DELPHI TECHNOLOGIES PLC, 10-Q filed on 5/7/2020
Quarterly Report
v3.20.1
Cover Document - shares
3 Months Ended
Mar. 31, 2020
May 01, 2020
Document and Entity Information [Abstract]    
Title of 12(b) Security Ordinary shares. $0.01 par value per share  
Current Fiscal Year End Date --12-31  
Document Fiscal Period Focus Q1  
Amendment Flag false  
Entity Filer Category Large Accelerated Filer  
Entity Incorporation, State or Country Code Y9  
Document Transition Report false  
Document Quarterly Report true  
Document Type 10-Q  
Document Fiscal Year Focus 2020  
Document Period End Date Mar. 31, 2020  
Entity File Number 001-38110  
Entity Registrant Name DELPHI TECHNOLOGIES PLC  
Entity Central Index Key 0001707092  
Entity Tax Identification Number 98-1367514  
Entity Address, Address Line One One Angel Court  
Entity Address, Address Line Two 10th Floor  
Entity Address, City or Town London  
Entity Address, Postal Zip Code EC2R 7HJ  
Entity Address, Country GB  
City Area Code 011-  
Local Phone Number 44-020-305-74300  
Entity Information, Former Legal or Registered Name N/A  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   86,349,731
Trading Symbol DLPH  
Security Exchange Name NYSE  
v3.20.1
Consolidated Statements Of Operations - USD ($)
shares in Thousands, $ in Millions
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Income Statement [Abstract]    
Net sales $ 945 $ 1,151
Operating expenses:    
Cost of sales 824 983
Selling, general and administrative 95 104
Amortization 3 6
Restructuring 43 3
Total operating expenses 965 1,096
Operating (Loss) income (20) 55
Interest expense (16) (18)
Other income (expense), net 2 (12)
(Loss) income before income taxes and equity income (34) 25
Income tax expense (20) (8)
(Loss) income before equity income (54) 17
Equity income, net of tax 0 2
Net (loss) income (54) 19
Net income attributable to noncontrolling interest 3 3
Net (loss) income attributable to Delphi Technologies $ (57) $ 16
Net income per share attributable to Delphi Technologies:    
Basic (in dollars per share) $ (0.66) $ 0.18
Diluted (in dollars per share) $ (0.66) $ 0.18
Weighted Average Number of Shares Outstanding [Abstract]    
Basic (in shares) 86,170 88,450
Diluted (in shares) 86,280 88,550
Cash dividends declared per share $ 0 $ 0
v3.20.1
Consolidated Statements Of Comprehensive Income - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Statement of Comprehensive Income [Abstract]    
Net (loss) income $ (54) $ 19
Other comprehensive (loss) income:    
Currency translation adjustments (46) 9
Net change in unrecognized gain on derivative instruments, net of tax 4 16
Employee benefit plans adjustment, net of tax 13 34
Other comprehensive (loss) income (29) 59
Comprehensive (loss) income (83) 78
Comprehensive income attributable to noncontrolling interests 1 4
Comprehensive income (loss) attributable to Delphi Technologies $ (84) $ 74
v3.20.1
Consolidated Balance Sheets - USD ($)
$ in Millions
Mar. 31, 2020
Dec. 31, 2019
Current assets:    
Cash and cash equivalents $ 611 $ 191
Accounts receivable, net 777 821
Inventories 450 447
Other current assets 160 189
Total current assets 1,998 1,648
Long-term assets:    
Property, net 1,478 1,509
Investments in affiliates 41 42
Intangible Assets, Net (Excluding Goodwill) 48 53
Goodwill 6 7
Deferred Income Tax Assets, Net 260 269
Other long-term assets 233 219
Total long-term assets 2,066 2,099
Total assets 4,064 3,747
Current liabilities:    
Short-term debt 49 40
Accounts payable 672 717
Accrued liabilities 475 466
Total current liabilities 1,196 1,223
Long-term liabilities:    
Long-term debt 1,935 1,455
Pension and other postretirement benefit obligations 372 404
Other long-term liabilities 195 210
Total long-term liabilities 2,502 2,069
Total liabilities 3,698 3,292
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, 86,281,813 and 86,071,640 issued and outstanding as of March 31, 2020 and December 31, 2019, respectively 1 1
Additional paid-in capital 411 409
Retained earnings 224 281
Accumulated other comprehensive loss (403) (376)
Total Delphi Technologies shareholders' equity 233 315
Noncontrolling interest 133 140
Total shareholders' equity 366 455
Total liabilities and shareholders' equity $ 4,064 $ 3,747
v3.20.1
Consolidated Balance Sheets (Parenthetical) - $ / shares
Mar. 31, 2020
Dec. 31, 2019
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 86,281,713 86,071,640
v3.20.1
Consolidated Statements Of Cash Flows - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Cash flows from operating activities:    
Net (loss) income $ (54) $ 19
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation 53 47
Amortization of Intangible Assets Cash Flows 3 3
Amortization of deferred debt issuance costs 1 1
Impairment of Long-Lived Assets Held-for-use 3 3
Restructuring expense, net of cash paid 10 (6)
Deferred income taxes (1) (3)
Pension and other postretirement benefit expenses 0 21
Income from equity method investments 0 (2)
Share-based compensation 4 4
Changes in operating assets and liabilities:    
Accounts receivable, net 44 (36)
Inventories (3) (28)
Other assets 20 6
Accounts payable (14) (6)
Accrued and other long-term liabilities (12) 1
Other, net (13) 11
Pension contributions (10) (14)
Net cash provided by operating activities 31 21
Cash flows from investing activities:    
Capital expenditures (85) (131)
Proceeds from sale of property 2 2
DividendsFromEquityMethodInvestment 1 0
CostOfTechnologyInvestments (1) 0
Settlement of undesignated derivatives (1) (2)
Net cash used in investing activities (84) (131)
Cash flows from financing activities:    
Net repayments under other short-term debt agreements (2) 0
Repayments under long-term debt agreements (9) (9)
Net borrowings under revolving credit facility 500 0
Dividend payments of consolidated affiliates to minority shareholders (8) (8)
Taxes withheld and paid on employees' restricted share awards (1) (1)
Repurchase of ordinary shares 0 (14)
Fees associated with amendments to long-term debt agreements (3) 0
Net cash used in financing activities 477 (32)
Effect of exchange rate fluctuations on cash and cash equivalents (4) 0
Cash, Cash Equivalents and Restricted Cash, Period Increase (Decrease), Including Exchange Rate Effect 420 (142)
Cash, Cash Equivalents and Restricted Cash, beginning 191 360
Cash, Cash Equivalents and Restricted Cash, end $ 611 $ 218
v3.20.1
Consolidated Statement Of Shareholders' Equity - USD ($)
$ 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, 2018 $ 438 $ 1 $ 407 $ 296 $ (412) $ 292 $ 146
Shares outstanding, beginning of period at Dec. 31, 2018   89,000,000          
Net (loss) income 19     16   16 3
Other comprehensive income (loss) 59       58 58 1
Dividend payments of consolidated affiliates to minority shareholders $ (8)           (8)
Stock Repurchased and Retired During Period, Shares (737,917) (1,000,000)          
Share-based compensation $ 4   4     4  
Repurchase of ordinary shares (15)   (4) (11)   (15)  
Taxes witheld on employees' restricted share award vestings (1)   (1)     (1)  
Balance at end of year at Mar. 31, 2019 496 $ 1 406 301 (354) 354 142
Shares outstanding, end of period at Mar. 31, 2019   88,000,000          
Balance at beginning of year at Dec. 31, 2019 455 $ 1 409 281 (376) 315 140
Shares outstanding, beginning of period at Dec. 31, 2019   86,000,000          
Net (loss) income (54)     (57)   (57) 3
Other comprehensive income (loss) (29)       (27) (27) (2)
Dividend payments of consolidated affiliates to minority shareholders (8)           (8)
Share-based compensation 4   4     4  
Taxes witheld on employees' restricted share award vestings (2)   (2)     (2)  
Balance at end of year at Mar. 31, 2020 $ 366 $ 1 $ 411 $ 224 $ (403) $ 233 $ 133
Shares outstanding, end of period at Mar. 31, 2020   86,000,000          
v3.20.1
General
3 Months Ended
Mar. 31, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
General GENERAL
