# Aptiv PLC (APTV) FY 2021 MD&A Verbatim Item 7 Management's Discussion and Analysis from Aptiv PLC's 10-K for fiscal year 2021. SEC filing source: https://www.sec.gov/Archives/edgar/data/1521332/000152133222000010/aptv-20211231.htm Accession: 0001521332-22-000010 Filing date: 2022-02-07 Report date: 2021-12-31 Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture. Confidence: high Company profile: /company/APTV/ All MD&A years: /company/APTV/mda/ Next year: /company/APTV/mda/fy2022/ (FY 2022) ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following management’s discussion and analysis of financial condition and results of operations (“MD&A”) is intended to help you understand the business operations and financial condition of the Company for the period ended December 31, 2021. This discussion should be read in conjunction with Item 8. Financial Statements and Supplementary Data. Our MD&A is presented in seven sections: •Executive Overview •Consolidated Results of Operations •Results of Operations by Segment •Liquidity and Capital Resources •Off-Balance Sheet Arrangements •Significant Accounting Policies and Critical Accounting Estimates •Recently Issued Accounting Pronouncements Executive Overview Our Business We are a leading global technology and mobility architecture company primarily serving the automotive sector. We deliver end-to-end mobility solutions enabling our customers' transition to more electrified, software-defined vehicles. We design and manufacture vehicle components and provide electrical, electronic and active safety technology solutions to the global automotive and commercial vehicle markets, creating the software and hardware foundation for vehicle features and functionality. Our Advanced Safety and User Experience segment is focused on providing the necessary software and advanced 30 Table of Contents computing platforms, and our Signal and Power Solutions segment is focused on providing the requisite networking architecture required to support the integrated systems in today’s complex vehicles. Together, our businesses develop the ‘brain’ and the ‘nervous system’ of increasingly complex vehicles, providing integration of the vehicle into its operating environment. We are one of the largest vehicle technology suppliers and our customers include the 25 largest automotive OEMs in the world. Proposed Acquisition of Wind River Systems, Inc. In January 2022, the Company entered into a definitive agreement to acquire Wind River Systems, Inc. (“Wind River”), a global leader in delivering software for the intelligent edge, for approximately $4.3 billion. The transaction is expected to close in mid-2022, subject to regulatory approvals and customary closing conditions. Refer to Note 20. Acquisitions and Divestitures to the audited consolidated financial statements, included in Item 8 for more information. With Aptiv and Wind River’s synergistic technologies and decades of experience delivering safety critical systems, the Company believes this acquisition will accelerate the journey to a software-defined future of the automotive industry. Business Strategy We believe the Company is well-positioned for growth from increasing global vehicle production volumes, increased demand for our Safe, Green and Connected products which are being added to vehicle content and new business wins with existing and new customers. We are focused on accelerating the industry’s transition to software-defined vehicles, the commercialization of active safety, autonomous driving, enhanced user experiences and connected services and providing the software, advanced computing platforms and networking architecture required to do so. We have successfully created a competitive cost structure while investing in research and development to grow our product offerings, which are aligned with the high-growth industry mega-trends, and re-aligned our manufacturing footprint into an efficient, low-cost regional service model, focused on increasing our profit margins. The global supply chain disruptions currently impacting the industry, combined with the continuing uncertainties caused by the COVID-19 pandemic, created unprecedented operating challenges in 2021. Our 2021 performance reflects our commitment to executing flawlessly for our customers despite these and other headwinds, while positioning the Company for continued outperformance as industry conditions improve. Our recent financial and business achievements include the following: •Enhancing our software capabilities and enabling the industry’s transition to software-defined vehicles ◦Announcing the proposed acquisition of Wind River, a global leader in delivering software for the intelligent edge, and announcing our planned investment in TTTech Auto AG, a leading provider of automotive safety-critical middleware solutions. These actions accelerate our software strategy, broaden our portfolio of technology solutions and enable us to capitalize on opportunities requiring comprehensive software solutions. •Leveraging our investment grade credit metrics to further enhance our capital structure and increase our financial flexibility ◦Successfully issuing $1.5 billion of 30-year, 3.10% senior unsecured notes, utilizing the proceeds to redeem our $700 million, 4.15% senior notes and our $650 million, 4.25% senior notes; and ◦Extending the maturity of our existing Credit Agreement to August 2026 in addition to being one of the first companies to integrate sustainability metrics into our financing structure. •Generating strong results in 2021 despite the continuing impacts of the COVID-19 pandemic and global supply chain disruptions limiting global vehicle production capacity ◦Delivering sustained outperformance, with above-market sales growth of 15%, as strong demand across our portfolio continued despite the challenging operating environment; ◦Generating record new business awards of $24 billion, based on expected volumes and prices, validating our industry leading portfolio of advanced technologies; ◦Generating $1,189 million of operating income or $1,230 million of adjusted operating income and cash flow from operations of $1.2 billion, despite supply chain disruptions and material inflation; and ◦Achieving 154.1% total shareholder return over the period 2019 through 2021, illustrating execution of our long-term strategy and sustainable value creation. •Continuing our relentless focus on cost structure and operational optimization ◦Maximizing our operational flexibility and profitability at all points in the normal automotive business cycle, by having approximately 97% of our hourly workforce based in best cost countries, and approximately 22% of our hourly workforce composed of contingent employees. 31 Table of Contents •Recruiting and retaining top talent from various industries, including technology ◦Advancing a culture of diversity and inclusion, improving access to opportunities while ensuring equal pay for equal work within markets; and ◦Promoting employee health and safety through our strong safety culture and consistently achieving best-in-class lost workday case rates compared with industry peers. •Continuing to execute on our long-term Safe, Green and Connected strategy to enable a more sustainable future ◦Expanding our market relevant portfolio to address the industry’s top challenges, including high voltage electrification and active safety technologies; ◦Capturing value across the entire technology stack with the commercialization of Smart Vehicle ArchitectureTM; and ◦Announcing new carbon emissions targets to help ensure a more sustainable future which includes a commitment to become a net carbon-neutral company by 2040. Our strategy is to build on these accomplishments and continue to develop and manufacture innovative market-relevant products for a diverse base of customers around the globe and leverage our lean and flexible cost structure to achieve strong and disciplined earnings growth and returns on invested capital. Through our culture of innovation and world class engineering capabilities we intend to employ our rigorous, forward-looking product development process to deliver new technologies that provide solutions to our customers. We are committed to creating value for our shareholders. Our key strategic priorities include: Commercializing the high-tech evolution of the automotive industry. The automotive industry is increasingly evolving towards the implementation of software-dependent components and solutions. In particular, the industry is focused on the development of advanced driver assistance technologies, with the goal of developing and introducing a commercially-viable, fully automated driving experience. We expect automated driving technologies will provide strong societal benefit as well as the opportunity for long-term growth for our product offerings in this space. We are focused on enabling and delivering end-to-end smart mobility solutions, enabling our customers' transition to more electrified, software-defined vehicles, accelerating the commercialization of active safety and autonomous driving technologies and providing enhanced user experience and connected services. In an effort to harness the full potential of connected intelligent systems across industries, strengthen our capabilities in software-defined mobility and to enable advanced smart vehicle architecture changes, we entered into a definitive agreement to acquire Wind River in January 2022. This transaction is expected to close in mid-2022, subject to regulatory approvals and customary closing conditions. Wind River is a global leader in delivering software for the intelligent edge. Previously, in 2021, we executed a strategic collaboration agreement with Wind River to develop a software toolchain for various automotive applications. We are also 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 March 2020, to further our leadership position in the automated driving space, we completed a transaction with Hyundai to form Motional, a joint venture focused on the design, development and commercialization of autonomous driving technologies. Motional 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 presence in both North America and Asia, 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. Motional began testing fully driverless systems in 2020 and anticipates it will have a production-ready autonomous driving platform available for robotaxi providers, meal delivery 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 as Boston, Las Vegas, Los Angeles and Singapore as solutions are developed for the evolving nature of the mobility industry. As a result of our substantial investments 32 Table of Contents 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 evolving regulations, such as the federal guidance for automated driving systems published by the U.S. Department of Transportation. While we believe we are well-positioned in these markets, the high development cost of active safety and autonomous driving technologies may result in a higher risk of exposure to the success of new or disruptive technologies different than those being developed by us or our partners. Leveraging our engineering and technological capabilities. We seek to leverage our strong product portfolio tied to the industry’s key mega-trends with our global footprint to increase our revenues, as well as committing to substantial annual investment in research and development to maintain and enhance our leadership in new mobility solutions across each of our product lines. Targeting the right business with the right customers. We intend to be strategic in our pursuit of new business and customers in order to achieve disciplined, above-market growth. We conduct in-depth analysis of market share and product trends by region in order to prioritize research, development and engineering spend for the customers that we believe will be successful. Collaboration with customers in our 12 major technical centers around the world helps us develop innovative product solutions designed to meet their needs. As more OEMs design vehicles for global platforms, where the same vehicle architecture is shared among different regions, we are well suited to provide global design and engineering support while manufacturing these products for a specific regional market. Capitalizing on our scale, global footprint and established position in key growth markets. We intend to generate sustained growth by capitalizing on the breadth and scale of our operating capabilities. Our global footprint provides us important proximity to our customers’ manufacturing facilities and allows us to serve them in every region in which they operate. We anticipate that we will continue to build upon our extensive geographic reach to capitalize on growing automotive markets, particularly in China. In addition, our presence in best cost countries positions us to realize incremental margin improvements as the global balance of automotive production shifts towards key growth markets. Leveraging our lean and flexible cost structure to deliver profitability and cash flow. We recognize the importance of maintaining a lean and flexible cost structure in order to deliver stable earnings and cash flow in a cyclical industry. Our focus is on maximizing and optimizing manufacturing output to meet increasing production requirements with minimal additions to our fixed-cost base. Additionally, we are continuing to use a meaningful amount of temporary workers to ensure we have the appropriate operational flexibility to scale our operations so that we can maintain our profitability as industry production levels increase or contract. Advancing and maintaining an efficient capital structure. We actively manage our capital structure in order to maintain an investment grade credit rating and healthy capital ratios to support our business and maximize shareholder value. We will continue to make adjustments to our capital structure in light of changes in economic conditions or as opportunities arise to provide us with additional financial flexibility to invest in our business and execute our