filings.toolsItem 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
102K characters. Original on sec.gov · Markdown
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following management’s discussion and analysis of financial condition and results of operations (“MD&A”) is intended to help you understand the business operations and financial condition of the Company for the three months ended March 31, 2024. This discussion should be read in conjunction with Item 1. Financial Statements. Our MD&A is presented in eight sections:
-
Executive Overview
-
Consolidated Results of Operations
-
Results of Operations by Segment
-
Liquidity and Capital Resources
-
Off-Balance Sheet Arrangements
-
Contingencies and Environmental Matters
-
Recently Issued Accounting Pronouncements
-
Critical Accounting Estimates
Within the MD&A, “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.”
Executive Overview
Our Business
We are 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, creating the software and hardware foundation for vehicle features and functionality. Our Advanced Safety and User Experience segment is focused on providing the necessary software and advanced computing platforms, and our Signal and Power Solutions segment is focused on providing the requisite networking architecture required to support the integrated systems in today’s complex vehicles. Together, our businesses develop the ‘brain’ and the ‘nervous system’ of increasingly complex vehicles, providing integration of the vehicle into its operating environment.
We are one of the largest vehicle technology suppliers and our customers include the 25 largest automotive original equipment manufacturers (“OEMs”) in the world.
Our total net sales during the three months ended March 31, 2024 were $4.9 billion, an increase of 2% compared to the same period of 2023. Our volumes increased 1% for the three months ended March 31, 2024, which reflects volume growth primarily in China and North America, despite decreased global automotive production of 1% (down 1% on an Aptiv weighted market basis, which represents global vehicle production weighted to the geographic regions in which the Company generates its revenue, “AWM”).
We are focused on maintaining a low fixed cost structure that provides us flexibility to remain profitable at all points of the traditional vehicle industry production cycle, including during periods of reduced industry volumes. Accordingly, we will continue to adjust our cost structure and optimize our manufacturing footprint in response to changes in the global and regional automotive markets and in order to increase investment in advanced technologies and engineering as conditions permit. As we operate in a cyclical industry that is impacted by movements in the global and regional economies, we continually evaluate opportunities to further refine our cost structure, as evidenced by our ongoing restructuring programs focused on the continued rotation of our manufacturing footprint to best cost locations and on reducing our global overhead costs, as described in Note 7. Restructuring to the consolidated financial statements contained herein. We believe our strong balance sheet coupled with our flexible cost structure will position us to capitalize on improvements in OEM production volumes as economic conditions improve.
Trends, Uncertainties and Opportunities
Economic conditions. Our business is directly related to automotive sales and automotive vehicle production by our customers. Automotive sales depend on a number of factors, including global and regional economic conditions. Global automotive vehicle production increased 9% (10% on an AWM basis) from 2022 to 2023, reflecting increased vehicle production of 13% in Europe, 10% in China, 9% in North America and flat production in South America, our smallest region. Compared to 2023, vehicle production for the three months ended March 31, 2024 decreased by 1% (down 1% on an AWM basis).
On September 15, 2023, several of our largest customers’ collective bargaining agreements with the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (the “UAW”) expired and the UAW subsequently went on strike against General Motors (“GM”), Ford Motor Company (“Ford”) and Stellantis N.V. (“Stellantis”) in the United States (“U.S.”), causing work stoppages at certain of these customers’ vehicle production and parts distribution facilities, which lasted approximately six weeks. Aptiv’s estimated total indirect and direct adverse impacts of these labor strikes to revenue during the second half of 2023 were approximately $180 million. Refer to Part I, Item 1A. Risk Factors of our 2023 Annual Report on Form 10-K for further discussion of the risks related to significant disruptions at our or our customers’ manufacturing facilities.
Economic volatility or weakness in North America, Europe, China or, to a lesser extent, South America could result in a significant reduction in automotive sales and production by our customers, which would have an adverse effect on our business, results of operations and financial condition. Global inflationary pressures have, at times, both reduced consumer demand for automotive vehicles and increased the price of inputs to our products, which has adversely impacted our profitability, and this trend may continue in 2024. There is also potential that geopolitical factors could adversely impact the U.S. and other economies, and specifically the automotive sector. In particular, changes to international trade agreements, such as the United States-Mexico-Canada Agreement or other political pressures could affect the operations of our OEM customers, resulting in reduced automotive production in certain regions or shifts in the mix of production to higher cost regions. Increases in interest rates could also negatively impact automotive production as a result of increased consumer borrowing costs or reduced credit availability. Additionally, economic weakness may result in shifts in the mix of future automotive sales (from vehicles with more content such as luxury vehicles, trucks and sport utility vehicles toward smaller passenger cars). While our diversified customer and geographic revenue base, along with our flexible cost structure, have well positioned us to withstand the impact of industry downturns and benefit from industry upturns, shifts in the mix of global automotive production to higher cost regions or to vehicles with less content could adversely impact our profitability.
Ukraine/Russia conflict. The conflict between Ukraine and Russia, which began in February 2022, has had, and is expected to continue to have, negative economic impacts to both countries and to the European and global economies. In response to the conflict, the European Union (the “E.U.”), the U.S. and other nations implemented broad economic sanctions against Russia. These countries may impose further sanctions and take other actions as the situation continues.
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, which was reported within the Signal and Power Solutions segment. 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. The Company did not record any incremental gain or loss resulting from this disposition. Refer to Note 17. Acquisitions and Divestitures to the consolidated financial statements contained herein for further detail on this transaction.
Ukraine and Russia are significant global producers of raw materials used in our supply chain, including copper, aluminum, palladium and neon gases. Disruptions in the supply and volatility in the price of these materials and other inputs produced by Ukraine or Russia, including increased logistics costs and longer transit times, could adversely impact our business and results of operations. The conflict has also increased the possibility of cyberattacks occurring, which could either directly or indirectly impact our operations. Furthermore, the conflict has caused our customers to analyze their continued presence in the region and future customer production plans in the region remain uncertain.
We do not have a material physical presence in either Ukraine or Russia, with less than 1% of our workforce located in the countries as of December 31, 2023 and less than 1% of our net sales for the year ended December 31, 2023 generated from manufacturing facilities in those countries. However, the impacts of the conflict have adversely impacted, and may continue to adversely impact, global economies, and in particular, the European economy, a region which accounted for approximately 34% of our net sales for the year ended December 31, 2023.
We continue to monitor the situation and will seek to minimize its impact to our business, while prioritizing the safety and well-being of our employees located in both countries and our compliance with applicable laws and regulations in the locations where we operate. Any of the impacts mentioned above, among others, could adversely affect our business, business opportunities, results of operations, financial condition and cash flows.
Global supply chain disruptions. Due to various factors that are beyond our control, there have been global supply chain disruptions at times during recent years, including a worldwide semiconductor supply shortage. The semiconductor supply shortage impacted production in automotive and other industries. We, along with most automotive component manufacturers that use semiconductors, have suffered interruptions in our production and were unable to fully meet the vehicle production demands of 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 work closely with suppliers and customers to minimize any 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. We will continue to actively monitor our global supply chain and will seek to aggressively mitigate and minimize the impact of supply chain disruptions on our business.
