DELPHI TECHNOLOGIES PLC, 10-Q filed on 11/7/2018
Quarterly Report
v3.10.0.1
Document And Entity Information - shares
9 Months Ended
Sep. 30, 2018
Nov. 02, 2018
Document and Entity Information [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Entity Emerging Growth Company false  
Entity Small Business false  
Document Period End Date Sep. 30, 2018  
Document Fiscal Period Focus Q3  
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   88,491,963
v3.10.0.1
Consolidated Statements Of Operations - USD ($)
shares in Thousands, $ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Sep. 30, 2018
Sep. 30, 2017
Income Statement [Abstract]        
Net sales $ 1,159 $ 1,205 $ 3,687 $ 3,560
Operating expenses:        
Cost of Sales 965 976 3,002 2,849
Selling, general and administrative 105 108 307 279
Amortization 3 5 9 13
Restructuring 5 3 28 79
Total operating expenses 1,078 1,092 3,346 3,220
Operating income 81 113 341 340
Interest expense (20) (1) (59) (2)
Other (expense) income, net (6) (1) 4 (7)
Income before income taxes and equity income 55 111 286 331
Income tax expense (12) (26) (54) (79)
Income before equity income 43 85 232 252
Equity income, net of tax 0 2 6 2
Net income 43 87 238 254
Net income attributable to noncontrolling interest 4 9 15 25
Net income attributable to Delphi Technologies $ 39 $ 78 $ 223 $ 229
Net income per share attributable to Delphi Technologies:        
Basic (in dollars per share) $ 0.44 $ 0.88 $ 2.51 $ 2.58
Diluted (in dollars per share) $ 0.44 $ 0.88 $ 2.51 $ 2.58
Weighted Average Number of Shares Outstanding [Abstract]        
Basic (in shares) 88,740 88,610 88,740 88,610
Diluted (in shares) 88,970 88,610 88,980 88,610
Cash dividends declared per share $ 0.17 $ 0 $ 0.51 $ 0
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Consolidated Statements Of Comprehensive Income - USD ($)
$ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Sep. 30, 2018
Sep. 30, 2017
Statement of Comprehensive Income [Abstract]        
Net income $ 43 $ 87 $ 238 $ 254
Other comprehensive income (loss):        
Currency translation adjustments (3) 38 (57) 122
Net change in unrecognized gain on derivative instruments, net of tax 2 0 4 0
Employee benefit plans adjustment, net of tax 4 (5) 20 2
Other comprehensive income (loss) 3 33 (33) 124
Comprehensive income 46 120 205 378
Comprehensive income attributable to noncontrolling interests 3 10 12 28
Comprehensive income attributable to Delphi Technologies $ 43 $ 110 $ 193 $ 350
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Consolidated Balance Sheets - USD ($)
$ in Millions
Sep. 30, 2018
Dec. 31, 2017
Current assets:    
Cash and cash equivalents $ 340 $ 338
Restricted cash 2 1
Accounts receivable, net 947 1,090
Inventories 554 498
Other current assets 138 131
Total current assets 1,981 2,058
Long-term assets:    
Property, net 1,355 1,316
Investments in affiliates 42 37
Intangible Assets and goodwill, net 76 82
Deferred income taxes 168 178
Other long-term assets 124 122
Total long-term assets 1,765 1,735
Total assets 3,746 3,793
Current liabilities:    
Short-term debt 34 20
Accounts payable 842 931
Accrued liabilities 405 445
Total current liabilities 1,281 1,396
Long-term liabilities:    
Long-term debt 1,501 1,515
Pension benefit obligations 499 531
Other long-term liabilities 98 119
Total long-term liabilities 2,098 2,165
Total liabilities 3,379 3,561
Commitments and contingencies
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, 88,491,963 and 88,613,262 issued and outstanding as of September 30, 2018 and December 31, 2017, respectively 1 1
Additional paid-in capital 427 431
Retained earnings 176 7
Accumulated other comprehensive loss (401) (371)
Total Delphi Technologies shareholders' equity 203 68
Noncontrolling interest 164 164
Total shareholders' equity 367 232
Total liabilities and shareholders' equity $ 3,746 $ 3,793
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Consolidated Balance Sheets (Parenthetical) - $ / shares
Sep. 30, 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 88,491,963 88,613,262
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Consolidated Statements Of Cash Flows - USD ($)
$ in Millions
3 Months Ended 9 Months Ended 12 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Sep. 30, 2018
Sep. 30, 2017
Dec. 31, 2017
Cash flows from operating activities:          
Net income $ 43 $ 87 $ 238 $ 254  
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation     136 131  
Amortization 3 5 9 13  
Amortization of deferred debt issuance costs     3 0  
Restructuring expense, net of cash paid     (23) 9  
Deferred income taxes     6 0  
Pension and other postretirement benefit expenses     33 35  
Income from equity method investments, net of dividends received     (6) (2)  
(Gain) loss on sale of assets     (1) 1  
Share-based compensation     15 12  
Changes in operating assets and liabilities:          
Accounts receivable, net     92 (141)  
Inventories     (57) (144)  
Other assets     0 (19)  
Accounts payable     (88) 53  
Accrued and other long-term liabilities     (21) 76  
Other, net     (9) 48  
Pension contributions     (34) (33)  
Net cash provided by operating activities     293 293  
