NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. GENERAL
General and basis of presentation—“Aptiv,” the “Company,” “we,” “us” and “our” refer to Aptiv PLC, a public limited company formed under the laws of Jersey on May 19, 2011 as Delphi Automotive PLC, which, through its subsidiaries, acquired certain assets of the former Delphi Corporation (now known as DPH Holdings Corp. (“DPHH”)) and completed an initial public offering on November 22, 2011. On December 4, 2017 (the “Distribution Date”), the Company completed the separation (the “Separation”) of its former Powertrain Systems segment by distributing to Aptiv shareholders on a pro rata basis all of the issued and outstanding ordinary shares of Delphi Technologies PLC, a public limited company formed to hold the spun-off business. To effect the Separation, the Company distributed to its shareholders one ordinary share of Delphi Technologies PLC for every three Aptiv ordinary shares outstanding as of November 22, 2017, the record date for the distribution. Following the Separation, the remaining company changed its name to Aptiv PLC and New York Stock Exchange (“NYSE”) symbol to “APTV.”
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and all adjustments, consisting of only normal recurring items, which are necessary for a fair presentation, have been included. The consolidated financial statements and notes thereto included in this report should be read in conjunction with Aptiv’s 2019 Annual Report on Form 10-K.
Nature of operations—Aptiv is a leading global technology and mobility company primarily serving the automotive sector. We design and manufacture vehicle components and provide electrical, electronic and active safety technology solutions to the global automotive and commercial vehicle markets. Aptiv operates manufacturing facilities and technical centers utilizing a regional service model that enables the Company to efficiently and effectively serve its global customers from best cost countries. In line with the long-term growth in emerging markets, Aptiv has been increasing its focus on these markets, particularly in China, where the Company has a major manufacturing base and strong customer relationships.
2. SIGNIFICANT ACCOUNTING POLICIES
Consolidation—The consolidated financial statements include the accounts of Aptiv and United States (“U.S.”) and non-U.S. subsidiaries in which Aptiv holds a controlling financial or management interest and variable interest entities of which Aptiv has determined that it is the primary beneficiary. Aptiv’s share of the earnings or losses of non-controlled affiliates, over which Aptiv exercises significant influence (generally a 20% to 50% ownership interest), is included in the consolidated operating results using the equity method of accounting. When Aptiv does not have the ability to exercise significant influence (generally when ownership interest is less than 20%), investments in non-consolidated affiliates without readily determinable fair values are measured at cost, less impairments, adjusted for observable price changes in orderly transactions for identical or similar investments of the same issuer. All significant intercompany transactions and balances between consolidated Aptiv businesses have been eliminated. The Company monitors its investments in affiliates for indicators of other-than-temporary declines in value on an ongoing basis. If the Company determines that such a decline has occurred, an impairment loss is recorded, which is measured as the difference between carrying value and estimated fair value. Estimated fair value is generally determined using an income approach based on discounted cash flows or negotiated transaction values.
Aptiv’s equity investments totaled $101 million and $101 million as of March 31, 2020 and December 31, 2019, respectively, and are classified within other long-term assets in the consolidated balance sheets.
Use of estimates—Preparation of consolidated financial statements in conformity with U.S. GAAP requires the use of estimates and assumptions that affect amounts reported therein. Generally, matters subject to estimation and judgment include amounts related to accounts receivable realization, inventory obsolescence, asset impairments, useful lives of intangible and fixed assets, deferred tax asset valuation allowances, income taxes, pension benefit plan assumptions, accruals related to litigation, warranty costs, environmental remediation costs, contingent consideration arrangements, worker’s compensation accruals and healthcare accruals. Due to the inherent uncertainty involved in making estimates, including the duration and severity of the impacts of the novel coronavirus (COVID-19) pandemic, actual results reported in future periods may be based upon amounts that differ from those estimates.
Revenue recognition—Aptiv recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. Accordingly, revenue is measured based on consideration specified in a contract with a customer. Refer to Note 20. Revenue for additional information regarding the Company’s revenue recognition policies.
Net income per share—Basic net income per share is computed by dividing net income attributable to Aptiv by the weighted average number of ordinary shares outstanding during the period. Diluted net income per share reflects the weighted average dilutive impact of all potentially dilutive securities from the date of issuance and is computed using the treasury stock
method by dividing net income attributable to Aptiv by the diluted weighted average number of ordinary shares outstanding during the period. Unless otherwise noted, share and per share amounts included in these notes are on a diluted basis. Refer to Note 12. Shareholders’ Equity and Net Income Per Share for additional information including the calculation of basic and diluted net income per share.
Cash and cash equivalents—Cash and cash equivalents are defined as short-term, highly liquid investments with original maturities of three months or less.
Restricted cash—Restricted cash includes balances on deposit at financial institutions that have issued letters of credit in favor of Aptiv and cash deposited into an escrow account. Refer to Note 15. Fair Value of Financial Instruments for further information regarding amounts deposited into an escrow account.
Accounts receivable—Aptiv enters into agreements to sell certain of its accounts receivable, primarily in Europe. Sales of receivables are accounted for in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 860, Transfers and Servicing (“ASC 860”). Agreements which result in true sales of the transferred receivables, as defined in ASC 860, which occur when receivables are transferred without recourse to the Company, are excluded from amounts reported in the consolidated balance sheets. Cash proceeds received from such sales are included in operating cash flows. Agreements that allow Aptiv to maintain effective control over the transferred receivables and which do not qualify as a sale, as defined in ASC 860, are accounted for as secured borrowings and recorded in the consolidated balance sheets within accounts receivable, net and short-term debt. The expenses associated with receivables factoring are recorded in the consolidated statements of operations within interest expense.
Credit losses—Aptiv is exposed to credit losses primarily through the sale of services and vehicle components. Aptiv assesses the creditworthiness of a counterparty by conducting ongoing credit reviews, which considers the Company’s expected billing exposure and timing for payment, as well as the counterparty’s established credit rating. When a credit rating is not available, the Company’s assessment is based on an analysis of the counterparty’s financial statements. Aptiv also considers contract terms and conditions, country and political risk, and business strategy in its evaluation. Based on the outcome of this review, the Company establishes a credit limit for each counterparty. The Company continues to monitor its ongoing credit exposure through active review of counterparty balances against contract terms and due dates, which includes timely account reconciliation, payment confirmation and dispute resolution. The Company may also employ collection agencies and legal counsel to pursue recovery of defaulted receivables, if necessary.
Aptiv primarily utilizes historical loss and recovery data, combined with information on current economic conditions and reasonable and supportable forecasts to develop the estimate of the allowance for doubtful accounts in accordance with ASC Topic 326, Financial Instruments – Credit Losses (“ASC 326”). As of March 31, 2020 and December 31, 2019, the Company reported $2,308 million and $2,569 million, respectively, of accounts receivable, net of the allowance for doubtful accounts of $38 million and $37 million, respectively. Changes in the allowance were not material for the three months ended March 31, 2020.
Assets and liabilities held for sale—The Company considers assets to be held for sale when management approves and commits to a formal plan to actively market the assets for sale at a price reasonable in relation to their estimated fair value, the assets are available for immediate sale in their present condition, an active program to locate a buyer and other actions required to complete the sale have been initiated, the sale of the assets is probable and expected to be completed within one year (or, if it is expected that others will impose conditions on the sale of the assets that will extend the period required to complete the sale, that a firm purchase commitment is probable within one year) and it is unlikely that significant changes will be made to the plan. Upon designation as held for sale, the Company records the assets at the lower of their carrying value or their estimated fair value, less cost to sell, and ceases to record depreciation expense on the assets.
Assets and liabilities of a discontinued operation are reclassified as held for sale for all comparative periods presented in the consolidated balance sheets. For assets that meet the held for sale criteria but do not meet the definition of a discontinued operation, the Company reclassifies the assets and liabilities in the period in which the held for sale criteria are met, but does not reclassify prior period amounts. Refer to Note 17. Acquisitions and Divestitures for further information regarding the Company's assets and liabilities held for sale.
Intangible assets—Intangible assets were $1,132 million and $1,186 million as of March 31, 2020 and December 31, 2019, respectively. Aptiv amortizes definite-lived intangible assets over their estimated useful lives. Aptiv has definite-lived intangible assets related to patents and developed technology, customer relationships and trade names. Indefinite-lived in-process research and development intangible assets are not amortized, but are tested for impairment annually, or more frequently when indicators of potential impairment exist, until the completion or abandonment of the associated research and development efforts. Upon completion of the projects, the assets will be amortized over the expected economic life of the asset, which will be determined on that date. Should the project be determined to be abandoned, and if the asset developed has no alternative use, the full value of the asset will be charged to expense. The Company also has intangible assets related to acquired trade names that are classified as indefinite-lived when there are no foreseeable limits on the periods of time over
which they are expected to contribute cash flows. These indefinite-lived trade name assets are tested for impairment annually, or more frequently when indicators of potential impairment exist. Costs to renew or extend the term of acquired intangible assets are recognized as expense as incurred. Amortization expense was $36 million and $34 million for the three months ended March 31, 2020 and 2019, respectively, which includes the impact of any intangible asset impairment charges recorded during the period.
Goodwill—Goodwill is the excess of the purchase price over the estimated fair value of identifiable net assets acquired in business combinations. The Company tests goodwill for impairment annually in the fourth quarter, or more frequently when indications of potential impairment exist. The Company monitors the existence of potential impairment indicators throughout the fiscal year. The Company tests for goodwill impairment at the reporting unit level. Our reporting units are the components of operating segments which constitute businesses for which discrete financial information is available and is regularly reviewed by segment management.
The impairment test involves first qualitatively assessing goodwill for impairment. If the qualitative assessment is not met the Company then performs a quantitative assessment by comparing the estimated fair value of each reporting unit to its carrying value, including goodwill. Fair value reflects the price a market participant would be willing to pay in a potential sale of the reporting unit. If the estimated fair value exceeds carrying value, then we conclude that no goodwill impairment has occurred. If the carrying value of the reporting unit exceeds its estimated fair value, the Company recognizes an impairment loss in an amount equal to the excess, not to exceed the amount of goodwill allocated to the reporting unit. The Company qualitatively concluded there were no goodwill impairments during the three months ended March 31, 2020 and 2019. Goodwill was $2,389 million and $2,407 million as of March 31, 2020 and December 31, 2019, respectively.
Warranty and product recalls—Expected warranty costs for products sold are recognized at the time of sale of the product based on an estimate of the amount that eventually will be required to settle such obligations. These accruals are based on factors such as past experience, production changes, industry developments and various other considerations. Costs of product recalls, which may include the cost of the product being replaced as well as the customer’s cost of the recall, including labor to remove and replace the recalled part, are accrued as part of our warranty accrual at the time an obligation becomes probable and can be reasonably estimated. These estimates are adjusted from time to time based on facts and circumstances that impact the status of existing claims. Refer to Note 6. Warranty Obligations for additional information.
Income taxes—Deferred tax assets and liabilities reflect temporary differences between the amount of assets and liabilities for financial and tax reporting purposes. Such amounts are adjusted, as appropriate, to reflect changes in tax rates expected to be in effect when the temporary differences reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period that includes the enactment date. A valuation allowance is recorded to reduce deferred tax assets to the amount that is more likely than not to be realized. In the event the Company determines it is more likely than not that the deferred tax assets will not be realized in the future, the valuation allowance adjustment to the deferred tax assets will be charged to earnings in the period in which the Company makes such a determination. In determining whether an uncertain tax position exists, the Company determines, based solely on its technical merits, whether the tax position is more likely than not to be sustained upon examination, and if so, a tax benefit is measured on a cumulative probability basis that is more likely than not to be realized upon the ultimate settlement. In determining the provision for income taxes for financial statement purposes, the Company makes certain estimates and judgments which affect its evaluation of the carrying value of its deferred tax assets, as well as its calculation of certain tax liabilities. Refer to Note 11. Income Taxes for additional information.
Restructuring—Aptiv continually evaluates alternatives to align the business with the changing needs of its customers and to lower operating costs. This includes the realignment of its existing manufacturing capacity, facility closures, or similar actions, either in the normal course of business or pursuant to significant restructuring programs. These actions may result in employees receiving voluntary or involuntary employee termination benefits, which are mainly pursuant to union or other contractual agreements or statutory requirements. Voluntary termination benefits are accrued when an employee accepts the related offer. Involuntary termination benefits are accrued upon the commitment to a termination plan and when the benefit arrangement is communicated to affected employees, or when liabilities are determined to be probable and estimable, depending on the existence of a substantive plan for severance or termination. Contract termination costs are recorded when contracts are terminated or when Aptiv ceases to use the leased facility and no longer derives economic benefit from the contract. All other exit costs are expensed as incurred. Refer to Note 7. Restructuring for additional information.
Customer concentrations—As reflected in the table below, net sales to General Motors Company (“GM”), Volkswagen Group (“VW”) and Fiat Chrysler Automobiles N.V. (“FCA”), Aptiv’s three largest customers, totaled approximately 27% and 27% of our total net sales for the three months ended March 31, 2020 and 2019, respectively.
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Percentage of Total Net Sales
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|
Accounts and Other Receivables
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|
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|
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Three Months Ended March 31,
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|
March 31,
2020
|
|
December 31,
2019
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|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
GM
|
|
|
|
|
10
|
%
|
|
10
|
%
|
|
|
$
|
190
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|
|
$
|
205
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|
|
VW
|
|
|
|
|
9
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%
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|
8
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%
|
|
|
115
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|
|
135
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|
|
FCA
|
|
|
|
|
8
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%
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|
9
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%
|
|
|
186
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|
|
207
|
|
Recently adopted accounting pronouncements—Aptiv adopted Accounting Standards Update (“ASU”) 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments in the first quarter of 2020 using the modified retrospective transition method. This guidance requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. These amendments replace the incurred loss model with an expected loss model, which results in more timely measurement of expected credit losses. Upon adoption, Aptiv recorded a cumulative-effect adjustment of $1 million to retained earnings as of the beginning of the period of adoption. Refer to the “Credit losses” section above for further information regarding significant estimates and judgments used in estimating credit losses.