In addition, we are carrying critical inventory items and key components, and we continue to procure productive, raw material and non-critical inventory components in order to satisfy our customers’ vehicle production schedules. However, as a result of our customers’ recent production volatility and cancellations, our balance of productive, raw and component material inventories has increased substantially from customary levels as of March 31, 2024 and December 31, 2023. We will continue to actively monitor and manage inventory levels across all inventory types in order to maximize both supply continuity and the efficient use of working capital.
Commercializing the high-tech evolution of the automotive industry. The automotive industry is increasingly evolving towards the implementation of software-dependent components and solutions. In particular, the industry is focused on the development of advanced driver assistance technologies, with the goal of developing and introducing a commercially viable, fully automated driving experience. We expect automated driving technologies will provide strong societal benefit as well as the opportunity for long-term growth for our product offerings in this space. We are focused on enabling and delivering end-to-end smart mobility solutions, enabling our customers’ transition to more electrified, software-defined vehicles, accelerating the commercialization of active safety and autonomous driving technologies and providing enhanced user experience and connected services.
As part of our strategy to harness the full potential of connected intelligent systems across industries, strengthen our capabilities in software-defined mobility and to enable advanced smart vehicle architecture changes, we acquired Wind River in December 2022. Wind River is a global leader in delivering software for the intelligent edge for multiple industries, including automotive, by leveraging mixed-criticality software products and solutions enabling customers to develop in the cloud, deploy over the air and run and manage software at the vehicle edge.
We are also continuing to develop market-leading automated driving solutions such as automated driving software, key active safety sensing and compute technologies capable of supporting safety-critical applications. We believe we are well-aligned with industry technology trends that will help to support sustainable future growth in this space and have partnered with leaders in their respective fields to advance the pace of development and commercialization of these emerging technologies.
In March 2020, we completed a transaction with Hyundai Motor Group (“Hyundai”) to form Motional, AD LLC (“Motional”), a joint venture focused on the design, development and commercialization of autonomous driving technologies. Motional began testing fully driverless systems in 2020 and began testing a production-ready autonomous driving platform available for robotaxi providers, meal delivery providers, fleet operators and automotive manufacturers at prototype scale in 2022, with initial production deployments in the fourth quarter of 2023 and commercial launch planned in the first half of 2024. In addition, Motional is involved in collaborative arrangements with mobility providers and with smart cities such as Boston, Las Vegas, Los Angeles and Singapore as solutions are developed for the evolving nature of the mobility industry.
Although we believe our strategic partnerships have us well-aligned with industry technology mega-trends in these evolving areas, the timeline necessary to produce commercially viable autonomous vehicles has been extended and is still subject to significant uncertainty, resulting in additional funding requirements for Motional in the interim. In April 2024, Aptiv and Hyundai entered into an agreement to restructure Aptiv’s ownership interest in Motional and for Hyundai to provide additional funding to Motional, eliminating any requirements for additional future funding from Aptiv. These transactions are anticipated to result in the reduction of our common equity interest from 50% as of March 31, 2024 to approximately 15%, and are subject to regulatory approvals and customary closing conditions. Refer to Note 22. Subsequent Events to the consolidated financial statements contained herein for further information on these agreements.
There are many risks associated with these evolving areas, including the high development costs of active safety and autonomous driving technologies, the uncertain timing of customer and consumer adoption of these technologies, increased competition from entrants outside the traditional automotive industry and evolving regulations, such as the guidance for automated driving systems published by the U.S. Department of Transportation. While we believe we are well-positioned in these markets, the high development cost of active safety and autonomous driving technologies may result in a higher risk of
exposure to the success of new or disruptive technologies different than those being developed by us or our partners and ultimately there can be no assurance that we will be successful in our efforts to develop these technologies.
Key growth markets. There have been periods of increased market volatility and moderation in the level of economic growth in China, which resulted in periods of lower automotive production growth rates in China than those previously experienced. Automotive production in China experienced growth of 10% in 2023, which follows growth of 3% in 2022. Despite the market volatility and moderation in the level of economic growth in China, rising income levels in China and other key growth markets are expected to result in stronger growth rates in these markets over the long-term. Our strong global presence, and presence in these markets, has positioned us to experience above-market growth rates over the long-term. We continue to expand our established presence in key growth markets, positioning us to benefit from the expected long-term growth opportunities in these regions. We are capitalizing on our long-standing relationships with the global OEMs and further enhancing our positions with the key growth market OEMs to continue expanding our worldwide leadership. We continue to build upon our extensive geographic reach to capitalize on fast-growing automotive markets. We believe that our presence in best cost countries positions us to realize incremental margin improvements as the global balance of automotive production shifts towards the key growth markets.
We have a strong local presence in China, including a major manufacturing base and well-established customer relationships. Each of our business segments have operations and sales in China. Our business in China remains sensitive to economic and market conditions that impact automotive sales volumes in China and may be affected if the pace of growth slows as the Chinese market matures or if there are reductions in vehicle demand in China. However, we continue to believe this market will benefit from long-term demand for new vehicles and stringent governmental regulation driving increased vehicle content, including accelerated demand for electrified vehicles.
Market driven products. Our product offerings satisfy the OEMs’ needs to meet increasingly stringent government regulations and meet consumer preferences for products that address the mega-trends of Safe, Green and Connected, leading to increased content per vehicle, greater profitability and higher margins. With these offerings, we believe we are well-positioned to benefit from the growing demand for vehicle content and technology related to safety, electrification, high speed data, connectivity to the global information network and automated driving technologies. We are benefiting from the substantial increase in vehicle content, software and electrification that requires a complex and reliable electrical architecture and systems to operate, such as automated advanced driver assistance technologies, electrical vehicle monitoring, active safety systems, lane departure warning systems, integrated vehicle cockpit displays, navigation systems and technologies that enable connected infotainment in vehicles. Our ability to design a reliable electrical architecture that optimizes power distribution and/or consumption is key to satisfying the OEMs’ needs to reduce emissions while continuing to meet consumer demand for increased vehicle content and technology. While we have identified high voltage electrification systems as a key product market, certain of our OEM customers have recently announced delays in their electric vehicle investment strategies amidst reduced expectations for future consumer demand for these products.
Global capabilities. Many OEMs are continuing to adopt global vehicle platforms to increase standardization, reduce per unit cost and increase capital efficiency and profitability. As a result, OEMs are selecting suppliers that have the capability to manufacture products on a worldwide basis, as well as the flexibility to adapt to regional variations. Suppliers with global scale and strong design, engineering and manufacturing capabilities are best positioned to benefit from this trend. Our global footprint enables us to serve the global OEMs on a worldwide basis as we gain market share with key growth market OEMs. This regional model is structured primarily to service the North American market from Mexico, the South American market from Brazil, the European market from Eastern Europe and North Africa and the Asia Pacific market from China, and we have continued to rotate our manufacturing footprint to best cost locations within these regions.
