DELPHI TECHNOLOGIES PLC, 10-Q filed on 5/2/2019
Quarterly Report
v3.19.1
Document And Entity Information - shares
3 Months Ended
Mar. 31, 2019
Apr. 26, 2019
Document and Entity Information [Abstract]    
Trading Symbol DLPH  
Document Type 10-Q  
Amendment Flag false  
Entity Emerging Growth Company false  
Entity Small Business false  
Document Period End Date Mar. 31, 2019  
Document Fiscal Period Focus Q1  
Document Fiscal Year Focus 2019  
Entity Registrant Name DELPHI TECHNOLOGIES PLC  
Entity Central Index Key 0001707092  
Current Fiscal Year End Date --12-31  
Entity Filer Category Large Accelerated Filer  
Entity Common Stock, Shares Outstanding   87,957,223
v3.19.1
Consolidated Statements Of Operations - USD ($)
shares in Thousands, $ in Millions
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Income Statement [Abstract]    
Net sales $ 1,151 $ 1,296
Operating expenses:    
Cost of sales 983 1,046
Selling, general and administrative 104 97
Amortization 6 4
Restructuring 3 11
Total operating expenses 1,096 1,158
Operating income 55 138
Interest expense (18) (20)
Other (expense) income, net (12) 6
Income before income taxes and equity income 25 124
Income tax expense (8) (22)
Income before equity income 17 102
Equity income, net of tax 2 3
Net income 19 105
Net income attributable to noncontrolling interest 3 7
Net income attributable to Delphi Technologies $ 16 $ 98
Net income per share attributable to Delphi Technologies:    
Basic (in dollars per share) $ 0.18 $ 1.10
Diluted (in dollars per share) $ 0.18 $ 1.10
Weighted Average Number of Shares Outstanding [Abstract]    
Basic (in shares) 88,450 88,710
Diluted (in shares) 88,550 88,920
Cash dividends declared per share $ 0 $ 0.17
v3.19.1
Consolidated Statements Of Comprehensive Income - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Statement of Comprehensive Income [Abstract]    
Net income $ 19 $ 105
Other comprehensive income:    
Currency translation adjustments 9 31
Net change in unrecognized gain on derivative instruments, net of tax 16 (1)
Employee benefit plans adjustment, net of tax 34 (8)
Other comprehensive income 59 22
Comprehensive income 78 127
Comprehensive income attributable to noncontrolling interests 4 9
Comprehensive income attributable to Delphi Technologies $ 74 $ 118
v3.19.1
Consolidated Balance Sheets - USD ($)
$ in Millions
Mar. 31, 2019
Dec. 31, 2018
Current assets:    
Cash and cash equivalents $ 217 $ 359
Restricted cash 1 1
Accounts receivable, net 914 878
Inventories 549 521
Other current assets 182 172
Total current assets 1,863 1,931
Long-term assets:    
Property, net 1,469 1,445
Investments in affiliates 45 44
Intangible Assets and goodwill, net 71 76
Other long-term assets 509 397
Total long-term assets 2,094 1,962
Total assets 3,957 3,893
Current liabilities:    
Short-term debt 44 43
Accounts payable 840 906
Accrued liabilities 442 428
Total current liabilities 1,326 1,377
Long-term liabilities:    
Long-term debt 1,479 1,488
Pension and other postretirement benefit obligations 437 467
Other long-term liabilities 219 123
Total long-term liabilities 2,135 2,078
Total liabilities 3,461 3,455
Commitments and contingencies
Shareholders' equity:    
Preferred shares, $0.01 par value per share, 50,000,000 shares authorized, none issued and outstanding 0 0
Ordinary shares, $0.01 par value per share, 1,200,000,000 shares authorized, 87,985,653 and 88,491,963 issued and outstanding as of March 31, 2019 and December 31, 2018, respectively 1 1
Additional paid-in capital 406 407
Retained earnings 301 296
Accumulated other comprehensive loss (354) (412)
Total Delphi Technologies shareholders' equity 354 292
Noncontrolling interest 142 146
Total shareholders' equity 496 438
Total liabilities and shareholders' equity $ 3,957 $ 3,893
v3.19.1
Consolidated Balance Sheets (Parenthetical) - $ / shares
Mar. 31, 2019
Dec. 31, 2018
Statement of Financial Position [Abstract]    
Preferred shares, par value per share $ 0.01 $ 0.01
Preferred shares, authorized 50,000,000 50,000,000
Preferred shares, outstanding 0 0
Ordinary Shares, Par or Stated Value Per Share $ 0.01 $ 0.01
Ordinary shares, authorized 1,200,000,000 1,200,000,000
Ordinary shares, outstanding 87,985,653 88,491,963
v3.19.1
Consolidated Statements Of Cash Flows - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Cash flows from operating activities:    
Net income $ 19 $ 105
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation 47 46
Amortization 6 4
Amortization of deferred debt issuance costs 1 1
Restructuring expense, net of cash paid (6) (7)
Deferred income taxes (3) 2
Pension and other postretirement benefit expenses 21 11
Income from equity method investments, net of dividends received (2) (3)
Share-based compensation 4 5
Changes in operating assets and liabilities:    
Accounts receivable, net (36) (23)
Inventories (28) (1)
Other assets 6 (9)
Accounts payable (6) (74)
Accrued and other long-term liabilities 1 24
Other, net 11 5
Pension contributions (14) (11)
Net cash provided by operating activities 21 75
Cash flows from investing activities:    
Capital expenditures (131) (66)
Proceeds from sale of property 2 1
Cost of technology investments 0 (7)
Settlement of undesignated derivatives (2) 0
Net cash used in investing activities (131) (72)
Cash flows from financing activities:    
Net repayments under other short-term debt agreements 0 (1)
Repayments under long-term debt agreements (9) (5)
Dividend payments of consolidated affiliates to minority shareholders (8) (10)
Distribution of cash dividends 0 (15)
Taxes withheld and paid on employees' restricted share awards (1) (2)
Repurchase of ordinary shares (14) 0
Net cash used in financing activities (32) (33)
Effect of exchange rate fluctuations on cash and cash equivalents 0 8
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents, Period Increase (Decrease), Including Exchange Rate Effect (142) (22)
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents, beginning 360 339
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents, end $ 218 $ 317
v3.19.1
Consolidated Statement Of Shareholders' Equity - USD ($)
$ in Millions
Total
Ordinary Shares
Additional Paid in Capital
Retained Earnings
Accumulated Other Comprehensive Loss
Total Delphi Technologies Shareholders' Equity
Noncontrolling Interest
Balance at beginning of year at Dec. 31, 2017 $ 232 $ 1 $ 431 $ 7 $ (371) $ 68 $ 164
Shares outstanding, beginning of period at Dec. 31, 2017   89,000,000          
Net income 105     98   98 7
Other comprehensive income 22       20 20 2
Dividends on ordinary shares (15)     (15)   (15) 0
Dividend payments of consolidated affiliates to minority shareholders (10)           (10)
Separation related adjustments $ (32)   (32)     (32)  
Stock Repurchased and Retired During Period, Shares 0            
Repurchase of ordinary shares $ 0            
Taxes witheld on employees' restricted share award vestings (5)   (5)     (5)  
Share-based compensation 5   5     5  
Balance at end of year at Mar. 31, 2018 302 $ 1 399 90 (351) 139 163
Shares outstanding, end of period at Mar. 31, 2018   89,000,000          
Balance at beginning of year at Dec. 31, 2018 438 $ 1 407 296 (412) 292 146
Shares outstanding, beginning of period at Dec. 31, 2018   89,000,000          
Net income 19     16   16 3
Other comprehensive income 59       58 58 1
Dividend payments of consolidated affiliates to minority shareholders $ (8)           (8)
Stock Repurchased and Retired During Period, Shares 737,917 1,000,000          
Repurchase of ordinary shares $ (15)   (4) (11)   (15) 0
Taxes witheld on employees' restricted share award vestings (1)   (1)     (1)  
Share-based compensation 4   4     4  
Share-based compensation, in shares   0          
Balance at end of year at Mar. 31, 2019 $ 496 $ 1 $ 406 $ 301 $ (354) $ 354 $ 142
Shares outstanding, end of period at Mar. 31, 2019   88,000,000          
v3.19.1
General
3 Months Ended
Mar. 31, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
General GENERAL
On December 4, 2017, Delphi Technologies PLC became an independent publicly-traded company, formed under the laws of Jersey, as a result of the separation of the Powertrain Systems segment, which included the aftermarket operations, from Aptiv PLC, formerly known as Delphi Automotive PLC (the “Former Parent”). The separation was completed in the form of a pro-rata distribution to the Former Parent’s shareholders of 100% of the outstanding ordinary shares of Delphi Technologies PLC (the “Separation”). References hereinafter to “Delphi Technologies,” “we,” “us,” “our” or the “Company” refer to Delphi Technologies PLC and include the results of the Former Parent’s Powertrain Systems segment.
Nature of Operations
Delphi Technologies is a leader in the development, design and manufacture of integrated powertrain technologies that optimize engine performance, increase vehicle efficiency, reduce emissions, improve driving performance, and support increasing electrification of vehicles. The Company is a global supplier to original equipment manufacturers (“OEMs”) seeking to manufacture vehicles that meet and exceed increasingly stringent global regulatory requirements and satisfy consumer demands for an enhanced user experience. We provide advanced fuel injection systems, actuators, valvetrain products, sensors, electronic control modules and power electronics technologies. Additionally, the Company offers a full spectrum of aftermarket products serving a global customer base.
Our comprehensive portfolio of advanced technologies and solutions for all propulsion systems are sold to global OEMs of both light vehicles (passenger cars, trucks, vans and sport-utility vehicles) and commercial vehicles (light-duty, medium-duty and heavy-duty trucks, commercial vans, buses and off-highway vehicles). The Aftermarket segment also remanufactures and sells our products to leading aftermarket companies, including independent retailers and wholesale distributors. We supply a wide range of aftermarket products and services covering the fuel injection, electronics and engine management, maintenance, and test equipment and vehicle diagnostics categories. We also add aftermarket know-how in category management, logistics, training, marketing and other dedicated services to provide a full range of aftermarket solutions throughout vehicles’ lives.
Basis of Presentation
The unaudited consolidated financial statements included herein have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete annual financial statements. All adjustments, consisting of normal recurring items, which are necessary for a fair presentation, have been included. The unaudited consolidated financial statements and notes thereto included in this report should be read in conjunction with Delphi Technologies 2018 Annual Report on Form 10-K.
v3.19.1
Significant Accounting Policies
3 Months Ended
Mar. 31, 2019
Accounting Policies [Abstract]  
Significant Accounting Policies SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation—The consolidated financial statements as of and for the three months ended March 31, 2019 include the accounts of Delphi Technologies’ subsidiaries in which the Company holds a controlling financial or management interest and variable interest entities of which Delphi Technologies has determined that it is the primary beneficiary. All significant intercompany transactions and balances between consolidated Delphi Technologies businesses have been eliminated.
Delphi Technologies’ 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.
Delphi Technologies holds a $21 million investment in Tula Technology, Inc. (“Tula”), an engine control software company, over which the Company does not exert significant influence.
During the three months ended March 31, 2018, Delphi Technologies made a $7 million investment in PolyCharge America, Inc. (“PolyCharge”), a start-up established to commercialize a new capacitor technology, over which the Company does not exert significant influence.
Tula and PolyCharge are privately-held companies that do not have readily determinable fair values and therefore are measured at cost less impairments, adjusted for observable price changes in orderly transactions for the identical or similar investment of the same issuer. There were no impairments or upward adjustments recorded during the three months ended March 31, 2019 or 2018. These investments are classified within other long-term assets in the consolidated balance sheets.
The Company monitors its equity investments, including those measured at fair value and those that do not have readily determinable fair values, for indicators of impairments or upward adjustments, on an ongoing basis. If the Company determines that such an indicator is present, an adjustment is recorded, which is measured as the difference between carrying value and estimated fair value. Estimated fair value is generally determined using an income approach based on discounted cash flows or negotiated transaction values.
Use of estimates—Preparation of consolidated financial statements in conformity with U.S. GAAP requires the use of estimates and assumptions that affect amounts reported therein. Generally, matters subject to estimation and judgment include amounts related to accounts receivable realization, inventory obsolescence, asset impairments, useful lives of intangible and fixed assets, deferred tax asset valuation allowances, income taxes, pension benefit plan assumptions, accruals related to litigation, warranty costs, environmental remediation costs, worker’s compensation accruals and healthcare accruals. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be based upon amounts that differ from those estimates.
Revenue recognition—The Company recognizes revenue in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”). Revenue is recognized when obligations under the terms of a contract with our customer are satisfied; generally this occurs with the transfer of control of our production parts or aftermarket parts. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods. Sales incentives and allowances (including returns) are recognized as a reduction to revenue at the time of the related sale. The Company estimates the allowances based on an analysis of historical experience. Taxes assessed by a governmental authority collected by the Company concurrent with a specific revenue-producing transaction are excluded from net sales. Shipping and handling fees billed to customers are included in net sales, while costs of shipping and handling are included in cost of sales.
