Delphi Generates Strong Cash Flow in Q3
Delphi meets revised Q3 earnings guidance Non-GM revenues grow to 47 percent of total sales
TROY, Mich., Oct. 18 -- Delphi Corp. today reported Q3 2004 revenues of $6.65 billion, and a GAAP net loss of $114 million or a loss of $0.20 per share. Excluding the impact of previously announced restructuring charges, Delphi reported a pro forma loss(1) of $66 million or a loss of $0.12 per share, in line with First Call consensus and guidance issued on Oct. 5, 2004. The company generated $360 million in operating cash flow(2), exceeding Q3 guidance and reflecting aggressive management of working capital and capital expenditures. Delphi also reaffirmed its Q4 2004 guidance for revenue, earnings and cash flow.
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"As we discussed on Oct. 5, the third quarter was a more challenging environment than we experienced in the first half of 2004, with increased commodity pressures, low production volumes, product launch issues and lower attrition," said J.T. Battenberg III, Delphi's chairman, chief executive officer and president. "While we have near-term challenges, our long-term strategy remains on track and we were able to grow our non-GM sales to 47 percent of Q3 revenues and generate strong operating cash flow(2) of $360 million -- more than double the amount in Q3 2003. This strong cash flow generation, fueled by our non-GM revenue growth and aggressive cost reductions, allowed Delphi to strengthen its balance sheet and will continue to position Delphi for long-term value creation."
2004 Q3 Financial Highlights * Revenue of $6.65 billion, up from $6.56 billion in Q3 2003.
* Non-GM revenues increased to 47 percent of Q3 revenues, compared to year-ago levels of 40 percent. Non-GM revenue for the quarter reached $3.2 billion, up 20 percent from $2.6 billion in Q3 2003.
* GAAP net loss of $114 million or a loss of $0.20 per share, compared to Q3 2003 net loss of $353 million or a loss of $0.63 per share. Excluding the impact of $25 million in restructuring charges in Q3, as well as a $23 million reduction in tax benefits on first half restructuring charges due to a reduction of the tax rate, pro forma net loss(1) of $66 million or a loss of $0.12 per share.
* Operating cash flow(2) was $360 million, more than double the $177 million in Q3 2003, due to strong working capital and efficient capital spending.
"In the face of near-term headwinds, we are engaging our entire workforce in efforts to identify additional opportunities to defer non-critical SG&A and discretionary spending," said Alan Dawes, Delphi vice chairman and chief financial officer. "In addition, Delphi is focusing on the effective management of our assets, working capital and capital expenditures and limiting our hiring. We are also looking at creative solutions across the entire supply chain to reduce overall costs and counteract some of the commodity market-driven cost increases. These actions will help Delphi continue to respond to the challenges we face during the remainder of the year."
"Furthermore, while we are taking aggressive actions to reduce our cost structure, we will not compromise customer-critical quality and delivery areas or waiver in our commitment to R&D," Dawes added.
Restructuring Update
In Q3, Delphi made additional progress on restructuring activities and announced the completion of consolidation activities at its Automotive Holdings Group Flint West, Mich., manufacturing operation. All production has ceased at the Flint West facility and all the remaining employees at the site have chosen to either retire, flowback to General Motors or transfer to other opportunities within Delphi.
Relating to programs announced in October 2003, U.S. hourly workforce reductions have totaled approximately 5,675 and Delphi anticipates total reductions to be more than 6,000 through the end of 2004.
"While we still have a good deal of work ahead of us, the steps we're taking toward completing our October 2003 restructuring plan will enhance our long-term value for Delphi's shareholders," Dawes said.
2004 Q3 Business Highlights
Delphi announced several business highlights that will increase revenue growth through regional and customer diversification, acquisitions and adjacent market sales. Highlights include:
NEW BUSINESS WINS
* Delphi will supply motorized power sliding doors on the new Peugeot 1007, making it the first small car to have a single motorized door on both sides, power-assisted throughout the operating range.
* Delphi will supply heating, ventilating and air conditioning modules for John Deere harvesting equipment.
* Delphi will supply its MagneRide(TM) system to two premier European vehicle manufacturers for future European market applications.
* Delphi won a contract with Renault to provide the complete electrical/electronic distribution system for a future Renault vehicle.
ACQUISITIONS - Delphi acquired the intellectual property and substantially all the assets and certain liabilities of Dynamit Nobel AIS GmbH Automotive Ignition Systems, a key addition to its long-term occupant protection systems business strategy.
CONSUMER ELECTRONICS - Delphi and XM Satellite Radio introduced the new Delphi XM "SKYFi2" -- the next generation SKYFi satellite radio receiver. The Delphi XM SKYFi2 has several new features, including the first-ever "pause" and "replay" functions for satellite radio.
