10-Q 1 aptv630201810-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 June 30, 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.)
5 Hanover Quay
Grand Canal Dock
Dublin 2, 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 July 27, 2018, was 264,737,985.



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 June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
 
(in millions, except per share amounts)
Net sales
$
3,684

 
$
3,153

 
$
7,314

 
$
6,296

Operating expenses:
 
 
 
 
 
 
 
Cost of sales
2,958

 
2,498

 
5,905

 
5,042

Selling, general and administrative
260

 
231

 
519

 
456

Amortization
30

 
29

 
60

 
58

Restructuring (Note 7)
15

 
31

 
35

 
83

Total operating expenses
3,263

 
2,789

 
6,519

 
5,639

Operating income
421

 
364

 
795

 
657

Interest expense
(36
)
 
(35
)
 
(70
)
 
(68
)
Other (expense) income, net (Note 16)
(7
)
 
8

 
23

 
(15
)
Income from continuing operations before income taxes and equity income
378

 
337

 
748

 
574

Income tax expense
(83
)
 
(38
)
 
(142
)
 
(57
)
Income from continuing operations before equity income
295

 
299

 
606

 
517

Equity income, net of tax
8

 
7

 
13

 
18

Income from continuing operations
303

 
306

 
619

 
535

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

 
80

 

 
203

Net income
303

 
386

 
619

 
738

Net income attributable to noncontrolling interest
12

 
17

 
21

 
34

Net income attributable to Aptiv
$
291

 
$
369

 
$
598

 
$
704

 
 
 
 
 
 
 
 
Amounts attributable to Aptiv:
 
 
 
 
 
 
 
Income from continuing operations
$
291

 
$
297

 
$
598

 
$
517

Income from discontinued operations

 
72

 

 
187

Net income
$
291

 
$
369

 
$
598

 
$
704

 
 
 
 
 
 
 
 
Basic net income per share:
 
 
 
 
 
 
 
Continuing operations
$
1.10

 
$
1.11

 
$
2.25

 
$
1.92

Discontinued operations

 
0.27

 

 
0.70

Basic net income per share attributable to Aptiv
$
1.10

 
$
1.38

 
$
2.25

 
$
2.62

Weighted average number of basic shares outstanding
264.81

 
267.41

 
265.25

 
268.30

 
 
 
 
 
 
 
 
Diluted net income per share:
 
 
 
 
 
 
 
Continuing operations
$
1.10

 
$
1.11

 
$
2.25

 
$
1.92

Discontinued operations

 
0.27

 

 
0.70

Diluted net income per share attributable to Aptiv
$
1.10

 
$
1.38

 
$
2.25

 
$
2.62

Weighted average number of diluted shares outstanding
265.48

 
268.03

 
265.96

 
268.78

 
 
 
 
 
 
 
 
Cash dividends declared per share
$
0.22

 
$
0.29

 
$
0.22

 
$
0.58

See notes to consolidated financial statements.

3


APTIV PLC
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
 
(in millions)
Net income
$
303

 
$
386

 
$
619

 
$
738

Other comprehensive (loss) income:
 
 
 
 
 
 
 
Currency translation adjustments
(193
)
 
103

 
(132
)
 
189

Net change in unrecognized (loss) gain on derivative instruments, net of tax (Note 14)
(10
)
 
4

 
(33
)
 
43

Employee benefit plans adjustment, net of tax
9

 
1

 
10

 
5

Other comprehensive (loss) income
(194
)
 
108

 
(155
)
 
237

Comprehensive income
109

 
494

 
464

 
975

Comprehensive income attributable to noncontrolling interests
4

 
20

 
17

 
38

Comprehensive income attributable to Aptiv
$
105

 
$
474

 
$
447

 
$
937

See notes to consolidated financial statements.

