Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following management’s discussion and analysis of financial condition and results of operations (“MD&A”) is intended to help you understand the business operations and financial condition of the Company for the period ended December 31, 2020. This discussion should be read in conjunction with Item 8. Financial Statements and Supplementary Data. Our MD&A is presented in seven sections:

  • Executive Overview

  • Consolidated Results of Operations

  • Results of Operations by Segment

  • Liquidity and Capital Resources

  • Off-Balance Sheet Arrangements and Other Matters

  • Significant Accounting Policies and Critical Accounting Estimates

  • Recently Issued Accounting Pronouncements

Executive Overview

Our Business

We are a leading global technology and mobility company primarily serving the automotive sector. We design and manufacture vehicle components and provide electrical, electronic and active safety technology solutions to the global automotive market, creating the software and hardware foundation for vehicle features and functionality. We enable and deliver end-to-end smart mobility solutions, active safety and autonomous driving technologies and provide enhanced user experience and connected services. Our Advanced Safety and User Experience segment is focused on providing the necessary software and advanced computing platforms, and our Signal and Power Solutions segment is focused on providing the requisite networking architecture required to support the integrated systems in today’s complex vehicles. Together, our businesses develop the ‘brain’ and the ‘nervous system’ of increasingly complex vehicles, providing integration of the vehicle into its operating environment.

We are one of the largest vehicle component manufacturers, and our customers include 23 of the 25 largest automotive OEMs in the world.

Business Strategy

We believe the Company is well-positioned for growth from increasing global vehicle production volumes, increased demand for our Safe, Green and Connected products which are being added to vehicle content, and new business wins with existing and new customers. We are focused on accelerating the commercialization of active safety, autonomous driving, enhanced user experiences and connected services, providing the software, advanced computing platforms and networking architecture required to do so. We have successfully created a competitive cost structure while investing in research and development to grow our product offerings, which are aligned with the high-growth industry mega-trends, and re-aligned our manufacturing footprint into an efficient, low-cost regional service model, focused on increasing our profit margins.

COVID-19 affected nearly every facet of our operations. In spite of these impacts, our 2020 performance reflects our team’s dedication and efforts to ensure the health and safety of our employees first, while positioning the Company for flawless execution for our customers as operations resumed. Management’s actions preserved and enhanced Aptiv’s financial strength during the pandemic and generated strong returns following the restart of our global operations. Our financial and business achievements in 2020 include the following:

  • Strengthening our balance sheet and liquidity position in order to continue to invest in value-enhancing opportunities, despite COVID-19

◦Leveraging opportunistic market pricing dynamics and strong market demand by issuing $1.15 billion of ordinary shares and $1.15 billion of 5.50% preferred shares; and

◦Extending the maturity of substantially all of our existing Credit Agreement to August 2022.

  • Acting decisively in response to the global pandemic

◦Taking early and decisive actions to preserve our financial strength, including temporarily reducing executive pay, reducing capital expenditures, and suspending share repurchases and ordinary share dividends; and

◦Designing and successfully implementing our safe operations protocols, which enabled our facilities to restart safely and operate with zero production disruptions following the restart.

  • Generating strong results despite the pandemic

◦Delivering sustained outperformance, with above-market sales growth of 10%, attributable to our portfolio of leading technologies aligned with secular growth drivers; and

◦Generating $2,118 million of operating income or $867 million of adjusted operating income and cash flow from operations of $1.4 billion, despite the pandemic’s negative impact on automotive production; and

◦Achieving 49.64% total shareholder return over the period 2018 through 2020, illustrating our investors’ belief in our long-term strategy and current financial performance.

  • Continuing our relentless focus on cost structure and operational optimization

◦Maximizing our operational flexibility and profitability at all points in the normal automotive business cycle, by having approximately 97% of our hourly workforce based in best cost countries, and approximately 20% of our hourly workforce composed of temporary employees; and

◦Recruiting and retaining top talent from various industries, including technology.

  • Continuing to execute on our long-term Safe, Green and Connected strategy to enable a more sustainable future

◦Furthering our leadership position in automated driving through the formation of the Motional autonomous driving joint venture with Hyundai, which is focused on the design, development and commercialization of autonomous driving technologies; and

◦Expanding our market relevant portfolio to address the industry’s top challenges, including high voltage electrification and active safety technologies; and

◦Significantly enhancing our commitment to corporate sustainability.

Our strategy is to build on these accomplishments and continue to develop and manufacture innovative market-relevant products for a diverse base of customers around the globe and leverage our lean and flexible cost structure to achieve strong and disciplined earnings growth and returns on invested capital. Through our culture of innovation and world class engineering capabilities we intend to employ our rigorous, forward-looking product development process to deliver new technologies that provide solutions to our customers. We are committed to creating value for our shareholders. Our key strategic priorities include:

Commercializing the high-tech evolution of the automotive industry. The automotive industry is increasingly evolving towards the implementation of software-dependent components and solutions. In particular, the industry is focused on the development of advanced driver assistance technologies, with the goal of developing and introducing a commercially-viable, fully automated driving experience. We expect automated driving technologies will provide strong societal benefit as well as the opportunity for long-term growth for our product offerings in this space. We are focused on enabling and delivering end-to-end smart mobility solutions, accelerating the commercialization of active safety and autonomous driving technologies and providing enhanced user experience and connected services. Our Advanced Safety and User Experience segment is focused on providing the necessary software and advanced computing platforms, and our Signal and Power Solutions segment is focused on providing the requisite networking architecture required to support the integrated systems in today’s complex vehicles. Together, our businesses develop the ‘brain’ and the ‘nervous system’ of increasingly complex vehicles, providing integration of the vehicle into its operating environment.

We are continuing to invest in the automated driving space, and have continued to develop market-leading automated driving platform solutions such as automated driving software, key active safety sensing technologies and our multi-domain controller, which fuses information from sensing systems as well as mapping and navigation data to make driving decisions. We believe we are well-aligned with industry technology trends that will result in sustainable future growth in this space, and have partnered with leaders in their respective fields to advance the pace of development and commercialization of these emerging technologies.

In an effort to further our leadership position in the automated driving space, in March 2020 we completed the transaction with Hyundai to form a new joint venture focused on the design, development and commercialization of autonomous driving technologies. The joint venture operates globally under the Motional brand name, and brings together one of the industry’s most innovative vehicle technology providers with one of the world’s largest OEMs. We expect this partnership to accelerate the path towards the development of production-ready autonomous driving systems for commercialization in the new mobility space.

We believe that substantial strategic value will be created from our partnership with Hyundai through our commitment to a shared mission of making driverless vehicles a safe, reliable, and accessible reality. Furthermore, we anticipate Motional’s presence in both North America and Asia, along with the global presence of both Aptiv and Hyundai, to generate economies of scale to support the development of a complete autonomous driving platform, as well as to facilitate mobility infrastructure advancements.

The Motional joint venture began testing fully driverless systems in 2020 and anticipates it will have a production-ready autonomous driving platform available for robotaxi providers, fleet operators and automotive manufacturers to test at prototype scale in 2022, with higher volumes available for deployment in 2023. In addition, Motional is involved in collaborative

arrangements with mobility providers and with smart cities such as Boston and Singapore as solutions are developed for the evolving nature of the mobility industry. As a result of our substantial investments and strategic partnerships, we believe we are well-aligned with industry technology trends that will result in sustainable future growth in these evolving areas.

However, there are many risks associated with these evolving areas, including the high development costs of active safety and autonomous driving technologies, the uncertain timing of customer and consumer adoption of these technologies, increased competition from entrants outside the traditional automotive industry and new and emerging regulations, such as the recently released federal guidance for automated driving systems published by the U.S. Department of Transportation. While we believe we are well-positioned in these markets, the high development cost of active safety and autonomous driving technologies may result in a higher risk of exposure to the success of new or disruptive technologies different than those being developed by us or our partners.

Leveraging our engineering and technological capabilities. We seek to leverage our strong product portfolio tied to the industry’s key mega-trends with our global footprint to increase our revenues, as well as committing to substantial annual investment in research and development to maintain and enhance our leadership in new mobility solutions across each of our product lines.

Targeting the right business with the right customers. We intend to be strategic in our pursuit of new business and customers in order to achieve disciplined, above-market growth. We conduct in-depth analysis of market share and product trends by region in order to prioritize research, development and engineering spend for the customers that we believe will be successful. Collaboration with customers in our 12 major technical centers around the world helps us develop innovative product solutions designed to meet their needs. As more OEMs design vehicles for global platforms, where the same vehicle architecture is shared among different regions, we are well suited to provide global design and engineering support while manufacturing these products for a specific regional market.

Capitalizing on our scale, global footprint and established position in emerging markets. We intend to generate sustained growth by capitalizing on the breadth and scale of our operating capabilities. Our global footprint provides us important proximity to our customers’ manufacturing facilities and allows us to serve them in every region in which they operate. We anticipate that we will continue to build upon our extensive geographic reach to capitalize on growing automotive markets, particularly in China. In addition, our presence in best cost countries positions us to realize incremental margin improvements as the global balance of automotive production shifts towards emerging markets.

Leveraging our lean and flexible cost structure to deliver profitability and cash flow. We recognize the importance of maintaining a lean and flexible cost structure in order to deliver stable earnings and cash flow in a cyclical industry. Our focus is on maximizing and optimizing manufacturing output to meet increasing production requirements with minimal additions to our fixed-cost base. Additionally, we are continuing to use a meaningful amount of temporary workers to ensure we have the appropriate operational flexibility to scale our operations so that we can maintain our profitability as industry production levels increase or contract.

Advancing and maintaining an efficient capital structure. We actively manage our capital structure in order to maintain an investment grade credit rating and healthy capital ratios to support our business and maximize shareholder value. We will continue to make adjustments to our capital structure in light of changes in economic conditions or as opportunities arise to provide us with additional financial flexibility to invest in our business and execute our strategic objectives going forward.

Pursuing selected acquisitions and strategic investments. In order to maintain our strong liquidity position in the midst of the uncertainty caused by the COVID-19 pandemic, we completed only one acquisition in 2020. We intend to continue to pursue selected transactions that leverage our technology capabilities and enhance and expand our commercialization of new mobility solutions, product offerings, customer base, geographic penetration and scale to complement our current businesses, while continuing to enhance our product offerings and competitive position in growing market segments.

Trends, Uncertainties and Opportunities

COVID-19 pandemic. The global spread of COVID-19, which originated in late 2019 and was later declared a pandemic by the World Health Organization in March 2020, has negatively impacted the global economy, disrupted supply chains and created significant volatility in global financial markets. Most notably with respect to the automotive industry, we experienced extended work stoppages in China during the first quarter of 2020, where we have a major manufacturing base, and the subsequent suspension of vehicle production by our OEM customers in North America and Europe, which combined accounted for 69% of our net sales for the year ended December 31, 2020, as the pandemic spread to those regions and governmental authorities initiated “lock-down” orders for all non-essential activities. The work stoppages began to abate in China in March, and North America and Europe OEM production restarted sporadically in the second quarter, however the risk of renewed government “lock-down” orders resulting in further work stoppages remains. Although we have taken decisive actions to enhance our financial flexibility and minimize the impact on our business, such as the ramping down of certain production facilities in response to customer plant closures and changes in vehicle production schedules, imposing certain travel restrictions, suspending our ordinary share cash dividend, issuing $2.3 billion combined of preferred and ordinary shares,

extending substantially all of our existing Credit Agreement’s maturity to August 2022 and actively managing costs, capital spending and working capital to further strengthen our liquidity, the ultimate impact to our business continues to remain uncertain. During the year ended December 31, 2020, our net sales were adversely impacted by volume decreases of approximately 7%, primarily due to the impacts resulting from the COVID-19 pandemic, which included extended work stoppages and travel restrictions at our facilities and those of our customers and suppliers, decreases in consumer demand and vehicle production schedules, disruptions to our supply chain and other resultant adverse global economic impacts.

