Delphi Reports Solid Third Quarter Results Driven by Non-GM Sales Growth
Operating cash flow of $225 million climbs 103 percent year-over-year>TROY, Mich., Oct. 16, 2002; Delphi Corp.today reported a solid 64 percent year-over-year increase in earnings for the third quarter 2002 as the company benefited from a 3.5 percent increase in sales revenue while operating at a lower breakeven point due to the impact of restructuring plan savings, material cost reductions and improved margins on new business.
"Our revenue remained strong during the industry's historically soft third quarter," said Delphi Chairman, CEO and President J.T. Battenberg III. "The growth was primarily driven by stronger than expected non-GM sales that rose 19 percent above year ago levels, in part reflecting the strengthening of the Euro. Further, sales to GM met expectations for the quarter."
- Third Quarter 2002 financial highlights:
- Revenue of $6.4 billion (up 3.5 percent from $6.2 billion in Q3 2001)
- Non-GM revenue at 37 percent of total revenue for the quarter at $2.4
billion (up 19 percent from $2 billion in Q3 2001)
- Net income of $54 million (up 64 percent from $33 million(1) in Q3 2001)
- Earnings per share of $0.10, exceeding Thomson First Call consensus estimates by two cents
- Continued solid operating cash flow of $225 million(2) (up 103 percent from Q3 2001)
"Our improved margins demonstrate our constant effort to reduce operating costs through structural cost reduction initiatives, material cost savings and benefits from our restructuring initiatives in a magnitude sufficient to more than offset rising pension and health care costs and continued price pressure," said Delphi Chief Financial Officer Alan S. Dawes. "While operating in a challenging environment, through these efforts we're continuing to see across the board improvements in year-over-year comparisons. We continue to aggressively manage all of these challenges and expect to see future improvements in our margins as revenue growth and cost management initiatives gain traction."
Revenue Growth
Q3 2002 represents the third consecutive quarter of year-over-year revenue growth. Non-GM sales, which represent 37 percent of Delphi's total sales, fueled the increase with new business in Passive Occupant Detection systems, engine management systems, Mobile MultiMedia and sales in Delphi's aftermarket division, Product & Service Solutions. Third quarter GM sales of $4.1 billion benefited from stronger year-over-year production schedules offset by price, exited businesses and weakness in GM aftermarket and South America sales. Other business highlights for the quarter include:
- Delphi's advanced common rail diesel injection system continued its strong growth in Europe during Q3 2002 by expanding its booked common rail business with Renault to approximately $2.5 billion and starting up production on the new Citroen C3.
- Delphi won a multi-year contract with General Motors to provide the full braking systems on future model mini vans.
- Fiat Brasil chose Delphi to provide advanced climate control technology on four vehicles produced in Brazil.
- Delphi's Product & Service Solutions division expanded in North America by announcing key distribution partnerships with Parts Plus and Uni-Select and launching the SKYFI(TM) plug and play satellite radio in a partnership with XM radio.
Operating Cash Flow
"In Q3 2002, Delphi generated $225 million in operating cash flow, exceeding our original guidance of $50-$150 million," said Dawes. "Stronger than expected operating cash flow was achieved by improving net income, managing our capital spending to lower levels and aggressively managing working capital." As a result of this solid performance, Delphi reduced its third quarter ending debt levels to $3.5 billion from $3.7 billion at the end of Q2 2002 and Dawes stated that the company is on track for 2002 year-end debt levels of $3.4 billion or less.
Prior Period Restructuring Plan Update
Delphi continued its previously announced restructuring plans during Q3 2002, further reducing its worldwide headcount by over 1,050 positions as a result of these actions during the quarter. To date, Delphi has completed over 90 percent of its 2002 plan that called for the reduction of 6,100 positions through consolidation activities at over 24 facilities in North America and Europe by March 2003. When completed the combined effects of Delphi's 2001 and 2002 plans are expected to reduce global employment by 17,540.
Portfolio Update
Today, Delphi provided an update on its portfolio actions. As previously announced, Delphi is aggressively pursuing a wind down strategy for its global generator product line and is actively supporting customers in the selection of replacement suppliers. Capital expenditures for the remainder of 2002 supporting the generator product line have been greatly curtailed and all 2003 capital expenditures previously planned for the product line have been eliminated.