4


APTIV PLC
CONSOLIDATED BALANCE SHEETS
 
June 30,
2018
 
December 31,
2017
 
(Unaudited)
 
 
 
 
 
 
(in millions)
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
970

 
$
1,596

Restricted cash
1

 
1

Accounts receivable, net
2,598

 
2,440

Inventories (Note 3)
1,265

 
1,083

Other current assets (Note 4)
506

 
521

Total current assets
5,340

 
5,641

Long-term assets:
 
 
 
Property, net
2,972

 
2,804

Investments in affiliates
99

 
91

Intangible assets, net (Note 2)
1,245

 
1,219

Goodwill (Note 2)
2,157

 
1,944

Other long-term assets (Note 4)
503

 
470

Total long-term assets
6,976

 
6,528

Total assets
$
12,316

 
$
12,169

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Short-term debt (Note 8)
$
22

 
$
17

Accounts payable
2,307

 
2,227

Accrued liabilities (Note 5)
1,109

 
1,296

Total current liabilities
3,438

 
3,540

Long-term liabilities:
 
 
 
Long-term debt (Note 8)
4,067

 
4,132

Pension benefit obligations
432

 
454

Other long-term liabilities (Note 5)
621

 
526

Total long-term liabilities
5,120

 
5,112

Total liabilities
8,558

 
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, 264,845,247 and 265,839,794 issued and outstanding as of June 30, 2018 and December 31, 2017, respectively
3

 
3

Additional paid-in-capital
1,632

 
1,649

Retained earnings
2,510

 
2,118

Accumulated other comprehensive loss (Note 13)
(622
)
 
(471
)
Total Aptiv shareholders’ equity
3,523

 
3,299

Noncontrolling interest
235

 
218

Total shareholders’ equity
3,758

 
3,517

Total liabilities and shareholders’ equity
$
12,316

 
$
12,169

See notes to consolidated financial statements.

5


APTIV PLC
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 
Six Months Ended June 30,
 
2018
 
2017
 
 
 
 
 
(in millions)
Cash flows from operating activities:
 
 
 
Net income
$
619

 
$
738

Income from discontinued operations, net of tax

 
203

Income from continuing operations
619

 
535

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation
251

 
198

Amortization
60

 
58

Amortization of deferred debt issuance costs
4

 
3

Restructuring expense, net of cash paid
(31
)
 
23

Deferred income taxes
(11
)
 
3

Pension and other postretirement benefit expenses
20

 
20

Income from equity method investments, net of dividends received
(13
)
 
(18
)
Share-based compensation
27

 
28

Changes in operating assets and liabilities:
 
 
 
Accounts receivable, net
(91
)
 
(65
)
Inventories
(157
)
 
(175
)
Other assets
(74
)
 
(36
)
Accounts payable
145

 
79

Accrued and other long-term liabilities
2

 
54

Other, net
23

 
(20
)
Pension contributions
(22
)
 
(15
)
Net cash provided by operating activities from continuing operations
752

 
672

Net cash (used in) provided by operating activities from discontinued operations
(52
)
 
217

Net cash provided by operating activities
700

 
889

Cash flows from investing activities:
 
 
 
Capital expenditures
(449
)
 
(311
)
Proceeds from sale of property / investments
6

 
2

Cost of business acquisitions, net of cash acquired
(512
)
 
(40
)
Cost of technology investments

 
(25
)
Settlement of derivatives
(6
)
 
(12
)
Net cash used in investing activities from continuing operations
(961
)
 
(386
)
Net cash used in investing activities from discontinued operations

 
(77
)
Net cash used in investing activities
(961
)
 
(463
)
Cash flows from financing activities:
 
 
 
Net repayments under other short-term debt agreements
(15
)
 
(5
)
Contingent consideration and deferred acquisition purchase price payments
(5
)
 
(20
)
Dividend payments of consolidated affiliates to minority shareholders

 
(10
)
Repurchase of ordinary shares
(149
)
 
(289
)
Distribution of cash dividends
(117
)
 
(156
)
Taxes withheld and paid on employees' restricted share awards
(35
)
 
(33
)
Net cash used in financing activities
(321
)
 
(513
)
Effect of exchange rate fluctuations on cash, cash equivalents and restricted cash
(44
)
 
41

Decrease in cash, cash equivalents and restricted cash
(626
)
 
(46
)
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
$
971

 
$
793

Cash, cash equivalents and restricted cash of discontinued operations
$

 
$
78

Cash, cash equivalents and restricted cash of continuing operations
$
971

 
$
715

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

 

 

 
598

 

 
598

 
21

 
619

Other comprehensive loss

 

 

 

 
(151
)
 
(151
)
 
(4
)
 
(155
)
Dividends on ordinary shares

 

 

 
(58
)
 

 
(58
)
 

 
(58
)
Taxes withheld on employees' restricted share award vestings

 

 
(35
)
 