strategic objectives going forward. Pursuing selected acquisitions and strategic investments. In 2021, we continued to complete selected acquisitions and strategic investments in order to continue to leverage our technology capabilities and enhance and expand our commercialization of new mobility solutions, product offerings, customer base, geographic penetration and scale to complement our current businesses, while continuing to enhance our product offerings and competitive position in growing market segments. In addition, in January 2022, the Company entered into a definitive agreement to acquire Wind River for approximately $4.3 billion. The transaction is expected to close in mid-2022, subject to regulatory approvals and customary closing conditions. With Aptiv and Wind River’s synergistic technologies and decades of experience delivering safety critical systems, the Company believes this acquisition will accelerate the journey to a software-defined future of the automotive industry. Furthermore, in December 2021, Aptiv agreed to invest €200 million in TTTech Auto AG, a leading provider of safety-critical middleware solutions for advanced driver-assistance systems and autonomous driving applications. The transaction is expected to close in Q1 2022, subject to regulatory approvals and customary closing conditions. Together, these actions accelerate our software strategy, broaden our portfolio of technology solutions and enable us to capitalize on opportunities requiring comprehensive software solutions. Accelerating an electric, zero-emissions future. In 2021, we committed to becoming carbon-neutral in our global operations by 2030 and to achieve net carbon neutrality by 2040 as we transition away from carbon-intensive energy and processes in our global operations. We also continue to focus on minimizing the overall environmental impact of vehicles as a key part of our overall business strategy. We believe that this strong, foundational focus on sustainability makes Aptiv a partner 33 Table of Contents of choice for our customers, a desirable place to work for our employees and a valued contributor to the communities in which we operate. 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 the World Health Organization in March 2020, negatively impacted the global economy, disrupted supply chains and created significant volatility in global financial markets in 2020 with various direct and indirect adverse impacts continuing throughout 2021 and into 2022. In 2021, the pandemic continued to impact economies and communities throughout the world, including in all of the markets and regions served by Aptiv. Although vaccines have been introduced that are expected to reduce the effect of COVID-19, governmental authorities throughout the world continue to implement numerous measures aimed at containing and mitigating the effects of the pandemic, including renewed travel bans and restrictions, quarantines, social distancing orders, “lock-down” orders and shutdowns of non-essential activities. Although our manufacturing facilities were not impacted by prolonged shutdowns directly resulting from the COVID-19 pandemic in 2021, we cannot assure that this will not be the case in the future. Further, it is possible that governmental authorities within jurisdictions in which our business operates may implement vaccination mandates which could impact our workforce and operations. Although we cannot predict the impact of vaccination mandates, any future mandates could result in increased employee attrition, which could have a material adverse effect on our business and financial condition. The direct adverse impacts of the COVID-19 pandemic on Aptiv, which primarily affected us in the first half of 2020, 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 temporary governmental “lock-down” orders for all non-essential activities, initially in the first quarter of 2020 in China and subsequently in Europe, North America and South America. During the second half of 2020, many of these impacts abated, resulting in increased sales and profitability from the levels observed earlier in the year 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 the Company’s 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 to August 2022 (which was further extended in its entirety to 2026 during the second quarter of 2021), and actively managing costs, capital spending and working capital to further strengthen our liquidity. However, certain direct and indirect adverse impacts of the COVID-19 pandemic persisted throughout 2021 and are expected to continue into 2022, including the worldwide semiconductor supply shortage. As a result, due to the continuing uncertainties surrounding the ultimate impacts of the COVID-19 pandemic and resulting potential future governmental actions and economic impacts, it is possible that these adverse impacts could reoccur, resulting in further adverse impacts on our future operating earnings and cash flows. 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 that are beyond our control, 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 2022. We, along with most automotive component manufacturers 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, fires in our suppliers’ facilities, unprecedented weather events in the southwestern United 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 and other costs. While no assurances can be made as to the ultimate outcome of these customer expectations or any other future claims, we do not currently believe a loss is probable. We will continue to actively monitor all direct and indirect potential impacts of these supply chain disruptions, and will seek to aggressively mitigate and minimize their impact on our business. In addition, we are carrying critical inventory items and key components, and we continue to procure productive, raw material and non-critical inventory components in order to satisfy our customers’ vehicle production schedules. However, as a 34 Table of Contents result of our customers’ recent production volatility and cancellations, our balance of productive, raw and component material inventories has increased substantially from customary levels as of December 31, 2021. We will continue to actively monitor and manage inventory levels across all inventory types in order to maximize both supply continuity and the efficient use of working capital. Economic conditions. Our business is directly related to automotive sales and automotive vehicle production by our customers. Automotive sales depend on a number of factors, including global and regional economic conditions. Global automotive vehicle production increased 2% (flat 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 2020 to 2021, primarily due to the impacts of the global supply chain disruptions, including the worldwide semiconductor supply shortage, which followed the significant decrease in vehicle production in 2020 due to the adverse impacts of the COVID-19 pandemic. Although 2021 global vehicle sales and production rates increased slightly, they were still significantly below historic levels. Compared to the unusually low 2020 production rates, vehicle production in 2021 increased by 2% in China, 1% in North America and 18% in South America, our smallest region, and decreased by 4% in Europe. Refer to Note 22. Segment Reporting of the notes to the audited consolidated financial statements, included in Item 8. Financial Statements and Supplementary Data of this Annual Report for financial information concerning principal geographic areas. Economic volatility or weakness in North America, Europe, China or South America, could result in a significant reduction in automotive sales and production by our customers, which would have an adverse effect on our business, results of operations and financial condition. There is also potential that geopolitical factors could adversely impact the U.S. and other economies, and specifically the automotive sector. In particular, changes to international trade agreements, such as the United States-Mexico-Canada Agreement or other political pressures could affect the operations of our OEM customers, resulting in reduced automotive production in certain regions or shifts in the mix of production to higher cost regions. Increases in interest rates could also negatively impact automotive production as a result of increased consumer borrowing costs or reduced credit availability. Additionally, economic weakness may result in shifts in the mix of future automotive sales (from vehicles with more content such as luxury vehicles, trucks and sport utility vehicles toward smaller passenger cars). While our diversified customer and geographic revenue base, along with our flexible cost structure, have well positioned us to withstand the impact of industry downturns and benefit from industry upturns, shifts in the mix of global automotive production to higher cost regions or to vehicles with less content could adversely impact our profitability. Key growth markets. There have been periods of increased market volatility and moderations in the level of economic growth in China, which resulted in periods of lower automotive production growth rates in China than those previously experienced. For example, automotive production in China experienced minimal growth of 2% in 2021, primarily due to the adverse impacts of the global supply chain disruptions impacting the industry and trade uncertainties, which follows a decrease of 3% in the region in 2020. Despite this lack of significant growth and the moderation in the level of economic growth in China, rising income levels in China and other key growth markets are expected to result in stronger growth rates in these markets over the long-term. Our strong global presence, and presence in these markets, has positioned us to experience above-market growth rates over the long-term. We continue to expand our established presence in key growth markets, positioning us to benefit from the expected long-term growth opportunities in these regions. We are capitalizing on our long-standing relationships with the global OEMs and further enhancing our positions with the key growth market OEMs to continue expanding our worldwide leadership. We continue to build upon our extensive geographic reach to capitalize on fast-growing automotive markets. We believe that our presence in best cost countries positions us to realize incremental margin improvements as the global balance of automotive production shifts towards the key growth markets. We have a strong local presence in China, including a major manufacturing base and well-established customer relationships. Each of our business segments have operations and sales in China. Our business in China remains sensitive to economic and market conditions that impact automotive sales volumes in China, and may be affected if the pace of growth slows as the Chinese market matures or if there are reductions in vehicle demand in China, 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 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 35 Table of Contents 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 key growth market OEMs. This regional model is structured primarily to service the North American market from Mexico, the South American market from Brazil, the European market from Eastern Europe and North Africa, and the Asia Pacific market from China, and we have continued to rotate our manufacturing footprint to best cost locations within these regions. Our operations are subject to certain risks inherent in doing business globally, including 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 and variants thereof in 2020, throughout 2021 and into 2022, has had various direct and indirect adverse impacts on our global operations, the automotive industry and economies around the world. Most notably in 2020, 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 in China and subsequently in Europe, North America and South America. Although certain of the adverse impacts of the pandemic abated during the second half of 2020, other direct and indirect adverse impacts continued throughout 2021 and into 2022, 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 2022. 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 as the United States-Mexico-Canada Agreement, provide certain beneficial duties and tariffs for qualifying imports and exports, subject to compliance with the applicable classification and other requirements. Changes in laws or policies governing the terms of trade, and in particular increased trade restrictions, tariffs or taxes on imports from countries where we manufacture products, such as China and Mexico, could have a material adverse effect on our business and financial results. Furthermore, management continues to monitor the volatile geopolitical environment to identify, quantify and assess threatened duties, taxes or other business restrictions which could adversely affect our business and financial results if enacted. Product development. The automotive technology and components industry is highly competitive and is characterized by rapidly changing technology, evolving industry standards and changes in customer needs. Our ability to anticipate changes in technology and regulatory standards and to successfully develop and introduce new and enhanced products on a timely and cost competitive basis will be a significant factor in our ability to remain competitive. To compete effectively in the automotive technology and components industry, we must be able to develop and launch new products to meet our customers’ demands in a timely manner. 