NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. GENERAL
On December 4, 2017, Delphi Technologies PLC became an independent publicly-traded company, formed under the laws of Jersey, as a result of the separation of the Powertrain Systems segment, which included the aftermarket operations, from Aptiv PLC, formerly known as Delphi Automotive PLC (the “Former Parent”). The separation was completed in the form of a pro-rata distribution to the Former Parent’s shareholders of 100% of the outstanding ordinary shares of Delphi Technologies PLC (the “Separation”). References hereinafter to “Delphi Technologies,” “we,” “us,” “our” or the “Company” refer to Delphi Technologies PLC.
Nature of Operations
We are a leader in the development, design and manufacture of integrated powertrain technologies that optimize engine performance, increase vehicle efficiency, reduce emissions, improve driving performance, and support increasing electrification of vehicles. We are a global supplier to original equipment manufacturers (“OEMs”) seeking to manufacture vehicles that meet and exceed increasingly stringent global regulatory requirements and satisfy consumer demands for an enhanced user experience. We provide advanced fuel injection systems, actuators, valvetrain products, sensors, electronic control modules and power electronics technologies. Additionally, we offer a full spectrum of aftermarket products serving a global customer base.
We sell a comprehensive portfolio of advanced technologies and solutions for all propulsion systems to global OEMs of both light vehicles (passenger cars, trucks, vans and sport-utility vehicles) and commercial vehicles (light-duty, medium-duty and heavy-duty trucks, commercial vans, buses and off-highway vehicles). In addition, we manufacture and sell a wide range of fuel injection, electronics and engine management, maintenance, diagnostics, and other products, to leading aftermarket companies, including independent retailers and wholesale distributors. We also add aftermarket know-how in category management, logistics, training, marketing and other dedicated services to provide a full range of aftermarket solutions throughout vehicles’ lives.
Basis of Presentation
The unaudited consolidated financial statements included herein have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete annual financial statements. These financial statements include all adjustments, which consist of normal recurring items, necessary for a fair presentation. The operating results for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year. These financial statements should be read in conjunction with the Delphi Technologies’ Annual Report on Form 10-K for the year ended December 31, 2018.
2. SIGNIFICANT ACCOUNTING POLICIES
There have been no material changes on the Company’s significant accounting policies since the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, except those described below.
Recently adopted accounting pronouncements—In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842). The Company adopted Accounting Standards Codification (“ASC”) 842 as of January 1, 2019 using the optional modified retrospective transition method and did not recast the comparative periods. ASC 842 requires lessees to recognize a lease liability and a right-of-use asset on the balance sheet for all leases, with the exception of short-term leases. For leases that meet the definition of a short-term lease, the Company has elected to apply the short-term lease exemption, and accordingly, they are not recorded on the balance sheet.
The Company has applied the practical expedients in ASC 842 related to not separating lease and nonlease components of contracts, both when the Company is a lessee and lessor. In addition, the Company elected the package of practical expedients, related to existing leases at the time of adoption, that allowed the Company to carry forward the accounting assessments for: i) whether contracts are or contain leases, ii) the lease classification and iii) the initial direct costs. Delphi Technologies also elected the practical expedient related to existing land easements, that allowed the Company to carry forward the accounting treatment for land easements in existing agreements.
The Company uses an estimated incremental borrowing rate, which is derived from information available at lease commencement, in determining the present value of lease payments. When calculating the incremental borrowing rates, the Company gives consideration to the applicable margin based on our corporate credit ratings, as defined by the Credit Agreement, as well as publicly available data by country for instruments with similar characteristics.
The adoption of this guidance resulted in the recognition of operating lease right-of-use assets and operating lease liabilities of approximately $111 million and $113 million, respectively, on the Company’s consolidated balance sheet as of September 30, 2019. The adoption did not have a material impact on its consolidated statements of operations or cash flows. Refer to Note 6. Leases for additional information.
Delphi Technologies adopted ASU 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting in the first quarter of 2019. This guidance expands the scope of ASC Topic 718, which previously only included share-based payments to employees, to include share-based payments issued to nonemployees for goods or services. Consequently, the accounting for share-based payments to nonemployees and employees is now substantially aligned. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.
Recently issued accounting pronouncements not yet adopted—In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This guidance requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. This guidance also requires enhanced disclosures regarding significant estimates and judgments used in estimating credit losses. The Company will adopt this ASU on January 1, 2020. This guidance is applicable to the Company’s accounts receivable allowance for doubtful accounts, reimbursable engineering costs, notes receivable and cash equivalents. The Company is assessing historical loss information as it relates to these items and how that data correlates with certain economic benchmarks. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements.
3. INVENTORIES, NET
A summary of inventories is shown below:
|
|
|
|
|
|
|
|
|
|
September 30,
2019
|
|
December 31,
2018
|
|
|
|
|
|
(in millions)
|
Productive material
|
$
|
247
|
|
|
$
|
250
|
|
Work-in-process
|
46
|
|
|
36
|
|
Finished goods
|
225
|
|
|
235
|
|
Total
|
$
|
518
|
|
|
$
|
521
|
|
4. ASSETS
Other current assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
September 30,
2019
|
|
December 31,
2018
|
|
|
|
|
|
(in millions)
|
Value added tax receivable
|
$
|
113
|
|
|
$
|
98
|
|
Reimbursable engineering costs
|
21
|
|
|
17
|
|
Prepaid insurance and other expenses
|
21
|
|
|
14
|
|
Income and other taxes receivable
|
14
|
|
|
16
|
|
Derivative financial instruments (Note 16)
|
9
|
|
|
4
|
|
Return assets (Note 12)
|
5
|
|
|
7
|
|
Notes receivable
|
4
|
|
|
15
|
|
Other
|
5
|
|
|
1
|
|
Total
|
$
|
192
|
|
|
$
|
172
|
|
Other long-term assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
September 30,
2019
|
|
December 31,
2018
|
|
|
|
|
|
(in millions)
|
Operating lease assets (Note 6)
|
$
|
111
|
|
|
$
|
—
|
|
Income and other taxes receivable
|
43
|
|
|
53
|
|
Derivative financial instruments (Note 16)
|
32
|
|
|
—
|
|
Investment in Tula Technology, Inc.
|
21
|
|
|
21
|
|
Investment in PolyCharge America, Inc.
|
6
|
|
|
7
|
|
Reimbursable engineering costs
|
6
|
|
|
—
|
|
Debt issuance costs
|
3
|
|
|
3
|
|
Other
|
43
|
|
|
33
|
|
Total
|
$
|
265
|
|
|
$
|
117
|
|
5. LIABILITIES
Accrued liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
September 30,
2019
|
|
December 31,
2018
|
|
|
|
|
|
(in millions)
|
Income and other taxes payable
|
$
|
66
|
|
|
$
|
63
|
|
Warranty obligations (Note 7)
|
57
|
|
|
68
|
|
Payroll-related obligations
|
52
|
|
|
45
|
|
Restructuring (Note 8)
|
47
|
|
|
46
|
|
Deferred reimbursable engineering
|
39
|
|
|
31
|
|
Accrued rebates
|
30
|
|
|
29
|
|
Operating lease liabilities (Note 6)
|
20
|
|
|
—
|
|
Accrued interest
|
19
|
|
|
12
|
|
Freight
|
16
|
|
|
20
|
|
Outside services
|
12
|
|
|
13
|
|
Dividends to minority shareholders
|
11
|
|
|
—
|
|
Deferred cost reimbursement
|
8
|
|
|
5
|
|
Employee benefits
|
7
|
|
|
16
|
|
Customer deposits
|
5
|
|
|
5
|
|
Other
|
71
|
|
|
75
|
|
Total
|
$
|
460
|
|
|
$
|
428
|
|
Other long-term liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
September 30,
2019
|
|
December 31,
2018
|
|
|
|
|
|
(in millions)
|
Operating lease liabilities (Note 6)
|
$
|
93
|
|
|
$
|
—
|
|
Accrued income taxes
|
40
|
|
|
46
|
|
Warranty obligations (Note 7)
|
23
|
|
|
28
|
|
Deferred income taxes
|
17
|
|
|
14
|
|
Restructuring (Note 8)
|
8
|
|
|
19
|
|
Environmental (Note 11)
|
2
|
|
|
2
|
|
Derivative financial instruments (Note 16)
|
—
|
|
|
6
|
|
Other
|
4
|
|
|
8
|
|
Total
|
$
|
187
|
|
|
$
|
123
|
|
6. LEASES
On January 1, 2019, Delphi Technologies adopted ASC Topic 842, Leases, which requires lessees to recognize a lease liability and a right-of-use asset on the balance sheet for leases, with the exception of short-term leases. The Company leases real estate (including manufacturing sites and technical centers), office equipment, automobiles, forklifts and certain other equipment under finance and operating leases. As of September 30, 2019, the remaining lease terms range from 1 year to 9 years. Many of the Company’s leases include rent escalation clauses, renewal options and/or termination options that are factored into the Company’s determination of lease payments and lease term, as appropriate. During the nine months ended September 30, 2019, the Company obtained $8 million of lease assets in exchange for new operating lease liabilities.
