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 months ended
March 31, 2021 . 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 completed an initial public offering on
November 22, 2011 . On December 4, 2017 , 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. 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 mobility
architecture provider focused on solving the complex challenges associated with
safer, greener and more connected transportation. At the core of our
capabilities is the power, data, software and compute expertise that are
enabling a more sustainable future of mobility.
Executive Overview
Our Business
We are a leading global technology and mobility architecture 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 deliver end-to-end mobility solutions
enabling our customers' transition to more electrified, software-defined
vehicles. 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 months ended March 31, 2021 were $4.0
billion , an increase of 25% compared to the same period of 2020. Our overall
volumes increased 21% for the three months ended March 31, 2021 , reflecting
higher global automotive production levels despite the adverse impacts of the
current global supply chain disruptions on vehicle production schedules, as well
as the adverse impacts of the COVID-19 pandemic on sales volumes in the prior
year, particularly in China .
We are focused on maintaining a low fixed cost structure that provides us
flexibility to remain profitable at all points of the traditional vehicle
industry production cycle, including during periods of reduced industry volumes.
Accordingly, we will continue to adjust our cost structure and optimize our
manufacturing footprint in response to changes in the global and regional
automotive markets and in order to increase investment in advanced technologies
and engineering as conditions permit. As we operate in a cyclical industry that
is impacted by movements in the global and regional economies, we continually
evaluate opportunities to further refine our cost structure, as evidenced by our
ongoing restructuring programs focused on the continued rotation of our
manufacturing footprint to best cost locations and on reducing our global
overhead costs, as described in Note 7. Restructuring to the consolidated
financial statements contained herein. We believe our strong balance sheet
coupled with our flexible cost structure will position us to capitalize on
improvements in OEM production volumes as economic and pandemic conditions
improve.
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Trends, Uncertainties and Opportunities COVID-19 pandemic. The global spread of COVID-19, which originated in late 2019 and was later declared a pandemic by theWorld Health Organization inMarch 2020 , negatively impacted the global economy, disrupted supply chains and created significant volatility in global financial markets throughout much of 2020 with various indirect adverse impacts continuing in 2021. During 2020, the adverse impacts of the COVID-19 pandemic included 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 accounted for approximately 70% of our annual net sales during the year endedDecember 31, 2020 , as the pandemic spread to those regions and governmental authorities initiated "lock-down" orders for all non-essential activities. The work stoppages began to abate inChina inMarch 2020 , andNorth America and Europe OEM production restarted sporadically in the second quarter of 2020. During 2020, we took 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 and our ordinary share repurchase program, issuing$2.3 billion combined of preferred and ordinary shares, extending substantially all of our existing Credit Agreement's maturity toAugust 2022 , and actively managing costs, capital spending and working capital to further strengthen our liquidity. As ofMarch 31, 2021 , our ordinary share dividend and ordinary share repurchase program remain suspended. Despite our ongoing efforts to minimize the pandemic's direct and indirect adverse impacts, 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 and our supply chain, consumer demand and vehicle production schedules, and the actions of governmental authorities across the globe. We will continue to actively monitor all direct and indirect potential impacts of COVID-19, and will seek to aggressively mitigate and minimize their impact on our business. Global supply chain disruptions. Due to various factors, there are currently global supply chain disruptions, including a worldwide semiconductor supply shortage. The semiconductor supply shortage, due in part to increased demand across multiple industries, is impacting production in automotive and other industries. We anticipate these supply chain disruptions will persist throughout much of the remainder of 2021. We, along with most automotive component supply companies that use semiconductors, have been unable to fully meet the vehicle production demands of OEMs because of events which are outside our control, including but not limited to, the COVID-19 pandemic, the global semiconductor shortage, recent fires in our suppliers' facilities, unprecedented weather events in the southwesternUnited States , and other extraordinary events. Although we are working closely with suppliers and customers to minimize any potential adverse impacts of these events, some of our customers have indicated that they expect us to bear at least some responsibility for their lost production. While no assurances can be made as to the ultimate outcome of these customer expectations or any other future claims, we do not currently believe a loss is probable. We will continue to actively monitor all direct and indirect potential impacts of these supply chain disruptions, and will seek to aggressively mitigate and minimize their impact on our business. Commercializing the high-tech evolution of the automotive industry. The automotive industry is increasingly evolving towards the implementation of software-dependent components and solutions. In particular, the industry is focused on the development of advanced driver assistance technologies, with the goal of developing and introducing a commercially-viable, fully automated driving experience. We expect automated driving technologies will provide strong societal benefit as well as the opportunity for long-term growth for our product offerings in this space. We are focused on enabling and delivering end-to-end smart mobility solutions, enabling our customers' transition to more electrified, software-defined vehicles, and accelerating the commercialization of active safety and autonomous driving technologies and providing enhanced user experience and connected services. We are continuing to invest in the automated driving space, and have continued to develop market-leading automated driving platform solutions such as automated driving software, key active safety sensing technologies and our multi-domain controller, which fuses information from sensing systems as well as mapping and navigation data to make driving decisions. We believe we are well-aligned with industry technology trends that will result in sustainable future growth in this space, and have partnered with leaders in their respective fields to advance the pace of development and commercialization of these emerging technologies. In an effort to further our leadership position in the automated driving space, inMarch 2020 we completed the transaction withHyundai Motor Group ("Hyundai") to form a joint venture focused on the design, development and commercialization of autonomous driving technologies. The joint venture operates globally under the Motional brand name, and brings together one of the industry's most innovative vehicle technology providers with one of the world's largest OEMs. We expect this partnership to accelerate the path towards the development of production-ready autonomous driving systems for commercialization in the new mobility space. We believe that substantial strategic value will be created from our partnership with Hyundai through our commitment to a shared mission of making driverless vehicles a safe, reliable, and accessible reality. Furthermore, we anticipate Motional's 39
