Delphi Automotive PLC — Form 10-Q Summary
Registrant note: The supplied filing is for Delphi Automotive PLC, not Aptiv PLC. It covers the quarter and nine months ended September 30, 2015; comparative figures are for 2014. Thermal Systems results were reclassified as discontinued operations in both periods.
Business context and reporting period
Delphi was a global vehicle-components supplier with Electrical/Electronic Architecture, Powertrain Systems, and Electronics and Safety segments. Management positioned its portfolio around “Safe, Green and Connected” vehicle trends. Unless stated otherwise, amounts below are in U.S. dollars and millions.
Key financial metrics
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Net sales | $3,631 | $3,762 | $11,286 | $11,721 |
| Gross margin | $769; 21.2% | $721; 19.2% | $2,292; 20.3% | $2,254; 19.2% |
| Operating income | $461 | $392 | $1,388 | $1,294 |
| Income from continuing operations attributable to Delphi | $351 | $299 | $989 | $969 |
| Net income attributable to Delphi, including discontinued operations | $404 | $305 | $1,258 | $1,007 |
| Diluted EPS attributable to Delphi | $1.42 | $1.02 | $4.36 | $3.32 |
| Operating cash flow, continuing operations | Not separately reported | Not separately reported | $1,029 | $1,215 |
At September 30, cash and cash equivalents were $434, total debt was $3,122, and net debt was approximately $2,688. Current assets were $5,054 and current liabilities $4,028. The filing reported $1.9 billion of liquidity, including cash and available financing. Capital expenditures for the first nine months were $539; total operating cash flow, including discontinued operations, was $1,008.
Changes versus the prior comparable period
- Sales fell 3% in Q3 and 4% year to date, mainly due to unfavorable foreign exchange—primarily the euro—and contractual price reductions. Volume growth was 7% in Q3 and 6% year to date, led by North America and Asia Pacific.
- Gross margin rose 2.0 percentage points in Q3 and 1.1 points year to date. Management cited operating improvements and currency effects; year-to-date segment adjusted operating income also faced $127 of unfavorable currency impacts and $19 of higher warranty costs.
- Operating income improved despite lower sales, helped by lower restructuring charges: $36 in Q3 versus $46, and $69 year to date versus $121.
- Continuing-operations operating cash flow declined $186 year to date. The filing attributes pressure in part to changes in working capital, including higher receivables and inventories.
Outlook, transactions, risks and unusual items
- Outlook: No formal earnings or revenue guidance is stated in the supplied filing. Management expected ongoing restructuring costs in 2015, principally in Europe and South America, and said available liquidity and operating cash flows should fund operations, capital investment, dividends and the HellermannTyton offer.
- Market commentary: Management highlighted a cyclical auto market, continued weakness in South America, and uncertainty in China; Chinese vehicle production fell 8% year over year in Q3. It cited an expected 20% decline in South American vehicle production for 2015. Foreign exchange, OEM pricing pressure, commodity costs and shifts in vehicle mix were additional sensitivities.
- Disposals: Delphi sold its wholly owned Thermal Systems business in June for approximately $660 million net cash proceeds and recognized a $285 million after-tax gain. It sold its KDAC interest in September for $70 million proceeds; Q3 included a $47 million after-tax gain, while the nine-month KDAC result was a $41 million net loss after an $88 million first-quarter impairment. A sale of the SDAAC interest was agreed after quarter-end, with approximately $100 million expected proceeds and closing anticipated in the first half of 2016.
- Acquisitions: Delphi acquired automated-vehicle software developer Ottomatika for total consideration of $32 million. HellermannTyton shareholders approved the proposed approximately £1.07 billion cash offer in October; regulatory approvals and closing remained pending. Delphi had placed $820 million on deposit at quarter-end and had not drawn its £550 million bridge facility. A Control-Tec acquisition agreement was announced October 22, after quarter-end.
- Capital returns and debt: The company repurchased $959 of shares in the first nine months under a $1.5 billion program and paid $216 in ordinary-share dividends. It issued €700 million of 1.50% notes due 2025 and redeemed $500 million of 6.125% notes, recording a $52 debt-extinguishment loss. The company reported compliance with debt covenants.
- Contingencies: The filing describes Brazil claims totaling approximately $130, with $23 accrued; a disputed U.S. tax position could, if resolved adversely, raise the annual effective tax rate to approximately 20%–22%. Delphi reported no reserve for the GM ignition-switch litigation or unsecured-creditor distribution claim because it did not consider loss probable. It had voluntarily disclosed potential China-related FCPA issues to U.S. authorities and could not assure the outcome.
- Other unusual effects and risks: A $39 pretax gain from the Reception Systems sale benefited Q3 operating results; the Argentina electrical-wiring exit generated a $14 loss earlier in 2015. Currency translation reduced other comprehensive income by $293 in the first nine months. Management cited potential exposure to customer production declines, recalls, pricing and commodity volatility.
Important facts for investors to verify
- Confirm the issuer identity: the filing names Delphi Automotive PLC, despite the request metadata naming Aptiv PLC.
- Separate continuing earnings from discontinued-operation gains when assessing recurring performance, and note the retrospective Thermal Systems reclassification.
- Track HellermannTyton closing conditions, funding sources, and the effect of the acquisition on debt and liquidity; also confirm the SDAAC sale outcome.
- Monitor cash conversion and working-capital needs, particularly receivables and inventories, alongside the planned share repurchases and dividends.
- Follow the IRS tax-status dispute, Brazil litigation accruals, FCPA inquiry, and disclosed product/customer-related risks.