Aptiv adopted ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment in the first quarter of 2020 on a prospective basis. This guidance simplifies the test for goodwill impairment by eliminating step two from the goodwill impairment test, which required an entity to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Under the new guidance, an entity will record an impairment charge based on the amount by which a reporting unit’s carrying amount exceeds its estimated fair value, limited to the amount of goodwill allocated to that reporting unit. The adoption of this guidance did not have a significant impact on Aptiv’s financial statements. Refer to the “Goodwill” section above for further information regarding the Company’s testing for goodwill impairment.
Aptiv adopted ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement in the first quarter of 2020 on a retrospective basis to all periods presented. This guidance modifies disclosure requirements related to fair value measurements by removing certain disclosure requirements related to the fair value hierarchy, modifying existing disclosure requirements related to measurement uncertainty and adding new disclosure requirements. The adoption of this guidance did not have a significant impact on Aptiv’s financial statements. Refer to Note 15. Fair Value of Financial Instruments for further information regarding the Company’s fair value measurements.
Recently issued accounting pronouncements not yet adopted—In January 2020, the FASB issued ASU 2020-01, Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)—Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. This guidance clarifies the interactions between accounting for equity securities under the measurement alternative in Topic 321 and the equity method of accounting in Topic 323, as well as the accounting for certain forward contracts and purchased options to purchase securities that, upon settlement or exercise, would be accounted for under the equity method of accounting. The new guidance will be applied prospectively and is effective for fiscal years beginning after December 15, 2020. Early adoption is permitted. The adoption of this guidance is not expected to have a significant impact on Aptiv’s financial statements.
3. INVENTORIES
Inventories are stated at the lower of cost, determined on a first-in, first-out basis, or net realizable value, including direct material costs and direct and indirect manufacturing costs. A summary of inventories is shown below:
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|
|
March 31,
2020
|
|
December 31,
2019
|
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|
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(in millions)
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|
|
|
Productive material
|
$
|
793
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|
|
$
|
706
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|
|
Work-in-process
|
107
|
|
|
102
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|
|
Finished goods
|
463
|
|
|
478
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|
|
Total
|
$
|
1,363
|
|
|
$
|
1,286
|
|
4. ASSETS
Other current assets consisted of the following:
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|
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|
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|
|
|
|
March 31,
2020
|
|
December 31,
2019
|
|
|
|
|
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|
(in millions)
|
|
|
|
Value added tax receivable
|
$
|
184
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|
|
$
|
205
|
|
|
|
|
|
|
|
Prepaid insurance and other expenses
|
81
|
|
|
88
|
|
|
Reimbursable engineering costs
|
67
|
|
|
101
|
|
|
Notes receivable
|
10
|
|
|
10
|
|
|
Income and other taxes receivable
|
65
|
|
|
45
|
|
|
Deposits to vendors
|
5
|
|
|
4
|
|
|
Derivative financial instruments (Note 14)
|
—
|
|
|
30
|
|
|
Capitalized upfront fees (Note 20)
|
20
|
|
|
20
|
|
|
Other
|
—
|
|
|
1
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|
|
Total
|
$
|
432
|
|
|
$
|
504
|
|
Other long-term assets consisted of the following:
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|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2020
|
|
December 31,
2019
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
Deferred income taxes, net
|
$
|
151
|
|
|
$
|
164
|
|
|
Unamortized Revolving Credit Facility debt issuance costs (Note 8)
|
3
|
|
|
3
|
|
|
Income and other taxes receivable
|
48
|
|
|
45
|
|
|
Reimbursable engineering costs
|
253
|
|
|
217
|
|
|
Value added tax receivable
|
45
|
|
|
59
|
|
|
Equity investments (Note 17)
|
101
|
|
|
101
|
|
|
Derivative financial instruments (Note 14)
|
—
|
|
|
8
|
|
|
Capitalized upfront fees (Note 20)
|
84
|
|
|
79
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|
|
Other
|
39
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|
|
43
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|
|
Total
|
$
|
724
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|
|
$
|
719
|
|
5. LIABILITIES
Accrued liabilities consisted of the following:
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|
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|
|
|
|
|
|
|
|
March 31,
2020
|
|
December 31,
2019
|
|
|
|
|
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|
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(in millions)
|
|
|
|
Payroll-related obligations
|
$
|
218
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|
|
$
|
226
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|
|
Employee benefits, including current pension obligations
|
46
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|
|
97
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|
|
Income and other taxes payable
|
165
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|
|
180
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|
|
Warranty obligations (Note 6)
|
28
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|
|
29
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|
|
Restructuring (Note 7)
|
77
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|
|
86
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|
|
Customer deposits
|
38
|
|
|
43
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|
|
Derivative financial instruments (Note 14)
|
72
|
|
|
4
|
|
|
Accrued interest
|
22
|
|
|
47
|
|
|
|
|
|
|
|
Deferred compensation related to nuTonomy acquisition
|
39
|
|
|
35
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|
|
Operating lease liabilities (Note 21)
|
93
|
|
|
94
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|
|
Other
|
354
|
|
|
314
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|
|
Total
|
$
|
1,152
|
|
|
$
|
1,155
|
|
Other long-term liabilities consisted of the following:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2020
|
|
December 31,
2019
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
Environmental (Note 10)
|
$
|
4
|
|
|
$
|
3
|
|
|
|
|
|
|
|
Extended disability benefits
|
6
|
|
|
6
|
|
|
Warranty obligations (Note 6)
|
8
|
|
|
8
|
|
|
Restructuring (Note 7)
|
41
|
|
|
48
|
|
|
Payroll-related obligations
|
10
|
|
|
10
|
|
|
Accrued income taxes
|
199
|
|
|
199
|
|
|
Deferred income taxes, net
|
213
|
|
|
229
|
|
|
Derivative financial instruments (Note 14)
|
40
|
|
|
—
|
|
|
|
|
|
|
|
Other
|
100
|
|
|
108
|
|
|
Total
|
$
|
621
|
|
|
$
|
611
|
|
6. WARRANTY OBLIGATIONS
Expected warranty costs for products sold are recognized principally at the time of sale of the product based on an estimate of the amount that eventually will be required to settle such obligations. These accruals are based on factors such as past experience, production changes, industry developments and various other considerations. The estimated costs related to product recalls based on a formal campaign soliciting return of that product are accrued at the time an obligation becomes probable and can be reasonably estimated. These estimates are adjusted from time to time based on facts and circumstances that impact the status of existing claims. Aptiv has recognized its best estimate for its total aggregate warranty reserves, including product recall costs, across all of its operating segments as of March 31, 2020. The Company estimates the reasonably possible amount to ultimately resolve all matters in excess of the recorded reserves as of March 31, 2020 to be zero to $20 million.
The table below summarizes the activity in the product warranty liability for the three months ended March 31, 2020:
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|
|
|
|
|
|
|
|
Warranty Obligations
|
|
|
|
|
|
(in millions)
|
|
Accrual balance at beginning of period
|
$
|
37
|
|
|
Provision for estimated warranties incurred during the period
|
7
|
|
|
Changes in estimate for pre-existing warranties
|
1
|
|
|
Settlements made during the period (in cash or in kind)
|
(8)
|
|
|
Foreign currency translation and other
|
(1)
|
|
|
Accrual balance at end of period
|
$
|
36
|
|
7. RESTRUCTURING
Aptiv’s restructuring activities are undertaken as necessary to implement management’s strategy, streamline operations, take advantage of available capacity and resources, and ultimately achieve net cost reductions. These activities generally relate to the realignment of existing manufacturing capacity and closure of facilities and other exit or disposal activities, as it relates to executing Aptiv’s strategy, either in the normal course of business or pursuant to significant restructuring programs.
As part of Aptiv’s continued efforts to optimize its cost structure, it has undertaken several restructuring programs which include workforce reductions as well as plant closures. These programs are primarily focused on the continued rotation of our manufacturing footprint to best cost locations in Europe and on reducing global overhead costs. The Company recorded employee-related and other restructuring charges related to these programs totaling approximately $28 million during the three months ended March 31, 2020, of which $11 million was recognized for programs implemented in the European region, pursuant to the Company’s ongoing overhead cost reduction strategy. None of the Company’s individual restructuring programs initiated during the three months ended March 31, 2020 were material and there have been no changes in previously initiated programs that have resulted (or are expected to result) in a material change to our restructuring costs. The Company expects to incur additional restructuring costs of approximately $40 million within the Signal and Power Solutions segment for programs approved as of March 31, 2020, which are primarily expected to be incurred within the next twelve months.
During the three months ended March 31, 2019, Aptiv recorded employee-related and other restructuring charges totaling approximately $26 million, of which $7 million was recognized for programs focused on the continued rotation of our manufacturing footprint to best cost locations in Europe and reducing overhead costs in the region.
Restructuring charges for employee separation and termination benefits are paid either over the severance period or in a lump sum in accordance with either statutory requirements or individual agreements. Aptiv incurred cash expenditures related to its restructuring programs of approximately $43 million and $31 million in the three months ended March 31, 2020 and 2019, respectively.
The following table summarizes the restructuring charges recorded for the three months ended March 31, 2020 and 2019 by operating segment:
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|
|
|
|
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|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
Signal and Power Solutions
|
|
|
|
|
$
|
19
|
|
|
$
|
19
|
|
|
Advanced Safety and User Experience
|
|
|
|
|
9
|
|
|
7
|
|
|
Total
|
|
|
|
|
$
|
28
|
|
|
$
|
26
|
|
The table below summarizes the activity in the restructuring liability for the three months ended March 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee Termination Benefits Liability
|
|
Other Exit Costs Liability
|
|
Total
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
Accrual balance at January 1, 2020
|
$
|
134
|
|
|
$
|
—
|
|
|
$
|
134
|
|
|
Provision for estimated expenses incurred during the period
|
28
|
|
|
—
|
|
|
28
|
|
|
Payments made during the period
|
(43)
|
|
|
—
|
|
|
(43)
|
|
|
Foreign currency and other
|
(1)
|
|
|
—
|
|
|
(1)
|
|
|
Accrual balance at March 31, 2020
|
$
|
118
|
|
|
$
|
—
|
|
|
$
|
118
|
|
8. DEBT
The following is a summary of debt outstanding, net of unamortized issuance costs and discounts, as of March 31, 2020 and December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2020
|
|
December 31,
2019
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
Accounts receivable factoring
|
$
|
236
|
|
|
$
|
266
|
|
|
Revolving Credit Facility (Note 22)
|
2,000
|
|
|
90
|
|
|
|
|
|
|
|
4.15%, senior notes, due 2024 (net of $2 and $2 unamortized issuance costs and $1 and $1 discount, respectively)
|
697
|
|
|
697
|
|
|
1.50%, Euro-denominated senior notes, due 2025 (net of $2 and $3 unamortized issuance costs and $2 and $2 discount, respectively)
|
776
|
|
|
779
|
|
|
4.25%, senior notes, due 2026 (net of $3 and $3 unamortized issuance costs, respectively)
|
647
|
|
|
647
|
|
|
1.60%, Euro-denominated senior notes, due 2028 (net of $3 and $3 unamortized issuance costs, respectively)
|
554
|
|
|
556
|
|
|
4.35%, senior notes, due 2029 (net of $3 and $3 unamortized issuance costs, respectively)
|
297
|
|
|
297
|
|
|
4.40%, senior notes, due 2046 (net of $3 and $3 unamortized issuance costs and $2 and $2 discount, respectively)
|
295
|
|
|
295
|
|
|
5.40%, senior notes, due 2049 (net of $4 and $4 unamortized issuance costs and $1 and $1 discount, respectively)
|
345
|
|
|
345
|
|
|
Tranche A Term Loan, due 2021 (net of $1 and $1 unamortized issuance costs, respectively) (Note 22)
|
349
|
|
|
359
|
|
|
Finance leases and other
|
28
|
|
|
33
|
|
|
Total debt
|
6,224
|
|
|
4,364
|
|
|
Less: current portion
|
(260)
|
|
|
(393)
|
|
|
Long-term debt
|
$
|
5,964
|
|
|
$
|
3,971
|
|
Credit Agreement
Aptiv PLC and its wholly-owned subsidiary Aptiv Corporation entered into a credit agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A., as administrative agent (the “Administrative Agent”), under which it maintains senior unsecured credit facilities currently consisting of a term loan (the “Tranche A Term Loan”) and a revolving credit facility of $2.0 billion (the “Revolving Credit Facility”). The Credit Agreement was entered into in March 2011 and has been subsequently amended and restated on several occasions, most recently on August 17, 2016. The 2016 amendment extended the maturity of the Revolving Credit Facility and the Tranche A Term Loan from 2018 to 2021, increased the capacity of the Revolving Credit Facility from $1.5 billion to $2.0 billion and permitted Aptiv PLC to act as a borrower on the Revolving Credit Facility.
Beginning in the fourth quarter of 2017, Aptiv was obligated to begin making quarterly principal payments throughout the term of the Tranche A Term Loan, according to the amortization schedule in the Credit Agreement. The Credit Agreement also contains an accordion feature that permits Aptiv to increase, from time to time, the aggregate borrowing capacity under the Credit Agreement by up to an additional $1 billion (or a greater amount based upon a formula set forth in the Credit
Agreement) upon Aptiv’s request, the agreement of the lenders participating in the increase, and the approval of the Administrative Agent and existing lenders.
During the first quarter of 2020, the Company drew down all remaining availability under its Revolving Credit Facility, primarily to provide additional liquidity and financial flexibility to mitigate the impacts on its business resulting from the uncertainty caused by the global spread of the COVID-19 pandemic. As a result, approximately $2.0 billion was outstanding under the Revolving Credit Facility and less than $1 million in letters of credit were issued under the Credit Agreement as of March 31, 2020.
