DELPHI TECHNOLOGIES PLC, 10-Q filed on 5/9/2018
Quarterly Report
v3.8.0.1
Document And Entity Information - shares
3 Months Ended
Mar. 31, 2018
May 04, 2018
Document and Entity Information [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Mar. 31, 2018  
Document Fiscal Period Focus Q1  
Document Fiscal Year Focus 2018  
Entity Registrant Name Delphi Technologies PLC  
Entity Central Index Key 0001707092  
Current Fiscal Year End Date --12-31  
Entity Filer Category Large Accelerated Filer  
Entity Common Stock, Shares Outstanding   88,785,733
v3.8.0.1
Consolidated Statements Of Operations - USD ($)
shares in Thousands, $ in Millions
3 Months Ended
Mar. 31, 2018
Mar. 31, 2017
Income Statement [Abstract]    
Net sales $ 1,296 $ 1,168
Operating expenses:    
Cost of sales 1,046 926
Selling, general and administrative 97 80
Amortization 4 4
Restructuring (Note 8) 11 10
Total operating expenses 1,158 1,020
Operating income 138 148
Interest expense (20) (1)
Other (expense) income, net (Note 18) 6 (6)
Income before income taxes and equity income 124 141
Income tax expense (22) (31)
Income before equity income 102 110
Equity income, net of tax 3 1
Net income 105 111
Net income attributable to noncontrolling interest 7 8
Net income attributable to Delphi Technologies $ 98 $ 103
Net income per share attributable to Delphi Technologies:    
Basic (in dollars per share) $ 1.10 $ 1.16
Diluted (in dollars per share) $ 1.10 $ 1.16
Weighted Average Number of Shares Outstanding [Abstract]    
Basic (in dollars per share) 88,710 88,610
Diluted (in dollars per share) 88,920 88,610
Cash dividends declared per share $ 0.17 $ 0.00
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Consolidated Statements Of Comprehensive Income - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2018
Mar. 31, 2017
Statement of Comprehensive Income [Abstract]    
Net income $ 105 $ 111
Other comprehensive income (loss):    
Currency translation adjustments 31 29
Net change in unrecognized gain (loss) on derivative instruments, net of tax (Note 16) (1) 0
Employee benefit plans adjustment, net of tax (8) 4
Other comprehensive income 22 33
Comprehensive income 127 144
Comprehensive income attributable to noncontrolling interests 9 9
Comprehensive income attributable to Delphi Technologies $ 118 $ 135
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Consolidated Balance Sheets - USD ($)
$ in Millions
Mar. 31, 2018
Dec. 31, 2017
Current assets:    
Cash and cash equivalents $ 316 $ 338
Restricted cash 1 1
Accounts receivable, net 1,058 1,090
Inventories (Note 4) 498 498
Other current assets (Note 5) 132 131
Total current assets 2,005 2,058
Long-term assets:    
Property, net 1,336 1,316
Investments in affiliates 39 37
Intangible Assets and goodwill, net (Note 2) 79 82
Deferred income taxes (Note 13) 179 178
Other long-term assets (Note 5) 140 122
Total long-term assets 1,773 1,735
Total assets 3,778 3,793
Current liabilities:    
Short-term debt (Note 9) 23 20
Accounts payable 819 931
Accrued liabilities (Note 6) 467 445
Total current liabilities 1,309 1,396
Long-term liabilities:    
Long-term debt (Note 9) 1,507 1,515
Pension benefit obligations 546 531
Other long-term liabilities (Note 6) 114 119
Total long-term liabilities 2,167 2,165
Total liabilities 3,476 3,561
Commitments and contingencies (Note 11)
Shareholders' equity:    
Preferred shares, $0.01 par value per share, 50,000,000 shares authorized, none issued and outstanding 0 0
Ordinary shares, $0.01 par value per share, 1,200,000,000 shares authorized, 88,764,927 and 88,613,262 issued and outstanding as of March 31, 2018 and December 31, 2017, respectively 1 1
Additional paid-in capital 399 431
Retained earnings 90 7
Accumulated other comprehensive loss (Note 15) (351) (371)
Total Delphi Technologies shareholders' equity 139 68
Noncontrolling interest 163 164
Total shareholders' equity 302 232
Total liabilities and shareholders' equity $ 3,778 $ 3,793
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Consolidated Balance Sheets (Parenthetical) - $ / shares
Mar. 31, 2018
Dec. 31, 2017
Statement of Financial Position [Abstract]    
Preferred shares, par value per share $ 0.01 $ 0.01
Preferred shares, authorized 50,000,000 50,000,000
Preferred shares, outstanding 0 0
Ordinary Shares, Par or Stated Value Per Share $ 0.01 $ 0.01
Ordinary shares, authorized 1,200,000,000 1,200,000,000
Ordinary shares, outstanding 88,764,927 88,613,262
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Consolidated Statements Of Cash Flows - USD ($)
$ in Millions
3 Months Ended 12 Months Ended
Mar. 31, 2018
Mar. 31, 2017
Dec. 31, 2017
Cash flows from operating activities:      
Net income $ 105 $ 111  
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation 46 44  
Amortization 4 4  
Amortization of deferred debt issuance costs 1 0  
Restructuring expense, net of cash paid (7) (14)  
Deferred income taxes 2 0  
Pension and other postretirement benefit expenses 11 11  
Income from equity method investments, net of dividends received (3) (1)  
Share-based compensation 5 5  
Changes in operating assets and liabilities:      
Accounts receivable, net (23) (96)  
Inventories (1) (32)  
Other assets (9) (17)  
Accounts payable (74) (5)  
Accrued and other long-term liabilities 24 (10)  
Other, net 5 27  
Pension contributions (11) (11)  
Net cash provided by operating activities 75 16  
Cash flows from investing activities:      
Capital expenditures (66) (51)  
Proceeds from sale of property / investments 1 0  
Cost of technology investments (7) 0  
Net cash used in investing activities (72) (51)  
Cash flows from financing activities:      
Net (repayments) proceeds under other short-term debt agreements (1) (1)  
Repayments under long-term debt agreements (5) 0  
Dividend payments of consolidated affiliates to minority shareholders (10) (10)  
Distribution of cash dividends (15) 0  
Taxes withheld and paid on employees' restricted share awards (2) 0  
Other Net Transfers To Former Parent 0 2  
Net cash used in financing activities (33) (9)  
Effect of exchange rate fluctuations on cash and cash equivalents 8 4  
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents, Period Increase (Decrease), Including Exchange Rate Effect (22) (40)  
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents, beginning 339 101 $ 101
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents, end $ 317 $ 61 $ 339
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Consolidated Statement Of Shareholders' Equity - USD ($)
shares in Millions, $ in Millions
Total
Ordinary Shares
Additional Paid in Capital
Retained Earnings
Accumulated Other Comprehensive Loss
Total Delphi Technologies Shareholders' Equity
Noncontrolling Interest
Net income $ 111            
Other comprehensive income 33            
Balance at end of year at Mar. 31, 2017         $ (679)    
Balance at beginning of year at Dec. 31, 2017 232 $ 1 $ 431 $ 7 (371) $ 68 $ 164
Shares outstanding, beginning of period at Dec. 31, 2017   89          
Net income 105     98   98 7
Other comprehensive income 22       20 20 2
Dividends on ordinary shares (25)   0 (15)   (15) (10)
Stockholders Equity Separation Related Adjustment (32)   (32) 0   (32) 0
Taxes witheld on employees' restricted share award vestings (5)         (5)  
Share-based Compensation 5   5     5  
Share-based compensation, in shares   0          
Balance at end of year at Mar. 31, 2018 $ 302 $ 1 $ 399 $ 90 $ (351) $ 139 $ 163
Shares outstanding, end of period at Mar. 31, 2018   89          
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General
3 Months Ended
Mar. 31, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
General
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 Delphi Automotive PLC (the “Former Parent”). The separation was completed in the form of a pro rata distribution to Delphi Automotive PLC shareholders of record on November 22, 2017 of 100% of the outstanding ordinary shares of Delphi Technologies PLC held by Delphi Automotive PLC (the “Separation”). Following the Separation, Delphi Automotive PLC changed its name to Aptiv PLC (“Aptiv”). Delphi Technologies’ ordinary shares began “regular way” trading on the New York Stock Exchange under the ticker symbol “DLPH” on December 5, 2017 (references hereinafter to “Delphi Technologies,” “we,” “us,” “our” or the “Company” refer to Delphi Technologies PLC and include the results of the Former Parent’s Powertrain Systems segment).
Nature of Operations
Delphi Technologies is 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. The Company is 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 (“FIS”), actuators, valvetrain products, sensors, electronic control modules and power electronics technologies. Additionally, the Company offers a full spectrum of aftermarket products serving a global customer base.
Our comprehensive portfolio of advanced technologies and solutions for all propulsion systems are sold to global OEMs of both light vehicles (passenger cars, trucks and vans and sport-utility vehicles) and commercial vehicles (light-duty, medium-duty and heavy-duty trucks, commercial vans, buses and off-highway vehicles). The Delphi Technologies Aftermarket segment also remanufactures and sells our technologies to leading aftermarket companies, including independent retailers and wholesale distributors. We supply a wide range of aftermarket products and services covering the fuel injection, electronics and engine management, maintenance, and test equipment and vehicle diagnostics categories. 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
Prior to the Separation on December 4, 2017, the historical financial statements of Delphi Technologies were prepared on a stand-alone combined basis and were derived from Delphi Automotive PLC’s consolidated financial statements and accounting records as if the Powertrain Systems segment, which historically included Delphi Technologies Aftermarket, of the Former Parent had been part of Delphi Technologies for all periods presented. Accordingly, for periods prior to December 4, 2017, our financial statements are presented on a combined basis and for the periods subsequent to December 4, 2017 are presented on a consolidated basis (all periods hereinafter are referred to as “consolidated financial statements”).
At the time of the Separation, we used available information to develop our best estimates for certain assets and liabilities related to the Separation. In certain instances, final determination of the Separation-related balances will be made in subsequent periods, and any adjustments, if necessary, are recorded to shareholders’ equity when determined.
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. All adjustments, consisting of 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 Delphi Technologies 2017 Annual Report on Form 10-K.
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Significant Accounting Policies
3 Months Ended
Mar. 31, 2018
Accounting Policies [Abstract]  
Significant Accounting Policies
SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation—The consolidated financial statements include the accounts of Delphi Technologies’ United States (“U.S.”) and non-U.S. subsidiaries in which the Company holds a controlling financial or management interest and variable interest entities of which Delphi Technologies has determined that it is the primary beneficiary. All significant intercompany transactions and balances between consolidated Delphi Technologies businesses have been eliminated. For periods prior to December 4, 2017, transactions between the Company and the Former Parent have been included in the financial statements within Former Parent net investment. Prior to December 4, 2017, expenses related to corporate allocations from the Former Parent to the Company were considered to be effectively settled for cash in the financial statements at the time the transaction was recorded. Prior to the Separation, transactions between the Company and the Former Parent’s other subsidiaries were classified as related party, rather than intercompany, transactions within the consolidated financial statements.
Delphi Technologies’ share of the earnings or losses of Delphi-TVS Diesel Systems Ltd (of which Delphi Technologies owns approximately 50%), a non-controlled affiliate located in India over which the Company exercises significant influence, is included in the consolidated operating results of Delphi Technologies using the equity method of accounting.
During the year ended December 31, 2015, Delphi Technologies made a $20 million investment in Tula Technology, Inc. (“Tula”), an engine control software company, over which the Company does not exert significant influence. During the year ended December 31, 2017, Delphi Technologies made an additional $1 million investment in Tula.
During the three months ended March 31, 2018, Delphi Technologies made a $7 million investment in PolyCharge America, Inc. (“PolyCharge”), a start-up established to commercialize a new capacitor technology, over which the Company does not exert significant influence.
Tula and PolyCharge are privately-held companies that do not have readily determinable fair values and therefore are measured at cost less impairments, adjusted for observable price changes in orderly transactions for the identical or similar investment of the same issuer. There were no impairments or upward adjustments recorded during the three months ended March 31, 2018 or 2017. These investments are classified within other long-term assets in the consolidated balance sheets.
The Company monitors its equity investments, including those measured at fair value and those that do not have readily determinable fair values, for indicators of impairments or upward adjustments, on an ongoing basis. If the Company determines that such an indicator is present, an adjustment 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.
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, worker’s compensation accruals and healthcare accruals. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be based upon amounts that differ from those estimates.