Our operations are subject to certain risks inherent in doing business globally, including military conflicts in regions in which we operate, changes in laws or regulations governing labor, trade, or other monetary or tax fiscal policy changes, including the Organisation for Economic Co-operation and Development (the “OECD”) Pillar Two Framework (the “Framework”), tariffs, quotas, customs and other import or export restrictions or trade barriers. For instance, effective January 1, 2024, the government of Mexico implemented a country-wide statutory minimum wage increase of 20%. Additionally, the government of Mexico has indicated it may implement other labor reforms, such as a bill to shorten the work week from 48 to 40 hours. While management has implemented measures to mitigate the impact of these labor reforms on our cost structure, we cannot predict the ultimate future impact on our business.
The outbreak of armed conflicts in the Middle East beginning in October 2023 has created numerous uncertainties, including the risk that the conflicts spread to the broader region, and their impact on the global economy and supply chains. In addition, as described above, the conflict between Ukraine and Russia has also created numerous economic uncertainties, including the potential for further sanctions against Russia, the impact on the global supply chain for raw materials produced in each country, as well as increased logistics costs and transit times, and the actions of automotive OEMs and suppliers as they relate to production plans in each country and within the region. We are also subject to risks associated with actions taken by governmental authorities to impose changes in laws or regulations that restrict certain business operations, trade or travel in
response to a pandemic or widespread outbreak of an illness. The impacts of any of these factors mentioned above, among others, could adversely affect our business, business opportunities, results of operations, financial condition and cash flows.
Furthermore, existing free trade laws and regulations, such as the United States-Mexico-Canada Agreement, provide certain beneficial duties and tariffs for qualifying imports and exports, subject to compliance with the applicable classification and other requirements. Changes in laws or policies governing the terms of trade, and in particular increased trade restrictions, tariffs or taxes on imports from countries where we manufacture products, such as China and Mexico, could have a material adverse effect on our business and financial results. For example, in October 2022, the U.S. government imposed additional export control restrictions targeting the export, re-export or transfer of, among other products, certain advanced computing semiconductors, semiconductor manufacturing items and related technology to China, which could further disrupt supply chains and adversely impact our business. Management continues to monitor the volatile geopolitical environment to identify, quantify and assess proposed or threatened duties, taxes or other business restrictions which could adversely affect our business and financial results.
Product development. The automotive technology and components industry is highly competitive and is characterized by rapidly changing technology, evolving industry standards and changes in customer needs. Our ability to anticipate changes in technology and regulatory standards and to successfully develop and introduce new and enhanced products on a timely and cost competitive basis will be a significant factor in our ability to remain competitive. To compete effectively in the automotive technology and components industry, we must be able to develop and launch new products to meet our customers’ demands in a timely manner. With our innovative technologies and robust global engineering and development capabilities we are well positioned to meet the increasingly stringent vehicle manufacturer demands and consumer preferences for high-technology content in automobiles.
OEMs are increasingly looking to their suppliers to simplify vehicle design and assembly processes to reduce costs and weight. As a result, suppliers that sell vehicle components directly to manufacturers (Tier I suppliers) have assumed many of the design, engineering, research and development and assembly functions traditionally performed by vehicle manufacturers. Suppliers that can provide fully-engineered solutions, systems and pre-assembled combinations of component parts are positioned to leverage the trend toward system sourcing.
Engineering, design and development. Our history and culture of innovation have enabled us to develop significant intellectual property and design and development expertise to provide advanced technology solutions that meet the demands of our customers. We have a team of approximately 22,200 scientists, engineers and technicians focused on developing leading product solutions for our key markets, located at 11 major technical centers in China, Germany, India, Mexico, Poland, Singapore and the United States. During the year ended December 31, 2023, we invested approximately $1.8 billion (which includes approximately $492 million co-investment by customers and government agencies) in research and development, including engineering, to maintain our portfolio of innovative products, and own/hold approximately 10,000 patents and protective rights. We also encourage “open innovation” and collaborate extensively with peers in the industry, government agencies and academic institutions. Our technology competencies are recognized by both customers and government agencies, which, as noted above, co-invest in new product development, accelerating the pace of innovation and reducing the risk associated with successful commercialization of technological breakthroughs.
In the past, suppliers often incurred the initial cost of engineering, designing and developing automotive component parts, and recovered their investments over time by including a cost recovery component in the price of each part based on expected volumes. Recently, we and many other suppliers have negotiated for cost recovery payments independent of volumes. This trend reduces our economic risk.
Pricing. Cost-cutting initiatives adopted by our customers result in increased downward pressure on pricing. Our customer supply agreements generally require step-downs in component pricing over the periods of production and OEMs have historically possessed significant leverage over their outside suppliers because the automotive component supply industry is fragmented and serves a limited number of automotive OEMs. Our profitability depends in part on our ability to generate sufficient production cost savings in the future to offset price reductions. In addition, during recent years, global economies and our industry were subjected to significant inflationary cost pressures, and these pressures may continue throughout 2024. We continue to work with our customers, both through price recoveries and adjustments as well as future pricing adjustments as contracts renew, to mitigate the impact of these inflationary pressures on our results of operations.
We are focused on maintaining a low fixed cost structure that provides us flexibility to remain profitable at all points of the traditional vehicle industry production cycle. As a result, approximately 97% of our hourly workforce is located in best cost countries. Furthermore, we have substantial operational flexibility by leveraging a large workforce of contingent workers, which represented approximately 27% of the hourly workforce as of March 31, 2024. However, we will continue to adjust our cost structure and optimize our manufacturing footprint in response to changes in the global and regional automotive markets and in order to increase investment in advanced technologies and engineering, as evidenced by our ongoing restructuring programs focused on reducing our global overhead costs and on the continued rotation of our manufacturing footprint to best
cost locations in Europe. As we continue to operate in a cyclical industry that is impacted by movements in the global and regional economies, we continually evaluate opportunities to further refine our cost structure.
We have a strong balance sheet with gross debt of approximately $6.2 billion and substantial available liquidity of approximately $3.4 billion as of March 31, 2024, consisting of cash and cash equivalents, and available financing under our Revolving Credit Facility and committed European accounts receivable factoring facility, and no significant U.S. defined benefit or workforce postretirement health care benefits and employer-paid postretirement basic life insurance benefits (“OPEB”) liabilities. We intend to maintain strong financial discipline by targeting industry-leading earnings growth, cash flow generation and return on invested capital and to maintain sufficient liquidity to sustain our financial flexibility throughout the industry cycle.
OEM product recalls. The number of vehicles recalled globally by OEMs has increased above historical levels. These recalls can either be initiated by the OEMs or influenced by regulatory agencies. Although there are differing rules and regulations across countries governing recalls for safety issues, the overall transition towards global vehicle platforms may also contribute to increased recalls outside of the U.S., as automotive components are increasingly standardized across regions. Given the sensitivity to safety issues in the automotive industry, including increased focus from regulators and consumers, we anticipate the number of automotive recalls may remain above historical levels in the near future. Although we engage in extensive product quality programs and processes, it is possible that we may be adversely affected in the future if the pace of these recalls continues.
Efficient use of capital. The global vehicle components industry is generally capital intensive and a portion of a supplier’s capital equipment is frequently utilized for specific customer programs. Lead times for procurement of capital equipment are long and typically exceed start of production by one to two years. Substantial advantages exist for suppliers that can leverage their prior investments in capital equipment or amortize the investment over higher volume global customer programs.
