Strong North American Market Drives Increased Sales Revenue
13 October 1999
Strong North American Market Drives Increased Sales Revenue As Delphi Posts Solid Third-Quarter Results
Cash Generation Remains Strong -
Supporting $300 Million Voluntary Pension Fund Contribution
Sales up 18 Percent Over Strike-Depressed Q3 1998 -
Non-GM Sales Climb
TROY, Mich., Oct. 13 -- Propelled by strong North American
volumes and continued increases in sales to customers other than General
Motors, Delphi Automotive Systems today reported earnings of $136
million, or $0.24 per share on a diluted basis.
"The third quarter is typically a challenging period for us," said Delphi
Chairman, Chief Executive Officer and President J.T. Battenberg III. "This
year, despite the usual production changes for the new model year and the
seasonality of OEM schedules, we were able to post very solid results. These
results reflect the continued strong North American vehicle market as well as
increases in sales to customers other than GM."
The $136 million in third-quarter net income compares to a pro forma,
strike-impacted third quarter 1998 loss of $214 million*, or ($0.38) per share
on a diluted basis.
Sales revenue of $6.8 billion was up 18 percent over strike-impacted 1998
levels after adjusting for the impact of businesses divested in late 1998.
Sales to customers other than GM totaled $1.7 billion for the quarter,
climbing 16 percent on a comparable basis.
The increased sales revenue is largely the result of new Delphi content on
several vehicle models that went into production this quarter. Importantly,
the third quarter marked the start of production of the 2000 Fiat Punto
featuring Delphi's E-STEER(TM) Electric Power Steering system, several
Volkswagen models featuring Delphi's Monsoon(TM) audio system, the 2000 Land
Rover Discovery featuring Delphi's Dynamic Body Control system, and the 2000
Jaguar XKR sports coupe featuring Delphi's FOREWARN(TM) Adaptive Cruise
Control system.
*See attached highlights for description of 1998 pro forma net loss and
1998 shares outstanding calculations.
Balance Sheet/Cash Generation
Delphi generated $484 million in operating cash flow during the quarter,
primarily driven by improvements in working capital and the high cash content
of earnings. This continued strong cash generation allowed Delphi to make a
pension contribution of $300 million, bringing the total voluntary pension
contributions for the year to $900 million.
"The pension contributions strengthen our balance sheet and demonstrate
our commitment to fund employee pension plans," said Delphi's Chief Financial
Officer Alan Dawes. "This action delivers value to our shareholders by
positively influencing our earnings in 2000 and beyond."
The Delphi Board of Directors also announced a regular quarterly dividend
of $0.07 per share on Delphi $0.01 par value common stock. The dividend is
payable October 18, 1999, to shareholders of record as of September 17, 1999.
New Business Bookings
In line with the company's objective of diversifying its customer base,
Delphi booked new business totaling $2 billion with customers other than GM.
In addition, the company booked $8 billion of new business with its largest
customer, GM. The impact of this new business will be reflected in Delphi's
revenues in the years 2001 and beyond, over an average five-year contract
life.
In addition, Delphi yesterday announced it signed a significant contract
with Caterpillar Inc., the world's leading manufacturer of construction and
mining equipment, diesel and natural gas engines, and industrial gas turbines.
Delphi Delco Electronics Systems, a division of Delphi, will co-develop engine
controllers for all of Caterpillar's diesel engines and many Caterpillar
machines starting in mid-2001. In addition, Delphi Delco will partner with
Delphi Energy & Engine Management Systems, also a Delphi division, to develop
a new line of hydraulic control modules for Caterpillar.