Cash flows from investing activities:          
Capital expenditures     (185) (111)  
Proceeds from sale of property / investments     2 6  
Proceeds from insurance settlement claims     1 1  
Cost of technology investments     (7) 0  
Settlement of undesignated derivatives     (2) 0  
Net cash used in investing activities     (191) (104)  
Cash flows from financing activities:          
Net repayments under other short-term debt agreements     (2) (1)  
Repayments under long-term debt agreements     (14) 0  
Proceeds from issuance of senior notes, net of issuance costs     0 796  
Escrow of proceeds from senior notes issuance     0 (796)  
Dividend payments of consolidated affiliates to minority shareholders     (12) (10)  
Distribution of cash dividends     (45) 0  
Taxes withheld and paid on employees' restricted share awards     (5) 0  
Repurchase of ordinary shares     (9) 0  
Other Net Transfers To Former Parent     0 (189)  
Net cash used in financing activities     (87) (200)  
Effect of exchange rate fluctuations on cash and cash equivalents     (12) 5  
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents, Period Increase (Decrease), Including Exchange Rate Effect     3 (6)  
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents, beginning     339 101 $ 101
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents, end $ 342 $ 95 $ 342 $ 95 $ 339
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Consolidated Statement Of Shareholders' Equity - 9 months ended Sep. 30, 2018 - 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
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 238     223   223 15
Other comprehensive income (loss) (33)       (30) (30) (3)
Dividends on ordinary shares (45)   0 (45)   (45) 0
Dividend payments of consolidated affiliates to minority shareholders (12)           (12)
Separation related adjustments (13)   (13) 0   (13) 0
Repurchase of ordinary shares (10)   (1) (9)   (10) 0
Taxes witheld on employees' restricted share award vestings (5)   (5)     (5)  
Share-based Compensation 15   15     15  
Share-based compensation, in shares   0          
Balance at end of year at Sep. 30, 2018 $ 367 $ 1 $ 427 $ 176 $ (401) $ 203 $ 164
Shares outstanding, end of period at Sep. 30, 2018   89          
v3.10.0.1
General
9 Months Ended
Sep. 30, 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, 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. These financial statements were prepared 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 is 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.
v3.10.0.1
Significant Accounting Policies
9 Months Ended
Sep. 30, 2018
Accounting Policies [Abstract]  
Significant Accounting Policies
SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation—The consolidated financial statements include the accounts of Delphi Technologies’ 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 nine months ended September 30, 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 nine months ended September 30, 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—Delphi Technologies recognizes 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 the Company expects 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. The Company estimates the allowances based on an analysis of historical experience. Taxes assessed by a governmental authority collected by the Company 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. The Company recognizes 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 September 30, 2018, the Company had return assets of $8 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 $69 million and $75 million as of September 30, 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 $3 million and $9 million for the three and nine months ended September 30, 2018 and $5 million and $13 million for the three and nine months ended September 30, 2017, respectively.
Goodwill—Goodwill is the excess of the purchase price over the estimated fair value of identifiable net assets acquired in business combinations. The Company tests goodwill for impairment annually in the fourth quarter, or more frequently when indications of potential impairment exist. The Company monitors the existence of potential impairment indicators throughout the fiscal year. The Company tests for goodwill impairment at the reporting unit level. Our reporting units are the components of operating segments which constitute businesses for which discrete financial information is available and is regularly reviewed by segment management.
There were no indicators of potential goodwill impairment during the nine months ended September 30, 2018. Goodwill was $7 million and $7 million as of September 30, 2018 and December 31, 2017, respectively.
