Delphi's Q2 Results Driven by Volumes and Portfolio Management
19 July 1999
Delphi's Robust Second Quarter Results Driven by Strong Volumes and Aggressive Portfolio Management
Earnings Per Share Climb 283 Percent - In Line With Expectations
Significant Cash Generation Continues
TROY, Mich., July 19 -- Driven by strong revenue growth, the
favorable impact of the strategic sale of underperforming assets in 1998, and
continuing significant cash flow, Delphi Automotive Systems today
reported second quarter earnings of $394 million, or $0.69 per share on a
fully diluted basis*.
"Growth in sales to all customers, coupled with the results from our
aggressive portfolio management, generated significant value to our
shareholders," said J.T. Battenberg III, Delphi's chairman, chief executive
officer and president. "The results from our second quarter validate our plan
to grow profitability by reducing costs and diversifying our customer base."
The results represent an increase of 290 percent over pro forma, strike-
impacted, second quarter 1998 earnings of $101 million,** and a 283 percent
increase over pro forma 1998 second quarter diluted earnings per share of
$0.18**.
Sales revenue climbed 17 percent over 1998 strike-impacted levels, from
$6.6 billion to $7.7 billion, after adjusting for the impact of businesses
divested in late 1998 (divested businesses had average annual sales of about
$2 billion).
* Delphi CFO Alan Dawes will host a media conference call to discuss
earnings beginning at 10:15 a.m. today. See bottom of release for details.
** See attached highlights for description of 1998 pro forma net income
and 1998 shares outstanding calculations.
Sales to customers other than General Motors Corp. (GM) increased
$174 million, or 11.4 percent, from $1.523 billion in the second quarter of
1998 (excluding the impact of divestitures) to $1.697 billion during the
comparable period in 1999. This is the second consecutive quarter where the
company has exceeded the stated goal of a 10 percent annual increase in non-GM
sales growth. Sales to GM rose 18.4 percent (adjusted for the impact of
divestitures) from strike depressed 1998 levels.
Cash Generation Enhances Capital Structure
Delphi generated $751 million in operating cash during the quarter,
resulting from working capital improvements, timing of capital expenditures,
and strong profitability.
This strong year-to-date cash flow provided Delphi the flexibility to make
a $600 million voluntary contribution to its hourly pension fund on June 14,
while improving its overall liquidity position. Additionally, the Delphi
Board of Directors on June 9 declared a quarterly dividend on Delphi $0.01 par
value common stock of $0.07 per share. The dividend -- Delphi's first -- is
payable July 20, 1999 to shareholders of record as of June 21, 1999.
Taking into account the strong cash flow during the quarter, Delphi's
Board of Directors approved a treasury stock program to purchase up to
19 million shares of Delphi Common Stock from time to time to pre-fund the
requirements of employee incentive, stock option and stock purchase plans over
the next 12 months.
New Business
Booked business for the six-month period ending June 30, 1999, totaled
$15 billion over an average 5-year contract life. The impact of these sales
will be reflected in the revenue base from 2001 forward. Contracts signed
during the quarter include significant expansion of business with Nissan Motor
Co., Ltd., which awarded Delphi a contract to provide STEER-LITE(TM)
lightweight integral steering gears for all Nissan trucks, including the
Nissan Frontier and Xterra sport utility vehicles, beginning with Nissan's
2000 model year.
Additional agreements -- among others* -- signed during the quarter
include:
-- A contract with Ford Motor Company to serve as the electrical/
electronic vehicle system integrator for a future Ford vehicle.
-- The award of 21 occupant protection system contracts totaling over
$750 million, and the expansion of five existing contracts to incorporate
Delphi's Adaptive Restraint Technologies(TM) or "smart" airbag technology.
-- A contract with Ferrari to provide complete HVAC responsibility on the
new 360 Modena model.
-- A contract to provide wiring for Mack Trucks, Inc.'s entire fleet of
Class 8 heavy-duty trucks.
-- The $28 million award of new contracts to supply brake and suspension
components, modules and systems to two vehicle manufacturers in the Asian
markets and one in Europe.
-- A contract to supply complete thermal management systems for a vehicle
program Daewoo Motor Polska Corporation will build in Europe.
* Delphi respects customer confidentiality, and therefore does not
disclose all contracts received. Unless Delphi receives customer permission,
it does not discuss customer business information with any external audience.
Delphi Independence
On May 28, GM completed the full separation of Delphi via a spin-off of
452.6 million Delphi shares to GM stockholders, and the contribution of
another 12.4 million shares to a GM retiree benefit trust. In the
$9.3 billion tax-free distribution, GM stockholders received about 0.70 Delphi
shares for each GM common share they owned. Following the spin-off, all GM
executives resigned from Delphi's Board of Directors. Also, Thomas G.
Labrecque, former chairman of The Chase Manhattan Corporation, joined the
board effective July 15, 1999.