Revenue recognition—We recognize revenue in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”). Revenue is recognized when obligations under the terms of a contract with our customer are satisfied; generally this occurs with the transfer of control of our production parts or aftermarket parts. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods. Sales incentives and allowances (including returns) are recognized as a reduction to revenue at the time of the related sale. We estimate the allowances based on an analysis of historical experience. Taxes assessed by a governmental authority that we collect concurrent with a specific revenue-producing transaction are excluded from net sales. Shipping and handling fees billed to customers are included in net sales, while costs of shipping and handling are included in cost of sales.
Delphi Technologies Aftermarket provides certain customers with a right of return. We recognize an estimated return asset (and adjust 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 March 31, 2018, we had return assets of $9 million included in other current assets.
Refer to Note 12. Revenue and Note 5. Assets for additional information.
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 periods prior to the Separation, the denominator for basic and diluted net income per share was calculated using the 88.61 million Delphi Technologies ordinary shares outstanding immediately following the Separation. The same number of shares was used to calculate basic and diluted earnings per share in those periods since no Delphi Technologies equity awards were outstanding prior to the Separation. Refer to Note 14. Shareholders’ Equity and Net Income Per Share for additional information including the calculation of basic and diluted net income per share.
Rebates—The Company accrues for rebates pursuant to specific arrangements primarily with certain aftermarket customers. Rebates generally provide for price reductions based upon purchase volumes and are recorded as a reduction of sales as earned by such customers.
Cash and cash equivalents—Cash and cash equivalents are defined as short-term, highly liquid investments with original maturities of three months or less.
Accounts receivable—Accounts receivable are recorded at the invoiced amount and do not bear interest. The Company generally does not require collateral for its trade receivables.
Sales of receivables are accounted for in accordance with the FASB 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 to a third party 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. The expenses associated with receivables factoring are recorded in the consolidated statements of operations within interest expense.
Intangible assets—Intangible assets were $72 million and $75 million as of March 31, 2018 and December 31, 2017, respectively. The Company has definite-lived intangible assets related to patents and developed technology, customer relationships and trade names. The Company amortizes definite-lived intangible assets over their estimated useful lives. 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 $4 million and $4 million for the three months ended March 31, 2018 and 2017, respectively.
Goodwill—Goodwill is the excess of the purchase price over the estimated fair value of identifiable net assets acquired in business combinations. The Company tests goodwill for impairment annually in the fourth quarter, or more frequently when indications of potential impairment exist. The Company monitors the existence of potential impairment indicators throughout the fiscal year. The Company tests for goodwill impairment at the reporting unit level. Our reporting units are the components of operating segments which constitute businesses for which discrete financial information is available and is regularly reviewed by segment management.
There were no indicators of potential goodwill impairment during the three months ended March 31, 2018. Goodwill was $7 million and $7 million as of March 31, 2018 and December 31, 2017, respectively.
Warranty and product recalls—Expected warranty costs for products sold are recognized at the time of sale of the product based on an estimate of the amount that eventually will be required to settle such obligations. These accruals are based on factors such as past experience, production changes, industry developments and various other considerations. Costs of product recalls, which may include the cost of the product being replaced as well as the customer’s cost of the recall, including labor to remove and replace the recalled part, are accrued as part of our warranty accrual at the time an obligation becomes probable and can be reasonably estimated. These estimates are adjusted from time to time based on facts and circumstances that impact the status of existing claims. Refer to Note 7. 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 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 13. Income Taxes for additional information.
Restructuring—Delphi Technologies continually evaluates alternatives to align the business with the changing needs of its customers and to lower operating costs. This includes the realignment of its existing manufacturing capacity, facility closures, or similar actions, either in the normal course of business or pursuant to significant restructuring programs. These actions may result in employees receiving voluntary or involuntary employee termination benefits, which are mainly pursuant to union or other contractual agreements. Voluntary termination benefits are accrued when an employee accepts the related offer. Involuntary termination benefits are accrued upon the commitment to a termination plan and when the benefit arrangement is communicated to affected employees, or when liabilities are determined to be probable and estimable, depending on the existence of a substantive plan for severance or termination. Contract termination costs are recorded when contracts are terminated or when Delphi Technologies no longer derives economic benefit from a contract or ceases to use a leased facility. All other exit costs are expensed as incurred. Refer to Note 8. Restructuring for additional information.
Derivative financial 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.
Exposure to fluctuations in currency exchange rates are managed by entering into a variety of forward contracts and swaps with various counterparties. Such financial exposures are managed in accordance with the policies and procedures of Delphi Technologies. We do not enter into derivative transactions for speculative or trading purposes. As part of the hedging program approval process, we identify the specific financial risk which the derivative transaction will minimize, the appropriate hedging instrument to be used to reduce the risk and the correlation between the financial risk and the hedging instrument. Purchase orders, sales contracts, letters of intent, capital planning forecasts and historical data are used as the basis for determining the anticipated values of the transactions to be hedged. We do not enter into derivative transactions that do not have a high correlation with the underlying financial risk. Hedge positions, as well as the correlation between the transaction risks and the hedging instruments, are reviewed on an ongoing basis.
Foreign exchange forward contracts are accounted for as hedges of firm or forecasted foreign currency commitments to the extent they are designated and assessed as highly effective. All foreign exchange contracts are marked to market on a current basis. Refer to Note 16. Derivatives and Hedging Activities and Note 17. Fair Value of Financial Instruments for additional information.
Customer concentrations—There were no customers with greater than 10% of our net sales for the three months ended March 31, 2018 and March 31, 2017.
Recently adopted accounting pronouncements—Delphi Technologies adopted Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606), in the first quarter of 2018 using the modified retrospective method. This ASU supersedes most of the existing guidance on revenue recognition in ASC Topic 605, Revenue Recognition and establishes a broad principle that requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The adoption of this guidance did not have a significant impact on the Company’s consolidated financial statements. Topic 606 was applied to contracts with customers which were not completed as of January 1, 2018. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. Refer to Note 12. Revenue for additional information.
Delphi Technologies adopted ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, in the first quarter of 2018. This guidance makes targeted improvements to existing U.S. GAAP for financial instruments, including requiring equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income as opposed to other comprehensive income. Entities with equity investments that do not have a readily determinable fair value, and do not qualify for the practical expedient in ASC 820 to estimate fair value using the net asset value per share, may elect to measure these investments at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer. The adoption of this guidance did not have a significant impact on the Company’s consolidated financial statements.
Delphi Technologies adopted ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, in the first quarter of 2018. This guidance clarifies the presentation requirements of eight specific issues within the statement of cash flows. The adoption of this guidance did not have a significant impact on the Company’s consolidated financial statements, as Company’s treatment of the relevant affected items within its consolidated statement of cash flows is generally consistent with the requirements of this guidance.
Delphi Technologies adopted ASU 2016-16, Accounting for Income Taxes: Intra-Entity Asset Transfers of Assets Other than Inventory, in the first quarter of 2018. This guidance requires that the tax effects of all intra-entity sales of assets other than inventory be recognized in the period in which the transaction occurs. The guidance was applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. The adoption of this guidance did not have a significant impact on the Company’s consolidated financial statements.
Delphi Technologies adopted ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, in the first quarter of 2018. This guidance requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and restricted cash. As a result, restricted cash is included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The adoption of this guidance did not have a significant impact on Company’s consolidated financial statements, other than the classification of restricted cash within the beginning-of-period and end-of-period totals on the consolidated statement of cash flows, as opposed to being excluded from these totals.
Delphi Technologies elected to early adopt ASU 2017-12, Derivatives and Hedging - Targeted Improvements to Accounting for Hedging Activities, in the first quarter of 2018. This guidance expands and refines the application of hedge accounting for both non-financial and financial risk components and aligns the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. The adoption of this guidance did not have a significant impact on the Company’s consolidated financial statements, other than modifications to the disclosures. Refer to Note 16. Derivatives and Hedging Activities for additional details.
Recently issued accounting pronouncements not yet adopted—In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). Under this guidance, lessees will be required to recognize on the balance sheet a lease liability and a right-of-use asset for all leases, with the exception of short-term leases. The lease liability represents the lessee’s obligation to make lease payments arising from a lease, and will be measured as the present value of the lease payments. The right-of-use asset represents the lessee’s right to use a specified asset for the lease term, and will be measured at the lease liability amount, adjusted for lease prepayment, lease incentives received and the lessee’s initial direct costs. The standard also requires a lessee to recognize a single lease cost allocated over the lease term, generally on a straight-line basis. The new guidance is effective for fiscal years beginning after December 15, 2018. ASU 2016-02 is required to be applied using the modified retrospective approach for all leases existing as of the effective date and provides for certain practical expedients. Early adoption is permitted. The Company is currently evaluating the effects that the adoption of ASU 2016-02 will have on the Company’s consolidated financial statements, and anticipates the new guidance will significantly impact its consolidated financial statements as the Company has a significant number of operating leases. As further described in our Annual Report on Form 10-K as of December 31, 2017, the Company had minimum lease commitments under non-cancellable operating leases totaling $85 million.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This guidance requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. This guidance also requires enhanced disclosures regarding significant estimates and judgments used in estimating credit losses. The new guidance is effective for fiscal years beginning after December 15, 2019. Early adoption is permitted for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This guidance simplifies how an entity is required to test goodwill for impairment by eliminating step two from the goodwill impairment test, which measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount. Under the new guidance, if a reporting unit’s carrying amount exceeds its fair value, an entity will record an impairment charge based on that difference. The impairment charge will be limited to the amount of goodwill allocated to that reporting unit. The standard will be applied prospectively and is effective for annual and interim impairment tests performed in periods beginning after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the impact of adopting this standard on its financial statements, but does not anticipate a material impact. As this standard is prospective in nature, the impact to the Company’s consolidated financial statements of not performing a step two in order to measure the amount of any potential goodwill impairment will depend on various factors associated with the Company’s assessment of goodwill for impairment in those future periods.