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 18,900 scientists, engineers and technicians focused on developing leading product solutions for our key markets, located at 12 major technical centers in China, Germany, India, Mexico, Poland, Singapore and the United States. Our total investment in research and development, including engineering, was approximately $1.4 billion, $1.3 billion and $1.5 billion for the years ended December 31, 2021, 2020 and 2019, respectively, which includes approximately $320 million, $303 million and $381 million of co-investment by customers and government agencies. Each year we share some engineering expenses with OEMs and government agencies. While this amount varies from year-to-year, it is generally in the range of 20% to 30% of engineering expenses. We also encourage “open innovation” and collaborate 36 Table of Contents extensively with peers in the industry, government agencies and academic institutions. Our technology competencies are recognized by both customers and government agencies, who co-invested approximately $320 million in 2021 to support 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. We utilize a Technology Advisory Council, a panel of prominent global technology thought leaders, which guides our product strategies and investments in technology with a focus on developing advanced technologies to drive growth. We believe that our engineering and technical expertise, together with our emphasis on continuing research and development, allow us to use the latest technologies, materials and processes to solve problems for our customers and to bring new, innovative products to market. We believe that continued engineering activities are critical to maintaining our pipeline of technologically advanced products. Given our strong financial discipline, we seek to effectively manage fixed costs and efficiently rationalize capital spending by critically evaluating the profit potential of new and existing customer programs, including investment in innovation and technology. We maintain our engineering activities around our focused product portfolio and allocate our capital and resources to those products with distinctive technologies. We expect expenditures for research and development activities, including engineering, net of co-investment, to be approximately $1.0 billion for the year ended December 31, 2022. We maintain a large portfolio of approximately 8,500 patents and protective rights in the operation of our business as of December 31, 2021. While no individual patent or group of patents, taken alone, is considered material to our business, taken in the aggregate, these patents provide meaningful protection for our products and technical innovations. Similarly, while our trademarks are important to identify our position in the industry, we do not believe that any of these are individually material to our business. We are actively pursuing marketing opportunities to commercialize and license our technology to both automotive and non-automotive industries and we have selectively taken licenses from others to support our business interests. These activities foster optimization of intellectual property rights. Pricing. Cost-cutting initiatives adopted by our customers result in increased downward pressure on pricing. Our customer supply agreements generally require step-downs in component pricing over the periods of production and OEMs have historically possessed significant leverage over their outside suppliers because the automotive component supply industry is fragmented and serves a limited number of automotive OEMs. Our profitability depends in part on our ability to generate sufficient production cost savings in the future to offset price reductions. In addition, during 2021, global economies as well as our industry were subjected to significant inflationary cost pressures and these pressures are expected to continue into 2022. We continue to work with our customers, both through price recoveries and adjustments as well as future pricing adjustments as contracts renew, to mitigate the impact of these inflationary pressures on our results of operations. We are focused on maintaining a low fixed cost structure that provides us flexibility to remain profitable at all points of the traditional vehicle industry production cycle. As a result, approximately 97% of our hourly workforce is located in best cost countries. Furthermore, we have substantial operational flexibility by leveraging a large workforce of contingent workers, which represented approximately 22% of the hourly workforce as of December 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 in Europe 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. Assuming constant product mix and pricing, based on our 2021 results, we estimate that our EBITDA breakeven level would be reached if we experienced a 45% downturn to current product volumes. We have a strong balance sheet with gross debt of approximately $4.1 billion and substantial available liquidity of approximately $5.6 billion of cash and cash equivalents and available financing under our Revolving Credit Facility and committed European accounts receivable factoring facility (as defined below in Liquidity and Capital Resources) as of December 31, 2021, and no significant U.S. defined benefit or workforce postretirement health care benefits and employer-paid postretirement basic life insurance benefits liabilities. As further described in Note 15. Shareholders’ and Net Income Per Share to the audited consolidated financial statements included herein, we also issued $2.3 billion total 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. 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 37 Table of Contents regulations across countries governing recalls for safety issues, the overall transition towards global vehicle platforms may also contribute to increased recalls outside of the U.S., as automotive components are increasingly standardized across regions. Given the sensitivity to safety issues in the automotive industry, including increased focus from regulators and consumers, we anticipate the number of automotive recalls may remain above historical levels in the near future. Although we engage in extensive product quality programs and processes, it is possible that we may be adversely affected in the future if the pace of these recalls continues. Efficient use of capital. The global vehicle components industry is generally capital intensive and a portion of a supplier’s capital equipment is frequently utilized for specific customer programs. Lead times for procurement of capital equipment are long and typically exceed start of production by one to two years. Substantial advantages exist for suppliers that can leverage their prior investments in capital equipment or amortize the investment over higher volume global customer programs. Industry consolidation and disruptive new entrants. Consolidation among worldwide OEMs and suppliers is expected to continue as these companies seek to achieve operating synergies and value stream efficiencies, acquire complementary technologies and build stronger customer relationships. Additionally, the rise of advanced software and technologies in vehicles has attracted new and disruptive entrants from outside the traditional automotive supply industry. These entrants may seek to gain access to certain vehicle technology and component markets. Any of these new competitors may develop and introduce technologies that gain greater customer or consumer acceptance, which could adversely affect the future growth of the Company. We believe companies with strong balance sheets and financial discipline are in the best position to take advantage of these trends. Consolidated Results of Operations Our total net sales during the year ended December 31, 2021 were $15.6 billion, an increase of approximately 20% compared to 2020. Our overall volumes increased 16% despite total global OEM production increases of only 2% (flat on an AWM basis) for the year ended December 31, 2021, from the unusually low 2020 production rates and despite the ongoing direct and indirect adverse impacts of the COVID-19 pandemic and worldwide semiconductor shortage on vehicle production schedules and sales volumes. Our total net sales for the year ended December 31, 2020 were adversely impacted by the governmental “lock-down” orders due to the COVID-19 pandemic for all non-essential activities, initially in China during the first quarter of 2020 and subsequently in Europe and North America. Despite the volatility caused by the COVID-19 pandemic and the global supply chain disruptions throughout 2021, our overall lean cost structure, along with continued above-market sales growth in all major regions, has enabled us to achieve strong levels of operating income, while continuing to strategically invest in the future. Aptiv typically experiences fluctuations in revenue due to changes in OEM production schedules, vehicle sales mix and the net of new and lost business (which we refer to collectively as volume), increased prices attributable to escalation clauses in our supply contracts for recovery of increased commodity costs (which we refer to as commodity pass-through), fluctuations in foreign currency exchange rates (which we refer to as “FX”), contractual reductions of the sales price to the OEM (which we refer to as contractual price reductions) and engineering changes. Changes in sales mix can have either favorable or unfavorable impacts on revenue. Such changes can be the result of shifts in regional growth, shifts in OEM sales demand, as well as shifts in consumer demand related to vehicle segment purchases and content penetration. For instance, a shift in sales demand favoring a particular OEM’s vehicle model for which we do not have a supply contract may negatively impact our revenue. A shift in regional sales demand toward certain markets could favorably impact the sales of those of our customers that have a large market share in those regions, which in turn would be expected to have a favorable impact on our revenue. We typically experience (as described below) fluctuations in operating income due to: •Volume, net of contractual price reductions—changes in volume offset by contractual price reductions (which typically range from 1% to 3% of net sales) and changes in mix; •Operational performance—changes to costs for materials and commodities or manufacturing and engineering variances; and •Other—including restructuring costs and any remaining variances not included in Volume, net of contractual price reductions or Operational performance. The automotive technology and component supply industry is traditionally subject to inflationary pressures with respect to raw materials and labor which may place operational and profitability burdens on the entire supply chain. For instance, in 2021, the industry has been subjected to increased pricing pressures, specifically in relation to copper and petroleum-based resin products, which have increased significantly in price. 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. This shortage has resulted in increased pricing pressures on semiconductors as well. 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 semiconductor supply cost and commodity cost volatility to have a continual impact on future earnings and/or operating cash 38 Table of Contents 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. This section discusses our consolidated results of operations and results of operations by segment for the years ended December 31, 2021 versus 2020. A detailed discussion of our consolidated results of operations and results of operations by segment for the years ended December 31, 2020 versus 2019 can be found under Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2020, which was filed with the SEC on February 8, 2021. 2021 versus 2020 The results of operations for the years ended December 31, 2021 and 2020 were as follows: [[GREPCENT_TABLE]] [["","","","Year Ended December 31,"],["","","","","","","","2021","","2020","","Favorable/ (unfavorable)"],["","","","","","","","(dollars in millions)"],["Net sales","","","","","","","$","15,618","","","$","13,066","","","$","2,552"],["Cost of sales","","","","","","","13,182","","","11,126","","","(2,056)"],["Gross margin","","","","","","","2,436","","15.6%","1,940","","14.8%","496"],["Selling, general and administrative","","","","","","","1,075","","","976","","","(99)"],["Amortization","","","","","","","148","","","144","","","(4)"],["Restructuring","","","","","","","24","","","136","","","112"],["Gain on autonomous driving joint venture","","","","","","","\u2014","","","(1,434)","","","(1,434)"],["Operating income","","","","","","","1,189","","","2,118","","","(929)"],["Interest expense","","","","","","","(150)","","","(164)","","","14"],["Other expense, net","","","","","","","(129)","","","\u2014","","","(129)"],["Income before income taxes and equity loss","","","","","","","910","","","1,954","","","(1,044)"],["Income tax expense","","","","","","","(101)","","","(49)","","","(52)"],["Income before equity loss","","","","","","","809","","","1,905","","","(1,096)"],["Equity loss, net of tax","","","","","","","(200)","","","(83)","","","(117)"],["Net income","","","","","","","609","","","1,822","","","(1,213)"],["Net income attributable to noncontrolling interest","","","","","","","19","","","18","","","1"],["Net income attributable to Aptiv","","","","","","","590","","","1,804","","","(1,214)"],["Mandatory convertible preferred share dividends","","","","","","","(63)","","","(35)","","","(28)"],["Net income attributable to ordinary shareholders","","","","","","","$","527","","","$","1,769","","","$","(1,242)"]] [[/GREPCENT_TABLE]] Total Net Sales Below is a summary of our total net sales for the years ended December 31, 2021 versus 2020. [[GREPCENT_TABLE]] [["","Year Ended December 31,","","","Variance Due To:"],["","2021","","2020","","Favorable/ (unfavorable)","","","Volume, net of contractual price reductions","","FX","","Commodity pass- through","","Other","","Total"],["","(in millions)","","","(in millions)"],["Total net sales","$","15,618","","","$","13,066","","","$","2,552","","","","$","1,936","","","$","279","","","$","337","","","$","\u2014","","","$","2,552"]] [[/GREPCENT_TABLE]] Total net sales for the year ended December 31, 2021 increased 20% compared to the year ended December 31, 2020. Despite the ongoing direct and indirect adverse impacts of the COVID-19 pandemic on vehicle