10-Q 1 aptv331201810-q.htm 10-Q Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________________________________________________________________________
FORM 10-Q
__________________________________________________________________________________________________
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2018
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: 001-35346
______________________________________________________________________________________
 APTIV PLC
(Exact name of registrant as specified in its charter)
____________________________________________________________________________________________________
Jersey
 
98-1029562
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
C, Ardilaun Court
112-114 St. Stephen's Green
Dublin 2, D02 TD28, Ireland
(Address of principal executive offices)
353-1-259-7013
(Registrant’s telephone number, including area code)
N/A
(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  x.    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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x.    No  ¨.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 
Large accelerated filer
 
x.
  
 
 
Accelerated filer
¨.
Non-accelerated filer
 
¨.
  
(Do not check if a smaller reporting company)
 
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  x.
The number of the registrant’s ordinary shares outstanding, $0.01 par value per share as of April 27, 2018, was 264,769,110.



APTIV PLC
INDEX 

 
 
Page
Part I - Financial Information
Item 1.
 
 
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
Part II - Other Information
Item 1.
Item 1A.
Item 2.
Item 6.
 
 
 
 
Exhibits
 
 

2


PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
APTIV PLC
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
 
Three Months Ended March 31,
 
2018
 
2017
 
 
 
 
 
(in millions, except per share amounts)
Net sales
$
3,630

 
$
3,143

Operating expenses:
 
 
 
Cost of sales
2,947

 
2,544

Selling, general and administrative
259

 
225

Amortization
30

 
29

Restructuring (Note 7)
20

 
52

Total operating expenses
3,256

 
2,850

Operating income
374

 
293

Interest expense
(34
)
 
(33
)
Other income (expense), net (Note 16)
30

 
(23
)
Income from continuing operations before income taxes and equity income
370

 
237

Income tax expense
(59
)
 
(19
)
Income from continuing operations before equity income
311

 
218

Equity income, net of tax
5

 
11

Income from continuing operations
316

 
229

Income from discontinued operations, net of tax (Note 21)

 
123

Net income
316

 
352

Net income attributable to noncontrolling interest
9

 
17

Net income attributable to Aptiv
$
307

 
$
335

 
 
 
 
Amounts attributable to Aptiv:
 
 
 
Income from continuing operations
$
307

 
$
220

Income from discontinued operations

 
115

Net income
$
307

 
$
335

 
 
 
 
Basic net income per share:
 
 
 
Continuing operations
$
1.16

 
$
0.82

Discontinued operations

 
0.42

Basic net income per share attributable to Aptiv
$
1.16

 
$
1.24

Weighted average number of basic shares outstanding
265.69

 
269.20

 
 
 
 
Diluted net income per share:
 
 
 
Continuing operations
$
1.15

 
$
0.82

Discontinued operations

 
0.42

Diluted net income per share attributable to Aptiv
$
1.15

 
$
1.24

Weighted average number of diluted shares outstanding
266.44

 
269.54

 
 
 
 
Cash dividends declared per share
$

 
$
0.29

See notes to consolidated financial statements.

3


APTIV PLC
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
 
Three Months Ended March 31,
 
2018
 
2017
 
 
 
 
 
(in millions)
Net income
$
316

 
$
352

Other comprehensive income:
 
 
 
Currency translation adjustments
61

 
86

Net change in unrecognized (loss) gain on derivative instruments, net of tax (Note 14)
(23
)
 
39

Employee benefit plans adjustment, net of tax
1

 
4

Other comprehensive income
39

 
129

Comprehensive income
355

 
481

Comprehensive income attributable to noncontrolling interests
13

 
18

Comprehensive income attributable to Aptiv
$
342

 
$
463

See notes to consolidated financial statements.

4


APTIV PLC
CONSOLIDATED BALANCE SHEETS
 
March 31,
2018
 
December 31,
2017
 
(Unaudited)
 
 
 
 
 
 
(in millions)
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
1,345

 
$
1,596

Restricted cash
1

 
1

Accounts receivable, net
2,646

 
2,440

Inventories (Note 3)
1,202

 
1,083

Other current assets (Note 4)
732

 
521

Total current assets
5,926

 
5,641

Long-term assets:
 
 
 
Property, net
2,890

 
2,804

Investments in affiliates
101

 
91

Intangible assets, net (Note 2)
1,204

 
1,219

Goodwill (Note 2)
1,980

 
1,944

Other long-term assets (Note 4)
459

 
470

Total long-term assets
6,634

 
6,528

Total assets
$
12,560

 
$
12,169

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Short-term debt (Note 8)
$
60

 
$
17

Accounts payable
2,282

 
2,227

Accrued liabilities (Note 5)
1,366

 
1,296

Total current liabilities
3,708

 
3,540

Long-term liabilities:
 
 
 
Long-term debt (Note 8)
4,163

 
4,132

Pension benefit obligations
460

 
454

Other long-term liabilities (Note 5)
531

 
526

Total long-term liabilities
5,154

 
5,112

Total liabilities
8,862

 
8,652

Commitments and contingencies (Note 10)


 


Shareholders’ equity:
 
 
 
Preferred shares, $0.01 par value per share, 50,000,000 shares authorized, none issued and outstanding

 

Ordinary shares, $0.01 par value per share, 1,200,000,000 shares authorized, 264,761,036 and 265,839,794 issued and outstanding as of March 31, 2018 and December 31, 2017, respectively
3

 
3

Additional paid-in-capital
1,622

 
1,649

Retained earnings
2,278

 
2,118

Accumulated other comprehensive loss (Note 13)
(436
)
 
(471
)
Total Aptiv shareholders’ equity
3,467

 
3,299

Noncontrolling interest
231

 
218

Total shareholders’ equity
3,698

 
3,517

Total liabilities and shareholders’ equity
$
12,560

 
$
12,169

See notes to consolidated financial statements.

5


APTIV PLC
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 
Three Months Ended March 31,
 
2018
 
2017
 
 
 
 
 
(in millions)
Cash flows from operating activities:
 
 
 
Net income
$
316

 
$
352

Income from discontinued operations, net of tax

 
123

Income from continuing operations
316

 
229

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation
125

 
97

Amortization
30

 
29

Amortization of deferred debt issuance costs
2

 
2

Restructuring expense, net of cash paid
(16
)
 
18

Deferred income taxes
(7
)
 
5

Pension and other postretirement benefit expenses
11

 
9

Income from equity method investments, net of dividends received
(5
)
 
(10
)
Share-based compensation
13

 
13

Changes in operating assets and liabilities:
 
 
 
Accounts receivable, net
(206
)
 
(96
)
Inventories
(119
)
 
(110
)
Other assets
(49
)
 
(30
)
Accounts payable
140

 
55

Accrued and other long-term liabilities
2

 
50

Other, net
(40
)
 
5

Pension contributions
(11
)
 
(8
)
Net cash provided by operating activities from continuing operations
186

 
258

Net cash (used in) provided by operating activities from discontinued operations
(31
)
 
32

Net cash provided by operating activities
155

 
290

Cash flows from investing activities:
 
 
 
Capital expenditures
(243
)
 
(164
)
Proceeds from sale of property / investments
3

 

Cost of business acquisitions, net of cash acquired

 
(40
)
Deposit for acquisition of KUM
(5
)
 

Cost of technology investments

 
(15
)
Net cash used in investing activities from continuing operations
(245
)
 
(219
)
Net cash used in investing activities from discontinued operations

 
(51
)
Net cash used in investing activities
(245
)
 
(270
)
Cash flows from financing activities:
 
 
 
Net borrowings (repayments) under other short-term debt agreements
35

 
(4
)
Contingent consideration and deferred acquisition purchase price payments

 
(20
)
Dividend payments of consolidated affiliates to minority shareholders

 
(10
)
Repurchase of ordinary shares
(149
)
 
(194
)
Distribution of cash dividends
(59
)
 
(78
)
Taxes withheld and paid on employees' restricted share awards
(32
)
 
(26
)
Net cash used in financing activities
(205
)
 
(332
)
Effect of exchange rate fluctuations on cash, cash equivalents and restricted cash
44

 
21

Decrease in cash, cash equivalents and restricted cash
(251
)
 
(291
)
Cash, cash equivalents and restricted cash at beginning of the period
1,597

 
839

Cash, cash equivalents and restricted cash at end of the period
$
1,346

 
$
548

Cash, cash equivalents and restricted cash of discontinued operations
$

 
$
61

Cash, cash equivalents and restricted cash of continuing operations
$
1,346

 
$
487

See notes to consolidated financial statements.

6


APTIV PLC
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY (Unaudited)
 
Ordinary Shares
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of Shares
 
Amount
 
Additional Paid in Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Loss
 
Total Aptiv Shareholders’ Equity
 
Noncontrolling Interest
 
Total Shareholders’ Equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(in millions)
Balance at January 1, 2018
266

 
$
3

 
$
1,649

 
$
2,118

 
$
(471
)
 
$
3,299

 
$
218

 
$
3,517

Net income

 

 

 
307

 

 
307

 
9

 
316

Other comprehensive income

 

 

 

 
35

 
35

 
4

 
39

Taxes withheld on employees' restricted share award vestings

 

 
(32
)
 

 

 
(32
)
 

 
(32
)
Repurchase of ordinary shares
(2
)
 

 
(8
)
 
(141
)
 

 
(149
)
 

 
(149
)
Share-based compensation
1

 

 
13

 

 

 
13

 

 
13

Distribution of Delphi Technologies

 

 

 
3

 

 
3

 

 
3

Adjustment for recently adopted accounting pronouncements (Note 2)

 

 

 
(9
)
 

 
(9
)
 

 
(9
)
Balance at March 31, 2018
265

 
$
3

 
$
1,622

 
$
2,278

 
$
(436
)
 
$
3,467

 
$
231

 
$
3,698

See notes to consolidated financial statements.

7


APTIV PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. GENERAL
General and basis of presentation—“Aptiv,” the “Company,” “we,” “us” and “our” refer to Aptiv PLC, a public limited company which was formed under the laws of Jersey on May 19, 2011 as Delphi Automotive PLC, which together with its subsidiaries acquired certain assets of the former Delphi Corporation and completed an initial public offering on November 22, 2011. The former Delphi Corporation (now known as DPH Holdings Corp. (“DPHH”)) and, as the context may require, its subsidiaries and affiliates, are also referred to herein as “Old Delphi.” On December 4, 2017 (the “Distribution Date”), the Company completed the separation (the “Separation”) of its former Powertrain Systems segment by distributing to Aptiv shareholders on a pro rata basis all of the issued and outstanding ordinary shares of Delphi Technologies PLC (“Delphi Technologies”), a public limited company formed to hold the spun-off business. To effect the Separation, the Company distributed to its shareholders one ordinary share of Delphi Technologies for every three Aptiv ordinary shares outstanding as of November 22, 2017, the record date for the distribution. Following the Separation, the remaining company changed its name to Aptiv PLC and New York Stock Exchange ("NYSE") symbol to "APTV." Also, as a result of the Separation, Delphi Technologies became an independent public company trading on the NYSE under the symbol "DLPH" as of the Distribution Date. Delphi Technologies' historical financial results through the Distribution Date are reflected in the Company’s consolidated financial statements as a discontinued operation, as more fully described in Note 21. Discontinued Operations.
In April 2018, primarily as a result of the impact of the Separation on the Company’s U.K. presence and the centralization of the Company's non-manufacturing European footprint, along with the long-term stability of the financial and regulatory environment in Ireland and continued uncertainties with regards to the impending exit of the U.K. from the European Union, Aptiv PLC changed its tax residence from the U.K. to Ireland. Aptiv PLC remains a public limited company incorporated under the laws of Jersey, and will continue to be subject to United States Securities and Exchange Commission reporting requirements and prepare financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
The consolidated financial statements have been prepared in accordance with U.S. GAAP and all adjustments, consisting of only normal recurring items, which are necessary for a fair presentation, have been included. The consolidated financial statements and notes thereto included in this report should be read in conjunction with Aptiv's 2017 Annual Report on Form 10-K.
Nature of operations—Aptiv is a leading global technology and mobility company serving the automotive sector. We design and manufacture vehicle components and provide electrical, electronic and active safety technology solutions to the global automotive market. Aptiv operates manufacturing facilities and technical centers utilizing a regional service model that enables the Company to efficiently and effectively serve its global customers from best cost countries. In line with the long term growth in emerging markets, Aptiv has been increasing its focus on these markets, particularly in China, where the Company has a major manufacturing base and strong customer relationships.