The Company is a lessor for certain owned real estate. Rental income for these leases is included within other income, net and was not material for the nine months ended September 30, 2019.
The table below presents supplemental balance sheet information related to leases as of September 30, 2019:
|
|
|
|
|
|
|
|
September 30, 2019
|
|
|
|
|
|
(in millions)
|
Assets
|
Balance Sheet Location
|
|
Operating lease assets
|
Other long-term assets (Note 4)
|
$
|
111
|
|
Finance lease assets
|
Property, net
|
14
|
|
|
Total lease assets
|
$
|
125
|
|
|
|
|
Liabilities
|
|
|
Current
|
|
|
Operating leases
|
Accrued liabilities (Note 5)
|
$
|
20
|
|
Finance leases
|
Short-term debt (Note 9)
|
2
|
|
Long-term
|
|
|
Operating leases
|
Other long-term liabilities (Note 5)
|
93
|
|
Finance leases
|
Long-term debt (Note 9)
|
12
|
|
|
Total lease liabilities
|
$
|
127
|
|
The table below presents the components of lease costs for the three and nine months ended September 30, 2019:
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2019
|
|
Nine Months Ended September 30, 2019
|
|
|
|
|
|
(in millions)
|
Finance lease cost - amortization of lease assets (1)
|
$
|
—
|
|
|
$
|
1
|
|
Operating lease cost (2)
|
9
|
|
|
27
|
|
Total lease cost
|
$
|
9
|
|
|
$
|
28
|
|
|
|
(1)
|
Includes interest on finance lease liabilities, which was not material.
|
|
|
(2)
|
Includes short-term leases and variable lease costs, which were not material.
|
The table below presents the weighted-average remaining lease term and discount rate as of September 30, 2019:
|
|
|
|
Weighted-average remaining lease term (in years):
|
|
Operating leases
|
6.54
|
|
Finance leases
|
8.33
|
|
Weighted-average discount rate:
|
|
Operating leases
|
6.16
|
%
|
Finance leases
|
4.11
|
%
|
The table below presents supplemental cash flow information related to leases during the three and nine months ended September 30, 2019:
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2019
|
|
Nine Months Ended September 30, 2019
|
|
|
|
|
|
(in millions)
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
Operating cash flows for operating leases (1)
|
$
|
7
|
|
|
$
|
21
|
|
|
|
(1)
|
Operating and financing cash flows for finance leases were not material for the three and nine months ended September 30, 2019.
|
The table below reconciles the undiscounted future minimum lease payments to the lease liabilities recorded on the balance sheet as of September 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
Finance Leases
|
|
Total
|
|
|
|
|
|
|
|
(in millions)
|
Remainder of 2019
|
$
|
7
|
|
|
$
|
1
|
|
|
$
|
8
|
|
2020
|
26
|
|
|
2
|
|
|
28
|
|
2021
|
23
|
|
|
2
|
|
|
25
|
|
2022
|
20
|
|
|
2
|
|
|
22
|
|
2023
|
14
|
|
|
2
|
|
|
16
|
|
Thereafter
|
48
|
|
|
8
|
|
|
56
|
|
Total future minimum lease payments
|
138
|
|
|
17
|
|
|
155
|
|
Less: amount of lease payments representing interest
|
(25
|
)
|
|
(3
|
)
|
|
(28
|
)
|
Total lease liabilities
|
$
|
113
|
|
|
$
|
14
|
|
|
$
|
127
|
|
As of September 30, 2019, the Company has an additional lease that has not yet commenced totaling $14 million of undiscounted future minimum lease payments. This lease will commence in 2020 with a lease term of 11 years.
7. WARRANTY OBLIGATIONS
Delphi Technologies has recognized its best estimate for its total aggregate warranty reserves, including product recall costs, across its operating segments as of September 30, 2019. The Company estimates the reasonably possible amount to ultimately resolve all matters in excess of the recorded reserves as of September 30, 2019 to be up to $5 million.
The table below summarizes the activity in the product warranty liability for the nine months ended September 30, 2019:
|
|
|
|
|
|
Warranty Obligations
|
|
|
|
(in millions)
|
Accrual balance at December 31, 2018
|
$
|
96
|
|
Provision for estimated warranties incurred during the period
|
31
|
|
Changes in estimate for pre-existing warranties
|
1
|
|
Settlements made during the period (in cash or in kind)
|
(45
|
)
|
Foreign currency translation and other
|
(3
|
)
|
Accrual balance at September 30, 2019
|
$
|
80
|
|
8. RESTRUCTURING
The Company’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 Delphi Technologies’ strategy, either in the normal course of business or pursuant to significant restructuring programs.
As part of the Company’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 $13 million and $21 million during the three and nine months ended September 30, 2019, respectively. The Company recorded employee-related and other restructuring charges related to these programs totaling approximately $5 million and $28 million during the three and nine months ended September 30, 2018, respectively.
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. Delphi Technologies incurred cash expenditures related to its restructuring programs of approximately $29 million and $51 million in the nine months ended September 30, 2019 and 2018, respectively.
The following table summarizes the restructuring charges recorded for the three and nine months ended September 30, 2019 and 2018 by operating segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Powertrain Systems
|
$
|
12
|
|
|
$
|
9
|
|
|
$
|
19
|
|
|
$
|
31
|
|
Aftermarket
|
1
|
|
|
(4
|
)
|
|
2
|
|
|
(3
|
)
|
Total
|
$
|
13
|
|
|
$
|
5
|
|
|
$
|
21
|
|
|
$
|
28
|
|
The table below summarizes the activity in the restructuring liability for the nine months ended September 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee Termination Benefits Liability
|
|
Other Exit Costs Liability
|
|
Total
|
|
|
|
|
|
|
|
(in millions)
|
Accrual balance at December 31, 2018
|
$
|
64
|
|
|
$
|
1
|
|
|
$
|
65
|
|
Provision for estimated expenses during the period
|
21
|
|
|
—
|
|
|
21
|
|
Payments made during the period
|
(29
|
)
|
|
—
|
|
|
(29
|
)
|
Foreign currency and other
|
(2
|
)
|
|
—
|
|
|
(2
|
)
|
Accrual balance at September 30, 2019
|
$
|
54
|
|
|
$
|
1
|
|
|
$
|
55
|
|
9. DEBT
The following is a summary of debt outstanding, net of unamortized issuance costs and discounts, as of September 30, 2019 and December 31, 2018, respectively:
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
December 31, 2018
|
|
(in millions)
|
Term Loan A Facility (net of $3 and $4 unamortized issuance costs)
|
$
|
700
|
|
|
$
|
727
|
|
Senior Notes at 5.00% (net of $10 and $12 unamortized issuance costs and $3 and $3 discount, respectively)
|
787
|
|
|
785
|
|
Finance lease liabilities and other
|
21
|
|
|
19
|
|
Total debt
|
1,508
|
|
|
1,531
|
|
Less: current portion
|
(43
|
)
|
|
(43
|
)
|
Long-term debt
|
$
|
1,465
|
|
|
$
|
1,488
|
|
Credit Agreement
On September 7, 2017, Delphi Technologies and its wholly-owned subsidiary Delphi Powertrain Corporation entered into a credit agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A., as administrative agent (the “Administrative Agent”), with respect to $1.25 billion in senior secured credit facilities. The Credit Agreement consists of a senior secured five-year $750 million term loan facility due 2022 (the “Term Loan A Facility”) and a $500 million five-year senior secured revolving credit facility (the “Revolving Credit Facility”) (collectively, the “Credit Facilities”) with the lenders party thereto and JPMorgan Chase Bank, N.A. We incurred $9 million of issuance costs in connection with the Credit Agreement. As of September 30, 2019, there were no amounts drawn on the Revolving Credit Facility.
The Credit Agreement contains certain affirmative and negative covenants customary for financings of this type that, among other things, limit our and our subsidiaries’ ability to incur additional indebtedness or liens, to dispose of assets, to make certain fundamental changes, to designate subsidiaries as unrestricted, to make certain investments, to prepay certain indebtedness and to pay dividends, or to make other distributions or redemptions/repurchases, with respect to our and our subsidiaries’ equity interests. In addition, the Credit Agreement requires that we maintain a consolidated net leverage ratio (the ratio of Consolidated Total Indebtedness to Consolidated Adjusted EBITDA, each as defined in the Credit Agreement) of not greater than 3.5 to 1.0. The Credit Agreement also contains events of default customary for financings of this type, including certain customary change of control events. The Company was in compliance with the Credit Agreement covenants as of September 30, 2019.