During the quarter, Delphi stock was added to the Standard & Poor's 500,
the Russell 1000 and 3000, and the Wilshire 5000 indices.
Sector Financial Results ($ millions)
Q2 1998
Sector Q2 1999 Q2 1998 Q2 1999 (Pro-Forma Basis)
Sales Sales Operating Income Operating Income
Electronics & Mobile
Communication $ 1,396 $ 1,134 $ 180 $ 44
Safety, Thermal & Electrical
Architecture 2,767 2,907 249 91
Dynamics & Propulsion 3,670 3,104 221 62
Other* (150) (104) (21) (58)
Sales, Divested Business - (463) - -
Total $ 7,683 $ 6,578 $ 629 $ 139
* Corporate and intra-company items
Delphi Automotive Systems, headquartered in Troy, Mich., USA, is a world
leader in automotive components and systems technology. Delphi's three
business sectors -- Dynamics & Propulsion; Safety, Thermal & Electrical
Architecture; and Electronics & Mobile Communications -- provide
comprehensive product solutions to complex customer needs. Delphi has
approximately 201,000 employees and operates 168 wholly owned manufacturing
sites, 38 joint ventures, 51 customer centers and sales offices and 27
technical centers in 36 countries. Regional headquarters are located in
Paris, Tokyo and Sao Paulo. Delphi can be found on the Internet at
http://www.delphiauto.com .
Forward Looking Statements
The Private Securities Litigation Reform Act of 1995 (the "Act") provides
a safe harbor for forward-looking statements made by us or on our behalf. All
statements which address operating performance, events or developments that we
expect or anticipate may occur in the future, including statements relating to
volume growth, awarded sales contracts and earnings per share growth or
statements expressing general optimism about future operating results, are
forward looking statements. These statements are made on the basis of
management's views and assumptions; as a result, there can be no assurance
that management's expectations will necessarily come to pass. A list of
factors which could impact future events and performance is included in the
Delphi Automotive Systems Corporation 1998 Annual Report on Form 10-K filed
with the Securities and Exchange Commission.
HIGHLIGHTS -- Three months ended June 30, 1999 vs. pro forma three months
ended June 30, 1998 comparison
Three Months Ended
June 30,
1999 1998 (1)
(in millions, except per share amounts)
Net sales:
General Motors $5,986 $5,449
Other customers 1,697 1,592
Total net sales 7,683 7,041
Less operating expenses:
Cost of sales, excluding
items listed below 6,453 6,218
Selling, general and
administrative 394 401
Depreciation and amortization 207 283
Operating income 629 139
Less interest expense 36 67
Other income, net 42 55
Income before income taxes 635 127
Income tax expense 241 26
Net income $394 $101
Gross margin 16.0% 11.7%
Operating income margin 8.2% 2.0%
Net income margin 5.1% 1.4%
Diluted earnings
per share (2) $0.69 $0.18
(1) Results of operations for the three months ended June 30, 1998 have
been adjusted to reflect the impact of the terms of our separation from GM.
Overall the adjusted results reflect the net effect of lower employee benefit
costs and higher other costs associated with operating Delphi as a stand-alone
company. See the reconciliation of actual to pro forma results for the three
months ended June 30, 1999 for additional information.
(2) Diluted earnings per share are presented as if the initial public
stock offering (IPO) of 100 million shares took place on January 1, 1998,
resulting in 567 million and 565 million diluted shares outstanding during the
three months ended June 30, 1999 and 1998, respectively.
HIGHLIGHTS -- Three months ended June 30, 1998 -- Reconciliation of actual
to pro forma results
Three Months Ended June 30, 1998
Actual Adjustments Pro forma
(in millions, except per share amounts)
Net sales:
General Motors $5,449 $5,449
Other customers 1,592 1,592
Total net sales 7,041 7,041
Less operating expenses:
Cost of sales, excluding
items listed below 6,280 $(62) (1) 6,218
Selling, general and
administrative 367 34 (1) 401
Depreciation and amortization 283 283
Operating income 111 28 139
Less interest expense 67 67
Other income, net 55 55
Income before income taxes 99 28 127
Income tax expense 16 10 (2) 26
Net income $ 83 $ 18 $ 101
Diluted earnings per share
with 465 million shares
outstanding (3) $ 0.18 N/A
Diluted earnings per share
with 565 million shares
outstanding (3) N/A $ 0.18
(1) The pro forma effect of lower employee benefit costs, due to GM's
retention of certain retiree benefit obligations, favorably impacts both cost
of sales and selling, general and administrative expenses. Selling general
and administrative expenses are also unfavorably impacted by the estimated
incremental costs associated with operating Delphi as an independent company.
(2) Income taxes were determined in accordance with SFAS No. 109,
"Accounting for Income Taxes." For purposes of this pro forma presentation
only, the income tax effect of the pro forma adjustments assumes a combined
federal and state income tax rate of 38%.