Dawes also spoke in regard to Delphi's instrumentation business, "Our mainline strategy for the instrumentation product line is to sharpen the focus of the business in order to achieve suitable financial mileposts," he said. "In parallel, we continue negotiations with several bidders to sell the business. Any sale must be equal or better than our next best alternative."
Additionally, in the normal course of business, Delphi completed the closure of one facility in Mexico and two facilities in Germany, reducing personnel by 500 positions as a result of these actions. Delphi facility closures in 2002 now total seven.
Pension Update
In light of recent investor interest and calendar year-to-date negative returns on plan assets, Delphi will provide a pension funding update during today's briefing. The update will highlight topics such as Delphi's 0.12 to 1 retiree to plan participant ratio and pension expense and funded status sensitivity.
"We believe pension obligations are manageable as our strong cash flow combined with low cash outflows from the plan gives us great flexibility to fulfill ongoing pension funding requirements," said Dawes.
Q4 and Calendar Year 2002 Outlook
Dawes said Q4 2002 revenue and earnings are expected to increase on a year-over-year basis, marking the fourth consecutive quarter of increases. "Revenue is expected to range between $6.7 billion and $6.8 billion in the fourth quarter and net income is expected to be between $105 and $120 million, with earnings per share between $0.19 and $0.21. Operating cash flow is forecast between $275 and $350 million," he said.
"We expect the difficult market conditions experienced in the first three quarters of 2002 to persist in the fourth quarter," said Dawes. "In Q4 2002, we anticipate continuing our year-over-year improvement in revenue, earnings and operating cash flow by utilizing the continued benefits of our restructuring initiatives to offset industry headwinds."
The combination of Delphi's nine-month actuals with its Q4 guidance shows improved year-over-year calendar year results. Delphi's 2002 calendar year revenue is anticipated to be in the $27.2 to $27.3 billion range, and pro forma net income between $502-$517 million with pro forma earnings per share between $0.89 and $0.91. The full-year pro forma guidance excludes the impact of Q1 2002 special charge of $174 million after tax for portfolio and restructuring actions.
Additional Information
As is customary, Delphi today will file its 10Q for the third quarter 2002. Delphi Chairman J.T. Battenberg III and CFO Alan Dawes will also sign the 10Q and submit all required certifications in accordance with Securities and Exchange Commission requirements.
A briefing concerning third quarter results for news media representatives, institutional investors and security analysts will be held at 11 a.m. EDT today. For the general public, the briefing will be simultaneously audio webcast from the Investor Relations page of www.delphi.com .
Forward Looking Statements
All statements contained or incorporated in this press release which address operating performance, events or developments that we expect or anticipate may occur in the future (including statements relating to future sales or earnings expectations, savings expected as a result of our global restructurings or other initiatives, portfolio restructuring plans, volume growth, awarded sales contracts and earnings per share expectations or statements expressing general optimism about future operating results) are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are made on the basis of management's current views and assumptions with respect to future events. Important factors, risks and uncertainties which may cause actual results to differ from those expressed in our forward-looking statements are discussed in detail in our filings with the Securities and Exchange Commission, including our annual report on Form 10-K for the year ended December 31, 2001. In particular, the achievement of projected levels of revenue, earnings, cash flow and debt levels will depend on our ability to execute our portfolio and other global restructuring plans in a manner which satisfactorily addresses any resultant antitrust or labor issues and customer concerns, any contingent liabilities related to divestitures or integration costs associated with acquisitions, and other matters; the success of our efforts to diversify our customer base and still maintain existing GM business; the continued protection and exploitation of our intellectual property to develop new products and enter new markets; and our ability to capture expected benefits of our cost reduction initiatives so as to maintain flexibility to respond to adverse and cyclical changes in general economic conditions and in the automotive industry in each market we operate, including customer cost reduction initiatives, potential increases in warranty costs, pension contributions, healthcare costs, disruptions in the labor, commodities or transportation markets caused by terrorism or war and other changes in the political and regulatory environments where we do business. Delphi does not intend or assume any obligation to update any of these forward-looking statements.
(1) Adjusted for goodwill amortization of $7 million after-tax.
(2) Before restructuring related cash payout of $34 million and dividends.