Senior Notes
On September 28, 2017, Delphi Technologies PLC issued $800 million in aggregate principal amount of 5.00% senior unsecured notes due 2025 in a transaction exempt from registration under the Securities Act (the “Senior Notes”).
The Senior Notes indenture contains certain restrictive covenants, including with respect to Delphi Technologies’ (and subsidiaries) ability to incur liens, enter into sale and leaseback transactions and merge with or into other entities. The Company was in compliance with the Senior Notes covenants as of September 30, 2019.
Other Financing
Receivable factoring—The Company entered into arrangements with various financial institutions to sell eligible trade receivables from certain Aftermarket customers in North America and Europe. These arrangements can be terminated at any time subject to prior written notice. The receivables under these arrangements are sold to a third party without recourse to the Company and are therefore accounted for as true sales. During the three and nine months ended September 30, 2019, $38 million and $112 million of receivables were sold under these arrangements, and expenses of $1 million and $3 million were recognized within interest expense, respectively. During the three and nine months ended September 30, 2018, $30 million and $75 million of receivables were sold under these arrangements, and expenses of $1 million and $3 million were recognized within interest expense, respectively.
In addition, during the nine months ended September 30, 2019 and September 30, 2018, one of the Company’s European subsidiaries factored, without recourse, $21 million and $22 million of receivables related to certain foreign research credits to a financial institution, respectively. These transactions were accounted for as true sales of the receivables, and the Company therefore derecognized these amounts from other long-term assets in the consolidated balance sheet as a result of these transactions. During the three and nine months ended September 30, 2019 and September 30, 2018, less than $1 million of expenses were recognized within interest expense related to these transactions.
Finance leases—There were approximately $14 million and $14 million of finance lease obligations outstanding as of September 30, 2019 and December 31, 2018, respectively.
Interest—Cash paid for interest related to debt outstanding, including the effect of interest rate and cross currency swaps, totaled $42 million and $46 million, for the nine months ended September 30, 2019 and 2018, respectively.
10. PENSION BENEFITS
The Company sponsors defined benefit pension plans for certain employees and retirees outside of the U.S. Using appropriate actuarial methods and assumptions, the Company’s defined benefit pension plans are accounted for in accordance with FASB ASC Topic 715, Compensation—Retirement Benefits. The Company’s primary non-U.S. plans are located in the United Kingdom (“U.K.”), France and Mexico. The U.K. and certain Mexican plans are funded. In addition, the Company 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. Delphi Technologies does not have any U.S. pension assets or liabilities.
Effective March 31, 2019, the Company has frozen future accruals for nearly all U.K. based employees under the related defined benefit plans, replacing them with contributions under defined contribution plans effective April 1, 2019, including additional contributions and other payments to impacted employees over a two-year transition period. As a result of this change, the Company realized a one-time reduction to its pension obligation of $33 million, along with a one-time charge of $15 million in the nine months ended September 30, 2019, related to curtailing the defined benefit pension plans in the U.K. The Company also recognized a charge of $2 million and $11 million in the three and nine months ended September 30, 2019, respectively, related to transitional payments to impacted employees. The Company excluded these charges, and expects to exclude related future charges, from our calculation of Adjusted Operating Income.
The amounts shown below reflect the non-U.S. plans’ defined benefit pension (income) expense for the three and nine months ended September 30, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
2019
|
|
2018
|
|
|
|
|
|
(in millions)
|
Service cost
|
$
|
2
|
|
|
$
|
10
|
|
Interest cost
|
9
|
|
|
8
|
|
Expected return on plan assets
|
(14
|
)
|
|
(13
|
)
|
Amortization of actuarial losses
|
1
|
|
|
6
|
|
Net periodic benefit (income) cost
|
$
|
(2
|
)
|
|
$
|
11
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
2019
|
|
2018
|
|
|
|
|
|
(in millions)
|
Service cost
|
$
|
11
|
|
|
$
|
29
|
|
Interest cost
|
27
|
|
|
26
|
|
Expected return on plan assets
|
(43
|
)
|
|
(40
|
)
|
Curtailment loss
|
15
|
|
|
—
|
|
Amortization of actuarial losses
|
6
|
|
|
18
|
|
Net periodic benefit cost
|
$
|
16
|
|
|
$
|
33
|
|
Other postretirement benefit obligations were $1 million and $1 million at September 30, 2019 and December 31, 2018, respectively.
11. COMMITMENTS AND CONTINGENCIES
Ordinary Business Claims
In the normal course of our business, we are named from time to time as a defendant in various legal actions, including arbitrations, class actions, and other litigation. We also from time to time receive subpoenas and other inquiries or requests for information from U.S. and foreign federal, state and local governments on a variety of matters. We accrue for matters when we believe that losses are probable and can be reasonably estimated. Considering, among other things, the legal defenses available and existing accruals, it is inherently difficult in many matters to determine whether loss is probable or reasonably possible or to estimate the size or range of the possible loss. Accordingly adverse outcomes from such proceedings could exceed the amounts accrued by an amount that could be material to our results of operations or cash flows in any particular reporting period.
We estimate our reasonably possible loss in excess of the amounts accrued for ordinary business claims to be up to $15 million, exclusive of the environmental matters discussed below.
Environmental Matters
Delphi Technologies 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 September 30, 2019 and December 31, 2018, the undiscounted reserve for environmental investigation and remediation was approximately $3 million (of which $1 million was recorded in accrued liabilities and $2 million was recorded in other long-term liabilities) and $3 million (of which $1 million was recorded in accrued liabilities and $2 million was recorded in other long-term liabilities), respectively. At September 30, 2019, the difference between the recorded liabilities and the reasonably possible range of potential loss was not material.
12. REVENUE
Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring promised goods or services. The Company generally recognizes revenue when it satisfies a performance obligation by transferring control over a product to a customer. From time to time, we enter into pricing agreements with our customers that provide for price reductions, some of which are conditional upon achieving certain criteria. In these instances, revenue is recognized based on the agreed-upon price at the time of shipment.
Nature of Goods
The majority of our revenue is recorded at a point in time as defined by ASC 606 as the customers obtain control of the product upon title transfer and not as the product is manufactured or developed. For certain customers, based on specific terms and conditions pertaining to termination for convenience, Delphi Technologies concluded that it had an enforceable right to payment for performance completed to date and the products have no alternative use to the Company, which requires the recognition of revenue over time as defined by ASC 606. The impact on both revenue and operating income from recognizing revenue over time instead of point in time is not significant.
The major product groups within the Powertrain Systems operating segment include internal combustion engine products and electronics & electrification products. The major sales channels within the Aftermarket operating segment include aftermarket products sold to independent aftermarket customers and original equipment service customers. The amount of revenue recognized for these products is based on the purchase order price and adjusted for revenue allocated to variable consideration (i.e. estimated rebates and price discounts), as applicable. Our payment terms are based on customary business practices and vary by customer type and products offered. The term between invoicing and when payment is due is not significant.
Disaggregation of Revenue
In the following table, net sales to outside customers, based on the manufacturing location, is disaggregated by primary geographical market:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
(in millions)
|
North America
|
$
|
305
|
|
|
$
|
328
|
|
|
$
|
957
|
|
|
$
|
1,033
|
|
Europe
|
452
|
|
|
508
|
|
|
1,514
|
|
|
1,623
|
|
Asia Pacific
|
245
|
|
|
288
|
|
|
735
|
|
|
927
|
|
South America
|
31
|
|
|
35
|
|
|
99
|
|
|
104
|
|
Total
|
$
|
1,033
|
|
|
$
|
1,159
|
|
|
$
|
3,305
|
|
|
$
|
3,687
|
|
The Powertrain Systems segment primarily serves OEMs along with certain Tier 1 suppliers (one that supplies vehicle components directly to manufacturers) and the Aftermarket segment serves independent aftermarket customers and original equipment service customers.
In the following table, net sales is disaggregated by major product group, sales channels and type of customer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
(in millions)
|
Sales to OEMs and Tier 1 customers:
|
|
|
|
|
|
|
|
Internal combustion engine products
|
$
|
650
|
|
|
$
|
686
|
|
|
$
|
2,077
|
|
|
$
|
2,230
|
|
Electronics & electrification products
|
169
|
|
|
256
|
|
|
607
|
|
|
808
|
|
Total sales to OEMs and Tier 1 customers (Powertrain Systems segment)
|
819
|
|
|
942
|
|
|
2,684
|
|
|
3,038
|
|
|
|
|
|
|
|
|
|
Sales to independent aftermarket customers
|
154
|
|
|
155
|
|
|
454
|
|
|
469
|
|
Sales to original equipment service customers
|
60
|
|
|
62
|
|
|
167
|
|
|
180
|
|
Total sales to aftermarket customers (Aftermarket segment)
|
$
|
214
|
|
|
$
|
217
|
|
|
$
|
621
|
|
|
$
|
649
|
|
Total
|
$
|
1,033
|
|
|
$
|
1,159
|
|
|
$
|
3,305
|
|
|
$
|
3,687
|
|
Contract Balances
As discussed above, certain customers have contracts with specific terms and conditions which require recognition of revenue over time as defined by ASC 606. As of September 30, 2019 and December 31, 2018 the recognition of revenue over time resulted in approximately $1 million and $1 million of unbilled accounts receivable, respectively, which are included in accounts receivable, net. There were no other contract assets or liabilities as of September 30, 2019 and December 31, 2018 as defined by ASC 606.