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presence in bothNorth America andAsia , along with the global presence of both Aptiv and Hyundai, to generate economies of scale to support the development of a complete autonomous driving platform, as well as to facilitate mobility infrastructure advancements. The Motional joint venture began testing fully driverless systems in 2020 and anticipates it will have a production-ready autonomous driving platform available for robotaxi providers, fleet operators and automotive manufacturers to test at prototype scale in 2022, with higher volumes available for deployment in 2023. In addition, Motional is involved in collaborative arrangements with mobility providers and with smart cities such asBoston andSingapore as solutions are developed for the evolving nature of the mobility industry. As a result of our substantial investments and strategic partnerships, we believe we are well-aligned with industry technology trends that will result in sustainable future growth in these evolving areas. However, there are many risks associated with these evolving areas, including the high development costs of active safety and autonomous driving technologies, the uncertain timing of customer and consumer adoption of these technologies, increased competition from entrants outside the traditional automotive industry and new and emerging regulations, such as the recently released federal guidance for automated driving systems published by 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. Economic conditions. Our business is directly related to automotive sales and automotive vehicle production by our customers. Automotive sales depend on a number of factors, including global and regional economic conditions. Global automotive vehicle production decreased 16% (19% on an Aptiv weighted market basis, which represents global vehicle production weighted to the geographic regions in which the Company generates its revenue, "AWM") from 2019 to 2020, representing automotive vehicle production declines across all major regions during 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 2020 decreased by 22% inEurope , 21% inNorth America , 3% inChina and 31% inSouth America , our smallest region. Compared to 2020, vehicle production in the first three months of 2021 increased by 14% (5% on an AWM basis) and is currently anticipated to increase modestly for the full year of 2021, reflecting the continued recovery of the industry from the adverse impacts of the COVID-19 pandemic. 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 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 years endedDecember 31, 2020 and 2019. Despite these vehicle production declines, which in 2020 were primarily driven by the adverse impacts of the COVID-19 pandemic, and the 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 this market will benefit from long-term demand for new 40
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vehicles and stringent governmental regulation driving increased vehicle content, including accelerated demand for electrified vehicles. Market driven products. Our product offerings satisfy the OEMs' needs to meet increasingly stringent government regulations and meet consumer preferences for products that address the mega-trends of Safe, Green and Connected, leading to increased content per vehicle, greater profitability and higher margins. With these offerings, we believe we are well-positioned to benefit from the growing demand for vehicle content and technology related to safety, electrification, high speed data, connectivity to the global information network and automated driving technologies. We are benefiting from the substantial increase in vehicle content, software and electrification that requires a complex and reliable electrical architecture and systems to operate, such as automated advanced driver assistance technologies, electrical vehicle monitoring, active safety systems, lane departure warning systems, integrated vehicle cockpit displays, navigation systems and technologies that enable connected infotainment in vehicles. Our ability to design a reliable electrical architecture that optimizes power distribution and/or consumption is key to satisfying the OEMs' needs to reduce emissions while continuing to meet consumer demand for increased vehicle content and technology. Global capabilities. Many OEMs are continuing to adopt global vehicle platforms to increase standardization, reduce per unit cost and increase capital efficiency and profitability. As a result, OEMs are selecting suppliers that have the capability to manufacture products on a worldwide basis, as well as the flexibility to adapt to regional variations. Suppliers with global scale and strong design, engineering and manufacturing capabilities are best positioned to benefit from this trend. Our global footprint enables us to serve the global OEMs on a worldwide basis as we gain market share with the emerging market OEMs. This regional model is structured primarily to service the North American market fromMexico , the South American market fromBrazil , the European market fromEastern Europe andNorth Africa and theAsia Pacific market fromChina , 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 in 2020 has had various direct and indirect adverse impacts on our global operations, the automotive industry and economies around the world. Most notably, the pandemic resulted in extended work stoppages and travel restrictions at our facilities and those of our customers and suppliers, decreases in consumer demand and vehicle production schedules, disruptions to our supply chain and other adverse global economic impacts, particularly those resulting from temporary governmental "lock-down" orders for all non-essential activities, initially in the first quarter inChina and subsequently inEurope ,North America andSouth America . Although certain of the adverse impacts of the pandemic abated during the second half of 2020, other direct and indirect adverse impacts continue, such as the overall supply chain disruptions and the global semiconductor supply shortage. These impacts continue to negatively affect the global economy and automotive industry, and we anticipate they will persist throughout much of the remainder of 2021. As a result, 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, our supply chain, consumer demand and vehicle production schedules, and the actions of governmental authorities across the globe. 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. 41
