year ended December 31, 2021, with comparisons to 2020 and 2019. The business serves major global OEMs, including Ford, BMW, Volkswagen, Renault, Nissan, General Motors, Stellantis and others. Ford represented 22% of 2021 sales and BMW represented 11%.
Financial Performance and Position
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Net sales | $2,773 million | $2,548 million | +$225 million |
| Gross margin | $254 million | $245 million | +$9 million |
| Gross margin percentage | 9.2% | 9.6% | Down approximately 40 basis points |
| SG&A | $175 million | $193 million | -$18 million |
| Restructuring and impairment expense | $14 million | $76 million | -$62 million |
| Income before taxes | $81 million | $(20) million | +$101 million |
| Net income attributable to Visteon | $41 million | $(56) million | +$97 million |
| Diluted earnings per share | $1.44 | $(2.01) | Improved |
| Adjusted EBITDA | $228 million | $192 million | +$36 million |
| Adjusted EBITDA margin | 8.2% | 7.5% | Up approximately 70 basis points |
Sales increased 9% year over year, including a $52 million favorable currency impact. Volume, mix and net new business contributed $185 million, while customer pricing contributed $8 million. Supply-chain and material-cost pressures, primarily related to semiconductor shortages, reduced cost performance and other results by approximately $47 million at the gross-margin level.
Cash flow from operating activities was $58 million, down from $168 million in 2020, primarily because of higher inventory and accounts receivable. Capital expenditures, including intangibles, were $70 million, and net cash used in investing activities was $63 million. Net cash used in financing activities was $29 million.
Cash and equivalents were $452 million at year-end, or $455 million including restricted cash. Total debt was approximately $353 million, consisting of $349 million of long-term debt and $4 million of short-term borrowings. The company had $400 million available under its revolving credit facility and $168 million available under affiliate credit facilities. It was in compliance with debt covenants. The term facility matures in March 2024, while the revolving facility generally matures in December 2024 or earlier under specified conditions.
Total assets were $2.234 billion and total equity was $616 million at December 31, 2021. Net unfunded pension liabilities were approximately $177 million. The company paid no common-stock dividends in 2021 or 2020.
Material Changes Versus the Prior Comparable Period
- Revenue increased primarily from improved volume, mix and new business, despite constrained global vehicle production.
- Adjusted EBITDA increased to $228 million, supported by volume and mix, currency, lower net engineering costs, lower warranty expense and cost actions.
- Net income attributable to Visteon returned to profitability from a 2020 loss, helped by lower restructuring expense, lower SG&A and higher gross margin.
- Operating cash flow declined substantially because semiconductor shortages led to higher inventory, while accounts receivable also increased.
- Restructuring and impairment expense fell to $14 million from $76 million. The 2021 amount included a $9 million non-cash impairment of property and equipment in Brazil and approximately $4 million of restructuring expense.
- Inventories increased to $262 million from $177 million, primarily reflecting raw-material purchases and supply-chain constraints.
- Warranty and recall accruals declined to $50 million from $64 million.
- Employee-benefit liabilities declined to $198 million from $322 million, partly reflecting favorable pension actuarial changes and improved funded status.
Guidance, Outlook, Commentary, Risks and Unusual Items
Management did not provide specific quantitative 2022 revenue or earnings guidance in the filing. Management expects vehicle demand to increase in 2022 because of strong consumer demand and historically low dealer inventories, but anticipates that semiconductor shortages will continue to constrain production.
Strategic priorities are technology innovation, long-term growth and shareholder returns while maintaining a strong balance sheet. During 2021, Visteon launched 43 new products and reported $5.1 billion of new-business awards, including SmartCore domain-controller, display, instrument-cluster and battery-management-system wins. Management stated that the company continued to outperform customer and industry production volumes.
- Supply chain: Semiconductor shortages, component availability, logistics constraints, supplier distress and supplier price increases could restrict production, increase premium freight and overtime costs, and result in customer claims.
- COVID-19 and vehicle production: Pandemic-related disruptions and the cyclical nature of automotive production may continue to affect customers, suppliers, facilities and demand.
- Customer concentration and pricing: Ford accounted for 22% of sales. OEM contracts generally do not guarantee minimum volumes and may allow termination for convenience, creating volume, pricing and margin risk.
- Restructuring: The company expects restructuring actions to continue and stated that current restructuring reserves should be substantially utilized by the end of 2022; future charges and savings remain uncertain.
- Contingencies: Visteon disclosed litigation with the Van Buren Township, Michigan development authority involving claimed damages of $28 million, but cannot estimate the possible loss. An OFAC review of historical sales involving Iran also remains unresolved, with potential penalties that cannot be estimated.
- Customer supply claims: Certain customers have reserved rights to seek damages associated with semiconductor-related production reductions. Visteon believes it has legal defenses and intends to defend such claims.
- Brazil claims: The company had approximately $8 million accrued for Brazilian claims aggregating approximately $51 million.
- Taxes: The company had large U.S. and non-U.S. tax attribute carryforwards, substantial valuation allowances and approximately $16 million of gross unrecognized tax benefits. The timing and outcome of tax examinations remain uncertain.
- Audit and controls: Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting. Management concluded internal controls were effective at December 31, 2021.
Investor Verification Checklist
- Verify the full-year financial statements and reconcile reported GAAP earnings with Adjusted EBITDA.
- Assess whether semiconductor availability, inflation and customer recoveries are improving or worsening margins and operating cash flow.
- Monitor inventory, accounts receivable and working-capital trends after the 2021 cash-flow decline.
- Review debt maturities, covenant compliance, interest-rate exposure and available revolving-credit capacity.
- Evaluate the durability of the $5.1 billion of awarded business, noting that OEM production volumes are generally not guaranteed.
- Track Ford and BMW concentration, customer pricing pressure and potential OEM termination or insourcing decisions.
- Review the Brazil impairment, restructuring execution and any additional footprint-rationalization charges.
- Follow the Van Buren Township litigation, OFAC review, semiconductor-related customer claims and other warranty, recall and legal contingencies.
- Assess pension funding needs, tax valuation allowances, unrecognized tax benefits and the potential utilization of tax attributes.