Industry consolidation and disruptive new entrants. Consolidation among worldwide OEMs and suppliers is expected to continue as these companies seek to achieve operating synergies and value stream efficiencies, acquire complementary technologies and build stronger customer relationships. Additionally, the rise of advanced software and technologies in vehicles has attracted new and disruptive entrants from outside the traditional automotive supply industry. These entrants may seek to gain access to certain vehicle technology and component markets. Any of these new competitors may develop and introduce technologies that gain greater customer or consumer acceptance, which could adversely affect the future growth of the Company. We believe companies with strong balance sheets and financial discipline are in the best position to take advantage of these trends.
Consolidated Results of Operations
Aptiv typically experiences fluctuations in revenue due to changes in OEM production schedules, vehicle sales mix and the net of new and lost business (which we refer to collectively as volume), increased prices attributable to escalation clauses in our supply contracts for recovery of increased commodity costs (which we refer to as commodity pass-through), fluctuations in foreign currency exchange rates (which we refer to as “FX”), contractual reductions of the sales price to the OEM (which we refer to as contractual price reductions) and engineering changes. Changes in sales mix can have either favorable or unfavorable impacts on revenue. Such changes can be the result of shifts in regional growth, shifts in OEM sales demand, as well as shifts in consumer demand related to vehicle segment purchases and content penetration. For instance, a shift in sales demand favoring a particular OEM’s vehicle model for which we do not have a supply contract may negatively impact our revenue. A shift in regional sales demand toward certain markets could favorably impact the sales of those of our customers that have a large market share in those regions, which in turn would be expected to have a favorable impact on our revenue.
We typically experience (as described below) fluctuations in operating income due to:
-
Volume, net of contractual price reductions—changes in volume offset by contractual price reductions (which typically range from 1% to 3% of net sales) and changes in mix;
-
Operational performance—changes to costs for materials and commodities or manufacturing and engineering variances; and
-
Other—including restructuring costs and any remaining variances not included in Volume, net of contractual price reductions or Operational performance.
The automotive technology and component supply industry is traditionally subject to inflationary pressures with respect to raw materials and labor which may place operational and profitability burdens on the entire supply chain. For instance, the industry has recently been subjected to increased pricing pressures, specifically in relation to copper and petroleum-based resin products, which have experienced significant volatility in price. We have also been impacted globally by increased overall inflation as a result of a variety of global trends. Due to various factors, the industry has recently been impacted by increased
operating and logistics challenges from certain global supply chain disruptions, including a worldwide semiconductor supply shortage. This shortage has resulted in increased pricing pressures on semiconductors as well. Although the severity of these disruptions abated during the second half of 2023, we expect semiconductor supply cost and commodity cost volatility to have a continual impact on future earnings and/or operating cash flows. As such, we continually seek to mitigate both inflationary pressures and our material-related cost exposures using a number of approaches, including combining purchase requirements with customers and/or other suppliers, using alternate suppliers or product designs, negotiating cost reductions and/or commodity cost contract escalation clauses into our vehicle manufacturer supply contracts and hedging. We have also negotiated, and will continue to negotiate, price increases with our customers in response to the aforementioned increased overall inflation and global supply chain disruptions.
Three Months Ended March 31, 2024 versus Three Months Ended March 31, 2023
The results of operations for the three months ended March 31, 2024 and 2023 were as follows:
| Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||
| 2024 | 2023 | Favorable/(unfavorable) | |||||||||||||||||||||||||||||||||
| (dollars in millions) | |||||||||||||||||||||||||||||||||||
| Net sales | $ | 4,901 | $ | 4,818 | $ | 83 | |||||||||||||||||||||||||||||
| Cost of sales | 4,023 | 4,058 | 35 | ||||||||||||||||||||||||||||||||
| Gross margin | 878 | 17.9% | 760 | 15.8% | 118 | ||||||||||||||||||||||||||||||
| Selling, general and administrative | 366 | 342 | (24) | ||||||||||||||||||||||||||||||||
| Amortization | 54 | 59 | 5 | ||||||||||||||||||||||||||||||||
| Restructuring | 39 | 11 | (28) | ||||||||||||||||||||||||||||||||
| Operating income | 419 | 348 | 71 | ||||||||||||||||||||||||||||||||
| Interest expense | (65) | (67) | 2 | ||||||||||||||||||||||||||||||||
| Other income (expense), net | 15 | (1) | 16 | ||||||||||||||||||||||||||||||||
| Income before income taxes and equity loss | 369 | 280 | 89 | ||||||||||||||||||||||||||||||||
| Income tax expense | (76) | (34) | (42) | ||||||||||||||||||||||||||||||||
| Income before equity loss | 293 | 246 | 47 | ||||||||||||||||||||||||||||||||
| Equity loss, net of tax | (69) | (82) | 13 | ||||||||||||||||||||||||||||||||
| Net income | 224 | 164 | 60 | ||||||||||||||||||||||||||||||||
| Net income attributable to noncontrolling interest | 6 | 3 | 3 | ||||||||||||||||||||||||||||||||
| Net loss attributable to redeemable noncontrolling interest | — | (1) | 1 | ||||||||||||||||||||||||||||||||
| Net income attributable to Aptiv | 218 | 162 | 56 | ||||||||||||||||||||||||||||||||
| Mandatory convertible preferred share dividends | — | (16) | 16 | ||||||||||||||||||||||||||||||||
| Net income attributable to ordinary shareholders | $ | 218 | $ | 146 | $ | 72 |
Total Net Sales
Below is a summary of our total net sales for the three months ended March 31, 2024 versus March 31, 2023.
| Three Months Ended March 31, | Variance Due To: | |||||||||||||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | Favorable/(unfavorable) | Volume, net of contractual price reductions | FX | Commodity pass-through | Other | Total | |||||||||||||||||||||||||||||||||||||||||||
| (in millions) | (in millions) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total net sales | $ | 4,901 | $ | 4,818 | $ | 83 | $ | 108 | $ | (23) | $ | (2) | $ | — | $ | 83 |
Total net sales for the three months ended March 31, 2024 increased 2% compared to the three months ended March 31, 2023. Our volumes increased 1% for the period, which reflects volume growth primarily in China and North America, despite decreased global automotive production of 1% (down 1% on an AWM basis). Our total net sales also reflect the impacts of favorable pricing, net of contractual price reductions, of $43 million. In addition, our net sales reflect unfavorable foreign currency impacts, primarily related to the Chinese Yuan Renminbi, partially offset by impacts related to the Euro.
Cost of Sales
Cost of sales is primarily comprised of material, labor, manufacturing overhead, freight, fluctuations in foreign currency exchange rates, product engineering, design and development expenses, depreciation, warranty costs and other operating expenses. Gross margin is revenue less cost of sales and gross margin percentage is gross margin as a percentage of net sales.