production schedules and sales volumes, which include the current global supply chain disruptions impacting the automotive industry, our overall volumes increased 16% for the period from the unusually low 2020 volumes. Our total net sales for the year ended December 31, 2020 were adversely impacted by the governmental “lock-down” orders due to the COVID-19 pandemic for all non-essential activities, initially in China during the first quarter of 2020 and subsequently in Europe and North America. Our total net sales 39 Table of Contents 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 $2,056 million for the year ended December 31, 2021 compared to the year ended December 31, 2020, as summarized below. The Company’s material cost of sales was approximately 50% of net sales in both the years ended December 31, 2021 and 2020. [[GREPCENT_TABLE]] [["","Year Ended December 31,","","","Variance Due To:"],["","2021","","2020","","Favorable/ (unfavorable)","","","Volume (a)","","FX","","Operational performance","","Other","","Total"],["","(dollars in millions)","","","(in millions)"],["Cost of sales","$","13,182","","","$","11,126","","","$","(2,056)","","","","$","(1,258)","","","$","(222)","","","$","(249)","","","$","(327)","","","$","(2,056)"],["Gross margin","$","2,436","","","$","1,940","","","$","496","","","","$","678","","","$","57","","","$","(249)","","","$","10","","","$","496"],["Percentage of net sales","15.6","%","","14.8","%"]] [[/GREPCENT_TABLE]] (a)Presented net of contractual price reductions for gross margin variance. The increase in cost of sales reflects increased volumes, the impacts from currency exchange and operational performance. Our operational performance for the year ended December 31, 2021 includes approximately $260 million of increased costs for semiconductors and commodities, as well as approximately $130 million of increased costs, primarily related to material logistics costs associated with the global supply chain disruptions due to the worldwide semiconductor shortage and other extraordinary events. Coupled with $80 million of incremental costs detailed in the bullet below in Other, total increased costs resulting from the global supply chain disruptions were approximately $210 million during the year ended December 31, 2021. Cost of sales was also impacted by the following items in Other above: •$337 million of increased commodity pass-through costs; and •Increased costs of approximately $80 million, primarily for distributional logistics and other inefficiencies, resulting from the global supply chain disruptions, as per above; 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; and •$21 million of decreased warranty costs. Selling, General and Administrative Expense [[GREPCENT_TABLE]] [["","Year Ended December 31,"],["","2021","","2020","","Favorable/ (unfavorable)"],["","(dollars in millions)"],["Selling, general and administrative expense","$","1,075","","","$","976","","","$","(99)"],["Percentage of net sales","6.9","%","","7.5","%"]] [[/GREPCENT_TABLE]] 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 year ended December 31, 2021 as compared to 2020, primarily due to increased sales in 2021, partially offset by increased incentive compensation costs. 40 Table of Contents Amortization [[GREPCENT_TABLE]] [["","Year Ended December 31,"],["","2021","","2020","","Favorable/ (unfavorable)"],["","(in millions)"],["Amortization","$","148","","","$","144","","","$","(4)"]] [[/GREPCENT_TABLE]] Amortization expense reflects the non-cash charge related to definite-lived intangible assets. The consistency in amortization during the year ended December 31, 2021 compared to 2020 primarily reflects the continued amortization of our definite-lived intangible assets, which resulted primarily from our acquisitions, over their estimated useful lives. Refer to Note 20. Acquisitions and Divestitures to the audited consolidated financial statements included herein for further detail of our business acquisitions, including details of the intangible assets recorded in each transaction. In 2022, we expect to incur non-cash amortization charges of approximately $149 million, excluding any non-cash amortization charges incurred as a result of the proposed acquisition of Wind River, which is expected to close in mid-2022, subject to regulatory approvals and customary closing conditions. Restructuring [[GREPCENT_TABLE]] [["","Year Ended December 31,"],["","2021","","2020","","Favorable/ (unfavorable)"],["","(dollars in millions)"],["Restructuring","$","24","","","$","136","","","$","112"],["Percentage of net sales","0.2","%","","1.0","%"]] [[/GREPCENT_TABLE]] The Company recorded employee-related and other restructuring charges totaling approximately $24 million during the year ended December 31, 2021. We expect to make cash payments of approximately $40 million in 2022 pursuant to currently implemented restructuring programs. Restructuring charges recorded during 2020 were primarily focused on aligning our production capabilities with the reduced levels of global vehicle production resulting from the COVID-19 pandemic, as well as the continued rotation of our manufacturing footprint to best cost locations in Europe and on reducing global overhead costs. The Company recorded employee-related and other restructuring charges related to these programs totaling approximately $136 million during the year ended December 31, 2020, of which $62 million was recognized for programs implemented in the North America region and $57 million was recognized for programs implemented in the European region, pursuant to the Company’s ongoing overhead cost reduction strategy. The charges recorded during 2020 included the recognition of approximately $90 million of employee-related and other costs related to actions taken as a result of the global impacts of the COVID-19 pandemic. We expect to continue to incur additional restructuring expense in 2022 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 $15 million (which primarily relate to the Signal and Power Solutions segment) for programs approved as of December 31, 2021. Additionally, as we continue to operate in a cyclical industry that is impacted by movements in the global and regional economies, we continually evaluate opportunities to further adjust our cost structure and optimize our manufacturing footprint. The Company plans to implement additional restructuring activities in the future, if necessary, in order to align manufacturing capacity and other costs with prevailing regional automotive production levels and locations, to improve the efficiency and utilization of other locations and in order to increase investment in advanced technologies and engineering. Such future restructuring actions are dependent on market conditions, customer actions and other factors. Refer to Note 10. Restructuring to the audited consolidated financial statements included herein for additional information. 41 Table of Contents Interest Expense [[GREPCENT_TABLE]] [["","Year Ended December 31,"],["","2021","","2020","","Favorable/ (unfavorable)"],["","(in millions)"],["Interest expense","$","150","","","$","164","","","$","14"]] [[/GREPCENT_TABLE]] The decrease in interest expense during the year ended December 31, 2021 compared to 2020 reflects the drawdown of all remaining availability under the Revolving Credit Facility in the first quarter of 2020, primarily to provide additional liquidity and financial flexibility in response to the initial impacts from the onset of the COVID-19 pandemic. The balance remained outstanding for substantially all of the second quarter of 2020. No amounts were drawn on the Revolving Credit Facility during the year ended December 31, 2021. Refer to Note 11. Debt to the audited consolidated financial statements included herein for additional information. Other Income, Net [[GREPCENT_TABLE]] [["","Year Ended December 31,"],["","2021","","2020","","Favorable/ (unfavorable)"],["","(in millions)"],["Other expense, net","$","129","","","$","\u2014","","","$","(129)"]] [[/GREPCENT_TABLE]] As further discussed in Note 11. Debt to the audited consolidated financial statements included herein, during the year ended December 31, 2021, Aptiv redeemed for cash the entire $700 million aggregate principal amount outstanding of the 2014 Senior Notes and the entire $650 million aggregate principal amount outstanding of the 4.25% Senior Notes, resulting in a loss on debt extinguishment of approximately $126 million. As further discussed in Note 5. Investments in Affiliates to the audited consolidated financial statements included herein, during the year ended December 31, 2021, Aptiv recorded a pre-tax unrealized gain of $9 million related to increases in fair value of its equity investments without readily determinable fair values. The Company also recorded $21 million during the year ended December 31, 2021 related to the components of net periodic pension and postretirement benefit cost other than service costs, as further described in Note 12. Pension Benefits to the audited consolidated financial statements included herein. During the year ended December 31, 2020, Aptiv recorded $8 million of interest income and a loss on debt modification of $4 million, in conjunction with the May 2020 amendment to the Credit Agreement. As further discussed in Note 5. Investments in Affiliates to the audited consolidated financial statements included herein, during the year ended December 31, 2020, Aptiv recorded a pre-tax unrealized gain of $10 million related to increases in fair value of its equity investments without readily determinable fair values. The Company also recorded $20 million during the year ended December 31, 2020 related to the components of net periodic pension and postretirement benefit cost other than service costs, as further described in Note 12. Pension Benefits to the audited consolidated financial statements included herein. Refer to Note 19. Other Income, Net to the audited consolidated financial statements included herein for additional information. Income Taxes [[GREPCENT_TABLE]] [["","Year Ended December 31,"],["","2021","","2020","","Favorable/ (unfavorable)"],["","(in millions)"],["Income tax expense","$","101","","","$","49","","","$","(52)"]] [[/GREPCENT_TABLE]] 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. 42 Table of Contents The Company’s effective tax rate was 11% and 3% for the years ended December 31, 2021 and 2020, respectively. The effective tax rate in the year ended December 31, 2021 was impacted by favorable provision to return adjustments as well as releases of valuation allowances as a result of the Company’s determination that it was more likely than not that certain deferred tax assets would be realized. The Company also accrued $19 million of reserve adjustments for uncertain tax positions. The effective tax rate for the year ended December 31, 2020 was impacted by changes in reserves, provision to return adjustments, changes in valuation allowances and the tax impact of certain intragroup reorganizations meant to streamline and simplify the Company’s operating and legal structure, which resulted in the recognition of losses for tax purposes. The effective tax rate was also impacted by the beneficial impact from the gain on the autonomous driving joint venture. The tax expense associated with the gain was insignificant as Aptiv’s aggregate autonomous driving assets were exempt from capital gains tax in the jurisdiction from which they were sold. The aggregate autonomous driving assets had been acquired, purchased or developed in taxable transactions in prior periods and reflect changes made to the corporate entity operating structure for intellectual property following the separation of its former Powertrain Systems segment. Refer to Note 14. Income Taxes to the audited consolidated financial statements included herein for additional information. Equity Loss [[GREPCENT_TABLE]] [["","Year Ended December 31,"],["","2021","","2020","","Favorable/ (unfavorable)"],["","(in millions)"],["Equity loss, net of tax","$","200","","","$","83","","","$","(117)"]] [[/GREPCENT_TABLE]] Equity loss, net of tax reflects the Company’s interest in the results of ongoing operations of entities accounted for as equity method investments. The equity losses recognized by Aptiv for each period presented are primarily attributable to the Motional autonomous driving joint venture formed in March 2020 with Hyundai, as further described in Note 5. Investments in Affiliates and Note 20. Acquisitions and Divestitures to the audited consolidated financial statements included 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 vehicle technology 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 with U.S. GAAP and should not be considered an alternative to net income attributable to Aptiv, which is the most directly comparable financial measure to Adjusted Operating Income that is prepared in accordance with U.S. GAAP. Segment Adjusted Operating Income, as determined and measured by Aptiv, should also not be compared to similarly titled measures reported by other companies. The reconciliation of Adjusted Operating Income to operating income includes, as applicable, 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 years ended December 31, 2021 and 2020 are as follows: 43 Table of Contents [[GREPCENT_TABLE]] [["","Signal and Power Solutions","","","","Advanced Safety and User Experience","","","","Total"],["","(in millions)"],["For the Year Ended December 31, 2021:"],["Adjusted operating income","$","1,084","","","","","$","146","","","","","$","1,230"],["Restructuring","(8)","","","","","(16)","","","","","(24)"],["Other acquisition and portfolio project costs","(11)","","","","","(4)","","","","","(15)"],["Asset impairments","(1)","","","","","(1)","","","","","(2)"],["Operating income","$","1,064","","","","","$","125","","","","","1,189"],["Interest expense","","","","","","","","","(150)"],["Other expense, net","","","","","","","","","(129)"],["Income before income taxes and equity loss","","","","","","","","","910"],["Income tax