 

 
(35
)
 

 
(35
)
Repurchase of ordinary shares
(2
)
 

 
(9
)
 
(144
)
 

 
(153
)
 

 
(153
)
Share-based compensation
1

 

 
27

 

 

 
27

 

 
27

Distribution of Delphi Technologies

 

 

 
5

 

 
5

 

 
5

Adjustment for recently adopted accounting pronouncements (Note 2)

 

 

 
(9
)
 

 
(9
)
 

 
(9
)
Balance at June 30, 2018
265

 
$
3

 
$
1,632

 
$
2,510

 
$
(622
)
 
$
3,523

 
$
235

 
$
3,758

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 (now known as DPH Holdings Corp. (“DPHH”)) and completed an initial public offering on November 22, 2011. 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 June 30, 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 fixed assets, deferred tax asset valuation allowances, income taxes, pension benefit plan assumptions, accruals related to

8


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 $1,245 million and $1,219 million as of June 30, 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 $60 million for the three and six months ended June 30, 2018 and $29 million and $58 million and for the three and six months ended June 30, 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 six months

9


ended June 30, 2018. Goodwill was $2,157 million and $1,944 million as of June 30, 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 20% and 19% of our total net sales for the three and six months ended June 30, 2018, respectively, and 24% and 24% for the three and six months ended June 30, 2017, respectively.
 
Percentage of Total Net Sales
 
 
Accounts and Other Receivables
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
June 30,
2018
 
December 31,
2017
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(in millions)
GM (1)
11
%
 
15
%
 
11
%
 
15
%
 
 
$
220

 
$
204

VW
9
%
 
9
%
 
8
%
 
9
%
 
 
161

 
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.

10


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 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 six months ended June 30, 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. As of December 31, 2017, Aptiv had minimum lease commitments under non-cancellable operating leases totaling approximately $450 million. The adoption of this guidance will result in the addition of right-of-use assets and corresponding lease obligations to the consolidated balance sheet and will not have a material impact on its results of operations or cash flows. As permitted, the Company currently plans to elect the practical expedients upon transition which will retain the lease classification and initial direct costs for leases existing prior to the adoption of this standard. The Company will not reassess whether any contracts which were entered into prior to the adoption of ASU 2016-02 are classified as leases. The Company is in the process of cataloging existing lease contracts and implementing changes to its systems.
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

11


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 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 adoption of this guidance is not expected to have a significant impact on Aptiv's 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:
 
June 30,
2018
 
December 31,
2017
 
 
 
 
 
(in millions)
Productive material
$
725

 
$
584

Work-in-process
109

 
100

Finished goods
431

 
399

Total
$
1,265

 
$
1,083


4. ASSETS
Other current assets consisted of the following:
 
June 30,
2018
 
December 31,
2017
 
 
 
 
 
(in millions)
Value added tax receivable
$
167

 
$
160

Prepaid insurance and other expenses
96

 
104

Reimbursable engineering costs
50

 
33

Notes receivable
25

 
16

Income and other taxes receivable
51

 
46

Deposits to vendors
7

 
8

Derivative financial instruments (Note 14)
7

 
30

Accounts receivable to be remitted to Delphi Technologies (Note 21)
103

 
123

Other

 
1

Total
$
506

 
$
521


12


Other long-term assets consisted of the following:
 
June 30,
2018
 
December 31,
2017
 
 
 
 
 
(in millions)
Deferred income taxes, net
$
186

 
$
185

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

 
8

Income and other taxes receivable
16

 
22

Reimbursable engineering costs
103

 
66

Value added tax receivable
35

 
37

Equity investments (Note 17)
56

 
56

Derivative financial instruments (Note 14)

 
8

Other
100

 
88

Total
$
503

 
$
470


5. LIABILITIES
Accrued liabilities consisted of the following:
 
June 30,
2018
 
December 31,
2017
 
 
 
 
 
(in millions)
Payroll-related obligations
$
249

 
$
218

Employee benefits, including current pension obligations
80

 
116

Income and other taxes payable
216

 
233

Warranty obligations (Note 6)
36

 
41

Restructuring (Note 7)
64

 
90

Customer deposits
27

 
28

Derivative financial instruments (Note 14)
12

 
15

Accrued interest
39

 
41

Dividends payable

 
59

Accounts payable to be remitted on behalf of Delphi Technologies (Note 21)
60

 
132

Other
326

 
323

Total
$
1,109

 
$
1,296


13


Other long-term liabilities consisted of the following:
 
