10-K 1 dlph1231201810k.htm 10-K Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 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: 001-38110
 DELPHI TECHNOLOGIES PLC
(Exact name of registrant as specified in its charter)
Jersey
 
98-1367514
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
One Angel Court
10th Floor
London, EC2R 7HJ
United Kingdom
(Address of principal executive offices)
011-44-020-305-74300
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of class
 
Name of Each Exchange on which Registered
Ordinary Shares. $0.01 par value per share
 
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x. No ¨.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨. No x.
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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x.    No  ¨.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x.
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. (Check one): 
Large accelerated filer x
 
Accelerated filer ¨
Non-accelerated filer ¨
 
Smaller reporting company ¨
 
 
 
Emerging growth company ¨
 
If an emerging growth company, indicate by the 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 aggregate market value of the ordinary shares held by non-affiliates of the registrant as of June 30, 2018, the last business day of the registrant's most recently completed second fiscal quarter, was $3,985,077,509 (based on the closing sale price of the registrant's ordinary shares on that date as reported on the New York Stock Exchange).

The number of the registrant’s ordinary shares outstanding, $0.01 par value per share as of February 15, 2019, was 88,531,666.  



DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement related to the 2019 Annual Shareholders Meeting to be filed subsequently are incorporated by reference into Part III of this Form 10-K.


DELPHI TECHNOLOGIES PLC
INDEX
 
 
 
Page
 
Part I
 
Item 1.
Supplementary Item.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
 
 
 
 
Part II
 
Item 5.
Item 6.

Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
 
Part IV
 
Item 15.

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This Annual Report on Form 10-K, including the exhibits being filed as part of this report, as well as other statements made by the Company, contain forward-looking statements that reflect, when made, the Company’s current views with respect to future events and financial performance. Such forward-looking statements are subject to many risks, uncertainties and factors relating to the Company’s operations and business environment, which may cause the actual results of the Company to be materially different from any future results, express or implied, by such forward-looking statements. All statements that address future operating, financial or business performance or the Company’s strategies or expectations are forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “may,” “might,” “will,” “should,” “expects,” “plans,” “intends,” “anticipates,” “believes,” “estimates,” “potential,” “outlook” or “continue,” the negatives thereof and other comparable terminology. Factors that could cause actual results to differ materially from these forward-looking statements include, but are not limited to, the following:
•
global and regional economic conditions, including conditions affecting the credit market and those resulting from the United Kingdom referendum held on June 23, 2016 in which voters approved an exit from the European Union, commonly referred to as “Brexit”;
•
risks inherent in operating as a global company, such as, fluctuations in interest rates and foreign currency exchange rates and economic, political and trade conditions around the world;
•
the cyclical nature of automotive sales and production;
•
the potential disruptions in the supply of and changes in the competitive environment for raw material integral to the Company’s products;
•
the Company’s ability to maintain contracts that are critical to its operations;
•
potential changes to beneficial free trade laws and regulations such as the North American Free Trade Agreement;
•
the ability of the Company to achieve the intended benefits from its separation from its former parent or from acquisitions the Company may make;
•
the ability of the Company to attract, motivate and/or retain key executives;
•
the ability of the Company to avoid or continue to operate during a strike, or partial work stoppage or slow down by any of its unionized employees or those of its principal customers or suppliers;
•
the ability of the Company to attract and retain customers;
•
new technologies that displace demand for our products and our ability to develop and commercialize new products to meet our customers’ needs;
•
changes in customer preferences and requirements, including any resultant inability to realize the sales represented by our bookings;
•
changes in the costs of raw materials;
•
the Company’s indebtedness, including the amount thereof and capital availability and cost;
•
the cost and outcome of any claims, legal proceedings or investigations;
•
the failure or breach of information technology systems;
•
severe weather conditions and natural disasters and any resultant disruptions on the supply or production of goods or services or customer demands;
•
acts of war and/or terrorism, as well as the impact of actions taken by governments as a result of further acts or threats of terrorism; and
•
the timing and occurrence (or non-occurrence) of other events or circumstances that may be beyond our control.
Additional factors are discussed under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report on Form 10-K. New risks and uncertainties arise from time to time, and it is impossible for us to predict these events or how they may affect the Company. It should be remembered that the price of the ordinary shares and any income from them can go down as well as up. Delphi Technologies disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events and/or otherwise, except as may be required by law.


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PART I

ITEM 1. BUSINESS
Overview
Delphi Technologies PLC (“Delphi Technologies,” “we,” “us,” “our” or the “Company”) is a leader in the development, design and manufacture of vehicle propulsion systems that optimize engine performance, increase vehicle efficiency, reduce emissions, improve driving performance, and support increasing electrification of vehicles. We are a global supplier to original equipment manufacturers (“OEMs”) of both light vehicles (passenger cars, trucks, vans and sport-utility vehicles) and commercial vehicles (light-duty, medium-duty and heavy-duty trucks; commercial vans; buses and off-highway vehicles). In addition, we manufacture and sell our products and provide value added services to leading aftermarket companies, including independent retailers and wholesale distributors.

On December 4, 2017, Delphi Technologies became an independent publicly-traded company, formed under the laws of Jersey, as a result of the separation of the Powertrain Systems segment, which included the aftermarket operations, from Aptiv PLC, formerly known as Delphi Automotive PLC (the “Former Parent”). References hereinafter to “Delphi Technologies,” “we,” “us,” “our” or the “Company” include the results of the Powertrain Systems segment. The separation was completed in the form of a pro-rata distribution to the Former Parent’s shareholders of 100% of the ordinary shares of Delphi Technologies PLC (the “Separation”).

Our product portfolio includes advanced gasoline and diesel fuel injection systems, actuators, valvetrain products, sensors, electronic control modules and power electronics technologies. We believe our product portfolio enables our customers to meet regulatory requirements for reduced emissions and improved fuel economy and provide additional power for more in-vehicle functionality.

Website Access to Company’s Reports
Our website address is delphi.com. Our website contains a significant amount of information about us, including our filings with the Securities and Exchange Commission (the “SEC”) as well as financial and other information for investors. We encourage investors to visit our website, as we frequently update and post new information about our company on our website and it is possible that this information could be deemed to be material information.
Our website is not, however, a part of this report.
    
Our Segments
Our business operates in two segments, which are grouped on the basis of similar product, market and operating factors:

Powertrain Systems. This segment offers high quality components and complete engine management systems to help optimize performance, emissions and fuel economy.

Internal Combustion Engine (“ICE”) Products:

•
Our gasoline fuel injection systems portfolio includes a full suite of fuel injection technologies that deliver greater efficiency for traditional and hybrid vehicles with gasoline combustion engines. Our Gasoline Direct Injection (“GDi”) technology provides high precision fuel delivery for optimized combustion, which lowers emissions and improves fuel economy.

•
Our diesel fuel injection systems portfolio provides enhanced engine performance at an attractive value. Our common rail fuel injection system is the core technology for both commercial and light vehicle applications.

•
Our ICE products also include an array of highly engineered products for traditional combustion and hybrid electric vehicles, including variable valve timing, variable valve actuation, smart remote actuators, powertrain sensors, ignition products, canisters, and fuel handling products. These products often complement and enhance the efficiency improvements delivered by our fuel injection systems technologies.


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Electronics & Electrification Products:

•
Our electronics portfolio consists of gasoline and diesel control modules, local control units and power electronics. The control modules, containing as much as one million lines of software code, are key components that enable the integration and operation of powertrain products throughout the vehicle. As the electrification increases, our proprietary solutions, including supervisory controllers and software, DC/DC converters and inverters, provide better efficiency, reduced weight and lower cost for our OEM customers while also making these and other components easier to integrate. Additionally, manufacturers are choosing to combine power electronic functionality into one unit, enabling more effective packaging and a lower total cost solution while increasing Delphi Technologies’ content per vehicle. These products are expected to experience increased demand as vehicle electrification accelerates.

Aftermarket. Through this segment we sell aftermarket products and services to independent aftermarket customers and original equipment service customers. Our aftermarket product portfolio includes a wide range of solutions covering the fuel injection, electronics and engine management, maintenance, and test equipment and vehicle diagnostics categories. Our aftermarket business provides a recurring and stable revenue base as replacement of many of these products is non-discretionary in nature. The growth in the number of vehicles in all regions of the world, along with the increasing average age of vehicles and a greater number of miles driven annually in certain regions collectively represent trends that are expected to lead to growing demand for our aftermarket products.

Growth Strategies
Our strategy is to continue to accelerate the development of market-relevant technologies that solve our customers’ increasingly complex challenges and leverage our lean, flexible cost structure to deliver margin expansion and revenue, earnings and cash flow growth over the long-term. Our technologies include a portfolio of innovations for future propulsion that are focused on industry-leading systems to meet regulatory requirements for reduced emissions and improved fuel economy, as well as provide additional power for more in-vehicle functionality. We seek to grow our business through the execution of the following strategies, among others:
•
Expand Leadership in Technologies that Solve Our Customers’ Most Complex Propulsion Challenges. We are focused on providing technologies and solutions that solve some of our customers’ biggest propulsion-related challenges, including helping our customers meet increasingly stringent global regulatory requirements while also enhancing vehicle performance. We believe we have strong positions in fuel injectors, fuel pumps, and complete fuel-injection systems, including software and controls. Additionally, we provide leading technology solutions in the areas of electronics and electrification, including engine control modules and power electronics, where we see growth over the long-term driven by increasing levels of electrification. Our power electronics technologies include products such as high-voltage inverters, DC/DC converters and on-board chargers that convert electricity to enable hybrid and electric vehicle propulsion systems. Our comprehensive portfolio of powertrain products combined with our proprietary software and controls, enables industry-leading propulsion systems for internal combustion engines, hybrids and electric vehicles.
•
Focused Regional Strategies To Best Serve Our Customers’ Needs. The combination of our global operating capabilities and our portfolio of advanced technologies help us serve our global customers’ local needs. We have a presence in all major global regions and have positioned ourselves as a leading supplier of advanced vehicle propulsion technologies, including electrification, that are tailored to satisfy our customers’ needs in each region. We believe our focus on providing customer solutions to meet increasingly stringent emissions and fuel efficiency regulations will collectively drive greater demand for our products and enable us to experience growth over the long-term.
•
Continue to Enhance Aftermarket Position. Globally we plan to expand margins by focusing on higher value product lines such as electronics and services, which include diagnostics and remanufacturing. We expect that demand for these product lines will grow faster than the overall aftermarket industry as the electronics content of new vehicles continues to increase, providing a strong foundation to gain scale profitably in the future. In addition, we expect to benefit from Aftermarket growth in key regions around the world, especially China, as the average age of vehicles increases and expands the need for replacement products.
•
Leverage Our Lean and Flexible Cost Structure to Deliver Earnings and Cash Flow Growth. We recognize the importance of maintaining a lean and flexible business model in order to deliver earnings and cash flow growth. We intend to improve our cost competitiveness by leveraging our enterprise operating system, continuously increasing operational efficiency, maximizing manufacturing output and rotating our facilities to best-cost countries. We have

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ongoing processes and resources dedicated to further improvement of our operations, and we expect to use our cash flow to reinvest in our business to drive growth.
Our Industry
The automotive and commercial vehicle parts industry provides components, systems, subsystems and modules to OEMs for the manufacture of new vehicles, as well as to the aftermarket for use as replacement parts. Overall, we expect long-term growth of global vehicle production in the OEM market. In 2018, global vehicle production (including light and commercial vehicles) decreased 1% versus the previous year, reflecting a decrease of 4% in China and 1% in Europe, consistent production in North America and an increase of 4% in South America.

Demand for automotive components in the OEM market is generally a function of the number of new vehicles produced in response to consumer demand, which is primarily driven by macro-economic factors such as credit availability, interest rates, fuel prices, consumer confidence, employment and other trends. In the commercial vehicle market, OEM demand for components is also tied to vehicle production, which is driven by industrial production, the amount of freight tonnage being transported and the availability of credit and interest rates, among other factors. Although OEM demand is tied to actual vehicle production, we have the opportunity to grow faster by further penetrating business with existing customers and in existing markets, gaining new customers and increasing presence in global markets. Growth over the long-term can be achieved through product alignment to favorable macro trends such as increasingly stringent regulations and growing consumer demand for electrification; however unfavorable macro trends, such as the recent moderations in the level of economic growth in China, may slow this growth. The number of vehicles utilizing electrification is expected to grow to more than 35% of global vehicle production by 2025, as compared to just five percent today.

Heightened Regulatory Environment
OEMs continue to focus on improving fuel efficiency and reducing emissions in order to meet increasingly stringent regulatory requirements in various markets. Authorities in the European Union, the United States (“U.S.”), China, India, Japan, Brazil, South Korea and Argentina have already instituted regulations requiring further reductions in emissions and/or increased fuel economy. Authorities have also initiated legislation or regulation that would further tighten standards through 2020 and beyond. In order to comply with these regulations, OEMs and suppliers must find ways to improve fuel injection and combustion efficiency, engine management, electrical power consumption, vehicle weight and integration of alternative powertrains (e.g., electric/hybrid propulsion). As a result, we are continuing to develop innovations that result in improvements in fuel economy, emissions and performance from gasoline and diesel internal combustion engines and permit engine downsizing without loss of performance.

Standardization of Sourcing by OEMs
Many OEMs are continuing to adopt global vehicle platforms to increase standardization, reduce per-unit cost and increase capital efficiency and profitability. As a result, OEMs are selecting suppliers that have the capability to manufacture products on a worldwide basis as well as the flexibility to adapt to regional variations. Suppliers with global scale and strong design, engineering and manufacturing capabilities are best positioned to benefit from this trend. OEMs are also increasingly looking to their suppliers to simplify vehicle design and assembly processes to reduce costs. As a result, suppliers that sell vehicle components directly to manufacturers have assumed many of the design, engineering, research and development and assembly functions traditionally performed by vehicle manufacturers. Suppliers that can provide fully-engineered solutions, systems and pre-assembled combinations of component parts, such as Delphi Technologies, are positioned to leverage the trend toward system sourcing.

Shorter Product Development Cycles To Benefit Strong Suppliers
OEMs are requiring suppliers to respond faster with new designs and product innovations. Suppliers with strong technologies, global engineering and development capabilities, such as Delphi Technologies, will be best positioned to meet OEM demands for rapid innovation.


7

Increasing Demand for Electronics
Vehicles are increasingly complex in their design, features, level of integration of mechanical and electrical components and increasing levels of software necessary to deliver their functionality. Electronics integration, which generally refers to products and systems that combine integrated circuits, software algorithms, sensor technologies and mechanical components within the vehicle, will allow OEMs to achieve substantial reductions in weight and mechanical complexity. In turn, this results in enhanced fuel economy, improved emissions control and better vehicle performance. We are well positioned to benefit from accelerating industry demand for electronics integration and vehicle electrification. Moreover, our proprietary power electronics solutions enable all levels of electrification, allow our OEM customers to improve efficiency and reduce weight, which helps vehicles drive cleaner, better and further.

Competition
The automotive parts industry remains extremely competitive in light of constantly evolving market dynamics. The industry in which we compete has attracted, and may continue to attract, new entrants in areas of evolving vehicle technologies. Although OEMs prefer to maintain relationships with suppliers that have a proven record of performance, they rigorously evaluate suppliers on the basis of product quality, price, reliability and timeliness of delivery, product design capability, technical expertise and development capability, new product innovation, financial viability, application of lean principles, operational flexibility, customer service and overall management.

Customers
Our business is diversified across end-markets, regions, customers, vehicle platforms and products. We sell our products and services to the major global automotive and commercial vehicle OEMs in every region of the world. We also sell our products and services to the worldwide aftermarket for replacement parts, including the aftermarket operations of our OEM customers and to other distributors and retailers. Our global customer base includes 23 of the largest light vehicle OEMs, several of the largest commercial vehicle OEMs, and members of all of the global automotive aftermarket trading groups, which include most of the leading aftermarket retailers and wholesale distributors around the world. Our ten largest platforms in 2018 were with nine different OEMs. In addition, in 2018 our solutions were found in the majority of the top twenty platforms in each of the regions in which we operate. Further, 72% of our Powertrain Systems segment’s net sales were related to light vehicles and 28% of the segment’s net sales were focused on the commercial vehicle market, which is typically on a different business cycle than the light vehicle market. Our revenue base is also geographically diverse, and in 2018, 44% of our net sales were derived from Europe, 28% from North America, 25% from Asia Pacific and 3% from South America. In addition, we had no customers with greater than 10% of our net sales for the years ended December 31, 2018, 2017 and 2016.

