filings.toolsItem 1. FINANCIAL STATEMENTS
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Item 1. FINANCIAL STATEMENTS
APTIV PLC
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (in millions, except per share amounts) | |||||||||||||||||||||||
| Net sales | $ | 5,114 | $ | 4,614 | $ | 15,132 | $ | 12,849 | |||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Cost of sales | 4,221 | 3,821 | 12,615 | 11,027 | |||||||||||||||||||
| Selling, general and administrative | 360 | 275 | 1,055 | 835 | |||||||||||||||||||
| Amortization | 59 | 37 | 177 | 112 | |||||||||||||||||||
| Restructuring (Note 7) | 28 | 11 | 81 | 52 | |||||||||||||||||||
| Total operating expenses | 4,668 | 4,144 | 13,928 | 12,026 | |||||||||||||||||||
| Operating income | 446 | 470 | 1,204 | 823 | |||||||||||||||||||
| Interest expense | (75) | (58) | (214) | (157) | |||||||||||||||||||
| Other income (expense), net (Note 16) | 26 | 20 | 36 | (44) | |||||||||||||||||||
| Income before income taxes and equity loss | 397 | 432 | 1,026 | 622 | |||||||||||||||||||
| Income tax benefit (expense) (Note 11) | 1,312 | (59) | 1,248 | (96) | |||||||||||||||||||
| Income before equity loss | 1,709 | 373 | 2,274 | 526 | |||||||||||||||||||
| Equity loss, net of tax | (72) | (67) | (227) | (202) | |||||||||||||||||||
| Net income | 1,637 | 306 | 2,047 | 324 | |||||||||||||||||||
| Net income (loss) attributable to noncontrolling interest | 8 | 5 | 15 | (21) | |||||||||||||||||||
| Net loss attributable to redeemable noncontrolling interest | — | — | (1) | — | |||||||||||||||||||
| Net income attributable to Aptiv | 1,629 | 301 | 2,033 | 345 | |||||||||||||||||||
| Mandatory convertible preferred share dividends (Note 12) | — | (15) | (29) | (47) | |||||||||||||||||||
| Net income attributable to ordinary shareholders | $ | 1,629 | $ | 286 | $ | 2,004 | $ | 298 | |||||||||||||||
| Basic net income per share: | |||||||||||||||||||||||
| Basic net income per share attributable to ordinary shareholders | $ | 5.76 | $ | 1.06 | $ | 7.27 | $ | 1.10 | |||||||||||||||
| Weighted average number of basic shares outstanding | 282.84 | 270.93 | 275.56 | 270.88 | |||||||||||||||||||
| Diluted net income per share (Note 12): | |||||||||||||||||||||||
| Diluted net income per share attributable to ordinary shareholders | $ | 5.76 | $ | 1.05 | $ | 7.17 | $ | 1.10 | |||||||||||||||
| Weighted average number of diluted shares outstanding | 283.01 | 271.10 | 283.44 | 271.10 |
See notes to consolidated financial statements.
APTIV PLC
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Net income | $ | 1,637 | $ | 306 | $ | 2,047 | $ | 324 | |||||||||||||||
| Other comprehensive (loss) income: | |||||||||||||||||||||||
| Currency translation adjustments | (82) | (213) | (104) | (425) | |||||||||||||||||||
| Net change in unrecognized (loss) gain on derivative instruments, net of tax (Note 14) | (36) | (5) | 112 | (67) | |||||||||||||||||||
| Employee benefit plans adjustment, net of tax | 1 | 7 | — | 14 | |||||||||||||||||||
| Other comprehensive (loss) income | (117) | (211) | 8 | (478) | |||||||||||||||||||
| Comprehensive income (loss) | 1,520 | 95 | 2,055 | (154) | |||||||||||||||||||
| Comprehensive income (loss) attributable to noncontrolling interests | 9 | 3 | 13 | (20) | |||||||||||||||||||
| Comprehensive loss attributable to redeemable noncontrolling interest | (4) | — | (3) | — | |||||||||||||||||||
| Comprehensive income (loss) attributable to Aptiv | $ | 1,515 | $ | 92 | $ | 2,045 | $ | (134) |
See notes to consolidated financial statements.
APTIV PLC
CONSOLIDATED BALANCE SHEETS
| September 30, 2023 | December 31, 2022 | ||||||||||
| (Unaudited) | |||||||||||
| (in millions) | |||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 1,808 | $ | 1,531 | |||||||
| Accounts receivable, net of allowance for doubtful accounts of $49 million and $52 million, respectively (Note 2) | 3,647 | 3,433 | |||||||||
| Inventories (Note 3) | 2,432 | 2,340 | |||||||||
| Other current assets (Note 4) | 603 | 480 | |||||||||
| Total current assets | 8,490 | 7,784 | |||||||||
| Long-term assets: | |||||||||||
| Property, net | 3,579 | 3,495 | |||||||||
| Operating lease right-of-use assets | 511 | 451 | |||||||||
| Investments in affiliates (Note 21) | 1,498 | 1,723 | |||||||||
| Intangible assets, net (Note 2) | 2,423 | 2,585 | |||||||||
| Goodwill (Note 2) | 5,073 | 5,106 | |||||||||
| Other long-term assets (Note 4) | 2,137 | 740 | |||||||||
| Total long-term assets | 15,221 | 14,100 | |||||||||
| Total assets | $ | 23,711 | $ | 21,884 | |||||||
| LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND SHAREHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Short-term debt (Note 8) | $ | 43 | $ | 31 | |||||||
| Accounts payable | 3,056 | 3,150 | |||||||||
| Accrued liabilities (Note 5) | 1,597 | 1,684 | |||||||||
| Total current liabilities | 4,696 | 4,865 | |||||||||
| Long-term liabilities: | |||||||||||
| Long-term debt (Note 8) | 6,419 | 6,460 | |||||||||
| Pension benefit obligations | 372 | 354 | |||||||||
| Long-term operating lease liabilities | 419 | 361 | |||||||||
| Other long-term liabilities (Note 5) | 732 | 750 | |||||||||
| Total long-term liabilities | 7,942 | 7,925 | |||||||||
| Total liabilities | 12,638 | 12,790 | |||||||||
| Commitments and contingencies (Note 10) | |||||||||||
| Redeemable noncontrolling interest (Note 2) | 93 | 96 | |||||||||
| Shareholders’ equity: | |||||||||||
| Preferred shares, $0.01 par value per share, 50,000,000 shares authorized; none issued and outstanding as of September 30, 2023; 11,500,000 shares of 5.50% Mandatory Convertible Preferred Shares, Series A, issued and outstanding as of December 31, 2022 | — | — | |||||||||
| Ordinary shares, $0.01 par value per share, 1,200,000,000 shares authorized, 282,824,285 and 270,949,579 issued and outstanding as of September 30, 2023 and December 31, 2022, respectively | 3 | 3 | |||||||||
| Additional paid-in-capital | 4,032 | 3,989 | |||||||||
| Retained earnings | 7,522 | 5,608 | |||||||||
| Accumulated other comprehensive loss (Note 13) | (779) | (791) | |||||||||
| Total Aptiv shareholders’ equity | 10,778 | 8,809 | |||||||||
| Noncontrolling interest | 202 | 189 | |||||||||
| Total shareholders’ equity | 10,980 | 8,998 | |||||||||
| Total liabilities, redeemable noncontrolling interest and shareholders’ equity | $ | 23,711 | $ | 21,884 |
See notes to consolidated financial statements.
APTIV PLC
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
| Nine Months Ended September 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| (in millions) | |||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ | 2,047 | $ | 324 | |||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation | 489 | 462 | |||||||||
| Amortization | 177 | 112 | |||||||||
| Amortization of deferred debt issuance costs | 7 | 7 | |||||||||
| Restructuring expense, net of cash paid | 4 | 2 | |||||||||
| Deferred income taxes | (1,408) | (6) | |||||||||
| Pension and other postretirement benefit expenses | 34 | 25 | |||||||||
| Loss from equity method investments, net of dividends received | 232 | 205 | |||||||||
| Loss on sale of assets | 2 | — | |||||||||
| Share-based compensation | 82 | 65 | |||||||||
| Other charges related to Ukraine/Russia conflict | — | 54 | |||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable, net | (213) | (582) | |||||||||
| Inventories | (87) | (301) | |||||||||
| Other assets | (76) | 52 | |||||||||
| Accounts payable | (1) | (107) | |||||||||
| Accrued and other long-term liabilities | (7) | (5) | |||||||||
| Other, net | 10 | 38 | |||||||||
| Pension contributions | (20) | (15) | |||||||||
| Net cash provided by operating activities | 1,272 | 330 | |||||||||
| Cash flows from investing activities: | |||||||||||
| Capital expenditures | (703) | (666) | |||||||||
| Proceeds from sale of property | 3 | 3 | |||||||||
| Proceeds from business divestitures, net of cash sold | (17) | — | |||||||||
| Cost of business acquisitions and other transactions, net of cash acquired | (83) | (220) | |||||||||
| Proceeds from sale of technology investments | — | 3 | |||||||||
| Cost of technology investments | (1) | (42) | |||||||||
| Settlement of derivatives | 6 | 9 | |||||||||
| Net cash used in investing activities | (795) | (913) | |||||||||
| Cash flows from financing activities: | |||||||||||
| Net repayments under other short-term debt agreements | (22) | (3) | |||||||||
| Net repayments under other long-term debt agreements | (8) | (2) | |||||||||
| Proceeds from issuance of senior notes, net of issuance costs | — | 2,472 | |||||||||
| Contingent consideration payments | (10) | — | |||||||||
| Dividend payments of consolidated affiliates to minority shareholders | — | (8) | |||||||||
| Repurchase of ordinary shares | (98) | — | |||||||||
| Distribution of mandatory convertible preferred share cash dividends | (32) | (47) | |||||||||
| Taxes withheld and paid on employees’ restricted share awards | (31) | (36) | |||||||||
| Net cash (used in) provided by financing activities | (201) | 2,376 | |||||||||
| Effect of exchange rate fluctuations on cash, cash equivalents and restricted cash | (23) | (54) | |||||||||
| Increase in cash, cash equivalents and restricted cash | 253 | 1,739 | |||||||||
| Cash, cash equivalents and restricted cash at beginning of the period | 1,555 | 3,139 | |||||||||
| Cash, cash equivalents and restricted cash at end of the period | $ | 1,808 | $ | 4,878 | |||||||
| Reconciliation of cash, cash equivalents and restricted cash and cash classified as assets held for sale: | |||||||||||
| September 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| (in millions) | |||||||||||
| Cash, cash equivalents and restricted cash | $ | 1,808 | $ | 4,854 | |||||||
| Cash classified as assets held for sale | — | 24 | |||||||||
| Total cash, cash equivalents and restricted cash | $ | 1,808 | $ | 4,878 | |||||||
See notes to consolidated financial statements.
APTIV PLC
CONSOLIDATED STATEMENTS OF REDEEMABLE NONCONTROLLING INTEREST AND SHAREHOLDERS’ EQUITY (Unaudited)
| Three Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Ordinary Shares | Preferred Shares | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Redeemable Noncontrolling Interest | Number of shares | Amount of shares | Number of shares | Amount of shares | Additional Paid in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Total Aptiv Shareholders’ Equity | Noncontrolling Interest | Total Shareholders’ Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2023 | (in millions) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2023 | $ | 97 | 283 | $ | 3 | — | $ | — | $ | 4,001 | $ | 5,893 | $ | (665) | $ | 9,232 | $ | 193 | $ | 9,425 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | 1,629 | — | 1,629 | — | 1,629 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive (loss) income | (4) | — | — | — | — | — | — | (114) | (114) | 1 | (113) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income attributable to noncontrolling interest | — | — | — | — | — | — | — | — | — | 8 | 8 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | — | 31 | — | — | 31 | — | 31 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2023 | $ | 93 | 283 | $ | 3 | — | $ | — | $ | 4,032 | $ | 7,522 | $ | (779) | $ | 10,778 | $ | 202 | $ | 10,980 | ||||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2022 | $ | — | 271 | $ | 3 | 12 | $ | — | $ | 3,949 | $ | 5,089 | $ | (942) | $ | 8,099 | $ | 183 | $ | 8,282 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | 301 | — | 301 | — | 301 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | — | — | — | (209) | (209) | — | (209) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income attributable to noncontrolling interest | — | — | — | — | — | — | — | — | — | 5 | 5 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss attributable to noncontrolling interest | — | — | — | — | — | — | — | — | — | (2) | (2) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Mandatory convertible preferred share cumulative dividends | — | — | — | — | — | — | (15) | — | (15) | — | (15) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | — | 19 | — | — | 19 | — | 19 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2022 | $ | — | 271 | $ | 3 | 12 | $ | — | $ | 3,968 | $ | 5,375 | $ | (1,151) | $ | 8,195 | $ | 186 | $ | 8,381 |
See notes to consolidated financial statements.
APTIV PLC
CONSOLIDATED STATEMENTS OF REDEEMABLE NONCONTROLLING INTEREST AND SHAREHOLDERS’ EQUITY (Unaudited) (Continued)
| Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Ordinary Shares | Preferred Shares | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Redeemable Noncontrolling Interest | Number of shares | Amount of shares | Number of shares | Amount of shares | Additional Paid in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Total Aptiv Shareholders’ Equity | Noncontrolling Interest | Total Shareholders’ Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2023 | (in millions) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2023 | $ | 96 | 271 | $ | 3 | 12 | $ | — | $ | 3,989 | $ | 5,608 | $ | (791) | $ | 8,809 | $ | 189 | $ | 8,998 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | 2,033 | — | 2,033 | — | 2,033 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive (loss) income | (2) | — | — | — | — | — | — | 12 | 12 | (2) | 10 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net (loss) income attributable to noncontrolling interest | (1) | — | — | — | — | — | — | — | — | 15 | 15 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Mandatory convertible preferred share cumulative dividends | — | — | — | — | — | — | (29) | — | (29) | — | (29) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Conversion of MCPS to ordinary shares | — | 12 | — | (12) | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Taxes withheld on employees’ restricted share award vestings | — | — | — | — | — | (31) | — | — | (31) | — | (31) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of ordinary shares | — | (1) | — | — | — | (8) | (90) | — | (98) | — | (98) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | 1 | — | — | — | 82 | — | — | 82 | — | 82 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2023 | $ | 93 | 283 | $ | 3 | — | $ | — | $ | 4,032 | $ | 7,522 | $ | (779) | $ | 10,778 | $ | 202 | $ | 10,980 | ||||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2022 | $ | — | 271 | $ | 3 | 12 | $ | — | $ | 3,939 | $ | 5,077 | $ | (672) | $ | 8,347 | $ | 214 | $ | 8,561 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | 345 | — | 345 | — | 345 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | — | — | — | (479) | (479) | — | (479) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss attributable to noncontrolling interest | — | — | — | — | — | — | — | — | — | (21) | (21) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income attributable to noncontrolling interest | — | — | — | — | — | — | — | — | — | 1 | 1 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividend payments of consolidated affiliates to minority shareholders | — | — | — | — | — | — | — | — | — | (8) | (8) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Mandatory convertible preferred share cumulative dividends | — | — | — | — | — | — | (47) | — | (47) | — | (47) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Taxes withheld on employees’ restricted share award vestings | — | — | — | — | — | (36) | — | — | (36) | — | (36) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | — | 65 | — | — | 65 | — | 65 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2022 | $ | — | 271 | $ | 3 | 12 | $ | — | $ | 3,968 | $ | 5,375 | $ | (1,151) | $ | 8,195 | $ | 186 | $ | 8,381 |
See notes to consolidated financial statements.
APTIV PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. GENERAL
General and basis of presentation—“Aptiv,” the “Company,” “we,” “us” and “our” refer to Aptiv PLC (formerly known as Delphi Automotive PLC), a public limited company formed under the laws of Jersey on May 19, 2011, which completed an initial public offering on November 22, 2011, and its consolidated subsidiaries. The Company’s ordinary shares are publicly traded on the New York Stock Exchange (“NYSE”) under the symbol “APTV.”
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and all adjustments, consisting of only normal recurring items, which are necessary for a fair presentation, have been included. The consolidated financial statements and notes thereto included in this report should be read in conjunction with Aptiv’s 2022 Annual Report on Form 10-K.
Nature of operations—Aptiv is a leading global technology and mobility architecture company primarily serving the automotive sector. We deliver end-to-end mobility solutions enabling our customers’ transition to more electrified, software-defined vehicles. We design and manufacture vehicle components and provide electrical, electronic and active safety technology solutions to the global automotive and commercial vehicle markets. Aptiv operates manufacturing facilities and technical centers utilizing a regional service model that enables the Company to efficiently and effectively serve its global customers from best cost countries.
2. SIGNIFICANT ACCOUNTING POLICIES
Consolidation—The consolidated financial statements include the accounts of Aptiv and the subsidiaries in which Aptiv holds a controlling financial or management interest and variable interest entities of which Aptiv has determined that it is the primary beneficiary. Aptiv’s share of the earnings or losses of non-controlled affiliates, over which Aptiv exercises significant influence (generally a 20% to 50% ownership interest), is included in the consolidated operating results using the equity method of accounting. When Aptiv does not have the ability to exercise significant influence (generally when ownership interest is less than 20%), investments in non-consolidated affiliates without readily determinable fair value are measured at cost, less impairments, adjusted for observable price changes in orderly transactions for identical or similar investments of the same issuer, while investments in publicly traded equity securities are measured at fair value based on quoted prices for identical assets on active market exchanges as of each reporting date. The Company monitors its investments in affiliates for indicators of other-than-temporary declines in value on an ongoing basis. If the Company determines that such a decline has occurred, an impairment loss is recorded, which is measured as the difference between carrying value and estimated fair value. Estimated fair value is generally determined using an income approach based on discounted cash flows or negotiated transaction values.
Intercompany transactions and balances between consolidated Aptiv businesses have been eliminated.
During the nine months ended September 30, 2023, Aptiv received a dividend of $5 million from its equity method investments. During the three months ended September 30, 2022, Aptiv received a dividend of $3 million 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.