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To compete effectively in the automotive technology and components industry, we must be able to develop and launch new products to meet our customers' demands in a timely manner. Our innovative technologies and robust global engineering and development capabilities have us well positioned to meet the increasingly stringent vehicle manufacturer demands and consumer preferences for high-technology content in automobiles. OEMs are increasingly looking to their suppliers to simplify vehicle design and assembly processes to reduce costs and weight. As a result, suppliers that sell vehicle components directly to manufacturers (Tier I suppliers) have assumed many of the design, engineering, research and development and assembly functions traditionally performed by vehicle manufacturers. Suppliers that can provide fully-engineered solutions, systems and pre-assembled combinations of component parts are positioned to leverage the trend toward system sourcing. Engineering, design and development. Our history and culture of innovation have enabled us to develop significant intellectual property and design and development expertise to provide advanced technology solutions that meet the demands of our customers. We have a team of approximately 18,200 scientists, engineers and technicians focused on developing leading product solutions for our key markets, located at 12 major technical centers inChina ,Germany ,India ,Mexico ,Poland ,Singapore andthe United States . We invest approximately$1.3 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 7,700 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 fragmented and serves a limited number of automotive OEMs. Our profitability depends in part on our ability to generate sufficient production cost savings in the future to offset price reductions. We are focused on maintaining a low fixed cost structure that provides us flexibility to remain profitable at all points of the traditional vehicle industry production cycle. As a result, approximately 97% of our hourly workforce is located in best cost countries. Furthermore, we have substantial operational flexibility by leveraging a large workforce of temporary workers, which represented approximately 21% of the hourly workforce as ofMarch 31, 2021 . 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$4.0 billion and substantial available liquidity of approximately$5.4 billion as ofMarch 31, 2021 , 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 Credit Agreement'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. As further described in Note 12. Shareholders' and Net Income Per Share to the audited consolidated financial statements included herein, we also issued$2.3 billion combined of preferred and ordinary shares during 2020. We intend to maintain strong financial discipline by targeting industry-leading earnings growth, cash flow generation and return on invested capital and to maintain sufficient liquidity to sustain our financial flexibility throughout the industry cycle. 42
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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 OEMs and suppliers is expected to continue as these companies seek to achieve operating synergies and value stream efficiencies, acquire complementary technologies and build stronger customer relationships. For example, inJanuary 2021 ,Fiat Chrysler Automobiles N.V. and PSA Peugeot Citroën executed a merger agreement to form a new, combined company, ("Stellantis") which will represent the world's fourth largest OEM. Additionally, new entrants from outside the traditional automotive industry may seek to gain access to certain vehicle component markets. We believe companies with strong balance sheets and financial discipline are in the best position to take advantage of the industry consolidation trend. Consolidated Results of Operations 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. Due to various factors, the industry is also facing increased operating and logistics challenges from certain global supply chain disruptions, including a worldwide semiconductor supply shortage. We will continue to work with our customers and suppliers to mitigate the impact of these inflationary and other 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. 43
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Three Months EndedMarch 31, 2021 versus Three Months EndedMarch 31, 2020 The results of operations for the three months endedMarch 31, 2021 and 2020 were as follows: Three Months Ended March 31, 2021 2020 Favorable/(unfavorable) (dollars in millions) Net sales$ 4,023 $ 3,226 $ 797 Cost of sales 3,296 2,725 (571) Gross margin 727 18.1% 501 15.5% 226 Selling, general and administrative 255 252 (3) Amortization 37 36 (1) Restructuring 6 28 22 Gain on autonomous driving joint venture - (1,434) (1,434) Operating income 429 1,619 (1,190) Interest expense (40) (43) 3 Other income (expense), net 1 (1) 2 Income before income taxes and equity (loss) income 390 1,575 (1,185) Income tax expense (48) (10) (38) Income before equity (loss) income 342 1,565 (1,223) Equity (loss) income, net of tax (42) 2 (44) Net income 300 1,567 (1,267) Net income (loss) attributable to noncontrolling interest 5 (5) 10 Net income attributable to Aptiv 295 1,572 (1,277) Mandatory convertible preferred share dividends (16) - (16) Net income attributable to ordinary shareholders$ 279 $ 1,572 $ (1,293) Total Net Sales Below is a summary of our total net sales for the three months endedMarch 31, 2021 versus 2020. Three Months Ended March 31, Variance Due To: Volume, net of contractual price Commodity 2021 2020 Favorable/(unfavorable) reductions FX pass-through Other Total (in millions) (in millions) Total net sales$ 4,023 $ 3,226 $ 797 $ 629$ 122 $ 46 $ -$ 797 Total net sales for the three months endedMarch 31, 2021 increased 25% compared to the three months endedMarch 31, 2020 . Our overall volumes increased 21% for the period, reflecting higher global automotive production levels despite the adverse impacts of the current global supply chain disruptions on vehicle production schedules, as well as the adverse impacts of the COVID-19 pandemic on sales volumes during the three months endedMarch 31, 2020 , particularly inChina . Our total net sales also reflect favorable foreign currency impacts, primarily related to the Euro and Chinese Yuan Renminbi, and contractual price reductions. 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 increased$571 million for the three months endedMarch 31, 2021 compared to the three months endedMarch 31, 2020 , as summarized below. The Company's material cost of sales was approximately 50% of net sales in both the three months endedMarch 31, 2021 and 2020. 44
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Three Months Ended March 31, Variance Due To:
Operational
2021 2020 Favorable/(unfavorable) Volume (a) FX performance Other Total
(dollars in millions) (in millions)
Cost of sales $ 3,296 $ 2,725 $ (571) $ (406) $ (109) $ 26 $ (82) $ (571)
Gross margin $ 727 $ 501 $ 226 $ 223 $ 13 $ 26 $ (36) $ 226
Percentage of net sales 18.1 % 15.5 %
(a)Presented net of contractual price reductions for gross margin variance.
The increase in cost of sales reflects increased volumes and the impacts from
currency exchange, partially offset by operational performance improvements.
Cost of sales was also impacted by the following items in Other above:
•Approximately $45 million of costs related to the global supply chain
disruptions, primarily due to the worldwide semiconductor supply shortage; and
•$46 million of increased commodity pass-through costs; and
•$13 million of increased depreciation and amortization, primarily as a result
of a higher fixed asset base; partially offset by
•Decreased expense of approximately $35 million , primarily due to decreased
engineering expenses as a result of the formation of the Motional autonomous
driving joint venture with Hyundai in March 2020 , which is now accounted for
under the equity method of accounting.