Return Assets
The Aftermarket segment provides certain customers with a right of return. The Company recognizes an estimated return asset (and adjusts for cost of sales) for the right to recover the products returned by the customer. ASC 606 requires that return assets be presented separately from inventory. As of September 30, 2019 and December 31, 2018, the Company had return assets of $5 million and $7 million, respectively, included in other current assets.
Practical Expedients and Exemptions
For our Powertrain Systems segment, we define the contract with the customer as the combination of a current purchase order and a current production schedule issued by the customer. For our Aftermarket segment, we define the contract with the customer as the combination of a current purchase order and a master agreement with the customer. Although there are instances where the master agreements may extend beyond one year, there are generally no purchase orders with an expected duration beyond a year.
There are generally no performance obligations outstanding beyond a year. The Company generally does not enter into fixed long-term supply agreements. The Company applies the exemption in ASC 606 and does not disclose information about remaining performance obligations that have original expected durations of one year or less.
In addition, the Company applies the practical expedient in ASC 340 and immediately expenses contract acquisition costs when incurred, including sales commissions, because the amortization period would be one year or less.
13. INCOME TAXES
At the end of each interim period, the Company makes its best estimate of the annual expected effective income tax rate and applies that rate to its ordinary year-to-date earnings or loss. The income tax provision or benefit related to unusual or infrequent items, if applicable, that will be separately reported or reported net of their related tax effects are individually computed and recognized in the interim period in which those items occur. In addition, the effect of changes in enacted tax laws or rates, tax status, judgment on the realizability of a beginning-of-the-year deferred tax asset in future years or income tax contingencies is recognized in the interim period in which the change occurs.
The computation of the annual expected effective income tax rate at each interim period requires certain estimates and assumptions including, but not limited to, the expected pre-tax income (or loss) for the year, projections of the proportion of income (and/or loss) earned and taxed in respective jurisdictions, permanent and temporary differences, and the likelihood of the realizability of deferred tax assets generated in the current year. Jurisdictions with a projected loss for the year or a year-to-date loss for which no tax benefit or expense can be recognized due to a valuation allowance are excluded from the estimated annual effective tax rate. The impact of such an exclusion could result in a higher or lower effective tax rate during a particular quarter, based upon the composition and timing of actual earnings compared to annual projections. The estimates used to compute the provision or benefit for income taxes may change as new events occur, additional information is obtained or as our tax environment changes. To the extent that the expected annual effective income tax rate changes, the effect of the change on prior interim periods is included in the income tax provision in the period in which the change in estimate occurs.
The Company’s income tax expense and effective tax rate for the nine months ended September 30, 2019 and 2018 were as follows:
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
2019
|
|
2018
|
|
|
|
|
|
|
Income tax expense
|
$
|
43
|
|
|
$
|
54
|
|
Effective tax rate
|
40
|
%
|
|
19
|
%
|
The Company’s tax rate is affected by the fact that Delphi Technologies PLC, its parent entity, is a U.K. resident taxpayer, the tax rates in the 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 for the nine months ended September 30, 2019 was impacted by unfavorable changes in geographic income mix in 2019 as compared to 2018 which increased the amount of losses in jurisdictions in which no tax benefit for those losses could be recognized. The Company’s effective tax rate for the nine months ended September 30, 2019 includes net discrete tax expense of $3 million. The effective tax rate for the nine months ended September 30, 2018 was impacted by favorable changes in geographic income mix in 2018 as compared to 2017. The Company’s effective tax rate for the nine months ended September 30, 2018 includes net discrete tax expense of $4 million.
Delphi Technologies PLC is a U.K. resident taxpayer and as such is generally not subject to U.K. tax on remitted foreign earnings.
Cash paid or withheld for income taxes was $44 million and $70 million for the nine months ended September 30, 2019 and 2018, respectively.
14. SHAREHOLDERS’ EQUITY AND NET INCOME PER SHARE
Net Income Per Share
Basic net income per share is computed by dividing net income attributable to Delphi Technologies 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 Delphi Technologies by the diluted weighted average number of ordinary shares outstanding. 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 19. Share-Based Compensation for additional information.
Weighted Average Shares
The following table illustrates net income per share attributable to Delphi Technologies and the weighted average shares outstanding used in calculating basic and diluted income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
(in millions, except per share data)
|
Numerator:
|
|
|
|
|
|
|
|
Net income attributable to Delphi Technologies
|
$
|
14
|
|
|
$
|
39
|
|
|
$
|
57
|
|
|
$
|
223
|
|
Denominator:
|
|
|
|
|
|
|
|
Weighted average ordinary shares outstanding, basic
|
86.90
|
|
|
88.74
|
|
|
87.70
|
|
|
88.74
|
|
Dilutive shares related to restricted stock units (“RSUs”)
|
0.01
|
|
|
0.23
|
|
|
0.15
|
|
|
0.24
|
|
Weighted average ordinary shares outstanding, including dilutive shares
|
86.91
|
|
|
88.97
|
|
|
87.85
|
|
|
88.98
|
|
|
|
|
|
|
|
|
|
Net income per share attributable to Delphi Technologies:
|
|
|
|
|
|
|
|
Basic
|
$
|
0.16
|
|
|
$
|
0.44
|
|
|
$
|
0.65
|
|
|
$
|
2.51
|
|
Diluted
|
$
|
0.16
|
|
|
$
|
0.44
|
|
|
$
|
0.65
|
|
|
$
|
2.51
|
|
Anti-dilutive securities share impact
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Share Repurchases
In July 2018, the Board of Directors approved a $100 million share repurchase authorization, which commenced in September 2018. This authorization was replaced by a new $200 million share repurchase program in January 2019 which was approved by the Board of Directors. Repurchases under this program can be made at management’s discretion from time to time on the open market or through privately negotiated transactions. On October 31, 2019, the Company suspended its share repurchase program. Refer to Note 21. Subsequent Events for additional information.
A summary of the ordinary shares repurchased during the three and nine months ended September 30, 2019 and 2018 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Total number of shares repurchased
|
1,038,900
|
|
|
293,695
|
|
|
2,622,776
|
|
|
293,695
|
|
Average price paid per share
|
$
|
14.44
|
|
|
$
|
34.05
|
|
|
$
|
17.16
|
|
|
$
|
34.05
|
|
Total (in millions)
|
$
|
15
|
|
|
$
|
10
|
|
|
$
|
45
|
|
|
$
|
10
|
|
All repurchased shares were retired and returned to authorized but unissued shares. The repurchased shares 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.
15. CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The changes in accumulated other comprehensive income (loss) attributable to Delphi Technologies (net of tax) for the three and nine months ended September 30, 2019 and 2018 are shown below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Foreign currency translation adjustments:
|
|
|
|
|
|
|
|
Balance at beginning of period
|
$
|
(170
|
)
|
|
$
|
(137
|
)
|
|
$
|
(165
|
)
|
|
$
|
(85
|
)
|
Aggregate adjustment for the period (1)
|
(43
|
)
|
|
(2
|
)
|
|
(48
|
)
|
|
(54
|
)
|
Balance at end of period
|
(213
|
)
|
|
(139
|
)
|
|
(213
|
)
|
|
(139
|
)
|
|
|
|
|
|
|
|
|
Gains (losses) on derivatives:
|
|
|
|
|
|
|
|
Balance at beginning of period
|
5
|
|
|
2
|
|
|
(2
|
)
|
|
—
|
|
Other comprehensive income before reclassifications (net tax effect of $0, $0, $0 and $0)
|
35
|
|
|
3
|
|
|
46
|
|
|
5
|
|
Reclassification to income (net tax effect of $0, $0, $0 and $0)
|
(2
|
)
|
|
(1
|
)
|
|
(6
|
)
|
|
(1
|
)
|
Balance at end of period
|
38
|
|
|
4
|
|
|
38
|
|
|
4
|
|
|
|
|
|
|
|
|
|
Pension and postretirement plans:
|
|
|
|
|
|
|
|
Balance at beginning of period
|
(202
|
)
|
|
(270
|
)
|
|
(245
|
)
|
|
(286
|
)
|
Other comprehensive income before reclassifications (net tax effect of $1, $0, $6 and $4)
|
7
|
|
|
(1
|
)
|
|
34
|
|
|
5
|
|
Reclassification to income (net tax effect of $0, $1, $4 and $3)
|
1
|
|
|
5
|
|
|
17
|
|
|
15
|
|
Balance at end of period
|
(194
|
)
|
|
(266
|
)
|
|
(194
|
)
|
|
(266
|
)
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss, end of period
|
$
|
(369
|
)
|
|
$
|
(401
|
)
|
|
$
|
(369
|
)
|
|
$
|
(401
|
)
|
|
|
(1)
|
Includes gains of $23 million and gains of $25 million, for the three and nine months ended September 30, 2019, respectively, related to the foreign currency impact of intra-entity loans that are of a long-term investment nature. Also includes gains of $2 million and losses of $3 million, for the three and nine months ended September 30, 2018, respectively, related to the foreign currency impact of intra-entity loans that are of a long-term investment nature. During the three and nine months ended September 30, 2019 there were no net changes and losses of $1 million, respectively, related to non-derivative net investment hedges. During the three and nine months ended September 30, 2018 there were losses of $2 million and $2 million, respectively, related to non-derivative net investment hedges. Refer to Note 16. Derivatives and Hedging Activities for further description of these hedges.