Aptiv’s equity investments without readily determinable fair value totaled $48 million and $67 million as of September 30, 2023 and December 31, 2022, respectively, and are classified within other long-term assets in the consolidated balance sheets. Aptiv’s investments in publicly traded equity securities totaled $12 million and $17 million as of September 30, 2023 and December 31, 2022, respectively, and are classified within other long-term assets in the consolidated balance sheets. Refer to Note 21. Investments in Affiliates for further information regarding Aptiv’s equity investments.
In 2022, the Company acquired 85% of the equity interests of Intercable Automotive Solutions S.r.l. (“Intercable Automotive”). Concurrent with the acquisition, the Company entered into an agreement with the noncontrolling interest holders that provides the Company with the right to purchase, and the noncontrolling interest holders with the right to sell, the remaining 15% of Intercable Automotive for cash at a contractually defined value beginning in 2026. As a result of this redemption feature, the Company recorded the redeemable noncontrolling interest at its acquisition-date fair value to temporary equity in the consolidated balance sheet. The redeemable noncontrolling interest is adjusted each reporting period for the income (loss) attributable to the noncontrolling interest, and for any measurement period adjustments necessary to record the redeemable noncontrolling interest at the higher of its redemption value, assuming it was redeemable at the reporting date, or its carrying value. Any measurement period adjustments are recorded to retained earnings, with a corresponding increase or reduction to net income attributable to Aptiv. Redeemable noncontrolling interest was $93 million and $96 million as of September 30, 2023 and December 31, 2022, respectively. Refer to Note 17. Acquisitions and Divestitures for further information regarding this acquisition and the redeemable noncontrolling interest.
Use of estimates—Preparation of consolidated financial statements in conformity with U.S. GAAP requires the use of estimates and assumptions that affect amounts reported therein. Generally, matters subject to estimation and judgment include amounts related to accounts receivable realization, inventory obsolescence, asset impairments, useful lives of intangible and fixed assets, deferred tax asset valuation allowances, income taxes, pension benefit plan assumptions, accruals related to litigation, warranty costs, environmental remediation costs, contingent consideration arrangements, redeemable noncontrolling interest, worker’s compensation accruals and healthcare accruals. Due to the inherent uncertainty involved in making estimates, including the duration and severity of the impacts of the ongoing global supply chain disruptions and the conflict between Ukraine and Russia, actual results reported in future periods may be based upon amounts that differ from those estimates.
Revenue recognition—Revenue is measured based on consideration specified in a contract with a customer. Customer contracts for production parts generally are represented by a combination of a current purchase order and a current production schedule issued by the customer. Customer contracts for software licenses are generally represented by a sales contract or purchase order with contract durations typically ranging from one to three years. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer. Revenue from software licenses and professional software services is generally recognized at a point in time upon delivery while revenue from post delivery support and maintenance for software contracts is generally recognized over time on a ratable basis over the contract term. From time to time, Aptiv enters into pricing agreements with its customers that provide for price reductions, some of which are conditional upon achieving certain joint cost saving targets. In these instances, revenue is recognized based on the agreed-upon price at the time of shipment.
Sales incentives and allowances are recognized as a reduction to revenue at the time of the related sale. In addition, from time to time, Aptiv makes payments to customers in conjunction with ongoing business. These payments to customers are generally recognized as a reduction to revenue at the time of the commitment to make these payments. However, certain other payments to customers, or upfront fees, meet the criteria to be considered a cost to obtain a contract as they are directly attributable to a contract, are incremental and management expects the fees to be recoverable.
Aptiv collects and remits taxes assessed by different governmental authorities that are both imposed on and concurrent with a revenue-producing transaction between the Company and the Company’s customers. These taxes may include, but are not limited to, sales, use, value-added, and some excise taxes. Aptiv reports the collection of these taxes on a net basis (excluded from revenues). Shipping and handling fees billed to customers are included in net sales, while costs of shipping and handling are included in cost of sales. Refer to Note 20. Revenue for further information.
Net income per share—Basic net income per share is computed by dividing net income attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period. Diluted net income per share reflects the weighted average dilutive impact of all potentially dilutive securities from the date of issuance and is computed using the treasury stock and if-converted methods. The if-converted method is used to determine if the impact of conversion of the 5.50% Mandatory Convertible Preferred Shares, Series A, $0.01 par value per share (the “MCPS”) into ordinary shares is more dilutive than the MCPS dividends to net income per share. If so, the MCPS are assumed to have been converted at the later of the beginning of the period or the time of issuance, and the resulting ordinary shares are included in the denominator and the MCPS dividends are added back to the numerator. Unless otherwise noted, share and per share amounts included in these notes are on a diluted basis. Refer to Note 12. Shareholders’ Equity and Net Income Per Share for additional information including the calculation of basic and diluted net income per share.
Cash and cash equivalents—Cash and cash equivalents are defined as short-term, highly liquid investments with original maturities of three months or less, for which the book value approximates fair value.
Accounts receivable—Aptiv enters into agreements to sell certain of its accounts receivable, primarily in Europe. Sales of receivables are accounted for in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 860, Transfers and Servicing (“ASC 860”). Agreements which result in true sales of the transferred receivables, as defined in ASC 860, which occur when receivables are transferred without recourse to the Company, are excluded from amounts reported in the consolidated balance sheets. Cash proceeds received from such sales are included in operating cash flows. Agreements that allow Aptiv to maintain effective control over the transferred receivables and which do not qualify as a sale, as defined in ASC 860, are accounted for as secured borrowings and recorded in the consolidated balance sheets within accounts receivable, net and short-term debt. The expenses associated with receivables factoring are recorded in the consolidated statements of operations within interest expense.
Credit losses—Aptiv is exposed to credit losses primarily through the sale of vehicle components, software licenses and services. Aptiv assesses the creditworthiness of a counterparty by conducting ongoing credit reviews, which considers the Company’s expected billing exposure and timing for payment, as well as the counterparty’s established credit rating. When a credit rating is not available, the Company’s assessment is based on an analysis of the counterparty’s financial statements. Aptiv also considers contract terms and conditions, country and political risk, and business strategy in its evaluation. Based on the outcome of this review, the Company establishes a credit limit for each counterparty. The Company continues to monitor its
ongoing credit exposure through active review of counterparty balances against contract terms and due dates, which includes timely account reconciliation, payment confirmation and dispute resolution. The Company may also employ collection agencies and legal counsel to pursue recovery of defaulted receivables, if necessary.
Aptiv primarily utilizes historical loss and recovery data, combined with information on current economic conditions and reasonable and supportable forecasts to develop the estimate of the allowance for doubtful accounts in accordance with ASC Topic 326, Financial Instruments – Credit Losses. As of September 30, 2023 and December 31, 2022, the Company reported $3,647 million and $3,433 million, respectively, of accounts receivable, net of allowances, which includes the allowance for doubtful accounts of $49 million and $52 million, respectively. Changes in the allowance for doubtful accounts were not material for the nine months ended September 30, 2023.
Inventories—As of September 30, 2023 and December 31, 2022, inventories are stated at the lower of cost, determined on a first-in, first-out basis, or net realizable value, including direct material costs and direct and indirect manufacturing costs. Refer to Note 3. Inventories for additional information. Obsolete inventory is identified based on analysis of inventory for known obsolescence issues, and, generally, the market value of inventory on hand in excess of one year’s supply is fully-reserved.
From time to time, payments may be received from suppliers. These payments from suppliers are recognized as a reduction of the cost of the material acquired during the period to which the payments relate. In some instances, supplier rebates are received in conjunction with or concurrent with the negotiation of future purchase agreements and these amounts are amortized over the prospective agreement period.
Assets and liabilities held for sale—The Company considers assets to be held for sale when management, having the appropriate authority, approves and commits to a formal plan to actively market the assets for sale at a price reasonable in relation to their estimated fair value, the assets are available for immediate sale in their present condition, an active program to locate a buyer and other actions required to complete the sale have been initiated, the sale of the assets is probable and expected to be completed within one year and it is unlikely that significant changes will be made to the plan. Upon designation as held for sale, the Company records the assets at the lower of their carrying value or their estimated fair value, less cost to sell, and ceases to record depreciation expense on the assets.
Assets and liabilities of a discontinued operation are reclassified as held for sale for all comparative periods presented in the consolidated balance sheets. For assets that meet the held for sale criteria but do not meet the definition of a discontinued operation, the Company reclassifies the assets and liabilities in the period in which the held for sale criteria are met, but does not reclassify prior period amounts.
Intangible assets—Intangible assets were $2,423 million and $2,585 million as of September 30, 2023 and December 31, 2022, respectively. Aptiv amortizes definite-lived intangible assets over their estimated useful lives. Aptiv has definite-lived intangible assets related to patents and developed technology, customer relationships and trade names. Indefinite-lived in-process research and development intangible assets are not amortized, but are tested for impairment annually, or more frequently when indicators of potential impairment exist, until the completion or abandonment of the associated research and development efforts. Upon completion of the projects, the assets will be amortized over the expected economic life of the asset, which will be determined on that date. Should the project be determined to be abandoned, and if the asset developed has no alternative use, the full value of the asset will be charged to expense. The Company also has intangible assets related to acquired trade names that are classified as indefinite-lived when there are no foreseeable limits on the periods of time over which they are expected to contribute cash flows. These indefinite-lived trade name assets are tested for impairment annually, or more frequently when indicators of potential impairment exist. Costs to renew or extend the term of acquired intangible assets are recognized as expense as incurred. Amortization expense was $59 million and $177 million for the three and nine months ended September 30, 2023, respectively, and $37 million and $112 million for the three and nine months ended September 30, 2022, respectively, which includes the impact of any intangible asset impairment charges recorded during the period.
Goodwill—Goodwill is the excess of the purchase price over the estimated fair value of identifiable net assets acquired in business combinations. The Company tests goodwill for impairment annually in the fourth quarter, or more frequently when indications of potential impairment exist. The Company monitors the existence of potential impairment indicators throughout the fiscal year. The Company tests for goodwill impairment at the reporting unit level. Our reporting units are the components of operating segments which constitute businesses for which discrete financial information is available and is regularly reviewed by segment management.
The impairment test involves first qualitatively assessing goodwill for impairment. If the qualitative assessment is not met the Company then performs a quantitative assessment by comparing the estimated fair value of each reporting unit to its carrying value, including goodwill. Fair value reflects the price a market participant would be willing to pay in a potential sale of the reporting unit. If the estimated fair value exceeds carrying value, then we conclude that no goodwill impairment has occurred. If the carrying value of the reporting unit exceeds its estimated fair value, the Company recognizes an impairment
loss in an amount equal to the excess, not to exceed the amount of goodwill allocated to the reporting unit. The Company qualitatively concluded there were no goodwill impairments during the nine months ended September 30, 2023 and 2022. Goodwill was $5,073 million and $5,106 million as of September 30, 2023 and December 31, 2022, respectively.
Warranty and product recalls—Expected warranty costs for products sold are recognized at the time of sale of the product based on an estimate of the amount that eventually will be required to settle such obligations. These accruals are based on factors such as past experience, production changes, industry developments and various other considerations. Costs of product recalls, which may include the cost of the product being replaced as well as the customer’s cost of the recall, including labor to remove and replace the recalled part, are accrued as part of our warranty accrual at the time an obligation becomes probable and can be reasonably estimated. These estimates are adjusted from time to time based on facts and circumstances that impact the status of existing claims. Refer to Note 6. Warranty Obligations for additional information.
Income taxes—Deferred tax assets and liabilities reflect temporary differences between the amount of assets and liabilities for financial and tax reporting purposes. Such amounts are adjusted, as appropriate, to reflect changes in tax rates expected to be in effect when the temporary differences reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period that includes the enactment date. A valuation allowance is recorded to reduce deferred tax assets to the amount that is more likely than not to be realized. In the event the Company determines it is more likely than not that the deferred tax assets will not be realized in the future, the valuation allowance adjustment to the deferred tax assets will be charged to earnings in the period in which the Company makes such a determination. In determining whether an uncertain tax position exists, the Company determines, based solely on its technical merits, whether the tax position is more likely than not to be sustained upon examination, and if so, a tax benefit is measured on a cumulative probability basis that is more likely than not to be realized upon the ultimate settlement. In determining the provision for income taxes for financial statement purposes, the Company makes certain estimates and judgments which affect its evaluation of the carrying value of its deferred tax assets, as well as its calculation of certain tax liabilities. As it relates to changes in accumulated other comprehensive income (loss), the Company’s policy is to release tax effects from accumulated other comprehensive income (loss) when the underlying components affect earnings. Refer to Note 11. Income Taxes for additional information.
Restructuring—Aptiv continually evaluates alternatives to align the business with the changing needs of its customers and to lower operating costs. This includes the realignment of its existing manufacturing capacity, facility closures, or similar actions, either in the normal course of business or pursuant to significant restructuring programs. These actions may result in employees receiving voluntary or involuntary employee termination benefits, which are mainly pursuant to union or other contractual agreements or statutory requirements. Voluntary termination benefits are accrued when an employee accepts the related offer. Involuntary termination benefits are accrued upon the commitment to a termination plan and when the benefit arrangement is communicated to affected employees, or when liabilities are determined to be probable and estimable, depending on the existence of a substantive plan for severance or termination. Contract termination costs and certain early termination lease costs are recorded when contracts are terminated. All other exit costs are expensed as incurred. Refer to Note 7. Restructuring for additional information.
Customer concentrations—As reflected in the table below, net sales to General Motors (“GM”), Stellantis N.V. (“Stellantis”), Ford Motor Company (“Ford”) and Volkswagen Group (“VW”), Aptiv’s four largest customers, totaled approximately 34% of our total net sales for the three and nine months ended September 30, 2023, and 34% of our total net sales for the three and nine months ended September 30, 2022.
| Percentage of Total Net Sales | Accounts Receivable | |||||||||||||||||||||||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | September 30, 2023 | December 31, 2022 | |||||||||||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||||||||||||||
| GM | 8 | % | 9 | % | 8 | % | 9 | % | $ | 272 | $ | 231 | ||||||||||||||||||||||||||
| Stellantis | 9 | % | 8 | % | 9 | % | 9 | % | $ | 322 | $ | 325 | ||||||||||||||||||||||||||
| Ford | 9 | % | 9 | % | 9 | % | 8 | % | $ | 295 | $ | 250 | ||||||||||||||||||||||||||
| VW | 8 | % | 8 | % | 8 | % | 8 | % | $ | 201 | $ | 186 |
Recently adopted accounting pronouncements—Aptiv adopted Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting and ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, in the second quarter of 2023. ASU 2020-04 provides optional expedients and exceptions, if certain criteria are met, for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform. ASU 2022-06 defers the sunset date of Topic 848 from December 31, 2022 to December 31, 2024 and is effective immediately. The Company elected to apply the contract modifications accounting optional expedient, under which the reporting entity accounts for changes made to debt agreements solely for the replacement of a discontinued reference rate as being not substantial and thus a continuation of the existing
contract, to contract amendments within the scope of ASU 2020-04 that were effective in the second quarter of 2023, which did not have a significant impact on Aptiv’s consolidated financial statements.
Aptiv adopted ASU 2022-04, Liabilities - Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations, in the first quarter of 2023, except for the amendment on rollforward information, which is to be applied prospectively and is effective for fiscal years beginning after December 15, 2023. The amendments in this update are intended to improve the transparency of supplier finance programs by requiring a buyer in a supplier finance program to disclose sufficient information about the program to allow a user of the financial statements to understand the program’s nature, key terms, outstanding balances and activity during the period. The adoption of this guidance did not have a significant impact on Aptiv’s consolidated financial statements.
Recently issued accounting pronouncements not yet adopted—In August 2023, the FASB issued ASU 2023-05, Business Combinations - Joint Venture Formations (Subtopic 805-60): Recognition and Initial Measurement. The amendments in this update require a joint venture to initially recognize all contributions received at fair value upon formation. The new guidance is applicable to joint venture entities with a formation date on or after January 1, 2025 and is to be applied prospectively. Early adoption is permitted. The adoption of this guidance is not expected to have a significant impact on Aptiv’s consolidated financial statements.