On December 4, 2017, Delphi Technologies PLC (“Delphi Technologies,” “we,” “us,” “our” or the “Company”) 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 the Former Parent shareholders of record on November 22, 2017 of 100% of the outstanding ordinary shares of Delphi Technologies PLC (the “Separation”). Following the Separation, Delphi Automotive PLC changed its name to Aptiv PLC (“Aptiv”). Delphi Technologies’ ordinary shares began trading on the New York Stock Exchange under the ticker symbol “DLPH” on December 5, 2017.
BorgWarner Inc. Transaction
On January 28, 2020, we announced that we had entered into a definitive transaction agreement (the “Original Transaction Agreement”) under which BorgWarner Inc. (“BorgWarner”), a global product leader in clean and efficient technology solutions for combustion, hybrid and electric vehicles, will acquire Delphi Technologies in an all-stock transaction pursuant to a scheme of arrangement (the “Scheme of Arrangement”) under Part 18A of the Companies (Jersey) Law 1991, as amended from time to time (the “Transaction”).
On March 30, 2020, we drew the full available amount under our Revolving Credit Facility (the “Revolver Draw”), resulting in a total of $500 million outstanding under the Revolving Credit Facility. We determined it was prudent and in the best interests of the Company and its shareholders to draw the full $500 million under the facility to protect the business and best position the Company to weather current market conditions and uncertainties caused by the novel coronavirus (“COVID-19”) pandemic.
Following the Revolver Draw, on March 30, 2020, BorgWarner notified the Company of its assertion that the Company materially breached the Original Transaction Agreement as a result of effecting the Revolver Draw without BorgWarner’s prior written consent and also asserted that, if such alleged breach was not cured within 30 days of the Revolver Draw (or April 29, 2020), BorgWarner would have the right to terminate the Original Transaction Agreement. We disputed BorgWarner’s breach assertion on the basis that, among other things, BorgWarner unreasonably withheld and conditioned its consent in material breach of the Original Transaction Agreement.
On May 6, 2020, we resolved our breach dispute with BorgWarner regarding our Revolver Draw by entering into an Amendment and Consent Agreement (the “Amendment” and, together with the Original Transaction Agreement, the “Transaction Agreement”), pursuant to which, among other things, BorgWarner consented to the Revolver Draw and certain other matters, subject to the terms and conditions contained in the Amendment. The Amendment also amends the Original Transaction Agreement to (a) reduce the exchange ratio at which each Delphi Technologies ordinary share will be exchanged from 0.4534 shares of BorgWarner common stock to 0.4307 shares of BorgWarner common stock, and (b) include the following additional conditions to BorgWarner’s obligations to close the Transaction: (i) Delphi Technologies’ net-debt-to-adjusted EBITDA ratio does not exceed (x) 6.5 to 1.0 if closing of the Transaction occurs on or before September 30, 2020, and (y) 7.5 to 1.0 if the closing of the Transaction occurs on or after October 1, 2020, and (ii) as of 11:59 p.m. (New York time) on the date immediately prior to the closing of the Transaction, Delphi Technologies’ outstanding revolver borrowings do not exceed $225 million and, net of cash balances, the revolver borrowings do not exceed $115 million. The Transaction is currently expected to close in the second half of 2020. However, there can be no assurance the conditions to closing will be satisfied or waived or that the Transaction will be completed within the expected time frame or at all. See Item 1A. Risk Factors for risks associated with this Transaction.
Nature of Operations
Delphi Technologies is a leader in the development, design and manufacture of integrated propulsion technologies that enable vehicles to drive cleaner, better and further, by optimizing engine performance, increasing vehicle efficiency, reducing emissions, improving driving performance, and supporting their electrification. 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, 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). We also remanufacture and sell our products 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’ lifecycle.
Basis of Presentation
The unaudited consolidated financial statements included herein have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete annual financial statements. These financial statements include all adjustments, which consist of normal recurring items, necessary for a fair presentation. The operating results for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year. These financial statements should be read in conjunction with the Delphi Technologies’ Annual Report on Form 10-K for the year ended December 31, 2019.
v3.20.1
Significant Accounting Policies
3 Months Ended
Mar. 31, 2020
Accounting Policies [Abstract]  
Significant Accounting Policies SIGNIFICANT ACCOUNTING POLICIES
There have been no material changes on the Company’s significant accounting policies since the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, except those described below.
Principles of consolidation—The consolidated financial statements as of and for the three months ended March 31, 2020 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.
Delphi Technologies held a $6 million investment in PolyCharge America Inc. (“PolyCharge”) as of December 31, 2019. PolyCharge is a privately-held company that does not have a readily determinable fair value and is measured at cost less impairments, adjusted for observable price changes in orderly transactions for the identical or similar investment of the same issuer. During the three months ended March 31, 2020, Delphi Technologies recorded a $3 million impairment related to its investment in PolyCharge after assessing its ability to recover the carrying amount of the investment.
During the three months ended March 31, 2020, Delphi Technologies made a $1 million investment in Mobilion Ventures L.P. (“Mobilion”), a venture capital fund investing in smart mobility aftermarket companies, over which Delphi Technologies does not exert significant influence.
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, restructuring, 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. Events or changes in circumstances after March 31, 2020, including those resulting from the impacts of the COVID-19 pandemic, will be included in future periods.
Recently adopted accounting pronouncements—In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This guidance requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. This guidance also requires enhanced disclosures regarding significant estimates and judgments used in estimating credit losses. The Company adopted this ASU on January 1, 2020. This guidance is applicable to the Company’s accounts receivable allowance for doubtful accounts, reimbursable engineering costs, notes receivable and cash equivalents. The adoption of this guidance did not have a material impact on the Company’s 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 Company adopted this ASU on January 1, 2020. The adoption of this guidance did not have a material impact on the Company’s consolidated 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 Company adopted this ASU on January 1, 2020. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.
Recently issued accounting pronouncements not yet adopted—In 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 consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This guidance provides temporary optional expedients and exceptions for applying US GAAP on contract modifications and hedge accounting affected by reference rate reform if certain criteria are met. An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination. The new guidance is effective March 12, 2020 and can be applied through December 31, 2022. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.
v3.20.1
Inventories
3 Months Ended
Mar. 31, 2020
Inventory Disclosure [Abstract]  
Inventories INVENTORIES, NET
A summary of inventories is shown below:
 