Warranty and product recalls—Expected warranty costs for products sold are recognized at the time of sale of the product based on an estimate of the amount that eventually will be required to settle such obligations. These accruals are based on factors such as past experience, production changes, industry developments and various other considerations. Costs of product recalls, which may include the cost of the product being replaced as well as the customer’s cost of the recall, including labor to remove and replace the recalled part, are accrued as part of our warranty accrual at the time an obligation becomes probable and can be reasonably estimated. These estimates are adjusted from time to time based on facts and circumstances that impact the status of existing claims. Refer to Note 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. The Company does not enter into derivative transactions for speculative or trading purposes. As part of the hedging program approval process, the Company identifies 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. The Company does 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 and nine months ended September 30, 2018 and September 30, 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 historical 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 the Company’s treatment of the relevant affected items within its consolidated statement of cash flows is generally consistent with the requirements of this guidance. As a result of adopting this guidance the Company reclassified $1 million insurance settlement proceeds within the consolidated statement of cash flows for the nine months ended September 30, 2017.
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 statements 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.
Delphi Technologies adopted ASU 2018-03, Technical Corrections and Improvements to Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, in the third quarter of 2018. 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 Company did not change its measurement approach for equity investments as a result of the adoption of this guidance.
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. Early adoption is permitted.
ASU 2016-02 provides for certain practical expedients when adopting the guidance. The Company intends to utilize the package of practical expedients that allows an entity to not reassess existing leases for: i) whether any expired or existing contracts are or contain leases, ii) the lease classification for any expired or existing leases and iii) the initial direct costs for any existing leases. Additionally, the Company intends to elect the practical expedient under ASU 2018-01, that allows an entity to not reassess whether any expired or existing land easements are or contain leases. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements, which amends Topic 842 so that entities may elect not to recast the comparative periods presented when transitioning to Topic 842. The Company plans on electing this transition method. The Company is currently evaluating the effects that the adoption of this guidance will have on the Company’s consolidated financial statements, and anticipates the new guidance will significantly impact its consolidated balance sheet and will not have a material impact on its consolidated statements of operations or cash flows. 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 June 2018, the FASB issued ASU 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. This guidance expands the scope of ASC Topic 718, which currently only includes share-based payments to employees, to include share-based payments issued to nonemployees for goods or services. Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned. The new guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted as long as the entity has adopted ASC 606. While the Company continues to assess all potential impacts of the new standard, the adoption of this guidance is not expected to have a material impact on the Company’s financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. This guidance amends ASC 820 to add, remove and clarify certain disclosure requirements related to fair value measures. The new guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within that fiscal year. Early adoption is permitted. The adoption of this guidance is not expected to have a material impact on the Company’s financial statements.
In August 2018, the FASB issued ASU 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans. This guidance amends ASC 715 to add, remove and clarify certain disclosure requirements related to defined benefit pension and other postretirement plans. The new guidance is effective for fiscal years ending after December 31, 2020. Early adoption is permitted. The adoption of this guidance is not expected to have a material impact on the Company’s financial statements.
v3.10.0.1
Related Party Transactions
9 Months Ended
Sep. 30, 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, the Company 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, net sales of products from Delphi Technologies to affiliates of the Former Parent totaled $1 million for the nine months ended September 30, 2017. There were no net sales from Delphi Technologies to affiliates of the Former Parent for the three months ended September 30, 2017.
Prior to the Separation, total purchases from affiliates of the Former Parent totaled $18 million and $61 million for the three and nine months ended September 30, 2017, respectively.
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
 