For example, the adverse impacts of the COVID-19 pandemic led to a significant vehicle production slowdown in the first half of 2020, which was followed by increased consumer demand and vehicle production schedules in the second half of 2020, particularly in the fourth quarter. This surge in demand led to a worldwide semiconductor supply shortage in early 2021, as semiconductor suppliers have been unable to rapidly reallocate production lines to serve the automotive industry. We are working closely with our suppliers and customers to minimize any potential adverse impacts, and we continue to closely monitor the availability of semiconductor microchips and other component parts and raw materials, customer vehicle production schedules and any other supply chain inefficiencies that may arise, due to this or any other issue. However, any direct or indirect supply chain disruptions may have a material adverse impact on our financial condition, results of operations or cash flows. We continue to actively monitor the potential supply chain impacts of this worldwide shortage and other ongoing potential impacts of COVID-19 and will seek to aggressively mitigate and minimize its impact on our business.

Economic conditions. Our business is directly related to automotive sales and automotive vehicle production by our customers. Automotive sales depend on a number of factors, including global and regional economic conditions. Global automotive vehicle production decreased 16% (19% on an Aptiv weighted market basis, which represents global vehicle production weighted to the geographic regions in which the Company generates its revenue, “AWM”) from 2019 to 2020, representing automotive vehicle production declines across all major regions during the year, primarily due to the adverse global economic impacts and uncertainty caused by the worldwide spread of the COVID-19 pandemic. Compared to 2019, vehicle production in 2020 decreased by 22% in Europe, 21% in North America, 3% in China and 31% in South America, our smallest region. Refer to Note 22. Segment Reporting of the notes to the audited consolidated financial statements, included in Item 8. Financial Statements and Supplementary Data of this Annual Report for financial information concerning principal geographic areas.

Economic volatility or weakness in North America, Europe, China or South America, could result in a significant reduction in automotive sales and production by our customers, which would have an adverse effect on our business, results of operations and financial condition. There is also potential that geopolitical factors could adversely impact the U.S. and other economies, and specifically the automotive sector. In particular, changes to international trade agreements, such as the United States-Mexico-Canada Agreement or other political pressures could affect the operations of our OEM customers, resulting in reduced automotive production in certain regions or shifts in the mix of production to higher cost regions. Increases in interest rates could also negatively impact automotive production as a result of increased consumer borrowing costs or reduced credit availability. Additionally, economic weakness may result in shifts in the mix of future automotive sales (from vehicles with more content such as luxury vehicles, trucks and sport utility vehicles toward smaller passenger cars). While our diversified customer and geographic revenue base, along with our flexible cost structure, have well positioned us to withstand the impact of industry downturns and benefit from industry upturns, shifts in the mix of global automotive production to higher cost regions or to vehicles with less content could adversely impact our profitability.

There have also been periods of increased market volatility and currency exchange rate fluctuations, both globally and most specifically within the U.K. and Europe, as a result of the U.K.’s exit from the E.U., commonly referred to as “Brexit,” the terms of which were determined on December 24, 2020 and became effective on December 31, 2020. Under these terms, the U.K. and E.U. will continue to be able to trade on a tariff-free basis, though companies will be required to file customs and duty declarations for the cross border movement of goods, similar in nature to other border crossings. These compliance requirements will be effective beginning in early 2021 and may take several months to complete. During the implementation phase, our cross border shipments between the U.K. and E.U., and those of our customers and suppliers, may be subject to delays and restrictions which may adversely affect European and worldwide economic and market conditions. Potential adverse impacts of this phase may include reduced vehicle production, reduced global market liquidity and restrictions on the ability of key market participants to operate in certain financial markets which could contribute to instability in global financial and foreign exchange markets, including increased volatility in interest rates and foreign exchange rates. Although we do not have a material physical presence in the U.K., with less than 1% of our workforce located in the U.K. and approximately 2% of our annual net sales generated in the U.K., the potential impacts of Brexit could adversely impact other global economies, and in particular, the European economy, a region which accounted for approximately 34% of our total net sales for the year ended December 31, 2020. We continue to actively monitor the ongoing potential impacts of Brexit and will seek to minimize the impacts on our business through review of our existing contractual arrangements and obligations, particularly in the European region.

Key growth markets. There have been periods of increased market volatility and moderation in the level of economic growth in China, which resulted in periods of lower automotive production growth rates in China than those previously

experienced, as evidenced by the reduction in volumes in the region during the year ended December 31, 2020. Production decreased 3% in China during 2020, primarily as a result of the COVID-19 pandemic. Despite these vehicle production declines and the recent moderation in the level of economic growth in China, rising income levels in China and other key growth markets are expected to result in stronger growth rates in these markets over the long-term. Our strong global presence, and presence in these markets, has positioned us to experience above-market growth rates over the long-term. We continue to expand our established presence in key growth markets, positioning us to benefit from the expected long-term growth opportunities in these regions. We are capitalizing on our long-standing relationships with the global OEMs and further enhancing our positions with the key growth market OEMs to continue expanding our worldwide leadership. We continue to build upon our extensive geographic reach to capitalize on fast-growing automotive markets. We believe that our presence in best cost countries positions us to realize incremental margin improvements as the global balance of automotive production shifts towards the key growth markets.

We have a strong local presence in China, including a major manufacturing base and well-established customer relationships. Each of our business segments have operations and sales in China. Our business in China remains sensitive to economic and market conditions that impact automotive sales volumes in China, and may be affected if the pace of growth slows as the Chinese market matures or if there are reductions in vehicle demand in China, as have recently been experienced as a result of the COVID-19 pandemic. However, we continue to believe this market will benefit from long-term demand for new vehicles and stringent governmental regulation driving increased vehicle content, including accelerated demand for electrified vehicles.

Market driven products. Our product offerings satisfy the OEMs’ needs to meet increasingly stringent government regulations and meet consumer preferences for products that address the mega-trends of Safe, Green and Connected, leading to increased content per vehicle, greater profitability and higher margins. With these offerings, we believe we are well-positioned to benefit from the growing demand for vehicle content and technology related to safety, electrification, high speed data, connectivity to the global information network and automated driving technologies. We are benefiting from the substantial increase in vehicle content, software and electrification that requires a complex and reliable electrical architecture and systems to operate, such as automated advanced driver assistance technologies, electrical vehicle monitoring, active safety systems, lane departure warning systems, integrated vehicle cockpit displays, navigation systems and technologies that enable connected infotainment in vehicles. Our ability to design a reliable electrical architecture that optimizes power distribution and/or consumption is key to satisfying the OEMs’ needs to reduce emissions while continuing to meet consumer demand for increased vehicle content and technology.

Global capabilities. Many OEMs are continuing to adopt global vehicle platforms to increase standardization, reduce per unit cost and increase capital efficiency and profitability. As a result, OEMs are selecting suppliers that have the capability to manufacture products on a worldwide basis, as well as the flexibility to adapt to regional variations. Suppliers with global scale and strong design, engineering and manufacturing capabilities, are best positioned to benefit from this trend. Our global footprint enables us to serve the global OEMs on a worldwide basis as we gain market share with the emerging market OEMs. This regional model is structured primarily to service the North American market from Mexico, the South American market from Brazil, the European market from Eastern Europe and North Africa, and the Asia Pacific market from China, and we have continued to rotate our manufacturing footprint to best cost locations within these regions.

Our global operations are subject to certain risks inherent in doing business abroad, including unexpected changes in laws or regulations governing trade, or other monetary or tax fiscal policy changes, including tariffs, quotas, customs and other import or export restrictions or trade barriers. We are also subject to risks associated with actions taken by governmental authorities to impose changes in laws or regulations that restrict certain business operations, trade or travel in response to a pandemic or widespread outbreak of an illness. For instance, the worldwide spread of the COVID-19 pandemic has had adverse impacts on our global operations, the automotive industry and economies around the world. Most notably, the pandemic has resulted in extended work stoppages and travel restrictions at our facilities and those of our customers and suppliers, decreases in consumer demand and vehicle production schedules, disruptions to our supply chain and other adverse global economic impacts, particularly those resulting from temporary governmental “lock-down” orders for all non-essential activities, initially in the first quarter in China and subsequently in Europe, North America and South America. Although many of the adverse impacts of the pandemic abated during the second half of 2020, we are unable to predict the ultimate impact to our business due to a number of evolving factors, including the duration and spread of the pandemic, the impact of the pandemic on economic activity, consumer demand and vehicle production schedules, and the actions of governmental authorities across the globe. Furthermore, in the fourth quarter of 2020, certain European and North American countries began to initiate new governmental restrictions in response to renewed pandemic impacts and concerns. Many of these restrictions have continued into the first quarter of 2021, which, in combination with other actions and events, may adversely impact future operating earnings and cash flows. These or any further political or governmental developments in response to the COVID-19 pandemic could result in social, economic and labor instability.

In addition, existing free trade laws and regulations, such as the United States-Mexico-Canada Agreement, provide certain beneficial duties and tariffs for qualifying imports and exports, subject to compliance with the applicable classification and other requirements. Changes in laws or policies governing the terms of foreign trade, and in particular increased trade restrictions, tariffs or taxes on imports from countries where we manufacture products, such as China and Mexico, could have a material adverse effect on our business and financial results. For instance, beginning in 2018, the U.S. and Chinese governments have imposed a series of significant incremental retaliatory tariffs to certain imported products. Most notably with respect to the automotive industry, the U.S. imposed tariffs on imports of certain steel, aluminum and automotive components, and China imposed retaliatory tariffs on imports of U.S. vehicles and certain automotive components. While these tariffs could have potentially adverse economic impacts, particularly with respect to the automotive industry and vehicle production levels, we do not anticipate a significant impact to our operations, as we have developed and implemented strategies to mitigate adverse tariff impacts, such as production localization and relocation, contract review and renegotiation and working with the appropriate governmental agencies. Further, our global footprint and regional model serves to minimize our exposure to cross-border transactions. However, despite recent trade negotiations between the U.S. and Chinese governments, the scope and duration of the imposed tariffs remain uncertain.

Product development. The automotive technology and components industry is highly competitive, both domestically and internationally, and is characterized by rapidly changing technology, evolving industry standards and changes in customer needs. Our ability to anticipate changes in technology and regulatory standards and to successfully develop and introduce new and enhanced products on a timely and cost competitive basis will be a significant factor in our ability to remain competitive. To compete effectively in the automotive technology and components industry, we must be able to develop and launch new products to meet our customers’ demands in a timely manner. Our innovative technologies and robust global engineering and development capabilities have us well positioned to meet the increasingly stringent vehicle manufacturer demands and consumer preferences for high-technology content in automobiles.

OEMs are increasingly looking to their suppliers to simplify vehicle design and assembly processes to reduce costs and weight. As a result, suppliers that sell vehicle components directly to manufacturers (Tier I suppliers) have assumed many of the design, engineering, research and development and assembly functions traditionally performed by vehicle manufacturers. Suppliers that can provide fully-engineered solutions, systems and pre-assembled combinations of component parts are positioned to leverage the trend toward system sourcing.

Engineering, design and development. Our history and culture of innovation have enabled us to develop significant intellectual property and design and development expertise to provide advanced technology solutions that meet the demands of our customers. We have a team of approximately 18,200 scientists, engineers and technicians focused on developing leading product solutions for our key markets, located at 12 major technical centers in China, Germany, India, Mexico, Poland, Singapore and the United States. Our total investment in research and development, including engineering, was approximately $1.3 billion, $1.5 billion and $1.4 billion for the years ended December 31, 2020, 2019 and 2018, respectively, which includes approximately $303 million, $381 million and $288 million of co-investment by customers and government agencies. Each year we share some engineering expenses with OEMs and government agencies. While this amount varies from year-to-year, it is generally in the range of 15% to 20% of engineering expenses. We also encourage “open innovation” and collaborate extensively with peers in the industry, government agencies and academic institutions. Our technology competencies are recognized by both customers and government agencies, who co-invested approximately $303 million in 2020 to support new product development, accelerating the pace of innovation and reducing the risk associated with successful commercialization of technological breakthroughs.

In the past, suppliers often incurred the initial cost of engineering, designing and developing automotive component parts, and recovered their investments over time by including a cost recovery component in the price of each part based on expected volumes. Recently, we and many other suppliers have negotiated for cost recovery payments independent of volumes. This trend reduces our economic risk.