|
Reclassifications from accumulated other comprehensive income (loss) to income for the three and nine months ended September 30, 2019 and 2018 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification Out of Accumulated Other Comprehensive Income (Loss)
|
Details About Accumulated Other Comprehensive Income (Loss) Components
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
Affected Line Item in the Statement of Operations
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
Pension and postretirement plans:
|
|
|
|
|
|
|
|
|
|
|
Actuarial losses
|
|
$
|
(1
|
)
|
|
$
|
(6
|
)
|
|
$
|
(6
|
)
|
|
$
|
(18
|
)
|
|
Other income (expense), net (1)
|
Curtailment
|
|
—
|
|
|
—
|
|
|
(15
|
)
|
|
—
|
|
|
Other income (expense), net (1)
|
|
|
(1
|
)
|
|
(6
|
)
|
|
(21
|
)
|
|
(18
|
)
|
|
Income before income taxes
|
|
|
—
|
|
|
1
|
|
|
4
|
|
|
3
|
|
|
Income tax expense
|
|
|
(1
|
)
|
|
(5
|
)
|
|
(17
|
)
|
|
(15
|
)
|
|
Net income
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Net income attributable to noncontrolling interest
|
|
|
$
|
(1
|
)
|
|
$
|
(5
|
)
|
|
$
|
(17
|
)
|
|
$
|
(15
|
)
|
|
Net income attributable to Delphi Technologies
|
|
|
(1)
|
These accumulated other comprehensive loss components are included in the computation of net periodic pension cost (see Note 10. Pension Benefits for additional details).
|
Refer to Note. 16 Derivatives and Hedging Activities for additional reclassifications from accumulated other comprehensive income (loss) to income.
16. DERIVATIVES AND HEDGING ACTIVITIES
Cash Flow Hedges
Delphi Technologies 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, Delphi Technologies aggregates the exposures on a consolidated basis to take advantage of natural offsets. For exposures that are not offset within its operations, Delphi Technologies 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. Delphi Technologies assesses the initial and ongoing effectiveness of its hedging relationships in accordance with its documented policy.
In December 2018, the Company entered into interest rate swap agreements, designated as cash flow hedges, with a combined notional amount of $400 million where the variable rates under the Term Loan A Facility have been exchanged for a fixed rate. These interest rate swap agreements mature in September 2022 and convert the nature of $400 million of the loan from LIBOR floating-rate debt to fixed-rate debt.
As of September 30, 2019, the Company had the following outstanding notional amounts related to foreign currency forward contracts designated as cash flow hedges that were entered into to hedge forecasted exposures:
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency
|
|
Quantity
Hedged
|
|
Unit of
Measure
|
|
Notional Amount
(USD Equivalent)
|
|
|
(in millions)
|
Chinese Yuan
|
|
1,168
|
|
|
RMB
|
|
$
|
170
|
|
Euro
|
|
111
|
|
|
EUR
|
|
120
|
|
Mexican Peso
|
|
574
|
|
|
MXN
|
|
30
|
|
Singapore Dollar
|
|
45
|
|
|
SGD
|
|
30
|
|
Polish Zloty
|
|
136
|
|
|
PLN
|
|
30
|
|
Turkish Lira
|
|
76
|
|
|
TRY
|
|
10
|
|
As of September 30, 2019, Delphi Technologies has entered into derivative instruments to hedge cash flows extending out to September 2022.
Gains and losses on derivatives qualifying as cash flow hedges are recorded in accumulated other comprehensive income (“OCI”), to the extent that hedges are effective, until the underlying transactions are recognized in earnings. Unrealized amounts in accumulated OCI will fluctuate based on changes in the fair value of hedge derivative contracts at each reporting period. Net losses on cash flow hedges included in accumulated OCI as of September 30, 2019 were approximately $4 million (approximately $4 million, net of tax). Of this total, approximately $2 million of gains are expected to be included in cost of sales and interest expense within the next 12 months and $6 million of losses are expected to be included in cost of sales and interest expense in subsequent periods. Cash flow hedges are discontinued when Delphi Technologies determines it is no longer probable that the originally forecasted transactions will occur. Cash flows from derivatives used to manage foreign exchange and interest rate risks are classified as operating activities within the consolidated statement of cash flows.
Net Investment Hedges
The Company is also exposed to the risk that adverse changes in foreign currency exchange rates could impact its net investment in non-U.S. subsidiaries. To manage this risk, the Company designated a qualifying non-derivative instrument, foreign currency-denominated debt, as a net investment hedge 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 other comprehensive income (loss) are reclassified to earnings only when the related currency translation adjustments are required to be reclassified, usually upon sale or liquidation of the investment.
In December 2018 and March 2019, as a means of managing foreign currency risk related to our significant operations in Europe, the Company executed fixed-for-fixed cross currency swaps, in which the Company will pay Euros and receive U.S. dollars with a combined notional amount of $600 million. These agreements are designated as net investment hedges and have a maturity date of September 2022.
Derivatives Not Designated as Hedges
On certain occasions the Company enters into certain foreign currency contracts that are not designated as hedges. When hedge accounting is not applied to derivative contracts, gains and losses are recorded to other income (expense), net and cost of sales in the consolidated statement of operations.
Fair Value of Derivative Instruments in the Balance Sheet
The following table includes the fair value of derivative instruments recorded in the consolidated balance sheets as of September 30, 2019 and December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
Liability Derivatives
|
|
Balance Sheet Location*
|
|
September 30,
2019
|
|
December 31,
2018
|
|
Balance Sheet Location*
|
|
September 30,
2019
|
|
December 31,
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Designated as cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
Foreign currency derivatives
|
Other current assets
|
|
$
|
7
|
|
|
$
|
5
|
|
|
Other current assets
|
|
$
|
1
|
|
|
$
|
1
|
|
Foreign currency derivatives
|
Other long-term assets
|
|
4
|
|
|
—
|
|
|
Other long-term assets
|
|
1
|
|
|
—
|
|
Interest rate swaps
|
Other long-term assets
|
|
—
|
|
|
—
|
|
|
Other long-term assets
|
|
13
|
|
|
—
|
|
Interest rate swaps
|
Other long-term liabilities
|
|
—
|
|
|
—
|
|
|
Other long-term liabilities
|
|
—
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Designated as net investment hedges:
|
|
|
|
|
|
|
|
|
|
|
Cross-currency swaps
|
Other long-term assets
|
|
42
|
|
|
—
|
|
|
Other long-term assets
|
|
—
|
|
|
—
|
|
Cross-currency swaps
|
Other long-term liabilities
|
|
—
|
|
|
—
|
|
|
Other long-term liabilities
|
|
—
|
|
|
3
|
|
Total designated as hedges
|
|
$
|
53
|
|
|
$
|
5
|
|
|
|
|
$
|
15
|
|
|
$
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedges:
|
|
|
|
|
|
|
|
|
|
|
Foreign currency derivatives
|
Other current assets
|
|
$
|
5
|
|
|
$
|
—
|
|
|
Other current assets
|
|
$
|
2
|
|
|
$
|
—
|
|
Foreign currency derivatives
|
Accrued liabilities
|
|
—
|
|
|
—
|
|
|
Accrued liabilities
|
|
1
|
|
|
—
|
|
Total not designated as hedges
|
|
$
|
5
|
|
|
$
|
—
|
|
|
|
|
$
|
3
|
|
|
$
|
—
|
|
* Derivative instruments 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 Delphi Technologies’ derivative financial instruments was in a net asset position as of September 30, 2019 and a net liability position as of December 31, 2018.
