DELPHI TECHNOLOGIES PLC, 10-K filed on 2/21/2019
Annual Report
v3.10.0.1
Document and Entity Information Document and Entity Information - USD ($)
12 Months Ended
Dec. 31, 2018
Feb. 15, 2019
Jun. 30, 2018
Document and Entity Information [Abstract]      
Entity Registrant Name Delphi Technologies PLC    
Entity Central Index Key 0001707092    
Current Fiscal Year End Date --12-31    
Entity Filer Category Large Accelerated Filer    
Document Type 10-K    
Document Period End Date Dec. 31, 2018    
Document Fiscal Year Focus 2018    
Document Fiscal Period Focus FY    
Amendment Flag false    
Entity Emerging Growth Company false    
Entity Small Business false    
Entity Shell Company false    
Entity Common Stock, Shares Outstanding   88,531,666  
Entity Well-known Seasoned Issuer Yes    
Entity Voluntary Filers No    
Entity Current Reporting Status Yes    
Entity Public Float     $ 3,985,077,509
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CONSOLIDATED STATEMENT OF OPERATIONS - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Income Statement [Abstract]      
Net sales $ 4,858 $ 4,849 $ 4,486
Operating expenses:      
Cost of sales 3,961 3,881 3,689
Selling, general and administrative 414 408 299
Amortization 14 16 17
Restructuring 35 98 161
Total operating expenses 4,424 4,403 4,166
Operating income 434 446 320
Interest expense (79) (15) (1)
Other income (expense) 9 (11) (1)
Income before income taxes and equity income 364 420 318
Income tax benefit (expense) 9 (106) (50)
Income before equity income 373 314 268
Equity income, net of tax 7 5 0
Net income 380 319 268
Net income attributable to noncontrolling interest 22 34 32
Net income attributable to Delphi Technologies $ 358 $ 285 $ 236
Net income per share attributable to Delphi Technologies:      
Basic (in dollars per share) $ 4.04 $ 3.22 $ 2.66
Diluted (in dollars per share) $ 4.03 $ 3.21 $ 2.66
Weighted average ordinary shares outstanding:      
Basic (in dollars per share) 88,680,000 88,610,000 88,610,000
Diluted (in dollars per share) 88,890,000 88,660,000 88,610,000
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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Statement of Comprehensive Income [Abstract]      
Net income $ 380 $ 319 $ 268
Other comprehensive income (loss):      
Currency translation adjustments (83) 72 (84)
Net change in unrecognized gain on derivative instruments, net of tax (2) 0 0
Employee benefit plans adjustment, net of tax 41 6 (135)
Other comprehensive (loss) income, net of tax (44) 78 (219)
Comprehensive income 336 397 49
Comprehensive income attributable to noncontrolling interests 19 38 28
Comprehensive income attributable to Delphi Technologies $ 317 $ 359 $ 21
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CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Millions
Dec. 31, 2018
Dec. 31, 2017
Current assets:    
Cash and cash equivalents $ 359 $ 338
Restricted cash 1 1
Accounts receivable, net 878 1,090
Inventories, net 521 498
Other current assets 172 131
Total current assets 1,931 2,058
Long-term assets:    
Property, net 1,445 1,316
Investments in affiliates 44 37
Intangible assets and goodwill, net 76 82
Deferred income taxes 280 178
Other long-term assets 117 122
Total long-term assets 1,962 1,735
Total assets 3,893 3,793
Current liabilities:    
Short-term debt 43 20
Accounts payable 906 931
Accrued liabilities 428 445
Total current liabilities 1,377 1,396
Long-term liabilities:    
Long-term debt 1,488 1,515
Pension and other postretirement benefit obligations 467 531
Other long-term liabilities 123 119
Total long-term liabilities 2,078 2,165
Total liabilities 3,455 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 December 31, 2018 and December 31, 2017, respectively 1 1
Additional paid-in-capital 407 431
Retained earnings 296 7
Accumulated other comprehensive loss (412) (371)
Total Delphi Technologies shareholders’ equity 292 68
Noncontrolling interest 146 164
Total shareholders’ equity 438 232
Total liabilities and shareholders’ equity $ 3,893 $ 3,793
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CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares
Dec. 31, 2018
Dec. 31, 2017
Statement of Financial Position [Abstract]    
Preferred shares, par value (in dollars per share) $ 0.01 $ 0.01
Preferred shares, authorized 50,000,000 50,000,000
Preferred shares, issued 0 0
Preferred shares, outstanding 0 0
Ordinary shares, par value (in dollars per share) $ 0.01 $ 0.01
Ordinary shares, shares authorized 1,200,000,000 1,200,000,000
Ordinary shares, shares issued 88,491,963 88,613,262
Ordinary shares, shares outstanding 88,491,963 88,613,262
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CONSOLIDATED STATEMENT OF CASH FLOWS - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Cash flows from operating activities:      
Net income $ 380 $ 319 $ 268
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation 183 185 193
Amortization 14 16 17
Amortization of deferred debt issuance costs 4 0 0
Restructuring expense, net of cash paid (32) 10 (4)
Deferred income taxes (108) (7) (12)
Pension and other postretirement benefit expenses 43 47 30
Income from equity method investments, net of dividends received (7) (5) 0
Gain on sale of assets (3) 0 (4)
Share-based compensation 9 17 19
Changes in operating assets and liabilities:      
Accounts receivable, net 162 (271) 8
Inventories (24) (124) (8)
Other assets (49) (82) (23)
Accounts payable (97) 201 (4)
Accrued and other long-term liabilities 27 148 (25)
Other, net (36) (18) (31)
Pension contributions (47) (48) (52)
Net cash provided by operating activities 419 388 372
Cash flows from investing activities:      
Capital expenditures (265) (197) (171)
Proceeds from sale of property 5 10 9
Cost of technology investments (7) (1) 0
Proceeds from insurance settlement claims, Investing Activities 1 1 0
Payments for (proceeds from) derivative instrument, Investing Activities (8) 0 0
Net cash used in investing activities (274) (187) (162)
Cash flows from financing activities:      
Net repayments under other short-term debt agreements (2) 0 (2)
Repayments under long-term debt agreements (19) 0 0
Proceeds from issuance of senior notes, net of discount and issuance costs 0 782 0
Proceeds from issuance of credit agreement, net of issuance costs 0 741 0
Dividend payments of consolidated affiliates to minority shareholders (12) (10) (13)
Distribution of cash dividends (60) 0 0
Taxes withheld and paid on employees’ restricted share awards (5) 0 0
Repurchase of ordinary shares (10) 0 0
Cash distributions paid to Former Parent 0 (1,328) 0
Other net transfers to Former Parent 0 (160) (195)
Net cash (used in) provided by financing activities (108) 25 (210)
Effect of exchange rate fluctuations on cash, cash equivalents and restricted cash (16) 12 (7)
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents, Period Increase (Decrease), Including Exchange Rate Effect 21 238 (7)
Cash, cash equivalents and restricted cash at beginning of the year 339 101 108
Cash, cash equivalents and restricted cash at end of the year $ 360 $ 339 $ 101
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CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - USD ($)
shares in Millions, $ in Millions
Total
Ordinary Shares
Additional Paid in Capital
Retained Earnings
Former Parent’s Net Investment
Accumulated Other Comprehensive Loss
Total Delphi Technologies Shareholders’ Equity
Noncontrolling Interest
Balance at beginning of year at Dec. 31, 2015 $ 1,342       $ 1,677 $ (496) $ 1,181 $ 161
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Net income 268       236   236 32
Other comprehensive income (loss) (219)         (215) (215) (4)
Dividend payments of consolidated affiliates to minority shareholders (33)             (33)
Stock Repurchased and Retired During Period, Value 0              
Share-based compensation 19       19   19  
Net transfers to Former Parent (195)       (195)   (195)  
Balance at end of year at Dec. 31, 2016 1,182       1,737 (711) 1,026 156
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Net income 319     $ 7 278   285 34
Other comprehensive income (loss) 78         74 74 4
Reclassification of Former Parent's net investment and issuance of ordinary shares in connection with separation   89            
Reclassification of Former Parent's net investment and issuance of ordinary shares in connection with separation   $ 1 $ 430   (431)      
Dividend payments of consolidated affiliates to minority shareholders (30)             (30)
Stock Repurchased and Retired During Period, Value 0              
Share-based compensation 17   1   16   17  
Net other change in Former Parent's Net Investment (6)       (272) 266 (6)  
Net transfers to Former Parent (1,328)       (1,328)   (1,328)  
Balance at end of year at Dec. 31, 2017 232 $ 1 431 7 0 (371) 68 164
Shares outstanding, end of period at Dec. 31, 2017   89            
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Net income 380     358 0   358 22
Other comprehensive income (loss) (44)         (41) (41) (3)
Dividends, Cash (60)     (60)     (60)  
Dividend payments of consolidated affiliates to minority shareholders (37)             (37)
Stockholders Equity Separation Related Adjustment (27)   (27)       (27)  
Stock Repurchased and Retired During Period, Value (10)   (1) (9)     (10)  
Share-based compensation 9   9   0   9  
Taxes withheld on employees’ restricted share award vestings (5)   (5)       (5)  
Balance at end of year at Dec. 31, 2018 $ 438 $ 1 $ 407 $ 296 $ 0 $ (412) $ 292 $ 146
Shares outstanding, end of period at Dec. 31, 2018   89            
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GENERAL
12 Months Ended
Dec. 31, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
GENERAL
GENERAL
On December 4, 2017, Delphi Technologies PLC became an independent publicly-traded company, formed under the laws of Jersey, as a result of the separation of the Powertrain Systems segment, which included the aftermarket operations, from Delphi Automotive PLC (the “Former Parent”). The separation was completed in the form of a pro-rata distribution to 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 “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, 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 Aftermarket segment also remanufactures and sells 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’ 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 the Former Parent’s consolidated financial statements and accounting records. These financial statements were prepared as if the Powertrain Systems segment, which historically included 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”). The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
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 Company’s historical financial statements for periods prior to December 4, 2017 reflect an allocation of expenses related to certain corporate functions of the Former Parent, including 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. 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 allocations are not indicative of the actual expenses that would have been incurred had Delphi Technologies operated as a stand-alone publicly-traded company for the periods presented. Accordingly, the historical financial information presented for periods prior to December 4, 2017 may not be indicative of the results of operations, financial position or cash flows that would have been achieved if Delphi Technologies had been a stand-alone publicly-traded company during the periods shown or of the Company’s performance for periods subsequent to December 4, 2017. Related party allocations are further described in Note 3. Related Party Transactions.