Cost of sales decreased $35 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023, as summarized below. The Company’s material cost of sales was approximately 50% and 55% of net sales in the three months ended March 31, 2024 and 2023, respectively.
| Three Months Ended March 31, | Variance Due To: | |||||||||||||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | Favorable/(unfavorable) | Volume (a) | FX | Operational performance | Other | Total | |||||||||||||||||||||||||||||||||||||||||||
| (dollars in millions) | (in millions) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Cost of sales | $ | 4,023 | $ | 4,058 | $ | 35 | $ | (58) | $ | 23 | $ | 96 | $ | (26) | $ | 35 | ||||||||||||||||||||||||||||||||||
| Gross margin | $ | 878 | $ | 760 | $ | 118 | $ | 50 | $ | — | $ | 96 | $ | (28) | $ | 118 | ||||||||||||||||||||||||||||||||||
| Percentage of net sales | 17.9 | % | 15.8 | % |
(a)Presented net of contractual price reductions for gross margin variance.
The decrease in cost of sales reflects impacts from operational performance and currency exchange, partially offset by increased volumes. Cost of sales was also impacted by the following items in Other above:
- Approximately $20 million of increased depreciation, primarily as a result of a higher fixed asset base.
Selling, General and Administrative Expense
| Three Months Ended March 31, | |||||||||||||||||
| 2024 | 2023 | Favorable/ (unfavorable) | |||||||||||||||
| (dollars in millions) | |||||||||||||||||
| Selling, general and administrative expense | $ | 366 | $ | 342 | $ | (24) | |||||||||||
| Percentage of net sales | 7.5 | % | 7.1 | % | |||||||||||||
Selling, general and administrative expense (“SG&A”) remained relatively consistent as a percentage of net sales for the three months ended March 31, 2024 compared to 2023, and includes administrative expenses, information technology costs, incentive compensation related costs, acquisition and project portfolio related costs and selling and marketing expenses.
Amortization
| Three Months Ended March 31, | |||||||||||||||||
| 2024 | 2023 | Favorable/ (unfavorable) | |||||||||||||||
| (in millions) | |||||||||||||||||
| Amortization | $ | 54 | $ | 59 | $ | 5 | |||||||||||
Amortization expense reflects the non-cash charge related to definite-lived intangible assets. Amortization during the three months ended March 31, 2024 and 2023 reflects the continued amortization of our definite-lived intangible assets, which resulted primarily from our acquisitions, over their estimated useful lives. Refer to Note 17. Acquisitions and Divestitures to the consolidated financial statements contained herein for further detail of our business acquisitions, including details of the intangible assets recorded in each transaction.
Restructuring
| Three Months Ended March 31, | |||||||||||||||||
| 2024 | 2023 | Favorable/ (unfavorable) | |||||||||||||||
| (dollars in millions) | |||||||||||||||||
| Restructuring | $ | 39 | $ | 11 | $ | (28) | |||||||||||
| Percentage of net sales | 0.8 | % | 0.2 | % | |||||||||||||
The Company recorded employee-related and other restructuring charges totaling approximately $39 million during the three months ended March 31, 2024, of which $24 million was recognized for a program initiated in the fourth quarter of 2023 focused on global salaried headcount reduction, primarily in the European region. We expect to recognize additional charges of approximately $50 million related to this program through the remainder of 2024. Cash payments related to this restructuring action are expected to be largely completed within the next twelve months. We expect to make cash payments of approximately $105 million over the next twelve months pursuant to currently implemented restructuring programs.
The Company recorded employee-related and other restructuring charges totaling approximately $11 million during the three months ended March 31, 2023.
We expect to continue to incur additional restructuring expense in 2024 and beyond, primarily related to programs focused on reducing global overhead costs and on the continued rotation of our manufacturing footprint to best cost locations in Europe, which includes approximately $60 million (of which approximately $40 million relates to the Signal and Power Solutions segment and approximately $20 million relates to the Advanced Safety and User Experience segment) for programs approved as of March 31, 2024, which includes the amounts related to the global salaried headcount reduction program described above and which are expected to be incurred within the next twelve months. Additionally, as we continue to operate in a cyclical industry that is impacted by movements in the global and regional economies, we continually evaluate opportunities to further adjust our cost structure and optimize our manufacturing footprint. The Company plans to implement additional restructuring activities in the future, if necessary, in order to align manufacturing capacity and other costs with prevailing regional automotive production levels and locations, to improve the efficiency and utilization of other locations and in order to increase investment in advanced technologies and engineering. Such future restructuring actions are dependent on market conditions, customer actions and other factors.
Refer to Note 7. Restructuring to the consolidated financial statements contained herein for additional information.
Interest Expense
| Three Months Ended March 31, | |||||||||||||||||
| 2024 | 2023 | Favorable/ (unfavorable) | |||||||||||||||
| (in millions) | |||||||||||||||||
| Interest expense | $ | 65 | $ | 67 | $ | 2 | |||||||||||
Refer to Note 8. Debt to the consolidated financial statements contained herein for additional information.
Other Income, Net
| Three Months Ended March 31, | |||||||||||||||||
| 2024 | 2023 | Favorable/ (unfavorable) | |||||||||||||||
| (in millions) | |||||||||||||||||
| Other income (expense), net | $ | 15 | $ | (1) | $ | 16 | |||||||||||
Other income, net for the three months ended March 31, 2024 includes interest income of $20 million.
Other expense, net for the three months ended March 31, 2023 includes an impairment loss of $18 million recognized for Aptiv’s equity investments without readily determinable fair values and losses of $3 million recognized for the change in fair value of publicly traded equity securities, partially offset by interest income of $22 million.
Refer to Note 16. Other Income, net to the consolidated financial statements contained herein for additional information.
Income Taxes
| Three Months Ended March 31, | |||||||||||||||||
| 2024 | 2023 | Favorable/ (unfavorable) | |||||||||||||||
| (in millions) | |||||||||||||||||
| Income tax expense | $ | 76 | $ | 34 | $ | (42) | |||||||||||
The Company’s tax rate is affected by the fact that its parent entity is an Irish resident taxpayer, the tax rates in Ireland and other jurisdictions in which the Company operates, the relative amount of income earned by jurisdiction and the relative amount of losses or income for which no tax benefit or expense was recognized due to a valuation allowance. The Company’s effective tax rate is also impacted by the receipt of certain tax incentives and holidays that reduce the effective tax rate for certain subsidiaries below the statutory rate.
The Company’s effective tax rate for the three months ended March 31, 2024 includes net discrete tax expense of approximately $7 million, primarily related to changes in the tax benefits of vested share-based compensation and changes in accruals for unremitted earnings. The Company’s effective tax rate for the three months ended March 31, 2023 includes net discrete tax benefits of approximately $3 million, primarily related to changes in reserves.
On December 15, 2022, the European Union (the “E.U.”) Member States formally adopted the Framework, which generally provides for a minimum effective tax rate of 15%, as established by the OECD. Many countries have enacted legislation consistent with the Framework effective at the beginning of 2024. The OECD continues to release additional guidance on these rules. The Company has proactively responded to these tax policy changes, as described below, and will continue to closely monitor developments. Our effective tax rate for the three months ended March 31, 2024 includes an unfavorable impact from the enacted Framework.