Supply Relationships with Our Customers
We typically supply products to our OEM customers through purchase orders, which are generally governed by general terms and conditions established by each OEM. Although the terms and conditions vary from customer to customer, they typically contemplate a relationship under which our customers place orders for their requirements of specific components supplied for particular vehicles but are not required to purchase any minimum amount of products from us. These relationships typically extend over the life of the related vehicle. Prices are negotiated with respect to each business award, which may be subject to adjustments under certain circumstances, such as commodity or foreign exchange escalation/de-escalation clauses or for cost reductions achieved by us. During 2018, we communicated to our customers that trade tariff costs are not included in our current agreements. We continue to discuss the implications of tariff costs with our customers. The terms and conditions typically provide that we are subject to a warranty on the products supplied; in most cases, the duration of such warranty is coterminous with the warranty offered by the OEM to the end-user of the vehicle. We may also be obligated to share in all or a part of recall costs if the OEM recalls its vehicles for defects attributable to our products.

Individual purchase orders are terminable for cause or non-performance and, in most cases, upon our insolvency and certain change of control events. In addition, many of our OEM customers have the option to terminate for convenience on certain programs, which permits our customers to impose pressure on pricing during the life of the vehicle program and issue purchase contracts for less than the duration of the vehicle program, potentially reducing our profit margins and increasing the risk of our losing future sales under those purchase contracts. We manufacture and ship based on customer release schedules, normally provided on a weekly basis, which can vary due to cyclical automobile production or dealer inventory levels.

Although customer programs typically extend to future periods, and although there is an expectation that we will supply certain levels of OEM production during such future periods, customer agreements including applicable terms and conditions do not necessarily constitute firm orders. Firm orders are generally limited to specific and authorized customer purchase order releases placed with our manufacturing and distribution centers for actual production and order fulfillment. Firm orders are typically fulfilled as promptly as possible from the conversion of available raw materials, sub-components and work-in-process

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inventory for OEM orders and from current on-hand finished goods inventory for aftermarket orders. The dollar amount of such purchase order releases on hand and not processed at any point in time is not believed to be significant based upon the time frame involved.
 
Materials
We procure our raw materials from a variety of suppliers around the world. Generally, we seek to obtain materials in the region in which our products are manufactured in order to minimize transportation and other costs. As of December 31, 2018, we have not experienced any significant shortages of raw materials and normally do not carry inventories of such raw materials in excess of those reasonably required to meet our production and shipping schedules.

Commodity cost volatility, most notably related to various metals, is a challenge for us and our industry. As such, we continually seek to mitigate both inflationary pressures and our material-related cost exposures using a number of approaches, including combining purchase requirements with customers and/or other suppliers, using alternate suppliers or product designs and negotiating cost reductions and/or commodity cost contract escalation clauses into our vehicle manufacturer supply contracts. Our overall success in passing commodity cost increases on to our customers has been limited.

Research, Development and Intellectual Property
We maintain technical engineering centers in major regions of the world to develop and provide advanced products, processes and manufacturing support for all of our manufacturing sites, and to provide our customers with local engineering capabilities and design development on a global basis. As of December 31, 2018, we employed approximately 5,000 scientists, engineers and technicians around the world.

We believe that our engineering and technical expertise, together with our emphasis on continuing research and development, allow us to use the latest technologies, materials and processes to solve problems for our customers and to bring new, innovative products to market. We believe that continued engineering activities are critical to maintaining our pipeline of technologically advanced products. We seek to effectively manage fixed costs and efficiently rationalize capital spending by critically evaluating the profit potential of new and existing customer programs, including investment in innovation and technology. We maintain our engineering activities around our focused product portfolio and allocate our capital and resources to those products with distinctive technologies.
    
We currently hold more than 3,100 active patents and patent applications. While no individual patent or group of patents, taken alone, is considered material to our business, taken in the aggregate, these patents provide meaningful protection for our products and technical innovations. We are actively pursuing marketing opportunities to commercialize and license our technology to both automotive and non-automotive industries and we have selectively taken licenses from others to support our business interests. These activities foster optimization of intellectual property rights.

Environmental Compliance
We are subject to the requirements of environmental and safety and health laws and regulations in each country in which we operate. These include laws regulating air emissions, water discharge, hazardous materials and waste management. We have an environmental management structure designed to facilitate and support our compliance with these requirements globally. Although it is our intent to comply with all such requirements and regulations, we cannot provide assurance that we are at all times in compliance. Environmental requirements are complex, change frequently and have tended to become more stringent over time. Accordingly, we cannot assure that our future environmental costs and liabilities will not be material.

Certain environmental laws assess liability on current or previous owners or operators of real property for the cost of removal or remediation of hazardous substances. At this time, we are involved in various stages of investigation and cleanup related to environmental remediation matters at certain of our present and former facilities. In addition, there may be soil or groundwater contamination at several of our properties resulting from historical, ongoing or nearby activities.

At December 31, 2018, the undiscounted reserve for environmental investigation and remediation was approximately $3 million. We cannot assure that our eventual environmental remediation costs and liabilities will not exceed the amount of our current reserves. In the event that such liabilities were to significantly exceed the amounts recorded, our results of operations could be materially adversely affected.


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Seasonality
Our business is moderately seasonal, as our primary North American customers historically reduce production during the month of July and halt operations for approximately one week in December. Our European customers generally reduce production during the months of July and August and for one week in December. Our Chinese customers generally reduce production during the Chinese New Year that occurs during the first quarter of each year. Shut-down periods in the rest of the world generally vary by country. In addition, automotive production is traditionally reduced in the months of July, August and September due to the launch of parts production for new vehicle models. Accordingly, our results reflect this seasonality.

Employees
As of December 31, 2018, we had approximately 21,000 workers: 9,000 salaried employees, 10,000 hourly employees and 2,000 contract and temporary workers. Our employees are represented worldwide by numerous unions and works councils, including the European Works Council and local trade unions such as Unite, U.K., CFE-CGC France and C.T.M. in Mexico.


SUPPLEMENTARY ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT
The name, age (as of February 21, 2019), current positions and description of business experience of each of our executive officers are listed below. Our executive officers are elected annually by the Board of Directors and hold office until their successors are elected and qualified or until the officer’s resignation or removal.
Name (Age)
 
Present Position
(Effective Date)
 
Positions Held During the Past Five Years
(Effective Date)
Richard F. Dauch (58)
 
Chief Executive Officer (2019)
 
Accuride Corp., President and Chief Executive Officer (2011 - 2019)
Vivid Sehgal (50)
 
Chief Financial Officer (2017)
 
LivaNova PLC, Chief Financial Officer (2015 - 2017)
Allergan, Inc., Senior Vice President, Treasury, Risk and Investor Relations (2014 - 2015)
James D. Harrington (58)
 
Senior Vice President, General Counsel, Secretary and Chief Compliance Officer (2017)
 
Tenneco Inc., Senior Vice President, General Counsel and Corporate Secretary (2009 - 2017)
Michael J.P. Clarke (57)
 
Senior Vice President, Chief Human Resources Officer (2017)
 
Delphi Powertrain Systems, Vice President, Human Resources (2015 - 2017)
Hertz Corporation, Vice President, Human Resources (2009 - 2015)
Mary E. Gustanski (56)
 
Senior Vice President, Chief Technology Officer (2017)
 
Delphi Powertrain Systems, Senior Vice President, Chief Technology Officer (2017)
Delphi Powertrain Systems, Vice President, Engineering and program management (2014 - 2017)



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ITEM 1A. RISK FACTORS
We have set forth below (not necessarily in order of importance or probability of occurrence) the most significant risk factors applicable to us. Also refer to the Cautionary Statement Regarding Forward Looking Information in this annual report.

Risks Related to Business Environment and Economic Conditions
Conditions in the automotive industry may adversely affect our business.
Our business is directly related to automotive sales and automotive vehicle production by our customers. Our financial performance, therefore, depends on conditions in the automotive industry. The automotive industry is cyclical and sensitive to general economic conditions, including the global credit markets, interest rates, the availability of consumer credit and consumer spending and preferences. Economic declines that result in a significant reduction in automotive production by our customers, including as the result of consolidation or restructuring among our customers, would have an adverse effect on our business.
Our sales are also affected by inventory levels and OEMs’ production levels. We cannot predict when OEMs will decide to increase or decrease inventory levels or whether new inventory levels will approximate historical inventory levels. Uncertainty and other unexpected fluctuations could have a material adverse effect on our business.
A prolonged downturn in the global or regional automotive industry, or a significant change in product mix due to consumer demand, could require us to shut down plants or result in impairment charges, restructuring actions or changes in our valuation allowances against deferred tax assets, which could be material to our business. If global economic conditions deteriorate or economic uncertainty increases, our customers and potential customers may experience deterioration of their businesses, which may result in the delay or cancellation of plans to purchase our products. If vehicle production were to remain at low levels for an extended period of time or if cash losses for customer defaults rise, our cash flow could be adversely impacted, which could result in our needing to seek additional financing to continue our operations. There can be no assurance that we would be able to secure such financing on terms acceptable to us, or at all.
The lack of commercial success of, or the loss of business with respect to, a vehicle model for which we are a significant supplier could adversely affect our business.
We are dependent on the continued growth, viability and financial stability of our customers. Our customers generally are OEMs in the automotive industry. This industry is subject to rapid technological change, vigorous competition, short product life cycles and cyclical and reduced consumer demand patterns. When our customers are adversely affected by these factors, we may be similarly affected to the extent that our customers reduce the volume of orders for our products. As a result of changes impacting our customers, sales mix can shift, which may have either favorable or unfavorable impact on revenue and would include shifts in regional growth, shifts in OEM sales demand, as well as shifts in consumer demand related to vehicle segment purchases and content penetration. For instance, a shift in sales demand favoring a particular OEMs’ vehicle model for which we do not have a supply contract may negatively impact our revenue. A shift in regional sales demand toward certain markets could favorably impact the sales of those of our customers that have a large market share in those regions, which in turn may be expected to have a favorable impact on our revenue.
The mix of vehicle offerings by our OEM customers also impacts our sales. A decrease in consumer demand for specific types of vehicles where we have traditionally provided significant components could have a significant effect on our business and financial condition. For example, a continued decrease in market demand for light-duty diesel-powered vehicles, a decrease in customer demand for diesel-powered commercial vehicles, or a decrease in customer offerings in these vehicle segments, could adversely affect our business.
Our supply agreements with our OEM customers are generally requirements contracts, and a decline in the production requirements of any of our customers, and in particular our largest customers, could adversely impact our revenues and profitability.
Our agreements with our OEM customers generally provide for the supply of their requirements for particular vehicle models or facilities, rather than the purchase of specific quantities of products. These agreements have terms ranging from one year to the life of the model (although customers often reserve the right to terminate agreements earlier without penalty). A significant decrease in demand for certain key models or group of related models sold by any of our major customers or the ability of a manufacturer to re-source and discontinue purchasing from us, for a particular model or group of models, could have a material adverse effect on our business. To the extent that we do not maintain our existing level of business with our largest customers because of a decline in their production requirements or because the contracts expire or are terminated for convenience, we will need to attract new customers or win new business with existing customers, or our business will be adversely affected. See Item 1. Supply Relationships with Our Customers for a detailed discussion of our supply agreements with our customers. As our five

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largest customers accounted for approximately 35% of our total net sales in the year ended December 31, 2018, our revenues may be disproportionately affected by decreases in any of their businesses or market share.
The improved quality of vehicle components may adversely affect the demand for our aftermarket products.
The average useful lives of automotive parts, both OEM and aftermarket, have increased due to innovations in product technology and improved manufacturing processes. Longer product lives and improved durability may result in vehicle owners replacing components on their vehicles less frequently. Other factors that may impact this timing include the severity of regional weather conditions, highway and roadway infrastructure deterioration, and the average number of miles vehicles driven by owners. Our business could be adversely affected if we fail to respond in a timely and appropriate manner to changes in the demand for our aftermarket products.
We may not realize sales represented by awarded business.
We estimate revenue from awarded business using certain assumptions, including projected future sales volumes. Our customers generally do not guarantee volumes. In addition, our customers may reserve the right to terminate agreements without penalty. Therefore, our actual sales volumes, and thus the ultimate amount of revenue that we derive from such sales, are not committed. If actual production orders from our customers are not consistent with the projections we use in calculating the amount of our awarded business, we could realize substantially less revenue over the life of these projects than the currently projected estimate.
Our inability to achieve product cost reductions which offset customer price reductions could adversely affect our business.
The automotive supply industry is highly competitive, serves a limited number of customers, has a high fixed cost base and historically has had excess capacity. As a result, customers possess significant leverage over suppliers. As a Tier 1 supplier (one that supplies vehicle components directly to manufacturers), we are subject to substantial continuing pressure from customers to reduce the price of our products. Our supply agreements generally require step-downs in component pricing over the period of production, typically one to two percent per year. In addition, our customers often reserve the right to terminate their supply contracts for convenience, which enhances their ability to obtain price reductions. These factors have led to selective resourcing of business to competitors in the past and may again in the future. We expect that pricing pressures will intensify as customers pursue restructuring and other cost-cutting initiatives. Our financial performance therefore depends on our ability drive further cost reductions through more favorable pricing from our suppliers, product design enhancements and improved manufacturing efficiency. Our ability to pass through increased raw material costs to our customers is limited, with only partial cost recovery on a delayed basis. Inability to reduce costs in an amount equal to annual price reductions could adversely affect our business.
We have invested substantial resources in products and areas where we expect growth and we may be unable to recover our investments or timely redeploy our invested capital should our expectations not be realized.
Our future growth requires investments in product development and manufacturing capacity in evolving vehicle technologies and geographic areas where we can support our customer base. We have identified the Asia Pacific region, and more specifically China, as a key geographic area, and have identified advanced electronics and software controls that address demand for increased fuel efficiency and emission control through products such as turbo gasoline direct injection (“GDi”) fuel systems, and evolving vehicle technologies such as electrification and hybridization as key growth areas. We believe these areas and products are likely to experience substantial long term growth, and accordingly have made and expect to continue to make substantial investments, both directly and through participation in various partnerships and joint ventures, in numerous manufacturing operations, technical centers, research and development activities and other infrastructure to support anticipated growth. If we are unable to deepen existing and develop additional customer relationships, realize efficiencies on existing programs or develop and introduce market-relevant product technologies we may not only fail to realize expected rates of return on our existing investments, but we may incur losses on such investments and be unable to timely redeploy the invested capital to take advantage of other growth opportunities. Our business will also suffer if our customers change or delay strategies and these areas and products do not grow as quickly as we anticipate, or if customers use other suppliers or insource these products.
Our business in China is subject to aggressive competition and is sensitive to economic, market and political conditions.
Maintaining a strong position in China is a key component of our global growth strategy. Automotive supply in China is highly competitive, with competition from many of the largest global manufacturers and numerous smaller domestic manufacturers. As the automotive industry in China evolves, we anticipate that participants will act aggressively to increase or maintain their market share. Increased competition may result in price reductions, reduced margins and our inability to gain or hold market share. Our customers in China include smaller domestic OEMs, who may not be financially viable in the long term. In addition, our business in China is sensitive to economic, political and market conditions that impact automotive sales volumes. If we are unable to maintain our position in China, the pace of growth slows or vehicle sales in China decrease or do not continue to increase, our business could be materially adversely affected.

