APTIV PLC
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 and six months
ended June 30, 2020 . 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 , a public limited company formed under the laws of Jersey on May 19, 2011 as
Delphi Automotive PLC , which, through its subsidiaries, acquired certain assets
of the former Delphi Corporation (now known as DPH Holdings Corp. ("DPHH")) and
completed an initial public offering on November 22, 2011 . On December 4, 2017
(the "Distribution Date"), the Company completed the separation (the
"Separation") of its former Powertrain Systems segment by distributing to Aptiv
shareholders on a pro rata basis all of the issued and outstanding ordinary
shares of Delphi Technologies PLC, a public limited company formed to hold the
spun-off business. To effect the Separation, the Company distributed to its
shareholders one ordinary share of Delphi Technologies PLC for every three Aptiv
ordinary shares outstanding as of November 22, 2017 , the record date for the
distribution. Following the Separation, the remaining company changed its name
to Aptiv PLC and New York Stock Exchange ("NYSE") symbol to "APTV." The
completion of the Separation positioned Aptiv as a new mobility provider focused
on solving the complex challenges associated with safer, greener and more
connected transportation. At the core of our capabilities is the software and
vehicle architecture expertise that enables the advanced safety, automated
driving, user experience and connected services that are enabling the future of
mobility.
Executive Overview
Our Business
We are a leading global technology and mobility company primarily serving the
automotive sector. We design and manufacture vehicle components and provide
electrical, electronic and active safety technology solutions to the global
automotive market, creating the software and hardware foundation for vehicle
features and functionality. We enable and deliver end-to-end smart mobility
solutions, active safety and autonomous driving technologies and provide
enhanced user experience and connected services. Our Advanced Safety and User
Experience segment is focused on providing the necessary software and advanced
computing platforms, and our Signal and Power Solutions segment is focused on
providing the requisite networking architecture required to support the
integrated systems in today's complex vehicles. Together, our businesses develop
the 'brain' and the 'nervous system' of increasingly complex vehicles, providing
integration of the vehicle into its operating environment.
We are one of the largest vehicle component manufacturers and our customers
include 23 of the 25 of the largest automotive original equipment manufacturers
("OEMs") in the world.
Our total net sales during the three and six months ended June 30, 2020 were
$2.0 billion and $5.2 billion , a decrease of 46% and 28% compared to the same
periods of 2019, respectively. Our overall volumes decreased 42% for the three
months ended June 30, 2020 , primarily due to the impacts of the COVID-19
pandemic, which also resulted in global vehicle production declines of 45% (54%
on an Aptiv weighted market basis, which represents global vehicle production
weighted to the geographic regions in which the Company generates its revenue
"AWM"). Our overall volumes decreased 25% for the six months ended June 30,
2020 , primarily due to the impacts of the COVID-19 pandemic, which also resulted
in global vehicle production declines of 33% (37% on an AWM basis). The adverse
impacts of the pandemic have included extended work stoppages and travel
restrictions at our facilities and those of our customers and suppliers,
decreases in consumer demand and vehicle production schedules, disruptions to
our supply chain and other adverse global economic impacts, particularly those
resulting from governmental "lock-down" orders for all non-essential activities
initially in the first quarter in China and subsequently in Europe and North
America . While the lock-downs in China were substantially all lifted early in
the second quarter, much of Europe and North America remained in lock-down for
the majority of the quarter. Although our overall lean
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cost structure, along with continued above-market sales growth, has historically enabled us to maintain strong levels of operating income, our operating loss was$311 million during the three months endedJune 30, 2020 , compared to operating income of$335 million during the three months endedJune 30, 2019 , primarily as a result of the negative impacts of the COVID-19 pandemic. We anticipate the adverse impacts of the pandemic will persist through 2020 and perhaps beyond, and will likely have an adverse impact on our operating earnings and cash flows. 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, particularly resulting from the current impacts of the COVID-19 pandemic, 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 and pandemic conditions improve. Trends, Uncertainties and Opportunities COVID-19 pandemic. The global spread of the COVID-19 pandemic, which originated in late 2019 and was later declared a pandemic by theWorld Health Organization inMarch 2020 , has negatively impacted the global economy, disrupted supply chains and created significant volatility in global financial markets. Most notably with respect to the automotive industry, we experienced extended work stoppages inChina during the first quarter of 2020, where we have a major manufacturing base, and the subsequent suspension of vehicle production by our OEM customers inNorth America andEurope , which combined accounts for approximately 70% of our annual net sales, as the pandemic spread to those regions and governmental authorities initiated "lock-down" orders for all non-essential activities. The work stoppages began to abate inChina in March, andNorth America and Europe OEM production is beginning to restart sporadically. We expect OEM production levels to ramp up slowly and cautiously over the course of the year in these regions, however the risk of renewed government "lock-down" orders resulting in further work stoppages remains. Although we have taken decisive actions to enhance our financial flexibility and minimize the impact on our business, such as the ramping down of certain production facilities in response to customer plant closures and changes in vehicle production schedules, imposing certain travel restrictions, suspending our ordinary share cash dividend, issuing$2.3 billion combined of preferred and ordinary shares, extending substantially all of our existing Revolving Credit Facility's maturity toAugust 2022 , and actively managing costs, capital spending and working capital to further strengthen our liquidity, the ultimate impact to our business continues to remain uncertain. During the three and six months endedJune 30, 2020 , our net sales were adversely impacted by volume decreases of approximately 42% and 25%, respectively, largely due to the impacts resulting from the COVID-19 pandemic, primarily as a result of extended work stoppages and travel restrictions at our facilities and those of our customers and suppliers, decreases in consumer demand and vehicle production schedules, disruptions to our supply chain and other resultant adverse global economic impacts. Although we are unable to predict the ultimate impact to our business due to a number of evolving factors, including the duration and spread of the pandemic, the impact of the pandemic on economic activity, consumer demand and vehicle production schedules, and the actions of governmental authorities across the globe, we expect to experience continued adverse impacts resulting from the pandemic throughout 2020 and possibly beyond. However, we continue to actively monitor the ongoing potential impacts of COVID-19 and will seek to aggressively mitigate and minimize its impact on our business. Economic conditions. Our business is directly related to automotive sales and automotive vehicle production by our customers. Automotive sales depend on a number of factors, including global and regional economic conditions. Global automotive vehicle production decreased 6% from 2018 to 2019, representing automotive vehicle production declines across all major regions during 2019. Compared to 2018, vehicle production in 2019 decreased by 9% inChina , 4% inNorth America , 4% inEurope and 4% inSouth America , our smallest region. Global automotive vehicle production has continued to decline through the second quarter of 2020, primarily due to the adverse global economic impacts and uncertainty caused by the worldwide spread of the COVID-19 pandemic. Compared to 2019, vehicle production in the first half of 2020 decreased by 33% and is currently anticipated to decrease significantly for the full year of 2020, although the extent to which the COVID-19 pandemic will impact global and regional automotive vehicle production for the remainder of 2020 and beyond remains highly uncertain. Economic volatility or weakness inNorth America ,Europe ,China orSouth America could result in a significant reduction in automotive sales and production by our customers, which would have an adverse effect on our business, results of operations and financial condition. There is also potential that geopolitical factors could adversely impact theU.S. and other economies, and specifically the automotive sector. In particular, changes to international trade agreements such asthe 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 49
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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. Key growth markets. There have been periods of increased market volatility and moderation in the level of economic growth inChina , which resulted in periods of lower automotive production growth rates inChina than those previously experienced, as evidenced by the reduction in volumes in the region during the year endedDecember 31, 2019 . In addition, while automotive vehicle production inChina increased by 6% in the second quarter of 2020 as compared to 2019 as work stoppages began to abate, production still experienced a decrease of 20% during the first half of 2020 as compared to 2019. Production is currently anticipated to decrease significantly inChina for the full year of 2020, primarily as a result of the COVID-19 pandemic. Despite these vehicle production declines and the recent moderation in the level of economic growth inChina , rising income levels inChina 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 inChina , including a major manufacturing base and well-established customer relationships. Each of our business segments have operations and sales inChina . Our business inChina remains sensitive to economic and market conditions that impact automotive sales volumes inChina , and may be affected if the pace of growth slows as the Chinese market matures or if there are reductions in vehicle demand inChina , as have recently been experienced as a result of the COVID-19 pandemic. However, we continue to believe there is long-term growth potential in this market based on increasing long-term automotive and vehicle content demand. Market driven products. Our product offerings satisfy the OEMs' needs to meet increasingly stringent government regulations and meet consumer preferences for products that address the mega-trends of Safe, Green and