Business context and reporting period
The supplied filing is Delphi Automotive PLC’s unaudited Form 10-Q for the quarter and six months ended June 30, 2013—not a filing under the name Aptiv PLC. Delphi was a global vehicle-components manufacturer serving automotive and commercial-vehicle markets. Figures below are in U.S. dollars; financial-statement amounts are in millions except per-share data.
Financial performance and liquidity
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Net sales | $4,240 | $3,997 | $8,264 | $8,089 |
| Gross margin | $776; 18.3% | $725; 18.1% | $1,461; 17.7% | $1,444; 17.9% |
| Operating income | $483 | $468 | $880 | $932 |
| Net income attributable to Delphi | $367 | $330 | $643 | $672 |
| Diluted EPS attributable to Delphi | $1.17 | $1.01 | $2.05 | $2.05 |
| Operating cash flow | Not separately presented | Not separately presented | $672 | $754 |
| Capital expenditures | Not separately presented | Not separately presented | $336 | $400 |
At June 30, 2013, cash and cash equivalents were $1,001; current assets were $5,633 and current liabilities $3,809. Total debt was $2,426, including $59 short-term debt; net debt was approximately $1.4 billion. The $1.5 billion revolving credit facility was undrawn at quarter-end, apart from approximately $10 million of letters of credit. Management described total liquidity, including cash and available financing, as approximately $2.5 billion and said it expected liquidity and operating cash flows to be sufficient for operations, restructuring and capital investment.
Six-month cash and cash equivalents declined $104 to $1,001. Cash flows were $672 provided by operations, $327 used in investing and $440 used in financing. Working capital was a significant operating-cash use, including a $443 increase in accounts receivable and a $96 increase in inventories.
Material changes versus comparable periods
- Q2 sales rose 6%; six-month sales rose 2%. Management attributed the increase chiefly to the October 2012 MVL acquisition, contributing approximately $213 million in Q2 and $421 million in the first half, net of other divestitures.
- Underlying volume, net of contractual price reductions, was up 2% in Q2 but down 2% for the first half. Management cited lower European OEM production for the first-half decline.
- Q2 operating income increased $15 and Delphi-attributable net income increased $37 year over year. First-half operating income fell $52 and attributable net income fell $29, despite higher sales.
- First-half operating results included $58 of restructuring charges, versus $14 a year earlier. Other expense included a $39 loss on extinguishment of debt, following the March refinancing; first-half 2012 had $12 of other income.
- First-half effective tax rate was 14%, versus 20% in 2012, including an approximately $22 benefit from the reinstated 2012 research and development tax credit and favorable geographic income mix.
- Electrical/Electronic Architecture sales and Adjusted EBITDA increased substantially, with MVL contributing. Powertrain Systems and Thermal Systems had lower sales and Adjusted EBITDA for the first half. Management changed its segment performance measure to Adjusted EBITDA beginning in 2013; it is a non-GAAP measure.
Outlook, commentary, risks and unusual items
- No specific company-wide revenue, earnings or EPS guidance is provided in the supplied filing. Management expected global vehicle production to grow 2% in 2013, while European production was expected to decline 3%; these are management’s industry estimates, not company guidance.
- Delphi initiated approximately $75 of additional restructuring actions in Q1 2013, bringing program commitments to approximately $375. About 80% were in Europe and were expected to be substantially completed by early 2014. The company expected approximately $115 of restructuring cash expenditures during the remainder of 2013.
- Management cited persistent European economic uncertainty, reduced vehicle demand and production, vehicle-content changes, automotive cyclicality, customer pricing pressure, raw-material and labor inflation, and commodity volatility. Other stated risks included acquisition integration, customer and contract retention, supply disruption, competition, and labor stoppages.
- The $800 senior notes issued in February 2013 carry a 5.00% coupon and mature in 2023; proceeds primarily funded repayment of the Tranche B term loan. Total debt was approximately $2.4 billion. Delphi reported compliance with its debt covenants at June 30, including a maximum consolidated leverage ratio of 2.75 to 1.0.
- Shareholder returns increased: the company began quarterly dividends of $0.17 per share in 2013 and paid $106 in dividends during the first half. It repurchased approximately $242 of shares in the first half, with approximately $405 remaining under its $750 repurchase authorization.
- Material contingencies include asserted Brazil claims totaling $202, against which $35 was accrued; management warned final resolution could differ materially from estimates. Environmental reserves were approximately $23. The IRS was reviewing whether the company should be treated as a U.S. domestic corporation for federal tax purposes; no accrual was recorded, and an adverse conclusion could materially increase tax exposure.
- After quarter-end, in July 2013, the European Commission closed its wire-harness investigation as to Delphi; Delphi was not fined. This subsequent event does not change the filing’s June 30 reported balances.
Most important facts for investors to verify
- Confirm the issuer and security: the document is a 2013 Delphi Automotive PLC filing, not an Aptiv PLC filing.
- Assess whether sales and earnings growth are sustainable without MVL acquisition contributions, and examine underlying regional volumes—especially Europe.
- Track execution, cash costs and expected savings from the approximately $375 restructuring program.
- Reconcile operating cash flow with working-capital needs, capital expenditures, share repurchases and dividends; monitor cash and net debt.
- Review refinancing economics, interest-rate exposure, covenant headroom and the company’s ability to maintain liquidity through an automotive downturn.
- Monitor the IRS tax-status review and Brazil litigation claims, including possible outcomes beyond recorded accruals.