The Aftermarket segment provides certain customers with a right of return. The Company recognizes an estimated return asset (and adjusts for cost of sales) for the right to recover the products returned by the customer. ASC 606 requires that return assets be presented separately from inventory. As of March 31, 2019 and December 31, 2018, the Company had return assets of $6 million and $7 million, respectively, included in other current assets. Refer to Note 12. Revenue and Note 4. Assets for additional information.
Net income per share—Basic net income per share is computed by dividing net income attributable to Delphi Technologies by the weighted–average number of ordinary shares outstanding during the period. Diluted net income per share reflects the weighted average dilutive impact of all potentially dilutive securities from the date of issuance and is computed using the treasury stock method by dividing net income attributable to Delphi Technologies by the diluted weighted-average number of ordinary shares outstanding. Refer to Note 14. Shareholders’ Equity and Net Income Per Share for additional information including the calculation of basic and diluted net income per share.
Rebates—The Company accrues for rebates pursuant to specific arrangements primarily with certain aftermarket customers. Rebates generally provide for price reductions based upon purchase volumes and are recorded as a reduction of sales as earned by such customers.
Cash and cash equivalents—Cash and cash equivalents are defined as short-term, highly liquid investments with original maturities of three months or less.
Accounts receivable—Accounts receivable are recorded at the invoiced amount and do not bear interest. The Company generally does not require collateral for its trade receivables.
Sales of receivables are accounted for in accordance with the FASB ASC Topic 860, Transfers and Servicing (“ASC 860”). Agreements which result in true sales of the transferred receivables, as defined in ASC 860, which occur when receivables are transferred to a third party without recourse to the Company, are excluded from amounts reported in the consolidated balance sheets. Cash proceeds received from such sales are included in operating cash flows. The expenses associated with receivables factoring are recorded in the consolidated statements of operations within interest expense.
Leases—The Company accounts for leases in accordance with FASB ASC Topic 842, Leases (“ASC 842”), which requires lessees to recognize a lease liability and a right-of-use asset on the balance sheet for all leases, with the exception of short-term leases. The lease liability and right-of-use asset are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. For leases that meet the definition of a short-term lease, the Company has elected to apply the short-term lease exemption, and accordingly, they are not recorded on the balance sheet. The Company has elected the practical expedients in ASC 842 related to not separating lease and nonlease components of contracts, both when the Company is a lessee and lessor.
The Company uses an estimated incremental borrowing rate, which is derived from information available at lease commencement, in determining the present value of lease payments. When calculating the incremental borrowing rates, the Company gives consideration to the applicable margin based on our corporate credit ratings, as defined by the Credit
Agreement, as well as publicly available data by country for instruments with similar characteristics. Refer to Note. 6 Leases for additional information.
Intangible assets—Intangible assets were $64 million and $69 million as of March 31, 2019 and December 31, 2018, respectively. The Company has definite-lived intangible assets related to patents and developed technology, customer relationships and trade names. The Company amortizes definite-lived intangible assets over their estimated useful lives. The Company also has intangible assets related to acquired trade names that are classified as indefinite-lived when there are no foreseeable limits on the periods of time over which they are expected to contribute cash flows. These indefinite-lived trade name assets are tested for impairment annually, or more frequently when indicators of potential impairment exist. Costs to renew or extend the term of acquired intangible assets are recognized as expense as incurred. Amortization expense was $7 million and $5 million for the three months ended March 31, 2019 and 2018, respectively, of which $1 million and $1 million were recorded as a reduction to sales, respectively. During the three months ended March 31, 2019, amortization expense included $3 million of impairment.
Goodwill—Goodwill is the excess of the purchase price over the estimated fair value of identifiable net assets acquired in business combinations. The Company tests goodwill for impairment annually in the fourth quarter, or more frequently when indications of potential impairment exist. The Company monitors the existence of potential impairment indicators throughout the fiscal year. The Company tests for goodwill impairment at the reporting unit level. Our reporting units are the components of operating segments which constitute businesses for which discrete financial information is available and is regularly reviewed by segment management.
There were no indicators of potential goodwill impairment during the three months ended March 31, 2019. Goodwill was $7 million and $7 million as of March 31, 2019 and December 31, 2018, respectively.
Warranty and product recalls—Expected warranty costs for products sold are recognized at the time of sale of the product based on an estimate of the amount that eventually will be required to settle such obligations. These accruals are based on factors such as past experience, production changes, industry developments and various other considerations. Costs of product recalls, which may include the cost of the product being replaced as well as the customer’s cost of the recall, including labor to remove and replace the recalled part, are accrued as part of our warranty accrual at the time an obligation becomes probable and can be reasonably estimated. These estimates are adjusted from time to time based on facts and circumstances that impact the status of existing claims. Refer to Note 7. Warranty Obligations for additional information.
Income taxes—Deferred tax assets and liabilities reflect temporary differences between the amount of assets and liabilities for financial and tax reporting purposes. Such amounts are adjusted, as appropriate, to reflect changes in tax rates expected to be in effect when the temporary differences reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period that includes the enactment date. A valuation allowance is recorded to reduce deferred tax assets to the amount that is more likely than not to be realized. In the event the Company determines it is more likely than not that the deferred tax assets will not be realized in the future, the valuation allowance adjustment to the deferred tax assets will be charged to earnings in the period in which the Company makes such a determination. In determining the provision for income taxes for financial statement purposes, the Company makes certain estimates and judgments which affect its evaluation of the carrying value of its deferred tax assets, as well as its calculation of certain tax liabilities. Refer to Note 13. Income Taxes for additional information.
Restructuring—Delphi Technologies continually evaluates alternatives to align the business with the changing needs of its customers and to lower operating costs. This includes the realignment of its existing manufacturing capacity, facility closures, or similar actions, either in the normal course of business or pursuant to significant restructuring programs. These actions may result in employees receiving voluntary or involuntary employee termination benefits, which are mainly pursuant to union or other contractual agreements. Voluntary termination benefits are accrued when an employee accepts the related offer. Involuntary termination benefits are accrued upon the commitment to a termination plan and when the benefit arrangement is communicated to affected employees, or when liabilities are determined to be probable and estimable, depending on the existence of a substantive plan for severance or termination. Contract termination costs are recorded when contracts are terminated or when Delphi Technologies no longer derives economic benefit from a contract or ceases to use a leased facility. All other exit costs are expensed as incurred. Refer to Note 8. Restructuring for additional information.
Derivative financial instruments—All derivative instruments are required to be reported on the balance sheet at fair value unless the transactions qualify and are designated as normal purchases or sales. Changes in fair value are reported currently through earnings unless they meet hedge accounting criteria.
Exposure to fluctuations in currency exchange rates and interest rates are managed by entering into a variety of forward contracts and swaps with various counterparties. Such financial exposures are managed in accordance with the policies and procedures of Delphi Technologies. The Company does not enter into derivative transactions for speculative or trading purposes. As part of the hedging program approval process, the Company identifies the specific financial risk which the derivative transaction will minimize, the appropriate hedging instrument to be used to reduce the risk and the correlation
between the financial risk and the hedging instrument. Purchase orders, sales contracts, letters of intent, capital planning forecasts and historical data are used as the basis for determining the anticipated values of the transactions to be hedged. The Company does not enter into derivative transactions that do not have a high correlation with the underlying financial risk. Hedge positions, as well as the correlation between the transaction risks and the hedging instruments, are reviewed on an ongoing basis.
Foreign exchange forward contracts are accounted for as hedges of firm or forecasted foreign currency commitments to the extent they are designated and assessed as highly effective. All foreign exchange contracts are marked to market on a current basis. Refer to Note 16. Derivatives and Hedging Activities and Note 17. Fair Value of Financial Instruments for additional information.
Recently adopted accounting pronouncements—Delphi Technologies adopted Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), in the first quarter of 2019 using the optional modified retrospective transition method and did not recast the comparative periods. This ASU requires lessees to recognize a lease liability and a right-of-use asset on the balance sheet for all leases, with the exception of short-term leases. Delphi Technologies elected the package of practical expedients, related to existing leases at the time of adoption, that allowed the Company to carry forward the accounting assessments for: i) whether contracts are or contain leases, ii) the lease classification and iii) the initial direct costs. Delphi Technologies also elected the practical expedient related to existing land easements, that allowed the Company to carry forward the accounting treatment for land easements in existing agreements.
The adoption of this guidance resulted in the recognition of operating lease right-of-use assets and operating lease liabilities of approximately $118 million and $120 million, respectively, on the Company’s consolidated balance sheet as of March 31, 2019. The adoption did not have a material impact on its consolidated statements of operations or cash flows. Refer to Note 6. Leases for additional information.
Delphi Technologies adopted ASU 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting in the first quarter of 2019. This guidance expands the scope of ASC Topic 718, which currently only includes share-based payments to employees, to include share-based payments issued to nonemployees for goods or services. Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.
Recently issued accounting pronouncements not yet adopted—In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This guidance requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. This guidance also requires enhanced disclosures regarding significant estimates and judgments used in estimating credit losses. The new guidance is effective for fiscal years beginning after December 15, 2019. Early adoption is permitted for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This guidance simplifies how an entity is required to test goodwill for impairment by eliminating step two from the goodwill impairment test, which measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount. Under the new guidance, if a reporting unit’s carrying amount exceeds its fair value, an entity will record an impairment charge based on that difference. The impairment charge will be limited to the amount of goodwill allocated to that reporting unit. The standard will be applied prospectively and is effective for annual and interim impairment tests performed in periods beginning after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the impact of adopting this standard on its financial statements, but does not anticipate a significant impact.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. This guidance amends ASC 820 to add, remove and clarify certain disclosure requirements related to fair value measures. The new guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within that fiscal year. Early adoption is permitted. The adoption of this guidance is not expected to have a material impact on the Company’s financial statements.
In August 2018, the FASB issued ASU 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans. This guidance amends ASC 715 to add, remove and clarify certain disclosure requirements related to defined benefit pension and other postretirement plans. The new guidance is effective for fiscal years ending after December 31, 2020. Early adoption is permitted. The adoption of this guidance is not expected to have a material impact on the Company’s financial statements.
v3.19.1
Inventories
3 Months Ended
Mar. 31, 2019
Inventory Disclosure [Abstract]  
Inventories INVENTORIES, NET
Inventories, net are stated at the lower of cost, determined on a first-in, first-out basis, or net realizable value, including direct material costs and direct and indirect manufacturing costs. A summary of inventories is shown below:
 