Selling, General and Administrative Expense
Three Months Ended
Favorable/
2021 2020 (unfavorable)
(dollars in millions)
Selling, general and administrative expense $ 255 $ 252 $ (3)
Percentage of net sales 6.3 % 7.8 %
Selling, general and administrative expense ("SG&A") includes administrative
expenses, information technology costs and incentive compensation related costs.
SG&A decreased as a percentage of net sales for the three months ended March 31,
2021 as compared to 2020, primarily due to decreased SG&A expenses as a result
of the March 2020 formation of the Motional autonomous driving joint venture
with Hyundai, which is now accounted for under the equity method of accounting
and the adverse impacts of the COVID-19 pandemic during the three months ended
March 31, 2020 , partially offset by increased incentive compensation costs.
Amortization
Three Months Ended March 31,
Favorable/
2021 2020 (unfavorable)
(in millions)
Amortization $ 37 $ 36 $ (1)
Amortization expense reflects the non-cash charge related to definite-lived
intangible assets. The consistency in amortization during the three months ended
March 31, 2021 compared to 2020 reflects the continued amortization of our
definite-lived intangible assets, which resulted primarily from our
acquisitions, over their estimated useful lives. Refer to Note 17. Acquisitions
and Divestitures to the consolidated financial statements contained herein for
further detail of our business acquisitions, including details of the intangible
assets recorded in each transaction.
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Restructuring
Three Months Ended March 31,
Favorable/
2021 2020 (unfavorable)
(dollars in millions)
Restructuring $ 6 $ 28 $ 22
Percentage of net sales 0.1 % 0.9 %
The Company recorded employee-related and other restructuring charges totaling
approximately $6 million during the three months ended March 31, 2021 . We expect
to make cash payments of approximately $60 million over the next twelve months
pursuant to currently implemented restructuring programs.
The Company recorded employee-related and other restructuring charges totaling
approximately $28 million during the three months ended March 31, 2020 , of which
$11 million was recognized for programs implemented in the European region,
pursuant to the Company's ongoing overhead cost reduction strategy.
We expect to continue to incur additional restructuring expense in 2021 and
beyond, primarily related to programs focused on the continued rotation of our
manufacturing footprint to best cost locations in Europe and on reducing global
overhead costs, which includes approximately $30 million (of which approximately
$15 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 March 31, 2021 . Additionally, as we continue to operate
in a cyclical industry that is impacted by movements in the global and regional
economies, we continually evaluate opportunities to further adjust our cost
structure and optimize our manufacturing footprint. The Company plans to
implement additional restructuring activities in the future, if necessary, in
order to align manufacturing capacity and other costs with prevailing regional
automotive production levels and locations, to improve the efficiency and
utilization of other locations and in order to increase investment in advanced
technologies and engineering. Such future restructuring actions are dependent on
market conditions, customer actions and other factors.
Refer to Note 7. Restructuring to the consolidated financial statements
contained herein for additional information.
Interest Expense
Three Months Ended March 31,
Favorable/
2021 2020 (unfavorable)
(in millions)
Interest expense $ 40 $ 43 $ 3
Refer to Note 8. Debt to the consolidated financial statements contained herein for additional information.
Other Income, Net
Three Months Ended March 31,
Favorable/
2021 2020 (unfavorable)
(in millions)
Other income (expense), net $ 1 $ (1) $ 2
Refer to Note 16. Other Income, net to the consolidated financial statements contained herein for additional information.
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Income Taxes
Three Months Ended March 31,
Favorable/
2021 2020 (unfavorable)
(in millions)
Income tax expense $ 48 $ 10 $ (38)
The Company's tax rate is affected by the fact that its parent entity is an
Irish resident taxpayer, the tax rates in Ireland and other jurisdictions in
which the Company operates, the relative amount of income earned by jurisdiction
and the relative amount of losses or income for which no tax benefit or expense
was recognized due to a valuation allowance. The Company's effective tax rate is
also impacted by the receipt of certain tax incentives and holidays that reduce
the effective tax rate for certain subsidiaries below the statutory rate.
The Company's effective tax rate for the three months ended March 31, 2021 also
includes net discrete tax benefits of $1 million , primarily related to changes
in accruals for unremitted earnings and provision to return adjustments. The
effective tax rate for the three months ended March 31, 2020 includes net
discrete tax benefits of $3 million , 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 three months
ended March 31, 2020 is the beneficial impact from the gain on the formation of
the Motional autonomous driving joint venture. The tax expense associated with
the gain was insignificant as Aptiv's aggregate autonomous driving assets were
exempt from capital gains tax in the jurisdiction from which they were sold. The
aggregate autonomous driving assets had been acquired, purchased or developed in
taxable transactions in prior periods and reflect changes made to the corporate
entity operating structure for intellectual property following the Separation of
its former Powertrain Systems segment. Refer to Note 11. Income Taxes to the
consolidated financial statements contained herein for additional information.