Prior to the Separation, transfers of cash to and from the Former Parent were reflected as a component of the Former Parent’s net investment in the consolidated financial statements. Cash and cash equivalents held by the Former Parent were not attributable to Delphi Technologies for any of the prior periods presented. Only cash amounts specifically attributable to Delphi Technologies are reflected in the accompanying consolidated financial statements. Financing transactions related to the Company, prior to the Separation, are accounted for as a component of the Former Parent’s net investment in the consolidated balance sheets and as a financing activity on the accompanying consolidated statements of cash flows.
Prior to December 4, 2017, all intercompany transactions between the Company and the Former Parent were considered to be effectively settled in the historical financial statements at the time the transactions were recorded. As a result, the total net effect of the settlement of these intercompany transactions was reflected in the consolidated statements of cash flows as a financing activity and in the consolidated balance sheets as Former Parent’s net investment in Delphi Technologies. Subsequent to the Separation, outstanding transactions between Delphi Technologies and the Former Parent were reflected in the consolidated balance sheet outside of Former Parent’s net investment.
In connection with the Separation, the Former Parent’s net investment was reclassified within shareholders’ equity and allocated between ordinary shares and additional paid-in capital based on the number of our ordinary shares outstanding at the distribution date.
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SIGNIFICANT ACCOUNTING POLICIES
12 Months Ended
Dec. 31, 2018
Accounting Policies [Abstract]  
SIGNIFICANT ACCOUNTING POLICIES
SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation—The consolidated financial statements as of and for the year ended December 31, 2018 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 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 year ended December 31, 2018, Delphi Technologies made a $7 million investment in PolyCharge America, Inc. (“PolyCharge”), a start-up established to commercialize a new capacitor technology, over which the Company does not exert significant influence.
Tula and PolyCharge are privately-held companies that do not have readily determinable fair values and therefore are measured at cost less impairments, adjusted for observable price changes in orderly transactions for the identical or similar investment of the same issuer. There were no impairments or upward adjustments recorded during the years ended December 31, 2018 or 2017. These investments are classified within other long-term assets in the consolidated balance sheets.
The Company monitors its equity investments, including those measured at fair value and those that do not have readily determinable fair values, for indicators of impairments or upward adjustments, on an ongoing basis. If the Company determines that such a 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.
Aftermarket 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 December 31, 2018, the Company had return assets of $7 million included in other current assets.
Refer to Note 14. 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 16. 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.
Research and development—Costs are incurred in connection with research and development programs that are expected to contribute to future earnings. Such costs are charged against income as incurred. Total research and development expenses, including engineering, net of customer reimbursements, were $448 million, $420 million and $424 million for the years ended December 31, 2018, 2017 and 2016, respectively.
Cash and cash equivalents—Cash and cash equivalents are defined as short-term, highly liquid investments with original maturities of three months or less.
Restricted cash—Restricted cash includes balances on deposit at financial institutions that have issued letters of credit in favor of Delphi Technologies.
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.
The Company exchanges certain amounts of accounts receivable, primarily in the Asia Pacific region, for bank notes with original maturities greater than three months. The collection of such bank notes are included in operating cash flows based on the substance of the underlying transactions, which are operating in nature. Bank notes held by the Company with original maturities of three months or less are classified as cash and cash equivalents within the consolidated balance sheet, and those with original maturities of greater than three months are classified as notes receivable within other current assets. The Company may hold such bank notes until maturity, exchange them with suppliers to settle liabilities, or sell them to third party financial institutions in exchange for cash.
The allowance for doubtful accounts is established based upon analysis of trade receivables for known collectability issues, the aging of the trade receivables at the end of each period and, generally, all accounts receivable balances greater than 90 days past due are fully reserved. As of December 31, 2018 and 2017, the allowance for doubtful accounts was $18 million and $16 million, respectively, and the provision for doubtful accounts was $5 million, $8 million, and $2 million for the years ended December 31, 20182017 and 2016, respectively.
Inventories—Inventories are stated at the lower of cost, determined on a first-in, first-out basis, or net realizable value, including direct material costs and direct and indirect manufacturing costs. Refer to Note 4. Inventories for additional information. Obsolete inventory is identified based on analysis of inventory for known obsolescence issues, and, generally, the market value of inventory on hand in excess of one year’s supply is fully-reserved.
From time to time, payments may be received from suppliers. These payments from suppliers are recognized as a reduction of the cost of the material acquired during the period to which the payments relate. In some instances, supplier rebates are received in conjunction with or concurrent with the negotiation of future purchase agreements and these amounts are amortized over the prospective agreement period.
Property—Major improvements that materially extend the useful life of property are capitalized. Expenditures for repairs and maintenance are charged to expense as incurred. Depreciation is determined based on a straight-line method over the estimated useful lives of groups of property. Leasehold improvements under capital leases are depreciated over the period of the lease or the life of the property, whichever is shorter. Refer to Note 6. Property, Net for additional information.
Pre-production costs related to long-term supply agreements—The Company incurs pre-production engineering, development and tooling costs related to products produced for its customers under long-term supply agreements. Engineering, testing and other costs incurred in the design and development of production parts are expensed as incurred, unless the costs are reimbursable, as specified in a customer contract. As of December 31, 2018 and 2017, $17 million and $20 million of such contractually reimbursable costs were capitalized, respectively. These amounts are recorded within other current and other long-term assets in the consolidated balance sheets, as further detailed in Note 5. Assets.
Special tools represent Delphi Technologies-owned tools, dies, jigs and other items used in the manufacture of customer components that will be sold under long-term supply arrangements, the costs of which are capitalized within property, plant and equipment if the Company has title to the assets. Special tools also include capitalized unreimbursed pre-production tooling costs related to customer-owned tools for which the customer has provided Delphi Technologies a non-cancellable right to use the tool. Delphi Technologies-owned special tools balances are depreciated over the expected life of the special tool or the life of the related vehicle program, whichever is shorter. The unreimbursed costs incurred related to customer-owned special tools that are not subject to reimbursement are capitalized and depreciated over the expected life of the special tool or the life of the related vehicle program, whichever is shorter. At December 31, 2018 and 2017, the special tools balance, net of accumulated depreciation, was $119 million and $113 million, respectively, included within property, net in the consolidated balance sheets. As of December 31, 2018 and 2017, the Delphi Technologies-owned special tools balances were $109 million and $103 million, respectively, and the customer-owned special tools balances were $10 million and $10 million, respectively.
Valuation of long-lived assets—The carrying value of long-lived assets held for use, including definite-lived intangible assets, is periodically evaluated when events or circumstances warrant such a review. The carrying value of a long-lived asset held for use is considered impaired when the anticipated separately identifiable undiscounted cash flows from the asset are less than the carrying value of the asset. In that event, a loss is recognized based on the amount by which the carrying value exceeds the estimated fair value of the long-lived asset. Impairment losses on long-lived assets held for sale are recognized if the carrying value of the asset is in excess of the asset’s estimated fair value, reduced for the cost to dispose of the asset. Fair value of long-lived assets is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved (an income approach), and in certain situations the Company’s review of appraisals (a market approach). Refer to Note 6. Property, Net for additional information.
Fair value measurements—The fair values of cash and cash equivalents, accounts and notes receivable, accounts payable, and debt approximates book value. Refer to Note 19. Fair Value of Financial Instruments for the fair values of other financial instruments and obligations.
Intangible assets—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. No intangible asset impairments were recorded in 2018, 2017 or 2016. Refer to Note 7. Intangible Assets and Goodwill for additional information.
Goodwill—Goodwill is the excess of the purchase price over the estimated fair value of identifiable net assets acquired in business combinations. The Company tests goodwill for impairment annually in the fourth quarter, or more frequently when indications of potential impairment exist. The Company monitors the existence of potential impairment indicators throughout the fiscal year. The Company tests for goodwill impairment at the reporting unit level. Our reporting units are the components of operating segments which constitute businesses for which discrete financial information is available and is regularly reviewed by segment management.
The impairment test involves first qualitatively assessing goodwill for impairment. If the qualitative assessment is not met the Company then performs a quantitative assessment by first comparing the estimated fair value of each reporting unit to its carrying value, including goodwill. Fair value reflects the price a market participant would be willing to pay in a potential sale of the reporting unit. If the estimated fair value exceeds carrying value, then we conclude that no goodwill impairment has occurred. If the carrying value of the reporting unit exceeds its estimated fair value, a second step is required to measure possible goodwill impairment loss. The second step includes hypothetically valuing the tangible and intangible assets and liabilities of the reporting unit as if the reporting unit had been acquired in a business combination. Then, the implied fair value of the reporting unit’s goodwill is compared to the carrying value of that goodwill. If the carrying value of the reporting unit’s goodwill exceeds the implied fair value of the goodwill, we recognize an impairment loss in an amount equal to the excess, not to exceed the carrying value. Refer to Note 7. Intangible Assets and Goodwill for additional information.
