SEC Company Response from Aptiv PLC (APTV) (CIK 0001521332) (APTV) — Jun 30, 2011
Aptiv PLC (APTV) (CIK 0001521332)
Date: June 30, 2011 · CIK: 0001521332 · Accession: 0001193125-11-179117
AI Filing Summary & Sentiment
File numbers found in text: 333-174493
Letter
Division of Corporation Finance U.S. Securities and Exchange Commission 100 F Street, N.E. Washington, D.C. 20549
Dear Mr. McWilliams:
We are writing this letter to respond to the comment letter (the “Comment Letter”) of the Staff (the “Staff”) of the Division of Corporation Finance of the Securities and Exchange Commission (the “Commission”) dated June 21, 2011 with respect to the Registration Statement on Form S-1 (the “Registration Statement”) filed by Delphi Automotive PLC (the “Company”) on May 25, 2011. For your convenience, we have reproduced the Staff’s comment preceding each response. In connection herewith, the Company is filing Amendment No. 1 (the “Amendment”) to the Registration Statement. All page references are to the version of the Amendment filed on the date hereof. Please let us know if you have any questions or if we can provide additional information or otherwise be of assistance in expediting the review process.
Please find enclosed four copies of the Amendment marked to show changes from the Registration Statement. The changes reflected in the Amendment include those made in response to the comments of the Staff in the Comment Letter and other changes that are intended to update, clarify and render the information complete.
General
1. Prior to printing and distribution of the preliminary prospectus, please provide us with mock-ups of any pages that include any pictures or graphics to be presented. Accompanying captions, if any, should also be provided. We may have comments after reviewing the materials.
Mr. J. Nolan McWilliams
June 30, 2011
The Company acknowledges the Staff’s comment and will provide the Staff with any proposed graphics with sufficient time to review before a preliminary prospectus is printed and distributed.
Market and Industry Data, page ii
2. Please revise the last seven words of the last sentence to remove the implication that information contained in the prospectus may not be accurate or complete. You may not disclaim responsibility for the accuracy or completeness of the information contained in your document.
The Company has deleted the last seven words of the last sentence in Market and Industry Data on page ii.
3. We note you have relied on reports from third-party sources, including J.D. Power and Associates and The Fredonia Group, for data. Please provide us with the relevant portions of the materials you cite. Additionally, please confirm that reports and information provided by third parties were not prepared specifically for inclusion in the prospectus and are available for free or for a nominal subscription. Alternatively, provide consents of the third parties pursuant to Rule 436 with your next amendment.
The Company is supplementally furnishing to the Staff under separate cover copies of the materials supporting third-party statements cited in the prospectus. Additionally, the Company confirms that reports and information provided by third parties were not prepared specifically for inclusion in the prospectus.
The Company is filing a consent from J.D. Power & Associates pursuant to Rule 436 with this Amendment. The information provided by The Freedonia Group is available by purchasing a license to use a report for a fee the Company believes is nominal ($6,100 for an individual use license and $8,400 for a corporate use license).
Prospectus Summary
4. Item 10(e)(1)(i) of Regulation S-K requires that whenever one or more non-GAAP financial measures are included in a filing with the Commission the registrant must include a presentation, with equal or greater prominence, of the most directly comparable financial measure or measures calculated and presented in accordance with generally accepted accounting principles. Given that your non-GAAP EBITDA is disclosed prior to the corresponding GAAP net income, we believe the non-GAAP measure has been given greater prominence. Please revise to present the equivalent GAAP measure with equal or greater prominence.
The Company has revised the disclosure of non-GAAP financial measures such that the equivalent GAAP measure precedes the non-GAAP measure. The Company believes this revised presentation gives the GAAP measure equal or greater prominence as compared to the non-GAAP measure. Please see page 1.
Our Company, page 1
5. Please balance the disclosure in this section by disclosing your history, including your bankruptcy, in the opening paragraphs of this section.
Mr. J. Nolan McWilliams
June 30, 2011
The Company has revised the disclosure on page 1 to include a discussion of its history, including its bankruptcy.
6. With a view to revised disclosure, please provide us with substantiation for your statement that “[you] would have maintained positive EBITDA even if volumes were 30% below actual industry production volumes (or global production of 55 million vehicles rather than 78 million vehicles), assuming constant product and regional mix. In your response, explain the material assumptions underlying this calculation and explain why it is appropriate to assume a constant regional mix.