Equity Income
Three Months Ended March 31,
Favorable/
2021 2020 (unfavorable)
(in millions)
Equity (loss) income, net of tax $ (42) $ 2 $ (44)
Equity (loss) income, net of tax reflects the Company's interest in the results of ongoing operations of entities accounted for as equity method investments. The equity loss, net of tax, recognized by Aptiv during the three months endedMarch 31, 2021 includes$45 million attributable to the Motional autonomous driving joint venture formed inMarch 2020 with Hyundai, as further described in Note 17. Acquisitions and Divestitures to the consolidated financial statements contained herein. Results of Operations by Segment We operate our core business along the following operating segments, which are grouped on the basis of similar product, market and operating factors: •Signal and Power Solutions, which includes complete electrical architecture and component products. •Advanced Safety and User Experience, which includes component and systems integration expertise in advanced safety, user experience and connectivity and security solutions, as well as advanced software development and autonomous driving technologies. •Eliminations and Other, which includes i) the elimination of inter-segment transactions, and ii) certain other expenses and income of a non-operating or strategic nature. Our management utilizes segment Adjusted Operating Income as the key performance measure of segment income or loss to evaluate segment performance, and for planning and forecasting purposes to allocate resources to the segments, as management believes this measure is most reflective of the operational profitability or loss of our operating segments. Segment Adjusted Operating Income should not be considered a substitute for results prepared in accordance withU.S. GAAP and should not be considered an alternative to net income attributable to Aptiv, which is the most directly comparable financial measure to Adjusted Operating Income that is prepared in accordance withU.S. GAAP. Segment Adjusted Operating Income, as determined and measured by Aptiv, should also not be compared to similarly titled measures reported by other companies. 47
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The reconciliation of Adjusted Operating Income to operating income includes, as applicable, restructuring, other acquisition and portfolio project costs (which includes costs incurred to integrate acquired businesses and to plan and execute product portfolio transformation actions, including business and product acquisitions and divestitures), asset impairments, gains (losses) on business divestitures and other transactions and deferred compensation related to acquisitions. The reconciliations of Adjusted Operating Income to net income attributable to Aptiv for the three months endedMarch 31, 2021 and 2020 are as follows: Advanced Safety and Signal and Power User Eliminations and Solutions Experience Other Total (in millions) For the Three Months EndedMarch 31, 2021 : Adjusted operating income $ 371$ 66 $ -$ 437 Restructuring 2 (8) - (6) Other acquisition and portfolio project costs (1) (1) - (2) Operating income $ 372$ 57 $ - 429 Interest expense (40) Other income, net 1 Income before income taxes and equity loss 390 Income tax expense (48) Equity loss, net of tax (42) Net income 300 Net income attributable to noncontrolling interest 5 Net income attributable to Aptiv$ 295 Advanced Safety Signal and Power and User Eliminations and Solutions Experience Other Total (in millions) For the Three Months EndedMarch 31, 2020 : Adjusted operating income $ 225 $ 6 $ -$ 231 Restructuring (19) (9) - (28) Other acquisition and portfolio project costs (7) (7) - (14) Deferred compensation related to acquisitions - (4) - (4) Gain on business divestitures and other transactions - 1,434 - 1,434 Operating income $ 199$ 1,420 $ - 1,619 Interest expense (43) Other expense, net (1) Income before income taxes and equity income 1,575 Income tax expense (10) Equity income, net of tax 2 Net income 1,567 Net loss attributable to noncontrolling interest (5) Net income attributable to Aptiv$ 1,572 48
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Net sales, gross margin as a percentage of net sales and Adjusted Operating Income by segment for the three months endedMarch 31, 2021 and 2020 are as follows:Net Sales by Segment Three Months Ended March 31, Variance Due To: Volume, net of contractual price Commodity 2021 2020 Favorable/(unfavorable) reductions FX pass-through Other Total (in millions) (in millions) Signal and Power Solutions$ 3,022 $ 2,330 $ 692 $ 544$ 102 $ 46 $ -$ 692 Advanced Safety and User Experience 1,011 902 109 88 21 - - 109 Eliminations and Other (10) (6) (4) (3) (1) - - (4) Total$ 4,023 $ 3,226 $ 797 $ 629$ 122 $ 46 $ -$ 797
Gross Margin Percentage by Segment
Three Months Ended March 31,
2021 2020
Signal and Power Solutions 20.0 % 18.6 %
Advanced Safety and User Experience 12.2 % 7.4 %
Eliminations and Other - % - %
Total 18.1 % 15.5 %
Adjusted Operating Income by Segment
Three Months Ended March 31, Variance Due To:
Volume, net of
contractual price Operational
2021 2020 Favorable/(unfavorable) reductions performance Other Total
(in millions) (in millions)
Signal and Power Solutions $ 371 $ 225 $ 146 $ 201 $ 2 $ (57) $ 146
Advanced Safety and User
Experience 66 6 60 22 20 18 60
Eliminations and Other - - - - - - -
Total $ 437 $ 231 $ 206 $ 223 $ 22 $ (39) $ 206
As noted in the table above, Adjusted Operating Income for the three months
ended March 31, 2021 as compared to the three months ended March 31, 2020 was
impacted by volume and contractual price reductions, including product mix, and
operational performance improvements, as well as the following items included
within Other in the table above:
•Approximately $45 million of costs related to the global supply chain
disruptions, primarily due to the worldwide semiconductor supply shortage; and
•$13 million of increased depreciation and amortization, not including the
impact of asset impairments, primarily as a result of a higher fixed asset base;
and
•$7 million of increased SG&A expense, not including the impact of other
acquisition and portfolio project costs, primarily as a result of increased
incentive compensation costs; partially offset by
•Decreased expense of approximately $40 million , primarily due to decreased
engineering and SG&A expenses as a result of the formation of the Motional
autonomous driving joint venture with Hyundai in March 2020 , which is now
accounted for under the equity method of accounting.