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Supply shortages of components from our suppliers could adversely affect our business.
We obtain components and other products and services from numerous automotive suppliers and other vendors around the world. We are responsible for managing our supply chain, including suppliers that may be the sole sources of products that we require, that our customers direct us to use or that have unique capabilities that would make it difficult or expensive to re-source.
We ship products to our customers on a “just-in-time” basis in order to maintain low inventory levels. Our suppliers also use a similar method. However, this “just-in-time” method makes the logistics supply chain in our industry complex and vulnerable to disruptions, including from strikes, financial insolvency of suppliers, mechanical breakdowns, quality control issues, electrical outages, fires, explosions or political upheaval, as well as logistical complications due to weather, global climate change, volcanic eruptions, or other natural or nuclear disasters, mechanical failures, and delayed customs processing. Additionally, as we grow in best cost countries, the risk for such disruptions is heightened. The lack of even a small single subcomponent necessary to manufacture one of our products, for whatever reason, could force us to cease production, even for a prolonged period. Similarly, a potential quality issue could force us to halt deliveries while we validate the products. Even where products are ready to be shipped, or have been shipped, delays may arise before they reach our customer. Our customers may halt or delay their production for the same reason if one of their other suppliers fails to deliver necessary components. This may cause our customers, in turn to suspend their orders, or instruct us to suspend delivery, of our products, which may adversely affect our financial performance.
When we fail to make timely deliveries in accordance with our contractual obligations, we generally have to absorb our own costs for identifying and solving the “root cause” problem as well as expeditiously producing replacement components or products. Generally, we must also carry the costs associated with “catching up,” such as overtime and premium freight.
Additionally, if we are the cause for a customer being forced to halt production, the customer may seek to recoup all of its losses and expenses from us. These losses and expenses could be significant, and may include consequential losses such as lost profits. Any supply-chain disruption, however small, could potentially cause the complete shutdown of an assembly line of one of our customers, and any such shutdown that is due to causes that are within our control could expose us to material claims of compensation. Where a customer halts production because of another supplier failing to deliver on time, it is unlikely we will be fully compensated, if at all.
We operate in the highly competitive automotive supply industry.
The global automotive component supply industry is highly competitive and overall manufacturing capacity in the industry far exceeds demand. Competition is based primarily on product quality, price, reliability and timeliness of delivery, product design capability, technical expertise and development capability, overall customer service and, in certain aftermarket product segments, brand recognition and perception. There can be no assurance that our products will be able to compete successfully with the products of our competitors. In addition, consolidation in the automotive industry may lead to decreased product purchases from us. Furthermore, the rapidly evolving nature of the geographic regions in which we compete continues to attract new entrants, particularly in countries such as China or in areas of evolving vehicle technologies such as electrification. This competition places significant pricing pressure on our business. Moreover, this competition increases the risk that others may anticipate changes earlier than us, develop products that are superior to our products, produce similar products at a lower cost than us, adapt more quickly than us to new technologies or evolving customer requirements or develop or introduce new products or solutions before we do. The failure to develop or acquire new and compelling products that capitalize upon new technologies could adversely affect our business.
Increases in costs of the materials and other supplies that we use in our products may adversely affect our business.
Increases in the global prices of certain materials or commodities, such as petroleum-based resin products and fuel charges, have had and may continue to have an unfavorable impact on our business. We expect prices for our principal raw materials and other supplies to remain high as global demand remains strong, fueled in large part by emerging regions. We are limited in our ability to pass price increases onto our customers, and in instances where we are able to pass price increases through to the customer, in some cases there is a lapse of time before we are able to do so. As a result, a significant increase in the costs of the materials and other supplies used in our products could adversely affect our business.
We may encounter manufacturing challenges.
The volume and timing of sales to our customers may vary due to, among other things: variation in demand for our customers’ products; our customers’ attempts to manage their inventory; design changes; changes in our customers’ manufacturing strategy; and acquisitions of or consolidations among customers. Many of our customers do not commit to long-term production schedules. Our inability to forecast the level of customer orders with certainty makes it difficult to schedule production and maximize utilization of our manufacturing capacity.

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From time to time, we have underutilized manufacturing lines. This excess capacity means we incur increased fixed costs in our products relative to the net revenue we generate. If we are unable to improve utilization levels for our manufacturing and correctly manage capacity, the increased expense levels will have an adverse effect on our business.
We may not be able to respond quickly enough to changes in regulations, technology and technological risks, and to develop our intellectual property into commercially viable products.
Changes in legislative, regulatory or industry requirements or in competitive technologies may render certain of our products obsolete or less attractive. Our ability to anticipate changes in technology and regulatory standards and to successfully develop and introduce new and enhanced products on a timely basis are significant factors in our ability to remain competitive and to maintain or increase our revenues. For example, certain of our products are designed to assist customers’ needs to improve fuel economy and reduce vehicle emissions, in part to meet increasingly stringent regulatory requirements. The relaxation or elimination of these requirements may reduce demand for certain products.
We cannot provide assurance that we will be able to achieve the technological advances that may be necessary for us to remain competitive and maintain or increase our revenues in the future. We are also subject to the risks generally associated with new product introductions and applications, including lack of market acceptance, delays in product development or production and failure of products to operate properly. The pace of our development and introduction of new and improved products depends on our ability to implement successfully improved technological innovations in design, engineering and manufacturing, which requires extensive capital investment.
To compete effectively in the automotive supply industry, we must be able to launch new products to meet changing consumer preferences and our customers’ demand in a timely and cost-effective manner. Our ability to respond to competitive pressures and react quickly to other major changes in the marketplace, including the potential introduction of disruptive technologies such as autonomous driving solutions, increased gasoline prices, or consumer desire for and availability of vehicles which use alternative fuels is also a risk to our future financial performance.
We cannot provide assurance that we will be able to install and certify the equipment needed to produce products for new product programs in time for the start of production, or that the transitioning of our manufacturing facilities and resources to full production under new product programs will not impact production rates or other operational efficiency measures at our facilities. Development and manufacturing schedules are difficult to predict, and we cannot provide assurance that our customers will execute on schedule the launch of their new product programs, for which we might supply products.
Changes in factors that impact the determination of our pension liabilities may adversely affect us.
Certain of our subsidiaries sponsor defined benefit pension plans, which generally provide benefits based on negotiated amounts for each year of service. Our primary funded plans are located in Mexico and the United Kingdom and were underfunded by $414 million as of December 31, 2018. The Company concluded a consultation process with its U.K. workforce in January 2019 with regard to future pension provision, although discussions are still ongoing with the employee representatives. There can be no guarantee that the outcome of the consultation will result in an improvement in the financial results of the Company.
The funding requirements of these benefit plans, and the related expense reflected in our financial statements, are affected by several factors that are subject to an inherent degree of uncertainty and volatility, including governmental regulation. In addition to the defined benefit pension plans, we have retirement obligations driven by requirements in many of the countries in which we operate. These legally required plans require payments at the time benefits are due. Obligations, net of plan assets, related to the defined benefit pension plans and statutorily required retirement obligations totaled $466 million as of December 31, 2018, of which $1 million was included in long-term assets, $1 million was included in current liabilities and $466 million was included in long-term liabilities. Key assumptions used to value these benefit obligations and the cost of providing such benefits, funding requirements and expense recognition include the discount rate and the expected long-term rate of return on pension assets. If the actual trends in these factors are less favorable than our assumptions, this could have an adverse effect on our business.
We may suffer future asset impairment and other restructuring charges, including write downs of long-lived assets.
We have taken, are taking, and may take future significant restructuring and cost reduction actions to lower our operating costs in response to difficult market and operating conditions in various parts of the world. As we continue to assess our performance globally, we may take additional restructuring actions to rationalize our operations, which may result in impairments and reduce our profitability in the periods incurred. In addition, we may not realize anticipated savings or benefits from past or future cost reduction actions in full or in part or within the time periods we expect.
Additionally, from time to time in the past, we have recorded asset impairment losses relating to specific plants and operations. We cannot ensure that we will not incur such charges in the future as changes in economic or operating conditions impacting the estimates and assumptions could result in additional impairment.

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Employee strikes and labor-related disruptions involving us or one or more of our customers or suppliers may adversely affect our operations.
A substantial number of our employees and the employees of our largest customers and suppliers are members of industrial trade unions or work councils and are employed under the terms of various labor agreements. A strike or other form of significant work disruption by our employees would likely have an adverse effect on our ability to operate our business. There can be no assurances that future negotiations with the unions will be resolved favorably or that we will not experience a work stoppage or disruption that could adversely affect our business. A labor dispute involving us, one or more of our customers, suppliers, that could otherwise affect our operations, or the inability by us, any of our customers, suppliers or any other suppliers to our customers to negotiate, upon the expiration of a labor agreement, an extension of such agreement or a new agreement on satisfactory terms could adversely affect our business. In addition, if any of our significant customers experiences a material work stoppage, the customer may halt or limit the purchase of our products. This could require us to shut down or significantly reduce production at facilities relating to such products, which could adversely affect our business.
We may lose or fail to attract and retain key salaried employees and management personnel.
An important aspect of our competitiveness is our ability to attract and retain key salaried employees and management personnel. Our ability to do so is influenced by a variety of factors, including the compensation we award and the competitive market position of our overall compensation package. We may not be as successful as competitors at recruiting, assimilating and retaining highly skilled personnel. The loss of the services of any member of senior management or a key salaried employee could have an adverse effect on our business.
We are exposed to foreign currency fluctuations.
We have currency exposures related to buying, selling and financing in currencies other than the local currencies of the countries in which we operate. Approximately 72% of our net revenue for the year ended December 31, 2018 came from sales outside the United States, which were primarily invoiced in currencies other than the U.S. dollar, and we expect net revenue from non-U.S. markets to continue to represent a significant portion of our net revenue. Accordingly, significant changes in currency exchange rates, particularly the Euro, Chinese Yuan (Renminbi), British Pound, Brazilian Real and Mexican Peso, could cause fluctuations in the reported results of our businesses’ operations that could negatively affect our business. Price increases caused by currency exchange rate fluctuations may make our products less competitive or have an adverse effect on our margins. Currency exchange rate fluctuations may also disrupt the business of our suppliers by making their purchases of raw materials more expensive and more difficult to finance.
Historically, we have reduced our exposure by aligning our costs in the same currency as our revenues or, if that is impracticable, through financial instruments that provide offsets or limits to our exposures, which are opposite to the underlying transactions. However, any measures that we may implement to reduce the effect of volatile currencies and other risks of our global operations may not be effective.
In addition, we have significant business in Europe and transact much of this business in the Euro currency, including sales and purchase contracts. Although not as prevalent currently, concerns over the stability of the Euro currency and the economic outlook for many European countries, including those that do not use the Euro as their currency, persist. Given the broad range of possible outcomes, it is difficult to fully assess the implications on our business. Some of the potential outcomes could significantly impact our operations. In the event of a country redenominating its currency away from the Euro, the potential impact could be material to operations. We cannot provide assurance that fluctuations in currency exposures will not have a material adverse effect on our business or cause significant fluctuations in quarterly and annual results of operations.
We face risks associated with doing business globally.
The majority of our manufacturing and distribution facilities are in countries outside of the U.S., including Mexico, China and other countries in Asia Pacific, Eastern and Western Europe and South America. We also purchase raw materials and other supplies from many different countries around the world. For the year ended December 31, 2018, approximately 72% of our net revenue came from sales outside the United States. International operations are subject to certain risks inherent in doing business abroad, including:
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exposure to local economic, political and labor conditions;
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unexpected changes in laws, regulations, trade or monetary or fiscal policy, including interest rates, foreign currency exchange rates and changes in the rate of inflation in the U.S. and other foreign countries;
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tariffs, quotas, customs and other import or export restrictions and other trade barriers;
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expropriation, nationalization, tax and other policies that favor domestic manufacturers at the expense of international manufacturers;
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difficulty of enforcing agreements, collecting receivables and protecting assets through non-U.S. legal systems;

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reduced intellectual property protection;
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limitations on repatriation of earnings;
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withholding and other taxes on remittances and other payments by subsidiaries;
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investment restrictions or requirements;
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export and import restrictions;
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violence and civil unrest in local countries; and
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compliance with the requirements of an increasing body of applicable anti-bribery laws, including the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act and similar laws of various other countries.
Additionally, our global operations may also be adversely affected by political events, domestic or international terrorist events and hostilities or complications due to natural or nuclear disasters. These uncertainties could have a material adverse effect on the continuity of our business.
Existing free trade laws and regulations provide certain beneficial duties and tariffs for qualifying imports and exports, subject to compliance with the applicable classification and other requirements. Changes in laws or policies governing the terms of foreign trade, and in particular increased trade restrictions, tariffs or taxes on imports from countries where we manufacture products, such as China and Mexico, could have a material adverse effect on our business.
Increasing our manufacturing footprint in Asian markets, including China, and our business relationships with Asian automotive manufacturers are important elements of our long-term strategy. In addition, our strategy includes increasing revenue and expanding our manufacturing footprint in lower-cost regions. As a result, our exposure to the risks described above may be greater in the future. The likelihood of such occurrences and their potential impact on us vary from country to country and are unpredictable.
The results of the referendum on the United Kingdom’s membership in the European Union may adversely affect global economic conditions, financial markets and our business.
The results of the United Kingdom’s referendum on European Union (“E.U.”) membership, advising for the exit from the E.U. (commonly referred to as “Brexit”), has caused and may continue to cause significant volatility in global stock markets, currency exchange rate fluctuations and global economic uncertainty. Although it is unknown what the terms of the United Kingdom’s future relationship with the E.U. will be, it is possible that there will be greater restrictions on imports and exports between the United Kingdom and E.U. and increased regulatory complexities. These developments, or the perception that any of them could occur, may adversely affect European and worldwide economic and market conditions, significantly reduce global market liquidity and restrict the ability of key market participants to operate in certain financial markets and could contribute to instability in global financial and foreign exchange markets, including increased volatility in interest rates and foreign exchange rates. The taxation policies of the U.K. and the E.U. nations in which we conduct business may also change as a result of Brexit, which could adversely impact our tax positions.
Although our net exposure to transactions denominated in British pounds is relatively neutral, we are actively monitoring the ongoing potential impacts of Brexit and will seek to minimize its impact on our business, any of these effects of Brexit, among others, could adversely affect our business. For the year ended December 31, 2018, approximately 15% of our net sales were generated in the U.K., and approximately 10% were denominated in British pounds.
If we fail to manage our growth effectively or to integrate successfully any new or future business ventures, acquisitions or strategic alliance into our business, our business could be materially adversely harmed.
We expect to pursue business ventures, acquisitions, and strategic alliances that leverage our capabilities, enhance our customer base, geographic penetration and scale to complement our current businesses and we regularly evaluate potential opportunities, some of which could be material. While we believe that such transactions are an integral part of our long-term strategy, there are risks and uncertainties related to these activities. Assessing a potential growth opportunity involves extensive due diligence. However, the amount of information we can obtain about a potential growth opportunity may be limited, and we can give no assurance that new business ventures, acquisitions, and strategic alliances will positively affect our financial performance or will perform as planned. We may not be able to successfully assimilate or integrate companies that we acquire, including their personnel, financial systems, distribution, operations and general operating procedures. We may also encounter challenges in achieving appropriate internal control over financial reporting in connection with the integration of an acquired company. If we fail to assimilate or integrate acquired companies successfully, our business, reputation and operating results could be materially impacted. Likewise, our failure to integrate and manage acquired companies successfully may lead to future impairment of any associated goodwill and intangible asset balances.