Connected, leading to increased content per vehicle, greater profitability and higher margins. With these offerings, we believe we are well-positioned to benefit from the growing demand for vehicle content and technology related to safety, electrification, high speed data, connectivity to the global information network and automated driving technologies. We are benefiting from the substantial increase in vehicle content, software and electrification that requires a complex and reliable electrical architecture and systems to operate, such as automated advanced driver assistance technologies, electrical vehicle monitoring, active safety systems, lane departure warning systems, integrated vehicle cockpit displays, navigation systems and technologies that enable connected infotainment in vehicles. Our ability to design a reliable electrical architecture that optimizes power distribution and/or consumption is key to satisfying the OEMs' needs to reduce emissions while continuing to meet consumer demand for increased vehicle content and technology. Global capabilities. Many OEMs are continuing to adopt global vehicle platforms to increase standardization, reduce per unit cost and increase capital efficiency and profitability. As a result, OEMs are selecting suppliers that have the capability to manufacture products on a worldwide basis, as well as the flexibility to adapt to regional variations. Suppliers with global scale and strong design, engineering and manufacturing capabilities are best positioned to benefit from this trend. Our global footprint enables us to serve the global OEMs on a worldwide basis as we gain market share with the emerging market OEMs. This regional model principally services the North American market out ofMexico , the South American market out ofBrazil , the European market out ofEastern Europe andNorth Africa and theAsia Pacific market out ofChina , and we have continued to rotate our manufacturing footprint to best cost locations within these regions. Our global operations are subject to certain risks inherent in doing business abroad, including unexpected changes in laws or regulations governing trade, or other monetary or tax fiscal policy changes, including tariffs, quotas, customs and other import or export restrictions or trade barriers. We are also subject to risks associated with actions taken by governmental authorities to impose changes in laws or regulations that restrict certain business operations, trade or travel in response to a pandemic or widespread outbreak of an illness. For instance, the worldwide spread of the COVID-19 pandemic is having adverse impacts on our global operations, the automotive industry and economies around the world. Most notably, the pandemic has resulted in extended work stoppages and travel restrictions at our facilities and those of our customers and suppliers, decreases in consumer demand and vehicle production schedules, disruptions to our supply chain and other adverse global economic impacts, particularly those resulting from governmental "lock-down" orders for all non-essential activities, initially in the first quarter inChina and subsequently inEurope andNorth America . While the lock-downs inChina were 50
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substantially all lifted early in the second quarter, much ofEurope andNorth America remained in lock-down for the majority of the quarter, however the risk of renewed "lock-down" orders resulting in further work stoppages remains. Although we are unable to predict the ultimate impact to our business due to a number of evolving factors, including the duration and spread of the pandemic, the impact of the pandemic on economic activity, consumer demand and vehicle production schedules, and the actions of governmental authorities across the globe, we expect to experience continued adverse impacts resulting from the pandemic through 2020 and possibly beyond. In addition, recent government changes inMexico have yielded requirements that call for increases in minimum wages at the border as well as the interior ofMexico . These or any further political or governmental developments in response to the COVID-19 pandemic or inMexico or other countries in which we operate could result in social, economic and labor instability. In addition, existing free trade laws and regulations, such asthe United States -Mexico-Canada Agreement, provide certain beneficial duties and tariffs for qualifying imports and exports, subject to compliance with the applicable classification and other requirements. Changes in laws or policies governing the terms of foreign trade, and in particular increased trade restrictions, tariffs or taxes on imports from countries where we manufacture products, such asChina andMexico , could have a material adverse effect on our business and financial results. For instance, beginning in 2018, theU.S. and Chinese governments have imposed a series of significant incremental retaliatory tariffs to certain imported products. Most notably with respect to the automotive industry, theU.S. imposed tariffs on imports of certain steel, aluminum and automotive components, andChina imposed retaliatory tariffs on imports ofU.S. vehicles and certain automotive components. While these tariffs could have potentially adverse economic impacts, particularly with respect to the automotive industry and vehicle production levels, we do not anticipate a significant impact to our operations, as we have developed and implemented strategies to mitigate adverse tariff impacts, such as production localization and relocation, contract review and renegotiation and working with the appropriate governmental agencies. Further, our global footprint and regional model serves to minimize our exposure to cross-border transactions. However, despite recent trade negotiations between theU.S. and Chinese governments, the scope and duration of the imposed tariffs remain uncertain. Product development. The automotive technology and components industry is highly competitive, both domestically and internationally, and is characterized by rapidly changing technology, evolving industry standards and changes in customer needs. Our ability to anticipate changes in technology and regulatory standards and to successfully develop and introduce new and enhanced products on a timely and cost competitive basis will be a significant factor in our ability to remain competitive. To compete effectively in the automotive technology and components industry, we must be able to develop and launch new products to meet our customers' demands in a timely manner. Our innovative technologies and robust global engineering and development capabilities have well positioned us 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. Following the completion of the autonomous driving joint venture in the first quarter of 2020, we have a team of approximately 19,300 scientists, engineers and technicians focused on developing leading product solutions for our key markets, located at 12 major technical centers inChina ,Germany ,India ,Mexico ,Poland ,Singapore andthe United States . We invest approximately$1.2 billion (which includes approximately$300 million co-investment by customers and government agencies) annually in research and development, including engineering, to maintain our portfolio of innovative products, and own/hold approximately 7,300 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,who co-invest approximately$300 million annually 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 51
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fragmented and serves a limited number of automotive OEMs. Our profitability depends in part on our ability to generate sufficient production cost savings in the future to offset price reductions. We are focused on maintaining a low fixed cost structure that provides us flexibility to remain profitable at all points of the traditional vehicle industry production cycle. As a result, approximately 96% of our hourly workforce is located in best cost countries. Furthermore, we have substantial operational flexibility by leveraging a large workforce of temporary workers, which represented approximately 14% of the hourly workforce as ofJune 30, 2020 . However, we will continue to adjust our cost structure and optimize our manufacturing footprint in response to changes in the global and regional automotive markets and in order to increase investment in advanced technologies and engineering, as evidenced by our ongoing restructuring programs focused on the continued rotation of our manufacturing footprint to best cost locations inEurope and on reducing our global overhead costs. As we continue to operate in a cyclical industry that is impacted by movements in the global and regional economies, we continually evaluate opportunities to further refine our cost structure. We have a strong balance sheet with gross debt of approximately$4.1 billion and substantial available liquidity of approximately$4.1 billion as ofJune 30, 2020 , and no significantU.S. defined benefit or workforce postretirement health care benefits and employer-paid postretirement basic life insurance benefits ("OPEB") liabilities. As further described in Note 8. Debt to the consolidated financial statements contained herein, we extended substantially all of our existing Revolving Credit Facility's maturity toAugust 2022 , primarily to provide additional available liquidity and financial flexibility to mitigate the impacts on our business resulting from the uncertainty caused by the global spread of the COVID-19 pandemic. 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 theU.S. , as automotive components are increasingly standardized across regions. Given the sensitivity to safety issues in the automotive industry, including increased focus from regulators and consumers, we anticipate the number of automotive recalls may remain above historical levels in the near future. Although we engage in extensive product quality programs and processes, it is possible that we may be adversely affected in the future if the pace of these recalls continues. Efficient use of capital. The global vehicle components industry is generally capital intensive and a portion of a supplier's capital equipment is frequently utilized for specific customer programs. Lead times for procurement of capital equipment are long and typically exceed start of production by one to two years. Substantial advantages exist for suppliers that can leverage their prior investments in capital equipment or amortize the investment over higher volume global customer programs. Industry consolidation. Consolidation among worldwide suppliers is expected to continue as suppliers seek to achieve operating synergies and value stream efficiencies, acquire complementary technologies and build stronger customer relationships as OEMs continue to expand globally. Additionally, new entrants from outside the traditional automotive industry may seek to gain access to certain vehicle component markets, as evidenced by the acquisition ofHarman International Industries, Incorporated by Samsung Electronics Co., Ltd. and the acquisition ofMobileye N.V. by Intel Corporation. We believe companies with strong balance sheets and financial discipline are in the best position to take advantage of the industry consolidation trend. Commercializing the high-tech evolution of the automotive industry. The automotive