In February 2018, the FASB issued ASU 2018-03, Technical Corrections and Improvements to Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. This update was issued to clarify certain guidance within ASU 2016-01. This includes an amendment to clarify that an entity measuring an equity investment using the measurement alternative may change its measurement approach to a fair value method in accordance with ASC 820, through an irrevocable election that would apply to that investment and all identical or similar investments. The update is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years beginning after June 15, 2018. Early adoption is permitted as long as the entity has adopted ASU 2016-01. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements.
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Related Party Transactions (Notes)
3 Months Ended
Mar. 31, 2018
Related Party Transactions [Abstract]  
Related Party Transactions Disclosure [Text Block]
RELATED PARTY TRANSACTIONS
Prior to the Separation, our transactions with the Former Parent were considered related party transactions. In connection with the Separation, we entered into a number of agreements with the Former Parent to govern the Separation and provide a framework for the relationship between the parties going forward, including a Transition Services Agreement, Contract Manufacturing Services Agreements, a Tax Matters Agreement and an Employee Matters Agreement.
Related Party Sales and Purchases in the Ordinary Course of Business
Prior to the Separation, in the ordinary course of business, the Company entered into transactions with the Former Parent and certain of its subsidiaries for the sale or purchase of goods, as well as other arrangements, such as providing engineering services for other subsidiaries of the Former Parent. Subsequent to the Separation, transactions with the Former Parent and its affiliates represent third-party transactions.
Prior to the Separation, total purchases from other affiliates of the Former Parent totaled $22 million for the three months ended March 31, 2017.
Allocation of Expenses Prior to the Separation
Prior to the Separation, certain services and functions including, but not limited to, senior management, legal, human resources, finance and accounting, treasury, information technology services and support, cash management, payroll processing, pension and benefit administration and other shared services were provided by the Former Parent. These costs were allocated using methodologies that management believes were reasonable for the item being allocated. Allocation methodologies included direct usage when identifiable, as well as the Company’s relative share of revenues, headcount or functional spend as a percentage of the total. However, the expenses reflected are not indicative of the actual expenses that would have been incurred during the periods presented if the Company had operated as a stand-alone publicly-traded company. In addition, the expenses reflected in the financial statements may not be indicative of expenses the Company will incur in the future.
The total costs for services and functions allocated to the Company from the Former Parent for periods prior to the Separation were as follows:
Three Months Ended March 31, 2017
Expense Allocated
 
