Delphi Announces Global Restructuring Actions
Restructuring Plan Includes Charge Against First-Quarter 2001 Earnings
TROY, Mich., March 29 As a result of uncertain automotive
industry production volumes and the decision to more rapidly implement
Delphi's long-term portfolio plans, Delphi Automotive Systems Corporation
officials today confirmed intentions to sell, close or consolidate
nine plants, downsize the workforce at more than 40 other facilities plus exit
selected products. The restructuring plan will ultimately reduce worldwide
employment by approximately 11,500 positions. The plan includes exiting
approximately $900 million of the company's businesses previously said to be
under portfolio review. Delphi plans to take a charge against first quarter
2001 earnings of $400 million after taxes to speed moves designed to
strengthen its competitive position and further enhance shareholder value.
"This restructuring is necessary to strengthen Delphi both in the
uncertain near-term environment and to compete and prosper for the long-term,"
said J.T. Battenberg III, Delphi chairman, CEO and president.
"Delphi is a company of talented, technically knowledgeable and skilled
people, and that makes these restructuring actions especially difficult," said
Battenberg. "However, these actions are consistent with Delphi's long-term
plan and our track record of responding quickly to industry changes to ensure
that the company has a healthy, growing and secure future. Where possible we
will utilize attrition, special separation programs or other voluntary means
to reduce worldwide employment."
Battenberg and Alan S. Dawes, Delphi executive vice president and chief
financial officer, will outline details of the restructuring plans during a
conference call with investors, analysts and news media on Thursday, March 29,
2001 at 9:00 a.m. ET. The conference call will be simultaneously webcast on
the investor relations section of http://www.delphiauto.com .
Restructuring Actions
Dawes said that under the restructuring program Delphi intends to
accelerate actions to exit selected under-performing and non-core product
lines or consolidate manufacturing or staff operations at more than 40 sites
throughout the company.
These steps include the elimination of approximately 11,500 positions
worldwide (five percent of global workforce; 5,600 or 10 percent of U.S.
hourly employees; 2,000 or 11 percent of U.S. salaried employees;
3,900 employees in non-U.S. locations) through several employee separation
programs included in the charge.
Delphi is in various stages of the consolidation, closure, sale, or
negotiations process at the following locations, to be included in the
restructuring (some previously announced during Q1, 2001):
- Ande, France - Fort Defiance, Arizona, USA
- Betim, Minas Gerais, Brazil - Piracicaba, Brazil
- Bochum, Germany - Robertsdale, Alabama, USA
- Casoli, Italy - Saginaw, Michigan, USA, Plant #2
- Southampton, UK
Employees at other impacted Delphi locations are being informed of
capacity reduction activities including closure or exit of selected product
lines. Employees affected around the world will leave the company using a
mixture of voluntary separation programs, early retirements, social plan
programs, layoffs and attrition.
"During the first quarter we announced the intention to sell, close or
consolidate several plant locations," said Dawes. "We anticipate completing
all the actions discussed today in the next 12 months, and we expect to begin
to realize the benefit of these actions in 2001 and in even greater measure in
2002."
Portfolio Restructuring
Delphi previously announced plans to review businesses representing sales
of $4 billion to $5 billion for portfolio actions in the 2001 calendar year,
including potential closure, sale, partnership or other resolution.
"These actions address approximately $900 million of the previously
announced business lines under portfolio review. The restructuring also
favorably impacts future earnings performance for an additional $700 million
of ongoing business lines," said Dawes.
"Clearly, in the current environment we have focused more on the
businesses that we plan to exit or sell and we expect to complete these
actions quickly. In addition, we remain actively engaged in a total portfolio
review and expect to resolve the status of the remaining businesses this
year," said Dawes. "We have already announced plans to offer our global
LiteFlex(R) composite spring business for sale and are evaluating other
business line sale alternatives.
"We remain absolutely committed to the business strategy we outlined
previously. We will execute our base business plan and accelerate our
portfolio shift toward high-tech electronic and electrically enhanced
mechanical products. Our recent announcement to acquire the Vehicle
Switch/Electronics Division of Eaton Corporation for approximately
$300 million demonstrates that, while we are resolving issues in our non-core
operations, we are acquiring and growing strategic business lines," Dawes
said.