Other contracts* announced during the quarter include:
- PSA Peugeot Citroen -- wiring harnesses for a 2001 model year vehicle
- Volkswagen -- airbags for a future global program
- Opel -- driver and passenger airbags for a program on a global basis
- DaimlerChrysler -- Level 3 Modular Door Systems for the Mercedes-Benz
Actros
- DaimlerChrysler -- modular cockpits for the M-Class through a four-year
contract with Mercedes-Benz U.S. International in Graz, Austria
Aftermarket
Separately, Delphi today announced the creation of a new division, Delphi
Aftermarket, to bolster its brand support and sales in the aftermarket. The
announcement was made at Equip 'Auto, a vehicle and aftermarket show in
Paris.**
Sector Financial Results
Sector Q3 1999 Q3 1998 Q3 1999 Q3 1998
Sales Sales Operating Income (Pro Forma Basis)
(Loss) Operating Income
(Loss)
Electronics & Mobile
Communication $1,225 $995 $110 $(13)
Safety, Thermal &
Electrical
Architecture 2,445 2,126 62 19
Dynamics &
Propulsion 3,267 2,749 46 (187)
Other*** (147) (101) (12) (91)
Sales, Divested
Business -- 246 -- --
Total $6,790 $6,015 $206 $(272)
* While these contracts are significant, they do not represent a complete
listing of contracts awarded during the period. Delphi respects customer
confidentiality and therefore does not disclose all contracts awarded. Unless
Delphi receives customer permission, it does not discuss customer business
information with any external audience.
** Press release is available at http://www.delphiauto.com.
*** Corporate and intra-company items.
Delphi Automotive Systems, with headquarters 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
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
37 countries. Regional headquarters are located in Paris, Tokyo and Sao
Paulo, Brazil. 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 September 30, 1999 vs. pro forma three
months ended September 30, 1998 comparison
Three Months Ended
September 30,
1999 1998 (1)
(in millions, except
per share amounts)
Net sales:
General Motors $5,102 $4,641
Other customers 1,688 1,374
Total net sales 6,790 6,015
Less operating expenses:
Cost of sales, excluding items listed below 5,980 5,707
Selling, general and administrative 402 380
Depreciation and amortization 202 200
Operating income (loss) 206 (272)
Less interest expense 34 68
Other income (expense), net 48 (10)
Income (loss) before income taxes 220 (350)
Income tax expense (benefit) 84 (136)
Net income (loss) $136 $(214)
Gross margin 11.9% 5.1%
Operating income (loss) margin 3.0% (4.5)%
Net income (loss) margin 2.0% (3.6)%
Diluted earnings (loss) per share (2) $0.24 $(0.38)
(1) Results of operations for the three months ended September 30, 1998
have
been adjusted to reflect the impact of the terms of our separation from GM and
to exclude a loss related to divestitures. The impact of separation reflects
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 September 30, 1998 for additional
information.
(2) Per share amounts for 1998 results are presented as if the initial
public stock offering of 100 million shares took place on January 1, 1998,
resulting in 565 million shares outstanding during the period.
HIGHLIGHTS -- Three months ended September 30, 1998 -- Reconciliation of
actual to pro forma results
Three Months Ended September 30,
1998
Actual Adjustments Pro forma
(in millions, except per share
amounts)
Net sales:
General Motors $4,641 -- $4,641
Other customers 1,374 -- 1,374
Total net sales 6,015 -- 6,015
Less operating expenses:
Cost of sales, excluding items listed
below 6,151 $(62) (1) --
-- (382) (3) 5,707
Selling, general and administrative 345 35 (1) 380
Depreciation and amortization 248 (48) (3) 200
Operating loss (729) 457 (272)
Less interest expense 68 -- 68
Other expense, net 10 -- 10
Loss before income taxes (807) 457 (350)
Income tax benefit (307) 12 (2) --
-- 159 (3) (136)
Net loss $(500) $286 $(214)
Diluted loss per share with 465 million
shares outstanding $(1.08) -- N/A
Diluted loss per share with 565 million
shares outstanding N/A -- $(0.38)
(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) Adjusted to exclude a loss of $430 million, or $271 million after-
tax,
related to divestitures involving our seating, lighting and coil spring
businesses. The charge had the effect of increasing cost of sales and
depreciation and amortization by $382 million and $48 million, respectively.