(in millions)
Cost of sales
$
11

Selling, general and administrative
33

Total allocated cost from Former Parent
$
44


Additionally, prior to the Separation, the Company participated in a global cash pooling arrangement operated by the Former Parent, under which arrangement the working capital needs of the Company were managed. The majority of the Company’s cash during these periods was transferred to the Former Parent, and the Former Parent funded the Company’s operating and investing activities as necessary. The cumulative net transfers related to these transactions are recorded in Former Parent net investment in the consolidated financial statements.
v3.8.0.1
Inventories
3 Months Ended
Mar. 31, 2018
Inventory Disclosure [Abstract]  
Inventories
INVENTORIES, NET
Inventories, net are stated at the lower of cost, determined on a first-in, first-out basis, or net realizable value, including direct material costs and direct and indirect manufacturing costs. A summary of inventories is shown below:
 
March 31,
2018
 
December 31,
2017
 
 
 
 
 
(in millions)
Productive material
$
236

 
$
217

Work-in-process
47

 
35

Finished goods
215

 
246

Total
$
498

 
$
498

v3.8.0.1
Assets
3 Months Ended
Mar. 31, 2018
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]  
Assets
ASSETS
Other current assets consisted of the following:
 
March 31,
2018
 
December 31,
2017
 
 
 
 
 
(in millions)
Value added tax receivable
$
57

 
$
59

Prepaid insurance and other expenses
12

 
6

Reimbursable engineering costs
16

 
20

Notes receivable
31

 
39

Income and other taxes receivable
5

 
5

Deposits to vendors
2

 
2

Return assets (Note 2)
9

 

Total
$
132

 
$
131


Other long-term assets consisted of the following:
 
March 31,
2018
 
December 31,
2017
 
 
 
 
 
(in millions)
Debt issuance costs
$
4

 
$
4

Income and other taxes receivable
64

 
57

Reimbursable engineering costs
2

 

Value added tax receivable
1

 
1

Investment in Tula (Note 2)
21

 
21

Investment in PolyCharge (Note 2)
7

 

Other
41

 
39

Total
$
140

 
$
122

v3.8.0.1
Liabilities
3 Months Ended
Mar. 31, 2018
Other Liabilities Disclosure [Abstract]  
Liabilities
LIABILITIES
Accrued liabilities consisted of the following:
 
March 31,
2018
 
December 31,
2017
 
 
 
 
 
(in millions)
Payroll-related obligations
$
46

 
$
49

Employee benefits
17

 
29

Income and other taxes payable
66

 
63

Warranty obligations (Note 7)
67

 
64

Restructuring (Note 8)
56

 
54

Customer deposits
7

 
7

Freight
18

 
19

Outside services
15

 
14

Derivative financial instruments (Note 14)
4

 

Accrued interest
23

 
12

Deferred cost reimbursement
9

 
10

Accrued rebates
31

 
30

Deferred reimbursable engineering
23

 
14

Other
85

 
80

Total
$
467

 
$
445


Other long-term liabilities consisted of the following:
 
March 31,
2018
 
December 31,
2017
 
 
 
 
 
(in millions)
Environmental (Note 11)
$
3

 
$
3

Warranty obligations (Note 7)
32

 
33

Restructuring (Note 8)
41

 
47

Accrued income taxes
16

 
15

Deferred income taxes, net (Note 13)
14

 
14

Other
8

 
7

Total
$
114

 
$
119

v3.8.0.1
Warranty Obligations
3 Months Ended
Mar. 31, 2018
Product Warranties Disclosures [Abstract]  
Warranty Obligations
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. Delphi Technologies has recognized its best estimate for its total aggregate warranty reserves, including product recall costs, across its operating segments as of March 31, 2018. The Company estimates the reasonably possible amount to ultimately resolve all matters in excess of the recorded reserves as of March 31, 2018 to be $0 million to $20 million.
The table below summarizes the activity in the product warranty liability for the three months ended March 31, 2018:
 
Warranty Obligations
 
 
 
(in millions)
Accrual balance at beginning of period
$
97

Provision for estimated warranties incurred during the period
10

Changes in estimate for pre-existing warranties
3

Settlements made during the period (in cash or in kind)
(12
)
Foreign currency translation and other
1

Accrual balance at end of period
$
99

v3.8.0.1
Restructuring
3 Months Ended
Mar. 31, 2018
Restructuring and Related Activities [Abstract]  
Restructuring
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, either in the normal course of business or pursuant to significant restructuring programs.
As part of Delphi Technologies’ 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 $11 million during the three months ended March 31, 2018, of which $8 million was recognized for programs focused on the continued rotation of our manufacturing footprint to best cost locations in Europe and $1 million was recognized for programs implemented to reduce global overhead costs. The Company recorded employee-related and other restructuring charges related to these programs totaling approximately $10 million during the three months ended March 31, 2017.
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 $18 million and $24 million in the three months ended March 31, 2018 and 2017, respectively.
The following table summarizes the restructuring charges recorded for the three months ended March 31, 2018 and 2017 by operating segment:
 
Three Months Ended March 31,
 
2018
 
2017
 
 
 
 
 
(in millions)
Powertrain Systems
$
11

 
$
4

Delphi Technologies Aftermarket

 
6

Total
$
11

 
$
10


The table below summarizes the activity in the restructuring liability for the three months ended March 31, 2018:
 
Employee Termination Benefits Liability
 
Other Exit Costs Liability
 
Total
 
 
 
 
 
 
 
(in millions)
Accrual balance at January 1, 2018
$
98

 
$
3

 
$
101

Provision for estimated expenses incurred during the period
11

 

 
11

Payments made during the period
(16
)
 
(2
)
 
(18
)
Foreign currency and other
3

 

 
3

Accrual balance at March 31, 2018
$
96

 
$
1

 
$
97

v3.8.0.1
Debt
3 Months Ended
Mar. 31, 2018
Debt Disclosure [Abstract]  
Debt
DEBT
The following is a summary of debt outstanding, net of unamortized issuance costs and discounts, as of March 31, 2018 and December 31, 2017, respectively:
 
March 31, 2018
 
December 31, 2017
 
(in millions)
$750 million Term Loan A Facility, due 2022 (net of $5 and $5 unamortized issuance costs)
$
740

 
$
745

$800 million Senior Notes at 5.00%, due 2025 (net of $13 and $14 unamortized issuance costs and $4 and $4 discount, respectively)
783

 
782

Other
7

 
8

Total debt
1,530

 
1,535

Less: current portion
(23
)
 
(20
)
Long-term debt
$
1,507

 
$
1,515


Credit Agreement
On September 7, 2017, Delphi Technologies and its wholly-owned subsidiary Delphi Powertrain Corporation entered into a credit agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A., as administrative agent (the “Administrative Agent”), with respect to $1.25 billion in senior secured credit facilities. The Credit Agreement consists of a senior secured five-year $750 million term loan facility (the “Term Loan A Facility”) and a $500 million five-year senior secured revolving credit facility (the “Revolving Credit Facility”) (collectively, the “Credit Facilities”) with the lenders party thereto and JPMorgan Chase Bank, N.A. We incurred approximately $9 million of issuance costs in connection with the Credit Agreement. As of March 31, 2018, there were no amounts drawn on the Revolving Credit Facility.
The Credit Facilities are subject to an interest rate, at our option, of either (a) the Administrative Agent’s Alternate Base Rate (“ABR” as defined in the Credit Agreement) or (b) the London Interbank Offered Rate (the “Adjusted LIBOR Rate” as defined in the Credit Agreement) (“LIBOR”), in each case, plus an applicable margin that is based on our corporate credit ratings, as more particularly described below (the “Applicable Rate”). In addition, the Credit Agreement requires payment of additional interest on certain overdue obligations on terms and conditions customary for financings of this type. The interest rate period with respect to LIBOR interest rate options can be set at one-, two-, three-, or six-months as selected by us in accordance with the terms of the Credit Agreement (or other period as may be agreed by the applicable lenders), but payable no less than quarterly. We may elect to change the selected interest rate over the term of the Credit Facilities in accordance with the provisions of the Credit Agreement. The Applicable Rates under the Credit Agreement on the specified date are set forth below:
 
March 31, 2018
 
December 31, 2017
 
LIBOR plus
 
ABR plus
 
LIBOR plus
 
ABR plus
Revolving Credit Facility
1.45
%
 
0.45
%
 
1.45
%
 
0.45
%
Term Loan A Facility
1.75
%
 
0.75
%
 
1.75
%
 
0.75
%

The applicable interest rate margins for the Term Loan A Facility will increase or decrease from time to time between 1.50% and 2.00% per annum (for LIBOR loans) and between 0.50% and 1.00% per annum (for ABR loans), in each case based upon changes to our corporate credit ratings. The applicable interest rate margins for the Revolving Credit Facility will increase or decrease from time to time between 1.30% and 1.55% per annum (for LIBOR loans) and between 0.30% and 0.55% per annum (for ABR loans), in each case based upon changes to our corporate credit ratings. Accordingly, the Applicable Rates for the Credit Facilities will fluctuate during the term of the Credit Agreement based on changes in the ABR, LIBOR or future changes in our corporate credit ratings. The Credit Agreement also requires that we pay certain facility fees on the aggregate commitments under the Revolving Credit Facility and certain letter of credit issuance and fronting fees. Amounts outstanding and the rate effective as of March 31, 2018, are detailed below:
 
 
 
Borrowings as of
 
 
 
 
 
March 31, 2018
 
Rate effective as of
 
Applicable Rate
 
(in millions)
 
