Delphi Overcomes Rising Benefits Costs to Post Earnings Gain; Non-GM Revenue Reaches 37 Percent of Total Sales for Quarter
TROY, Mich., April 16 -- Delphi Corp. today reported Q1 2003 revenues of $7.2 billion, up from $6.7 billion for the same period in 2002. Earnings per share for the quarter were $0.23, compared to analyst consensus as reported on First Call of $0.22 per share. GAAP net income for the quarter was $127 million, compared to Q1 2002 pro forma net income of $123 million and GAAP net income of ($51) million.
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"We continued to face headwinds from pension and healthcare expenses, and were challenged by ongoing economic uncertainty that negatively affected the global automotive industry. Nevertheless, Delphi's relentless focus on customer diversification, combined with leverage of our game-changing technologies and application of Lean principles to drive efficiencies throughout the enterprise, helped us achieve our targets," said J.T. Battenberg III, Delphi's chairman, president and chief executive officer.
2003 Q1 Financial Highlights
* Revenue of $7.2 billion, up 7.4 percent from $6.7 billion in Q1
2002.
* Non-GM business increased to 37 percent of Q1 revenues, compared to
year-ago levels of 33 percent. Non-GM revenue for the quarter was
$2.6 billion, up 19.2 percent from $2.2 billion in Q1 2002.
* GM North American content per vehicle, at $2,761, benefited from
favorable product mix.
* Pension contributions of $350 million were made during the quarter.
* GAAP net income of $127 million or $0.23 per share, compared to Q1
2002 pro forma net income of $123 million or $0.22 per share, and
GAAP earnings of ($51) million or ($0.09) per share.
* Operating cash flow was $152 million. (1)
"We were pleased with the growth in our non-GM sales for the quarter," said Alan Dawes, Delphi vice chairman and chief financial officer. "New customer programs, including sales of our Delphi XM SKYFi satellite radio products and common rail diesel systems, along with continued strong demand in China and the strengthening of the Euro contributed to the 19.2 percent increase in Delphi's non-GM revenues."
The company maintained its track record of solid cash flow generation, producing $152 million in operating cash flow (1) for the quarter, in line with prior guidance. "Our cash flow resulted from sustained discipline in managing SG&A and discretionary capital expenditures. We've also tightly controlled the size of our global workforce, and continue to defer hiring in non-critical areas," Dawes added.
New Organization Alignment Financial Reporting
For the first time, Delphi reported financial results under a new organization alignment announced in October 2002 and effective on January 1, 2003. Its Automotive Holdings Group (AHG) reported 2001 and 2002 revenues of $3.7 billion and $3.6 billion respectively, and operating losses of ($248) million and ($375) million respectively. For Q1 2003, AHG generated revenues of $822 million, with associated operating losses of ($138) million.
"We are continuing to aggressively attack costs, improve operational performance and work with our stakeholders to find solutions to employment issues rapidly and effectively, ahead of further revenue declines. Our goal is to increase cash flow and stem the decline of our earnings trajectory," said James Bertrand, Delphi vice president and president, Delphi Safety & Interior Systems and Automotive Holdings group.
Restructuring Plan and Portfolio Update
Delphi completed its previously announced restructuring plans during Q1 2003. The company's 2002 plan outlined the reduction of 6,100 positions through consolidation activities at more than 25 facilities in North America and Europe by March 2003. With completion of 2002 actions, the combined effect of Delphi's 2001 and 2002 restructuring has reduced global employment by 17,540. The company also continued global footprint and product portfolio rationalization efforts, which resulted in sale, closure or consolidation of five facilities during Q1.
Other Q1 2003 Financial Activities
On March 28, 2003, Delphi filed a registration with the Securities and Exchange Commission for the sale of $300 million ($345 million if the underwriters' over allotment option is exercised in full) of preferred stock. Delphi will issue the securities through its newly created subsidiary, Delphi Properties, Inc., a real estate investment trust (REIT). Proceeds from the sale of the preferred stock offering are intended for general corporate purposes, which may include voluntary contributions to its pension plans. Following the registration, Delphi expects to complete the offering during the second quarter; however, actual timing will depend on SEC approval and market conditions.
During Q1 2003, Delphi entered into a domestic accounts receivable securitization facility agreement for certain trade receivables that will supplement short-term funding alternatives. To date, Delphi has sold $450 million of receivables through this agreement. "The financing costs of this facility agreement are competitive with commercial paper rates, thereby providing an attractive source of short-term financing," Dawes pointed out.