March 31,
2019
 
December 31,
2018
 
 
 
 
 
(in millions)
Productive material
$
246

 
$
250

Work-in-process
46

 
36

Finished goods
257

 
235

Total
$
549

 
$
521

v3.19.1
Assets
3 Months Ended
Mar. 31, 2019
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]  
Assets ASSETS
Other current assets consisted of the following:
 
March 31,
2019
 
December 31,
2018
 
 
 
 
 
(in millions)
Value added tax receivable
$
101

 
$
98

Reimbursable engineering costs
26

 
17

Income and other taxes receivable
16

 
16

Prepaid insurance and other expenses
14

 
14

Notes receivable
13

 
15

Return assets (Note 2)
6

 
7

Derivative financial instruments (Note 16)
4

 
4

Other
2

 
1

Total
$
182

 
$
172


Other long-term assets consisted of the following:
 
March 31,
2019
 
December 31,
2018
 
 
 
 
 
(in millions)
Deferred income taxes, net
$
275

 
$
280

Operating lease assets (Note 6)
118

 

Income and other taxes receivable
36

 
53

Investment in Tula (Note 2)
21

 
21

Derivative financial instruments (Note 16)
10

 

Investment in PolyCharge (Note 2)
7

 
7

Debt issuance costs
3

 
3

Reimbursable engineering costs
2

 

Other
37

 
33

Total
$
509

 
$
397

v3.19.1
Liabilities
3 Months Ended
Mar. 31, 2019
Other Liabilities Disclosure [Abstract]  
Liabilities LIABILITIES
Accrued liabilities consisted of the following:
 
March 31,
2019
 
December 31,
2018
 
 
 
 
 
(in millions)
Income and other taxes payable
$
61

 
$
63

Warranty obligations (Note 7)
59

 
68

Payroll-related obligations
51

 
45

Restructuring (Note 8)
40

 
46

Deferred reimbursable engineering
32

 
31

Accrued rebates
30

 
29

Freight
22

 
20

Accrued interest
21

 
12

Operating lease liabilities (Note 6)
19

 

Outside services
14

 
13

Employee benefits
12

 
16

Deferred cost reimbursement
7

 
5

Customer deposits
5

 
5

Other
69

 
75

Total
$
442

 
$
428


Other long-term liabilities consisted of the following:
 
March 31,
2019
 
December 31,
2018
 
 
 
 
 
(in millions)
Operating lease liabilities (Note 6)
$
101

 
$

Accrued income taxes
46

 
46

Warranty obligations (Note 7)
32

 
28

Restructuring (Note 8)
20

 
19

Deferred income taxes, net
13

 
14

Derivative financial instruments (Note 16)