We utilize a Technology Advisory Council, a panel of prominent global technology thought leaders, which guides our product strategies and investments in technology with a focus on developing advanced technologies to drive growth. We believe that our engineering and technical expertise, together with our emphasis on continuing research and development, allow us to use the latest technologies, materials and processes to solve problems for our customers and to bring new, innovative products to market. We believe that continued engineering activities are critical to maintaining our pipeline of technologically advanced products. Given our strong financial discipline, we seek to effectively manage fixed costs and efficiently rationalize capital spending by critically evaluating the profit potential of new and existing customer programs, including investment in innovation and technology. We maintain our engineering activities around our focused product portfolio and allocate our capital and resources to those products with distinctive technologies. We expect expenditures for research and development activities, including engineering, net of co-investment, to be approximately $1.0 billion for the year ended December 31, 2021, which is consistent with expenditures incurred in 2020.

We maintain a large portfolio of approximately 7,700 patents and protective rights in the operation of our business as of December 31, 2020. While no individual patent or group of patents, taken alone, is considered material to our business, taken in the aggregate, these patents provide meaningful protection for our products and technical innovations. Similarly, while our trademarks are important to identify our position in the industry, we do not believe that any of these are individually material to our business. We are actively pursuing marketing opportunities to commercialize and license our technology to both automotive and non-automotive industries and we have selectively taken licenses from others to support our business interests. These activities foster optimization of intellectual property rights.

Pricing. Cost-cutting initiatives adopted by our customers result in increased downward pressure on pricing. Our customer supply agreements generally require step-downs in component pricing over the periods of production and OEMs have historically possessed significant leverage over their outside suppliers because the automotive component supply industry is fragmented and serves a limited number of automotive OEMs. Our profitability depends in part on our ability to generate sufficient production cost savings in the future to offset price reductions.

We are focused on maintaining a low fixed cost structure that provides us flexibility to remain profitable at all points of the traditional vehicle industry production cycle. As a result, approximately 97% of our hourly workforce is located in best cost countries. Furthermore, we have substantial operational flexibility by leveraging a large workforce of temporary workers, which represented approximately 20% of the hourly workforce as of December 31, 2020. However, we will continue to adjust our cost structure and optimize our manufacturing footprint in response to changes in the global and regional automotive markets and in order to increase investment in advanced technologies and engineering, as evidenced by our ongoing restructuring programs focused on the continued rotation of our manufacturing footprint to best cost locations in Europe and on reducing our global overhead costs. As we continue to operate in a cyclical industry that is impacted by movements in the global and regional economies, we continually evaluate opportunities to further refine our cost structure. Assuming constant product mix and pricing, based on our 2020 results, we estimate that our EBITDA breakeven level would be reached if we experienced a 45% downturn to current product volumes.

We have a strong balance sheet with gross debt of approximately $4.1 billion and substantial available liquidity of approximately $5.2 billion of cash and cash equivalents and available financing under our Revolving Credit Facility and committed European accounts receivable factoring facility (as defined below in Liquidity and Capital Resources) as of December 31, 2020, and no significant U.S. defined benefit or workforce postretirement health care benefits and employer-paid postretirement basic life insurance benefits (“OPEB”) liabilities. As further described in Note 11. Debt to the audited consolidated financial statements included herein, we extended substantially all of our existing Credit Agreement’s maturity to August 2022, primarily to provide additional available liquidity and financial flexibility to mitigate the impacts on our business resulting from the uncertainty caused by the global spread of the COVID-19 pandemic. Furthermore, as further described in Note 15. Shareholders’ and Net Income Per Share to the audited consolidated financial statements included herein, we also issued $2.3 billion combined of preferred and ordinary shares during the year ended December 31, 2020. We intend to maintain strong financial discipline by targeting industry-leading earnings growth, cash flow generation and return on invested capital and to maintain sufficient liquidity to sustain our financial flexibility throughout the industry cycle.

OEM product recalls. The number of vehicles recalled globally by OEMs has increased above historical levels. These recalls can either be initiated by the OEMs or influenced by regulatory agencies. Although there are differing rules and regulations across countries governing recalls for safety issues, the overall transition towards global vehicle platforms may also contribute to increased recalls outside of the U.S., as automotive components are increasingly standardized across regions. Given the sensitivity to safety issues in the automotive industry, including increased focus from regulators and consumers, we anticipate the number of automotive recalls may remain above historical levels in the near future. Although we engage in extensive product quality programs and processes, it is possible that we may be adversely affected in the future if the pace of these recalls continues.

Efficient use of capital. The global vehicle components industry is generally capital intensive and a portion of a supplier’s capital equipment is frequently utilized for specific customer programs. Lead times for procurement of capital equipment are long and typically exceed start of production by one to two years. Substantial advantages exist for suppliers that can leverage their prior investments in capital equipment or amortize the investment over higher volume global customer programs.

Industry consolidation. Consolidation among worldwide OEMs and suppliers is expected to continue as these companies seek to achieve operating synergies and value stream efficiencies, acquire complementary technologies and build stronger customer relationships. For example, in January 2021, FCA and PSA executed a merger agreement to form a new, combined company (“Stellantis”), which will represent the world’s fourth largest OEM. The merger may lead to the discontinuation of certain major vehicle brands previously marketed under the separate companies, which may have a material adverse impact on our financial condition, results of operations or cash flows. Additionally, new entrants from outside the traditional automotive industry may seek to gain access to certain vehicle component markets. We believe companies with strong balance sheets and financial discipline are in the best position to take advantage of the industry consolidation trend.

Consolidated Results of Operations

Our total net sales during the year ended December 31, 2020 were $13.1 billion, a decrease of approximately 9% compared to 2019. This compares to total global OEM production decreases of 16% in 2020. We experienced volume declines of 7% for the period, primarily as a result of the adverse impacts of the COVID-19 pandemic on global vehicle production. Volume was also impacted by increased net sales of approximately $86 million as a result of the acquisition of gabocom in late 2019. Despite the volatility caused by the COVID-19 pandemic throughout 2020, our overall lean cost structure, along with continued above-market sales growth in all major regions, has enabled us to achieve strong levels of operating income, while continuing to strategically invest in the future.

Aptiv typically experiences fluctuations in revenue due to changes in OEM production schedules, vehicle sales mix and the net of new and lost business (which we refer to collectively as volume), increased prices attributable to escalation clauses in our supply contracts for recovery of increased commodity costs (which we refer to as commodity pass-through), fluctuations in foreign currency exchange rates (which we refer to as “FX”), contractual reductions of the sales price to the OEM (which we refer to as contractual price reductions) and engineering changes. Changes in sales mix can have either favorable or unfavorable impacts on revenue. Such changes can be the result of shifts in regional growth, shifts in OEM sales demand, as well as shifts in consumer demand related to vehicle segment purchases and content penetration. For instance, a shift in sales demand favoring a particular OEM’s vehicle model for which we do not have a supply contract may negatively impact our revenue. A shift in regional sales demand toward certain markets could favorably impact the sales of those of our customers that have a large market share in those regions, which in turn would be expected to have a favorable impact on our revenue.

We typically experience (as described below) fluctuations in operating income due to:

  • Volume, net of contractual price reductions—changes in volume offset by contractual price reductions (which typically range from 1% to 3% of net sales) and changes in mix;

  • Operational performance—changes to costs for materials and commodities or manufacturing and engineering variances; and

  • Other—including restructuring costs and any remaining variances not included in Volume, net of contractual price reductions or Operational performance.

The automotive technology and component supply industry is traditionally subject to inflationary pressures with respect to raw materials and labor which may place operational and profitability burdens on the entire supply chain. We will continue to work with our customers and suppliers to mitigate the impact of these inflationary pressures in the future. In addition, we expect commodity cost volatility, particularly related to copper and petroleum-based resin products, to have a continual impact on future earnings and/or operating cash flows. As such, we continually seek to mitigate both inflationary pressures and our material-related cost exposures using a number of approaches, including combining purchase requirements with customers and/or other suppliers, using alternate suppliers or product designs, negotiating cost reductions and/or commodity cost contract escalation clauses into our vehicle manufacturer supply contracts and hedging.

This section discusses our consolidated results of operations and results of operations by segment for the years ended December 31, 2020 versus 2019. A detailed discussion of our consolidated results of operations and results of operations by segment for the years ended December 31, 2019 versus 2018 can be found under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2019, which was filed with the SEC on February 3, 2020.

2020 versus 2019

The results of operations for the years ended December 31, 2020 and 2019 were as follows:

Year Ended December 31,
20202019Favorable/ (unfavorable)
(dollars in millions)
Net sales$13,066$14,357$(1,291)
Cost of sales11,12611,711585
Gross margin1,94014.8%2,64618.4%(706)
Selling, general and administrative9761,076100
Amortization1441462
Restructuring13614812
Gain on autonomous driving joint venture(1,434)—1,434
Operating income2,1181,276842
Interest expense(164)(164)—
Other income, net—14(14)
Income before income taxes and equity (loss) income1,9541,126828
Income tax expense(49)(132)83
Income before equity (loss) income1,905994911
Equity (loss) income, net of tax(83)15(98)
Net income1,8221,009813
Net income attributable to noncontrolling interest1819(1)
Net income attributable to Aptiv1,804990814
Mandatory Convertible Preferred Share dividends(35)—(35)
Net income attributable to ordinary shareholders$1,769$990$779

Total Net Sales

Below is a summary of our total net sales for the years ended December 31, 2020 versus 2019.

Year Ended December 31,Variance Due To:
20202019Favorable/ (unfavorable)Volume, net of contractual price reductionsFXCommodity pass- throughOtherTotal
(in millions)(in millions)
Total net sales$13,066$14,357$(1,291)$(1,290)$15$(16)$—$(1,291)

Total net sales for the year ended December 31, 2020 decreased 9% compared to the year ended December 31, 2019. Our overall volumes decreased 7% for the period, primarily due to the impacts of the COVID-19 pandemic, which also resulted in global vehicle production declines of 16% (19% on an AWM basis) over the same period. The adverse impacts to Aptiv of the pandemic, which primarily affected us in the first half of 2020, included extended work stoppages and travel restrictions at our facilities and those of our customers and suppliers, decreases in consumer demand and vehicle production schedules, disruptions to our supply chain and other adverse global economic impacts, particularly those resulting from temporary governmental “lock-down” orders for all non-essential activities, initially in the first quarter in China and subsequently in Europe, North America and South America. Adverse impacts of the COVID-19 pandemic from the first half of 2020 were partially offset by increased consumer demand and vehicle production schedules in the second half of 2020, particularly in the fourth quarter. Our total net sales also reflect contractual price reductions. Volume declines were partially offset by increased net sales of $86 million as a result of the acquisition of gabocom in late 2019 and favorable foreign currency impacts, primarily related to the Euro and Chinese Yuan Renminbi. Refer to Note 20. Acquisitions and Divestitures to the audited consolidated financial statements included herein for further detail of our business acquisitions.

Cost of Sales

Cost of sales is primarily comprised of material, labor, manufacturing overhead, freight, fluctuations in foreign currency exchange rates, product engineering, design and development expenses, depreciation and amortization, warranty costs and other operating expenses. Gross margin is revenue less cost of sales and gross margin percentage is gross margin as a percentage of net sales.

Cost of sales decreased $585 million for the year ended December 31, 2020 compared to the year ended December 31, 2019, as summarized below. The Company’s material cost of sales was approximately 50% of net sales in both the years ended December 31, 2020 and 2019.

Year Ended December 31,Variance Due To:
20202019Favorable/ (unfavorable)Volume (a)FXOperational performanceOtherTotal
(dollars in millions)(in millions)
Cost of sales$11,126$11,711$585$579$6$(9)$9$585
Gross margin$1,940$2,646$(706)$(711)$21$(9)$(7)$(706)
Percentage of net sales14.8%18.4%

(a)Presented net of contractual price reductions for gross margin variance.

The decrease in cost of sales reflects decreased volumes, largely resulting from the impacts of the COVID-19 pandemic, and impacts from currency exchange and operational performance. However, as certain of our costs remain fixed in nature over the near term, our gross margin as a percentage of sales was adversely impacted compared to the prior year period, primarily due to the COVID-19 pandemic. Cost of sales was also impacted by the following items in Other above:

  • Decreased expense of approximately $135 million, primarily due to decreased engineering expenses as a result of the formation of the Motional autonomous driving joint venture with Hyundai in March 2020, which is now accounted for under the equity method of accounting; and

  • $16 million of decreased commodity pass-through costs; partially offset by

  • Approximately $40 million of costs related to supply chain inefficiencies, primarily due to the worldwide semiconductor microchip shortage and the increase in vehicle production schedules in the fourth quarter of 2020; and

  • $47 million of increased depreciation and amortization, primarily as a result of a higher fixed asset base; and

  • $33 million of increased warranty costs.