expense","","","","","","","","","(101)"],["Equity loss, net of tax","","","","","","","","","(200)"],["Net income","","","","","","","","","609"],["Net income attributable to noncontrolling interest","","","","","","","","","19"],["Net income attributable to Aptiv","","","","","","","","","$","590"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","Signal and Power Solutions","","","","Advanced Safety and User Experience","","","","Total"],["","(in millions)"],["For the Year Ended December 31, 2020:"],["Adjusted operating income","$","762","","","","","$","105","","","","","$","867"],["Restructuring","(90)","","","","","(46)","","","","","(136)"],["Other acquisition and portfolio project costs","(12)","","","","","(11)","","","","","(23)"],["Asset impairments","(4)","","","","","(6)","","","","","(10)"],["Deferred compensation related to acquisitions","\u2014","","","","","(14)","","","","","(14)"],["Gain on business divestitures and other transactions","\u2014","","","","","1,434","","","","","1,434"],["Operating income","$","656","","","","","$","1,462","","","","","2,118"],["Interest expense","","","","","","","","","(164)"],["Income before income taxes and equity loss","","","","","","","","","1,954"],["Income tax expense","","","","","","","","","(49)"],["Equity loss, net of tax","","","","","","","","","(83)"],["Net income","","","","","","","","","1,822"],["Net income attributable to noncontrolling interest","","","","","","","","","18"],["Net income attributable to Aptiv","","","","","","","","","$","1,804"]] [[/GREPCENT_TABLE]] 44 Table of Contents Net sales, gross margin as a percentage of net sales and Adjusted Operating Income by segment for the years ended December 31, 2021 and 2020 are as follows: Net Sales by Segment [[GREPCENT_TABLE]] [["","Year Ended December 31,","","","Variance Due To:"],["","2021","","2020","","Favorable/ (unfavorable)","","","Volume, net of contractual price reductions","","FX","","Commodity Pass-through","","Other","","Total"],["","(in millions)","","","(in millions)"],["Signal and Power Solutions","$","11,598","","","$","9,522","","","$","2,076","","","","$","1,496","","","$","243","","","$","337","","","$","\u2014","","","$","2,076"],["Advanced Safety and User Experience","4,056","","","3,573","","","483","","","","445","","","38","","","\u2014","","","\u2014","","","483"],["Eliminations and Other","(36)","","","(29)","","","(7)","","","","(5)","","","(2)","","","\u2014","","","\u2014","","","(7)"],["Total","$","15,618","","","$","13,066","","","$","2,552","","","","$","1,936","","","$","279","","","$","337","","","$","\u2014","","","$","2,552"]] [[/GREPCENT_TABLE]] Gross Margin Percentage by Segment [[GREPCENT_TABLE]] [["","","","Year Ended December 31,"],["","","","","","2021","","2020"],["Signal and Power Solutions","","","","","17.6","%","","17.1","%"],["Advanced Safety and User Experience","","","","","9.8","%","","8.8","%"],["Total","","","","","15.6","%","","14.8","%"]] [[/GREPCENT_TABLE]] Adjusted Operating Income by Segment [[GREPCENT_TABLE]] [["","Year Ended December 31,","","","Variance Due To:"],["","2021","","2020","","Favorable/ (unfavorable)","","","Volume, net of contractual price reductions","","Operational performance","","Other","","Total"],["","(in millions)","","","(in millions)"],["Signal and Power Solutions","$","1,084","","","$","762","","","$","322","","","","$","527","","","$","(165)","","","$","(40)","","","$","322"],["Advanced Safety and User Experience","146","","","105","","","41","","","","151","","","(98)","","","(12)","","","41"],["Total","$","1,230","","","$","867","","","$","363","","","","$","678","","","$","(263)","","","$","(52)","","","$","363"]] [[/GREPCENT_TABLE]] As noted in the table above, Adjusted Operating Income for the year ended December 31, 2021 as compared to the year ended December 31, 2020 was impacted by volume and contractual price reductions, including product mix and operational performance. Our operational performance for the year ended December 31, 2021 includes approximately $260 million of increased costs for semiconductors and commodities, as well as approximately $130 million of increased costs, primarily related to material logistics costs associated with the global supply chain disruptions due to the worldwide semiconductor shortage and other extraordinary events. Coupled with $80 million of incremental costs detailed in the bullet below in Other, total increased costs resulting from the global supply chain disruptions were approximately $210 million during the year ended December 31, 2021. Adjusted Operating Income was also impacted by the following items included within Other in the table above: •$98 million of increased SG&A expense, not including the impact of other acquisition and portfolio project costs, which includes increased incentive compensation costs; •Increased costs of approximately $80 million, primarily for distributional logistics and other inefficiencies, resulting from the global supply chain disruptions, as per above; and •$17 million of increased depreciation and amortization, not including the impact of asset impairments, primarily as a result of a higher fixed asset base; partially offset by 45 Table of Contents •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; •$35 million of favorable foreign currency impacts, primarily related to the Chinese Yuan Renminbi; and •$21 million of decreased warranty costs. 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 and dividends on our outstanding preferred shares. 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 December 31, 2021, we had cash and cash equivalents of $3.1 billion and net debt (defined as outstanding debt less cash and cash equivalents) of $0.9 billion. We also have access to additional liquidity pursuant to the terms of the $2.0 billion Revolving Credit Facility and the committed European accounts receivable factoring facility, as described below. The following table summarizes our available liquidity, which includes cash, cash equivalents and funds available under our significant committed credit facilities, as of December 31, 2021. The amounts disclosed as available under the Company’s significant committed credit facilities are available without violating our existing debt covenants, which are described below. [[GREPCENT_TABLE]] [["","December 31, 2021"],["","(in millions)"],["Cash and cash equivalents","$","3,139"],["Revolving Credit Facility, unutilized portion (1)","2,000"],["Committed European accounts receivable factoring facility, unutilized portion (2)","510"],["Total available liquidity","$","5,649"]] [[/GREPCENT_TABLE]] (1)Availability reduced by less than $1 million in letters of credit issued under the Credit Agreement as of December 31, 2021. (2)Based on December 31, 2021 foreign currency rates, subject to the availability of eligible accounts receivable. Despite the current global economic impacts and uncertainties resulting from the ongoing global supply chain disruptions, the COVID-19 pandemic and the resulting 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. Furthermore, we expect to acquire Wind River and pay other required fees and expenses in connection with the proposed acquisition utilizing a combination of cash on hand and proceeds from new indebtedness and we expect to be able to acquire such additional indebtedness on terms acceptable to us. 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 December 31, 2021, the Company’s cash and cash equivalents held by our non-U.S. subsidiaries totaled approximately $3.1 billion. If additional non-U.S. cash was needed for our U.S. operations, we may be required to accrue and pay withholding if we were to distribute such funds from non-U.S. subsidiaries to the U.S.; however, based on our current liquidity needs and strategies, we do not anticipate a need to accrue and pay such additional amounts. Based on these factors, we believe we possess sufficient liquidity to fund our global operations and capital investments in 2022 and beyond. 46 Table of Contents 2020 Public Equity Offering In June 2020, the Company completed the underwritten public offering of approximately 15.1 million ordinary shares at a price of $75.91 per share, resulting in net proceeds of approximately $1,115 million, after deducting expenses and the underwriters’ discount of $35 million. Simultaneously, the Company completed the underwritten public offering of 11.5 million 5.50% Mandatory Convertible Preferred Shares, Series A, $0.01 par value per share (the “MCPS”) with a liquidation preference of $100 per share, resulting in net proceeds of approximately $1,115 million, after deducting expenses and the underwriters’ discount of $35 million. 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 15. Shareholders’ Equity and Net Income Per Share to the audited consolidated financial statements included 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 $1.5 billion of ordinary shares, which commenced in September 2016. This share repurchase program provides for share purchases in the open market or in privately negotiated transactions, depending on share price, market conditions and other factors, as determined by the Company. There were no shares repurchased during the year ended December 31, 2021. A summary of the ordinary shares repurchased during the years ended December 31, 2020 and 2019 is as follows: [[GREPCENT_TABLE]] [["","","","Year Ended December 31,"],["","","","2020","","2019"],["Total number of shares repurchased","","","1,059,075","","","5,387,533"],["Average price paid per share","","","$","53.73","","","$","77.93"],["Total (in millions)","","","$","57","","","$","420"]] [[/GREPCENT_TABLE]] As of December 31, 2021, approximately $13 million of share repurchases remained available under the April 2016 share repurchase program, which is in addition to the share repurchase program of up to $2.0 billion that was previously announced in January 2019. This program, which will commence following the completion of the April 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. Dividends from Equity Investments During the years ended December 31, 2021, 2020 and 2019, Aptiv received dividends of $6 million, $9 million and $9 million, respectively, from its equity method investments. The dividends were recognized as a reduction to the investment and represented a return on investment included in cash flows from operating activities. Acquisitions El-Com—On December 30, 2021, Aptiv acquired 100% of the equity interests of El-Com, Inc. (“El-Com”), a manufacturer of custom wire harnesses and cable assemblies for high-reliability products and industries, for total consideration of up to $88 million. The total consideration includes a cash payment of up to $10 million, contingent upon the achievement of certain performance metrics over a one-year period following the acquisition. The acquisition was accounted for as a business combination, with the operating results of El-Com included within the Company’s Signal and Power Solutions segment from the date of acquisition. The Company acquired El-Com utilizing cash on hand. Krono-Safe Automotive—On November 9, 2021, Aptiv acquired 100% of the equity interests of Krono-Safe Automotive, SAS (“Krono-Safe Automotive”), a leading software developer of safety-critical real-time embedded systems, for total consideration of $13 million, which was comprised of Aptiv’s previous investment of $6 million in Krono-Safe, SAS and $7 47 Table of Contents million of cash. The acquisition was accounted for as a business combination, with the operating results of Krono-Safe Automotive included within the Company’s Advanced Safety and User Experience segment from the date of acquisition. Ulti-Mate—On April 30, 2021, Aptiv acquired certain assets of Ulti-Mate Connector, Inc. (“Ulti-Mate”), a manufacturer of miniature and micro-miniature connectors and cable assemblies, for total consideration of $45 million. The acquisition was 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. Dynawave—On August 4, 2020, Aptiv acquired 100% of the equity interests of Dynawave 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 from the date of acquisition. The Company acquired Dynawave utilizing cash on hand. 