Loans under the Credit Agreement bear interest, at Aptiv’s option, at either (a) the Administrative Agent’s Alternate Base Rate (“ABR” as defined in the Credit Agreement) or (b) the London Interbank Offered Rate (the “Adjusted LIBO Rate” as defined in the Credit Agreement) (“LIBOR”) plus in either case a percentage per annum as set forth in the table below (the “Applicable Rate”). The Applicable Rates under the Credit Agreement on the specified dates are set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
|
|
December 31, 2019
|
|
|
|
|
LIBOR plus
|
|
ABR plus
|
|
LIBOR plus
|
|
ABR plus
|
|
Revolving Credit Facility
|
|
1.10
|
%
|
|
0.10
|
%
|
|
1.10
|
%
|
|
0.10
|
%
|
|
Tranche A Term Loan
|
|
1.25
|
%
|
|
0.25
|
%
|
|
1.25
|
%
|
|
0.25
|
%
|
The Applicable Rate under the Credit Agreement may increase or decrease from time to time based on changes in the Company’s credit ratings. Accordingly, the interest rate will fluctuate during the term of the Credit Agreement based on changes in the ABR, LIBOR or future changes in the Company’s corporate credit ratings. The Credit Agreement also requires that Aptiv pay certain facility fees on the Revolving Credit Facility and certain letter of credit issuance and fronting fees.
The interest rate period with respect to LIBOR interest rate options can be set at one-, two-, three-, or six-months as selected by Aptiv in accordance with the terms of the Credit Agreement (or other period as may be agreed by the applicable lenders). Aptiv may elect to change the selected interest rate option in accordance with the provisions of the Credit Agreement. As of March 31, 2020, Aptiv selected the one-month LIBOR interest rate option on the Tranche A Term Loan, and the rate effective as of March 31, 2020, as detailed in the table below, was based on the Company’s current credit rating and the Applicable Rate for the Credit Agreement:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings as of
|
|
|
|
|
|
|
March 31, 2020
|
|
Rates effective as of
|
|
|
Applicable Rate
|
|
(in millions)
|
|
March 31, 2020
|
|
Revolving Credit Facility
|
|
ABR plus 0.10%
|
|
|
$
|
150
|
|
|
3.35
|
%
|
|
Revolving Credit Facility
|
|
LIBOR plus 1.10%
|
|
|
$
|
1,850
|
|
|
1.88
|
%
|
|
Tranche A Term Loan
|
|
LIBOR plus 1.25%
|
|
|
$
|
350
|
|
|
2.00
|
%
|
Borrowings under the Credit Agreement are prepayable at Aptiv’s option without premium or penalty.
The Credit Agreement contains certain covenants that limit, among other things, the Company’s (and the Company’s subsidiaries’) ability to incur certain additional indebtedness or liens or to dispose of substantially all of its assets. In addition, the Credit Agreement requires that the Company maintain a consolidated leverage ratio (the ratio of Consolidated Total Indebtedness to Consolidated EBITDA, each as defined in the Credit Agreement) of not more than 3.5 to 1.0. The Credit Agreement also contains events of default customary for financings of this type. The Company was in compliance with the Credit Agreement covenants as of March 31, 2020.
As of March 31, 2020, all obligations under the Credit Agreement were borrowed by Aptiv Corporation and jointly and severally guaranteed by its direct and indirect parent companies, subject to certain exceptions set forth in the Credit Agreement, and the Tranche A Term Loan and the Revolving Credit Facility were set to mature on August 17, 2021. Subsequent to March 31, 2020, the Company amended and restated the Credit Agreement, extending the maturity date of substantially all of the Revolving Credit Facility and the Tranche A Term Loan from August 17, 2021 to August 17, 2022, as further described in Note 22. Subsequent Events.
Senior Unsecured Notes
On March 3, 2014, Aptiv Corporation issued $700 million in aggregate principal amount of 4.15% senior unsecured notes due 2024 (the “2014 Senior Notes”) in a transaction registered under the Securities Act of 1933, as amended (the “Securities Act”). The 2014 Senior Notes were priced at 99.649% of par, resulting in a yield to maturity of 4.193%. The proceeds were primarily utilized to redeem $500 million of 5.875% senior unsecured notes due 2019 and to repay a portion of the Tranche A Term Loan. Aptiv paid approximately $6 million of issuance costs in connection with the 2014 Senior Notes. Interest is payable
semi-annually on March 15 and September 15 of each year to holders of record at the close of business on March 1 or September 1 immediately preceding the interest payment date.
On March 10, 2015, Aptiv PLC issued €700 million in aggregate principal amount of 1.50% Euro-denominated senior unsecured notes due 2025 (the “2015 Euro-denominated Senior Notes”) in a transaction registered under the Securities Act. The 2015 Euro-denominated Senior Notes were priced at 99.54% of par, resulting in a yield to maturity of 1.55%. The proceeds were primarily utilized to redeem $500 million of 6.125% senior unsecured notes due 2021, and to fund growth initiatives, such as acquisitions, and share repurchases. Aptiv incurred approximately $5 million of issuance costs in connection with the 2015 Euro-denominated Senior Notes. Interest is payable annually on March 10. The Company has designated the 2015 Euro-denominated Senior Notes as a net investment hedge of the foreign currency exposure of its investments in certain Euro-denominated wholly-owned subsidiaries. Refer to Note 14. Derivatives and Hedging Activities for further information.
On November 19, 2015, Aptiv PLC issued $1.3 billion in aggregate principal amount of senior unsecured notes in a transaction registered under the Securities Act, comprised of $650 million of 3.15% senior unsecured notes due 2020 (the “3.15% Senior Notes”) and $650 million of 4.25% senior unsecured notes due 2026 (the “4.25% Senior Notes”) (collectively, the “2015 Senior Notes”). The 3.15% Senior Notes were priced at 99.784% of par, resulting in a yield to maturity of 3.197%, and the 4.25% Senior Notes were priced at 99.942% of par, resulting in a yield to maturity of 4.256%. The proceeds were primarily utilized to fund a portion of the cash consideration for the acquisition of HellermannTyton PLC and for general corporate purposes, including the payment of fees and expenses associated with the HellermannTyton PLC acquisition and the related financing transaction. Aptiv incurred approximately $8 million of issuance costs in connection with the 2015 Senior Notes. Interest on the 3.15% Senior Notes was payable semi-annually on May 19 and November 19 of each year to holders of record at the close of business on May 4 or November 4 immediately preceding the interest payment date. Interest on the 4.25% Senior Notes is payable semi-annually on January 15 and July 15 of each year to holders of record at the close of business on January 1 or July 1 immediately preceding the interest payment date. In March 2019, Aptiv redeemed for cash the entire $650 million aggregate principal amount outstanding of the 3.15% Senior Notes, financed by the proceeds received from the issuance of the 2019 Senior Notes, as defined below. As a result of the redemption of the 3.15% Senior Notes, Aptiv recognized a loss on debt extinguishment of approximately $6 million during the three months ended March 31, 2019 within other expense, net in the consolidated statements of operations.
On September 15, 2016, Aptiv PLC issued €500 million in aggregate principal amount of 1.60% Euro-denominated senior unsecured notes due 2028 (the “2016 Euro-denominated Senior Notes”) in a transaction registered under the Securities Act. The 2016 Euro-denominated Senior Notes were priced at 99.881% of par, resulting in a yield to maturity of 1.611%. The proceeds, together with proceeds from the 2016 Senior Notes described below, were utilized to redeem the $800 million of 5.00% senior unsecured notes due 2023. Aptiv incurred approximately $4 million of issuance costs in connection with the 2016 Euro-denominated Senior Notes. Interest is payable annually on September 15. The Company has designated the 2016 Euro-denominated Senior Notes as a net investment hedge of the foreign currency exposure of its investments in certain Euro-denominated wholly-owned subsidiaries. Refer to Note 14. Derivatives and Hedging Activities for further information.
On September 20, 2016, Aptiv PLC issued $300 million in aggregate principal amount of 4.40% senior unsecured notes due 2046 (the “2016 Senior Notes”) in a transaction registered under the Securities Act. The 2016 Senior Notes were priced at 99.454% of par, resulting in a yield to maturity of 4.433%. The proceeds, together with proceeds from the 2016 Euro-denominated Senior Notes, were utilized to redeem the $800 million of 5.00% senior unsecured notes due 2023. Aptiv incurred approximately $3 million of issuance costs in connection with the 2016 Senior Notes. Interest is payable semi-annually on April 1 and October 1 of each year to holders of record at the close of business on March 15 or September 15 immediately preceding the interest payment date.
On March 14, 2019, Aptiv PLC issued $650 million in aggregate principal amount of senior unsecured notes in a transaction registered under the Securities Act, comprised of $300 million of 4.35% senior unsecured notes due 2029 (the “4.35% Senior Notes”) and $350 million of 5.40% senior unsecured notes due 2049 (the “5.40% Senior Notes”) (collectively, the “2019 Senior Notes”). The 4.35% Senior Notes were priced at 99.879% of par, resulting in a yield to maturity of 4.365%, and the 5.40% Senior Notes were priced at 99.558% of par, resulting in a yield to maturity of 5.430%. The proceeds were utilized to redeem the 3.15% Senior Notes. Aptiv incurred approximately $7 million of issuance costs in connection with the 2019 Senior Notes. Interest on the 2019 Senior Notes is payable semi-annually on March 15 and September 15 of each year to holders of record at the close of business on March 1 or September 1 immediately preceding the interest payment date.
Although the specific terms of each indenture governing each series of senior notes vary, the indentures contain certain restrictive covenants, including with respect to Aptiv’s (and Aptiv’s subsidiaries) ability to incur liens, enter into sale and leaseback transactions and merge with or into other entities. As of March 31, 2020, the Company was in compliance with the provisions of all series of the outstanding senior notes.
The 2014 Senior Notes issued by Aptiv Corporation are fully and unconditionally guaranteed, jointly and severally, by Aptiv PLC and by certain of Aptiv PLC’s direct and indirect subsidiaries, which are directly or indirectly 100% owned by
Aptiv PLC, subject to customary release provisions (other than in the case of Aptiv PLC). The 2015 Euro-denominated Senior Notes, 4.25% Senior Notes, 2016 Euro-denominated Senior Notes, 2016 Senior Notes and 2019 Senior Notes issued by Aptiv PLC are fully and unconditionally guaranteed, jointly and severally, by certain of Aptiv PLC’s direct and indirect subsidiaries (including Aptiv Corporation), which are directly or indirectly 100% owned by Aptiv PLC, subject to customary release provisions.
Other Financing
Receivable factoring—Aptiv maintains a €300 million European accounts receivable factoring facility that is available on a committed basis. This facility is accounted for as short-term debt and borrowings are subject to the availability of eligible accounts receivable. Collateral is not required related to these trade accounts receivable. This program renews on a non-committed, indefinite basis unless terminated by either party. Borrowings bear interest at Euro Interbank Offered Rate (“EURIBOR”) plus 0.42% for borrowings denominated in Euros. The rate effective on amounts outstanding as of March 31, 2020 was 0.42%. As of March 31, 2020 and December 31, 2019, Aptiv had $236 million and $266 million, respectively, outstanding on the European accounts receivable factoring facility.
Finance leases and other—As of March 31, 2020 and December 31, 2019, approximately $28 million and $33 million, respectively, of other debt primarily issued by certain non-U.S. subsidiaries and finance lease obligations were outstanding.
Interest—Cash paid for interest related to debt outstanding totaled $66 million and $55 million for the three months ended March 31, 2020 and 2019, respectively.
Letter of credit facilities—In addition to the letters of credit issued under the Credit Agreement, Aptiv had approximately $2 million and $2 million outstanding through other letter of credit facilities as of March 31, 2020 and December 31, 2019, respectively, primarily to support arrangements and other obligations at certain of its subsidiaries.
9. PENSION BENEFITS
Certain of Aptiv’s non-U.S. subsidiaries sponsor defined benefit pension plans, which generally provide benefits based on negotiated amounts for each year of service. Aptiv’s primary non-U.S. plans are located in France, Germany, Mexico, Portugal and the U.K. The U.K. and certain Mexican plans are funded. In addition, Aptiv has defined benefit plans in South Korea, Turkey and Italy for which amounts are payable to employees immediately upon separation. The obligations for these plans are recorded over the requisite service period.
Aptiv sponsors a Supplemental Executive Retirement Program (“SERP”) for those employees who were U.S. executives of DPHH prior to September 30, 2008 and were still U.S. executives of the Company on October 7, 2009, the effective date of the program. This program is unfunded. Executives receive benefits over 5 years after an involuntary or voluntary separation from Aptiv. The SERP is closed to new members.
The amounts shown below reflect the defined benefit pension expense for the three months ended March 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S. Plans
|
|
|
|
U.S. Plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
Service cost
|
$
|
5
|
|
|
$
|
5
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Interest cost
|
6
|
|
|
7
|
|
|
—
|
|
|
—
|
|
|
Expected return on plan assets
|
(5)
|
|
|
(5)
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of actuarial losses
|
4
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
$
|
10
|
|
|
$
|
10
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Other postretirement benefit obligations were approximately $1 million and $2 million at March 31, 2020 and December 31, 2019, respectively.
10. COMMITMENTS AND CONTINGENCIES
Ordinary Business Litigation
Aptiv is from time to time subject to various legal actions and claims incidental to its business, including those arising out of alleged defects, alleged breaches of contracts, product warranties, intellectual property matters, and employment-related matters. It is the opinion of Aptiv that the outcome of such matters will not have a material adverse impact on the consolidated financial position, results of operations, or cash flows of Aptiv. With respect to warranty matters, although Aptiv cannot ensure that the future costs of warranty claims by customers will not be material, Aptiv believes its established reserves are adequate to cover potential warranty settlements.
Brazil Matters
Aptiv conducts business operations in Brazil that are subject to the Brazilian federal labor, social security, environmental, tax and customs laws, as well as a variety of state and local laws. While Aptiv believes it complies with such laws, they are complex, subject to varying interpretations, and the Company is often engaged in litigation with government agencies regarding the application of these laws to particular circumstances. As of March 31, 2020, the majority of claims asserted against Aptiv in Brazil relate to such litigation. The remaining claims in Brazil relate to commercial and labor litigation with private parties. As of March 31, 2020, claims totaling approximately $105 million (using March 31, 2020 foreign currency rates) have been asserted against Aptiv in Brazil. As of March 31, 2020, the Company maintains accruals for these asserted claims of $25 million (using March 31, 2020 foreign currency rates). The amounts accrued represent claims that are deemed probable of loss and are reasonably estimable based on the Company’s analyses and assessment of the asserted claims and prior experience with similar matters. While the Company believes its accruals are adequate, the final amounts required to resolve these matters could differ materially from the Company’s recorded estimates and Aptiv’s results of operations could be materially affected. The Company estimates the reasonably possible loss in excess of the amounts accrued related to these claims to be zero to $80 million.