March 31,
2020
 
December 31,
2019
 
 
 
 
 
(in millions)
Productive material
$
211

 
$
210

Work-in-process
44

 
40

Finished goods
195

 
197

Total
$
450

 
$
447


v3.20.1
Assets
3 Months Ended
Mar. 31, 2020
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]  
Assets ASSETS
Other current assets consisted of the following:
 
March 31,
2020
 
December 31,
2019
 
 
 
 
 
(in millions)
Value added tax receivable
$
86

 
$
107

Prepaid insurance and other expenses
24

 
21

Reimbursable engineering costs
19

 
19

Income and other taxes receivable
9

 
13

Notes receivable
7

 
12

Return assets (Note 11)
7

 
7

Derivative financial instruments (Note 15)
1

 
8

Other
7

 
2

Total
$
160

 
$
189


Other long-term assets consisted of the following:
 
March 31,
2020
 
December 31,
2019
 
 
 
 
 
(in millions)
Operating lease assets
$
101

 
$
107

Income and other taxes receivable
32

 
28

Derivative financial instruments (Note 15)
29

 
13

Investment in Tula Technology, Inc.
21

 
21

Value added tax receivable
4

 
7

Investment in PolyCharge
3

 
6

Debt issuance costs
3

 
2

Reimbursable engineering costs
3

 
1

Other
37

 
34

Total
$
233

 
$
219


v3.20.1
Liabilities
3 Months Ended
Mar. 31, 2020
Other Liabilities Disclosure [Abstract]  
Liabilities LIABILITIES
Accrued liabilities consisted of the following:
 
March 31,
2020
 
December 31,
2019
 
 
 
 
 
(in millions)
Restructuring (Note 7)
$
89

 
$
73

Warranty obligations (Note 6)
60

 
63

Income and other taxes payable
56

 
71

Deferred reimbursable engineering
47

 
45

Payroll-related obligations
37

 
48

Accrued rebates
23

 
26

Operating lease liabilities
22

 
22

Accrued interest
18

 
10

Freight
14

 
13

Employee benefits
13

 
5

Outside services
12

 
11

Accrued customer returns
11

 
7

Customer deposits
5

 
6

Dividends to minority shareholders

 
5

Other
68

 
61

Total
$
475

 
$
466


Other long-term liabilities consisted of the following:
 
March 31,
2020
 
December 31,
2019
 
 
 
 
 
(in millions)
Operating lease liabilities
$
86

 
$
93

Accrued income taxes
43

 
45

Warranty obligations (Note 6)
24

 
23

Restructuring (Note 7)
15

 
23

Deferred income taxes
14

 
15

Environmental
2

 
1

Derivative financial instruments (Note 15)
2

 

Other
9

 
10

Total
$
195

 
$
210


v3.20.1
Warranty Obligations
3 Months Ended
Mar. 31, 2020
Product Warranties Disclosures [Abstract]  
Warranty Obligations WARRANTY OBLIGATIONS
Delphi Technologies has recognized its best estimate for its total aggregate warranty reserves, including product recall costs, across its operating segments as of March 31, 2020. The Company estimates the reasonably possible amount to ultimately resolve all matters in excess of the recorded reserves as of March 31, 2020 to be up to approximately $20 million.
The table below summarizes the activity in the product warranty liability for the three months ended March 31, 2020:
 
Warranty Obligations
 
 
 
(in millions)
Accrual balance at December 31, 2019
$
86

Provision for estimated warranties incurred during the period
7

Changes in estimate for pre-existing warranties
5

Settlements made during the period (in cash or in kind)
(12
)
Foreign currency translation and other
(2
)
Accrual balance at March 31, 2020
$
84


v3.20.1
Restructuring
3 Months Ended
Mar. 31, 2020
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, as it relates to executing Delphi Technologies’ strategy, either in the normal course of business or pursuant to significant restructuring programs.
On October 31, 2019, the Company announced a restructuring plan to reshape and realign the Company’s global technical center footprint and reduce salaried and contract staff, with expected charges of up to $200 million. Certain of these actions are subject to consultation with employee works councils and other employee representatives and are expected to be substantially completed by the end of 2021. The Company recorded pre-tax restructuring charges of $41 million during the three months ended March 31, 2020 related to this plan (approximately $100 million of charges recorded to date). The Company expects to record additional pre-tax restructuring charges of approximately $50 million up to $100 million, across the organization. Nearly all of the restructuring charges will be cash expenditures.
In addition, as part of the Company’s continued efforts to optimize its cost structure, it has undertaken several restructuring programs which include workforce reductions as well as plant closures. These programs are primarily focused on the continued rotation of our manufacturing footprint to best-cost locations in Europe and on reducing global overhead costs. The Company recorded employee-related and other restructuring charges related to these programs totaling approximately $3 million during the three months ended March 31, 2019.
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 $33 million and $9 million in the three months ended March 31, 2020 and 2019, respectively.
The following table summarizes the restructuring charges recorded for the three months ended March 31, 2020 and 2019 by operating segment:
 
Three Months Ended March 31,
 
2020
 
2019
 
 
 
 
 
(in millions)
Fuel Injection Systems
$
32

 
$
3

Powertrain Products
8

 

Electrification & Electronics
1

 

Aftermarket

 

Corporate
2

 

Total
$
43

 
$
3


The table below summarizes the activity in the restructuring liability for the three months ended March 31, 2020:
 
Employee Termination Benefits Liability
 
Other Exit Costs Liability
 
Total
 
 
 
 
 
 
 
(in millions)
Accrual balance at December 31, 2019
$
95

 
$
1

 
$
96

Provision for estimated expenses during the period
43

 

 
43

Payments made during the period
(33
)
 

 
(33
)
Foreign currency and other
(2
)
 

 
(2
)
Accrual balance at March 31, 2020
$
103

 
$
1

 
$
104


v3.20.1
Debt
3 Months Ended
Mar. 31, 2020
Debt Disclosure [Abstract]  
Debt DEBT
The following is a summary of debt outstanding, net of unamortized issuance costs and discounts, as of March 31, 2020 and December 31, 2019, respectively:
 