March 31, 2018
Term Loan A Facility
LIBOR plus 1.75%
 
$
745

 
3.44
%

Letters of credit are available for issuance under the Credit Agreement on terms and conditions customary for financings of this type, which issuances reduce availability under the Revolving Credit Facility. No such letters of credit were outstanding as of March 31, 2018.
We are obligated to make quarterly principal payments throughout the term of the Term Loan A Facility according to the amortization provisions in the Credit Agreement. Such payments may be reduced from time to time in accordance with the terms of the Credit Agreement as a result of the application of loan prepayments made by us, if any, prior to the scheduled date of payment thereof.
Borrowings under the Credit Agreement are prepayable at our option without premium or penalty. We may request that all or a portion of the Credit Facilities be converted to extend the scheduled maturity date(s) with respect to all or a portion of any principal amount of such Credit Facilities under certain conditions customary for financings of this type. The Credit Agreement also contains certain mandatory prepayment provisions in the event that we receive net cash proceeds from certain non-ordinary course asset sales, casualty events and debt offerings, in each case subject to terms and conditions customary for financings of this type.
The Credit Agreement contains certain affirmative and negative covenants customary for financings of this type that, among other things, limit our and our subsidiaries’ ability to incur additional indebtedness or liens, to dispose of assets, to make certain fundamental changes, to designate subsidiaries as unrestricted, to make certain investments, to prepay certain indebtedness and to pay dividends, or to make other distributions or redemptions/repurchases, with respect of 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 March 31, 2018.
The borrowers under the Credit Agreement comprise Delphi Technologies and its wholly-owned Delaware-organized subsidiary, Delphi Powertrain Corporation. Additional subsidiaries of Delphi Technologies may be added as co-borrowers or guarantors under the Credit Agreement from time to time on the terms and conditions set forth in the Credit Agreement. The obligations of each borrower under the Credit Agreement will be jointly and severally guaranteed by each other borrower and by certain of our existing and future direct and indirect subsidiaries, subject to certain exceptions customary for financings of this type. All obligations of the borrowers and the guarantors are secured by certain assets of such borrowers and guarantors, including a perfected first-priority pledge of all of the capital stock in Delphi Powertrain Corporation.
In addition, the Credit Agreement contains provisions pursuant to which, based upon our achievement of certain corporate credit ratings, certain covenants and/or our obligation to provide collateral to secure the Credit Facilities, will be suspended.
Senior Notes
On September 28, 2017, Delphi Technologies PLC issued $800 million in aggregate principal amount of 5.00% senior unsecured notes due 2025 in a transaction exempt from registration under the Securities Act (the “Senior Notes”). The Senior Notes were priced at 99.5% of par, resulting in a yield to maturity of 5.077%. We incurred approximately $14 million of issuance costs in connection with the Senior Notes offering. Interest is payable semi-annually on April 1 and October 1 of each year to holders of record at the close of business on March 15 or September 15 immediately preceding the interest payment date. The proceeds received from the Senior Notes offering were deposited into escrow and subsequently released to Delphi Technologies PLC upon satisfaction of certain conditions, including completion of the Separation, in December 2017. From the date of the satisfaction of the escrow conditions, the notes are guaranteed, jointly and severally, on an unsecured basis, by each of our current and future domestic subsidiaries that guarantee our Credit Facilities, as described above. The proceeds from the Senior Notes, together with the proceeds from the borrowings under the Credit Agreement, were used to fund a dividend to the Former Parent, fund operating cash and pay taxes and related fees and expenses.
The Senior Notes indenture contains certain restrictive covenants, including with respect to Delphi Technologies’ (and subsidiaries) ability to incur liens, enter into sale and leaseback transactions and merge with or into other entities. The Company was in compliance with the Senior Notes covenants as of March 31, 2018.
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. 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 periods ended March 31, 2018 and December 31, 2017, $20 million and $92 million of receivables were sold under these arrangements, and expenses of $1 million and $3 million, respectively, were recognized within interest expense.
Capital leases—As of March 31, 2018 and December 31, 2017, approximately $1 million and $1 million, respectively, of capital lease obligations was outstanding.
Interest—Cash paid for interest related to debt outstanding totaled $9 million and less than $1 million, for the three months ended March 31, 2018 and 2017, respectively.
DEBT
The following is a summary of debt outstanding, net of unamortized issuance costs and discounts, as of March 31, 2018 and December 31, 2017, respectively:
 
March 31, 2018
 
December 31, 2017
 
(in millions)
$750 million Term Loan A Facility, due 2022 (net of $5 and $5 unamortized issuance costs)
$
740

 
$
745

$800 million Senior Notes at 5.00%, due 2025 (net of $13 and $14 unamortized issuance costs and $4 and $4 discount, respectively)
783

 
782

Other
7

 
8

Total debt
1,530

 
1,535

Less: current portion
(23
)
 
(20
)
Long-term debt
$
1,507

 
$
1,515


Credit Agreement
On September 7, 2017, Delphi Technologies and its wholly-owned subsidiary Delphi Powertrain Corporation entered into a credit agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A., as administrative agent (the “Administrative Agent”), with respect to $1.25 billion in senior secured credit facilities. The Credit Agreement consists of a senior secured five-year $750 million term loan facility (the “Term Loan A Facility”) and a $500 million five-year senior secured revolving credit facility (the “Revolving Credit Facility”) (collectively, the “Credit Facilities”) with the lenders party thereto and JPMorgan Chase Bank, N.A. We incurred approximately $9 million of issuance costs in connection with the Credit Agreement. As of March 31, 2018, there were no amounts drawn on the Revolving Credit Facility.
The Credit Facilities are subject to an interest rate, at our option, of either (a) the Administrative Agent’s Alternate Base Rate (“ABR” as defined in the Credit Agreement) or (b) the London Interbank Offered Rate (the “Adjusted LIBOR Rate” as defined in the Credit Agreement) (“LIBOR”), in each case, plus an applicable margin that is based on our corporate credit ratings, as more particularly described below (the “Applicable Rate”). In addition, the Credit Agreement requires payment of additional interest on certain overdue obligations on terms and conditions customary for financings of this type. The interest rate period with respect to LIBOR interest rate options can be set at one-, two-, three-, or six-months as selected by us in accordance with the terms of the Credit Agreement (or other period as may be agreed by the applicable lenders), but payable no less than quarterly. We may elect to change the selected interest rate over the term of the Credit Facilities in accordance with the provisions of the Credit Agreement. The Applicable Rates under the Credit Agreement on the specified date are set forth below:
 
March 31, 2018
 
December 31, 2017
 
LIBOR plus
 
ABR plus
 
LIBOR plus
 
ABR plus
Revolving Credit Facility
1.45
%
 
0.45
%
 
1.45
%
 
0.45
%
Term Loan A Facility
1.75
%
 
0.75
%
 
1.75
%
 
0.75
%

The applicable interest rate margins for the Term Loan A Facility will increase or decrease from time to time between 1.50% and 2.00% per annum (for LIBOR loans) and between 0.50% and 1.00% per annum (for ABR loans), in each case based upon changes to our corporate credit ratings. The applicable interest rate margins for the Revolving Credit Facility will increase or decrease from time to time between 1.30% and 1.55% per annum (for LIBOR loans) and between 0.30% and 0.55% per annum (for ABR loans), in each case based upon changes to our corporate credit ratings. Accordingly, the Applicable Rates for the Credit Facilities will fluctuate during the term of the Credit Agreement based on changes in the ABR, LIBOR or future changes in our corporate credit ratings. The Credit Agreement also requires that we pay certain facility fees on the aggregate commitments under the Revolving Credit Facility and certain letter of credit issuance and fronting fees. Amounts outstanding and the rate effective as of March 31, 2018, are detailed below:
 
 
 
Borrowings as of
 
 
 
 
 
March 31, 2018
 
Rate effective as of
 
Applicable Rate
 
(in millions)
 
