Delphi Reports First Quarter 2005 Financial Results

Company Generates Positive Operating Cash Flow of $112 Million Non-GM Revenues Cross 50 Percent Threshold

TROY, Mich., May 13 -- Delphi Corp. today reported unaudited first quarter 2005 financial results with revenues of $6.9 billion, and a GAAP net loss of $409 million or $0.74 per share. The first quarter loss was significantly impacted by Delphi's inability to record the non-cash deferred tax benefit of its U.S. losses. The company had previously expected to record a tax benefit during 2005 of between 40 - 60 percent of its pre-tax losses. The company generated $112 million in operating cash flow(1) in the first quarter. Delphi's net liquidity improved during the quarter with a cash balance of $1.15 billion at March 31, 2005. Non-GM revenues grew 8 percent year-over-year to $3.5 billion.

"Versus our expectations for the first quarter, we were significantly challenged by weaker-than-expected production volumes with some of our larger North American customers," said J.T. Battenberg III, Delphi's chairman, and chief executive officer. "We expect these pressures to continue for the remainder of the year. Delphi's management team is focused on addressing these issues while remaining committed to serving our customers' needs. At the same time as we work to address our short-term challenges, we continue to grow our business through our ongoing technology leadership, global expansion and adjacent market growth. During the quarter, Delphi was able to reach a new milestone with non-GM revenues reaching 51 percent of total sales."

First Quarter 2005 Financial Results

The unaudited financial results reflect adjustments for the effects of the improper accounting for transactions identified as a result of Delphi's Audit Committee's internal investigation. The unaudited results are preliminary and subject to review by Delphi's independent auditors. Final results may differ due to any activities occurring after March 31, 2005, but before their finalization, which is planned to occur by June 30, 2005.

  -- Revenue of $6.9 billion, down approximately 7 percent from $7.4 billion
     in Q1 2004 (down 9 percent excluding the impact of foreign exchange).

  -- Non-GM revenue for the quarter was $3.5 billion, up approximately 8
     percent from $3.2 billion in Q1 2004 (up 5 percent excluding the impact
     of foreign exchange). Non-GM business reached a record high of 51
     percent of Q1 revenues, compared to year-ago levels of 43 percent.

  -- Operating cash flow(1) was $112 million, as compared to $217 million
     for Q1 2004.

  -- Including $31 million in after-tax restructuring charges in 2005, GAAP
     net loss of $409 million or $0.74 per share compared to Q1 2004 net
     income of $53 million or $0.09 per share.  The company's decision to no
     longer record the tax benefit associated with its U.S. losses resulted
     in the exclusion of approximately $190 million of tax benefit.
     Excluding restructuring charges, the company reported a Q1 loss of $378
     million or $0.68 per share, compared to positive earnings of $122
     million or $0.22 per share in Q1 2004.

"Like many other companies in the automotive sector, Delphi's first quarter performance was impacted by high commodity costs year-over-year and low production volumes, particularly with GM North America," said John D. Sheehan, Delphi's acting chief financial officer. "We are engaging our entire global workforce to identify additional opportunities to reduce SG&A and discretionary spending so that we can focus on our restructuring activities and overall transformation. Concurrently, we are successfully growing our non-GM revenues domestically, overseas and in adjacent markets, evidenced by strong first quarter bookings. Additionally, 64 percent of Delphi's first quarter bookings were from non-GM customers -- further proof that our diversification efforts are working."

U.S. Deferred Tax Assets

In conjunction with Delphi finalizing its Dec. 31, 2004 financial statements, the company was required to re-assess the recoverability of its U.S. deferred tax assets, which amounted to approximately $4.7 billion. Due to the company's history of U.S. losses over the past three years, combined with its current U.S. operating outlook for the near to medium term, Delphi determined that it could no longer support realization of such amounts under current accounting guidelines. Accordingly, the company will record a charge to establish a valuation allowance against its U.S. deferred tax assets in its Dec. 31, 2004 financial statements when filed. This is not a cash charge; therefore, there is no impact to Delphi's net liquidity position. Additionally, at such time that Delphi's U.S. operations return to sustained profitability, the company will reassess the potential to reverse the valuation allowance being established.

First Quarter 2005 Financing Activities

During the quarter, Delphi amended certain provisions of its $3 billion revolving credit facilities and intends to amend and increase its existing $1.5 billion five-year revolving credit facility, while providing collateral to lenders. These facilities would replace the company's existing one- and five-year revolving credit facilities (maturing June 2005 and June 2009, respectively), which today total $3.0 billion. Delphi is also seeking to put in place secured term loans to preserve its liquidity position.

Under the first quarter amendment, the financial covenant ratio for consolidated leverage was increased and Delphi obtained a waiver to provide audited financial statements for the year ended December 31, 2004, by June 30, 2005. Also in the first quarter, the company increased the borrowing limit of its U.S. trade receivables securitization program from $600 million to $731 million.