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Security breaches and other disruption to our information technology systems could impact our business.
Our ability to keep our business operating effectively depends on the functional and efficient operation of information technology and telecommunications systems. We rely on these systems to make a variety of day-to-day business decisions as well as to track transactions, billings, payments and inventory. Our systems, as well as those of our customers, suppliers, partners, and service providers, are susceptible to interruptions (including those caused by systems failures, cyber-attack, malicious computer software (malware), and other natural or man-made incidents or disasters), which may be prolonged. We are also susceptible to security breaches due to errors or malfeasance by employees, contractors, and others who have access to these systems that may go undetected. We have experienced such events in the past and, although past events were immaterial, future events may occur and may be material. Although we have taken precautions to mitigate such events, including geographically diverse data centers, redundant infrastructure and the implementation of security measures, a significant or large-scale interruption of our information technology could adversely affect our ability to manage and keep our operations running efficiently and effectively. In addition, such events could result in legal claims or proceedings, liability or regulatory penalties under laws protecting the privacy of personal information; disrupt operations; or reduce the competitive advantage we hope to derive from our investment in advanced technologies.
Challenges in the commercial and credit environment may materially adversely affect our access to capital.
Our ability to issue debt or enter into other financing arrangements on acceptable terms could be materially adversely affected if there is a material decline in the demand for our products or in the solvency of our customers or suppliers or if other significantly unfavorable changes in economic conditions occur. Volatility in the global financial markets could increase borrowing costs or affect our ability to gain access to the capital markets, all of which could adversely affect our business.
We have incurred debt obligations that could adversely affect our business and our ability to meet our obligations and pay dividends.
As of December 31, 2018, our total consolidated indebtedness was $1,531 million. We may also incur additional indebtedness in the future. This significant amount of debt could have important, adverse consequences to us and our investors, including:
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requiring a substantial portion of our cash flow from operations to make interest payments;
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making it more difficult to satisfy other obligations;
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increasing the risk of a future credit ratings downgrade of our debt, which could increase future debt costs and limit the future availability of debt financing;
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increasing our vulnerability to general adverse economic and industry conditions;
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reducing the cash flow available to fund capital expenditures and other corporate purposes and to grow our businesses;
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limiting our flexibility in planning for, or reacting to, changes in our businesses and industries; and
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limiting our ability to borrow additional funds as needed or take advantage of business opportunities as they arise, pay cash dividends or repurchase or redeem ordinary shares.
As of December 31, 2018, we had approximately $731 million of floating-rate indebtedness. We have entered into interest rate swaps with a combined notional amount of $400 million that convert a portion of our floating-rate indebtedness to fixed-rate interest payments in order to reduce interest rate volatility. However, we may not maintain interest rate swaps with respect to all of our floating-rate indebtedness, and any interest rate swaps we enter into may not fully mitigate our interest rate risk. Our floating-rate debt is subject to an interest rate, at our option of either (a) the Administrative Agent’s Alternate Base Rate (as defined by the Credit Agreement) or (b) the London Interbank Offered Rate (“LIBOR”), in each case, plus an applicable margin that is based on our corporate credit ratings. LIBOR is the subject of recent national, international and other regulatory guidance and proposals for reform. These reforms and other pressures may cause LIBOR to be replaced with a new benchmark that may perform differently than in the past. The consequences of these developments cannot be entirely predicted, but could include an increase in the cost of our floating-rate indebtedness. Refer to Item 7A. Quantitative and Qualitative Disclosures About Market Risk in this Annual Report on Form 10-K for additional information.
To the extent that we incur additional indebtedness, the risks described above could increase. In addition, our actual cash requirements in the future may be greater than expected. Our cash flow from operations may not be sufficient to service our outstanding debt or to repay the outstanding debt as it becomes due, and we may not be able to borrow money, sell assets or otherwise raise funds on acceptable terms, or at all, to service or refinance our debt.

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Risks Related to Legal, Regulatory, Tax and Accounting Matters
We may incur material losses and costs as a result of warranty claims, product recalls and product liability actions that may be brought against us.
We have exposure to warranty and product liability claims to the extent that our products fail to perform as expected. The fabrication of the products we manufacture is a complex and precise process. Our customers specify quality, performance and reliability standards. If flaws in either the design or manufacture of our products were to occur, we could experience a rate of failure in our products that could result in significant delays in shipment and product re-work or replacement costs. Although we engage in extensive product quality programs and processes, these may not be sufficient to avoid product failures, which could cause us to:
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lose net revenue;
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incur increased costs such as warranty expense and costs associated with customer support;
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experience delays, cancellations or rescheduling of orders for our products;
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experience increased product returns or discounts; or
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damage our reputation.
If any of our products are or are alleged to be defective, we may be required to participate in a recall involving such products. Each vehicle manufacturer has its own practices regarding product recalls and other product liability actions relating to its suppliers. However, as suppliers become more integrally involved in the vehicle design process and assume more of the vehicle assembly functions, OEMs continue to look to their suppliers for contribution when faced with recalls and product liability claims. A recall claim brought against us, or a product liability claim brought against us in excess of our available insurance, may adversely affect our business. OEMs also require their suppliers to guarantee or warrant their products and bear the costs of repair and replacement of such products under new vehicle warranties. Depending on the terms under which we supply products to a vehicle manufacturer, a vehicle manufacturer may attempt to hold us responsible for some or all of the repair or replacement costs of defective products under new vehicle warranties when the OEM asserts that the product supplied did not perform as warranted. Although we cannot assure that the future costs of warranty claims by our customers will not be material, we believe our established reserves are adequate to cover potential warranty settlements. Our warranty reserves are based on our best estimates of amounts necessary to settle future and existing claims. We regularly evaluate the level of these reserves and adjust them when appropriate. However, the final amounts determined to be due related to these matters could differ materially from our recorded estimates.
We may be adversely affected by laws or regulations, including environmental regulation, litigation or other liabilities.
We are subject to various U.S. federal, state and local, and non-U.S., laws and regulations, governing, among other things:
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the generation, storage, handling, use, transportation, presence of, or exposure to hazardous materials;
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the emission and discharge of hazardous materials into the ground, air or water;
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the incorporation of certain chemical substances into our products, including electronic equipment; and
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the health and safety of our employees.
These laws and regulations also require that we obtain government permits for certain operations. There is no assurance that we have been or will be at all times in complete compliance with such laws and regulations or that we will receive appropriate and necessary permits. If we violate or fail to comply with these laws or regulations, we could be fined or otherwise sanctioned by regulators. We could also be held liable for any and all consequences arising out of human exposure to hazardous substances or other environmental damage.
Certain environmental laws impose liability, sometimes regardless of fault, for investigating or cleaning up contamination on or emanating from our currently or formerly owned, leased or operated property, as well as for damages to property or natural resources and for personal injury arising out of such contamination. Some of these environmental laws may also assess liability on persons who arrange for hazardous substances to be sent to third party disposal or treatment facilities when such facilities are found to be contaminated. At this time, we are involved in various stages of investigation and cleanup related to environmental remediation matters at certain facilities. The ultimate cost to us of site cleanups is difficult to predict given the uncertainties regarding the extent of the required cleanup, the potential for ongoing environmental monitoring and maintenance that could be required for many years, the interpretation of applicable laws and regulations, alternative cleanup methods, and potential agreements that could be reached with governmental and third parties. We also could be named as a potentially responsible party at additional sites in the future and the costs associated with such future sites may be material.
In addition, environmental laws are complex, change frequently and have tended to become more stringent over time. While we have budgeted for future capital and operating expenditures to maintain compliance with environmental laws, we cannot assure that environmental laws will not change or become more stringent in the future. Therefore, we cannot assure that our costs of

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complying with current and future environmental and health and safety laws, and our liabilities arising from past or future releases of, or exposure to, hazardous substances will not adversely affect our business. For example, adoption of greenhouse gas rules in jurisdictions in which we operate facilities could require installation of emission controls, acquisition of emission credits, emission reductions, or other measures that could be costly, and could also impact utility rates and increase the amount we spend annually for energy.
We cannot predict the substance or impact of pending or future legislation or regulations, or the application thereof. The introduction of new laws or regulations or changes in existing laws or regulations, or stricter or novel the interpretations thereof, could increase the costs of doing business for us or our customers or suppliers or restrict our actions and adversely affect our financial condition, operating results and cash flows.
We may identify the need for additional environmental remediation or demolition obligations relating to facility divestiture, closure and decommissioning activities.
As we sell, close, and/or demolish facilities around the world, environmental investigations and assessments will continue to be performed. We may identify previously unknown environmental conditions or further delineate known conditions that may require remediation or additional costs related to demolition or decommissioning, such as abatement of asbestos containing materials or removal of polychlorinated biphenyls or storage tanks. Such costs could exceed our reserves.
We are involved from time to time in legal proceedings and commercial or contractual disputes, which could have an adverse impact on our business.
We are involved in legal proceedings including lawsuits, arbitrations and commercial or contractual disputes including, without limitation, warranty claims and other disputes with customers and suppliers; intellectual property matters; personal injury claims; environmental issues; tax matters; employment matters; and legal compliance matters. We are also subject to government proceedings, inquiries and investigations. A negative outcome in one or more of these proceedings could result in the imposition of damages, including punitive damages, substantial fines, significant reputational harm, civil lawsuits and criminal penalties, interruptions of business, modification of business practices, equitable remedies and other sanctions against us or our personnel as well as significant legal and other costs.
In addition, we conduct business operations in countries across the globe that are subject to federal and local labor, social security, environmental, tax and customs laws. These laws are complex, subject to varying interpretations, and in certain jurisdictions (for example, Brazil), often result in litigation. Although we reserve for litigation where losses are probable and estimable, the final amounts required to resolve these matters could differ materially from our recorded estimates and adversely affect our business.
Developments or assertions by us or against us relating to intellectual property rights could materially impact our business.
We own significant intellectual property, including a large number of patents and tradenames, and the intellectual property is involved in certain licensing arrangements. Our intellectual property plays an important role in maintaining our competitive position in a number of the markets we serve. As we develop new technology, we face an inherent risk of exposure to the claims of others that we have allegedly violated their intellectual property rights. Developments or assertions by or against us relating to intellectual property rights could adversely affect our business.
Taxing authorities could challenge our historical and future tax positions.
Our future effective tax rates could be affected by changes in the mix of earnings in countries with differing statutory rates and changes in tax laws or their interpretation including changes related to tax holidays or tax incentives. Our taxes could increase if certain tax holidays or incentives are not renewed upon expiration, or if tax rates or regimes applicable to us in such jurisdictions are otherwise increased.
The amount of tax we pay is subject to our interpretation of applicable tax laws in the jurisdictions in which we file. We have taken and will continue to take tax positions based on our interpretation of such tax laws. Additionally, in determining the adequacy of our provision for income taxes, we regularly assess the likelihood of adverse outcomes resulting from tax examinations. While it is often difficult to predict the final outcome or the timing of the resolution of a tax examination, our reserves for uncertain tax benefits reflect the outcome of tax positions that are more likely than not to occur. While we believe that we have complied with all applicable tax laws, there can be no assurance that a taxing authority will not have a different interpretation of the law and assess us with additional taxes. Should additional taxes be assessed, this may adversely affect our business.
There could be significant liability if the Separation fails to qualify as a tax-free transaction for U.S. federal income tax purposes.
In connection with the distribution of 100% of our ordinary shares to the Former Parent’s shareholders, the Former Parent received an opinion of Latham & Watkins LLP, tax counsel to the Former Parent, substantially to the effect that, for U.S.

19

federal income tax purposes, the distribution qualifies as a distribution under Section 355(a) of the Code, subject to certain qualifications and limitations. Based on this tax treatment, for U.S. federal income tax purposes, except with respect to cash received in lieu of a fractional Delphi Technologies ordinary share, no gain or loss was recognized by the Former Parent’s shareholders and no amount was included in their income, upon the receipt of Delphi Technologies ordinary shares in the distribution. The opinion was based on and relied on, among other things, certain facts, assumptions, representations and undertakings from the Former Parent and Delphi Technologies, including those regarding the past and future conduct of the companies’ respective businesses and other matters. If any of these facts, assumptions, representations or undertakings are incorrect or not satisfied, the Former Parent may not be able to rely on the opinion, and the Former Parent’s shareholders could be subject to significant U.S. federal income tax liabilities. Notwithstanding the opinion of tax counsel, the Internal Revenue Service (“IRS”) could determine on audit that the distribution is taxable to the Former Parent’s shareholders if it determines that any of these facts, assumptions, representations or undertakings are not correct or have been violated or if it disagrees with the conclusions in the opinion.
In addition, the Former Parent expects that restructuring transactions undertaken in connection with the distribution will be taxed in a certain manner. If, contrary to the Former Parent’s expectations, such transactions are taxed in a different manner, the Former Parent and/or Delphi Technologies may incur additional tax liabilities that may be substantial. If Delphi Technologies is required to pay any such liabilities, the payments could materially adversely affect Delphi Technologies’ financial position.
Under the tax matters agreement between the Former Parent and us, we are required to indemnify the Former Parent against taxes incurred by the Former Parent that arise as a result of our taking or failing to take, as the case may be, certain actions that result in the distribution failing to meet the requirements of a distribution under Section 355(a) of the Code, or that result in certain restructuring transactions in connection with the distribution failing to meet the requirements for tax-free treatment for U.S. federal income tax purposes.
Delphi Technologies may not be able to engage in desirable strategic or capital raising transactions as a stand-alone company.
The Former Parent and Delphi Technologies have engaged in various restructuring transactions in connection with the Separation. To preserve the tax-free treatment of certain such restructuring transactions for U.S. federal income tax purposes, for the two-year period following the Separation, under the tax matters agreement that Delphi Technologies has entered into with the Former Parent, Delphi Technologies may be prohibited, except in specific circumstances, from (i) entering into any transaction pursuant to which all or a portion of the Delphi Technologies ordinary shares would be acquired, whether by merger or otherwise, (ii) ceasing to actively conduct certain of its businesses or (iii) taking or failing to take any other action that would prevent certain of such restructuring transactions from qualifying as a transaction that is generally tax-free for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Code. These restrictions may limit for a period of time Delphi Technologies’ ability to pursue certain strategic transactions or other transactions that Delphi Technologies may believe to be in the best interests of its shareholders or that might increase the value of its business.
Risks Related to the Separation
Our historical financial information related to periods prior to the Separation may not be representative of the results that we would have achieved as a separate, publicly traded company and may not be a reliable indicator of our future results.
The historical information about Delphi Technologies for periods prior to the Separation, December 4, 2017, in this Annual Report on Form 10-K refers to Delphi Technologies’ businesses as operated by and integrated with the Former Parent. Our historical financial information included in this Annual Report on Form 10-K prior to the completion of the Separation is derived from the consolidated financial statements and accounting records of the Former Parent. Accordingly, the historical financial information included in this Annual Report on Form 10-K does not necessarily reflect the business financial condition, results of operations or cash flows that Delphi Technologies would have achieved as a separate, publicly traded company during the periods presented or those that Delphi Technologies will achieve in the future primarily as a result of the factors described below:
•
prior to the Separation, Delphi Technologies’ businesses were operated by the Former Parent as part of its broader corporate organization, rather than as an independent company. The Former Parent or one of its affiliates performed various corporate functions for Delphi Technologies such as treasury, accounting, auditing, human resources, senior management, corporate affairs and finance. Our historical financial results prior to the Separation reflect allocations of corporate expenses from the Former Parent for such functions, and are likely to be less than the expenses we would have incurred had we operated as a separate publicly-traded company. As a result of the Separation, we are responsible for the costs related to such functions previously performed by the Former Parent. The Former Parent is providing some of these functions to us pursuant to a transition services agreement. We may not be able to operate our business efficiently or at comparable costs, and our profitability may decline.