3. INVENTORIES
Inventories are stated at the lower of cost, determined on a first-in, first-out basis, or net realizable value, including direct material costs and direct and indirect manufacturing costs. A summary of inventories is shown below:
| September 30, 2023 | December 31, 2022 | ||||||||||
| (in millions) | |||||||||||
| Productive material | $ | 1,580 | $ | 1,570 | |||||||
| Work-in-process | 187 | 164 | |||||||||
| Finished goods | 665 | 606 | |||||||||
| Total | $ | 2,432 | $ | 2,340 |
4. ASSETS
Other current assets consisted of the following:
| September 30, 2023 | December 31, 2022 | ||||||||||
| (in millions) | |||||||||||
| Value added tax receivable | $ | 141 | $ | 167 | |||||||
| Prepaid insurance and other expenses | 79 | 75 | |||||||||
| Reimbursable engineering costs | 114 | 90 | |||||||||
| Notes receivable | 6 | 8 | |||||||||
| Income and other taxes receivable | 70 | 40 | |||||||||
| Deposits to vendors | 7 | 7 | |||||||||
| Derivative financial instruments (Note 14) | 114 | 44 | |||||||||
| Capitalized upfront fees (Note 20) | 12 | 17 | |||||||||
| Contract assets (Note 20) | 52 | 24 | |||||||||
| Other | 8 | 8 | |||||||||
| Total | $ | 603 | $ | 480 |
Other long-term assets consisted of the following:
| September 30, 2023 | December 31, 2022 | ||||||||||
| (in millions) | |||||||||||
| Deferred income taxes, net | $ | 1,643 | $ | 259 | |||||||
| Unamortized Revolving Credit Facility debt issuance costs | 7 | 8 | |||||||||
| Income and other taxes receivable | 32 | 30 | |||||||||
| Reimbursable engineering costs | 163 | 160 | |||||||||
| Value added tax receivable | 2 | 2 | |||||||||
| Equity investments (Note 21) | 60 | 84 | |||||||||
| Derivative financial instruments (Note 14) | 18 | 14 | |||||||||
| Capitalized upfront fees (Note 20) | 51 | 61 | |||||||||
| Contract assets (Note 20) | 68 | 43 | |||||||||
| Other | 93 | 79 | |||||||||
| Total | $ | 2,137 | $ | 740 |
5. LIABILITIES
Accrued liabilities consisted of the following:
| September 30, 2023 | December 31, 2022 | ||||||||||
| (in millions) | |||||||||||
| Payroll-related obligations | $ | 405 | $ | 330 | |||||||
| Employee benefits, including current pension obligations | 143 | 151 | |||||||||
| Income and other taxes payable | 179 | 188 | |||||||||
| Warranty obligations (Note 6) | 51 | 43 | |||||||||
| Restructuring (Note 7) | 56 | 65 | |||||||||
| Customer deposits | 79 | 82 | |||||||||
| Derivative financial instruments (Note 14) | 19 | 29 | |||||||||
| Accrued interest | 53 | 51 | |||||||||
| MCPS dividends payable | — | 3 | |||||||||
| Contract liabilities (Note 20) | 70 | 90 | |||||||||
| Operating lease liabilities | 113 | 109 | |||||||||
| Other | 429 | 543 | |||||||||
| Total | $ | 1,597 | $ | 1,684 |
Other long-term liabilities consisted of the following:
| September 30, 2023 | December 31, 2022 | ||||||||||
| (in millions) | |||||||||||
| Environmental | $ | 3 | $ | 1 | |||||||
| Extended disability benefits | 5 | 4 | |||||||||
| Warranty obligations (Note 6) | 8 | 9 | |||||||||
| Restructuring (Note 7) | 29 | 18 | |||||||||
| Payroll-related obligations | 11 | 10 | |||||||||
| Accrued income taxes | 142 | 161 | |||||||||
| Deferred income taxes, net | 455 | 481 | |||||||||
| Contract liabilities (Note 20) | 8 | 9 | |||||||||
| Derivative financial instruments (Note 14) | 4 | 7 | |||||||||
| Other | 67 | 50 | |||||||||
| Total | $ | 732 | $ | 750 |
6. WARRANTY OBLIGATIONS
Expected warranty costs for products sold are recognized principally at the time of sale of the product based on an estimate of the amount that eventually will be required to settle such obligations. These accruals are based on factors such as past experience, production changes, industry developments and various other considerations. The estimated costs related to product recalls based on a formal campaign soliciting return of that product are accrued at the time an obligation becomes probable and can be reasonably estimated. These estimates are adjusted from time to time based on facts and circumstances that impact the status of existing claims. Aptiv has recognized its best estimate for its total aggregate warranty reserves, including product recall costs, across all of its operating segments as of September 30, 2023. The Company estimates the reasonably possible amount to ultimately resolve all matters in excess of the recorded reserves as of September 30, 2023 to be zero to $20 million.
The table below summarizes the activity in the product warranty liability for the nine months ended September 30, 2023:
| Warranty Obligations | |||||
| (in millions) | |||||
| Accrual balance at beginning of period | $ | 52 | |||
| Provision for estimated warranties incurred during the period | 24 | ||||
| Changes in estimate for pre-existing warranties | 17 | ||||
| Settlements | (36) | ||||
| Foreign currency translation and other | 2 | ||||
| Accrual balance at end of period | $ | 59 |
7. RESTRUCTURING
Aptiv’s restructuring activities are undertaken as necessary to implement management’s strategy, streamline operations, take advantage of available capacity and resources, and ultimately achieve net cost reductions. These activities generally relate to the realignment of existing manufacturing capacity and closure of facilities and other exit or disposal activities, as it relates to executing Aptiv’s strategy, either in the normal course of business or pursuant to significant restructuring programs.
As part of Aptiv’s continued efforts to optimize its cost structure, it has undertaken several restructuring programs which include workforce reductions as well as plant closures. These programs are primarily focused on reducing global overhead costs and on the continued rotation of our manufacturing footprint to best cost locations in Europe. The Company recorded employee-related and other restructuring charges related to these programs totaling approximately $28 million and $81 million during the three and nine months ended September 30, 2023, respectively. The charges recorded during the nine months ended September 30, 2023 included the recognition of approximately $27 million of employee-related and other costs related to the initiation of the closure of a Western European manufacturing site within the Advanced Safety and User Experience segment pursuant to the Company’s ongoing European footprint rotation strategy. Cash payments related to this restructuring action are
expected to be principally completed in 2024. There have been no changes in previously initiated programs that have resulted (or are expected to result) in a material change to our restructuring costs. The Company expects to incur additional restructuring costs of approximately $45 million (of which approximately $40 million relates to the Advanced Safety and User Experience segment and approximately $5 million relates to the Signal and Power Solutions segment) for programs approved as of September 30, 2023, which are primarily expected to be incurred within the next twelve months.
During the three and nine months ended September 30, 2022, Aptiv recorded employee-related and other restructuring charges totaling approximately $11 million and $52 million, respectively.
Restructuring charges for employee separation and termination benefits are paid either over the severance period or in a lump sum in accordance with either statutory requirements or individual agreements. Aptiv incurred cash expenditures related to its restructuring programs of approximately $77 million and $50 million in the nine months ended September 30, 2023 and 2022, respectively.
The following table summarizes the restructuring charges recorded for the three and nine months ended September 30, 2023 and 2022 by operating segment:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Signal and Power Solutions | $ | 7 | $ | 1 | $ | 22 | $ | 23 | |||||||||||||||
| Advanced Safety and User Experience | 21 | 10 | 59 | 29 | |||||||||||||||||||
| Total | $ | 28 | $ | 11 | $ | 81 | $ | 52 |
The table below summarizes the activity in the restructuring liability for the nine months ended September 30, 2023:
| Employee Termination Benefits Liability | Other Exit Costs Liability | Total | |||||||||||||||
| (in millions) | |||||||||||||||||
| Accrual balance at January 1, 2023 | $ | 83 | $ | — | $ | 83 | |||||||||||
| Provision for estimated expenses incurred during the period | 81 | — | 81 | ||||||||||||||
| Payments made during the period | (77) | — | (77) | ||||||||||||||
| Foreign currency and other | (2) | — | (2) | ||||||||||||||
| Accrual balance at September 30, 2023 | $ | 85 | $ | — | $ | 85 |
8. DEBT
The following is a summary of debt outstanding, net of unamortized issuance costs and discounts, as of September 30, 2023 and December 31, 2022:
| September 30, 2023 | December 31, 2022 | ||||||||||
| (in millions) | |||||||||||
| 2.396%, senior notes, due 2025 (net of $2 and $3 unamortized issuance costs, respectively) | $ | 698 | $ | 697 | |||||||
| 1.50%, Euro-denominated senior notes, due 2025 (net of $1 and $1 unamortized issuance costs and $0 and $1 discount, respectively) | 734 | 747 | |||||||||
| 1.60%, Euro-denominated senior notes, due 2028 (net of $2 and $2 unamortized issuance costs, respectively) | 523 | 533 | |||||||||
| 4.35%, senior notes, due 2029 (net of $2 and $2 unamortized issuance costs, respectively) | 298 | 298 | |||||||||
| 3.25%, senior notes, due 2032 (net of $6 and $7 unamortized issuance costs and $3 and $3 discount, respectively) | 791 | 790 | |||||||||
| 4.40%, senior notes, due 2046 (net of $3 and $3 unamortized issuance costs and $1 and $1 discount, respectively) | 296 | 296 | |||||||||
| 5.40%, senior notes, due 2049 (net of $4 and $4 unamortized issuance costs and $1 and $1 discount, respectively) | 345 | 345 | |||||||||
| 3.10%, senior notes, due 2051 (net of $16 and $16 unamortized issuance costs and $31 and $32 discount, respectively) | 1,453 | 1,452 | |||||||||
| 4.15%, senior notes, due 2052 (net of $11 and $11 unamortized issuance costs and $2 and $2 discount, respectively) | 987 | 987 | |||||||||
| Tranche A Term Loan, due 2026 (net of $1 and $1 unamortized issuance costs, respectively) | 300 | 308 | |||||||||
| Finance leases and other | 37 | 38 | |||||||||
| Total debt | 6,462 | 6,491 | |||||||||
| Less: current portion | (43) | (31) | |||||||||
| Long-term debt | $ | 6,419 | $ | 6,460 |
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 a senior unsecured credit facility currently consisting of a revolving credit facility of $2 billion (the “Revolving Credit Facility”). As of September 30, 2023, the Company also maintained a senior unsecured credit facility in the form of a term loan (the “Tranche A Term Loan”). On October 27, 2023, the Company fully repaid the outstanding principal balance of $301 million on the Tranche A Term Loan, utilizing cash on hand. Aptiv Global Financing Limited (“AGFL”), a wholly-owned subsidiary of Aptiv PLC, previously 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.
The Credit Agreement was entered into in March 2011 and has been subsequently amended and restated on several occasions, most recently on June 24, 2021, and was further amended on April 19, 2023. The June 2021 amendment, among other things, (1) refinanced and replaced the term loan A and revolver with a new term loan A with an original maturity in 2026, and a new five-year revolving credit facility with aggregate commitments of $2 billion, (2) utilized the Company’s existing sustainability-linked metrics and commitments, that, if achieved, would change the facility fee and interest rate margins as described below, and (3) established the leverage ratio maintenance covenant that requires the Company to maintain total net leverage (as calculated in accordance with the Credit Agreement) of less than 3.5 to 1.0 (or 4.0 to 1.0 for four full fiscal quarters following completion of material acquisitions, as defined in the Credit Agreement) and allowed for dividends and other payments on equity. Effective from the date of the April 2023 amendment, all interest rate benchmarks within the Credit Agreement that were previously based on the London Interbank Offered Rate (“LIBOR”) were transitioned to a rate based on the Secured Overnight Financing Rate (“SOFR”). 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.
The Revolving Credit Facility matures on June 24, 2026. Since the third quarter of 2022, Aptiv had been obligated to make quarterly principal payments on the Tranche A Term Loan according to the amortization schedule in the Credit Agreement.
As of September 30, 2023, 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.
As of September 30, 2023, loans under the Credit Agreement bore interest, at Aptiv’s option, at either (a) the Administrative Agent’s Alternate Base Rate (“ABR” as defined in the Credit Agreement) or (b) SOFR plus in either case a percentage per annum as set forth in the table below (the “Applicable Rate”). As of December 31, 2022, loans under the Credit Agreement bore interest, at Aptiv’s option, at either (a) ABR or (b) LIBOR plus in either case a percentage per annum as set forth in the table below. The rates under the Credit Agreement on the specified dates are set forth below:
| September 30, 2023 | December 31, 2022 | ||||||||||||||||||||||
| SOFR plus | ABR plus | LIBOR plus | ABR plus | ||||||||||||||||||||
| Revolving Credit Facility | 1.06 | % | 0.06 | % | 1.06 | % | 0.06 | % | |||||||||||||||
| Tranche A Term Loan | 1.105 | % | 0.105 | % | 1.105 | % | 0.105 | % |
The Applicable Rate under the Credit Agreement, as well as the facility fee, may increase or decrease from time to time based on changes in the Company’s credit ratings and whether the Company achieves or fails to achieve certain sustainability-linked targets with respect to greenhouse gas emissions and workplace safety. Such adjustments may be up to 0.04% per annum on interest rate margins on the Revolving Credit Facility, 0.02% per annum on interest rate margins on the Tranche A Term Loan and 0.01% per annum on the facility fee. Accordingly, the interest rate is subject to fluctuation during the term of the Credit Agreement based on changes in the ABR, SOFR (after the April 2023 amendment), LIBOR (before the April 2023 amendment), changes in the Company’s corporate credit ratings or whether the Company achieves or fails to achieve its sustainability-linked targets. The Credit Agreement also requires that Aptiv pay certain facility fees on the Revolving Credit Facility, which are also subject to adjustment based on the sustainability-linked targets as described above, and certain letter of credit issuance and fronting fees. The Company achieved the sustainability-linked targets for the 2022 calendar year, and the interest rate margins and facility fees were reduced from the Applicable Rate, by the amounts specified above, effective in the third quarter of 2023.
The interest rate period with respect to SOFR interest rate options can be set at one-, 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 September 30, 2023, Aptiv selected the one-month SOFR interest rate option on the Tranche A Term Loan, and the rate effective as of September 30, 2023, 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 | |||||||||||||||||
| September 30, 2023 | Rates effective as of | ||||||||||||||||
| Applicable Rate | (in millions) | September 30, 2023 | |||||||||||||||
| Tranche A Term Loan | SOFR plus 1.105% | $ | 301 | 6.52 | % | ||||||||||||
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 (or 4.0 to 1.0 for four full fiscal quarters following completion of material acquisitions, as defined in the Credit Agreement). Following completion of the acquisition of Wind River Systems, Inc. (“Wind River”) in December 2022, the Company elected to increase the ratio of Consolidated Total Indebtedness to Consolidated EBITDA to 4.0 to 1.0 commencing with the fiscal quarter ending December 31, 2022. Refer to Note 17. Acquisitions and Divestitures for further information on this acquisition.
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 September 30, 2023.
As of September 30, 2023, all obligations under the Credit Agreement were borrowed by Aptiv Corporation and jointly and severally guaranteed by AGFL and Aptiv PLC, subject to certain exceptions set forth in the Credit Agreement.
Senior Unsecured Notes
On March 10, 2015, Aptiv PLC issued €700 million in aggregate principal amount of 1.50% Euro-denominated senior unsecured notes due 2025 (the “2015 Euro-denominated Senior Notes”) in a transaction registered under the Securities Act of 1933, as amended (the “Securities Act”). The 2015 Euro-denominated Senior Notes were priced at 99.54% of par, resulting in a
yield to maturity of 1.55%. The proceeds were primarily utilized to redeem $500 million of 6.125% senior unsecured notes due 2021, and to fund growth initiatives, such as acquisitions, and share repurchases. Aptiv incurred approximately $5 million of issuance costs in connection with the 2015 Euro-denominated Senior Notes. Interest is payable annually on March 10. The Company has designated the 2015 Euro-denominated Senior Notes as a net investment hedge of the foreign currency exposure of its investments in certain Euro-denominated wholly-owned subsidiaries. Refer to Note 14. Derivatives and Hedging Activities for further information.
On September 15, 2016, Aptiv PLC issued €500 million in aggregate principal amount of 1.60% Euro-denominated senior unsecured notes due 2028 (the “2016 Euro-denominated Senior Notes”) in a transaction registered under the Securities Act. The 2016 Euro-denominated Senior Notes were priced at 99.881% of par, resulting in a yield to maturity of 1.611%. The proceeds, together with proceeds from the 2016 Senior Notes described below, were utilized to redeem $800 million of 5.00% senior unsecured notes due 2023. Aptiv incurred approximately $4 million of issuance costs in connection with the 2016 Euro-denominated Senior Notes. Interest is payable annually on September 15. The Company has designated the 2016 Euro-denominated Senior Notes as a net investment hedge of the foreign currency exposure of its investments in certain Euro-denominated wholly-owned subsidiaries. Refer to Note 14. Derivatives and Hedging Activities for further information.
On September 20, 2016, Aptiv PLC issued $300 million in aggregate principal amount of 4.40% senior unsecured notes due 2046 (the “2016 Senior Notes”) in a transaction registered under the Securities Act. The 2016 Senior Notes were priced at 99.454% of par, resulting in a yield to maturity of 4.433%. The proceeds, together with proceeds from the 2016 Euro-denominated Senior Notes, were utilized to redeem $800 million of 5.00% senior unsecured notes due 2023. Aptiv incurred approximately $3 million of issuance costs in connection with the 2016 Senior Notes. Interest is payable semi-annually on April 1 and October 1 of each year to holders of record at the close of business on March 15 or September 15 immediately preceding the interest payment date.
On March 14, 2019, Aptiv PLC issued $650 million in aggregate principal amount of senior unsecured notes in a transaction registered under the Securities Act, comprised of $300 million of 4.35% senior unsecured notes due 2029 (the “4.35% Senior Notes”) and $350 million of 5.40% senior unsecured notes due 2049 (the “5.40% Senior Notes”) (collectively, the “2019 Senior Notes”). The 4.35% Senior Notes were priced at 99.879% of par, resulting in a yield to maturity of 4.365%, and the 5.40% Senior Notes were priced at 99.558% of par, resulting in a yield to maturity of 5.430%. The proceeds were utilized to redeem $650 million of 3.15% senior unsecured notes due 2020. Aptiv incurred approximately $7 million of issuance costs in connection with the 2019 Senior Notes. Interest on the 2019 Senior Notes is payable semi-annually on March 15 and September 15 of each year to holders of record at the close of business on March 1 or September 1 immediately preceding the interest payment date.
On November 23, 2021, Aptiv PLC issued $1.5 billion in aggregate principal amount of 3.10% senior unsecured notes due 2051 (the “2021 Senior Notes”) in a transaction registered under the Securities Act. The 2021 Senior Notes were priced at 97.814% of par, resulting in a yield to maturity of 3.214%. Aptiv incurred approximately $17 million of issuance costs in connection with the 2021 Senior Notes. Interest on the 2021 Senior Notes is payable semi-annually on June 1 and December 1 of each year (commencing on June 1, 2022) to holders of record at the close of business on May 15 or November 15 immediately preceding the interest payment date. On December 27, 2021, Aptiv PLC entered into a supplemental indenture to add AGFL as a joint and several co-issuer of the 2021 Senior Notes effective as of the date of issuance. The proceeds from the 2021 Senior Notes were primarily utilized to redeem $700 million of 4.15% senior unsecured notes due 2024 and $650 million of 4.25% senior unsecured notes due 2026.