June 30,
2018
 
December 31,
2017
 
 
 
 
 
(in millions)
Environmental (Note 10)
$
3

 
$
4

Extended disability benefits
9

 
9

Warranty obligations (Note 6)
17

 
17

Restructuring (Note 7)
36

 
42

Payroll-related obligations
10

 
10

Accrued income taxes
175

 
154

Deferred income taxes, net
268

 
222

Derivative financial instruments (Note 14)
8

 
11

Deferred compensation related to nuTonomy acquisition (Note 17)
27

 
4

Other
68

 
53

Total
$
621

 
$
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 June 30, 2018. The Company estimates the reasonably possible amount to ultimately resolve all matters in excess of the recorded reserves as of June 30, 2018 to be zero to $20 million.
The table below summarizes the activity in the product warranty liability for the six months ended June 30, 2018:
 
Warranty Obligations
 
 
 
(in millions)
Accrual balance at beginning of period
$
58

Provision for estimated warranties incurred during the period
20

Changes in estimate for pre-existing warranties
5

Settlements made during the period (in cash or in kind)
(30
)
Foreign currency translation and other

Accrual balance at end of period
$
53

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 an incremental $43 million of warranty expense within cost of sales during the six months ended June 30, 2017.


14


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 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 $15 million and $35 million during the three and six months ended June 30, 2018, respectively, which is primarily comprised of $10 million and $22 million, respectively, recognized for programs focused on the continued rotation of our manufacturing footprint to best cost locations in Europe and reducing overhead costs in the region.
Restructuring costs of approximately $31 million and $83 million were recorded during the three and six months ended June 30, 2017, respectively, 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 ongoing 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 $66 million and $60 million in the six months ended June 30, 2018 and 2017, respectively.
The following table summarizes the restructuring charges recorded for the three and six months ended June 30, 2018 and 2017 by operating segment:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
 
(in millions)
Signal and Power Solutions
$
11

 
$
14

 
$
29

 
$
27

Advanced Safety and User Experience
4

 
17

 
6

 
56

Total
$
15

 
$
31

 
$
35

 
$
83

The table below summarizes the activity in the restructuring liability for the six months ended June 30, 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
35

 

 
35

Payments made during the period
(65
)
 
(1
)
 
(66
)
Foreign currency and other
(1
)
 

 
(1
)
Accrual balance at June 30, 2018
$
100

 
$

 
$
100



15


8. DEBT
The following is a summary of debt outstanding, net of unamortized issuance costs and discounts, as of June 30, 2018 and December 31, 2017, respectively:
 
June 30,
2018
 
December 31,
2017
 
 
 
 
 
(in millions)
3.15%, senior notes, due 2020 (net of $2 and $2 unamortized issuance costs and $0 and $1 discount, respectively)
$
648

 
$
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 $2 and $3 discount, respectively)
803

 
833

4.25%, senior notes, due 2026 (net of $3 and $4 unamortized issuance costs, respectively)
647

 
646

1.60%, Euro-denominated senior notes, due 2028 (net of $4 and $4 unamortized issuance costs and $1 and $1 discount, respectively)
573

 
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)
391

 
396

Capital leases and other
37

 
42

Total debt
4,089

 
4,149

Less: current portion
(22
)
 
(17
)
Long-term debt
$
4,067

 
$
4,132

Credit Agreement
Aptiv PLC and its wholly-owned subsidiary Aptiv 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 June 30, 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:
 
June 30, 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 June 30, 2018, Aptiv selected the one-month LIBOR interest rate option on the Tranche A Term Loan, and the rate effective as of June 30, 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
 
 
 
 
 
June 30, 2018
 
Rate effective as of
 
Applicable Rate
 
(in millions)
 
June 30, 2018
Tranche A Term Loan
LIBOR plus 1.25%
 
$
392

 
3.375
%
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 June 30, 2018.
As of June 30, 2018, all obligations under the Credit Agreement were borrowed by Aptiv 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, Aptiv 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 June 30, 2018, the Company was in compliance with the provisions of all series of the outstanding senior notes.
The 2014 Senior Notes were issued by Aptiv 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 Aptiv 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 June 30, 2018 or December 31, 2017.
Capital leases and other—As of June 30, 2018 and December 31, 2017, approximately $37 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 $68 million and $63 million for the six months ended June 30, 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 and six months ended June 30, 2018 and 2017:
 