20

•
prior to the Separation, Delphi Technologies’ businesses were integrated with the other businesses of the Former Parent. Historically, we shared economies of scale in costs, employees, vendor relationships and customer relationships. Although we have entered into a transition services agreement with the Former Parent for certain services, these arrangements may not fully capture the benefits that we have enjoyed as a result of being integrated with the Former Parent and may result in us paying higher amounts than in the past for certain products and services. This could have an adverse effect on our business as an independent, publicly-traded company.
For additional information about the historical financial performance of our businesses and the basis of presentation of the historical consolidated financial statements of our businesses, see Item 6, “Selected Financial Data,” Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Item 8, “Financial Statements and Supplementary Data.”
As we build our information technology infrastructure and transition our data to our own systems, we could incur substantial additional costs and experience temporary business interruptions.
We have begun to install and implement our information technology infrastructure to support certain of our business functions, including accounting and reporting, manufacturing process control, customer service, inventory control and distribution. We may incur temporary interruptions in business operations if we cannot fully transition effectively from the Former Parent’s existing transactional and operational systems, data centers and the transition services that support these functions. We may not be successful in implementing our new systems and transitioning our data, and we may incur substantially higher costs for implementation than currently anticipated. Our failure to avoid operational interruptions as we implement the new systems and replace the Former Parent’s information technology services, or our failure to implement the new systems and replace the Former Parent’s services successfully, could disrupt our business and have a material adverse effect on our business. In addition, if we are unable to replicate or transition certain systems, our ability to comply with regulatory requirements could be impaired.
Potential indemnification liabilities to the Former Parent pursuant to the separation agreement could materially adversely affect Delphi Technologies.
The separation agreement with the Former Parent provides for, among other things, the principal corporate transactions required to effect the Separation, certain conditions to the Separation and provisions governing the relationship between Delphi Technologies and the Former Parent with respect to and resulting from the Separation. Among other things, the separation agreement provides for indemnification obligations designed to make us financially responsible for substantially all liabilities that may exist relating to our business activities, whether incurred prior to or after the Separation, as well as those obligations of the Former Parent assumed by us pursuant to the separation agreement. We may be subject to substantial liabilities under these indemnifications.
We, the Former Parent or other third parties may fail to perform under various agreements that were executed as part of the Separation or we may fail to have the necessary systems and services in place when certain of the transaction agreements expire.
The Separation agreement and other agreements entered into in connection with the Separation determined the allocation of assets and liabilities between the companies following the Separation for those respective areas and include any necessary indemnifications related to liabilities and obligations. The transition services agreement provides for the performance of certain services for a period of time after the Separation. We are relying on the Former Parent and other third parties to satisfy their performance and payment obligations under these agreements. If the Former Parent or other third parties are unable to satisfy their obligations under these agreements, including indemnification obligations, we could incur operational difficulties or losses. If we do not have in place our own systems and services, or if we do not have agreements with other providers of these services once certain transaction agreements expire, we may not be able to operate our businesses effectively and our profitability may decline. We are in the process of creating our own, or engaging third parties to provide, systems and services to replace many of the systems and services that the Former Parent currently provides to us. However, we may not be successful in implementing these systems and services or in transitioning data from the Former Parent’s systems to ours.
Risks Related to Delphi Technologies’ Ordinary Shares
Provisions of our Articles of Association could delay or prevent a takeover of us by a third party.
Our Articles of Association could delay, defer or prevent a third party from acquiring us, despite any possible benefit to our shareholders, or otherwise adversely affect the price of our ordinary shares. For example, our Articles of Association will:
•
permit our board of directors to issue one or more series of preferred shares with rights and preferences designated by our board;

21

•
impose advance notice requirements for shareholder proposals and nominations of directors to be considered at shareholder meetings;
•
limit the ability of shareholders to remove directors without cause; and
•
require that all vacancies on our board of directors be filled by our directors.
These provisions may discourage potential takeover attempts, discourage bids for our ordinary shares at a premium over the market price or adversely affect the market price of, and the voting and other rights of the holders of, our ordinary shares. These provisions could also discourage proxy contests and make it more difficult for you and other shareholders to elect directors other than the candidates nominated by our board of directors.


ITEM 1B. UNRESOLVED STAFF COMMENTS
None.


ITEM 2. PROPERTIES
As of December 31, 2018, we owned or leased 21 major manufacturing sites and 12 major technical centers. A manufacturing site may include multiple plants and may be wholly or partially owned or leased. We also have many smaller sales offices, warehouses, joint ventures and other investments strategically located throughout the world. We have a presence in 24 countries. The following table shows the regional distribution of the Company’s major manufacturing sites and major technical centers, which are primarily dedicated to the Powertrain Systems operating segment:
 
North America
 
Europe
 
Asia Pacific
 
South America
 
Total
Manufacturing facilities
5

 
8

 
7

 
1

 
21

Technical centers
4

 
5

 
3

 
—

 
12


Of our 21 major manufacturing sites and 12 major technical centers, which include facilities owned or leased by our consolidated subsidiaries, 25 are primarily owned and 8 are primarily leased.

In addition, as part of the Separation we entered into Contract Manufacturing Services Agreements, as further described in Item 7. Management’s Discussion and Analysis, pursuant to which the Former Parent is manufacturing certain components for us at four facilities that were previously shared.


ITEM 3. LEGAL PROCEEDINGS
For more information related to legal proceedings, refer to the discussion in Note 13. Commitments and Contingencies to the consolidated financial statements included herein.

ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.

22

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our ordinary shares have been publicly traded since December 5, 2017, when our ordinary shares were listed and began “regular way” trading on the New York Stock Exchange (“NYSE”) under the symbol “DLPH.” As of February 15, 2019, there was one shareholder of record of our ordinary shares.
Dividends
The Company declared and paid cash dividends of $0.17 per ordinary share in each quarter of 2018. The Company did not declare any cash dividends for the period of December 5, 2017 through December 31, 2017.
In January 2019, the Board of Directors approved a new $200 million share repurchase program and suspended the quarterly dividend. See below for additional information.
Equity Compensation Plan Information
The table below contains information about securities authorized for issuance under equity compensation plans as of December 31, 2018. The features of these plans are discussed further in Note 21. Share-Based Compensation to the consolidated financial statements included herein.
Plan Category
 
Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (a)
 
Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights (b)
 
Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders
 
739,995

(1)
 
$
—

(2)
 
6,561,507

(3)
Equity compensation plans not approved by security holders
 
—

 
 
—

 
 
—

 
Total
 
739,995

 
 
—

 
 
6,561,507

 
(1)
Includes (a) 35,366 outstanding restricted stock units granted to our Board of Directors and (b) 704,630 outstanding time- and performance-based restricted stock units granted to our executives. All grants were made under the Delphi Technologies PLC Long-Term Incentive Plan (the "PLC LTIP"). Includes accrued dividend equivalents.
(2)
The restricted stock units have no exercise price.
(3)
Remaining shares available under the PLC LTIP. This amount does not reflect the impact of 23,220 shares issued on January 5, 2019.
Repurchase of Equity Securities
The Company did not repurchase any ordinary shares during the three months ended December 31, 2018. In January 2019, the Board of Directors approved a new $200 million share repurchase program, which replaces the previous share repurchase authorization from July 2018. Repurchases will be made at management’s discretion from time to time on the open market or through privately negotiated transactions. The repurchase program may be suspended for periods or discontinued at any time. The program is expected to be completed by December 31, 2021.

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ITEM 6. SELECTED FINANCIAL DATA
Prior to the Separation on December 4, 2017, the historical financial statements of Delphi Technologies were prepared on a stand-alone combined basis and were derived from the Former Parent’s consolidated financial statements and accounting records as if the former Powertrain Systems segment, which historically included Aftermarket, of the Former Parent had been part of Delphi Technologies for all periods presented. The historical results do not necessarily indicate the results expected for any future period.

The Company’s historical financial statements for periods prior to December 4, 2017 reflect an allocation of expenses related to certain corporate functions of the Former Parent, including senior management, legal, human resources, finance and accounting, treasury, information technology services and support, cash management, payroll processing, certain pension and benefit administration and other shared services. These costs were allocated using methodologies that management believes were reasonable for the item being allocated. Allocation methodologies included direct usage when identifiable, as well as the Company’s relative share of revenues, headcount or functional spend as a percentage of the total. However, the allocations are not indicative of the actual expenses that would have been incurred had Delphi Technologies operated as a stand-alone publicly-traded company for the periods presented. Accordingly, the historical financial information presented for periods prior to December 4, 2017 may not be indicative of the results of operations, financial position or cash flows that would have been achieved if Delphi Technologies had been a stand-alone publicly-traded company during the periods shown or of the Company’s performance for periods subsequent to December 4, 2017. Refer to "Basis of Presentation" included in Note 1. General to our consolidated financial statements for additional information.
 
 
Year Ended December 31,
 
 
2018
 
2017
 
2016
 
2015
 
2014
 
 
 
(dollars and shares in millions, except per share data)
Statement of operations data:
 
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
4,858

 
$
4,849

 
$
4,486

 
$
4,407

 
$
4,540

 
Operating income
 
434

 
446

 
320

 
403

 
442

 
Net income
 
380

 
319

 
268

 
306

 
342

 
Net income attributable to noncontrolling interest
 
22

 
34

 
32

 
34

 
36

 
Net income attributable to Delphi Technologies
 
$
358

 
$
285

 
$
236

 
$
272

 
$
306

 
 
 
 
 
 
 
 
 
 
 
 
 
Net income per share data (1):
 
 
 
 
 
 
 
 
 
 
 
Basic
 
$
4.04

 
$
3.22

 
$
2.66

 
$
3.07

 
$
3.45

 
Diluted
 
$
4.03

 
$
3.21

 
$
2.66

 
$
3.07

 
$
3.45

 
Cash dividends declared and paid
 
$
0.68

 
$
—

 
$
—

 
$
—

 
$
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of December 31,
 
 
2018
 
2017
 
2016
 
2015
 
2014 (unaudited)
 
 
 
(in millions)
Balance sheet data:
 
 
 
 
 
 
 
 
 
 
 
Total assets
 
$
3,893

 
$
3,793

 
$
2,899

 
$
3,001

 
$
3,141

 
Long-term debt
 
$
1,488

 
$
1,515

 
$
6

 
$
9

 
$
14

 
(1)
Net income per share for 2016, 2015 and 2014 were calculated using the number of shares that were distributed to Former Parent shareholders upon the Separation (88,613,262 shares).

24

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following management’s discussion and analysis of financial condition and results of operations (“MD&A”) is intended to help you understand the business operations and financial condition of Delphi Technologies PLC (“Delphi Technologies”) for the three year period ended December 31, 2018. This discussion should be read in conjunction with Item 8. Financial Statements and Supplementary Data.
Separation from Delphi Automotive PLC
On December 4, 2017, Delphi Technologies became an independent publicly-traded company as a result of the distribution by Delphi Automotive PLC (the “ Former Parent”) of 100% of the ordinary shares of Delphi Technologies PLC to the Former Parent’s shareholders (the “Separation”). In connection with the Separation, substantially all of the assets and liabilities related to the businesses and operations of the Former Parent’s Powertrain Systems segment were transferred to us or one of our subsidiaries. Assets related to the original equipment service business conducted by the Former Parent’s Powertrain Systems segment prior to the Separation, to the extent related to the sale of products of other segments of the Former Parent to vehicle original equipment manufacturers or their affiliates, were retained by or transferred to the Former Parent or one of its subsidiaries, and all of the Former Parent’s other assets and liabilities were retained by or transferred to the Former Parent or one of its subsidiaries. Refer to “Basis of Presentation” in Note 1. General to our consolidated financial statements for additional information.
As part of the Separation, we entered into a number of agreements with the Former Parent to govern the Separation and our continuing relationship with the Former Parent. These agreements, described further below, provided for the allocation between Delphi Technologies’ and the Former Parent’s assets, employees, liabilities and obligations attributable to periods prior to, at and after the Separation and govern certain continuing relationships between Delphi Technologies and the Former Parent.
Separation and Distribution Agreement
Delphi Technologies was responsible for paying all costs and expenses incurred in connection with the Separation, including the payment of $180 million in respect of taxes incurred in connection with the Separation, and distribution, whether incurred or payable prior to, on or after the Separation, including costs and expenses relating to legal and tax counsel, financial advisors and accounting advisory work related to the Separation.
Transition Services
In connection with the Separation, Delphi Technologies and the Former Parent have agreed to provide transitional services to each other including, services related to information technology systems, engineering, accounting, administrative, payroll, human resources and facilities. During the year ended December 31, 2018 Delphi Technologies paid the Former Parent $80 million for transition services.
Contract Manufacturing Services
In connection with the Separation, the Former Parent agreed to manufacture for us certain electronic components that were previously manufactured at shared facilities until such time as we relocate manufacturing of our products. During the year ended December 31, 2018, Delphi Technologies incurred increased costs of $9 million, as compared to amounts recorded in the historical consolidated financial statements, for the components provided by the Former Parent pursuant to the contract manufacturing services agreements.
Tax Matters
As part of the Separation, the Former Parent has agreed that it will be liable for all pre-distribution U.S. federal income taxes, foreign income taxes and certain non-income taxes attributable to our business required to be reported on consolidated, unitary or similar returns that include one or more members of the Aptiv PLC group and one or more members of our group. We have agreed that we will be generally liable for all other taxes attributable to our business. We have further agreed not to take certain actions that could result in certain of the restructuring transactions undertaken in connection with the Separation failing to qualify as transactions that are generally tax-free, for U.S. federal income tax purposes.
Employee Matters Agreement
In general, prior to the Separation, our employees participated in various retirement, health and welfare, and other employee benefit and compensation plans maintained by the Former Parent. Generally and subject to certain exceptions, we have created compensation and benefit plans that mirror the terms of corresponding compensation and benefit plans, and we have credited each of our employees with his or her service with the Former Parent prior to the Separation under our benefit plans to the same

25

extent such service was recognized by the Former Parent and so long as such crediting does not result in a duplication of benefits.
Refer to “Basis of Presentation” in Note 1. General to our consolidated financial statements for additional information.


Executive Overview
Business Strategy
We believe the Company is well-positioned to benefit from increasing global vehicle production and has an established product portfolio sold to a diverse base of OEM and aftermarket customers. See Item 1. Business for a detailed discussion of our growth strategies.
Our achievements in 2018 included the following:
•
Generated gross bookings of $9.8 billion, based upon expected volumes and pricing;
•
Generated $419 million of cash from operations and net income of $358 million;
•
Continued our focus on diversifying our geographic and customer mix, resulting in:
◦
44% of our net sales generated in Europe, 28% from North America, and 25% from Asia Pacific;
◦
72% of our Powertrain Systems segment’s net sales related to light vehicles and 28% focused on commercial vehicles; and
◦
18% of our net sales related to the Aftermarket segment.
Trends, Uncertainties and Opportunities
Economic conditions. Our business is directly related to automotive sales and automotive light and commercial vehicle production by our customers. Automotive sales depend on a number of factors, including global and regional economic conditions. Although global automotive vehicle production (including light and commercial vehicles) decreased 1% from 2017 to 2018, economic conditions and the resultant levels of automotive vehicle production were uneven from a regional perspective. Compared to 2017, vehicle production in 2018 decreased by 4% in China and 1% in Europe, consistent production in North America and increased by 4% in South America.
Economic volatility or weakness in North America, Europe, China, or South America could result in a significant reduction in automotive sales and production by our customers, which would have an adverse effect on our business, results of operations and financial condition. There is also potential that geopolitical factors could adversely impact the U.S. and other economies, and specifically the automotive sector. In particular, changes to international trade agreements or other political pressures could affect the operations of our OEM customers, resulting in reduced automotive production in certain regions or shifts in the mix of production to higher cost regions. Increases in interest rates could also negatively impact automotive production as a result of increased consumer borrowing costs or reduced credit availability. Additionally, economic weakness may result in shifts in the mix of future automotive sales (from vehicles with more content such as luxury vehicles, trucks and sport utility vehicles toward smaller passenger cars) or reductions in industrial production and the corresponding level of freight tonnage being transported. While our diversified customer and geographic revenue base, along with our flexible cost structure, allows us to be positioned to withstand the impact of industry downturns and benefit from industry upturns, shifts in the mix of global automotive production to higher cost regions or to vehicles with less content could adversely impact our profitability.
There have also been periods of increased market volatility and currency exchange rate fluctuations, both globally and most specifically within the United Kingdom (“U.K.”) and Europe, as a result of the U.K. referendum held on June 23, 2016 in which voters approved an exit from the European Union (“E.U.”), commonly referred to as “Brexit.” As a result of the referendum, the British government formally initiated the process for withdrawal in March 2017. The terms of any withdrawal are subject to a negotiation period that could last at least two years from the initiation date. Nevertheless, the proposed withdrawal has created significant uncertainty about the future relationship between the U.K. and the E.U. These developments, or the perception that any of them could occur, may adversely affect European and worldwide economic and market conditions, significantly reduce global market liquidity and restrict the ability of key market participants to operate in certain financial markets and could contribute to instability in global financial and foreign exchange markets, including increased volatility in interest rates and foreign exchange rates. Although our net exposure to transactions denominated in British pounds is relatively neutral, we are actively monitoring the ongoing potential impacts of Brexit and will seek to minimize its impact on our business, any of these effects of Brexit, among others, could adversely affect our business. Approximately 15% of our annual net sales are generated in the U.K., and approximately 10% are denominated in British pounds.