March 31, 2020
 
December 31, 2019
 
(in millions)
Term Loan A Facility (net of $3 and $3 unamortized issuance costs)
$
682

 
$
691

Senior Notes at 5.00% (net of $10 and $10 unamortized issuance costs and $2 and $2 discount, respectively)
788

 
788

Revolving Credit Facility
500

 

Finance lease liabilities and other
14

 
16

Total debt
1,984

 
1,495

Less: current portion
(49
)
 
(40
)
Long-term debt
$
1,935

 
$
1,455


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, which became effective in conjunction with the Separation. The Credit Agreement consists of a senior secured five-year $750 million term loan facility due December 2022 (the “Term Loan A Facility”) and a $500 million five-year senior secured revolving credit facility (the “Revolving Credit Facility”) (collectively, the “Credit Facilities”) with the lenders party thereto and JPMorgan Chase Bank, N.A. We incurred $9 million of issuance costs in connection with the Credit Agreement. As of March 31, 2020, there was $500 million 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 charged to the Company on the specified date are set forth below:
 
March 31, 2020
 
December 31, 2019
 
LIBOR plus
 
ABR plus
 
LIBOR Plus
 
ABR plus
Revolving Credit Facility
1.525
%
 
0.525
%
 
1.450
%
 
0.450
%
Term Loan A Facility
1.875
%
 
0.875
%
 
1.750
%
 
0.750
%

The Credit Agreement was amended on February 10, 2020. Pursuant to the amendment, the applicable interest rate margins for the Term Loan A Facility will increase or decrease from time to time between 1.50% and 2.25% per annum (for LIBOR loans) and between 0.50% and 1.25% per annum (for ABR loans), in each case based upon changes to our corporate credit ratings. Pursuant to the amendment, the applicable interest rate margins for the Revolving Credit Facility will increase or decrease from time to time between 1.30% and 1.75% per annum (for LIBOR loans) and between 0.30% and 0.75% per annum (for ABR loans), in each case based upon changes to our corporate credit ratings.
In light of current economic conditions and uncertainties arising in connection with the COVID-19 pandemic, the Credit Agreement was further amended on May 4, 2020. Pursuant to the second amendment, the applicable interest rate margins for the Term Loan A Facility will increase or decrease from time to time between 2.00% and 2.75% per annum (for LIBOR loans) and between 1.00% and 1.75% per annum (for ABR loans), in each case based upon changes to our corporate credit ratings. Pursuant to the second amendment, the applicable interest rate margins for the Revolving Credit Facility will increase or decrease from time to time between 1.80% and 2.25% per annum (for LIBOR loans) and between 0.80% and 1.25% 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 contains certain affirmative and negative covenants customary for financings of this type that, among other things, limit our and our subsidiaries’ ability to incur additional indebtedness or liens, to dispose of assets, to make certain fundamental changes, to designate subsidiaries as unrestricted, to make certain investments, to prepay certain indebtedness and to pay dividends, or to make other distributions or redemptions/repurchases, with respect to our and our subsidiaries’ equity interests. In addition, the Credit Agreement requires that we maintain a consolidated net leverage ratio of Consolidated Total Indebtedness to Consolidated Adjusted EBITDA, each as defined in the Credit Agreement (the “Original Ratio”). The Credit Agreement also contains events of default customary for financings of this type, including certain customary change of control events. Pursuant to the Credit Agreement amendment on February 10, 2020, for any fiscal quarter ending on or prior to September 30, 2019 or after December 31, 2020, the Company must maintain a consolidated net leverage ratio of not greater than 3.5 to 1.0 and for any fiscal quarter ending on or after December 31, 2019 and on or prior to December 31, 2020 a consolidated net leverage ratio of not greater than 4.0 to 1.0.
Pursuant to the second Credit Agreement amendment on May 4, 2020, the net leverage ratio definition was amended to be Consolidated Secured Indebtedness to Consolidated Adjusted EBITDA, each as defined in the Credit Agreement (the “Revised Ratio”). For any fiscal quarter ending on or prior to March 31, 2020, the Company must maintain the Revised Ratio of not greater than 4.25 to 1.0 stepping down by 0.5x every quarter starting the quarter ended June 30, 2021, and reverting back to the Original Ratio starting the quarter ended March 31, 2022 to be maintained at a level no greater than 4.0 to 1.0.
The Company was in compliance with the Credit Agreement covenants as of March 31, 2020.
Senior Notes
On September 28, 2017, Delphi Technologies PLC issued $800 million in aggregate principal amount of 5.00% senior unsecured notes due 2025 in a transaction exempt from registration under the Securities Act (the “Senior Notes”).
The Senior Notes indenture contains certain restrictive covenants, including with respect to Delphi Technologies’ (and subsidiaries) ability to incur liens, enter into sale and leaseback transactions and merge with or into other entities. The Company was in compliance with the Senior Notes covenants as of March 31, 2020.
Other Financing
Receivable factoring—The Company is party to a €225 million accounts receivable factoring facility for certain subsidiaries in Europe. As a result of current economic conditions and uncertainties arising in connection with the COVID-19 pandemic, this facility is currently suspended pending negotiation of new terms acceptable to both parties. The facility would be accounted for as short-term debt and borrowings would be subject to the availability of eligible accounts receivable. Collateral is not required related to these trade accounts receivable. This facility matures on November 28, 2022 and will automatically renew on a non-committed, indefinite basis unless terminated by either party. Borrowings bear interest at LIBOR plus a margin for borrowings denominated in British pounds and Euro Interbank Offered Rate ("EURIBOR") plus a margin for borrowings denominated in Euros. The current applicable margin will increase or decrease from time to time between 0.45% and 0.85% based on changes to our corporate credit ratings. There were no amounts outstanding on the European accounts receivable factoring facility as of March 31, 2020 and December 31, 2019.
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 months ended March 31, 2020 and March 31, 2019, $31 million and
$31 million of receivables were sold under these arrangements, and expenses of $1 million and $1 million were recognized within interest expense, respectively.
In addition, during the three months ended March 31, 2019, one of the Company’s European subsidiaries factored, without recourse, $21 million of receivables related to certain foreign research credits to a financial institution. This transaction was accounted for as a true sale of the receivables, and the Company therefore derecognized this amount from other long-term assets in the consolidated balance sheet as a result of these transactions. During the three months ended March 31, 2019, less than $1 million of expenses were recognized within interest expense related to these transactions.
Finance leases—There were approximately $13 million and $14 million of finance lease obligations outstanding as of March 31, 2020 and December 31, 2019, respectively.
Interest—Cash paid for interest related to debt outstanding, including the effect of interest rate and cross currency swaps, totaled $7 million and $8 million, for the three months ended March 31, 2020 and 2019, respectively.
v3.20.1
Pension Benefits
3 Months Ended
Mar. 31, 2020
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.
Effective March 31, 2019, the Company froze future accruals for nearly all U.K. based employees under the related defined benefit plans, replacing them with contributions under defined contribution plans effective April 1, 2019, including additional contributions and other payments to impacted employees over a two-year transition period. As a result of this change, the Company realized a one-time reduction to its pension obligation of $33 million, along with a one-time charge of $15 million in the three months ended March 31, 2019, related to curtailing the defined benefit pension plans in the U.K. For the three months ended March 31, 2020 and 2019, the Company also recognized a charge of $2 million and $7 million, respectively, related to transitional payments to impacted employees. The Company excluded these charges, and expects to exclude related future charges, from our calculation of Adjusted Operating Income.
The amounts shown below reflect the non-U.S. plans’ defined benefit pension (income) expense for the three months ended March 31, 2020 and 2019:
 