ADJACENT MARKETS
* Aerospace - Delphi and Parlex Corp. have entered into a strategic alliance in the aerospace interconnect market, where Parlex will provide Delphi Connection Systems with flexible circuits for various customer applications. In addition, Delphi was selected by aerospace company, Lycoming Engines, to provide advanced technology for general aviation engines.
* Medical Systems - Delphi Medical Systems Corp. signed a licensing agreement with medical device company Debiotech, S.A. to manufacture and market Debiotech's ambulatory intravenous (IV) pump, its associated disposables and accessories.
* Computer Systems - Delphi launched a patented liquid cooling technology in the computer marketplace by applying its expertise in air conditioning and thermal technology to the personal computer industry. Confidentiality agreements prevent Delphi from disclosing customer details.
Q4 and 2004 CY Guidance
"Although we expect the challenges facing our industry to continue in the near-term, we continue to drive our cost reduction activities in this intensely challenging environment and expect to remain in line with our 2004 earnings trajectory in the fourth quarter," Dawes said.
Delphi provided the following Q4 and calendar year guidance:
* Q4 revenues of $7.0 billion - $7.2 billion; CY revenues of $28.6 billion - $28.8 billion;
* Q4 GAAP net earnings, including the anticipated impact of previously announced restructuring charges, from a loss of $18 million to positive earnings of $32 million; CY GAAP earnings of $48 million - $98 million;
* Q4 pro forma net earnings(1) of $25 million - $75 million; CY pro forma earnings(1) of $233 million - $283 million; and
* Q4 operating cash flow(3) of $350 million - $450 million; CY operating cash flow(2) of at least $1.4 billion.
Additional Information
Additional information concerning Delphi's Q3 2004 results, Q4 outlook and status of the previously announced Securities and Exchange Commission investigation is available through the Investor Relations page of Delphi's website at http://www.delphi.com/ , and in Delphi's third quarter consolidated financial statements and management's discussion and analysis, scheduled to be filed with the SEC later today on Form 8-K. A brief conference call concerning third quarter results for news media representatives, institutional investors and security analysts will be held at 11 a.m. ET today. For the general public, the briefing will be simultaneously webcast from the Investor Relations page at http://www.delphi.com/ .
About Delphi For more information about Delphi, visit http://www.delphi.com/ .
(1) Pro-forma earnings exclude the reduction of income tax reserves associated with the substantial completion of the 1999/2000 U.S. federal tax audit and after-tax charges related to previously announced restructuring plans.
(2) 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.
(3) As defined in footnote (2) above, based upon projected GAAP cash flow from operations of $400 million to $500 million.
HIGHLIGHTS
Three and nine months ended September 30, 2004 vs. three and nine months ended September 30, 2003 comparison.
Three Months Ended Nine Months Ended
September 30, September 30,
2004 (a) 2003 (b) 2004 (c) 2003 (b)
(in millions, except per share amounts)
Net sales:
General Motors and affiliates $3,495 $3,927 $11,819 $12,795
Other customers 3,155 2,636 9,791 8,044
Total net sales 6,650 6,563 21,610 20,839
Less operating expenses:
Cost of sales, excluding items
listed below 6,089 6,041 19,303 18,593
Selling, general and
administrative 374 376 1,179 1,187(d)
Depreciation and amortization 292 326 853 839
Employee and product line charges 9 348 79 348
Total operating expense 6,764 7,091 21,414 20,967
Operating income (loss) (114) (528) 196 (128)
Less: interest expense 54 48 165 138
Other income, net 12 8 25 12
Income (loss) before income taxes (156) (568) 56 (254)
Income tax benefit (42) (215) (10) (116)
Net income (loss) $(114) $(353) $66 $(138)
Gross margin 8.4% 8.0% 10.7% 10.8%
Operating income margin (1.7)% (8.0)% 0.9% (0.6)%
Net income margin (1.7)% (5.4)% 0.3% (0.7)%
Basic earnings per share, 561
million and 560 million shares
outstanding for the three and
nine months ended September 30,
2004 and 2003, respectively $(0.20) $(0.63) $0.12 $(0.25)
Diluted earnings per share, 561
million and 563 million shares
outstanding for the three and
nine months ended September 30,
2004, respectively, and 560 million
shares outstanding for the three
months and nine months ended
September 31, 2003 $(0.20) $(0.63) $0.12 $(0.25)
(a) Includes the third quarter 2004 charges of $17 million ($16 million after-tax) in cost of sales and $9 million ($9 million after-tax) in employee and product line charges (the "Third Quarter 2004 Charges"). In addition, in the third quarter of 2004, we adjusted our annual effective tax rate to 5%, which resulted in a reduction of our tax benefit for the 2004 charges recorded in the first six months of 2004 of $23 million. Excluding these items from the results for the three months ended September 30, 2004, cost of sales would have been $6,072 million, gross margin would have been 8.7%, operating loss would have been $(88) million, loss before income taxes would have been $(130) million, income tax benefit would have been $(64) million, net loss would have been $(66) million and basic and diluted per share would have been $(0.12).