Effect of Derivatives on the Statement of Operations and Statement of Comprehensive Income
The pre-tax effect of the derivative financial instruments in the consolidated statement of operations and consolidated statement of comprehensive income for the three and nine months ended September 30, 2019 and 2018 is as follows:
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2019
|
Gain (Loss) Recognized in OCI
|
|
Gain Reclassified from OCI into Income
|
|
|
|
|
|
(in millions)
|
Derivatives designated as cash flow hedges:
|
|
|
|
Foreign currency derivatives
|
$
|
5
|
|
|
$
|
2
|
|
Interest rate swaps
|
(1
|
)
|
|
—
|
|
Derivatives designated as net investment hedges:
|
|
|
|
Cross-currency swaps
|
31
|
|
|
—
|
|
Total
|
$
|
35
|
|
|
$
|
2
|
|
|
|
|
|
|
|
|
Gain Recognized in Income
|
|
|
|
|
|
|
|
(in millions)
|
Derivatives not designated
|
|
$
|
2
|
|
Total
|
|
$
|
2
|
|
|
|
|
|
Three Months Ended September 30, 2018
|
Gain Recognized in OCI
|
|
Gain Reclassified from OCI into Income
|
|
|
|
(in millions)
|
Derivatives designated as cash flow hedges:
|
|
|
|
Foreign currency derivatives
|
$
|
3
|
|
|
$
|
1
|
|
Total
|
$
|
3
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
Gain Recognized in Income
|
|
|
|
|
|
|
|
(in millions)
|
Derivatives not designated
|
|
$
|
4
|
|
Total
|
|
$
|
4
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2019
|
Gain (Loss) Recognized in OCI
|
|
Gain Reclassified from OCI into Income
|
|
|
|
|
|
(in millions)
|
Derivatives designated as cash flow hedges:
|
|
|
|
Foreign currency derivatives
|
$
|
11
|
|
|
$
|
6
|
|
Interest rate swaps
|
(10
|
)
|
|
—
|
|
Derivatives designated as net investment hedges:
|
|
|
|
Cross-currency swaps
|
45
|
|
|
—
|
|
Total
|
$
|
46
|
|
|
$
|
6
|
|
|
|
|
|
|
|
|
Gain Recognized in Income
|
|
|
|
(in millions)
|
Derivatives not designated
|
|
$
|
2
|
|
Total
|
|
$
|
2
|
|
|
|
|
|
Nine Months Ended September 30, 2018
|
Gain Recognized in OCI
|
|
Gain Reclassified from OCI into Income
|
|
|
|
|
|
(in millions)
|
Derivatives designated as cash flow hedges:
|
|
|
|
Foreign currency derivatives
|
$
|
5
|
|
|
$
|
1
|
|
Total
|
$
|
5
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
Loss Recognized in Income
|
|
|
|
(in millions)
|
Derivatives not designated
|
|
$
|
(4
|
)
|
Total
|
|
$
|
(4
|
)
|
The gain or loss recognized into income for designated derivative instruments were recorded to cost of sales in the consolidated statements of operations for the periods presented above. The gain or loss recognized into income for derivative instruments not designated were recorded to other income, net and cost of sales in the consolidated statements of operations for the periods presented above.
17. 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. Delphi Technologies’ derivative exposures are with counterparties with long-term investment grade credit ratings. Delphi Technologies 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 derivative instruments, interest rate swaps and cross-currency swaps are determined using exchange traded prices and rates. Delphi Technologies 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 foreign currency exposures by counterparty. When Delphi Technologies is in a net derivative asset position, the counterparty CDS rates are applied to the net derivative asset position. When Delphi Technologies 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, Delphi Technologies 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, Delphi Technologies generally surveys investment banks and/or brokers and utilizes the surveyed prices and rates in estimating fair value.
As of September 30, 2019 Delphi Technologies was in a net derivative asset position of $40 million. As of December 31, 2018 Delphi Technologies was in a net derivative liability position of $2 million. 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 Delphi Technologies’ exposures were to counterparties with investment grade credit ratings. Refer to Note 16. Derivatives and Hedging Activities for further information regarding derivatives.
As of September 30, 2019 and December 31, 2018 Delphi Technologies had the following derivative 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 September 30, 2019:
|
|
|
|
|
|
|
|
Foreign currency derivatives
|
$
|
12
|
|
|
$
|
—
|
|
|
$
|
12
|
|
|
$
|
—
|
|
Interest rate swaps*
|
(13
|
)
|
|
—
|
|
|
(13
|
)
|
|
—
|
|
Cross-currency swaps*
|
42
|
|
|
—
|
|
|
42
|
|
|
—
|
|
Total
|
$
|
41
|
|
|
$
|
—
|
|
|
$
|
41
|
|
|
$
|
—
|
|
As of December 31, 2018:
|
|
|
|
|
|
|
|
Foreign currency derivatives
|
$
|
4
|
|
|
$
|
—
|
|
|
$
|
4
|
|
|
$
|
—
|
|
Total
|
$
|
4
|
|
|
$
|
—
|
|
|
$
|
4
|
|
|
$
|
—
|
|
* Derivative instruments 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.
As of September 30, 2019 and December 31, 2018 Delphi Technologies had the following derivative 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 September 30, 2019:
|
|
Foreign currency derivatives
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
—
|
|
Total
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
—
|
|
As of December 31, 2018:
|
|
|
|
|
|
|
|
Interest rate swaps*
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
3
|
|
|
$
|
—
|
|
Cross-currency swaps*
|
3
|
|
|
—
|
|
|
3
|
|
|
—
|
|
Total
|
$
|
6
|
|
|
$
|
—
|
|
|
$
|
6
|
|
|
$
|
—
|
|
* Derivative instruments 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.
Non-derivative financial instruments—Delphi Technologies’ non-derivative financial instruments include cash and cash equivalents, accounts and notes receivable, accounts payable, as well as debt, which consists of finance lease liabilities, the Senior Notes, the Term Loan A Facility and other debt issued by Delphi Technologies’ non-U.S. subsidiaries. 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 September 30, 2019 and December 31, 2018, total debt was recorded at $1,508 million and $1,531 million, respectively, and had estimated fair values of $1,422 million and $1,415 million, respectively. For all other financial instruments recorded at September 30, 2019 and December 31, 2018, 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, Delphi Technologies also has items in its balance sheet that are measured at fair value on a nonrecurring basis. As these items are not measured at fair value on a recurring basis, they are not included in the tables above. Nonfinancial assets and liabilities that are measured at fair value on a nonrecurring basis include certain long-lived assets, equity method investments, other 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 and nine months ended September 30, 2019, Delphi Technologies recorded non-cash asset impairment charges totaling $1 million and $9 million, respectively, within selling, general and administrative and amortization
related to certain fixed assets and intangible assets. During the three and nine months ended September 30, 2018, Delphi Technologies recorded non-cash asset impairment charges totaling less than $1 million and $1 million, respectively, within cost of sales related to declines in the fair values of certain intangible assets and fixed assets. Fair value of long-lived assets is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved and a review of appraisals. As such, Delphi Technologies has determined that the fair value measurements of long-lived assets fall in Level 3 of the fair value hierarchy.
18. OTHER INCOME, NET
Other income (expense), net included:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Interest income
|
$
|
3
|
|
|
$
|
3
|
|
|
$
|
7
|
|
|
$
|
6
|
|
Components of net periodic benefit cost other than service cost (Note 10)
|
4
|
|
|
(1
|
)
|
|
(5
|
)
|
|
(4
|
)
|
Other, net
|
1
|
|
|
(8
|
)
|
|
2
|
|
|
2
|
|
Other income (expense), net
|
$
|
8
|
|
|
$
|
(6
|
)
|
|
$
|
4
|
|
|
$
|
4
|
|
19. SHARE-BASED COMPENSATION
Long Term Incentive Plan
The Delphi Technologies PLC Long-Term Incentive Plan (the “PLC LTIP”) allows for the grant of share-based awards (up to 7,500,000 ordinary shares) for long-term compensation to the employees, directors, consultants and advisors of the Company. 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.
Board of Director Awards
On April 26, 2018, Delphi Technologies granted 34,756 RSUs to the Board of Directors at a grant date fair value of approximately $2 million. The RSUs vested on April 24, 2019, and 33,944 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.
On April 25, 2019, Delphi Technologies granted 70,924 RSUs to the Board of Directors at a grant date fair value of approximately $2 million. The RSUs will vest on April 22, 2020, the day before the 2020 annual meeting of shareholders.
Executive Awards
The executive RSU 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 33% of the awards for the Company’s senior management and 50% for other executives, vest ratably over three years beginning on the first anniversary of the grant date. The performance-based RSUs, which make up 67% of the awards for the Company’s senior management and 50% for 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.
The details of the executive grant are as follows:
|
|
|
|
|
|
|
|
|
|
Grant Date
|
|
RSUs Granted
|
|
Grant Date Fair Value
|
|
Time-Based Award Vesting Dates
|
|
Performance-Based Award Vesting Date
|
|
|
(in millions)
|
|
|
|
|
February 2019
|
|
1.0
|
|
$27
|
|
Annually on the anniversary grant date, 2020-2022
|
|
December 31, 2021
|
February 2018
|
|
0.3
|
|
$16
|
|
Annually on the anniversary grant date, 2019-2021
|
|
December 31, 2020
|
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.
