Revenue Growth Drives Increased Delphi Cash Flow in Q1
Non-GM revenue up 23 percent year-over-year; Cash from operations up 43 percent from Q1 2003; Solid progress continues on competitiveness initiatives
TROY, Mich., April 16 -- Delphi Corp. today reported Q1 2004 revenues of $7.4 billion, up from $7.2 billion for the same period in 2003. Non-GM revenues were $3.2 billion, up 23 percent from Q1 2003. GAAP net income for the quarter was $54 million, or $0.10 per share. Net income for the quarter, excluding charges related to plans announced in October 2003, was $123 million or $0.22 per share, compared to analyst consensus as reported on First Call of $0.20 per share. Operating cash flow in Q1 was $217(1) million, up 43 percent year-over-year from Q1 2003.
"In the first quarter, we increased our strong operating cash flow and continued to move aggressively on restructuring initiatives that improve our ability to compete for -- and win -- new business," said J.T. Battenberg III, Delphi's chairman, president and chief executive officer. "Moreover, as a result of our ongoing technology leadership, we saw double-digit growth in sales to customers other than GM. We see this strong growth continuing, as evidenced by the 14 percent compound annual growth rate (CAGR) for non-GM business forecast through 2006."
2004 Q1 Financial Highlights * Revenue of $7.4 billion, up 3.2 percent from $7.2 billion in Q1 2003.
* Non-GM business increased to 43 percent of Q1 revenues, compared to year-ago levels of 37 percent. Non-GM revenue for the quarter was $3.2 billion, up 23 percent from $2.6 billion in Q1 2003. Excluding the effects of foreign exchange (principally, the appreciation of the Euro against the U.S. dollar), non-GM revenue for the quarter increased 14 percent.
* Operating cash flow was $217 million, up from $152 million for Q1 2003.(1)
* GAAP net income of $54 million or $0.10 per share. Excluding charges related to plans announced in October 2003, net income for the quarter was $123 million or $0.22 per share, compared to Q1 2003 net income of $127 million or $0.23 per share.
"Once again, Delphi extended its track record for strong cash generation," said Alan Dawes, Delphi vice chairman and chief financial officer. "We've continued to manage our discretionary capital expenditures and SG&A, freeing up substantial cash for restructuring, dividends and other value-enhancing activities."
"We accelerated our non-GM business growth," Dawes added. "Demand for Delphi's safety, connector and electrical/electronic distribution systems (E/EDS) has resulted in new revenues from customers that include Ford Motor Company and various commercial vehicle manufacturers. Our growth strategy -- which emphasizes investment in technology-rich products, leverage of our capabilities into adjacent non-automotive markets, and pursuit of new business with every major automaker worldwide -- is validated by Delphi's performance during the quarter. Delphi's results were at the high end of the prior guidance range, primarily reflecting higher revenue and a lower effective tax rate (tax impact of $0.01 per share)."
Restructuring Plans and Related Activities
In Q1, Delphi made significant progress toward completing a restructuring plan announced in October 2003, which anticipated total charges of $807 million pre-tax and a planned reduction in Delphi's worldwide workforce of 8,500 by the end of 2004. In CY 2003, the company incurred $616 million pre- tax in charges related to this effort. In Q1 2004, Delphi recorded $90 million in pre-tax charges primarily relating to global hourly and salaried workforce reductions. Total charges for the restructuring incurred to date are $706 million pre-tax.
"To date, Delphi has reduced its U.S. hourly workforce by 3,750 through a combination of normal retirements, flowbacks to GM, and other attrition, against our goal of 5,000," Dawes said. "We've also trimmed our non-U.S. workforce by a total of 2,900 and we've completed the consolidation of our support staffs across headquarters, divisions and regions. To date, our global workforce has been reduced by 7,150 through these restructuring initiatives. Additionally, our consolidation activities are progressing, along with discussions regarding a competitive wage structure. We expect these issues to be addressed in April."
2004 Q1 Business Highlights
Throughout the quarter, Delphi won new business and was recognized for technology leadership and customer satisfaction. Highlights for Q1 2004 include:
* Delphi in China - During the quarter, Delphi said it plans to expand its current manufacturing capability in Suzhou, China. The company announced it will invest $41 million in two new manufacturing facilities where Delphi Electronics & Safety will produce various electronic and mobile multi-media products. Delphi continues to grow its sales in China to leading local manufacturers, including affiliates of GM and Volkswagen.