industry is increasingly evolving towards the implementation of software-dependent components and solutions. In particular, the industry is focused on the development of advanced driver assistance technologies, with the goal of developing and introducing a commercially-viable, fully automated driving experience. We expect automated driving technologies will provide strong societal benefit as well as the opportunity for long-term growth for our product offerings in this space. We are focused on enabling and delivering end-to-end smart mobility solutions, accelerating the commercialization of active safety and autonomous driving technologies and providing enhanced user experience and connected services. Our Advanced Safety and User Experience segment is focused on providing the necessary software and advanced computing platforms, and our Signal and Power Solutions segment is focused on providing the requisite networking architecture required to support the integrated systems in today's complex vehicles. Together, our businesses develop the 'brain' and the 'nervous system' of increasingly complex vehicles, providing integration of the vehicle into its operating environment. We are continuing to invest in the automated driving space, and have continued to develop market-leading automated driving platform solutions such as automated driving software, key active safety sensing technologies and our Multi-Domain Controller, which fuses information from sensing systems as well as mapping and navigation data to make driving decisions. We believe we are well-aligned with industry technology trends that will result in sustainable future growth in this space, and have partnered with leaders in their respective fields to advance the pace of development and commercialization of these emerging technologies. Additionally, in 2017 we acquired nuTonomy, Inc. ("nuTonomy") in order to further accelerate the 52
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commercialization of automated driving solutions. The acquisition of nuTonomy was the latest in a series of investments we made to expand our position in the new mobility space, including the 2015 acquisition of automated driving software developer Ottomatika. In an effort to further our leadership position in the automated driving space, inMarch 2020 we completed the transaction withHyundai Motor Group to form a new joint venture focused on the design, development and commercialization of autonomous driving technologies. We expect this partnership to advance the development of production-ready autonomous driving systems for commercialization by bringing together our innovative vehicle technologies in the new mobility space with one of the world's largest vehicle manufacturers. The joint venture anticipates it will begin testing fully driverless systems in 2020 and have a production-ready autonomous driving platform available for robotaxi providers, fleet operators and automotive manufacturers in 2022. As a result of our substantial investments and strategic partnerships, we believe we are well-aligned with industry technology trends that will result in sustainable future growth in these evolving areas. However, there are many risks associated with these evolving areas, including the high development costs of active safety and autonomous driving technologies, the uncertain timing of customer and consumer adoption of these technologies, increased competition from entrants outside the traditional automotive industry and new and emerging regulations, such as the recently released federal guidance for automated driving systems published by theU.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. 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. We will continue to work with our customers and suppliers to mitigate the impact of these inflationary pressures in the future. In addition, we expect commodity cost volatility, particularly related to copper and petroleum-based resin products, to have a continual impact on future earnings and/or operating cash flows. As such, we continually seek to mitigate both inflationary pressures and our material-related cost exposures using a number of approaches, including combining purchase requirements with customers and/or other suppliers, using alternate suppliers or product designs, negotiating cost reductions and/or commodity cost contract escalation clauses into our vehicle manufacturer supply contracts and hedging. 53
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Three and Six Months EndedJune 30, 2020 versus Three and Six Months EndedJune 30, 2019 The results of operations for the three and six months endedJune 30, 2020 and 2019 were as follows: Three Months EndedJune 30 , Six Months EndedJune 30, 2020 2019 Favorable/(unfavorable) 2020 2019 Favorable/(unfavorable) (dollars in millions) Net sales$ 1,960 $ 3,627 $ (1,667)$ 5,186 $ 7,202 $ (2,016) Cost of sales 1,947 2,958 1,011 4,672 5,920 1,248 Gross margin 13 0.7% 669 18.4% (656) 514 9.9% 1,282 17.8% (768) Selling, general and administrative 217 260 43 469 516 47 Amortization 35 43 8 71 77 6 Restructuring 72 31 (41) 100 57 (43) Gain on autonomous driving joint venture - - - (1,434) - 1,434 Operating (loss) income (311) 335 (646) 1,308 632 676 Interest expense (44) (43) (1) (87) (81) (6) Other (expense) income, net (6) 6 (12) (7) 22 (29) (Loss) income before income taxes and equity income (361) 298 (659) 1,214 573 641 Income tax benefit (expense) 14 (31) 45 4 (64) 68 (Loss) income before equity income (347) 267 (614) 1,218 509 709 Equity (loss) income, net of tax (18) 4 (22) (16) 7 (23) Net (loss) income (365) 271 (636) 1,202 516 686 Net income (loss) attributable to noncontrolling interest 1 (3) 4 (4) 2 (6) Net (loss) income attributable to Aptiv (366) 274 (640) 1,206 514 692 Mandatory Convertible Preferred Share dividends (3) - (3) (3) - (3) Net (loss) income attributable to ordinary shareholders$ (369) $ 274 $ (643)$ 1,203 $ 514 $ 689 Total Net Sales Below is a summary of our total net sales for the three months endedJune 30, 2020 versusJune 30, 2019 . Three Months Ended June 30, Variance Due To: Volume, net of contractual price Commodity 2020 2019
Favorable/(unfavorable) reductions FX pass-through Other Total
(in millions) (in millions)
Total net sales $ 1,960 $ 3,627 $ (1,667) $ (1,588) $ (65) $ (14) $ - $ (1,667)
Total net sales for the three months ended June 30, 2020 decreased 46% compared
to the three months ended June 30, 2019 . Our overall volumes decreased 42% for
the period, primarily due to the impacts of the COVID-19 pandemic, which also
resulted in global vehicle production declines of 45% (54% on an AWM basis),
over the same period. The adverse impacts of the pandemic included extended work
stoppages and travel restrictions at our facilities and those of our customers
and suppliers, decreases in consumer demand and vehicle production schedules,
disruptions to our supply chain and other adverse global economic impacts,
particularly those resulting from governmental "lock-down" orders for all
non-essential activities, initially in the first quarter in China and
subsequently in Europe and North America . While the lock-downs in China were
substantially all lifted early in the second quarter, much of Europe and North
America remained in lock-down for the majority of the quarter. Volumes also
reflect unfavorable foreign currency impacts, primarily related to the Euro and
Chinese Yuan Renminbi, and contractual price reductions. Volume declines were
partially offset by increased net sales of $24 million as a result of the
acquisition of gabocom in 2019. Refer to Note 17. Acquisitions and Divestitures
to the consolidated financial statements contained herein for further detail of
our business acquisitions.
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Below is a summary of our total net sales for the six months ended
Six Months Ended June 30, Variance Due To:
Volume, net of
contractual price Commodity
2020 2019 Favorable/(unfavorable) reductions FX pass-through Other Total
(in millions) (in millions)
Total net sales $ 5,186 $ 7,202 $ (2,016) $ (1,867) $ (128) $ (21) $ - $ (2,016)
Total net sales for the six months ended June 30, 2020 decreased 28% compared to
the six months ended June 30, 2019 . Our overall volumes decreased 25% for the
period, primarily due to the impacts of the COVID-19 pandemic, which also
resulted in global vehicle production declines of 33% (37% on an AWM basis) over
the same period. The adverse impacts of the pandemic included extended work
stoppages and travel restrictions at our facilities and those of our customers
and suppliers, decreases in consumer demand and vehicle production schedules,
disruptions to our supply chain and other adverse global economic impacts,
particularly those resulting from governmental "lock-down" orders for all
non-essential activities, initially in the first quarter in China and
subsequently in Europe and North America . While the lock-downs in China were
substantially all lifted early in the second quarter, much of Europe and North
America remained in lock-down for the majority of the quarter. Volumes also
reflect unfavorable foreign currency impacts, primarily related to the Euro and
Chinese Yuan Renminbi, and contractual price reductions. Volume declines were
partially offset by increased net sales of $46 million as a result of the
acquisition of gabocom in 2019. Refer to Note 17. Acquisitions and Divestitures
to the consolidated financial statements contained herein for further detail of
our business acquisitions.
Cost of Sales
Cost of sales is primarily comprised of material, labor, manufacturing overhead,
freight, fluctuations in foreign currency exchange rates, product engineering,
design and development expenses, depreciation and amortization, warranty costs
and other operating expenses. Gross margin is revenue less cost of sales and
gross margin percentage is gross margin as a percentage of net sales.
Cost of sales decreased $1,011 million for the three months ended June 30, 2020
compared to the three months ended June 30, 2019 , as summarized below. The
Company's material cost of sales was approximately 50% of net sales in both the
three months ended June 30, 2020 and 2019.
Three Months Ended June 30, Variance Due To:
Operational
2020 2019 Favorable/(unfavorable) Volume (a) FX performance Other Total
(dollars in millions) (in millions)
Cost of sales $ 1,947 $ 2,958 $ 1,011 $ 877 $ 64 $ 44 $ 26 $ 1,011
Gross margin $ 13 $ 669 $ (656) $ (711) $ (1) $ 44 $ 12 $ (656)
Percentage of net sales 0.7 % 18.4 %
(a)Presented net of contractual price reductions for gross margin variance.
The decrease in cost of sales reflects decreased volumes, largely resulting from
the impacts of the COVID-19 pandemic, and the impacts from currency exchange and
operational performance improvements. However, as certain of our costs remain
fixed in nature over the near term, our gross margin as a percentage of sales
was adversely impacted compared to the prior year period, primarily due to the
COVID-19 pandemic. Cost of sales was also impacted by the following items in
Other above:
•$45 million of decreased engineering expense as a result of the formation of
the autonomous driving joint venture with Hyundai in March 2020 , which is now
accounted for under the equity method of accounting; and
•$14 million of decreased commodity pass-through costs; partially offset by
•$14 million of increased warranty costs.