A summary of activity, including award grants, vesting and forfeitures for Delphi Technologies employees is provided below.
|
|
|
|
|
|
|
|
|
RSUs
|
|
Weighted Average Grant Date Fair Value
|
|
(in thousands)
|
|
|
Nonvested, January 1, 2019
|
679
|
|
|
$
|
42.70
|
|
Granted
|
1,210
|
|
|
24.87
|
|
Vested
|
(172
|
)
|
|
43.41
|
|
Forfeited
|
(91
|
)
|
|
32.02
|
|
Nonvested, September 30, 2019
|
1,626
|
|
|
28.40
|
|
During the nine months ended September 30, 2019, the Company entered into an individual one-time award of non-qualified stock options to purchase ordinary shares of the Company, which options had a grant date fair value of $3 million based on a contemporaneous valuation performed by an independent valuation specialist. The options become exercisable in equal parts annually over a 5-year period commencing on the first anniversary of the grant. The options will be exercisable, subject to vesting, for a period of 10 years after the grant date.
Share-based compensation expense recorded within the consolidated statement of operations was $5 million ($5 million, net of tax) and $14 million ($14 million, net of tax) based on the Company’s best estimate of ultimate performance against the respective targets during the three and nine months ended September 30, 2019, respectively. Share-based compensation
expense recorded within the consolidated statement of operations was $5 million ($5 million, net of tax) and $15 million ($15 million, net of tax) based on the Company’s best estimate of ultimate performance against the respective targets during the three and nine months ended September 30, 2018, respectively.
The Company 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 September 30, 2019, unrecognized compensation expense on a pretax basis of approximately $30 million is anticipated to be recognized over a weighted average period of approximately 2 years.
20. SEGMENT REPORTING
Delphi Technologies operates its core business along the following operating segments, which are grouped on the basis of similar product, market and operating factors:
|
|
•
|
Powertrain Systems, which manufactures high quality components and complete engine management systems to help optimize performance, emissions and fuel economy. The products include fuel injection systems as well as various other powertrain products including valvetrain, fuel delivery modules, ignition coils, canisters, sensors, valves and actuators. This segment also offers electronic control modules and corresponding software, algorithms and calibration that provide centralized and reliable management of various powertrain components. Additionally, we provide power electronics solutions that include supervisory controllers and software, along with DC/DC converters, inverters and on-board chargers that convert electricity to enable hybrid and electric vehicle propulsion systems.
|
|
|
•
|
Aftermarket, which sells aftermarket products to independent aftermarket and original equipment service customers. This segment also supplies a wide range of aftermarket products and services covering the fuel injection, electronics and engine management, maintenance, and test equipment and vehicle diagnostics categories.
|
|
|
•
|
Eliminations and Other, which includes the elimination of inter-segment transactions.
|
The accounting policies of the segments are the same as those of the consolidated Company, 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 Delphi Technologies’ chief operating decision maker regularly reviews financial results to assess performance of, and make internal operating decisions about allocating resources to the segments.
Generally, Delphi Technologies evaluates segment performance based on stand-alone segment net income before interest expense, other income (expense), net, income tax expense, equity income, net of tax, restructuring, separation costs, asset impairments and pension charges (“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. Delphi Technologies’ 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 Delphi Technologies’ operating segments. Consolidated Adjusted Operating Income should not be considered a substitute for results prepared in accordance with U.S. GAAP and should not be considered an alternative to net income attributable to Delphi Technologies, which is the most directly comparable financial measure to Adjusted Operating Income that is prepared in accordance with U.S. GAAP. Adjusted Operating Income, as determined and measured by Delphi Technologies, should also not be compared to similarly titled measures reported by other companies.
Included below are sales and operating data for the Company’s segments for the three and nine months ended September 30, 2019 and 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Powertrain Systems
|
|
Aftermarket
|
|
Eliminations
and Other (1)
|
|
Total
|
|
|
|
|
|
|
|
|
|
(in millions)
|
For the Three Months Ended September 30, 2019:
|
|
|
|
|
|
|
|
Net sales
|
$
|
888
|
|
|
$
|
214
|
|
|
$
|
(69
|
)
|
|
$
|
1,033
|
|
Depreciation & amortization
|
$
|
52
|
|
|
$
|
2
|
|
|
$
|
—
|
|
|
$
|
54
|
|
Adjusted operating income
|
$
|
49
|
|
|
$
|
22
|
|
|
$
|
—
|
|
|
$
|
71
|
|
Operating income
|
$
|
26
|
|
|
$
|
19
|
|
|
$
|
—
|
|
|
$
|
45
|
|
Equity income, net of tax
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1
|
|
Net income attributable to noncontrolling interest
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Powertrain Systems
|
|
Aftermarket
|
|
Eliminations
and Other (1)
|
|
Total
|
|
|
|
|
|
|
|
|
|
(in millions)
|
For the Three Months Ended September 30, 2018:
|
|
|
|
|
|
|
|
Net sales
|
$
|
1,017
|
|
|
$
|
217
|
|
|
$
|
(75
|
)
|
|
$
|
1,159
|
|
Depreciation & amortization
|
$
|
46
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
47
|
|
Adjusted operating income
|
$
|
92
|
|
|
$
|
16
|
|
|
$
|
—
|
|
|
$
|
108
|
|
Operating income
|
$
|
66
|
|
|
$
|
15
|
|
|
$
|
—
|
|
|
$
|
81
|
|
Equity income, net of tax
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Net income attributable to noncontrolling interest
|
$
|
3
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Powertrain Systems
|
|
Aftermarket
|
|
Eliminations
and Other (1)
|
|
Total
|
|
|
|
|
|
|
|
|
|
(in millions)
|
For the Nine Months Ended September 30, 2019:
|
|
|
|
|
|
|
|
Net sales
|
$
|
2,879
|
|
|
$
|
621
|
|
|
$
|
(195
|
)
|
|
$
|
3,305
|
|
Depreciation & amortization
|
$
|
159
|
|
|
$
|
5
|
|
|
$
|
—
|
|
|
$
|
164
|
|
Adjusted operating income
|
$
|
189
|
|
|
$
|
50
|
|
|
$
|
—
|
|
|
$
|
239
|
|
Operating income
|
$
|
116
|
|
|
$
|
40
|
|
|
$
|
—
|
|
|
$
|
156
|
|
Equity income, net of tax
|
$
|
2
|
|
|
$
|
—
|
|
—
|
|
$
|
—
|
|
|
$
|
2
|
|
Net income attributable to noncontrolling interest
|
$
|
10
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Powertrain Systems
|
|
Aftermarket
|
|
Eliminations
and Other (1)
|
|
Total
|
|
|
|
|
|
|
|
|
|
(in millions)
|
For the Nine Months Ended September 30, 2018:
|
|
|
|
|
|
|
|
Net sales
|
$
|
3,256
|
|
|
$
|
649
|
|
|
$
|
(218
|
)
|
|
$
|
3,687
|
|
Depreciation & amortization
|
$
|
142
|
|
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
145
|
|
Adjusted operating income
|
$
|
368
|
|
|
$
|
55
|
|
|
$
|
—
|
|
|
$
|
423
|
|
Operating income
|
$
|
294
|
|
|
$
|
47
|
|
|
$
|
—
|
|
|
$
|
341
|
|
Equity income, net of tax
|
$
|
6
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6
|
|
Net income attributable to noncontrolling interest
|
$
|
14
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
15
|
|
|
|
(1)
|
Eliminations and Other includes the elimination of inter-segment transactions.