In response to the Framework, the Company initiated changes to its corporate entity structure, including intercompany transfers of certain intellectual property to one of its subsidiaries in Switzerland, during the second half of 2023. Furthermore, during the third quarter of 2023, the Company’s Swiss subsidiary was granted a ten year tax incentive, beginning in 2024. The measurement of certain deferred tax assets and associated income tax benefits resulting from these transactions was impacted by tax legislation in Switzerland enacted in the fourth quarter of 2023, which increased the statutory income tax rate, resulting in additional deferred tax benefit impacts, net of valuation allowances. During the second half of 2023, the total income tax benefit recorded as a result of the intercompany transfers of intellectual property, all as described above, combined with other related additional tax expense as a result of the transactions, was approximately $2,080 million.
Refer to Note 11. Income Taxes to the consolidated financial statements contained herein for additional information.
Equity Loss
| Three Months Ended March 31, | |||||||||||||||||
| 2024 | 2023 | Favorable/ (unfavorable) | |||||||||||||||
| (in millions) | |||||||||||||||||
| Equity loss, net of tax | $ | 69 | $ | 82 | $ | 13 | |||||||||||
Equity loss, net of tax reflects the Company’s interest in the results of ongoing operations of entities accounted for as equity method investments. The equity losses recognized by Aptiv for each period presented are primarily attributable to the Motional autonomous driving joint venture.
Results of Operations by Segment
We operate our core business along the following operating segments, which are grouped on the basis of similar product, market and operating factors:
-
Signal and Power Solutions, which includes complete electrical architecture and component products.
-
Advanced Safety and User Experience, which includes vehicle technology and services in advanced safety, user experience and smart vehicle compute and software, 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.
Our 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 our operating segments. Segment Adjusted Operating Income should not be considered a substitute for results prepared in accordance with U.S. GAAP and should not be considered an alternative to net income attributable to Aptiv, which is the most directly comparable financial measure to Adjusted Operating Income that is prepared in accordance with U.S. GAAP. Segment Adjusted Operating Income, as determined and measured by Aptiv, should also not be compared to similarly titled measures reported by other companies.
The reconciliation of Adjusted Operating Income to operating income includes, as applicable, 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 months ended March 31, 2024 and 2023 are as follows:
| Signal and Power Solutions | Advanced Safety and User Experience | Total | |||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||
| For the Three Months Ended March 31, 2024: | |||||||||||||||||||||||||||||
| Adjusted operating income | $ | 389 | $ | 155 | $ | 544 | |||||||||||||||||||||||
| Amortization | (31) | (23) | (54) | ||||||||||||||||||||||||||
| Restructuring | (22) | (17) | (39) | ||||||||||||||||||||||||||
| Other acquisition and portfolio project costs | (19) | (9) | (28) | ||||||||||||||||||||||||||
| Compensation expense related to acquisitions | — | (4) | (4) | ||||||||||||||||||||||||||
| Operating income | $ | 317 | $ | 102 | 419 | ||||||||||||||||||||||||
| Interest expense | (65) | ||||||||||||||||||||||||||||
| Other income, net | 15 | ||||||||||||||||||||||||||||
| Income before income taxes and equity loss | 369 | ||||||||||||||||||||||||||||
| Income tax expense | (76) | ||||||||||||||||||||||||||||
| Equity loss, net of tax | (69) | ||||||||||||||||||||||||||||
| Net income | 224 | ||||||||||||||||||||||||||||
| Net income attributable to noncontrolling interest | 6 | ||||||||||||||||||||||||||||
| Net income attributable to Aptiv | $ | 218 |
| Signal and Power Solutions | Advanced Safety and User Experience | Total | |||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||
| For the Three Months Ended March 31, 2023: | |||||||||||||||||||||||||||||
| Adjusted operating income | $ | 374 | $ | 63 | $ | 437 | |||||||||||||||||||||||
| Amortization | (36) | (23) | (59) | ||||||||||||||||||||||||||
| Restructuring | (7) | (4) | (11) | ||||||||||||||||||||||||||
| Other acquisition and portfolio project costs | (12) | (2) | (14) | ||||||||||||||||||||||||||
| Compensation expense related to acquisitions | — | (5) | (5) | ||||||||||||||||||||||||||
| Operating income | $ | 319 | $ | 29 | 348 | ||||||||||||||||||||||||
| Interest expense | (67) | ||||||||||||||||||||||||||||
| Other expense, net | (1) | ||||||||||||||||||||||||||||
| Income before income taxes and equity loss | 280 | ||||||||||||||||||||||||||||
| Income tax expense | (34) | ||||||||||||||||||||||||||||
| Equity loss, net of tax | (82) | ||||||||||||||||||||||||||||
| Net income | 164 | ||||||||||||||||||||||||||||
| Net income attributable to noncontrolling interest | 3 | ||||||||||||||||||||||||||||
| Net loss attributable to redeemable noncontrolling interest | (1) | ||||||||||||||||||||||||||||
| Net income attributable to Aptiv | $ | 162 |
Net sales, gross margin as a percentage of net sales and Adjusted Operating Income by segment for the three months ended March 31, 2024 and 2023 are as follows:
Net Sales by Segment
| Three Months Ended March 31, | Variance Due To: | |||||||||||||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | Favorable/ (unfavorable) | Volume, net of contractual price reductions | FX | Commodity pass-through | Other | Total | |||||||||||||||||||||||||||||||||||||||||||
| (in millions) | (in millions) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Signal and Power Solutions | $ | 3,487 | $ | 3,464 | $ | 23 | $ | 45 | $ | (20) | $ | (2) | $ | — | $ | 23 | ||||||||||||||||||||||||||||||||||
| Advanced Safety and User Experience | 1,429 | 1,366 | 63 | 66 | (3) | — | — | 63 | ||||||||||||||||||||||||||||||||||||||||||
| Eliminations and Other | (15) | (12) | (3) | (3) | — | — | — | (3) | ||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 4,901 | $ | 4,818 | $ | 83 | $ | 108 | $ | (23) | $ | (2) | $ | — | $ | 83 | ||||||||||||||||||||||||||||||||||
Gross Margin Percentage by Segment
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| Signal and Power Solutions | 18.0 | % | 17.1 | % | |||||||||||||||||||
| Advanced Safety and User Experience | 17.5 | % | 12.2 | % | |||||||||||||||||||
| Total | 17.9 | % | 15.8 | % |
Adjusted Operating Income by Segment
| Three Months Ended March 31, | Variance Due To: | |||||||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | Favorable/ (unfavorable) | Volume, net of contractual price reductions | Operational performance | Other | Total | ||||||||||||||||||||||||||||||||||||||
| (in millions) | (in millions) | |||||||||||||||||||||||||||||||||||||||||||
| Signal and Power Solutions | $ | 389 | $ | 374 | $ | 15 | $ | 45 | $ | (7) | $ | (23) | $ | 15 | ||||||||||||||||||||||||||||||
| Advanced Safety and User Experience | 155 | 63 | 92 | 5 | 103 | (16) | 92 | |||||||||||||||||||||||||||||||||||||
| Total | $ | 544 | $ | 437 | $ | 107 | $ | 50 | $ | 96 | $ | (39) | $ | 107 |
As noted in the table above, Adjusted Operating Income for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023 was impacted by operational performance, volume, including product mix, as well as the impacts of favorable pricing, net of contractual price reductions, of $43 million. Adjusted Operating Income was also impacted by the following items included within Other in the table above:
*•*Approximately $20 million of increased depreciation, primarily as a result of a higher fixed asset base.