Cost of sales decreased $1,248 million for the six months ended June 30, 2020
compared to the six months ended June 30, 2019 , as summarized below. The
Company's material cost of sales was approximately 50% of net sales in both the
six months ended June 30, 2020 and 2019.
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Six Months Ended June 30, Variance Due To:
Operational
2020 2019 Favorable/(unfavorable) Volume (a) FX performance Other Total
(dollars in millions) (in millions)
Cost of sales $ 4,672 $ 5,920 $ 1,248 $ 1,025 $ 120 $ 53 $ 50 $ 1,248
Gross margin $ 514 $ 1,282 $ (768) $ (842) $ (8) $ 53 $ 29 $ (768)
Percentage of net sales 9.9 % 17.8 %
(a)Presented net of contractual price reductions for gross margin variance.
The decrease in cost of sales reflects decreased volumes, largely resulting from
the impacts of the COVID-19 pandemic, and the impacts from currency exchange and
operational performance improvements. However, as certain of our costs remain
fixed in nature over the near term, our gross margin as a percentage of sales
was adversely impacted compared to the prior year period, primarily due to the
COVID-19 pandemic. Cost of sales was also impacted by the following items in
Other above:
•$45 million of decreased engineering expense as a result of the formation of
the autonomous driving joint venture with Hyundai in March 2020 , which is now
accounted for under the equity method of accounting; and
•$21 million of decreased commodity pass-through costs; partially offset by
•$14 million of increased warranty costs.
Selling, General and Administrative Expense
Three Months Ended
Favorable/
2020 2019 (unfavorable)
(dollars in millions)
Selling, general and administrative expense $ 217 $ 260 $ 43
Percentage of net sales 11.1 % 7.2 %
Six Months Ended June 30,
Favorable/
2020 2019 (unfavorable)
(dollars in millions)
Selling, general and administrative expense $ 469 $ 516 $ 47
Percentage of net sales 9.0 % 7.2 %
Selling, general and administrative expense ("SG&A") includes administrative
expenses, information technology costs and incentive compensation related costs.
SG&A increased as a percentage of net sales for the three and six months ended
June 30, 2020 as compared to 2019, primarily due to the impacts of the COVID-19
pandemic on our overall net sales volumes. SG&A was also impacted by reduced
incentive compensation costs.
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Amortization
Three Months Ended June 30,
Favorable/
2020 2019 (unfavorable)
(in millions)
Amortization $ 35 $ 43 $ 8
Six Months Ended June 30,
Favorable/
2020 2019 (unfavorable)
(in millions)
Amortization $ 71 $ 77 $ 6
Amortization expense reflects the non-cash charge related to definite-lived
intangible assets. The decrease in amortization during the three and six months
ended June 30, 2020 compared to 2019 primarily reflects $8 million of intangible
asset impairment charges recorded during the three months ended June 30, 2019 ,
partially offset by the continued amortization of our definite-lived intangible
assets, which resulted primarily from our acquisitions, over their estimated
useful lives. Refer to Note 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 June 30,
Favorable/
2020 2019 (unfavorable)
(dollars in millions)
Restructuring $ 72 $ 31 $ (41)
Percentage of net sales 3.7 % 0.9 %
Six Months Ended June 30,
Favorable/
2020 2019 (unfavorable)
(dollars in millions)
Restructuring $ 100 $ 57 $ (43)
Percentage of net sales 1.9 % 0.8 %
The Company recorded employee-related and other restructuring charges totaling
approximately $72 million and $100 million during the three and six months ended
June 30, 2020 , respectively, of which $42 million and $51 million , respectively,
was recognized for programs implemented in the North America region and $24
million and $35 million , respectively, was recognized for programs implemented
in the European region. The charges recorded during the three months ended
June 30, 2020 included the recognition of approximately $60 million of
employee-related and other costs related to actions taken to as a result of the
global impacts of the COVID-19 pandemic. 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 $31 million and $57 million during the three and six months ended
June 30, 2019 , respectively, of which $17 million and $34 million , respectively,
was recognized for programs implemented in the North American region, pursuant
to the Company's ongoing overhead cost reduction strategy.
We expect to continue to incur additional restructuring expense in 2020 and
beyond, primarily related to programs focused on aligning our production
capabilities with the reduced levels of global vehicle production resulting from
the COVID-19 pandemic and on reducing global overhead costs, which includes
approximately $45 million (of which approximately $30 million relates to the
Signal and Power Solutions segment and approximately $15 million relates to the
Advanced Safety and User Experience segment) for programs approved as of
June 30, 2020 . Additionally, as we continue to operate in a cyclical industry
that is impacted by movements in the global and regional economies, we
continually evaluate
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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 June 30,
Favorable/
2020 2019 (unfavorable)
(in millions)
Interest expense $ 44 $ 43 $ (1)
Six Months Ended June 30,
Favorable/
2020 2019 (unfavorable)
(in millions)
Interest expense $ 87 $ 81 $ (6)
The increase in interest expense during the three and six months ended June 30,
2020 compared to 2019 reflects the drawdown of all remaining availability under
the Revolving Credit Facility in the first quarter of 2020, which remained
outstanding for substantially all of the second quarter of 2020. Refer to Note
8. Debt to the consolidated financial statements contained herein for additional
information.
Other Income, Net
Three Months Ended June 30,
Favorable/
2020 2019 (unfavorable)
(in millions)
Other (expense) income, net $ (6) $ 6 $ (12)
Six Months Ended June 30,
Favorable/
2020 2019 (unfavorable)
(in millions)
Other (expense) income, net $ (7) $ 22 $ (29)
As further discussed in Note 8. Debt, during the three months endedJune 30, 2020 , Aptiv recorded a loss on debt modification of$4 million , in conjunction with theMay 2020 Amendment to the Credit Agreement. As further discussed in Note 17. Acquisitions and Divestitures to the consolidated financial statements contained herein, during the six months endedJune 30, 2019 , Aptiv recorded a pre-tax unrealized gain of$19 million related to increases in fair value of its equity investments without readily determinable fair values. Also, as further discussed in Note 8. Debt to the consolidated financial statements contained herein, during the six months endedJune 30, 2019 , Aptiv redeemed for cash the entire$650 million aggregate principal amount outstanding of the 3.15% Senior Notes, resulting in a loss on debt extinguishment of approximately$6 million . 58
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Income Taxes
Three Months Ended June 30,
Favorable/
2020 2019 (unfavorable)
(in millions)
Income tax (benefit) expense $ (14) $ 31 $ 45
Six Months Ended June 30,
Favorable/
2020 2019 (unfavorable)
(in millions)
Income tax (benefit) expense $ (4) $ 64 $ 68
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. Due to the COVID-19 pandemic,
losses for which no tax benefit was recognized were higher in the three and six
months ended June 30, 2020 as compared to the previous year. 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 and six months ended June 30,
2020 also includes net discrete tax benefits of $3 million and $6 million ,
respectively, primarily related to changes in reserves, changes in accruals for
unremitted earnings and provision to return adjustments. Also included as a
discrete item in the effective tax rate for the six months ended June 30, 2020
is the beneficial impact from the gain on the autonomous driving joint venture.
The tax expense associated with the gain was insignificant as Aptiv's aggregate
autonomous driving assets were exempt from capital gains tax in the jurisdiction
from which they were sold. The aggregate autonomous driving assets had been
acquired, purchased or developed in taxable transactions in prior periods and
reflect changes made to the corporate entity operating structure for
intellectual property following the Separation of its former Powertrain Systems
segment. The effective tax rate for the three and six months ended June 30, 2019
includes net discrete tax benefits of $21 million and $31 million , respectively,
primarily related to changes in reserves, changes in accruals for unremitted
earnings and provision to return adjustments. Refer to Note 11. Income Taxes to
the consolidated financial statements contained herein for additional
information.