Environmental Matters
Aptiv is subject to the requirements of U.S. federal, state, local and non-U.S. environmental and safety and health laws and regulations. As of March 31, 2020 and December 31, 2019, the undiscounted reserve for environmental investigation and remediation was approximately $4 million (which was recorded in other long-term liabilities) and $4 million (of which $1 million was recorded in accrued liabilities and $3 million was recorded in other long-term liabilities), respectively. Aptiv cannot ensure that environmental requirements will not change or become more stringent over time or that its eventual environmental remediation costs and liabilities will not exceed the amount of its current reserves. In the event that such liabilities were to significantly exceed the amounts recorded, Aptiv’s results of operations could be materially affected. At March 31, 2020, the difference between the recorded liabilities and the reasonably possible range of potential loss was not material.
11. INCOME TAXES
At the end of each interim period, the Company makes its best estimate of the annual expected effective income tax rate and applies that rate to its ordinary year-to-date earnings or loss. The income tax provision or benefit related to unusual or infrequent items, if applicable, that will be separately reported or reported net of their related tax effects are individually computed and recognized in the interim period in which those items occur. In addition, the effect of changes in enacted tax laws or rates, tax status, judgment on the realizability of a beginning-of-the-year deferred tax asset in future years or income tax contingencies is recognized in the interim period in which the change occurs.
The computation of the annual expected effective income tax rate at each interim period requires certain estimates and assumptions including, but not limited to, the expected pre-tax income (or loss) for the year, projections of the proportion of income (and/or loss) earned and taxed in respective jurisdictions, permanent and temporary differences, and the likelihood of the realizability of deferred tax assets generated in the current year. The volatile global economic conditions resulting from the COVID-19 pandemic, the impacts of which are difficult to predict, may cause fluctuations in our expected pre-tax income (or loss) for the year, which could create volatility in our annual expected effective income tax rate. Jurisdictions with a projected loss for the year or a year-to-date loss for which no tax benefit or expense can be recognized due to a valuation allowance are excluded from the estimated annual effective tax rate. The impact of such an exclusion could result in a higher or lower effective tax rate during a particular quarter, based upon the composition and timing of actual earnings compared to annual projections. The estimates used to compute the provision or benefit for income taxes may change as new events occur, additional information is obtained or as our tax environment changes. To the extent that the expected annual effective income tax rate changes, the effect of the change on prior interim periods is included in the income tax provision in the period in which the change in estimate occurs.
The Company’s income tax expense and effective tax rate for the three months ended March 31, 2020 and 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
|
|
Income tax expense
|
|
|
|
|
$
|
10
|
|
|
$
|
33
|
|
|
Effective tax rate
|
|
|
|
|
1
|
%
|
|
12
|
%
|
The Company’s tax rate is affected by the fact that its parent entity is an Irish resident taxpayer, the tax rates in Ireland 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 is also impacted by the receipt of certain tax incentives and holidays that reduce the effective tax rate for certain subsidiaries below the statutory rate.
The Company’s effective tax rate for the three months ended March 31, 2020 includes net discrete tax benefits of $3 million, primarily related to changes in reserves, changes in accruals for unremitted earnings and provision to return adjustments. Also included as a discrete item in the effective tax rate for the three months ended March 31, 2020 is the beneficial impact of approximately 11 points resulting from the gain on the autonomous driving joint venture. The tax expense associated with the gain was insignificant as Aptiv’s aggregate autonomous driving assets were exempt from capital gains tax in the jurisdiction from which they were sold. The aggregate autonomous driving assets had been acquired, purchased or developed in taxable transactions in prior periods and reflect changes made to the corporate entity operating structure for intellectual property following the Separation of its former Powertrain Systems segment. The effective tax rate for the three months ended March 31, 2019 includes net discrete tax benefits of $10 million, primarily related to changes in reserves and provision to return adjustments.
Aptiv PLC is an Irish resident taxpayer and not a domestic corporation for U.S. federal income tax purposes. As such, it is not subject to U.S. tax on remitted foreign earnings and, as a result of its capital structure, is also generally not subject to Irish tax on the repatriation of foreign earnings.
Cash paid or withheld for income taxes was $48 million and $36 million for the three months ended March 31, 2020 and 2019, respectively.
12. SHAREHOLDERS’ EQUITY AND NET INCOME PER SHARE
Net Income Per Share
Basic net income per share is computed by dividing net income attributable to Aptiv by the weighted average number of ordinary shares outstanding during the period. Diluted net income per share reflects the weighted average dilutive impact of all potentially dilutive securities from the date of issuance and is computed using the treasury stock method by dividing net income attributable to Aptiv by the diluted weighted average number of ordinary shares outstanding during the period. For all periods presented, the calculation of net income per share contemplates the dilutive impacts, if any, of the Company’s share-based compensation plans. Refer to Note 18. Share-Based Compensation for additional information.
Weighted Average Shares
The following table illustrates net income per share attributable to Aptiv and the weighted average shares outstanding used in calculating basic and diluted income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions, except per share data)
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Aptiv
|
|
|
|
|
$
|
1,572
|
|
|
$
|
240
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average ordinary shares outstanding, basic
|
|
|
|
|
255.51
|
|
|
259.08
|
|
|
Dilutive shares related to restricted stock units (“RSUs”)
|
|
|
|
|
0.32
|
|
|
0.47
|
|
|
Weighted average ordinary shares outstanding, including dilutive shares
|
|
|
|
|
255.83
|
|
|
259.55
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share attributable to Aptiv:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
$
|
6.15
|
|
|
$
|
0.93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
$
|
6.14
|
|
|
$
|
0.92
|
|
|
Anti-dilutive securities share impact
|
|
|
|
|
—
|
|
|
—
|
|
Share Repurchase Programs
In April 2016, the Board of Directors authorized a share repurchase program of up to $1.5 billion of ordinary shares, which commenced in September 2016. This share repurchase program provides for share purchases in the open market or in privately negotiated transactions, depending on share price, market conditions and other factors, as determined by the Company.
A summary of the ordinary shares repurchased during the three months ended March 31, 2020 and 2019 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Total number of shares repurchased
|
|
|
|
|
1,059,075
|
|
|
2,840,079
|
|
|
Average price paid per share
|
|
|
|
|
$
|
53.73
|
|
|
$
|
79.57
|
|
|
Total (in millions)
|
|
|
|
|
$
|
57
|
|
|
$
|
226
|
|
As of March 31, 2020, approximately $13 million of share repurchases remained available under the April 2016 share repurchase program. All repurchased shares were retired, and are reflected as a reduction of ordinary share capital for the par value of the shares, with the excess applied as reductions to additional paid-in-capital and retained earnings.
New Share Repurchase Program
In January 2019, the Board of Directors authorized a new share repurchase program of up to $2.0 billion of ordinary shares. This share repurchase program provides for share purchases in the open market or in privately negotiated transactions, depending on share price, market conditions and other factors, as determined by the Company. This program will commence following the completion of the Company’s April 2016 share repurchase program described above. Although both the April 2016 and this new share repurchase program remain authorized, in order to preserve liquidity during the COVID-19 pandemic crisis, the Company does not anticipate executing further share repurchases until such time as the global economic uncertainties and business impacts resulting from the pandemic have abated.
Dividends
The Company has declared and paid cash dividends per ordinary share during the periods presented as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend
|
|
Amount
|
|
|
Per Share
|
|
(in millions)
|
|
2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First quarter
|
$
|
0.22
|
|
|
$
|
56
|
|
|
Total
|
$
|
0.22
|
|
|
$
|
56
|
|
|
2019:
|
|
|
|
|
Fourth quarter
|
$
|
0.22
|
|
|
$
|
56
|
|
|
Third quarter
|
0.22
|
|
|
56
|
|
|
Second quarter
|
0.22
|
|
|
57
|
|
|
First quarter
|
0.22
|
|
|
57
|
|
|
Total
|
$
|
0.88
|
|
|
$
|
226
|
|
During the first quarter of 2020, following the payment of its first quarter dividend, the Company suspended its annual cash dividend of $0.88 per ordinary share, primarily to provide additional liquidity and financial flexibility to mitigate the impacts on its business resulting from the uncertainty caused by the global spread of the COVID-19 pandemic.
13. CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The changes in accumulated other comprehensive income (loss) attributable to Aptiv (net of tax) for the three months ended March 31, 2020 and 2019 are shown below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
Foreign currency translation adjustments:
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
|
|
|
$
|
(597)
|
|
|
$
|
(555)
|
|
|
Aggregate adjustment for the period (1)
|
|
|
|
|
(126)
|
|
|
—
|
|
|
Balance at end of period
|
|
|
|
|
(723)
|
|
|
(555)
|
|
|
|
|
|
|
|
|
|
|
|
Gains (losses) on derivatives:
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
|
|
|
13
|
|
|
(35)
|
|
|
Other comprehensive income (loss) before reclassifications (net tax effect of $0 and $0)
|
|
|
|
|
(149)
|
|
|
16
|
|
|
Reclassification to income (net tax effect of $0 and $0)
|
|
|
|
|
(4)
|
|
|
3
|
|
|
Adoption of ASU 2018-02
|
|
|
|
|
—
|
|
|
(8)
|
|
|
Balance at end of period
|
|
|
|
|
(140)
|
|
|
(24)
|
|
|
|
|
|
|
|
|
|
|
|
Pension and postretirement plans:
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
|
|
|
(135)
|
|
|
(104)
|
|
|
Other comprehensive income (loss) before reclassifications (net tax effect of $1 and $0)
|
|
|
|
|
4
|
|
|
—
|
|
|
Reclassification to income (net tax effect of $1 and $1)
|
|
|
|
|
3
|
|
|
2
|
|
|
Adoption of ASU 2018-02
|
|
|
|
|
—
|
|
|
(1)
|
|
|
Balance at end of period
|
|
|
|
|
(128)
|
|
|
(103)
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss, end of period
|
|
|
|
|
$
|
(991)
|
|
|
$
|
(682)
|
|
(1)Includes gains of $6 million and $23 million for the three months ended March 31, 2020 and 2019, respectively, related to non-derivative net investment hedges. Refer to Note 14. Derivatives and Hedging Activities for further description of these hedges.
Reclassifications from accumulated other comprehensive income (loss) to income for the three months ended March 31, 2020 and 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification Out of Accumulated Other Comprehensive Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
Details About Accumulated Other Comprehensive Income Components
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
Affected Line Item in the Statements of Operations
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (losses) on derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
Commodity derivatives
|
|
|
|
|
|
$
|
(3)
|
|
|
$
|
(2)
|
|
|
Cost of sales
|
|
Foreign currency derivatives
|
|
|
|
|
|
7
|
|
|
(1)
|
|
|
Cost of sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
(3)
|
|
|
Income before income taxes
|
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
Income tax expense
|
|
|
|
|
|
|
|
4
|
|
|
(3)
|
|
|
Net income
|
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
Net income attributable to noncontrolling interest
|
|
|
|
|
|
|
|
$
|
4
|
|
|
$
|
(3)
|
|
|
Net income attributable to Aptiv
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and postretirement plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial losses
|
|
|
|
|
|
$
|
(4)
|
|
|
$
|
(3)
|
|
|
Other income (expense), net (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4)
|
|
|
(3)
|
|
|
Income before income taxes
|
|
|
|
|
|
|
|
1
|
|
|
1
|
|
|
Income tax expense
|
|
|
|
|
|
|
|
(3)
|
|
|
(2)
|
|
|
Net income
|
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
Net income attributable to noncontrolling interest
|
|
|
|
|
|
|
|
$
|
(3)
|
|
|
$
|
(2)
|
|
|
Net income attributable to Aptiv
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total reclassifications for the period
|
|
|
|
|
|
$
|
1
|
|
|
$
|
(5)
|
|
|
|
(1)These accumulated other comprehensive loss components are included in the computation of net periodic pension cost (see Note 9. Pension Benefits for additional details).
14. DERIVATIVES AND HEDGING ACTIVITIES
Cash Flow Hedges
Aptiv is exposed to market risk, such as fluctuations in foreign currency exchange rates, commodity prices and changes in interest rates, which may result in cash flow risks. To manage the volatility relating to these exposures, Aptiv aggregates the exposures on a consolidated basis to take advantage of natural offsets. For exposures that are not offset within its operations, Aptiv enters into various derivative transactions pursuant to its risk management policies, which prohibit holding or issuing derivative financial instruments for speculative purposes, and designation of derivative instruments is performed on a transaction basis to support hedge accounting. The changes in fair value of these hedging instruments are offset in part or in whole by corresponding changes in the fair value or cash flows of the underlying exposures being hedged. Aptiv assesses the initial and ongoing effectiveness of its hedging relationships in accordance with its documented policy.
As of March 31, 2020, the Company had the following outstanding notional amounts related to commodity and foreign currency forward and option contracts designated as cash flow hedges that were entered into to hedge forecasted exposures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity
|
Quantity Hedged
|
|
Unit of Measure
|
|
Notional Amount
(Approximate USD Equivalent)
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
(in millions)
|
|
Copper
|
68,189
|
|
|
pounds
|
|
$
|
160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency
|
Quantity Hedged
|
|
Unit of Measure
|
|
Notional Amount
(Approximate USD Equivalent)
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
Mexican Peso
|
14,600
|
|
|
MXN
|
|
$
|
625
|
|
|
Chinese Yuan Renminbi
|
2,341
|
|
|
RMB
|
|
330
|
|
|
Euro
|
273
|
|
|
EUR
|
|
305
|
|
|
Polish Zloty
|
512
|
|
|
PLN
|
|
125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company had additional foreign currency forward contracts designated as cash flow hedges with notional amounts that individually amounted to less than $10 million. As of March 31, 2020, Aptiv has entered into derivative instruments to hedge cash flows extending out to March 2022.