Liquidity and Capital Resources
Overview of Capital Structure
Our liquidity requirements are primarily to fund our business operations, including capital expenditures and working capital requirements, as well as to fund debt service requirements and operational restructuring activities. Our primary sources of liquidity are cash flows from operations, our existing cash balance, and as necessary and available, borrowings under credit facilities and issuance of long-term debt and equity. To the extent we generate discretionary cash flow we may consider using this additional cash flow for optional prepayments of existing indebtedness, strategic acquisitions or investments, additional share repurchases and/or general corporate purposes. We also continually explore ways to enhance our capital structure.
As of March 31, 2024, we had cash and cash equivalents of $0.9 billion and net debt (defined as outstanding debt less cash and cash equivalents) of $5.3 billion. The following table summarizes our available liquidity, which includes cash, cash equivalents and funds available under our significant committed credit facilities, as of March 31, 2024:
| March 31, 2024 | |||||||||||
| (in millions) | |||||||||||
| Cash and cash equivalents | $ | 941 | |||||||||
| Revolving Credit Facility, unutilized portion (1) | 2,000 | ||||||||||
| Committed European accounts receivable factoring facility, unutilized portion (2) | 487 | ||||||||||
| Total available liquidity | $ | 3,428 |
(1)Availability reduced by less than $1 million in letters of credit issued under the Credit Agreement as of March 31, 2024.
(2)Based on March 31, 2024 foreign currency rates, subject to the availability of eligible accounts receivable.
We expect existing cash, available liquidity and cash flows from operations to continue to be sufficient to fund our global operating activities, including restructuring payments, capital expenditures and debt obligations. In addition, we expect to continue to repurchase outstanding ordinary shares pursuant to our authorized ordinary share repurchase program, as further described below.
We also continue to expect to be able to move funds between different countries to manage our global liquidity needs without material adverse tax implications, subject to current monetary policies. We utilize a combination of strategies, including dividends, cash pooling arrangements, intercompany loan repayments and other distributions and advances to provide the funds necessary to meet our global liquidity needs. There are no significant restrictions on the ability of our subsidiaries to pay dividends or make other distributions to Aptiv. As of March 31, 2024, the Company’s cash and cash equivalents held by our non-U.S. subsidiaries totaled approximately $0.9 billion. If additional non-U.S. cash was needed for our U.S. operations, we may be required to accrue and pay withholding if we were to distribute such funds from non-U.S. subsidiaries to the U.S.;
however, based on our current liquidity needs and strategies, we do not anticipate a need to accrue and pay such additional amounts.
Share Repurchases
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.
A summary of the ordinary shares repurchased during the three months ended March 31, 2024 and 2023 is as follows:
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| Total number of shares repurchased | 7,347,410 | 603,741 | |||||||||||||||||||||
| Average price paid per share | $ | 81.66 | $ | 115.45 | |||||||||||||||||||
| Total (in millions) | $ | 600 | $ | 70 |
As of March 31, 2024, approximately $1,015 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.
Dividends from Equity Investments
During the three months ended March 31, 2024, Aptiv received a dividend of $7 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.
Acquisitions and Other Transactions
Höhle—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.
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, which was reported within the Signal and Power Solutions segment. 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.
Refer to Note 17. Acquisitions and Divestitures to the consolidated financial statements contained herein for further detail of the Company’s business acquisitions and divestitures.
Technology Investments—During the three months ended March 31, 2024, the Company’s Advanced Safety and User Experience segment made investments totaling approximately $40 million in convertible redeemable preferred shares of StradVision, Inc. (“StradVision”), a provider of deep learning-based camera perception software for automotive applications. The Company previously made investments in StradVision totaling approximately $44 million in prior years. Due to the Company’s redemption rights, the Company’s investment in StradVision is classified as an available-for-sale debt security within other long-term assets in the consolidated balance sheets, with changes in fair value recorded in other comprehensive income.
Refer to Note 21. Investments in Affiliates to the consolidated financial statements contained herein for further detail of the Company’s investments.
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”). The Revolving Credit Facility matures on June 24, 2026. 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 that matured 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. Borrowings under the Credit Agreement are prepayable at Aptiv’s option without premium or penalty.
As of March 31, 2024, Aptiv had no amounts outstanding under the Revolving Credit Facility and less than $1 million in letters of credit were issued under the Credit Agreement. Letters of credit issued under the Credit Agreement reduce availability under the Revolving Credit Facility. The maximum amount drawn under the Revolving Credit Facility during the three months ended March 31, 2024 was $50 million.
Loans under the Credit Agreement bear interest, at Aptiv’s option, at either (a) the Administrative Agent’s Alternate Base Rate (“ABR” as defined in the Credit Agreement) or (b) SOFR plus in either case a percentage per annum as set forth in the table below (the “Applicable Rate”). The rates under the Credit Agreement on the specified dates are set forth below:
| March 31, 2024 | December 31, 2023 | ||||||||||||||||||||||
| SOFR plus | ABR plus | SOFR plus | ABR plus | ||||||||||||||||||||
| Revolving Credit Facility | 1.06 | % | 0.06 | % | 1.06 | % | 0.06 | % | |||||||||||||||
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 (prior to its repayment, as described above) 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, 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 Rates, by the amounts specified above, effective in the third quarter of 2023.
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).
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 March 31, 2024.
As of March 31, 2024, 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
As of March 31, 2024, the Company had the following senior unsecured notes issued and outstanding:
| Aggregate Principal Amount (in millions) | Stated Coupon Rate | Issuance Date | Maturity Date | Interest Payment Date | ||||||||||||||||||||||
| $ | 700 | 2.396% | February 2022 | February 2025 | February 18 and August 18 | |||||||||||||||||||||
| $ | 758 | 1.50% | March 2015 | March 2025 | March 10 | |||||||||||||||||||||
| $ | 542 | 1.60% | September 2016 | September 2028 | September 15 | |||||||||||||||||||||
| $ | 300 | 4.35% | March 2019 | March 2029 | March 15 and September 15 | |||||||||||||||||||||
| $ | 800 | 3.25% | February 2022 | March 2032 | March 1 and September 1 | |||||||||||||||||||||
| $ | 300 | 4.40% | September 2016 | October 2046 | April 1 and October 1 | |||||||||||||||||||||
| $ | 350 | 5.40% | March 2019 | March 2049 | March 15 and September 15 | |||||||||||||||||||||
| $ | 1,500 | 3.10% | November 2021 | December 2051 | June 1 and December 1 | |||||||||||||||||||||
| $ | 1,000 | 4.15% | February 2022 | May 2052 | May 1 and November 1 |
Although the specific terms of each indenture governing each series of senior notes vary, the indentures contain certain restrictive covenants, including with respect to Aptiv’s (and Aptiv’s subsidiaries’) ability to incur liens, enter into sale and leaseback transactions and merge with or into other entities. As of March 31, 2024, the Company was in compliance with the provisions of all series of the outstanding senior notes. Refer to Note 8. Debt to the consolidated financial statements contained herein for additional information.