On February 18, 2022, Aptiv PLC and Aptiv Corporation (together, the “Issuers”) issued $2.5 billion in aggregate principal amount of senior unsecured notes in a transaction registered under the Securities Act, comprised of $700 million of 2.396% senior unsecured notes due 2025 (the “2.396% Senior Notes”), $800 million of 3.25% senior unsecured notes due 2032 (the “3.25% Senior Notes”) and $1.0 billion of 4.15% senior unsecured notes due 2052 (the “4.15% Senior Notes”) (collectively, the “2022 Senior Notes”). The 2022 Senior Notes are guaranteed by AGFL. The 2.396% Senior Notes were priced at 100% of par, resulting in a yield to maturity of 2.396%, the 3.25% Senior Notes were priced at 99.600% of par, resulting in a yield to maturity of 3.297%, and the 4.15% Senior Notes were priced at 99.783% of par, resulting in a yield to maturity of 4.163%. On or after February 18, 2023, the 2.396% Senior Notes may be optionally redeemed at a price equal to their principal amount plus accrued and unpaid interest thereon. The proceeds from the 2022 Senior Notes were utilized to fund a portion of the cash consideration payable in connection with the acquisition of Wind River.
Aptiv incurred approximately $22 million of issuance costs in connection with the 2022 Senior Notes. Interest on the 2.396% Senior Notes, 3.25% Senior Notes and 4.15% Senior Notes is payable semi-annually on February 18 and August 18 (commencing August 18, 2022), March 1 and September 1 (commencing September 1, 2022) and May 1 and November 1 (commencing May 1, 2022), respectively, of each year to holders of record at the close of business on February 3 or August 3, February 15 or August 15, April 15 or October 15, respectively, immediately preceding the interest payment date.
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. In February 2022, Aptiv Corporation and AGFL were added as guarantors on each series of outstanding senior notes previously issued by Aptiv PLC. As of September 30, 2023, the Company was in compliance with the provisions of all series of the outstanding senior notes.
Other Financing
Receivable factoring—Aptiv maintains a €450 million European accounts receivable factoring facility that is available on a committed basis and allows for factoring of receivables denominated in both Euros and U.S. dollars (“USD”). 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. This facility became effective on January 1, 2021 and has a term of three years, subject to Aptiv’s right to terminate at any time with three months’ notice. After expiration of the three-year term, either party can terminate with three months’ notice. Borrowings denominated in Euros under the facility bear interest at the three-month Euro Interbank Offered Rate (“EURIBOR”) plus 0.50%. As of December 31, 2022, USD borrowings bore interest at two-month LIBOR plus 0.50%, with borrowings under either denomination carrying a minimum interest rate of 0.20%. Effective in the second quarter of 2023, this facility was amended to replace the interest rate on USD borrowings with two-month SOFR plus 0.50%, effective as of the date of the amendment. As of September 30, 2023 and December 31, 2022, Aptiv had no amounts outstanding under the European accounts receivable factoring facility.
Finance leases and other—As of September 30, 2023 and December 31, 2022, approximately $37 million and $38 million, respectively, of other debt primarily issued by certain non-U.S. subsidiaries and finance lease obligations were outstanding. Included within the total as of September 30, 2023, were obligations outstanding of approximately $17 million under supplier finance programs, which were recorded as short-term debt in the consolidated balance sheet. These obligations generally mature 90 days after issuance and require that Aptiv maintain a contractually defined minimum cash balance with the issuing bank.
Interest—Cash paid for interest related to debt outstanding totaled $205 million and $129 million for the nine months ended September 30, 2023 and 2022, respectively.
Letter of credit facilities—In addition to the letters of credit issued under the Credit Agreement, Aptiv had approximately $5 million and $3 million outstanding through other letter of credit facilities as of September 30, 2023 and December 31, 2022, respectively, primarily to support arrangements and other obligations at certain of its subsidiaries.
9. PENSION BENEFITS
Certain of Aptiv’s non-U.S. subsidiaries sponsor defined benefit pension plans, which generally provide benefits based on negotiated amounts for each year of service. Aptiv’s 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, Aptiv has defined benefit plans in South Korea, Turkey and Italy for which amounts are payable to employees immediately upon separation. The obligations for these plans are recorded over the requisite service period.
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 five years after an involuntary or voluntary separation from Aptiv. The SERP is closed to new members.
The amounts shown below reflect the defined benefit pension expense for the three and nine months ended September 30, 2023 and 2022:
| Non-U.S. Plans | U.S. Plans | ||||||||||||||||||||||
| Three Months Ended September 30, | |||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Service cost | $ | 5 | $ | 5 | $ | — | $ | — | |||||||||||||||
| Interest cost | 10 | 6 | — | — | |||||||||||||||||||
| Expected return on plan assets | (4) | (5) | — | — | |||||||||||||||||||
| Amortization of actuarial losses | — | 3 | 1 | — | |||||||||||||||||||
| Net periodic benefit cost | $ | 11 | $ | 9 | $ | 1 | $ | — | |||||||||||||||
| Non-U.S. Plans | U.S. Plans | ||||||||||||||||||||||
| Nine Months Ended September 30, | |||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Service cost | $ | 14 | $ | 14 | $ | — | $ | — | |||||||||||||||
| Interest cost | 30 | 19 | — | — | |||||||||||||||||||
| Expected return on plan assets | (12) | (15) | — | — | |||||||||||||||||||
| Amortization of actuarial losses | 1 | 6 | 1 | 1 | |||||||||||||||||||
| Net periodic benefit cost | $ | 33 | $ | 24 | $ | 1 | $ | 1 |
Other postretirement benefit obligations were approximately $1 million at September 30, 2023 and December 31, 2022.
10. COMMITMENTS AND CONTINGENCIES
Ordinary Business Litigation
Aptiv is from time to time subject to various legal actions and claims incidental to its business, including those arising out of alleged defects, alleged breaches of contracts, product warranties, intellectual property matters, and employment-related matters. It is the opinion of Aptiv that the outcome of such matters will not have a material adverse impact on the consolidated financial position, results of operations, or cash flows of Aptiv. With respect to warranty matters, although Aptiv cannot ensure that the future costs of warranty claims by customers will not be material, Aptiv believes its established reserves are adequate to cover potential warranty settlements.
Matters Related to Global Supply Chain Disruptions
Due to various factors that are beyond our control, there are currently global supply chain disruptions, including a worldwide semiconductor supply shortage. The semiconductor supply shortage continues to impact production in automotive and other industries. We anticipate these supply chain disruptions may continue through the remainder of 2023. We, along with most automotive component manufacturers that use semiconductors, have suffered interruptions in our production and have been unable to fully meet the vehicle production demands of original equipment manufacturers (“OEMs”) at times over the last several years because of events which are outside our control, including but not limited to, the COVID-19 pandemic, the global semiconductor shortage, fires in our suppliers’ facilities, unprecedented weather events, and other extraordinary events. Although we continue to work closely with suppliers and customers to minimize supply disruptions, some of our customers have indicated that they expect us to bear at least some responsibility for their lost production and other costs. While no assurances can be made as to the ultimate outcome of these customer expectations or any other future claims, we do not currently believe a loss is probable, and accordingly, no reserve has been made as of September 30, 2023. We will continue to actively monitor all direct and indirect potential impacts of these supply chain disruptions, and will seek to aggressively mitigate and minimize their impact on our business.
Environmental Matters
Aptiv is subject to the requirements of U.S. federal, state, local and non-U.S. environmental, health and safety laws and regulations. As of September 30, 2023 and December 31, 2022, the undiscounted reserve for environmental investigation and remediation recorded in other liabilities was approximately $4 million and $2 million, respectively. 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. At September 30, 2023, the difference between the recorded liabilities and the reasonably possible range of potential loss was not material.
11. INCOME TAXES
At the end of each interim period, the Company makes its best estimate of the annual expected effective income tax rate and applies that rate to its ordinary year-to-date earnings or loss. The income tax provision or benefit related to unusual or infrequent items, if applicable, that will be separately reported or reported net of their related tax effects are individually computed and recognized in the interim period in which those items occur. In addition, the effect of changes in enacted tax laws or rates, tax status, judgment on the realizability of a beginning-of-the-year deferred tax asset in future years or income tax contingencies is recognized in the interim period in which the change occurs.
The computation of the annual expected effective income tax rate at each interim period requires certain estimates and assumptions including, but not limited to, the expected pre-tax income (or loss) for the year, projections of the proportion of income (and/or loss) earned and taxed in respective jurisdictions, permanent and temporary differences, and the likelihood of the realizability of deferred tax assets generated in the current year. The future direct and indirect impacts of the ongoing volatile global economic conditions resulting from the global supply chain disruptions and conflict between Ukraine and Russia are difficult to predict and may cause fluctuations in our expected results of operations for the year, which could create volatility in our annual expected effective income tax rate. Jurisdictions with a projected loss for the year or a year-to-date loss for which no tax benefit or expense can be recognized due to a valuation allowance are excluded from the estimated annual effective tax rate. The impact of such an exclusion could result in a higher or lower effective tax rate during a particular quarter, based upon the composition and timing of actual earnings compared to annual projections. The estimates used to compute the provision or benefit for income taxes may change as new events occur, additional information is obtained or as our tax environment changes. To the extent that the expected annual effective income tax rate changes, the effect of the change on prior interim periods is included in the income tax provision in the period in which the change in estimate occurs.
The Company’s income tax expense (benefit) and effective tax rates for the three and nine months ended September 30, 2023 and 2022 were as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (dollars in millions) | |||||||||||||||||||||||
| Income tax (benefit) expense | $ | (1,312) | $ | 59 | $ | (1,248) | $ | 96 | |||||||||||||||
| Effective tax rate | (330) | % | 14 | % | (122) | % | 15 | % |
The Company’s tax rate is affected by 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. For the nine months ended September 30, 2022, the Company’s effective tax rate was impacted by impairments and other charges related to the Ukraine/Russia conflict for which no tax benefit was recognized.
The Company’s effective tax rate for the three and nine months ended September 30, 2023 includes net discrete tax benefits of approximately $1,386 million and $1,411 million, respectively, primarily related to the Company’s actual and anticipated transfers of intellectual property, as described below. The Company’s effective tax rate for the three and nine months ended September 30, 2022 includes net discrete tax benefits of approximately $1 million and $5 million, respectively, primarily related to provision to return adjustments, net changes in accruals for unremitted earnings and changes in reserves.
Aptiv PLC is an Irish resident taxpayer and not a domestic corporation for U.S. federal income tax purposes. As such, it is not subject to U.S. tax on remitted foreign earnings and, as a result of its capital structure, is also generally not subject to Irish tax on the repatriation of foreign earnings.
Cash paid or withheld for income taxes was $212 million and $146 million for the nine months ended September 30, 2023 and 2022, respectively.
On August 16, 2022, the Inflation Reduction Act (“IRA”) was signed into law in the United States. Among other provisions, the IRA includes a 15% corporate minimum tax rate applied to certain large corporations and a 1% excise tax on corporate stock repurchases made after December 31, 2022. To date, the IRA has not had a significant impact on Aptiv’s consolidated financial statements.
On December 15, 2022, the European Union (the “E.U.”) Member States formally adopted the Pillar Two Directive, which generally provides for a minimum effective tax rate of 15%, as established by the Organisation for Economic Co-operation and Development (the “OECD”) Pillar Two Framework. The OECD continues to release additional guidance on these rules. While the framework was issued without opposition from representatives from over 130 countries participating in the OECD’s consultative process, not all countries are actively changing their tax laws to adopt certain parts of the OECD’s proposals. Some countries have indicated they do not support the OECD efforts. The Company is proactively responding to these anticipated tax policy changes, as described below, and will continue to closely monitor developments and analyze the potential impacts these new rules may have on our effective tax rate.
Intellectual Property Transfer
In response to the OECD’s Pillar Two Directive, the Company initiated changes to its corporate entity structure, including intra-entity transfers of certain intellectual property to one of its subsidiaries in Switzerland, during the third quarter of 2023.
The Company transferred certain intellectual property during the three months ended September 30, 2023 and anticipates transferring additional intellectual property in the fourth quarter of 2023 between wholly-owned legal entities in different tax jurisdictions. In both cases, these transfers were and are anticipated to be intra-entity transactions. Consequently, the resulting gains on these transfers were and will be eliminated for purposes of the consolidated financial statements. However, certain of these anticipated transfers will result in a gain that will be subject to income tax in the local jurisdiction. The gain will be offset with the utilization of existing net operating loss carryforwards. A portion of the net operating loss carryforwards were previously reduced by deferred tax liabilities from recapturable deductions, which were eliminated as part of the intra-entity transactions, while the remaining net operating loss carryforwards were largely offset by a valuation allowance. Consequently, during the three months ended September 30, 2023, the Company recognized a deferred tax benefit of approximately $870 million from the anticipated utilization of these net operating loss carryforwards.
As a result of the intellectual property transfers in the third quarter of 2023, the transferring entity recognized a non-taxable gain and the Company’s Swiss subsidiary, which received the intellectual property, recognized a step-up in tax basis on the fair value of the transferred intellectual property. This resulted in the creation of a temporary difference between the book basis and tax basis of the specified intellectual property. As a result, the Company recorded a deferred tax benefit of approximately $445 million during the three months ended September 30, 2023.
Furthermore, during the three months ended September 30, 2023, the Company’s Swiss subsidiary was granted a ten year tax incentive, beginning in 2024. A deferred tax benefit of approximately $65 million, net of a valuation allowance, was recorded during the three months ended September 30, 2023 to reflect the estimated future reductions in tax associated with the incentive.
The total income tax benefit recorded as a result of the actual and anticipated intra-entity transfers of intellectual property and negotiated tax incentive, all as described above, combined with related additional current year tax expense as a result of the transactions, was approximately $1,360 million during the three months ended September 30, 2023.
In addition, there is currently draft tax legislation in Switzerland which, if enacted, will increase the statutory income tax rate used to measure certain of the deferred tax assets described above. If the legislation is enacted in a future period, the Company anticipates an additional deferred tax benefit of approximately $360 million, net of valuation allowances.
12. SHAREHOLDERS’ EQUITY AND NET INCOME PER SHARE
2020 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, 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.
Conversion of the MCPS
On June 15, 2023 (the “Mandatory Conversion Date”), each outstanding share of the Company’s MCPS converted into 1.0754 ordinary shares of the Company. In aggregate, the MCPS converted into approximately 12.37 million ordinary shares of the Company, pursuant to the Statement of Rights governing the MCPS. The number of the Company’s ordinary shares issued upon conversion was determined based on the volume-weighted average price per share of the Company’s ordinary shares over the 20 consecutive trading day period beginning on, and including, the 21st scheduled trading day immediately before the Mandatory Conversion Date.
Prior to their conversion, holders of the MCPS were 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. Dividends on the MCPS were 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 appeared on the Company’s share register at the close of business on the immediately preceding March 1, June 1, September 1 and December 1, respectively.
Net Income Per Share
Basic net income per share is computed by dividing net income attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period. Diluted net income per share reflects the weighted average dilutive impact of all potentially dilutive securities from the date of issuance and is computed using the treasury stock and if-converted methods. The if-converted method is used to determine if the impact of the conversion of the MCPS into ordinary shares is more dilutive than the MCPS dividends to net income per share. If so, the MCPS are assumed to have been converted at the later of the beginning of the period or the time of issuance, and the resulting ordinary shares are included in the denominator and the MCPS dividends are added back to the numerator. Unless otherwise noted, share and per share amounts included in these notes are on a diluted basis. For the nine months ended September 30, 2023, the calculation of net income per share includes the dilutive impacts of the MCPS under the if-converted method. For the three and nine months ended September 30, 2022, the impact of the MCPS calculated under the if-converted method was anti-dilutive, and as such 12.37 million ordinary shares underlying the MCPS were excluded from the diluted net income per share calculation. As described above, on June 15, 2023, all outstanding shares of the MCPS converted into 12.37 million of the Company’s ordinary shares. For all periods presented, the calculation of net income per share also contemplates the dilutive impacts, if any, of the Company’s share-based compensation plans. Refer to Note 18. Share-Based Compensation for additional information.
Weighted Average Shares
The following table illustrates net income per share attributable to ordinary shareholders and the weighted average shares outstanding used in calculating basic and diluted income per share:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (in millions, except per share data) | |||||||||||||||||||||||
| Numerator, basic: | |||||||||||||||||||||||
| Net income attributable to ordinary shareholders | $ | 1,629 | $ | 286 | $ | 2,004 | $ | 298 | |||||||||||||||
| Numerator, diluted: | |||||||||||||||||||||||
| Net income attributable to Aptiv | $ | 1,629 | $ | 301 | $ | 2,033 | $ | 345 | |||||||||||||||
| MCPS dividends (1) | — | (15) | — | (47) | |||||||||||||||||||
| Numerator, diluted | $ | 1,629 | $ | 286 | $ | 2,033 | $ | 298 | |||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Weighted average ordinary shares outstanding, basic | 282.84 | 270.93 | 275.56 | 270.88 | |||||||||||||||||||
| Dilutive shares related to restricted stock units | 0.17 | 0.17 | 0.13 | 0.22 | |||||||||||||||||||
| Weighted average MCPS Converted Shares (1) | — | — | 7.75 | — | |||||||||||||||||||
| Weighted average ordinary shares outstanding, including dilutive shares | 283.01 | 271.10 | 283.44 | 271.10 | |||||||||||||||||||
| Net income per share attributable to ordinary shareholders: | |||||||||||||||||||||||
| Basic | $ | 5.76 | $ | 1.06 | $ | 7.27 | $ | 1.10 | |||||||||||||||
| Diluted | $ | 5.76 | $ | 1.05 | $ | 7.17 | $ | 1.10 |
(1)For purposes of calculating net income per share under the if-converted method, the Company has excluded the impact of the MCPS dividends for the nine months ended September 30, 2023, as the assumed conversion of the MCPS into ordinary shares on a weighted average basis was more dilutive to net income per share than the impact of the MCPS dividends. The Company has included the impact of the MCPS dividends for the three and nine months ended September 30, 2022, as the impact was more dilutive to net income per share than the impact of assuming the conversion of the MCPS into ordinary shares on a weighted average basis.