Selling, General and Administrative Expense

Year Ended December 31,
20202019Favorable/ (unfavorable)
(dollars in millions)
Selling, general and administrative expense$976$1,076$100
Percentage of net sales7.5%7.5%

Selling, general and administrative expense (“SG&A”) includes administrative expenses, information technology costs and incentive compensation related costs. SG&A as a percentage of net sales was flat for the year ended December 31, 2020 as compared to 2019, and was primarily impacted by decreased SG&A expenses as a result of the formation of the Motional autonomous driving joint venture with Hyundai, which is now accounted for under the equity method of accounting, partially offset by increased SG&A expenses due to our business acquisitions.

Amortization

Year Ended December 31,
20202019Favorable/ (unfavorable)
(in millions)
Amortization$144$146$2

Amortization expense reflects the non-cash charge related to definite-lived intangible assets. The decrease in amortization during the year ended December 31, 2020 compared to 2019 primarily reflects $8 million of intangible asset impairment charges recorded during the year ended December 31, 2019, partially offset by the continued amortization of our definite-lived intangible assets, which resulted primarily from our acquisitions, over their estimated useful lives. Refer to Note 20. Acquisitions and Divestitures to the audited consolidated financial statements included herein for further detail of our business acquisitions, including details of the intangible assets recorded in each transaction.

In 2021, we expect to incur non-cash amortization charges of approximately $151 million.

Restructuring

Year Ended December 31,
20202019Favorable/ (unfavorable)
(dollars in millions)
Restructuring$136$148$12
Percentage of net sales1.0%1.0%

The Company recorded employee-related and other restructuring charges totaling approximately $136 million during the year ended December 31, 2020, of which $62 million was recognized for programs implemented in the North American region and $57 million was recognized for programs implemented in the European region. The charges recorded during 2020 included the recognition of approximately $90 million of employee-related and other costs related to actions taken as a result of the global impacts of the COVID-19 pandemic. We expect to make cash payments of approximately $80 million in 2021 pursuant to currently implemented restructuring programs.

Restructuring charges recorded during 2019 were primarily related to programs 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 $148 million during the year ended December 31, 2019, of which $74 million was recognized for programs implemented in the European region, pursuant to the Company’s ongoing overhead cost reduction strategy.

We expect to continue to incur additional restructuring expense in 2021 and beyond, primarily related to programs focused on the continued rotation of our manufacturing footprint to best cost locations in Europe and on reducing global overhead costs, which includes approximately $45 million (of which approximately $20 million relates to the Signal and Power Solutions segment and approximately $25 million relates to the Advanced Safety and User Experience segment) for programs approved as of December 31, 2020. Additionally, as we continue to operate in a cyclical industry that is impacted by movements in the global and regional economies, we continually evaluate opportunities to further adjust our cost structure and optimize our manufacturing footprint. The Company plans to implement additional restructuring activities in the future, if necessary, in order to align manufacturing capacity and other costs with prevailing regional automotive production levels and locations, to improve the efficiency and utilization of other locations and in order to increase investment in advanced technologies and engineering. Such future restructuring actions are dependent on market conditions, customer actions and other factors.

Refer to Note 10. Restructuring to the audited consolidated financial statements included herein for additional information.

Interest Expense

Year Ended December 31,
20202019Favorable/ (unfavorable)
(in millions)
Interest expense$164$164$—

Refer to Note 11. Debt to the audited consolidated financial statements included herein for additional information.

Other Income, Net

Year Ended December 31,
20202019Favorable/ (unfavorable)
(in millions)
Other income, net$—$14$(14)

During the year ended December 31, 2020, Aptiv recorded $8 million of interest income and a loss on debt modification of $4 million, in conjunction with the May 2020 Amendment to the Credit Agreement, as further discussed in Note 11. Debt to the audited consolidated financial statements included herein. As further discussed in Note 5. Investments in Affiliates to the audited consolidated financial statements included herein, during the year ended December 31, 2020, Aptiv recorded a pre-tax unrealized gain of $10 million related to increases in fair value of its equity investments without readily determinable fair values. The Company also recorded $20 million during the year ended December 31, 2020 related to the components of net periodic pension and postretirement benefit cost other than service costs, as further described in Note 12. Pension Benefits to the audited consolidated financial statements included herein.

During the year ended December 31, 2019, Aptiv recorded $13 million of interest income and a pre-tax unrealized gain of $19 million related to increases in fair value of its equity investments without readily determinable fair values, as further discussed in Note 5. Investments in Affiliates to the audited consolidated financial statements included herein. Aptiv also redeemed for cash the entire $650 million aggregate principal amount outstanding of the 3.15% Senior Notes during the year ended December 31, 2019, resulting in a loss on debt extinguishment of approximately $6 million, as further discussed in Note 11. Debt to the audited consolidated financial statements included herein, and incurred approximately $5 million in transaction costs related to the acquisition of gabocom. The Company also recorded $27 million during the year ended December 31, 2019 related to the components of net periodic pension and postretirement benefit cost other than service costs, as further described in Note 12. Pension Benefits to the audited consolidated financial statements included herein.

Refer to Note 19. Other Income, Net to the audited consolidated financial statements included herein for additional information.

Income Taxes

Year Ended December 31,
20202019Favorable/ (unfavorable)
(in millions)
Income tax expense$49$132$83

The Company’s tax rate is affected by the fact that its parent entity is an Irish resident taxpayer, the tax rates in Ireland and 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 is also impacted by the receipt of certain tax incentives and holidays that reduce the effective tax rate for certain subsidiaries below the statutory rate.

The Company’s effective tax rate was 3% and 12% for the years ended December 31, 2020 and 2019, respectively. The effective tax rate in the year ended December 31, 2020 was impacted by changes in reserves, provision to return adjustments, changes in valuation allowances and the tax impact of certain intragroup reorganizations meant to streamline and simplify the Company’s operating and legal structure, which resulted in the recognition of losses for tax purposes. The effective tax rate was also impacted by the beneficial impact from the gain on the formation of the Motional autonomous driving joint venture. The

tax expense associated with the gain was insignificant as Aptiv’s aggregate autonomous driving assets were exempt from capital gains tax in the jurisdiction from which they were sold. The aggregate autonomous driving assets had been acquired, purchased or developed in taxable transactions in prior periods and reflect changes made to the corporate entity operating structure for intellectual property following the Separation of its former Powertrain Systems segment.

The effective tax rate for the year ended December 31, 2019 was impacted by releases of valuation allowances as a result of the Company’s determination that it was more likely than not that certain deferred tax assets would be realized, as well as favorable provision to return adjustments. The Company also accrued $20 million of reserve adjustments 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, including tax authority administrative pronouncements and court decisions.

Refer to Note 14. Income Taxes to the audited consolidated financial statements included herein for additional information.

Equity Income

Year Ended December 31,
20202019Favorable/ (unfavorable)
(in millions)
Equity (loss) income, net of tax$(83)$15$(98)

Equity (loss) income, net of tax reflects the Company’s interest in the results of ongoing operations of entities accounted for as equity method investments. The equity loss, net of tax, recognized by Aptiv during the year ended December 31, 2020 includes $98 million attributable to the Motional autonomous driving joint venture formed in March 2020 with Hyundai, as further described in Note 5. Investments in Affiliates and Note 24. Held for Sale to the audited consolidated financial statements included herein.

Results of Operations by Segment

We operate our core business along the following operating segments, which are grouped on the basis of similar product, market and operating factors:

  • Signal and Power Solutions, which includes complete electrical architecture and component products.

  • Advanced Safety and User Experience, which includes component and systems integration expertise in advanced safety, user experience and connectivity and security solutions, as well as advanced software development and autonomous driving technologies.

  • Eliminations and Other, which includes i) the elimination of inter-segment transactions, and ii) certain other expenses and income of a non-operating or strategic nature.

Our management utilizes segment Adjusted Operating Income as the key performance measure of segment income or loss to evaluate segment performance, and for planning and forecasting purposes to allocate resources to the segments, as management believes this measure is most reflective of the operational profitability or loss of our operating segments. Segment Adjusted Operating Income should not be considered a substitute for results prepared in accordance with U.S. GAAP and should not be considered an alternative to net income attributable to Aptiv, which is the most directly comparable financial measure to Adjusted Operating Income that is prepared in accordance with U.S. GAAP. Segment Adjusted Operating Income, as determined and measured by Aptiv, should also not be compared to similarly titled measures reported by other companies.

The reconciliation of Adjusted Operating Income to operating income includes, as applicable, restructuring, other acquisition and portfolio project costs (which includes costs incurred to integrate acquired businesses and to plan and execute product portfolio transformation actions, including business and product acquisitions and divestitures), asset impairments, gains (losses) on business divestitures and other transactions and deferred compensation related to acquisitions. The reconciliations of Adjusted Operating Income to net income attributable to Aptiv for the years ended December 31, 2020 and 2019 are as follows:

Signal and Power SolutionsAdvanced Safety and User ExperienceEliminations and OtherTotal
(in millions)
For the Year Ended December 31, 2020:
Adjusted operating income$762$105$—$867
Restructuring(90)(46)—(136)
Other acquisition and portfolio project costs(12)(11)—(23)
Asset impairments(4)(6)—(10)
Deferred compensation related to acquisitions—(14)—(14)
Gain on business divestitures and other transactions—1,434—1,434
Operating income$656$1,462$—2,118
Interest expense(164)
Other income, net—
Income before income taxes and equity loss1,954
Income tax expense(49)
Equity loss, net of tax(83)
Net income1,822
Net income attributable to noncontrolling interest18
Net income attributable to Aptiv$1,804
Signal and Power SolutionsAdvanced Safety and User ExperienceEliminations and OtherTotal
(in millions)
For the Year Ended December 31, 2019:
Adjusted operating income$1,274$274$—$1,548
Restructuring(104)(44)—(148)
Other acquisition and portfolio project costs(44)(27)—(71)
Asset impairments(2)(9)—(11)
Deferred compensation related to acquisitions—(42)—(42)
Operating income$1,124$152$—1,276
Interest expense(164)
Other income, net14
Income before income taxes and equity income1,126
Income tax expense(132)
Equity income, net of tax15
Net income1,009
Net income attributable to noncontrolling interest19
Net income attributable to Aptiv$990

Net sales, gross margin as a percentage of net sales and Adjusted Operating Income by segment for the years ended December 31, 2020 and 2019 are as follows:

Net Sales by Segment

Year Ended December 31,Variance Due To:
20202019Favorable/ (unfavorable)Volume, net of contractual price reductionsFXCommodity Pass-throughOtherTotal
(in millions)(in millions)
Signal and Power Solutions$9,522$10,302$(780)$(768)$4$(16)$—$(780)
Advanced Safety and User Experience3,5734,092(519)(530)11——(519)
Eliminations and Other(29)(37)88———8
Total$13,066$14,357$(1,291)$(1,290)$15$(16)$—$(1,291)

Gross Margin Percentage by Segment

Year Ended December 31,
20202019
Signal and Power Solutions17.1%20.9%
Advanced Safety and User Experience8.8%12.0%
Eliminations and Other—%—%
Total14.8%18.4%

Gross margin as a percentage of sales for the year ended December 31, 2020 as compared to year ended December 31, 2019 decreased primarily due to the adverse impacts of the COVID-19 pandemic.