The Company advises the Staff that in calculating that it would have maintained positive EBITDA at lower volumes, it (i) identified the amount of fixed costs that it had in 2010 ($3.2 billion) and (ii) identified its variable costs ($9.2 billion) and determined the amount they represented as a percentage of sales, which was 66% of sales. Variable costs as a percentage of sales vary depending on the region (as margins and costs differ in regions) and on vehicle type in production (as different vehicles utilize different amounts of content). Accordingly, the Company needed to assume a constant product and regional mix, as variable costs would change if the mix changed. The Company also assumed pricing would have been unchanged. Based on these assumptions, at a 30% reduction of volumes, the Company would have maintained positive EBITDA as summarized in the table below.
(in billions)
30% Reduction
Sales
$ 13.8
$ 9.7
Fixed
3.2
3.2
Variable
9.2
6.4
EBITDA
$ 1.4
$ 0.1
With respect to the Staff’s question as to the appropriateness of assuming a constant regional mix, the Company respectfully submits that its disclosure is not intended to suggest, nor does it believe the disclosure suggests, that if volumes decreased 30% globally, that such decrease would be constant across regions. A 30% decrease would likely only occur during a major global economic downturn, and would likely affect all regions significantly. While the Company believes that a constant decrease could be a reasonable assumption, it cannot predict whether this will be the case. The Company’s inclusion of this information is not to project results in a future specific downturn, but rather to convey a sense of how much it has rationalized costs and how it can perform during downturns. The Company has revised the disclosure on page 3 to clarify the assumptions and to make clear that actual results in a future downturn will be different if the assumptions set forth above are incorrect.
7. Please provide us with substantiation for your statements that “[i]n 2010, we won business that we estimate will represent $20 billion of gross anticipated revenues based on expected volumes and assumed pricing. In the first quarter of 2011, this trend accelerated, with another $6.6 billion in new business awards.”
Mr. J. Nolan McWilliams
June 30, 2011
The Company is supplementally providing the Staff with a supporting schedule that sets out by region and business division the estimated revenues attributed to new business awards in 2010 and the first quarter of 2011, as well as a summary of the five largest OEM new business awards by division in those periods. The schedule represents the estimated revenue related to business awarded in the respective periods, and is based on the Company’s estimates of vehicle volumes, pricing and content, which could vary from actual results.
The Company’s business awards are typically for all requirements an OEM has for a specific part for a specific vehicle, as disclosed in the Registration Statement (see, e.g. “Risk Factors—Risks Related to Business Environment and Economic Conditions—Our supply agreements with our OEM customers are generally requirements contracts, and a decline in the production requirements of any of our customers, and in particular our largest customers, could adversely impact our revenues and profitability” on page 17). As such, the estimates for business won include the Company’s estimates for production volume for such vehicles, which include input from the OEM. Actual vehicle volumes, however, are subject to change. Additionally, OEM customers often are able to terminate contracts for convenience and/or obtain pricing reductions. Accordingly, the Company’s estimates for business won also include estimates of pricing for the duration of the program.
As the estimates of business won are subject to change, as specifically noted in the second paragraph of the risk factor “Risks Related to Business Environment and Economic Conditions—Continued pricing pressures, OEM cost reduction initiatives and the ability of OEMs to re-source or cancel vehicle programs may result in lower than anticipated margins, or losses, which may have a significant negative impact on our business” on page 17, the Company has revised the disclosure on page 3 to include a cross-reference to this risk factor.
Recovery of Developed Markets and Continued Emerging Markets Growth, page 4
8. Please disclose that vehicle production volumes for the North American and Western European markets are substantially lower than the period prior to the recession. We note your disclosure on page 47.
The Company has added the requested disclosure on pages 2-3, 48 and 97.
9. Please revise the graphs to include estimated data for the years 2011 to 2014 or delete references to CAGR.
The Company has included in the graphs the estimated data for the years 2011 to 2014 in response to the Staff’s comment. Please see pages 4 and 98.
Trend of Increased Fuel Efficiency and Reduced Emissions, page 5
10. We note your disclosure regarding the expected growth in value of powertrain and emissions electronics and OEM-installed infotainment systems. Please briefly explain what is meant by “value” and disclose whether growth in value correlates to proportional growth in the prices you charge OEMs and your gross margins from sales of these systems.