Share Repurchase Programs
In January 2019, the Board of Directors authorized a share repurchase program of up to $2.0 billion of ordinary shares, which commenced in February 2023 following completion of the Company’s $1.5 billion April 2016 share repurchase program. 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.
There were no shares repurchased during the three months ended September 30, 2023. A summary of the ordinary shares repurchased during the nine months ended September 30, 2023 is as follows:
| Total number of shares repurchased | 872,774 | ||||||||||||||||||||||
| Average price paid per share | $ | 112.03 | |||||||||||||||||||||
| Total (in millions) | $ | 98 |
There were also no shares repurchased during the three and nine months ended September 30, 2022. As of September 30, 2023, approximately $1,915 million of share repurchases remained available under the January 2019 share repurchase program. All previously 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.
Preferred Dividends
The Company has declared and paid cash dividends per preferred share during the periods presented as follows:
| Dividend | Amount | ||||||||||||||||||||||
| Per Share | (in millions) | ||||||||||||||||||||||
| 2023: | |||||||||||||||||||||||
| Third quarter | $ | — | $ | — | |||||||||||||||||||
| Second quarter | 1.375 | 16 | |||||||||||||||||||||
| First quarter | 1.375 | 16 | |||||||||||||||||||||
| Total | $ | 2.750 | $ | 32 | |||||||||||||||||||
| 2022: | |||||||||||||||||||||||
| Fourth quarter | $ | 1.375 | $ | 16 | |||||||||||||||||||
| Third quarter | 1.375 | 15 | |||||||||||||||||||||
| Second quarter | 1.375 | 16 | |||||||||||||||||||||
| First quarter | 1.375 | 16 | |||||||||||||||||||||
| Total | $ | 5.500 | $ | 63 |
13. CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The changes in accumulated other comprehensive income (loss) attributable to Aptiv (net of tax) for the three and nine months ended September 30, 2023 and 2022 are shown below:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Foreign currency translation adjustments: | |||||||||||||||||||||||
| Balance at beginning of period | $ | (811) | $ | (803) | $ | (790) | $ | (588) | |||||||||||||||
| Aggregate adjustment for the period (1) | (79) | (211) | (100) | (426) | |||||||||||||||||||
| Balance at end of period | (890) | (1,014) | (890) | (1,014) | |||||||||||||||||||
| Gains (losses) on derivatives: | |||||||||||||||||||||||
| Balance at beginning of period | 155 | (79) | 7 | (17) | |||||||||||||||||||
| Other comprehensive income (loss) before reclassifications (net tax effect of $(2), $0, $0 and $0) | 4 | (11) | 191 | (50) | |||||||||||||||||||
| Reclassification to income (net tax effect of $(2), $0, $(5), $0) | (40) | 6 | (79) | (17) | |||||||||||||||||||
| Balance at end of period | 119 | (84) | 119 | (84) | |||||||||||||||||||
| Pension and postretirement plans: | |||||||||||||||||||||||
| Balance at beginning of period | (9) | (60) | (8) | (67) | |||||||||||||||||||
| Other comprehensive income (loss) before reclassifications (net tax effect of $(1), $(2), $0, and $(5)) | — | 5 | (2) | 11 | |||||||||||||||||||
| Reclassification to income (net tax effect of $0, $(1), $0 and $(4)) | 1 | 2 | 2 | 3 | |||||||||||||||||||
| Balance at end of period | (8) | (53) | (8) | (53) | |||||||||||||||||||
| Accumulated other comprehensive loss, end of period | $ | (779) | $ | (1,151) | $ | (779) | $ | (1,151) |
(1)Includes gains of $50 million and $25 million for the three and nine months ended September 30, 2023, respectively, and gains of $94 million and $191 million for the three and nine months ended September 30, 2022, respectively, related to non-derivative net investment hedges. Refer to Note 14. Derivatives and Hedging Activities for further description of these hedges. Includes $6 million of accumulated currency translation adjustment losses reclassified to net income as a result of the liquidation of a foreign subsidiary during the three and nine months ended September 30, 2022.
Reclassifications from accumulated other comprehensive income (loss) to income for the three and nine months ended September 30, 2023 and 2022 were as follows:
| Reclassification Out of Accumulated Other Comprehensive Income (Loss) | ||||||||||||||||||||||||||||||||
| Details About Accumulated Other Comprehensive Income Components | Three Months Ended September 30, | Nine Months Ended September 30, | Affected Line Item in the Statements of Operations | |||||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments: | ||||||||||||||||||||||||||||||||
| Liquidation of foreign subsidiary (1) | $ | — | $ | (6) | $ | — | $ | (6) | Other income (expense), net | |||||||||||||||||||||||
| — | (6) | — | (6) | Income before income taxes | ||||||||||||||||||||||||||||
| — | — | — | — | Income tax benefit (expense) | ||||||||||||||||||||||||||||
| — | (6) | — | (6) | Net income | ||||||||||||||||||||||||||||
| — | — | — | — | Net income (loss) attributable to noncontrolling interest | ||||||||||||||||||||||||||||
| $ | — | $ | (6) | $ | — | $ | (6) | Net income attributable to Aptiv | ||||||||||||||||||||||||
| Gains (losses) on derivatives: | ||||||||||||||||||||||||||||||||
| Commodity derivatives | $ | (8) | $ | (13) | $ | (20) | $ | 7 | Cost of sales | |||||||||||||||||||||||
| Foreign currency derivatives | 46 | 7 | 94 | 10 | Cost of sales | |||||||||||||||||||||||||||
| 38 | (6) | 74 | 17 | Income before income taxes | ||||||||||||||||||||||||||||
| 2 | — | 5 | — | Income tax benefit (expense) | ||||||||||||||||||||||||||||
| 40 | (6) | 79 | 17 | Net income | ||||||||||||||||||||||||||||
| — | — | — | — | Net income (loss) attributable to noncontrolling interest | ||||||||||||||||||||||||||||
| $ | 40 | $ | (6) | $ | 79 | $ | 17 | Net income attributable to Aptiv | ||||||||||||||||||||||||
| Pension and postretirement plans: | ||||||||||||||||||||||||||||||||
| Actuarial losses | $ | (1) | $ | (3) | $ | (2) | $ | (7) | Other income (expense), net (2) | |||||||||||||||||||||||
| (1) | (3) | (2) | (7) | Income before income taxes | ||||||||||||||||||||||||||||
| — | 1 | — | 4 | Income tax benefit (expense) | ||||||||||||||||||||||||||||
| (1) | (2) | (2) | (3) | Net income | ||||||||||||||||||||||||||||
| — | — | — | — | Net income (loss) attributable to noncontrolling interest | ||||||||||||||||||||||||||||
| $ | (1) | $ | (2) | $ | (2) | $ | (3) | Net income attributable to Aptiv | ||||||||||||||||||||||||
| Total reclassifications for the period | $ | 39 | $ | (14) | $ | 77 | $ | 8 |
(1)Represents accumulated currency translation adjustment losses reclassified to net income as a result of the liquidation of a foreign subsidiary during the three and nine months ended September 30, 2022.
(2)These accumulated other comprehensive loss components are included in the computation of net periodic pension cost (see Note 9. Pension Benefits for additional details).
14. DERIVATIVES AND HEDGING ACTIVITIES
Cash Flow Hedges
Aptiv is exposed to market risk, such as fluctuations in foreign currency exchange rates, commodity prices and changes in interest rates, which may result in cash flow risks. To manage the volatility relating to these exposures, Aptiv aggregates the exposures on a consolidated basis to take advantage of natural offsets. For exposures that are not offset within its operations, Aptiv enters into various derivative transactions pursuant to its risk management policies, which prohibit holding or issuing derivative financial instruments for speculative purposes, and designation of derivative instruments is performed on a transaction basis to support hedge accounting. The changes in fair value of these hedging instruments are offset in part or in whole by corresponding changes in the fair value or cash flows of the underlying exposures being hedged. Aptiv assesses the initial and ongoing effectiveness of its hedging relationships in accordance with its documented policy.
As of September 30, 2023, the Company had the following outstanding notional amounts related to commodity and foreign currency forward and option contracts designated as cash flow hedges that were entered into to hedge forecasted exposures:
| Commodity | Quantity Hedged | Unit of Measure | Notional Amount (Approximate USD Equivalent) | ||||||||||||||
| (in thousands) | (in millions) | ||||||||||||||||
| Copper | 113,373 | pounds | $ | 425 | |||||||||||||
| Foreign Currency | Quantity Hedged | Unit of Measure | Notional Amount (Approximate USD Equivalent) | ||||||||||||||
| (in millions) | |||||||||||||||||
| Mexican Peso | 16,617 | MXN | $ | 940 | |||||||||||||
| Chinese Yuan Renminbi | 2,925 | RMB | $ | 400 | |||||||||||||
| Euro | 59 | EUR | $ | 60 | |||||||||||||
| Polish Zloty | 826 | PLN | $ | 185 | |||||||||||||
| Hungarian Forint | 26,748 | HUF | $ | 70 | |||||||||||||
As of September 30, 2023, Aptiv has entered into derivative instruments to hedge cash flows extending out to September 2025.
Gains and losses on derivatives qualifying as cash flow hedges are recorded in accumulated OCI, to the extent that hedges are effective, until the underlying transactions are recognized in earnings. Unrealized amounts in accumulated OCI will fluctuate based on changes in the fair value of hedge derivative contracts at each reporting period. Net gains on cash flow hedges included in accumulated OCI as of September 30, 2023 were $137 million (approximately $144 million, net of tax). Of this total, approximately $118 million of gains are expected to be included in cost of sales within the next 12 months and approximately $19 million of gains are expected to be included in cost of sales in subsequent periods. Cash flow hedges are discontinued when Aptiv determines it is no longer probable that the originally forecasted transactions will occur. Cash flows from derivatives used to manage commodity and foreign exchange risks designated as cash flow hedges are classified as operating activities within the consolidated statements of cash flows.
Net Investment Hedges
The Company is also exposed to the risk that adverse changes in foreign currency exchange rates could impact its net investment in non-U.S. subsidiaries. To manage this risk, the Company designates certain qualifying derivative and non-derivative instruments, including foreign currency forward contracts and foreign currency-denominated debt, as net investment hedges of certain non-U.S. subsidiaries. The gains or losses on instruments designated as net investment hedges are recognized within OCI to offset changes in the value of the net investment in these foreign currency-denominated operations. Gains and losses reported in accumulated OCI are reclassified to earnings only when the related currency translation adjustments are required to be reclassified, usually upon sale or liquidation of the investment. Cash flows from derivatives designated as net investment hedges are classified as investing activities within the consolidated statements of cash flows.
The Company has entered into a series of forward contracts, each of which have been designated as net investment hedges of the foreign currency exposure of the Company’s investments in certain Chinese Yuan Renminbi (“RMB”)-denominated subsidiaries. During the nine months ended September 30, 2023 and 2022, the Company received $6 million and $9 million, respectively, at settlement related to this series of forward contracts which matured during the period. In October 2023, the
Company entered into forward contracts with a total notional amount of 700 million RMB (approximately $95 million, using foreign currency rates on the trade date), which mature in March 2024. Refer to the tables below for details of the fair value recorded in the consolidated balance sheets and the effects recorded in the consolidated statements of operations and consolidated statements of comprehensive income related to these derivative instruments.
The Company has designated the €700 million 2015 Euro-denominated Senior Notes and the €500 million 2016 Euro-denominated Senior Notes, as more fully described in Note 8. Debt, as net investment hedges of the foreign currency exposure of its investments in certain Euro-denominated subsidiaries. Due to changes in the value of the Euro-denominated debt instruments designated as net investment hedges, during the three and nine months ended September 30, 2023, $50 million and $25 million of gains, respectively, were recognized within the cumulative translation adjustment component of OCI. During the three and nine months ended September 30, 2022, $94 million and $191 million of gains, respectively, were recognized within the cumulative translation adjustment component of OCI. Included in accumulated OCI related to these net investment hedges were cumulative gains of $62 million and $37 million as of September 30, 2023 and December 31, 2022, respectively.
Derivatives Not Designated as Hedges
In certain occasions the Company enters into certain foreign currency and commodity contracts that are not designated as hedges. When hedge accounting is not applied to derivative contracts, gains and losses are recorded to other income (expense), net and cost of sales in the consolidated statements of operations.
Fair Value of Derivative Instruments in the Balance Sheet
The fair value of derivative financial instruments recorded in the consolidated balance sheets as of September 30, 2023 and December 31, 2022 are as follows:
| Asset Derivatives | Liability Derivatives | Net Amounts of Assets and (Liabilities) Presented in the Balance Sheet | |||||||||||||||||||||||||||
| Balance Sheet Location | September 30, 2023 | Balance Sheet Location | September 30, 2023 | September 30, 2023 | |||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||
| Derivatives designated as cash flow hedges: | |||||||||||||||||||||||||||||
| Commodity derivatives | Other current assets | $ | — | Accrued liabilities | $ | 18 | |||||||||||||||||||||||
| Foreign currency derivatives* | Other current assets | 116 | Other current assets | 1 | $ | 115 | |||||||||||||||||||||||
| Commodity derivatives | Other long-term assets | — | Other long-term liabilities | 4 | |||||||||||||||||||||||||
| Foreign currency derivatives* | Other long-term assets | 18 | Other long-term assets | — | 18 | ||||||||||||||||||||||||
| Total derivatives designated as hedges | $ | 134 | $ | 23 | |||||||||||||||||||||||||
| Derivatives not designated: | |||||||||||||||||||||||||||||
| Foreign currency derivatives* | Other current assets | $ | — | Other current assets | $ | 1 | (1) | ||||||||||||||||||||||
| Foreign currency derivatives* | Accrued liabilities | — | Accrued liabilities | 1 | (1) | ||||||||||||||||||||||||
| Total derivatives not designated as hedges | $ | — | $ | 2 |
| Asset Derivatives | Liability Derivatives | Net Amounts of Assets and (Liabilities) Presented in the Balance Sheet | |||||||||||||||||||||||||||
| Balance Sheet Location | December 31, 2022 | Balance Sheet Location | December 31, 2022 | December 31, 2022 | |||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||
| Derivatives designated as cash flow hedges: | |||||||||||||||||||||||||||||
| Commodity derivatives | Other current assets | $ | — | Accrued liabilities | $ | 28 | |||||||||||||||||||||||
| Foreign currency derivatives* | Other current assets | 54 | Other current assets | 11 | $ | 43 | |||||||||||||||||||||||
| Commodity derivatives | Other long-term assets | — | Other long-term liabilities | 7 | |||||||||||||||||||||||||
| Foreign currency derivatives* | Other long-term assets | 17 | Other long-term assets | 3 | 14 | ||||||||||||||||||||||||
| Foreign currency derivatives* | Other long-term liabilities | 1 | Other long-term liabilities | 1 | — | ||||||||||||||||||||||||
| Derivatives designated as net investment hedges: | |||||||||||||||||||||||||||||
| Foreign currency derivatives | Other current assets | — | Accrued liabilities | 1 | |||||||||||||||||||||||||
| Total derivatives designated as hedges | $ | 72 | $ | 51 | |||||||||||||||||||||||||
| Derivatives not designated: | |||||||||||||||||||||||||||||
| Foreign currency derivatives* | Other current assets | $ | 1 | Other current assets | $ | — | 1 | ||||||||||||||||||||||
| Total derivatives not designated as hedges | $ | 1 | $ | — |
- Derivative instruments within this category are subject to master netting arrangements and are presented on a net basis in the consolidated balance sheets in accordance with accounting guidance related to the offsetting of amounts related to certain contracts.
The fair value of Aptiv’s derivative financial instruments was in a net asset position as of September 30, 2023 and December 31, 2022.
Effect of Derivatives on the Statements of Operations and Statements of Comprehensive Income
The pre-tax effect of derivative financial instruments in the consolidated statements of operations and consolidated statements of comprehensive income for the three and nine months ended September 30, 2023 and 2022 is as follows:
| Three Months Ended September 30, 2023 | Gain Recognized in OCI | (Loss) Gain Reclassified from OCI into Income | |||||||||
| (in millions) | |||||||||||
| Derivatives designated as cash flow hedges: | |||||||||||
| Commodity derivatives | $ | 1 | $ | (8) | |||||||
| Foreign currency derivatives | 4 | 46 | |||||||||
| Derivatives designated as net investment hedges: | |||||||||||
| Foreign currency derivatives | 1 | — | |||||||||
| Total | $ | 6 | $ | 38 |
| Loss Recognized in Income | |||||
| (in millions) | |||||
| Derivatives not designated: | |||||
| Foreign currency derivatives | $ | (2) | |||
| Total | $ | (2) |
| Three Months Ended September 30, 2022 | (Loss) Gain Recognized in OCI | (Loss) Gain Reclassified from OCI into Income | |||||||||
| (in millions) | |||||||||||
| Derivatives designated as cash flow hedges: | |||||||||||
| Commodity derivatives | $ | (40) | $ | (13) | |||||||
| Foreign currency derivatives | 23 | 7 | |||||||||
| Derivatives designated as net investment hedges: | |||||||||||
| Foreign currency derivatives | 6 | — | |||||||||
| Total | $ | (11) | $ | (6) |
| Loss Recognized in Income | |||||
| (in millions) | |||||
| Derivatives not designated: | |||||
| Foreign currency derivatives | $ | (8) | |||
| Total | $ | (8) |
| Nine Months Ended September 30, 2023 | (Loss) Gain Recognized in OCI | (Loss) Gain Reclassified from OCI into Income | |||||||||
| (in millions) | |||||||||||
| Derivatives designated as cash flow hedges: | |||||||||||
| Commodity derivatives | $ | (6) | $ | (20) | |||||||
| Foreign currency derivatives | 190 | 94 | |||||||||
| Derivatives designated as net investment hedges: | |||||||||||
| Foreign currency derivatives | 7 | — | |||||||||
| Total | $ | 191 | $ | 74 |
| Loss Recognized in Income | |||||
| (in millions) | |||||
| Derivatives not designated: | |||||
| Foreign currency derivatives | $ | (4) | |||
| Total | $ | (4) |
| Nine Months Ended September 30, 2022 | (Loss) Gain Recognized in OCI | Gain Reclassified from OCI into Income | |||||||||
| (in millions) | |||||||||||
| Derivatives designated as cash flow hedges: | |||||||||||
| Commodity derivatives | $ | (108) | $ | 7 | |||||||
| Foreign currency derivatives | 48 | 10 | |||||||||
| Derivatives designated as net investment hedges: | |||||||||||
| Foreign currency derivatives | 10 | — | |||||||||
| Total | $ | (50) | $ | 17 |
| Loss Recognized in Income | |||||
| (in millions) | |||||
| Derivatives not designated: | |||||
| Foreign currency derivatives | $ | (15) | |||
| Total | $ | (15) |
The gain or loss recognized in income for designated and non-designated derivative instruments was recorded to cost of sales and other income (expense), net in the consolidated statements of operations for the three and nine months ended September 30, 2023 and 2022, respectively.
