Edgar Filing: VISTEON CORP

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

________________

FORM 10-Q

(Mark One)


þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2016,


¨	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

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

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 (§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 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 __

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes __ No ü

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 July 21, 2016, the registrant had outstanding 34,012,831 shares of common stock.

Exhibit index located on page number 63.

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Visteon Corporation and Subsidiaries

Index



Part I - Financial Information		Page
	Item 1 - Consolidated Financial Statements	3
	Consolidated Statements of Comprehensive Income (Unaudited)	3
	Consolidated Balance Sheets (Unaudited)	4
	Consolidated Statements of Cash Flows (Unaudited)	5
	Notes to Consolidated Financial Statements (Unaudited)	6
	Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations	31
	Item 3 - Quantitative and Qualitative Disclosures about Market Risk	58
	Item 4 - Controls and Procedures	59
Part II - Other Information		60
	Item 1 - Legal Proceedings	60
	Item 1A - Risk Factors	60
	Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds	60
	Item 6 - Exhibits	61
Signatures		62
Exhibit Index		63

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Part I

Financial Information


Item 1.	Consolidated Financial Statements

VISTEON CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in Millions Except Per Share Amounts)

(Unaudited)



	Three Months Ended June 30						Six Months Ended June 30
	2016			2015			2016			2015
Sales	$	773		$	812		$	1,575		$	1,628
Cost of sales	664			713			1,345			1,417
Gross margin	109			99			230			211
Selling, general and administrative expenses	54			65			110			123
Restructuring expense	7			12			17			15
Interest expense	4			7			8			12
Interest income	1			1			3			1
Equity in net income of non-consolidated affiliates	3			12			3			11
Loss on debt extinguishment	—			5			—			5
Gain on sale of non-consolidated affiliates	—			62			—			62
Other (income) expense, net	—			(4		)	4			8
Income before income taxes	48			89			97			122
Provision for income taxes	9			24			22			33
Net income from continuing operations	39			65			75			89
(Loss) income from discontinued operations, net of tax	(9		)	2,159			(22		)	2,205
Net income	30			2,224			53			2,294
Net income attributable to non-controlling interests	4			16			8			36
Net income attributable to Visteon Corporation	$	26		$	2,208		$	45		$	2,258

Basic earnings (loss) per share:
Continuing operations	$	1.03		$	1.34		$	1.85		$	1.76
Discontinued operations	(0.26		)	49.54			(0.61		)	49.79
Basic earnings per share attributable to Visteon Corporation	$	0.77		$	50.88		$	1.24		$	51.55

Diluted earnings (loss) per share:
Continuing operations	$	1.02		$	1.31		$	1.83		$	1.71
Discontinued operations	(0.26		)	48.42			(0.60		)	48.58
Diluted earnings per share attributable to Visteon Corporation	$	0.76		$	49.73		$	1.23		$	50.29

Comprehensive income:
Comprehensive income	$	29		$	2,303		$	71		$	2,323
Comprehensive income attributable to Visteon Corporation	$	27		$	2,288		$	65		$	2,296

See accompanying notes to the consolidated financial statements.

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VISTEON CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in Millions)



	(Unaudited)
	June 30			December 31
	2016			2015
ASSETS
Cash and equivalents	$	846		$	2,728
Short-term investments	—			47
Restricted cash	6			8
Accounts receivable, net	483			502
Inventories, net	187			187
Other current assets	189			581
Total current assets	1,711			4,053

Property and equipment, net	342			351
Intangible assets, net	123			133
Investments in non-consolidated affiliates	58			56
Other non-current assets	110			88
Total assets	$	2,344		$	4,681

LIABILITIES AND EQUITY
Distribution payable	$	15		$	1,751
Short-term debt, including current portion of long-term debt	25			37
Accounts payable	455			482
Accrued employee liabilities	96			132
Other current liabilities	279			370
Total current liabilities	870			2,772

Long-term debt	347			346
Employee benefits	259			268
Deferred tax liabilities	23			21
Other non-current liabilities	81			75

Stockholders’ equity:
Preferred stock (par value $0.01, 50 million shares authorized, none outstanding at June 30, 2016 and December 31, 2015)	—			—
Common stock (par value $0.01, 250 million shares authorized, 55 million and 55 million shares issued, and 34 million and 40 million shares outstanding at June 30, 2016 and December 31, 2015, respectively)	1			1
Additional paid-in capital	1,245			1,345
Retained earnings	1,239			1,194
Accumulated other comprehensive loss	(170		)	(190		)
Treasury stock	(1,699		)	(1,293		)
Total Visteon Corporation stockholders’ equity	616			1,057
Non-controlling interests	148			142
Total equity	764			1,199
Total liabilities and equity	$	2,344		$	4,681

See accompanying notes to the consolidated financial statements.

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VISTEON CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS¹

(Dollars in Millions)

(Unaudited)



	Six Months Ended June 30
	2016			2015
Operating Activities
Net income	$	53		$	2,294
Adjustments to reconcile net income to net cash provided from operating activities:
Depreciation and amortization	41			127
Equity in net income of non-consolidated affiliates, net of dividends remitted	(3		)	(2		)
Non-cash stock-based compensation	4			6
Loss (gain) on Climate Transaction	2			(2,332		)
Gain on sale of non-consolidated affiliates	—			(62		)
Losses on divestitures and impairments	2			16
Loss on debt extinguishment	—			5
Other non-cash items	1			3
Changes in assets and liabilities:
Accounts receivable	27			(18		)
Inventories	5			(32		)
Accounts payable	(17		)	32
Accrued income taxes	(49		)	142
Other assets and other liabilities	(52		)	25
Net cash provided from operating activities	14			204
Investing Activities
Capital expenditures	(37		)	(122		)
Climate Transaction withholding tax refund	356			—
Short-term investments	47			—
Loans to non-consolidated affiliates	(12		)	(10		)
Net proceeds from Climate Transaction	—			2,664
Proceeds from asset sales and business divestitures	4			91
Payments associated with business divestitures, net	—			(24		)
Other	—			5
Net cash provided from investing activities	358			2,604
Financing Activities
Short-term debt, net	(10		)	(6		)
Principal payments on debt	(1		)	(250		)
Distribution payments	(1,736		)	—
Repurchase of common stock	(500		)	(500		)
Dividends paid to non-controlling interests	—			(31		)
Exercised warrants and stock options	—			19
Stock based compensation tax withholding payments	(11		)	—
Other	—			(1		)
Net cash used by financing activities	(2,258		)	(769		)
Effect of exchange rate changes on cash and equivalents	4			(9		)
Net (decrease) increase in cash and equivalents	(1,882		)	2,030
Cash and equivalents at beginning of the period	2,729			827
Cash and equivalents at end of the period	$	847		$	2,857

¹ The Company has combined cash flows from discontinued operations with cash flows from continuing operations within the operating, investing and financing categories. As such, cash and equivalents above include amounts reflected in assets held for sale within other current assets on the Consolidated Balance Sheets.

See accompanying notes to the consolidated financial statements.