|
The reconciliation of Adjusted Operating Income to Operating Income includes, as applicable, restructuring, separation costs, asset impairments, and pension charges. The reconciliation of Adjusted Operating Income to net income attributable to Delphi Technologies for the three and nine months ended September 30, 2019 and 2018 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Powertrain Systems
|
|
Aftermarket
|
|
Eliminations
and Other
|
|
Total
|
|
|
|
|
|
|
|
|
|
(in millions)
|
For the Three Months Ended September 30, 2019:
|
|
|
|
|
|
|
|
Adjusted operating income
|
$
|
49
|
|
|
$
|
22
|
|
|
$
|
—
|
|
|
$
|
71
|
|
Restructuring
|
(12
|
)
|
|
(1
|
)
|
|
—
|
|
|
(13
|
)
|
Separation costs (1)
|
(8
|
)
|
|
(2
|
)
|
|
—
|
|
|
(10
|
)
|
Asset impairments
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
Pension charges (2)
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
(2
|
)
|
Operating income
|
$
|
26
|
|
|
$
|
19
|
|
|
$
|
—
|
|
|
45
|
|
Interest expense
|
|
|
|
|
|
|
(16
|
)
|
Other income, net
|
|
|
|
|
|
|
8
|
|
Income before income taxes and equity income
|
|
|
|
|
|
|
37
|
|
Income tax expense
|
|
|
|
|
|
|
(21
|
)
|
Equity income, net of tax
|
|
|
|
|
|
|
1
|
|
Net income
|
|
|
|
|
|
|
17
|
|
Net income attributable to noncontrolling interest
|
|
|
|
|
|
|
3
|
|
Net income attributable to Delphi Technologies
|
|
|
|
|
|
|
$
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Powertrain Systems
|
|
Aftermarket
|
|
Eliminations
and Other
|
|
Total
|
|
|
|
|
|
|
|
|
|
(in millions)
|
For the Three Months Ended September 30, 2018:
|
|
|
|
|
|
|
|
Adjusted operating income
|
$
|
92
|
|
|
$
|
16
|
|
|
$
|
—
|
|
|
$
|
108
|
|
Restructuring
|
(9
|
)
|
|
4
|
|
|
—
|
|
|
(5
|
)
|
Separation costs (1)
|
(17
|
)
|
|
(5
|
)
|
|
—
|
|
|
(22
|
)
|
Operating income
|
$
|
66
|
|
|
$
|
15
|
|
|
$
|
—
|
|
|
81
|
|
Interest expense
|
|
|
|
|
|
|
(20
|
)
|
Other expense, net
|
|
|
|
|
|
|
(6
|
)
|
Income before income taxes and equity income
|
|
|
|
|
|
|
55
|
|
Income tax expense
|
|
|
|
|
|
|
(12
|
)
|
Equity income, net of tax
|
|
|
|
|
|
|
—
|
|
Net income
|
|
|
|
|
|
|
43
|
|
Net income attributable to noncontrolling interest
|
|
|
|
|
|
|
4
|
|
Net income attributable to Delphi Technologies
|
|
|
|
|
|
|
$
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Powertrain Systems
|
|
Aftermarket
|
|
Eliminations
and Other
|
|
Total
|
|
|
|
|
|
|
|
|
|
(in millions)
|
For the Nine Months Ended September 30, 2019:
|
|
|
|
|
|
|
|
Adjusted operating income
|
$
|
189
|
|
|
$
|
50
|
|
|
$
|
—
|
|
|
$
|
239
|
|
Restructuring
|
(19
|
)
|
|
(2
|
)
|
|
—
|
|
|
(21
|
)
|
Separation costs (1)
|
(35
|
)
|
|
(6
|
)
|
|
—
|
|
|
(41
|
)
|
Asset impairments
|
(8
|
)
|
|
(1
|
)
|
|
—
|
|
|
(9
|
)
|
Pension charges (2)
|
(11
|
)
|
|
(1
|
)
|
|
—
|
|
|
(12
|
)
|
Operating income
|
$
|
116
|
|
|
$
|
40
|
|
|
$
|
—
|
|
|
156
|
|
Interest expense
|
|
|
|
|
|
|
(52
|
)
|
Other income, net
|
|
|
|
|
|
|
4
|
|
Income before income taxes and equity income
|
|
|
|
|
|
|
108
|
|
Income tax expense
|
|
|
|
|
|
|
(43
|
)
|
Equity income, net of tax
|
|
|
|
|
|
|
2
|
|
Net income
|
|
|
|
|
|
|
67
|
|
Net income attributable to noncontrolling interest
|
|
|
|
|
|
|
10
|
|
Net income attributable to Delphi Technologies
|
|
|
|
|
|
|
$
|
57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Powertrain Systems
|
|
Aftermarket
|
|
Eliminations
and Other
|
|
Total
|
|
|
|
|
|
|
|
|
|
(in millions)
|
For the Nine Months Ended September 30, 2018:
|
|
|
|
|
|
|
|
Adjusted operating income
|
$
|
368
|
|
|
$
|
55
|
|
|
$
|
—
|
|
|
$
|
423
|
|
Restructuring
|
(31
|
)
|
|
3
|
|
|
—
|
|
|
(28
|
)
|
Separation costs (1)
|
(42
|
)
|
|
(11
|
)
|
|
—
|
|
|
(53
|
)
|
Asset impairments
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
Operating income
|
$
|
294
|
|
|
$
|
47
|
|
|
$
|
—
|
|
|
341
|
|
Interest expense
|
|
|
|
|
|
|
(59
|
)
|
Other income, net
|
|
|
|
|
|
|
4
|
|
Income before income taxes and equity income
|
|
|
|
|
|
|
286
|
|
Income tax expense
|
|
|
|
|
|
|
(54
|
)
|
Equity income, net of tax
|
|
|
|
|
|
|
6
|
|
Net income
|
|
|
|
|
|
|
238
|
|
Net income attributable to noncontrolling interest
|
|
|
|
|
|
|
15
|
|
Net income attributable to Delphi Technologies
|
|
|
|
|
|
|
$
|
223
|
|
|
|
(1)
|
Separation costs include one-time incremental expenses associated with becoming a stand-alone publicly-traded company.
|
|
|
(2)
|
Pension charges include additional contributions to defined contribution plans, other payments to impacted employees and other related expenses resulting from the freeze of future accruals for nearly all U.K. defined benefit pension plans.
|
In July 2019, the Company’s chief operating decision maker announced changes to the Company’s organization structure. As a result of these changes, it is expected that the Company’s chief operating decision maker will make changes to how he assesses the performance of the business and allocates resources. Therefore, the Company anticipates this will result in a change to its operating segments by the filing of the Company’s Form 10-K for the year ended December 31, 2019.
21. SUBSEQUENT EVENTS
On October 31, 2019, the Company announced its intention to restructure the Company’s global technical center footprint and reduce salaried and contract staff. These actions are subject to consultation with employee works councils and other employee representatives and are expected to be substantially completed by the end of 2021. The Company expects to record pre-tax
restructuring charges of up to $200 million related to these actions, nearly all of which will be cash expenditures. The amount and timing of the charges will be based on a variety of factors, including consultations with employee works councils and other employee representatives.
As a result of this restructuring and the Company’s focus on improving cash flow performance, the Company has suspended its share repurchase program.
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 the Company, contain forward-looking statements that reflect, when made, the Company’s current views with respect to future events and financial performance. Such forward-looking statements are subject to many risks, uncertainties and factors relating to the Company’s operations and business environment, which may cause the actual results of the Company to be materially different from any future results, express or implied by such forward-looking statements. All statements that address future operating, financial or business performance or the Company’s strategies or expectations are forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “may,” “will,” “should,” “expects,” “anticipates,” “believes,” “estimates,” “potential,” or “continue,” the negatives thereof and other comparable terminology. Factors that could cause actual results to differ materially from these forward-looking statements include, but are not limited to, the following:
|
|
•
|
our ability to successfully and cost-effectively restructure our global technical center footprint and reduce salaried and contract staff with minimal disruption to our business;
|
|
|
•
|
global and regional economic conditions, including conditions affecting the credit market and those resulting from the United Kingdom referendum held on June 23, 2016 in which voters approved an exit from the European Union, commonly referred to as “Brexit”;
|
|
|
•
|
risks inherent in operating as a global company, such as, fluctuations in interest rates and foreign currency exchange rates and economic, political and trade conditions around the world;
|
|
|
•
|
the cyclical nature of automotive sales and production;
|
|
|
•
|
the potential disruptions in the supply of and changes in the competitive environment for raw material integral to the Company’s products;
|
|
|
•
|
the Company’s ability to maintain contracts that are critical to its operations;
|
|
|
•
|
potential changes to beneficial free trade laws and regulations such as the North American Free Trade Agreement;
|
|
|
•
|
the ability of the Company to achieve the intended benefits from its separation from its former parent or from acquisitions the Company may make;
|
|
|
•
|
the ability of the Company to attract, motivate and/or retain key executives;
|
|
|
•
|
the ability of the Company to avoid or continue to operate during a strike, or partial work stoppage or slow down by any of its unionized employees or those of its principal customers or suppliers;
|
|
|
•
|
the ability of the Company to attract and retain customers;
|
|
|
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new technologies that displace demand for our products and our ability to develop and commercialize new products to meet our customers’ needs;
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changes in customer preferences and requirements, including any resultant inability to realize the sales represented by our bookings;
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changes in the costs of raw materials;
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the Company’s indebtedness, including the amount thereof and capital availability and cost;
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the cost and outcome of any claims, legal proceedings or investigations;
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the failure or breach of information technology systems;
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severe weather conditions and natural disasters and any resultant disruptions on the supply or production of goods or services or customer demands;
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acts of war and/or terrorism, as well as the impact of actions taken by governments as a result of further acts or threats of terrorism; and
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the timing and occurrence (or non-occurrence) of other events or circumstances that may be beyond our control.
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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 the fiscal year ended December 31, 2018. New risks and uncertainties arise from time to time, and it is impossible for us to predict these events or how they may affect the Company. It should be remembered that the price of the ordinary shares and any income from them can go down as well as up. Delphi Technologies
disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events and/or otherwise, except as may be required by law.