DELPHI TECHNOLOGIES PLC, 10-K filed on 2/26/2018
Annual Report
Document and Entity Information Document and Entity Information (USD $)
12 Months Ended
Dec. 31, 2017
Feb. 15, 2018
Jun. 30, 2017
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, 2017 
 
 
Document Fiscal Year Focus
2017 
 
 
Document Fiscal Period Focus
FY 
 
 
Amendment Flag
false 
 
 
Entity Common Stock, Shares Outstanding
 
88,613,262 
 
Entity Well-known Seasoned Issuer
Yes 
 
 
Entity Voluntary Filers
No 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Public Float
 
 
$ 0 
CONSOLIDATED STATEMENT OF OPERATIONS (USD $)
In Millions, except Per Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Income Statement [Abstract]
 
 
 
Net sales
$ 4,849 
$ 4,486 
$ 4,407 
Operating expenses:
 
 
 
Cost of sales
3,881 
3,689 
3,557 
Selling, general and administrative
408 
299 
312 
Amortization
16 
17 
23 
Restructuring (Note 10)
98 
161 
112 
Total operating expenses
4,403 
4,166 
4,004 
Operating income
446 
320 
403 
Interest expense
(15)
(1)
(3)
Other expense, net (Note 18)
(11)
(1)
(2)
Income before income taxes and equity income
420 
318 
398 
Income tax expense
(106)
(50)
(92)
Income before equity income
314 
268 
306 
Equity income, net of tax
Net income
319 
268 
306 
Net income attributable to noncontrolling interest
34 
32 
34 
Net income attributable to Delphi Technologies
$ 285 
$ 236 
$ 272 
Net income per share attributable to Delphi Technologies:
 
 
 
Basic (in dollars per share)
$ 3.22 
$ 2.66 
$ 3.07 
Diluted (in dollars per share)
$ 3.21 
$ 2.66 
$ 3.07 
Weighted average ordinary shares outstanding:
 
 
 
Basic (in dollars per share)
88.61 
88.61 
88.61 
Diluted (in dollars per share)
88.66 
88.61 
88.61 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (USD $)
In Millions, unless otherwise specified
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Statement of Comprehensive Income [Abstract]
 
 
 
Net income
$ 319 
$ 268 
$ 306 
Other comprehensive income (loss):
 
 
 
Currency translation adjustments
72 
(84)
(151)
Employee benefit plans adjustment, net of tax (Note 16)
(135)
15 
Other comprehensive income (loss), net of tax
78 
(219)
(136)
Comprehensive income
397 
49 
170 
Comprehensive income attributable to noncontrolling interests
38 
28 
29 
Comprehensive income attributable to Delphi Technologies
$ 359 
$ 21 
$ 141 
CONSOLIDATED BALANCE SHEETS (USD $)
In Millions, unless otherwise specified
Dec. 31, 2017
Dec. 31, 2016
Current assets:
 
 
Cash and cash equivalents
$ 338 
$ 101 
Restricted cash
Accounts receivable, net:
 
 
Outside customers
1,090 
803 
Related parties
16 
Inventories, net (Note 4)
498 
374 
Other current assets (Note 5)
131 
108 
Total current assets
2,058 
1,402 
Long-term assets:
 
 
Property, net (Note 6)
1,316 
1,142 
Investments in affiliates
37 
34 
Intangible assets and goodwill, net (Note 7)
82 
98 
Deferred income taxes (Note 14)
178 
146 
Other long-term assets (Note 5)
122 
77 
Total long-term assets
1,735 
1,497 
Total assets
3,793 
2,899 
Current liabilities:
 
 
Short-term debt (Note 11)
20 
Accounts payable:
 
 
Outside vendors
931 
671 
Related parties
78 
Accrued liabilities (Note 8)
445 
331 
Total current liabilities
1,396 
1,082 
Long-term liabilities:
 
 
Long-term debt (Note 11)
1,515 
Pension and other postretirement benefit obligations (Note 12)
531 
526 
Other long-term liabilities (Note 8)
119 
103 
Total long-term liabilities
2,165 
635 
Total liabilities
3,561 
1,717 
Commitments and contingencies (Note 13)
   
   
Shareholders’ equity:
 
 
Preferred shares, $0.01 par value per share, 50,000,000 shares authorized, none issued and outstanding
 
Ordinary shares, $0.01 par value per share, 1,200,000,000 shares authorized, 88,613,262 issued and outstanding as of December 31, 2017
 
Additional paid-in-capital
431 
 
Retained earnings
 
Former Parent’s net investment
1,737 
Accumulated other comprehensive loss (Note 16)
(371)
(711)
Total Delphi Technologies shareholders’ equity
68 
1,026 
Noncontrolling interest
164 
156 
Total shareholders’ equity
232 
1,182 
Total liabilities and shareholders’ equity
$ 3,793 
$ 2,899 
CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)
Dec. 31, 2017
Statement of Financial Position [Abstract]
 
Preferred shares, par value (in dollars per share)
$ 0.01 
Preferred shares, authorized
50,000,000 
Preferred shares, issued
Preferred shares, outstanding
Ordinary shares, par value (in dollars per share)
$ 0.01 
Ordinary shares, shares authorized
1,200,000,000 
Ordinary shares, shares issued
88,613,262 
Ordinary shares, shares outstanding
88,613,262 
CONSOLIDATED STATEMENT OF CASH FLOWS (USD $)
In Millions, unless otherwise specified
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Cash flows from operating activities:
 
 
 
Net income
$ 319 
$ 268 
$ 306 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation
185 
193 
166 
Amortization
16 
17 
23 
Restructuring expense, net of cash paid
10 
(4)
60 
Deferred income taxes
(7)
(12)
Pension and other postretirement benefit expenses
47 
30 
39 
Income from equity method investments, net of dividends received
(5)
(Gain) loss on sale of assets
(1)
Share-based compensation
17 
19 
22 
Changes in operating assets and liabilities:
 
 
 
Accounts receivable, net
(271)
(23)
Inventories
(124)
(8)
(25)
Other assets
(82)
(23)
(5)
Accounts payable
201 
(4)
52 
Accrued and other long-term liabilities
148 
(25)
(59)
Other, net
(17)
(31)
(77)
Pension contributions
(48)
(52)
(54)
Net cash provided by operating activities
389 
372 
429 
Cash flows from investing activities:
 
 
 
Capital expenditures
(197)
(171)
(201)
Proceeds from sale of property
10 
20 
Cost of technology investments
(1)
(20)
Increase in Restricted Cash
(1)
Net cash used in investing activities
(189)
(162)
(201)
Cash flows from financing activities:
 
 
 
Net (repayments) proceeds under other short-term debt agreements
(2)
(5)
Proceeds from issuance of senior notes, net of discount and issuance costs
782 
Proceeds from issuance of credit agreement, net of issuance costs
741 
Dividend payments of consolidated affiliates to minority shareholders
(10)
(13)
(13)
Cash distributions paid to Former Parent
(1,328)
Other net transfers to Former Parent
(160)
(195)
(255)
Net cash provided by (used in) financing activities
25 
(210)
(273)
Effect of exchange rate fluctuations on cash and cash equivalents
12 
(7)
(8)
Increase (decrease) in cash and cash equivalents
237 
(7)
(53)
Cash and cash equivalents at beginning of the year
101 
108 
161 
Cash and cash equivalents at end of the year
$ 338 
$ 101 
$ 108 
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (USD $)
In Millions, unless otherwise specified
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, 2014
$ 1,440 
 
 
 
$ 1,638 
$ (365)
$ 1,273 
$ 167 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
 
 
Net income
306 
 
 
 
272 
 
272 
34 
Currency translation adjustments
(151)
 
 
 
 
 
 
 
Employee benefit plans adjustment, net of tax
15 
 
 
 