In the fourth quarter of 2018 and 2017, the Company completed a qualitative goodwill impairment assessment, and after evaluating the results, events and circumstances of the Company, the Company concluded that sufficient evidence existed to assert qualitatively that it was more likely than not that the estimated fair value of each reporting unit remained in excess of its carrying values. Therefore, a two-step impairment assessment was not necessary. No goodwill impairments were recorded in 2018, 2017 or 2016. Refer to Note 7. Intangible Assets and Goodwill for additional information.
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 9. Warranty Obligations for additional information.
Income taxes—As described in Note 15. Income Taxes, prior to the Separation the Company’s domestic and foreign operating results were included in the income tax returns of the Former Parent, and the Company accounted for income taxes under the separate return method. Under this approach, the Company determined its deferred tax assets and liabilities and related tax expense as if it were filing separate tax returns. 
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. 15. Income Taxes for additional information.
Foreign currency translation—Assets and liabilities of non-U.S. subsidiaries that use a currency other than U.S. dollars as their functional currency are translated to U.S. dollars at end-of-period currency exchange rates. The consolidated statements of operations of non-U.S. subsidiaries are translated to U.S. dollars at average-period currency exchange rates. The effect of translation for non-U.S. subsidiaries is generally reported in other comprehensive income (“OCI”). The effect of remeasurement of assets and liabilities of non-U.S. subsidiaries that use the U.S. dollar as their functional currency is primarily included in cost of sales. Also included in cost of sales are gains and losses arising from transactions denominated in a currency other than the functional currency of a particular entity. Net foreign currency transaction (gains) and losses of $(1) million, $(9) million and $11 million were included as a component of cost of goods sold and other income (expense) in the consolidated statements of operations for the years ended December 31, 2018, 2017 and 2016, respectively.
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 10. Restructuring for additional information.
Environmental liabilities—Environmental remediation liabilities are recognized when a loss is probable and can be reasonably estimated. Such liabilities generally are not subject to insurance coverage. The cost of each environmental remediation is estimated by engineering, financial, and legal specialists based on current law and considers the estimated cost of investigation and remediation required and the likelihood that, where applicable, other responsible parties will be able to fulfill their commitments. The process of estimating environmental remediation liabilities is complex and dependent primarily on the nature and extent of historical information and physical data relating to a contaminated site, the complexity of the site, the uncertainty as to what remediation and technology will be required, and the outcome of discussions with regulatory agencies and, if applicable, other responsible parties at multi-party sites. In future periods, new laws or regulations, advances in remediation technologies and additional information about the ultimate remediation methodology to be used could significantly change estimates by Delphi Technologies. Refer to Note 13. Commitments and Contingencies for additional information.
Customer concentrations—There were no customers with greater than 10% of our net sales for the years ended December 31, 2018, 2017 and 2016.
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 and interest 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 18. Derivatives and Hedging Activities and Note 19. Fair Value of Financial Instruments for additional information.
Asset retirement obligations—Asset retirement obligations are recognized in accordance with FASB ASC 410, Asset Retirement and Environmental Obligations. Conditional retirement obligations have been identified primarily related to asbestos abatement at certain sites, removal of storage tanks and other disposal costs. Asset retirement obligations were $2 million and $2 million, at December 31, 2018 and 2017, respectively.
Extended disability benefits—Costs associated with extended disability benefits provided to inactive employees are accrued throughout the duration of their active employment. Workforce demographic data and historical experience are utilized to develop projections of time frames and related expense for postemployment benefits. Prior to the Separation, the estimated costs associated with extended disability benefits provided to inactive employees were allocated to Delphi Technologies based on its relative portion of participants.
Workers’ compensation benefits—Workers’ compensation benefit accruals are actuarially determined and are subject to the existing workers’ compensation laws that vary by location. Accruals for workers’ compensation benefits represent the discounted future cash expenditures expected during the period between the incidents necessitating the employees to be idled and the time when such employees return to work, are eligible for retirement or otherwise terminate their employment.
Share-based compensation—The Delphi Technologies PLC Long-Term Incentive Plan (the “PLC LTIP”) allows for the grant of share-based awards for long-term compensation to the employees, directors, consultants and advisors of the Company. The Company had no share-based compensation plans prior to the Separation; however certain of our employees and non-employee directors participated in the Former Parent’s share-based compensation arrangement, the Delphi Automotive PLC Long-Term Incentive Plan, as amended and restated effective April 23, 2015 (the “Former Parent Plan”). Grants of restricted stock units (“RSUs”) to executives and non-employee directors were made subsequent to the Separation under the PLC LTIP in 2017 and 2018. Grants of RSUs were made under the Former Parent Plan in each year from 2012 to 2017. Outstanding awards at the time of the Separation were converted to awards under the PLC LTIP as further discussed in Note 21. Share-Based Compensation.
Share-based compensation expense within the consolidated financial statements for periods prior to the Separation was allocated to Delphi Technologies based on the awards and terms previously granted to Delphi Technologies employees while part of the Former Parent, and includes the cost of Delphi Technologies employees who participated in the Former Parent’s Plan, as well as an allocated portion of the cost of the Former Parent’s senior management awards.
The RSU awards to executives include a time-based vesting portion and a performance-based vesting portion. The performance-based vesting portion includes performance and market conditions in addition to service conditions. The grant date fair value of the RSUs is determined based on the closing price of the underlying ordinary shares on the date of the grant of the award, including an estimate for forfeitures, and a contemporaneous valuation performed by an independent valuation specialist with respect to awards with market conditions. The Company accounts for compensation expense based upon the grant date fair value of the awards applied to the best estimate of ultimate performance against the respective targets on a straight-line basis over the requisite vesting period of the awards. The performance conditions require management to make assumptions regarding the likelihood of achieving certain performance goals. Changes in these performance assumptions, as well as differences in actual results from management’s estimates, could result in estimated or actual values different from previously estimated fair values.
Modifications to the terms of share-based awards are treated as an exchange of the original award for a new award resulting in total compensation cost equal to the grant-date fair value of the original award plus any incremental value of the modification to the award. The calculation of the incremental value is based on the excess of the fair value of the new (modified) award based on current circumstances over the fair value of the original award measured immediately before its terms are modified based on current circumstances. To the extent there is incremental compensation cost relating to the newly modified award, it is recognized ratably over the requisite service period. Refer to Note 21. Share-Based Compensation for additional information.
Pension and Other Post-Retirement Benefits (OPEB)—Certain of the Company’s non-U.S. subsidiaries sponsor defined-benefit plans, which generally provide benefits based on negotiated amounts for each year of service. Certain Delphi Technologies employees, primarily in the United Kingdom (“U.K.”), France, Mexico and Turkey, participate in these plans (collectively, the “Direct Plans”). The Direct Plans, which relate solely to the Company, are included within the consolidated financial statements. In addition to the Direct Plans, prior to the Separation certain of the Company’s employees in Germany and the U.S. participated in defined benefit pension plans (collectively, the “Shared Plans”) sponsored by the Former Parent that included Delphi Technologies employees as well as employees of other subsidiaries of the Former Parent. Under the guidance in ASC 715, Compensation—Retirement Benefits, the Company accounted for the Shared Plans as multiemployer plans, and accordingly did not record an asset or liability to recognize the funded status of the Shared Plans in periods prior to the Separation. The related pension and other postemployment expenses of the Shared Plans were charged to Delphi Technologies based primarily on the service cost of active participants. These expenses were funded through transactions with the Former Parent that are reflected within the Former Parent net investment in the consolidated financial statements. Following the Separation, Delphi Technologies’ portion of the defined-benefit pension plans were separated from the Former Parent’s defined benefit pension plans. As a result, the funded status for each plan is reflected in the Company’s consolidated balance sheet as of December 31, 2018. Refer to Note 12. Pension Benefits for additional information.
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 14. 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 year ended December 31, 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 18. 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 adoption of this guidance will have a material impact on the Company’s consolidated balance sheet and will not have a material impact on its consolidated statements of operations or cash flows. As further described in Note. 13 Commitments and Contingencies, as of December 31, 2018, the Company had minimum lease commitments under non-cancellable operating leases totaling $156 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 significant impact.
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
12 Months Ended
Dec. 31, 2018
Related Party Transactions [Abstract]  
RELATED PARTY TRANSACTIONS
RELATED PARTY TRANSACTIONS
Prior to the Separation, our transactions with the Former Parent were considered related party transactions. In connection with the Separation, we entered into a number of agreements with the Former Parent to govern the Separation and provide a framework for the relationship between the parties going forward, including a Transition Services Agreement, Contract Manufacturing Services Agreements, a Tax Matters Agreement and an Employee Matters Agreement.