Gains and losses on derivatives qualifying as cash flow hedges are recorded in accumulated OCI, to the extent that hedges are effective, until the underlying transactions are recognized in earnings. Unrealized amounts in accumulated OCI will fluctuate based on changes in the fair value of hedge derivative contracts at each reporting period. Net losses on cash flow hedges included in accumulated OCI as of March 31, 2020 were $120 million (approximately $120 million, net of tax). Of this total, approximately $78 million of losses are expected to be included in cost of sales within the next 12 months and approximately $42 million of losses are expected to be included in cost of sales in subsequent periods. Cash flow hedges are discontinued when Aptiv determines it is no longer probable that the originally forecasted transactions will occur. Cash flows from derivatives used to manage commodity and foreign exchange risks designated as cash flow hedges are classified as operating activities within the consolidated statements of cash flows.
Net Investment Hedges
The Company is also exposed to the risk that adverse changes in foreign currency exchange rates could impact its net investment in non-U.S. subsidiaries. To manage this risk, the Company designates certain qualifying derivative and non-derivative instruments, including foreign currency forward contracts and foreign currency-denominated debt, as net investment hedges of certain non-U.S. subsidiaries. The gains or losses on instruments designated as net investment hedges are recognized within OCI to offset changes in the value of the net investment in these foreign currency-denominated operations. Gains and losses reported in accumulated OCI are reclassified to earnings only when the related currency translation adjustments are required to be reclassified, usually upon sale or liquidation of the investment. Cash flows from derivatives designated as net investment hedges are classified as investing activities within the consolidated statements of cash flows.
Since 2016, the Company has entered into a series of forward contracts, each of which have been designated as net investment hedges of the foreign currency exposure of the Company’s investments in certain Chinese Yuan Renminbi (“RMB”)-denominated subsidiaries. During the three months ended March 31, 2020 and 2019, the Company received $1 million and paid $2 million, respectively, at settlement related to these series of forward contracts which matured throughout each respective period. Refer to the tables below for details of the fair value recorded in the consolidated balance sheets and the effects recorded in the consolidated statements of operations and consolidated statements of comprehensive income related to these derivative instruments.
The Company has designated the €700 million 2015 Euro-denominated Senior Notes and the €500 million 2016 Euro-denominated Senior Notes, as more fully described in Note 8. Debt, as net investment hedges of the foreign currency exposure of its investments in certain Euro-denominated subsidiaries. Due to changes in the value of the Euro-denominated debt instruments designated as net investment hedges, during the three months ended March 31, 2020 and 2019, $6 million and $23 million of gains, respectively, were recognized within the cumulative translation adjustment component of OCI. Cumulative losses included in accumulated OCI related to these net investment hedges were $15 million as of March 31, 2020 and $21 million as of December 31, 2019.
Derivatives Not Designated as Hedges
In certain occasions the Company enters into certain foreign currency and commodity contracts that are not designated as hedges. When hedge accounting is not applied to derivative contracts, gains and losses are recorded to other income (expense), net and cost of sales in the consolidated statements of operations.
Fair Value of Derivative Instruments in the Balance Sheet
The fair value of derivative financial instruments recorded in the consolidated balance sheets as of March 31, 2020 and December 31, 2019 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
|
|
Liability Derivatives
|
|
|
|
Net Amounts of Assets and (Liabilities) Presented in the Balance Sheet
|
|
|
Balance Sheet Location
|
|
March 31,
2020
|
|
Balance Sheet Location
|
|
March 31,
2020
|
|
March 31,
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
Derivatives designated as cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
Commodity derivatives
|
Other current assets
|
|
$
|
—
|
|
|
Accrued liabilities
|
|
$
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency derivatives*
|
Accrued liabilities
|
|
7
|
|
|
Accrued liabilities
|
|
52
|
|
|
$
|
(45)
|
|
|
Commodity derivatives
|
Other long-term assets
|
|
—
|
|
|
Other long-term liabilities
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency derivatives*
|
Other long-term liabilities
|
|
—
|
|
|
Other long-term liabilities
|
|
31
|
|
|
(31)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as hedges
|
|
|
$
|
7
|
|
|
|
|
$
|
117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency derivatives*
|
Accrued liabilities
|
|
$
|
—
|
|
|
Accrued liabilities
|
|
$
|
2
|
|
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives not designated as hedges
|
|
|
$
|
—
|
|
|
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
|
|
Liability Derivatives
|
|
|
|
Net Amounts of Assets and (Liabilities) Presented in the Balance Sheet
|
|
|
Balance Sheet Location
|
|
December 31,
2019
|
|
Balance Sheet Location
|
|
December 31,
2019
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
Derivatives designated as cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
Commodity derivatives
|
Other current assets
|
|
$
|
1
|
|
|
Accrued liabilities
|
|
$
|
3
|
|
|
|
|
Foreign currency derivatives*
|
Other current assets
|
|
35
|
|
|
Other current assets
|
|
6
|
|
|
$
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity derivatives
|
Other long-term assets
|
|
2
|
|
|
Other long-term liabilities
|
|
—
|
|
|
|
|
Foreign currency derivatives*
|
Other long-term assets
|
|
8
|
|
|
Other long-term assets
|
|
2
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as hedges
|
|
|
$
|
46
|
|
|
|
|
$
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency derivatives*
|
Accrued liabilities
|
|
$
|
—
|
|
|
Accrued liabilities
|
|
$
|
1
|
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives not designated as hedges
|
|
|
$
|
—
|
|
|
|
|
$
|
1
|
|
|
|
* Derivative instruments within this category are subject to master netting arrangements and are presented on a net basis in the consolidated balance sheets in accordance with accounting guidance related to the offsetting of amounts related to certain contracts.
The fair value of Aptiv’s derivative financial instruments was in a net liability position as of March 31, 2020 and a net asset position as of December 31, 2019.
Effect of Derivatives on the Statements of Operations and Statements of Comprehensive Income
The pre-tax effect of derivative financial instruments in the consolidated statements of operations and consolidated statements of comprehensive income for the three months ended March 31, 2020 and 2019 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2020
|
(Loss) Gain Recognized in OCI
|
|
(Loss) Gain Reclassified from OCI into Income
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
Derivatives designated as cash flow hedges:
|
|
|
|
|
Commodity derivatives
|
$
|
(39)
|
|
|
$
|
(3)
|
|
|
Foreign currency derivatives
|
(111)
|
|
|
7
|
|
|
Derivatives designated as net investment hedges:
|
|
|
|
|
Foreign currency derivatives
|
1
|
|
|
—
|
|
|
Total
|
$
|
(149)
|
|
|
$
|
4
|
|
|
|
|
|
|
|
|
|
|
Loss Recognized in Income
|
|
|
|
|
|
(in millions)
|
|
Derivatives not designated:
|
|
|
|
|
|
Foreign currency derivatives
|
$
|
(2)
|
|
|
Total
|
$
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2019
|
Gain (Loss) Recognized in OCI
|
|
Loss Reclassified from OCI into Income
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
Derivatives designated as cash flow hedges:
|
|
|
|
|
Commodity derivatives
|
$
|
20
|
|
|
$
|
(2)
|
|
|
Foreign currency derivatives
|
(2)
|
|
|
(1)
|
|
|
Derivatives designated as net investment hedges:
|
|
|
|
|
Foreign currency derivatives
|
(2)
|
|
|
—
|
|
|
Total
|
$
|
16
|
|
|
$
|
(3)
|
|
|
|
|
|
|
|
|
|
|
Gain Recognized in Income
|
|
|
|
|
|
(in millions)
|
|
Derivatives not designated:
|
|
|
|
|
|
Foreign currency derivatives
|
$
|
—
|
|
|
Total
|
$
|
—
|
|
The gain or loss recognized in income for designated and non-designated derivative instruments was recorded to cost of sales and other income (expense), net in the consolidated statements of operations for the three months ended March 31, 2020 and 2019, respectively.
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair Value Measurements on a Recurring Basis
Derivative instruments—All derivative instruments are required to be reported on the balance sheet at fair value unless the transactions qualify and are designated as normal purchases or sales. Changes in fair value are reported currently through earnings unless they meet hedge accounting criteria. Aptiv’s derivative exposures are with counterparties with long-term investment grade credit ratings. Aptiv estimates the fair value of its derivative contracts using an income approach based on valuation techniques to convert future amounts to a single, discounted amount. Estimates of the fair value of foreign currency
and commodity derivative instruments are determined using exchange traded prices and rates. Aptiv also considers the risk of non-performance in the estimation of fair value, and includes an adjustment for non-performance risk in the measure of fair value of derivative instruments. The non-performance risk adjustment reflects the credit default spread (“CDS”) applied to the net commodity by counterparty and foreign currency exposures by counterparty. When Aptiv is in a net derivative asset position, the counterparty CDS rates are applied to the net derivative asset position. When Aptiv is in a net derivative liability position, estimates of peer companies’ CDS rates are applied to the net derivative liability position.
In certain instances where market data is not available, Aptiv uses management judgment to develop assumptions that are used to determine fair value. This could include situations of market illiquidity for a particular currency or commodity or where observable market data may be limited. In those situations, Aptiv generally surveys investment banks and/or brokers and utilizes the surveyed prices and rates in estimating fair value.
As of March 31, 2020 and December 31, 2019, Aptiv was in a net derivative liability position of $112 million and a net derivative asset position of $34 million, respectively, and no significant adjustments were recorded for nonperformance risk based on the application of peer companies’ CDS rates, evaluation of our own nonperformance risk and because Aptiv’s exposures were to counterparties with investment grade credit ratings. Refer to Note 14. Derivatives and Hedging Activities for further information regarding derivatives.
Contingent consideration—The liability for contingent consideration is estimated as of the date of the acquisition and is recorded as part of the purchase price, and is subsequently re-measured to fair value at each reporting date, based on a probability-weighted analysis using a rate that reflects the uncertainty surrounding the expected outcomes, which the Company believes is appropriate and representative of market participant assumptions. The measurement of the liability for contingent consideration is based on significant inputs that are not observable in the market, and is therefore classified as a Level 3 measurement in accordance with ASC Topic 820-10-35. Examples of utilized unobservable inputs are estimated future earnings or milestone achievements of the acquired businesses and applicable discount rates. The estimate of the liability may fluctuate if there are changes in the actual or forecasted inputs utilized or in the discount rates used to determine the present value of contingent future cash flows. The Company regularly reviews these assumptions and makes adjustments to the fair value measurements as required by facts and circumstances. As of March 31, 2020, the Company has determined that all earn-out provisions have been achieved under existing agreements.
As of March 31, 2020 and December 31, 2019, the liability for contingent consideration was $51 million (of which $19 million was classified within other current liabilities and $32 million was classified within other long-term liabilities) and $51 million (of which $16 million was classified within other current liabilities and $35 million was classified within other long-term liabilities), respectively, representing the maximum required amounts to be paid under existing agreements. Adjustments to this liability for interest accretion are recognized in interest expense, and any other changes in the fair value of this liability are recognized within other income (expense), net in the consolidated statements of operations.
The changes in the contingent consideration liability classified as a Level 3 measurement for the three months ended March 31, 2020 were as follows:
|
|
|
|
|
|
|
|
|
Contingent Consideration Liability
|
|
|
|
|
|
(in millions)
|
|
Fair value at beginning of period
|
$
|
51
|
|
|
Additions
|
—
|
|
|
Payments
|
—
|
|
|
Interest accretion
|
—
|
|
|
Fair value at end of period
|
$
|
51
|
|
In accordance with existing agreements, the Company was required to deposit $32 million related to the contingent consideration liability into an escrow account (of which $16 million was deposited in the second quarter of 2019 and $16 million was deposited in the first quarter of 2020). Accordingly, this amount is classified as restricted cash in the consolidated balance sheets. The remaining portion of the contingent consideration liability is required to be deposited into the escrow account in the first quarter of 2021 and all amounts are anticipated to be released from the escrow account in the fourth quarter of 2021.
As of March 31, 2020, Aptiv had no assets measured at fair value on a recurring basis and as of December 31, 2019, Aptiv had the following assets measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Quoted Prices in Active Markets
Level 1
|
|
Significant Other Observable Inputs
Level 2
|
|
Significant Unobservable Inputs
Level 3
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2019:
|
|
|
|
|
|
|
|
|
Commodity derivatives
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
3
|
|
|
$
|
—
|
|
|
Foreign currency derivatives
|
35
|
|
|
—
|
|
|
35
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
38
|
|
|
$
|
—
|
|
|
$
|
38
|
|
|
$
|
—
|
|
As of March 31, 2020 and December 31, 2019, Aptiv had the following liabilities measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Quoted Prices in Active Markets
Level 1
|
|
Significant Other Observable Inputs
Level 2
|
|
Significant Unobservable Inputs
Level 3
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
As of March 31, 2020:
|
|
|
|
|
|
|
|
|
Commodity derivatives
|
$
|
34
|
|
|
$
|
—
|
|
|
$
|
34
|
|
|
$
|
—
|
|
|
Foreign currency derivatives
|
78
|
|
|
—
|
|
|
78
|
|
|
—
|
|
|
Contingent consideration
|
51
|
|
|
—
|
|
|
—
|
|
|
51
|
|
|
Total
|
$
|
163
|
|
|
$
|
—
|
|
|
$
|
112
|
|
|
$
|
51
|
|
|
As of December 31, 2019:
|
|
|
|
|
|
|
|
|
Commodity derivatives
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
3
|
|
|
$
|
—
|
|
|
Foreign currency derivatives
|
1
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
Contingent consideration
|
51
|
|
|
—
|
|
|
—
|
|
|
51
|
|
|
Total
|
$
|
55
|
|
|
$
|
—
|
|
|
$
|
4
|
|
|
$
|
51
|
|
Non-derivative financial instruments—Aptiv’s non-derivative financial instruments include cash and cash equivalents, accounts and notes receivable, accounts payable, as well as debt, which consists of its accounts receivable factoring arrangement, finance leases and other debt issued by Aptiv’s non-U.S. subsidiaries, the Revolving Credit Facility, the Tranche A Term Loan and all series of outstanding senior notes. The fair value of debt is based on quoted market prices for instruments with public market data or significant other observable inputs for instruments without a quoted public market price (Level 2). As of March 31, 2020 and December 31, 2019, total debt was recorded at $6,224 million and $4,364 million, respectively, and had estimated fair values of $6,018 million and $4,593 million, respectively. For all other financial instruments recorded at March 31, 2020 and December 31, 2019, fair value approximates book value.