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair Value Measurements on a Recurring Basis
Derivative instruments—All derivative instruments are required to be reported on the balance sheet at fair value unless the transactions qualify and are designated as normal purchases or sales. Changes in fair value are reported currently through earnings unless they meet hedge accounting criteria. Aptiv’s derivative exposures are with counterparties with long-term investment grade credit ratings. Aptiv estimates the fair value of its derivative contracts using an income approach based on valuation techniques to convert future amounts to a single, discounted amount. Estimates of the fair value of foreign currency and commodity derivative instruments are determined using exchange traded prices and rates. Aptiv also considers the risk of non-performance in the estimation of fair value, and includes an adjustment for non-performance risk in the measure of fair value of derivative instruments. The non-performance risk adjustment reflects the credit default spread (“CDS”) applied to the net commodity by counterparty and foreign currency exposures by counterparty. When Aptiv is in a net derivative asset position, the counterparty CDS rates are applied to the net derivative asset position. When Aptiv is in a net derivative liability position, estimates of peer companies’ CDS rates are applied to the net derivative liability position.
In certain instances where market data is not available, Aptiv uses management judgment to develop assumptions that are used to determine fair value. This could include situations of market illiquidity for a particular currency or commodity or where observable market data may be limited. In those situations, Aptiv generally surveys investment banks and/or brokers and utilizes the surveyed prices and rates in estimating fair value.
As of September 30, 2023 and December 31, 2022, Aptiv was in a net derivative asset position of $109 million and $22 million, respectively, and no significant adjustments were recorded for nonperformance risk based on the application of peer companies’ CDS rates, evaluation of our own nonperformance risk and because Aptiv’s exposures were to counterparties with investment grade credit ratings. Refer to Note 14. Derivatives and Hedging Activities for further information regarding derivatives.
Contingent consideration—The liability for contingent consideration is estimated as of the date of the acquisition and is recorded as part of the purchase price, and is subsequently re-measured to fair value at each reporting date, based on a probability-weighted analysis using a rate that reflects the uncertainty surrounding the expected outcomes, which the Company believes is appropriate and representative of market participant assumptions. The measurement of the liability for contingent consideration is based on significant inputs that are not observable in the market, and is therefore classified as a Level 3 measurement in accordance with ASC Topic 820-10-35. Examples of utilized unobservable inputs are estimated future earnings or milestone achievements of the acquired businesses and applicable discount rates. The estimate of the liability may fluctuate if there are changes in the forecast of acquired businesses’ future earnings or milestone achievements, as a result of actual earnings or milestone achievements or in the discount rates used to determine the present value of contingent future cash flows.
The Company regularly reviews these assumptions and makes adjustments to the fair value measurements as required by facts and circumstances.
There was no liability for contingent consideration as of September 30, 2023. As of December 31, 2022, the liability for contingent consideration was $10 million (which was classified within other current liabilities). Adjustments to this liability for interest accretion are recognized in interest expense, and any other changes in the fair value of this liability are recognized within other income (expense), net in the consolidated statements of operations.
The changes in the contingent consideration liability classified as a Level 3 measurement for the nine months ended September 30, 2023 were as follows:
| Contingent Consideration Liability | |||||
| (in millions) | |||||
| Fair value at beginning of period | $ | 10 | |||
| Payments | (10) | ||||
| Fair value at end of period | $ | — |
During the nine months ended September 30, 2023, the Company paid $10 million of contingent consideration based on the actual level of earnings of the acquired business during the contractual earn-out period. This payment was recorded as a cash outflow from financing activities in the consolidated statement of cash flows in accordance with ASC Topic 230-10-45, as the full amount of the payment represented the acquisition date fair value of the contingent consideration liability.
Publicly traded equity securities—All publicly traded equity securities are reported at fair value as of each reporting date. The measurement of the asset is based on quoted prices for identical assets on active market exchanges. Gains and losses from changes in the fair value of these securities are recorded within other income (expense), net on the consolidated statement of operations.
As of September 30, 2023 and December 31, 2022, Aptiv had the following assets measured at fair value on a recurring basis:
| Total | Quoted Prices in Active Markets Level 1 | Significant Other Observable Inputs Level 2 | Significant Unobservable Inputs Level 3 | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| As of September 30, 2023: | |||||||||||||||||||||||
| Foreign currency derivatives | $ | 132 | $ | — | $ | 132 | $ | — | |||||||||||||||
| Publicly traded equity securities | 12 | 12 | — | — | |||||||||||||||||||
| Total | $ | 144 | $ | 12 | $ | 132 | $ | — | |||||||||||||||
| As of December 31, 2022: | |||||||||||||||||||||||
| Foreign currency derivatives | $ | 58 | $ | — | $ | 58 | $ | — | |||||||||||||||
| Publicly traded equity securities | 17 | 17 | — | — | |||||||||||||||||||
| Total | $ | 75 | $ | 17 | $ | 58 | $ | — |
As of September 30, 2023 and December 31, 2022, Aptiv had the following liabilities measured at fair value on a recurring basis:
| Total | Quoted Prices in Active Markets Level 1 | Significant Other Observable Inputs Level 2 | Significant Unobservable Inputs Level 3 | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| As of September 30, 2023: | |||||||||||||||||||||||
| Commodity derivatives | $ | 22 | $ | — | $ | 22 | $ | — | |||||||||||||||
| Foreign currency derivatives | 1 | — | 1 | — | |||||||||||||||||||
| Total | $ | 23 | $ | — | $ | 23 | $ | — | |||||||||||||||
| As of December 31, 2022: | |||||||||||||||||||||||
| Commodity derivatives | $ | 35 | $ | — | $ | 35 | $ | — | |||||||||||||||
| Foreign currency derivatives | 1 | — | 1 | — | |||||||||||||||||||
| Contingent consideration | 10 | — | — | 10 | |||||||||||||||||||
| Total | $ | 46 | $ | — | $ | 36 | $ | 10 |
Non-derivative financial instruments—Aptiv’s non-derivative financial instruments include cash and cash equivalents, accounts and notes receivable, accounts payable, as well as debt, which consists of its accounts receivable factoring arrangement, finance leases and other debt issued by Aptiv’s non-U.S. subsidiaries, the Revolving Credit Facility, the Tranche A Term Loan and all series of outstanding senior notes. The fair value of debt is based on quoted market prices for instruments with public market data or significant other observable inputs for instruments without a quoted public market price (Level 2). As of September 30, 2023 and December 31, 2022, total debt was recorded at $6,462 million and $6,491 million, respectively, and had estimated fair values of $5,131 million and $5,241 million, respectively. For all other financial instruments recorded at September 30, 2023 and December 31, 2022, fair value approximates book value.
Fair Value Measurements on a Nonrecurring Basis
In addition to items that are measured at fair value on a recurring basis, Aptiv also has items in its balance sheet that are measured at fair value on a nonrecurring basis. As these items are not measured at fair value on a recurring basis, they are not included in the tables above. Financial and nonfinancial assets and liabilities that are measured at fair value on a nonrecurring basis include certain inventories, long-lived assets, assets and liabilities held for sale, intangible assets, equity investments without readily determinable fair values and liabilities for exit or disposal activities measured at fair value upon initial recognition. Aptiv recorded non-cash impairment charges of $18 million for the nine months ended September 30, 2023, within other expense, net related to its equity investments without readily determinable fair values. Aptiv recorded non-cash long-lived asset impairment charges of $5 million and $8 million for the three and nine months ended September 30, 2022, respectively, and other charges of $3 million for the nine months ended September 30, 2022. These charges were primarily related to the conflict between Ukraine and Russia and were recorded within cost of sales. In addition, Aptiv determined that our former majority owned subsidiary in Russia initially met the held for sale criteria as of June 30, 2022. Consequently, during the nine months ended September 30, 2022, the Company recorded a charge of $51 million to reduce the carrying value of the subsidiary to fair value, which was recorded primarily within cost of sales. Fair value of long-lived and other assets is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved and a review of appraisals or other market indicators and management estimates. As such, Aptiv has determined that the fair value measurements of long-lived and other assets fall in Level 3 of the fair value hierarchy.
16. OTHER INCOME, NET
Other income (expense), net included:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Interest income | $ | 30 | $ | 26 | $ | 76 | $ | 35 | |||||||||||||||
| Components of net periodic benefit cost other than service cost (Note 9) | (7) | (4) | (20) | (11) | |||||||||||||||||||
| Costs associated with acquisitions and other transactions | — | (6) | (4) | (8) | |||||||||||||||||||
| Impairment of equity investments without readily determinable fair value (Note 21) | — | — | (18) | — | |||||||||||||||||||
| Loss on change in fair value of publicly traded equity securities | — | (6) | (6) | (55) | |||||||||||||||||||
| Other, net | 3 | 10 | 8 | (5) | |||||||||||||||||||
| Other income (expense), net | $ | 26 | $ | 20 | $ | 36 | $ | (44) |
During the three months ended September 30, 2023, there were no net unrealized gains or losses recognized for publicly traded equity securities still held as of September 30, 2023. During the three months ended September 30, 2022, net unrealized losses of $6 million were recognized for publicly traded equity securities still held as of September 30, 2023. During the nine months ended September 30, 2023 and 2022, net unrealized losses of $6 million and $51 million, respectively, were recognized for publicly traded equity securities still held as of September 30, 2023.
As further described in Note 21. Investments in Affiliates, during the nine months ended September 30, 2023, Aptiv recorded an impairment loss of $18 million in its equity investments without readily determinable fair values.
17. ACQUISITIONS AND DIVESTITURES
Acquisition of Höhle Ltd.
On April 3, 2023, Aptiv acquired 100% of the equity interests of Höhle Ltd. (“Höhle”), a manufacturer of microducts, for total consideration of $42 million. The results of operations of Höhle are reported within the Signal and Power Solutions segment from the date of acquisition. The Company acquired Höhle utilizing cash on hand.
The acquisition was accounted for as a business combination, with the total purchase price allocated on a preliminary basis using information available, in the second quarter of 2023. The preliminary purchase price and related allocation to the acquired net assets of Höhle based on their estimated fair values is shown below (in millions):
Assets acquired and liabilities assumed
| Purchase price, cash consideration, net of cash acquired | $ | 42 | |||
| Intangible assets | $ | 11 | |||
| Other assets, net | 3 | ||||
| Identifiable net assets acquired | 14 | ||||
| Goodwill resulting from purchase | 28 | ||||
| Total purchase price allocation | $ | 42 |
Intangible assets include amounts recognized for the fair value of customer-based assets, which will be amortized over their estimated useful lives, which range from two to seven years. The estimated fair value of these assets was based on third-party valuations and management’s estimates, generally utilizing income and market approaches. Goodwill recognized in this transaction is primarily attributable to synergies expected to arise after the acquisition and is not deductible for tax purposes.
The purchase price and related allocation are preliminary and could be revised as a result of adjustments made to the purchase price, additional information obtained regarding liabilities assumed, including, but not limited to, contingent liabilities, revisions of provisional estimates of fair values, including, but not limited to, the completion of independent valuations related to intangible assets and certain tax attributes.
The pro forma effects of this acquisition would not materially impact the Company’s reported results for any period presented, and as a result no pro forma financial statements were presented.
Acquisition of Wind River Systems, Inc.
On December 23, 2022, Aptiv acquired 100% of the equity interests of Wind River Systems, Inc. (“Wind River”), a global leader in delivering software for the intelligent edge, for total consideration of approximately $3.5 billion. The results of operations of Wind River are reported within the Advanced Safety and User Experience segment from the date of acquisition. The Company acquired Wind River utilizing cash on hand, which included proceeds from the 2022 Senior Notes. Refer to Note 8. Debt for additional information regarding the 2022 Senior Notes. Upon completion of the acquisition, Aptiv incurred transaction related expenses totaling approximately $43 million, which were recorded within other expense, net in the statement of operations in the fourth quarter of 2022.
The acquisition was accounted for as a business combination, with the total purchase price allocated on a preliminary basis using information available in the fourth quarter of 2022. As previously disclosed, a portion of the cash consideration was unpaid as of December 31, 2022 and during the first quarter of 2023, $36 million was paid and recognized as a cash outflow from investing activities for the nine months ended September 30, 2023. Adjustments recorded from the amounts disclosed also included a reduction to accrued liabilities of $17 million and minor adjustments to various other assets and liabilities assumed, resulting in a net reduction to goodwill of $12 million. The preliminary purchase price and related allocation to the acquired net assets of Wind River based on their estimated fair values is shown below (in millions):
Assets acquired and liabilities assumed
| Purchase price, cash consideration, net of cash acquired | $ | 3,520 | |||
| Accounts receivable, net | $ | 91 | |||
| Contract assets | 67 | ||||
| Property, plant and equipment | 14 | ||||
| Intangible assets | 1,490 | ||||
| Contract liabilities | (101) | ||||
| Accrued liabilities | (45) | ||||
| Deferred tax liabilities | (289) | ||||
| Other assets, net | 3 | ||||
| Identifiable net assets acquired | 1,230 | ||||
| Goodwill resulting from purchase | 2,290 | ||||
| Total purchase price allocation | $ | 3,520 |
Intangible assets primarily include $750 million of technology-related assets with approximate useful lives of sixteen years, $630 million for the fair value of customer-based assets with approximate useful lives ranging from sixteen to twenty-two years and $110 million recognized for the fair value of the acquired trade name with an approximate useful life of eighteen years. The estimated fair value of these assets was based on third-party valuations and management’s estimates, generally utilizing income and market approaches and is sensitive to certain assumptions including discount rates, projected revenue growth rates and profit margin. These assumptions are forward-looking in nature and are dependent on the future performance of Wind River and could be affected by future economic and market conditions. Goodwill recognized in this transaction is primarily attributable to expanded market opportunities, including integrating Wind River’s product offerings with existing Company offerings, synergies expected to arise after the acquisition and the assembled workforce of Wind River and is not deductible for tax purposes.
The purchase price and related allocation are preliminary and could be revised as a result of adjustments made to the purchase price, additional information obtained regarding liabilities assumed, including, but not limited to, contingent liabilities, revisions of provisional estimates of fair values, including, but not limited to, the completion of independent valuations related to intangible assets and certain tax attributes.
The pro forma effects of this acquisition would not materially impact the Company’s reported results for any period presented, and as a result no pro forma financial statements were presented.
Acquisition of Controlling Interest in Intercable Automotive Solutions
On November 30, 2022, Aptiv acquired 85% of the equity interests of Intercable Automotive Solutions S.r.l. (“Intercable Automotive”), a manufacturer of high-voltage busbars and interconnect solutions, for total consideration of $609 million. Intercable Automotive was formerly a subsidiary of Intercable S.r.l. The results of operations of Intercable Automotive are reported within the Signal and Power Solutions segment from the date of acquisition. The Company acquired its interest in Intercable Automotive utilizing cash on hand. Upon completion of the acquisition, Aptiv incurred transaction related expenses totaling approximately $10 million, which were recorded within other expense, net in the statement of operations in the fourth quarter of 2022.
The acquisition was accounted for as a business combination, with the total purchase price allocated on a preliminary basis using information available, in the fourth quarter of 2022. The purchase price was increased by a net working capital adjustment of approximately $3 million, which was paid to the seller and recorded in the second quarter of 2023, and was primarily allocated to goodwill. Adjustments recorded from the amounts disclosed as of December 31, 2022 also included minor adjustments to various assets acquired and liabilities assumed. The preliminary purchase price and related allocation to the acquired net assets of Intercable Automotive based on their estimated fair values is shown below (in millions):
Assets acquired and liabilities assumed
| Purchase price, cash consideration, net of cash acquired | $ | 609 | |||
| Inventory | $ | 78 | |||
| Property, plant and equipment | 77 | ||||
| Intangible assets | 286 | ||||
| Deferred tax liabilities | (81) | ||||
| Other liabilities, net | (13) | ||||
| Identifiable net assets acquired | 347 | ||||
| Goodwill resulting from purchase | 357 | ||||
| Total | 704 | ||||
| Less: redeemable noncontrolling interest | (95) | ||||
| Total purchase price allocation | $ | 609 |
Intangible assets include $202 million recognized for the fair value of customer-based assets with approximate useful lives of nineteen years, $63 million of technology-related assets with estimated useful lives of approximately fifteen years and $21 million recognized for the fair value of the trade name license with an approximate useful life of fifteen years. The estimated fair value of these assets was based on third-party valuations and management’s estimates, generally utilizing income and market approaches. Goodwill recognized in this transaction is primarily attributable to synergies expected to arise after the acquisition and the assembled workforce of Intercable Automotive and is not deductible for tax purposes.
Concurrent with the acquisition, the Company entered into an agreement with the noncontrolling interest holders that provides the Company with the right to purchase, and the noncontrolling interest holders with the right to sell, the remaining 15% of Intercable Automotive for cash of up to €155 million, beginning in 2026. The final purchase price is contractually defined and will be determined based on Intercable Automotive’s 2025 operating results. Due to the noncontrolling interest holders’ redemption rights, the noncontrolling interest has been classified as redeemable noncontrolling interest in the temporary equity section of the consolidated balance sheet. The fair value of the noncontrolling interest was determined using a Monte Carlo simulation approach and includes several assumptions including estimated future profitability, expected volatility rate and risk free rate.