"The amended credit facilities and increased U.S. securitization program facilitate Delphi maintaining an appropriate level of liquidity to manage its ongoing operations as we proceed with financing activities to address the June 2005 expiration of the 364 day revolver. We continue to consider changes to our liquidity sources to adapt to our current credit standing and ensure that we have long-term access to liquidity to allow management to continue to transform our business," Sheehan said.

Cost Structure Actions

One of Delphi's key value drivers of its transformation is reducing its legacy cost structure by continuing global actions designed to address under- performing operations and appropriately size the company's global workforce. During the first quarter, Delphi continued to address its U.S. legacy sites through further consolidations. Delphi has completed consolidation activities at its Foley, Alabama, Tuscaloosa, Alabama and Anaheim, California sites.

In addition, manufacturing operations have ceased at Delphi's Olathe, Kansas site. These latest actions bring Delphi's total to 78 business lines or facilities that have been sold or closed since 1999.

Delphi is also making progress on its 2005 restructuring initiatives to further reduce its workforce by 8,500 positions, as announced in Delphi's 2005 outlook in December 2004. In Q1, Delphi reduced its global workforce by approximately 1,500 positions, including 870 U.S. hourly and 630 international positions.

"In addition to these restructuring activities, Delphi is continuing to refine our product portfolio by assessing the effectiveness of all of our operations, which may include partnering, joint venturing or sale," Battenberg said. "Most recently, Delphi signed a non-binding letter of intent with Johnson Controls Inc. to sell our global lead-acid battery business for approximately $212 million. Additionally, as previously disclosed, we continue to pursue other divestitures / asset sales. We expect total proceeds from all currently-identified transactions to approximate $400 million."

Second Quarter 2005 Outlook

Sheehan said second quarter revenues are projected to range between $7.2 billion and $7.4 billion. At these revenue levels, Delphi expects to generate $100 million to $150 million in operating cash flow(2), excluding sale of assets. Given the fixed-cost nature of Delphi's U.S. legacy business, the company's cost structure will remain largely comparable to the first quarter. Margins are expected to improve slightly due to the revenue increases from Q1 to Q2 2005. Also in Q2, Delphi is required to make a minimum contribution of $0.6 billion to fund U.S. pensions.

CY05 Outlook Update

Sheehan reported that 2005 is becoming an extremely challenging year for the U.S. automotive industry. For the remainder of the year, Delphi expects to continue to be pressured by high commodity prices and lower production volumes with its largest customer in the U.S. In addition, U.S. attrition is expected to become more challenging in this low volume environment.

"We are currently forecasting GM North America calendar year production volumes in the 4.5 - 4.6 million unit range -- a 6-8 percent decline from Delphi's prior guidance -- which will impact revenues by $900 million to $1.1 billion versus prior guidance," Sheehan said. "Our earnings and operating cash flow are certainly exposed to this revenue decline due to the fixed nature of our U.S. cost structure, and we must look for ways to offset these declines. While we are beginning to gain traction on our material cost reduction initiatives, to date, Delphi has had slower-than-expected success in these areas. Given these factors, we do not believe that our prior calendar year guidance from December 2004 of a GAAP net loss of $350 million (including $150 million in restructuring charges) is achievable."

"Our leadership fully understands the challenges before us and we are not satisfied with where we are. We are evaluating all critical areas where we can further reduce costs and are looking at the business very judiciously," said Rodney O'Neal, Delphi's president and chief operating officer.

"We know that we must accelerate our transformation activities to get ahead of these challenges and are engaging our key constituents to address our U.S. legacy cost structure. Furthermore, by streamlining our operations through restructuring actions while keeping a tight rein on staffing levels and letting attrition reduce our workforce, we're positioning Delphi for future growth."

Additional Information

Additional information concerning Delphi's unaudited Q1 2005 results and outlook is available through the Investor Relations page of Delphi's website at http://www.delphi.com/. A briefing concerning Q1 financial results for news media representatives, institutional investors and security analysts will be held at 11:00 a.m. ET today. For the general public, the briefing will be simultaneously webcast from the Investor Relations page of http://www.delphi.com/.

  (1) Operating cash flow of $112 million for Q1 2005 represents GAAP cash
      flow from operations of $500 million less capital expenditures of $194
      million, plus cash paid for employee, product line and related charges
      of $50 million, and less changes in the sale of accounts receivable
      and supplier financing programs of $244 million. Operating cash flow
      of $217 million for Q1 2004 represents GAAP cash flow from operations
      of $7 million less capital expenditures of $214 million, plus cash
      paid for employee, product line and related charges of $193 million,
      and plus changes in the sale of accounts receivable and supplier
      financing programs of $231 million.

  (2) Forecast operating cash flow for Q2 2005 of $100 million - $150
      million is based on forecast GAAP cash flow from operations of $(225)
      million - $(275) million. Operating cash flow is internally defined as
      GAAP cash flow from operations 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.