2003 Q1 Business Highlights
Throughout the quarter, Delphi acquired new business and received accolades for technology leadership and customer satisfaction. Highlights for Q1 2003 include:
* Electrical/electronic distribution systems (E/EDS) -- Delphi won
significant E/EDS vehicle program content totaling $2.7 billion in
revenue for the life of the contracts, which support 17 automotive
and heavy-truck manufacturers. Most contracts begin in model years
2005 and 2006.
* Commercial vehicles -- Delphi expanded its presence in commercial
vehicles, winning new business with Kenworth to provide audio
systems for use in their 2003 models. The company also named
PANA-PACIFIC a new distributor of audio products for the heavy-duty
truck market, including premium receivers, satellite radios,
speakers, subwoofers, amplifiers and the Truck Productivity Center
(Truck PC). These new contracts build on solid 2002 commercial
vehicle revenues of $700 million.
* Expanding business globally with Toyota -- Delphi announced two new
contracts for Toyota India Corolla halfshafts and Camry Australia
rack and pinion steering gears for 2003 vehicle models. This new
business further solidifies Delphi's strong relationship with
Toyota. It expands upon more than $477 million in previously booked
business for 2002 production models, for which Delphi supplies
steering columns and indirectly supplies manual rack and pinion
steering gears for electric power steering.
* New steering column business with Ford Motor Company -- Delphi
strengthened its position as a leader in the global steering column
market by winning a new business contract with Ford. Delphi will
supply steering columns for the 2004 Ford F-150 truck series,
America's best selling vehicle for two decades. This new business
represents Delphi's first steering column application with Ford.
* Continued quality and manufacturing excellence -- Throughout Q1
2003, Delphi received several industry and customer accolades,
including an Automotive News PACE(TM) Award for its MagneRide(TM)
suspension technology and a GM Supplier of the Year Award for the
European Operations of Delphi Packard Electric. Additionally, four
Delphi facilities received the 2003 Shingo Prize for Manufacturing
Excellence, bringing the company's total for this award to 12 --
more than any other company in Shingo's history.
Q2 2003 Outlook
Dawes said Q2 2003 revenue is expected to range between $7.0 billion and $7.3 billion. "Net income is expected to range from $160 to $200 million in the quarter, with operating cash flow forecast between $300 and $400 million," he said. (1,2)
Sales Outlook Through 2005
Delphi's total sales for CY 2003 are estimated at $28.0 billion. Sales to customers other than GM are expected to be $10.8 billion, or 39 percent of total sales. Total annual sales, based on organic growth plans, are expected to rise from $28.0 billion in 2003 to $29.4 billion in 2005 and sales to customers other than GM are expected to grow 14 percent annually through 2005. Forecasts are based on the company's revenue backlog through 2005, which is subject to exchange rates and production volumes.
"We are very optimistic that our target of having a single customer account for no more than half of Delphi's revenue is realistic and within reach," Dawes noted. "We believe global growth with non-GM customers will offset our anticipated reduction in GM business," he added.
Additional Information
Additional information concerning Delphi's Q1 2003 results and sales outlook is available through the Investor Relations page of Delphi's website at www.delphi.com, and in Delphi's first quarter Form 10-Q, scheduled to be filed with the Securities and Exchange Commission later today.
About Delphi
For more information about Delphi, visit www.delphi.com.
(1) See Highlights for reconciliation to GAAP cash from operations.
(2) Before $250 million of pension contributions and after approximately
$250 million of capital expenditures.
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, 2002. 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.
HIGHLIGHTS (PRO FORMA RESULTS)
Three months ended March 31, 2003 vs. three months ended March 31, 2002
comparison.
See footnotes below for an explanation of adjustments to our GAAP
operating results, applied in determination of our pro forma results.