The purchase price and related allocation are preliminary and could be revised as a result of adjustments made to the purchase price, additional information obtained regarding liabilities assumed, including, but not limited to, contingent liabilities, revisions of provisional estimates of fair values, including, but not limited to, the completion of independent valuations related to intangible assets, noncontrolling interest and certain tax attributes.
The pro forma effects of this acquisition would not materially impact the Company’s reported results for any period presented, and as a result no pro forma financial statements were presented.
Sale of Interest in Majority Owned Russian Subsidiary
Given the sanctions put in place by the E.U., U.S. and other governments, which restrict our ability to conduct business in Russia, we initiated a plan in the second quarter of 2022 to exit our 51% owned subsidiary in Russia. As a result, the Company
determined that this subsidiary, which was reported within the Signal and Power Solutions segment, initially met the held for sale criteria as of June 30, 2022. Consequently, during the nine months ended September 30, 2022, the Company recorded a pre-tax charge of $51 million to impair the carrying value of the Russian subsidiary’s net assets to fair value. The remaining assets and liabilities were de minimis, net of the appropriate valuation allowances, and were presented as other current assets and other current liabilities, respectively, in the consolidated balance sheet as of December 31, 2022.
On May 30, 2023, the Company completed the sale of its entire interest in the Russian subsidiary to JSC Samara Cables Company, the sole minority shareholder in the Russian subsidiary, for a nominal amount in exchange for all of the Company’s shares in the subsidiary. As a result of this transaction, the net assets held for sale of the Russian subsidiary were deconsolidated from the Company’s consolidated financial statements and the Company did not record any incremental gain or loss resulting from this disposition. Furthermore, losses relating to the Russian subsidiary during the held for sale period were de minimis. The former Russian subsidiary is not considered to be a related party of the Company after deconsolidation.
18. SHARE-BASED COMPENSATION
Long-Term Incentive Plan
The Aptiv PLC Long-Term Incentive Plan, as amended and restated effective April 23, 2015 (the “PLC LTIP”), allows for the grant of awards of up to 25,665,448 ordinary shares for long-term compensation. The PLC LTIP is designed to align the interests of management and shareholders. The awards can be in the form of shares, options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”), performance awards and other share-based awards to the employees, directors, consultants and advisors of the Company. The Company has awarded annual long-term grants of RSUs under the PLC LTIP in order to align management compensation with Aptiv’s overall business strategy. In addition, the Company has competitive and market-appropriate ownership requirements for its directors and officers. All of the RSUs granted under the PLC LTIP are eligible to receive dividend equivalents for any dividend paid from the grant date through the vesting date. Dividend equivalents are generally paid out in ordinary shares upon vesting of the underlying RSUs.
Board of Director Awards
Aptiv has granted RSUs to the Board of Directors as detailed in the table below:
| Grant Date | RSUs granted | Grant Date Fair Value (1) | Vesting Date | Shares Issued Upon Vesting | Fair Value of Shares at Issuance | Shares Withheld to Cover Withholding Taxes | ||||||||||||||||||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||||||||||||||||||||
| April 2023 | 20,584 | $ | 2 | April 2024 | N/A | N/A | N/A | |||||||||||||||||||||||||||||||
| April 2022 | 23,387 | $ | 2 | April 2023 | 20,457 | $ | 2 | 2,930 | ||||||||||||||||||||||||||||||
| April 2021 | 17,589 | $ | 3 | April 2022 | 15,633 | $ | 2 | 1,956 | ||||||||||||||||||||||||||||||
(1)Determined based on the closing price of the Company’s ordinary shares on the date of the grant.
Executive Awards
Aptiv has made annual grants of RSUs to its executives in February of each year beginning in 2012. These awards include a time-based vesting portion and a performance-based vesting portion, as well as continuity awards in certain years. The time-based RSUs, which make up 40% (25% prior to 2021) of the awards for Aptiv’s officers and 50% for Aptiv’s other executives, vest ratably over three years beginning on the first anniversary of the grant date. The performance-based RSUs, which make up 60% (75% prior to 2021) of the awards for Aptiv’s officers and 50% for Aptiv’s other executives, vest at the completion of a three-year performance period if certain targets are met. Each executive will receive between 0% and 200% (150% for the 2019 and 2020 grants based on the executive performance grant modification in 2020) of his or her target performance-based award based on the Company’s performance against established company-wide performance metrics, which are:
| Metric | 2020 - 2023 Grants | 2019 Grant | ||||||||||||
| Average return on net assets (1) | 33% | 50% | ||||||||||||
| Cumulative net income | 33% | 25% | ||||||||||||
| Relative total shareholder return (2) | 33% | 25% |
(1)Average return on net assets is measured by tax-affected operating income divided by average net working capital plus average net property, plant and equipment for each calendar year during the respective performance period.
(2)Relative total shareholder return is measured by comparing the average closing price per share of the Company’s ordinary shares for the specified trading days in the fourth quarter of the end of the performance period to the average closing price per share of the Company’s ordinary shares for the specified trading days in the fourth quarter of the year preceding the grant, including dividends, and assessed against a comparable measure of competitor and peer group companies.
The details of the executive grants were as follows:
| Grant Date | RSUs Granted | Grant Date Fair Value | Time-Based Award Vesting Dates | Performance-Based Award Vesting Date | ||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||
| February 2019 | 0.71 | $ | 62 | Annually on anniversary of grant date, 2020 - 2022 | December 31, 2021 | |||||||||||||||||||||
| February 2020 | 0.75 | $ | 62 | Annually on anniversary of grant date, 2021 - 2023 | December 31, 2022 | |||||||||||||||||||||
| February 2021 | 0.44 | $ | 72 | Annually on anniversary of grant date, 2022 - 2024 | December 31, 2023 | |||||||||||||||||||||
| February 2022 | 0.59 | $ | 80 | Annually on anniversary of grant date, 2023 - 2025 | December 31, 2024 | |||||||||||||||||||||
| February 2023 | 0.79 | $ | 99 | Annually on anniversary of grant date, 2024 - 2026 | December 31, 2025 |
The grant date fair value of the RSUs is determined based on the target number of awards issued, the closing price of the Company’s ordinary shares on the date of the grant of the award, including an estimate for forfeitures, and a contemporaneous valuation performed by an independent valuation specialist with respect to the relative total shareholder return awards.
Any new executives hired after the annual executive RSU grant date may be eligible to participate in the PLC LTIP. The Company has also granted additional awards to employees in certain periods under the PLC LTIP. Any off cycle grants made for new hires or to other employees are valued at their grant date fair value based on the closing price of the Company’s ordinary shares on the date of any such grant.
The details of the shares issued upon vesting of the executive grants are as follows:
| Time-Based Awards | Performance-Based Awards | |||||||||||||||||||||||||||||||||||||
| Vesting Date | Ordinary Shares Issued Upon Vesting | Fair Value of Shares at Issuance | Ordinary Shares Withheld to Cover Withholding Taxes | Ordinary Shares Issued Upon Vesting | Fair Value of Shares at Issuance | Ordinary Shares Withheld to Cover Withholding Taxes | ||||||||||||||||||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||||||||||||||||||||
| Q1 2023 | 286,337 | $ | 33 | 116,753 | 315,664 | $ | 37 | 138,036 | ||||||||||||||||||||||||||||||
| Q1 2022 | 354,600 | $ | 46 | 140,409 | 325,283 | $ | 42 | 136,143 |
A summary of RSU activity, including award grants, vesting and forfeitures is provided below:
| RSUs | Weighted Average Grant Date Fair Value | ||||||||||
| (in thousands) | |||||||||||
| Nonvested, January 1, 2023 | 1,247 | $ | 136.61 | ||||||||
| Granted | 1,432 | $ | 118.75 | ||||||||
| Vested | (334) | $ | 119.47 | ||||||||
| Forfeited | (187) | $ | 111.66 | ||||||||
| Nonvested, September 30, 2023 | 2,158 | $ | 129.57 |
Aptiv recognized share-based compensation expense of $29 million ($29 million, net of tax) and $19 million ($19 million, net of tax) based on the Company’s best estimate of ultimate performance against the respective targets during the three months ended September 30, 2023 and 2022, respectively. Aptiv recognized share-based compensation expense of $77 million ($76 million, net of tax) and $65 million ($65 million, net of tax) based on the Company’s best estimate of ultimate performance against the respective targets during the nine months ended September 30, 2023 and 2022, respectively. Aptiv will continue to recognize compensation expense, based on the grant date fair value of the awards applied to the Company’s best estimate of ultimate performance against the respective targets, over the requisite vesting periods of the awards. Based on the grant date fair value of the awards and the Company’s best estimate of ultimate performance against the respective targets as of September 30, 2023, unrecognized compensation expense on a pre-tax basis of approximately $190 million is anticipated to be recognized over a weighted average period of approximately two years. For the nine months ended September 30, 2023 and 2022, approximately $31 million and $36 million, respectively, of cash was paid and reflected as a financing activity in the statements of cash flows related to the tax withholding for vested RSUs.
Subsidiary Awards
During the first quarter of 2023, certain employees of Wind River were granted stock options in Westerly, LLC (a subsidiary of the Company and parent company of Wind River) (the “Subsidiary Awards”). These Subsidiary Awards will vest ratably over a three year period subject to continuing employment. Refer to Note 17. Acquisitions and Divestitures for further information on the Wind River acquisition.
In the first quarter of 2023, approximately 7 million Subsidiary Awards were granted at a grant date fair value of $3.69 per Subsidiary Award, which were outstanding and unvested as of September 30, 2023.
The following summarizes the weighted average inputs used in the Black-Scholes model to value the Subsidiary Awards granted during the nine months ended September 30, 2023:
| Expected volatility | 43.47 | % | |||
| Expected term | 3.5 years | ||||
| Expected dividends | $ | — | |||
| Risk-free interest rate | 4.38 | % |
Aptiv recognized share-based compensation expense related to these Subsidiary Awards of $2 million and $5 million during the three and nine months ended September 30, 2023, respectively. Aptiv will continue to recognize compensation expense based on the grant date fair value of the Subsidiary Awards over the requisite service period. As of September 30, 2023, unrecognized compensation expense on a pre-tax basis related to unvested Subsidiary Awards of approximately $22 million is anticipated to be recognized over a period of approximately two years.
19. SEGMENT REPORTING
Aptiv operates its 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 vehicle technology and services in advanced safety, user experience and connectivity and security solutions, as well as cloud-native software platforms, autonomous driving technologies and DevOps tools.
-
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.
The accounting policies of the segments are the same as those described in Note 2. Significant Accounting Policies, except that the disaggregated financial results for the segments have been prepared using a management approach, which is consistent with the basis and manner in which management internally disaggregates financial information for which Aptiv’s chief operating decision maker regularly reviews financial results to assess performance of, and make internal operating decisions about allocating resources to, the segments.
Generally, Aptiv evaluates segment performance based on stand-alone segment net income before interest expense, other income (expense), net, income tax (expense) benefit, equity income (loss), net of tax, amortization, 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 and other related charges, compensation expense related to acquisitions and gains (losses) on business divestitures and other transactions (“Adjusted Operating Income”) and accounts for inter-segment sales and transfers as if the sales or transfers were to third parties, at current market prices.
Aptiv’s management utilizes 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 Aptiv’s 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.
Included below are sales and operating data for Aptiv’s segments for the three and nine months ended September 30, 2023 and 2022.
| Signal and Power Solutions | Advanced Safety and User Experience | Eliminations and Other (1) | Total | ||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||
| For the Three Months Ended September 30, 2023: | |||||||||||||||||||||||||||||
| Net sales | $ | 3,687 | $ | 1,441 | $ | (14) | $ | 5,114 | |||||||||||||||||||||
| Depreciation and amortization | $ | 160 | $ | 66 | $ | — | $ | 226 | |||||||||||||||||||||
| Adjusted operating income | $ | 451 | $ | 109 | $ | — | $ | 560 | |||||||||||||||||||||
| Operating income | $ | 395 | $ | 51 | $ | — | $ | 446 | |||||||||||||||||||||
| Equity income (loss), net of tax | $ | 1 | $ | (73) | $ | — | $ | (72) | |||||||||||||||||||||
| Net income attributable to noncontrolling interest | $ | 8 | $ | — | $ | — | $ | 8 | |||||||||||||||||||||
| Net loss attributable to redeemable noncontrolling interest | $ | — | $ | — | $ | — | $ | — |
| Signal and Power Solutions | Advanced Safety and User Experience | Eliminations and Other (1) | Total | ||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||
| For the Three Months Ended September 30, 2022: | |||||||||||||||||||||||||||||
| Net sales | $ | 3,424 | $ | 1,199 | $ | (9) | $ | 4,614 | |||||||||||||||||||||
| Depreciation and amortization | $ | 147 | $ | 43 | $ | — | $ | 190 | |||||||||||||||||||||
| Adjusted operating income | $ | 444 | $ | 81 | $ | — | $ | 525 | |||||||||||||||||||||
| Operating income | $ | 403 | $ | 67 | $ | — | $ | 470 | |||||||||||||||||||||
| Equity income (loss), net of tax | $ | 7 | $ | (74) | $ | — | $ | (67) | |||||||||||||||||||||
| Net income attributable to noncontrolling interest | $ | 5 | $ | — | $ | — | $ | 5 |
| Signal and Power Solutions | Advanced Safety and User Experience | Eliminations and Other (1) | Total | ||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||
| For the Nine Months Ended September 30, 2023: | |||||||||||||||||||||||||||||
| Net sales | $ | 10,830 | $ | 4,339 | $ | (37) | $ | 15,132 | |||||||||||||||||||||
| Depreciation and amortization | $ | 464 | $ | 202 | $ | — | $ | 666 | |||||||||||||||||||||
| Adjusted operating income | $ | 1,217 | $ | 310 | $ | — | $ | 1,527 | |||||||||||||||||||||
| Operating income | $ | 1,054 | $ | 150 | $ | — | $ | 1,204 | |||||||||||||||||||||
| Equity income (loss), net of tax | $ | 8 | $ | (235) | $ | — | $ | (227) | |||||||||||||||||||||
| Net income attributable to noncontrolling interest | $ | 15 | $ | — | $ | — | $ | 15 | |||||||||||||||||||||
| Net loss attributable to redeemable noncontrolling interest | $ | (1) | $ | — | $ | — | $ | (1) |
| Signal and Power Solutions | Advanced Safety and User Experience | Eliminations and Other (1) | Total | ||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||
| For the Nine Months Ended September 30, 2022: | |||||||||||||||||||||||||||||
| Net sales | $ | 9,569 | $ | 3,307 | $ | (27) | $ | 12,849 | |||||||||||||||||||||
| Depreciation and amortization | $ | 441 | $ | 133 | $ | — | $ | 574 | |||||||||||||||||||||
| Adjusted operating income | $ | 995 | $ | 67 | $ | — | $ | 1,062 | |||||||||||||||||||||
| Operating income | $ | 796 | $ | 27 | $ | — | $ | 823 | |||||||||||||||||||||
| Equity income (loss), net of tax | $ | 15 | $ | (217) | $ | — | $ | (202) | |||||||||||||||||||||
| Net loss attributable to noncontrolling interest | $ | (21) | $ | — | $ | — | $ | (21) |
(1)Eliminations and Other includes the elimination of inter-segment transactions.