HIGHLIGHTS -- Nine months ended September 30, 1999 vs. pro forma nine
months
ended September 30, 1998 comparison
Nine Months Ended
September 30,
1999 1998 (1)
(in millions, except per share
amounts)
Net sales:
General Motors $16,941 $16,195
Other customers 5,001 4,484
Total net sales 21,942 20,679
Less operating expenses:
Cost of sales, excluding items listed below 18,824 18,652
Selling, general and administrative 1,180 1,115
Depreciation and amortization 646 683
Operating income 1,292 229
Less interest expense 94 199
Other income, net 115 124
Income before income taxes 1,313 154
Income tax expense 499 13
Net income $814 $141
Gross margin 14.2% 9.8%
Operating income margin 5.9% 1.1%
Net income margin 3.7% 0.7%
Diluted earnings per
share - actual (2) $1.48 N/A
Diluted earnings per
share - pro forma (3) $1.44 $0.25
(1) Results of operations for the nine months ended September 30, 1998
have
been adjusted to reflect the impact of the terms of our separation from GM and
to exclude a loss related to divestitures. The impact of separation reflects
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 nine months ended September 30, 1998 for additional
information.
(2) Actual diluted earnings per share are calculated using the weighted
average shares outstanding during the period, resulting in 551 million diluted
shares outstanding during the nine months ended September 30, 1999.
(3) Pro forma diluted earnings per share are presented as if the initial
public stock offering of 100 million shares took place on January 1, 1998,
resulting in 566 million and 565 million shares outstanding for the nine month
periods ended September 30, 1999 and 1998, respectively.
HIGHLIGHTS - Nine months ended September 30, 1998 -- Reconciliation of
actual to pro forma results
Nine Months Ended September 30, 1998
Actual Adjustments Pro forma
(in millions, except per share amounts)
Net sales:
General Motors $16,195 -- $16,195
Other customers 4,484 -- 4,484
Total net sales 20,679 -- 20,679
Less operating expenses:
Cost of sales, excluding items
listed below 19,220 $(186)(1) --
-- (382)(3) 18,652
Selling, general and
administrative 1,012 103 (1) 1,115
Depreciation and amortization 731 (48)(3) 683
Operating income (loss) (284) 513 229
Less interest expense 199 -- 199
Other income, net 124 -- 124
Income (loss) before income taxes (359) 513 154
Income tax expense (benefit) (178) 32 (2) --
-- 159 (3) 13
Net income (loss) $(181) $322 $141
Diluted loss per share with 465
million shares outstanding $(0.39) -- N/A
Diluted earnings per share with
565 million shares outstanding N/A -- $0.25
(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."
(3) Adjusted to exclude a loss of $430 million, or $271 million after-
tax, related to divestitures involving our seating, lighting and coil spring
businesses. The charge had the effect of increasing cost of sales and
depreciation and amortization by $382 million and $48 million, respectively.
HIGHLIGHTS -- Liquidity and capital resources
(dollars in millions)
BALANCE SHEET DATA:
September 30, June 30, December 31,
1999 1999 1998
Actual Actual Pro forma
Cash and marketable securities $1,258 $1,246 $2,062
Debt 1,766 1,830 3,500
Net Liquidity $(508) $(584) $ (1,438)
Long-term pension liability $1,543 $1,763 $2,180
Total stockholders' equity $3,712 $3,690 $3,171
RECONCILIATION OF THIRD QUARTER NET LIQUIDITY:
Net liquidity at June 30, 1999 $(584)
Net income $136
Depreciation and amortization 202
Capital expenditures (315)
Other, net 461
Operating cash flow less capital
expenditures 484
Other non-operating activities (108)
Pension contribution (300)
Net liquidity at September 30, 1999 $(508)