2. SIGNIFICANT ACCOUNTING POLICIES
Consolidation—The consolidated financial statements include the accounts of Aptiv and U.S. and non-U.S. subsidiaries in which Aptiv holds a controlling financial or management interest and variable interest entities of which Aptiv has determined that it is the primary beneficiary. Aptiv’s share of the earnings or losses of non-controlled affiliates over which Aptiv exercises significant influence (generally a 20% to 50% ownership interest) is included in the consolidated operating results using the equity method of accounting. When Aptiv does not have the ability to exercise significant influence (generally when ownership interest is less than 20%), investments in non-consolidated affiliates are accounted for in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Update ("ASU") 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, and are measured at cost, less impairments, adjusted for observable price changes. All significant intercompany transactions and balances between consolidated Aptiv businesses have been eliminated. 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 estimated fair value. Estimated fair value is generally determined using an income approach based on discounted cash flows or negotiated transaction values.
Investments in non-consolidated affiliates totaled $56 million and $56 million as of March 31, 2018 and December 31, 2017, respectively, and are classified within other long-term assets in the consolidated balance sheet.
Use of estimates—Preparation of consolidated financial statements in conformity with U.S. GAAP requires the use of estimates and assumptions that affect amounts reported therein. Generally, matters subject to estimation and judgment include amounts related to accounts receivable realization, inventory obsolescence, asset impairments, useful lives of intangible and

8


fixed assets, deferred tax asset valuation allowances, income taxes, pension benefit plan assumptions, accruals related to litigation, warranty costs, environmental remediation costs, contingent consideration arrangements, worker’s compensation accruals and healthcare accruals. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be based upon amounts that differ from those estimates.
Revenue recognition—Beginning in the first quarter of 2018, Aptiv recognizes revenue in accordance with ASU 2014-09, Revenue from Contracts with Customers. Refer to Note 22. Revenue for additional information regarding the Company's revenue recognition policies.
Net income per share—Basic net income per share is computed by dividing net income attributable to Aptiv by the weighted average number of ordinary shares outstanding during the period. Diluted net income per share reflects the weighted average dilutive impact of all potentially dilutive securities from the date of issuance and is computed using the treasury stock method by dividing net income attributable to Aptiv by the diluted weighted average number of ordinary shares outstanding. Unless otherwise noted, share and per share amounts included in these notes are on a diluted basis. Refer to Note 12. Shareholders’ Equity and Net Income Per Share for additional information including the calculation of basic and diluted net income per share.
Cash and cash equivalents—Cash and cash equivalents are defined as short-term, highly liquid investments with original maturities of three months or less.
Accounts receivable—Aptiv enters into agreements to sell certain of its accounts receivable, primarily in Europe. Sales of receivables are accounted for in accordance with FASB Accounting Standards Codification ("ASC") Topic 860, Transfers and Servicing ("ASC 860"). Agreements which result in true sales of the transferred receivables, as defined in ASC 860, which occur when receivables are transferred without recourse to the Company, are excluded from amounts reported in the consolidated balance sheets. Cash proceeds received from such sales are included in operating cash flows. Agreements that allow Aptiv to maintain effective control over the transferred receivables and which do not qualify as a sale, as defined in ASC 860, are accounted for as secured borrowings and recorded in the consolidated balance sheets within accounts receivable, net and short-term debt. The expenses associated with receivables factoring are recorded in the consolidated statements of operations within interest expense.
Intangible assets—Intangible assets were $1,204 million and $1,219 million as of March 31, 2018 and December 31, 2017, respectively. Aptiv amortizes definite-lived intangible assets over their estimated useful lives. Aptiv has definite-lived intangible assets related to patents and developed technology, customer relationships and trade names. Indefinite-lived in-process research and development intangible assets are not amortized, but are tested for impairment annually, or more frequently when indicators of potential impairment exist, until the completion or abandonment of the associated research and development efforts. Upon completion of the projects, the assets will be amortized over the expected economic life of the asset, which will be determined on that date. Should the project be determined to be abandoned, and if the asset developed has no alternative use, the full value of the asset will be charged to expense. The Company also has intangible assets related to acquired trade names that are classified as indefinite-lived when there are no foreseeable limits on the periods of time over which they are expected to contribute cash flows. These indefinite-lived trade name assets are tested for impairment annually, or more frequently when indicators of potential impairment exist. Costs to renew or extend the term of acquired intangible assets are recognized as expense as incurred. Amortization expense was $30 million and $29 million for the three months ended March 31, 2018 and 2017, respectively.
Goodwill—Goodwill is the excess of the purchase price over the estimated fair value of identifiable net assets acquired in business combinations. The Company tests goodwill for impairment annually in the fourth quarter, or more frequently when indications of potential impairment exist. The Company monitors the existence of potential impairment indicators throughout the fiscal year. The Company tests for goodwill impairment at the reporting unit level. Our reporting units are the components of operating segments which constitute businesses for which discrete financial information is available and is regularly reviewed by segment management.
The impairment test involves first qualitatively assessing goodwill for impairment. If the qualitative assessment is not met the Company then performs a quantitative assessment by first comparing the estimated fair value of each reporting unit to its carrying value, including goodwill. Fair value reflects the price a market participant would be willing to pay in a potential sale of the reporting unit. If the estimated fair value exceeds carrying value, then we conclude that no goodwill impairment has occurred. If the carrying value of the reporting unit exceeds its estimated fair value, a second step is required to measure possible goodwill impairment loss. The second step includes hypothetically valuing the tangible and intangible assets and liabilities of the reporting unit as if the reporting unit had been acquired in a business combination. Then, the implied fair value of the reporting unit's goodwill is compared to the carrying value of that goodwill. If the carrying value of the reporting unit's goodwill exceeds the implied fair value of the goodwill, the Company recognizes an impairment loss in an amount equal to the excess, not to exceed the carrying value. There were no indicators of potential goodwill impairment during the three months

9


ended March 31, 2018. Goodwill was $1,980 million and $1,944 million as of March 31, 2018 and December 31, 2017, respectively.
Warranty and product recalls—Expected warranty costs for products sold are recognized at the time of sale of the product based on an estimate of the amount that eventually will be required to settle such obligations. These accruals are based on factors such as past experience, production changes, industry developments and various other considerations. Costs of product recalls, which may include the cost of the product being replaced as well as the customer’s cost of the recall, including labor to remove and replace the recalled part, are accrued as part of our warranty accrual at the time an obligation becomes probable and can be reasonably estimated. These estimates are adjusted from time to time based on facts and circumstances that impact the status of existing claims. Refer to Note 6. Warranty Obligations for additional information.
Discontinued operations—The Company reports financial results for discontinued operations separately from continuing operations to distinguish the financial impact of disposal transactions from ongoing operations. Discontinued operations reporting occurs only when the disposal of a component or a group of components of the Company represents a strategic shift that will have a major effect on the Company's operations and financial results. During the year ended December 31, 2017, the Company completed the Separation of its former Powertrain Systems segment by means of a spin-off into Delphi Technologies. Accordingly, the assets and liabilities, operating results and operating and investing cash flows for the previously reported Powertrain Systems segment are presented as discontinued operations separate from the Company’s continuing operations and segment results for all periods presented in these consolidated financial statements and the notes to the consolidated financial statements, unless otherwise noted. Refer to Note 21. Discontinued Operations for further information regarding the Company's discontinued operations.
Income taxes—Deferred tax assets and liabilities reflect temporary differences between the amount of assets and liabilities for financial and tax reporting purposes. Such amounts are adjusted, as appropriate, to reflect changes in tax rates expected to be in effect when the temporary differences reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period that includes the enactment date. A valuation allowance is recorded to reduce deferred tax assets to the amount that is more likely than not to be realized. In the event the Company determines it is more likely than not that the deferred tax assets will not be realized in the future, the valuation allowance adjustment to the deferred tax assets will be charged to earnings in the period in which the Company makes such a determination. In determining the provision for income taxes for financial statement purposes, the Company makes certain estimates and judgments which affect its evaluation of the carrying value of its deferred tax assets, as well as its calculation of certain tax liabilities. Refer to Note 11. Income Taxes for additional information.
Restructuring—Aptiv continually evaluates alternatives to align the business with the changing needs of its customers and to lower operating costs. This includes the realignment of its existing manufacturing capacity, facility closures, or similar actions, either in the normal course of business or pursuant to significant restructuring programs. These actions may result in employees receiving voluntary or involuntary employee termination benefits, which are mainly pursuant to union or other contractual agreements. Voluntary termination benefits are accrued when an employee accepts the related offer. Involuntary termination benefits are accrued upon the commitment to a termination plan and when the benefit arrangement is communicated to affected employees, or when liabilities are determined to be probable and estimable, depending on the existence of a substantive plan for severance or termination. Contract termination costs are recorded when contracts are terminated or when Aptiv ceases to use the leased facility and no longer derives economic benefit from the contract. All other exit costs are expensed as incurred. Refer to Note 7. Restructuring for additional information.
Customer concentrations—As reflected in the table below, combined net sales to General Motors Company ("GM") and Volkswagen Group ("VW"), Aptiv's two largest customers, totaled approximately 19% and 24% of our total net sales for the three months ended March 31, 2018 and 2017, respectively.
 