 
6

Environmental (Note 11)
2

 
2

Other
5

 
8

Total
$
219

 
$
123

v3.19.1
Leases
3 Months Ended
Mar. 31, 2019
Leases [Abstract]  
Leases Disclosure [Text Block] LEASES
On January 1, 2019, Delphi Technologies adopted ASC Topic 842, Leases, which requires lessees to recognize a lease liability and a right-of-use asset on the balance sheet for leases, with the exception of short-term leases. The Company leases real estate (including manufacturing sites and technical centers), office equipment, automobiles, forklifts and certain other equipment under finance and operating leases. As of March 31, 2019, the remaining lease terms range from 1 year to 10 years. Many of the Company’s leases include rent escalation clauses, renewal options and/or termination options that are factored into the Company’s determination of lease payments and lease term, as appropriate. During the three months ended March 31, 2019, the Company obtained $2 million and less than $1 million of lease assets in exchange for new operating and finance lease liabilities, respectively.
The Company is a lessor for certain owned real estate. Rental income for these leases is included within other income, net and was not material for the three months ended March 31, 2019.
The table below presents supplemental balance sheet information related to leases as of March 31, 2019:
 
 
March 31, 2019
 
 
 
 
 
(in millions)
Assets
Balance Sheet Location
 
Operating lease assets
Other long-term assets (Note 4)
$
118

Finance lease assets
Property, net
14

 
Total lease assets
$
132

 
 
 
Liabilities
 
 
Current
 
 
Operating leases
Accrued liabilities (Note 5)
$
19

Finance leases
Short-term debt (Note 9)
2

Long-term
 
 
Operating leases
Other long-term liabilities (Note 5)
101

Finance leases
Long-term debt (Note 9)
12

 
Total lease liabilities
$
134


The table below presents the components of lease costs for the three months ended March 31, 2019:
 
Three Months Ended March 31, 2019
 
 
 
(in millions)
Finance lease cost - amortization of lease assets (1)
$
1

Operating lease cost (2)
8

Total lease cost
$
9

(1)
Includes interest on finance lease liabilities, which was not material.
(2)
Includes short-term leases and variable lease costs, which were not material.
The table below presents the weighted-average remaining lease term and discount rate as of March 31, 2019:
 
March 31, 2019
Weighted-average remaining lease term:
 
Operating leases
6.95

Finance leases
8.97

Weighted-average discount rate:
 
Operating leases
6.58
%
Finance leases
4.12
%

The table below presents supplemental cash flow information related to leases during the three months ended March 31, 2019:
 
Three Months Ended March 31, 2019
 
 
 
(in millions)
Cash paid for amounts included in the measurement of lease liabilities:
 
Operating cash flows for operating leases (1)
$
7

(1)
Operating and financing cash flows for finance leases were not material for the three months ended March 31, 2019.

The table below reconciles the undiscounted future minimum lease payments to the lease liabilities recorded on the balance sheet as of March 31, 2019:
 
Operating Leases
 
Finance Leases
 
Total
 
 
 
 
 
 
 
(in millions)
Remainder of 2019
$
19

 
$
2

 
$
21

2020
25

 
2

 
27

2021
23

 
2

 
25

2022
19

 
2

 
21

2023
14

 
1

 
15

Thereafter
51

 
9

 
60

Total future minimum lease payments
151

 
18

 
169

Less: amount of lease payments representing interest
(31
)
 
(4
)
 
(35
)
Total lease liabilities
$
120

 
$
14

 
$
134



As of March 31, 2019, the Company has additional leases that have not yet commenced totaling $17 million of undiscounted future minimum lease payments. These leases will commence in 2019 with lease terms of 1 year to 11 years.
v3.19.1
Warranty Obligations
3 Months Ended
Mar. 31, 2019
Product Warranties Disclosures [Abstract]  
Warranty Obligations WARRANTY OBLIGATIONS
Expected warranty costs for products sold are recognized principally at the time of sale of the product based on an estimate of the amount that will eventually be required to settle such obligations. These accruals are based on factors such as past experience, production changes, industry developments and various other considerations. The estimated costs related to product recalls based on a formal campaign soliciting return of that product are accrued at the time an obligation becomes probable and can be reasonably estimated. These estimates and the related warranty reserves are adjusted from time to time based on facts and circumstances that impact the status of existing claims. Delphi Technologies has recognized its best estimate for its total aggregate warranty reserves, including product recall costs, across all of its operating segments as of March 31, 2019. The Company estimates the reasonably possible amount to ultimately resolve all matters in excess of the recorded reserves as of March 31, 2019 to be $0 million to $10 million.
The table below summarizes the activity in the product warranty liability for the three months ended March 31, 2019:
 
Warranty Obligations
 
 
 
(in millions)
Accrual balance at beginning of period
$
96

Provision for estimated warranties incurred during the period
9

Changes in estimate for pre-existing warranties
1

Settlements made during the period (in cash or in kind)
(15
)
Foreign currency translation and other

Accrual balance at end of period
$
91

v3.19.1
Restructuring
3 Months Ended
Mar. 31, 2019
Restructuring and Related Activities [Abstract]  
Restructuring RESTRUCTURING
The Company’s restructuring activities are undertaken as necessary to implement management’s strategy, streamline operations, take advantage of available capacity and resources, and ultimately achieve net cost reductions. These activities generally relate to the realignment of existing manufacturing capacity and closure of facilities and other exit or disposal activities, as it relates to executing Delphi Technologies’ strategy, either in the normal course of business or pursuant to significant restructuring programs.
As part of the Company’s continued efforts to optimize its cost structure, it has undertaken several restructuring programs which include workforce reductions as well as plant closures. These programs are primarily focused on the continued rotation of our manufacturing footprint to best-cost locations in Europe and on reducing global overhead costs. The Company recorded employee-related and other restructuring charges related to these programs totaling approximately $3 million during the three
months ended March 31, 2019. The Company recorded employee-related and other restructuring charges related to these programs totaling approximately $11 million during the three months ended March 31, 2018, of which $8 million was recognized for programs focused on the continued rotation of our manufacturing footprint to best cost locations in Europe and $1 million was recognized for programs implemented to reduce global overhead costs.
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 $9 million and $18 million in the three months ended March 31, 2019 and 2018, respectively.
The following table summarizes the restructuring charges recorded for the three months ended March 31, 2019 and 2018 by operating segment:
 
Three Months Ended March 31,
 
2019
 
2018
 
 
 
 
 
(in millions)
Powertrain Systems
$
3

 
$
11

Aftermarket

 

Total
$
3

 
$
11


The table below summarizes the activity in the restructuring liability for the three months ended March 31, 2019:
 
Employee Termination Benefits Liability
 
Other Exit Costs Liability
 
Total
 
 
 
 
 
 
 
(in millions)
Accrual balance at December 31, 2018
$
64

 
$
1

 
$
65

Provision for estimated expenses incurred during the period
3

 

 
3

Payments made during the period
(9
)
 

 
(9
)
Foreign currency and other
1

 

 
1

Accrual balance at March 31, 2019
$
59

 
$
1

 
$
60

v3.19.1
Debt
3 Months Ended
Mar. 31, 2019
Debt Disclosure [Abstract]  
Debt DEBT
The following is a summary of debt outstanding, net of unamortized issuance costs and discounts, as of March 31, 2019 and December 31, 2018, respectively:
 
March 31, 2019
 
December 31, 2018
 
(in millions)
$750 million Term Loan A Facility, due 2022 (net of $4 and $4 unamortized issuance costs)
$
718

 
$
727

$800 million Senior Notes at 5.00%, due 2025 (net of $11 and $12 unamortized issuance costs and $3 and $3 discount, respectively)
786

 
785

Finance lease liabilities and other
19

 
19

Total debt
1,523

 
1,531

Less: current portion
(44
)
 
(43
)
Long-term debt
$
1,479

 
$
1,488


Credit Agreement
On September 7, 2017, Delphi Technologies and its wholly-owned subsidiary Delphi Powertrain Corporation entered into a credit agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A., as administrative agent (the “Administrative Agent”), with respect to $1.25 billion in senior secured credit facilities. The Credit Agreement consists of a senior secured five-year $750 million term loan facility (the “Term Loan A Facility”) and a $500 million five-year senior secured revolving credit facility (the “Revolving Credit Facility”) (collectively, the “Credit Facilities”) with the lenders party thereto and JPMorgan
Chase Bank, N.A. We incurred $9 million of issuance costs in connection with the Credit Agreement. As of March 31, 2019, there were no amounts drawn on the Revolving Credit Facility.
The Credit Facilities are subject to an interest rate, at our option, of either (a) the Administrative Agent’s Alternate Base Rate (“ABR” as defined in the Credit Agreement) or (b) the London Interbank Offered Rate (the “Adjusted LIBOR Rate” as defined in the Credit Agreement) (“LIBOR”), in each case, plus an applicable margin that is based on our corporate credit ratings, as more particularly described below (the “Applicable Rate”). In addition, the Credit Agreement requires payment of additional interest on certain overdue obligations on terms and conditions customary for financings of this type. The interest rate period with respect to LIBOR interest rate options can be set at one-, two-, three-, or six-months as selected by us in accordance with the terms of the Credit Agreement (or other period as may be agreed by the applicable lenders), but payable no less than quarterly. We may elect to change the selected interest rate over the term of the Credit Facilities in accordance with the provisions of the Credit Agreement. The Applicable Rates under the Credit Agreement on the specified date are set forth below:
 
