Business context and reporting period
This is Delphi Automotive PLC’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2013. The filing describes a global vehicle-components manufacturer serving automotive and commercial-vehicle markets. The supplied filing is for Delphi Automotive PLC, not a filing under the name Aptiv PLC.
Financial performance and position
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Net sales | $4.017 billion | $3.663 billion | $12.281 billion | $11.752 billion |
| Gross margin | $679 million; 16.9% | $605 million; 16.5% | $2.140 billion; 17.4% | $2.049 billion; 17.4% |
| Operating income | $387 million | $367 million | $1.267 billion | $1.299 billion |
| Net income attributable to Delphi | $271 million | $269 million | $914 million | $941 million |
| Diluted EPS attributable to Delphi | $0.87 | $0.84 | $2.92 | $2.89 |
| Adjusted EBITDA | $566 million | $483 million | $1.773 billion | $1.656 billion |
For the nine months, operating cash flow was $1.070 billion, capital expenditures were $512 million, and cash provided after capital expenditures was $558 million (calculated). Cash and cash equivalents were $1.053 billion at September 30, 2013, versus $1.105 billion at year-end 2012. Total debt was $2.418 billion, including $59 million current debt; management reported net debt of approximately $1.4 billion. The $1.5 billion revolving facility was undrawn at quarter-end, subject to approximately $10 million in letters of credit. Delphi also disclosed a €350 million committed European receivables-factoring facility.
Total assets were $10.811 billion and shareholders’ equity was $3.223 billion. Current assets of $5.787 billion exceeded current liabilities of $3.857 billion. The company paid $159 million in ordinary-share dividends and repurchased $362 million of shares during the nine months.
Material changes versus the prior comparable period
- Q3 sales rose 10%; nine-month sales rose 5%. Management attributed the increase principally to the MVL acquisition, which added approximately $206 million of Q3 sales and $627 million for the nine-month period. Nine-month volumes were broadly flat overall, with North American and Asia-Pacific growth offset by European weakness.
- Q3 operating income increased $20 million, while nine-month operating income declined $32 million. Nine-month net income attributable to Delphi fell $27 million despite higher sales.
- Gross margin percentage increased in Q3 but was unchanged for the nine-month period. Segment performance was mixed: Electrical/Electronic Architecture and Electronics and Safety improved, while Powertrain Systems and Thermal Systems weakened in the nine-month comparison.
- Operating cash flow declined $98 million year over year, reflecting lower earnings, higher working-capital requirements, and timing of payments for the Value Creation Plan. Accounts receivable and inventory uses of cash increased.
- Debt refinancing altered the maturity and financing mix: Delphi issued $800 million of 5.00% senior notes due 2023, repaid its Tranche B term loan, and extended the Tranche A term loan and revolving facility to 2018. The refinancing generated a $39 million debt-extinguishment loss.
Outlook, commentary, risks and unusual items
- No specific full-year revenue or earnings guidance is stated in the supplied filing text. Management said it expected cash, available liquidity, and operating cash flows to fund operations, restructuring, dividends, and capital expenditures, and expressed confidence in the company’s ability to fund 2013 and beyond.
- Management cited persistent economic uncertainty and weak vehicle demand in Europe, OEM production-schedule reductions, pricing pressure, and possible lower vehicle content as risks. It also noted commodity-cost volatility, foreign-exchange exposure, and the cyclical nature of automotive production. The company said its low-cost structure and geographic diversification support resilience.
- Restructuring commitments totaled approximately $375 million, with about 80% in Europe, including workforce reductions and plant closures. The actions were expected to be substantially completed during 2014. Delphi recorded $95 million of restructuring expense in the first nine months of 2013 and expected approximately $70 million of additional restructuring cash expenditures during 2013.
- Management identified proposed Mexican tax reform as a potential risk but said the impact could not yet be determined. Separately, the IRS was reviewing whether Delphi should be treated as a U.S. domestic corporation for federal tax purposes. Delphi disputed that position, had recorded no accrual, and warned that an adverse determination could materially increase future tax exposure.
- Brazilian litigation claims asserted against Delphi totaled approximately $200 million; the company had accrued $33 million. Management considered its reserves adequate but noted final resolution costs could differ materially. Environmental reserves were approximately $23 million; the filing said the reasonably possible loss beyond recorded amounts was not material.
- Other notable items included a $12 million tax expense in Q3 from the U.K. corporate-rate reduction, offset in part in the nine-month tax provision by a $22 million research-credit benefit. Delphi also recognized an approximately $11 million gain on the sale of a closed European facility.
- GM and Volkswagen together represented approximately 28% of Q3 sales and 27% of nine-month sales. The filing reported no material changes in risk factors from the 2012 Form 10-K and no material adverse change in market-risk disclosures.
Important facts for investors to verify
- Confirm the issuer and ticker context: this 2013 filing is for Delphi Automotive PLC; it is not titled an Aptiv PLC filing.
- Track whether the European restructuring program achieves expected savings and completion timing, and compare actual cash costs with the remaining commitments.
- Assess the quality and sustainability of sales and Adjusted EBITDA growth, including MVL’s contribution, regional production trends, and weaker Powertrain and Thermal results.
- Monitor working-capital movements and operating cash conversion, as operating cash flow declined despite higher reported sales.
- Review debt, liquidity availability, covenant compliance, and the effects of refinancing, share repurchases, and dividends on financial flexibility.
- Follow the IRS tax-status review, proposed Mexican tax changes, and outcomes of Brazilian claims and other contingencies.