 
 
 
 
Other comprehensive loss
(136)
 
 
 
 
(131)
(131)
(5)
Dividend payments of consolidated affiliates to minority shareholders
(35)
 
 
 
 
 
 
(35)
Share-based compensation
22 
 
 
 
22 
 
22 
 
Net transfers to Former Parent
(255)
 
 
 
(255)
 
(255)
 
Balance at end 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 
Currency translation adjustments
(84)
 
 
 
 
 
 
 
Employee benefit plans adjustment, net of tax
(135)
 
 
 
 
 
 
 
Other comprehensive loss
(219)
 
 
 
 
(215)
(215)
(4)
Dividend payments of consolidated affiliates to minority shareholders
(33)
 
 
 
 
 
 
(33)
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 
Shares outstanding, beginning of period at Dec. 31, 2016
 
 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
 
 
Net income
319 
 
 
278 
 
285 
34 
Currency translation adjustments
72 
 
 
 
 
 
68 
Employee benefit plans adjustment, net of tax
 
 
 
 
Other comprehensive loss
78 
 
 
 
 
 
 
 
Reclassification of Former Parent's net investment and issuance of ordinary shares in connection with separation (in shares)
 
89 
 
 
 
 
 
 
Reclassification of Former Parent's net investment and issuance of ordinary shares in connection with separation
 
430 
 
(431)
 
 
 
Dividend payments of consolidated affiliates to minority shareholders
(30)
 
 
 
 
 
 
(30)
Share-based compensation
17 
 
 
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 
 
 
 
 
 