Adjusted Operating Income by Segment

Year Ended December 31,Variance Due To:
20202019Favorable/ (unfavorable)Volume, net of contractual price reductionsOperational performanceOtherTotal
(in millions)(in millions)
Signal and Power Solutions$762$1,274$(512)$(451)$2$(63)$(512)
Advanced Safety and User Experience105274(169)(260)(39)130(169)
Eliminations and Other———————
Total$867$1,548$(681)$(711)$(37)$67$(681)

As noted in the table above, Adjusted Operating Income for the year ended December 31, 2020 as compared to the year ended December 31, 2019 was impacted by volume and contractual price reductions, including product mix and the adverse impacts of the COVID-19 pandemic. The adverse impacts to Aptiv of the pandemic, which primarily affected us in the first half of 2020, included extended work stoppages and travel restrictions at our facilities and those of our customers and suppliers, decreases in consumer demand and vehicle production schedules, disruptions to our supply chain and other adverse global economic impacts, particularly those resulting from temporary governmental “lock-down” orders for all non-essential activities, initially in the first quarter in China and subsequently in Europe, North America and South America. Adverse impacts of the COVID-19 pandemic from the first half of 2020 were partially offset by increased consumer demand and vehicle production schedules in the second half of 2020, particularly in the fourth quarter. Adjusted Operating Income was also impacted by operational performance and the following items included within Other in the table above:

  • Decreased expense of approximately $135 million, primarily due to decreased engineering expenses as a result of the formation of the Motional autonomous driving joint venture with Hyundai in March 2020, which is now accounted for under the equity method of accounting; and

  • $65 million of decreased SG&A expense, not including the impact of other acquisition and portfolio project costs, primarily as a result of decreased incentive compensation costs; partially offset by

  • Approximately $40 million of costs related to supply chain inefficiencies, primarily due to the worldwide semiconductor microchip shortage and the increase in vehicle production schedules in the fourth quarter of 2020; and

  • $48 million of increased depreciation and amortization, not including the impact of asset impairments, primarily as a result of a higher fixed asset base; and

  • $33 million of increased warranty costs.

Liquidity and Capital Resources

COVID-19 Pandemic

Due to the unprecedented uncertainty related to the impact the COVID-19 pandemic is having on the global automotive industry and economies around the world, the Company initiated a series of precautionary actions during 2020 to further enhance its liquidity and financial flexibility. Among these, the Company has taken decisive actions to manage costs, capital spending and working capital to further strengthen its liquidity, including the ramping down of certain production facilities in response to customer plant closures and changes in vehicle production schedules. Additionally, as further described below, the Company issued $2.3 billion combined of preferred and ordinary shares, extended substantially all of our existing Credit Agreement’s maturity to August 2022, and suspended the payment of its ordinary share cash dividend to further increase capital preservation during the pandemic. The adverse impacts of COVID-19, which primarily affected the Company in the first half of 2020, included reduced consumer demand and supply chain interruptions, which have adversely impacted global vehicle production and the viability and financial stability of the Company’s customers and suppliers. While the Company believes it has taken prudent actions to mitigate the impacts on its business resulting from the COVID-19 pandemic and to provide sufficient liquidity to fund our global operations and capital investments, the ultimate impact of the pandemic to the Company’s business remains highly uncertain. The Company will continue to actively monitor the ongoing potential impacts of COVID-19 and will continue to seek to aggressively mitigate and minimize its impact on our business.

Overview of Capital Structure

Our liquidity requirements are primarily to fund our business operations, including capital expenditures and working capital requirements, as well as to fund debt service requirements, operational restructuring activities and dividends on share capital. Our primary sources of liquidity are cash flows from operations, our existing cash balance, and as necessary and available, borrowings under credit facilities and the issuance of long-term debt and equity. To the extent we generate discretionary cash flow we may consider using this additional cash flow for optional prepayments of existing indebtedness, strategic acquisitions or investments, and/or general corporate purposes. We will also continually explore ways to enhance our capital structure.

As of December 31, 2020, we had cash and cash equivalents of $2.8 billion and net debt (defined as outstanding debt less cash and cash equivalents) of $1.3 billion. We also have access to additional liquidity pursuant to the terms of the $2.0 billion Revolving Credit Facility and the committed European accounts receivable factoring facility, as described below.

The following table summarizes our available liquidity, which includes cash, cash equivalents and funds available under our significant committed credit facilities, as of December 31, 2020. The amounts disclosed as available under the Company’s significant committed credit facilities are available without violating our existing debt covenants, which are described below.

December 31, 2020
(in millions)
Cash and cash equivalents$2,821
Revolving Credit Facility, unutilized portion (1)2,000
Committed European accounts receivable factoring facility, unutilized portion (2)369
Total available liquidity$5,190

(1)Availability reduced by less than $1 million in letters of credit issued under the Credit Agreement as of December 31, 2020.

(2)Based on December 31, 2020 foreign currency rates, subject to the availability of eligible accounts receivable. As further described below, during the year ended December 31, 2020, Aptiv entered into a new accounts receivable factoring facility under which €450 million is available on a committed basis and will allow for factoring of receivables denominated in both Euros and U.S. dollars. This facility became effective on January 1, 2021; accordingly it is not included in the table above.

Despite the current global economic impacts and uncertainty resulting from the ongoing COVID-19 pandemic and its impact on global vehicle production, as further described above, we currently expect existing cash, available liquidity and cash flows from operations to continue to be sufficient to fund our global operating activities, including restructuring payments, any mandatory payments required under the Credit Agreement as described below, dividends on preferred shares and capital expenditures.

We also continue to expect to be able to move funds between different countries to manage our global liquidity needs without material adverse tax implications, subject to current monetary policies and the terms of the Credit Agreement. We utilize a combination of strategies, including dividends, cash pooling arrangements, intercompany loan repayments and other distributions and advances to provide the funds necessary to meet our global liquidity needs. There are no significant restrictions on the ability of our subsidiaries to pay dividends or make other distributions to Aptiv. As of December 31, 2020, the Company’s cash and cash equivalents held by our non-U.S. subsidiaries totaled approximately $2.8 billion. If additional non-U.S. cash was needed for our U.S. operations, we may be required to accrue and pay withholding if we were to distribute such funds from non-U.S. subsidiaries to the U.S.; however, based on our current liquidity needs and strategies, we do not anticipate a need to accrue and pay such additional amounts.

Based on these factors, we believe we possess sufficient liquidity to fund our global operations and capital investments in 2021 and beyond.

Public Equity Offering

In June 2020, the Company completed the underwritten public offering of approximately 15.1 million ordinary shares at a price of $75.91 per share (the “Ordinary Share Offering”), resulting in net proceeds of approximately $1,115 million, after deducting expenses and the underwriters’ discount of $35 million. Simultaneously, the Company completed the underwritten public offering of 11.5 million 5.50% Mandatory Convertible Preferred Shares, Series A, $0.01 par value per share (the “MCPS”) with a liquidation preference of $100 per share (the “MCPS Offering”), resulting in net proceeds of approximately $1,115 million, after deducting expenses and the underwriters’ discount of $35 million. The Company intends to use the net proceeds from the Ordinary Share Offering and MCPS Offering for general corporate purposes, which may include funding potential future investments (including acquisitions), capital expenditures, working capital, repayment of outstanding indebtedness, and the satisfaction of other obligations. Each share of MCPS will mandatorily convert on the mandatory conversion date of June 15, 2023, into between 1.0754 and 1.3173 shares of the Company’s ordinary shares, subject to customary anti-dilution adjustments.

Holders of the MCPS will be entitled to receive, when and if declared by the Company’s Board of Directors, cumulative dividends at the annual rate of 5.50% of the liquidation preference of $100 per share (equivalent to $5.50 annually per share), payable in cash or, subject to certain limitations, by delivery of the Company’s ordinary shares or any combination of cash and the Company’s ordinary shares, at the Company’s election. If declared, dividends on the MCPS will be payable quarterly on March 15, June 15, September 15 and December 15 of each year (commencing on September 15, 2020 to, and including June 15, 2023), to the holders of record of the MCPS as they appear on the Company’s share register at the close of business on the immediately preceding March 1, June 1, September 1 or December 1, respectively. Refer to Note 15. Shareholders’ Equity and Net Income Per Share to the audited consolidated financial statements included herein for further detail on the June 2020 public equity offering.

Share Repurchases

In April 2016, the Board of Directors authorized a share repurchase program of up to $1.5 billion of ordinary shares, which commenced in September 2016. This share repurchase program provides for share purchases in the open market or in privately negotiated transactions, depending on share price, market conditions and other factors, as determined by the Company.

A summary of the ordinary shares repurchased during the years ended December 31, 2020, 2019 and 2018 is as follows:

Year Ended December 31,
202020192018
Total number of shares repurchased1,059,0755,387,5336,530,369
Average price paid per share$53.73$77.93$76.44
Total (in millions)$57$420$499

As of December 31, 2020, approximately $13 million of share repurchases remained available under the April 2016 share repurchase program, which is in addition to the previously announced additional share repurchase program of up to $2.0 billion. This program, which will commence following the completion of the April 2016 share repurchase program, provides for share purchases in the open market or in privately negotiated transactions, depending on share price, market conditions and other

factors, as determined by the Company. All repurchased shares were retired, and are reflected as a reduction of ordinary share capital for the par value of the shares, with the excess applied as reductions to additional paid-in-capital and retained earnings. Although both the April 2016 and this new share repurchase program remain authorized, the Company is restricted from executing further share repurchases under the terms of the May 2020 Amendment to the Credit Agreement for as long as the Covenant Relief Period remains in effect (as further described and defined below). Furthermore, in order to preserve liquidity during the COVID-19 pandemic crisis, the Company does not anticipate executing further share repurchases until such time as the global economic uncertainties and business impacts resulting from the pandemic have abated.

Dividends from Equity Investments

During the years ended December 31, 2020, 2019 and 2018, Aptiv received dividends of $9 million, $9 million and $12 million, respectively, from its equity method investments. The dividends were recognized as a reduction to the investment and represented a return on investment included in cash flows from operating activities.

Acquisitions

Dynawave—On August 4, 2020, Aptiv acquired 100% of the equity interests of Dynawave Inc. (“Dynawave”), a specialized manufacturer of custom-engineered interconnect solutions for a wide range of industries, for total consideration of $22 million. The acquisition was accounted for as a business combination, with the operating results of Dynawave included within the Company’s Signal and Power Solutions segment. The Company acquired Dynawave utilizing cash on hand.

gabocom—On November 19, 2019, Aptiv acquired 100% of the equity interests of gabo Systemtechnik GmbH (“gabocom”), a leading provider of highly-engineered cable management and protection solutions for the telecommunications industry, for total consideration of $311 million, net of cash acquired. The acquisition was accounted for as a business combination, with the operating results of gabocom included within the Company’s Signal and Power Solutions segment from the date of acquisition. The Company acquired gabocom utilizing cash on hand.

Falmat—On May 14, 2019, Aptiv acquired 100% of the equity interests of Falmat Inc. (“Falmat”), a leading manufacturer of high performance custom cable and cable assemblies for industrial applications, for total consideration of $25 million, net of cash acquired. The acquisition was accounted for as a business combination, with the operating results of Falmat included within the Company’s Signal and Power Solutions segment from the date of acquisition. The Company acquired Falmat utilizing cash on hand.

Winchester—On October 24, 2018, Aptiv acquired 100% of the equity interests of Winchester Interconnect (“Winchester”), a leading provider of custom engineered interconnect solutions for harsh environment applications, for total consideration of $680 million, net of cash acquired. The acquisition was accounted for as a business combination, with the operating results of Winchester included within the Company’s Signal and Power Solutions segment from the date of acquisition. The Company acquired Winchester utilizing cash on hand and short-term borrowings.

KUM—On June 14, 2018, Aptiv acquired 100% of the equity interests of KUM, a specialized manufacturer of connectors for the automotive industry, for total consideration of $526 million, net of cash acquired. The acquisition was accounted for as a business combination, with the operating results of KUM included within the Company’s Signal and Power Solutions segment from the date of acquisition. The Company acquired KUM utilizing cash on hand.

Refer to Note 20. Acquisitions and Divestitures to the audited consolidated financial statements included herein for further detail of the Company’s business acquisitions.

Technology Investments—During the fourth quarter of 2019, the Company’s Advanced Safety and User Experience segment made a $6 million investment in Krono-Safe, SAS, a leading software developer of safety-critical real-time embedded systems. During the first quarter of 2019, the Company’s Advanced Safety and User Experience segment made an additional $3 million investment in Otonomo Technologies Ltd., a connected car data marketplace developer. This investment was in addition to the Company’s $15 million investment made in the first quarter of 2017.

During the fourth quarter of 2018, the Company’s Advanced Safety and User Experience segment made a $15 million investment in Affectiva, Inc., a leader in human perception artificial intelligence technology.

These investments do not have readily determinable fair values and are measured at cost, less impairments, adjusted for observable price changes in orderly transactions for identical or similar investments of the same issuer. Refer to Note 5. Investments in Affiliates to the audited consolidated financial statements included herein for further detail of the Company’s technology investments.