Nine Months Ended
 
September 30, 2017
 
September 30, 2017
 
 
 
 
 
(in millions)
Cost of sales
$
5

 
$
22

Selling, general and administrative
25

 
89

Total allocated cost from Former Parent
$
30

 
$
111


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.
v3.10.0.1
Inventories
9 Months Ended
Sep. 30, 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:
 
September 30,
2018
 
December 31,
2017
 
 
 
 
 
(in millions)
Productive material
$
272

 
$
217

Work-in-process
38

 
35

Finished goods
244

 
246

Total
$
554

 
$
498

v3.10.0.1
Assets
9 Months Ended
Sep. 30, 2018
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]  
Assets
ASSETS
Other current assets consisted of the following:
 
September 30,
2018
 
December 31,
2017
 
 
 
 
 
(in millions)
Value added tax receivable
$
75

 
$
59

Reimbursable engineering costs
20

 
20

Notes receivable
12

 
39

Prepaid insurance and other expenses
12

 
6

Income and other taxes receivable
8

 
5

Return assets (Note 2)
8

 

Derivative financial instruments (Note 16)
2

 

Deposits to vendors
1

 
2

Total
$
138

 
$
131


Other long-term assets consisted of the following:
 
September 30,
2018
 
December 31,
2017
 
 
 
 
 
(in millions)
Income and other taxes receivable
$
49

 
$
57

Investment in Tula (Note 2)
21

 
21

Investment in PolyCharge (Note 2)
7

 

Debt issuance costs
3

 
4

Other
44

 
40

Total
$
124

 
$
122

v3.10.0.1
Liabilities
9 Months Ended
Sep. 30, 2018
Other Liabilities Disclosure [Abstract]  
Liabilities
LIABILITIES
Accrued liabilities consisted of the following:
 
September 30,
2018
 
December 31,
2017
 
 
 
 
 
(in millions)
Warranty obligations (Note 7)
$
65

 
$
64

Payroll-related obligations
51

 
49

Restructuring (Note 8)
46

 
54

Income and other taxes payable
36

 
63

Accrued rebates
28

 
30

Deferred reimbursable engineering
23

 
14

Accrued interest
23

 
12

Freight
20

 
19

Employee benefits
14

 
29

Outside services
14

 
14

Customer deposits
6

 
7

Deferred cost reimbursement
4

 
10

Other
75

 
80

Total
$
405

 
$
445


Other long-term liabilities consisted of the following:
 
September 30,
2018
 
December 31,
2017
 
 
 
 
 
(in millions)
Restructuring (Note 8)
$
30

 
$
47

Warranty obligations (Note 7)
30

 
33

Deferred income taxes, net (Note 13)
20

 
14

Accrued income taxes
11

 
15

Environmental (Note 11)
2

 
3

Other
5

 
7

Total
$
98

 
$
119

v3.10.0.1
Warranty Obligations
9 Months Ended
Sep. 30, 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 September 30, 2018. The Company estimates the reasonably possible amount to ultimately resolve all matters in excess of the recorded reserves as of September 30, 2018 to be $0 million to $20 million.
The table below summarizes the activity in the product warranty liability for the nine months ended September 30, 2018:
 
Warranty Obligations
 
 
 
(in millions)
Accrual balance at beginning of period
$
97

Provision for estimated warranties incurred during the period
28

Changes in estimate for pre-existing warranties
5

Settlements made during the period (in cash or in kind)
(32
)
Foreign currency translation and other
(3
)
Accrual balance at end of period
$
95

v3.10.0.1
Restructuring
9 Months Ended
Sep. 30, 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 $5 million and $28 million during the three and nine months ended September 30, 2018, respectively, of which $3 million and $16 million was recognized for programs focused on the continued rotation of our manufacturing footprint to best cost locations in Europe and $1 million and $3 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 $3 million and $79 million during the three and nine months ended September 30, 2017, respectively. The nine months ended September 30, 2017 included the recognition of approximately $54 million for employee-related and other costs for approximately 500 employees due to the initiation of the closure of a Western European manufacturing site within the Powertrain Systems segment pursuant to the Company’s on-going European footprint rotation strategy. Cash payments for this restructuring action are expected to be principally completed by 2020.
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 $51 million and $70 million in the nine months ended September 30, 2018 and 2017, respectively.
The following table summarizes the restructuring charges recorded for the three and nine months ended September 30, 2018 and 2017 by operating segment:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
 
(in millions)
Powertrain Systems
$
9

 
$
6

 
$
31

 
$
74

Delphi Technologies Aftermarket
(4
)
 
(3
)
 
(3
)
 
5

Total
$
5

 
$
3

 
$
28

 
$
79


The table below summarizes the activity in the restructuring liability for the nine months ended September 30, 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
26

 
2

 
28

Payments made during the period
(49
)
 
(2
)
 
(51
)
Foreign currency and other

 
(2
)
 
(2
)
Accrual balance at September 30, 2018
$
75

 
$
1

 
$
76

v3.10.0.1
Debt
9 Months Ended
Sep. 30, 2018
Debt Disclosure [Abstract]  
Debt
DEBT
The following is a summary of debt outstanding, net of unamortized issuance costs and discounts, as of September 30, 2018 and December 31, 2017, respectively:
 
September 30, 2018
 
December 31, 2017
 
(in millions)
$750 million Term Loan A Facility, due 2022 (net of $4 and $5 unamortized issuance costs)
$
732

