Delphi Automotive has the main management pieces in place to launch an IPO, but how and when is up to its private equity owners according to CEO Rodney O’Neal.
Speaking on the sidelines of the Automotive News conference in Detroit, O’Neal told Reuters an IPO was not his focus but “that would be a great moment if it were ever to occur for Delphi”.
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The partsmaker emerged from a four-year bankruptcy restructuring in October 2009 a much smaller company after selling off or closing several businesses inherited in its spinoff from former parent General Motors 10 years earlier. It has reduced its focus to safety products, car connectivity and green components. About 40% of its revenue comes from Europe, 30% from North America and the rest from other regions around the world. Through the first nine months of last year, Delphi’s revenue was up 22% to nearly US$10.2bn from a year earlier.
Meanwhile a jury has cleared former CEO JT Battenberg of the most serious claims against him stemming from allegations of financial fraud at Delphi in 2000.
The jury said Battenberg did not commit fraud related to a US$237m payment the company made to General Motors. The Securities and Exchange Commission said the ex-boss intentionally mischaracterised that payment in SEC disclosures to make Delphi’s finances look better than they were.
Battenberg was cleared of two claims alleging fraud, one claim related to SEC disclosure rules, and one violation of bookkeeping rules. Jurors found him responsible for three claims involving improper bookkeeping and misrepresentations to accountants.
The verdict from the 10-person jury caps an 11-week trial and more than four years of legal proceedings, during which more than 1m pages of court documents were filed. Avoiding a finding of fraud helps Battenberg repair some of the damage to his reputation stemming from the SEC’s lawsuit, originally filed in 2006.
Former Delphi chief accountant Paul Free also was cleared of fraud claims but the jury found him responsible for two fraud claims related to a $200m sale. The SEC said Free participated in a scheme for Delphi to temporarily sell the materials to boost earnings, then bought back the materials without any product ever changing hands. Free also was accused of misstating a $20m loan in 2001 from an information technology vendor by reporting it as a cash rebate.
The SEC will likely recommend that both Battenberg and Free be fined. An SEC spokesman said any fines would be assessed later by a federal judge.
The government argued that the actions of Battenberg and Free misled investors as to the true financial state of Delphi during the early period after it was spun off from GM as a public company in 1999. Battenberg retired in 2005, a few months before the company filed for Chapter 11 bankruptcy protection.
Battenberg and Free demanded a trial to clear their names even though Delphi and 11 others former executives charged in the case settled with the government after the allegations were announced in 2006.
Throughout the trial, Battenberg counsel William Jeffress argued that Battenberg relied on company CPAs and outside auditors as to the propriety of the 2000 financial accounting. Free’s attorneys made similar arguments.
Testimony from dozens of witnesses during the trial provided a window into the tension existed between Delphi and its former parent. They told the court that when the partsmaker was spun off GM gave Delphi a US$53m reserve to pay future warranty claims – then within a year demanded as much as US$800m for faulty parts Delphi supplied before the split from GM.
GM executives threatened to cut off Delphi from new business if it didn’t pay up, Battenberg and other witnesses testified.
Delphi agreed to pay US$237m to settle warranty claims and “certain open issues,” including spinoff-related pension and benefit costs that GM got stuck with but which should have been covered by Delphi. How that US$237m payment was accounted for on Delphi’s books was at the heart of the government’s case against Battenberg.
The SEC said the payment should have been recorded as a warranty expense, all of which would have come out of its net income that quarter. Instead, Delphi booked US$202m as an adjustment to pension expenses, spread over many years, and so inflating its earnings.