Percentage of Total Net Sales
 
 
Accounts and Other Receivables
 
Three Months Ended March 31,
 
 
March 31,
2018
 
December 31,
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(in millions)
GM (1)
11
%
 
15
%
 
 
$
237

 
$
204

VW
8
%
 
9
%
 
 
165

 
145

(1)
Net sales to GM includes net sales to GM's former European Opel business prior to its sale to PSA Peugeot Citroën ("PSA") on August 1, 2017, after which date these sales are excluded from net sales to GM.
Recently adopted accounting pronouncements—Aptiv adopted ASU 2014-09, Revenue from Contracts with Customers, in the first quarter of 2018 using the modified retrospective method. This ASU supersedes most of the existing guidance on revenue recognition in ASC Topic 605, Revenue Recognition and establishes a broad principle that would require

10


an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Refer to Note 22. Revenue for additional information.
Aptiv adopted ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, in the first quarter of 2018. This guidance makes targeted improvements to existing U.S. GAAP for financial instruments, including requiring equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. In accordance with this guidance, Aptiv measures equity investments at cost, less impairments, adjusted for observable price changes. The adoption of this guidance did not have a significant impact on Aptiv's financial statements.
Aptiv adopted ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, in the first quarter of 2018. This guidance clarifies the presentation requirements of eight specific issues within the statement of cash flows. The adoption of this guidance did not have a significant impact on Aptiv's financial statements, as Aptiv's treatment of the relevant affected items within its consolidated statement of cash flows is consistent with the requirements of this guidance.
Aptiv adopted ASU 2016-16, Accounting for Income Taxes: Intra-Entity Asset Transfers of Assets Other than Inventory, in the first quarter of 2018. This guidance requires that the tax effects of all intra-entity sales of assets other than inventory be recognized in the period in which the transaction occurs. The guidance is to be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. The adoption of this guidance resulted in an adjustment of $9 million recorded to retained earnings during the three months ended March 31, 2018.
Aptiv adopted ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, in the first quarter of 2018. This guidance requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and restricted cash. As a result, restricted cash will be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The adoption of this guidance did not have a significant impact on Aptiv's financial statements, other than the classification of restricted cash within the beginning-of-period and end-of-period totals on the consolidated statement of cash flows, as opposed to being excluded from these totals.
Recently issued accounting pronouncements not yet adopted—In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). Under this guidance, lessees will be required to recognize on the balance sheet a lease liability and a right-of-use asset for all leases, with the exception of short-term leases. The lease liability represents the lessee's obligation to make lease payments arising from a lease, and will be measured as the present value of the lease payments. The right-of-use asset represents the lessee’s right to use a specified asset for the lease term, and will be measured at the lease liability amount, adjusted for lease prepayment, lease incentives received and the lessee’s initial direct costs. The standard also requires a lessee to recognize a single lease cost allocated over the lease term, generally on a straight-line basis. The new guidance is effective for fiscal years beginning after December 15, 2018. ASU 2016-02 is required to be applied using the modified retrospective approach for all leases existing as of the effective date and provides for certain practical expedients. Early adoption is permitted. The Company is currently evaluating the effects that the adoption of ASU 2016-02 will have on the Company’s consolidated financial statements, and anticipates the new guidance will significantly impact its consolidated financial statements as the Company has a significant number of leases.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This guidance requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. This guidance also requires enhanced disclosures regarding significant estimates and judgments used in estimating credit losses. The new guidance is effective for fiscal years beginning after December 15, 2019. Early adoption is permitted for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This guidance simplifies how an entity is required to test goodwill for impairment by eliminating step two from the goodwill impairment test, which measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount. Under the new guidance, if a reporting unit’s carrying amount exceeds its fair value, an entity will record an impairment charge based on that difference. The impairment charge will be limited to the amount of goodwill allocated to that reporting unit. The standard will be applied prospectively and is effective for annual and interim impairment tests performed in periods beginning after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the impact of adopting this standard on its financial statements, but does not anticipate a material impact. As this standard is prospective in nature, the impact to Aptiv's financial statements of not performing a step two in order to

11


measure the amount of any potential goodwill impairment will depend on various factors associated with the Company's assessment of goodwill for impairment in those future periods.
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging—Targeted Improvements to Accounting for Hedging Activities, which expands and refines the application of hedge accounting for both non-financial and financial risk components and aligns the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. The standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements.
In February 2018, the FASB issued ASU 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows for the elimination of the stranded income tax effects resulting from the enactment of the Tax Cuts and Jobs Act through a reclassification from accumulated other comprehensive income to retained earnings. The standard is effective for fiscal years beginning after December 15, 2018. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements.

3. INVENTORIES
Inventories are stated at the lower of cost, determined on a first-in, first-out basis, or net realizable value, including direct material costs and direct and indirect manufacturing costs. A summary of inventories is shown below:
 
March 31,
2018
 
December 31,
2017
 
 
 
 
 
(in millions)
Productive material
$
675

 
$
584

Work-in-process
107

 
100

Finished goods
420

 
399

Total
$
1,202

 
$
1,083


4. ASSETS
Other current assets consisted of the following:
 
March 31,
2018
 
December 31,
2017
 
 
 
 
 
(in millions)
Value added tax receivable
$
162

 
$
160

Prepaid insurance and other expenses
116

 
104

Reimbursable engineering costs
44

 
33

Notes receivable
15

 
16

Income and other taxes receivable
62

 
46

Deposits to vendors
8

 
8

Derivative financial instruments (Note 14)
34

 
30

Accounts receivable to be remitted to Delphi Technologies (Note 21)
289

 
123

Other
2

 
1

Total
$
732

 
$
521


12


Other long-term assets consisted of the following:
 
March 31,
2018
 
December 31,
2017
 
 
 
 
 
(in millions)
Deferred income taxes, net
$
183

 
$
185

Unamortized Revolving Credit Facility debt issuance costs (Note 8)
7

 
8

Income and other taxes receivable
11

 
22

Reimbursable engineering costs
72

 
66

Value added tax receivable
38

 
37

Equity investments (Note 17)
56

 
56

Derivative financial instruments (Note 14)
2

 
8

Other
90

 
88

Total
$
459

 
$
470


5. LIABILITIES
Accrued liabilities consisted of the following:
 
March 31,
2018
 
December 31,
2017
 
 
 
 
 
(in millions)
Payroll-related obligations
$
238

 
$
218

Employee benefits, including current pension obligations
74

 
116

Income and other taxes payable
234

 
233

Warranty obligations (Note 6)
46

 
41

Restructuring (Note 7)
81

 
90

Customer deposits
32

 
28

Derivative financial instruments (Note 14)
30

 
15

Accrued interest
29

 
41

Dividends payable

 
59

Accounts payable to be remitted on behalf of Delphi Technologies (Note 21)
267

 
132

Other
335

 
323

Total
$
1,366

 
$
1,296


13


Other long-term liabilities consisted of the following:
 
March 31,
2018
 
December 31,
2017
 
 
 
 
 
(in millions)
Environmental (Note 10)
$
4

 
$
4

Extended disability benefits
9

 
9

Warranty obligations (Note 6)
17

 
17

Restructuring (Note 7)
40

 
42

Payroll-related obligations
10

 
10

Accrued income taxes
156

 
154

Deferred income taxes, net
218

 
222

Derivative financial instruments (Note 14)
5

 
11

Other
72

 
57

Total
$
531

 
$
526


6. WARRANTY OBLIGATIONS
Expected warranty costs for products sold are recognized principally at the time of sale of the product based on an estimate of the amount that eventually will be required to settle such obligations. These accruals are based on factors such as past experience, production changes, industry developments and various other considerations. The estimated costs related to product recalls based on a formal campaign soliciting return of that product are accrued at the time an obligation becomes probable and can be reasonably estimated. These estimates are adjusted from time to time based on facts and circumstances that impact the status of existing claims. Aptiv has recognized its best estimate for its total aggregate warranty reserves, including product recall costs, across all of its operating segments as of March 31, 2018. The Company estimates the reasonably possible amount to ultimately resolve all matters in excess of the recorded reserves as of March 31, 2018 to be zero to $25 million.
The table below summarizes the activity in the product warranty liability for the three months ended March 31, 2018:
 
Warranty Obligations
 
 
 
(in millions)
Accrual balance at beginning of period
$
58

Provision for estimated warranties incurred during the period
9

Changes in estimate for pre-existing warranties
2

Settlements made during the period (in cash or in kind)
(8
)
Foreign currency translation and other
2

Accrual balance at end of period
$
63

In September 2016, one of the Company's OEM customers initiated a recall to enhance airbag deployment systems in certain vehicles. Aptiv's Advanced Safety and User Experience segment had supplied sensors and related control modules for the airbags in the affected vehicles. During the first quarter of 2017, Aptiv reached an agreement with its customer related to this matter and recognized $43 million of warranty expense within cost of sales during the three months ended March 31, 2017.

7. RESTRUCTURING
Aptiv’s restructuring activities are undertaken as necessary to implement management’s strategy, streamline operations, take advantage of available capacity and resources, and ultimately achieve net cost reductions. These activities generally relate to the realignment of existing manufacturing capacity and closure of facilities and other exit or disposal activities, as it relates to executing Aptiv’s strategy, either in the normal course of business or pursuant to significant restructuring programs.
As part of Aptiv's continued efforts to optimize its cost structure, it has undertaken several restructuring programs which include workforce reductions as well as plant closures. These programs are primarily focused on the continued rotation of our manufacturing footprint to best cost locations in Europe and on reducing global overhead costs, including programs

14


implemented to realign the Company's organizational structure due to changes in roles and workforce as a result of the spin-off of the former Powertrain Systems segment. The Company recorded employee-related and other restructuring charges related to these programs totaling approximately $20 million during the three months ended March 31, 2018, which is primarily comprised of $12 million recognized for programs focused on the continued rotation of our manufacturing footprint to best cost locations in Europe, as well as for programs implemented to reduce global overhead costs.
Restructuring costs of approximately $52 million were recorded during the three months ended March 31, 2017, which included the recognition of approximately $36 million of employee-related and other costs related to the closure of an Advanced Safety and User Experience Western European manufacturing site, pursuant to the Company's on-going European footprint rotation strategy.
Restructuring charges for employee separation and termination benefits are paid either over the severance period or in a lump sum in accordance with either statutory requirements or individual agreements. Aptiv incurred cash expenditures related to its restructuring programs of approximately $36 million and $34 million in the three months ended March 31, 2018 and 2017, respectively.
The following table summarizes the restructuring charges recorded for the three months ended March 31, 2018 and 2017 by operating segment:
 
Three Months Ended March 31,
 
2018
 
2017
 
 
 
 
 
(in millions)
Signal and Power Solutions
$
18

 
$
13

Advanced Safety and User Experience
2

 
39

Total
$
20

 
$
52

The table below summarizes the activity in the restructuring liability for the three months ended March 31, 2018:
 
Employee Termination Benefits Liability
 
Other Exit Costs Liability
 
Total
 
 
 
 
 
 
 
(in millions)
Accrual balance at January 1, 2018
$
131

 
$
1

 
$
132

Provision for estimated expenses incurred during the period
20

 

 
20

Payments made during the period
(36
)
 

 
(36
)
Foreign currency and other
5

 

 
5

Accrual balance at March 31, 2018
$
120

 
$
1

 
$
121



15


8. DEBT
The following is a summary of debt outstanding, net of unamortized issuance costs and discounts, as of March 31, 2018 and December 31, 2017, respectively:
 
March 31,
2018
 
December 31,
2017
 
 
 
 
 
(in millions)
3.15%, senior notes, due 2020 (net of $2 and $2 unamortized issuance costs and $1 and $1 discount, respectively)
$
647

 
$
647

4.15%, senior notes, due 2024 (net of $4 and $4 unamortized issuance costs and $1 and $1 discount, respectively)
695