Equity Income
Three Months Ended June 30,
Favorable/
2020 2019 (unfavorable)
(in millions)
Equity (loss) income, net of tax $ (18) $ 4 $ (22)
Six Months Ended June 30,
Favorable/
2020 2019 (unfavorable)
(in millions)
Equity (loss) income, net of tax $ (16) $ 7 $ (23)
Equity (loss) income, net of tax reflects the Company's interest in the results of ongoing operations of entities accounted for as equity-method investments. The equity losses recognized for the three and six months endedJune 30, 2020 are primarily attributable to the performance of the joint venture formed in the transaction withHyundai Motor Group , which closed onMarch 26, 2020 . 59
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Results of Operations by Segment We operate our core business along the following operating segments, which are grouped on the basis of similar product, market and operating factors: •Signal and Power Solutions, which includes complete electrical architecture and component products. •Advanced Safety and User Experience, which includes component and systems integration expertise in advanced safety, user experience and connectivity and security solutions, as well as advanced software development and autonomous driving technologies. •Eliminations and Other, which includes i) the elimination of inter-segment transactions, and ii) certain other expenses and income of a non-operating or strategic nature. Our management utilizes segment Adjusted Operating Income (Loss) 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 (Loss) should not be considered a substitute for results prepared in accordance withU.S. GAAP and should not be considered an alternative to net income (loss) attributable to Aptiv, which is the most directly comparable financial measure to Adjusted Operating Income (Loss) that is prepared in accordance withU.S. GAAP. Segment Adjusted Operating Income (Loss), 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 (Loss) to operating income (loss) includes, as applicable, restructuring, other acquisition and portfolio project costs (which includes costs incurred to integrate acquired businesses and to plan and execute product portfolio transformation actions, including business and product acquisitions and divestitures), asset impairments, gains (losses) on business divestitures and other transactions and deferred compensation related to acquisitions. The reconciliations of Adjusted Operating Income (Loss) to net income (loss) attributable to Aptiv for the three and six months endedJune 30, 2020 and 2019 are as follows: Signal and Power Advanced Safety and Solutions User Experience Eliminations and Other Total (in millions) For the Three Months EndedJune 30, 2020 : Adjusted operating loss$ (143) $ (86) $ -$ (229) Restructuring (60) (12) - (72) Other acquisition and portfolio project costs (1) (1) - (2) Asset impairments (4) - - (4) Deferred compensation related to nuTonomy acquisition - (4) - (4) Operating loss$ (208) $ (103) $ - (311) Interest expense (44) Other expense, net (6) Loss before income taxes and equity income (361) Income tax benefit 14 Equity loss, net of tax (18) Net loss (365) Net income attributable to noncontrolling interest 1 Net loss attributable to Aptiv$ (366) 60
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Signal and Power Advanced Safety and
Solutions User Experience Eliminations and Other Total
(in millions)
For the Three Months Ended June 30, 2019 :
Adjusted operating income $ 337 $ 68 $ - $ 405
Restructuring (23) (8) - (31)
Other acquisition and portfolio project costs (11) (6) - (17)
Asset impairments (1) (9) - (10)
Deferred compensation related to nuTonomy
acquisition - (12) - (12)
Operating income $ 302 $ 33 $ - 335
Interest expense (43)
Other income, net 6
Income before income taxes and equity income 298
Income tax expense (31)
Equity income, net of tax 4
Net income 271
Net loss attributable to noncontrolling interest (3)
Net income attributable to Aptiv$ 274 Signal and Power Advanced Safety and Solutions User Experience Eliminations and Other Total (in millions) For the Six Months EndedJune 30, 2020 : Adjusted operating income (loss) $ 82 $ (80) $ -$ 2 Restructuring (79) (21) - (100) Other acquisition and portfolio project costs (8) (8) - (16) Asset impairments (4) - - (4) Deferred compensation related to nuTonomy acquisition - (8) -
(8)
Gain on business divestitures and other transactions - 1,434 - 1,434 Operating (loss) income $ (9)$ 1,317 $ - 1,308 Interest expense (87) Other expense, net (7) Income before income taxes and equity income 1,214 Income tax benefit 4 Equity loss, net of tax (16) Net income 1,202 Net loss attributable to noncontrolling interest
(4)
Net income attributable to Aptiv$ 1,206 61
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Signal and Power Advanced Safety and
Solutions User Experience Eliminations and Other Total
(in millions)
For the Six Months Ended June 30, 2019 :
Adjusted operating income $ 620 $ 130 $ - $ 750
Restructuring (42) (15) - (57)
Other acquisition and portfolio project costs (18) (10) - (28)
Asset impairments (1) (9) - (10)
Deferred compensation related to nuTonomy
acquisition - (23) - (23)
Operating income $ 559 $ 73 $ - 632
Interest expense (81)
Other income, net 22
Income before income taxes and equity income 573
Income tax expense (64)
Equity income, net of tax 7
Net income 516
Net income attributable to noncontrolling interest 2
Net income attributable to Aptiv $ 514
Net sales, gross margin as a percentage of net sales and Adjusted Operating
Income (Loss) by segment for the three and six months ended June 30, 2020 and
2019 are as follows:
Net Sales by Segment
Three Months Ended June 30, Variance Due To:
Volume, net of
Favorable/ contractual price Commodity
2020 2019 (unfavorable) reductions FX pass-through Other Total
(in millions) (in millions)
Signal and Power Solutions $ 1,435 $ 2,585 $ (1,150) $ (1,083) $ (53) $ (14) $ - $ (1,150)
Advanced Safety and User Experience 530 1,050 (520) (508) (12) - - (520)
Eliminations and Other (5) (8) 3 3 - - - 3
Total $ 1,960 $ 3,627 $ (1,667) $ (1,588) $ (65) $ (14) $ - $ (1,667)
Six Months Ended June 30, Variance Due To:
Volume, net of
contractual price Commodity
2020 2019 Favorable/(unfavorable) reductions FX pass-through Other Total
(in millions) (in millions)
Signal and Power Solutions $ 3,765 $ 5,147 $ (1,382) $ (1,256) $ (105) $ (21) $ - $ (1,382)
Advanced Safety and User Experience 1,432 2,073 (641) (618) (23) - - (641)
Eliminations and Other (11) (18) 7 7 - - - 7
Total $ 5,186 $ 7,202 $ (2,016) $ (1,867) $ (128) $ (21) $ - $ (2,016)
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Gross Margin Percentage by Segment
Six Months Ended June
Three Months Ended June 30, 30,
2020 2019 2020 2019
Signal and Power Solutions 3.8 % 21.4 % 13.0 % 20.4 %
Advanced Safety and User Experience (7.7) % 11.1 % 1.8 % 11.1 %
Eliminations and Other - % - % - % - %
Total 0.7 % 18.4 % 9.9 % 17.8 %
Gross margin as a percentage of sales for the three and six months ended
Three Months Ended June 30, Variance Due To:
Favorable/ Volume, net of contractual Operational
2020 2019 (unfavorable) price reductions performance Other Total
(in millions) (in millions)
Signal and Power Solutions
(480) $ (511) $ 35$ (4) $ (480) Advanced Safety and User Experience (86) 68 (154) (200) 1 45 (154) Eliminations and Other - - - - - - - Total$ (229) $ 405 $ (634) $ (711) $ 36$ 41 $ (634) As noted in the table above, Adjusted Operating Loss for the three months endedJune 30, 2020 as compared to Adjusted Operating Income for the three months endedJune 30, 2019 was impacted by volume decreases, net of contractual price reductions, including product mix, largely resulting from the impacts of the COVID-19 pandemic. The adverse impacts of the pandemic included extended work stoppages and travel restrictions at our facilities and those of our customers and suppliers, decreases in consumer demand and vehicle production schedules, disruptions to our supply chain and other adverse global economic impacts, particularly those resulting from governmental "lock-down" orders for all non-essential activities, initially in the first quarter inChina and subsequently inEurope andNorth America . While the lock-downs inChina were substantially all lifted early in the second quarter, much ofEurope andNorth America remained in lock-down for the majority of the quarter. Adjusted Operating Loss was also impacted by operational performance improvements and the following items included within Other in the table above: •$45 million of decreased engineering expense as a result of the formation of the autonomous driving joint venture with Hyundai inMarch 2020 , which is now accounted for under the equity method of accounting; and •$31 million of decreased SG&A expense, not including the impact of other acquisition and portfolio project costs, primarily as a result of decreased incentive compensation costs; partially offset by •$14 million of increased warranty costs. Refer to Note 17. Acquisitions and Divestitures to the consolidated financial statements contained herein for further detail of our autonomous driving joint venture. 63
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Six Months Ended June 30, Variance Due To:
Volume, net of contractual Operational
2020 2019 Favorable/(unfavorable) price reductions performance Other Total
(in millions) (in millions)
Signal and Power Solutions $ 82 $ 620 $ (538) $ (594) $ 65 $ (9) $ (538)
Advanced Safety and User
Experience (80) 130 (210) (248) (27) 65 (210)
Eliminations and Other - - - - - - -
Total $ 2 $ 750 $ (748) $ (842) $ 38 $ 56 $ (748)
As noted in the table above, Adjusted Operating Income for the six months ended
June 30, 2020 as compared to the six months ended June 30, 2019 was impacted by
volume decreases, net of contractual price reductions, including product mix,
largely resulting from the impacts of the COVID-19 pandemic. The adverse impacts
of the pandemic included extended work stoppages and travel restrictions at our
facilities and those of our customers and suppliers, decreases in consumer
demand and vehicle production schedules, disruptions to our supply chain and
other adverse global economic impacts, particularly those resulting from
governmental "lock-down" orders for all non-essential activities, initially in
the first quarter in China and subsequently in Europe and North America . While
the lock-downs in China were substantially all lifted early in the second
quarter, much of Europe and North America remained in lock-down for the majority
of the quarter. Adjusted Operating Income was also impacted by operational
performance improvements and the following items included within Other in the
table above:
•$45 million of decreased engineering expense as a result of the formation of
the autonomous driving joint venture with Hyundai in March 2020 , which is now
accounted for under the equity method of accounting; and
•$37 million of decreased SG&A expense, not including the impact of other
acquisition and portfolio project costs, primarily as a result of decreased
incentive compensation costs; partially offset by
•$14 million of increased warranty costs; and
•$9 million of increased depreciation and amortization, not including the impact
of asset impairments, primarily as a result of a higher fixed asset base.