Autonomous Driving Joint Venture

On March 26, 2020, Aptiv completed the transaction with Hyundai Motor Group (“Hyundai”) to form a joint venture focused on the design, development and commercialization of autonomous driving technologies. The joint venture operates globally under the Motional brand name. Under the terms of the agreement, Aptiv contributed to the joint venture autonomous

driving technology, intellectual property and approximately 700 employees for a 50% ownership interest in the entity. Hyundai contributed to the joint venture approximately $1.6 billion in cash, along with vehicle engineering services, research and development resources and access to intellectual property for a 50% ownership interest in the entity. As a result, subsequent to the closing of the transaction, the joint venture is expected to fund all of its future operating expenses and investments in autonomous driving technologies for the foreseeable future. Consequently, Aptiv is no longer required to fund these investments and expenses, which approximated $180 million for the year ended December 31, 2019 prior to the joint venture formation. Upon closing of the transaction, Aptiv deconsolidated the carrying value of the associated assets and liabilities contributed to the joint venture, previously classified as held for sale, and recognized an asset of approximately $2 billion within investments in affiliates in the consolidated balance sheet, based on the preliminary fair value of its investment in the newly formed joint venture. The Company recognized a pre-tax gain of approximately $1.4 billion in the consolidated statement of operations (approximately $5.32 per diluted share for the year ended December 31, 2020), net of transaction costs of $22 million, based on the difference between the carrying value of its contribution to the joint venture and the preliminary fair value of its investment in the entity. The estimated fair value of Aptiv’s ownership interest in the joint venture was determined primarily based on third-party valuations and management estimates, generally utilizing income and market approaches. Determining the fair value of the joint venture and the underlying assets requires the use of management’s judgment and involves significant estimates and assumptions with respect to the timing and amount of future cash flows, market rate assumptions, projected growth rates and margins, and appropriate discount rates, among other items. The estimated fair value is preliminary and could be revised as a result of additional information obtained or adjustments made due to the completion of independent appraisals and valuations. The effects of this transaction would not materially impact the Company’s reported results for any period presented, and the transaction did not meet the criteria to be reflected as a discontinued operation.

In connection with the closing of the transaction, Aptiv and the entity entered into various agreements to facilitate an orderly transition and to provide a framework for their relationship going forward, which included a transition services agreement. The transition services primarily involve Aptiv providing certain administrative services to the joint venture for a period of up to 24 months after the closing date. These agreements are not material to Aptiv. The Company’s investment in the joint venture is accounted for using the equity method of accounting and Aptiv recognized an equity loss of $98 million, net of tax, during the year ended December 31, 2020.

The Company determined that the assets and liabilities associated with Aptiv’s contribution to the joint venture, which were reported within the Advanced Safety and User Experience segment, met the held for sale criteria as of December 31, 2019. Accordingly, the held for sale assets and liabilities were reclassified in the consolidated balance sheet as of December 31, 2019 to current assets held for sale and current liabilities held for sale, respectively, as the contribution of such assets and liabilities to the joint venture was expected to occur within one year. Upon designation as held for sale, the Company ceased recording depreciation of the held for sale assets.

Credit Agreement

Aptiv PLC and its wholly-owned subsidiary Aptiv Corporation entered into a credit agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A., as administrative agent (the “Administrative Agent”), under which it maintains senior unsecured credit facilities currently consisting of a term loan (the “Tranche A Term Loan”) and a revolving credit facility of $2 billion (the “Revolving Credit Facility”). The Credit Agreement was entered into in March 2011 and has been subsequently amended and restated on several occasions, most recently on May 1, 2020 (the “May 2020 Amendment”) and June 8, 2020 (the “June 2020 Amendment”). The May 2020 amendment extended the maturity of $1,779 million in principal amount of the Revolving Credit Facility and $298 million in principal amount of the Tranche A Term Loan from August 17, 2021 to August 17, 2022 and increased the leverage ratio maintenance covenant until July 1, 2021 (the “Covenant Relief Period”), unless Aptiv elects to terminate the Covenant Relief Period at an earlier date. Under the terms of the May 2020 Amendment, Aptiv’s consolidated leverage ratio (the ratio of Consolidated Total Indebtedness to Consolidated EBITDA, each as defined in the May 2020 Amendment) is increased from not more than 3.5 to 1.0 to not more than 4.5 to 1.0 during the Covenant Relief Period, and Aptiv is subject to certain additional covenant restrictions during the Covenant Relief Period, including restrictions on Aptiv’s ability to execute repurchases of or pay dividends on its outstanding ordinary shares. The maturity date of the remaining portions of the Revolving Credit Facility and Tranche A Term Loan were not extended and will mature on August 17, 2021. The May 2020 Amendment also required that Aptiv pay amendment fees of $18 million during the year ended December 31, 2020, which is reflected as a financing activity in the consolidated statement of cash flows. The June 2020 Amendment amended the dividends and distributions covenant set forth in the Credit Agreement to permit the payment of dividends on convertible preferred shares in connection with the preferred equity offering as further discussed in Note 15. Shareholders’ Equity and Net Income Per Share. During the year ended December 31, 2020, Aptiv Global Financing Limited (“AGFL”), a wholly-owned Irish subsidiary of Aptiv PLC, executed a joinder agreement to the Credit Agreement, which allows it to act as a borrower under the Credit Agreement, and a guaranty supplement, under which AGFL guarantees the obligations under the Credit Agreement, subject to certain exceptions set forth in the Credit Agreement.

Aptiv is obligated to make quarterly principal payments throughout the term of the Tranche A Term Loan according to the amortization schedule in the Credit Agreement. The Credit Agreement also contains an accordion feature that permits Aptiv to increase, from time to time, the aggregate borrowing capacity under the Credit Agreement by up to an additional $1 billion upon Aptiv’s request, the agreement of the lenders participating in the increase, and the approval of the Administrative Agent and existing lenders.

As of December 31, 2020, Aptiv had no amounts outstanding under the Revolving Credit Facility and less than $1 million in letters of credit were issued under the Credit Agreement. Letters of credit issued under the Credit Agreement reduce availability under the Revolving Credit Facility. The maximum amount drawn under the Revolving Credit Facility during the year ended December 31, 2020 was $2 billion, primarily to provide additional liquidity and financial flexibility to mitigate the impacts on its business resulting from the uncertainty caused by the global spread of the COVID-19 pandemic.

Loans under the Credit Agreement bear interest, at Aptiv’s option, at 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 LIBO Rate” as defined in the Credit Agreement) (“LIBOR”) plus in either case a percentage per annum as set forth in the table below (the “Applicable Rate”). The Applicable Rates under the Credit Agreement on the specified dates are set forth below:

December 31, 2020December 31, 2019
LIBOR plusABR plusLIBOR plusABR plus
Revolving Credit Facility (1)1.10%0.10%1.10%0.10%
Revolving Credit Facility (2)1.40%0.40%N/AN/A
Tranche A Term Loan (1)1.25%0.25%1.25%0.25%
Tranche A Term Loan (2)1.75%0.75%N/AN/A

(1)Applicable to principal balances under the Credit Agreement which were not extended as part of the May 2020 Amendment as described above.

(2)Applicable to principal balances under the Credit Agreement which were extended as part of the May 2020 Amendment as described above.

The Applicable Rate under the Credit Agreement may increase or decrease from time to time based on changes in the Company’s credit ratings. Accordingly, the interest rate will fluctuate during the term of the Credit Agreement based on changes in the ABR, LIBOR or future changes in the Company’s corporate credit ratings. The Credit Agreement also requires that Aptiv pay certain facility fees on the Revolving Credit Facility and certain letter of credit issuance and fronting fees.

The interest rate period with respect to LIBOR interest rate options can be set at one-, two-, three-, or six-months as selected by Aptiv in accordance with the terms of the Credit Agreement (or other period as may be agreed by the applicable lenders). Aptiv may elect to change the selected interest rate option in accordance with the provisions of the Credit Agreement. As of December 31, 2020, Aptiv selected the one-month LIBOR interest rate option on the Tranche A Term Loan, and the rate effective as of December 31, 2020, as detailed in the table below, was based on the Company’s current credit rating and the Applicable Rate for the Credit Agreement:

Borrowings as of
December 31, 2020Rates effective as of
Applicable Rate(in millions)December 31, 2020
Tranche A Term Loan (1)LIBOR plus 1.25%$491.44%
Tranche A Term Loan (2)LIBOR plus 1.75%$2721.94%

(1)Applicable to principal balances under the Credit Agreement which were not extended as part of the May 2020 Amendment as described above.

(2)Applicable to principal balances under the Credit Agreement which were extended as part of the May 2020 Amendment as described above.

Borrowings under the Credit Agreement are prepayable at Aptiv’s option without premium or penalty.

The Credit Agreement contains certain covenants that limit, among other things, the Company’s (and the Company’s subsidiaries’) ability to incur certain additional indebtedness or liens or to dispose of substantially all of its assets. In addition, the Credit Agreement requires that the Company maintain a consolidated leverage ratio (the ratio of Consolidated Total Indebtedness to Consolidated EBITDA, each as defined in the Credit Agreement) of not more than 3.5 to 1.0, which was increased to not more than 4.5 to 1.0 until July 1, 2021 under the May 2020 Amendment. The Credit Agreement also contains events of default customary for financings of this type. The Company was in compliance with the Credit Agreement covenants as of December 31, 2020.

As of December 31, 2020, all obligations under the Credit Agreement were borrowed by Aptiv Corporation and jointly and severally guaranteed by its direct and indirect parent companies, subject to certain exceptions set forth in the Credit Agreement.

Senior Unsecured Notes

As of December 31, 2020, the Company had the following senior unsecured notes issued and outstanding:

Aggregate Principal Amount (in millions)Stated Coupon RateIssuance DateMaturity DateInterest Payment Date
$7004.15%March 2014March 2024March 15 and September 15
8611.50%March 2015March 2025March 10
6504.25%November 2015January 2026January 15 and July 15
6151.60%September 2016September 2028September 15
3004.35%March 2019March 2029March 15 and September 15
3004.40%September 2016October 2046April 1 and October 1
3505.40%March 2019March 2049March 15 and September 15

Although the specific terms of each indenture governing each series of senior notes vary, the indentures contain certain restrictive covenants, including with respect to Aptiv’s (and Aptiv’s subsidiaries) ability to incur liens, enter into sale and leaseback transactions and merge with or into other entities. As of December 31, 2020, the Company was in compliance with the provisions of all series of the outstanding senior notes. Refer to Note 11. Debt to the audited consolidated financial statements included herein for additional information.

Guarantor Summarized Financial Information

In March 2020, the Securities and Exchange Commission (“SEC”) adopted amendments to simplify the financial disclosure requirements for guarantors and issuers of guaranteed securities registered under Rule 3-10 of Regulation S-X. As permitted, the Company elected to early adopt these amendments during the first quarter of 2020. Accordingly, the below summarized financial information has been provided in lieu of the condensed consolidating financial statements provided in the Company’s 2019 Annual Report on Form 10-K.

As further described in Note 11. Debt to the audited consolidated financial statements included herein, Aptiv Corporation issued the 2014 Senior Notes and is the borrower of obligations under the Credit Agreement, which are fully and unconditionally guaranteed by Aptiv PLC and certain of Aptiv PLC’s direct and indirect subsidiaries (the “Obligor Group”). Aptiv PLC issued the 2015 Euro-denominated Senior Notes, 4.25% Senior Notes, 2016 Euro-denominated Senior Notes, 2016 Senior Notes and 2019 Senior Notes, which are fully and unconditionally guaranteed by the Obligor Group. All other consolidated direct and indirect subsidiaries of Aptiv PLC are not subject to the guarantees (the “Non-Guarantors”). The guarantees rank equally in right of payment with all of the guarantors’ existing and future senior indebtedness, are effectively subordinated to any of their existing and future secured indebtedness to the extent of the value of the collateral securing such indebtedness and are structurally subordinated to the indebtedness of each of their existing and future subsidiaries that is not a guarantor.

The below summarized financial information is presented on a combined basis after the elimination of intercompany balances and transactions among the Obligor Group and equity in earnings from and investments in the Non-Guarantors. The below summarized financial information should be read in conjunction with the Company’s audited consolidated financial statements included herein, as the financial information may not necessarily be indicative of results of operations or financial position had the subsidiaries operated as independent entities.