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. Wind River—In January 2022, Aptiv entered into a definitive agreement to acquire 100% of the equity interests of Wind River, a global leader in delivering software for the intelligent edge, for approximately $4.3 billion, subject to customary post-closing adjustments. The transaction is expected to close in mid-2022, subject to regulatory approvals and customary closing conditions. Upon completion, Wind River will become part of Aptiv’s Advanced Safety and User Experience segment. The Company intends to acquire Wind River utilizing a combination of cash on hand and new indebtedness. Refer to Note 20. Acquisitions and Divestitures to the audited consolidated financial statements included herein for further detail of the Company’s business acquisitions. Technology Investments—In September 2021, Valens Semiconductor Ltd. (“Valens”) merged with a publicly traded Special Purpose Acquisition Company (“SPAC”) and shares of Valens began trading on the NYSE under the symbol VLN. As part of the SPAC merger, our preferred shares in Valens were converted into Valens ordinary shares. In August 2021, Otonomo Technologies Ltd. (“Otonomo”) merged with a publicly traded SPAC and shares of Otonomo began trading on the Nasdaq Capital Market under the symbol OTMO. As part of the SPAC merger, our preferred shares in Otonomo were converted into Otonomo ordinary shares. During the remainder of 2021, the Company sold a portion of its Otonomo ordinary shares for net proceeds of approximately $3 million. The Company’s Advanced Safety and User Experience segment had previously made a $3 million investment in Otonomo during 2019, which was in addition to the Company’s $15 million investment made during 2017. In June 2021, Affectiva, Inc. (“Affectiva”) was acquired by Smart Eye AB (“Smart Eye”), which is publicly traded on the Nasdaq Stockholm AB stock exchange. As part of the acquisition, Aptiv received shares of Smart Eye in exchange for Aptiv’s Affectiva preferred shares. In April 2021, Innoviz Technologies (“Innoviz”) merged with a publicly traded SPAC and shares of Innoviz began trading on the Nasdaq Capital Market under the symbol INVZ. As part of the SPAC merger, our preferred shares in Innoviz were converted into Innoviz ordinary shares. During the remainder of 2021, the Company sold all of its Innoviz ordinary shares for net proceeds of approximately $18 million. The Company’s Advanced Safety and User Experience segment had previously made a $15 million investment in Innoviz during 2017. Following each of the transactions described above, the fair value of each respective investment is measured on a recurring basis, with changes in fair value recorded to other income (expense), net. In December 2021, Aptiv agreed to invest €200 million in TTTech Auto AG, a leading provider of safety-critical middleware solutions for advanced driver-assistance systems and autonomous driving applications, in exchange for an approximate 20% equity share in the business. The investment is subject to the satisfaction of customary closing conditions and the receipt of regulatory and other approvals, and is expected to close during the first quarter of 2022. The Company expects to make this investment utilizing cash on hand. 48 Table of Contents Refer to Note 5. Investments in Affiliates to the audited consolidated financial statements included herein for further detail of the Company’s technology investments. Autonomous Driving Joint Venture On March 26, 2020, Aptiv completed a transaction with Hyundai to form Motional, a joint venture focused on the design, development and commercialization of autonomous driving technologies. Under the terms of the agreement, Aptiv contributed to Motional autonomous driving technology, intellectual property and approximately 700 employees for a 50% ownership interest in Motional. Hyundai contributed to Motional 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 Motional. As a result, subsequent to the closing of the transaction, Motional 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 ended December 31, 2019 prior to Motional’s formation. Upon closing of the transaction, Aptiv deconsolidated the carrying value of the associated assets and liabilities contributed to Motional, previously classified as held for sale, and recognized an asset of approximately $2 billion within investments in affiliates in the consolidated balance sheet, based on the preliminary fair value of its investment in Motional. The Company recognized a pre-tax gain of approximately $1.4 billion in the consolidated statement of operations (approximately $5.32 per diluted share for the year ended December 31, 2020), net of transaction costs of $22 million, based on the difference between the carrying value of its contribution to Motional and the preliminary fair value of its investment in Motional. The estimated fair value of Aptiv’s ownership interest in Motional was determined primarily based on third-party valuations and management estimates, generally utilizing income and market approaches. Determining the fair value of Motional and the underlying assets required the use of management’s judgment and involved 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 Motional 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 Motional for a period of up to 24 months after the closing date. These agreements are not material to Aptiv. The Company’s investment in Motional is accounted for using the equity method of accounting and Aptiv recognized an equity loss of $215 million and $98 million, net of tax, during the years ended December 31, 2021 and 2020, respectively. Credit Agreement Aptiv PLC and its wholly-owned subsidiary, Aptiv Corporation, entered into a credit agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A., as administrative agent (the “Administrative Agent”), under which it maintains 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”). During 2020, Aptiv Global Financing Limited (“AGFL”), a wholly-owned subsidiary of Aptiv 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. The Credit Agreement was entered into in March 2011 and has been subsequently amended and restated on several occasions, most recently on June 24, 2021. The June 2021 amendment, among other things, (1) refinanced and replaced the existing term loan A and revolver with a new term loan A that matures in five years, and a new five-year revolving credit facility with aggregate commitments of $2 billion, (2) utilized the Company’s existing sustainability-linked metrics and commitments, that, if achieved, would change the facility fee and interest rate margins as described below, (3) removed prior provisions from the May 2020 amendment that had increased the leverage ratio maintenance covenant from 3.5 to 1.0 to 4.5 to 1.0 until July 1, 2021 and restricted dividends and other payments on equity, and (4) included a financial maintenance covenant that requires the Company to maintain total net leverage (as calculated in accordance with the Credit Agreement) of less than 3.5 to 1.0 (or 4.0 to 1.0 for four full fiscal quarters following completion of material acquisitions, as defined in the Credit Agreement). Losses on modification of debt totaled $1 million and $4 million during the years ended December 31, 2021 and 2020, respectively, related to the June 2021 amendment and May 2020 amendment. Aptiv paid amendment fees of $6 million and $18 million during the years ended December 31, 2021 and 2020, respectively, which are reflected as financing activities in the consolidated statements of cash flows. The Tranche A Term Loan and the Revolving Credit Facility mature on June 24, 2026. Beginning on September 30, 2022, Aptiv is obligated to make quarterly principal payments on 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 49 Table of Contents 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. As of December 31, 2021, 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. There were no amounts drawn under the Revolving Credit Facility during the year ended December 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 June 2021 amendment also contains provisions to facilitate the replacement of the LIBOR-based rate with a Secured Overnight Financing Rate (“SOFR”) based rate upon the discontinuation or unavailability of LIBOR. The Applicable Rates under the Credit Agreement on the specified dates are set forth below: [[GREPCENT_TABLE]] [["","December 31, 2021","","December 31, 2020"],["","LIBOR plus","","ABR plus","","LIBOR plus","","ABR plus"],["Revolving Credit Facility","1.10","%","","0.10","%","","1.10","%","","0.10","%"],["Tranche A Term Loan","1.125","%","","0.125","%","","1.25","%","","0.25","%"]] [[/GREPCENT_TABLE]] Under the June 2021 amendment, the Applicable Rate under the Credit Agreement, as well as the facility fee, may increase or decrease from time to time based on changes in the Company’s credit ratings and whether the Company achieves or fails to achieve certain sustainability-linked targets with respect to greenhouse gas emissions and workplace safety. Such adjustments may be up to 0.04% per annum on interest rate margins on the Revolving Credit Facility, 0.02% per annum on interest rate margins on the Tranche A Term Loan and up to 0.01% per annum on the facility fee. Accordingly, the interest rate is subject to fluctuation during the term of the Credit Agreement based on changes in the ABR, LIBOR, changes in the Company’s corporate credit ratings or whether the Company achieves or fails to achieve its sustainability-linked targets. The Credit Agreement also requires that Aptiv pay certain facility fees on the Revolving Credit Facility, which are also subject to adjustment based on the sustainability-linked targets as described above, and certain letter of credit issuance and fronting fees. The interest rate period with respect to LIBOR interest rate options can be set at one-, three-, or six-months as selected by Aptiv in accordance with the terms of the Credit Agreement (or other period as may be agreed by the applicable lenders). Aptiv may elect to change the selected interest rate option in accordance with the provisions of the Credit Agreement. As of December 31, 2021, Aptiv selected the one-month LIBOR interest rate option on the Tranche A Term Loan, and the rate effective as of December 31, 2021, as detailed in the table below, was based on the Company’s current credit rating and the Applicable Rate for the Credit Agreement: [[GREPCENT_TABLE]] [["","","","Borrowings as of"],["","","","December 31, 2021","","Rates effective as of"],["","Applicable Rate","","(in millions)","","December 31, 2021"],["Tranche A Term Loan","LIBOR plus 1.125%","","$","313","","","1.25","%"]] [[/GREPCENT_TABLE]] 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, under the June 2021 amendment, the Credit Agreement requires that the Company maintain a consolidated leverage ratio (the ratio of Consolidated Total Indebtedness to Consolidated EBITDA, each as defined in the Credit Agreement) of not more than 3.5 to 1.0 (or 4.0 to 1.0 for four full fiscal quarters following completion of material acquisitions, as defined in the Credit Agreement). The Credit Agreement also contains events of default customary for financings of this type. The Company was in compliance with the Credit Agreement covenants as of December 31, 2021. As of December 31, 2021, all obligations under the Credit Agreement were borrowed by Aptiv Corporation and jointly and severally guaranteed by AGFL and Aptiv PLC, subject to certain exceptions set forth in the Credit Agreement. 50 Table of Contents Senior Unsecured Notes As of December 31, 2021, the Company had the following senior unsecured notes issued and outstanding: [[GREPCENT_TABLE]] [["Aggregate Principal Amount (in millions)","","Stated Coupon Rate","","Issuance Date","","Maturity Date","","Interest Payment Date"],["$","793","","","1.50%","","March 2015","","March 2025","","March 10"],["566","","","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"],["1,500","","","3.10%","","November 2021","","December 2051","","June 1 and December 1"]] [[/GREPCENT_TABLE]] 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 December 31, 2021, the Company was in compliance with the provisions of all series of the outstanding senior notes. Refer to Note 11. Debt to the audited consolidated financial statements included herein for additional information. Guarantor Summarized Financial Information As further described in Note 11. Debt to the audited consolidated financial statements included herein, Aptiv PLC, Aptiv Corporation and AGFL are each potential borrowers under the Credit Agreement, under which such borrowings would be guaranteed by each of the other two entities. Aptiv PLC issued the 2015 Euro-denominated Senior Notes, 2016 Euro-denominated Senior Notes, 2016 Senior Notes, 2019 Senior Notes and 2021 Senior Notes. AGFL was added as a joint and several co-issuer of the 2021 Senior Notes in December 2021, effective as of the date of issuance. Together, Aptiv PLC and AGFL comprise the “Obligor Group.” All other consolidated direct and indirect subsidiaries of Aptiv PLC are not subject to any guarantee under any series of notes outstanding (the “Non-Guarantors”). The guarantees rank equally in right of payment with all of the guarantors’ existing and future senior indebtedness, are effectively subordinated to any of their existing and future secured indebtedness to the extent of the value of the collateral securing such indebtedness and are structurally subordinated to the indebtedness of each of their existing and future subsidiaries that is not a guarantor. The below summarized financial information is presented on a combined basis after the elimination of intercompany balances and transactions among the Obligor Group and equity in earnings from and investments in the Non-Guarantors. The below summarized financial information should be read in conjunction with the Company’s audited consolidated financial statements included herein, as the financial information may not necessarily be indicative of results of operations or financial position had the subsidiaries operated as independent entities. The historical presentation of the summarized financial information has been revised to be consistent with the presentation of the entities that comprise the structure of the Obligor Group as of December 31, 2021. 51 Table of Contents [[GREPCENT_TABLE]] [["","Obligor Group"],["Year Ended December 31, 2021","(in millions)"],["Net sales","$","\u2014"],["Gross margin","$","\u2014"],["Operating loss","$","(4)"],["Net loss","$","(170)"],["Net loss attributable to Aptiv","$","(170)"],["As of December 31, 2021"],["Current assets (1)","$","7,052"],["Long-term assets (1)","$","768"],["Current liabilities (2)","$","6,999"],["Long-term liabilities","$","3,740"],["Noncontrolling interest","$","\u2014"],["As of December 31, 2020"],["Current assets (3)","$","6,150"],["Long-term assets","$","14"],["Current liabilities (2)","$","5,933"],["Long-term liabilities","$","3,053"],["Noncontrolling interest","$","\u2014"]] [[/GREPCENT_TABLE]] (1)Includes current assets due from Non-Guarantors of $4,756 million, which includes amounts due from affiliates of $5 million, and long-term assets of $754 million as of December 31, 2021. (2)Includes current liabilities due to Non-Guarantors of $6,961 million and $5,889 million as of December 31, 2021 and 2020, respectively. (3)Includes current assets due from Non-Guarantors of $4,052 million, which includes amounts due from affiliates of $6 million, as of December 31, 2020. 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 will bear interest at the three-month Euro Interbank Offered Rate (“EURIBOR”) plus 0.50% and USD borrowings will bear interest at two-month LIBOR plus 0.50%, with borrowings under either denomination carrying a minimum interest rate of 0.20%. As of December 31, 2021, Aptiv had no amounts outstanding on the European accounts receivable factoring facility. 