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Liquidity and Capital Resources Overview of Capital Structure Our liquidity requirements are primarily to fund our business operations, including capital expenditures and working capital requirements, as well as to fund debt service requirements and operational restructuring activities. Our primary sources of liquidity are cash flows from operations, our existing cash balance, and as necessary and available, borrowings under credit facilities and issuance of long-term debt and equity. To the extent we generate discretionary cash flow we may consider using this additional cash flow for optional prepayments of existing indebtedness, strategic acquisitions or investments, and/or general corporate purposes. We will also continually explore ways to enhance our capital structure. As ofMarch 31, 2021 , we had cash and cash equivalents of$2.8 billion and net debt (defined as outstanding debt less cash and cash equivalents) of$1.2 billion . The following table summarizes our available liquidity, which includes cash, cash equivalents and funds available under our significant committed credit facilities, as ofMarch 31, 2021 . The amounts disclosed as available under the Company's significant committed credit facilities are available without violating our existing debt covenants, which are described below. March 31, 2021 (in millions) Cash and cash equivalents$ 2,830 Revolving Credit Facility, unutilized portion (1) 2,000 Committed European accounts receivable factoring facility, unutilized portion (2) 529 Total available liquidity$ 5,359 (1)Availability reduced by less than$1 million in letters of credit issued under the Credit Agreement as ofMarch 31, 2021 . (2)Based onMarch 31, 2021 foreign currency rates, subject to the availability of eligible accounts receivable. Despite the current global economic impacts and uncertainty resulting from the ongoing COVID-19 pandemic and its direct and indirect impacts on global vehicle production, we currently expect existing cash, available liquidity and cash flows from operations to continue to be sufficient to fund our global operating activities, including restructuring payments, any mandatory payments required under the Credit Agreement as described below, dividends on preferred shares and capital expenditures. We also continue to expect to be able to move funds between different countries to manage our global liquidity needs without material adverse tax implications, subject to current monetary policies and the terms of the Credit Agreement. We utilize a combination of strategies, including dividends, cash pooling arrangements, intercompany loan repayments and other distributions and advances to provide the funds necessary to meet our global liquidity needs. There are no significant restrictions on the ability of our subsidiaries to pay dividends or make other distributions to Aptiv. As ofMarch 31, 2021 , the Company's cash and cash equivalents held by our non-U.S. subsidiaries totaled approximately$2.8 billion . If additional non-U.S. cash was needed for ourU.S. operations, we may be required to accrue and pay withholding if we were to distribute such funds from non-U.S. subsidiaries to theU.S. ; however, based on our current liquidity needs and strategies, we do not anticipate a need to accrue and pay such additional amounts. 2020 Public Equity Offering InJune 2020 , the Company completed the underwritten public offering of approximately 15.1 million ordinary shares at a price of$75.91 per share (the "Ordinary Share Offering"), resulting in net proceeds of approximately$1,115 million , after deducting expenses and the underwriters' discount of$35 million . Simultaneously, the Company completed the underwritten public offering of 11.5 million 5.50% Mandatory Convertible Preferred Shares, Series A,$0.01 par value per share (the "MCPS") with a liquidation preference of$100 per share (the "MCPS Offering"), resulting in net proceeds of approximately$1,115 million , after deducting expenses and the underwriters' discount of$35 million . The Company intends to use the net proceeds from the Ordinary Share Offering and MCPS Offering for general corporate purposes, which may include funding potential future investments (including acquisitions), capital expenditures, working capital, repayment of outstanding indebtedness, and the satisfaction of other obligations. Each share of MCPS will mandatorily convert on the mandatory conversion date ofJune 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 50
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March 15 ,June 15 ,September 15 andDecember 15 of each year (commencing onSeptember 15, 2020 to, and includingJune 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 precedingMarch 1 ,June 1 ,September 1 orDecember 1 , respectively. Refer to Note 12. Shareholders' Equity and Net Income Per Share to the consolidated financial statements contained herein for further detail on theJune 2020 public equity offering. Share Repurchases InApril 2016 , the Board of Directors authorized a share repurchase program of up to$1.5 billion of ordinary shares, which commenced inSeptember 2016 . This share repurchase program provides for share purchases in the open market or in privately negotiated transactions, depending on share price, market conditions and other factors, as determined by the Company. There were no shares repurchased during the three months endedMarch 31, 2021 . A summary of the ordinary shares repurchased during the three months endedMarch 31, 2020 is as follows: Total number of shares repurchased 1,059,075 Average price paid per share$ 53.73 Total (in millions)$ 57 As ofMarch 31, 2021 , approximately$13 million of share repurchases remained available under theApril 2016 share repurchase program, which is in addition to the share repurchase program of up to$2.0 billion that was previously announced inJanuary 2019 . This program, which will commence following the completion of theApril 2016 share repurchase program, provides for share purchases in the open market or in privately negotiated transactions, depending on share price, market conditions and other factors, as determined by the Company. All repurchased shares were retired, and are reflected as a reduction of ordinary share capital for the par value of the shares, with the excess applied as reductions to additional paid-in-capital and retained earnings. Although both theApril 2016 and the additional share repurchase program remain authorized, the Company is restricted from executing further share repurchases under the terms of theMay 2020 Amendment to the Credit Agreement for as long as the Covenant Relief Period remains in effect, as further described in Note 8. Debt. Furthermore, in order to preserve liquidity during the COVID-19 pandemic crisis, the Company does not anticipate executing further share repurchases until such time as the global economic uncertainties and business impacts resulting from the pandemic have abated. Dividends In the first quarter of 2021, the Board of Directors declared and paid a quarterly cash dividend of approximately$1.38 per MCPS. Under the terms of theMay 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 and Other Transactions Dynawave-OnAugust 4, 2020 , Aptiv acquired 100% of the equity interests ofDynawave Inc. ("Dynawave"), a specialized manufacturer of custom-engineered interconnect solutions for a wide range of industries, for total consideration of$22 million . The acquisition was accounted for as a business combination, with the operating results of Dynawave included within the Company's Signal and Power Solutions segment. The Company acquired Dynawave utilizing cash on hand. Ulti-Mate-OnApril 30, 2021 , Aptiv acquired 100% of the equity interests ofUlti-Mate Connector, Inc. ("Ulti-Mate"), a manufacturer of miniature and micro-miniature connectors and cable assemblies, for approximately$45 million , subject to customary post-closing adjustments, which will primarily be allocated to goodwill and other intangible assets. The acquisition will be accounted for as a business combination, with the operating results of Ulti-Mate included within the Company's Signal and Power Solutions segment from the date of acquisition. The Company acquired Ulti-Mate utilizing cash on hand. Technology Investments-InApril 2021 , Innoviz Technologies ("Innoviz") merged with a publicly tradedSpecial Purpose Acquisition Company ("SPAC") and shares of Innoviz began trading on the Nasdaq Capital Market under the symbol INVZ. As part of theSPAC merger, our preferred shares in Innoviz were converted into Innoviz ordinary shares. Following this conversion, the Company will measure the fair value of the Innoviz investment on a recurring basis, with changes in fair value recorded to other income (expense), net. 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. 51