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VISTEON CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. 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, Nissan, Renault, Mazda, BMW, General Motors and Honda. 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 11,000 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 delivers value for its customers and stockholders through its technology-focused core vehicle cockpit electronics business. The Company's cockpit electronics product portfolio includes audio systems, information displays, instrument clusters, head up displays, infotainment systems, and telematics solutions. The Company's vehicle cockpit electronics business is comprised of and reported under the Electronics segment. In addition to the Electronics segment, the Company has residual operations in South America and Europe previously associated with the former Interiors and Climate businesses, not subject to discontinued operations classification, that comprise Other. A summary of transactions impacting the Company's businesses is provided below.

Exit of Climate Business

On June 9, 2015, Visteon Corporation and its wholly owned subsidiary, VIHI, LLC (collectively, “Visteon”) completed the sale to Hahn & Co. Auto Holdings Co., Ltd. and Hankook Tire Co., Ltd. (together, the “Purchasers”) of all of its shares of Halla Visteon Climate Control Corporation, a Korean corporation (“HVCC”), for approximately $3.4 billion, or KRW 52,000 per share, after adjusting for the 2014 dividend paid by HVCC to Visteon (the “Climate Transaction”), pursuant to and in accordance with the Share Purchase Agreement, dated as of December 17, 2014, among Visteon and the Purchasers. See Note 3 "Discontinued Operations" for additional disclosures. 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 2015. The results of operations for the Climate business have been classified as (loss) income from discontinued operations, net of tax in the consolidated statements of comprehensive income for the three and six month periods ended June 30, 2015.

On July 18, 2016, the Company reached an agreement to sell its South Africa climate operations, with 2015 annual sales of $9 million as reported in the Company’s Other product line. The sale is expected to close during the third quarter of 2016 for proceeds of approximately $2 million. The Company expects to record a loss of approximately $12 million primarily related to foreign currency translation amounts recorded in accumulated other comprehensive loss.

Exit of Interiors Business

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 will make a final contribution payment of approximately $33 million by November 2016 which is included in the Company's consolidated balance sheet as "Other current liabilities" as of June 30, 2016.

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. Remaining operations subject to the Interiors Divestiture are located in Argentina and Brazil and are expected to close during 2016. Assets and liabilities associated with these operations continue to meet the "held for sale" criteria at June 30, 2016 and are classified as "Other current assets" or "Other current liabilities" in the consolidated balance sheets. These remaining transactions are subject to various conditions, including regulatory and antitrust approvals, receipt of other third party consents and approvals and other customary closing conditions, and may be subject to further cash impacts based on purchase price adjustments at the time of closing. See Note 3 "Discontinued Operations" for additional disclosures. The Company expects to record losses in connection with the Argentina and Brazil portions of the Interiors Divestiture in future periods upon closing, which are estimated to be approximately $20 million.

NOTE 2. Summary of Significant Accounting Policies

The unaudited consolidated financial statements of the Company have been prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP") have been condensed or omitted pursuant to such rules and regulations. These interim consolidated financial statements include all adjustments

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(consisting of normal recurring adjustments, except as otherwise disclosed) that management believes are necessary for a fair presentation of the results of operations, financial position and cash flows of the Company for the interim periods presented. Interim results are not necessarily indicative of full-year results.

Principles of Consolidation: The consolidated financial statements include the accounts of the Company and all subsidiaries that are more than 50% owned and over which the Company exercises control. Investments in affiliates of greater than 20% and for which the Company exercises significant influence but does not exercise control are accounted for using the equity method. All other investments in non-consolidated affiliates are accounted for using the cost method.

The Company determines whether joint ventures in which it has invested is a Variable Interest Entity (“VIE”) at the start of each new venture and when a reconsideration event has occurred. An enterprise must consolidate a VIE if it is determined to be the primary beneficiary of the VIE. The primary beneficiary has both the power to direct the activities of the VIE that most significantly impact the entity’s economic performance and the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE.

The Company determined that Yanfeng Visteon Electronics (China) Investment Co., Ltd. ("YFVIC"), is a VIE. The Company holds a variable interest in YFVIC primarily related to its ownership interests and subordinated financial support. The Company and Yanfeng Automotive Trim Systems Co., Ltd. (an unrelated party) each own 50% of YFVIC. YFVIC is not consolidated since the Company is not the primary beneficiary.

At June 30, 2016, the Company’s investment in YFVIC is $24 million. In addition, at June 30, 2016, the Company has receivables due from YFVIC, including trade receivables and other advances of $18 million, subordinated loans receivable of $22 million and payables due to YFVIC of $13 million. At December 31, 2015, the Company’s investment in YFVIC was $23 million and it had receivables due from YFVIC, including trade receivables and other advances of $36 million, a subordinated loan receivable of $10 million and payables due to YFVIC of $17 million. At June 30, 2016, the Company’s maximum exposure to loss in YFVIC is $90 million, which includes assets described above and a $26 million loan guarantee. During the three and six months ended June 30, 2016, Visteon loaned YFVIC and affiliates approximately $4 million and $12 million, respectively, expected to be repaid within five years.

On July 22, 2016, the Company sold a cost method investment to a third party for proceeds of approximately $11 million. The Company will record a gain on sale of approximately $5 million during the third quarter of 2016.

Use of Estimates: The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect amounts reported herein. Management believes that such estimates, judgments and assumptions are reasonable and appropriate. However, due to the inherent uncertainty involved, actual results may differ from those provided in the Company's consolidated financial statements.

Reclassifications: Certain prior period amounts have been reclassified to conform to the current period presentation.

Other (Income) Expense, Net: Other (income) expense, net includes transformation initiatives, transaction hedging and exchange, and integration costs.

Other (income) expense, net consists of the following:



	Three Months Ended June 30						Six Months Ended June 30
	2016			2015			2016			2015
	(Dollars in Millions)
Transformation initiatives	$	1		$	13		$	3		$	18
Transaction hedging and exchange (gains) losses	—			(22		)	1			(19		)
Integration costs	—			5			1			9
Recoverable taxes	(1		)	—			(1		)	—
	$	—		$	(4	)	$	4		$	8

Transformation initiatives include information technology separation costs and financial and advisory services incurred in connection with execution of the Company's comprehensive value creation plan. Transaction hedging and exchange losses of $1 million for the six months ended June 30, 2016 , relate to the Climate Transaction Korean withholding tax refund exchange impacts.

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Transaction hedging and exchange gains for the three and six months ended June, 30 2015 of $22 million and $19 million, respectively, relate to Climate Transaction proceeds hedging and exchange impacts.

Integration costs include costs associated with re-branding, facility modification, information technology readiness and related professional services necessary to integrate businesses associated with the Electronics Acquisition.

Cash and Equivalents: The Company considers all highly liquid investments purchased with a maturity of three months or less, including short-term time deposits, commercial paper, repurchase agreements and money market funds to be cash equivalents. As of June 30, 2016 the Company's cash balances are invested in a diversified portfolio of cash and cash equivalents including money market funds, commercial paper rated A2/P2 and above with maturity under three months, time deposits and other short-term cash investments, which mature under three months with highly rated banking institutions. The cost of such funds approximates fair value based on the nature of the investment.

Short-term Investments: Short-term investments of $47 million as of December 31, 2015 included corporate bonds, asset backed securities, and commercial paper with maturities between three and twelve months held as part of the Company's separately managed accounts. The cost of these Level 1 investments approximated fair value. These investments were liquidated during the first quarter of 2016.