Non-U.S. Plans
 
U.S. Plans
 
 
 
 
 
 
 
 
 
Three Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
 
(in millions)
Service cost
$
4

 
$
6

 
$

 
$

Interest cost
7

 
5

 

 
1

Expected return on plan assets
(7
)
 
(6
)
 

 

Curtailment loss

 
3

 

 

Amortization of actuarial losses
3

 
2

 
1

 

Net periodic benefit cost
$
7

 
$
10

 
$
1

 
$
1

 
 
 
 
 
 
 
 
 
Non-U.S. Plans
 
U.S. Plans
 
 
 
 
 
 
 
 
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
 
(in millions)
Service cost
$
9

 
$
10

 
$

 
$

Interest cost
14

 
12

 

 
1

Expected return on plan assets
(13
)
 
(12
)
 

 

Curtailment loss
1

 
3

 

 

Amortization of actuarial losses
7

 
5

 
1

 

Net periodic benefit cost
$
18

 
$
18

 
$
1

 
$
1

Other postretirement benefit obligations were approximately $4 million and $4 million at June 30, 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

19


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.
In accordance with the settlement agreement and Bankruptcy Court approval, the Company reduced its reserve for this matter to $310 million as of June 30, 2017. The $17 million portion of the Company's previously recorded reserve that was not included in the terms of the settlement agreement was recorded to other income during the three months ended June 30, 2017.
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 June 30, 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 June 30, 2018, claims totaling approximately $155 million (using June 30, 2018 foreign currency rates) have been asserted against Aptiv in Brazil. As of June 30, 2018, the Company maintains accruals for these asserted claims of $20 million (using June 30, 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 $135 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 June 30, 2018 and December 31, 2017, the undiscounted reserve for environmental investigation and remediation was approximately $4 million (of which $1 million was recorded in accrued liabilities and $3 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 June 30, 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.

20


The Company's income tax expense and effective tax rate for the three and six months ended June 30, 2018 and 2017 were as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
 
(dollars in millions)
Income tax expense
$
83

 
$
38

 
$
142

 
$
57

Effective tax rate
22
%
 
11
%
 
19
%
 
10
%
The Company’s tax rate is affected by the fact that its parent entity was a U.K. resident taxpayer and became an Irish resident taxpayer in April 2018, the tax rates in Ireland, 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.
The Company’s effective tax rate for the three and six months ended June 30, 2018 also includes net discrete tax expense of $21 million and $20 million, respectively, primarily related to a change in the provisional accrual of transition tax for untaxed foreign earnings, as described below, partially offset by changes in reserves and provision to return adjustments. The effective tax rate for the three and six months ended June 30, 2017 includes net discrete tax benefits of $4 million and $12 million, respectively, primarily related to provision to return adjustments, net of related changes in valuation allowances and reserves.
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. During the three months ended June 30, 2018, the Company recorded approximately $25 million to income tax expense as an adjustment to the provisional amounts recorded as of December 31, 2017, primarily related to a reduction of our foreign tax credit as a result of recently issued regulatory guidance. 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 on the repatriation of foreign earnings.
Cash paid or withheld for income taxes was $131 million and $126 million for the six months ended June 30, 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 June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
 
(in millions, except per share data)
Numerator:
 
 
 
 
 
 
 
Income from continuing operations
$
291

 
$
297

 
$
598

 
$
517

Income from discontinued operations

 
72

 

 
187

Net income attributable to Aptiv
$
291

 
$
369

 
$
598

 
$
704

Denominator:
 
 
 
 
 
 
 
Weighted average ordinary shares outstanding, basic
264.81

 
267.41

 
265.25

 
268.30

Dilutive shares related to restricted stock units ("RSUs")
0.67

 
0.62

 
0.71

 
0.48

Weighted average ordinary shares outstanding, including dilutive shares
265.48

 
268.03

 
265.96

 
268.78

 
 
 
 
 
 
 
 
Basic net income per share:
 
 
 
 
 
 
 
Continuing operations
$
1.10

 
$
1.11

 
$
2.25

 
$
1.92

Discontinued operations

 
0.27

 