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 facility during the year ended December 31, 2021. Finance leases and other—As of December 31, 2021 and 2020, approximately $14 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 December 31, 2021 and 2020, respectively, primarily to support arrangements and other obligations at certain of its subsidiaries. 52 Table of Contents Contractual Commitments The following table summarizes our expected cash outflows resulting from financial contracts and commitments as of December 31, 2021, with amounts denominated in foreign currencies translated using foreign currency rates as of December 31, 2021. We have not included information on our recurring purchases of materials for use in our manufacturing operations. These amounts are generally consistent from year to year, closely reflect our levels of production, and are not long-term in nature. The amounts below exclude the gross liability for uncertain tax positions of $224 million as of December 31, 2021. We do not expect a significant payment related to these obligations to be made within the next twelve months. We are not able to provide a reasonably reliable estimate of the timing of future payments relating to the non-current portion of obligations associated with uncertain tax positions. For more information, refer to Note 14. Income Taxes to the audited consolidated financial statements included herein. [[GREPCENT_TABLE]] [["","Payments due by Period"],["","Total","","2022","","2023 & 2024","","2025 & 2026","","Thereafter"],["","(in millions)"],["Debt and finance lease obligations (excluding interest)","$","4,136","","","$","8","","","$","42","","","$","1,070","","","$","3,016"],["Estimated interest costs related to debt and finance lease obligations","2,458","","","121","","","240","","","214","","","1,883"],["Operating lease obligations","431","","","103","","","148","","","88","","","92"],["Contractual commitments for capital expenditures","273","","","269","","","4","","","\u2014","","","\u2014"],["Other contractual purchase commitments, including information technology","698","","","255","","","292","","","106","","","45"],["Total","$","7,996","","","$","756","","","$","726","","","$","1,478","","","$","5,036"]] [[/GREPCENT_TABLE]] In addition to the obligations discussed above, certain of our non-U.S. subsidiaries sponsor defined benefit pension plans, some of which are funded. We have minimum funding requirements with respect to certain of our pension obligations and may periodically elect to make discretionary contributions to the plans in support of risk management initiatives. We will also have payments due with respect to our other postretirement benefit obligations. We do not fund our other postretirement benefit obligations and payments are made as costs are incurred by covered retirees. Refer to Note 12. Pension Benefits to the audited consolidated financial statements included herein for additional detail regarding our expected contributions to our pension plans and expected distributions to participants in future periods. Capital Expenditures Supplier selection in the automotive industry is generally finalized several years prior to the start of production of the vehicle. Therefore, current capital expenditures are based on customer commitments entered into previously, generally several years ago when the customer contract was awarded. As of December 31, 2021, we had approximately $273 million in outstanding cancellable and non-cancellable capital commitments. Capital expenditures by operating segment and geographic region for the periods presented were: [[GREPCENT_TABLE]] [["","Year Ended December 31,"],["","2021","","2020","","2019"],["","(in millions)"],["Signal and Power Solutions","$","434","","","$","355","","","$","495"],["Advanced Safety and User Experience","124","","","173","","","250"],["Other (1)","53","","","56","","","36"],["Total capital expenditures","$","611","","","$","584","","","$","781"],["North America","$","218","","","$","235","","","$","257"],["Europe, Middle East & Africa","233","","","212","","","292"],["Asia Pacific","149","","","129","","","218"],["South America","11","","","8","","","14"],["Total capital expenditures","$","611","","","$","584","","","$","781"]] [[/GREPCENT_TABLE]] (1)Other includes capital expenditures attributable to corporate administrative and support functions, including corporate headquarters and certain technical centers. 53 Table of Contents Cash Flows Intra-month cash flow cycles vary by region, but in general we are users of cash through the first half of a typical month and we generate cash during the latter half of a typical month. Due to this cycle of cash flows, we may utilize short-term financing, including our Revolving Credit Facility and European accounts receivable factoring facility, to manage our intra-month working capital needs. Our cash balance typically peaks at month end. We utilize a combination of strategies, including dividends, cash pooling arrangements, intercompany loan structures and other distributions and advances to provide the funds necessary to meet our global liquidity needs. We utilize a global cash pooling arrangement to consolidate and manage our global cash balances, which enables us to efficiently move cash into and out of a number of the countries in which we operate. Operating activities—Net cash provided by operating activities totaled $1,222 million and $1,413 million for the years ended December 31, 2021 and 2020, respectively. Cash flow provided by operating activities for the year ended December 31, 2021 consisted primarily of net earnings of $609 million, increased by $938 million for non-cash charges for depreciation, amortization, pension costs and extinguishment of debt, partially offset by $567 million related to changes in operating assets and liabilities, net of restructuring and pension contributions. Cash flows provided by operating activities for the year ended December 31, 2020 consisted primarily of net earnings of $1,822 million, increased by $802 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 Motional autonomous driving joint venture and $107 million related to changes in operating assets and liabilities, net of restructuring and pension contributions. Investing activities—Net cash used in investing activities totaled $729 million and $626 million for the years ended December 31, 2021 and 2020, respectively. The increase in usage is primarily attributable to $132 million paid for business acquisitions and technology investments, as compared to $51 million during the year ended December 31, 2020. Additionally, capital expenditures increased $27 million during the year ended December 31, 2021 as compared to the year ended December 31, 2020. Financing activities—Net cash used in financing activities totaled $191 million for the year ended December 31, 2021 and net cash provided by financing activities totaled $1,613 million for the year ended December 31, 2020. Cash flows used in financing activities for the year ended December 31, 2021 primarily included net proceeds of $1,450 million received from the issuance of the 2021 Senior Notes, which were utilized to redeem the $700 million 2014 Senior Notes and $650 million 4.25% Senior Notes, partially offset by $63 million of MCPS dividend payments. Cash flows provided by financing activities for the year ended December 31, 2020 primarily included $1,115 million and $1,115 million in net proceeds from the public offering of ordinary and preferred shares, net of issuance costs, respectively, partially offset by $372 million in repayments under other short-term debt agreements, $88 million of dividend payments and $57 million paid to repurchase ordinary shares. 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. Significant Accounting Policies and Critical Accounting Estimates Our significant accounting policies are described in Note 2. Significant Accounting Policies to the audited consolidated financial statements included herein. Certain of our accounting policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty, which is further exacerbated by the unknown future duration and severity of the impacts of the COVID-19 pandemic and the ongoing global supply chain disruptions. These judgments are based on our historical experience, terms of existing contracts, our evaluation of trends in the industry, information provided by our customers and information available from other outside sources, as appropriate. We consider an accounting estimate to be critical if: •It requires us to make assumptions about matters that were uncertain at the time we were making the estimate, and •Changes in the estimate or different estimates that we could have selected would have had a material impact on our financial condition or results of operations. Acquisitions and Other Transactions In accordance with the accounting guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805, Business Combinations, we allocate the purchase price of an acquired business to its identifiable assets and liabilities based on estimated fair values. The excess of the purchase price over the amount allocated to 54 Table of Contents the assets and liabilities, if any, is recorded as goodwill. The process to estimate fair value described herein is generally applicable to other transactions, including the fair value estimates used in establishing the identifiable assets, liabilities and goodwill recorded upon formation of Motional, Aptiv’s autonomous driving joint venture, and the resulting equity method investment recorded on Aptiv’s balance sheet. An acquisition may include a contingent consideration component. The fair value of the contingent consideration is estimated as of the date of the acquisition and is recorded as part of the purchase price. This estimate is updated in future periods and any changes in the estimate, which are not considered an adjustment to the purchase price, are recorded in our consolidated statements of operations. We use all available information to estimate fair values. We typically engage outside appraisal firms to assist in the fair value determination of identifiable intangible assets and any other significant assets or liabilities. We adjust the preliminary purchase price allocation, as necessary, up to one year after the acquisition closing date as we obtain more information regarding asset valuations and liabilities assumed. Our purchase price allocation methodology contains uncertainties because it requires management to make assumptions and to apply judgment to estimate the fair value of acquired assets and liabilities. Management estimates the fair value of assets and liabilities based upon quoted market prices, the carrying value of the acquired assets and widely accepted valuation techniques, including discounted cash flows and market multiple analyses. Unanticipated events or circumstances may occur which could affect the accuracy of our fair value estimates, including assumptions regarding industry economic factors and business strategies. Other estimates used in determining fair value include, but are not limited to, future cash flows or income related to intangibles, market rate assumptions, actuarial assumptions for benefit plans and appropriate discount rates. Our estimates of fair value are based upon assumptions believed to be reasonable, but that are inherently uncertain, and therefore, may not be realized. Accordingly, there can be no assurance that the estimates, assumptions, and values reflected in the valuations will be realized, and actual results could vary materially. Warranty Obligations and Product Recall Costs Estimating warranty obligations requires us to forecast the resolution of existing claims and expected future claims on products sold. We base our estimate on historical trends of units sold and payment amounts, combined with our current understanding of the status of existing claims and discussions with our customers. The key factors which impact our estimates are (1) the stated or implied warranty period; (2) OEM source; (3) OEM policy decisions regarding warranty claims; and (4) OEMs seeking to hold suppliers responsible for product warranties. These estimates are re-evaluated on an ongoing basis. Actual warranty obligations could differ from the amounts estimated requiring adjustments to existing reserves in future periods. Due to the uncertainty and potential volatility of the factors contributing to developing these estimates, changes in our assumptions could materially affect our results of operations. In addition to our ordinary warranty provisions with customers, we are also at risk for product recall costs, which are costs incurred when a customer or the Company recalls a product through a formal campaign soliciting return of that product. In addition, the National Highway Traffic Safety Administration (“NHTSA”) has the authority, under certain circumstances, to require recalls to remedy safety concerns. Product recall costs typically include the cost of the product being replaced as well as the customer’s cost of the recall, including labor to remove and replace the recalled part. The Company accrues for costs related to product recalls as part of our warranty accrual at the time an obligation becomes probable and can be reasonably estimated. Actual costs incurred could differ from the amounts estimated, requiring adjustments to these reserves in future periods. It is possible that changes in our assumptions or future product recall issues could materially affect our financial position, results of operations or cash flows. Legal and Other Contingencies We are involved from time to time in various legal proceedings and claims, including commercial or contractual disputes, product liability claims, government investigations, product warranties and environmental and other matters, that arise in the normal course of business. We routinely assess the likelihood of any adverse judgments or outcomes related to these matters, as well as ranges of probable losses, by consulting with internal personnel involved with such matters as well as with outside legal counsel handling such matters. We have accrued for estimated losses for those matters where we believe that the likelihood of a loss has occurred, is probable and the amount of the loss is reasonably estimable. The determination of the amount of such reserves is based on knowledge and experience with regard to past and current matters and consultation with internal personnel involved with such matters and with outside legal counsel handling such matters. The amount of such reserves may change in the future due to new developments or changes in circumstances. The inherent uncertainty related to the outcome of these matters can result in amounts materially different from any provisions made with respect to their resolution. Refer to Note 13. Commitments and Contingencies to the audited consolidated financial statements included herein for additional information. 