Restricted Cash: Restricted cash represents amounts designated for uses other than current operations and includes $5 million related to the Letter of Credit Facility, and $1 million related to cash collateral for other corporate purposes at June 30, 2016.

Investments in Affiliates: The Company recorded equity in the net income of affiliates of $3 million and $12 million for the three month periods ended June 30, 2016 and 2015 respectively. For the six month periods ended June 30, 2016 and 2015, the Company recorded $3 million and $11 million, respectively. Investments in affiliates were $58 million and $56 million at June 30, 2016 and December 31, 2015, respectively. At June 30, 2016 and December 31, 2015, investments in affiliates accounted for under the equity method totaled $47 million and $45 million, respectively, while investments in affiliates accounted for under the cost method were $11 million at June 30, 2016 and December 31, 2015. The Company monitors its investments in affiliates for indicators of other-than-temporary declines in value on an ongoing basis. If the Company determines that such a decline has occurred, an impairment loss is recorded, which is measured as the difference between carrying value and fair value.

Product Warranty and Recall: Amounts accrued for product warranty and recall claims are based on management’s best estimates of the amounts that will ultimately be required to settle such items. The Company’s estimates for product warranty and recall obligations are developed with support from its sales, engineering, quality and legal functions and include due consideration of contractual arrangements, past experience, current claims and related information, production changes, industry and regulatory developments and various other considerations. The Company can provide no assurances that it will not experience material claims in the future or that it will not incur significant costs to defend or settle such claims beyond the amounts accrued or beyond what the Company may recover from its suppliers. The following table provides a reconciliation of changes in the product warranty and recall claims liability:



	Six Months Ended June 30
	2016			2015
	(Dollars in Millions)
Beginning balance	$	38		$	20
Accruals for products shipped	8			8
Changes in estimates	1			—
Specific cause actions	(1		)	8
Recoverable warranty/recalls	(1		)	5
Foreign currency	1			(3		)
Settlements	(9		)	(3		)
Ending balance	$	37		$	35

Recently Issued Accounting Pronouncements: In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU No. 2014-9, "Revenue from Contracts with Customers", which is the new comprehensive revenue recognition standard that will supersede existing revenue recognition guidance under U.S. GAAP. The standard's core principle is that a company will recognize revenue when it transfers promised goods or services to a customer in an amount that reflects the consideration to which the

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company expects to be entitled in exchange for those goods and services. To achieve this principle, an entity identifies the contract with a customer, identifies the separate performance obligations in the contract, determines the transaction price, allocates the transaction price to the separate performance obligations and recognizes revenue when each separate performance obligation is satisfied. This ASU allows for both retrospective and prospective methods of adoption. In July 2015, the FASB approved a one-year deferral of the effective date of the standard. As such, the new standard will become effective for annual and interim periods beginning after December 15, 2017 with early adoption on the original effective date permitted. The Company is currently evaluating the impact of adopting this standard on its consolidated financial statements and anticipates changes to the revenue recognition of customer owned tooling and engineering recoveries. The Company expects to adopt this standard during the first quarter 2018.

In April 2015, the FASB issued ASU No. 2015-3, "Simplifying the Presentation of Debt Issuance Cost". The ASU requires debt issuance costs associated with a recognized debt liability to be presented on the balance sheet as a direct deduction from the carrying amount of the corresponding debt liability. This new guidance is effective for interim and annual reporting periods beginning after December 15, 2015, with early adoption permitted. The Company adopted the guidance on a retrospective basis during the three months ending March 31, 2016 and accordingly, previously issued debt issuance costs in the amount of $1 million as of December 31, 2015 have been reclassified as a reduction of the corresponding debt liability.

In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)": The amendments supersede current lease requirements in Topic 840 which require lessees to recognize most leases on their balance sheets as lease liabilities with corresponding right-of-use assets. The objective of Topic 842 is to establish the principles that lessees and lessors shall apply to report useful information to users of financial statements about the amount, timing, and uncertainty of cash flows arising from a lease. This new guidance is effective for interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the impact of adopting this standard on its consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, "Compensation Stock Compensation (Topic 718)": Improvements to Employee Share-Based Payment Accounting. The ASU includes multiple provisions intended to simplify various aspects of the accounting for share-based payments. While aimed at reducing the cost and complexity of the accounting for share-based payments, the amendments are expected to significantly impact net income, earnings per share, and the statement of cash flows. This new guidance is effective for interim and annual reporting periods beginning after December 15, 2016, with early adoption permitted. The Company is currently evaluating the impact of adopting this standard on its consolidated financial statements.

NOTE 3. 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 Interiors business subject to the Interiors Divestiture have been reclassified to (loss) income from discontinued operations, net of tax in the consolidated statements of comprehensive income for the three and six month periods ended June 30, 2016 and 2015. The three and six month periods ended June 30, 2015 also included the results of operations for the Climate business, sold during the second quarter of 2015.

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Discontinued operations are summarized as follows:



	Three Months Ended June 30						Six Months Ended June 30
	2016			2015			2016			2015
	(Dollars in Millions)
Sales	$	11		$	933		$	20		$	2,168
Cost of sales	15			862			28			2,000
Gross margin	(4		)	71			(8		)	168
Selling, general and administrative expenses	2			35			2			75
Loss (gain) on Climate Transaction	2			(2,332		)	2			(2,332		)
Loss and impairment on Interiors Divestiture	1			2			2			16
Restructuring expense	—			1			—			2
Interest expense, net	—			1			—			2
Equity in net income of non-consolidated affiliates	—			3			—			6
Other (income) expense, net	1			(1		)	1			5
(Loss) income from discontinued operations before income taxes	(10		)	2,368			(15		)	2,406
(Benefit) Provision for income taxes	(1		)	209			7			201
(Loss) income from discontinued operations, net of tax	(9		)	2,159			(22		)	2,205
Net income attributable to non-controlling interests	—			9			—			24
Net (loss) income from discontinued operations attributable to Visteon	$	(9	)	$	2,150		$	(22	)	$	2,181

During the six months ended June 30, 2016, the Company recorded currency impacts of $8 million in connection with the Korean capital gains withholding tax recovered during the first quarter of 2016.

During the three month period ended June 30, 2015, the Company received $3.4 billion of gross proceeds and recorded a $2.3 billion in pre-tax gain associated with the Climate Transaction. A summary of the gain is summarized below (dollars in millions):




Gross proceeds	(1)	$	3,423
Korea withholding tax	(2)	(377		)
Professional fees	(3)	(20		)
Korea security transaction tax	(4)	(17		)
Divested cash balances	(5)	(345		)
Net cash provided from investing activities		2,664
Net assets divested, excluding cash balances	(5)	(557		)
Information technology separation and service obligations	(6)	(53		)
Employee related charges	(7)	(45		)
Electronics business repurchase obligation	(8)	(50		)
Professional fees	(3)	(4		)
Korea withholding tax recoverable	(2)	377
Net gain on Climate Transaction		$	2,332

(1) Gross proceeds of $3,423 million were received in connection with the Climate Transaction, translated at a spot rate of 1121.5 KRW to USD on June 9, 2015. Impacts of related hedging activities and exchange on proceeds conversion into USD are included in the Company's consolidated statements of comprehensive income as "Other (income) expense, net" for the three and six month periods ended June 30, 2015.