 
695

1.50%, Euro-denominated senior notes, due 2025 (net of $4 and $4 unamortized issuance costs and $3 and $3 discount, respectively)
855

 
833

4.25%, senior notes, due 2026 (net of $4 and $4 unamortized issuance costs, respectively)
646

 
646

1.60%, Euro-denominated senior notes, due 2028 (net of $4 and $4 unamortized issuance costs and $0 and $1 discount, respectively)
611

 
595

4.40%, senior notes, due 2046 (net of $3 and $3 unamortized issuance costs and $2 and $2 discount, respectively)
295

 
295

Tranche A Term Loan, due 2021 (net of $1 and $2 unamortized issuance costs, respectively)
394

 
396

Capital leases and other
80

 
42

Total debt
4,223

 
4,149

Less: current portion
(60
)
 
(17
)
Long-term debt
$
4,163

 
$
4,132

Credit Agreement
Aptiv PLC and its wholly-owned subsidiary Delphi Corporation entered into a credit agreement (the "Credit Agreement") with JPMorgan Chase Bank, N.A., as administrative agent (the "Administrative Agent"), under which it maintains senior secured credit facilities currently consisting of a term loan (the “Tranche A Term Loan”) and a revolving credit facility of $2.0 billion (the “Revolving Credit Facility”). The Credit Agreement was entered into in March 2011 and has been subsequently amended and restated on several occasions, most recently on August 17, 2016. The 2016 amendment extended the maturity of the Revolving Credit Facility and the Tranche A Term Loan from 2018 to 2021, increased the capacity of the Revolving Credit Facility from $1.5 billion to $2.0 billion and permitted Aptiv PLC to act as a borrower on the Revolving Credit Facility.
The Tranche A Term Loan and the Revolving Credit Facility mature on August 17, 2021. Beginning in the fourth quarter of 2017, Aptiv was obligated to begin making quarterly principal payments throughout the term of the Tranche A Term Loan, according to the amortization schedule in the Credit Agreement. The Credit Agreement also contains an accordion feature that permits Aptiv to increase, from time to time, the aggregate borrowing capacity under the Credit Agreement by up to an additional $1 billion (or a greater amount based upon a formula set forth in the Credit Agreement) upon Aptiv's request, the agreement of the lenders participating in the increase, and the approval of the Administrative Agent and existing lenders.
As of March 31, 2018, there were no amounts drawn on the Revolving Credit Facility and approximately $7 million in letters of credit issued under the Credit Agreement. Letters of credit issued under the Credit Agreement reduce availability under the Revolving Credit Facility.
Loans under the Credit Agreement bear interest, at Aptiv's option, at either (a) the Administrative Agent’s Alternate Base Rate (“ABR” as defined in the Credit Agreement) or (b) the London Interbank Offered Rate (the “Adjusted LIBO Rate” as defined in the Credit Agreement) (“LIBOR”) plus in either case a percentage per annum as set forth in the table below (the “Applicable Rate”). The Applicable Rates under the Credit Agreement on the specified dates are set forth below:
 
March 31, 2018
 
December 31, 2017
 
LIBOR plus
 
ABR plus
 
LIBOR plus
 
ABR plus
Revolving Credit Facility
1.10
%
 
0.10
%
 
1.10
%
 
0.10
%
Tranche A Term Loan
1.25
%
 
0.25
%
 
1.25
%
 
0.25
%
The Applicable Rate under the Credit Agreement may increase or decrease from time to time based on changes in the Company's credit ratings. Accordingly, the interest rate will fluctuate during the term of the Credit Agreement based on changes

16


in the ABR, LIBOR or future changes in the Company's corporate credit ratings. The Credit Agreement also requires that Aptiv pay certain facility fees on the Revolving Credit Facility and certain letter of credit issuance and fronting fees.
The interest rate period with respect to LIBOR interest rate options can be set at one-, two-, three-, or six-months as selected by Aptiv in accordance with the terms of the Credit Agreement (or other period as may be agreed by the applicable lenders). Aptiv may elect to change the selected interest rate option in accordance with the provisions of the Credit Agreement. As of March 31, 2018, Aptiv selected the one-month LIBOR interest rate option on the Tranche A Term Loan, and the rate effective as of March 31, 2018, as detailed in the table below, was based on the Company's current credit rating and the Applicable Rate for the Credit Agreement:
 
 
 
Borrowings as of
 
 
 
 
 
March 31, 2018
 
Rate effective as of
 
Applicable Rate
 
(in millions)
 
March 31, 2018
Tranche A Term Loan
LIBOR plus 1.25%
 
$
395

 
3.06
%
Borrowings under the Credit Agreement are prepayable at Aptiv's option without premium or penalty.
The Credit Agreement contains certain covenants that limit, among other things, the Company’s (and the Company’s subsidiaries’) ability to incur certain additional indebtedness or liens or to dispose of substantially all of its assets. In addition, the Credit Agreement requires that the Company maintain a consolidated leverage ratio (the ratio of Consolidated Total Indebtedness to Consolidated EBITDA, each as defined in the Credit Agreement) of less than 3.50 to 1.0. The Credit Agreement also contains events of default customary for financings of this type. The Company was in compliance with the Credit Agreement covenants as of March 31, 2018.
As of March 31, 2018, all obligations under the Credit Agreement were borrowed by Delphi Corporation and jointly and severally guaranteed by its direct and indirect parent companies, subject to certain exceptions set forth in the Credit Agreement. Refer to Note 19. Supplemental Guarantor and Non-Guarantor Condensed Consolidating Financial Statements for additional information.
Senior Unsecured Notes
On March 3, 2014, Delphi Corporation issued $700 million in aggregate principal amount of 4.15% senior unsecured notes due 2024 (the “2014 Senior Notes”) in a transaction registered under the Securities Act. The 2014 Senior Notes were priced at 99.649% of par, resulting in a yield to maturity of 4.193%. The proceeds were primarily utilized to redeem $500 million of 5.875% senior unsecured notes due 2019 and to repay a portion of the Tranche A Term Loan. Aptiv paid approximately $6 million of issuance costs in connection with the 2014 Senior Notes. Interest is payable semi-annually on March 15 and September 15 of each year to holders of record at the close of business on March 1 or September 1 immediately preceding the interest payment date.
On March 10, 2015, Aptiv PLC issued €700 million in aggregate principal amount of 1.50% Euro-denominated senior unsecured notes due 2025 (the “2015 Euro-denominated Senior Notes”) in a transaction registered under the Securities Act. The 2015 Euro-denominated Senior Notes were priced at 99.54% of par, resulting in a yield to maturity of 1.55%. The proceeds were primarily utilized to redeem $500 million of 6.125% senior unsecured notes due 2021, and to fund growth initiatives, such as acquisitions, and share repurchases. Aptiv incurred approximately $5 million of issuance costs in connection with the 2015 Euro-denominated Senior Notes. Interest is payable annually on March 10. The Company has designated the 2015 Euro-denominated Senior Notes as a net investment hedge of the foreign currency exposure of its investments in certain Euro-denominated wholly-owned subsidiaries. Refer to Note 14. Derivatives and Hedging Activities for further information.
On November 19, 2015, Aptiv PLC issued $1.3 billion in aggregate principal amount of senior unsecured notes in a transaction registered under the Securities Act, comprised of $650 million of 3.15% senior unsecured notes due 2020 (the "3.15% Senior Notes") and $650 million of 4.25% senior unsecured notes due 2026 (the "4.25% Senior Notes") (collectively, the "2015 Senior Notes"). The 3.15% Senior Notes were priced at 99.784% of par, resulting in a yield to maturity of 3.197%, and the 4.25% Senior Notes were priced at 99.942% of par, resulting in a yield to maturity of 4.256%. The proceeds were primarily utilized to fund a portion of the cash consideration for the acquisition of HellermannTyton PLC and for general corporate purposes, including the payment of fees and expenses associated with the HellermannTyton PLC acquisition and the related financing transaction. Aptiv incurred approximately $8 million of issuance costs in connection with the 2015 Senior Notes. Interest on the 3.15% Senior Notes is payable semi-annually on May 19 and November 19 of each year to holders of record at the close of business on May 4 or November 4 immediately preceding the interest payment date. Interest on the 4.25% Senior Notes is payable semi-annually on January 15 and July 15 of each year to holders of record at the close of business on January 1 or July 1 immediately preceding the interest payment date.

17


On September 15, 2016, Aptiv PLC issued €500 million in aggregate principal amount of 1.60% Euro-denominated senior unsecured notes due 2028 (the “2016 Euro-denominated Senior Notes”) in a transaction registered under the Securities Act. The 2016 Euro-denominated Senior Notes were priced at 99.881% of par, resulting in a yield to maturity of 1.611%. The proceeds, together with proceeds from the 2016 Senior Notes described below, were utilized to redeem the $800 million of 5.00% senior unsecured notes due 2023. Aptiv incurred approximately $4 million of issuance costs in connection with the 2016 Euro-denominated Senior Notes. Interest is payable annually on September 15. The Company has designated the 2016 Euro-denominated Senior Notes as a net investment hedge of the foreign currency exposure of its investments in certain Euro-denominated wholly-owned subsidiaries. Refer to Note 14. Derivatives and Hedging Activities for further information.
On September 20, 2016, Aptiv PLC issued $300 million in aggregate principal amount of 4.40% senior unsecured notes due 2046 (the “2016 Senior Notes”) in a transaction registered under the Securities Act. The 2016 Senior Notes were priced at 99.454% of par, resulting in a yield to maturity of 4.433%. The proceeds, together with proceeds from the 2016 Euro-denominated Senior Notes, were utilized to redeem the $800 million of 5.00% senior unsecured notes due 2023. Aptiv incurred approximately $3 million of issuance costs in connection with the 2016 Senior Notes. Interest is payable semi-annually on April 1 and October 1 of each year to holders of record at the close of business on March 15 or September 15 immediately preceding the interest payment date.
Although the specific terms of each indenture governing each series of senior notes vary, the indentures contain certain restrictive covenants, including with respect to Aptiv's (and Aptiv's subsidiaries) ability to incur liens, enter into sale and leaseback transactions and merge with or into other entities. As of March 31, 2018, the Company was in compliance with the provisions of all series of the outstanding senior notes.
The 2014 Senior Notes were issued by Delphi Corporation. The 2014 Senior Notes are fully and unconditionally guaranteed, jointly and severally, by Aptiv PLC and by certain of Aptiv PLC's direct and indirect subsidiaries which are directly or indirectly 100% owned by Aptiv PLC, subject to customary release provisions (other than in the case of Aptiv PLC). The 2015 Euro-denominated Senior Notes, 2015 Senior Notes, 2016 Euro-denominated Senior Notes and 2016 Senior Notes issued by Aptiv PLC are fully and unconditionally guaranteed, jointly and severally, by certain of Aptiv PLC's direct and indirect subsidiaries (including Delphi Corporation), which are directly or indirectly 100% owned by Aptiv PLC, subject to customary release provisions. Refer to Note 19. Supplemental Guarantor and Non-Guarantor Condensed Consolidating Financial Statements for additional information.
Other Financing
Receivable factoring—Aptiv maintains a €300 million European accounts receivable factoring facility that is available on a committed basis. This facility is accounted for as short-term debt and borrowings are subject to the availability of eligible accounts receivable. Collateral is not required related to these trade accounts receivable. This program renews on a non-committed, indefinite basis unless terminated by either party. Borrowings bear interest at Euro Interbank Offered Rate ("EURIBOR") plus 0.42% for borrowings denominated in Euros. No amounts were outstanding on the European accounts receivable factoring facility as of March 31, 2018 or December 31, 2017.
Capital leases and other—As of March 31, 2018 and December 31, 2017, approximately $80 million and $42 million, respectively, of other debt primarily issued by certain non-U.S. subsidiaries and capital lease obligations was outstanding.
Interest—Cash paid for interest related to debt outstanding totaled $45 million and $43 million for the three months ended March 31, 2018 and 2017, respectively.