(b) Includes charges of $148 million ($94 million after-tax) in cost of sales, $56 million ($35 million after-tax) in depreciation and amortization and $348 million ($227 million after-tax) in employee and product line charges (the "2003 Charges"). Excluding these items from the results for the three months ended September 30, 2003, cost of sales would have been $5,893 million, gross margin would have been 10.2%, depreciation and amortization would have been $270 million, operating income would have been $24 million, loss before income taxes would have been $(16) million, income tax benefit would have been $(19) million, net income would have been $3 million and basic and diluted earnings per share would have been $0.01. Excluding these items from the results for the nine months ended September 30, 2003, cost of sales would have been $18,445 million, gross margin would have been 11.5%, depreciation and amortization would have been $783 million, operating income would have been $424 million, income before income taxes would have been $298 million, income tax expense would have been $80 million, net income would have been $218 million and basic and diluted earnings per share would have been $0.39.
(c) Includes the charges for the first nine months of 2004 of $83 million ($79 million after-tax) in cost of sales and $79 million ($75 million after- tax) in employee and product line charges (the "2004 Charges"). These amounts also include a $12 million reduction of income tax reserves no longer required now that the routine U.S. federal tax audit of the 1999 and 2000 tax returns is substantially completed. Excluding these items from the results for the nine months ended September 30, 2004, cost of sales would have been $19,220 million, gross margin would have been 11.1%, operating income would have been $358 million, income before income taxes would have been $218 million, income tax expense would have been $10 million, net income would have been $208 million and basic and diluted earnings per share would have been $0.37.
(d) Includes $38 million ($25 million after-tax) related to a second quarter 2003 legal settlement, excluding this amount, selling, general and administrative expenses for the nine months ended September 30, 2003 would have been $1,149 million.
SECTOR RESULTS
Effective January 1, 2004, we realigned our business sectors by combining the interior product lines in 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.
Management reviews our sector operating results excluding the 2004 and 2003 Charges. Accordingly, we have presented our sector results excluding such amounts.
Three Months Ended September 30,
Sector 2004 2003
2004 2003 Operating Operating
Sales Sales Income (a) Income (b)
(in millions)
Dynamics, Propulsion, Thermal
& Interior $3,235 $3,292 $(96) $16
Electrical, Electronics & Safety 3,283 3,054 185 172
Automotive Holdings Group 581 684 (164) (160)
Other (449) (467) (13) (4)
Total $6,650 $6,563 $(88) $24
Nine Months Ended September 30,
Sector 2004 2003
2004 2003 Operating Operating
Sales Sales Income (c) Income (b)
(in millions)
Dynamics, Propulsion, Thermal
& Interior $10,690 $10,558 $57 $284
Electrical, Electronics & Safety 10,432 9,532 783 674
Automotive Holdings Group 2,005 2,271 (425) (456)
Other (1,517) (1,522) (57) (78)(d)
Total $21,610 $20,839 $358 $424(d)
(a) Excludes the Third Quarter 2004 Charges of $9 million for Dynamics,
Propulsion, Thermal & Interior, $13 million for Electrical,
Electronics & Safety, and $4 million for Automotive Holdings Group.
(b) Excludes the Third Quarter 2003 Charges of $106 million for Dynamics,
Propulsion, Thermal & Interior, $124 million for Electrical,
Electronics & Safety, $296 million for Automotive Holdings Group and
$26 million for Other.
(c) Excludes the 2004 Charges of $65 million for Dynamics, Propulsion,
Thermal & Interior, $57 million for Electrical, Electronics & Safety,
$33 million for Automotive Holdings Group and $7 million for Other.
(d) Includes the second quarter 2003 legal settlement with a former
supplier of $38 million.