 
GENERAL
GENERAL
GENERAL
References herein to “Delphi Technologies,” the “Company,” “we,” “us” and “our” refer to Delphi Technologies PLC, a public limited company formed under the laws of Jersey.
The Separation
On December 4, 2017, Delphi Technologies PLC became an independent, publicly traded company as a result of the separation of the Powertrain Systems segment, which included the aftermarket operations, from Delphi Automotive PLC (the “Former Parent”). The separation was completed in the form of a pro rata distribution to Delphi Automotive PLC shareholders of record on November 22, 2017 of 100% of the outstanding ordinary shares of Delphi Technologies PLC held by Delphi Automotive PLC (the “Separation”). Following the Separation, Delphi Automotive PLC changed its name to Aptiv PLC (“Aptiv”). Delphi Technologies’ ordinary shares began “regular way” trading on the New York Stock Exchange under the ticker symbol “DLPH” on December 5, 2017 (references hereinafter to “Delphi Technologies,” “we,” “us,” “our” or the “Company” include the results of the Former Parent’s Powertrain Systems segment).
Nature of Operations
Delphi Technologies is a leader in the development, design and manufacture of integrated powertrain technologies that optimize engine performance, increase vehicle efficiency, reduce emissions, improve driving performance, and support increasing electrification of vehicles. The Company is a global supplier to original equipment manufacturers (“OEMs”) seeking to manufacture vehicles that meet and exceed increasingly stringent global regulatory requirements and satisfy consumer demands for an enhanced user experience. We provide advanced fuel injection systems (“FIS”), actuators, valvetrain products, sensors, electronic control modules and power electronics technologies. Additionally, the Company offers a full spectrum of aftermarket products serving a global customer base.
Our comprehensive portfolio of advanced technologies and solutions for all propulsion systems are sold to global OEMs of both light vehicles (passenger cars, trucks and vans and sport-utility vehicles) and commercial vehicles (light-duty, medium-duty and heavy-duty trucks, commercial vans, buses and off-highway vehicles). The Delphi Technologies Aftermarket segment also manufactures and sells our technologies to leading aftermarket companies, including independent retailers and wholesale distributors. We supply a wide range of aftermarket products and services covering the fuel injection, electronics and engine management, maintenance, and test equipment and vehicle diagnostics categories. We also add aftermarket know-how in category management, logistics, training, marketing and other dedicated services to provide a full range of aftermarket solutions through vehicles’ lives.
Basis of Presentation
Prior to the Separation on December 4, 2017, the historical financial statements of Delphi Technologies were prepared on a stand-alone combined basis and were derived from Delphi Automotive PLC’s consolidated financial statements and accounting records as if the Powertrain Systems segment, which historically included Delphi Technologies Aftermarket, of the Former Parent had been part of Delphi Technologies for all periods presented. Accordingly, for periods prior to December 4, 2017, our financial statements are presented on a combined basis and for the periods subsequent to December 4, 2017 are presented on a consolidated basis (all periods hereinafter are referred to as “consolidated financial statements”). The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
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 or financial position 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.
Third-party debt obligations of the Former Parent and the corresponding interest costs related to those debt obligations, specifically those that relate to senior notes, term loans and revolving credit facilities, were not attributed to Delphi Technologies, as Delphi Technologies was not the legal obligor of such debt obligations. The only third-party debt obligations included in the consolidated financial statements are those for which the legal obligor is a legal entity within Delphi Technologies. None of the Company’s assets were pledged as collateral under the Former Parent’s debt obligations as of December 31, 2017 and December 31, 2016.
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. As of December 31, 2017, 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.
SIGNIFICANT ACCOUNTING POLICIES
SIGNIFICANT ACCOUNTING POLICIES
SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation—The consolidated financial statements as of and for the year ended December 31, 2017 include the accounts of Delphi Technologies’ U.S. and non-U.S. subsidiaries and operations in which the Company holds a controlling financial or management interest and variable interest entities of which Delphi has determined that it is the primary beneficiary. All significant intercompany transactions and accounts within the Company’s consolidated businesses have been eliminated. For periods prior to December 4, 2017, transactions between the Company and the Former Parent have been included in the financial statements within Former Parent net investment. Prior to December 4, 2017, expenses related to corporate allocations from the Former Parent to the Company were considered to be effectively settled for cash in the financial statements at the time the transaction was recorded. Prior to the Separation, transactions between the Company and the Former Parent’s other subsidiaries were classified as related party, rather than intercompany, transactions within the consolidated financial statements.
Delphi Technologies’ share of the earnings or losses of Delphi-TVS Diesel Systems Ltd (of which Delphi Technologies owns approximately 50%), a non-controlled affiliate located in India over which the Company exercises significant influence, is included in the consolidated operating results of Delphi Technologies using the equity method of accounting.
During the year ended December 31, 2015, Delphi Technologies made a $20 million investment in Tula Technology, Inc. (“Tula”), an engine control software company, over which the Company does not exert significant influence. During the year ended December 31, 2017, Delphi Technologies made an additional $1 million investment in Tula. The Company’s investment in Tula is accounted for under the cost method, and is classified within other long-term assets in the consolidated balance sheets.
The Company monitors its investments in affiliates for indicators of other-than-temporary declines in value on an ongoing basis. If the Company determines that such a decline has occurred, an impairment loss 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—The preparation of 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—Sales are recognized when there is evidence of a sales agreement, the delivery of goods has occurred, the sales price is fixed or determinable and the collectability of revenue is reasonably assured. Sales are generally recorded upon shipment of product to customers and transfer of title under standard commercial terms. In addition, if Delphi Technologies enters into retroactive price adjustments with its customers, these reductions to revenue are recorded when they are determined to be probable and estimable. From time to time, Delphi Technologies enters into pricing agreements with its customers that provide for price reductions, some of which are conditional upon achieving certain criteria. In these instances, revenue is recognized based on the agreed-upon price at the time of shipment.
Sales incentives and allowances are recognized as a reduction to revenue at the time of the related sale. In addition, from time to time, Delphi Technologies makes payments to customers in conjunction with ongoing and future business. These payments to customers are generally recognized as a reduction to revenue at the time of the commitment to make these payments.
Shipping and handling fees billed to customers are included in net sales, while costs of shipping and handling are included in cost of sales.
Delphi Technologies collects and remits taxes assessed by different governmental authorities that are both imposed on and concurrent with a revenue-producing transaction between the Company and the Company’s customers. These taxes may include, but are not limited to, sales, use, value-added, and some excise taxes. Delphi Technologies reports the collection of these taxes on a net basis (excluded from revenues).
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 15. 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 of its aftermarket customers. Rebates generally provide for price reductions based upon the achievement of specified 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 approximately $420 million, $424 million and $443 million for the years ended December 31, 2017, 2016 and 2015, 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 Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“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 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. Agreements that allow the Company to maintain effective control over the transferred receivables and which do not qualify as a sale, as defined in ASC 860, are accounted for as secured borrowings and recorded in the consolidated balance sheets within accounts receivable, net and short-term debt. 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, 2017 and 2016, the allowance for doubtful accounts was $16 million and $9 million, respectively, and the provision for doubtful accounts was $8 million, $2 million, and $5 million for the years ended December 31, 20172016 and 2015, 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, 2017 and 2016, $20 million and $16 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, 2017 and 2016, the special tools balance, net of accumulated depreciation, was $113 million and $110 million, respectively, included within property, net in the consolidated balance sheets. As of December 31, 2017 and 2016, the Delphi Technologies-owned special tools balances were $103 million and $94 million, respectively, and the customer-owned special tools balances were $10 million and $16 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 17. 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. Costs to renew or extend the term of acquired intangible assets are recognized as expense as incurred. No intangible asset impairments were recorded in 2017, 2016 or 2015. Refer to Note 7. Intangible Assets and Goodwill for additional information.
Goodwill—Goodwill is the excess of the purchase price over the 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 we then perform 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.
Goodwill impairment—In the fourth quarter of 2017 and 2016, 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 2017, 2016 or 2015. 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 14. 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 we make 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. 14. 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 $(9) million, $11 million and $5 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, 2017, 2016 and 2015, respectively.
Restructuring—The Company 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 ceases to use the leased facility and no longer derives economic benefit from the contract. 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, 2017 and 2016. For the year ended December 31, 2015, Hyundai Motor Company and Daimler AG accounted for 11% and 10% of net sales, respectively.
Derivative financial instruments—Prior to the Separation, the Former Parent centrally managed its exposure to fluctuations in currency exchange rates and certain commodity prices by entering into a variety of forward contracts and swaps with various counterparties. Such financial exposures were managed in accordance with the policies and procedures of the Former Parent and accounted for in accordance with ASC Topic 815, Derivatives and Hedging. Delphi Technologies has not entered into any derivative transactions, contracts, options, or swaps. Due to the Company’s participation in the Former Parent’s hedging program, the Company was allocated a portion of the impact from these activities. Based on the exposure levels related to Delphi Technologies, the Company recorded gains (losses) of $16 million, $6 million and $(16) million in cost of sales for the years ended December 31, 2017, 2016 and 2015, respectively.
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. To a lesser extent, conditional retirement obligations also exist at certain sites related to the removal of storage tanks and other disposal costs. Asset retirement obligations were $2 million at December 31, 2017 and 2016.
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 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 19. 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 19. 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, 2017. Refer to Note 12. Pension Benefits for additional information.
Recently adopted accounting pronouncements—Delphi Technologies adopted ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory, in the first quarter of 2017 on a prospective basis. This guidance requires an entity to measure inventory at the lower of cost and net realizable value, rather than at the lower of cost or market. The adoption of this guidance did not have a significant impact on the Company’s consolidated financial statements.
Delphi Technologies adopted ASU 2016-05, Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships (“ASU 2016-05”) and ASU 2016-06, Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments (“ASU 2016-06”) in the first quarter of 2017 on a prospective basis. ASU 2016-05 clarifies that a change in the counterparty to a derivative instrument that has been designated as a hedging instrument does not, in and of itself, require dedesignation of that hedging relationship provided that all other hedge accounting criteria continue to be met. ASU 2016-06 also clarifies the steps required to determine bifurcation of an embedded derivative. The adoption of this guidance did not have a significant impact on the Company’s consolidated financial statements.
Delphi Technologies adopted ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”) in the first quarter of 2017. This guidance contains multiple updates related to the accounting and financial statement presentation of share-based payment transactions. The provisions of ASU 2016-09 related to the timing of when excess tax benefits are recognized were adopted using a modified retrospective transition method by means of an immaterial cumulative-effect adjustment to Former Parent’s net investment as of January 1, 2017. On a prospective basis, excess tax benefits will be recognized as income tax expense in the period in which the awards vest, as opposed to being recognized in additional paid-in capital when the deduction reduces taxes payable. Such excess tax benefits will be classified as an operating activity within the consolidated statement of cash flows prospectively, as opposed to a financing activity. The adoption of ASU 2016-09 did not materially impact the Company’s financial position, results of operations, equity or cash flows.
Delphi Technologies adopted ASU 2017-07, Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (“ASU 2017-07”) in the first quarter of 2017. ASU 2017-07 changes the presentation of net periodic pension and postretirement benefit cost in the income statement. Under the new guidance, employers present the service cost component of the net periodic benefit cost in the same income statement line items as other employee compensation costs for services rendered during the period. In addition, only the service cost component is eligible for capitalization as an asset. Employers present the other components of net periodic benefit cost separately from the line items that include the service cost component and outside of operating income. The new guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted as of the beginning of an annual period. The new guidance related to the presentation of the components of net periodic benefit cost within the income statement will be applied retrospectively. The new guidance limiting the capitalization of net periodic benefit cost in assets to the service cost component will be applied prospectively. As permitted, the Company elected to early adopt this guidance effective January 1, 2017, and has reclassified the components of net periodic pension and postretirement benefit cost other than service costs from cost of goods sold and selling, general and administrative expense to other expense within the consolidated statement of operations for all periods presented. The adoption of this guidance resulted in the reclassification of $1 million and $1 million of net periodic benefit cost components other than service cost from operating expense to other expense for the years ended December 31, 2016 and 2015, respectively, and had no impact on net income attributable to Delphi Technologies. Approximately $13 million of net periodic benefit cost components other than service cost are included within other expense for the year ended December 31, 2017. Refer to Note 12. Pension Benefits for further detail of the components of net periodic benefit costs.
Recently issued accounting pronouncements not yet adopted—In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. This ASU supersedes most of the existing guidance on revenue recognition in Accounting Standards Codification (“ASC”) Topic 605, Revenue Recognition and establishes a broad principle that would require 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. To achieve this principle, an entity identifies the contract with a customer, identifies the separate performance obligations in the contract, determines the transaction price, allocates the transaction price to the separate performance obligations and recognizes revenue when each separate performance obligation is satisfied. The FASB has subsequently issued additional ASUs to clarify certain elements of the new revenue recognition guidance. The guidance is effective for fiscal years beginning after December 15, 2017, and is to be applied retrospectively using one of two transition methods at the entity’s election. The full retrospective method requires companies to recast each prior reporting period presented as if the new guidance had always existed. Under the modified retrospective method, companies would recognize the cumulative effect of initially applying the standard as an adjustment to opening retained earnings at the date of initial application.
The Company has continued to monitor FASB activity related to the new standard, and has worked with various non-authoritative industry groups to assess certain interpretative issues and the associated implementation of the new revenue standard. The Company has drafted its accounting policy for the new revenue standard based on a detailed review of its business and contracts. While the Company continues to assess all potential impacts of the new standard, we do not currently expect that the adoption of the new revenue standard will have a material impact on our revenues, results of operations or financial position. As a result of the adoption of this standard, the Company expects to make additional disclosures related to the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers as required by the new standard. The Company plans to adopt the new revenue standard effective January 1, 2018. The Company currently intends to adopt the new standard using the modified retrospective method and continues to evaluate the effect of the standard on our ongoing financial reporting.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. This guidance makes targeted improvements to existing U.S. GAAP for financial instruments, including requiring equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income as opposed to other comprehensive income; requiring entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; requiring separate presentation of financial assets and financial liabilities by measurement category and form of financial asset and requiring entities to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk (also referred to as “own credit”) when the organization has elected to measure the liability at fair value in accordance with the fair value option. The new guidance is effective for public companies for fiscal years beginning after December 15, 2017 by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year adoption. Early adoption of the own credit provision is permitted. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements; however, based on the nature of financial instruments held by Delphi Technologies as of December 31, 2017, the Company does not currently expect that the adoption of ASU 2016-01 will have a material impact on its financial position, results of operations or cash flows. The Company will continue to evaluate any changes in its investments or market conditions, and the related potential impacts of the adoption of ASU 2016-01.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). Under this guidance, lessees will be required to recognize on the balance sheet a lease liability and a right-of-use asset for all leases, with the exception of short-term leases. The lease liability represents the lessee’s obligation to make lease payments arising from a lease, and will be measured as the present value of the lease payments. The right-of-use asset represents the lessee’s right to use a specified asset for the lease term, and will be measured at the lease liability amount, adjusted for lease prepayment, lease incentives received and the lessee’s initial direct costs. The standard also requires a lessee to recognize a single lease cost allocated over the lease term, generally on a straight-line basis. The new guidance is effective for fiscal years beginning after December 15, 2018. ASU 2016-02 is required to be applied using the modified retrospective approach for all leases existing as of the effective date and provides for certain practical expedients. Early adoption is permitted. The Company is currently evaluating the effects that the adoption of ASU 2016-02 will have on the Company’s consolidated financial statements, and anticipates the new guidance will significantly impact its consolidated financial statements as the Company has a significant number of operating leases. As further described in Note 13. Commitments and Contingencies, as of December 31, 2017, the Company had minimum lease commitments under non-cancellable operating leases totaling $85 million.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This guidance requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. This guidance also requires enhanced disclosures regarding significant estimates and judgments used in estimating credit losses. The new guidance is effective for fiscal years beginning after December 15, 2019. Early adoption is permitted for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements.
In September 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This guidance clarifies the presentation requirements of eight specific issues within the statement of cash flows. The new guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The adoption of this guidance is not expected to have a significant impact on the Company’s financial statements, as the Company’s treatment of the relevant affected items within its consolidated statement of cash flows is consistent with the requirements of this guidance.
In October 2016, the FASB issued ASU 2016-16, Accounting for Income Taxes: Intra-Entity Asset Transfers of Assets Other than Inventory. 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 new guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption as of the beginning of an annual reporting period is permitted. The guidance is to be 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 is not expected to have a significant impact on the Company’s consolidated financial statements.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. 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 will be 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 new guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, and the new guidance is to be applied retrospectively. The adoption of this guidance is not expected to have a significant impact on the 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 cash flows, as opposed to being excluded from these totals.
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This guidance simplifies how an entity is required to test goodwill for impairment by eliminating step two from the goodwill impairment test, which measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount. Under the new guidance, if a reporting unit’s carrying amount exceeds its fair value, an entity will record an impairment charge based on that difference. The impairment charge will be limited to the amount of goodwill allocated to that reporting unit. The standard will be applied prospectively and is effective for annual and interim impairment tests performed in periods beginning after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the impact of adopting this standard on its financial statements, but does not anticipate a material impact. As this standard is prospective in nature, the impact to the Company’s consolidated financial statements of not performing a step two in order to measure the amount of any potential goodwill impairment will depend on various factors associated with the Company’s assessment of goodwill for impairment in those future periods.
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging—Targeted Improvements to Accounting for Hedging Activities (“ASU 2017-12”) in the fourth quarter of 2017. 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 standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The adoption of this guidance is not expected to have a significant impact on the Company’s consolidated financial statements as the Company has not entered into any derivative transactions. The Company will continue to evaluate the need for derivative instruments and the related potential impacts that the adoption of this guidance will have on its consolidated financial statements.
RELATED PARTY TRANSACTIONS
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. Also in connection with the Separation, the Company paid $180 million 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.
Net sales of products from Delphi Technologies to other affiliates of the Former Parent totaled $1 million, $1 million and $1 million for the years ended December 31, 2017, 2016 and 2015, respectively.
Total purchases from other affiliates of the Former Parent totaled $29 million, prior to the Separation $102 million and $126 million for the years ended December 31, 2017, 2016 and 2015, respectively.
As of December 31, 2017 and 2016, the net amount due to affiliates of the Former Parent from related party transactions was $0 million and $62 million, respectively.
Allocation of Expenses Prior to the Separation
Prior to the Separation, certain services and functions including, but not limited to, senior management, legal, human resources, finance and accounting, treasury, information technology services and support, cash management, payroll processing, pension and benefit administration and other shared services were provided by the Former Parent. These costs were allocated using methodologies that management believes were reasonable for the item being allocated. Allocation methodologies included direct usage when identifiable, as well as the Company’s relative share of revenues, headcount or functional spend as a percentage of the total. However, the expenses reflected are not indicative of the actual expenses that would have been incurred during the periods presented if the Company had operated as a stand-alone publicly-traded company. In addition, the expenses reflected in the financial statements may not be indicative of expenses the Company will incur in the future.
The total costs for services and functions allocated to the Company from the Former Parent for periods prior to the Separation were as follows:
 