9. PENSION BENEFITS
Certain of Aptiv’s non-U.S. subsidiaries sponsor defined benefit pension plans, which generally provide benefits based on negotiated amounts for each year of service. Aptiv’s primary non-U.S. plans are located in France, Germany, Mexico, Portugal and the United Kingdom (“U.K.”). The U.K. and certain Mexican plans are funded. In addition, Aptiv has defined benefit plans in South Korea, Turkey and Italy for which amounts are payable to employees immediately upon separation. The obligations for these plans are recorded over the requisite service period.
Aptiv sponsors a Supplemental Executive Retirement Program (“SERP”) for those employees who were U.S. executives of DPHH prior to September 30, 2008 and were still U.S. executives of the Company on October 7, 2009, the effective date of the program. This program is unfunded. Executives receive benefits over 5 years after an involuntary or voluntary separation from Aptiv. The SERP is closed to new members.

18


The amounts shown below reflect the defined benefit pension expense for the three months ended March 31, 2018 and 2017:
 
Non-U.S. Plans
 
U.S. Plans
 
 
 
 
 
 
 
 
 
Three Months Ended March 31,
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
 
(in millions)
Service cost
$
5

 
$
4

 
$

 
$

Interest cost
7

 
7

 

 

Expected return on plan assets
(6
)
 
(6
)
 

 

Curtailment loss
1

 

 

 

Amortization of actuarial losses
4

 
3

 

 

Net periodic benefit cost
$
11

 
$
8

 
$

 
$

Other postretirement benefit obligations were approximately $4 million and $4 million at March 31, 2018 and December 31, 2017, respectively.

10. COMMITMENTS AND CONTINGENCIES
Ordinary Business Litigation
Aptiv is from time to time subject to various legal actions and claims incidental to its business, including those arising out of alleged defects, alleged breaches of contracts, product warranties, intellectual property matters, and employment-related matters. It is the opinion of Aptiv that the outcome of such matters will not have a material adverse impact on the consolidated financial position, results of operations, or cash flows of Aptiv. With respect to warranty matters, although Aptiv cannot ensure that the future costs of warranty claims by customers will not be material, Aptiv believes its established reserves are adequate to cover potential warranty settlements.
Unsecured Creditors Litigation
Aptiv was subject to ongoing litigation related to general unsecured claims against the former Delphi Corporation, now known as DPHH, resulting from that entity's 2005 bankruptcy filing. The Fourth Amended and Restated Limited Liability Partnership Agreement of Delphi Automotive LLP (the “Fourth LLP Agreement”) was entered into on July 12, 2011 by the members of Delphi Automotive LLP in order to position the Company for its initial public offering. Under the terms of the Fourth LLP Agreement, if cumulative distributions to the members of Delphi Automotive LLP under certain provisions of the Fourth LLP Agreement exceed $7.2 billion, Aptiv, as disbursing agent on behalf of DPHH, is required to pay to the holders of allowed general unsecured claims against DPHH $32.50 for every $67.50 in excess of $7.2 billion distributed to the members, up to a maximum amount of $300 million. On January 12, 2017, the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court") granted summary judgment in favor of the unsecured creditors and thus the $300 million maximum distribution for general unsecured claims was triggered. In connection with the January 2017 ruling, the Company recorded a reserve of $300 million in the fourth quarter of 2016. In March 2017, the Bankruptcy Court issued a ruling on the application of pre-judgment interest owed on the amount of the distribution to be made to the holders of general unsecured claims. Pursuant to this ruling, Aptiv recorded an additional reserve of $27 million during the three months ended March 31, 2017.
During the second quarter of 2017, Aptiv and the plaintiffs reached an agreement to settle this matter for $310 million, which was subsequently approved by the Bankruptcy Court. In July 2017, the Company paid the $310 million settlement pursuant to the terms of the settlement agreement.
Brazil Matters
Aptiv conducts business operations in Brazil that are subject to the Brazilian federal labor, social security, environmental, tax and customs laws, as well as a variety of state and local laws. While Aptiv believes it complies with such laws, they are complex, subject to varying interpretations, and the Company is often engaged in litigation with government agencies regarding the application of these laws to particular circumstances. As of March 31, 2018, the majority of claims asserted against Aptiv in Brazil relate to such litigation. The remaining claims in Brazil relate to commercial and labor litigation with private parties. As of March 31, 2018, claims totaling approximately $180 million (using March 31, 2018 foreign currency

19


rates) have been asserted against Aptiv in Brazil. As of March 31, 2018, the Company maintains accruals for these asserted claims of $25 million (using March 31, 2018 foreign currency rates). The amounts accrued represent claims that are deemed probable of loss and are reasonably estimable based on the Company’s analyses and assessment of the asserted claims and prior experience with similar matters. While the Company believes its accruals are adequate, the final amounts required to resolve these matters could differ materially from the Company’s recorded estimates and Aptiv’s results of operations could be materially affected. The Company estimates the reasonably possible loss in excess of the amounts accrued related to these claims to be zero to $155 million.
Environmental Matters
Aptiv is subject to the requirements of U.S. federal, state, local and non-U.S. environmental and safety and health laws and regulations. As of March 31, 2018 and December 31, 2017, the undiscounted reserve for environmental investigation and remediation was approximately $5 million (of which $1 million was recorded in accrued liabilities and $4 million was recorded in other long-term liabilities) and $4 million (which was recorded in other long-term liabilities), respectively. Aptiv cannot ensure that environmental requirements will not change or become more stringent over time or that its eventual environmental remediation costs and liabilities will not exceed the amount of its current reserves. In the event that such liabilities were to significantly exceed the amounts recorded, Aptiv’s results of operations could be materially affected. At March 31, 2018, the difference between the recorded liabilities and the reasonably possible range of potential loss was not material.

11. INCOME TAXES
At the end of each interim period, the Company makes its best estimate of the annual expected effective income tax rate and applies that rate to its ordinary year-to-date earnings or loss. The income tax provision or benefit related to unusual or infrequent items, if applicable, that will be separately reported or reported net of their related tax effects are individually computed and recognized in the interim period in which those items occur. In addition, the effect of changes in enacted tax laws or rates, tax status, judgment on the realizability of a beginning-of-the-year deferred tax asset in future years or income tax contingencies is recognized in the interim period in which the change occurs.
The computation of the annual expected effective income tax rate at each interim period requires certain estimates and assumptions including, but not limited to, the expected pre-tax income (or loss) for the year, projections of the proportion of income (and/or loss) earned and taxed in respective jurisdictions, permanent and temporary differences, and the likelihood of the realizability of deferred tax assets generated in the current year. Jurisdictions with a projected loss for the year or a year-to-date loss for which no tax benefit or expense can be recognized due to a valuation allowance are excluded from the estimated annual effective tax rate. The impact of such an exclusion could result in a higher or lower effective tax rate during a particular quarter, based upon the composition and timing of actual earnings compared to annual projections. The estimates used to compute the provision or benefit for income taxes may change as new events occur, additional information is obtained or as our tax environment changes. To the extent that the expected annual effective income tax rate changes, the effect of the change on prior interim periods is included in the income tax provision in the period in which the change in estimate occurs.
The Company's income tax expense and effective tax rate for the three months ended March 31, 2018 and 2017 were as follows:
 
Three Months Ended March 31,
 
2018
 
2017
 
 
 
 
 
(dollars in millions)
Income tax expense
$
59

 
$
19

Effective tax rate
16
%
 
8
%
The Company’s tax rate is affected by the fact that its parent entity was a U.K. resident taxpayer through March 31, 2018, the tax rates in the U.K. and other jurisdictions in which the Company operates, the relative amount of income earned by jurisdiction and the relative amount of losses or income for which no tax benefit or expense was recognized due to a valuation allowance. The Company’s effective tax rate was impacted by unfavorable changes in geographic income mix in 2018 as compared to 2017, primarily due to changes in the underlying business operations and the receipt of certain tax incentives and holidays that reduced the effective tax rate for certain subsidiaries below the statutory rate during the three months ended March 31, 2017.
The Company’s effective tax rate for the three months ended March 31, 2018 also includes net discrete tax benefits of $1 million, primarily related to changes in reserves, offset by provision to return adjustments. The effective tax rate for the three

20


months ended March 31, 2017 includes net discrete tax benefits of $8 million, primarily related to provision to return adjustments.
The Tax Cuts and Jobs Act (the "Tax Legislation") was enacted in the United States on December 22, 2017, significantly revising the U.S. corporate income tax by, among other things, lowering corporate income tax rates and imposing a one-time repatriation tax on deemed repatriated earnings of foreign subsidiaries. Pursuant to ASU 2018-05, Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118, the Company recognized the provisional effects of the enactment of the Tax Legislation of approximately $50 million during the year ended December 31, 2017 for which measurement could be reasonably estimated. The impact was primarily the result of increased tax expense due to the one-time deemed repatriation tax and a reduction of our foreign tax credit, partially offset by the favorable impact of the reduced tax rate on the Company’s net deferred tax liabilities. Pursuant to ASU 2018-05, adjustments to the provisional amounts recorded by the Company as of December 31, 2017 that are identified within a subsequent measurement period of up to one year from the enactment date will be included as an adjustment to tax expense from continuing operations in the period the amounts are determined. To-date in 2018, the U.S. Treasury Department and the Internal Revenue Service ("IRS") have issued additional guidance, particularly with respect to computing the transition tax on the untaxed foreign earnings of foreign subsidiaries. As the Company has not yet fully completed its analysis of this recent guidance, no adjustments have been made during the three months ended March 31, 2018 to the provisional amounts previously recorded. The Company continues to refine its assessment through further analysis of certain aspects of the Tax Legislation and the recently issued guidance. Accordingly, the ultimate impact of the Tax Legislation may differ from these estimates due to its continued analysis or further regulatory guidance that may be issued.
Aptiv PLC was a U.K. resident taxpayer, and became an Irish resident taxpayer in April 2018. As the Company is not a domestic corporation for U.S. federal income tax purposes, it is not subject to U.S. tax on remitted foreign earnings. Aptiv PLC was generally not subject to U.K. tax on the repatriation of foreign earnings and, as a result of its capital structure, believes it will also not be subject to Irish tax subsequent to becoming an Irish resident taxpayer.
Cash paid or withheld for income taxes was $52 million and $63 million for the three months ended March 31, 2018 and 2017 respectively.