 
0.70

Basic net income per share attributable to Aptiv
$
1.10

 
$
1.38

 
$
2.25

 
$
2.62

Diluted net income per share:
 
 
 
 
 
 
 
Continuing operations
$
1.10

 
$
1.11

 
$
2.25

 
$
1.92

Discontinued operations

 
0.27

 

 
0.70

Diluted net income per share attributable to Aptiv
$
1.10

 
$
1.38

 
$
2.25

 
$
2.62

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 and six months ended June 30, 2018 and 2017 is as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
Total number of shares repurchased
43,568

 
1,092,560

 
1,719,712

 
3,648,263

Average price paid per share
$
91.76

 
$
86.92

 
$
89.24

 
$
78.93

Total (in millions)
$
4

 
$
95

 
$
153

 
$
288

As of June 30, 2018, approximately $836 million of share repurchases remained available under the April 2016 share repurchase program. During the period from July 1, 2018 to July 30, 2018, the Company repurchased an additional $6 million worth of shares pursuant to a trading plan with set trading instructions established by the Company. As a result, approximately $830 million of share repurchases remain 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:
 
 
 
Second quarter
$
0.22

 
$
58

First quarter
0.22

 
59

Total
$
0.44

 
$
117

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 July 2018, the Board of Directors declared a regular quarterly cash dividend of $0.22 per ordinary share, payable August 22, 2018 to shareholders of record at the close of business on August 8, 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 and six months ended June 30, 2018 and 2017 are shown below. Prior period other comprehensive income includes activity relating to discontinued operations.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
 
(in millions)
Foreign currency translation adjustments:
 
 
 
 
 
 
 
Balance at beginning of period
$
(312
)
 
$
(714
)
 
$
(369
)
 
$
(799
)
Aggregate adjustment for the period (1)
(185
)
 
100

 
(128
)
 
185

Balance at end of period
(497
)
 
(614
)
 
(497
)
 
(614
)
 
 
 
 
 
 
 
 
Gains (losses) on derivatives:
 
 
 
 
 
 
 
Balance at beginning of period
(19
)
 
28

 
4

 
(11
)
Other comprehensive income before reclassifications (net tax effect of $4, $5, $0 and $20)
(8
)
 
3

 
(26
)
 
29

Reclassification to income (net tax effect of $0, $1, $1 and $10)
(2
)
 
1

 
(7
)
 
14

Balance at end of period
(29
)
 
32

 
(29
)
 
32

 
 
 
 
 
 
 
 
Pension and postretirement plans:
 
 
 
 
 
 
 
Balance at beginning of period
(105
)
 
(401
)
 
(106
)
 
(405
)
Other comprehensive income before reclassifications (net tax effect of $3, $1, $2 and $4)
6

 
(7
)
 
3

 
(10
)
Reclassification to income (net tax effect of $1, $1, $1 and $3)
3

 
8

 
7

 
15

Balance at end of period
(96
)
 
(400
)
 
(96
)
 
(400
)
 
 
 
 
 
 
 
 
Accumulated other comprehensive loss, end of period
$
(622
)
 
$
(982
)
 
$
(622
)
 
$
(982
)
(1)
Includes gains of $90 million and $53 million for the three and six months ended June 30, 2018, and losses of $73 million and $103 million for the three and six months ended June 30, 2017, respectively, related to non-derivative net investment hedges. 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 and six months ended June 30, 2018 and 2017 were as follows:
Reclassification Out of Accumulated Other Comprehensive Income (Loss)
Details About Accumulated Other Comprehensive Income Components
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
Affected Line Item in the Statement of Operations
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(in millions)
 
 
Gains (losses) on derivatives:
 
 
 
 
 
 
 
 
 
 
Commodity derivatives
 
$
6

 
$
2

 
$
15

 
$
3

 
Cost of sales
Foreign currency derivatives
 
(4
)
 
(4
)
 
(9
)
 
(27
)
 
Cost of sales
 
 
2

 
(2
)
 
6

 
(24
)
 
Income before income taxes
 
 

 
1

 
1

 
10

 
Income tax expense
 
 
2

 
(1
)
 
7

 
(14
)
 
Net income
 
 

 

 

 

 
Net income attributable to noncontrolling interest
 
 
$
2

 
$
(1
)
 
$
7

 
$
(14
)
 