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Autonomous Driving Joint Venture OnMarch 26, 2020 , Aptiv completed the transaction withHyundai Motor Group ("Hyundai") to form a joint venture focused on the design, development and commercialization of autonomous driving technologies. The joint venture operates globally under the Motional brand name. Under the terms of the agreement, Aptiv contributed to the joint venture autonomous driving technology, intellectual property and approximately 700 employees for a 50% ownership interest in the entity. Hyundai contributed to the joint venture approximately$1.6 billion in cash, along with vehicle engineering services, research and development resources and access to intellectual property for a 50% ownership interest in the entity. As a result, subsequent to the closing of the transaction, the joint venture is expected to fund all of its future operating expenses and investments in autonomous driving technologies for the foreseeable future. Consequently, Aptiv is no longer required to fund these investments and expenses, which approximated$180 million for the year 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$5.63 per diluted share during the three months endedMarch 31, 2020 ), net of transaction costs of$22 million , based on the difference between the carrying value of its contribution to the joint venture and the preliminary fair value of its investment in the newly formed entity. The estimated fair value of Aptiv's ownership interest in the joint venture was determined primarily based on third-party valuations and management estimates, generally utilizing income and market approaches. Determining the fair value of the joint venture and the underlying assets requires the use of management's judgment and involves significant estimates and assumptions with respect to the timing and amount of future cash flows, market rate assumptions, projected growth rates and margins, and appropriate discount rates, among other items. The estimated fair value was determined on a preliminary basis using information available in the first quarter of 2020 and was finalized in the first quarter of 2021. The effects of this transaction would not materially impact the Company's reported results for any period presented, and the transaction did not meet the criteria to be reflected as a discontinued operation. In connection with the closing of the transaction, Aptiv and the entity entered into various agreements to facilitate an orderly transition and to provide a framework for their relationship going forward, which included a transition services agreement. The transition services primarily involve Aptiv providing certain administrative services to the joint venture for a period of up to 24 months after the closing date. These agreements are not material to Aptiv. The Company's investment in the joint venture is accounted for using the equity method of accounting and Aptiv recognized an equity loss of$45 million and$1 million , net of tax, during the three months endedMarch 31, 2021 and 2020, respectively. 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 . 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. During the year endedDecember 31, 2020 ,Aptiv Global Financing Limited ("AGFL"), a wholly-owned Irish subsidiary ofAptiv PLC , executed a joinder agreement to the Credit Agreement, which allows it to act as a borrower under the Credit Agreement, and a guaranty supplement, under which AGFL guarantees the obligations under the Credit Agreement, subject to certain exceptions set forth in the Credit Agreement. Aptiv is obligated to make quarterly principal payments throughout the term of the Tranche A Term Loan, according to the amortization schedule in the Credit Agreement. The Credit Agreement also contains an accordion feature that permits Aptiv 52
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to increase, from time to time, the aggregate borrowing capacity under the Credit Agreement by up to an additional$1 billion upon Aptiv's request, the agreement of the lenders participating in the increase, and the approval of the Administrative Agent and existing lenders. As ofMarch 31, 2021 , there were no amounts drawn on 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. No amounts were drawn on the Revolving Credit Facility during the three months endedMarch 31, 2021 . 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: March 31, 2021 December 31, 2020 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 % 1.40 % 0.40 % Tranche A Term Loan (1) 1.25 % 0.25 % 1.25 % 0.25 % Tranche A Term Loan (2) 1.75 % 0.75 % 1.75 % 0.75 % (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 ofMarch 31, 2021 , Aptiv selected the one-month LIBOR interest rate option on the Tranche A Term Loan, and the rates effective as ofMarch 31, 2021 , as detailed in the table below, were based on the Company's current credit rating and the Applicable Rate for the Credit Agreement: Borrowings as of March 31, 2021 Rates effective as of Applicable Rate (in millions) March 31, 2021 Tranche A Term Loan (1) LIBOR plus 1.25% $ 49 1.375 % Tranche A Term Loan (2) LIBOR plus 1.75% $ 264 1.875 % (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 not more than 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 ofMarch 31, 2021 . As ofMarch 31, 2021 , 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. 53
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Senior Unsecured Notes
As of
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
823 1.50% March 2015 March 2025 March 10
650 4.25% November 2015 January 2026 January 15 and July 15
588 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 of
March 31, 2021 , the Company was in compliance with the provisions of all series
of the outstanding senior notes. Refer to Note 8. Debt to the consolidated
financial statements contained herein for additional information.
Guarantor Summarized Financial Information
As further described in Note 8. Debt to the consolidated financial statements
contained herein, Aptiv Corporation issued the 2014 Senior Notes and is the
borrower of obligations under the Credit Agreement, which are fully and
unconditionally guaranteed by Aptiv PLC and certain of Aptiv PLC's direct and
indirect subsidiaries (the "Obligor Group "). Aptiv PLC issued the 2015
Euro-denominated Senior Notes, 4.25% Senior Notes, 2016 Euro-denominated Senior
Notes, 2016 Senior Notes and 2019 Senior Notes, which are fully and
unconditionally guaranteed by the Obligor Group . All other consolidated direct
and indirect subsidiaries of Aptiv PLC are not subject to the guarantees (the
"Non-Guarantors"). The guarantees rank equally in right of payment with all of
the guarantors' existing and future senior indebtedness, are effectively
subordinated to any of their existing and future secured indebtedness to the
extent of the value of the collateral securing such indebtedness and are
structurally subordinated to the indebtedness of each of their existing and
future subsidiaries that is not a guarantor.