March 31, 2018
Term Loan A Facility
LIBOR plus 1.75%
 
$
745

 
3.44
%

Letters of credit are available for issuance under the Credit Agreement on terms and conditions customary for financings of this type, which issuances reduce availability under the Revolving Credit Facility. No such letters of credit were outstanding as of March 31, 2018.
We are obligated to make quarterly principal payments throughout the term of the Term Loan A Facility according to the amortization provisions in the Credit Agreement. Such payments may be reduced from time to time in accordance with the terms of the Credit Agreement as a result of the application of loan prepayments made by us, if any, prior to the scheduled date of payment thereof.
Borrowings under the Credit Agreement are prepayable at our option without premium or penalty. We may request that all or a portion of the Credit Facilities be converted to extend the scheduled maturity date(s) with respect to all or a portion of any principal amount of such Credit Facilities under certain conditions customary for financings of this type. The Credit Agreement also contains certain mandatory prepayment provisions in the event that we receive net cash proceeds from certain non-ordinary course asset sales, casualty events and debt offerings, in each case subject to terms and conditions customary for financings of this type.
The Credit Agreement contains certain affirmative and negative covenants customary for financings of this type that, among other things, limit our and our subsidiaries’ ability to incur additional indebtedness or liens, to dispose of assets, to make certain fundamental changes, to designate subsidiaries as unrestricted, to make certain investments, to prepay certain indebtedness and to pay dividends, or to make other distributions or redemptions/repurchases, with respect of 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 March 31, 2018.
The borrowers under the Credit Agreement comprise Delphi Technologies and its wholly-owned Delaware-organized subsidiary, Delphi Powertrain Corporation. Additional subsidiaries of Delphi Technologies may be added as co-borrowers or guarantors under the Credit Agreement from time to time on the terms and conditions set forth in the Credit Agreement. The obligations of each borrower under the Credit Agreement will be jointly and severally guaranteed by each other borrower and by certain of our existing and future direct and indirect subsidiaries, subject to certain exceptions customary for financings of this type. All obligations of the borrowers and the guarantors are secured by certain assets of such borrowers and guarantors, including a perfected first-priority pledge of all of the capital stock in Delphi Powertrain Corporation.
In addition, the Credit Agreement contains provisions pursuant to which, based upon our achievement of certain corporate credit ratings, certain covenants and/or our obligation to provide collateral to secure the Credit Facilities, will be suspended.
Senior Notes
On September 28, 2017, Delphi Technologies PLC issued $800 million in aggregate principal amount of 5.00% senior unsecured notes due 2025 in a transaction exempt from registration under the Securities Act (the “Senior Notes”). The Senior Notes were priced at 99.5% of par, resulting in a yield to maturity of 5.077%. We incurred approximately $14 million of issuance costs in connection with the Senior Notes offering. Interest is payable semi-annually on April 1 and October 1 of each year to holders of record at the close of business on March 15 or September 15 immediately preceding the interest payment date. The proceeds received from the Senior Notes offering were deposited into escrow and subsequently released to Delphi Technologies PLC upon satisfaction of certain conditions, including completion of the Separation, in December 2017. From the date of the satisfaction of the escrow conditions, the notes are guaranteed, jointly and severally, on an unsecured basis, by each of our current and future domestic subsidiaries that guarantee our Credit Facilities, as described above. The proceeds from the Senior Notes, together with the proceeds from the borrowings under the Credit Agreement, were used to fund a dividend to the Former Parent, fund operating cash and pay taxes and related fees and expenses.
The Senior Notes indenture contains certain restrictive covenants, including with respect to Delphi Technologies’ (and subsidiaries) ability to incur liens, enter into sale and leaseback transactions and merge with or into other entities. The Company was in compliance with the Senior Notes covenants as of March 31, 2018.
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. 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 periods ended March 31, 2018 and December 31, 2017, $20 million and $92 million of receivables were sold under these arrangements, and expenses of $1 million and $3 million, respectively, were recognized within interest expense.
Capital leases—As of March 31, 2018 and December 31, 2017, approximately $1 million and $1 million, respectively, of capital lease obligations was outstanding.
Interest—Cash paid for interest related to debt outstanding totaled $9 million and less than $1 million, for the three months ended March 31, 2018 and 2017, respectively.
v3.8.0.1
Pension Benefits
3 Months Ended
Mar. 31, 2018
Retirement Benefits [Abstract]  
Pension Benefits
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.
The amounts shown below reflect the non-U.S. plans’ defined benefit pension expense for the three months ended March 31, 2018 and 2017:
 
Three Months Ended March 31,
 
2018
 
2017
 
 
 
 
 
(in millions)
Service cost
$
10

 
$
8

Interest cost
9

 
8

Expected return on plan assets
(14
)
 
(11
)
Amortization of actuarial losses
6

 
6

Net periodic benefit cost
$
11

 
$
11


Other postretirement benefit obligations were less than $1 million and $1 million at March 31, 2018 and December 31, 2017, respectively.
v3.8.0.1
Commitments And Contingencies
3 Months Ended
Mar. 31, 2018
Commitments and Contingencies Disclosure [Abstract]  
Commitments And Contingencies
COMMITMENTS AND CONTINGENCIES
Ordinary Business Litigation
Delphi Technologies 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 Delphi Technologies 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 Delphi Technologies. With respect to warranty matters, although Delphi Technologies cannot ensure that the future costs of warranty claims by customers will not be material, Delphi Technologies believes its established reserves are adequate to cover potential warranty settlements.
Brazil Matters
Delphi Technologies 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 Delphi Technologies believes it complies with such laws, they are complex, subject to varying interpretations, and the Company is often engaged in litigation regarding the application of these laws to particular circumstances. As of March 31, 2018, the majority of claims asserted against Delphi Technologies in Brazil relate to such litigation. The remaining claims in Brazil relate to commercial and labor litigation with private parties. As of March 31, 2018, claims totaling approximately $20 million (using March 31, 2018 foreign currency rates) have been asserted against Delphi Technologies in Brazil. As of March 31, 2018, the Company maintains accruals for these asserted claims of $5 million (using March 31, 2018 foreign currency rates). The amounts accrued represent claims that are deemed probable of loss and are reasonably estimable based on the Company’s analyses and assessment of the asserted claims and prior experience with similar matters. While the Company believes its accruals are adequate, the final amounts required to resolve these matters could differ materially from the Company’s recorded estimates and Delphi Technologies’ 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 $15 million.
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 March 31, 2018 and December 31, 2017, the undiscounted reserve for environmental investigation and remediation was approximately $4 million (of which $1 million was recorded in accrued liabilities and $3 million was recorded in other long-term liabilities) and $4 million (of which $1 million was recorded in accrued liabilities and $3 million was recorded in other long-term liabilities), respectively. Delphi Technologies cannot assure 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, Delphi Technologies’ results of operations could be materially affected. At March 31, 2018, the difference between the recorded liabilities and the reasonably possible range of potential loss was not material.
v3.8.0.1
Income Taxes
3 Months Ended
Mar. 31, 2018
Income Tax Disclosure [Abstract]  
Income Taxes
INCOME TAXES
At the end of each interim period, the Company makes its best estimate of the annual expected effective income tax rate and applies that rate to its ordinary year-to-date earnings or loss. The income tax provision or benefit related to unusual or infrequent items, if applicable, that will be separately reported or reported net of their related tax effects are individually computed and recognized in the interim period in which those items occur. In addition, the effect of changes in enacted tax laws or rates, tax status, judgment on the realizability of a beginning-of-the-year deferred tax asset in future years or income tax contingencies is recognized in the interim period in which the change occurs.
The computation of the annual expected effective income tax rate at each interim period requires certain estimates and assumptions including, but not limited to, the expected pre-tax income (or loss) for the year, projections of the proportion of income (and/or loss) earned and taxed in respective jurisdictions, permanent and temporary differences, and the likelihood of the realizability of deferred tax assets generated in the current year. Jurisdictions with a projected loss for the year or a year-to-date loss for which no tax benefit or expense can be recognized due to a valuation allowance are excluded from the estimated annual effective tax rate. The impact of such an exclusion could result in a higher or lower effective tax rate during a particular quarter, based upon the composition and timing of actual earnings compared to annual projections. The estimates used to compute the provision or benefit for income taxes may change as new events occur, additional information is obtained or as our tax environment changes. To the extent that the expected annual effective income tax rate changes, the effect of the change on prior interim periods is included in the income tax provision in the period in which the change in estimate occurs.
The Company’s income tax expense and effective tax rate for the three months ended March 31, 2018 and 2017 were as follows:
 
Three Months Ended March 31,
 
2018
 
2017
 
 
 
 
 