Liquidity and Capital Resources
COVID-19 Pandemic
Due to the unprecedented uncertainty related to the impact the COVID-19 pandemic
is having on the global automotive industry and economies around the world, the
Company initiated a series of precautionary actions during the first half of
2020 to further enhance its liquidity and financial flexibility. Among these,
the Company has taken decisive actions to manage costs, capital spending and
working capital to further strengthen its liquidity, including the ramping down
of certain production facilities in response to customer plant closures and
changes in vehicle production schedules. Additionally, as further described
below, the Company issued $2.3 billion combined of preferred and ordinary
shares, extended substantially all of our existing Revolving Credit Facility's
maturity to August 2022 , and suspended the payment of its ordinary share cash
dividend to further increase capital preservation during the pandemic. The
impacts of COVID-19 are continuing to reduce visibility into when customers'
plants will be fully operational, as well as reducing consumer demand and
creating additional supply chain interruptions, which has adversely impact
global vehicle production and the viability and financial stability of our
customers and suppliers. While the Company believes it has taken prudent actions
to mitigate the impacts on its business resulting from the COVID-19 pandemic and
to provide sufficient liquidity to fund our global operations and capital
investments, the ultimate impact of the pandemic to our business remains highly
uncertain. However, we will continue to actively monitor the ongoing potential
impacts of COVID-19 and will continue to seek to aggressively mitigate and
minimize its impact on our business.
Overview of Capital Structure
Our liquidity requirements are primarily to fund our business operations,
including capital expenditures and working capital requirements, as well as to
fund debt service requirements 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,
and/or general corporate purposes. We will also continually explore ways to
enhance our capital structure.
As of June 30, 2020 , we had cash and cash equivalents of $1.9 billion and net
debt (defined as outstanding debt less cash and cash equivalents) of $2.3
billion . The following table summarizes our available liquidity, which includes
cash, cash
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equivalents and funds available under our significant committed credit
facilities, as of
June 30,
2020
(in millions)
Cash and cash equivalents $ 1,885
Revolving Credit Facility, unutilized portion (1) 2,000
Committed European accounts receivable factoring facility, unutilized portion (2) 177
Total available liquidity $ 4,062
(1)Availability reduced by less than $1 million in letters of credit issued
under the Credit Agreement as of June 30, 2020 .
(2)Based on June 30, 2020 foreign currency rates, subject to the availability of
eligible accounts receivable.
We also continue to expect to be able to move funds between different countries
to manage our global liquidity needs without material adverse tax implications,
subject to current monetary policies and the terms of the Credit Agreement. We
utilize a combination of strategies, including dividends, cash pooling
arrangements, intercompany loan repayments and other distributions and advances
to provide the funds necessary to meet our global liquidity needs. There are no
significant restrictions on the ability of our subsidiaries to pay dividends or
make other distributions to Aptiv. As of June 30, 2020 , the Company's cash and
cash equivalents held by our non-U.S. subsidiaries totaled approximately $1.8
billion . If additional non-U.S. cash was needed for our U.S. operations, we may
be required to accrue and pay withholding taxes 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.
Despite the current global economic impacts and uncertainty resulting from the
ongoing COVID-19 pandemic and its impact on global vehicle production, as
further described above, we currently expect existing cash, available liquidity
and cash flows from operations to continue to be sufficient to fund our global
operating activities, including restructuring payments, any mandatory payments
required under the Credit Agreement as described below and capital expenditures.
Public Equity Offering
In June 2020 , the Company completed the underwritten public offering of
approximately 15.1 million ordinary shares at a price of $75.91 per share (the
"Ordinary Share Offering"), resulting in net proceeds of approximately $1,115
million , after deducting expenses and the underwriters' discount of $35 million .
Simultaneously, the Company completed the underwritten public offering of 11.5
million 5.50% Mandatory Convertible Preferred Shares, Series A, $0.01 par value
per share (the "MCPS") with a liquidation preference of $100 per share (the
"MCPS Offering"), resulting in net proceeds of approximately $1,115 million ,
after deducting expenses and the underwriters' discount of $35 million . The
Company intends to use the net proceeds from the Ordinary Share Offering and
MCPS Offering for general corporate purposes, which may include funding
potential future investments (including acquisitions), capital expenditures,
working capital, repayment of outstanding indebtedness, including the repayment
of the Revolving Credit Facility, which was fully drawn as of March 31, 2020 ,
and the satisfaction of other obligations. Each share of MCPS will mandatorily
convert on the mandatory conversion date of June 15, 2023 , into between 1.0754
and 1.3173 shares of the Company's ordinary shares, subject to customary
anti-dilution adjustments.
Holders of the MCPS will be entitled to receive, when and if declared by the
Company's Board of Directors, cumulative dividends at the annual rate of 5.50%
of the liquidation preference of $100 per share (equivalent to $5.50 annually
per share), payable in cash or, subject to certain limitations, by delivery of
the Company's ordinary shares or any combination of cash and the Company's
ordinary shares, at the Company's election. If declared, dividends on the MCPS
will be payable quarterly on March 15 , June 15 , September 15 and December 15 of
each year (commencing on September 15, 2020 to, and including June 15, 2023 ), to
the holders of record of the MCPS as they appear on the Company's share register
at the close of business on the immediately preceding March 1 , June 1 , September
1 or December 1 , respectively. Refer to Note 12. Shareholders' Equity and Net
Income Per Share to the consolidated financial statements contained herein for
further detail on the June 2020 public equity offering.
Share Repurchases
In April 2016 , the Board of Directors authorized a share repurchase program of
up to $1.5 billion of ordinary shares, which commenced in September 2016 . This
share repurchase program provides for share purchases in the open market or in
privately negotiated transactions, depending on share price, market conditions
and other factors, as determined by the Company.
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A summary of the ordinary shares repurchased during the three and six months
ended
Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
Total number of shares repurchased - 1,642,598 1,059,075 4,482,677
Average price paid per share $ - $ 73.07 $ 53.73 $ 77.19
Total (in millions) $ - $ 120 $ 57 $ 346
As of June 30, 2020 , approximately $13 million of share repurchases remained
available under the April 2016 share repurchase program. All repurchased shares
were retired, and are reflected as a reduction of ordinary share capital for the
par value of the shares, with the excess applied as reductions to additional
paid-in-capital and retained earnings.
New Share Repurchase Program
In January 2019 , the Board of Directors authorized a new share repurchase
program of up to $2.0 billion of ordinary shares. 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. This program will commence following the completion
of the Company's April 2016 share repurchase program described above. Although
both the April 2016 and this new share repurchase program remain authorized, the
Company is restricted from executing further share repurchases under the terms
of the May 2020 Amendment to the Credit Agreement for as long as the Covenant
Relief Period remains in effect, as further described below (all as defined
below). Furthermore, in order to preserve liquidity during the COVID-19 pandemic
crisis, the Company does not anticipate executing further share repurchases
until such time as the global economic uncertainties and business impacts
resulting from the pandemic have abated.
Ordinary Share Dividends
Under the terms of the May 2020 Amendment to the Credit Agreement, the Company
is restricted from the payment of further ordinary share cash dividends for as a
long as the Covenant Relief Period remains in effect (all as defined below).
Additionally, the Company does not anticipate making further ordinary share cash
dividend payments, until such time as the global economic uncertainties and
business impacts resulting from the COVID-19 pandemic have abated.
Acquisitions
gabocom-On November 19, 2019 , Aptiv acquired 100% of the equity interests of
gabo Systemtechnik GmbH ("gabocom"), a leading provider of highly-engineered
cable management and protection solutions for the telecommunications industry,
for total consideration of $311 million , net of cash acquired. The acquisition
was accounted for as a business combination, with the operating results of
gabocom included within the Company's Signal and Power Solutions segment from
the date of acquisition. The Company acquired gabocom utilizing cash on hand.