12. SHAREHOLDERS’ EQUITY AND NET INCOME PER SHARE
Net Income Per Share
Basic net income per share is computed by dividing net income attributable to Aptiv by the weighted average number of ordinary shares outstanding during the period. Diluted net income per share reflects the weighted average dilutive impact of all potentially dilutive securities from the date of issuance and is computed using the treasury stock method by dividing net income attributable to Aptiv by the diluted weighted average number of ordinary shares outstanding. For all periods presented, the calculation of diluted net income per share contemplates the dilutive impacts, if any, of the Company’s share-based compensation plans. Refer to Note 18. Share-Based Compensation for additional information.

21


Weighted Average Shares
The following table illustrates net income per share attributable to Aptiv and the weighted average shares outstanding used in calculating basic and diluted income per share:
 
Three Months Ended March 31,
 
2018
 
2017
 
 
 
 
 
(in millions, except per share data)
Numerator:
 
 
 
Income from continuing operations
$
307

 
$
220

Income from discontinued operations

 
115

Net income attributable to Aptiv
$
307

 
$
335

Denominator:
 
 
 
Weighted average ordinary shares outstanding, basic
265.69

 
269.20

Dilutive shares related to restricted stock units ("RSUs")
0.75

 
0.34

Weighted average ordinary shares outstanding, including dilutive shares
266.44

 
269.54

 
 
 
 
Basic net income per share:
 
 
 
Continuing operations
$
1.16

 
$
0.82

Discontinued operations

 
0.42

Basic net income per share attributable to Aptiv
$
1.16

 
$
1.24

Diluted net income per share:
 
 
 
Continuing operations
$
1.15

 
$
0.82

Discontinued operations

 
0.42

Diluted net income per share attributable to Aptiv
$
1.15

 
$
1.24

Anti-dilutive securities share impact

 

Share Repurchase Program
In April 2016, the Board of Directors authorized a share repurchase program of up to $1.5 billion of ordinary shares, which commenced in September 2016 following the completion of the Company's $1.5 billion January 2015 share repurchase program. This share repurchase program provides for share purchases in the open market or in privately negotiated transactions, depending on share price, market conditions and other factors, as determined by the Company.
A summary of the ordinary shares repurchased during the three months ended March 31, 2018 and 2017 is as follows:
 
Three Months Ended March 31,
 
2018
 
2017
Total number of shares repurchased
1,676,144

 
2,555,703

Average price paid per share
$
89.17

 
$
75.52

Total (in millions)
$
149

 
$
193

As of March 31, 2018, approximately $840 million of share repurchases remained available under the April 2016 share repurchase program. All repurchased shares were retired, and are reflected as a reduction of ordinary share capital for the par value of the shares, with the excess applied as reductions to additional paid-in-capital and retained earnings.

22


Dividends
The Company has declared and paid cash dividends per ordinary share during the periods presented as follows:
 
Dividend
 
Amount
 
 Per Share
 
(in millions)
2018:
 
 
 
First quarter
$
0.22

 
$
59

Total
$
0.22

 
$
59

2017:
 
 
 
Fourth quarter
$
0.29

 
$
77

Third quarter
0.29

 
77

Second quarter
0.29

 
78

First quarter
0.29

 
78

Total
$
1.16

 
$
310

In addition, in April 2018, the Board of Directors declared a regular quarterly cash dividend of $0.22 per ordinary share, payable May 23, 2018 to shareholders of record at the close of business on May 9, 2018.
Other
On December 4, 2017, Aptiv distributed the issued and outstanding ordinary shares of Delphi Technologies to the Company's shareholders. The Company distributed to its shareholders one ordinary share of Delphi Technologies for every three Aptiv ordinary shares outstanding as of November 22, 2017, the record date for the distribution. Shareholders received cash in lieu of any fractional ordinary shares of Delphi Technologies.


23


13. CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The changes in accumulated other comprehensive income (loss) attributable to Aptiv (net of tax) for the three months ended March 31, 2018 and 2017 are shown below. Prior period other comprehensive income includes activity relating to discontinued operations.
 
Three Months Ended March 31,
 
2018
 
2017
 
 
 
 
 
(in millions)
Foreign currency translation adjustments:
 
 
 
Balance at beginning of period
$
(369
)
 
$
(799
)
Aggregate adjustment for the period (1)
57

 
85

Balance at end of period
(312
)
 
(714
)
 
 
 
 
Gains (losses) on derivatives:
 
 
 
Balance at beginning of period
4

 
(11
)
Other comprehensive income before reclassifications (net tax effect of $4 and $15)
(18
)
 
26

Reclassification to income (net tax effect of $1 and $9)
(5
)
 
13

Balance at end of period
(19
)
 
28

 
 
 
 
Pension and postretirement plans:
 
 
 
Balance at beginning of period
(106
)
 
(405
)
Other comprehensive income before reclassifications (net tax effect of $1 and $3)
(3
)
 
(3
)
Reclassification to income (net tax effect of $0 and $2)
4

 
7

Balance at end of period
(105
)
 
(401
)
 
 
 
 
Accumulated other comprehensive loss, end of period
$
(436
)
 
$
(1,087
)
(1)
Includes losses of $37 million and $30 million for the three months ended March 31, 2018 and 2017, respectively, related to non-derivative net investment hedges, principally offset by the foreign currency impact of intra-entity loans that are of a long-term investment nature in each period. Refer to Note 14. Derivatives and Hedging Activities for further description of these hedges.

24


Reclassifications from accumulated other comprehensive income (loss) to income for the three months ended March 31, 2018 and 2017 were as follows:
Reclassification Out of Accumulated Other Comprehensive Income (Loss)
Details About Accumulated Other Comprehensive Income Components
 
Three Months Ended March 31,
 
Affected Line Item in the Statement of Operations
 
2018
 
2017
 
 
 
 
 
 
 
 
 
 
(in millions)
 
 
Gains (losses) on derivatives:
 
 
 
 
 
 
Commodity derivatives
 
$
9

 
$
1

 
Cost of sales
Foreign currency derivatives
 
(5
)
 
(23
)
 
Cost of sales
 
 
4

 
(22
)
 
Income before income taxes
 
 
1

 
9

 
Income tax expense
 
 
5

 
(13
)
 
Net income
 
 

 

 
Net income attributable to noncontrolling interest
 
 
$
5

 
$
(13
)
 
Net income attributable to Aptiv
 
 
 
 
 
 
 
Pension and postretirement plans:
 
 
 
 
 
 
Actuarial losses
 
$
(4
)
 
$
(9
)
 
Other income (expense), net (1)
 
 
(4
)
 
(9
)
 
Income before income taxes
 
 

 
2

 
Income tax expense
 
 
(4
)
 
(7
)
 
Net income
 
 

 

 
Net income attributable to noncontrolling interest
 
 
$
(4
)
 
$
(7
)
 
Net income attributable to Aptiv
 
 
 
 
 
 
 
Total reclassifications for the period
 
$
1

 
$
(20
)
 
 
(1)
These accumulated other comprehensive loss components are included in the computation of net periodic pension cost (see Note 9. Pension Benefits for additional details).

14. DERIVATIVES AND HEDGING ACTIVITIES
Cash Flow Hedges
Aptiv is exposed to market risk, such as fluctuations in foreign currency exchange rates, commodity prices and changes in interest rates, which may result in cash flow risks. To manage the volatility relating to these exposures, Aptiv aggregates the exposures on a consolidated basis to take advantage of natural offsets. For exposures that are not offset within its operations, Aptiv enters into various derivative transactions pursuant to its risk management policies, which prohibit holding or issuing derivative financial instruments for speculative purposes, and designation of derivative instruments is performed on a transaction basis to support hedge accounting. The changes in fair value of these hedging instruments are offset in part or in whole by corresponding changes in the fair value or cash flows of the underlying exposures being hedged. Aptiv assesses the initial and ongoing effectiveness of its hedging relationships in accordance with its documented policy.

25


As of March 31, 2018, the Company had the following outstanding notional amounts related to commodity and foreign currency forward and option contracts designated as cash flow hedges that were entered into to hedge forecasted exposures:
Commodity
Quantity Hedged
 
Unit of Measure
 
Notional Amount
(Approximate USD Equivalent)
 
 
 
 
 
 
 
(in thousands)
 
(in millions)
Copper
74,845

 
pounds
 
$
230

Foreign Currency
Quantity Hedged
 
Unit of Measure
 
Notional Amount
(Approximate USD Equivalent)
 
 
 
 
 
 
 
(in millions)
Mexican Peso
12,078

 
MXN
 
$
660

Chinese Yuan Renminbi
2,192

 
RMB
 
350

Polish Zloty
321

 
PLN
 
95

New Turkish Lira
145

 
TRY
 
35

The Company had additional foreign currency forward contracts designated as cash flow hedges with notional amounts that individually amounted to less than $10 million. As of March 31, 2018, Aptiv has entered into derivative instruments to hedge cash flows extending out to March 2020.
Gains and losses on derivatives qualifying as cash flow hedges are recorded in other comprehensive income ("OCI"), to the extent that hedges are effective, until the underlying transactions are recognized in earnings. Unrealized amounts in accumulated OCI will fluctuate based on changes in the fair value of hedge derivative contracts at each reporting period. Net gains on cash flow hedges included in accumulated OCI as of March 31, 2018 were $3 million ($13 million, net of tax), which are expected to be included in cost of sales within the next 12 months. Cash flow hedges are discontinued when Aptiv determines it is no longer probable that the originally forecasted transactions will occur. The amount included in cost of sales related to hedge ineffectiveness was insignificant for the three months ended March 31, 2018 and 2017. Cash flows from derivatives used to manage commodity and foreign exchange risks are classified as operating activities within the consolidated statement of cash flows.
Net Investment Hedges
The Company is also exposed to the risk that adverse changes in foreign currency exchange rates could impact its net investment in non-U.S. subsidiaries. To manage this risk, the Company designates certain qualifying derivative and non-derivative instruments, including foreign currency forward contracts and foreign currency-denominated debt, as net investment hedges of certain non-U.S. subsidiaries. The effective portion of the gains or losses on instruments designated as net investment hedges are recognized within OCI to offset changes in the value of the net investment in these foreign currency-denominated operations. Any ineffective portion of gains or losses on net investment hedges are reclassified to other income (expense), net within the consolidated statement of operations. Gains and losses reported in accumulated other comprehensive income (loss) are reclassified to earnings only when the related currency translation adjustments are required to be reclassified, usually upon sale or liquidation of the investment. Cash flows from derivatives designated as net investment hedges are classified as investing activities within the consolidated statement of cash flows.
Since the first quarter of 2016, the Company has entered into a series of forward contracts, each of which have been designated as net investment hedges of the foreign currency exposure of the Company's investments in certain Chinese Yuan Renminbi ("RMB")-denominated subsidiaries. In December 2016, the Company entered into a forward contract with a notional amount of 1.8 billion RMB (approximately $265 million, using December 31, 2016 foreign currency rates), which matured in June 2017, and the Company paid $12 million at settlement. In June 2017, the Company entered into a forward contract with a notional amount of 2.4 billion RMB (approximately $345 million, using June 30, 2017 foreign currency rates), which matured in December 2017, and the Company paid $16 million at settlement. In December 2017, the Company entered into a forward contract with a notional amount of 1.9 billion RMB (approximately $290 million, using December 31, 2017 foreign currency rates), which matures in June 2018. Refer to the tables below for details of the fair value recorded in the consolidated balance sheet and the effects recorded in the consolidated statement of operations and consolidated statement of comprehensive income related to these derivative instruments.
The Company has designated the €700 million 2015 Euro-denominated Senior Notes and the €500 million 2016 Euro-denominated Senior Notes, as more fully described in Note 8. Debt, as net investment hedges of the foreign currency exposure of its investments in certain Euro-denominated subsidiaries. Due to changes in the value of the Euro-denominated debt instruments designated as net investment hedges, during the three months ended March 31, 2018 and 2017, $37 million and