55 Table of Contents Restructuring Accruals have been recorded in conjunction with our restructuring actions. These accruals include estimates primarily related to employee termination costs, contract termination costs and other related exit costs in conjunction with workforce reduction and programs related to the rationalization of manufacturing and engineering processes. Actual costs may vary from these estimates. These accruals are reviewed on a quarterly basis and changes to restructuring actions are appropriately recognized when identified. Pensions We use actuarial estimates and related actuarial methods to calculate our obligation and expense. We are required to select certain actuarial assumptions, which are determined based on current market conditions, historical information and consultation with and input from our actuaries and asset managers. Refer to Note 12. Pension Benefits to the audited consolidated financial statements included herein for additional details. The key factors which impact our estimates are (1) discount rates; (2) asset return assumptions; and (3) actuarial assumptions such as retirement age and mortality which are determined as of the current year measurement date. We review our actuarial assumptions on an annual basis and make modifications to the assumptions based on current rates and trends when appropriate. Experience gains and losses, as well as the effects of changes in actuarial assumptions and plan provisions are recognized in other comprehensive income. Cumulative actuarial gains and losses in excess of 10% of the projected benefit obligation (“PBO”) for a particular plan are amortized over the average future service period of the employees in that plan. The principal assumptions used to determine the pension expense and the actuarial value of the projected benefit obligation for the U.S. and non-U.S. pension plans were: Assumptions used to determine benefit obligations at December 31: [[GREPCENT_TABLE]] [["","Pension Benefits"],["","U.S. Plans","","Non-U.S. Plans"],["","2021","","2020","","2021","","2020"],["Weighted-average discount rate","1.90","%","","1.20","%","","3.09","%","","2.21","%"],["Weighted-average rate of increase in compensation levels","N/A","","N/A","","2.47","%","","3.64","%"]] [[/GREPCENT_TABLE]] Assumptions used to determine net expense for years ended December 31: [[GREPCENT_TABLE]] [["","Pension Benefits"],["","U.S. Plans","","Non-U.S. Plans"],["","2021","","2020","","2019","","2021","","2020","","2019"],["Weighted-average discount rate","1.20","%","","2.40","%","","3.80","%","","2.21","%","","2.87","%","","3.53","%"],["Weighted-average rate of increase in compensation levels","N/A","","N/A","","N/A","","3.64","%","","3.69","%","","3.74","%"],["Weighted-average expected long-term rate of return on plan assets","N/A","","N/A","","N/A","","4.29","%","","4.68","%","","4.95","%"]] [[/GREPCENT_TABLE]] We select discount rates by analyzing the results of matching each plan’s projected benefit obligations with a portfolio of high-quality fixed income investments rated AA or higher by Standard and Poor’s or Moody’s. Aptiv does not have any U.S. pension assets; therefore no U.S. asset rate of return calculation was necessary. The primary funded non-U.S. plans are in the U.K. and Mexico. For the determination of 2021 expense, we assumed a long-term expected asset rate of return of approximately 3.75% and 7.50% for the U.K. and Mexico, respectively. We evaluated input from local actuaries and asset managers, including consideration of recent fund performance and historical returns, in developing the long-term rate of return assumptions. The assumptions for the U.K. and Mexico are primarily conservative long-term, prospective rates. To determine the expected return on plan assets, the market-related value of our plan assets is actual fair value. 56 Table of Contents Our pension expense for 2022 is determined at the December 31, 2021 measurement date. For purposes of analysis, the following table highlights the sensitivity of our pension obligations and expense attributable to changes in key assumptions: [[GREPCENT_TABLE]] [["Change in Assumption","","Impact on Pension Expense","","Impact on PBO"],["25 basis point (\u201cbp\u201d) decrease in discount rate","","+ $1 million","","+ $28 million"],["25 bp increase in discount rate","","- $1 million","","- $27 million"],["25 bp decrease in long-term expected return on assets","","+ $1 million","","\u2014"],["25 bp increase in long-term expected return on assets","","- $1 million","","\u2014"]] [[/GREPCENT_TABLE]] The above sensitivities reflect the effect of changing one assumption at a time. It should be noted that economic factors and conditions often affect multiple assumptions simultaneously and the effects of changes in key assumptions are not necessarily linear. The above sensitivities also assume no changes to the design of the pension plans and no major restructuring programs. Based on information provided by our actuaries and asset managers, we believe that the assumptions used are reasonable; however, changes in these assumptions could impact our financial position, results of operations or cash flows. Refer to Note 12. Pension Benefits to the audited consolidated financial statements included herein for additional information. Valuation of Long-Lived Assets, Intangible Assets and Investments in Affiliates and Expected Useful Lives We monitor our long-lived and definite-lived assets, including our investments in affiliates, the most significant of which is our investment in Motional, Inc., for impairment indicators on an ongoing basis based on projections of anticipated future cash flows, including future profitability assessments of various manufacturing sites when events and circumstances warrant such a review. If impairment indicators exist, we perform the required impairment analysis by comparing the undiscounted cash flows expected to be generated from the long-lived assets to the related net book values. If the net book value exceeds the undiscounted cash flows, an impairment loss is measured and recognized. An impairment loss is measured as the difference between the net book value and the estimated fair value of the long-lived assets. Even if an impairment charge is not required, a reassessment of the useful lives over which depreciation or amortization is being recognized may be appropriate based on our assessment of the recoverability of these assets. We estimate cash flows and fair value using internal budgets based on recent sales data, independent automotive production volume estimates and customer commitments and review of appraisals. The key factors which impact our estimates are (1) future production estimates; (2) customer preferences and decisions; (3) product pricing; (4) manufacturing and material cost estimates; and (5) product life / business retention. Any differences in actual results from the estimates could result in fair values different from the estimated fair values, which could materially impact our future results of operations and financial condition. We believe that the projections of anticipated future cash flows and fair value assumptions are reasonable; however, changes in assumptions underlying these estimates could affect our valuations. Goodwill and Intangible Assets We periodically review goodwill for impairment indicators. We review goodwill for impairment annually in the fourth quarter or more frequently if events or changes in circumstances indicate that goodwill might be impaired. The Company performs the goodwill impairment review at the reporting unit level. We perform a qualitative assessment (step 0) of whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount. If not, no further goodwill impairment testing is performed. If so, we perform the step 1 test discussed hereafter. Our qualitative assessment involves significant estimates, assumptions, and judgments, including, but not limited to, macroeconomic conditions, industry and market conditions, financial performance of the Company, reporting unit specific events and changes in the Company’s share price.  If the fair value of the reporting unit is greater than its carrying amount (step 1), goodwill is not considered to be impaired. We estimate the fair value of our reporting units using a combination of a future discounted cash flow valuation model and, if possible, a comparable market transaction model. Estimating fair value requires the Company to make judgments about appropriate discount rates, growth rates, relevant comparable company earnings multiples and the amount and timing of expected future cash flows. If the fair value of the reporting unit is less than its carrying amount, an entity must record an impairment charge based on the amount by which a reporting unit’s carrying value exceeds its estimated fair value, limited to the amount of goodwill allocated to that reporting unit. We review indefinite-lived intangible assets for impairment annually or more frequently if events or changes in circumstances indicate the assets might be impaired. Similar to the goodwill assessment described above, the Company first performs a qualitative assessment of whether it is more likely than not that an indefinite-lived intangible asset is impaired. If necessary, the Company then performs a quantitative impairment test by comparing the estimated fair value of the asset, based upon its forecasted cash flows, to its carrying value. Other intangible assets with definite lives are amortized over their useful lives and are subject to impairment testing only if events or circumstances indicate that the asset might be impaired, as described above. 57 Table of Contents Income Taxes Deferred tax assets and liabilities reflect temporary differences between the amount of assets and liabilities for financial and tax reporting purposes. Such amounts are adjusted, as appropriate, to reflect changes in tax rates expected to be in effect when the temporary differences reverse. A valuation allowance is recorded to reduce our deferred tax assets to the amount that is more likely than not to be realized. Changes in tax laws or accounting standards and methods may affect recorded deferred taxes in future periods. When establishing a valuation allowance, we consider future sources of taxable income such as “future reversals of existing taxable temporary differences, future taxable income exclusive of reversing temporary differences and carryforwards” and “tax planning strategies.” A tax planning strategy is defined as “an action that: is prudent and feasible; an enterprise ordinarily might not take, but would take to prevent an operating loss or tax credit carryforward from expiring unused; and would result in realization of deferred tax assets.” In the event we determine it is more likely than not that the deferred tax assets will not be realized in the future, the valuation adjustment to the deferred tax assets will be charged to earnings in the period in which we make such a determination. The valuation of deferred tax assets requires judgment and accounting for the deferred tax effect of events that have been recorded in the financial statements or in tax returns and our future projected profitability. Changes in our estimates, due to unforeseen events or otherwise, could have a material impact on our financial condition and results of operations. We calculate our current and deferred tax provision based on estimates and assumptions that could differ from the actual results reflected in income tax returns filed in subsequent years. Adjustments based on filed returns are recorded when identified. The amount of income taxes we pay is subject to ongoing audits by federal, state and foreign tax authorities. Our estimate of the potential outcome of any uncertain tax issue is subject to management’s assessment of relevant risks, facts, and circumstances existing at that time. We use a more-likely-than-not threshold for financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. We record a liability for the difference between the benefit recognized and measured and tax position taken or expected to be taken on our tax return. To the extent that our assessment of such tax positions changes, the change in estimate is recorded in the period in which the determination is made. We report tax-related interest and penalties as a component of income tax expense. We do not believe there is a reasonable likelihood that there will be a material change in the tax related balances or valuation allowance balances. However, due to the complexity of some of these uncertainties, the ultimate resolution may be materially different from the current estimate. Refer to Note 14. Income Taxes to the audited consolidated financial statements included herein for additional information. Recently Issued Accounting Pronouncements Refer to Note 2. Significant Accounting Policies to the audited consolidated financial statements included herein for a complete description of recent accounting standards which we have not yet been required to implement which may be applicable to our operations. Additionally, the significant accounting standards that have been adopted during the year ended December 31, 2021 are described.