The Company has revised the disclosure on pages 5 and 99 to clarify that “value” means the absolute dollar amount of demand for each of the discussed systems. The Company
Mr. J. Nolan McWilliams
June 30, 2011
also notes the existing disclosure that the growth in value is based on both increased vehicle production and increased content per vehicle. The Company has also revised its disclosure to note that it expects that as the market for these products expands, the Company will have the opportunity to obtain proportional growth in prices and margins in these areas, subject to competitive market dynamics.
Strong Cash Flow Generation and Balance Sheet, page 8
11. Please revise to briefly explain what makes the amount of gross debt you carry “prudent.” Similarly revise references to “prudent amount of gross debt” and “prudent amount of leverage” on page 51.
The Company has revised its disclosure on pages 8, 52 and 102 to quantify the amount of gross debt and to remove the reference to “prudent amount of leverage.” The Company supplementally would like to inform the Staff that the Company’s ratio of debt to EBITDA for the last four quarters is well below 2x, which is a strong leverage ratio compared to many of its competitors.
Experienced and Accomplished Management Team, page 8
12. Please remove “[a]ccomplished” from the heading of this subsection.
The Company has revised the heading as requested. Please see pages 8 and 103.
Summary Historical Consolidated Financial Data, page 13
13. Please revise to disclose the company’s basic and diluted earnings per share for each period presented. Pro forma earnings per share for the latest fiscal year and subsequent interim period presented in the company’s financial statements should also be disclosed.
The Company has revised the disclosure to add basic and diluted earnings per share for the periods presented in “Summary Historical Consolidated Financial Data.” Please see page 13. The Company has also added this information to its audited Consolidated Statement of Operations appearing on page F-6. Once the number of ordinary shares to be outstanding after the offering can be estimated, the Company will include pro forma earnings per share for the last fiscal year and subsequent interim periods in a subsequent amendment.
14. We note the company’s presentation of EBITDA and Adjusted EBITDA. We further note from footnote (2) that the company uses EBITDA as a measure of operating performance. However, we note that the company has reconciled this measure to operating income and income from continuing operations before income taxes and equity income rather than net income, which would be the most comparable US GAAP measure. Please revise to reconcile EBITDA and Adjusted EBITDA to the company’s net income, the most comparable GAAP measure, for each period presented. Refer to the guidance outlined in Questions 103.01 and 103.02 of the Compliance and Disclosure Interpretations issued by the Division of Corporation Finance regarding Non-GAAP Financial Measures. The presentation of EBITDA and Adjusted EBITDA disclosures throughout the registration statement should be similarly revised.
The Company has revised the disclosure throughout the prospectus to include a
Mr. J. Nolan McWilliams
June 30, 2011
reconciliation of EBITDA and Adjusted EBITDA to net income for each period presented. Please see pages 15, 47, 58, 66, 67, 76, 77, F-72, F-73, F-74 and F-105.
15. We note that the line item “cash and cash equivalents (as of period end)” for the predecessor entity for the period from January 1, 2009 to October 6, 2009 reflects a balance of $862 million whereas the cash flow statement on page F-9 reflects a balance of zero at this same date. Please reconcile and revise these disclosures.
The Company has revised its disclosure on page 13 to resolve this discrepancy.
Risk Factors, page 16
16. Please remove the last sentence of the introductory paragraph. If a risk is not deemed material, it should not be referenced in the risk factor section.
The Company has revised the introductory paragraph as requested. Please see page 16.
17. Please add a risk factor describing the risks because shareholder protections under Jersey law may not be as protective as shareholder protections under U.S. law. We note in this regard disclosure in the last paragraph on page 153.
The Company has revised the disclosure to include a risk factor to this effect. Please see page 31.
The cyclical nature of automotive sale and production, page 16
18. Please revise this risk factor by specifically discussing the recent downturn in the auto industry, and disclose that, while the industry is in a recovery, sales in North America and Western Europe remain significantly below pre-recession levels.
The Company has revised the risk factor to include the requested disclosure. Please see page 16.