Year Ended December 31,
 
2017
 
2016
 
2015
 
(in millions)
Cost of sales
$
27

 
$
44

 
$
28

Selling, general and administrative
116

 
137

 
158

Total allocated cost from Former Parent
$
143

 
$
181

 
$
186


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.
INVENTORIES
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,
2017
 
December 31,
2016
 
(in millions)
Productive material
$
217

 
$
158

Work-in-process
35

 
41

Finished goods
246

 
175

Total
$
498

 
$
374

ASSETS
ASSETS
ASSETS
Other current assets consisted of the following:
 
December 31,
2017
 
December 31,
2016
 
(in millions)
Value added tax receivable
$
59

 
$
48

Prepaid insurance and other expenses
6

 
4

Reimbursable engineering costs
20

 
16

Notes receivable
39

 
36

Income and other taxes receivable
5

 
1

Deposits to vendors
2

 
3

Total
$
131

 
$
108


Other long-term assets consisted of the following:
 
December 31,
2017
 
December 31,
2016
 
(in millions)
Debt issuance costs
$
4

 
$

Income and other taxes receivable
57

 
26

Value added tax receivable
1

 

Investment in Tula Technology, Inc. (Note 2)
21

 
20

Other
39

 
31

Total
$
122

 
$
77

PROPERTY, NET
PROPERTY, NET
PROPERTY, NET
Property, net is stated at cost less accumulated depreciation and amortization, and consisted of:
 
Estimated Useful
Lives
 
December 31,
 
2017
 
2016
 
(Years)
 
(in millions)
Land
 
$
76

 
$
62

Land and leasehold improvements
3-20
 
26

 
30

Buildings
40
 
283

 
214

Machinery, equipment and tooling
3-20
 
1,810

 
1,541

Furniture and office equipment
3-10
 
64

 
48

Construction in progress
 
132

 
100

Total
 
 
2,391

 
1,995

Less: accumulated depreciation
 
 
(1,075
)
 
(853
)
Total property, net
 
 
$
1,316

 
$
1,142


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, Delphi Technologies recorded asset impairment charges of $29 million in cost 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. For the year ended December 31, 2015, $9 million of asset impairment charges were recorded in costs of sales related to declines in the fair value of certain fixed assets.
INTANGIBLE ASSETS AND GOODWILL
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, 2017
 
As of December 31, 2016
 
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
 
$
135

 
$
96

 
$
39

 
$
139

 
$
90

 
$
49

Customer relationships
4-10
 
97

 
90

 
7

 
115

 
104

 
11

Trade names
5-20
 
48

 
19

 
29

 
48

 
16

 
32

Total
 
 
280

 
205

 
75

 
302

 
210

 
92

Unamortized intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
Goodwill
 
7

 

 
7

 
6

 

 
6

Total
 
 
$
287

 
$
205

 
$
82

 
$
308

 
$
210

 
$
98


Estimated amortization expense for the years ending December 31, 2018 through 2022 is presented below:
 
Year Ending December 31,
 
2018
 
2019
 
2020
 
2021
 
2022
 
(in millions)
Estimated amortization expense
$
14

 
$
13

 
$
12

 
$
9

 
$
2


A roll-forward of the gross carrying amounts of intangible assets for the years ended December 31, 2017 and 2016 is presented below.
 