In connection with the Separation, the Company paid a dividend of approximately $1,148 million to the Former Parent in 2017. Also in connection with the Separation, the Company paid $180 million in 2017 to the Former Parent pursuant to the Tax Matters Agreement with respect to taxes incurred in connection with transactions comprising the Separation.
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 and $1 million for the years ended December 31, 2017 and 2016, respectively.
Prior to the Separation, total purchases from affiliates of the Former Parent totaled $29 million and $102 million for the years ended December 31, 2017 and 2016, respectively.
There were no net amounts due to affiliates of the Former Parent from related party transactions as of December 31, 2018 and 2017.
Allocation of Expenses Prior to the Separation
Prior to the Separation, certain services and functions including, but not limited to, senior management, legal, human resources, finance and accounting, treasury, information technology services and support, cash management, payroll processing, pension and benefit administration and other shared services were provided by the Former Parent. These costs were allocated using methodologies that management believes were reasonable for the item being allocated. Allocation methodologies included direct usage when identifiable, as well as the Company’s relative share of revenues, headcount or functional spend as a percentage of the total. However, the expenses reflected are not indicative of the actual expenses that would have been incurred during the periods presented if the Company had operated as a stand-alone publicly-traded company. In addition, the expenses reflected in the financial statements may not be indicative of expenses the Company will incur in the future.
The total costs for services and functions allocated to the Company from the Former Parent for periods prior to the Separation were as follows:
 