 
$
745

$800 million Senior Notes at 5.00%, due 2025 (net of $13 and $14 unamortized issuance costs and $3 and $4 discount, respectively)
784

 
782

Capital leases and other
19

 
8

Total debt
1,535

 
1,535

Less: current portion
(34
)
 
(20
)
Long-term debt
$
1,501

 
$
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 September 30, 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:
 
September 30, 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 September 30, 2018, are detailed below:
 
 
 
Borrowings as of
 
 
 
 
 
September 30, 2018
 
Rate effective as of
 
Applicable Rate
 
(in millions)
 
September 30, 2018
Term Loan A Facility
LIBOR plus 1.75%
 
$
736

 
3.88
%

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 September 30, 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 September 30, 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 September 30, 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 and Europe. These arrangements can be terminated at any time subject to prior written notice. The receivables under these arrangements are sold to a third party without recourse to the Company and are therefore accounted for as true sales. During the three and nine months ended September 30, 2018, $30 million and $75 million, respectively, of receivables were sold under these arrangements, and expenses of $1 million and $3 million, respectively, were recognized within interest expense. During the three and nine months ended September 30, 2017$25 million and $63 million, respectively, of receivables were sold under these arrangements, and expenses of $1 million and $1 million, respectively, were recognized within interest expense.
In addition, during the nine months ended September 30, 2018, one of the Company’s European subsidiaries factored, without recourse, receivables related to certain foreign research credits to a financial institution. These transactions were accounted for as true sales of the receivables, and the Company therefore derecognized approximately $22 million from other long-term assets in the consolidated balance sheet as of September 30, 2018, as a result of these transactions. During the three and nine months ended September 30, 2018, less than $1 million of expenses were recognized within interest expense related to this transaction.
Capital leases—As of September 30, 2018 and December 31, 2017, approximately $13 million and $1 million, respectively, of capital lease obligations was outstanding.
Interest—Cash paid for interest related to debt outstanding totaled $46 million and $2 million, for the nine months ended September 30, 2018 and 2017, respectively.
v3.10.0.1
Pension Benefits
9 Months Ended
Sep. 30, 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 and nine months ended September 30, 2018 and 2017:
 
Three Months Ended September 30,
 
2018
 
2017
 
 
 
 
 
(in millions)
Service cost
$
10

 
$
8

Interest cost
8

 
8

Expected return on plan assets
(13
)
 
(11
)
Amortization of actuarial losses
6

 
6

Net periodic benefit cost
$
11

 
$
11

 
 
 
 
 
Nine Months Ended September 30,
 
2018
 
2017
 
 
 
 
 
(in millions)
Service cost
$
29

 
$
25

Interest cost
26

 
25

Expected return on plan assets
(40
)
 
(34
)
Amortization of actuarial losses
18

 
19

Net periodic benefit cost
$
33

 
$
35


Other postretirement benefit obligations were less than $1 million and $1 million at September 30, 2018 and December 31, 2017, respectively.
v3.10.0.1
Commitments And Contingencies
9 Months Ended
Sep. 30, 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. In addition to the specific matters discussed below, the Company estimates the reasonably possible loss in excess of the amounts accrued related to ordinary business claims to be approximately $0 million to $10 million. 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. Refer to Note 7. Warranty Obligations for additional information.
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 September 30, 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 September 30, 2018, claims totaling approximately $15 million (using September 30, 2018 foreign currency rates) have been asserted against Delphi Technologies in Brazil. As of September 30, 2018, the Company maintains accruals for these asserted claims of $4 million (using September 30, 2018 foreign currency rates). The amounts accrued represent claims that are deemed probable of loss and are reasonably estimable based on the Company’s analyses and assessment of the asserted claims and prior experience with similar matters. While the Company believes its accruals are adequate, the final amounts required to resolve these matters could differ materially from the Company’s recorded estimates and 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 $11 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 September 30, 2018 and December 31, 2017, the undiscounted reserve for environmental investigation and remediation was approximately $3 million (of which $1 million was recorded in accrued liabilities and $2 million was recorded in other long-term liabilities) and $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 September 30, 2018, the difference between the recorded liabilities and the reasonably possible range of potential loss was not material.
v3.10.0.1
Revenue
9 Months Ended
Sep. 30, 2018
Revenue [Abstract]  
Revenue from Contract with Customer [Text Block]
12. REVENUE
On January 1, 2018, Delphi Technologies adopted ASC Topic 606, Revenue from Contracts with Customers, using the modified retrospective method. The standard requires recognition of revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. The Company generally recognizes revenue when it satisfies a performance obligation by transferring control over a product to a customer. From time to time, we enter into pricing agreements with our customers that provide for price reductions, some of which are conditional upon achieving certain criteria. In these instances, revenue is recognized based on the agreed-upon price at the time of shipment.
Nature of Goods
The majority of our revenue is recorded at a point in time as defined by ASC 606 as the customers obtain control of the product upon title transfer and not as the product is manufactured or developed. For certain customers, based on specific terms and conditions pertaining to termination for convenience, Delphi Technologies concluded that it had an enforceable right to payment for performance completed to date and the products have no alternative use to the Company, which requires the recognition of revenue over time as defined by ASC 606. The impact on both revenue and operating income from recognizing revenue over time instead of point in time is not significant.
The major product groups within the Powertrain Systems operating segment include internal combustion engine products and electronics & electrification products. The major sales channels within the Delphi Technologies Aftermarket operating segment include aftermarket products sold to independent aftermarket customers and original equipment service customers. The amount of revenue recognized for these products is based on the purchase order price and adjusted for revenue allocated to variable consideration (i.e. estimated rebates and price discounts), as applicable. Our payment terms are based on customary business practices and vary by customer type and products offered. The term between invoicing and when payment is due is not significant.
Disaggregation of Revenue
In the following table, net sales to outside customers, based on the manufacturing location, is disaggregated by primary geographical market:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
 