Net income attributable to Aptiv
 
 
 
 
 
 
 
 
 
 
 
Pension and postretirement plans:
 
 
 
 
 
 
 
 
 
 
Actuarial losses
 
$
(4
)
 
$
(9
)
 
$
(8
)
 
$
(18
)
 
Other income (expense), net (1)
 
 
(4
)
 
(9
)
 
(8
)
 
(18
)
 
Income before income taxes
 
 
1

 
1

 
1

 
3

 
Income tax expense
 
 
(3
)
 
(8
)
 
(7
)
 
(15
)
 
Net income
 
 

 

 

 

 
Net income attributable to noncontrolling interest
 
 
$
(3
)
 
$
(8
)
 
$
(7
)
 
$
(15
)
 
Net income attributable to Aptiv
 
 
 
 
 
 
 
 
 
 
 
Total reclassifications for the period
 
$
(1
)
 
$
(9
)
 
$

 
$
(29
)
 
 
(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 June 30, 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
70,508

 
pounds
 
$
220

Foreign Currency
Quantity Hedged
 
Unit of Measure
 
Notional Amount
(Approximate USD Equivalent)
 
 
 
 
 
 
 
(in millions)
Mexican Peso
12,157

 
MXN
 
$
600

Chinese Yuan Renminbi
2,098

 
RMB
 
315

Polish Zloty
420

 
PLN
 
110

New Turkish Lira
83

 
TRY
 
20

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 June 30, 2018, Aptiv has entered into derivative instruments to hedge cash flows extending out to June 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 losses on cash flow hedges included in accumulated OCI as of June 30, 2018 were $20 million ($7 million, net of tax). Of this total, approximately $12 million of losses are expected to be included in cost of sales within the next 12 months and $8 million of losses are expected to be included in cost of sales in subsequent periods. 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 and six months ended June 30, 2018 and 2017. Cash flows from derivatives used to manage commodity and foreign exchange risks designated as cash flow hedges 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 matured in June 2018, and the Company paid $10 million at settlement. In June 2018, the Company entered into a forward contract with a notional amount of 486 million RMB (approximately $75 million, using June 30, 2018 foreign currency rates), which matures in December 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 comprehensive income related to these derivative instruments.

26


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 and six months ended June 30, 2018, $90 million and $53 million, respectively, of gains were recognized within the cumulative translation adjustment component of OCI. During the three and six months ended June 30, 2017, $73 million and $103 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 $64 million as of June 30, 2018 and $117 million as of December 31, 2017. There were no amounts reclassified or recognized for ineffectiveness during the three and six months ended June 30, 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.
In conjunction with the acquisition of KUM, as more fully disclosed in Note 17. Acquisitions and Divestitures, 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 did not qualify as hedges for accounting purposes, and therefore, changes in the fair value of the forwards were recognized in other income (expense), net. In conjunction with the closing of the acquisition, Aptiv settled the forward contracts in the second quarter of 2018 and received $4 million, which is reflected within investing activities from continuing operations in the consolidated statement of cash flows. During the three and six months ended June 30, 2018, the change in fair value resulted in a pre-tax loss of $7 million and a pre-tax gain of $4 million, respectively, 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 June 30, 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
 
June 30,
2018
 
Balance Sheet Location
 
June 30,
2018
 
June 30,
2018
 
 
 
 
 
 
 
 
 
 
 
(in millions)
Derivatives designated as cash flow hedges:
 
 
 
 
 
 
 
 
Commodity derivatives
Other current assets
 
$
4

 
Accrued liabilities
 
$

 
 
Foreign currency derivatives*
Other current assets
 
2

 
Other current assets
 
1

 
$
1

Foreign currency derivatives*
Accrued liabilities
 
3

 
Accrued liabilities
 
15

 
(12
)
Commodity derivatives
Other long-term assets
 

 
Other long-term liabilities
 
3

 
 
Foreign currency derivatives*
Other long-term assets
 
1

 
Other long-term assets
 
1

 

Foreign currency derivatives*
Other long-term liabilities
 

 
Other long-term liabilities
 
5

 
(5
)
Derivatives designated as net investment hedges:
 
 
 
 
 
 
 
 
Foreign currency derivatives
Other current assets
 
2

 
Accrued liabilities
 

 


Total derivatives designated as hedges
 
$
12

 
 
 
$
25

 
 

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