Business context and reporting period
Delphi Automotive PLC (the registrant named in this filing; not Aptiv PLC) filed this Form 10-Q for the three months ended March 31, 2013. Delphi was a global vehicle-components manufacturer serving automotive and commercial-vehicle markets. Results are compared with the three months ended March 31, 2012; financial amounts below are in U.S. dollars.
Key financial metrics
| Metric | Q1 2013 | Q1 2012 / prior period |
|---|---|---|
| Net sales | $4.024 billion | $4.092 billion; down 2% |
| Gross margin | $685 million; 17.0% | $719 million; 17.6% |
| Operating income | $397 million | $464 million |
| Net income attributable to Delphi | $276 million; $0.88 per diluted share | $342 million; $1.04 per diluted share |
| Adjusted EBITDA | $562 million | $584 million |
| Operating cash flow | $149 million | $293 million |
| Capital expenditures | $213 million | $260 million |
| Cash and cash equivalents, at period end | $830 million | $1.105 billion at Dec. 31, 2012 |
| Total debt, at period end | $2.478 billion | $2.464 billion at Dec. 31, 2012 |
Gross margin declined 0.6 percentage points and operating margin was approximately 9.9%, compared with approximately 11.3% a year earlier. Operating cash flow less capital expenditures was negative $64 million, versus positive $33 million in Q1 2012. The company reported net debt of approximately $1.6 billion and stated total liquidity was approximately $2.3 billion, including cash and available revolving-credit capacity. The $1.5 billion revolver was undrawn at quarter-end, apart from approximately $11 million in letters of credit; availability was therefore reduced by those letters.
Material changes versus the prior comparable period
- Sales fell $68 million. Lower volumes, net of contractual price reductions, reduced sales by $261 million; foreign exchange reduced sales by $17 million. Acquisitions and divestitures, primarily the MVL acquisition, contributed approximately $208 million of sales.
- Management cited European weakness and reduced OEM production as the main volume pressure. Sales in Europe declined 11%; overall volumes declined 5%. Asia Pacific, particularly China, and MVL partly offset the decline.
- Net income attributable to Delphi fell $66 million. Lower operating income and a $39 million debt-extinguishment loss weighed on results; lower tax expense partly offset those items. The effective tax rate was 11%, versus 18%.
- Adjusted EBITDA fell $22 million. Electrical/Electronic Architecture increased to $285 million from $249 million; Powertrain Systems declined to $162 million from $202 million; Electronics and Safety declined to $90 million from $99 million; Thermal Systems declined to $25 million from $34 million.
- Cash declined $275 million during the quarter. Operating cash flow was lower, while financing included $122 million of share repurchases and $53 million of dividends. Capital spending was lower year over year.
Outlook, management commentary, risks and unusual items
- Management expected global automotive production to increase 2% in 2013, while forecasting a further 4% decline in European vehicle production versus 2012. These were industry expectations cited by management, not company earnings guidance. No specific earnings or revenue guidance is provided in the filing.
- Management said cash, available liquidity and operating cash flow were expected to fund operations, restructuring and capital investment in 2013 and beyond. It estimated, using 2012 results and assuming constant product mix and pricing, that EBITDA break-even would occur at a 36% downturn in current product volumes.
- Restructuring commitments reached approximately $375 million, including about $75 million of actions initiated in Q1. Approximately 80% were in Europe; actions included workforce reductions and plant closures and were expected to be substantially completed by early 2014. Q1 restructuring expense was $32 million; expected 2013 cash expenditures for these actions were approximately $150 million.
- In February 2013, Delphi issued $800 million of 5.00% senior notes due 2023 and used proceeds primarily to repay term loans. The March credit-agreement amendment repaid the Tranche B loan, extended the Tranche A loan and revolver to 2018, and generated a $39 million extinguishment loss. The company reported covenant compliance at March 31, 2013; the credit agreement requires a consolidated leverage ratio below 2.75 to 1.0.
- The first-quarter tax rate benefited by approximately $22 million from retroactive reinstatement of the 2012 research and development credit. The company disclosed an IRS review of its U.S. tax classification; no accrual was recorded, and an adverse determination could materially increase future tax liabilities.
- Delphi reported a European Commission antitrust investigation concerning alleged wire-harness conduct. It was cooperating, could not estimate a reasonably possible loss range, and had recorded no accrual. In Brazil, asserted claims totaled $221 million, with $39 million accrued; ultimate resolution could differ materially. Environmental remediation reserves were approximately $23 million.
- Other risks cited include automotive cyclicality and OEM production, persistent European weakness, customer pricing pressure, commodity and foreign-exchange volatility, acquisition integration, and customer or labor disruptions. GM and Volkswagen together represented approximately 26% of Q1 sales.
- Delphi initiated a quarterly cash dividend of $0.17 per share and repurchased 2.85 million shares for approximately $122 million during the quarter. The September 2012 repurchase authorization had approximately $525 million remaining at March 31.
Most important facts for investors to verify
- Confirm that the filing is for Delphi Automotive PLC and assess how its historical results relate to the company identified in the request as Aptiv PLC.
- Track whether European production weakness, lower volumes and pricing pressure continue, and whether MVL contributes the anticipated growth and synergies.
- Monitor cash conversion and working-capital movements: Q1 operating cash flow fell to $149 million and cash less capital expenditures was negative $64 million.
- Review restructuring spending against the approximately $375 million program commitment and approximately $150 million expected 2013 cash outlay.
- Assess the effects of the debt refinancing, interest-rate exposure, covenant headroom, and cash returned through repurchases and dividends.
- Follow developments in the EU antitrust investigation, Brazilian claims and IRS tax-classification review, none of which had a recorded accrual for the EU or IRS matters.