Three Months Ended March 31,
 
2020
 
2019
 
 
 
 
 
(in millions)
Service cost
$
2

 
$
7

Interest cost
7

 
9

Expected return on plan assets
(11
)
 
(14
)
Curtailment loss

 
15

Amortization of actuarial losses
2

 
4

Net periodic benefit cost
$

 
$
21


Other postretirement benefit obligations were $1 million and $1 million at March 31, 2020 and December 31, 2019, respectively.
v3.20.1
Commitments And Contingencies
3 Months Ended
Mar. 31, 2020
Commitments and Contingencies Disclosure [Abstract]  
Commitments And Contingencies COMMITMENTS AND CONTINGENCIES
Ordinary Business Claims
In the normal course of our business, we are named from time to time as a defendant in various legal actions, including arbitrations, class actions, and other litigation. We also from time to time receive subpoenas and other inquiries or requests for information from U.S. and foreign federal, state and local governments on a variety of matters. We accrue for matters when we believe that losses are probable and can be reasonably estimated. Considering, among other things, the legal defenses available
and existing accruals, it is inherently difficult in many matters to determine whether loss is probable or reasonably possible or to estimate the size or range of the possible loss. Accordingly adverse outcomes from such proceedings could exceed the amounts accrued by an amount that could be material to our results of operations or cash flows in any particular reporting period.
We estimate our reasonably possible loss in excess of the amounts accrued for ordinary business claims to be up to $10 million.
Transaction with BorgWarner
Shareholder Litigation
Since the January 28, 2020 announcement that the Company had entered into a definitive transaction agreement with BorgWarner Inc., five complaints have been filed by alleged Company shareholders captioned: Sherman v. Delphi Technologies PLC, et al., Case No. 1:20-cv-00385-UNA (filed in the U.S. District Court for the District of Delaware) (the “Sherman Complaint”); Costa v. Delphi Technologies PLC, et al., Case No. 1:20-cv-02363-PAC, Catalano v. Delphi Technologies, PLC, et al., Case No. 1:20-cv-02520-UA, and Schlageter v. Delphi Technologies PLC, et al., Case No. 1:20-cv-02527-UA (each filed in the U.S. District Court for the Southern District of New York); and Heinowski v. Delphi Technologies PLC, et al., Case No. 2:20-cv-10834-LVP-APP (filed in the U.S. District Court for the Eastern District of Michigan). The complaint in each case names as defendants the Company and the members of the board of directors of the Company and alleges, among other things, that the defendants violated Sections 14(a) and 20(a) of the Securities Exchange Act of 1934 and Rule 14a-9 promulgated thereunder by omitting supposedly material information from the preliminary proxy statement filed by the Company on March 11, 2020, rendering it false and/or misleading. In addition, the Sherman Complaint names BorgWarner as a defendant with respect to its claim under Section 20(a) and, unlike the other complaints, is a putative class action. The plaintiffs in the actions each seek, among other relief, an injunction against proceeding with the shareholder vote on the proposed transaction or consummating the proposed transaction absent corrective disclosures, damages and attorneys’ and expert fees. The Company believes the allegations made in the complaints to be without merit.
v3.20.1
Revenue
3 Months Ended
Mar. 31, 2020
Revenue [Abstract]  
Revenue from Contract with Customer [Text Block]
11. REVENUE
Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring promised goods or services. The Company generally recognizes revenue when it satisfies a performance obligation by transferring control over a product to a customer. From time to time, we enter into pricing agreements with our customers that provide for price reductions, some of which are conditional upon achieving certain criteria. In these instances, revenue is recognized based on the agreed-upon price at the time of shipment.    
Nature of Goods
The majority of our revenue is recorded at a point in time as defined by ASC Topic 606, Revenue from Contacts with Customers (“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 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 March 31,
 
2020
 
2019
 
(in millions)
North America
$
260

 
$
338

Europe
418

 
542

Asia Pacific
242

 
236

South America
25

 
35

Total
$
945

 
$
1,151


The Fuel Injection Systems, Powertrain Products and Electrification & Electronics segments primarily serve OEMs along with certain Tier 1 suppliers (one that supplies vehicle components directly to manufacturers) and the Aftermarket segment serves sales channels to independent aftermarket customers and original equipment service customers.
In the following table, net sales is disaggregated by customer and sales channels:
 
Three Months Ended March 31,
 
2020
 
2019
 
(in millions)
Sales to OEMs and Tier 1 customers:
 
 
 
Fuel Injection Systems
$
358

 
$
419

Powertrain Products
241

 
302

Electronics & Electrification products
172

 
237

Total sales to OEMs and Tier 1 customers
771

 
958

 
 
 
 