2017
 
2016
 
(in millions)
Balance at January 1
$
308

 
$
317

Net Former Parent transfer
(22
)
 

Foreign currency translation
1

 
(9
)
Balance at December 31
$
287

 
$
308


A roll-forward of the accumulated amortization for the years ended December 31, 2017 and 2016 is presented below:
 
2017
 
2016
 
(in millions)
Balance at January 1
$
210

 
$
197

Amortization
16

 
17

Net Former Parent transfer
(22
)
 

Foreign currency translation
1

 
(4
)
Balance at December 31
$
205

 
$
210

LIABILITIES
LIABILITIES
LIABILITIES
Accrued liabilities consisted of the following:
 
December 31,
2017
 
December 31,
2016
 
(in millions)
Payroll-related obligations
$
49

 
$
39

Employee benefits, including current pension obligations
29

 
28

Income and other taxes payable
63

 
39

Warranty obligations (Note 9)
64

 
51

Restructuring (Note 10)
54

 
62

Customer deposits
7

 
8

Freight
19

 
10

Outside services
14

 
10

Accrued interest
12

 

Deferred revenue
10

 
11

Accrued rebates
30

 
24

Other
94

 
49

Total
$
445

 
$
331







Other long-term liabilities consisted of the following:
 
December 31,
2017
 
December 31,
2016
 
(in millions)
Environmental (Note 13)
$
3

 
$
1

Warranty obligations (Note 9)
33

 
45

Restructuring (Note 10)
47

 
21

Accrued income taxes
15

 

Deferred income taxes (Note 14)
14

 
17

Other
7

 
19

Total
$
119

 
$
103

WARRANTY OBLIGATIONS
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 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, 2017. The Company estimates the reasonably possible amount to ultimately resolve all matters in excess of the recorded reserves as of December 31, 2017 to be zero to $15 million.
The table below summarizes the activity in the product warranty liability for the years ended December 31, 2017 and 2016:
 
Year Ended December 31,
 
2017
 
2016
 
(in millions)
Accrual balance at beginning of year
$
96

 
$
100

Provision for estimated warranties incurred during the year
37

 
42

Changes in estimate for pre-existing warranties
6

 
16

Settlements made during the year (in cash or in kind)
(50
)
 
(59
)
Foreign currency translation and other
8

 
(3
)
Accrual balance at end of year
$
97

 
$
96



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.
RESTRUCTURING
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 $98 million during the year ended December 31, 2017. These charges included approximately $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. Cash payments for this restructuring action are expected to be principally completed by 2020.
During the year ended December 31, 2016, the Company recorded employee-related and other restructuring charges related to these programs 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.
During the year ended December 31, 2015, Delphi Technologies recorded employee-related and other restructuring charges totaling approximately $112 million, primarily related to on-going restructuring programs focused on aligning manufacturing capacity with the levels of automotive production in Europe and South America, and the continued rotation of our manufacturing footprint to best-cost locations within these regions. These charges included the recognition of approximately $68 million of employee-related and other costs related to the initiation of a workforce reduction at a European manufacturing site.
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 $88 million and $165 million in the years ended December 31, 2017 and December 31, 2016, respectively.
The following table summarizes the restructuring charges recorded for the years ended December 31, 2017, 2016 and 2015 by operating segment:
 
Year Ended December 31,
 
2017
 
2016
 
2015
 
(in millions)
Powertrain Systems
$
92

 
$
151

 
$
108

Delphi Technologies Aftermarket
6

 
10

 
4

Total
$
98

 
$
161

 
$
112


The table below summarizes the activity in the restructuring liability for the years ended December 31, 2017 and 2016:
 
Employee Termination Benefits Liability
 
Other Exit Costs Liability
 
Total
 
(in millions)
Accrual balance at January 1, 2016
$
92

 
$
2

 
$
94

Provision for estimated expenses incurred during the year
156

 
5

 
161

Payments made during the year
(162
)
 
(3
)
 
(165
)
Foreign currency and other
(7
)
 

 
(7
)
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

DEBT
DEBT
DEBT
The following is a summary of debt outstanding, net of unamortized issuance costs and discounts, as of December 31, 2017 and December 31, 2016, respectively:
 
December 31,
 
2017
 
2016
 
(in millions)
$750 million Term Loan A Facility, due 2022 (net of $5 and $0 unamortized issuance costs)
$
745

 
$

$800 million Senior Notes at 5.00%, due 2025 (net of $14 and $0 unamortized issuance costs and $4 and $0 discount, respectively)
782

 

Other
8

 
8

Total debt
1,535

 
8

Less: current portion
(20
)
 
(2
)
Long-term debt
$
1,515

 
$
6


The principal maturities of debt, at nominal value, are as follows:
 
Debt Obligations
 
(in millions)
2018
$
20

2019
43

2020
38

2021
75

2022
581

Thereafter
801

Total
$
1,558


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. Approximately $9 million of issuance costs were incurred in connection with the Credit Agreement. As of December 31, 2017, 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, 2017
 
LIBOR plus
 
ABR plus
Revolving Credit Facility
1.45
%
 
0.45
%
Term Loan A Facility
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.
 
Applicable Rate
 
Borrowings as of December 31, 2017 (in millions)
 
Rates effective as of December 31, 2017
Term Loan A Facility
LIBOR plus 1.75%
 
$
750

 
3.125
%

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, 2017.
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, in respect of the 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, 2017.
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, 2017.
Other Financing
Receivable factoring—The Company entered into arrangements with various financial institutions to sell eligible trade receivables from certain aftermarket customers in North America. These arrangements can be terminated at any time subject to prior written notice. The receivables under these arrangements are sold without recourse to the Company and are therefore accounted for as true sales. During the years ended December 31, 2017 and 2016, $92 million and $123 million of receivables were sold under these arrangements, and expenses of $3 million and $3 million, respectively, were recognized within interest expense.
In addition, in 2016 one of the Company’s European subsidiaries factored, without recourse, receivables related to certain foreign research tax credits to a financial institution. These transactions were accounted for as true sales of the receivables, and the Company therefore derecognized approximately $22 million from other long-term assets in the consolidated balance sheet as of  December 31, 2016, as a result of these transactions.
Capital leases—There were approximately $1 million capital lease obligations outstanding as of December 31, 2017. As of December 31, 2016 there were no capital lease obligations outstanding.
Interest—Cash paid for interest totaled $2 million, $1 million and $3 million for the years ended December 31, 2017, 2016 and 2015, respectively.
PENSION BENEFITS
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.
In connection with the Separation, 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 2017 and 2016.
 