(dollars in millions)
Income tax expense
$
22

 
$
31

Effective tax rate
18
%
 
22
%

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 three months ended March 31, 2018 was impacted by favorable changes in geographic income mix in 2018 as compared to 2017. This was primarily due to changes in the underlying business operations and the receipt of certain tax incentives and holidays that reduced the effective tax rate for certain subsidiaries below the statutory rate. The effective tax rate for the three months ended March 31, 2017 was impacted by losses for which no benefit was recognized due to a valuation allowance and net discrete tax expense of $8 million.
Additionally, the Company’s tax rate was impacted by the enactment of the Tax Cuts and Jobs Act (the “Act”) in the United States on December 22, 2017, which provided for a reduction of the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018. We consider our effective tax rate calculation, to the extent related to the effects of the Act, to be provisional pursuant to the guidance in SEC Staff Accounting Bulletin No. 118, primarily due to lack of clarity at the balance sheet date related to the state tax impacts of federal tax reform, which resulted in our use of estimates to compute our future blended tax rate, as well as to the lack of clarity regarding the tax treatment of certain of our intercompany transactions.  If we are required to change the taxes we have provided related to our U.S. business based on further analysis and regulatory guidance at the federal and state level issued subsequent to the issuance of these statements, we will record such adjustments to income tax expense in the period that the amounts are determined. The Company was not affected by the Transition Tax provisions of the Act, which impose a U.S. tax upon unremitted earnings of non-U.S. subsidiaries which would have been subject to U.S. tax when remitted under the law in effect prior to the Act. The Company’s U.S. subsidiary does not hold any investments in non-U.S. operations.
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 $21 million and $11 million for the three months ended March 31, 2018 and 2017 respectively.
v3.8.0.1
Shareholders' Equity And Net Income Per Share
3 Months Ended
Mar. 31, 2018
Shareholders' Equity and Net Income Per Share Note [Abstract]  
Shareholders' Equity And Net Income Per Share
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 periods prior to the Separation, the denominator for basic and diluted net income per share was calculated using the 88.61 million Delphi Technologies ordinary shares outstanding immediately following the Separation. The same number of shares was used to calculate basic and diluted earnings per share in those periods since no Delphi Technologies equity awards were outstanding prior to the Separation. For periods subsequent to the Separation, 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 March 31,
 
2018
 
2017
 
 
 
 
 
(in millions, except per share data)
Numerator:
 
 
 
Net income attributable to Delphi Technologies
$
98

 
$
103

Denominator:
 
 
 
Weighted average ordinary shares outstanding, basic
88.71

 
88.61

Dilutive shares related to restricted stock units (“RSUs”)
0.21

 

Weighted average ordinary shares outstanding, including dilutive shares
88.92

 
88.61

 
 
 
 
Net income per share attributable to Delphi Technologies:
 
 
 
Basic
$
1.10

 
$
1.16

Diluted
$
1.10

 
$
1.16

Anti-dilutive securities share impact

 


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

 
$
15

Total
$
0.17

 
$
15


In addition, in April 2018, the Board of Directors declared a regular quarterly cash dividend of $0.17 per ordinary share, payable May 16, 2018 to shareholders of record at the close of business on May 8, 2018.
v3.8.0.1
Changes in Accumulated Other Comprehensive Income
3 Months Ended
Mar. 31, 2018
Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract]  
Changes in Accumulated Other Comprehensive Income
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 months ended March 31, 2018 and 2017 are shown below.
 
Three Months Ended March 31,
 
2018
 
2017
 
 
 
 
 
(in millions)
Foreign currency translation adjustments:
 
 
 
Balance at beginning of period
$
(85
)
 
$
(419
)
Aggregate adjustment for the period (1)
29

 
28

Balance at end of period
(56
)
 
(391
)
 
 
 
 
Gains (losses) on derivatives:
 
 
 
Balance at beginning of period

 

Other comprehensive income before reclassifications (net tax effect of $0 and $0)
(1
)
 

Reclassification to income (net tax effect of $0 and $0)

 

Balance at end of period
(1
)
 

 
 
 
 
Pension and postretirement plans:
 
 
 
Balance at beginning of period
(286
)
 
(292
)
Other comprehensive income before reclassifications (net tax effect of $2 and $2)
(13
)
 
(1
)
Reclassification to income (net tax effect of $1 and $1)
5

 
5

Balance at end of period
(294
)
 
(288
)
 
 
 
 
Accumulated other comprehensive loss, end of period
$
(351
)
 
$
(679
)
(1)
Includes losses of less than $1 million for the three months ended March 31, 2018 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 months ended March 31, 2018 and 2017 were as follows:
Reclassification Out of Accumulated Other Comprehensive Income (Loss)
Details About Accumulated Other Comprehensive Income Components
 
Three Months Ended March 31,
 
Affected Line Item in the Statement of Operations
 
2018
 
2017
 
 
 
 
 
 
 
 
 
 
(in millions)
 
 
Pension and postretirement plans:
 
 
 
 
 
 
Actuarial losses
 
$
(6
)
 
$
(6
)
 
Other expense (1)
 
 
(6
)
 
(6
)
 
Income before income taxes
 
 
1

 
1

 
Income tax expense
 
 
(5
)
 
(5
)
 
Net income
 
 

 

 
Net income attributable to noncontrolling interest
 
 
$
(5
)
 
$
(5
)
 
Net income attributable to Delphi Technologies
 
 
 
 
 
 
 
Total reclassifications for the period
 
$
(5
)
 
$
(5
)
 
 
(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).
v3.8.0.1
Derivatives And Hedging Activities
3 Months Ended
Mar. 31, 2018
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments and Hedging Activities
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.
As of March 31, 2018, 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 Renminbi
 
373

 
RMB
 
$
60

Mexican Peso
 
344

 
MXN
 
20

Euro
 
16

 
EUR
 
20

Singapore Dollar
 
13

 
SGD
 
10


The Company had additional foreign currency forward contracts designated as cash flow hedges with notional amounts that individually amounted to less than $10 million. As of March 31, 2018, Delphi Technologies has entered into derivative instruments to hedge cash flows extending out to March 2020.
Gains and losses on derivatives qualifying as cash flow hedges are recorded in 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 March 31, 2018 were approximately $1 million (approximately $1 million, net of tax). Of this total, approximately less than $1 million of gains/losses are expected to be included in cost of sales within the next 12 months and $1 million of gains/losses are expected to be included in cost of sales 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 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.
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 foreign currency derivatives recorded in the consolidated balance sheets as of March 31, 2018. There were no derivative financial instruments outstanding as of December 31, 2017.
Asset Derivatives
 
Liability Derivatives
 
Net Amounts of Assets and (Liabilities) Presented in the Balance Sheet
Balance Sheet Location*
 
March 31,
2018
 
Balance Sheet Location*
 
March 31,
2018
 
March 31,
2018
 
 
 
 
 
 
 
 
 
(in millions)
Designated as cash flow hedges:

 
 
 
 
 
 
 
 
Accrued liabilities
 
$

 
Accrued liabilities
 
$
1

 
$
(1
)
Other long-term liabilities
 
1

 
Other long-term liabilities
 
1

 

 
 
 
 
 
 
 
 
 
Total designated as hedges
 
$
1

 
 
 
$
2

 
 
 
 
 
 
 
 
 
 
 
Derivatives not designated as hedges:

 
 
 
 
 
 
 
 
Accrued liabilities
 

 
Accrued liabilities
 
3

 
(3
)
Total not designated as hedges
 
$

 
 
 
$
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 liability position as of March 31, 2018.
Effect of Derivatives on the Statement of Operations and Statement of Comprehensive Income
The pre-tax effect of the foreign currency derivatives in the consolidated statement of operations and consolidated statement of comprehensive income for the three months ended March 31, 2018 is as follows:
Three Months Ended March 31, 2018
Gain (Loss) Recognized in OCI
 
Gain (Loss) Reclassified from OCI into Income
 
 
 
 
 
(in millions)
Derivatives designated as cash flow hedges
$
(1
)
 
$

Total
$
(1
)
 
$

 
Loss Recognized in Income
 
 
 
(in millions)
Derivatives not designated
$
(4
)
Total
$
(4
)

The gain or loss reclassified from OCI into income of designated and not designated derivative instruments were recorded to other income, net and cost of sales in the consolidated statements of operations for the three months ended March 31, 2018 were immaterial.
v3.8.0.1
Fair Value of Financial Instrument (Notes)
3 Months Ended
Mar. 31, 2018
Fair Value Disclosures [Abstract]  
Fair Value Disclosures [Text Block]
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 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 March 31, 2018, Delphi Technologies was in a net derivative liability position of $4 million, 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 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 March 31, 2018 Delphi Technologies had the following liabilities measured at fair value on a recurring basis:
 
Total
 
Quoted Prices in Active Markets
Level 1
 
Significant Other Observable Inputs
Level 2
 
Significant Unobservable Inputs
Level 3
 
 
 
 
 
 
 
 
 
(in millions)
As of March 31, 2018:
 
Foreign currency derivatives
$
(4
)
 
$

 
$
(4
)
 
$

Total
$
(4
)
 
$

 
$
(4
)
 