March 31, 2019
 
December 31, 2018
 
LIBOR plus
 
ABR plus
 
LIBOR plus
 
ABR plus
Revolving Credit Facility
1.45
%
 
0.45
%
 
1.45
%
 
0.45
%
Term Loan A Facility
1.75
%
 
0.75
%
 
1.75
%
 
0.75
%

The applicable interest rate margins for the Term Loan A Facility will increase or decrease from time to time between 1.50% and 2.00% per annum (for LIBOR loans) and between 0.50% and 1.00% per annum (for ABR loans), in each case based upon changes to our corporate credit ratings. The applicable interest rate margins for the Revolving Credit Facility will increase or decrease from time to time between 1.30% and 1.55% per annum (for LIBOR loans) and between 0.30% and 0.55% per annum (for ABR loans), in each case based upon changes to our corporate credit ratings. Accordingly, the Applicable Rates for the Credit Facilities will fluctuate during the term of the Credit Agreement based on changes in the ABR, LIBOR or future changes in our corporate credit ratings. The Credit Agreement also requires that we pay certain facility fees on the aggregate commitments under the Revolving Credit Facility and certain letter of credit issuance and fronting fees. Amounts outstanding and the rate effective as of March 31, 2019, are detailed below:
 
 
 
Borrowings as of
 
 
 
 
 
March 31, 2019
 
Rate effective as of
 
Applicable Rate
 
(in millions)
 
March 31, 2019
Term Loan A Facility
LIBOR plus 1.75%
 
$
722

 
4.25
%

In December 2018, the Company entered into interest rate swap agreements, designated as cash flow hedges, with a combined notional amount of $400 million where the variable rates under the Term Loan A Facility have been exchanged for a fixed rate. These interest rate swap agreements mature in September 2022 and convert the nature of $400 million of the loan from LIBOR floating-rate debt to fixed-rate debt. In addition to these agreements, as a means of managing foreign currency risk related to our significant operations in Europe, in December 2018 and March 2019, the Company executed fixed-for-fixed cross currency swaps, in which the Company will pay Euros and receive U.S. dollars with a combined notional amount of $600 million. These agreements are designated as net investment hedges and will have a maturity date of September 2022. See Note 16. Derivatives and Hedging Activities for additional information on our interest rate swaps.
Letters of credit are available for issuance under the Credit Agreement on terms and conditions customary for financings of this type, which issuances reduce availability under the Revolving Credit Facility. No such letters of credit were outstanding as of March 31, 2019.
We are obligated to make quarterly principal payments throughout the term of the Term Loan A Facility according to the amortization provisions in the Credit Agreement. Such payments may be reduced from time to time in accordance with the terms of the Credit Agreement as a result of the application of loan prepayments made by us, if any, prior to the scheduled date of payment thereof.
Borrowings under the Credit Agreement are prepayable at our option without premium or penalty. We may request that all or a portion of the Credit Facilities be converted to extend the scheduled maturity date(s) with respect to all or a portion of any principal amount of such Credit Facilities under certain conditions customary for financings of this type. The Credit Agreement also contains certain mandatory prepayment provisions in the event that we receive net cash proceeds from certain non-ordinary course asset sales, casualty events and debt offerings, in each case subject to terms and conditions customary for financings of this type.
The Credit Agreement contains certain affirmative and negative covenants customary for financings of this type that, among other things, limit our and our subsidiaries’ ability to incur additional indebtedness or liens, to dispose of assets, to make certain
fundamental changes, to designate subsidiaries as unrestricted, to make certain investments, to prepay certain indebtedness and to pay dividends, or to make other distributions or redemptions/repurchases, with respect to our and our subsidiaries’ equity interests. In addition, the Credit Agreement requires that we maintain a consolidated net leverage ratio (the ratio of Consolidated Total Indebtedness to Consolidated Adjusted EBITDA, each as defined in the Credit Agreement) of not greater than 3.5 to 1.0. The Credit Agreement also contains events of default customary for financings of this type, including certain customary change of control events. The Company was in compliance with the Credit Agreement covenants as of March 31, 2019.
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 March 31, 2019.
Other Financing
Receivable factoring—The Company entered into arrangements with various financial institutions to sell eligible trade receivables from certain Aftermarket customers in North America and Europe. These arrangements can be terminated at any time subject to prior written notice. The receivables under these arrangements are sold to a third party without recourse to the Company and are therefore accounted for as true sales. During the three months ended March 31, 2019 and 2018, $31 million and $20 million of receivables were sold under these arrangements, and expenses of $1 million and $1 million were recognized within interest expense, respectively.
In addition, during the three months ended March 31, 2019, one of the Company’s European subsidiaries factored, without recourse, receivables related to certain foreign research credits to a financial institution. These transactions were accounted for as true sales of the receivables, and the Company therefore derecognized approximately $21 million from other long-term assets in the consolidated balance sheet as of March 31, 2019, as a result of these transactions. During the three months ended March 31, 2019, less than $1 million of expenses were recognized within interest expense related to this transaction.
Finance leases—There were approximately $14 million and $14 million of finance lease obligations outstanding as of March 31, 2019 and December 31, 2018, respectively.
Interest—Cash paid for interest related to debt outstanding totaled $8 million and $9 million, for the three months ended March 31, 2019 and 2018, respectively.
v3.19.1
Pension Benefits
3 Months Ended
Mar. 31, 2019
Retirement Benefits [Abstract]  
Pension Benefits PENSION BENEFITS
The Company sponsors defined benefit pension plans for certain employees and retirees outside of the U.S. Using appropriate actuarial methods and assumptions, the Company’s defined benefit pension plans are accounted for in accordance with FASB ASC Topic 715, Compensation—Retirement Benefits. The Company’s primary non-U.S. plans are located in the United Kingdom (“U.K.”), France and Mexico. The U.K. and certain Mexican plans are funded. In addition, the Company has defined benefit plans in South Korea, Turkey and Italy for which amounts are payable to employees immediately upon separation. The obligations for these plans are recorded over the requisite service period. Delphi Technologies does not have any U.S. pension assets or liabilities.
Effective March 31, 2019, the Company has frozen future accruals for nearly all U.K. based employees under the related defined benefit plans, replacing them with contributions under defined contribution plans effective April 1, 2019, including additional contributions and other payments to impacted employees over a two-year transition period. As a result of this change, the Company realized a one-time reduction to its pension obligation of $33 million, along with a one-time charge of $15 million in the three months ended March 31, 2019, related to curtailing the defined benefit pension plans in the U.K. The Company also recognized a charge of $7 million in the three months ended March 31, 2019, related to transitional payments to impacted employees. The Company excluded these charges, and expects to exclude related future charges, from our calculation of Adjusted Operating Income.
The amounts shown below reflect the non-U.S. plans’ defined benefit pension expense for the three months ended March 31, 2019 and 2018:
 
Three Months Ended March 31,
 
2019
 
2018
 
 
 
 
 
(in millions)
Service cost
$
7

 
$
10

Interest cost
9

 
9

Expected return on plan assets
(14
)
 
(14
)
Curtailment loss
15

 