26

Key growth regions. We believe our strong global presence and presence in key growth regions, especially in China, has positioned us to experience growth over the long-term. There have been periods of increased volatility and moderations in the level of economic growth in China, which resulted in periods of lower automotive production growth rates in China than those previously experienced. Despite these recent moderations in the level of economic growth, rising income levels in China and other key growth regions have resulted and are expected to result in stronger growth rates in these regions over the long-term. We have a strong local presence in China, including a major manufacturing base and well-established customer relationships, which we believe has positioned us to continue being a leading supplier of advanced engine technologies in this market. Our business in China is sensitive to economic and other conditions that impact automotive sales volumes and growth in China and may be affected if the pace of growth slows as the automotive industry in China matures or if there are reductions in vehicle demand in China. However, we continue to believe there is long-term growth potential in this country based on increasing long-term automotive and vehicle content demand.
We continue to expand our established presence in all key growth areas, positioning us to benefit from the expected long-term growth opportunities in these regions. We believe that increasing regulation in these areas related to emissions control and fuel efficiency will increase demand for our products focused on meeting these regulations and enable us to experience growth over the long-term. We are capitalizing on our long-standing relationships with the global OEMs and further enhancing our positions with the OEMs in key growth regions to continue increasing our presence in these areas. We believe that our presence in best-cost countries is aligned with the expected shift in automotive production towards the key growth markets.
Engineering, design & development. Our history and culture of innovation have enabled us to develop significant intellectual property and design and development expertise to provide high-quality, technologically-advanced products that meet and exceed our customers’ demands for safety, durability and performance. Approximately $600 million has been invested in 2018 in research and development, including engineering (of which approximately $140 million was co-investment by customers and government agencies and approximately $460 million was invested by us) to maintain our portfolio of innovative products and solutions. We have a strong track record of developing technologies focused on addressing consumer demands and industry trends, including GDi, powertrain domain controllers, electrification and engine control algorithms. We benefit from the ability to provide the latest commercially available technologies to increase fuel economy, reduce emissions and improve engine performance. We also leverage our OEM product engineering capabilities across our aftermarket product lines to capture value over the lifetime of a vehicle.
In the past, suppliers often incurred the initial cost of engineering, designing and developing automotive component parts, and recovered their investments over time by including a cost recovery component in the price of each part based on expected volumes. Recently, we and many other suppliers have negotiated for cost recovery payments independent of volumes.
Pricing. Cost-cutting initiatives adopted by our customers result in increased downward pressure on pricing. Our customer supply agreements generally require step-downs in component pricing over the periods of production, and OEMs have historically possessed significant leverage over their outside suppliers because the automotive component supply industry is fragmented and serves a limited number of automotive OEMs. Our profitability depends in part on our ability to generate sufficient cost savings in the future to offset price reductions.
We maintain a low fixed cost structure, which provides us with the flexibility to invest in new growth opportunities and seek to remain profitable throughout the traditional vehicle industry production cycle. Today, approximately 86% of our hourly workforce is located in best-cost countries. Furthermore, we have operational flexibility by leveraging a workforce of contract workers, which represented approximately 14% of the hourly workforce as of December 31, 2018. However, we will continue to adjust our cost structure and optimize our manufacturing footprint in response to changes in the global and regional automotive markets. This will allow us to increase investment in advanced technologies and engineering, as evidenced by our on-going restructuring programs focused on the continued rotation of our manufacturing footprint to best-cost locations. As we continue to operate in a cyclical industry that is impacted by movements in the global and regional economies, we continually evaluate opportunities to further refine our cost structure.
OEM product recalls. In recent years, the number of vehicles recalled globally by OEMs has increased above historical levels. These recalls can either be initiated by the OEMs or influenced by regulatory agencies. Although there are differing rules and regulations across countries governing recalls for safety issues, the overall transition towards global vehicle platforms may also contribute to increased recalls outside of the U.S., as automotive components are increasingly standardized across regions. Given the sensitivity to safety issues in the automotive industry, including increased focus from regulators and consumers, we anticipate the number of automotive recalls may remain above historical levels in the near future. Although we engage in extensive product quality programs and processes and have not experienced any significant impacts to date as a result of the recalls that have been initiated, it is possible that we may be adversely affected in the future if the pace of these recalls continues.



27

Consolidated Results of Operations
Our total net sales during the year ended December 31, 2018 were $4.9 billion, which were consistent when compared to 2017. This compares to a relatively flat total global OEM production in 2018. The consistent total net sales is primarily attributable to continued increased volumes in the European and North America regions, offset by decreased volumes in the Asia Pacific region. A shift in product portfolio and regional mix impacts resulted in an unfavorable change in gross margin for the year ended December 31, 2018 as compared to 2017.
The increase in our total net sales of 8% during the year ended December 31, 2017 as compared to 2016 was primarily attributable to continued increased volumes in the European and Asia Pacific regions. Our overall lean cost structure, along with above-market sales growth in Europe, Asia Pacific and South America, enabled us to improve gross margin for the year ended December 31, 2017 as compared to 2016.
Delphi Technologies typically experiences fluctuations in revenue due to changes in OEM production schedules, vehicle sales mix and the net of new and lost business (which we refer to collectively as volume), fluctuations in foreign currency exchange rates (which we refer to as FX), and contractual reductions of the sales price to the OEM (which we refer to as contractual price reductions). Changes in sales mix can have either favorable or unfavorable impacts on revenue. Such changes can be the result of shifts in regional growth, shifts in OEM sales demand, as well as shifts in consumer demand related to vehicle segment purchases and content penetration. For instance, a shift in sales demand favoring a particular OEM’s vehicle model for which we do not have a supply contract may negatively impact our revenue. A shift in regional sales demand toward certain markets could favorably impact the sales of those of our customers that have a large market share in those regions, which in turn would be expected to have a favorable impact on our revenue.
We typically experience (as described below) fluctuations in operating income due to:
•
Volume—changes in volume and changes in mix;
•
Contractual price reductions—changes due to contractual price reductions (which typically range from 1% to 3% of net sales);
•
Operational performance—changes to costs for materials and commodities or manufacturing variances; and
•
Other—including restructuring costs and any remaining variances not included in Volume, net of contractual price reductions or Operational performance.
The automotive component supply industry is traditionally subject to inflationary pressures with respect to raw materials and labor which may place operational and profitability burdens on the entire supply chain. We will continue to work with our customers and suppliers to mitigate the impact of these inflationary pressures in the future. In addition, we expect commodity cost volatility to have a continual impact on future earnings and/or operating cash flows. As such, we continually seek to mitigate both inflationary pressures and our material-related cost exposures using a number of approaches, including combining purchase requirements with customers and/or other suppliers, using alternate suppliers or product designs and negotiating cost reductions and/or commodity cost contract escalation clauses into our vehicle manufacturer supply contracts.

28

2018 versus 2017
The results of operations for the years ended December 31, 2018 and 2017 were as follows:
 
Year Ended December 31,
 
2018
 
2017
 
Favorable/
(unfavorable)
 
(dollars in millions)
Net sales
$
4,858

 
$
4,849

 
$
9

Cost of sales
3,961

 
3,881

 
(80
)
Gross margin
897

18.5%
968

20.0%
(71
)
Selling, general and administrative
414

 
408

 
(6
)
Amortization
14

 
16

 
2

Restructuring
35

 
98

 
63

Operating income
434

 
446

 
(12
)
Interest expense
(79
)
 
(15
)
 
(64
)
Other income (expense), net
9

 
(11
)
 
20

Income before income taxes and equity income
364

 
420

 
(56
)
Income tax benefit (expense)
9

 
(106
)
 
115

Income before equity income
373

 
314

 
59

Equity income, net of tax
7

 
5

 
2

Net income
380

 
319

 
61

Net income attributable to noncontrolling interest
22

 
34

 
(12
)
Net income attributable to Delphi Technologies
$
358

 
$
285

 
$
73

Total Net Sales
Below is a summary of our total net sales for the years ended December 31, 2018 versus December 31, 2017.
 
Year Ended December 31,
 
 
Variance Due To:
 
2018
 
2017
 
Favorable/
(unfavorable)
 
 
Volume
 
Contractual price reductions
 
FX
 
Other
 
Total
 
(in millions)
 
 
(in millions)
Total net sales
$
4,858

 
$
4,849

 
$
9

 
 
$
63

 
$
(66
)
 
$
88

 
$
(76
)
 
$
9

Total net sales for the year ended December 31, 2018 remained consistent compared to the year ended December 31, 2017. Net sales increased due to volume growth of 1% for the period, primarily as a result of increased sales in Europe and North America, and favorable currency impacts, primarily related to the Euro. Net sales also decreased by $76 million, reflected in Other above, primarily related to net sales during the year ended December 31, 2018 for the original equipment services business that remained with the Former Parent.
Cost of Sales and Gross Margin
Cost of sales is primarily comprised of material, labor, manufacturing overhead, freight, fluctuations in foreign currency exchange rates, product engineering, design and development expenses, depreciation and amortization, warranty costs and other operating expenses. Gross margin is revenue less cost of sales and gross margin percentage is gross margin as a percentage of net sales.
Cost of sales increased $80 million for the year ended December 31, 2018 compared to the year ended December 31, 2017, as summarized below. The Company’s cost of material was approximately 50% of net sales in the years ended December 31, 2018 and 2017.

29

 
Year Ended December 31,
 
 
Variance Due To:
 
2018
 
2017
 
Favorable/
(unfavorable)
 
 
Volume
 
Contractual price reductions
 
FX
 
Operational
performance
 
Other
 
Total
 
(dollars in millions)
 
 
(in millions)
Cost of sales
$
3,961

 
$
3,881

 
$
(80
)
 
 
$
(167
)
 
$
—

 
$
(47
)
 
$
43

 
$
91

 
$
(80
)
Gross margin ($)
$
897

 
$
968

 
$
(71
)
 
 
$
(104
)
 
$
(66
)
 
$
41

 
$
43

 
$
15

 
$
(71
)
Gross margin (%)
18.5
%
 
20.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The change in cost of sales reflects increased volumes and the impacts from currency exchange, partially offset by improved operational performance. The unfavorable change in gross margin related to volumes is primarily due to product portfolio and regional mix impacts. The change related to product portfolio is principally related to a shift in customer demand from diesel fuel systems and the continued investments in GDi fuel systems and power electronics, which we have identified as key growth products. Cost of sales was also impacted by the following items in Other above:
•
The absence of cost of sales related to the original equipment services business that remained with the Former Parent;
•
Reduced incentive compensation accruals of $16 million; and
•
The absence of a $17 million reduction to cost of sales during the year ended December 31, 2017 related to a commercial agreement for reimbursement of previously incurred development costs, offset by $4 million of related asset impairments, in conjunction with a program cancellation by one of the Company’s OEM customers during the year ended December 31, 2017.
Selling, General and Administrative Expense
 
Year Ended December 31,
 
2018
 
2017
 
Favorable/
(unfavorable)
 
(dollars in millions)
Selling, general and administrative expense
$
414

 
$
408

 
$
(6
)
Selling, general and administrative expense (“SG&A”) includes administrative expenses, information technology costs and incentive compensation related costs. SG&A increased as a percentage of sales for the year ended December 31, 2018 as compared to the year ended December 31, 2017. This is primarily due to:
•
The incremental costs incurred related to being a stand-alone publicly-traded company; partially offset by
•
Reduced incentive compensation accruals; and
•
Reduced one-time incremental expenses associated with becoming a stand-alone publicly-traded company, which totaled $70 million during the year ended December 31, 2018. This compares to $81 million of one-time costs recorded during the year ended December 31, 2017, associated with the Separation.
Amortization
 
Year Ended December 31,
 
2018
 
2017
 
Favorable/
(unfavorable)
 
(in millions)
Amortization
$
14

 
$
16

 
$
2

Amortization expense reflects the non-cash charge related to definite-lived intangible assets. The consistency in amortization during the year ended December 31, 2018 compared to 2017 reflects the continued amortization of our intangible assets.
In 2019, we expect to incur non-cash amortization charges of approximately $19 million.

30

Restructuring
 
Year Ended December 31,
 
2018
 
2017
 
Favorable/
(unfavorable)
 
(dollars in millions)
Restructuring
$
35

 
$
98

 
$
63

Restructuring charges during the year ended December 31, 2018, included $22 million for programs focused on continued rotation of our manufacturing footprint to best cost locations in Europe and $3 million for programs implemented to reduce global overhead costs.
The charges during the year ended December 31, 2017, included $55 million of separation costs for approximately 500 employees related to the closure of a Western European manufacturing site and approximately $30 million related to the European footprint rotation strategy. Charges for the program have been substantially completed, and cash payments for this restructuring action are expected to be principally completed by 2020.
We expect to continue to incur additional restructuring expense in 2019. Additionally, as we continue to operate in a cyclical industry that is impacted by movements in the global and regional economies, we continually evaluate opportunities to further adjust our cost structure and optimize our manufacturing footprint. In order to align manufacturing capacity and other costs with prevailing regional automotive production levels and locations, to improve the efficiency and utilization of other locations and in order to increase investment in advanced technologies and engineering. Such future restructuring actions are dependent on market conditions, customer actions and other factors.
Refer to Note 10. Restructuring to the consolidated financial statements included herein for additional information.
Interest Expense
 
Year Ended December 31,
 
2018
 
2017
 
Favorable/
(unfavorable)
 
(in millions)
Interest expense
$
79

 
$
15

 
$
(64
)
The increase in interest expense for the year ended December 31, 2018 as compared to the year ended December 31, 2017 reflects the interest related to the issuance of debt in connection with the Separation, consisting of a senior secured five-year $750 million term loan facility and $800 million of 5.00% senior secured notes.
Refer to Note 11. Debt to the consolidated financial statements included herein for additional information.
Other Income, Net
 
Year Ended December 31,
 
2018
 
2017
 
Favorable/
(unfavorable)
 
(in millions)
Other income (expense), net
$
9

 
$
(11
)
 
$
20

The increase in other income for the year ended December 31, 2018 as compared to the year ended December 31, 2017 is primarily due to:
•
An increase of $4 million of interest income;
•
An increase of $3 million of rental income;
•
An increase to income of $2 million related to remeasurement of cross currency intercompany loans; and
•
A decrease of $7 million in the components of net periodic benefit cost other than service costs related to the Company’s defined benefit pension plans.
Refer to Note 20. Other Income, net to the consolidated financial statements included herein for additional information.

31

Income Taxes
 
Year Ended December 31,
 
2018
 
2017
 
Favorable/
(unfavorable)
 
(in millions)
Income tax (benefit) expense
$
(9
)
 
$
106

 
$
115

The Company’s tax rate is affected by the fact that it is a U.K. resident taxpayer, 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 in 2018 was impacted by the reversal during the three months ended December 31, 2018 of a $100 million valuation allowance in France and the recognition of a $22 million valuation allowance in Luxembourg based upon the Company’s prior and projected performance in those jurisdictions. Refer to Note 15. Income Taxes for additional details.
The Company’s 2017 effective tax rate was impacted by the release of a valuation allowance in the United States in 2017, primarily due to changes in the underlying business operations, the enactment of a tax rate reduction in the United States in 2017, which increased income tax expense by $7 million, as well as the tax benefit recognized in the prior period due to the restructuring charges recorded in 2016, as more fully described in Note 10. Restructuring.