26


$30 million, respectively, of losses were recognized within the cumulative translation adjustment component of OCI. Cumulative losses included in accumulated OCI on these net investment hedges were $154 million as of March 31, 2018 and $117 million as of December 31, 2017. There were no amounts reclassified or recognized for ineffectiveness during the three months ended March 31, 2018 or 2017.
Derivatives Not Designated as Hedges
In certain occasions the Company enters into certain foreign currency and commodity contracts that are not designated as hedges. When hedge accounting is not applied to derivative contracts, gains and losses are recorded to other income (expense), net and cost of sales in the consolidated statement of operations.
As more fully disclosed in Note 17. Acquisitions and Divestitures, on February 28, 2018, Aptiv agreed to acquire KUM. In conjunction with the proposed acquisition, in March 2018, the Company entered into forward contracts, requiring no initial net investment, with notional amounts totaling 559 billion South Korean Won ("KRW") (approximately $520 million using March 1, 2018 foreign currency rates) to hedge portions of the currency risk associated with the cash payment for the acquisition. Pursuant to the requirements of ASC 815, Derivatives and Hedging, the forwards do not qualify as hedges for accounting purposes, and therefore, changes in the fair value of the forwards are recognized in other income (expense), net. The forwards expire in the third quarter of 2018. During the three months ended March 31, 2018, the change in fair value resulted in a pre-tax gain of $11 million included within other income (expense), net in the consolidated statement of operations.
Fair Value of Derivative Instruments in the Balance Sheet
The fair value of derivative financial instruments recorded in the consolidated balance sheets as of March 31, 2018 and December 31, 2017 are as follows:
 
Asset Derivatives
 
Liability Derivatives
 
Net Amounts of Assets and (Liabilities) Presented in the Balance Sheet
 
Balance Sheet Location
 
March 31,
2018
 
Balance Sheet Location
 
March 31,
2018
 
March 31,
2018
 
 
 
 
 
 
 
 
 
 
 
(in millions)
Derivatives designated as cash flow hedges:
 
 
 
 
 
 
 
 
Commodity derivatives
Other current assets
 
$
9

 
Accrued liabilities
 
$

 
 
Foreign currency derivatives*
Other current assets
 
22

 
Other current assets
 
8

 
$
14

Foreign currency derivatives*
Accrued liabilities
 
3

 
Accrued liabilities
 
15

 
(12
)
Foreign currency derivatives*
Other long-term assets
 
2

 
Other long-term assets
 

 
2

Foreign currency derivatives*
Other long-term liabilities
 
3

 
Other long-term liabilities
 
8

 
(5
)
Derivatives designated as net investment hedges:
 
 
 
 
 
 
 
 
Foreign currency derivatives
Other current assets
 

 
Accrued liabilities
 
18

 


Total derivatives designated as hedges
 
$
39

 
 
 
$
49

 
 
 
 
 
 
 
 
 
 
 
Derivatives not designated:
 
 
 
 
 
 
 
 
Foreign currency derivatives*
Other current assets
 
$
11

 
Other current assets
 
$

 
11

Total derivatives not designated as hedges
 
$
11

 
 
 
$

 
 

27


 
Asset Derivatives
 
Liability Derivatives
 
Net Amounts of Assets and (Liabilities) Presented in the Balance Sheet
 
Balance Sheet Location
 
December 31,
2017
 
Balance Sheet Location
 
December 31,
2017
 
December 31,
2017
 
 
 
 
 
 
 
 
 
 
 
(in millions)
Derivatives designated as cash flow hedges:
 
 
 
 
 
 
 
 
Commodity derivatives
Other current assets
 
$
27

 
Accrued liabilities
 
$

 
 
Foreign currency derivatives*
Other current assets
 
3

 
Other current assets
 

 
$
3

Foreign currency derivatives*
Accrued liabilities
 
7

 
Accrued liabilities
 
17

 
(10
)
Commodity derivatives
Other long-term assets
 
8

 
Other long-term liabilities
 

 
 
Foreign currency derivatives*
Other long-term liabilities
 

 
Other long-term liabilities
 
11

 
(11
)
Derivatives designated as net investment hedges:
 
 
 
 
 
 
 
 
Foreign currency derivatives
Other current assets
 

 
Accrued liabilities
 
5

 
 
Total derivatives designated as hedges
 
$
45

 
 
 
$
33

 
 
* Derivative instruments within this category are subject to master netting arrangements and are presented on a net basis in the consolidated balance sheets in accordance with accounting guidance related to the offsetting of amounts related to certain contracts.
The fair value of Aptiv’s derivative financial instruments was in a net asset position as of March 31, 2018 and December 31, 2017.
Effect of Derivatives on the Statement of Operations and Statement of Comprehensive Income
The pre-tax effect of derivative financial instruments in the consolidated statement of operations and consolidated statement of comprehensive income for the three months ended March 31, 2018 is as follows:
Three Months Ended March 31, 2018
(Loss) Gain Recognized in OCI (Effective Portion)
 
Gain (Loss) Reclassified from OCI into Income (Effective Portion)
 
Gain Recognized in Income (Ineffective Portion Excluded from Effectiveness Testing)
 
 
 
 
 
 
 
(in millions)
Derivatives designated as cash flow hedges:
 
 
 
 
 
Commodity derivatives
$
(17
)
 
$
9

 
$

Foreign currency derivatives
16

 
(5
)
 

Derivatives designated as net investment hedges:
 
 
 
 
 
Foreign currency derivatives
(13
)
 

 

Total
$
(14
)
 
$
4

 
$

 
Gain Recognized in Income
 
 
 
(in millions)
Derivatives not designated:
 
Foreign currency derivatives
$
10

Total
$
10


28


The pre-tax effect of derivative financial instruments in the consolidated statement of operations and consolidated statement of comprehensive income for the three months ended March 31, 2017 is as follows:
Three Months Ended March 31, 2017
Gain (Loss) Recognized in OCI (Effective Portion)
 
Gain (Loss) Reclassified from OCI into Income (Effective Portion)
 
Gain Recognized in Income (Ineffective Portion Excluded from Effectiveness Testing)
 
 
 
 
 
 
 
(in millions)
Derivatives designated as cash flow hedges:
 
 
 
 
 
Commodity derivatives
$
9

 
$
1

 
$

Foreign currency derivatives
42

 
(23
)
 

Derivatives designated as net investment hedges:
 
 
 
 
 
Foreign currency derivatives
(10
)
 

 

Total
$
41

 
$
(22
)
 
$

 
Loss Recognized in Income
 
 
 
(in millions)
Derivatives not designated:
 
Foreign currency derivatives
$
(4
)
Total
$
(4
)
The gain or loss reclassified from OCI into income for the effective portion of designated derivative instruments and the gain or loss recognized in income for the ineffective portion of designated derivative instruments excluded from effectiveness testing were recorded to other income (expense), net and cost of sales in the consolidated statements of operations for the three months ended March 31, 2018 and 2017. The gain or loss recognized in income for non-designated derivative instruments was recorded to other income (expense), net and cost of sales in the consolidated statements of operations for the three months ended March 31, 2018 and 2017.

15. FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair Value Measurements on a Recurring Basis
Derivative instruments—All derivative instruments are required to be reported on the balance sheet at fair value unless the transactions qualify and are designated as normal purchases or sales. Changes in fair value are reported currently through earnings unless they meet hedge accounting criteria. Aptiv’s derivative exposures are with counterparties with long-term investment grade credit ratings. Aptiv estimates the fair value of its derivative contracts using an income approach based on valuation techniques to convert future amounts to a single, discounted amount. Estimates of the fair value of foreign currency and commodity derivative instruments are determined using exchange traded prices and rates. Aptiv also considers the risk of non-performance in the estimation of fair value, and includes an adjustment for non-performance risk in the measure of fair value of derivative instruments. The non-performance risk adjustment reflects the credit default spread (“CDS”) applied to the net commodity by counterparty and foreign currency exposures by counterparty. When Aptiv is in a net derivative asset position, the counterparty CDS rates are applied to the net derivative asset position. When Aptiv is in a net derivative liability position, estimates of peer companies’ CDS rates are applied to the net derivative liability position.
In certain instances where market data is not available, Aptiv uses management judgment to develop assumptions that are used to determine fair value. This could include situations of market illiquidity for a particular currency or commodity or where observable market data may be limited. In those situations, Aptiv generally surveys investment banks and/or brokers and utilizes the surveyed prices and rates in estimating fair value.
As of March 31, 2018 and December 31, 2017, Aptiv was in a net derivative asset position of $1 million and $12 million, respectively, and no significant adjustments were recorded for nonperformance risk based on the application of peer companies’ CDS rates, evaluation of our own nonperformance risk and because Aptiv’s exposures were to counterparties with investment grade credit ratings. Refer to Note 14. Derivatives and Hedging Activities for further information regarding derivatives.
Contingent consideration—As described in Note 17. Acquisitions and Divestitures, as of March 31, 2018, additional contingent consideration may be earned as a result of Aptiv's acquisition agreements for nuTonomy, Inc. ("nuTonomy"), Movimento Group ("Movimento"), Control-Tec LLC ("Control-Tec") and Ottomatika, Inc. ("Ottomatika"). The liability for contingent consideration is estimated as of the date of the acquisition and is recorded as part of the purchase price, and is

29


subsequently re-measured to fair value at each reporting date, based on a probability-weighted discounted cash flow analysis using a rate that reflects the uncertainty surrounding the expected outcomes, which the Company believes is appropriate and representative of market participant assumptions. The measurement of the liability for contingent consideration is based on significant inputs that are not observable in the market, and is therefore classified as a Level 3 measurement in accordance with ASU Topic 820-10-35. Examples of utilized unobservable inputs are estimated future earnings of the acquired businesses and applicable discount rates. The estimate of the liability may fluctuate if there are changes in the forecast of the acquired businesses' future earnings, as a result of actual earnings levels achieved or in the discount rates used to determine the present value of contingent future cash flows. As of March 31, 2018, the range of periods in which the earn-out provisions may be achieved is from 2018 to 2020. The Company regularly reviews these assumptions and makes adjustments to the fair value measurements as required by facts and circumstances.
As of March 31, 2018 and December 31, 2017, the liability for contingent consideration was $33 million (of which $8 million was classified within other current liabilities and $25 million was classified within other long-term liabilities) and $33 million (of which $7 million was classified within other current liabilities and $26 million was classified within other long-term liabilities). Adjustments to this liability for interest accretion are recognized in interest expense, and any other changes in the fair value of this liability are recognized within other income (expense), net in the consolidated statement of operations.
The changes in the contingent consideration liability classified as a Level 3 measurement for the three months ended March 31, 2018 were as follows:
 