(3) Currently, Delphi has 565 million shares outstanding reflecting 100
million shares issued in the IPO in February 1999 and 465 million shares
previously outstanding. Under Generally Accepted Accounting Principles (GAAP)
the shares issued in connection with the IPO would be excluded from the 1998
earnings per share calculation, resulting in the use of 465 million shares.
For comparative purposes, 1998 earnings per share are calculated as if the IPO
took place on January 1, 1998, resulting in 565 million shares outstanding.
HIGHLIGHTS -- Six months ended June 30, 1999 vs. pro forma six months
ended June 30, 1998 comparison
Six Months Ended
June 30,
1999 1998 (1)
(in millions, except per share amounts)
Net sales:
General Motors $11,839 $11,554
Other customers 3,313 3,110
Total net sales 15,152 14,664
Less operating expenses:
Cost of sales, excluding items
listed below 12,844 12,945
Selling, general and administrative 778 735
Depreciation and amortization 444 483
Operating income 1,086 501
Less interest expense 60 131
Other income, net 67 134
Income before income taxes 1,093 504
Income tax expense 415 149
Net income $678 $355
Gross margin 15.2% 11.7%
Operating income margin 7.2% 3.4%
Net income margin 4.5% 2.4%
Diluted earnings per
share - actual (2) $1.25 N/A
Diluted earnings per
share - pro forma (3) $1.20 $0.63
(1) Results of operations for the six months ended June 30, 1998 have
been adjusted to reflect the impact of the terms of our separation from GM.
Overall the adjusted results reflect the net effect of lower employee benefit
costs and higher other costs associated with operating Delphi as a stand-alone
company. See the reconciliation of actual to pro forma results for the six
months ended June 30, 1998 for additional information.
(2) Actual diluted earnings per share are calculated using the weighted
average shares outstanding during the period, resulting in 544 million diluted
shares outstanding during the six months ended June 30, 1999.
(3) Pro forma diluted earnings per share are presented as if the IPO of
100 million shares took place on January 1, 1998, resulting in 566 million and
565 million diluted shares outstanding for the six month periods ended June
30, 1999 and 1998, respectively.
HIGHLIGHTS -- Six months ended June 30, 1998 -- Reconciliation of actual
to pro forma results
Six Months Ended June 30, 1998
Actual Adjustments Pro forma
(in millions, except per share amounts)
Net sales:
General Motors $11,554 $11,554
Other customers 3,110 3,110
Total net sales 14,664 14,664
Less operating expenses:
Cost of sales, excluding
items listed below 13,069 $(124) (1) 12,945
Selling, general and
administrative 667 68 (1) 735
Depreciation and
amortization 483 483
Operating income 445 56 501
Less interest expense 131 131
Other income, net 134 134
Income before income taxes 448 56 504
Income tax expense 129 20 (2) 149
Net income $319 $36 $355
Diluted earnings per share
with 465 million shares
outstanding (3) $0.69 N/A
Diluted earnings per share
with 565 million shares
outstanding (3) N/A $0.63
(1) The pro forma effect of lower employee benefit costs, due to GM's
retention of certain retiree benefit obligations, favorably impacts both cost
of sales and selling, general and administrative expenses. Selling general
and administrative expenses are also unfavorably impacted by the estimated
incremental costs associated with operating Delphi as an independent company.
(2) Income taxes were determined in accordance with SFAS No. 109,
"Accounting for Income Taxes." For purposes of this pro forma presentation
only, the income tax effect of the pro forma adjustments assumes a combined
federal and state income tax rate of 38%.
(3) Currently, Delphi has 565 million shares outstanding reflecting 100
million shares issued in the IPO in February 1999 and 465 million shares
previously outstanding. Under GAAP the shares issued in connection with the
IPO would be excluded from the 1998 earnings per share calculation, resulting
in the use of 465 million shares. For comparative purposes, 1998 earnings per
share are calculated as if the IPO took place on January 1, 1998, resulting in
565 million shares outstanding.
HIGHLIGHTS -- Liquidity and capital resources
(dollars in millions)
BALANCE SHEET DATA:
June 30, 1999 March 31, 1999 December 31, 1998
Actual Actual Pro forma
Cash and marketable
securities $1,246 $1,134 $2,062
Debt 1,830 1,886 3,500
Net Liquidity $(584) $(752) $(1,438)
Pension obligations $1,763 $2,208 $2,180
Total stockholders'
equity $3,690 $3,351 $3,171
RECONCILIATION OF SECOND QUARTER NET LIQUIDITY:
Net liquidity at March 31, 1999 $(752)
Net income $394
Depreciation and amortization 207
Capital expenditures (258)
Other, net 408
Operating cash flow less capital
expenditures 751
Non-operating activities 17
Pension contribution (600)
Net liquidity at June 30, 1999 $(584)