Three Months Ended
March 31,
2003 2002
(in millions, except per share amounts)
Net sales:
General Motors and affiliates $4,555 $4,484
Other customers 2,627 2,204
Total net sales 7,182 6,688
Less operating expenses:
Cost of sales, excluding items listed below 6,312 5,852 (a)
Selling, general and administrative 389 362
Depreciation and amortization 253 244
Operating income 228 230 (a)
Less interest expense 45 48
Other income, net 2 10
Income before income taxes 185 192 (a)
Less income tax expense 58 69 (a)
Net income $127 $123 (a)
Gross margin 12.1% 12.5% (a)
Operating income margin 3.2% 3.4% (a)
Net income margin 1.8% 1.8% (a)
Basic and diluted earnings per share, 560 million
shares outstanding in 2003 and 560 million (basic)
and 567 million (diluted) shares outstanding,
respectively, in 2002 $0.23 $0.22 (a)
(a) Excludes the net restructuring and product line charges of
$262 million ($174 million after-tax) of which $37 million was
included in cost of sales. Including these items, cost of sales
was $5,889 million, operating loss was $32 million, loss before income
taxes was $70 million, income tax benefit was $19 million, net loss
was $51 million and basic and diluted loss per share was $0.09.
HIGHLIGHTS (PRO FORMA RESULTS)
SECTOR FINANCIAL RESULTS
See footnotes below for an explanation of adjustments to our GAAP
operating results, applied in determination of our pro forma results.
Three Months Ended March 31,
2003 2002
2003 2002 Operating Operating
Sales Sales Income Income
Sector (in millions)
Dynamics, Propulsion
& Thermal $3,263 $3,079 $120 $98 (a)
Electrical, Electronics,
Safety & Interior 3,612 3,265 260 240 (a)
Automotive Holdings Group 822 896 (138) (95) (a)
Other (515) (552) (14) (13) (a)
Total $7,182 $6,688 $228 $230 (a)
(a) Excludes the first quarter 2002 net restructuring and generator
product line charges of $262 million with $78 million for Dynamics,
Propulsion & Thermal, $64 million for Electrical, Electronics, Safety
& Interior, $104 million for Automotive Holdings Group and $16 million
for Other.
HIGHLIGHTS (PRO FORMA RESULTS)
LIQUIDITY AND CAPITAL RESOURCES
See footnotes below for an explanation of adjustments to our GAAP
operating results, applied in determination of our pro forma results.
BALANCE SHEET DATA:
(in millions)
March 31, December 31,
2003 2002
Cash and cash equivalents $755 $1,014
Debt 2,730 (a) 2,766 (a)
Net liquidity $(1,975) (a) $(1,752) (a)
Total stockholders' equity $1,440 (b) $1,279 (b)
RECONCILIATION OF FIRST QUARTER 2003 NET LIQUIDITY:
(in millions)
Net liquidity at December 31, 2002 $(1,752)
Net income $127
Depreciation and amortization 253
Capital expenditures (221)
Other, net (7)
Operating cash flow 152 (c)
Pension contribution (350)
Cash paid for restructuring and product line charges (24)
Dividends and other non-operating (1)
Net liquidity at March 31, 2003 $(1,975)
(a) Our debt and net liquidity as of March 31, 2003 and December 31, 2002
exclude sales of accounts receivable accounted for off-balance sheet.
(b) Includes after-tax minimum pension liability adjustments to equity of
$2,098 million at March 31, 2003 and December 31, 2002, respectively.
Excluding these adjustments, stockholders' equity would have been
$3,538 million, and $3,377 million as of March 31, 2003, and
December 31, 2002, respectively.
(c) A reconciliation to cash provided by operations as shown on our
Statement of Cash Flows is as follows:
Operating cash flow $152
Capital expenditures 221
Increase in sales of accounts receivable 5
Pension contribution (350)
Cash paid for restructuring (24)
Cash provided by operations $4
HIGHLIGHTS (PRO FORMA RESULTS)
SECTOR FINANCIAL RESULTS FOR 2002 AND 2001
See footnotes below for an explanation of adjustments to our GAAP
operating results, applied in determination of our pro forma results.
Effective January 1, 2003 we realigned our business sectors. The data
below is our financial information for the years ended December 31, 2002
and 2001 on the realigned basis.
Year Ended December 31,
2002 2001
2002 2001 Operating Operating
Sales Sales Income Income
Sector (in millions)
Dynamics, Propulsion
& Thermal $12,475 $11,925 $413 (a) $175 (b)(c)
Electrical, Electronics,
Safety & Interior 13,632 12,705 972 (a) 695 (b)(c)
Automotive Holdings
Group 3,550 3,744 (375)(a) (248)(b)
Other (2,230) (2,286) (58)(a) (69)(b)
Total $27,427 $26,088 $952 (a) $553 (b)(c)
(a) Excludes the first quarter 2002 net restructuring and generator
product line charges of $262 million with $78 million for Dynamics,
Propulsion & Thermal, $64 million for Electrical, Electronics, Safety
& Interior, $104 million for Automotive Holdings Group and $16 million
for Other.