The below summarized financial information is presented on a combined basis
after the elimination of intercompany balances and transactions among the
Obligor Group and equity in earnings from and investments in the Non-Guarantors.
The below summarized financial information should be read in conjunction with
the Company's 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.
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Obligor Group
Three Months Ended
$ -
Gross margin $ -
Operating income $ 34
Net loss $ (6)
Net loss attributable to Aptiv $ (6)
As of March 31, 2021 :
Current assets (1) $ 219
Long-term assets $ 1
Current liabilities (2) $ 955
Long-term liabilities (2) $ 4,160
Noncontrolling interest $ -
As of December 31, 2020
Current assets (1) $ 377
Long-term assets $ 1
Current liabilities (2) $ 913
Long-term liabilities (2) $ 4,223
Noncontrolling interest $ -
(1)Includes current assets of $217 million and $370 million as of March 31, 2021
and December 31, 2020 , respectively, due from Non-Guarantors, which includes
amounts due from affiliates of $1 million and $6 million , respectively.
(2)Includes current liabilities of $864 million and $785 million , and long-term
liabilities of $226 million and $226 million , due to Non-Guarantors as of
March 31, 2021 and December 31, 2020 , respectively.
Other Financing
Receivable factoring-Aptiv maintains a €450 million European accounts receivable
factoring facility that is available on a committed basis and allows for
factoring of receivables denominated in both Euros and U.S. dollars ("USD").
This facility became effective on January 1, 2021 and replaced Aptiv's previous
€300 million European accounts receivable factoring facility. This facility is
accounted for as short-term debt and borrowings are subject to the availability
of eligible accounts receivable. Collateral is not required related to these
trade accounts receivable. The program is for a term of three years, subject to
Aptiv's right to terminate at any time with three months' notice. After
expiration of the three year term, either party can terminate with three months'
notice. Borrowings denominated in Euros under the facility bear interest at the
three-month Euro Interbank Offered Rate ("EURIBOR") plus 0.50% and USD
borrowings bear interest at two-month LIBOR plus 0.50%, with borrowings under
either denomination carrying a minimum interest rate of 0.20%. As of March 31,
2021 , Aptiv had no amounts drawn on the new European accounts receivable
factoring facility and as of December 31, 2020 , Aptiv had no amounts outstanding
on the previous European accounts receivable factoring facility. No amounts were
drawn under the European accounts receivable factoring facility during the three
months ended March 31, 2021 .
Finance leases and other-As of March 31, 2021 and December 31, 2020 ,
approximately $23 million and $28 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 $3 million and $2 million
outstanding through other letter of credit facilities as of March 31, 2021 and
December 31, 2020 , 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
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pooling arrangement to consolidate and manage our global cash balances, which enables us to efficiently move cash into and out of a number of the countries in which we operate. Operating activities-Net cash provided by operating activities totaled$252 million and$161 million for the three months endedMarch 31, 2021 and 2020, respectively. Cash flows provided by operating activities for the three months endedMarch 31, 2021 consisted primarily of net earnings of$300 million , increased by$203 million for non-cash charges for depreciation, amortization and pension costs partially offset by$328 million related to changes in operating assets and liabilities, net of restructuring and pension contributions. Cash flows provided by operating activities for the three months endedMarch 31, 2020 consisted primarily of net earnings of$1,567 million , increased by$190 million for non-cash charges for depreciation, amortization and pension costs, offset by$1,434 million for the non-cash gain resulting from the formation of the Motional autonomous driving joint venture and$142 million related to changes in operating assets and liabilities, net of restructuring and pension contributions. Investing activities-Net cash used in investing activities totaled$134 million for the three months endedMarch 31, 2021 , as compared to$207 million for the three months endedMarch 31, 2020 . The decrease in usage is primarily attributable to decreased capital expenditures of$71 million during the three months endedMarch 31, 2021 as compared to the three months endedMarch 31, 2020 . Financing activities-Net cash used in financing activities totaled$77 million for the three months endedMarch 31, 2021 and net cash provided by financing activities totaled$1,720 million for the three months endedMarch 31, 2020 . Cash flows used in financing activities for the three months endedMarch 31, 2021 primarily included$16 million in repayments under debt agreements and$16 million of MCPS dividend payments. Cash flows provided by financing activities for the three months endedMarch 31, 2020 primarily included$1,900 million in proceeds under other long-term debt agreements, as the Company drew down all remaining availability under its existing Revolving Credit Facility in response to the COVID-19 pandemic, partially offset by$57 million paid to repurchase ordinary shares and$56 million of ordinary dividend payments. Off-Balance Sheet Arrangements We do not engage in any off-balance sheet financial arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. Contingencies and Environmental Matters The information concerning contingencies, including environmental contingencies and the amount currently held in reserve for environmental matters, contained in Note 10. Commitments and Contingencies to the unaudited consolidated financial statements included in Part I, Item 1 of this report is incorporated herein by reference. Recently Issued Accounting Pronouncements The information concerning recently issued accounting pronouncements contained in Note 2. Significant Accounting Policies to the unaudited consolidated financial statements included in Part I, Item 1 of this report is incorporated herein by reference. Critical Accounting Estimates There have been no significant changes in our critical accounting estimates during the three months endedMarch 31, 2021 .
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