Fair Value Measurements on a Nonrecurring Basis
In addition to items that are measured at fair value on a recurring basis, Aptiv also has items in its balance sheet that are measured at fair value on a nonrecurring basis. As these items are not measured at fair value on a recurring basis, they are not included in the tables above. Nonfinancial assets and liabilities that are measured at fair value on a nonrecurring basis include certain long-lived assets, assets held for sale, equity investments, intangible assets, asset retirement obligations, share-based compensation and liabilities for exit or disposal activities measured at fair value upon initial recognition. During the three months ended March 31, 2020 and 2019, Aptiv recorded no non-cash asset impairment charges. Fair value of long-lived and intangible assets is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved and a review of appraisals or other market indicators and management estimates. As such, Aptiv has determined that the fair value measurements of long-lived and intangible assets fall in Level 3 of the fair value hierarchy.
16. OTHER INCOME, NET
Other income (expense), net included:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
Interest income
|
|
|
|
|
$
|
3
|
|
|
$
|
3
|
|
|
|
|
|
|
|
|
|
|
|
Loss on extinguishment of debt
|
|
|
|
|
—
|
|
|
(6)
|
|
|
Components of net periodic benefit cost other than service cost (Note 9)
|
|
|
|
|
(5)
|
|
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of equity investments (Note 17)
|
|
|
|
|
—
|
|
|
19
|
|
|
Other, net
|
|
|
|
|
1
|
|
|
5
|
|
|
Other (expense) income, net
|
|
|
|
|
$
|
(1)
|
|
|
$
|
16
|
|
As further discussed in Note 17. Acquisitions and Divestitures, during the three months ended March 31, 2019, Aptiv recorded a pre-tax unrealized gain of $19 million related to increases in fair value of its equity investments without readily determinable fair values. Also, as further discussed in Note 8. Debt, during the three months ended March 31, 2019, Aptiv redeemed for cash the entire $650 million aggregate principal amount outstanding of the 3.15% Senior Notes, resulting in a loss on debt extinguishment of approximately $6 million.
17. ACQUISITIONS AND DIVESTITURES
Acquisition of gabo Systemtechnik GmbH
On November 19, 2019, Aptiv acquired 100% of the equity interests of gabo Systemtechnik GmbH (“gabocom”), a leading provider of highly-engineered cable management and protection solutions for the telecommunications industry, for total consideration of $311 million, net of cash acquired. The results of operations of gabocom are reported within the Signal and Power Solutions segment from the date of acquisition. The Company acquired gabocom utilizing cash on hand.
The acquisition was accounted for as a business combination, with the total purchase price allocated on a preliminary basis using information available, in the fourth quarter of 2019. The preliminary purchase price and related allocation to the acquired net assets of gabocom based on their estimated fair values is shown below (in millions):
Assets acquired and liabilities assumed
|
|
|
|
|
|
|
|
Purchase price, cash consideration, net of cash acquired
|
$
|
311
|
|
|
|
|
|
Property, plant and equipment
|
$
|
25
|
|
|
Intangible assets
|
75
|
|
|
Other liabilities, net
|
(11)
|
|
|
Identifiable net assets acquired
|
89
|
|
|
Goodwill resulting from purchase
|
222
|
|
|
Total purchase price allocation
|
$
|
311
|
|
Intangible assets include $66 million recognized for the fair value of customer-based assets with estimated useful lives of approximately 9 years and $9 million recognized for the fair value of the acquired trade name, which has an estimated useful life of approximately 15 years. The estimated fair value of these assets was based on third-party valuations and management’s estimates, generally utilizing income and market approaches. Goodwill recognized in this transaction is primarily attributable to synergies expected to arise after the acquisition and the assembled workforce of gabocom, and is not deductible for tax purposes.
The purchase price and related allocation are preliminary and could be revised as a result of adjustments made to the purchase price, additional information obtained regarding liabilities assumed, including, but not limited to, contingent liabilities, revisions of provisional estimates of fair values, including, but not limited to, the completion of independent appraisals and valuations related to property, plant and equipment and intangible assets, and certain tax attributes.
The pro forma effects of this acquisition would not materially impact the Company’s reported results for any period presented, and as a result no pro forma financial statements were presented.
Acquisition of Falmat Inc.
On May 14, 2019, Aptiv acquired 100% of the equity interests of Falmat Inc. (“Falmat”), a leading manufacturer of high performance custom cable and cable assemblies for industrial applications, for total consideration of $25 million, net of cash acquired. The results of operations of Falmat are reported within the Signal and Power Solutions segment from the date of acquisition. The Company acquired Falmat utilizing cash on hand.
The acquisition was accounted for as a business combination, with the total purchase price allocated on a preliminary basis using information available, in the second quarter of 2019. The preliminary purchase price and related allocation to the acquired net assets of Falmat based on their estimated fair values is shown below (in millions):
Assets acquired and liabilities assumed
|
|
|
|
|
|
|
|
Purchase price, cash consideration, net of cash acquired
|
$
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets
|
$
|
12
|
|
|
Other assets, net
|
6
|
|
|
Identifiable net assets acquired
|
18
|
|
|
Goodwill resulting from purchase
|
7
|
|
|
Total purchase price allocation
|
$
|
25
|
|
Intangible assets primarily include amounts recognized for the fair value of customer-based assets, which will be amortized over their estimated useful lives of approximately 9 years. The estimated fair value of these assets was based on third-party valuations and management’s estimates, generally utilizing income and market approaches. Goodwill recognized in this transaction is primarily attributable to synergies expected to arise after the acquisition and the assembled workforce of Falmat, and is not deductible for tax purposes.
The purchase price and related allocation are preliminary and could be revised as a result of adjustments made to the purchase price, additional information obtained regarding liabilities assumed, including, but not limited to, contingent liabilities, revisions of provisional estimates of fair values, including, but not limited to, the completion of independent appraisals and valuations related to property, plant and equipment and intangible assets, and certain tax attributes.
The pro forma effects of this acquisition would not materially impact the Company’s reported results for any period presented, and as a result no pro forma financial statements were presented.
Acquisition of Dynawave Inc.
In March 2020, Aptiv agreed to acquire Dynawave Inc. (“Dynawave”), a specialized manufacturer of custom-engineered interconnect solutions for a wide range of industries, for total consideration of approximately $22 million. The acquisition is subject to the satisfaction of customary closing conditions and the receipt of regulatory and other approvals, and is expected to close by the third quarter of 2020. The Company expects to acquire Dynawave primarily utilizing cash on hand. Upon completion, Dynawave will become part of the Signal and Power Solutions segment.
Technology Investments
The Company has made technology investments in certain non-consolidated affiliates for ownership interests of less than 20%, as described in Note 2. Significant Accounting Policies. These investments do not have readily determinable fair values and are measured at cost, less impairments, adjusted for observable price changes in orderly transactions for identical or similar investments of the same issuer.
During the fourth quarter of 2019, the Company’s Advanced Safety and User Experience segment made a $6 million investment in Krono-Safe, SAS, a leading software developer of safety-critical real-time embedded systems.
During the first quarter of 2019, the Company’s Advanced Safety and User Experience segment made an additional $3 million investment in Otonomo Technologies Ltd. (“Otonomo”), a connected car data marketplace developer. This investment was in addition to the Company’s $15 million investment made in the first quarter of 2017.
As of March 31, 2020, the Company had the following technology investments, which are classified within other long-term assets in the consolidated balance sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Name
|
|
|
Segment
|
|
|
Investment Date
|
|
|
Investment
(in millions)
|
|
Krono-Safe, SAS
|
|
Advanced Safety and User Experience
|
|
|
Q4 2019
|
|
|
$
|
6
|
|
|
Affectiva, Inc.
|
|
Advanced Safety and User Experience
|
|
|
Q4 2018
|
|
|
15
|
|
|
Innoviz Technologies
|
|
Advanced Safety and User Experience
|
|
|
Q3 2017
|
|
|
15
|
|
|
LeddarTech, Inc.
|
|
Advanced Safety and User Experience
|
|
|
Q3 2017
|
|
|
10
|
|
|
Valens Semiconductor Ltd.
|
|
Signal and Power Solutions
|
|
|
Q2 2017
|
|
|
10
|
|
|
Otonomo Technologies Ltd.
|
|
Advanced Safety and User Experience
|
|
|
Q1 2017; Q1 2019
|
|
|
37
|
|
|
Quanergy Systems, Inc
|
|
Advanced Safety and User Experience
|
|
|
Q2 2015; Q1 2016
|
|
|
6
|
|
|
Other investments
|
|
Advanced Safety and User Experience
|
|
|
Q4 2018; Q3 2019
|
|
|
2
|
|
|
|
|
|
|
|
|
|
$
|
101
|
|
During the three months ended March 31, 2019, the Company’s investment in Otonomo was remeasured to a fair value of $37 million, based on a subsequent round of financing observed to be for identical or similar investments of the same issuer. As a result, the Company recorded a pre-tax unrealized gain of $19 million to other income, net during the three months ended March 31, 2019.
There were no other material transactions, events or changes in circumstances requiring an impairment or an observable price change adjustment to these investments. The Company continues to monitor these investments to identify potential transactions which may indicate an impairment or an observable price change requiring an adjustment to its carrying value.
Autonomous Driving Joint Venture
On March 26, 2020, Aptiv completed the transaction with Hyundai Motor Group (“Hyundai”) to form a new joint venture focused on the design, development and commercialization of autonomous driving technologies. Under the terms of the agreement, Aptiv contributed to the joint venture autonomous driving technology, intellectual property and approximately 700 employees for a 50% ownership interest in the newly formed entity. Hyundai contributed to the joint venture approximately $1.6 billion in cash, along with vehicle engineering services, research and development resources and access to intellectual property for a 50% ownership interest in the newly formed entity. As a result, subsequent to the closing of the transaction, the newly formed joint venture is expected to fund all of its future operating expenses and investments in autonomous driving technologies for the foreseeable future. Consequently, Aptiv is no longer required to fund these investments and expenses, which approximated $180 million for the year ended December 31, 2019 prior to the joint venture formation. Upon closing of the transaction, Aptiv deconsolidated the carrying value of the associated assets and liabilities contributed to the joint venture, previously classified as held for sale, and recognized an asset of approximately $2.0 billion within Investments in affiliates in the consolidated balance sheet, based on the preliminary fair value of its investment in the newly formed joint venture. The Company recognized a pre-tax gain of approximately $1.4 billion in the consolidated statement of operations (approximately $5.63 per diluted share during the three months ended March 31, 2020), net of transaction costs of $22 million, based on the difference between the carrying value of its contribution to the joint venture and the preliminary fair value of its investment in the newly formed entity. The estimated fair value of Aptiv’s ownership interest in the newly formed joint venture was determined primarily based on third-party valuations and management estimates, generally utilizing income and market approaches. The estimated fair value is preliminary and could be revised as a result of additional information obtained or adjustments made due to the completion of independent appraisals and valuations. The effects of this transaction would not materially impact the Company’s reported results for any period presented, and the transaction did not meet the criteria to be reflected as a discontinued operation.
In connection with the closing of the transaction, Aptiv and the newly formed entity entered into various agreements to facilitate an orderly transition and to provide a framework for their relationship going forward, which included a transition services agreement. The transition services primarily involve Aptiv providing certain administrative services to the joint venture for a period of up to 24 months after the closing date. These agreements are not material to Aptiv. The Company will account for its investment in the newly formed entity prospectively using the equity method of accounting.
The Company determined that the assets and liabilities associated with Aptiv’s contribution to the joint venture, which were reported within the Advanced Safety and User Experience segment, met the held for sale criteria as of December 31, 2019. Accordingly, the held for sale assets and liabilities were reclassified in the consolidated balance sheet as of December 31, 2019 to current assets held for sale and current liabilities held for sale, respectively, as the contribution of such assets and liabilities to
the joint venture was expected to occur within one year. Upon designation as held for sale, the Company ceased recording depreciation of the held for sale assets.
Assets and liabilities classified as held for sale are required to be recorded at the lower of carrying value or fair value less costs to sell. The estimated fair value less costs to sell of Aptiv’s contribution to the joint venture exceeded its carrying value as of December 31, 2019, and therefore no adjustment to these long-lived assets was necessary.
As a result of the completion of the transaction on March 26, 2020, there were no assets or liabilities held for sale as of March 31, 2020. The following table summarizes the carrying value of the major classes of assets and liabilities held for sale as of December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
Cash and cash equivalents
|
$
|
1
|
|
|
|
|
Accounts receivable, net
|
1
|
|
|
|
|
|
|
|
|
|
Property, net
|
64
|
|
|
|
|
Operating lease right-of-use assets
|
12
|
|
|
|
|
Intangible assets, net
|
126
|
|
|
|
|
Goodwill
|
318
|
|
|
|
|
Other assets
|
10
|
|
|
|
|
Total assets held for sale
|
$
|
532
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
$
|
9
|
|
|
|
|
Accrued liabilities
|
19
|
|
|
|
|
Long-term operating lease liabilities
|
10
|
|
|
|
|
Other liabilities
|
5
|
|
|
|
|
Total liabilities held for sale
|
$
|
43
|
|
|
|
The pre-tax loss of Aptiv’s autonomous driving operations contributed to the joint venture on March 26, 2020, included within Aptiv’s consolidated operating results, were $41 million and $41 million for the three months ended March 31, 2020 and 2019, respectively.
18. SHARE-BASED COMPENSATION
Long-Term Incentive Plan
The Aptiv PLC Long-Term Incentive Plan, as amended and restated effective April 23, 2015 (the “PLC LTIP”), allows for the grant of awards of up to 25,665,448 ordinary shares for long-term compensation. The PLC LTIP is designed to align the interests of management and shareholders. The awards can be in the form of shares, options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”), performance awards and other share-based awards to the employees, directors, consultants and advisors of the Company. The Company has awarded annual long-term grants of RSUs under the PLC LTIP in each year from 2012 to 2020 in order to align management compensation with Aptiv’s overall business strategy. The Company has competitive and market-appropriate ownership requirements. All of the RSUs granted under the PLC LTIP are eligible to receive dividend equivalents for any dividend paid from the grant date through the vesting date. Dividend equivalents are generally paid out in ordinary shares upon vesting of the underlying RSUs. Historical amounts disclosed within this note include amounts attributable to the Company’s discontinued operations, unless otherwise noted, and for activity prior to December 4, 2017 represent awards based on shares of Delphi Automotive PLC.