Amortization of actuarial losses
4

 
6

Net periodic benefit cost
$
21

 
$
11


Other postretirement benefit obligations were $1 million and $1 million at March 31, 2019 and December 31, 2018, respectively.
v3.19.1
Commitments And Contingencies
3 Months Ended
Mar. 31, 2019
Commitments and Contingencies Disclosure [Abstract]  
Commitments And Contingencies COMMITMENTS AND CONTINGENCIES
Ordinary Business Litigation
Delphi Technologies is from time to time subject to various legal actions, claims, governmental investigations and proceedings incidental to its business, including those arising out of alleged defects, alleged breaches of contracts, product warranties, intellectual property matters, and employment-related matters. We also from time to time receive subpoenas and other inquiries or requests for information from agencies or other representatives of U.S. federal, state and foreign governments on a variety of issues. While the final outcome of these matters cannot be predicted with certainty, considering, among other things, the legal defenses available and liabilities that have been recorded, it is the opinion of management that the outcome of these matters will not have a material adverse impact on the Company’s financial position, results of operations, or cash flows. An unexpected adverse resolution of one or more of these items, however, could have a material adverse impact on the Company’s financial position, results of operations, or cash flows.
In addition to the specific matters discussed below, the Company estimates the reasonably possible loss in excess of the amounts accrued related to ordinary business claims to be approximately $0 million to $10 million. With respect to warranty matters, although Delphi Technologies cannot ensure that the future costs of warranty claims by customers will not be material, Delphi Technologies believes its established reserves are adequate to cover potential warranty settlements. Refer to Note 7. Warranty Obligations for additional information.
Brazil Matters
Delphi Technologies conducts business operations in Brazil that are subject to the Brazilian federal labor, social security, environmental, tax and customs laws, as well as a variety of state and local laws. These laws are complex, subject to varying interpretations, and the Company is often engaged in litigation regarding the application of these laws to particular circumstances. As of March 31, 2019, the majority of claims asserted against Delphi Technologies in Brazil relate to such litigation. The remaining claims in Brazil relate to commercial and labor litigation with private parties. As of March 31, 2019, claims totaling approximately $14 million (using March 31, 2019 foreign currency rates) have been asserted against Delphi Technologies in Brazil. As of March 31, 2019, the Company maintains accruals for these asserted claims of $3 million (using March 31, 2019 foreign currency rates). The amounts accrued represent claims that are deemed probable of loss and are reasonably estimable based on the Company’s analyses and assessment of the asserted claims and prior experience with similar matters. While the Company believes its accruals are adequate, the final amounts required to resolve these matters could differ materially from the Company’s recorded estimates and Delphi Technologies’ results of operations could be materially affected. The Company estimates the reasonably possible loss in excess of the amounts accrued related to these claims to be zero to $11 million.
Environmental Matters
Delphi Technologies is subject to the requirements of U.S. federal, state, local and non-U.S. environmental and safety and health laws and regulations. As of March 31, 2019 and December 31, 2018, the undiscounted reserve for environmental investigation and remediation was approximately $3 million (of which $1 million was recorded in accrued liabilities and $2 million was recorded in other long-term liabilities) and $3 million (of which $1 million was recorded in accrued liabilities and $2 million was recorded in other long-term liabilities), respectively. Delphi Technologies cannot assure that environmental requirements will not change or become more stringent over time or that its eventual environmental remediation costs and liabilities will not exceed the amount of its current reserves. In the event that such liabilities were to significantly exceed the amounts recorded, Delphi Technologies’ results of operations could be materially affected. At March 31, 2019, the difference between the recorded liabilities and the reasonably possible range of potential loss was not material.
v3.19.1
Revenue
3 Months Ended
Mar. 31, 2019
Revenue [Abstract]  
Revenue from Contract with Customer [Text Block] 12. REVENUE
On January 1, 2018, Delphi Technologies adopted ASC Topic 606, Revenue from Contracts with Customers, using the modified retrospective method. The standard requires recognition of revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. The Company generally recognizes revenue when it satisfies a performance obligation by transferring control over a product to a customer. From time to time, we enter into pricing agreements with our customers that provide for price reductions, some of which are conditional upon achieving certain criteria. In these instances, revenue is recognized based on the agreed-upon price at the time of shipment.    
Nature of Goods
The majority of our revenue is recorded at a point in time as defined by ASC 606 as the customers obtain control of the product upon title transfer and not as the product is manufactured or developed. For certain customers, based on specific terms and conditions pertaining to termination for convenience, Delphi Technologies concluded that it had an enforceable right to payment for performance completed to date and the products have no alternative use to the Company, which requires the recognition of revenue over time as defined by ASC 606. The impact on both revenue and operating income from recognizing revenue over time instead of point in time is not significant.
The major product groups within the Powertrain Systems operating segment include internal combustion engine products and electronics & electrification products. The major sales channels within the Aftermarket operating segment include aftermarket products sold to independent aftermarket customers and original equipment service customers. The amount of revenue recognized for these products is based on the purchase order price and adjusted for revenue allocated to variable consideration (i.e. estimated rebates and price discounts), as applicable. Our payment terms are based on customary business practices and vary by customer type and products offered. The term between invoicing and when payment is due is not significant.
Disaggregation of Revenue
In the following table, net sales to outside customers, based on the manufacturing location, is disaggregated by primary geographical market:
 
Three Months Ended March 31,
 
2019
 
2018
 
(in millions)
North America
$
338

 
$
356

Europe
542

 
566

Asia Pacific
236

 
339

South America
35

 
35

Total
$
1,151

 
$
1,296



In the following table, net sales is disaggregated by major product group and sales channels:
 
Three Months Ended March 31,
 
2019
 
2018
 
(in millions)
Internal Combustion Engine Products
$
721

 
$
795

Electronics & Electrification
237

 
284

Independent Aftermarket
141

 
155

Original Equipment Service
52

 
62

Total
$
1,151

 
$
1,296


Contract Balances
As discussed above, certain customers have contracts with specific terms and conditions which require recognition of revenue over time as defined by ASC 606. As of March 31, 2019, the recognition of revenue over time resulted in approximately $1 million of unbilled accounts receivable, which is included in accounts receivable, net. There were no other contract assets or liabilities as of March 31, 2019, as defined by ASC 606.
Practical Expedients and Exemptions
For our Powertrain Systems segment, we define the contract with the customer as the combination of a current purchase order and a current production schedule issued by the customer. For our Aftermarket segment, we define the contract with the customer as the combination of a current purchase order and a master agreement with the customer. Although there are instances where the master agreements may extend beyond one year, there are generally no purchase orders with an expected duration beyond a year.
There are generally no performance obligations outstanding beyond a year. The Company generally does not enter into fixed long-term supply agreements. The Company applies the exemption in ASC 606 and does not disclose information about remaining performance obligations that have original expected durations of one year or less.
In addition, the Company applies the practical expedient in ASC 340 and immediately expenses contract acquisition costs when incurred, including sales commissions, because the amortization period would be one year or less.
v3.19.1
Income Taxes
3 Months Ended
Mar. 31, 2019
Income Tax Disclosure [Abstract]  
Income Taxes INCOME TAXES
At the end of each interim period, the Company makes its best estimate of the annual expected effective income tax rate and applies that rate to its ordinary year-to-date earnings or loss. The income tax provision or benefit related to unusual or infrequent items, if applicable, that will be separately reported or reported net of their related tax effects are individually computed and recognized in the interim period in which those items occur. In addition, the effect of changes in enacted tax laws or rates, tax status, judgment on the realizability of a beginning-of-the-year deferred tax asset in future years or income tax contingencies is recognized in the interim period in which the change occurs.
The computation of the annual expected effective income tax rate at each interim period requires certain estimates and assumptions including, but not limited to, the expected pre-tax income (or loss) for the year, projections of the proportion of income (and/or loss) earned and taxed in respective jurisdictions, permanent and temporary differences, and the likelihood of
the realizability of deferred tax assets generated in the current year. Jurisdictions with a projected loss for the year or a year-to-date loss for which no tax benefit or expense can be recognized due to a valuation allowance are excluded from the estimated annual effective tax rate. The impact of such an exclusion could result in a higher or lower effective tax rate during a particular quarter, based upon the composition and timing of actual earnings compared to annual projections. The estimates used to compute the provision or benefit for income taxes may change as new events occur, additional information is obtained or as our tax environment changes. To the extent that the expected annual effective income tax rate changes, the effect of the change on prior interim periods is included in the income tax provision in the period in which the change in estimate occurs.
The Company’s income tax expense and effective tax rate for the three months ended March 31, 2019 and 2018 were as follows:
 
Three Months Ended March 31,
 
2019
 
2018
 
 
 
 
 
(dollars in millions)
Income tax expense
$
8

 
$
22

Effective tax rate
32
%
 
18
%

The Company’s tax rate is affected by the fact that Delphi Technologies PLC, its parent entity, is a U.K. resident taxpayer, the tax rates in the other jurisdictions in which the Company operates, the relative amount of income earned by jurisdiction and the relative amount of losses or income for which no tax benefit or expense was recognized due to a valuation allowance.
The Company’s effective tax rate for the three months ended March 31, 2019 was impacted by unfavorable changes in geographic income mix in 2019 as compared to 2018. The Company’s effective tax rate for the three months ended March 31, 2019 includes net discrete tax benefit of $1 million. The effective tax rate for the three months ended March 31, 2018 was impacted by favorable changes in geographic income mix in 2018 as compared to 2017.
Delphi Technologies PLC is a U.K. resident taxpayer and as such is generally not subject to U.K. tax on remitted foreign earnings.
Cash paid or withheld for income taxes was $12 million and $21 million for the three months ended March 31, 2019 and 2018 respectively.
v3.19.1
Shareholders' Equity And Net Income Per Share
3 Months Ended
Mar. 31, 2019
Shareholders' Equity and Net Income Per Share Note [Abstract]  
Shareholders' Equity And Net Income Per Share SHAREHOLDERS’ EQUITY AND NET INCOME PER SHARE
Net Income Per Share
Basic net income per share is computed by dividing net income attributable to Delphi Technologies by the weighted average number of ordinary shares outstanding during the period. Diluted net income per share reflects the weighted average dilutive impact of all potentially dilutive securities from the date of issuance and is computed using the treasury stock method by dividing net income attributable to Delphi Technologies by the diluted weighted average number of ordinary shares outstanding. For all periods presented the calculation of net income per share contemplates the dilutive impacts, if any, of the Company’s share-based compensation plans. Refer to Note 19. Share-Based Compensation for additional information.
Weighted Average Shares
The following table illustrates net income per share attributable to Delphi Technologies and the weighted average shares outstanding used in calculating basic and diluted income per share:
 
Three Months Ended March 31,
 
2019
 
2018
 
 
 
 
 
(in millions, except per share data)
Numerator:
 
 
 
Net income attributable to Delphi Technologies
$
16

 
$
98

Denominator:
 