The reconciliation of Adjusted Operating Income to operating income includes, as applicable, amortization, 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 and other related charges, compensation expense related to acquisitions and gains (losses) on business divestitures and other transactions. The reconciliations of Adjusted Operating Income to net income attributable to Aptiv for the three and nine months ended September 30, 2023 and 2022 are as follows:
| Signal and Power Solutions | Advanced Safety and User Experience | Total | |||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||
| For the Three Months Ended September 30, 2023: | |||||||||||||||||||||||||||||
| Adjusted operating income | $ | 451 | $ | 109 | $ | 560 | |||||||||||||||||||||||
| Amortization | (35) | (24) | (59) | ||||||||||||||||||||||||||
| Restructuring | (7) | (21) | (28) | ||||||||||||||||||||||||||
| Other acquisition and portfolio project costs | (14) | (6) | (20) | ||||||||||||||||||||||||||
| Compensation expense related to acquisitions | — | (7) | (7) | ||||||||||||||||||||||||||
| Operating income | $ | 395 | $ | 51 | 446 | ||||||||||||||||||||||||
| Interest expense | (75) | ||||||||||||||||||||||||||||
| Other income, net | 26 | ||||||||||||||||||||||||||||
| Income before income taxes and equity loss | 397 | ||||||||||||||||||||||||||||
| Income tax benefit | 1,312 | ||||||||||||||||||||||||||||
| Equity loss, net of tax | (72) | ||||||||||||||||||||||||||||
| Net income | 1,637 | ||||||||||||||||||||||||||||
| Net income attributable to noncontrolling interest | 8 | ||||||||||||||||||||||||||||
| Net income attributable to Aptiv | $ | 1,629 |
| Signal and Power Solutions | Advanced Safety and User Experience | Total | |||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||
| For the Three Months Ended September 30, 2022: | |||||||||||||||||||||||||||||
| Adjusted operating income | $ | 444 | $ | 81 | $ | 525 | |||||||||||||||||||||||
| Amortization | (35) | (2) | (37) | ||||||||||||||||||||||||||
| Restructuring | (1) | (10) | (11) | ||||||||||||||||||||||||||
| Other acquisition and portfolio project costs | — | (2) | (2) | ||||||||||||||||||||||||||
| Asset impairments | (5) | — | (5) | ||||||||||||||||||||||||||
| Operating income | $ | 403 | $ | 67 | 470 | ||||||||||||||||||||||||
| Interest expense | (58) | ||||||||||||||||||||||||||||
| Other income, net | 20 | ||||||||||||||||||||||||||||
| Income before income taxes and equity loss | 432 | ||||||||||||||||||||||||||||
| Income tax expense | (59) | ||||||||||||||||||||||||||||
| Equity loss, net of tax | (67) | ||||||||||||||||||||||||||||
| Net income | 306 | ||||||||||||||||||||||||||||
| Net income attributable to noncontrolling interest | 5 | ||||||||||||||||||||||||||||
| Net income attributable to Aptiv | $ | 301 |
| Signal and Power Solutions | Advanced Safety and User Experience | Total | |||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||
| For the Nine Months Ended September 30, 2023: | |||||||||||||||||||||||||||||
| Adjusted operating income | $ | 1,217 | $ | 310 | $ | 1,527 | |||||||||||||||||||||||
| Amortization | (107) | (70) | (177) | ||||||||||||||||||||||||||
| Restructuring | (22) | (59) | (81) | ||||||||||||||||||||||||||
| Other acquisition and portfolio project costs | (34) | (11) | (45) | ||||||||||||||||||||||||||
| Compensation expense related to acquisitions | — | (20) | (20) | ||||||||||||||||||||||||||
| Operating income | $ | 1,054 | $ | 150 | 1,204 | ||||||||||||||||||||||||
| Interest expense | (214) | ||||||||||||||||||||||||||||
| Other income, net | 36 | ||||||||||||||||||||||||||||
| Income before income taxes and equity loss | 1,026 | ||||||||||||||||||||||||||||
| Income tax benefit | 1,248 | ||||||||||||||||||||||||||||
| Equity loss, net of tax | (227) | ||||||||||||||||||||||||||||
| Net income | 2,047 | ||||||||||||||||||||||||||||
| Net income attributable to noncontrolling interest | 15 | ||||||||||||||||||||||||||||
| Net loss attributable to redeemable noncontrolling interest | (1) | ||||||||||||||||||||||||||||
| Net income attributable to Aptiv | $ | 2,033 |
| Signal and Power Solutions | Advanced Safety and User Experience | Total | |||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||
| For the Nine Months Ended September 30, 2022: | |||||||||||||||||||||||||||||
| Adjusted operating income | $ | 995 | $ | 67 | $ | 1,062 | |||||||||||||||||||||||
| Amortization | (107) | (5) | (112) | ||||||||||||||||||||||||||
| Restructuring | (23) | (29) | (52) | ||||||||||||||||||||||||||
| Other acquisition and portfolio project costs | (7) | (6) | (13) | ||||||||||||||||||||||||||
| Asset impairments | (8) | — | (8) | ||||||||||||||||||||||||||
| Other charges related to Ukraine/Russia conflict (1) | (54) | — | (54) | ||||||||||||||||||||||||||
| Operating income | $ | 796 | $ | 27 | 823 | ||||||||||||||||||||||||
| Interest expense | (157) | ||||||||||||||||||||||||||||
| Other expense, net | (44) | ||||||||||||||||||||||||||||
| Income before income taxes and equity loss | 622 | ||||||||||||||||||||||||||||
| Income tax expense | (96) | ||||||||||||||||||||||||||||
| Equity loss, net of tax | (202) | ||||||||||||||||||||||||||||
| Net income | 324 | ||||||||||||||||||||||||||||
| Net loss attributable to noncontrolling interest | (21) | ||||||||||||||||||||||||||||
| Net income attributable to Aptiv | $ | 345 |
(1)Primarily consists of charges related to the designation of our former majority owned Russian subsidiary as held for sale as of September 30, 2022. Refer to Note 17. Acquisitions and Divestitures for further information.
20. REVENUE
Refer to Note 2. Significant Accounting Policies for a complete description of the Company’s revenue recognition accounting policy.
Nature of Goods and Services
The principal activity from which the Company generates its revenue is the manufacturing of production parts for OEM customers. Aptiv recognizes revenue for production parts at a point in time, rather than over time, as the performance obligation is satisfied when customers obtain control of the product upon title transfer and not as the product is manufactured or developed.
Although production parts are highly customized with no alternative use, Aptiv does not have an enforceable right to payment as customers have the right to cancel a product program without a notification period. The amount of revenue recognized is based on the purchase order price and adjusted for revenue allocated to variable consideration (i.e., estimated rebates and price discounts), as applicable. Customers typically pay for production parts based on customary business practices with payment terms averaging 60 days.
The Company also generates revenue from the sale of software licenses, post delivery support and maintenance and professional software services, primarily from Wind River, which the Company acquired in December 2022. Refer to Note 17. Acquisitions and Divestitures for further information on this acquisition. The Company generally recognizes revenue for software licenses and professional software services at a point in time upon delivery or when the services are provided. Revenue from post delivery support and maintenance for software contracts is generally recognized over time on a ratable basis over the contract term. Under certain of these arrangements, timing may differ between revenue recognition and billing.
Disaggregation of Revenue
Revenue generated from Aptiv’s operating segments is disaggregated by primary geographic market in the following tables for the three and nine months ended September 30, 2023 and 2022. Information concerning geographic market reflects the manufacturing location.
| For the Three Months Ended September 30, 2023: | Signal and Power Solutions | Advanced Safety and User Experience | Eliminations and Other | Total | |||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Geographic Market | |||||||||||||||||||||||
| North America | $ | 1,402 | $ | 468 | $ | (3) | $ | 1,867 | |||||||||||||||
| Europe, Middle East and Africa | 967 | 668 | (5) | 1,630 | |||||||||||||||||||
| Asia Pacific | 1,196 | 305 | (6) | 1,495 | |||||||||||||||||||
| South America | 122 | — | — | 122 | |||||||||||||||||||
| Total net sales | $ | 3,687 | $ | 1,441 | $ | (14) | $ | 5,114 | |||||||||||||||
| For the Three Months Ended September 30, 2022: | Signal and Power Solutions | Advanced Safety and User Experience | Eliminations and Other | Total | |||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Geographic Market | |||||||||||||||||||||||
| North America | $ | 1,317 | $ | 352 | $ | (2) | $ | 1,667 | |||||||||||||||
| Europe, Middle East and Africa | 785 | 553 | (3) | 1,335 | |||||||||||||||||||
| Asia Pacific | 1,214 | 294 | (4) | 1,504 | |||||||||||||||||||
| South America | 108 | — | — | 108 | |||||||||||||||||||
| Total net sales | $ | 3,424 | $ | 1,199 | $ | (9) | $ | 4,614 | |||||||||||||||
| For the Nine Months Ended September 30, 2023: | Signal and Power Solutions | Advanced Safety and User Experience | Eliminations and Other | Total | |||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Geographic Market | |||||||||||||||||||||||
| North America | $ | 4,127 | $ | 1,458 | $ | (6) | $ | 5,579 | |||||||||||||||
| Europe, Middle East and Africa | 3,049 | 2,063 | (13) | 5,099 | |||||||||||||||||||
| Asia Pacific | 3,325 | 818 | (18) | 4,125 | |||||||||||||||||||
| South America | 329 | — | — | 329 | |||||||||||||||||||
| Total net sales | $ | 10,830 | $ | 4,339 | $ | (37) | $ | 15,132 | |||||||||||||||
| For the Nine Months Ended September 30, 2022: | Signal and Power Solutions | Advanced Safety and User Experience | Eliminations and Other | Total | |||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Geographic Market | |||||||||||||||||||||||
| North America | $ | 3,740 | $ | 1,022 | $ | (6) | $ | 4,756 | |||||||||||||||
| Europe, Middle East and Africa | 2,440 | 1,525 | (8) | 3,957 | |||||||||||||||||||
| Asia Pacific | 3,094 | 760 | (13) | 3,841 | |||||||||||||||||||
| South America | 295 | — | — | 295 | |||||||||||||||||||
| Total net sales | $ | 9,569 | $ | 3,307 | $ | (27) | $ | 12,849 | |||||||||||||||
Contract Balances
Contract liabilities solely consist of deferred revenue. As of September 30, 2023, the balance of contract liabilities was $78 million (of which $70 million was recorded in other current liabilities and $8 million was recorded in other long-term liabilities). As of December 31, 2022, the balance of contract liabilities was $99 million (of which $90 million was recorded in other current liabilities and $9 million was recorded in other long-term liabilities). The decrease in the contract liabilities balance was primarily driven by $84 million of revenues recognized during the nine months ended September 30, 2023 that were included in the contract liability balance as of December 31, 2022, partially offset by cash payments received or due in advance of the performance obligation being satisfied.
Contract assets are primarily comprised of unbilled receivables, which consist of amounts related to the Company’s unconditional right to consideration for completed performance obligations that have not been invoiced. As of September 30, 2023, the balance of contract assets was $120 million (of which $52 million was recorded in other current assets and $68 million was recorded in other long-term assets). As of December 31, 2022, the balance of contract assets was $67 million (of which $24 million was recorded in other current assets and $43 million was recorded in other long-term assets).
Remaining Performance Obligations
For production parts, customer contracts generally are represented by a combination of a current purchase order and a current production schedule issued by the customer. There are no contracts for production parts outstanding beyond one year. Aptiv does not enter into fixed long-term supply agreements.
As permitted, Aptiv does not disclose information about remaining performance obligations that have original expected durations of one year or less for production parts.
Customer contracts for sales of software and related services are generally represented by a sales contract or purchase order with contract durations typically ranging from one to three years. Remaining performance obligations include contract liabilities and unbilled amounts that will be recognized as revenue in future periods. Transaction price allocated to the remaining performance obligation is based on the standalone selling price. The value of the transaction price allocated to remaining performance obligations under software and related service contracts as of September 30, 2023 was approximately $202 million. The Company expects to recognize approximately 45% of remaining performance obligations as revenue in the next twelve months, and the remainder thereafter.
Costs to Obtain a Contract
From time to time, Aptiv makes payments to customers in conjunction with ongoing business. These payments to customers are generally recognized as a reduction to revenue at the time of the commitment to make these payments. However, certain other payments to customers, or upfront fees, meet the criteria to be considered a cost to obtain a contract as they are directly attributable to a contract, are incremental and management expects the fees to be recoverable. As of September 30, 2023 and December 31, 2022, Aptiv has recorded $63 million (of which $12 million was classified within other current assets and $51 million was classified within other long-term assets) and $78 million (of which $17 million was classified within other current assets and $61 million was classified within other long-term assets), respectively, related to these capitalized upfront fees.
Capitalized upfront fees are amortized to revenue based on the transfer of goods and services to the customer for which the upfront fees relate, which typically range from three to five years. There have been no impairment losses in relation to the costs capitalized. The amount of amortization to net sales was $7 million for the three months ended September 30, 2023 and 2022, and $24 million and $20 million for the nine months ended September 30, 2023 and 2022, respectively.
21. INVESTMENTS IN AFFILIATES
Equity Method Investments
As part of Aptiv’s operations, it has investments in various non-consolidated affiliates accounted for under the equity method of accounting. These affiliates are not publicly traded companies and are located in North America, Europe and Asia Pacific. Aptiv’s ownership percentages vary generally from approximately 20% to 50%, with the most significant investment being in Motional AD LLC (“Motional”) (of which Aptiv owns 50%). Motional was deemed a significant equity investee under Rule 10-01(b) of Regulation S-X for the nine months ended September 30, 2023. Accordingly, summarized interim income statement information of Motional is presented below:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (in millions) | (in millions) | ||||||||||||||||||||||
| Net sales | $ | 1 | $ | — | $ | 1 | $ | — | |||||||||||||||
| Gross margin | $ | (101) | $ | (94) | $ | (329) | $ | (280) | |||||||||||||||
| Net loss | $ | (146) | $ | (139) | $ | (456) | $ | (419) |
Motional Lease Agreement
In connection with the formation of Motional, Aptiv agreed to sublease certain office space to Motional, which has a remaining lease term of approximately five years as of September 30, 2023. Total income under the agreement was $1 million during the three months ended September 30, 2023 and 2022, and $3 million during the nine months ended September 30, 2023 and 2022. The sublease income and Aptiv’s associated operating lease cost are recorded to cost of sales in the consolidated statement of operations. The Company believes the terms of the lease agreement have not significantly been affected by the fact the Company and the lessee are related parties.
Investment in TTTech Auto AG
On March 15, 2022, Aptiv acquired approximately 20% of the equity interests of TTTech Auto AG (“TTTech Auto”), a leading provider of safety-critical middleware solutions for advanced driver-assistance systems and autonomous driving applications, for €200 million (approximately $220 million, using foreign currency rates on the investment date). The Company made the investment in TTTech Auto utilizing cash on hand.
As of September 30, 2023 and December 31, 2022, the carrying value of the Company’s investment in TTTech Auto was $195 million and $205 million, respectively, which is included in the Advanced Safety and User Experience segment. As of September 30, 2023 and December 31, 2022, the difference between the amount at which the Company’s investment is carried and the amount of the Company’s share of the underlying equity in net assets of TTTech Auto was approximately $149 million and $151 million, respectively. The basis difference is primarily attributable to equity method goodwill associated with the investment, which is not amortized.
Technology Investments
The Company has made technology investments in certain non-consolidated affiliates for ownership interests of less than 20% (where Aptiv does not have the ability to exercise significant influence), as described in Note 2. Significant Accounting Policies. Certain of 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. The Company also holds technology investments in publicly traded equity securities. These investments are measured at fair value based on quoted prices for identical assets on active market exchanges.
The following is a summary of technology investments, which are classified within other long-term assets in the consolidated balance sheets, as of September 30, 2023 and December 31, 2022:
| Investment Name | Segment | September 30, 2023 | December 31, 2022 | ||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||
| Equity investments without readily determinable fair values: | |||||||||||||||||||||||||||||
| StradVision, Inc. | Advanced Safety and User Experience | $ | 40 | $ | 40 | ||||||||||||||||||||||||
| LeddarTech, Inc. | Advanced Safety and User Experience | 1 | 19 | ||||||||||||||||||||||||||
| Other investments | Various | 7 | 8 | ||||||||||||||||||||||||||
| Total equity investments without readily determinable fair values | 48 | 67 | |||||||||||||||||||||||||||
| Publicly traded equity securities: | |||||||||||||||||||||||||||||
| Smart Eye AB | Advanced Safety and User Experience | 4 | 2 | ||||||||||||||||||||||||||
| Otonomo Technologies Ltd. | Advanced Safety and User Experience | 2 | 4 | ||||||||||||||||||||||||||
| Valens Semiconductor Ltd. | Signal and Power Solutions | 6 | 11 | ||||||||||||||||||||||||||
| Total publicly traded equity securities | 12 | 17 | |||||||||||||||||||||||||||
| Total investments | $ | 60 | $ | 84 |
In October 2023, Otonomo Technologies Ltd. (“Otonomo”) merged with Urgent.ly, Inc. (“Urgently”) and Aptiv’s Otonomo ordinary shares were converted into Urgently ordinary shares. Upon completion of the merger, shares of Urgently began trading on the Nasdaq Stock Market LLC under the symbol ULY.
In May 2022, the Company’s Advanced Safety and User Experience segment made an investment totaling 50 billion South Korean Won (approximately $40 million, using foreign currency rates on the investment date) in StradVision, Inc., a provider of deep learning-based camera perception software for automotive applications.
As of September 30, 2023, none of the Company’s equity securities were subject to contractual sales restrictions prohibiting the sale of securities.
The Company evaluated the measurement guidance for equity securities without a readily determinable fair value and performed a qualitative assessment of various impairment indicators and concluded that the LeddarTech, Inc. equity investment was impaired in the first quarter of 2023. As a result, the Company recognized an impairment loss of $18 million during the nine months ended September 30, 2023, within other expense, net in the consolidated statement of operations. The impairment recorded is equal to the difference between the fair value of Aptiv’s ownership interest in the investment and its carrying amount.
There were no other material transactions, events or changes in circumstances requiring an impairment or an observable price change adjustment to our investments without readily determinable fair value. The Company continues to monitor these investments to identify potential transactions which may indicate an impairment or an observable price change requiring an adjustment to its carrying value.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This Quarterly Report on Form 10-Q, including the exhibits being filed as part of this report, as well as other statements made by Aptiv PLC (“Aptiv,” the “Company,” “we,” “us” and “our”), contain forward-looking statements that reflect, when made, the Company’s current views with respect to current events, certain investments and acquisitions and financial performance. Such forward-looking statements are subject to many risks, uncertainties and factors relating to the Company’s operations and business environment, which may cause the actual results of the Company to be materially different from any future results, express or implied, by such forward-looking statements. All statements that address future operating, financial or business performance or the Company’s strategies or expectations are forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “may,” “might,” “will,” “should,” “expects,” “plans,” “intends,” “anticipates,” “believes,” “estimates,” “predicts,” “projects,” “potential,” “outlook” or “continue,” and other comparable terminology. Factors that could cause actual results to differ materially from these forward-looking statements include, but are not limited to, the following: global and regional economic conditions, including conditions affecting the credit market; global inflationary pressures; uncertainties posed by the COVID-19 pandemic and the difficulty in predicting its future course and its impact on the global economy and the Company’s future operations; uncertainties created by the conflict between Ukraine and Russia, and its impacts to the European and global economies and our operations in each country; fluctuations in interest rates and foreign currency exchange rates; the cyclical nature of global automotive sales and production; the potential disruptions in the supply of and changes in the competitive environment for raw material and other components integral to the Company’s products, including the ongoing semiconductor supply shortage; the Company’s ability to maintain contracts that are critical to its operations; potential changes to beneficial free trade laws and regulations such as the United States-Mexico-Canada Agreement; changes to tax laws; the ability of the Company to integrate and realize the expected benefits of recent transactions; the ability of the Company to attract, motivate and/or retain key executives; the ability of the Company to avoid or continue to operate during a strike, or partial work stoppage or slow down by any of its unionized employees or those of its principal customers; and the ability of the Company to attract and retain customers. Additional factors are discussed under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s filings with the Securities and Exchange Commission, including those set forth in the Company’s Annual Report on Form 10-K for fiscal year ended December 31, 2022. New risks and uncertainties arise from time to time, and it is impossible for us to predict these events or how they may affect the Company. It should be remembered that the price of the ordinary shares and any income from them can go down as well as up. Aptiv disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events and/or otherwise, except as may be required by law.
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