Year Ended December 31,
 
2017
 
2016
 
(in millions)
Benefit obligation at beginning of year
$
1,405

 
$
1,277

Service cost
34

 
29

Interest cost
34

 
38

Actuarial loss
68

 
315

Benefits paid
(43
)
 
(50
)
Impact of curtailments
(20
)
 
3

Transfer of plan obligations to Former Parent
(8
)
 

Exchange rate movements and other
134

 
(207
)
Benefit obligation at end of year
1,604

 
1,405

Change in plan assets:
 
 
 
Fair value of plan assets at beginning of year
880

 
864

Actual return on plan assets
103

 
157

Contributions
48

 
52

Benefits paid
(43
)
 
(50
)
Net transfers from Former Parent
2

 

Exchange rate movements and other
84

 
(143
)
Fair value of plan assets at end of year
1,074

 
880

Underfunded status
(530
)
 
(525
)
Amounts recognized in the consolidated balance sheets consist of:
 
 
 
Non-current assets

 
1

Non-current liabilities
(530
)
 
(526
)
Total
(530
)
 
(525
)
Amounts recognized in accumulated other comprehensive income consist of (pre-tax):
 
 
 
Actuarial loss
356

 
360

Prior service cost

 
1

Total
$
356

 
$
361


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,
 
2017
 
2016
 
(in millions)
Plans with ABO in Excess of Plan Assets
PBO
$
1,580

 
$
1,387

ABO
1,422

 
1,209

Fair value of plan assets at end of year
1,051

 
862

 
Plans with Plan Assets in Excess of ABO
PBO
$
24

 
$
18

ABO
18

 
13

Fair value of plan assets at end of year
23

 
18

 
Total
PBO
$
1,604

 
$
1,405

ABO
1,440

 
1,222

Fair value of plan assets at end of year
1,074

 
880


Benefit costs presented below were determined based on actuarial methods and included the following:
 
Year Ended December 31,
 
2017
 
2016
 
2015
 
(in millions)
Service cost
$
34

 
$
29

 
$
38

Interest cost
34

 
38

 
47

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

 
3

 

Amortization of actuarial losses
26

 
6

 
8

Net periodic benefit cost
$
47

 
$
30

 
$
39


As described in Note 2. Significant Accounting Policies, 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 less than $1 million in other postretirement benefit obligations as of December 31, 2017 and 2016.
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 2018 is $25 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
 
2017
 
2016
Weighted-average discount rate
2.46
%
 
2.58
%
Weighted-average rate of increase in compensation levels
3.98
%
 
3.97
%
Assumptions used to determine net expense for years ended December 31:
 
Pension Benefits
 
2017
 
2016
 
2015
Weighted-average discount rate
2.58
%
 
3.72
%
 
3.63
%
Weighted-average rate of increase in compensation levels
3.97
%
 
3.73
%
 
3.72
%
Weighted-average expected long-term rate of return on plan assets
5.50
%
 
5.75
%
 
6.24
%

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 2017 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 2017 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
 
+ $4 million
 
+ $84 million
25 bp increase in discount rate
 
- $6 million
 
- $79 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)
2018
$
40

2019
42

2020
42

2021
47

2022
47

2023 – 2027
271


Delphi Technologies anticipates making pension contributions and benefit payments of approximately $40 million in 2018.
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, 2017 and 2016, by asset category, are as follows:
 
 
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

 

 

Total
 
$
1,074

 
$
84

 
$
840

 
$
150

 
 
Fair Value Measurements at December 31, 2016
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
 
$
50

 
$
50

 
$

 
$

Time deposits
 
7

 

 
7

 

Equity mutual funds
 
334

 

 
334

 

Bond mutual funds
 
371

 

 
371

 

Real estate trust funds
 
22

 

 

 
22

Hedge funds
 
85

 

 

 
85

Debt securities
 
5

 
5

 

 

Equity securities
 
6

 
6

 

 

Total
 
$
880

 
$
61

 
$
712

 
$
107


Following is a description of the valuation methodologies used for pension assets measured at fair value.
Time deposits—The fair value of fixed-maturity certificates of deposit was estimated using the rates offered for deposits of similar remaining maturities.
Equity mutual funds—The fair value of the equity mutual funds is determined by the indirect quoted market prices on regulated financial exchanges of the underlying investments included in the fund.
Bond mutual funds—The fair value of the bond mutual funds is determined by the indirect quoted market prices on regulated financial exchanges of the underlying investments included in the fund.
Real estate—The fair value of real estate properties is estimated using an annual appraisal provided by the administrator of the property investment. Management believes this is an appropriate methodology to obtain the fair value of these assets.
Hedge funds—The fair value of the hedge funds is accounted for by a custodian. The custodian obtains valuations from the underlying hedge fund managers based on market quotes for the most liquid assets and alternative methods for assets that do not have sufficient trading activity to derive prices. Management and the custodian review the methods used by the underlying managers to value the assets. Management believes this is an appropriate methodology to obtain the fair value of these assets.
Debt securities—The fair value of debt securities is determined by direct quoted market prices on regulated financial exchanges.
Equity securities—The fair value of equity securities is determined by direct quoted market prices on regulated financial exchanges.
The following table summarizes the changes in Level 3 defined benefit pension plan assets measured at fair value on a recurring basis:
 
Fair Value Measurements Using Significant
Unobservable Inputs (Level 3)
 
Real Estate Trust Fund
 
Hedge Funds
 
(in millions)
Beginning balance at January 1, 2016
$
30

 
$
79

Actual return on plan assets:
 
 
 
Relating to assets still held at the reporting date
4

 
19

Purchases, sales and settlements
(7
)
 

Foreign currency translation and other
(5
)
 
(13
)
Ending balance at December 31, 2016
$
22

 
$
85

Actual return on plan assets:
 
 
 
Relating to assets still held at the reporting date
$
3

 
$
7

Purchases, sales and settlements
23

 

Foreign currency translation and other
2

 
8

Ending balance at December 31, 2017
$
50

 
$
100


Defined Contribution Plans
Prior to the Separation, certain hourly and salaried employees of Delphi Technologies participated in defined contribution plans sponsored by the Former Parent. In connection with the Separation, Delphi Technologies has established plans with substantially similar terms. Expense related to the contributions for these plans recorded by Delphi Technologies was approximately $11 million, $9 million, and $10 million for the years ended December 31, 2017, 2016 and 2015, respectively.