HIGHLIGHTS (PRO FORMA RESULTS)
THREE MONTHS ENDED SEPTEMBER 30, 2002 VS. THREE MONTHS ENDED
SEPTEMBER 30, 2001 COMPARISON
SEE FOOTNOTES BELOW FOR AN EXPLANATION OF ADJUSTMENTS TO OUR UNAUDITED
GAAP OPERATING RESULTS USED IN CALCULATING OUR PRO FORMA RESULTS.
Three Months Ended
September 30,
2002 2001
(in millions, except
per share amounts)
Net sales:
General Motors and affiliates $4,077 $4,238
Other customers 2,369 1,991
Total net sales 6,446 6,229
Less operating expenses:
Cost of sales, excluding items listed below 5,695 5,540
Selling, general and administrative 368 348
Depreciation and amortization 258 251 (a)
Operating income 125 90 (a)
Less interest expense 49 57
Other income, net 9 17
Income before income taxes 85 50 (a)
Less income tax expense 31 17 (a)
Net income $54 $33 (a)
Gross margin 11.7% 11.1%
Operating income margin 1.9% 1.4% (a)
Net income margin 0.8% 0.5% (a)
Basic and diluted earnings per share,
559 million (basic) and 562 million
(diluted) shares outstanding, respectively,
in 2002 and 560 million (basic) and 566 million
(diluted) shares outstanding, respectively,
in 2001 $0.10 $0.06 (a)
HIGHLIGHTS (PRO FORMA RESULTS)
NINE MONTHS ENDED SEPTEMBER 30, 2002 VS. NINE MONTHS ENDED
SEPTEMBER 30, 2001 COMPARISON
SEE FOOTNOTES BELOW FOR AN EXPLANATION OF ADJUSTMENTS TO OUR UNAUDITED
GAAP OPERATING RESULTS USED IN CALCULATING OUR PRO FORMA RESULTS.
Nine Months Ended
September 30,
2002 2001
(in millions, except
per share amounts)
Net sales:
General Motors and affiliates $13,379 $13,328
Other customers 7,077 6,380
Total net sales 20,456 19,708
Less operating expenses:
Cost of sales, excluding items
listed below 17,879 (a) 17,465
Selling, general and administrative 1,091 1,089
Depreciation and amortization 749 744 (b)
Operating income 737 (a) 410 (b)
Less interest expense 144 169
Other income, net 27 41 (b)
Income before income taxes 620 (a) 282 (b)
Less income tax expense 223 (a) 98 (b)
Net income $397 (a) $184 (b)
Gross margin 12.6% (a) 11.4%
Operating income margin 3.6% (a) 2.1% (b)
Net income margin 1.9% (a) 0.9% (b)
Basic earnings per share, 560 million shares
outstanding in both 2002 and 2001 $0.71 (a) $0.33 (b)
Diluted earnings per share, 565 million shares
outstanding in both 2002 and 2001 $0.70 (a) $0.33 (b)
- (a) Excludes the net restructuring and product line charges of $262 million ($174 million after-tax). Including these items, cost of sales was $17,916 million, operating income was $475 million, income before income taxes was $358 million, income tax expense was $135 million, net income was $223 million, basic earnings per share was $0.40 and diluted earnings per share was $0.39.
- (b) Excludes the restructuring and impairment charges of $617 million ($404 million after-tax). In addition, in accordance with new accounting rules, we stopped amortizing goodwill effective January 1, 2002. For ease of comparison and consistency, for the nine months ended September 30, 2001, we have excluded goodwill amortization of $24 million ($19 million after-tax). Including these items, depreciation and amortization was $831 million, operating loss was $213 million, other income, net was $23 million, loss before income taxes was $359 million, income tax benefit was $120 million, net loss was $239 million, and basic and diluted loss per share was $0.43.
HIGHLIGHTS (PRO FORMA RESULTS)
Sector Financial Results
SEE FOOTNOTES BELOW FOR AN EXPLANATION OF ADJUSTMENTS TO OUR UNAUDITED
GAAP OPERATING RESULTS USED IN CALCULATING OUR PRO FORMA RESULTS.