Year Ended December 31,
 
2017
 
2016
 
(in millions)
Cost of sales
$
27

 
$
44

Selling, general and administrative
116

 
137

Total allocated cost from Former Parent
$
143

 
$
181


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
12 Months Ended
Dec. 31, 2018
Inventory Disclosure [Abstract]  
INVENTORIES
INVENTORIES, NET
Inventories, net are stated at the lower of cost, determined on a first-in, first-out basis, or net realizable value, including direct material costs and direct and indirect manufacturing costs. A summary of inventories is shown below:
 
December 31,
2018
 
December 31,
2017
 
(in millions)
Productive material
$
250

 
$
217

Work-in-process
36

 
35

Finished goods
235

 
246

Total
$
521

 
$
498

v3.10.0.1
ASSETS
12 Months Ended
Dec. 31, 2018
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]  
ASSETS
ASSETS
Other current assets consisted of the following:
 
December 31,
2018
 
December 31,
2017
 
(in millions)
Value added tax receivable
$
98

 
$
59

Reimbursable engineering costs
17

 
20

Income and other taxes receivable
16

 
5

Notes receivable
15

 
39

Prepaid insurance and other expenses
14

 
6

Return assets (Note 2)
7

 

Derivative financial instruments (Note 18)
4

 

Deposits to vendors
1

 
2

Total
$
172

 
$
131


Other long-term assets consisted of the following:
 
December 31,
2018
 
December 31,
2017
 
(in millions)
Income and other taxes receivable
$
53

 
$
57

Investment in Tula (Note 2)
21

 
21

Investment in PolyCharge (Note 2)
7

 

Debt issuance costs
3

 
4

Other
33

 
40

Total
$
117

 
$
122

v3.10.0.1
PROPERTY, NET
12 Months Ended
Dec. 31, 2018
Property, Plant and Equipment [Abstract]  
PROPERTY, NET
PROPERTY, NET
Property, net is stated at cost less accumulated depreciation and amortization, and consisted of:
 
Estimated Useful
Lives
 
December 31,
 
2018
 
2017
 
(Years)
 
(in millions)
Land
 
$
70

 
$
76

Land and leasehold improvements
3-20
 
26

 
26

Buildings
40
 
300

 
283

Machinery, equipment and tooling
3-20
 
1,948

 
1,810

Furniture and office equipment
3-10
 
81

 
64

Construction in progress
 
205

 
132

Total
 
 
2,630

 
2,391

Less: accumulated depreciation
 
 
(1,185
)
 
(1,075
)
Total property, net
 
 
$
1,445

 
$
1,316


For the year ended December 31, 2018, Delphi Technologies recorded asset impairment charges of $1 million in cost of sales related to declines in the fair values of certain fixed assets. For the year ended December 31, 2017, Delphi Technologies recorded asset impairment charges of $12 million in cost of sales related to declines in the fair values of certain fixed assets. For the year ended December 31, 2016, $29 million of asset impairment charges were recorded in costs of sales related to declines in the fair values of certain fixed assets, $25 million of which related to the closure of a European manufacturing site within the Powertrain Systems segment, as further described in Note 10. Restructuring.
v3.10.0.1
INTANGIBLE ASSETS AND GOODWILL
12 Months Ended
Dec. 31, 2018
Goodwill and Intangible Assets Disclosure [Abstract]  
INTANGIBLE ASSETS AND GOODWILL
INTANGIBLE ASSETS AND GOODWILL
The changes in the carrying amount of intangible assets and goodwill were as follows:
 
 
 
As of December 31, 2018
 
As of December 31, 2017
 
Estimated Useful
Lives
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
(Years)
 
(in millions)
 
(in millions)
Amortized intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
Patents and developed technology
6-12
 
$
134

 
$
107

 
$
27

 
$
135

 
$
96

 
$
39

Customer relationships
3-10
 
110

 
94

 
16

 
97

 
90

 
7

Trade names
5-20
 
46

 
22

 
24

 
46

 
19

 
27

Total
 
 
290

 
223

 
67

 
278

 
205

 
73

Unamortized intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
Trade names
 
2

 

 
2

 
2

 

 
2

Goodwill
 
7

 

 
7

 
7

 

 
7

Total
 
 
$
299

 
$
223

 
$
76

 
$
287

 
$
205

 
$
82


Estimated amortization expense for the years ending December 31, 2019 through 2023 is presented below:
 
Year Ending December 31,
 
2019
 
2020
 
2021
 
2022
 
2023
 
(in millions)
Estimated amortization expense
$
19

 
$
18

 
$
12

 
$
2

 
$
2


A roll-forward of the gross carrying amounts of intangible assets for the years ended December 31, 2018 and 2017 is presented below.
 