Multiemployer Pension Plans

Prior to the Separation, certain of the Company’s employees in Germany and the U.S. participate in defined benefit pension plans (collectively, “Shared Plans”) sponsored by the Former Parent. The Company has recorded expense of approximately $1 million, $1 million, and $1 million for the years ended December 31, 2017, 2016 and 2015, respectively, to record its allocation of pension benefit costs related to the Shared Plans.
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES
Ordinary Business Litigation
Delphi Technologies is from time to time subject to various legal actions and claims incidental to its business, including those arising out of alleged defects, alleged breaches of contracts, product warranties, intellectual property matters, and employment-related matters. It is the opinion of Delphi Technologies that the outcome of such matters will not have a material adverse impact on the consolidated financial position, results of operations, or cash flows of Delphi Technologies. With respect to warranty matters, although Delphi Technologies cannot ensure that the future costs of warranty claims by customers will not be material, Delphi Technologies believes its established reserves are adequate to cover potential warranty settlements.
Brazil Matters
Delphi Technologies conducts business operations in Brazil that are subject to the Brazilian federal labor, social security, environmental, tax and customs laws, as well as a variety of state and local laws. While Delphi Technologies believes it complies with such laws, they are complex, subject to varying interpretations, and the Company is often engaged in litigation regarding the application of these laws to particular circumstances. As of December 31, 2017, the majority of claims asserted against Delphi Technologies in Brazil relate to such litigation. The remaining claims in Brazil relate to commercial and labor litigation with private parties. As of December 31, 2017, claims totaling approximately $20 million (using December 31, 2017 foreign currency rates) have been asserted against Delphi Technologies in Brazil. As of December 31, 2017, the Company maintains accruals for these asserted claims of approximately $5 million (using December 31, 2017 foreign currency rates). The amounts accrued represent claims that are deemed probable of loss and are reasonably estimable based on the Company’s analyses and assessment of the asserted claims and prior experience with similar matters. While the Company believes its accruals are adequate, the final amounts required to resolve these matters could differ materially from the Company’s recorded estimates and Delphi Technologies’ results of operations could be materially affected. The Company estimates the reasonably possible loss in excess of the amounts accrued related to these claims to be zero to $15 million.
Environmental Matters
Delphi Technologies is subject to the requirements of U.S. federal, state, local and non-U.S. environmental and safety and health laws and regulations. As of December 31, 2017 and December 31, 2016, the undiscounted reserve for environmental investigation and remediation was approximately $4 million (of which $3 million was recorded in other long-term liabilities and $1 million was recorded in accrued liabilities) and $1 million (which was recorded in other long-term liabilities), respectively. Delphi Technologies cannot ensure that environmental requirements will not change or become more stringent over time or that its eventual environmental remediation costs and liabilities will not exceed the amount of its current reserves. In the event that such liabilities were to significantly exceed the amounts recorded, Delphi Technologies’ results of operations could be materially affected. At December 31, 2017 the difference between the recorded liabilities and the reasonably possible range of potential loss was not material.
Leases and Other Financing Charges
Operating leases—Rental expense totaled $14 million, $11 million and $13 million for the years ended December 31, 2017, 2016 and 2015, respectively. As of December 31, 2017, Delphi Technologies had minimum lease commitments under non-cancellable operating leases totaling $85 million, which become due as follows:
 
Minimum Future Operating Lease Commitments
 
(in millions)
2018
$
17

2019
15

2020
13

2021
11

2022
11

Thereafter
18

Total
$
85

INCOME TAXES
INCOME TAXES
INCOME TAXES
Prior to the Separation, our operating results were included in the Former Parent’s various consolidated and separate income tax returns. For periods prior to the Separation, the provision for income taxes and related balance sheet accounts of such entities have been prepared and presented in the consolidated financial statements based on a separate return basis. Therefore, cash tax payments and items of current and deferred taxes in prior periods may not be reflective of the actual tax balances of Delphi Technologies prior to or subsequent to the Separation. 
The following table summarizes Delphi Technologies’ tax expense:
 
Year Ended December 31,
 
2017
 
2016
 
2015
 
(in millions)
Current income tax expense
$
113

 
$
62

 
$
96

Deferred income tax benefit, net
(7
)
 
(12
)
 
(4
)
Total income tax provision
$
106

 
$
50

 
$
92


Cash paid or withheld for income taxes by Delphi Technologies was $46 million, $59 million and $61 million for the years ended December 31, 2017, 2016 and 2015, respectively.



The applicable tax rate to determine Delphi Technologies theoretical income tax expense for 2017 was 19.25%, as compared to 20% in 2016 and 20.25% in 2015. The Company applies the weighted average rate in the United Kingdom (“U.K.”), the tax jurisdiction where Delphi Technologies is resident. A reconciliation of the provision for income taxes compared with the amounts at the theoretical rate:
 
Year Ended December 31,
 
2017
 
2016
 
2015
 
(in millions)
Theoretical income taxes at the U.K. weighted average rate
$
81

 
$
64

 
$
81

Income taxed at other rates
(10
)
 
(54
)
 
(17
)
Losses not benefitted
28

 
24

 
9

Other change in tax reserves
4

 
5

 
1

Valuation allowance releases
(12
)
 

 

Withholding taxes
11

 
5

 
7

Change in tax law
7

 
4

 
9

Other adjustments
(3
)
 
2

 
2

Total income tax expense
$
106

 
$
50

 
$
92

Effective tax rate
25
%
 
16
%
 
23
%

The Company’s tax rate is affected by the fact that its parent entity is a U.K. resident taxpayer, the tax rates in the other jurisdictions in which the Company operates, the relative amount of income earned by jurisdiction and the relative amount of losses or income for which no tax benefit or expense was recognized due to a valuation allowance. Included in the income taxed at other rates are tax incentives obtained in various countries, primarily the High and New Technology Enterprise (“HNTE”) status in China and the Special Economic Zone exemption in Turkey of $7 million in 2017, $13 million in 2016, and $16 million in 2015, as well as tax benefit for income earned in jurisdictions where a valuation allowance has been recorded. The Company currently benefits from tax holidays in various non-U.S. jurisdictions with expiration dates from 2016 through 2026. The income tax benefits attributable to these tax holidays are approximately $1 million in 2017, $1 million in 2016 and $2 million in 2015.
The effective tax rate in the year ended December 31, 2017 was impacted by the release of valuation allowances in the United States of $9 million and in Hungary of $3 million, in 2017 as compared to 2016, primarily due to changes in the underlying operations of the business. These benefits were partially offset by unfavorable geographic income mix and $4 million of reserve adjustments recorded for uncertain tax positions, which included reserves for ongoing audits in foreign jurisdictions, as well as for changes in estimates based on relevant new or additional evidence obtained related to certain of the Company’s tax positions. 
Additionally, the Company’s tax rate was impacted by the enactment of the Tax Cuts and Jobs Act (the “Act”) in the United States on December 22, 2017, which provides for a reduction of the corporate income tax rate from 35% to 21% effective January 1, 2018. The income tax accounting effect, including any retroactive effect, of a tax law change is accounted for in the period of enactment. As a result, the effective tax rate was impacted by an increased tax expense of approximately $7 million for the year ended December 31, 2017 for the provisional effects of the Act pursuant to the guidance in SEC Staff Accounting Bulletin No. 118. We consider our calculation to be provisional due to lack of clarity at the balance sheet date related to state tax impacts of federal tax reform, which resulted in our use of estimates to compute our future blended tax rate. If we are required to change this amount based on further analysis and regulatory guidance at the federal and state level issued subsequent to the issuance of these statements, we will record such adjustments to income tax expense in the period that the amounts are determined. The Company was not affected by the Transition Tax provisions of the “Act”, which impose a U.S. tax upon unremitted earnings of non-U.S. subsidiaries which would have been subject to U.S. tax when remitted under the law in effect prior to the Act. The Company’s U.S. subsidiary does not hold any investments in non-U.S. operations. The Company was also impacted by the enactment of the French Finance (Budget) Law for 2018 (the “French Act”) which was enacted December 21, 2017, when it was definitively adopted by the French Parliament. The French Act provides for a maximum corporate rate of 33.33% in calendar year 2018, 31% in 2019, 28% in 2020, 26.5% in 2021 and 25% in 2022. As a result, the Company’s deferred tax asset balance and associated valuation allowance balance in France were both reduced $17 million for the year ended December 31, 2017.
The effective tax rate in the year ended December 31, 2016 was impacted by favorable geographic income mix in 2016 as compared to 2015, primarily due to changes in the underlying operations of the business. These benefits were partially offset by $5 million of reserve adjustments recorded for uncertain tax positions, which included reserves for ongoing audits in foreign jurisdictions, as well as for changes in estimates based on relevant new or additional evidence obtained related to certain of the Company’s tax positions. Additionally, the Company’s tax rate was impacted by the enactment of the U.K. Finance (No. 2) Act 2016 on September 15, 2016, which provides for a reduction of the corporate income tax rate from 18% to 17% effective April 1, 2020. The income tax accounting effect, including any retroactive effect, of a tax law change is accounted for in the period of enactment, which in this case was the third quarter of 2016. As a result, the effective tax rate was impacted by an increased tax expense of approximately $4 million for the year ended December 31, 2016 due to the resultant impact on the net deferred tax asset balances.
The effective tax rate in the year ended December 31, 2015 was impacted by the enactment of the U.K. Finance (No. 2) Act 2015 on November 18, 2015, which provides for a reduction of the corporate income tax rate from 20% to 19% effective April 1, 2017, with a further reduction to 18% effective April 1, 2020. The income tax accounting effect, including any retroactive effect, of a tax law change is accounted for in the period of enactment, which in this case was the fourth quarter of 2015. As a result, the effective tax rate was impacted by an increased tax expense of approximately $9 million for the year ended December 31, 2015 due to the resultant impact on the net deferred tax asset balances.
Deferred Income Taxes
The Company accounts for income taxes and the related accounts under the liability method. Deferred income tax assets and liabilities reflect the impact of temporary differences between amounts of assets and liabilities for financial reporting purposes and the basis of such assets and liabilities as measured by tax laws. Significant components of the deferred tax assets and liabilities are as follows:
 