(2) In connection with the transaction, the Company recorded a tax recoverable of $377 million for Korean capital gains tax withheld by the Purchasers and paid to the Korean government. This amount reduced proceeds classified as net cash provided from investing activities within the Company's consolidated statements of cash flows for the six months ended June 30, 2015. In January 2016, the Company recovered the entire amount of the Korean capital gains withholding tax, adjusted for currency and exchange impacts, of $356 million.

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(3) Professional fees of $24 million, representing fees paid to financial advisors, were based on a percentage of the gross proceeds, partially offset by previously paid retainer fees of $4 million, for a net payment of $20 million reducing proceeds classified as net cash provided from investing activities within the Company's consolidated statements of cash flows for the six months ended June 30, 2015.

(4) Security transaction taxes of $17 million were remitted to the Korean government as of the transaction close, reducing proceeds classified as net cash provided from investing activities within the Company's consolidated statements of cash flows for the six months ended June 30, 2015.

(5) Net assets of $902 million, including assets, liabilities, accumulated other comprehensive income and non-controlling interests, were divested in connection with the Climate Transaction. Divested assets included $345 million of cash balances, reflected as a reduction of transaction proceeds classified as net cash provided from investing activities within the Company's consolidated statements of cash flows for the six months ended June 30, 2015.

(6) In connection with the Climate Transaction, the Company has entered an agreement pursuant to which Visteon will provide information technology ongoing and separation services for HVCC to fully operate as an independent entity with estimated costs of approximately $53 million. The information technology liability is included in the Company's consolidated balance sheets as "Other current liabilities" as of June 30, 2016 and December 31, 2015.

(7) Employee related charges of $45 million include bonus payments, the Company's assumption of incentive plan liabilities, and impacts of employment change in control provisions. Bonus payments of $30 million are classified in the Company's net cash provided from operating activities within the Company's consolidated statements of cash flows for the six months ended June 30, 2015. Amounts remaining to be paid are included in the Company's consolidated balance sheets as "Accrued employee liabilities" as of June 30, 2016 and December 31, 2015.

(8) In connection with the Climate Transaction, the Company has entered an agreement to purchase certain electronics operations located in India, expected to close in 2016 after legal separation and regulatory approvals are met. The Company has recorded a repurchase obligation of $50 million, representing the estimated purchase price of the subject business. The Company continues to consolidate the business, with net assets of approximately $22 million as of June 30, 2016, based on the Company’s continued controlling financial interest. The Company’s controlling financial interest was evaluated based on continued operating control and obligation to fund losses or benefit from earnings. The business is included in a legal entity currently owned by HVCC and therefore the Electronics business assets are not available for general corporate purposes. The repurchase obligation is included in the Company’s consolidated balance sheets as “Other current liabilities” as of June 30, 2016 and December 31, 2015.

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As of June 30, 2016 and December 31, 2015, held for sale balances include assets and liabilities associated with operations subject to the Interiors Divestiture located in Argentina and Brazil.

Held for sale balances, classified as "Other current assets" and "Other current liabilities" on the consolidated balance sheets are summarized as follows:



	June 30		December 31
	2016		2015
	(Dollars in Millions)
ASSETS HELD FOR SALE
Cash and equivalents	$	1	$	1
Accounts receivable, net	12		9
Inventories, net	5		4
Other current assets	3		3
Total current assets held for sale	21		17

Total assets held for sale	$	21	$	17

LIABILITIES HELD FOR SALE
Accounts payable	$	8	$	6
Employee benefits	3		2
Other current liabilities	—		1
Total current liabilities held for sale	11		9

Total liabilities held for sale	$	11	$	9

The Company has combined cash flows from discontinued operations with cash flows from continuing operations within the operating, investing and financing categories within the consolidated statements of cash flows. Cash and non-cash items for certain operating and investing activities related to discontinued operations for the six months ended June 30, 2016 and 2015 are as follows:



	Six Months Ended June 30
	2016		2015
	(Dollars in Millions)
Depreciation and amortization	$	—	$	85
Asset impairments and losses on divestiture	$	2	$	16
Capital expenditures	$	2	$	81

Note 4. Restructuring Activities

During the three and six months ended June 30, 2016, the Company recorded $7 million and $17 million of restructuring expenses, net of reversals of $1 million and $2 million, respectively. Given the economically-sensitive and highly competitive nature of the automotive electronics industry, the Company continues to closely monitor current market factors and industry trends taking action as necessary, including but not limited to, additional restructuring actions. However, there can be no assurance that any such actions will be sufficient to fully offset the impact of adverse factors on the Company or its results of operations, financial position and cash flows.

Electronics

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 the three and six months

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ended June 30, 2016, the Company has recorded approximately $1 million and $12 million, respectively, of restructuring expenses under this program, associated with approximately 100 employees, of which $10 million remains accrued as of June 30, 2016. The Company expects to record additional restructuring costs related to this program as the underlying plan is finalized.

During the fourth quarter of 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, of which $9 million remains accrued as of June 30, 2016. The Company expects to record additional restructuring costs related to this program as the underlying plan is finalized.

In connection with the Electronics Acquisition, the Company commenced a restructuring program designed to achieve annual cost savings through transaction synergies. During the three and six months ended June 30, 2015, the Company recorded $9 million and $12 million, respectively, of severance and termination benefits under this program associated with approximately 420 employees. As of June 30, 2016, $6 million remains accrued for this program and charges are considered substantially complete.

The Company previously announced a restructuring program designed to reduce fixed costs and to improve operational efficiency 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. The Company recorded $3 million for restructuring expenses during the three and six months ended June 30, 2015, primarily related to severance and termination benefits. As of June 30, 2016, this program is considered substantially complete.

Other

During the three and six months ended June 30, 2016, the Company recorded $7 million of restructuring expenses, related to severance and termination benefits, in connection with the wind-down of certain operations in South America, which remains accrued as of June 30, 2016. The Company expects to record additional restructuring costs related to this program as the underlying plan is finalized.

During the three and six months ended June 30, 2015, the Company recorded $1 million and $2 million respectively, of restructuring expenses, classified as discontinued operations, related to severance and termination benefits in connection with the reorganization of the Company's Climate operations in France.

Restructuring Reserves

Restructuring reserve balances of $37 million and $38 million at June 30, 2016 and December 31, 2015, respectively, are classified as "Other current liabilities" on the consolidated balance sheets. The Company anticipates that the activities associated with the restructuring reserve balance will be substantially completed by June 30, 2017. The Company’s consolidated restructuring reserves and related activity are summarized below, including amounts associated with discontinued operations.



	Electronics			Other		Total
	(Dollars in Millions)
December 31, 2015	$	33		$	5	$	38
Expense	11			—		11
Utilization	(13		)	—		(13		)
Reversals	(1		)	—		(1		)
Foreign currency	1			—		1
March 31, 2016	31			5		36
Expense	1			7		8
Utilization	(5		)	—		(5		)
Reversals	(1		)	—		(1		)
Foreign currency	(1		)	—		(1		)
June 30, 2016	$	25		$	12	$	37

Utilization represents payments for severance and other employee termination benefits and special termination benefits reclassified to pension and other postretirement employee benefit liabilities, where such payments are made from the Company’s benefit plans.