(in millions)
North America
$
328

 
$
328

 
$
1,033

 
$
1,018

Europe
508

 
498

 
1,623

 
1,503

Asia Pacific
288

 
344

 
927

 
935

South America
35

 
35

 
104

 
104

Total
$
1,159

 
$
1,205

 
$
3,687

 
$
3,560



In the following table, net sales is disaggregated by major product group and sales channels:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
 
(in millions)
Internal Combustion Engine Products
$
686

 
$
700

 
$
2,230

 
$
2,101

Electronics & Electrification
256

 
262

 
808

 
762

Independent Aftermarket
155

 
155

 
469

 
448

Original Equipment Service
62

 
88

 
180

 
249

Total
$
1,159

 
$
1,205

 
$
3,687

 
$
3,560


Contract Balances
As discussed above, certain customers have contracts with specific terms and conditions which require recognition of revenue over time as defined by ASC 606. As of September 30, 2018, the recognition of revenue over time resulted in approximately $1 million of unbilled accounts receivable, which is included in accounts receivable, net. There were no other contract assets or liabilities as of September 30, 2018, as defined by ASC 606.
Practical Expedients and Exemptions
For our Powertrain Systems segment, we define the contract with the customer as the combination of a current purchase order and a current production schedule issued by the customer. For our Delphi Technologies Aftermarket segment, we define the contract with the customer as the combination of a current purchase order and a master agreement with the customer. Although there are instances where the master agreements may extend beyond one year, there are generally no purchase orders with an expected duration beyond a year.
There are generally no performance obligations outstanding beyond a year. The Company generally does not enter into fixed long-term supply agreements. The Company applies the exemption in ASC 606 and does not disclose information about remaining performance obligations that have original expected durations of one year or less.
In addition, the Company applies the practical expedient in ASC 340 and immediately expenses contract acquisition costs when incurred, including sales commissions, because the amortization period would be one year or less.
v3.10.0.1
Income Taxes
9 Months Ended
Sep. 30, 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 nine months ended September 30, 2018 and 2017 were as follows:
 
Nine Months Ended September 30,
 
2018
 
2017
 
 
 
 
 