December 31,
 
2017
 
2016
 
(in millions)
Deferred tax assets:
 
 
 
Pension
$
94

 
$
95

Employee benefits
6

 
1

Net operating loss carryforwards
177

 
54

Warranty and other liabilities
44

 
46

Intangible assets
6

 

Fixed assets
1

 

Other
38

 
20

Total gross deferred tax assets
366

 
216

Less: valuation allowances
(196
)
 
(70
)
Total deferred tax assets (1)
$
170

 
$
146

Deferred tax liabilities:
 
 
 
Fixed assets
$

 
$
1

Tax on unremitted profits of certain foreign subsidiaries
6

 
2

Intangible assets

 
14

Total gross deferred tax liabilities
6

 
17

Net deferred tax assets
$
164

 
$
129

(1)
Reflects gross amount before jurisdictional netting of deferred tax assets and liabilities.
Deferred tax liabilities and assets are classified as long-term in the consolidated balance sheet. Net deferred tax assets and liabilities are included in the consolidated balance sheets as follows:
 
December 31,
 
2017
 
2016
 
(in millions)
Long-term assets
$
178

 
$
146

Long-term liabilities
(14
)
 
(17
)
Total deferred tax asset
$
164

 
$
129


The net deferred tax assets of $164 million as of December 31, 2017 are primarily comprised of deferred tax asset amounts in the United States, U.K. and China.
Net Operating Loss and Tax Credit Carryforwards
As of December 31, 2017, the Company has gross deferred tax assets of approximately $177 million for net operating loss (“NOL”) carryforwards with recorded valuation allowances of $160 million. These NOL’s are available to offset future taxable income and realization is dependent on generating sufficient taxable income prior to expiration of the loss carryforwards. The NOL’s primarily relate to France, China and Spain. The NOL carryforwards have expiration dates ranging from one year to an indefinite period.
Deferred tax assets include $2 million and $2 million of tax credit carryforwards with recorded valuation allowances of $2 million and $2 million at December 31, 2017 and 2016, respectively. These tax credit carryforwards expire in 2018 through 2021.
Cumulative Undistributed Foreign Earnings
As of December 31, 2017, deferred income tax liabilities of $6 million have been established with respect to the undistributed earnings of foreign subsidiaries whose parent entities are also included within the consolidated financial statements.
Uncertain Tax Positions
The Company recognizes tax benefits only for tax positions that are more likely than not to be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Unrecognized tax benefits are tax benefits claimed in the Company’s tax returns that do not meet these recognition and measurement standards.
A reconciliation of the gross change in the unrecognized tax benefits balance, excluding interest and penalties is as follows:
 
Year Ended December 31,
 
2017
 
2016
 
2015
 
(in millions)
Balance at beginning of year
$
9

 
$
16

 
$
18

Additions related to current year
3

 
3

 
1

Additions (reductions) related to prior years
2

 
(10
)
 
(3
)
Transfers to/from Former Parent
8

 

 

Balance at end of year
$
22

 
$
9

 
$
16


A portion of the Company’s unrecognized tax benefits would, if recognized, reduce its effective tax rate. The remaining unrecognized tax benefits relate to tax positions for which only the timing of the benefit is uncertain. Recognition of these tax benefits would reduce the Company’s effective tax rate only through a reduction of accrued interest and penalties. As of December 31, 2017 and 2016, the amounts of unrecognized tax benefit that would reduce the Company’s effective tax rate were $15 million and $13 million, respectively. In addition, $8 million and $2 million for 2017 and 2016, respectively, would be offset by the write-off of a related deferred tax asset, if recognized.
The Company recognizes interest and penalties relating to unrecognized tax benefits as part of income tax expense. Total accrued liabilities for interest and penalties were $2 million and $6 million at December 31, 2017 and 2016, respectively. Total interest and penalties recognized as part of income tax expense was $1 million, $2 million and $1 million for the years ended December 31, 2017, 2016 and 2015, respectively.
The Company files tax returns in multiple jurisdictions and is subject to examination by taxing authorities throughout the world. Taxing jurisdictions significant to Delphi Technologies include China, Romania, Turkey, South Korea, Mexico, the U.K. the U.S., Luxembourg, Brazil, France, Singapore and Poland. Pursuant to the Tax Matters Agreement, the Former Parent is generally liable for all pre-distribution U.S. federal income taxes, foreign income taxes and certain non-income taxes attributable to our business required to be reported on combined, consolidated, unitary or similar returns that include one or more members of the Former Parent group and one or more members of our group. Delphi Technologies will generally be liable for all other taxes attributable to our business. Open tax years related to these taxing jurisdictions remain subject to examination and could result in additional tax liabilities. In general, our affiliates are no longer subject to income tax examinations by foreign tax authorities for years before 2007. It is reasonably possible that audit settlements, the conclusion of current examinations or the expiration of the statute of limitations in several jurisdictions could impact the Delphi Technologies’ unrecognized tax benefits.
SHAREHOLDERS’ EQUITY AND NET INCOME PER SHARE
SHAREHOLDERS' EQUITY AND NET INCOME PER SHARE
SHAREHOLDERS’ EQUITY AND NET INCOME PER SHARE
Net Income Per Share
Basic net income per share is computed by dividing net income attributable to Delphi Technologies by the weighted average number of ordinary shares outstanding during the period. Diluted net income per share reflects the weighted average dilutive impact of all potentially dilutive securities from the date of issuance and is computed using the treasury stock method by dividing net income attributable to Delphi Technologies by the diluted weighted average number of ordinary shares outstanding. For periods prior to the Separation, the denominator for basic and diluted net income per share was calculated using the 88.61 million Delphi Technologies ordinary shares outstanding immediately following the Separation. The same number of shares was used to calculate basic and diluted earnings per share in those periods since no Delphi Technologies equity awards were outstanding prior to the Separation. For periods subsequent to the Separation, the calculation of net income per share contemplates the dilutive impacts, if any, of the Company’s share-based compensation plans. Refer to Note 19. Share-Based Compensation for additional information.
The following table illustrates net income per share attributable to Delphi Technologies and the weighted average shares outstanding used in calculating basic and diluted income per share:
 
Year Ended December 31,
 
2017
 
2016
 
2015
 
(in millions, except per share data)
Numerator:
 
 
 
 
 
Net income attributable to Delphi Technologies
$
285

 
$
236

 
$
272

Denominator:
 
 
 
 
 
Weighted average ordinary shares outstanding, basic
88.61

 
88.61

 
88.61

Dilutive shares related to RSUs
0.05

 

 

Weighted average ordinary shares outstanding, including dilutive shares
88.66

 
88.61


88.61

 
 
 
 
 
 
Net income per share attributable to Delphi Technologies:
 
 
 
 
 
Basic
$
3.22

 
$
2.66

 
$
3.07

Diluted
$
3.21

 
$
2.66

 
$
3.07

Anti-dilutive securities share impact