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NOTE 5. Inventories

Inventories consist of the following components:



	June 30		December 31
	2016		2015
	(Dollars in Millions)
Raw materials	$	97	$	90
Work-in-process	45		53
Finished products	45		44
	$	187	$	187

NOTE 6. Other Assets

Other current assets are comprised of the following components:



	June 30		December 31
	2016		2015
	(Dollars in Millions)
Recoverable taxes	$	59	$	425
Prepaid assets and deposits	33		28
Joint venture receivables	25		44
Notes receivable	23		21
Assets held for sale	21		17
Contractually reimbursable engineering costs	17		34
Foreign currency hedges	7		6
Other	4		6
	$	189	$	581

Recoverable taxes as of December 31, 2015 included Korean capital gains tax withheld by the Purchasers and paid to the Korean government in connection with the Climate Transaction of $364 million adjusted for currency and interest impacts. In January 2016, the Company recovered the entire amount of the Korean capital gains withholding tax, adjusted for currency impacts, of $356 million.

As of June 30, 2016 and December 31, 2015 assets held for sale of $21 million and $17 million, respectively, represent assets associated with operations subject to the Interiors Divestiture located in Argentina and Brazil. See Note 3 "Discontinued Operations" for additional disclosures.

Other non-current assets are comprised of the following components:



	June 30		December 31
	2016		2015
	(Dollars in Millions)
Deferred tax assets	$	36	$	34
Long term notes receivable	25		13
Recoverable taxes	24		20
Contractually reimbursable engineering costs	4		4
Other	21		17
	$	110	$	88

Current and non-current contractually reimbursable engineering costs of $17 million and $4 million, respectively, at June 30, 2016 and $34 million and $4 million, respectively, at December 31, 2015, are related to pre-production design and development costs incurred pursuant to long-term supply arrangements that are contractually guaranteed for reimbursement by customers. The Company expects to receive cash reimbursement payments of approximately $12 million during the remainder of 2016, $5 million in 2017, and $4 million 2018 and thereafter.

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NOTE 7. Property and Equipment, net

Property and equipment, net consists of the following:



	June 30			December 31
	2016			2015
	(Dollars in Millions)
Land	$	17		$	15
Buildings and improvements	66			64
Machinery, equipment and other	407			353
Construction in progress	37			75
	527			507
Accumulated depreciation	(201		)	(170		)
	326			337
Product tooling, net of amortization	16			14
	$	342		$	351

Property and equipment is depreciated principally using the straight-line method of depreciation over the related asset's estimated useful life. Generally, buildings and improvements are depreciated over a 40-year estimated useful life, leasehold improvements are depreciated on a straight-line basis over the initial lease term period, and machinery, equipment and other are depreciated over estimated useful lives ranging from 3 to 15 years. Product tooling is amortized using the straight-line method over the estimated life of the tool, generally not exceeding six years. Depreciation and amortization expenses for property and equipment, excluding discontinued operations, are summarized as follows:



	Three Months Ended June 30				Six Months Ended June 30
	2016		2015		2016		2015
	(Dollars in Millions)
Depreciation	$	17	$	17	$	33	$	32
Amortization	—		1		1		2
	$	17	$	18	$	34	$	34

NOTE 8. Intangible Assets, net

Intangible assets, net at June 30, 2016 and December 31, 2015, are comprised of the following:



		June 30, 2016						December 31, 2015
	Estimated Weighted Average Useful Life (years)	Gross Carrying Value		Accumulated Amortization		Net Carrying Value		Gross Carrying Value		Accumulated Amortization		Net Carrying Value
		(Dollars in Millions)
Definite-Lived:
Developed technology	7	$	39	$	22	$	17	$	39	$	20	$	19
Customer related	10	82		22		60		84		17		67
Other	32	8		1		7		8		1		7
Subtotal		129		45		84		131		38		93
Indefinite-Lived:
Goodwill		39		—		39		40		—		40
Total		$	168	$	45	$	123	$	171	$	38	$	133

The Company recorded approximately $3 million and $7 million of amortization expense related to definite-lived intangible assets for the three and six months ended June 30, 2016. The Company currently estimates annual amortization expense to be $14 million

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for 2016, $12 million each year from 2017 through 2019, and $10 million for 2020. Indefinite-lived intangible assets are not amortized but are tested for impairment at least annually, or earlier when events and circumstances indicate that it is more likely than not that such assets have been impaired.

A roll-forward of the carrying amounts of intangible assets is presented below:



	Definite-lived intangibles								Indefinite-lived intangibles
	Developed Technology			Customer Related			Other		Goodwill			Total
	(Dollars in Millions)
December 31, 2015	$	19		$	67		$	7	$	40		$	133
Foreign currency	—			(2		)	—		(1		)	(3		)
Amortization	(2		)	(5		)	—		—			(7		)
June 30, 2016	$	17		$	60		$	7	$	39		$	123

NOTE 9. Other Liabilities

Other current liabilities are summarized as follows:



	June 30		December 31
	2016		2015
	(Dollars in Millions)
Electronics operations repurchase commitment	$	50	$	50
Restructuring reserves	37		38
Contribution payable	33		33
Rent and royalties	25		33
Product warranty and recall accruals	23		26
Joint venture payables	17		18
Information technology separation and service obligations	14		36
Deferred income	13		11
Liabilities held for sale	11		9
Income taxes payable	9		63
Non-income taxes payable	8		20
Foreign currency hedges	5		1
Other	34		32
	$	279	$	370

In connection with the Climate Transaction, the Company entered into an agreement to purchase certain electronics operations located in India, expected to close in 2016 after legal separation and regulatory approvals are met. The Company has recorded a repurchase commitment of $50 million during 2015, representing the estimated purchase price of the subject business.

In connection with the Germany Interiors Divestiture, the Company will make a final contribution payment of approximately $33 million by November 2016.

Information technology separation and service obligations were established in connection with the Climate Transaction and Interiors Divestiture, representing ongoing and separation services for the divested businesses to operate as independent entities. As of June 30, 2016 and December 31, 2015 remaining obligations totaled $14 million and $36 million, respectively.

As of June 30, 2016 and December 31, 2015 liabilities held for sale of $11 million and $9 million, respectively, represent liabilities associated with operations subject to the Interiors Divestiture located in Argentina and Brazil. See Note 3 "Discontinued Operations" for additional disclosures.

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Other non-current liabilities are summarized as follows:



	June 30		December 31
	2016		2015
	(Dollars in Millions)
Income tax reserves	$	27	$	25
Deferred income	16		15
Product warranty and recall accruals	14		12
Non-income tax reserves	10		10
Other	14		13
	$	81	$	75

NOTE 10. Debt

The Company’s short and long-term debt consists of the following:



	June 30		December 31
	2016		2015
	(Dollars in Millions)
Short-Term Debt:
Current portion of long-term debt	$	1	$	3
Short-term borrowings	24		34
	$	25	$	37
Long-Term Debt:
Term debt facility	$	345	$	345
Other	2		1
	$	347	$	346

As of December 31, 2015 previously issued debt issuance costs were reclassified as a reduction of the corresponding debt liability in accordance with ASU No. 2015-3, "Simplifying the Presentation of Debt Issuance Cost". These costs approximated $1 million as of June 30, 2016 and December 31, 2015.