$


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 capital leases, 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 March 31, 2018 and December 31, 2017, total debt was recorded at $1,530 million and $1,535 million, respectively, and had estimated fair values of $1,516 million and $1,566 million, respectively. For all other financial instruments recorded at March 31, 2018 and December 31, 2017, fair value approximates book value.
Fair Value Measurements on a Nonrecurring Basis
In addition to items that are measured at fair value on a recurring basis, 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 and cost method investments, intangible assets, asset retirement obligations, share-based compensation and liabilities for exit or disposal activities measured at fair value upon initial recognition. During the three months ended March 31, 2018, Delphi Technologies recorded non-cash asset impairment charges totaling less than $1 million within cost of sales related to declines in the fair values of certain fixed assets. During the three months ended March 31, 2017, Delphi Technologies recorded non-cash asset impairment charges totaling $4 million within cost of sales related to declines in the fair values of certain fixed assets. Fair value of long-lived assets is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved and a review of appraisals. As such, Delphi Technologies has determined that the fair value measurements of long-lived assets fall in Level 3 of the fair value hierarchy.
v3.8.0.1
Other Income, Net
3 Months Ended
Mar. 31, 2018
Other Income and Expenses [Abstract]  
Other Income, Net
OTHER INCOME, NET
Other income (expense), net included:
 
Three Months Ended March 31,
 
2018
 
2017
 
 
 
 
 
(in millions)
Interest income
$
1

 
$

Components of net periodic benefit cost other than service cost (Note 10)
(1
)
 
(3
)
Other, net
6

 
(3
)
Other income (expense), net
$
6

 
$
(6
)
v3.8.0.1
Share-Based Compensation
3 Months Ended
Mar. 31, 2018
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Share-Based Compensation
SHARE-BASED COMPENSATION
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 Company had no share-based compensation plans prior to the Separation; however certain of our employees participated in the Former Parent’s share-based compensation arrangement, the Delphi Automotive PLC Long Term Incentive Plan, as amended and restated effective April 23, 2015 (the “Former Parent Plan”). Grants of restricted stock units (“RSUs”) to executives and non-employee directors were made under the Former Parent Plan in each year from 2012 to 2017. As discussed further below, outstanding awards under the Former Parent Plan were adjusted and converted into Delphi Technologies equity awards.
Share-based compensation expense within the consolidated financial statements for periods prior to the Separation was allocated to Delphi Technologies based on the awards and terms previously granted to Delphi Technologies employees while part of the Former Parent, and includes the cost of Delphi Technologies employees who participated in the Former Parent’s Plan, as well as an allocated portion of the cost of the Former Parent’s corporate employee awards.
In connection with the Separation, outstanding equity awards to executives and non-employee directors under the Former Parent Plan were adjusted and converted into Delphi Technologies equity awards using a formula designed to maintain the economic value of the awards immediately before and after the Separation. Accordingly, the number of RSUs underlying each unvested award outstanding as of the date of the Separation was multiplied by a factor of 2.02, which resulted in no increase in the intrinsic value of awards outstanding. The RSUs continue to vest in accordance with their original vesting period. These adjustments to the Company’s share-based compensation awards did not result in additional compensation expense.
Board of Director Awards
On December 31, 2017, Delphi Technologies granted 7,506 RSUs to the non-employee members of the Board of Directors who were not members of the Former Parent’s Board of Directors at a grant date fair value of approximately $0.4 million. The grant date fair value was determined based on the closing price of the Company’s ordinary shares on December 29, 2017. The awards are time-based vesting RSUs. The RSUs vested on April 25, 2018, and 20,806 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. In addition, 1,679 ordinary shares were withheld to cover the minimum U.K. withholding taxes.

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 grant date fair value was determined based on the closing price of the Company's ordinary shares on April 26, 2018. The RSUs will vest on April 24, 2019, the day before the 2019 annual meeting of shareholders.

In addition, on December 31, 2017, Delphi Technologies granted 119,921 RSUs to the employee and non-employee members of the Board of Directors at a grant date fair value of approximately $7 million.  The awards include a time-based RSUs and performance-based RSUs.  The time-based RSUs vest at various points through February 2021.  The performance-based RSUs will be measured based on relative total shareholder return (as described further below) and vest in December 2020.  The grant date fair value was determined based on the closing price of the Company’s ordinary shares on December 31, 2017 and a contemporaneous valuation performed by an independent valuation specialist with respect to the relative total shareholder return awards.
Executive Awards
The executive 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 the Company’s officers 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 75% of the awards for the Company’s officers 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, which are:
Metric
2018 Grant
 
 
2016 - 2017 Former Parent Grants
 
 
2013 - 2015 Former Parent Grants
Average return on net assets (1)
50%
 
 
50%
 
 
50%
Cumulative net income
25%
 
 
25%
 
 
N/A
Cumulative earnings per share (2)
N/A
 
 
N/A
 
 
30%
Relative total shareholder return (3)
25%
 
 
25%
 
 
20%
(1)
Average return on net assets is measured by the Company’s 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)
Cumulative earnings per share is measured by net income attributable to Delphi Technologies divided by the weighted average number of diluted shares outstanding for the respective three-year performance period.
(3)
Relative total shareholder return is measured by comparing the average closing price per share of the Company’s ordinary shares for the defined period at the end of the performance period to the average closing price per share of the Company’s ordinary shares for the defined period at the beginning of the performance period, including dividends, and assessed against a comparable measure of competitor and peer group companies.
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 2018
 
0.3
 
$16
 
Annually on the anniversary grant date, 2019-2021
 
December 31, 2020

Any new executives hired after the annual executive RSU grant date may be eligible to participate in the PLC LTIP. Any off cycle grants made for new hires 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. 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.
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. All prior period award amounts disclosed within the following table were converted in accordance with the factor related to the conversion of the awards following the Separation as described above.
 
RSUs
 
Weighted Average Grant Date Fair Value
 
(in thousands)
 
 
Nonvested, January 1, 2018
712

 
$
37.34

Granted
490

 
48.43

Vested
(100
)
 
37.29

Forfeited
(11
)
 
38.13

Nonvested, March 31, 2018
1,091

 
42.31


Share-based compensation expense recorded within the consolidated statement of operations, which for periods prior to the Separation includes the cost of Delphi Technologies employees who participated in the Former Parent’s Plan as well as an allocated portion of the cost of the Former Parent’s senior management awards, was $5 million ($5 million, net of tax) and $5 million ($4 million, net of tax) based on the Company’s best estimate of ultimate performance against the respective targets during the three months ended March 31, 2018 and 2017, 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 March 31, 2018, unrecognized compensation expense on a pretax basis of approximately $42 million is anticipated to be recognized over a weighted average period of approximately 2 years.
v3.8.0.1
Segment Reporting
3 Months Ended
Mar. 31, 2018
Segment Reporting [Abstract]  
Segment Reporting
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 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 and inverters and on-board chargers that convert electricity to enable hybrid and electric vehicle propulsion systems.
Delphi Technologies 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 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 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 (loss), net of tax, restructuring, costs related to the Separation, other acquisition and portfolio project costs (which includes costs incurred to integrate acquired businesses and to plan and execute product portfolio transformation actions, including business and product acquisitions and divestitures), and asset impairments (“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. 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 Delphi Technologies, 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 Delphi Technologies, should also not be compared to similarly titled measures reported by other companies.
Included below are sales and operating data for Delphi Technologies’ segments for the three months ended March 31, 2018 and 2017.
 
Powertrain Systems
 
Delphi Technologies Aftermarket
 
Eliminations
and Other (1)
 
Total
 
 
 
 
 
 
 
 
 
(in millions)
For the Three Months Ended March 31, 2018:
 
 
 
 
 
 
 
Net sales
$
1,153

 
$
217

 
$
(74
)
 
$
1,296

Depreciation & amortization
$
49

 
$
1

 
$

 
$
50

Adjusted operating income
$
142

 
$
17

 
$

 
$
159

Operating income
$
123

 
$
15

 
$

 
$
138

Equity income, net of tax
$
3

 
$

 
$

 
$
3

Net income attributable to noncontrolling interest
$
7

 
$

 
$

 
$
7

 
Powertrain Systems
 
Delphi Technologies Aftermarket
 
Eliminations
and Other (1)
 
Total
 
 
 
 
 
 
 
 
 
(in millions)
For the Three Months Ended March 31, 2017:
 
 
 
 
 
 
 
Net sales
$
1,023

 
$
222

 
$
(77
)
 
$
1,168

Depreciation & amortization
$
46

 
$
2

 
$

 
$
48

Adjusted operating income
$
150

 
$
12

 
$

 
$
162

Operating income
$
142

 
$
6

 
$

 
$
148

Equity income, net of tax
$
1

 
$

 
$

 
$
1

Net income attributable to noncontrolling interest
$
8

 
$

 
$

 
$
8

(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, 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 and gains (losses) on business divestitures. The reconciliation of Adjusted Operating Income to net income attributable to Delphi Technologies for the three months ended March 31, 2018 and 2017 are as follows:
 
Powertrain Systems
 
Delphi Technologies Aftermarket
 
Eliminations
and Other
 
Total