"We believe these closings, sales, consolidations and workforce
reductions, when combined with other portfolio actions and planned investments
to strengthen our strategic products, will enable Delphi to enhance our market
posture and improve customer satisfaction," he said.
Other Initiatives
Separately, Delphi has also been implementing numerous productivity
improvements and streamlining activities designed to reduce burden and improve
processes. Similar initiatives will continue during the next 12 months
including:
-- Continued consolidation of divisional and regional headquarters staffs
and facilities, rationalization of existing facilities into low-cost
regions where possible, and eliminating support infrastructure;
-- Continued aggressive use of shared service models for support
functions;
-- Utilizing web-based systems for procurement, logistics and inventory
management to obtain greater savings in inventory and production
support; and
-- Eliminating warehouses and other inventory storage and distribution
points for greater value chain efficiency.
"Reducing selling, general and administrative (SG&A) costs is a major
focus. We expect our Q1 costs to be below $400 million, and we will continue
to drive these costs lower as revenues remain weak," said Dawes.
Q1 2001 Outlook
Reflecting weaker than expected vehicle manufacturer orders, lower mix
content per vehicle and soft U.S. aftermarket sales, Dawes said the company
expects Q1 2001 revenues to be in the $6.4 billion to $6.5 billion range or
about $100 million to $150 million below the levels expected in January 2001.
This estimate is 18 percent below Q1 2000 revenues of $7.8 billion. As a
consequence of these factors as well as the negative impact of uneven order
flow from customer vehicle assembly plants, Dawes indicated he expects Q1
earnings, excluding the impact of the Q1 restructuring charge, to range
between a net loss of $50 million and breakeven.
"Every week of this quarter we have made reductions to output in an effort
to match customer order flow. Since December 2000, we have implemented
short-term layoffs of 4,000 - 7,000 employees weekly in the United States. We
have reduced our workforce in Mexico by more than 7,600. We have reduced
worldwide contract employee positions by more than 15 percent. We have
restructured headquarters operations in South America, Europe, Asia Pacific
and the United States. We have dramatically reduced discretionary spending.
However, unstable order flow has prevented us from reducing enough of our
costs to remain at previous levels of profitability," said Dawes.
"We are gratified to see some vehicle manufacturers' actions to better
level schedules, which should help our performance in the second quarter.
However, we clearly cannot operate this close to our breakeven point. We
believe it is now time to take sustained action to permanently reduce capacity
and adjust our company infrastructure accordingly," said Dawes.
In line with the lower revenue and earnings outlook, Delphi expects
operating cash flow in the quarter to range from $20 million to $70 million.
Q2 2001 and Longer-Term Outlook
"We see some scheduled down weeks in April," said Dawes. "May and June
look more solid, such that we expect down-time related inefficiencies will
have less of an impact in the second quarter.
"Stronger schedules combined with our cost reduction actions indicate a
return to our historic earnings-to-revenue relationship. Specifically, we
anticipate revenue of $6.8 billion to $6.9 billion and earnings of
$160 million to $200 million in the second quarter."
Dawes stated that Q2 operating cash flow is expected in the $300 million
to $400 million range before the impact of any restructuring related
separation costs. He said details on the outlook for the second quarter,
including the expected level of cash used for separation payments, will be
covered in Delphi's Q1 earnings materials on April 19, 2001.
"We believe this restructuring will improve our long-term earnings power
by reducing our breakeven point, enabling us to implement structural cost
reductions that begin to have some impact later this year and grow in 2002 and
2003. By late 2003, we expect this charge to lift our ongoing cash earning
power by over $300 million annually. Implementing these closures, reductions
and consolidation activities should enable Delphi to move quickly to regain
momentum toward our previously stated profitability and return on capital
targets," said Dawes. "We remain optimistic that we will experience improved
sales in the latter half of 2001, but expect Delphi's short-term performance
to continue to be negatively impacted by unstable and declining orders," said
Dawes.
"The actions outlined today should improve our ability to rebound
decisively in more favorable automotive market conditions," he said.