Contingent Consideration Liability
 
 
 
(in millions)
Fair value at beginning of period
$
33

Additions

Payments

Interest accretion

Fair value at end of period
$
33

During the three months ended March 31, 2017, the Company paid $20 million of contingent consideration based on the actual level of earnings of the acquired businesses during the contractual earn-out period.
As of March 31, 2018 and December 31, 2017, Aptiv had the following assets measured at fair value on a recurring basis:
 
Total
 
Quoted Prices in Active Markets
Level 1
 
Significant Other Observable Inputs
Level 2
 
Significant Unobservable Inputs
Level 3
 
 
 
 
 
 
 
 
 
(in millions)
As of March 31, 2018:
 
Commodity derivatives
$
9

 
$

 
$
9

 
$

Foreign currency derivatives
27

 

 
27

 

Total
$
36

 
$

 
$
36

 
$

As of December 31, 2017:
 
 
 
 
 
 
 
Commodity derivatives
$
35

 
$

 
$
35

 
$

Foreign currency derivatives
3

 

 
3

 

Total
$
38

 
$

 
$
38

 
$


30


As of March 31, 2018 and December 31, 2017, Aptiv had the following liabilities measured at fair value on a recurring basis:
 
Total
 
Quoted Prices in Active Markets
Level 1
 
Significant Other Observable Inputs
Level 2
 
Significant Unobservable Inputs
Level 3
 
 
 
 
 
 
 
 
 
(in millions)
As of March 31, 2018:
 
Foreign currency derivatives
$
35

 
$

 
$
35

 
$

Contingent consideration
33

 

 

 
33

Total
$
68

 
$

 
$
35

 
$
33

As of December 31, 2017:
 
 
 
 
 
 
 
Foreign currency derivatives
$
26

 
$

 
$
26

 
$

Contingent consideration
33

 

 

 
33

Total
$
59

 
$

 
$
26

 
$
33

Non-derivative financial instruments—Aptiv's non-derivative financial instruments include cash and cash equivalents, accounts and notes receivable, accounts payable, as well as debt, which consists of its accounts receivable factoring arrangement, capital leases and other debt issued by Aptiv’s non-U.S. subsidiaries, the Revolving Credit Facility, the Tranche A Term Loan and all series of outstanding senior notes. The fair value of debt is based on quoted market prices for instruments with public market data or significant other observable inputs for instruments without a quoted public market price (Level 2). As of March 31, 2018 and December 31, 2017, total debt was recorded at $4,223 million and $4,149 million, respectively, and had estimated fair values of $4,272 million and $4,289 million, respectively. For all other financial instruments recorded at March 31, 2018 and December 31, 2017, fair value approximates book value.
Fair Value Measurements on a Nonrecurring Basis
In addition to items that are measured at fair value on a recurring basis, Aptiv also has items in its balance sheet that are measured at fair value on a nonrecurring basis. As these items are not measured at fair value on a recurring basis, they are not included in the tables above. Nonfinancial assets and liabilities that are measured at fair value on a nonrecurring basis include certain long-lived assets, equity investments, intangible assets, asset retirement obligations, share-based compensation and liabilities for exit or disposal activities measured at fair value upon initial recognition. During the three months ended March 31, 2018, Aptiv recorded no non-cash asset impairment charges. During the three months ended March 31, 2017, Aptiv recorded non-cash asset impairment charges totaling $1 million within cost of sales related to declines in the fair values of certain fixed assets. Fair value of long-lived assets is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved and a review of appraisals. As such, Aptiv has determined that the fair value measurements of long-lived assets fall in Level 3 of the fair value hierarchy.

16. OTHER INCOME, NET
Other income (expense), net included:
 
Three Months Ended March 31,
 
2018
 
2017
 
 
 
 
 
(in millions)
Interest income
$
5

 
$
1

Components of net periodic benefit cost other than service cost (Note 9)
(6
)
 
(4
)
Reserve for Unsecured Creditors litigation

 
(27
)
Benefits (costs) associated with acquisitions
11

 

Other, net
20

 
7

Other income (expense), net
$
30

 
$
(23
)

31


As further discussed in Note 14. Derivatives and Hedging Activities, during the three months ended March 31, 2018, the Company recorded a gain of $11 million on forward contracts entered into in order to hedge portions of the currency risk associated with the cash payment for the proposed acquisition of KUM, which is reflected within Benefits (costs) associated with acquisitions in the above table. Also, as further discussed in Note 21. Discontinued Operations, during the three months ended March 31, 2018, Aptiv recorded $3 million for certain fees earned pursuant to the transition services agreement in connection with the Separation of the Company's former Powertrain Systems segment.
As further discussed in Note 10. Commitments and Contingencies, during the three months ended March 31, 2017, Aptiv recorded an incremental reserve of $27 million as a result of a ruling in the Unsecured Creditors litigation related to pre-judgment interest, which was in addition to the Company's previously recorded reserve of $300 million to other expense during the year ended December 31, 2016 related to this matter.

17. ACQUISITIONS AND DIVESTITURES
Acquisition of KUM LLC
On February 28, 2018, Aptiv agreed to acquire KUM LLC ("KUM"), a specialized manufacturer of connectors for the automotive industry, for total consideration of approximately $500 million. The acquisition is subject to the satisfaction of customary closing conditions and the receipt of regulatory and other approvals, and is expected to close mid-2018. The Company intends to acquire KUM utilizing cash on hand. Upon completion, KUM will become part of the Signal and Power Solutions segment.
Acquisition of nuTonomy, Inc.
On November 21, 2017, Aptiv acquired 100% of the equity interests of nuTonomy, Inc. ("nuTonomy"), a leading provider of autonomous driving software and technology, for total consideration of up to $454 million. Of the total consideration, $284 million of the purchase price is payable at closing, subject to certain post-closing adjustments. An additional $109 million of the purchase price will vest to certain selling shareholders in annual installments over a three-year period from the acquisition date, subject to such shareholders' compliance with certain employment conditions. Of the $109 million, approximately $7 million is payable after one year and approximately $51 million is payable after each of the second and third years following the acquisition date. These remaining installments will be recorded as a component of cost of sales ratably over the respective installment period.
Additionally, the total consideration includes a cash payment of up to $54 million contingent upon the achievement of certain performance metrics over a future three-year period. The range of the undiscounted amounts the Company could be required to pay under this arrangement is between $0 and $54 million. As of the closing date of the acquisition, the contingent consideration was assigned a fair value of approximately $24 million. Refer to Note 15. Fair Value of Financial Instruments for additional information regarding the measurement of the contingent consideration liability. The results of operations of nuTonomy are reported within the Advanced Safety and User Experience segment from the date of acquisition. The Company acquired nuTonomy utilizing cash on hand.
The acquisition was accounted for as a business combination, with the total purchase price allocated on a preliminary basis using information available, in the fourth quarter of 2017. The purchase price and related allocation to the acquired net assets of nuTonomy based on their estimated fair values is shown below (in millions):
Assets acquired and liabilities assumed
Purchase price, cash consideration, net of cash acquired
$
284

Purchase price, fair value of contingent consideration
24

Total purchase price, net of cash acquired
$
308

 
 
Intangible assets
$
102

Other liabilities, net
(40
)
Identifiable net assets acquired
62

Goodwill resulting from purchase
246

Total purchase price allocation
$
308

Goodwill recognized in this transaction is primarily attributable to synergies expected to arise after the acquisition from future growth and potential commercialization opportunities. Intangible assets include $102 million of in-process research and

32


development, which will not be amortized, but tested for impairment until the completion or abandonment of the associated research and development efforts. The estimated fair value of these assets was based on third-party valuations and management's estimates, generally utilizing income and market approaches.
The purchase price and related allocation are preliminary and could be revised as a result of adjustments made to the purchase price, additional information obtained regarding liabilities assumed, including, but not limited to, contingent liabilities, revisions of provisional estimates of fair values, including, but not limited to, the completion of independent appraisals and valuations related to property, plant and equipment and intangible assets, and certain tax attributes.
The pro forma effects of this acquisition would not materially impact the Company's reported results for any period presented, and as a result no pro forma financial statements were presented.
Acquisition of Movimento Group
On January 3, 2017, Aptiv acquired 100% of the equity interests of Movimento Group ("Movimento"), a leading provider of Over-the-Air software and data management for the automotive sector, for a purchase price of $40 million at closing and an additional cash payment of up to $10 million contingent upon the achievement of certain performance metrics over a future 2-year period. The range of the undiscounted amounts the Company could be required to pay under this arrangement is between $0 and $10 million. As of the closing date of the acquisition, the contingent consideration was assigned a fair value of approximately $8 million. Refer to Note 15. Fair Value of Financial Instruments for additional information regarding the measurement of the contingent consideration liability. The results of operations of Movimento are reported within the Advanced Safety and User Experience segment from the date of acquisition. The Company acquired Movimento utilizing cash on hand.
The acquisition was accounted for as a business combination, with the total purchase price allocated on a preliminary basis using information available, in the first quarter of 2017. The purchase price and related allocation were finalized in the first quarter of 2018, and resulted in no adjustments from the amounts previously disclosed. The purchase price and related allocation to the acquired net assets of Movimento based on their estimated fair values is shown below (in millions):
Assets acquired and liabilities assumed
Purchase price, cash consideration, net of cash acquired
$
40

Purchase price, fair value of contingent consideration
8

Total purchase price, net of cash acquired
$
48

 
 
Intangible assets
$
22

Other liabilities, net
(2
)
Identifiable net assets acquired
20

Goodwill resulting from purchase
28

Total purchase price allocation
$
48

Intangible assets include $8 million recognized for the fair value of the acquired trade name, which has an estimated useful life of approximately 25 years, $4 million of customer-based and technology-related assets with estimated useful lives of approximately 7 years, and $10 million of in-process research and development, which will not be amortized, but tested for impairment until the completion or abandonment of the associated research and development efforts. The estimated fair value of these assets was based on third-party valuations and management's estimates, generally utilizing income and market approaches.
The pro forma effects of this acquisition would not materially impact the Company's reported results for any period presented, and as a result no pro forma financial statements were presented.
Technology Investments
The Company has made technology investments in certain non-consolidated affiliates for ownership interests of less than 20%, which are accounted for in accordance with ASU 2016-01, as described in Note 2. Significant Accounting Policies.
During the first quarter of 2017, the Company's Advanced Safety and User Experience segment made a $15 million investment in Otonomo Technologies Ltd., the developer of a connected car data marketplace.

33


As of March 31, 2018, the Company had the following technology investments, which are classified within other long-term assets in the consolidated balance sheet:
Investment Name
 
Segment
 
Investment Date
 
Investment
(in millions)
Innoviz Technologies
 
Advanced Safety and User Experience
 
Q3 2017
 
$
15

LeddarTech, Inc.
 
Advanced Safety and User Experience
 
Q3 2017
 
10

Valens Semiconductor Ltd.
 
Signal and Power Solutions
 
Q2 2017
 
10

Otonomo Technologies Ltd.
 
Advanced Safety and User Experience
 
Q1 2017
 
15

Quanergy Systems, Inc
 
Advanced Safety and User Experience
 
Q2 2015; Q1 2016