Short-Term Debt

Short-term borrowings are primarily related to the Company's non-U.S. joint ventures and are payable in USD, Chinese Yuan and Thai Baht. The Company had international affiliate short-term borrowings of $24 million and $34 million as of June 30, 2016 and December 31, 2015 respectively. Availability under outstanding affiliate credit facilities as of June 30, 2016 is approximately $30 million.

Long-Term Debt

The Credit Agreement, dated as of April 9, 2014 and as amended by Waiver and Amendment No. 1 dated as of March 25, 2015 (the “Credit Agreement”), by and among the Company, as borrower, each lender from time to time party thereto, each letter of credit issuer from time to time party thereto and Citibank, N.A., as administrative agent, provides for (i) an aggregate principal of $350 million (the “Term Facility”) and (ii) a $200 million revolving credit facility (the “Revolving Facility”). The Term Facility matures on April 9, 2021 and the Revolving Facility matures on April 9, 2019. The Credit Agreement requires the Company and its subsidiaries to comply with customary affirmative and negative covenants, including financial covenants and contains customary events of default. The Company was in compliance with such covenants as of June 30, 2016.

Other Long-Term Debt

The Company had $2 million and $1 million of other long-term debt outstanding as of June 30, 2016 and December 31, 2015, respectively, primarily related to information technology software leases.

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NOTE 11. Employee Benefit Plans

Defined Benefit Plans

The Company's net periodic benefit costs for all defined benefit plans for the three month periods ended June 30, 2016 and 2015 were as follows:



	U.S. Plans						Non-U.S. Plans
	2016			2015			2016			2015
	(Dollars in Millions)
Costs Recognized in Income:
Service cost	$	—		$	—		$	1		$	1
Interest cost	7			9			3			4
Expected return on plan assets	(11		)	(10		)	(3		)	(4		)
Settlements and curtailments	—			—			1			—
Amortization of losses and other	—			—			—			3
Net pension (income) expense	$	(4	)	$	(1	)	$	2		$	4

The Company's net periodic benefit costs for all defined benefit plans for the six month periods ended June 30, 2016 and 2015 were as follows:



	U.S. Plans						Non-U.S. Plans
	2016			2015			2016			2015
	(Dollars in Millions)
Costs Recognized in Income:
Service cost	$	—		$	—		$	2		$	3
Interest cost	14			17			5			9
Expected return on plan assets	(21		)	(21		)	(5		)	(9		)
Settlements and curtailments	—			—			1			—
Amortization of losses and other	—			—			—			4
Net pension (income) expense	$	(7	)	$	(4	)	$	3		$	7

During the six months ended June 30, 2016, cash contributions to the Company's U.S. and non-U.S. defined benefit pension plan were $3 million each. The Company expects to make cash contributions to its defined benefit pension plans of $14 million in 2016. The Company’s expected 2016 contributions may be revised.

On April 28, 2016, the Company purchased a non-participating annuity contract for all participants of the Canada non-represented plan. The annuity purchase covered 52 participants and resulted in the use of $5 million of plan assets for pension benefit obligation settlements of approximately $5 million. In connection with the annuity purchase, the Company recorded a settlement loss of approximately $1 million during the the three months ended June 30, 2016.

2016 Discount Rate for Estimated Service and Interest Cost: Through December 31, 2015, the Company recognized service and interest cost components of pension expense using a single weighted average discount method representing the constant annual rate required to discount all future benefit payments related to past service. 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 a disaggregated discount rate approach resulting in different amounts of interest cost compared to the traditional single weighted-average discount rate approach because of different weightings given to each subset of payments.

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 will be reduced by approximately $7 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.

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Defined Contribution Plans

Most U.S. salaried employees and certain non-U.S. employees are eligible to participate in defined contribution plans by contributing a portion of their compensation, which is partially matched by the Company. For the U.S. defined contribution plan, the Company matches 100% of contributions on the first 6% of pay contributed. The expense related to matching contributions was approximately $2 million and $2 million for the three months ended June 30, 2016 and 2015, respectively. The expense related to matching contributions was approximately $4 million and $7 million for the six months ended June 30, 2016 and 2015, respectively.

NOTE 12. Income Taxes

During the three and six month periods ended June 30, 2016, the Company recorded a provision for income tax on continuing operations of $9 million and $22 million, respectively, which includes income tax expense in countries where the Company is profitable, withholding taxes, changes in uncertain tax benefits, and 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. Pretax losses from continuing operations in jurisdictions where valuation allowances are maintained and no income tax benefits are recognized totaled $12 million and $14 million, for the six months ended June 30, 2016 and 2015, respectively, resulting in an increase in the Company's effective tax rate in those years.

The Company provides for U.S. and non-U.S. income taxes and non-U.S. withholding taxes on the projected future repatriations of the earnings from its non-U.S. operations that are not considered permanently reinvested at each tier of the legal entity structure.

During the six month period ended June 30, 2016 and 2015, the Company recognized expense primarily related to non-U.S. withholding taxes, of $2 million and $3 million, respectively, reflecting the Company's forecasts which contemplate numerous financial and operational considerations that impact future repatriations.

The Company's provision for income taxes in interim periods is computed by applying an estimated annual effective tax rate against income before income taxes, excluding equity in net income of non-consolidated affiliates for the period. Effective tax rates vary from period to period as separate calculations are performed for those countries where the Company's operations are profitable and whose results continue to be tax-effected and for those countries where full deferred tax valuation allowances exist and are maintained. In determining the estimated annual effective tax rate, the Company analyzes various factors, including forecasts of projected annual earnings, taxing jurisdictions in which the pretax income and/or pretax losses will be generated, the ability to use tax credits and net operating loss carryforwards, and available tax planning strategies. The Company’s estimated annual effective tax rate is updated each quarter and may be significantly impacted by changes to the mix of forecasted earnings by tax jurisdiction. The tax impact of adjustments to the estimated annual effective tax rate are recorded in the period such estimates are revised. The Company is also required to record the tax impact of certain other non-recurring tax items, including changes in judgments about valuation allowances and uncertain tax positions, and changes in tax laws or rates, in the interim period in which they occur, rather than included in the estimated annual effective tax rate.

The need to maintain valuation allowances against deferred tax assets in the U.S. and other affected countries will cause variability in the Company’s quarterly and annual effective tax rates. Full valuation allowances against deferred tax assets in the U.S. and applicable foreign countries will be maintained until sufficient positive evidence exists to reduce or eliminate them. The factors considered by management in its determination of the probability of the realization of the deferred tax assets include, but are not limited to, recent historical financial results, historical taxable income, projected future taxable income, the expected timing of the reversals of existing temporary differences and tax planning strategies. If, based upon the weight of available evidence, it is more likely than not the deferred tax assets will not be realized, a valuation allowance is recorded. The weight given to the positive and negative evidence is commensurate with the extent to which the evidence may be objectively verified. As such, it is generally difficult for positive evidence regarding projected future taxable income exclusive of reversing taxable temporary differences to outweigh objective negative evidence of recent financial reporting losses. In regards to the full valuation allowance recorded against the U.S. net deferred tax assets, significant judgment is applied in determining whether a carryback opportunity related to the 2015 tax year provides an incremental source of taxable income to support partial realization of the U.S. net deferred tax assets, which includes estimating the amount of future tax losses that would be available to carryback.