Our business in China is subject to aggressive competition, page 18
19. We note from press accounts that the Chinese government appears to be taking actions which would reduce the
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CORRESP 1 filename1.htm SEC Response Letter New York Madrid Menlo Park Tokyo Washington DC Beijing London Hong Kong Paris Davis Polk & Wardwell LLP 212 450 4000 tel 450 Lexington Avenue 212 701 5800 fax New York, NY 10017 June 30, 2011 Re: Delphi Automotive PLC Registration Statement on Form S-1 File No. 333-174493 Mr. J. Nolan McWilliams Division of Corporation Finance U.S. Securities and Exchange Commission 100 F Street, N.E. Washington, D.C. 20549 Dear Mr. McWilliams: We are writing this letter to respond to the comment letter (the “Comment Letter”) of the Staff (the “Staff”) of the Division of Corporation Finance of the Securities and Exchange Commission (the “Commission”) dated June 21, 2011 with respect to the Registration Statement on Form S-1 (the “Registration Statement”) filed by Delphi Automotive PLC (the “Company”) on May 25, 2011. For your convenience, we have reproduced the Staff’s comment preceding each response. In connection herewith, the Company is filing Amendment No. 1 (the “Amendment”) to the Registration Statement. All page references are to the version of the Amendment filed on the date hereof. Please let us know if you have any questions or if we can provide additional information or otherwise be of assistance in expediting the review process. Please find enclosed four copies of the Amendment marked to show changes from the Registration Statement. The changes reflected in the Amendment include those made in response to the comments of the Staff in the Comment Letter and other changes that are intended to update, clarify and render the information complete. General 1. Prior to printing and distribution of the preliminary prospectus, please provide us with mock-ups of any pages that include any pictures or graphics to be presented. Accompanying captions, if any, should also be provided. We may have comments after reviewing the materials. Mr. J. Nolan McWilliams 2 June 30, 2011 The Company acknowledges the Staff’s comment and will provide the Staff with any proposed graphics with sufficient time to review before a preliminary prospectus is printed and distributed. Market and Industry Data, page ii 2. Please revise the last seven words of the last sentence to remove the implication that information contained in the prospectus may not be accurate or complete. You may not disclaim responsibility for the accuracy or completeness of the information contained in your document. The Company has deleted the last seven words of the last sentence in Market and Industry Data on page ii. 3. We note you have relied on reports from third-party sources, including J.D. Power and Associates and The Fredonia Group, for data. Please provide us with the relevant portions of the materials you cite. Additionally, please confirm that reports and information provided by third parties were not prepared specifically for inclusion in the prospectus and are available for free or for a nominal subscription. Alternatively, provide consents of the third parties pursuant to Rule 436 with your next amendment. The Company is supplementally furnishing to the Staff under separate cover copies of the materials supporting third-party statements cited in the prospectus. Additionally, the Company confirms that reports and information provided by third parties were not prepared specifically for inclusion in the prospectus. The Company is filing a consent from J.D. Power & Associates pursuant to Rule 436 with this Amendment. The information provided by The Freedonia Group is available by purchasing a license to use a report for a fee the Company believes is nominal ($6,100 for an individual use license and $8,400 for a corporate use license). Prospectus Summary 4. Item 10(e)(1)(i) of Regulation S-K requires that whenever one or more non-GAAP financial measures are included in a filing with the Commission the registrant must include a presentation, with equal or greater prominence, of the most directly comparable financial measure or measures calculated and presented in accordance with generally accepted accounting principles. Given that your non-GAAP EBITDA is disclosed prior to the corresponding GAAP net income, we believe the non-GAAP measure has been given greater prominence. Please revise to present the equivalent GAAP measure with equal or greater prominence. The Company has revised the disclosure of non-GAAP financial measures such that the equivalent GAAP measure precedes the non-GAAP measure. The Company believes this revised presentation gives the GAAP measure equal or greater prominence as compared to the non-GAAP measure. Please see page 1. Our Company, page 1 5. Please balance the disclosure in this section by disclosing your history, including your bankruptcy, in the opening paragraphs of this section. Mr. J. Nolan McWilliams 3 June 30, 2011 The Company has revised the disclosure on page 1 to include a discussion of its history, including its bankruptcy. 