LIQUIDITY AND CAPITAL RESOURCES
BALANCE SHEET DATA
September 30, December 31,
2004 2003
(in millions)
Cash and cash equivalents $902 $880
Junior subordinated notes due to
Trust I and II 412 412
Debt 2,832 (a) 2,823 (a)
Net liquidity $(2,342)(a) $(2,355)(a)
Total stockholders' equity $1,530 (b) $1,570 (b)
RECONCILIATION OF NET LIQUIDITY (in millions)
Net liquidity at December 31, 2003 $(2,355)
Net income $66
Depreciation and amortization 853
2004 Charges 162
Capital expenditures (619)
Other, net 584
Operating cash flow as defined by
management 1,046 (c)
Pension contributions (600)
Cash paid for 2003 and 2004 Charges (344)
Dividends (117)
Other non-operating 28
Net liquidity at September 30, 2004 $(2,342)
(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 September 30, 2004, and December 31, 2003.
Excluding these adjustments, stockholders' equity would have been
$3,648 million and $3,688 million as of September 30, 2004 and
December 31, 2003, respectively.
(c) A reconciliation to cash provided by operations as shown on our
Statement of Cash Flows is as follows:
Three Months Ended Nine Months Ended
September 30 September 30
2004 2003 2004 2003
(in millions)
Net income $(114) $(353) $66 $(138)
Depreciation and
amortization 292 326 853 839
Deferred income taxes (48) (253) (113) (238)
Employee and product line
charges 9 348 79 348
Changes in operating
assets and liabilities 83 93 (99) (275)
Cash provided by operating
activities as shown in
our consolidated
statements of cash
flows 222 161 786 536
Capital expenditures (216) (242) (619) (704)
Pension contributions - - 600 600
Cash paid for 2003 and
2004 Charges 63 48 344 72
Decrease in supplier
financing program (20) - (143) -
Decrease in sale of
accounts receivable 311 210 78 169
Operating cash flow
as defined by
management $360 $177 $1,046 $673
CONSOLIDATED BALANCE SHEETS
September 30,
2004 December 31,
(Unaudited) (a) 2003
(in millions)
ASSETS
Current assets:
Cash and cash equivalents $902 $880
Accounts receivable, net:
General Motors and affiliates 2,550 2,326
Other customers 1,365 1,438
Retained interest in receivables,
net 857 717
Inventories, net
Productive material, work-in-
process and supplies 1,638 1,518
Finished goods 504 478
Deferred income taxes 335 420
Prepaid expenses and other 278 269
Total current assets 8,429 8,046
Long-term assets:
Property, net 5,896 6,167
Deferred income taxes 4,036 3,835
Goodwill, net 787 776
Pension intangible assets 1,167 1,167
Other 915 913
Total assets $21,230 $20,904
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion
of long-term debt $788 $801
Accounts payable 3,426 3,158
Accrued liabilities 2,432 2,232
Total current liabilities 6,646 6,191
Long-term liabilities:
Long-term debt 2,044 2,022
Junior subordinated notes due to
Delphi Trust I and II 412 412
Pension benefits 3,080 3,574
Postretirement benefits other
than pensions 6,223 5,697
Other 1,295 1,438
Total liabilities 19,700 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 2,664 2,667
Retained earnings 1,190 1,241
Minimum pension liability (2,118) (2,118)
Accumulated other comprehensive
loss, excluding minimum pension
liability (151) (151)
Treasury stock, at cost (3.8 million
and 4.7 million shares in 2004 and
2003, respectively) (61) (75)
Total stockholders' equity 1,530 1,570
Total liabilities and stockholders'
equity $21,230 $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)
Nine Months Ended
September 30,
2004 2003
(in millions)
Cash flows from operating activities:
Net income (loss) $66 $(138)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 853 839
Deferred income taxes (113) (238)
Employee and product line charges 79 348
Changes in operating assets and liabilities:
Accounts receivable and retained interests
in receivables, net (351) (732)
Inventories, net (142) 23
Prepaid expenses and other 58 33
Accounts payable 270 162
Employee and product line charge obligations (261) (46)
Accrued and other long-term liabilities 329 294
Other (2) (9)
Net cash provided by operating activities 786 536
Cash flows from investing activities:
Capital expenditures (619) (704)
Cost of acquisitions, net of cash acquired (17) -
Other 25 36
Net cash used in investing activities (611) (668)
Cash flows from financing activities:
Net proceeds from issuance of debt securities - 492
Repayment of debt securities (500) -
Net proceeds from (repayments of) borrowings
under credit facilities and other debt 484 (548)
Dividend payments (117) (119)
Issuances of treasury stock 2 1
Other (18) -
Net cash used in financing activities (149) (174)
Effect of exchange rate fluctuations on cash
and cash equivalents (4) 23
Increase (decrease) in cash and cash equivalents 22 (283)
Cash and cash equivalents at beginning of period 880 1,014
Cash and cash equivalents at end of period $902 $731
(a) Prepared in accordance with accounting principles generally accepted
in the United States of America, on an unaudited basis.