* Delphi in adjacent markets - In 2004, Delphi expects sales of more than $2 billion in adjacent markets, including independent aftermarket, consumer electronics, commercial vehicles, medical, homeland security and other sectors.
-- Consumer electronics and satellite radio - In Q1, Delphi introduced the Delphi CD Audio System, the industry's first "all-in-one" audio system that enables users to access Delphi XM SKYFi(TM) satellite radio, AM/FM radio and CD/MP3 player capabilities. The company also unveiled Delphi Mobile Video, a compact single-disc overhead entertainment solution, as well as two brand new audio receivers designed to provide consumers advanced functionality and improved performance with digital quality. Additionally, Delphi announced Penske Truck Leasing will outfit some of its class 8 trucks with Delphi's satellite radio and antennas to receive SIRIUS reception through a deal with its distributor, Pana-Pacific.
-- Defense and homeland security - In Q1, Delphi said it is working with the U.S. Marine Corps and the National Center for Manufacturing Sciences (NCMS) to provide a technology edge for the Light Armored Vehicle (LAV).
-- Medical devices - In addition, Delphi Medical Systems Corporation, a Delphi subsidiary, secured $80 million in new business with Sunrise Medical, one of the world's largest manufacturers of homecare and extended care products.
* E/EDS business with Mercedes - Delphi earned significant E/EDS content on the next generation Mercedes C-Class scheduled for introduction in 2007. The lifetime value of the contract is approximately $750 million.
* Ford business growth - During Q1, Delphi announced key business wins with Ford, including:
-- E/EDS for Ford's next-generation Transit MCV. Delphi also began supplying the electrical system for the current Transit model during the second half of last year. Delphi also announced it is providing E/EDS for Ford's line-up of full-size, rear-wheel-drive vehicles, including the Ford Crown Victoria, Mercury Grand Marquis and Lincoln Town Car.
-- Family Entertainment Systems for the 2004 Ford Freestar and Mercury Monterey.
-- SIRIUS satellite radio content with Delphi audio systems for two of its popular truck platforms.
* Awards - During the quarter, Delphi won Automotive News PACE(TM) Awards for its Forewarn Back-up Aid and Side Detection technology, and its Horizontal Modeling and Digital Processes Design for CAD/CAM, as well as a PACE honorable mention for its set-top box for mobile TV reception. In addition, eight Delphi facilities were announced as recipients of the 2004 Shingo Prize, which recognizes manufacturing excellence. Including those received in 2004, Delphi has received 20 Shingo awards to date, more than any other company in the world. Also in Q1, Delphi earned a quality performance award from Toyota Motor for products featured on various models, as well as several awards from Toyota Motor Manufacturing North America for excellence in quality, cost and delivery. Finally, the company received the Triple Crown Award from NUMMI for achieving performance excellence and meeting all NUMMI targets in cost, quality and delivery.
Sales Outlook Through 2006
Delphi's total sales for CY 2004 are estimated at $28.6 billion to $29.1 billion. Total annual sales, based on organic growth plans, are expected to rise to $29.6 billion in 2006 and sales to customers other than GM are expected to grow 14 percent on a compound annual basis from 2003 through 2006. In 2006, sales to customers other than GM are expected to be $16.6 billion, or 56 percent of total sales. Forecasts are based on the company's revenue backlog through 2006, which is subject to exchange rates and production volumes.
"We're well-positioned to have no single customer account for more than 50 percent of Delphi's revenue," Dawes stated. "As we grow our business with automakers around the world, we expect these new revenues will offset anticipated declines in GM business, which will continue as we implement our strategy to exit certain commodity businesses. We've worked hard to enhance our product portfolio and diversify our customer base, and these efforts will continue to drive our financial performance," Dawes noted.
Q2 2004 Outlook
Dawes said Q2 2004 revenue is expected to range between $7.5 billion and $7.8 billion. "GAAP net income is expected to range from $105 million to $145 million in the quarter, reflecting $20 million to $40 million in after-tax restructuring costs, or $145 million to $165 million excluding these items. Operating cash flow is forecast between $350 and $450 million(2)," he said.
"For 2004, Delphi's challenges, principally U.S. production and raw material price exposures, are balanced by opportunities in Asia and adjacent markets, as well as additional anticipated tax benefits," Dawes continued. "Delphi will continue to grow its enterprise value by increasing operating cash flow. Combined with the impact of favorable external market and legislative factors, use of this cash will allow us to manage down legacy claims on the enterprise."