Unrecognized Tax Benefits

Gross unrecognized tax benefits at June 30, 2016 and December 31, 2015, including amounts attributable to discontinued operations, were $32 million and $37 million, respectively. Of these amounts approximately $23 million and $29 million at June 30, 2016 and December 31, 2015, respectively, represent the amount of unrecognized benefits that, if recognized, would impact the effective tax rate. The gross unrecognized tax benefit differs from that which would impact the effective tax rate due to uncertain tax positions embedded in other deferred tax attributes carrying a full valuation allowance. Since the uncertainty is expected to be

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resolved while a full valuation allowance is maintained, these uncertain tax positions should not impact the effective tax rate in current or future periods. The Company records interest and penalties related to uncertain tax positions as a component of income tax expense and related amounts accrued at June 30, 2016 and December 31, 2015 were $4 million and $3 million, respectively.

The $5 million net decrease in gross unrecognized tax benefits reflects $7 million in decreases primarily related to settling tax assessments from the Korean tax authorities related to underpayment of withholding taxes, and favorable developments in connection with an ongoing audit in Hungary. These decreases were partially offset by increases for audit developments in Mexico and anticipated transfer pricing-related exposures worldwide totaling $2 million.

With few exceptions, the Company is no longer subject to U.S. federal tax examinations for years before 2012 or state and local, or non-U.S. income tax examinations for years before 2003 although U.S. net operating losses carried forward into open tax years technically remain open to adjustment. Although it is not possible to predict the timing of the resolution of all ongoing tax audits with accuracy, it is reasonably possible that certain tax proceedings in Europe, Asia, Mexico and the U.S. could conclude within the next twelve months and result in a significant increase or decrease in the balance of gross unrecognized tax benefits. Given the number of years, jurisdictions and positions subject to examination, the Company is unable to estimate the full range of possible adjustments to the balance of unrecognized tax benefits. The long-term portion of uncertain income tax positions (including interest) in the amount of $27 million is included in Other non-current liabilities on the consolidated balance sheet.

A reconciliation of the beginning and ending amount of unrecognized tax benefits including amounts attributable to discontinued operations is as follows:



	Six Months Ended June 30, 2016
	(Dollars in Millions)
Beginning balance	$	37
Tax positions related to current period:
Additions	1
Tax positions related to prior periods:
Additions	1
Settlements with tax authorities	(7		)
Ending balance	$	32

During 2012, Brazil tax authorities issued tax assessment notices to Visteon Sistemas Automotivos (“Sistemas”) related to the sale of its chassis business to a third party, which required a deposit in the amount of $15 million during 2013 necessary to open a judicial proceeding against the government in order to suspend the debt and allow Sistemas to operate regularly before the tax authorities after attempts to reopen an appeal of the administrative decision failed. Adjusted for currency impacts and accrued interest, the deposit amount is approximately $14 million, as of June 30, 2016. The Company believes that the risk of a negative outcome is remote once the matter is fully litigated at the highest judicial level. These appeal payments, as well as income tax refund claims associated with other jurisdictions, total $15 million as of June 30, 2016, and are included in Other non-current assets on the consolidated balance sheet.

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NOTE 13. Stockholders’ Equity and Non-controlling Interests

Changes in equity for the three months ended June 30, 2016 and 2015 are as follows:



	2016									2015
	Visteon			NCI			Total			Visteon			NCI			Total
	(Dollars in Millions)
Three Months Ended June 30
Beginning balance	$	586		$	146		$	732		$	883		$	940		$	1,823
Net income from continuing operations	35			4			39			58			7			65
Net (loss) income from discontinued operations	(9		)	—			(9		)	2,150			9			2,159
Net income	26			4			30			2,208			16			2,224
Other comprehensive income (loss)
Foreign currency translation adjustments	—			(2		)	(2		)	67			—			67
Benefit plans	1			—			1			17			—			17
Unrealized hedging gain (loss)	—			—			—			(4		)	(1		)	(5		)
Total other comprehensive income (loss)	1			(2		)	(1		)	80			(1		)	79
Stock-based compensation, net	3			—			3			11			—			11
Warrant exercises	—			—			—			6			—			6
Share repurchase	—			—			—			(500		)	—			(500		)
Business (divestitures) acquisitions	—			—			—			—			(785		)	(785		)
Dividends to non-controlling interests	—			—			—			—			(8		)	(8		)
Ending balance	$	616		$	148		$	764		$	2,688		$	162		$	2,850

Changes in equity for the six months ended June 30, 2016 and 2015 are as follows:



	2016									2015
	Visteon			NCI			Total			Visteon			NCI			Total
	(Dollars in Millions)
Six Months Ended June 30
Beginning balance	$	1,057		$	142		$	1,199		$	865		$	956		$	1,821
Net income from continuing operations	67			8			75			77			12			89
Net (loss) income from discontinued operations	(22		)	—			(22		)	2,181			24			2,205
Net income	45			8			53			2,258			36			2,294
Other comprehensive income (loss)
Foreign currency translation adjustments	23			(2		)	21			—			(12		)	(12		)
Benefit plans	1			—			1			33			1			34
Unrealized hedging gain (loss)	(4		)	—			(4		)	5			2			7
Total other comprehensive income (loss)	20			(2		)	18			38			(9		)	29
Stock-based compensation, net	(6		)	—			(6		)	12			—			12
Warrant exercises	—			—			—			15			—			15
Share repurchase	(500		)	—			(500		)	(500		)	—			(500		)
Business (divestitures) acquisitions	—			—			—			—			(785		)	(785		)
Dividends to non-controlling interests	—			—			—			—			(36		)	(36		)
Ending balance	$	616		$	148		$	764		$	2,688		$	162		$	2,850

Share Repurchase Program

On June 16, 2015, the Company announced an accelerated stock buyback ("ASB") program with a third-party financial institution to purchase shares of common stock for an aggregate purchase price of $500 million, as the first of announced shareholder return actions. Under the program, the Company paid the financial institution $500 million and received an initial delivery of 3,712,297 shares of common stock using a reference price of $107.75. The program concluded in December 2015 and the Company received

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an additional 1,058,965 shares. The final settlement price for all shares delivered under this 2015 ASB program was $104.79.

During the fourth quarter of 2015, the Company entered into an agreement with a third party financial institution to purchase up to $150 million of Visteon common stock in accordance with the provisions of Rule 10b5-1 and Rule 10b-18 of the Securities Exchange Act of 1934 ("10b5-1 Share Repurchase Program"). During the period of the program, which concluded on March 1, 2016, the Company paid approximately $105 million to repurchase 1,607,849 shares at an average price of $65.05.