Results of Operations by Segment
We operate our core business along the following operating segments, which are grouped on the basis of similar product, market and operating factors:
•
Powertrain Systems, which manufactures fuel injection systems as well as various other powertrain products including valvetrain, fuel delivery modules, ignition coils, canisters, sensors, valves and actuators. This segment also offers electronic control modules and corresponding software, algorithms and calibration that provide centralized and reliable management of various powertrain components. Additionally, we provide power electronics solutions that include supervisory controllers and software, along with the DC/DC converters and inverters and on-board chargers that convert electricity to enable hybrid and electric vehicle propulsion systems.
•
Aftermarket, which sells aftermarket products to independent aftermarket and original equipment service customers. This segment also supplies a wide range of aftermarket products and services covering the fuel injection, electronics and engine management, maintenance, and test equipment and vehicle diagnostics categories.
•
Eliminations and Other, which includes the elimination of inter-segment transactions.
Our management utilizes Adjusted Operating Income by segment as the key performance measure of segment income or loss and for planning and forecasting purposes, as management believes this measure is most reflective of the operational profitability or loss of our operating segments. Consolidated Adjusted Operating Income should not be considered a substitute for results prepared in accordance with U.S. GAAP and should not be considered an alternative to net income attributable to Delphi Technologies, which is the most directly comparable financial measure to Adjusted Operating Income that is prepared in accordance with U.S. GAAP. Adjusted Operating Income, as determined and measured by Delphi Technologies, should also not be compared to similarly titled measures reported by other companies.
The reconciliation of consolidated Adjusted Operating Income to Operating Income includes, as applicable, restructuring, separation costs, other acquisition and portfolio project costs (which includes costs incurred to integrate acquired businesses and to plan and execute product portfolio transformation actions, including business and product acquisitions and divestitures) and asset impairments. The reconciliations of consolidated Adjusted Operating Income to net income attributable to Delphi Technologies for the years ended December 31, 2018 and 2017 are as follows:

32

 
Powertrain
Systems
 
Aftermarket
 
Eliminations
and Other
 
Total
 
(in millions)
For the Year Ended December 31, 2018:
 
 
 
 
 
 
 
Adjusted operating income
$
467

 
$
81

 
$
—

 
$
548

Restructuring
(37
)
 
2

 
—

 
(35
)
Separation costs (1)
(61
)
 
(17
)
 
—

 
(78
)
Asset impairments
(1
)
 
—

 
—

 
(1
)
Operating income
$
368

 
$
66

 
$
—

 
$
434

Interest expense
 
 
 
 
 
 
(79
)
Other income, net
 
 
 
 
 
 
9

Income before income taxes and equity income
 
 
 
 
 
 
364

Income tax benefit
 
 
 
 
 
 
9

Equity income, net of tax
 
 
 
 
 
 
7

Net income
 
 
 
 
 
 
380

Net income attributable to noncontrolling interest
 
 
 
 
 
 
22

Net income attributable to Delphi Technologies
 
 
 
 
 
 
$
358

 
Powertrain
Systems
 
Aftermarket
 
Eliminations
and Other
 
Total
 
(in millions)
For the Year Ended December 31, 2017:
 
 
 
 
 
 
 
Adjusted operating income
$
562

 
$
75

 
$
—

 
$
637

Restructuring
(92
)
 
(6
)
 
—

 
(98
)
Separation costs (1)
(66
)
 
(15
)
 
—

 
(81
)
Asset impairments
(12
)
 
—

 
—

 
(12
)
Operating income
$
392

 
$
54

 
$
—

 
446

Interest expense
 
 
 
 
 
 
(15
)
Other expense, net
 
 
 
 
 
 
(11
)
Income before income taxes and equity income
 
 
 
 
 
 
420

Income tax expense
 
 
 
 
 
 
(106
)
Equity income, net of tax
 
 
 
 
 
 
5

Net income
 
 
 
 
 
 
319

Net income attributable to noncontrolling interest
 
 
 
 
 
 
34

Net income attributable to Delphi Technologies
 
 
 
 
 
 
$
285

(1)
Prior to December 4, 2017 separation costs include one-time expenses related to the separation from our Former Parent. For periods subsequent to December 4, 2017, these costs include one-time incremental expenses associated with becoming a stand-alone publicly-traded company.


33

Net sales, gross margin as a percentage of net sales and Adjusted Operating Income by segment for the years ended December 31, 2018 and 2017 are as follows:
Net Sales by Segment
 
Year Ended December 31,
 
 
Variance Due To:
 
2018
 
2017
 
Favorable/
(unfavorable)
 
 
Volume, net of contractual price reductions
 
FX
 
Other
 
Total
 
(in millions)
 
 
(in millions)
Powertrain Systems
$
4,274

 
$
4,222

 
$
52

 
 
$
(48
)
 
$
96

 
$
4

 
$
52

Aftermarket
874

 
947

 
(73
)
 
 
6

 
(2
)
 
(77
)
 
(73
)
Eliminations and Other
(290
)
 
(320
)
 
30

 
 
39

 
(6
)
 
(3
)
 
30

Total
$
4,858

 
$
4,849

 
$
9

 
 
$
(3
)
 
$
88

 
$
(76
)
 
$
9

Aftermarket net sales decreased for the year ended December 31, 2018, primarily due to $76 million reflected in Other above, which is related to original equipment services business that remained with the Former Parent.
Gross Margin Percentage by Segment
 
Year Ended December 31,
 
2018
 
2017
Powertrain Systems
16.3
%
 
18.5
%
Aftermarket
22.8
%
 
19.6
%
Eliminations and Other
—
%
 
—
%
Total
18.5
%
 
20.0
%
Adjusted Operating Income by Segment
 
Year Ended December 31,
 
 
Variance Due To:
 
2018
 
2017
 
Favorable/
(unfavorable)
 
 
Volume, net of contractual price reductions
 
Operational performance
 
Other
 
Total
 
(in millions)
 
 
(in millions)
Powertrain Systems
$
467

 
$
562

 
$
(95
)
 
 
$
(161
)
 
$
56

 
$
10

 
$
(95
)
Aftermarket
81

 
75

 
6

 
 
4

 
5

 
(3
)
 
6

Eliminations and Other
—

 
—

 
—

 
 
—

 
—

 
—

 
—

Total
$
548

 
$
637

 
$
(89
)
 
 
$
(157
)
 
$
61

 
$
7

 
$
(89
)
As noted in the table above, Adjusted Operating Income for the year ended December 31, 2018 as compared to the year ended December 31, 2017 was impacted by volume and contractual price reductions, including product mix, and operational performance improvements. The change related to product mix is principally related to a shift in customer demand from diesel fuel systems and the continued investments in GDi fuel systems and power electronics, which we have identified as key growth products. Adjusted operating income was also impacted by the following items in Other above:
•
Favorable foreign currency impacts of $42 million;
•
Reduced incentive compensation accruals of $29 million; and
•
Decreased costs of $3 million at our Aftermarket segment related to certain Brazilian legal matters during the year ended December 31, 2017; offset by
•
$63 million impact related to being a stand-alone publicly-traded company, including: the absence of the original equipment services business that remained with the Former Parent, incremental costs and inefficiencies associated with being a stand-alone publicly-traded company subsequent to the Separation and costs associated with the Transition Services Agreement and Contract Manufacturing Services Agreement entered with our Former Parent in connection with the Separation; and

34

•
The absence of a $17 million reduction to cost of sales during the year ended December 31, 2017 related to a commercial agreement for reimbursement of previously incurred development costs, in conjunction with a program cancellation by one of the Company’s OEM customers during the year ended December 31, 2017.


Consolidated Results of Operations
2017 versus 2016
The results of operations for the years ended December 31, 2017 and 2016 were as follows:
 
Year Ended December 31,
 
2017
 
2016
 
Favorable/
(unfavorable)
 
(dollars in millions)
Net sales
$
4,849

 
$
4,486

 
$
363

Cost of sales
3,881

 
3,689

 
(192
)
Gross margin
968

 
797

 
171

Selling, general and administrative
408

 
299

 
(109
)
Amortization
16

 
17

 
1

Restructuring
98

 
161

 
63

Operating income
446

 
320

 
126

Interest expense
(15
)
 
(1
)
 
(14
)
Other expense, net
(11
)
 
(1
)
 
(10
)
Income before income taxes and equity income
420

 
318

 
102

Income tax expense
(106
)
 
(50
)
 
(56
)
Income before equity income
314

 
268

 
46

Equity income, net of tax
5

 
—

 
5

Net income
319

 
268

 
51

Net income attributable to noncontrolling interest
34

 
32

 
2

Net income attributable to Delphi Technologies
$
285

 
$
236

 
$
49


Total Net Sales
Below is a summary of our total net sales for the years ended December 31, 2017 versus 2016.
 
Year Ended December 31,
 
 
Variance Due To:
 
2017
 
2016
 
Favorable/
(unfavorable)
 
 
Volume
 
Contractual price reductions
 
FX
 
Other
 
Total
 
(in millions)
 
 
(in millions)
Total net sales
$
4,849

 
$
4,486

 
$
363

 
 
$
406

 
$
(52
)
 
$
9

 
$
—

 
$
363

Total net sales for the year ended December 31, 2017 increased 8% compared to the year ended December 31, 2016. We experienced volume growth of 9% for the period, primarily as a result of increased sales in all regions, and favorable currency impacts, primarily related to the Euro.
Cost of Sales and Gross Margin
Cost of sales increased $192 million for the year ended December 31, 2017 compared to the year ended December 31, 2016, as summarized below. The Company’s material cost of sales was approximately 50% of net sales in both the years ended December 31, 2017 and December 31, 2016.

35

 
Year Ended December 31,
 
 
Variance Due To:
 
2017
 
2016
 
Favorable/
(unfavorable)
 
 
Volume
 
Contractual price reductions
 
FX
 
Operational
performance
 
Other
 
Total
 
(dollars in millions)
 
 
(in millions)
Cost of sales
$
3,881

 
$
3,689

 
$
(192
)
 
 
$
(317
)
 
$
—

 
$
7

 
$
87

 
$
31

 
$
(192
)
Gross margin ($)
$
968

 
$
797

 
$
171

 
 
$
89

 
$
(52
)
 
$
16

 
$
87

 
$
31

 
$
171

Gross margin (%)
20.0
%
 
17.8
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The increase in cost of sales reflects increased volumes, partially offset by impacts from currency exchange, improved operational performance and the following items in Other above:
•
Decreased warranty costs of $15 million, primarily related to a $25 million settlement agreement reached in 2016 with one of our OEM customers regarding warranty claims related to certain components supplied by the Powertrain Systems segment; and
•
In conjunction with a program cancellation by one of the Company’s OEM customers during the year ended December 31, 2017, the Company entered into a commercial agreement for reimbursement of previously incurred development costs. As a result of this commercial agreement, the Company recorded a reduction of $17 million to cost of sales, offset by $4 million of related asset impairments, during the year ended December 31, 2017.
Selling, General and Administrative Expense
 
Year Ended December 31,
 
2017
 
2016
 
Favorable/
(unfavorable)
 
(dollars in millions)
Selling, general and administrative expense
$
408

 
$
299

 
$
(109
)
Selling, general and administrative expense (“SG&A”) includes administrative expenses, information technology costs and incentive compensation related costs. The increase in SG&A for the year ended December 31, 2017 as compared to 2016 is primarily due to $81 million of costs incurred related to the Separation.
Amortization
 
Year Ended December 31,
 
2017
 
2016
 
Favorable/
(unfavorable)
 
(in millions)
Amortization
$
16

 
$
17

 
$
1

Amortization expense reflects the non-cash charge related to definite-lived intangible assets. The consistency in amortization during the year ended December 31, 2017 compared to 2016 reflects the continued amortization of our intangible assets.
In 2018, we expect to incur non-cash amortization charges of approximately $14 million.
Restructuring
 
Year Ended December 31,
 
2017
 
2016
 
Favorable/
(unfavorable)
 
(dollars in millions)
Restructuring
$
98

 
$
161

 
$
63

The charges recorded during the year ended December 31, 2017 included $55 million of separation costs for approximately 500 employees due to the initiation of the closure of a Western European manufacturing site and approximately $30 million related to other programs pursuant to the Company’s on-going European footprint rotation strategy. Charges for the program have been substantially completed, and cash payments for this plant closure are expected to be principally completed by 2020.
The restructuring charges during the year ended December 31, 2016 included $131 million for programs focused on the continued rotation of our manufacturing footprint to best-cost locations in Europe, $93 million of which related to the closure of a European manufacturing site. Charges for the program have been substantially completed, and cash payments for this plant

36

closure were principally completed in 2017. Additionally, the Company recognized non-cash asset impairment charges of $25 million during the year ended December 31, 2016 related to this plant closure, which were recorded within cost of sales. Delphi Technologies also recorded restructuring costs of $12 million in 2016 for programs implemented to reduce global overhead costs.
Refer to Note 10. Restructuring to the consolidated financial statements included herein for additional information.
Interest Expense
 
Year Ended December 31,
 
2017
 
2016
 
Favorable/
(unfavorable)
 
(in millions)
Interest expense
$
15

 
$
1

 
$
(14
)
The increase in interest expense for the year ended December 31, 2017 as compared to the year ended December 31, 2016 reflects the interest related to the issuance of debt in connection with the Separation, consisting of a senior secured five-year $750 million term loan facility and $800 million of 5.00% senior secured notes.
Refer to Note 11. Debt to the consolidated financial statements included herein for additional information.
Other Expense, Net
 
Year Ended December 31,
 
2017
 
2016
 
Favorable/
(unfavorable)
 
(in millions)
Other expense, net
$
11

 
$
1

 
$
(10
)
The increase in other expense for the year ended December 31, 2017 as compared to the year ended December 31, 2016 is primarily due to the components of net periodic benefit cost other than service costs related to the Company’s defined benefit pension plans.
Refer to Note 18. Other expense, net to the consolidated financial statements included herein for additional information.
Income Taxes
 
Year Ended December 31,
 
2017
 
2016
 
Favorable/
(unfavorable)
 
(in millions)
Income tax expense
$
106

 
$
50

 
$
(56
)
The Company’s tax rate is affected by the fact that it is a U.K. resident taxpayer, 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. Prior to the Separation, our operating results were included in the Former Parent’s various consolidated U.S. federal and certain state income tax returns, or tax returns of non-U.S. entities. For periods prior to the Separation, the provision for income taxes and related balance sheet accounts of such entities have been prepared and presented in the consolidated financial statements based on a separate return basis.
The Company’s effective tax rate was impacted by the release of a valuation allowance in the United States in 2017, primarily due to changes in the underlying business operations, the enactment of a tax rate reduction in the United States in 2017, as well as the tax benefit recognized in the prior period due to the restructuring charges recorded in 2016, as more fully described in Note 10. Restructuring to the consolidated financial statements included herein.
The comparability of the Company’s tax rate in 2017 to 2016 was impacted by the enactment of the Tax Cuts and Jobs Act in the United States on December 22, 2017, which provides for a reduction of the corporate income tax rate from 35% to 21% effective January 1, 2018. The income tax accounting effect, including any retroactive effect, of a tax law change is accounted for in the period of enactment. As a result, the effective tax rate was impacted by an increased tax expense of approximately $7 million for the year ended December 31, 2017 due to the resultant impact on the net deferred tax asset balances. The comparability of the Company’s tax rate in 2017 to 2016 was also impacted by the enactment of the French Finance (Budget)

37

Law for 2018 (the “French Act”) which was enacted December 21, 2017, when it was definitively adopted by the French Parliament. The French Act provides for a maximum corporate rate of 33.33% in calendar year 2018, 31% in 2019, 28% in 2020, 26.5% in 2021 and 25% in 2022. As a result, deferred tax asset balance and associated valuation allowance balance in France were both reduced $17 million for the year ended December 31, 2017.


Results of Operations by Segment
The reconciliations of consolidated Adjusted Operating Income to net income attributable to Delphi Technologies for the years ended December 31, 2017 and 2016 are as follows:
 
Powertrain Systems
 
Aftermarket
 
Eliminations and Other
 
Total
 
(in millions)
For the Year Ended December 31, 2017:
 
 
 
 
 
 
 
Adjusted operating income
$
562

 
$
75

 
$
—

 
$
637

Restructuring
(92
)
 
(6
)
 
—

 
(98
)
Separation costs (1)
(66
)
 
(15
)
 
—

 
(81
)
Asset impairments
(12
)
 
—

 
—

 
(12
)
Operating income
$
392

 
$
54

 
$
—

 
446

Interest expense
 
 
 
 
 
 
(15
)
Other expense, net
 
 
 
 
 
 
(11
)
Income before income taxes and equity income
 
 
 
 
 
 
420

Income tax expense
 
 
 
 
 
 
(106
)
Equity income, net of tax
 
 
 
 
 
 
5

Net income
 
 
 
 
 
 
319

Net income attributable to noncontrolling interest
 
 
 
 
 
 
34

Net income attributable to Delphi Technologies
 
 
 
 
 
 
$
285

 
Powertrain Systems
 
Aftermarket
 
Eliminations and Other
 
Total
 
(in millions)
For the Year Ended December 31, 2016:
 
 
 
 
 
 
 
Adjusted operating income
$
418

 
$
94

 
$
—

 
$
512

Restructuring
(151
)
 
(10
)
 
—

 
(161
)
Other acquisition and portfolio project costs
—

 
(2
)
 
—

 
(2
)
Asset impairments
(28
)
 
(1
)
 
—

 
(29
)
Operating income
$
239

 
$
81

 
$
—

 
320

Interest expense
 
 
 
 
 
 
(1
)
Other expense, net
 
 
 
 
 
 
(1
)
Income before income taxes and equity income
 
 
 
 
 
 
318

Income tax expense
 
 
 
 
 
 
(50
)
Equity income, net of tax
 
 
 
 
 
 
—

Net income
 
 
 
 
 
 
268

Net income attributable to noncontrolling interest
 
 
 
 
 
 
32

Net income attributable to Delphi Technologies
 
 
 
 
 
 
$
236

(1)
Prior to December 4, 2017 separation costs include one-time expenses related to the separation from our Former Parent. For periods subsequent to December 4, 2017, these costs include one-time incremental expenses associated with becoming a stand-alone publicly-traded company.