Board of Director Awards
On April 26, 2018, Aptiv granted 22,676 RSUs to the Board of Directors at a grant date fair value of approximately $2 million. The grant date fair value was determined based on the closing price of the Company’s ordinary shares on April 26, 2018. The RSUs vested on April 24, 2019, and 23,999 ordinary shares, which included shares issued in connection with dividend equivalents, were issued to members of the Board of Directors at a fair value of approximately $2 million. 3,228 ordinary shares were withheld to cover withholding taxes.
On April 25, 2019, Aptiv granted 20,765 RSUs to the Board of Directors at a grant date fair value of approximately $2 million. The grant date fair value was determined based on the closing price of the Company’s ordinary shares on April 25, 2019. The RSUs vested on April 22, 2020, and 23,816 ordinary shares, which included shares issued in connection with dividend equivalents, were issued to members of the Board of Directors at a fair value of approximately $1 million. 2,041 ordinary shares were withheld to cover withholding taxes.
On April 23, 2020, Aptiv granted 48,745 RSUs to the Board of Directors at a grant date fair value of approximately $3 million. The grant date fair value was determined based on the closing price of the Company’s ordinary shares on April 23, 2020. The RSUs will vest on April 29, 2021, the day before the 2021 Annual General Meeting of Shareholders.
Executive Awards
Aptiv has made annual grants of RSUs to its executives in February of each year beginning in 2012. These awards include a time-based vesting portion and a performance-based vesting portion, as well as continuity awards in certain years. The time-based RSUs, which make up 25% of the awards for Aptiv’s officers and 50% for Aptiv’s other executives, vest ratably over three years beginning on the first anniversary of the grant date. The performance-based RSUs, which make up 75% of the awards for Aptiv’s officers and 50% for Aptiv’s other executives, vest at the completion of a three-year performance period if certain targets are met. Each executive will receive between 0% and 200% of his or her target performance-based award based on the Company’s performance against established company-wide performance metrics, which are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Metric
|
2020
Grant
|
|
|
2016 - 2019
Grants
|
|
Average return on net assets (1)
|
33%
|
|
|
50%
|
|
Cumulative net income
|
33%
|
|
|
25%
|
|
|
|
|
|
|
|
Relative total shareholder return (2)
|
33%
|
|
|
25%
|
(1)Average return on net assets is measured by tax-affected operating income divided by average net working capital plus average net property, plant and equipment for each calendar year during the respective performance period.
(2)Relative total shareholder return is measured by comparing the average closing price per share of the Company’s ordinary shares for the specified trading days in the fourth quarter of the end of the performance period to the average closing price per share of the Company’s ordinary shares for the specified trading days in the fourth quarter of the year preceding the grant, including dividends, and assessed against a comparable measure of competitor and peer group companies.
The details of the executive grants were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant Date
|
|
RSUs Granted
|
|
Grant Date Fair Value
|
|
Time-Based Award Vesting Dates
|
|
Performance-Based Award Vesting Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 2016
|
|
0.71
|
|
|
$
|
48
|
|
|
Annually on anniversary of grant date, 2017 - 2019
|
|
December 31, 2018
|
|
February 2017
|
|
0.80
|
|
|
63
|
|
|
Annually on anniversary of grant date, 2018 - 2020
|
|
December 31, 2019
|
|
February 2018
|
|
0.63
|
|
|
61
|
|
|
Annually on anniversary of grant date, 2019 - 2021
|
|
December 31, 2020
|
|
February 2019
|
|
0.71
|
|
|
62
|
|
|
Annually on anniversary of grant date, 2020 - 2022
|
|
December 31, 2021
|
|
February 2020
|
|
0.75
|
|
|
62
|
|
|
Annually on anniversary of grant date, 2021 - 2023
|
|
December 31, 2022
|
The grant date fair value of the RSUs is determined based on the target number of awards issued, the closing price of the Company’s ordinary shares on the date of the grant of the award, including an estimate for forfeitures, and a contemporaneous valuation performed by an independent valuation specialist with respect to the relative total shareholder return awards.
Any new executives hired after the annual executive RSU grant date may be eligible to participate in the PLC LTIP. The Company has also granted additional awards to employees in certain periods under the PLC LTIP. Any off cycle grants made for new hires or to other employees are valued at their grant date fair value based on the closing price of the Company’s ordinary shares on the date of such grant.
In February 2019, under the time-based vesting terms of the outstanding awards, 529,812 ordinary shares were issued to Aptiv employees at a fair value of approximately $44 million, of which 203,839 ordinary shares were withheld to cover withholding taxes. The performance-based RSUs associated with the 2016 grant, and applicable continuity awards, vested at the completion of a three-year performance period on December 31, 2018, and in the first quarter of 2019, 493,674 ordinary shares were issued to employees at a fair value of approximately $41 million, of which 199,547 ordinary shares were withheld to cover withholding taxes.
In February 2020, under the time-based vesting terms of the outstanding awards, 468,240 ordinary shares were issued to Aptiv employees at a fair value of approximately $37 million, of which 181,495 ordinary shares were withheld to cover
withholding taxes. The performance-based RSUs associated with the 2017 grant vested at the completion of a three-year performance period on December 31, 2019, and in the first quarter of 2020, 580,390 ordinary shares were issued to employees at a fair value of approximately $45 million, of which 243,080 ordinary shares were withheld to cover withholding taxes.
A summary of RSU activity, including award grants, vesting and forfeitures is provided below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs
|
|
Weighted Average Grant Date Fair Value
|
|
|
(in thousands)
|
|
|
|
Nonvested, January 1, 2020
|
1,822
|
|
|
$
|
89.32
|
|
|
Granted
|
792
|
|
|
82.37
|
|
|
Vested
|
(468)
|
|
|
80.42
|
|
|
Forfeited
|
(39)
|
|
|
87.89
|
|
|
Nonvested, March 31, 2020
|
2,107
|
|
|
88.71
|
|
During the three months ended March 31, 2020 and 2019, Aptiv recognized a benefit from share based compensation of $1 million ($1 million, net of tax) and share based compensation expense of $15 million ($15 million, net of tax), respectively, based on the Company’s best estimate of ultimate performance against the respective targets. Aptiv will continue to recognize compensation expense, based on the grant date fair value of the awards applied to the Company’s best estimate of ultimate performance against the respective targets, over the requisite vesting periods of the awards. Based on the grant date fair value of the awards and the Company’s best estimate of ultimate performance against the respective targets as of March 31, 2020, unrecognized compensation expense on a pre-tax basis of approximately $97 million is anticipated to be recognized over a weighted average period of approximately 2 years. For the three months ended March 31, 2020 and 2019, approximately $32 million and $34 million, respectively, of cash was paid and reflected as a financing activity in the statements of cash flows related to the tax withholding for vested RSUs.
19. SEGMENT REPORTING
Aptiv operates its core business along the following operating segments, which are grouped on the basis of similar product, market and operating factors:
•Signal and Power Solutions, which includes complete electrical architecture and component products.
•Advanced Safety and User Experience, which includes component and systems integration expertise in advanced safety, user experience and connectivity and security solutions, as well as advanced software development and autonomous driving technologies.
•Eliminations and Other, which includes i) the elimination of inter-segment transactions, and ii) certain other expenses and income of a non-operating or strategic nature.
The accounting policies of the segments are the same as those described in Note 2. Significant Accounting Policies, except that the disaggregated financial results for the segments have been prepared using a management approach, which is consistent with the basis and manner in which management internally disaggregates financial information for which Aptiv’s chief operating decision maker regularly reviews financial results to assess performance of, and make internal operating decisions about allocating resources to, the segments.
Generally, Aptiv evaluates segment performance based on stand-alone segment net income before interest expense, other income (expense), net, income tax expense, equity income (loss), net of tax, restructuring, 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), asset impairments, gains (losses) on business divestitures and other transactions and deferred compensation related to acquisitions (“Adjusted Operating Income”) and accounts for inter-segment sales and transfers as if the sales or transfers were to third parties, at current market prices. Aptiv’s management utilizes Adjusted Operating Income as the key performance measure of segment income or loss to evaluate segment performance, and for planning and forecasting purposes to allocate resources to the segments, as management believes this measure is most reflective of the operational profitability or loss of Aptiv’s operating segments. Segment 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 Aptiv, which is the most directly comparable financial measure to Adjusted Operating Income that is prepared in accordance with U.S. GAAP. Segment Adjusted Operating Income, as determined and measured by Aptiv, should also not be compared to similarly titled measures reported by other companies.
Included below are sales and operating data for Aptiv’s segments for the three months ended March 31, 2020 and 2019, as well as balance sheet data as of March 31, 2020 and December 31, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Signal and Power Solutions
|
|
|
|
Advanced Safety and User Experience
|
|
Eliminations and Other (1)
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
2,330
|
|
|
|
|
$
|
902
|
|
|
$
|
(6)
|
|
|
$
|
3,226
|
|
|
Depreciation and amortization
|
|
$
|
139
|
|
|
|
|
$
|
41
|
|
|
$
|
—
|
|
|
$
|
180
|
|
|
Adjusted operating income
|
$
|
225
|
|
|
|
|
$
|
6
|
|
|
$
|
—
|
|
|
$
|
231
|
|
|
Operating income (2)
|
|
$
|
199
|
|
|
|
|
$
|
1,420
|
|
|
$
|
—
|
|
|
$
|
1,619
|
|
|
Equity income (loss), net of tax
|
|
$
|
3
|
|
|
|
|
$
|
(1)
|
|
|
$
|
—
|
|
|
$
|
2
|
|
|
Net loss attributable to noncontrolling interest
|
$
|
(5)
|
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Signal and Power Solutions
|
|
|
|
Advanced Safety and User Experience
|
|
Eliminations and Other (1)
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
2,562
|
|
|
|
|
$
|
1,023
|
|
|
$
|
(10)
|
|
|
$
|
3,575
|
|
|
Depreciation and amortization
|
|
$
|
131
|
|
|
|
|
$
|
42
|
|
|
$
|
—
|
|
|
$
|
173
|
|
|
Adjusted operating income
|
$
|
283
|
|
|
|
|
$
|
62
|
|
|
$
|
—
|
|
|
$
|
345
|
|
|
Operating income
|
|
$
|
257
|
|
|
|
|
$
|
40
|
|
|
$
|
—
|
|
|
$
|
297
|
|
|
Equity income, net of tax
|
|
$
|
3
|
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3
|
|
|
Net income attributable to noncontrolling interest
|
$
|
5
|
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5
|
|
(1)Eliminations and Other includes the elimination of inter-segment transactions.
(2)Includes a pre-tax gain of $1.4 billion within Advanced Safety and User Experience for the completion of the autonomous driving joint venture. Refer to Note 17. Acquisitions and Divestitures for additional information.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Signal and Power Solutions
|
|
|
|
Advanced Safety and User Experience
|
|
Eliminations and Other (1)
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
Investment in affiliates (2)
|
|
$
|
91
|
|
|
|
|
$
|
1,999
|
|
|
$
|
—
|
|
|
$
|
2,090
|
|
|
Goodwill
|
|
$
|
2,363
|
|
|
|
|
$
|
26
|
|
|
$
|
—
|
|
|
$
|
2,389
|
|
|
Total segment assets (2)
|
$
|
12,444
|
|
|
|
|
$
|
6,980
|
|
|
$
|
(3,257)
|
|
|
$
|
16,167
|
|
|
Balance as of December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
Investment in affiliates
|
|
$
|
106
|
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
106
|
|
|
Goodwill
|
|
$
|
2,381
|
|
|
|
|
$
|
26
|
|
|
$
|
—
|
|
|
$
|
2,407
|
|
|
Total segment assets
|
|
$
|
12,726
|
|
|
|
|
$
|
4,988
|
|
|
$
|
(4,255)
|
|
|
$
|
13,459
|
|
(1)Eliminations and Other includes the elimination of inter-segment transactions.
(2)Includes $2.0 billion within Advanced Safety and User Experience for the preliminary fair value of the investment in the autonomous driving joint venture. Refer to Note 17. Acquisitions and Divestitures for additional information.
The reconciliation of Adjusted Operating Income to operating income includes, as applicable, restructuring, 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), asset impairments, gains (losses) on business divestitures and other transactions and deferred compensation related to acquisitions. The reconciliations of Adjusted Operating Income to net income attributable to Aptiv for the three months ended March 31, 2020 and 2019 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Signal and Power Solutions
|
|
|
|
Advanced Safety and User Experience
|
|
Eliminations and Other
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
Adjusted operating income
|
$
|
225
|
|
|
|
|
$
|
6
|
|
|
$
|
—
|
|
|
$
|
231
|
|
|
Restructuring
|
(19)
|
|
|
|
|
(9)
|
|
|
—
|
|
|
(28)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other acquisition and portfolio project costs
|
(7)
|
|
|
|
|
(7)
|
|
|
—
|
|
|
(14)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation related to nuTonomy acquisition
|
—
|
|
|
|
|
(4)
|
|
|
—
|
|
|
(4)
|
|
|
Gain on business divestitures and other transactions
|
—
|
|
|
|
|
1,434
|
|
|
—
|
|
|
1,434
|
|
|
Operating income
|
$
|
199
|
|
|
|
|
$
|
1,420
|
|
|
$
|
—
|
|
|
1,619
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
(43)
|
|
|
Other expense, net
|
|
|
|
|
|
|
|
|
(1)
|
|
|
Income before income taxes and equity income
|
|
|
|
|
|
|
|
|
1,575
|
|
|
Income tax expense
|
|
|
|
|
|
|
|
|
(10)
|
|
|
Equity income, net of tax
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
1,567
|
|
|
Net loss attributable to noncontrolling interest
|
|
|
|
|
|
|
|
|
(5)
|
|
|
Net income attributable to Aptiv
|
|
|
|
|
|
|
|
|
$
|
1,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Signal and Power Solutions
|
|
|
|
Advanced Safety and User Experience
|
|
Eliminations and Other
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
Adjusted operating income
|
$
|
283
|
|
|
|
|
$
|
62
|
|
|
$
|
—
|
|
|
$
|
345
|
|
|
Restructuring
|
(19)
|
|
|
|
|
(7)
|
|
|
—
|
|
|
(26)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other acquisition and portfolio project costs
|
(7)
|
|
|
|
|
(4)
|
|
|
—
|
|
|
(11)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation related to nuTonomy acquisition
|
—
|
|
|
|
|
(11)
|
|
|
—
|
|
|
(11)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
$
|
257
|
|
|
|
|
$
|
40
|
|
|
$
|
—
|
|
|
297
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
(38)
|
|
|
Other income, net
|
|
|
|
|
|
|
|
|
16
|
|
|
Income before income taxes and equity income
|
|
|
|
|
|
|
|
|
275
|
|
|
Income tax expense
|
|
|
|
|
|
|
|
|
(33)
|
|
|
Equity income, net of tax
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
245
|
|
|
Net income attributable to noncontrolling interest
|
|
|
|
|
|
|
|
|
5
|
|
|
Net income attributable to Aptiv
|
|
|
|
|
|
|
|
|
$
|
240
|
|
20. REVENUE
Revenue is recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. Accordingly, revenue is measured based on consideration specified in a contract with a customer. Customer contracts generally are represented by a combination of a current purchase order and a current production schedule issued by the customer. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer. From time to time, Aptiv enters into pricing agreements with its customers that provide for price reductions, some of which are conditional upon achieving certain joint cost savings targets. In these instances, revenue is recognized based on the agreed-upon price at the time of shipment.