Three Months Ended September 30,
Sector 2002 2001 2002 2001
Sales Sales Operating Operating
Income (Loss) Income (Loss)
(in millions)
Electronics & Mobile Communication
Mobile MultiMedia $61 $75 $(9) $(10)
Other Electronics &
Mobile Communication 1,138 1,088 89 73 (c)
Total 1,199 1,163 80 63 (c)
Safety, Thermal &
Electrical Architecture 2,294 2,159 85 63 (c)
Dynamics & Propulsion 3,018 2,994 (20) (21) (c)
Other (65) (87) (20) (15) (c)
Total $6,446 $6,229 $125 $90 (c)
Nine Months Ended September 30,
Sector 2002 2001 2002 2001
Sales Sales Operating Operating
Income (Loss) Income (Loss)
(in millions)
Electronics & Mobile Communication
Mobile MultiMedia $241 $288 $(19) $(20)
Other Electronics &
Mobile Communication 3,516 3,346 343 (a) 251 (b)(c)
Total 3,757 3,634 324 (a) 231 (b)(c)
Safety, Thermal &
Electrical Architecture 7,237 6,811 407 (a) 243 (b)(c)
Dynamics & Propulsion 9,718 9,549 66 (a) 5 (b)(c)
Other (256) (286) (60)(a) (69)(b)(c)
Total $20,456 $19,708 $737 (a) $410 (b)(c)
- (a) Excludes the net restructuring and product line charges of $20 million for Electronics & Mobile Communication, $101 million for Safety, Thermal & Electrical Architecture, $126 million for Dynamics & Propulsion and $15 million for Other.
- (b) Excludes the restructuring and asset impairment charges of $78 million for Electronics & Mobile Communication, $214 million for Safety, Thermal & Electrical Architecture, $280 million for Dynamics & Propulsion and $27 million for Other.
- (c) For comparative purposes, the three months ended September 30, 2001 excludes goodwill amortization of $9 million with $1 million for Electronics & Mobile Communication, $3 million for Safety, Thermal & Electrical Architecture and $5 million for Dynamics & Propulsion. The nine months ended September 30, 2001 excludes goodwill amortization of $24 million with $3 million for Electronics & Mobile Communication, $7 million for Safety, Thermal & Electrical Architecture, $12 million for Dynamics & Propulsion and $2 million for Other.
HIGHLIGHTS
LIQUIDITY AND CAPITAL RESOURCES
SEE FOOTNOTES BELOW FOR AN EXPLANATION OF ADJUSTMENTS TO OUR UNAUDITED
GAAP OPERATING RESULTS USED IN CALCULATING OUR PRO FORMA RESULTS.
BALANCE SHEET DATA:
(in millions)
September 30, December 31, September 30,
2002 2001 2001
Cash and cash equivalents $707 $757 $758
Debt 3,455 3,353 3,515
Net liquidity $(2,748) $(2,596) $(2,757)
Stockholders' equity $2,352 (a) $2,312 (a) $3,287
RECONCILIATION OF NET LIQUIDITY:
(in millions)
Net liquidity at December 31, 2001 $(2,596)
Net income 397 (b)
Depreciation and amortization 749
Capital expenditures (710)
Other, net 372 (b)
Operating cash flow less capital expenditures 808 (b)
Pension contribution (400)
Cash paid for restructuring and product line charges (279) (b)(c)
Amount paid to GM for separation related obligations (143)
Dividends and other non-operating (138)
Net liquidity at September 30, 2002 $(2,748)
- (a) Includes a pension charge to equity of $830 million after-tax. Excluding this pension charge, stockholders' equity would be $3,182 as of September 30, 2002 and $3,142 million as of December 31, 2001.
- (b) Excludes the impact of the first quarter 2002 net restructuring and product line charges of $262 million ($174 million after-tax). Total cash outflows associated with the 2002 charges and 2001 product line impairment charges are expected to be $275 million, of which $165 million was paid in the first nine months of 2002.
- (c) Total cash outflows associated with the 2001 restructuring charge were $457 million, of which $114 million was paid in the first nine months of 2002.
