Aptiv PLC — FY 2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017. Although the request identifies Q4 2017, this filing reports annual results and includes unaudited quarterly data. Unless noted, financial amounts are U.S. dollars.
Business context and reporting period
Aptiv designs and manufactures automotive electrical architecture, vehicle electronics, active-safety and related technology. Its continuing operations comprise Signal and Power Solutions and Advanced Safety and User Experience. On December 4, 2017, Aptiv spun off its former Powertrain Systems segment as Delphi Technologies; historical Powertrain results are presented as discontinued operations. The company changed its name from Delphi Automotive PLC to Aptiv PLC and its NYSE ticker to APTV.
Key financial metrics
| Metric | FY 2017 | FY 2016 |
|---|---|---|
| Net sales | $12.884 billion | $12.274 billion |
| Gross profit / margin | $2.614 billion / 20.3% | $2.747 billion / 22.4% |
| Operating income | $1.416 billion | $1.539 billion |
| Adjusted operating income / margin | $1.594 billion / 12.4% | $1.623 billion / 13.2% |
| Income from continuing operations | $1.063 billion | $868 million |
| Net income attributable to Aptiv | $1.355 billion | $1.257 billion |
| Diluted EPS attributable to Aptiv | $5.06 | $4.59 |
| Cash from continuing operating activities | $1.106 billion | $1.494 billion |
| Capital expenditures | $698 million | $657 million |
| Cash and cash equivalents at year-end | $1.596 billion | $737 million |
| Total debt at year-end | $4.149 billion | $3.963 billion |
At year-end, net debt was approximately $2.6 billion. Available liquidity was $3.949 billion, including $1.596 billion cash, $1.993 billion unused under the $2.0 billion revolving facility, and $360 million unused under the committed European receivables facility. Aptiv reported compliance with its debt covenants, including a maximum consolidated leverage ratio of 3.50 to 1.0. Working capital, defined in the filing as receivables plus inventory less accounts payable, was $1.296 billion.
Segment sales were $9.507 billion for Signal and Power Solutions and $3.446 billion for Advanced Safety and User Experience. Their adjusted operating income was $1.302 billion and $292 million, respectively.
Material changes versus the prior comparable period
- Sales rose 5%, outpacing reported global vehicle production growth of 3%. Volume growth and favorable foreign exchange contributed; contractual price reductions and net divestiture/acquisition effects partly offset growth.
- Gross margin declined 2.1 percentage points and operating income fell $123 million. Higher volume and improved operational performance were outweighed by the absence of a $141 million Mechatronics divestiture gain recorded in 2016, increased warranty and depreciation costs, and higher commodity costs.
- Adjusted operating income decreased $29 million, and adjusted margin declined 0.8 percentage points. Signal and Power Solutions adjusted income increased $30 million; Advanced Safety and User Experience decreased $59 million.
- Income from continuing operations increased to $1.063 billion, while operating cash flow from continuing operations fell $388 million. The 2017 cash-flow discussion includes working-capital movements and the $310 million settlement payment.
- Cash increased partly because of the separation-related $1.148 billion dividend received from Delphi Technologies and $180 million received under the tax matters agreement. These are not recurring operating inflows.
Quarterly results, outlook, risks and unusual items
Fourth quarter: Net sales were $3.440 billion, gross profit $710 million, operating income $386 million, income from continuing operations $222 million, and net income attributable to Aptiv $256 million. In Q4 2016, sales were $3.193 billion, operating income $525 million and Aptiv-attributable net income $281 million; the prior-year operating result included the $141 million Mechatronics divestiture gain.
Outlook: The filing does not provide a clear 2018 revenue or earnings guidance range. Management expected approximately $1.0 billion of 2018 research and development spending net of customer and government co-investment, approximately $117 million of amortization, and approximately $90 million of cash restructuring payments. It stated that cash, available facilities and operating cash flow should fund operations and investment in 2018 and beyond.
- Strategic focus: Aptiv emphasized investment in active safety, autonomous driving, connected services and mobility solutions. It acquired nuTonomy, made technology investments including in LIDAR developers, and cited a 2019 production-readiness goal for a fully autonomous platform developed with Mobileye. Commercialization, adoption timing, development costs, partner performance and competition remain uncertain.
- Restructuring and warranty: Continuing-operations restructuring charges were $129 million in 2017, including $36 million associated with a Western European manufacturing-site closure. Aptiv recorded an additional $43 million warranty charge for an airbag-related customer recall matter; total year-end warranty reserves were $58 million.
- Tax and litigation: The 2017 effective tax rate was 18%. The U.S. Tax Cuts and Jobs Act increased 2017 tax expense by approximately $50 million; the company described its tax accounting as provisional. Aptiv settled unsecured-creditor litigation for $310 million, paid in July 2017. In Brazil, asserted claims totaled approximately $185 million, with $25 million accrued and an estimated reasonably possible loss above accruals of zero to $160 million.
- Other principal risks: Automotive cyclicality and regional production shifts, customer concentration and pricing pressure, commodity and foreign-exchange volatility, supply-chain interruptions, product recalls and liability, acquisition integration, evolving regulation and technology, cybersecurity, and potential trade changes including Brexit and NAFTA developments. The five largest customers represented approximately 41% of 2017 sales.
Ernst & Young issued unqualified opinions on the consolidated financial statements and internal control over financial reporting.
Important facts for investors to verify
- Compare continuing-operations growth and margins with reported results, accounting for the Powertrain spin-off and prior-period divestiture gains.
- Reconcile the fall in continuing operating cash flow, including working-capital changes, restructuring cash payments and the litigation settlement; distinguish recurring cash generation from separation proceeds.
- Review debt maturities, facility availability, covenant headroom and the company’s ability to fund capital spending, restructuring, dividends and buybacks.
- Track the cost, timing and commercial progress of autonomous-driving and connected-vehicle investments, including nuTonomy and announced partnerships.
- Monitor the airbag-related warranty matter, Brazil claims, separation indemnities and any revisions to provisional tax estimates.