Falmat-On May 14, 2019 , Aptiv acquired 100% of the equity interests of Falmat
Inc. ("Falmat"), a leading manufacturer of high performance custom cable and
cable assemblies for industrial applications, for total consideration of $25
million , net of cash acquired. The acquisition was accounted for as a business
combination, with the operating results of Falmat included within the Company's
Signal and Power Solutions segment from the date of acquisition. The Company
acquired Falmat utilizing cash on hand.
Dynawave-In March 2020 , Aptiv agreed to acquire Dynawave Inc. ("Dynawave"), a
specialized manufacturer of custom-engineered interconnect solutions for a wide
range of industries, for total consideration of approximately $22 million . The
acquisition is subject to the satisfaction of customary closing conditions and
the receipt of regulatory and other approvals, and is expected to close in the
third quarter of 2020. The Company expects to acquire Dynawave primarily
utilizing cash on hand. Upon completion, Dynawave will become part of the Signal
and Power Solutions segment.
Technology Investments-During the fourth quarter of 2019, the Company's Advanced
Safety and User Experience segment made a $6 million investment in Krono-Safe,
SAS, a leading software developer of safety-critical real-time embedded systems.
During the first quarter of 2019, the Company's Advanced Safety and User
Experience segment made an additional $3 million investment in Otonomo
Technologies Ltd. ("Otonomo"), a connected car data marketplace developer. This
investment was in addition to the Company's $15 million investment made in the
first quarter of 2017. These investments do not have readily determinable fair
values and are measured at cost, less impairments, adjusted for observable price
changes in orderly transactions for identical or similar investments of the same
issuer.
Refer to Note 17. Acquisitions and Divestitures to the consolidated financial
statements contained herein for further detail of the Company's business
acquisitions and technology investments.
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Autonomous Driving Joint Venture OnMarch 26, 2020 , Aptiv completed the transaction withHyundai Motor Group ("Hyundai") to form a new joint venture focused on the design, development and commercialization of autonomous driving technologies. Under the terms of the agreement, Aptiv contributed to the joint venture autonomous driving technology, intellectual property and approximately 700 employees for a 50% ownership interest in the newly formed entity. Hyundai contributed to the joint venture approximately$1.6 billion in cash, along with vehicle engineering services, research and development resources and access to intellectual property for a 50% ownership interest in the newly formed entity. As a result, subsequent to the closing of the transaction, the newly formed joint venture is expected to fund all of its future operating expenses and investments in autonomous driving technologies for the foreseeable future. Consequently, Aptiv is no longer required to fund these investments and expenses, which approximated$180 million for the year endedDecember 31, 2019 prior to the joint venture formation. Upon closing of the transaction, Aptiv deconsolidated the carrying value of the associated assets and liabilities contributed to the joint venture, previously classified as held for sale, and recognized an asset of approximately$2.0 billion within Investments in affiliates in the consolidated balance sheet, based on the preliminary fair value of its investment in the newly formed joint venture. The Company recognized a pre-tax gain of approximately$1.4 billion in the consolidated statement of operations (approximately$5.57 per diluted share during the six months endedJune 30, 2020 ), net of transaction costs of$22 million , based on the difference between the carrying value of its contribution to the joint venture and the preliminary fair value of its investment in the newly formed entity. The estimated fair value of Aptiv's ownership interest in the newly formed joint venture was determined primarily based on third-party valuations and management estimates, generally utilizing income and market approaches. The estimated fair value is preliminary and could be revised as a result of additional information obtained or adjustments made due to the completion of independent appraisals and valuations. The effects of this transaction would not materially impact the Company's reported results for any period presented, and the transaction did not meet the criteria to be reflected as a discontinued operation. In connection with the closing of the transaction, Aptiv and the newly formed entity entered into various agreements to facilitate an orderly transition and to provide a framework for their relationship going forward, which included a transition services agreement. The transition services primarily involve Aptiv providing certain administrative services to the joint venture for a period of up to 24 months after the closing date. These agreements are not material to Aptiv. The Company will account for its investment in the newly formed entity prospectively using the equity method of accounting. The Company determined that the assets and liabilities associated with Aptiv's contribution to the joint venture, which were reported within the Advanced Safety and User Experience segment, met the held for sale criteria as ofDecember 31, 2019 . Accordingly, the held for sale assets and liabilities were reclassified in the consolidated balance sheet as ofDecember 31, 2019 to current assets held for sale and current liabilities held for sale, respectively, as the contribution of such assets and liabilities to the joint venture was expected to occur within one year. Upon designation as held for sale, the Company ceased recording depreciation of the held for sale assets. Refer to Note 17. Acquisitions and Divestitures to the consolidated financial statements contained herein for additional information. Credit AgreementAptiv PLC and its wholly-owned subsidiaryAptiv Corporation entered into a credit agreement (the "Credit Agreement") withJPMorgan Chase Bank, N.A ., as administrative agent (the "Administrative Agent"), under which it maintains senior unsecured credit facilities currently consisting of a term loan (the "Tranche A Term Loan") and a revolving credit facility of$2 billion (the "Revolving Credit Facility"). The Credit Agreement was entered into inMarch 2011 and has been subsequently amended and restated on several occasions, most recently onMay 1, 2020 (the "May 2020 Amendment") andJune 8, 2020 (the "June 2020 Amendment"). TheMay 2020 Amendment extended the maturity of$1,779 million in principal amount of the Revolving Credit Facility and$298 million in principal amount of the Tranche A Term Loan fromAugust 17, 2021 toAugust 17, 2022 and increased the leverage ratio maintenance covenant untilJuly 1, 2021 (the "Covenant Relief Period"), unless Aptiv elects to terminate the Covenant Relief Period at an earlier date. Under the terms of theMay 2020 Amendment, Aptiv's consolidated leverage ratio (the ratio of Consolidated Total Indebtedness to Consolidated EBITDA, each as defined in theMay 2020 Amendment) is increased from not more than 3.5 to 1.0 to not more than 4.5 to 1.0 during the Covenant Relief Period, and Aptiv is subject to certain additional covenant restrictions during the Covenant Relief Period, including restrictions on Aptiv's ability to execute repurchases of or pay dividends on its outstanding ordinary shares. The maturity date of the remaining portions of the Revolving Credit Facility and Tranche A Term Loan were not extended and will mature onAugust 17, 2021 . TheMay 2020 Amendment also required that Aptiv pay amendment fees of$18 million . TheJune 2020 Amendment amended the dividends and distributions covenant set forth in the Credit Agreement to permit the payment of dividends on convertible preferred shares in connection with the preferred equity offering as further discussed in Note 12. Shareholders' Equity and Net Income Per Share to the consolidated financial statements contained herein. Aptiv is obligated to make quarterly principal payments throughout the term of the Tranche A Term Loan, according to the amortization schedule in the Credit Agreement. The Credit Agreement also contains an accordion feature that permits Aptiv to increase, from time to time, the aggregate borrowing capacity under the Credit Agreement by up to an additional$1 billion 67
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(or a greater amount based upon a formula set forth in the Credit Agreement) upon Aptiv's request, the agreement of the lenders participating in the increase, and the approval of the Administrative Agent and existing lenders. As ofJune 30, 2020 , Aptiv had no amounts outstanding under the Revolving Credit Facility and less than$1 million in letters of credit were issued under the Credit Agreement. Letters of credit issued under the Credit Agreement reduce availability under the Revolving Credit Facility. The maximum amount drawn under the Revolving Credit Facility during the six months endedJune 30, 2020 was$2.0 billion , primarily to manage intra-month working capital requirements. Loans under the Credit Agreement bear interest, at Aptiv's option, at either (a) the Administrative Agent's Alternate Base Rate ("ABR" as defined in the Credit Agreement) or (b) the London Interbank Offered Rate (the "Adjusted LIBO Rate" as defined in the Credit Agreement) ("LIBOR") plus in either case a percentage per annum as set forth in the table below (the "Applicable Rate"). The Applicable Rates under the Credit Agreement on the specified dates are set forth below: June 30, 2020 December 31, 2019 LIBOR plus ABR plus LIBOR plus ABR plus Revolving Credit Facility (1) 1.10 % 0.10 % 1.10 % 0.10 % Revolving Credit Facility (2) 1.40 % 0.40 % N/A N/A Tranche A Term Loan (1) 1.25 % 0.25 % 1.25 % 0.25 % Tranche A Term Loan (2) 1.75 % 0.75 % N/A N/A (1)Applicable to principal balances under the Credit Agreement which were not extended as part of theMay 2020 Amendment as described above. (2)Applicable to principal balances under the Credit Agreement which were extended as part of theMay 2020 Amendment as described above. The Applicable Rate under the Credit Agreement may