(dollars in millions)
Income tax expense
$
54

 
$
79

Effective tax rate
19
%
 
24
%

The Company’s tax rate is affected by the fact that Delphi Technologies PLC, its parent entity, is a U.K. resident taxpayer, the tax rates in the other jurisdictions in which the Company operates, the relative amount of income earned by jurisdiction and the relative amount of losses or income for which no tax benefit or expense was recognized due to a valuation allowance.
The Company’s effective tax rate for the nine months ended September 30, 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 Company’s effective tax rate for the nine months ended September 30, 2018 includes net discrete tax expense of $4 million. The effective tax rate for the nine months ended September 30, 2017 was impacted by losses for which no benefit was recognized due to a valuation allowance and net discrete tax expense of $9 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. During the three months ended September 30, 2018, the Company recorded approximately $2 million to income tax expense as an adjustment to the provisional amounts recorded as of December 31, 2017. 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.
In France, the Company had experienced cumulative losses in previous years and had recorded a valuation allowance against its deferred tax assets. As of December 31, 2017, based on consideration of all available positive and negative evidence, including improvements in French operating results, the Company concluded that it was still more likely than not that the net deferred tax assets in France would not be realized, and accordingly continued to record a valuation allowance. The French valuation allowance recorded at December 31, 2017 was $138 million. The Company continues to evaluate all positive and negative evidence related to the ability to utilize its French deferred tax assets on a quarterly basis to determine whether any change in the valuation allowance should be recorded.
In addition, the Company is evaluating the realizability of current year losses incurred in Luxembourg. The majority of the Luxembourg legal entities were formed as part of the Separation. The Company is considering its future projections of income in Luxembourg and whether these projections constitute sufficient positive evidence to support realizability of the net deferred tax asset position anticipated in Luxembourg at year-end. The Luxembourg operations had a net deferred tax liability position at December 31, 2017.
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 $70 million and $37 million for the nine months ended September 30, 2018 and 2017 respectively.
v3.10.0.1
Shareholders' Equity And Net Income Per Share
9 Months Ended
Sep. 30, 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 September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
 
(in millions, except per share data)
Numerator:
 
 
 
 
 
 
 
Net income attributable to Delphi Technologies
$
39

 
$
78

 
$
223

 
$
229

Denominator:
 
 
 
 
 
 
 
Weighted average ordinary shares outstanding, basic
88.74

 
88.61

 
88.74

 
88.61

Dilutive shares related to restricted stock units (“RSUs”)
0.23

 

 
0.24

 

Weighted average ordinary shares outstanding, including dilutive shares
88.97

 
88.61

 
88.98

 
88.61

 
 
 
 
 
 
 
 
Net income per share attributable to Delphi Technologies:
 
 
 
 
 
 
 
Basic
$
0.44

 
$
0.88

 
$
2.51

 
$
2.58

Diluted
$
0.44

 
$
0.88

 
$
2.51

 
$
2.58

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:
 
 
 
Third quarter
$
0.17

 
$
15

Second quarter
0.17

 
15

First quarter
0.17

 
15

Total
$
0.51

 
$
45


In addition, in October 2018, the Board of Directors declared a regular quarterly cash dividend of $0.17 per ordinary share, payable November 14, 2018 to shareholders of record at the close of business on November 6, 2018.
Share Repurchases
In July 2018, the Board of Directors approved a $100 million share repurchase authorization, which commenced in September 2018. All repurchased shares were retired, and are reflected as a reduction of ordinary share capital for the par value of the shares, with the excess applied as reductions to additional paid-in-capital and retained earnings.
A summary of the ordinary shares repurchased during the three and nine months ended September 30, 2018 and 2017 is as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Total number of shares repurchased
293,695

 

 
293,695

 

Average price paid per share
$
34.05

 
$

 
$
34.05

 
$

Total (in millions)
$
10

 
$

 
$
10

 
$


The timing and amount of any share repurchases will be based on market conditions, share price and other factors. Repurchases may be made in the open market or in privately negotiated transactions. Repurchases under this authorization will be funded from one or a combination of existing cash balances and future free cash flow. The repurchase authorization has no time limit, does not obligate the Company to make any repurchases and may be suspended for periods or discontinued at any time.
v3.10.0.1
Changes in Accumulated Other Comprehensive Income
9 Months Ended
Sep. 30, 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 and nine months ended September 30, 2018 and 2017 are shown below.
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
 
(in millions)
Foreign currency translation adjustments:
 
 
 
 
 
 
 
Balance at beginning of period
$
(137
)
 
$
(337
)
 
$
(85
)
 
$
(419
)
Aggregate adjustment for the period (1)
(2
)
 
37

 
(54
)
 
119

Balance at end of period
(139
)
 
(300
)
 
(139
)
 
(300
)
 
 
 
 
 
 
 
 
Gains (losses) on derivatives:
 
 
 
 
 
 
 
Balance at beginning of period
2

 

 

 

Other comprehensive income before reclassifications (net tax effect of $0, $0, $0 and $0)
3

 

 
5

 

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

 
(1
)
 

Balance at end of period
4

 

 
4

 

 
 
 
 
 
 
 
 
Pension and postretirement plans:
 
 
 
 
 
 
 
Balance at beginning of period
(270
)
 
(285
)
 
(286
)
 
(292
)
Other comprehensive income before reclassifications (net tax effect of $0, $2, $4 and $3)
(1
)
 