2018
 
2017
 
(in millions)
Balance at January 1
$
287

 
$
308

Acquisitions
14

 

Net Former Parent transfer

 
(22
)
Foreign currency translation
(2
)
 
1

Balance at December 31
$
299

 
$
287


A roll-forward of the accumulated amortization for the years ended December 31, 2018 and 2017 is presented below:
 
2018
 
2017
 
(in millions)
Balance at January 1
$
205

 
$
210

Amortization
20

 
16

Net Former Parent transfer

 
(22
)
Foreign currency translation
(2
)
 
1

Balance at December 31
$
223

 
$
205

v3.10.0.1
LIABILITIES
12 Months Ended
Dec. 31, 2018
Other Liabilities Disclosure [Abstract]  
LIABILITIES
LIABILITIES
Accrued liabilities consisted of the following:
 
December 31,
2018
 
December 31,
2017
 
(in millions)
Warranty obligations (Note 9)
$
68

 
$
64

Income and other taxes payable
63

 
63

Restructuring (Note 10)
46

 
54

Payroll-related obligations
45

 
49

Deferred reimbursable engineering
31

 
14

Accrued rebates
29

 
30

Freight
20

 
19

Employee benefits
16

 
29

Outside services
13

 
14

Accrued interest
12

 
12

Deferred revenue
5

 
10

Customer deposits
5

 
7

Other
75

 
80

Total
$
428

 
$
445


Other long-term liabilities consisted of the following:
 
December 31,
2018
 
December 31,
2017
 
(in millions)
Accrued income taxes
$
46

 
$
15

Warranty obligations (Note 9)
28

 
33

Restructuring (Note 10)
19

 
47

Deferred income taxes (Note 15)
14

 
14

Derivative financial instruments
6

 

Environmental (Note 13)
2

 
3

Other
8

 
7

Total
$
123

 
$
119

v3.10.0.1
WARRANTY OBLIGATIONS
12 Months Ended
Dec. 31, 2018
Guarantees and Product Warranties [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 will eventually 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 and the related warranty reserves 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 all of its operating segments as of December 31, 2018. The Company estimates the reasonably possible amount to ultimately resolve all matters in excess of the recorded reserves as of December 31, 2018 to be zero to $15 million.
The table below summarizes the activity in the product warranty liability for the years ended December 31, 2018 and 2017:
 
Year Ended December 31,
 
2018
 
2017
 
(in millions)
Accrual balance at beginning of year
$
97

 
$
96

Provision for estimated warranties incurred during the year
40

 
37

Changes in estimate for pre-existing warranties
8

 
6

Settlements made during the year (in cash or in kind)
(44
)
 
(50
)
Foreign currency translation and other
(5
)
 
8

Accrual balance at end of year
$
96

 
$
97


During the year ended December 31, 2016, the Company recorded $25 million pursuant to a settlement agreement reached with one of the Company’s OEM customers regarding warranty claims related to certain components supplied by our Powertrain Systems segment.
v3.10.0.1
RESTRUCTURING
12 Months Ended
Dec. 31, 2018
Restructuring and Related Activities [Abstract]  
RESTRUCTURING
RESTRUCTURING
The Company’s restructuring activities are undertaken as necessary to implement management’s strategy, streamline operations, take advantage of available capacity and resources, and ultimately achieve net cost reductions. These activities generally relate to the realignment of existing manufacturing capacity and closure of facilities and other exit or disposal activities, as it relates to executing Delphi Technologies’ strategy, either in the normal course of business or pursuant to significant restructuring programs.
As part of the Company’s continued efforts to optimize its cost structure, it has undertaken several restructuring programs which include workforce reductions as well as plant closures. These programs are primarily focused on the continued rotation of our manufacturing footprint to best-cost locations in Europe and on reducing global overhead costs. The Company recorded employee-related and other restructuring charges related to these programs totaling approximately $35 million during the year ended December 31, 2018, of which $22 million was recognized for programs focused on continued rotation of our manufacturing footprint to best cost locations in Europe and $3 million was recognized for programs implemented to reduce global overhead costs.
During the year ended December 31, 2017, the Company recorded employee-related and other restructuring charges related to these programs totaling approximately $98 million. These charges included $55 million of separation costs for approximately 500 employees due to the initiation of the closure of a Western European manufacturing site within the Powertrain Systems segment and approximately $30 million related to other programs pursuant to the Company’s on-going European footprint rotation strategy. Charges for the program have been substantially completed, and cash payments for this restructuring action are expected to be principally completed by 2020.
During the year ended December 31, 2016, Delphi Technologies recorded employee-related and other restructuring charges totaling approximately $161 million. These charges included $131 million for programs focused on the continued rotation of our manufacturing footprint to best-cost locations in Europe, $93 million of which related to the closure of a European manufacturing site within the Powertrain Systems segment, associated with separation costs for approximately 500 employees. Charges for the program have been substantially completed, and cash payments for this plant closure were principally completed in 2017. Additionally, the Company recognized non-cash asset impairment charges of $25 million during the year ended December 31, 2016 related to this plant closure, which were recorded within cost of sales. Delphi Technologies also recorded restructuring costs of $12 million in 2016 for programs implemented to reduce global overhead costs.
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 $67 million and $88 million in the years ended December 31, 2018 and December 31, 2017, respectively.
The following table summarizes the restructuring charges recorded for the years ended December 31, 2018, 2017 and 2016 by operating segment:
 
Year Ended December 31,
 
2018
 
2017
 
2016
 
(in millions)
Powertrain Systems
$
37

 
$
92

 
$
151

Aftermarket
(2
)
 
6

 
10

Total
$
35

 
$
98

 
$
161


The table below summarizes the activity in the restructuring liability for the years ended December 31, 2018 and 2017:
 
Employee Termination Benefits Liability
 
Other Exit Costs Liability
 
Total
 
(in millions)
Accrual balance at December 31, 2016
$
79

 
$
4

 
$
83

Provision for estimated expenses incurred during the year
90

 
8

 
98

Payments made during the year
(80
)
 
(8
)
 
(88
)
Foreign currency and other
9

 
(1
)
 
8

Accrual balance at December 31, 2017
$
98

 
$
3

 
$
101

Provision for estimated expenses incurred during the year
$
32

 
$
3

 
$
35

Payments made during the year
(64
)
 
(3
)
 
(67
)
Foreign currency and other
(2
)
 
(2
)
 
(4
)
Accrual balance at December 31, 2018
$
64

 
$
1

 
$
65

v3.10.0.1
DEBT
12 Months Ended
Dec. 31, 2018
Debt Disclosure [Abstract]  
DEBT
DEBT
The following is a summary of debt outstanding, net of unamortized issuance costs and discounts, as of December 31, 2018 and December 31, 2017, respectively:
 
December 31,
 
2018
 
2017
 
(in millions)
$750 million Term Loan A Facility, due 2022 (net of $4 and $5 unamortized issuance costs)
$
727

 
$
745

$800 million Senior Notes at 5.00%, due 2025 (net of $12 and $14 unamortized issuance costs and $3 and $4 discount, respectively)
785

 
782

Capital leases and other
19

 
8

Total debt
1,531

 
1,535

Less: current portion
(43
)
 
(20
)
Long-term debt
$
1,488

 
$
1,515


The principal maturities of debt, at nominal value, are as follows:
 
