Business context and reporting period
The supplied filing is Delphi Automotive PLC’s Form 10-K for the fiscal year ended December 31, 2013, not an Aptiv PLC filing or a standalone fourth-quarter filing. It includes unaudited quarterly results for Q4. Delphi made vehicle components and technology for automotive and commercial-vehicle markets across four segments: Electrical/Electronic Architecture, Powertrain Systems, Electronics and Safety, and Thermal Systems.
Financial performance and liquidity
Amounts are in U.S. dollars; financial-statement amounts are in millions unless otherwise stated.
| Metric | FY 2013 | FY 2012 |
|---|---|---|
| Net sales | $16,463 | $15,519 |
| Gross margin | $2,896; 17.6% | $2,658; 17.1% |
| Operating income | $1,684 | $1,476 |
| Net income attributable to Delphi | $1,212 | $1,077 |
| Diluted earnings per share | $3.89 | $3.33 |
| Adjusted EBITDA and margin | $2,384; 14.5% | $2,142; 13.8% |
| Cash from operating activities | $1,750 | $1,478 |
| Capital expenditures | $682 | $705 |
Q4 2013 net sales were $4,182 million, versus $3,767 million in Q4 2012; operating income was $417 million versus $177 million, and net income attributable to Delphi was $298 million versus $136 million. Diluted EPS was $0.97 versus $0.43. The filing does not provide quarterly cash-flow figures.
At year-end, cash and cash equivalents were $1,389 million, total debt was $2,412 million and net debt was approximately $1,023 million. The $1.5 billion revolving credit facility was undrawn, apart from approximately $10 million in letters of credit; Delphi also had a committed €350 million European receivables-factoring facility. Management cited approximately $2.9 billion of cash and available financing. Working capital, as defined by Delphi, was $1,160 million. Cash and cash equivalents rose $284 million during the year.
Changes versus comparable periods
- FY sales increased 6% year over year, exceeding reported global OEM production growth of 3%. Management attributed the increase to MVL, acquired in October 2012, and stronger North American and Asia Pacific sales; acquisition and divestiture effects contributed approximately $695 million.
- Adjusted EBITDA increased $242 million. Management cited operational improvements and acquisition effects, partly offset by volume and contractual price reductions. Gross margin improved 0.5 percentage points.
- Electrical/Electronic Architecture sales rose to $7,972 million from $6,815 million, with Adjusted EBITDA up to $1,237 million from $945 million. Powertrain Systems sales declined to $4,424 million from $4,656 million and Adjusted EBITDA to $671 million from $723 million. Thermal Systems Adjusted EBITDA fell to $80 million from $111 million.
- Net income attributable to Delphi increased $135 million. FY 2013 included $145 million in restructuring charges and a $39 million loss on debt extinguishment; FY 2012 included $171 million in restructuring charges and a $25 million favorable warranty adjustment.
- Debt declined by $52 million from year-end 2012. In 2013, Delphi issued $800 million of 5.0% senior notes due 2023 and used proceeds primarily to repay its Tranche B term loan. It also repurchased $457 million of shares and paid $211 million in dividends.
Outlook, commentary, risks and unusual items
- Management expected global OEM production to increase 5% in 2014 and planned approximately $1.3 billion of 2014 engineering expenditures. It said liquidity was sufficient for operations and capital investment in 2014 and beyond; this is management’s outlook, not a guarantee.
- Approximately $375 million of restructuring actions, primarily in Europe, were expected to be substantially completed in the first half of 2014. Delphi recorded $145 million of related charges in 2013 and spent approximately $150 million in cash on these actions during the year.
- Key business risks include automotive production cyclicality, continued European weakness, customer pricing pressure and termination or resourcing of programs, commodity and foreign-exchange volatility, supply-chain disruption, product warranty/recall exposure, and competition. GM represented 17% of 2013 sales; the five largest customers represented approximately 44%.
- Non-U.S. pension plans were underfunded by $906 million at year-end; Delphi anticipated approximately $90 million of pension contributions in 2014. Environmental remediation reserves were approximately $21 million.
- Brazil-related claims totaled approximately $200 million, against reserves of $31 million. The filing warns that final outcomes may differ materially from recorded estimates.
- The IRS was reviewing whether Delphi Automotive LLP and, consequently, Delphi Automotive PLC should be treated as U.S. domestic corporations for federal tax purposes. No accrual was recorded; an adverse conclusion could materially increase future tax liability.
- Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting. The filing reports effective disclosure controls and internal controls as of December 31, 2013.
Important facts for investors to verify
- Confirm the intended issuer and period: the source is Delphi Automotive PLC’s FY 2013 10-K, although the request identifies Aptiv PLC and “2013 Q4.”
- Separate organic growth from the MVL acquisition contribution and assess the sustainability of margin and Adjusted EBITDA improvement; Adjusted EBITDA is a non-GAAP measure.
- Review 2014 production assumptions and the timing, cash costs and expected benefits of the European restructuring.
- Track the IRS tax-status review, Brazil litigation exposure, pension funding and potential warranty or environmental costs.
- Assess customer concentration, European production trends, commodity pass-through limitations and the effects of share repurchases and dividends on liquidity.