6. With a view to revised disclosure, please provide us with substantiation for your statement that “[you] would have maintained positive EBITDA even if volumes were 30% below actual industry production volumes (or global production of 55 million vehicles rather than 78 million vehicles), assuming constant product and regional mix. In your response, explain the material assumptions underlying this calculation and explain why it is appropriate to assume a constant regional mix. The Company advises the Staff that in calculating that it would have maintained positive EBITDA at lower volumes, it (i) identified the amount of fixed costs that it had in 2010 ($3.2 billion) and (ii) identified its variable costs ($9.2 billion) and determined the amount they represented as a percentage of sales, which was 66% of sales. Variable costs as a percentage of sales vary depending on the region (as margins and costs differ in regions) and on vehicle type in production (as different vehicles utilize different amounts of content). Accordingly, the Company needed to assume a constant product and regional mix, as variable costs would change if the mix changed. The Company also assumed pricing would have been unchanged. Based on these assumptions, at a 30% reduction of volumes, the Company would have maintained positive EBITDA as summarized in the table below. (in billions) 2010 30% Reduction Sales $ 13.8 $ 9.7 Fixed 3.2 3.2 Variable 9.2 6.4 EBITDA $ 1.4 $ 0.1 With respect to the Staff’s question as to the appropriateness of assuming a constant regional mix, the Company respectfully submits that its disclosure is not intended to suggest, nor does it believe the disclosure suggests, that if volumes decreased 30% globally, that such decrease would be constant across regions. A 30% decrease would likely only occur during a major global economic downturn, and would likely affect all regions significantly. While the Company believes that a constant decrease could be a reasonable assumption, it cannot predict whether this will be the case. The Company’s inclusion of this information is not to project results in a future specific downturn, but rather to convey a sense of how much it has rationalized costs and how it can perform during downturns. The Company has revised the disclosure on page 3 to clarify the assumptions and to make clear that actual results in a future downturn will be different if the assumptions set forth above are incorrect. 7. Please provide us with substantiation for your statements that “[i]n 2010, we won business that we estimate will represent $20 billion of gross anticipated revenues based on expected volumes and assumed pricing. In the first quarter of 2011, this trend accelerated, with another $6.6 billion in new business awards.” Mr. J. Nolan McWilliams 4 June 30, 2011 The Company is supplementally providing the Staff with a supporting schedule that sets out by region and business division the estimated revenues attributed to new business awards in 2010 and the first quarter of 2011, as well as a summary of the five largest OEM new business awards by division in those periods. The schedule represents the estimated revenue related to business awarded in the respective periods, and is based on the Company’s estimates of vehicle volumes, pricing and content, which could vary from actual results. The Company’s business awards are typically for all requirements an OEM has for a specific part for a specific vehicle, as disclosed in the Registration Statement (see, e.g. “Risk Factors—Risks Related to Business Environment and Economic Conditions—Our supply agreements with our OEM customers are generally requirements contracts, and a decline in the production requirements of any of our customers, and in particular our largest customers, could adversely impact our revenues and profitability” on page 17). As such, the estimates for business won include the Company’s estimates for production volume for such vehicles, which include input from the OEM. Actual vehicle volumes, however, are subject to change. Additionally, OEM customers often are able to terminate contracts for convenience and/or obtain pricing reductions. Accordingly, the Company’s estimates for business won also include estimates of pricing for the duration of the program. As the estimates of business won are subject to change, as specifically noted in the second paragraph of the risk factor “Risks Related to Business Environment and Economic Conditions—Continued pricing pressures, OEM cost reduction initiatives and the ability of OEMs to re-source or cancel vehicle programs may result in lower than anticipated margins, or losses, which may have a significant negative impact on our business” on page 17, the Company has revised the disclosure on page 3 to include a cross-reference to this risk factor. Recovery of Developed Markets and Continued Emerging Markets Growth, page 4 8. Please disclose that vehicle production volumes for the North American and Western European markets are substantially lower than the period prior to the recession. We note your disclosure on page 47. The Company has added the requested disclosure on pages 2-3, 48 and 97. 