Sales to independent aftermarket customers
121

 
141

Sales to original equipment service customers
53

 
52

Total sales to aftermarket customers
174

 
193

Total
$
945

 
$
1,151


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 March 31, 2020 and December 31, 2019 the recognition of revenue over time resulted in approximately $2 million and $2 million of unbilled accounts receivable, respectively, which are included in accounts receivable, net. There were no other contract assets or liabilities as of March 31, 2020 and December 31, 2019 as defined by ASC 606.
Return Assets
The Aftermarket segment provides certain customers with a right of return. The Company recognizes an estimated return asset (and adjusts for cost of sales) for the right to recover the products returned by the customer. ASC 606 requires that return assets be presented separately from inventory. As of March 31, 2020 and December 31, 2019, the Company had return assets of $7 million and $7 million, respectively, included in other current assets.
Practical Expedients and Exemptions
For our Fuel Injection Systems, Powertrain Products and Electrification & Electronics segments, we define the contract with the customer as the combination of a current purchase order and a current production schedule issued by the customer. For our Aftermarket segment, we define the contract with the customer as the combination of a current purchase order and a master agreement with the customer. Although there are instances where the master agreements may extend beyond one year, there are generally no purchase orders with an expected duration beyond a year.
There are generally no performance obligations outstanding beyond a year. The Company generally does not enter into fixed long-term supply agreements. The Company applies the exemption in ASC 606 and does not disclose information about remaining performance obligations that have original expected durations of one year or less.
In addition, the Company applies the practical expedient in ASC 340 and immediately expenses contract acquisition costs when incurred, including sales commissions, because the amortization period would be one year or less.
v3.20.1
Income Taxes
3 Months Ended
Mar. 31, 2020
Income Tax Disclosure [Abstract]  
Income Taxes INCOME TAXES
At the end of each interim period, the Company makes its best estimate of the annual expected effective income tax rate and applies that rate to its ordinary year-to-date earnings or loss. The income tax provision or benefit related to unusual or infrequent items, if applicable, that will be separately reported or reported net of their related tax effects are individually computed and recognized in the interim period in which those items occur. In addition, the effect of changes in enacted tax laws or rates, tax status, judgment on the realizability of a beginning-of-the-year deferred tax asset in future years or income tax contingencies is recognized in the interim period in which the change occurs.
The computation of the annual expected effective income tax rate at each interim period requires certain estimates and assumptions including, but not limited to, the expected pre-tax income (or loss) for the year, projections of the proportion of income (and/or loss) earned and taxed in respective jurisdictions, permanent and temporary differences, and the likelihood of the realizability of deferred tax assets generated in the current year. Jurisdictions with a projected loss for the year or a year-to-date loss for which no tax benefit or expense can be recognized due to a valuation allowance are excluded from the estimated
annual effective tax rate. The impact of such an exclusion could result in a higher or lower effective tax rate during a particular quarter, based upon the composition and timing of actual earnings compared to annual projections. The estimates used to compute the provision or benefit for income taxes may change as new events occur, additional information is obtained or as our tax environment changes. To the extent that the expected annual effective income tax rate changes, the effect of the change on prior interim periods is included in the income tax provision in the period in which the change in estimate occurs.
The Company’s income tax expense and effective tax rate for the three months ended March 31, 2020 and 2019 were as follows:
 
Three Months Ended March 31,
 
2020
 
2019
 
 
 
 
 
(dollars in millions)
Income tax expense
$
20

 
$
8

Effective tax rate
(59
)%
 
32
%

The Company’s tax rate is affected by the fact that Delphi Technologies PLC, its parent entity, is a U.K. resident taxpayer, the tax rates in the other jurisdictions in which the Company operates, the relative amount of income earned by jurisdiction and the relative amount of losses or income for which no tax benefit or expense was recognized due to a valuation allowance.
The Company’s effective tax rate for the three months ended March 31, 2020 was impacted by unfavorable changes in geographic income mix in 2020 as compared to 2019 which increased the amount of losses in jurisdictions in which no tax benefit for those losses could be recognized. Primarily driven by the expected impact of the COVID-19 pandemic, the Company has recognized a significantly higher proportion of any such expected geographic full-year 2020 taxable income in the first quarter of 2020 as compared to the first quarter of 2019. The Company’s effective tax rate for the three months ended March 31, 2020 includes net discrete tax benefit of $1 million. The effective tax rate for the three months ended March 31, 2019 was impacted by favorable changes in geographic income mix in 2019 as compared to 2018. The Company’s effective tax rate for the three months ended March 31, 2019 includes net discrete tax benefit of $1 million.
Delphi Technologies PLC is a U.K. resident taxpayer and as such is generally not subject to U.K. tax on remitted foreign earnings.
Cash paid or withheld for income taxes was $10 million and $12 million for the three months ended March 31, 2020 and 2019, respectively.
v3.20.1
Shareholders' Equity And Net Income Per Share
3 Months Ended
Mar. 31, 2020
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 all periods presented the calculation of net income per share contemplates the dilutive impacts, if any, of the Company’s share-based compensation plans. Refer to Note 18. Share-Based Compensation for additional information.
Weighted Average Shares
The following table illustrates net income per share attributable to Delphi Technologies and the weighted average shares outstanding used in calculating basic and diluted income per share:
 
Three Months Ended March 31,
 
2020
 
2019
 
 
 
 
 
(in millions, except per share data)
Numerator:
 
 
 
Net (loss) income attributable to Delphi Technologies
$
(57
)
 
$
16

Denominator:
 
 
 
Weighted average ordinary shares outstanding, basic
86.17

 
88.45

Dilutive shares related to restricted stock units (“RSUs”)
0.11

 
0.10

Weighted average ordinary shares outstanding, including dilutive shares
86.28

 
88.55

 
 
 
 
Net income per share attributable to Delphi Technologies:
 
 
 
Basic
$
(0.66
)
 
$
0.18

Diluted
$
(0.66
)
 
$
0.18

Anti-dilutive securities share impact

 


Share Repurchases
In January 2019, the Board of Directors elected to suspend the Company’s quarterly dividend and approved a new $200 million share repurchase program, which replaced the previous repurchase authorization from July 2018. Repurchases under this program could be made at management’s discretion from time to time on the open market or through privately negotiated transactions. On October 31, 2019, the Company suspended its share repurchase program.
A summary of the ordinary shares repurchased during the three months ended March 31, 2019 is as follows:
 
Three Months Ended March 31, 2019
Total number of shares repurchased
737,917

Average price paid per share
$
20.33

Total (in millions)
$
15


All repurchased shares were retired and returned to authorized but unissued shares. The repurchased shares are reflected as a reduction of ordinary share capital for the par value of the shares, with the excess applied as reductions to additional paid-in-capital and retained earnings.
v3.20.1
Changes in Accumulated Other Comprehensive Income
3 Months Ended
Mar. 31, 2020
Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract]  
Changes in Accumulated Other Comprehensive Income CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The changes in accumulated other comprehensive income (loss) attributable to Delphi Technologies (net of tax) for the three months ended March 31, 2020 and 2019 are shown below.
 
Three Months Ended March 31,
 
2020
 
2019
 
 
 
 
 
(in millions)
Foreign currency translation adjustments:
 
 
 
Balance at beginning of period
$
(175
)
 
$
(165
)
Aggregate adjustment for the period (1)
(44
)
 
8

Balance at end of period
(219
)
 
(157
)
 
 
 
 
Gains (losses) on derivatives:
 
 
 
Balance at beginning of period
20

 
(2
)
Other comprehensive income before reclassifications (net tax effect of $0 and $0)
6

 
18

Reclassification to income (net tax effect of $0 and $0)
(2
)
 
(2
)
Balance at end of period
24

 
14

 
 
 
 
Pension and postretirement plans:
 
 
 
Balance at beginning of period
(221
)
 
(245
)
Other comprehensive income before reclassifications (net tax effect of $3 and $2)
11

 
19

Reclassification to income (net tax effect $0 and $4)
2

 
15

Balance at end of period
(208
)
 
(211
)
 
 
 
 
Accumulated other comprehensive loss, end of period
$
(403
)
 