(10
)
 
5

 
(14
)
Reclassification to income (net tax effect of $1, $1, $3 and $3)
5

 
5

 
15

 
16

Balance at end of period
(266
)
 
(290
)
 
(266
)
 
(290
)
 
 
 
 
 
 
 
 
Accumulated other comprehensive loss, end of period
$
(401
)
 
$
(590
)
 
$
(401
)
 
$
(590
)
(1)
Includes a gain of $2 million and a loss of $3 million, for the three and nine months ended September 30, 2018, respectively, related to the foreign currency impact of intra-entity loans that are of a long-term investment nature. Also included are losses of $2 million and $2 million for the three and nine months ended September 30, 2018, respectively, related to non-derivative net investment hedges. Refer to Note 16. Derivatives and Hedging Activities for further description of these hedges.
Reclassifications from accumulated other comprehensive income (loss) to income for the three and nine months ended September 30, 2018 and 2017 were as follows:
Reclassification Out of Accumulated Other Comprehensive Income (Loss)
Details About Accumulated Other Comprehensive Income Components
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
Affected Line Item in the Statement of Operations
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(in millions)
 
 
Pension and postretirement plans:
 
 
 
 
 
 
 
 
 
 
Actuarial losses
 
$
(6
)
 
$
(6
)
 
$
(18
)
 
$
(19
)
 
Other (expense) income, net (1)
 
 
(6
)
 
(6
)
 
(18
)
 
(19
)
 
Income before income taxes
 
 
1

 
1

 
3

 
3

 
Income tax expense
 
 
(5
)
 
(5
)
 
(15
)
 
(16
)
 
Net income
 
 

 

 

 

 
Net income attributable to noncontrolling interest
 
 
$
(5
)
 
$
(5
)
 
$
(15
)
 
$
(16
)
 
Net income attributable to Delphi Technologies
 
 
 
 
 
 
 
 
 
 
 
Total reclassifications for the period
 
$
(5
)
 
$
(5
)
 
$
(15
)
 
$
(16
)
 
 
(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).
v3.10.0.1
Derivatives And Hedging Activities
9 Months Ended
Sep. 30, 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 September 30, 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
 
855

 
RMB
 
$
120

Euro
 
67

 
EUR
 
80

Mexican Peso
 
773

 
MXN
 
40

Singapore Dollar
 
43

 
SGD
 
30

Turkish Lira
 
77

 
TRY
 
10

South Korean Won
 
11,193

 
KRW
 
10


As of September 30, 2018, Delphi Technologies has entered into derivative instruments to hedge cash flows extending out to September 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 September 30, 2018 were approximately $4 million (approximately $4 million, net of tax). Of this total, approximately $3 million of losses are expected to be included in cost of sales within the next 12 months and $1 million of 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 September 30, 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*
 
September 30,
2018
 
Balance Sheet Location*
 
September 30,
2018
 
September 30,
2018
 
 
 
 
 
 
 
 
 
(in millions)
Designated as cash flow hedges:

 
 
 
 
 
 
 
 
Other current assets
 
$
7

 
Other current assets
 
$
3

 
$
4

Other long-term assets
 
2

 
Other long-term assets
 
1

 
1

Total designated as hedges
 
$
9

 
 
 
$
4

 
 
 
 
 
 
 
 
 
 
 
Derivatives not designated as hedges:

 
 
 
 
 
 
 
 
Other current assets
 
$

 
Other current assets
 
$
2

 
(2
)
Total not designated as hedges
 
$

 
 
 
$
2

 
 
* Derivative instruments are subject to master netting arrangements and are presented on a net basis in the consolidated balance sheets in accordance with accounting guidance related to the offsetting of amounts related to certain contracts.
The fair value of Delphi Technologies’ derivative financial instruments was in a net asset position as of September 30, 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 and nine months ended September 30, 2018 is as follows:
Three Months Ended September 30, 2018
Gain (Loss) Recognized in OCI
 
Gain (Loss) Reclassified from OCI into Income
 
 
 
 
 
(in millions)
Derivatives designated as cash flow hedges
$
3

 
$
1

Total
$
3

 
$
1

 
 
 
 
 
 
 
Gain Recognized in Income
 
 
 
 
 
 
 
(in millions)
Derivatives not designated
 
$
4

Total
 
$
4

 
 
 
 
Nine Months Ended September 30, 2018
Gain (Loss) Recognized in OCI
 
Gain (Loss) Reclassified from OCI into Income