 
 
Weighted average ordinary shares outstanding, basic
88.45

 
88.71

Dilutive shares related to restricted stock units (“RSUs”)
0.10

 
0.21

Weighted average ordinary shares outstanding, including dilutive shares
88.55

 
88.92

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

 
$
1.10

Diluted
$
0.18

 
$
1.10

Anti-dilutive securities share impact

 



Share Repurchases
In July 2018, the Board of Directors approved a $100 million share repurchase authorization, which commenced in September 2018. This authorization was replaced by a new $200 million share repurchase program in January 2019 which was approved by the Board of Directors. Repurchases will be made at management’s discretion from time to time on the open market or through privately negotiated transactions. The repurchase program may be suspended for periods or discontinued at any time. Repurchases under this program will be funded from one or a combination of future free cash flow and existing cash balances. The program is expected to be completed by December 31, 2021.
A summary of the ordinary shares repurchased during the three months ended March 31, 2019 and 2018 is as follows:
 
Three Months Ended March 31,
 
2019
 
2018
Total number of shares repurchased
737,917

 

Average price paid per share
$
20.33

 
$

Total (in millions)
$
15

 
$


All repurchased shares were retired and returned to authorized but unissued shares. The repurchased shares are reflected as a reduction of ordinary share capital for the par value of the shares, with the excess applied as reductions to additional paid-in-capital and retained earnings.
v3.19.1
Changes in Accumulated Other Comprehensive Income
3 Months Ended
Mar. 31, 2019
Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract]  
Changes in Accumulated Other Comprehensive Income CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The changes in accumulated other comprehensive income (loss) attributable to Delphi Technologies (net of tax) for the three months ended March 31, 2019 and 2018 are shown below.
 
Three Months Ended March 31,
 
2019
 
2018
 
 
 
 
 
(in millions)
Foreign currency translation adjustments:
 
 
 
Balance at beginning of period
$
(165
)
 
$
(85
)
Aggregate adjustment for the period (1)
8

 
29

Balance at end of period
(157
)
 
(56
)
 
 
 
 
Gains (losses) on derivatives:
 
 
 
Balance at beginning of period
(2
)
 

Other comprehensive income before reclassifications (net tax effect of $0 and $0)
18

 
(1
)
Reclassification to income (net tax effect of $0 and $0)
(2
)
 

Balance at end of period
14

 
(1
)
 
 
 
 
Pension and postretirement plans:
 
 
 
Balance at beginning of period
(245
)
 
(286
)
Other comprehensive income before reclassifications (net tax effect of $2 and $2)
19

 
(13
)
Reclassification to income (net tax effect of $4 and $1)
15

 
5

Balance at end of period
(211
)
 
(294
)
 
 
 
 
Accumulated other comprehensive loss, end of period
$
(354
)
 
$
(351
)
(1)
Includes a loss of $3 million and a gain of $7 million, for the three months ended March 31, 2019, and 2018, respectively, related to the foreign currency impact of intra-entity loans that are of a long-term investment nature. Also included are gains of $4 million and losses of less than $1 million for the three months ended March 31, 2019, and 2018, respectively, related to non-derivative net investment hedges. Refer to Note 16. Derivatives and Hedging Activities for further description of these hedges.
Reclassifications from accumulated other comprehensive income (loss) to income for the three months ended March 31, 2019 and 2018 were as follows:
Reclassification Out of Accumulated Other Comprehensive Income (Loss)
Details About Accumulated Other Comprehensive Income Components
 
Three Months Ended March 31,
 
Affected Line Item in the Statement of Operations
 
2019
 
2018
 
 
 
 
 
 
 
 
 
 
(in millions)
 
 
Pension and postretirement plans:
 
 
 
 
 
 
Actuarial losses
 
$
(4
)
 
$
(6
)
 
Other (expense) income, net (1)
Curtailment
 
(15
)
 

 
Other (expense) income, net (1)
 
 
(19
)
 
(6
)
 
Income before income taxes
 
 
4

 
1

 
Income tax expense
 
 
(15
)
 
(5
)
 
Net income
 
 

 

 
Net income attributable to noncontrolling interest
 
 
$
(15
)
 
$
(5
)
 
Net income attributable to Delphi Technologies
 
 
 
 
 
 
 
Total reclassifications for the period
 
$
(15
)
 
$
(5
)
 
 
(1)
These accumulated other comprehensive loss components are included in the computation of net periodic pension cost (see Note 10. Pension Benefits for additional details).
v3.19.1
Derivatives And Hedging Activities
3 Months Ended
Mar. 31, 2019
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments and Hedging Activities DERIVATIVES AND HEDGING ACTIVITIES
Cash Flow Hedges
Delphi Technologies is exposed to market risk, such as fluctuations in foreign currency exchange rates, commodity prices and changes in interest rates, which may result in cash flow risks. To manage the volatility relating to these exposures, Delphi Technologies aggregates the exposures on a consolidated basis to take advantage of natural offsets. For exposures that are not offset within its operations, Delphi Technologies enters into various derivative transactions pursuant to its risk management policies, which prohibit holding or issuing derivative financial instruments for speculative purposes, and designation of derivative instruments is performed on a transaction basis to support hedge accounting. The changes in fair value of these hedging instruments are offset in part or in whole by corresponding changes in the fair value or cash flows of the underlying exposures being hedged. Delphi Technologies assesses the initial and ongoing effectiveness of its hedging relationships in accordance with its documented policy.
In December 2018, the Company entered into interest rate swap agreements, designated as cash flow hedges, with a combined notional amount of $400 million where the variable rates under the Term Loan A Facility have been exchanged for a fixed rate. These interest rate swap agreements mature in September 2022 and convert the nature of $400 million of the loan from LIBOR floating-rate debt to fixed-rate debt.
As of March 31, 2019, the Company had the following outstanding notional amounts related to foreign currency forward contracts designated as cash flow hedges that were entered into to hedge forecasted exposures:
Foreign Currency
 
Quantity
Hedged
 
Unit of
Measure
 
Notional Amount
(USD Equivalent)
 
 
(in millions)
Euro
 
140

 
EUR
 
$
160

Chinese Yuan Renminbi
 
839

 
RMB
 
120

Mexican Peso
 
860

 
MXN
 
40

Singapore Dollar
 
45

 
SGD
 
30

Turkish Lira
 
118

 
TRY
 
20

Polish Zloty
 
57

 
PLN
 
10


As of March 31, 2019, Delphi Technologies has entered into derivative instruments to hedge cash flows extending out to September 2022.
Gains and losses on derivatives qualifying as cash flow hedges are recorded in accumulated other comprehensive income (“OCI”), to the extent that hedges are effective, until the underlying transactions are recognized in earnings. Unrealized amounts in accumulated OCI will fluctuate based on changes in the fair value of hedge derivative contracts at each reporting period. Net gains on cash flow hedges included in accumulated OCI as of March 31, 2019 were approximately $1 million (approximately $1 million, net of tax). Of this total, approximately $3 million of gains are expected to be included in cost of sales and interest expense within the next 12 months and $2 million of losses are expected to be included in cost of sales and interest expense in subsequent periods. Cash flow hedges are discontinued when Delphi Technologies determines it is no longer probable that the originally forecasted transactions will occur. Cash flows from derivatives used to manage foreign exchange and interest rate risks are classified as operating activities within the consolidated statement of cash flows.
Net Investment Hedges
The Company is also exposed to the risk that adverse changes in foreign currency exchange rates could impact its net investment in non-U.S. subsidiaries. To manage this risk, the Company designated a qualifying non-derivative instrument, foreign currency-denominated debt, as a net investment hedge of certain non-U.S. subsidiaries. The gains or losses on instruments designated as net investment hedges are recognized within OCI to offset changes in the value of the net investment in these foreign currency-denominated operations. Gains and losses reported in accumulated other comprehensive income (loss) are reclassified to earnings only when the related currency translation adjustments are required to be reclassified, usually upon sale or liquidation of the investment.
In December 2018 and March 2019, as a means of managing foreign currency risk related to our significant operations in Europe, the Company executed fixed-for-fixed cross currency swaps, in which the Company will pay Euros and receive U.S. dollars with a combined notional amount of $600 million. These agreements are designated as net investment hedges and have a maturity date of September 2022.
Derivatives Not Designated as Hedges
On certain occasions the Company enters into certain foreign currency contracts that are not designated as hedges. When hedge accounting is not applied to derivative contracts, gains and losses are recorded to other income (expense), net and cost of sales in the consolidated statement of operations.
Fair Value of Derivative Instruments in the Balance Sheet
The following table includes the fair value of derivative instruments recorded in the consolidated balance sheets as of March 31, 2019 and December 31, 2018:
 
Asset Derivatives
 
Liability Derivatives
 
Net Amounts of Assets and (Liabilities) Presented in the Balance Sheet
 
Balance Sheet Location*
 
March 31,
2019
 
Balance Sheet Location*
 
March 31,
2019
 
March 31,
2019
 
 
 
 
 