increase or decrease from time to time based on changes in the Company's credit ratings. Accordingly, the interest rate will fluctuate during the term of the Credit Agreement based on changes in the ABR, LIBOR or future changes in the Company's corporate credit ratings. The Credit Agreement also requires that Aptiv pay certain facility fees on the Revolving Credit Facility and certain letter of credit issuance and fronting fees. The interest rate period with respect to LIBOR interest rate options can be set at one-, two-, three-, or six-months as selected by Aptiv in accordance with the terms of the Credit Agreement (or other period as may be agreed by the applicable lenders). Aptiv may elect to change the selected interest rate option in accordance with the provisions of the Credit Agreement. As ofJune 30, 2020 , Aptiv selected the one-month LIBOR interest rate option on the Tranche A Term Loan, and the rate effective as ofJune 30, 2020 , as detailed in the table below, was based on the Company's current credit rating and the Applicable Rate for the Credit Agreement: Borrowings as of June 30, 2020 Rates effective as of Applicable Rate (in millions) June 30, 2020 Tranche A Term Loan (1) LIBOR plus 1.25% $ 51 1.50 % Tranche A Term Loan (2) LIBOR plus 1.75% $ 289 2.00 % (1)Applicable to principal balances under the Credit Agreement which were not extended as part of theMay 2020 Amendment as described above. (2)Applicable to principal balances under the Credit Agreement which were extended as part of theMay 2020 Amendment as described above. Borrowings under the Credit Agreement are prepayable at Aptiv's option without premium or penalty. The Credit Agreement contains certain covenants that limit, among other things, the Company's (and the Company's subsidiaries') ability to incur certain additional indebtedness or liens or to dispose of substantially all of its assets. In addition, the Credit Agreement requires that the Company maintain a consolidated leverage ratio (the ratio of Consolidated Total Indebtedness to Consolidated EBITDA, each as defined in the Credit Agreement) of not more than 3.5 to 1.0, which was increased to 4.5 to 1.0 untilJuly 1, 2021 under theMay 2020 Amendment. The Credit Agreement also contains events of default customary for financings of this type. The Company was in compliance with the Credit Agreement covenants as ofJune 30, 2020 . As ofJune 30, 2020 , all obligations under the Credit Agreement were borrowed byAptiv Corporation and jointly and severally guaranteed by its direct and indirect parent companies, subject to certain exceptions set forth in the Credit Agreement. 68
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Senior Unsecured Notes As ofJune 30, 2020 , 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 4.15% March 2014 March 2024 March 15 and September 15 785 1.50% March 2015 March 2025 March 10 650 4.25% November 2015 January 2026 January 15 and July 15 561 1.60% September 2016 September 2028 September 15 300 4.35% March 2019 March 2029 March 15 and September 15 300 4.40% September 2016 October 2046 April 1 and October 1 350 5.40% March 2019 March 2049 March 15 and September 15 Although the specific terms of each indenture governing each series of senior notes vary, the indentures contain certain restrictive covenants, including with respect to Aptiv's (and Aptiv's subsidiaries) ability to incur liens, enter into sale and leaseback transactions and merge with or into other entities. As ofJune 30, 2020 , 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 InMarch 2020 , theSecurities and Exchange Commission ("SEC") adopted amendments to simplify the financial disclosure requirements for guarantors and issuers of guaranteed securities registered under Rule 3-10 of Regulation S-X. As permitted, the Company elected to early adopt these amendments during the first quarter of 2020. Accordingly, the below summarized financial information has been provided in lieu of the condensed consolidating financial statements provided in the Company's 2019 Annual Report on Form 10-K. As further described in Note 8. Debt to the consolidated financial statements contained herein,Aptiv Corporation issued the 2014 Senior Notes and is the borrower of obligations under the Credit Agreement, which are fully and unconditionally guaranteed byAptiv PLC and certain ofAptiv PLC's direct and indirect subsidiaries (the "Obligor Group ").Aptiv PLC issued the 2015 Euro-denominated Senior Notes, 4.25% Senior Notes, 2016 Euro-denominated Senior Notes, 2016 Senior Notes and 2019 Senior Notes, which are fully and unconditionally guaranteed by theObligor Group . All other consolidated direct and indirect subsidiaries ofAptiv PLC are not subject to the guarantees (the "Non-Guarantors"). The guarantees rank equally in right of payment with all of the guarantors' existing and future senior indebtedness, are effectively subordinated to any of their existing and future secured indebtedness to the extent of the value of the collateral securing such indebtedness and are structurally subordinated to the indebtedness of each of their existing and future subsidiaries that is not a guarantor. The below summarized financial information is presented on a combined basis after the elimination of intercompany balances and transactions among theObligor 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. 69
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Obligor Group
Six Months Ended June 30, 2020 (in millions)
Net sales $ -
Gross margin $ -
Operating income $ 14
Net loss $ (137) Net loss attributable to Aptiv
As ofJune 30, 2020 Current assets (1)$ 204 Long-term assets $ 14 Current liabilities (2)$ 944 Long-term liabilities (2)$ 4,149 Noncontrolling interest $ - As ofDecember 31, 2019 Current assets (1)$ 522 Long-term assets (1)$ 772 Current liabilities (2)$ 6,579 Long-term liabilities (2)$ 4,172 Noncontrolling interest $ - (1)Includes current assets of$201 million and$522 million as ofJune 30, 2020 andDecember 31, 2019 , respectively, and long-term assets of$768 million as ofDecember 31, 2019 , due from Non-Guarantors. (2)Includes current liabilities of$857 million and$6,409 million , and long-term liabilities of$225 million and$226 million , due to Non-Guarantors as ofJune 30, 2020 andDecember 31, 2019 , respectively. Other Financing Receivable factoring-Aptiv maintains a €300 million European accounts receivable factoring facility that is available on a committed basis. 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 program renews on a non-committed, indefinite basis unless terminated by either party. Borrowings bear interest at Euro Interbank Offered Rate ("EURIBOR") plus 0.42% for borrowings denominated in Euros. The rate effective on amounts outstanding as ofJune 30, 2020 was 0.42%. As ofJune 30, 2020 andDecember 31, 2019 , Aptiv had$160 million and$266 million , respectively, outstanding on the European accounts receivable factoring facility. The maximum amount drawn under the European facility during the six months endedJune 30, 2020 was$253 million , primarily to provide additional liquidity and financial flexibility to mitigate the impacts on its business resulting from the uncertainty caused by the global spread of the COVID-19 pandemic. Finance leases and other-As ofJune 30, 2020 andDecember 31, 2019 , approximately$27 million and$33 million , respectively, of other debt primarily issued by certain non-U.S. subsidiaries and finance lease obligations were outstanding. Letter of credit facilities-In addition to the letters of credit issued under the Credit Agreement, Aptiv had approximately$2 million and$2 million outstanding through other letter of credit facilities as ofJune 30, 2020 andDecember 31, 2019 , respectively, 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. 70
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Operating activities-Net cash provided by operating activities totaled$55 million and$596 million for the six months endedJune 30, 2020 and 2019, respectively. Cash flows provided by operating activities for the six months endedJune 30, 2020 consisted primarily of net earnings of$1,202 million , increased by$384 million for non-cash charges for depreciation, amortization and pension costs, partially offset by$1,434 million for the non-cash gain resulting from the formation of the autonomous driving joint venture and$114 million related to changes in operating assets and liabilities, net of restructuring and pension contributions. Cash flows provided by operating activities for the six months endedJune 30, 2019 consisted primarily of net earnings of$516 million , increased by$386 million for non-cash charges for depreciation, amortization, pension costs and extinguishment of debt, partially offset by$340 million related to changes in operating assets and liabilities, net of restructuring and pension contributions. Investing activities-Net cash used in investing activities totaled$394 million for the six months endedJune 30, 2020 , as compared to$469 million for the six months endedJune 30, 2019 . The decrease in usage is primarily attributable to decreased capital expenditures of$79 million during the six months endedJune 30, 2020 as compared to the six months endedJune 30, 2019 . Financing activities-Net cash provided by financing activities totaled$1,840 million for the six months endedJune 30, 2020 and net cash used in financing activities totaled$315 million for the six months endedJune 30, 2019 . Cash flows provided by financing activities for the six months endedJune 30, 2020 primarily included$1,115 million and$1,115 million in proceeds from the public offering of ordinary and preferred shares, net of issuance costs, respectively, partially offset by$57 million paid to repurchase ordinary shares and$56 million of dividend payments. Cash flows used in financing activities for the six months endedJune 30, 2019 primarily included net proceeds of$641 million received from the issuance of the 2019 Senior Notes, which were utilized to redeem$650 million of the 3.15% Senior Notes, as well as$346 million paid to repurchase ordinary shares and$114 million of dividend payments, partially offset by$202 million in proceeds under other short-term debt agreements. 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 and six months endedJune 30, 2020 .
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