Additional Information
Additional information concerning Delphi's Q1 2004 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) Operating cash flow is internally defined as GAAP cash flow from operations as shown on our consolidated statement of cash flows less capital expenditures, plus pension contributions and cash paid for employee, product line and related charges, and changes in the sale of accounts receivable and supplier financing programs. For reconciliation of operating cash flow to GAAP cash flow from operations, refer to "Highlights" section of this press release.
(2) As defined in Footnote 1 (above), based upon projected GAAP cash flow from operations of $300 million-$400 million.
HIGHLIGHTS
Three months ended March 31, 2004 vs. three months ended March 31, 2003
comparison.
Three Months Ended
March 31,
2004 (a) 2003
(in millions, except
per share amounts)
Net sales:
General Motors and affiliates $4,190 $4,555
Other customers 3,221 2,627
Total net sales 7,411 7,182
Less operating expenses:
Cost of sales, excluding items listed
below 6,570 6,312
Selling, general and administrative 403 389
Depreciation and amortization 279 253
Employee and product line charges 38 -
Total operating expenses 7,290 6,954
Operating income 121 228
Less: interest expense 59 45
Other income, net 8 2
Income before income taxes 70 185
Income tax expense 16 58
Net income $54 $127
Gross margin 11.3% 12.1%
Operating income margin 1.6% 3.2%
Net income margin 0.7% 1.8%
Basic and diluted earnings per share,
560 million and 564 million basic and
diluted shares, respectively, outstanding
in 2004 and 560 million shares
outstanding in 2003 $0.10 $0.23
(a) Includes the first quarter 2004 Charges of $52 million ($40 million
after-tax) in cost of sales and $38 million ($29 million after-tax) in
employee and product line charges (the "2004 Charges"). Excluding these
items from the results for the three months ended March 31, 2004, cost of
sales would have been $6,518 million, operating income would have been
$211 million, income before income taxes would have been $160 million,
income tax expense would have been $37 million, net income would have been
$123 million and basic and diluted earnings per share would have been
$0.22.
HIGHLIGHTS
Effective January 1, 2004, we realigned our business sectors by combining
the interior product lines into the Dynamics, Propulsion, Thermal &
Interior Sector, which were previously included in the Electrical,
Electronics, Safety & Interior Sector. The realignment is designed to
strengthen our customer and market focus by bringing together similar
product portfolios and to enhance our position as an integrated supplier.
FIRST QUARTER SECTOR FINANCIAL RESULTS FOR 2004 AND 2003
Management reviews our sector operating results excluding the 2004 Charges. Accordingly, we have presented our sector results excluding such amounts.
Three Months Ended March 31,
2004 2003 2004 2003
Sales Sales Operating Operating
Sector Income (a) Income
(in millions)
Dynamics, Propulsion, Thermal
& Interior $3,700 $3,662 $72 $134
Electrical, Electronics & Safety 3,531 3,222 282 246
Automotive Holdings Group 726 822 (127) (138)
Other (546) (524) (16) (14)
Total $7,411 $7,182 $211 $228
(a) Excludes the 2004 Charges of $44 million for Dynamics, Propulsion,
Thermal & Interior, $20 million for Electrical, Electronics & Safety, $22
million for Automotive Holdings Group and $4 million for Other.
FULL YEAR SECTOR FINANCIAL RESULTS FOR 2003 AND 2002
The data below is our financial information for the years ended December 31, 2003 and 2002 on the realigned basis.
Year Ended December 31,
2003 2002 2003 2002
Sector Sales Sales Operating Operating
Income (a) Income (b)
(in millions)
Dynamics, Propulsion, Thermal
& Interior $14,177 $14,105 $392 $451
Electrical, Electronics & Safety 12,945 12,055 948 932
Automotive Holdings Group 2,994 3,550 (600) (375)
Other (2,020) (2,283) (102) (58)
Total $28,096 $27,427 $638 $950
(a) Excludes the third and fourth quarter 2003 charges (the "2003
Charges") of $117 million for Dynamics, Propulsion, Thermal & Interior,
$134 million for Electrical, Electronics & Safety, $323 million for
Automotive Holdings Group and $42 million for Other.
(b) Excludes the first quarter 2002 net restructuring and generator
product line charges (the "2002 Charges") of $97 million for Dynamics,
Propulsion, Thermal & Interior, $45 million for Electrical, Electronics &
Safety, $104 million for Automotive Holdings Group and $16 million for
Other.