Debt Obligations
 
(in millions)
2019
$
43

2020
39

2021
76

2022
582

2023
1

Thereafter
809

Total
$
1,550


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 $9 million of issuance costs were incurred in connection with the Credit Agreement. As of December 31, 2018, there were no amounts drawn on the Revolving Credit Facility.
The Credit Facilities are subject to an interest rate, at our option, of either (a) the Administrative Agent’s Alternate Base Rate (“ABR” as defined in the Credit Agreement) or (b) the London Interbank Offered Rate (the “Adjusted LIBOR Rate” as defined in the Credit Agreement) (“LIBOR”), in each case, plus an applicable margin that is based on our corporate credit ratings, as more particularly described below (the “Applicable Rate”). In addition, the Credit Agreement requires payment of additional interest on certain overdue obligations on terms and conditions customary for financings of this type. The interest rate period with respect to LIBOR interest rate options can be set at one-, two-, three-, or six-months as selected by us in accordance with the terms of the Credit Agreement (or other period as may be agreed by the applicable lenders), but payable no less than quarterly. We may elect to change the selected interest rate over the term of the Credit Facilities in accordance with the provisions of the Credit Agreement. The Applicable Rates under the Credit Agreement on the specified date are set forth below:
 
December 31, 2018
 
December 31, 2017
 
LIBOR plus
 
ABR plus
 
LIBOR Plus
 
ABR plus
Revolving Credit Facility
1.45
%
 
0.45
%
 
1.45
%
 
0.45
%
Term Loan A Facility
1.75
%
 
0.75
%
 
1.75
%
 
0.75
%

The applicable interest rate margins for the Term Loan A Facility will increase or decrease from time to time between 1.50% and 2.00% per annum (for LIBOR loans) and between 0.50% and 1.00% per annum (for ABR loans), in each case based upon changes to our corporate credit ratings. The applicable interest rate margins for the Revolving Credit Facility will increase or decrease from time to time between 1.30% and 1.55% per annum (for LIBOR loans) and between 0.30% and 0.55% per annum (for ABR loans), in each case based upon changes to our corporate credit ratings. Accordingly, the Applicable Rates for the Credit Facilities will fluctuate during the term of the Credit Agreement based on changes in the ABR, LIBOR or future changes in our corporate credit ratings. The Credit Agreement also requires that we pay certain facility fees on the aggregate commitments under the Revolving Credit Facility and certain letter of credit issuance and fronting fees. Amounts outstanding and the rate effective as of December 31, 2018, are detailed below:
 
Applicable Rate
 
Borrowings as of December 31, 2018 (in millions)
 
Rates effective as of December 31, 2018
Term Loan A Facility
LIBOR plus 1.75%
 
$
731

 
4.188
%

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. In addition to these agreements, 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 $400 million. These agreements are designated as net investment hedges and will have a maturity date of September 2022. See Note 18. Derivatives and Hedging Activities for additional information on our interest rate swaps.
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 December 31, 2018.
We are obligated to make quarterly principal payments throughout the term of the Term Loan A Facility according to the amortization provisions in the Credit Agreement, as 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 to our and our subsidiaries’ equity interests. In addition, the Credit Agreement requires that we maintain a consolidated net leverage ratio (the ratio of Consolidated Total Indebtedness to Consolidated Adjusted EBITDA, each as defined in the Credit Agreement) of not greater than 3.5 to 1.0. The Credit Agreement also contains events of default customary for financings of this type, including certain customary change of control events. The Company was in compliance with the Credit Agreement covenants as of December 31, 2018.
The borrowers under the Credit Agreement comprise Delphi Technologies and its wholly-owned Delaware-organized subsidiary, Delphi Powertrain Corporation. Additional subsidiaries of Delphi Technologies may be added as co-borrowers or guarantors under the Credit Agreement from time to time on the terms and conditions set forth in the Credit Agreement. The obligations of each borrower under the Credit Agreement will be jointly and severally guaranteed by each other borrower and by certain of our existing and future direct and indirect subsidiaries, subject to certain exceptions customary for financings of this type. All obligations of the borrowers and the guarantors are secured by certain assets of such borrowers and guarantors, including a perfected first-priority pledge of all of the capital stock in Delphi Powertrain Corporation.
In addition, the Credit Agreement contains provisions pursuant to which, based upon our achievement of certain corporate credit ratings, certain covenants and/or our obligation to provide collateral to secure the Credit Facilities, will be suspended.
Senior Notes
On September 28, 2017, Delphi Technologies PLC issued $800 million in aggregate principal amount of 5.00% senior unsecured notes due 2025 in a transaction exempt from registration under the Securities Act (the "Senior Notes"). The Senior Notes were priced at 99.5% of par, resulting in a yield to maturity of 5.077%. Approximately $14 million of issuance costs were incurred 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 December 31, 2018.
Other Financing
Receivable factoring—The Company entered into arrangements with various financial institutions to sell eligible trade receivables from certain Aftermarket customers in North America and Europe. These arrangements can be terminated at any time subject to prior written notice. The receivables under these arrangements are sold without recourse to the Company and are therefore accounted for as true sales. During the years ended December 31, 2018 and 2017, $112 million and $92 million of receivables were sold under these arrangements, and expenses of $5 million and $3 million, respectively, were recognized within interest expense.
In addition, during the year ended December 31, 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 $25 million from other long-term assets in the consolidated balance sheet as of December 31, 2018, as a result of these transactions. During the year ended December 31, 2018, less than $1 million of expenses were recognized within interest expense related to this transaction.
Capital leases—There were approximately $14 million and $1 million capital lease obligations outstanding as of December 31, 2018 and 2017, respectively.
Interest—Cash paid for interest totaled $75 million, $2 million and $1 million for the years ended December 31, 2018, 2017 and 2016, respectively.
v3.10.0.1
PENSION BENEFITS
12 Months Ended
Dec. 31, 2018
Retirement Benefits [Abstract]  
PENSION BENEFITS
PENSION BENEFITS
The Company sponsors defined benefit pension plans for certain employees and retirees outside of the U.S. Using appropriate actuarial methods and assumptions, the Company’s defined benefit pension plans are accounted for in accordance with FASB ASC Topic 715, Compensation—Retirement Benefits. The Company’s primary non-U.S. plans are located in the 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 Company concluded a consultation process with its U.K. workforce in January 2019 with regard to future pension provision, although discussions are still ongoing with the employee representatives.
In connection with the Separation, in 2017, certain plans were separated and therefore Delphi Technologies transferred net benefit plan obligations of approximately $10 million to the Former Parent that were previously recorded by Delphi Technologies legal entities.
Funded Status
The amounts shown below reflect the change in the non-U.S. defined benefit pension obligations during 2018 and 2017.
 