$
(354
)
(1)
Includes a gain of $2 million and a loss of $3 million, for the three months ended March 31, 2020 and 2019, respectively, related to the foreign currency impact of intra-entity loans that are of a long-term investment nature. Also included are gains of $3 million and $4 million, for the three months ended March 31, 2020 and 2019, respectively, related to non-derivative net investment hedges. Refer to Note 15. Derivatives and Hedging Activities for further description of these hedges.
Reclassifications from accumulated other comprehensive income (loss) to income for the three months ended March 31, 2020 and 2019 were as follows:
Reclassification Out of Accumulated Other Comprehensive Income (Loss)
Details About Accumulated Other Comprehensive Income (Loss) Components
 
Three Months Ended March 31,
Affected Line Item in the Statement of Operations
 
2020
 
2019
 
 
 
 
 
 
 
 
(in millions)
 
Pension and postretirement plans:
 
 
 
 
 
Actuarial losses
 
$
(2
)
 
$
(4
)
Other income (expense), net (1)
Curtailment
 

 
(15
)
Other income (expense), net (1)
 
 
(2
)
 
(19
)
Income before income taxes
 
 

 
4

Income tax expense
 
 
(2
)
 
(15
)
Net income
 
 

 

Net income attributable to noncontrolling interest
 
 
$
(2
)
 
$
(15
)
Net income attributable to Delphi Technologies
(1)
These accumulated other comprehensive loss components are included in the computation of net periodic pension cost (see Note 9. Pension Benefits for additional details).

Refer to Note. 15 Derivatives and Hedging Activities for additional reclassifications from accumulated other comprehensive income (loss) to income.
v3.20.1
Derivatives And Hedging Activities
3 Months Ended
Mar. 31, 2020
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.
In December 2018, the Company entered into interest rate swap agreements, designated as cash flow hedges, with a combined notional amount of $400 million where the variable rates under the Term Loan A Facility have been exchanged for a fixed rate. These interest rate swap agreements mature in September 2022 and convert the nature of $400 million of the loan from LIBOR floating-rate debt to fixed-rate debt.
As of March 31, 2020, 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
 
653

 
RMB
 
$
90

Euro
 
37

 
EUR
 
40

Mexican Peso
 
1,046

 
MXN
 
40

Polish Zloty
 
169

 
PLN
 
40

British Pound
 
21

 
GBP
 
30

Singapore Dollar
 
36

 
SGD
 
30

Turkish Lira
 
62

 
TRY
 
10


As of March 31, 2020, Delphi Technologies has entered into derivative instruments to hedge cash flows extending out to September 2022.
Gains and losses on derivatives qualifying as cash flow hedges are recorded in accumulated other comprehensive income (“OCI”), to the extent that hedges are effective, until the underlying transactions are recognized in earnings. Unrealized amounts in accumulated OCI will fluctuate based on changes in the fair value of hedge derivative contracts at each reporting period. Net losses on cash flow hedges included in accumulated OCI as of March 31, 2020 were approximately $27 million (approximately $27 million, net of tax). Of this total, approximately $12 million of losses are expected to be included in cost of sales and interest expense within the next 12 months and $15 million of losses are expected to be included in cost of sales and interest expense in subsequent periods. Cash flow hedges are discontinued when Delphi Technologies determines it is no longer probable that the originally forecasted transactions will occur. Cash flows from derivatives used to manage foreign exchange and interest rate risks are classified as operating activities within the consolidated statement of cash flows.
Net Investment Hedges
The Company is also exposed to the risk that adverse changes in foreign currency exchange rates could impact its net investment in non-U.S. subsidiaries. To manage this risk, the Company designated a qualifying non-derivative instrument, foreign currency-denominated debt, as a net investment hedge of certain non-U.S. subsidiaries. The gains or losses on instruments designated as net investment hedges are recognized within OCI to offset changes in the value of the net investment in these foreign currency-denominated operations. Gains and losses reported in accumulated other comprehensive income (loss) are reclassified to earnings only when the related currency translation adjustments are required to be reclassified, usually upon sale or liquidation of the investment.
In December 2018 and March 2019, as a means of managing foreign currency risk related to our significant operations in Europe, the Company executed fixed-for-fixed cross currency swaps, in which the Company will pay Euros and receive U.S. dollars with a combined notional amount of $600 million. These agreements are designated as net investment hedges and have a maturity date of September 2022.
Derivatives Not Designated as Hedges
On certain occasions the Company enters into certain foreign currency contracts that are not designated as hedges. When hedge accounting is not applied to derivative contracts, gains and losses are recorded to other income (expense), net and cost of sales in the consolidated statement of operations.
Fair Value of Derivative Instruments in the Balance Sheet
The following table includes the fair value of derivative instruments recorded in the consolidated balance sheets as of March 31, 2020 and December 31, 2019:
 
Asset Derivatives
 
Liability Derivatives
 
Balance Sheet Location*
 
March 31,
2020
 
December 31,
2019
 
Balance Sheet Location*
 
March 31,
2020
 
December 31,
2019
 
 
 
 
 
 
 
 
 
 
 
 
 
(in millions)
Designated as cash flow hedges:
 
 
 
 
 
 
 
 
 
 
Foreign currency derivatives*
Other current assets
 
$
3

 
$
6

 
Other current assets
 
$
2

 
$

Foreign currency derivatives*
Other long-term assets
 
1

 
2

 
Other long-term assets
 
1

 

Foreign currency derivatives*
Accrued liabilities
 
2

 

 
Accrued liabilities
 
5

 

Foreign currency derivatives*
Other long-term liabilities
 

 

 
Other long-term liabilities
 
2

 

Interest rate swaps*
Other long-term assets
 

 

 
Other long-term assets
 
22

 
11

 
 
 
 
 
 
 
 
 
 
 
 
Designated as net investment hedges:
 
 
 
 
 
 
 
 
 
 
Cross-currency swaps*
Other long-term assets
 
51

 
22

 
Other long-term assets
 

 

Total designated as hedges
 
$
57

 
$
30

 
 
 
$
32

 
$
11

 
 
 
 
 
 
 
 
 
 
 
 
Derivatives not designated as hedges:
 
 
 
 
 
 
 
 
 
 
Foreign currency derivatives*
Other current assets
 
$
1

 
$
3

 
Other current assets
 
$
1

 
$
1

Foreign currency derivatives*
Accrued liabilities
 
1

 

 
Accrued liabilities
 

 

Total not designated as hedges
 
$
2

 
$
3

 
 
 
$
1

 
$
1

* 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 March 31, 2020 and a net asset position as of December 31, 2019.
Effect of Derivatives on the Statement of Operations and Statement of Comprehensive Income
The pre-tax effect of the derivative financial instruments in the consolidated statement of operations and consolidated statement of comprehensive income for the three months ended March 31, 2020 and 2019 is as follows:
Three Months Ended March 31, 2020
Gain (Loss) Recognized in OCI
 