(b) Excludes the first quarter 2001 restructuring and asset impairment
charges of $599 million and the fourth quarter 2001 product line
impairment and other charges of $203 million with $310 million for
Dynamics, Propulsion & Thermal, $189 million for Electrical,
Electronics, Safety & Interior, $277 million for Automotive Holdings
Group and $26 million for Other.
(c) Excludes goodwill amortization for 2001 of $35 million with
$20 million for Dynamics, Propulsion & Thermal and $15 million for
Electrical, Electronics, Safety & Interior.
CONSOLIDATED STATEMENTS OF INCOME (a)
Three Months Ended March 31,
2003 2002
(in millions, except per share amounts)
Net sales:
General Motors and affiliates $4,555 $4,484
Other customers 2,627 2,204
Total net sales 7,182 6,688
Operating expenses:
Cost of sales, excluding items listed below 6,312 5,889
Selling, general and administrative 389 362
Depreciation and amortization 253 244
Restructuring -- 225
Total operating expenses 6,954 6,720
Operating income (loss) 228 (32)
Less interest expense 45 48
Other income, net 2 10
Income (loss) before income taxes 185 (70)
Income tax expense (benefit) 58 (19)
Net income (loss) $127 $(51)
Basic and diluted earnings (loss) per share $0.23 $(0.09)
(a) Prepared in accordance with accounting principles generally accepted
in the United States of America, on an unaudited basis.
CONSOLIDATED BALANCE SHEETS (a)
March 31, December 31,
2003 2002
(in millions)
ASSETS
Current assets:
Cash and cash equivalents $755 $1,014
Accounts receivable, net:
General Motors and affiliates 2,954 2,304
Other customers 1,516 1,712
Inventories, net 1,765 1,769
Deferred income taxes 493 502
Prepaid expenses and other 173 241
Total current assets 7,656 7,542
Long-term assets:
Property, net 5,912 5,944
Deferred income taxes 3,652 3,649
Goodwill, net 707 699
Other 1,474 1,482
Total assets $19,401 $19,316
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of long-term debt $648 $682
Accounts payable 3,202 3,060
Accrued liabilities 1,982 2,118
Total current liabilities 5,832 5,860
Long-term liabilities:
Long-term debt 2,082 2,084
Pension benefits 3,440 3,568
Postretirement benefits other than pensions 5,269 5,120
Other 1,338 1,405
Total liabilities 17,961 18,037
Stockholders' equity:
Common stock, $0.01 par value, 1,350 million
shares authorized, 565 million shares issued
in 2003 and 2002 6 6
Additional paid-in capital 2,459 2,445
Retained earnings 1,618 1,530
Accumulated other comprehensive loss:
Minimum pension liability (2,098) (2,098)
All other components (469) (493)
Treasury stock, at cost (76) (111)
Total stockholders' equity 1,440 1,279
Total liabilities and stockholders' equity $19,401 $19,316
(a) Prepared in accordance with accounting principles generally accepted
in the United States of America, on an unaudited basis.
CONSOLIDATED STATEMENTS OF CASH FLOWS (a)
Three Months Ended
March 31,
2003 2002
(in millions)
Cash flows from operating activities:
Net income (loss) $127 $(51)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 253 244
Deferred income taxes 3 (37)
Restructuring -- 225
Changes in operating assets and liabilities:
Accounts receivable, net (474) (523)
Inventories, net 1 23
Prepaid expenses and other 68 (31)
Accounts payable 153 263
Restructuring obligations (24) (174)
Accrued liabilities (101) 87
Other long-term liabilities 16 181
Other (18) 13
Net cash provided by operating activities 4 220
Cash flows from investing activities:
Capital expenditures (221) (209)
Other 27 16
Net cash used in investing activities (194) (193)
Cash flows from financing activities:
Net repayments of borrowings under
credit facilities and other debt (36) (50)
Dividend payments (39) (39)
Issuance of treasury stock, net 1 9
Net cash used in financing activities (74) (80)
Effect of exchange rate fluctuations
on cash and cash equivalents 5 (7)
Decrease in cash and cash equivalents (259) (60)
Cash and cash equivalents at beginning of period 1,014 757
Cash and cash equivalents at end of period $755 $697
(a) Prepared in accordance with accounting principles generally accepted
in the United States of America, on an unaudited basis.
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