On March 1, 2016, the Company entered into another ASB program with a third-party financial institution to purchase shares of common stock for an aggregate purchase price of $395 million. Under the program, the Company paid the financial institution $395 million and received an initial delivery of 4,370,678 shares of common stock using a reference price of $72.30. The final number of shares to be repurchased will be based on the average of the daily volume-weighted average prices of the Company’s common stock during the term of the transaction, less an agreed discount and subject to adjustments pursuant to the terms and conditions of the ASB Agreement. The final settlement of this ASB Agreement is expected to occur by the end of 2016, but may be accelerated at the option of the third-party financial institution.

The Company anticipates that additional repurchases of common stock, if any, would occur from time to time in open market transactions or in privately negotiated transactions depending on market and economic conditions, share price, trading volume, alternative uses of capital and other factors.

Distribution

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, the remaining $15 million will be paid over a two-year period upon vesting and settlement of restricted stock units and performance-based share units previously granted to the Company's employees. These amounts were classified as "Distribution payable" on the Consolidated Balance Sheets as of June 30, 2016 and December 31, 2015. The special cash distribution was funded from Climate Transaction proceeds.

Non-Controlling Interests

Non-controlling interests in the Visteon Corporation economic entity are as follows:



	June 30		December 31
	2016		2015
	(Dollars in Millions)
Yanfeng Visteon Automotive Electronics Co., Ltd. ("YFVE")	$	104	$	100
Shanghai Visteon Automotive Electronics, Co., Ltd.	43		41
Other	1		1
	$	148	$	142

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Accumulated Other Comprehensive (Loss) Income

Changes in Accumulated other comprehensive (loss) income (“AOCI”) and reclassifications out of AOCI by component include:



	Three Months Ended June 30						Six Months Ended June 30
	2016			2015			2016			2015
	(Dollars in Millions)
Changes in AOCI:
Beginning balance	$	(171	)	$	(341	)	$	(190	)	$	(299	)
Other comprehensive income (loss) before reclassification, net of tax	1			(4		)	22			(42		)
Amounts reclassified from AOCI	—			—			(2		)	(4		)
Climate divestiture	—			84			—			84
Ending balance	$	(170	)	$	(261	)	$	(170	)	$	(261	)

Changes in AOCI by Component:
Foreign currency translation adjustments
Beginning balance	$	(132	)	$	(205	)	$	(155	)	$	(138	)
Other comprehensive income before reclassification, net of tax (a)	—			4			23			(63		)
Climate divestiture (b)	—			63			—			63
Ending balance	(132		)	(138		)	(132		)	(138		)
Benefit plans
Beginning balance	(36		)	(140		)	(36		)	(156		)
Other comprehensive income before reclassification, net of tax (a)	—			(6		)	—			8
Amounts reclassified from AOCI (c)	1			3			1			5
Climate divestiture (b)	—			20			—			20
Ending balance	(35		)	(123		)	(35		)	(123		)
Unrealized hedging (loss) gain
Beginning balance	(3		)	4			1			(5		)
Other comprehensive income (loss) before reclassification, net of tax (d)	1			(2		)	(1		)	13
Amounts reclassified from AOCI (e)	(1		)	(3		)	(3		)	(9		)
Climate divestiture (b)	—			1			—			1
Ending balance	(3		)	—			(3		)	—
Total AOCI	$	(170	)	$	(261	)	$	(170	)	$	(261	)

(a) There were no income tax effects for the three and six month periods ending June 30, 2016 and 2015, due to the recording of valuation allowance.

(b) Amounts are included in (Loss)income from discontinued operations, net of tax, on the consolidated statements of comprehensive income.

(c) Amount included in the computation of net periodic pension cost. (See Note 11, "Employee Benefit Plans" for additional details.)

(d) Net tax expense of $1 million and tax benefit of $1 million are related to unrealized hedging (loss) gain for the three months ended June 30, 2016 and 2015, respectively. Net tax expense of $0 million and $2 million are related to unrealized hedging gain for the six months ended June 30, 2016 and 2015, respectively.

(e) Amount is included in Cost of sales in the consolidated statements of comprehensive income.

Stock Warrants

During the three and six months ended June 30, 2015, the Company received payments of $5 million and $15 million related to approximately 139,000 and 303,000 warrants, respectively, converted to shares of common stock at an exercise price of $58.80 per share.

NOTE 14. Earnings Per Share

Basic earnings per share is calculated by dividing net income attributable to Visteon by the weighted average number of shares of common stock outstanding. Diluted earnings per share is computed by dividing net income by the weighted average number of common and potential dilutive common shares outstanding. Performance based share units are considered contingently issuable

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shares, and are included in the computation of diluted earnings per share based on the number of shares that would be issuable if the reporting date were the end of the contingency period and if the result would be dilutive.

The table below provides details underlying the calculations of basic and diluted earnings (loss) per share:



	Three Months Ended June 30					Six Months Ended June 30
	2016			2015		2016			2015
	(In Millions, Except Per Share Amounts)
Numerator:
Net income from continuing operations attributable to Visteon	$	35		$	58	$	67		$	77
(Loss) income from discontinued operations, net of tax	(9		)	2,150		(22		)	2,181
Net income attributable to Visteon	$	26		$	2,208	$	45		$	2,258
Denominator:
Average common stock outstanding - basic	34.0			43.4		36.3			43.8
Dilutive effect of performance based share units and other	0.4			1.0		0.4			1.1
Diluted shares	34.4			44.4		36.7			44.9

Basic and Diluted Per Share Data:
Basic earnings (loss) per share attributable to Visteon:
Continuing operations	$	1.03		$	1.34	$	1.85		$	1.76
Discontinued operations	(0.26		)	49.54		(0.61		)	49.79
	$	0.77		$	50.88	$	1.24		$	51.55
Diluted earnings (loss) per share attributable to Visteon:
Continuing operations	$	1.02		$	1.31	$	1.83		$	1.71
Discontinued operations	(0.26		)	48.42		(0.60		)	48.58
	$	0.76		$	49.73	$	1.23		$	50.29

NOTE 15. Fair Value Measurements and Financial Instruments

The Company is exposed to various market risks including, but not limited to, changes in foreign currency exchange rates and market interest rates. The Company manages these risks, in part, through the use of derivative financial instruments. The maximum length of time over which the Company hedges the variability in the future cash flows for forecast transactions excluding those forecast transactions related to the payment of variable interest on existing debt is up to eighteen months from the date of the forecast transaction. The maximum length of time over which the Company hedges forecast transactions related to the payment of variable interest on existing debt is the term of the underlying debt. The use of derivative financial instruments creates exposure to credit loss in the event of nonperformance by the counter-party to the derivative financial instruments.

The Company uses a three-level fair value hierarchy that categorizes assets and liabilities measured at fair value based on the observability of the inputs utilized in the valuation. The fair value hierarchy gives the highest priority to the quoted prices in active markets for identical assets and liabilities and lowest priority to unobservable inputs.


•	Level 1 – Financial assets and liabilities whose values are based on unadjusted quoted market prices for identical assets and liabilities in an active market that the Company has the ability to access.


•	Level 2 – Financial assets and liabilities whose values are based on quoted prices in markets that are not active or model inputs that are observable for substantially the full term of the asset or liability.