Year Ended December 31,
 
2018
 
2017
 
(in millions)
Benefit obligation at beginning of year
$
1,604

 
$
1,405

Service cost
37

 
34

Interest cost
36

 
34

Actuarial (gain) loss
(112
)
 
68

Benefits paid
(47
)
 
(43
)
Impact of curtailments

 
(20
)
Plan amendments and other

20

 

Transfer of plan obligations to Former Parent

 
(8
)
Exchange rate movements and other
(96
)
 
134

Benefit obligation at end of year
1,442

 
1,604

Change in plan assets:
 
 
 
Fair value of plan assets at beginning of year
1,074

 
880

Actual return on plan assets
(36
)
 
103

Contributions
47

 
48

Benefits paid
(47
)
 
(43
)
Net transfers from Former Parent

 
2

Exchange rate movements and other
(62
)
 
84

Fair value of plan assets at end of year
976

 
1,074

Underfunded status
(466
)
 
(530
)
Amounts recognized in the consolidated balance sheets consist of:
 
 
 
Non-current assets
1

 

Current liabilities
(1
)
 

Non-current liabilities
(466
)
 
(530
)
Total
(466
)
 
(530
)
Amounts recognized in accumulated other comprehensive income consist of (pre-tax):
 
 
 
Actuarial loss
285

 
356

Prior service cost
21

 

Total
$
306

 
$
356


The projected benefit obligation (“PBO”), accumulated benefit obligation (“ABO”), and fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets and with plan assets in excess of accumulated benefit obligations are as follows:
 
December 31,
 
2018
 
2017
 
(in millions)
Plans with ABO in Excess of Plan Assets
PBO
$
1,420

 
$
1,580

ABO
1,290

 
1,422

Fair value of plan assets at end of year
954

 
1,051

 
Plans with Plan Assets in Excess of ABO
PBO
$
22

 
$
24

ABO
18

 
18

Fair value of plan assets at end of year
22

 
23

 
Total
PBO
$
1,442

 
$
1,604

ABO
1,308

 
1,440

Fair value of plan assets at end of year
976

 
1,074


Benefit costs presented below were determined based on actuarial methods and included the following:
 
Year Ended December 31,
 
2018
 
2017
 
2016
 
(in millions)
Service cost
$
37

 
$
34

 
$
29

Interest cost
36

 
34

 
38

Expected return on plan assets
(54
)
 
(47
)
 
(46
)
Curtailment loss

 

 
3

Amortization of actuarial losses
24

 
26

 
6

Net periodic benefit cost
$
43

 
$
47

 
$
30


During the first quarter of 2017, the Company elected to early adopt ASU 2017-07. As a result, service costs are classified as employee compensation costs within cost of sales and selling, general and administrative expense within the consolidated statement of operations. All other components of net periodic benefit cost are classified within other expense for all periods presented.
The Company had $1 million and less than $1 million in other postretirement benefit obligations as of December 31, 2018 and 2017, respectively.
Experience gains and losses, as well as the effects of changes in actuarial assumptions and plan provisions are recognized in other comprehensive income. Cumulative gains and losses in excess of 10% of the PBO for a particular plan are amortized over the average future service period of the employees in that plan. The estimated actuarial loss for the defined benefit pension plans that will be amortized from accumulated other comprehensive income into net periodic benefit cost in 2019 is $12 million.
The principal assumptions used to determine the pension expense and the actuarial value of the projected benefit obligation for the non-U.S. pension plans were:
Assumptions used to determine benefit obligations at December 31:
 
Pension Benefits
 
2018
 
2017
Weighted-average discount rate
2.75
%
 
2.46
%
Weighted-average rate of increase in compensation levels
3.96
%
 
3.98
%
Assumptions used to determine net expense for years ended December 31:
 
Pension Benefits
 
2018
 
2017
 
2016
Weighted-average discount rate
2.46
%
 
2.58
%
 
3.72
%
Weighted-average rate of increase in compensation levels
3.98
%
 
3.97
%
 
3.73
%
Weighted-average expected long-term rate of return on plan assets
5.50
%
 
5.50
%
 
5.75
%

Delphi Technologies selects discount rates by analyzing the results of matching each plan’s projected benefit obligations with a portfolio of high-quality fixed income investments rated AA-or higher by Standard and Poor’s.
The primary funded plans are in the U.K. and Mexico. For the determination of 2018 expense, Delphi Technologies assumed a long-term expected asset rate of return of approximately 5.50% and 7.50% for the U.K. and Mexico, respectively. Delphi Technologies evaluated input from local actuaries and asset managers, including consideration of recent fund performance and historical returns, in developing the long-term rate of return assumptions. The assumptions for the U.K. and Mexico are primarily long-term, prospective rates. To determine the expected return on plan assets, the market-related value of approximately 25% of our plan assets is actual fair value. The expected return on the remainder of our plan assets is determined by applying the expected long-term rate of return on assets to a calculated market-related value of these plan assets, which recognizes changes in the fair value of the plan assets in a systematic manner over five years.
Delphi Technologies’ pension expense for 2018 is determined at the 2018 year end measurement date. For purposes of analysis, the following table highlights the sensitivity of the Company’s pension obligations and expense to changes in key assumptions:
Change in Assumption
 
Impact on
Pension Expense
 
Impact on PBO
25 basis point (“bp”) decrease in discount rate
 
+ $3 million
 
+ $69 million
25 bp increase in discount rate
 
- $5 million
 
- $64 million
25 bp decrease in long-term expected return on assets
 
+ $2 million
 
25 bp increase in long-term expected return on assets
 
- $2 million
 

The above sensitivities reflect the effect of changing one assumption at a time. It should be noted that economic factors and conditions often affect multiple assumptions simultaneously and the effects of changes in key assumptions are not necessarily linear. The above sensitivities also assume no changes to the design of the pension plans and no major restructuring programs.
Pension Funding
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:
 
Projected Pension Benefit Payments
 
(in millions)
2019
$
42

2020
42

2021
46

2022
47

2023
48

2024 – 2028
277


Delphi Technologies anticipates making pension contributions and benefit payments of approximately $42 million in 2019.
Plan Assets
Certain pension plans sponsored by Delphi Technologies invest in a diversified portfolio consisting of an array of asset classes that attempts to maximize returns while minimizing volatility. These asset classes include developed market equities, emerging market equities, private equity, global high quality and high yield fixed income, real estate and absolute return strategies.
The fair values of Delphi Technologies’ pension plan assets weighted-average asset allocations at December 31, 2018 and 2017, by asset category, are as follows:
 
 
Fair Value Measurements at December 31, 2018
Asset Category
 
Total
 
Quoted Prices in Active Markets for Identical Assets (Level 1)
 
Significant Observable Inputs (Level 2)
 
Significant Unobservable Inputs (Level 3)
 
 
(in millions)
Cash
 
$
55

 
$
55

 
$

 
$

Time deposits
 
9

 

 
9

 

Equity mutual funds
 
258

 

 
258

 

Bond mutual funds
 
464

 

 
464

 

Real estate trust funds
 
91

 

 

 
91

Hedge funds
 
85

 

 
2

 
83

Debt securities
 
8

 
8

 

 

Equity securities
 
6

 
6

 

 

Total
 
$
976

 
$
69

 
$
733

 
$
174

 
 
Fair Value Measurements at December 31, 2017
Asset Category
 
Total
 
Quoted Prices in Active Markets for Identical Assets (Level 1)
 
Significant Observable Inputs (Level 2)
 
Significant Unobservable Inputs (Level 3)
 
 
(in millions)
Cash
 
$
69

 
$
69

 
$

 
$

Time deposits
 
9

 

 
9

 

Equity mutual funds
 
444

 

 
444

 

Bond mutual funds
 
385

 

 
385

 

Real estate trust funds
 
50

 

 

 
50

Hedge funds
 
102

 

 
2

 
100

Debt securities
 
9

 
9

 

 

Equity securities
 
6

 
6