HIGHLIGHTS
Three months ended March 31, 2004 liquidity and capital resources
BALANCE SHEET DATA:
(in millions)
March 31, December 31,
2004 2003
Cash and cash equivalents $808 $880
Junior subordinated notes due to
Trust I and II 412 412
Debt 2,999 (a) 2,823 (a)
Net liquidity $(2,603)(a) $(2,355)(a)
Total stockholders' equity $1,553 (b) $1,570 (b)
RECONCILIATION OF FIRST QUARTER 2004 NET LIQUIDITY:
(in millions)
Net liquidity at December 31, 2003 $(2,355)
Net income $54
Depreciation and amortization 279
Employee and product line charges 38
Capital expenditures (221)
Other, net 67
Operating cash flow 217 (c)
Cash paid for 2003 and 2004 Charges (193)
Dividends (39)
Other non-operating (233)
Net liquidity at March 31, 2004 $(2,603)
(a) Debt and net liquidity exclude sales of accounts receivable accounted
for off-balance sheet.
(b) Includes after-tax minimum pension liability adjustments to equity of
$2,118 million at both March 31, 2004 and December 31, 2003. Excluding
these adjustments, stockholders' equity would have been $3,671 million and
$3,688 million as of March 31, 2004 and December 31, 2003, respectively.
(c) A reconciliation of first quarter 2004 operating cash flow as defined
by management is as follows:
Net income $54
Depreciation and amortization 279
Deferred income taxes (49)
Employee and product line charges 38
Changes in operating assets and liabilities (308)
Cash provided by operating activities as shown in
our consolidated statements of cash flows 14
Capital expenditures (221)
Cash paid for 2003 and 2004 Charges 193
Increase in supplier financing program 35
Decrease in sales of accounts receivable 196
Operating cash flow as defined by management $217
Consolidated Balance Sheets (a)
March 31, December 31,
2004 2003
(in millions)
ASSETS
Current assets:
Cash and cash equivalents $808 $880
Accounts receivable, net:
General Motors and affiliates 2,706 2,326
Other customers 1,590 1,438
Retained interests in receivables, net 893 717
Inventories, net 2,054 1,996
Deferred income taxes 364 420
Prepaid expenses and other 282 269
Total current assets 8,697 8,046
Long-term assets:
Property, net 6,067 6,167
Deferred income taxes 3,929 3,835
Goodwill, net 770 776
Pension intangible assets 1,167 1,167
Other 902 913
Total assets $21,532 $20,904
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of
long-term debt $977 $801
Accounts payable 3,333 3,158
Accrued liabilities 2,545 2,232
Total current liabilities 6,855 6,191
Long-term liabilities:
Long-term debt 2,022 2,022
Junior subordinated notes due to Delphi
Trust I and II 412 412
Pension benefits 3,403 3,574
Postretirement benefits other than pensions 5,860 5,697
Other 1,427 1,438
Total liabilities 19,979 19,334
Stockholders' equity:
Common stock, $0.01 par value, 1,350 million
shares authorized, 565 million shares issued
in 2004 and 2003 6 6
Additional paid-in capital 2,672 2,667
Retained earnings 1,256 1,241
Minimum pension liability (2,118) (2,118)
Accumulated other comprehensive loss,
excluding minimum pension liability (188) (151)
Treasury stock, at cost (4.7 million shares in
2004 and 2003 (75) (75)
Total stockholders' equity 1,553 1,570
Total liabilities and stockholders' equity $21,532 $20,904
(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,
2004 2003
(in millions)
Cash flows from operating activities:
Net income $54 $127
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 279 253
Deferred income taxes (49) 3
Employee and product line charges 38 -
Changes in operating assets and liabilities:
Accounts receivable and retained interests
in receivables, net (708) (474)
Inventories, net (58) 1
Prepaid expenses and other 13 68
Accounts payable 175 153
Employee and product line charge
obligations (141) (24)
Accrued and other long-term liabilities 408 (85)
Other 3 (18)
Net cash provided by operating
activities 14 4
Cash flows from investing activities:
Capital expenditures (221) (221)
Other (9) 27
Net cash used in investing activities (230) (194)
Cash flows from financing activities:
Net proceeds from (repayments of) borrowings
under credit facilities and other debt 185 (36)
Dividend payments (39) (39)
Issuance of treasury stock - 1
Net cash provided by (used in) financing
activities 146 (74)
Effect of exchange rate fluctuations on cash
and cash equivalents (2) 5
Decrease in cash and cash equivalents (72) (259)
Cash and cash equivalents at beginning of period 880 1,014
Cash and cash equivalents at end of period $808 $755
(a) Prepared in accordance with accounting principles generally accepted
in the United States of America, on an unaudited basis.