CONSOLIDATED STATEMENTS OF OPERATIONS (a)
Three Months Ended
September 30,
2002 2001
(in millions, except per
share amounts)
Net sales:
General Motors and affiliates $4,077 $4,238
Other customers 2,369 1,991
Total net sales 6,446 6,229
Operating expenses:
Cost of sales, excluding items listed below 5,695 5,540
Selling, general and administrative 368 348
Depreciation and amortization 258 260
Total operating expenses 6,321 6,148
Operating income 125 81
Less interest expense 49 57
Other income, net 9 17
Income before income taxes 85 41
Income tax expense 31 15
Net income $54 $26
Earnings per share
Basic and diluted $0.10 $0.05
CONSOLIDATED STATEMENTS OF OPERATIONS (a)
Nine Months Ended
September 30,
2002 2001
(in millions, except per
share amounts)
Net sales:
General Motors and affiliates $13,379 $13,328
Other customers 7,077 6,380
Total net sales 20,456 19,708
Operating expenses:
Cost of sales, excluding items
listed below 17,916 17,465
Selling, general and administrative 1,091 1,089
Depreciation and amortization 749 831
Restructuring 225 536
Total operating expenses 19,981 19,921
Operating income (loss) 475 (213)
Less interest expense 144 169
Other income, net 27 23
Income (loss) before income taxes 358 (359)
Income tax expense (benefit) 135 (120)
Net income (loss) $223 $(239)
Earnings (loss) per share
Basic $0.40 $(0.43)
Diluted $0.39 $(0.43)
CONSOLIDATED BALANCE SHEETS (a)
September 30, December 31,
2002 2001
(in millions)
ASSETS
Current assets:
Cash and cash equivalents $707 $757
Accounts receivable, net:
General Motors and affiliates 3,254 2,829
Other customers 1,880 1,778
Inventories, net 1,711 1,621
Deferred income taxes 323 319
Prepaid expenses and other 172 194
Total current assets 8,047 7,498
Long-term assets:
Property, net 5,763 5,724
Deferred income taxes 3,126 3,152
Goodwill, net 671 630
Other 1,596 1,598
Total assets $19,203 $18,602
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of
long-term debt $1,393 $1,270
Accounts payable 3,101 2,779
Restructuring obligations 52 121
Accrued liabilities 1,794 1,680
Total current liabilities 6,340 5,850
Long-term liabilities:
Long-term debt 2,062 2,083
Pension benefits 1,963 2,146
Postretirement benefits other than pensions 5,013 4,702
Other 1,473 1,509
Total liabilities 16,851 16,290
Stockholders' equity:
Common stock, $0.01 par value,
1,350 million shares authorized,
565 million shares issued in 2002 and 2001 6 6
Additional paid-in capital 2,446 2,450
Retained earnings 1,449 1,343
Minimum pension liability (830) (830)
Accumulated other comprehensive loss,
excluding minimum pension liability (611) (567)
Treasury stock, at cost (108) (90)
Total stockholders' equity 2,352 2,312
Total liabilities and stockholders' equity $19,203 $18,602
Consolidated Statements of Cash Flows (a)
Nine Months Ended
September 30,
2002 2001
(in millions)
Cash flows from operating activities:
Net income (loss) $223 $(239)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization, excluding
amortization of goodwill 749 807
Amortization of goodwill - 24
Deferred income taxes 9 (244)
Restructuring 225 536
Changes in operating assets and liabilities:
Accounts receivable, net (535) 38
Inventories, net (95) (66)
Prepaid expenses and other 40 67
Accounts payable 322 231
Restructuring obligations (279) (250)
Accrued liabilities 134 (142)
Other long-term liabilities 69 202
Other (166) (80)
Net cash provided by operating activities 696 884
Cash flows from investing activities:
Capital expenditures (710) (734)
Cost of acquisitions, net of cash acquired - (313)
Other 58 (5)
Net cash used in investing activities (652) (1,052)
Cash flows from financing activities:
Net proceeds from (repayments of) borrowings
under credit facilities and other debt 102 (174)
Net proceeds from issuance of debt securities - 498
Dividend payments (117) (117)
Issuance (purchases) of treasury stock, net (22) 6
Net cash (used in) provided by financing
activities (37) 213
Effect of exchange rate fluctuations on cash
and cash equivalents (57) (47)
Decrease in cash and cash equivalents (50) (2)
Cash and cash equivalents at beginning of period 757 760
Cash and cash equivalents at end of period $707 $758