 
 
 
 
 
 
(in millions)
Designated as cash flow hedges:
 
 
 
 
 
 
 
 
Foreign currency derivatives
Other current assets
 
$
5

 
Other current assets
 
$
1

 
$
4

Foreign currency derivatives
Other long-term assets
 
1

 
Other long-term assets
 
1

 

Interest rate swaps
Other long-term assets
 

 
Other long-term assets
 
3

 
(3
)
 
 
 
 
 
 
 
 
 
 
Designated as net investment hedges:
 
 
 
 
 
 
 
 
Cross-currency swaps
Other long-term assets
 
13

 
Other long-term assets
 

 
13

Total designated as hedges
 
$
19

 
 
 
$
5

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

 
Other current assets
 
$

 

Total not designated as hedges
 
$

 
 
 
$

 
 
 
Asset Derivatives
 
Liability Derivatives
 
Net Amounts of Assets and (Liabilities) Presented in the Balance Sheet
 
Balance Sheet Location*
 
December 31, 2018
 
Balance Sheet Location*
 
December 31, 2018
 
December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
(in millions)
Designated as cash flow hedges:
 
 
 
 
 
 
 
 
Foreign currency derivatives
Other current assets
 
$
5

 
Other current assets
 
$
1

 
$
4

Interest rate swaps
Other long-term liabilities
 

 
Other long-term liabilities
 
3

 
(3
)
 
 
 
 
 
 
 
 
 
 
Designated as net investment hedges:
 
 
 
 
 
 
 
 
Cross-currency swaps
Other long-term liabilities
 

 
Other long-term liabilities
 
3

 
(3
)
Total designated as hedges
 
$
5

 
 
 
$
7

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

 
Other current assets
 
$

 

Total not designated as hedges
 
$

 
 
 
$

 
 
* Derivative instruments are subject to master netting arrangements and are presented on a net basis in the consolidated balance sheets in accordance with accounting guidance related to the offsetting of amounts related to certain contracts.
The fair value of Delphi Technologies’ derivative financial instruments was in a net asset position as of March 31, 2019 and December 31, 2018.
Effect of Derivatives on the Statement of Operations and Statement of Comprehensive Income
The pre-tax effect of the derivative financial instruments in the consolidated statement of operations and consolidated statement of comprehensive income for the three months ended March 31, 2019 and 2018 is as follows:
Three Months Ended March 31, 2019
Gain Recognized in OCI
 
Gain Reclassified from OCI into Income
 
 
 
 
 
(in millions)
Derivatives designated as cash flow hedges:
 
 
 
Foreign currency derivatives
$
2

 
$
2

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

 

Total
$
18

 
$
2

 
 
 
 
 
 
 
Loss Recognized in Income
 
 
 
 
 
 
 
(in millions)
Derivatives not designated
 
$
(2
)
Total
 
$
(2
)
 
 
 
 
Three Months Ended March 31, 2018
Loss Recognized in OCI
 
Gain (Loss) Reclassified from OCI into Income
 
 
 
 
 
(in millions)
Derivatives designated as cash flow hedges:
 
 
 
Foreign currency derivatives
$
(1
)
 
$

Total
$
(1
)
 
$

 
 
 
 
 
 
 
Loss Recognized in Income
 
 
 
 
 
 
 
(in millions)
Derivatives not designated
 
$
(4
)
Total
 
$
(4
)
The gain or loss recognized into income of designated and not designated derivative instruments were recorded to other income, net and cost of sales in the consolidated statements of operations for the three months ended March 31, 2019 and 2018.
v3.19.1
Fair Value of Financial Instrument
3 Months Ended
Mar. 31, 2019
Fair Value Disclosures [Abstract]  
Fair Value Disclosures [Text Block] FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair Value Measurements on a Recurring Basis
Derivative instruments—All derivative instruments are required to be reported on the balance sheet at fair value unless the transactions qualify and are designated as normal purchases or sales. Changes in fair value are reported currently through earnings unless they meet hedge accounting criteria. Delphi Technologies’ derivative exposures are with counterparties with long-term investment grade credit ratings. Delphi Technologies estimates the fair value of its derivative contracts using an income approach based on valuation techniques to convert future amounts to a single, discounted amount. Estimates of the fair value of foreign currency derivative instruments, interest rate swaps and cross-currency swaps are determined using exchange traded prices and rates. Delphi Technologies also considers the risk of non-performance in the estimation of fair value, and includes an adjustment for non-performance risk in the measure of fair value of derivative instruments. The non-performance risk adjustment reflects the credit default spread (“CDS”) applied to the foreign currency exposures by counterparty. When Delphi Technologies is in a net derivative asset position, the counterparty CDS rates are applied to the net derivative asset position. When Delphi Technologies is in a net derivative liability position, estimates of peer companies’ CDS rates are applied to the net derivative liability position.
In certain instances where market data is not available, Delphi Technologies uses management judgment to develop assumptions that are used to determine fair value. This could include situations of market illiquidity for a particular currency or commodity or where observable market data may be limited. In those situations, Delphi Technologies generally surveys investment banks and/or brokers and utilizes the surveyed prices and rates in estimating fair value.
As of March 31, 2019 Delphi Technologies was in a net derivative asset position of $14 million. As of December 31, 2018 Delphi Technologies was in a net derivative liability position of $2 million. No significant adjustments were recorded for nonperformance risk based on the application of peer companies’ CDS rates, evaluation of our own nonperformance risk and because Delphi Technologies’ exposures were to counterparties with investment grade credit ratings. Refer to Note 16. Derivatives and Hedging Activities for further information regarding derivatives.
As of March 31, 2019 and December 31, 2018 Delphi Technologies had the following derivative assets measured at fair value on a recurring basis:
 
Total
 
Quoted Prices in Active Markets
Level 1
 
Significant Other Observable Inputs
Level 2
 
Significant Unobservable Inputs
Level 3
 
 
 
 
 
 
 
 
 
(in millions)
As of March 31, 2019:
 
 
 
 
 
 
 
Foreign currency derivatives
$
4

 
$

 
$
4

 
$

Interest rate swaps*
(3
)
 

 
(3
)
 

Cross-currency swaps*
13

 

 
13

 

Total
$
14

 
$

 
$
14

 
$

As of December 31, 2018:
 
 
 
 
 
 
 
Foreign currency derivatives
$
4

 
$

 
$
4

 
$

Total
$
4

 
$

 
$
4

 
$

* Derivative instruments are subject to master netting arrangements and are presented on a net basis in the consolidated balance sheets in accordance with accounting guidance related to the offsetting of amounts related to certain contracts.
As of December 31, 2018 Delphi Technologies had the following derivative liabilities measured at fair value on a recurring basis (there were no derivative liabilities as of March 31, 2019):
 
Total
 
Quoted Prices in Active Markets
Level 1
 
Significant Other Observable Inputs
Level 2
 
Significant Unobservable Inputs
Level 3
 
 
 
 
 
 
 
 
 
(in millions)
As of December 31, 2018:
 
 
 
 
 
 
 
Interest rate swaps*
$
3

 
$

 
$
3

 
$

Cross-currency swaps*
3

 

 
3

 

Total
$
6

 
$

 
$
6

 
$


* Derivative instruments are subject to master netting arrangements and are presented on a net basis in the consolidated balance sheets in accordance with accounting guidance related to the offsetting of amounts related to certain contracts.
Non-derivative financial instruments—Delphi Technologies’ non-derivative financial instruments include cash and cash equivalents, accounts and notes receivable, accounts payable, as well as debt, which consists of finance lease liabilities, the Senior Notes, the Term Loan A Facility and other debt issued by Delphi Technologies’ non-U.S. subsidiaries. The fair value of debt is based on quoted market prices for instruments with public market data or significant other observable inputs for instruments without a quoted public market price (Level 2). As of March 31, 2019 and December 31, 2018, total debt was recorded at $1,523 million and $1,531 million, respectively, and had estimated fair values of $1,443 million and $1,415 million, respectively. For all other financial instruments recorded at March 31, 2019 and December 31, 2018, fair value approximates book value.
Fair Value Measurements on a Nonrecurring Basis
In addition to items that are measured at fair value on a recurring basis, Delphi Technologies also has items in its balance sheet that are measured at fair value on a nonrecurring basis. As these items are not measured at fair value on a recurring basis, they are not included in the tables above. Nonfinancial assets and liabilities that are measured at fair value on a nonrecurring basis include certain long-lived assets, equity method investments, other equity investments, intangible assets, asset retirement obligations, share-based compensation and liabilities for exit or disposal activities measured at fair value upon initial recognition. During the three months ended March 31, 2019 and 2018, Delphi Technologies recorded non-cash asset impairment charges totaling $3 million and less than $1 million, respectively, within cost of sales related to declines in the fair values of certain intangible assets and fixed assets. Fair value of long-lived assets is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved and a review of appraisals. As such, Delphi Technologies has determined that the fair value measurements of long-lived assets fall in Level 3 of the fair value hierarchy.