Gain Reclassified from OCI into Income
 
 
 
 
 
(in millions)
Derivatives designated as cash flow hedges:
 
 
 
Foreign currency derivatives
$
(12
)
 
$
3

Interest rate swaps
(11
)
 
(1
)
Derivatives designated as net investment hedges:
 
 
 
Cross-currency swaps
29

 

Total
$
6

 
$
2

 
 
 
 
 
 
 
Loss Recognized in Income
 
 
 
 
 
 
 
(in millions)
Derivatives not designated
 
$
(1
)
Total
 
$
(1
)
 
 
 
 
Three Months Ended March 31, 2019
Gain Recognized in OCI
 
Gain Reclassified from OCI into Income
 
 
 
(in millions)
Derivatives designated as cash flow hedges:
 
 
 
Foreign currency derivatives
$
2

 
$
2

Derivatives designated as net investment hedges:
 
 
 
Cross-currency swaps
16

 
Total
$
18

 
$
2

 
 
 
 
 
 
 
Loss Recognized in Income
 
 
 
 
 
 
 
(in millions)
Derivatives not designated
 
$
(2
)
Total
 
$
(2
)
The gain or loss recognized into income for designated and not designated derivative instruments were recorded to other income, net, interest expense and cost of sales in the consolidated statements of operations for the periods presented above.
v3.20.1
Fair Value of Financial Instrument
3 Months Ended
Mar. 31, 2020
Fair Value Disclosures [Abstract]  
Fair Value Disclosures [Text Block] FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair Value Measurements on a Recurring Basis
Derivative instruments—All derivative instruments are required to be reported on the balance sheet at fair value unless the transactions qualify and are designated as normal purchases or sales. Changes in fair value are reported currently through earnings unless they meet hedge accounting criteria. Delphi Technologies’ derivative exposures are with counterparties with long-term investment grade credit ratings. Delphi Technologies estimates the fair value of its derivative contracts using an income approach based on valuation techniques to convert future amounts to a single, discounted amount. Estimates of the fair value of foreign currency derivative instruments, interest rate swaps and cross-currency swaps are determined using exchange traded prices and rates. Delphi Technologies also considers the risk of non-performance in the estimation of fair value, and includes an adjustment for non-performance risk in the measure of fair value of derivative instruments. The non-performance risk adjustment reflects the credit default spread (“CDS”) applied to the foreign currency exposures by counterparty. When Delphi Technologies is in a net derivative asset position, the counterparty CDS rates are applied to the net derivative asset position. When Delphi Technologies is in a net derivative liability position, estimates of peer companies’ CDS rates are applied to the net derivative liability position.
In certain instances where market data is not available, Delphi Technologies uses management judgment to develop assumptions that are used to determine fair value. This could include situations of market illiquidity for a particular currency or commodity or where observable market data may be limited. In those situations, Delphi Technologies generally surveys investment banks and/or brokers and utilizes the surveyed prices and rates in estimating fair value.
As of March 31, 2020 Delphi Technologies was in a net derivative asset position of $26 million. As of December 31, 2019 Delphi Technologies was in a net derivative asset position of $21 million. No significant adjustments were recorded for nonperformance risk based on the application of peer companies’ CDS rates, evaluation of our own nonperformance risk and because Delphi Technologies’ exposures were to counterparties with investment grade credit ratings. Refer to Note 15. Derivatives and Hedging Activities for further information regarding derivatives.
As of March 31, 2020 and December 31, 2019 Delphi Technologies had the following derivative assets measured at fair value on a recurring basis:
 
Total
 
Quoted Prices in Active Markets
Level 1
 
Significant Other Observable Inputs
Level 2
 
Significant Unobservable Inputs
Level 3
 
 
 
 
 
 
 
 
 
(in millions)
As of March 31, 2020:
 
 
 
 
 
 
 
Foreign currency derivatives*
$
1

 
$

 
$
1

 
$

Interest rate swaps*
(22
)
 

 
(22
)
 

Cross-currency swaps*
51

 

 
51

 

Total
$
30

 
$

 
$
30

 
$

As of December 31, 2019:
 
 
 
 
 
 
 
Foreign currency derivatives*
$
10

 
$

 
$
10

 
$

Interest rate swaps*
(11
)
 

 
(11
)
 

Cross-currency swaps*
22

 

 
22

 

Total
$
21

 
$

 
$
21

 
$

As of March 31, 2020 Delphi Technologies had the following derivative liabilities measured at fair value on a recurring basis (as of December 31, 2019 Delphi Technologies did not have any derivative liabilities):
 
Total
 
Quoted Prices in Active Markets
Level 1
 
Significant Other Observable Inputs
Level 2
 
Significant Unobservable Inputs
Level 3
 
 
 
 
 
 
 
 
 
(in millions)
As of March 31, 2020:
 
Foreign currency derivatives*
$
(4
)
 
$

 
$
(4
)
 
$

Total
$
(4
)
 
$

 
$
(4
)
 
$


* Derivative instruments are subject to master netting arrangements and are presented on a net basis in the consolidated balance sheets in accordance with accounting guidance related to the offsetting of amounts related to certain contracts.
Non-derivative financial instruments—Delphi Technologies’ non-derivative financial instruments include cash and cash equivalents, accounts and notes receivable, accounts payable, as well as debt, which consists of finance lease liabilities, the Senior Notes, the Term Loan A Facility and other debt issued by Delphi Technologies’ non-U.S. subsidiaries. The fair value of debt is based on quoted market prices for instruments with public market data or significant other observable inputs for instruments without a quoted public market price (Level 2). As of March 31, 2020 and December 31, 2019, total debt was recorded at $1,984 million and $1,495 million, respectively, and had estimated fair values of $1,643 million and $1,438 million, respectively. For all other financial instruments recorded at March 31, 2020 and December 31, 2019, fair value approximates book value.
Fair Value Measurements on a Nonrecurring Basis
In addition to items that are measured at fair value on a recurring basis, Delphi Technologies also has items in its balance sheet that are measured at fair value on a nonrecurring basis. As these items are not measured at fair value on a recurring basis, they are not included in the tables above. Nonfinancial assets and liabilities that are measured at fair value on a nonrecurring basis include certain long-lived assets, equity method investments, other equity investments, intangible assets, asset retirement obligations, share-based compensation and liabilities for exit or disposal activities measured at fair value upon initial recognition. During the three months ended March 31, 2020 and 2019, Delphi Technologies recorded non-cash asset impairment charges totaling $3 million and $3 million, respectively, within other income (expense), net and amortization related to declines in the fair value for certain equity investments and intangible assets, respectively. Fair value of long-lived assets is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved and a review of appraisals. As such, Delphi Technologies has determined that the fair value measurements of long-lived assets fall in Level 3 of the fair value hierarchy.
v3.20.1
Other Income, Net