38

Net sales, gross margin as a percentage of net sales and Adjusted Operating Income by segment for the years ended December 31, 2017 and 2016 are as follows:
Net Sales by Segment
 
Year Ended December 31,
 
 
Variance Due To:
 
2017
 
2016
 
Favorable/
(unfavorable)
 
 
Volume, net of contractual price reductions
 
FX
 
Other
 
Total
 
(in millions)
 
 
(in millions)
Powertrain Systems
$
4,222

 
$
3,837

 
$
385

 
 
$
370

 
$
15

 
$
—

 
$
385

Aftermarket
947

 
924

 
23

 
 
31

 
(8
)
 
—

 
23

Eliminations and Other
(320
)
 
(275
)
 
(45
)
 
 
(47
)
 
2

 
—

 
(45
)
Total
$
4,849

 
$
4,486

 
$
363

 
 
$
354

 
$
9

 
$
—

 
$
363


Gross Margin Percentage by Segment
 
Year Ended December 31,
 
2017
 
2016
Powertrain Systems (1)
18.5
%
 
15.8
%
Aftermarket
19.6
%
 
20.6
%
Eliminations and Other
—
%
 
—
%
Total
20.0
%
 
17.8
%
(1) The year ended December 31, 2016 included asset impairment charges of $28 million within Powertrain Systems.
Adjusted Operating Income by Segment
 
Year Ended December 31,
 
 
Variance Due To:
 
2017
 
2016
 
Favorable/
(unfavorable)
 
 
Volume, net of contractual price reductions
 
Operational performance
 
Other
 
Total
 
(in millions)
 
 
(in millions)
Powertrain Systems
$
562

 
$
418

 
$
144

 
 
$
57

 
$
73

 
$
14

 
$
144

Aftermarket
75

 
94

 
(19
)
 
 
(12
)
 
14

 
(21
)
 
(19
)
Eliminations and Other
—

 
—

 
—

 
 
—

 
—

 
—

 
—

Total
$
637

 
$
512

 
$
125

 
 
$
45

 
$
87

 
$
(7
)
 
$
125

As noted in the table above, Adjusted Operating Income for the year ended December 31, 2017 as compared to the year ended 2016 was impacted by volumes, contractual price reductions and operational performance improvements, partially offset by the following items included in Other in the table above:
•
$28 million of increased SG&A expense, excluding costs related to the Separation, during the year ended December 31, 2017, primarily for increased information technology costs;
•
Increased estimated cost accruals of $2 million at our Aftermarket segment related to certain Brazilian legal matters;
•
Adjusted for volume, Aftermarket incurred approximately $2 million of increased costs due to a strategic repositioning of its Europe warehousing footprint to better serve and support its customer base; and
•
The absence of a $3 million gain on the sale of unutilized land during the year ended December 31, 2016; offset by
•
Decreased warranty costs of $15 million, primarily related to a $25 million settlement agreement reached in 2016 with one of our OEM customers regarding warranty claims related to certain components supplied by the Powertrain Systems segment; and
•
In conjunction with a program cancellation by one of the Company’s OEM customers during the year ended December 31, 2017, the Company entered into a commercial agreement for reimbursement of previously incurred development costs. As a result of this commercial agreement, the Company recorded a reduction of $17 million to cost of sales during the year ended December 31, 2017.

39

Liquidity and Capital Resources
Overview of Capital Structure
The Company’s liquidity requirements are primarily to fund our business operations, including capital expenditures and working capital requirements, operational restructuring activities, separation activities, to meet debt service requirements, fund our pension obligations and return capital to shareholders. The Company concluded a consultation process with its U.K. workforce in January 2019 with regard to future pension provision, although discussions are still ongoing with the employee representatives.
Our primary sources of liquidity are cash flows from operations, our existing cash balance, and as necessary, borrowings under available credit facilities and the issuance of long-term debt. To the extent we generate discretionary cash flow we may consider using this additional cash flow for optional prepayments of indebtedness, to undertake new capital investment projects, make acquisitions, to return capital to shareholders and/or for general corporate purposes.
As of December 31, 2018, we had cash and cash equivalents of $359 million. During 2017 we entered into the Credit Agreement and completed the offering of the Senior Notes, as defined below. As of December 31, 2018 we had a total amount of debt outstanding, net of unamortized issuance costs and discounts, of approximately $1,531 million, primarily consisting of $731 million principal outstanding under the $750 million five-year term loan pursuant to the Credit Agreement and $800 million of principal outstanding under the $800 million senior unsecured notes due 2025. As of December 31, 2018, there were no amounts drawn on the Revolving Credit Facility, resulting in availability of $500 million. Refer to Note 11. Debt to the consolidated financial statements included herein for additional information.
We expect cash flows from operations, existing cash and available liquidity to continue to be sufficient to fund our global activities (including restructuring payments, any repurchases of outstanding ordinary shares pursuant to our approved share repurchase program as described below, any mandatory payments required under the Credit Agreement as described below, dividends on ordinary shares, capital expenditures, and funding of potential acquisitions, as applicable).
We also continue to expect to be able to move funds between different countries to manage our global liquidity needs without material adverse tax implications, subject to current monetary policies and to the terms of the Credit Agreement. We utilize a combination of strategies, including dividends, cash pooling arrangements, intercompany loan repayments and other distributions and advances to provide the funds necessary to meet our global liquidity needs. There are no significant restrictions on the ability of our subsidiaries to pay dividends or make other distributions to Delphi Technologies.
Based on these factors, we believe we possess sufficient liquidity to fund our global operations and capital investments in 2019 and beyond.
Share Repurchases
A summary of the ordinary shares repurchased during the years ended December 31, 2018, 2017 and 2016 are as follows:
 
Year Ended December 31,
 
2018
 
2017
 
2016
Total number of shares repurchased
293,695

 
—

 
—

Average price paid per share
$
34.05

 
$
—

 
$
—

Total (in millions)
$
10

 
$
—

 
$
—

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.
In January 2019, the Board of Directors approved a new $200 million share repurchase program, which replaces the previous repurchase authorization from July 2018. Repurchases will be made at management’s discretion from time to time on the open market or through privately negotiated transactions. The repurchase program may be suspended for periods or discontinued at any time. Repurchases under this program will be funded from one or a combination of future free cash flow and existing cash balances. The program is expected to be completed by December 31, 2021.

40

Dividends to Holders of Ordinary Shares
The Company has declared and paid cash dividends per ordinary share during the periods presented as follows:
 
Dividend
 
Amount
 
 Per Share
 
(in millions)
2018:
 
 
 
Fourth quarter
$
0.17

 
$
15

Third quarter
0.17

 
15

Second quarter
0.17

 
15

First quarter
0.17

 
15

Total
$
0.68

 
$
60


In January 2019, the Board of Directors elected to suspend the Company’s quarterly dividend, effective immediately.
Credit Agreement
On September 7, 2017, Delphi Technologies and its wholly-owned subsidiary Delphi Powertrain Corporation entered into a credit agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A., as administrative agent (the "Administrative Agent"), with respect to $1.25 billion in senior secured credit facilities. The Credit Agreement consists of a senior secured five-year $750 million term loan facility (the “Term Loan A Facility”) and a $500 million five-year senior secured revolving credit facility (the “Revolving Credit Facility”) (collectively, the “Credit Facilities”) with the lenders party thereto and JPMorgan Chase Bank, N.A. We incurred approximately $9 million of issuance costs in connection with the Credit Agreement.
The Credit Facilities are subject to an interest rate, at our option, of 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 LIBOR Rate” as defined in the Credit Agreement) (“LIBOR”), in each case, plus an applicable margin that is based on our corporate credit ratings, as more particularly described below (the “Applicable Rate”). In addition, the Credit Agreement requires payment of additional interest on certain overdue obligations on terms and conditions customary for financings of this type. The interest rate period with respect to LIBOR interest rate options can be set at one-, two-, three-, or six-months as selected by us in accordance with the terms of the Credit Agreement (or other period as may be agreed by the applicable lenders), but payable no less than quarterly. We may elect to change the selected interest rate over the term of the Credit Facilities in accordance with the provisions of the Credit Agreement. The Applicable Rates under the Credit Agreement on the specified date are set forth below:
 
December 31, 2018
 
December 31, 2017
 
LIBOR plus
 
ABR plus
 
LIBOR Plus
 
ABR plus
Revolving Credit Facility
1.45
%
 
0.45
%
 
1.45
%
 
0.45
%
Term Loan A Facility
1.75
%
 
0.75
%
 
1.75
%
 
0.75
%
The applicable interest rate margins for the Term Loan A Facility will increase or decrease from time to time between 1.50% and 2.00% per annum (for LIBOR loans) and between 0.50% and 1.00% per annum (for ABR loans), in each case based upon changes to our corporate credit ratings. The applicable interest rate margins for the Revolving Credit Facility will increase or decrease from time to time between 1.30% and 1.55% per annum (for LIBOR loans) and between 0.30% and 0.55% per annum (for ABR loans), in each case based upon changes to our corporate credit ratings. Amounts outstanding and the rate effective as of December 31, 2018, are detailed below:
 
Applicable Rate
 
Borrowings as of December 31, 2018 (in millions)
 
Rates effective as of December 31, 2018
Term Loan A Facility
LIBOR plus 1.75%
 
$
731

 
4.188
%
In December 2018, the Company entered into interest rate swap agreements, designated as cash flow hedges, with a combined notional amount of $400 million where the variable rates under the Term Loan A Facility have been exchanged for a fixed rate. These interest rate swap agreements mature in September 2022 and convert the nature of $400 million of the loan from LIBOR floating-rate debt to fixed-rate debt. In addition to these agreements, as a means of managing foreign currency risk related to our significant operations in Europe, the Company executed fixed-for-fixed cross currency swaps, in which the Company will pay Euros and receive U.S. dollars with a combined notional amount of $400 million. These agreements are designated as net investment hedges and will have a maturity date of September 2022. See Note 18. Derivatives and Hedging Activities for additional information on our interest rate swaps.

41

Letters of credit are available for issuance under the Credit Agreement on terms and conditions customary for financings of this type, which issuances reduce availability under the Revolving Credit Facility. No such letters of credit were outstanding as of December 31, 2018.
We are obligated to make quarterly principal payments throughout the term of the Term Loan A Facility according to the amortization provisions in the Credit Agreement, as such payments may be reduced from time to time in accordance with the terms of the Credit Agreement as a result of the application of loan prepayments made by us, if any, prior to the scheduled date of payment thereof.
Borrowings under the Credit Agreement are prepayable at our option without premium or penalty. We may request that all or a portion of the Credit Facilities be converted to extend the scheduled maturity date(s) with respect to all or a portion of any principal amount of such Credit Facilities under certain conditions customary for financings of this type. The Credit Agreement also contains certain mandatory prepayment provisions in the event that we receive net cash proceeds from certain non-ordinary course asset sales, casualty events and debt offerings, in each case subject to terms and conditions customary for financings of this type.
The Credit Agreement contains certain affirmative and negative covenants customary for financings of this type that, among other things, limit our and our subsidiaries’ ability to incur additional indebtedness or liens, to dispose of assets, to make certain fundamental changes, to designate subsidiaries as unrestricted, to make certain investments, to prepay certain indebtedness and to pay dividends, or to make other distributions or redemptions/repurchases, with respect to our and our subsidiaries’ equity interests. In addition, the Credit Agreement requires that we maintain a consolidated net leverage ratio (the ratio of Consolidated Total Indebtedness to Consolidated Adjusted EBITDA, each as defined in the Credit Agreement) of not greater than 3.5 to 1.0. The Credit Agreement also contains events of default customary for financings of this type, including certain customary change of control events. The Company was in compliance with the Credit Agreement covenants as of December 31, 2018.
The borrowers under the Credit Agreement comprise Delphi Technologies and its wholly-owned Delaware-organized subsidiary, Delphi Powertrain Corporation. Additional subsidiaries of Delphi Technologies may be added as co-borrowers or guarantors under the Credit Agreement from time to time on the terms and conditions set forth in the Credit Agreement. The obligations of each borrower under the Credit Agreement will be jointly and severally guaranteed by each other borrower and by certain of our existing and future direct and indirect subsidiaries, subject to certain exceptions customary for financings of this type. All obligations of the borrowers and the guarantors are secured by certain assets of such borrowers and guarantors, including a perfected first-priority pledge of all of the capital stock in Delphi Powertrain Corporation.
In addition, the Credit Agreement contains provisions pursuant to which, based upon our achievement of certain corporate credit ratings, certain covenants and/or our obligation to provide collateral to secure the Credit Facilities, will be suspended.
Senior Notes
On September 28, 2017, Delphi Technologies PLC issued $800 million in aggregate principal amount of 5.00% senior unsecured notes due 2025 in a transaction exempt from registration under the Securities Act (the "Senior Notes"). The Senior Notes were priced at 99.5% of par, resulting in a yield to maturity of 5.077%. Approximately $14 million of issuance costs were incurred in connection with the Senior Notes offering. 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. The proceeds received from the Senior Notes offering were deposited into escrow and subsequently released to Delphi Technologies PLC upon satisfaction of certain conditions, including completion of the Separation, in December 2017. The notes are guaranteed, jointly and severally, on an unsecured basis, by each of our current and future domestic subsidiaries that guarantee our Credit Facilities, as described above. The proceeds from the Senior Notes, together with the proceeds from the borrowings under the Credit Agreement, were used to fund a dividend to the Former Parent, fund operating cash and pay taxes and related fees and expenses.
The Senior Notes indenture contains certain restrictive covenants, including with respect to Delphi Technologies’ (and subsidiaries) ability to incur liens, enter into sale and leaseback transactions and merge with or into other entities. The Company was in compliance with the Senior Notes covenants as of December 31, 2018.

42

Other Financing
Receivable factoring—The Company entered into arrangements with various financial institutions to sell eligible trade receivables from certain Aftermarket customers in North America and Europe. These arrangements can be terminated at any time subject to prior written notice. The receivables under these arrangements are sold to a third party without recourse to the Company and are therefore accounted for as true sales. During the years ended December 31, 2018 and 2017, $112 million and $92 million of receivables were sold under these arrangements, and expenses of $5 million and $3 million, respectively, were recognized within interest expense.
In addition, in 2018, one of the Company’s European subsidiaries factored, without recourse, receivables related to certain foreign research credits to a financial institution. These transactions were accounted for as true sales of the receivables, and the Company therefore derecognized approximately $25 million from other long-term assets in the consolidated balance sheet as of December 31, 2018, as a result of these transactions. During the year ended December 31, 2018, less than $1 million of expenses were recognized within interest expense related to this transaction.
Capital leases—There were approximately $14 million and $1 million of capital lease obligations outstanding as of December 31, 2018 and 2017.
Interest—Cash paid for interest related to debt outstanding totaled $75 million, $2 million and $1 million for the years ended December 31, 2018, 2017 and 2016, respectively.
Contractual Obligations
The following table summarizes our expected cash outflows resulting from financial contracts and commitments as of December 31, 2018, with amounts denominated in foreign currencies translated using foreign currency rates as of December 31, 2018. We have not included information on our recurring purchases of materials for use in our operations. These amounts are generally consistent from year to year, closely reflect our levels of production, and are not long-term in nature. The amounts below exclude the gross liability for uncertain tax positions of $46 million as of December 31, 2018. We do not expect a significant payment related to these obligations to be made within the next twelve months. We are not able to provide a reasonably reliable estimate of the timing of future payments relating to the non-current portion of obligations associated with uncertain tax positions. For more information, refer to Note 15. Income Taxes to the consolidated financial statements included herein.
 
Payments due by Period
 
Total
 
2019
 
2020 & 2021
 
2022 & 2023
 
Thereafter
 
(in millions)
Debt and capital lease obligations (excluding interest)
$
1,550

 
$
43

 
$
115

 
$
583

 
$
809

Estimated interest costs related to debt and capital lease obligations
349

 
63

 
120

 
95

 
71

Operating lease obligations
156

 
26

 
47

 
33

 
50

Contractual commitments for capital expenditures
134

 
131

 
3

 
—

 
—

Other contractual purchase commitments, including information technology
52

 
40

 
5

 
4

 
3

Total
$
2,241