Obligor Group
Year Ended December 31, 2020(in millions)
Net sales$—
Gross margin$—
Operating loss$(22)
Net loss$(265)
Net loss attributable to Aptiv$(265)
As of December 31, 2020
Current assets (1)$377
Long-term assets$1
Current liabilities (3)$913
Long-term liabilities (3)$4,223
Noncontrolling interest$—
As of December 31, 2019
Current assets (2)$522
Long-term assets (2)$772
Current liabilities (3)$6,579
Long-term liabilities (3)$4,172
Noncontrolling interest$—

(1)Includes current assets of $370 million as of December 31, 2020 due from Non-Guarantors, which includes amounts due from affiliates of $6 million.

(2)Includes current assets of $522 million and long-term assets of $768 million as of December 31, 2019, respectively, due from Non-Guarantors.

(3)Includes current liabilities of $785 million and $6,409 million, and long-term liabilities of $226 million and $226 million, due to Non-Guarantors as of December 31, 2020 and December 31, 2019, respectively.

Other Financing

Receivable factoring—During the year ended December 31, 2020, Aptiv entered into a new accounts receivable factoring agreement under which a facility of €450 million is available on a committed basis and will allow for factoring of receivables denominated in both Euros and U.S. dollars (“USD”). This facility replaced Aptiv’s previous €300 million European accounts receivable factoring facility on January 1, 2021. This facility is accounted for as short-term debt and borrowings are subject to the availability of eligible accounts receivable. Collateral is not required related to these trade accounts receivable. The new program is for a term of three years, after which either party can terminate with three months’ notice. Borrowings denominated in Euros under the new facility will bear interest at the three-month Euro Interbank Offered Rate (“EURIBOR”) plus 0.50% and USD borrowings will bear interest at two-month LIBOR plus 0.50%, with borrowings under either denomination carrying a minimum interest rate of 0.20%. Borrowings under the previous facility bore interest at EURIBOR plus 0.42% for borrowings denominated in Euros with a minimum interest rate of 0.42%. As of December 31, 2020, Aptiv had no amounts outstanding on the European accounts receivable factoring facility. As of December 31, 2019, Aptiv had $266 million outstanding on the European accounts receivable factoring facility. The maximum amount drawn under the European facility during the year ended December 31, 2020 was $253 million, primarily to provide additional liquidity and financial flexibility to mitigate the impacts on its business resulting from the uncertainty caused by the global spread of the COVID-19 pandemic.

Finance leases and other—As of December 31, 2020 and 2019, approximately $28 million and $33 million, respectively, of other debt primarily issued by certain non-U.S. subsidiaries and finance lease obligations were outstanding.

Letter of credit facilities—In addition to the letters of credit issued under the Credit Agreement, Aptiv had approximately $2 million and $2 million outstanding through other letter of credit facilities as of December 31, 2020 and 2019, respectively, primarily to support arrangements and other obligations at certain of its subsidiaries.

Contractual Commitments

The following table summarizes our expected cash outflows resulting from financial contracts and commitments as of December 31, 2020, with amounts denominated in foreign currencies translated using foreign currency rates as of December 31, 2020. We have not included information on our recurring purchases of materials for use in our manufacturing operations. These amounts are generally consistent from year to year, closely reflect our levels of production, and are not long-term in nature. The amounts below exclude the gross liability for uncertain tax positions of $231 million as of December 31, 2020. We do not expect a significant payment related to these obligations to be made within the next twelve months. We are not able to provide a reasonably reliable estimate of the timing of future payments relating to the non-current portion of obligations associated with uncertain tax positions. For more information, refer to Note 14. Income Taxes to the audited consolidated financial statements included herein.

Payments due by Period
Total20212022 & 20232024 & 2025Thereafter
(in millions)
Debt and finance lease obligations (excluding interest)$4,125$90$253$1,564$2,218
Estimated interest costs related to debt and finance lease obligations1,405131256207811
Operating lease obligations4391111608187
Contractual commitments for capital expenditures147147———
Other contractual purchase commitments, including information technology304178103185
Total$6,420$657$772$1,870$3,121

In addition to the obligations discussed above, certain of our non-U.S. subsidiaries sponsor defined benefit pension plans, some of which are funded. We have minimum funding requirements with respect to certain of our pension obligations and may periodically elect to make discretionary contributions to the plans in support of risk management initiatives. We will also have payments due with respect to our other postretirement benefit obligations. We do not fund our other postretirement benefit obligations and payments are made as costs are incurred by covered retirees. Refer to Note 12. Pension Benefits to the audited consolidated financial statements included herein for additional detail regarding our expected contributions to our pension plans and expected distributions to participants in future periods.

Capital Expenditures

Supplier selection in the automotive industry is generally finalized several years prior to the start of production of the vehicle. Therefore, current capital expenditures are based on customer commitments entered into previously, generally several years ago when the customer contract was awarded. As of December 31, 2020, we had approximately $147 million in outstanding cancellable and non-cancellable capital commitments. Capital expenditures by operating segment and geographic region for the periods presented were:

Year Ended December 31,
202020192018
(in millions)
Signal and Power Solutions$355$495$534
Advanced Safety and User Experience173250245
Other (1)563667
Total capital expenditures$584$781$846
North America$235$257$314
Europe, Middle East & Africa212292300
Asia Pacific129218220
South America81412
Total capital expenditures$584$781$846

(1)Other includes capital expenditures attributable to corporate administrative and support functions, including corporate headquarters and certain technical centers.

Cash Flows

Intra-month cash flow cycles vary by region, but in general we are users of cash through the first half of a typical month and we generate cash during the latter half of a typical month. Due to this cycle of cash flows, we may utilize short-term financing, including our Revolving Credit Facility and European accounts receivable factoring facility, to manage our intra-month working capital needs. Our cash balance typically peaks at month end.

We utilize a combination of strategies, including dividends, cash pooling arrangements, intercompany loan structures and other distributions and advances to provide the funds necessary to meet our global liquidity needs. We utilize a global cash pooling arrangement to consolidate and manage our global cash balances, which enables us to efficiently move cash into and out of a number of the countries in which we operate.

Operating activities—Net cash provided by operating activities totaled $1,413 million and $1,624 million for the years ended December 31, 2020 and 2019, respectively. Cash flow provided by operating activities for the year ended December 31, 2020 consisted primarily of net earnings of $1,822 million, increased by $806 million for non-cash charges for depreciation, amortization, pension costs and modification of debt, partially offset by $1,434 million for the non-cash gain resulting from the formation of the Motional autonomous driving joint venture and $107 million related to changes in operating assets and liabilities, net of restructuring and pension contributions. Cash flows provided by operating activities for the year ended December 31, 2019 consisted primarily of net earnings of $1,009 million, increased by $767 million for non-cash charges for depreciation, amortization, pension costs and extinguishment of debt, partially offset by $184 million related to changes in operating assets and liabilities, net of restructuring and pension contributions.

Investing activities—Net cash used in investing activities totaled $626 million and $1,111 million for the years ended December 31, 2020 and 2019, respectively. The decrease in usage is primarily attributable to $51 million paid for business acquisitions and technology investments, as compared to $344 million paid for business acquisitions and technology investments during the year ended December 31, 2019. Additionally, capital expenditures decreased $197 million during the year ended December 31, 2020 as compared to the year ended December 31, 2019.

Financing activities—Net cash provided by financing activities totaled $1,613 million for the year ended December 31, 2020 and net cash used in financing activities totaled $649 million for the year ended December 31, 2019. Cash flows provided by financing activities for the year ended December 31, 2020 primarily included $1,115 million and $1,115 million in net proceeds from the public offering of ordinary and preferred shares, net of issuance costs, respectively, partially offset by $372 million in repayments under other short-term debt agreements, $57 million paid to repurchase ordinary shares and $88 million of dividend payments. Cash flows used in financing activities for the year ended December 31, 2019 primarily included net proceeds of $641 million received from the issuance of the 2019 Senior Notes, which were utilized to redeem the $650 million 3.15% Senior Notes, as well as $420 million paid to repurchase ordinary shares and $226 million of dividend payments.

Off-Balance Sheet Arrangements and Other Matters

We do not engage in any off-balance sheet financial arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Pension Benefits

Certain of our non-U.S. subsidiaries sponsor defined benefit pension plans, which generally provide benefits based on negotiated amounts for each year of service. Our primary non-U.S. plans are located in France, Germany, Mexico, Portugal and the U.K. The U.K. and certain Mexican plans are funded. In addition, we have 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. We anticipate making pension contributions and benefit payments of approximately $38 million for non-U.S. plans in 2021.

Aptiv sponsors a Supplemental Executive Retirement Program (“SERP”) for those employees who were U.S. executives of the former Delphi Corporation prior to September 30, 2008 and were still U.S. executives of the Company on October 7, 2009, the effective date of the program. This program is unfunded. Executives receive benefits over 5 years after an involuntary or voluntary separation from Aptiv. The SERP is closed to new members and was frozen effective September 30, 2008. There are no required contributions for the SERP in 2020, although we anticipate making benefit payments of approximately $3 million for the SERP in 2021.

Refer to Note 12. Pension Benefits to the audited consolidated financial statements included herein for further information on (1) historical benefit costs of the pension plans, (2) the principal assumptions used to determine the pension benefit expense and the actuarial value of the projected benefit obligation for the U.S. and non-U.S. pension plans, (3) a sensitivity analysis of potential changes to pension obligations and expense that would result from changes in key assumptions and (4) funding obligations.

Environmental Matters

We are subject to the requirements of U.S. federal, state, local and non-U.S. environmental and safety and health laws and regulations. These include laws regulating air emissions, water discharge, hazardous materials and waste management. We have an environmental management structure designed to facilitate and support our compliance with these requirements globally. Although it is our intent to comply with all such requirements and regulations, we cannot provide assurance that we are at all times in compliance. Environmental requirements are complex, change frequently and have tended to become more stringent over time, and we therefore cannot ensure that our eventual environmental remediation costs and liabilities will not be material.

Certain environmental laws assess liability on current or previous owners or operators of real property for the cost of removal or remediation of hazardous substances. In addition to clean-up actions brought by U.S. federal, state, local and non-U.S. agencies, plaintiffs could raise personal injury or other private claims due to the presence of hazardous substances on or from a property. At this time, we are involved in various stages of investigation and cleanup related to environmental remediation matters at certain of our present and former facilities. In addition, there may be soil or groundwater contamination at several of our properties resulting from historical, ongoing or nearby activities.

As of December 31, 2020 and 2019, the undiscounted reserve for environmental investigation and remediation was approximately $4 million (which was recorded in other long-term liabilities) and $4 million (of which $1 million was recorded in accrued liabilities and $3 million was recorded in other long-term liabilities). Aptiv 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, Aptiv’s results of operations could be materially affected.

Legal Proceedings

For a description of our legal proceedings, see Item 3. Legal Proceedings and Note 13. Commitments and Contingencies to the audited consolidated financial statements included herein.

Significant Accounting Policies and Critical Accounting Estimates

Our significant accounting policies are described in Note 2. Significant Accounting Policies to the audited consolidated financial statements included herein. Certain of our accounting policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty, which is further exacerbated by the unknown future duration and severity of the impacts of the COVID-19 pandemic. These judgments are based on our historical experience, terms of existing contracts, our evaluation of trends in the industry, information provided by our customers and information available from other outside sources, as appropriate.

We consider an accounting estimate to be critical if:

  • It requires us to make assumptions about matters that were uncertain at the time we were making the estimate, and

  • Changes in the estimate or different estimates that we could have selected would have had a material impact on our financial condition or results of operations.

Acquisitions and Other Transactions

In accordance with accounting guidance for the provisions in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805, Business Combinations, we allocate the purchase price of an acquired business to its identifiable assets and liabilities based on estimated fair values. The excess of the purchase price over the amount allocated to the assets and liabilities, if any, is recorded as goodwill. The process to estimate fair value described herein is generally applicable to other transactions, including the fair value estimates used in establishing the identifiable assets, liabilities and goodwill recorded upon formation of Motional, Aptiv’s autonomous driving joint venture, and the resulting equity method investment recorded on Aptiv’s balance sheet.