9. Please revise the graphs to include estimated data for the years 2011 to 2014 or delete references to CAGR. The Company has included in the graphs the estimated data for the years 2011 to 2014 in response to the Staff’s comment. Please see pages 4 and 98. Trend of Increased Fuel Efficiency and Reduced Emissions, page 5 10. We note your disclosure regarding the expected growth in value of powertrain and emissions electronics and OEM-installed infotainment systems. Please briefly explain what is meant by “value” and disclose whether growth in value correlates to proportional growth in the prices you charge OEMs and your gross margins from sales of these systems. The Company has revised the disclosure on pages 5 and 99 to clarify that “value” means the absolute dollar amount of demand for each of the discussed systems. The Company Mr. J. Nolan McWilliams 5 June 30, 2011 also notes the existing disclosure that the growth in value is based on both increased vehicle production and increased content per vehicle. The Company has also revised its disclosure to note that it expects that as the market for these products expands, the Company will have the opportunity to obtain proportional growth in prices and margins in these areas, subject to competitive market dynamics. Strong Cash Flow Generation and Balance Sheet, page 8 11. Please revise to briefly explain what makes the amount of gross debt you carry “prudent.” Similarly revise references to “prudent amount of gross debt” and “prudent amount of leverage” on page 51. The Company has revised its disclosure on pages 8, 52 and 102 to quantify the amount of gross debt and to remove the reference to “prudent amount of leverage.” The Company supplementally would like to inform the Staff that the Company’s ratio of debt to EBITDA for the last four quarters is well below 2x, which is a strong leverage ratio compared to many of its competitors. Experienced and Accomplished Management Team, page 8 12. Please remove “[a]ccomplished” from the heading of this subsection. The Company has revised the heading as requested. Please see pages 8 and 103. Summary Historical Consolidated Financial Data, page 13 13. Please revise to disclose the company’s basic and diluted earnings per share for each period presented. Pro forma earnings per share for the latest fiscal year and subsequent interim period presented in the company’s financial statements should also be disclosed. The Company has revised the disclosure to add basic and diluted earnings per share for the periods presented in “Summary Historical Consolidated Financial Data.” Please see page 13. The Company has also added this information to its audited Consolidated Statement of Operations appearing on page F-6. Once the number of ordinary shares to be outstanding after the offering can be estimated, the Company will include pro forma earnings per share for the last fiscal year and subsequent interim periods in a subsequent amendment. 14. We note the company’s presentation of EBITDA and Adjusted EBITDA. We further note from footnote (2) that the company uses EBITDA as a measure of operating performance. However, we note that the company has reconciled this measure to operating income and income from continuing operations before income taxes and equity income rather than net income, which would be the most comparable US GAAP measure. Please revise to reconcile EBITDA and Adjusted EBITDA to the company’s net income, the most comparable GAAP measure, for each period presented. Refer to the guidance outlined in Questions 103.01 and 103.02 of the Compliance and Disclosure Interpretations issued by the Division of Corporation Finance regarding Non-GAAP Financial Measures. The presentation of EBITDA and Adjusted EBITDA disclosures throughout the registration statement should be similarly revised. The Company has revised the disclosure throughout the prospectus to include a Mr. J. Nolan McWilliams 6 June 30, 2011 reconciliation of EBITDA and Adjusted EBITDA to net income for each period presented. Please see pages 15, 47, 58, 66, 67, 76, 77, F-72, F-73, F-74 and F-105. 15. We note that the line item “cash and cash equivalents (as of period end)” for the predecessor entity for the period from January 1, 2009 to October 6, 2009 reflects a balance of $862 million whereas the cash flow statement on page F-9 reflects a balance of zero at this same date. Please reconcile and revise these disclosures. The Company has revised its disclosure on page 13 to resolve this discrepancy. Risk Factors, page 16 16. Please remove the last sentence of the introductory paragraph. If a risk is not deemed material, it should not be referenced in the risk factor section. The Company has revised the introductory paragraph as requested. Please see page 16. 17. Please add a risk factor describing the risks because shareholder protections under Jersey law may not be as protective as shareholder protections under U.S. law. We note in this regard disclosure in the last paragraph on page 153. The Company has revised the disclosure to include a risk factor to this effect. Please see page 31. The cyclical nature of automotive sale and production, page 16 18. Please revise this risk factor by specifically discussing the recent downturn in the auto industry, and disclose that, while the industry is in a recovery, sales in North America and Western Europe remain significantly below pre-recession levels. The Company has revised the risk factor to include the requested disclosure. Please see page 16. Our business in China is subject to aggressive competition, page 18 19. We note from press accounts that the Chinese government appears to be taking actions which would reduce the