Sales incentives and allowances are recognized as a reduction to revenue at the time of the related sale. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction that are collected by Aptiv from a customer are excluded from revenue. Shipping and handling fees billed to customers are included in net sales, while costs of shipping and handling are included in cost of sales.
Nature of Goods and Services
The principal activity from which the Company generates its revenue is the manufacturing of production parts for OEM customers. Aptiv recognizes revenue at a point in time, rather than over time, as the performance obligation is satisfied when customers obtain control of the product upon title transfer and not as the product is manufactured or developed.
Aptiv recognizes revenue for production parts at a point in time as title transfers to the customer. Although production parts are highly customized with no alternative use, Aptiv does not have an enforceable right to payment as customers have the right to cancel a product program without a notification period. The amount of revenue recognized is based on the purchase order price and adjusted for revenue allocated to variable consideration (i.e. estimated rebates and price discounts), as applicable. Customers typically pay for production parts based on customary business practices with payment terms averaging 60 days.
Disaggregation of Revenue
Revenue generated from Aptiv’s operating segments is disaggregated by primary geographic market in the following tables for the three months ended March 31, 2020 and 2019. Information concerning geographic market reflects the manufacturing location.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, 2020:
|
Signal and Power Solutions
|
|
Advanced Safety and User Experience
|
|
Eliminations and Other
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
Geographic Market
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
$
|
1,005
|
|
|
$
|
292
|
|
|
$
|
—
|
|
|
$
|
1,297
|
|
|
Europe, Middle East and Africa
|
778
|
|
|
443
|
|
|
(3)
|
|
|
1,218
|
|
|
Asia Pacific
|
492
|
|
|
167
|
|
|
(3)
|
|
|
656
|
|
|
South America
|
55
|
|
|
—
|
|
|
—
|
|
|
55
|
|
|
Total net sales
|
$
|
2,330
|
|
|
$
|
902
|
|
|
$
|
(6)
|
|
|
$
|
3,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, 2019:
|
Signal and Power Solutions
|
|
Advanced Safety and User Experience
|
|
Eliminations and Other
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
Geographic Market
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
$
|
1,096
|
|
|
$
|
326
|
|
|
$
|
(1)
|
|
|
$
|
1,421
|
|
|
Europe, Middle East and Africa
|
789
|
|
|
443
|
|
|
(3)
|
|
|
1,229
|
|
|
Asia Pacific
|
622
|
|
|
254
|
|
|
(6)
|
|
|
870
|
|
|
South America
|
55
|
|
|
—
|
|
|
—
|
|
|
55
|
|
|
Total net sales
|
$
|
2,562
|
|
|
$
|
1,023
|
|
|
$
|
(10)
|
|
|
$
|
3,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract Balances
Consistent with the recognition of production parts revenue at a point in time as title transfers to the customer, Aptiv has no contract assets or contract liabilities balances as of March 31, 2020 or December 31, 2019.
Outstanding Performance Obligations
As customer contracts generally are represented by a combination of a current purchase order and a current production schedule issued by the customer for a production part, there are no contracts outstanding beyond one year. Aptiv does not enter into fixed long-term supply agreements.
As permitted, Aptiv does not disclose information about remaining performance obligations that have original expected durations of one year or less.
Costs to Obtain a Contract
From time to time, Aptiv makes payments to customers in conjunction with ongoing business. These payments to customers are generally recognized as a reduction to revenue at the time of the commitment to make these payments. However, certain other payments to customers, or upfront fees, meet the criteria to be considered a cost to obtain a contract as they are directly attributable to a contract, are incremental and management expects the fees to be recoverable. As of March 31, 2020 and December 31, 2019, Aptiv has recorded $104 million (of which $20 million was classified within other current assets and $84 million was classified within other long-term assets) and $99 million (of which $20 million was classified within other current assets and $79 million was classified within other long-term assets), respectively, related to these capitalized upfront fees.
Capitalized upfront fees are amortized to revenue based on the transfer of goods and services to the customer for which the upfront fees relate, which typically range from three to five years. There have been no impairment losses in relation to the costs capitalized. The amount of amortization to net sales was $4 million and $3 million for the three months ended March 31, 2020 and 2019, respectively.
21. LEASES
Lease Portfolio
The Company has operating and finance leases for real estate, office equipment, automobiles, forklifts and certain other equipment. The Company's leases have remaining lease terms of 1 year to 30 years, some of which include options to extend the leases for up to 8 years, and some of which include options to terminate the leases within 1 year. Certain of our lease agreements include rental payments which are adjusted periodically for inflation. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. When available, we use the rate implicit in the lease to discount lease payments to present value; however, most of our leases do not provide a readily determinable implicit rate. Therefore, we must estimate our incremental borrowing rate to discount the lease payments based on information available at lease commencement. The incremental borrowing rate is not a quoted rate and is derived by applying a spread over U.S. Treasury rates with a similar duration to the Company’s lease payments. The spread utilized is based on the Company’s credit rating and the impact of full collateralization.
Related Party Lease Agreement
In connection with the closing of the autonomous driving joint venture, as further discussed in Note 17. Acquisitions and Divestitures, Aptiv agreed to sublease certain office space to the newly formed entity with a remaining lease term of approximately 9 years. Total income under the agreement was less than $1 million during the three months ended March 31, 2020. The sublease income and Aptiv’s associated operating lease cost are recorded to cost of sales in the consolidated statement of operations. The Company believes the terms of the lease agreement have not significantly been affected by the fact the Company and the lessee are related parties.
The components of lease expense were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
Lease cost:
|
|
|
|
|
Finance lease cost:
|
|
|
|
|
Amortization of right-of-use assets
|
$
|
1
|
|
|
$
|
1
|
|
|
Interest on lease liabilities
|
—
|
|
|
—
|
|
|
Total finance lease cost
|
1
|
|
|
1
|
|
|
Operating lease cost
|
27
|
|
|
29
|
|
|
Short-term lease cost
|
4
|
|
|
1
|
|
|
Variable lease cost
|
—
|
|
|
1
|
|
|
Sublease income (1)
|
—
|
|
|
—
|
|
|
Total lease cost
|
$
|
32
|
|
|
$
|
32
|
|
(1)Sublease income excludes rental income from owned properties of $3 million and $3 million for the three months ended March 31, 2020 and 2019, respectively, which is included in other income, net.
Supplemental cash flow and other information related to leases was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
|
|
Operating cash flows for finance leases
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Operating cash flows for operating leases
|
|
|
28
|
|
|
27
|
|
|
Financing cash flows for finance leases
|
|
|
1
|
|
|
1
|
|
|
Right-of-use assets obtained in exchange for lease obligations:
|
|
|
|
|
|
|
Operating leases
|
|
|
$
|
6
|
|
|
$
|
36
|
|
|
Finance leases
|
|
|
—
|
|
|
—
|
|
Supplemental balance sheet information related to leases was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2020
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
|
|
Operating leases:
|
|
|
|
|
|
|
Operating lease right-of-use assets
|
|
|
$
|
393
|
|
|
$
|
413
|
|
|
Accrued liabilities (Note 5)
|
|
|
$
|
93
|
|
|
$
|
94
|
|
|
Long-term operating lease liabilities
|
|
|
308
|
|
|
329
|
|
|
Total operating lease liabilities
|
|
|
$
|
401
|
|
|
$
|
423
|
|
|
|
|
|
|
|
|
|
Finance leases:
|
|
|
|
|
|
|
Property and equipment
|
|
|
$
|
30
|
|
|
$
|
30
|
|
|
Less: accumulated depreciation
|
|
|
(10)
|
|
|
(9)
|
|
|
Total property, net
|
|
|
$
|
20
|
|
|
$
|
21
|
|
|
Short-term debt (Note 8)
|
|
|
$
|
4
|
|
|
$
|
4
|
|
|
Long-term debt (Note 8)
|
|
|
17
|
|
|
18
|
|
|
Total finance lease liabilities
|
|
|
$
|
21
|
|
|
$
|
22
|
|
|
|
|
|
|
|
|
|
Weighted average remaining lease term:
|
|
|
|
|
|
|
Operating leases
|
|
|
6 years
|
|
|
6 years
|
|
|
Finance leases
|
|
|
6 years
|
|
|
6 years
|
|
|
|
|
|
|
|
|
|
Weighted average discount rate:
|
|
|
|
|
|
|
Operating leases
|
|
|
3.5
|
%
|
|
3.5
|
%
|
|
Finance leases
|
|
|
4.0
|
%
|
|
4.0
|
%
|
Additionally, the Company reclassified $12 million of operating lease right-of-use assets and $13 million of operating lease liabilities as held for sale in the consolidated balance sheet as of December 31, 2019. Refer to Note 17. Acquisitions and Divestitures for further information regarding the Company's assets and liabilities held for sale.
Maturities of lease liabilities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Leases
|
|
Finance
Leases
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
As of March 31, 2020:
|
|
|
|
|
2020 (remaining as of March 31, 2020)
|
$
|
79
|
|
|
$
|
4
|
|
|
2021
|
95
|
|
|
5
|
|
|
2022
|
79
|
|
|
4
|
|
|
2023
|
59
|
|
|
3
|
|
|
2024
|
40
|
|
|
2
|
|
|
Thereafter
|
93
|
|
|
6
|
|
|
Total lease payments
|
445
|
|
|
24
|
|
|
Less: imputed interest
|
(44)
|
|
|
(3)
|
|
|
Total
|
$
|
401
|
|
|
$
|
21
|
|
|
|
|
|
|
As of March 31, 2020, the Company has entered into additional operating leases which are not significant, primarily for real estate, that have not yet commenced.
22. SUBSEQUENT EVENTS
Credit Agreement Amendment
On May 1, 2020, to further enhance its liquidity and financial flexibility due to the unprecedented uncertainty related to the impact the COVID-19 pandemic is having on the global automotive industry and economies around the world, the Company amended and restated its existing Credit Agreement, comprised of a $2.0 billion Revolving Credit Facility and $350 million Tranche A Term Loan (the “Credit Agreement Amendment”). This Credit Agreement Amendment, among other things, extends the maturity date of $1,779 million principal amount of the Revolving Credit Facility and $298 million principal amount of the Tranche A Term Loan from August 17, 2021 to August 17, 2022 and increases the leverage ratio maintenance covenant until July 1, 2021, unless Aptiv elects to terminate at an earlier date (the “Covenant Relief Period”). Under the terms of the Credit Agreement Amendment, Aptiv’s consolidated leverage ratio (the ratio of Consolidated Total Indebtedness to Consolidated EBITDA, each as defined in the Credit Agreement Amendment) will be increased from not more than 3.5 to 1.0 to not more than 4.5 to 1.0 during the Covenant Relief Period, and Aptiv will be subject to certain additional covenant restrictions during the Covenant Relief Period, including restrictions on Aptiv’s ability to execute repurchases of or pay dividends on its outstanding ordinary shares. The maturity date of the remaining portions of the Revolving Credit Facility and Tranche A Term Loan were not extended to August 17, 2022 and will consequently mature on August 17, 2021. The Credit Agreement Amendment also requires that Aptiv pay certain facility fees on the Revolving Credit Facility and certain fronting fees incremental to the existing Credit Agreement.
Loans under the Credit Agreement Amendment bear interest, at Aptiv’s option, at either (a) ABR or (b) LIBOR plus in either case a percentage per annum as set forth in the table below (the “Applicable Rate”). The Applicable Rate may increase or decrease from time to time based on changes in Aptiv’s credit ratings. The Applicable Rates related to the extended principal amounts under the Credit Agreement Amendment, on the date specified, are set forth below:
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May 1, 2020
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LIBOR plus
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ABR plus
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Revolving Credit Facility
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1.65
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%
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0.65
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%
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Tranche A Term Loan
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1.75
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%
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0.75
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%
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This Quarterly Report on Form 10-Q, including the exhibits being filed as part of this report, as well as other statements made by Aptiv PLC (“Aptiv,” the “Company,” “we,” “us” and “our”), contain forward-looking statements that reflect, when made, the Company’s current views with respect to current 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,” “predicts,” “projects,” “potential,” “outlook” or “continue,” 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; uncertainties posed by the novel coronavirus (COVID-19) pandemic and the difficulty in predicting its future course and its impact on the global economy and the Company’s future operations; fluctuations in interest rates and foreign currency exchange rates; the cyclical nature of global 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 United States-Mexico-Canada Agreement and its predecessor agreement, the North American Free Trade Agreement; the ability of the Company to integrate and realize the expected benefits of recent transactions; 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; and the ability of the Company to attract and retain customers. Additional factors are discussed under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s filings with the Securities and Exchange Commission, including those set forth in the Company’s Annual Report on Form 10-K for fiscal year ended December 31, 2019 and within this Form 10-Q filing. 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. Aptiv 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.