An acquisition may include a contingent consideration component. The fair value of the contingent consideration is estimated as of the date of the acquisition and is recorded as part of the purchase price. This estimate is updated in future periods and any changes in the estimate, which are not considered an adjustment to the purchase price, are recorded in our consolidated statements of operations.

We use all available information to estimate fair values. We typically engage outside appraisal firms to assist in the fair value determination of identifiable intangible assets and any other significant assets or liabilities. We adjust the preliminary purchase price allocation, as necessary, up to one year after the acquisition closing date as we obtain more information regarding asset valuations and liabilities assumed.

Our purchase price allocation methodology contains uncertainties because it requires management to make assumptions and to apply judgment to estimate the fair value of acquired assets and liabilities. Management estimates the fair value of assets and liabilities based upon quoted market prices, the carrying value of the acquired assets and widely accepted valuation techniques, including discounted cash flows and market multiple analyses. Unanticipated events or circumstances may occur which could affect the accuracy of our fair value estimates, including assumptions regarding industry economic factors and business strategies.

Other estimates used in determining fair value include, but are not limited to, future cash flows or income related to intangibles, market rate assumptions, actuarial assumptions for benefit plans and appropriate discount rates. Our estimates of fair value are based upon assumptions believed to be reasonable, but that are inherently uncertain, and therefore, may not be realized. Accordingly, there can be no assurance that the estimates, assumptions, and values reflected in the valuations will be realized, and actual results could vary materially.

Warranty Obligations and Product Recall Costs

Estimating warranty obligations requires us to forecast the resolution of existing claims and expected future claims on products sold. We base our estimate on historical trends of units sold and payment amounts, combined with our current understanding of the status of existing claims and discussions with our customers. The key factors which impact our estimates are (1) the stated or implied warranty period; (2) OEM source; (3) OEM policy decisions regarding warranty claims; and (4) OEMs seeking to hold suppliers responsible for product warranties. These estimates are re-evaluated on an ongoing basis. Actual warranty obligations could differ from the amounts estimated requiring adjustments to existing reserves in future periods. Due to the uncertainty and potential volatility of the factors contributing to developing these estimates, changes in our assumptions could materially affect our results of operations.

In addition to our ordinary warranty provisions with customers, we are also at risk for product recall costs, which are costs incurred when a customer or the Company recalls a product through a formal campaign soliciting return of that product. In addition, the National Highway Traffic Safety Administration (“NHTSA”) has the authority, under certain circumstances, to require recalls to remedy safety concerns. Product recall costs typically 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. The Company accrues for costs related to product recalls as part of our warranty accrual at the time an obligation becomes probable and can be reasonably estimated. Actual costs incurred could differ from the amounts estimated, requiring adjustments to these reserves in future periods. It is possible that changes in our assumptions or future product recall issues could materially affect our financial position, results of operations or cash flows.

Legal and Other Contingencies

We are involved from time to time in various legal proceedings and claims, including commercial or contractual disputes, product liability claims, government investigations, product warranties and environmental and other matters, that arise in the normal course of business. We routinely assess the likelihood of any adverse judgments or outcomes related to these matters, as well as ranges of probable losses, by consulting with internal personnel involved with such matters as well as with outside legal counsel handling such matters. We have accrued for estimated losses for those matters where we believe that the likelihood of a loss has occurred, is probable and the amount of the loss is reasonably estimable. The determination of the amount of such reserves is based on knowledge and experience with regard to past and current matters and consultation with internal personnel involved with such matters and with outside legal counsel handling such matters. The amount of such reserves may change in the future due to new developments or changes in circumstances. The inherent uncertainty related to the outcome of these matters can result in amounts materially different from any provisions made with respect to their resolution. Refer to Note 13. Commitments and Contingencies to the audited consolidated financial statements included herein for additional information.

Restructuring

Accruals have been recorded in conjunction with our restructuring actions. These accruals include estimates primarily related to employee termination costs, contract termination costs and other related exit costs in conjunction with workforce reduction and programs related to the rationalization of manufacturing and engineering processes. Actual costs may vary from these estimates. These accruals are reviewed on a quarterly basis and changes to restructuring actions are appropriately recognized when identified.

Pensions

We use actuarial estimates and related actuarial methods to calculate our obligation and expense. We are required to select certain actuarial assumptions, which are determined based on current market conditions, historical information and consultation with and input from our actuaries and asset managers. Refer to Note 12. Pension Benefits to the audited consolidated financial statements included herein for additional details. The key factors which impact our estimates are (1) discount rates; (2) asset return assumptions; and (3) actuarial assumptions such as retirement age and mortality which are determined as of the current year measurement date. We review our actuarial assumptions on an annual basis and make

modifications to the assumptions based on current rates and trends when appropriate. Experience gains and losses, as well as the effects of changes in actuarial assumptions and plan provisions are recognized in other comprehensive income. Cumulative actuarial gains and losses in excess of 10% of the projected benefit obligation (“PBO”) for a particular plan are amortized over the average future service period of the employees in that plan.

The principal assumptions used to determine the pension expense and the actuarial value of the projected benefit obligation for the U.S. and non-U.S. pension plans were:

Assumptions used to determine benefit obligations at December 31:

Pension Benefits
U.S. PlansNon-U.S. Plans
2020201920202019
Weighted-average discount rate1.20%2.40%2.21%2.87%
Weighted-average rate of increase in compensation levelsN/AN/A3.64%3.69%

Assumptions used to determine net expense for years ended December 31:

Pension Benefits
U.S. PlansNon-U.S. Plans
202020192018202020192018
Weighted-average discount rate2.40%3.80%2.70%2.87%3.53%3.39%
Weighted-average rate of increase in compensation levelsN/AN/AN/A3.69%3.74%3.65%
Weighted-average expected long-term rate of return on plan assetsN/AN/AN/A4.68%4.95%5.63%

We select 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 or Moody’s.

Aptiv does not have any U.S. pension assets; therefore no U.S. asset rate of return calculation was necessary for 2020, 2019 or 2018. The primary funded non-U.S. plans are in the U.K. and Mexico. For the determination of 2020 expense, we assumed a long-term expected asset rate of return of approximately 4.25% and 7.50% for the U.K. and Mexico, respectively. We 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 conservative long-term, prospective rates. To determine the expected return on plan assets, the market-related value of our plan assets is actual fair value.

Our pension expense for 2021 is determined at the December 31, 2020 measurement date. For purposes of analysis, the following table highlights the sensitivity of our pension obligations and expense attributable to changes in key assumptions:

Change in AssumptionImpact on Pension ExpenseImpact on PBO
25 basis point (“bp”) decrease in discount rate+ $2 million+ $35 million
25 bp increase in discount rate- $2 million- $33 million
25 bp decrease in long-term expected return on assets+ $1 million—
25 bp increase in long-term expected return on assets- $1 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.

Based on information provided by our actuaries and asset managers, we believe that the assumptions used are reasonable; however, changes in these assumptions could impact our financial position, results of operations or cash flows. Refer to Note 12. Pension Benefits to the audited consolidated financial statements included herein for additional information.

Valuation of Long-Lived Assets, Intangible Assets and Investments in Affiliates and Expected Useful Lives

We monitor our long-lived and definite-lived assets, including our investments in affiliates, the most significant of which is our investment in Motional, Inc., for impairment indicators on an ongoing basis based on projections of anticipated future

cash flows, including future profitability assessments of various manufacturing sites when events and circumstances warrant such a review. If impairment indicators exist, we perform the required impairment analysis by comparing the undiscounted cash flows expected to be generated from the long-lived assets to the related net book values. If the net book value exceeds the undiscounted cash flows, an impairment loss is measured and recognized. An impairment loss is measured as the difference between the net book value and the estimated fair value of the long-lived assets. Even if an impairment charge is not required, a reassessment of the useful lives over which depreciation or amortization is being recognized may be appropriate based on our assessment of the recoverability of these assets. We estimate cash flows and fair value using internal budgets based on recent sales data, independent automotive production volume estimates and customer commitments and review of appraisals. The key factors which impact our estimates are (1) future production estimates; (2) customer preferences and decisions; (3) product pricing; (4) manufacturing and material cost estimates; and (5) product life / business retention. Any differences in actual results from the estimates could result in fair values different from the estimated fair values, which could materially impact our future results of operations and financial condition. We believe that the projections of anticipated future cash flows and fair value assumptions are reasonable; however, changes in assumptions underlying these estimates could affect our valuations.

Goodwill and Intangible Assets

We periodically review goodwill for impairment indicators. We review goodwill for impairment annually in the fourth quarter or more frequently if events or changes in circumstances indicate that goodwill might be impaired. The Company performs the goodwill impairment review at the reporting unit level. We perform a qualitative assessment (step 0) of whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount. If not, no further goodwill impairment testing is performed. If so, we perform the step 1 test discussed hereafter. Our qualitative assessment involves significant estimates, assumptions, and judgments, including, but not limited to, macroeconomic conditions, industry and market conditions, financial performance of the Company, reporting unit specific events and changes in the Company’s share price.

If the fair value of the reporting unit is greater than its carrying amount (step 1), goodwill is not considered to be impaired. We estimate the fair value of our reporting units using a combination of a future discounted cash flow valuation model and, if possible, a comparable market transaction model. Estimating fair value requires the Company to make judgments about appropriate discount rates, growth rates, relevant comparable company earnings multiples and the amount and timing of expected future cash flows. If the fair value of the reporting unit is less than its carrying amount, an entity must record an impairment charge based on the amount by which a reporting unit’s carrying value exceeds its estimated fair value, limited to the amount of goodwill allocated to that reporting unit.

We review indefinite-lived intangible assets for impairment annually or more frequently if events or changes in circumstances indicate the assets might be impaired. Similar to the goodwill assessment described above, the Company first performs a qualitative assessment of whether it is more likely than not that an indefinite-lived intangible asset is impaired. If necessary, the Company then performs a quantitative impairment test by comparing the estimated fair value of the asset, based upon its forecasted cash flows, to its carrying value. Other intangible assets with definite lives are amortized over their useful lives and are subject to impairment testing only if events or circumstances indicate that the asset might be impaired, as described above.

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. A valuation allowance is recorded to reduce our deferred tax assets to the amount that is more likely than not to be realized. Changes in tax laws or accounting standards and methods may affect recorded deferred taxes in future periods.

When establishing a valuation allowance, we consider future sources of taxable income such as “future reversals of existing taxable temporary differences, future taxable income exclusive of reversing temporary differences and carryforwards” and “tax planning strategies.” A tax planning strategy is defined as “an action that: is prudent and feasible; an enterprise ordinarily might not take, but would take to prevent an operating loss or tax credit carryforward from expiring unused; and would result in realization of deferred tax assets.” In the event we determine it is more likely than not that the deferred tax assets will not be realized in the future, the valuation adjustment to the deferred tax assets will be charged to earnings in the period in which we make such a determination. The valuation of deferred tax assets requires judgment and accounting for the deferred tax effect of events that have been recorded in the financial statements or in tax returns and our future projected profitability. Changes in our estimates, due to unforeseen events or otherwise, could have a material impact on our financial condition and results of operations.

We calculate our current and deferred tax provision based on estimates and assumptions that could differ from the actual results reflected in income tax returns filed in subsequent years. Adjustments based on filed returns are recorded when identified. The amount of income taxes we pay is subject to ongoing audits by federal, state and foreign tax authorities. Our

estimate of the potential outcome of any uncertain tax issue is subject to management’s assessment of relevant risks, facts, and circumstances existing at that time. We use a more-likely-than-not threshold for financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. We record a liability for the difference between the benefit recognized and measured and tax position taken or expected to be taken on our tax return. To the extent that our assessment of such tax positions changes, the change in estimate is recorded in the period in which the determination is made. We report tax-related interest and penalties as a component of income tax expense. We do not believe there is a reasonable likelihood that there will be a material change in the tax related balances or valuation allowance balances. However, due to the complexity of some of these uncertainties, the ultimate resolution may be materially different from the current estimate. Refer to Note 14. Income Taxes to the audited consolidated financial statements included herein for additional information.

Recently Issued Accounting Pronouncements

Refer to Note 2. Significant Accounting Policies to the audited consolidated financial statements included herein for a complete description of recent accounting standards which we have not yet been required to implement which may be applicable to our operations. Additionally, the significant accounting standards that have been adopted during the year ended December 31, 2020 are described.

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