Guarantor Summarized Financial Information
As further described in Note 8. Debt to the consolidated financial statements contained herein, Aptiv PLC, Aptiv Corporation and AGFL are each potential borrowers under the Credit Agreement, under which such borrowings would be guaranteed by each of the other two entities. Aptiv PLC issued the 2015 Euro-denominated Senior Notes, 2016 Euro-denominated Senior Notes, 2016 Senior Notes, 2019 Senior Notes and 2021 Senior Notes. In February 2022, Aptiv Corporation and AGFL were added as guarantors on each series of outstanding senior notes previously issued by Aptiv PLC. AGFL was added as a joint and several co-issuer of the 2021 Senior Notes in December 2021, effective as of the date of issuance. Aptiv PLC and Aptiv Corporation jointly issued the 2022 Senior Notes, which are guaranteed by AGFL. Together, Aptiv PLC, Aptiv Corporation and AGFL comprise the “Obligor Group.” All other consolidated direct and indirect subsidiaries of Aptiv PLC are not subject to any guarantee under any series of notes outstanding (the “Non-Guarantors”). The guarantees rank equally in right of payment with all of the guarantors’ existing and future senior indebtedness, are effectively subordinated to any of their existing and future secured indebtedness to the extent of the value of the collateral securing such indebtedness and are structurally subordinated to the indebtedness of each of their existing and future subsidiaries that is not a guarantor.
The below summarized financial information is presented on a combined basis after the elimination of intercompany balances and transactions among the Obligor Group and equity in earnings from and investments in the Non-Guarantors. The below summarized financial information should be read in conjunction with the Company’s consolidated financial statements contained herein, as the financial information may not necessarily be indicative of results of operations or financial position had the subsidiaries operated as independent entities.
| Obligor Group | |||||||||||||||||||||||
| Three Months Ended March 31, 2024 | (in millions) | ||||||||||||||||||||||
| Net sales | $ | — | |||||||||||||||||||||
| Gross margin | $ | — | |||||||||||||||||||||
| Operating income | $ | — | |||||||||||||||||||||
| Net loss | $ | (52) | |||||||||||||||||||||
| Net loss attributable to Aptiv | $ | (52) | |||||||||||||||||||||
| As of March 31, 2024: | |||||||||||||||||||||||
| Current assets (1) | $ | 2,642 | |||||||||||||||||||||
| Long-term assets (1) | $ | 547 | |||||||||||||||||||||
| Current liabilities (2) | $ | 6,231 | |||||||||||||||||||||
| Long-term liabilities (2) | $ | 4,940 | |||||||||||||||||||||
| Noncontrolling interest | $ | — | |||||||||||||||||||||
| As of December 31, 2023: | |||||||||||||||||||||||
| Current assets (1) | $ | 4,699 | |||||||||||||||||||||
| Long-term assets (1) | $ | 562 | |||||||||||||||||||||
| Current liabilities (2) | $ | 6,090 | |||||||||||||||||||||
| Long-term liabilities (2) | $ | 6,419 | |||||||||||||||||||||
| Noncontrolling interest | $ | — |
(1)Includes current assets of $2,396 million and $3,826 million, and long-term assets of $537 million and $555 million, due from Non-Guarantors as of March 31, 2024 and December 31, 2023, respectively.
(2)Includes current liabilities of $4,686 million and $6,013 million, and long-term liabilities of $226 million and $226 million, due to Non-Guarantors as of March 31, 2024 and December 31, 2023, respectively.
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 had an initial term of three years, and was renewed for an additional three year term, effective November 2023, subject to Aptiv’s right to terminate at any time with three months’ notice. After expiration of the new 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% and USD borrowings bear interest at two-month SOFR plus 0.50%, with borrowings under either denomination carrying a minimum interest rate of 0.20%. As of March 31, 2024 and December 31, 2023, Aptiv had no amounts drawn on the European accounts receivable factoring facility. No amounts were drawn under the European accounts receivable factoring facility during the three months ended March 31, 2024.
Finance leases and other—As of March 31, 2024 and December 31, 2023, approximately $40 million and $21 million, respectively, of other debt primarily issued by certain non-U.S. subsidiaries and finance lease obligations were outstanding.
Letter of credit facilities—In addition to the letters of credit issued under the Credit Agreement, Aptiv had approximately $4 million outstanding through other letter of credit facilities as of March 31, 2024 and December 31, 2023, primarily to support arrangements and other obligations at certain of its subsidiaries.
Cash Flows
Intra-month cash flow cycles vary by region, but in general we are users of cash through the first half of a typical month and we generate cash during the latter half of a typical month. Due to this cycle of cash flows, we may utilize short-term financing, including our Revolving Credit Facility and European accounts receivable factoring facility, to manage our intra-month working capital needs. Our cash balance typically peaks at month end.
We utilize a combination of strategies, including dividends, cash pooling arrangements, intercompany loan structures and other distributions and advances, to provide the funds necessary to meet our global liquidity needs. We utilize a global cash
pooling arrangement to consolidate and manage our global cash balances, which enables us to efficiently move cash into and out of a number of the countries in which we operate.
Operating activities—Net cash provided by operating activities totaled $244 million for the three months ended March 31, 2024 and net cash used in operating activities totaled $9 million for the three months ended March 31, 2023. Cash flows provided by operating activities for the three months ended March 31, 2024 consisted primarily of net earnings of $224 million, increased by $242 million for non-cash charges for depreciation, amortization and pension costs, partially offset by $360 million related to changes in operating assets and liabilities, net of restructuring and pension contributions. Cash flows used in operating activities for the three months ended March 31, 2023 consisted primarily of net earnings of $164 million, increased by $227 million for non-cash charges for depreciation, amortization and pension costs, offset by $497 million related to changes in operating assets and liabilities, net of restructuring and pension contributions.
Investing activities—Net cash used in investing activities totaled $305 million for the three months ended March 31, 2024, as compared to $309 million for the three months ended March 31, 2023. Cash flows used in investing activities for the three months ended March 31, 2024 and 2023 consisted primarily of capital expenditures.
Financing activities—Net cash used in financing activities totaled $626 million and $122 million for the three months ended March 31, 2024 and 2023, respectively. Cash flows used in financing activities for the three months ended March 31, 2024 primarily included $600 million paid to repurchase ordinary shares. Cash flows used in financing activities for the three months ended March 31, 2023 primarily included $68 million paid to repurchase ordinary shares and $16 million of MCPS dividend payments.
Off-Balance Sheet Arrangements
We do not engage in any off-balance sheet financial arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Contingencies and Environmental Matters
The information concerning contingencies, including environmental contingencies and the amount currently held in reserve for environmental matters, contained in Note 10. Commitments and Contingencies to the unaudited consolidated financial statements included in Part I, Item 1 of this report is incorporated herein by reference.
Recently Issued Accounting Pronouncements
The information concerning recently issued accounting pronouncements contained in Note 2. Significant Accounting Policies to the unaudited consolidated financial statements included in Part I, Item 1 of this report is incorporated herein by reference.
Critical Accounting Estimates
There have been no significant changes in our critical accounting estimates during the three months ended March 31, 2024.
Previous: Item 1. FINANCIAL STATEMENTS · Next: Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK