Sensata Technologies Holding N.V. — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013; unaudited. Unless otherwise stated, amounts are U.S. dollars. The company makes sensors and controls for automotive, heavy vehicle, industrial, aerospace, and other markets.
Financial performance
- Revenue: $470.4 million, down 4.4% from $492.0 million. Organic revenue fell 5%, partly offset by 1% from a controls acquisition. Sensors revenue declined 7.5% to $332.6 million; controls revenue rose 4.1% to $137.8 million.
- Profitability: Operating profit was $74.8 million, down from $78.2 million; operating margin was 15.9%, unchanged year over year. Net income was $34.7 million versus $38.9 million, and diluted EPS was $0.19 versus $0.21. Net margin was 7.4% versus 7.9%.
- Costs and unusual items: Cost of revenue was 65.6% of revenue versus 66.1%, with management citing lower material costs. Restructuring and special charges were $1.7 million versus $0.6 million; 2013 included restructuring costs and insurance proceeds related to the South Korea facility fire. Currency translation and other items were a net loss of $2.6 million, compared with a $4.2 million gain in Q1 2012.
- Cash flow: Operating cash flow was $84.8 million, down from $115.0 million, primarily due to working-capital timing, including supplier payments. Investing cash outflow was $13.3 million, including $14.3 million of capital expenditures, partly offset by $1.4 million of fire-related insurance proceeds. Financing cash outflow was $54.1 million, mainly reflecting $55.1 million of share repurchases. Cash increased $17.5 million to $431.0 million.
- Liquidity and debt: Gross debt, including leases and other financing obligations, was approximately $1.835 billion at March 31. Cash was $431.0 million; the $250 million revolver had no borrowings and $244.7 million available after letters of credit. Current liabilities included $212.9 million of current debt and financing obligations. In April, the company issued $500 million of 4.875% notes due 2023 and used the proceeds plus $200 million of cash to repay $700 million of term loans. It reported compliance with debt covenants at quarter-end.
- Shareholders’ equity: The company repurchased approximately 1.7 million shares for $55.1 million during the quarter. After March 31, it repurchased approximately 2.1 million shares for $68.5 million. A February secondary offering of 15 million shares was by existing shareholders; the company received no proceeds.
Changes, outlook, and risks
- Revenue weakness reflected lower vehicle production in Europe and developed Asia, and softness in North American heavy and commercial trucks. Controls growth reflected market recovery, share gains, and an acquisition, partly offset by capacity constraints following the South Korea fire.
- Management expected 2013 capital expenditures of approximately $70–$90 million, funded from operating cash flow, and believed available liquidity would fund operations, capital spending, and debt service for at least 12 months. The filing provides no specific revenue or earnings guidance.
- The 2011 restructuring plan was expected to cost $48–$53 million in total; $45.2 million had been incurred through March 31, with completion and remaining payments anticipated in 2013. The company said additional fire-related costs could arise in 2013.
- Risks highlighted include automotive and end-market demand, customer pricing pressure and concentration, competition, foreign operations and currency exposure, and leverage. The company described pending product-related litigation, including Ford speed-control switch cases, an Italian product-defect claim, Venmar-related claims, and aircraft litigation. It said certain losses were reasonably possible but not estimable, or not probable; no reserves were recorded for the cited matters. The SEC’s review of a voluntary FCPA disclosure remained unresolved; the DOJ had closed its inquiry but could reopen it.
- Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter. It reported no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether weaker sensors demand and vehicle production in Europe, developed Asia, and North American truck markets persisted after Q1.
- The effects of the April debt refinancing on interest expense, cash balances, maturity profile, and leverage; also confirm subsequent share repurchases and remaining authorization.
- Actual 2013 capital expenditures, operating cash generation, and working-capital trends compared with management’s expectations.
- Costs, recovery progress, and production impact related to the South Korea fire and restructuring programs.
- Developments in product litigation and the SEC’s FCPA inquiry, including any change in estimated exposure or recorded reserves.