Fourth Quarter Results Cap Strong First Year for Independent Delphi
19 January 2000
Fourth Quarter Results Cap Strong First Year for Independent Delphi
Net Income Climbs 22 Percent Year-Over-Year
Operating Cash Flow Exceeds $2.5 Billion
TROY, Mich., Jan. 19 -- Highlighting 22 percent annual net
income improvement, Delphi Automotive Systems today reported
financial results for the fourth quarter and full calendar year 1999.
Net income was $1.1 billion, or $1.91 earnings per share (EPS), up from
pro forma $889 million ($1.57 EPS) in 1998, a 22 percent increase*. Sales to
customers other than General Motors grew 13 percent on a comparable basis in
1999. Sales increased in 1999 to $29.2 billion from $28.5 billion a year
earlier.
"These results reflect the continued generation of shareholder value,
confirm Delphi's business model, and demonstrate our ability to meet
commitments outlined at the time of separation from General Motors," said
Delphi Chairman, Chief Executive Officer and President J.T. Battenberg III.
"We believe we remain solidly on track to meet our long-term targets for
non-GM sales growth, earnings growth, and margin improvement. We said we
would attain a 3.5 percent net income margin for the year; we delivered
3.7 percent. We said we would grow earnings by 10 percent annually; we grew
them at a 22 percent rate. We said we would increase our non-GM sales by
10 percent annually; we increased them by 13 percent. We said we would have
$1.5 - 2.0 billion of operating cash flow; we had $2.5 billion," he said.
"The dramatic increase in net income reinforces the significant progress
we have made in reducing structural cost and streamlining our product
portfolio," added Battenberg.
According to Battenberg, year-over-year earnings improvement is
attributable to Delphi's company-wide cost reduction initiatives, including
product line rationalization and implementation of lean manufacturing
initiatives through the Delphi Manufacturing System. Additionally, strong
North American and European volumes helped push profitability higher, but were
somewhat offset by soft demand in South America and some Asia Pacific markets,
a strong Mexican peso, and weakness in European currencies versus the U.S.
dollar.
As a result of strong 1999 performance, Delphi today notified employees
that the company will pay profit sharing bonuses to eligible salaried
employees. The hourly profit sharing bonus amount will be announced
internally on January 20, 2000. (The national agreements with
union-represented Delphi employees in the U.S. provide for 1999 profit sharing
to be paid on the aggregate of Delphi and GM 1999 earnings.)
Fourth quarter 1999 earnings were $269 million ($0.48 EPS), on sales of
$7.25 billion, exceeding First Call analyst consensus EPS expectations of
$0.46.
On a comparable basis, sales to non-GM customers climbed 12 percent, to
$1.89 billion in the fourth quarter 1999, while sales to GM were
$5.36 billion, down 12 percent. Sales to GM in the fourth quarter 1999 were
lower than the same quarter in 1998 due to accelerated GM build schedules last
year as the company renewed field stocks following a third quarter 1998
strike, and due to the impact of divestitures and portfolio restructuring
previously announced. As a result, overall fourth quarter 1999 revenue of
$7.25 billion was off slightly when compared to $7.80 billion in the year ago
period.
New Business
"In addition to the strong 1999 results overall, the really exciting news
coming out of Delphi in 1999 has been our ability to deliver on the promised
benefits of full separation from General Motors," said Battenberg. "Our
customers have embraced our independence, and our 1999 year-end booked
business underlines the enthusiasm for Delphi products that exists in the
marketplace."
Battenberg said Delphi posted extremely strong levels of new business in
1999 -- both with General Motors and with customers other than General Motors.
Of $33 billion in new booked business in 1999, $9 billion (27 percent), was
with customers other than General Motors. Fourth quarter numbers were
$8 billion in total new business won, $2 billion of which was with customers
other than General Motors. "The strong market acceptance of Delphi products
boosts our confidence in our ability to continue our portfolio restructuring,
while retaining our industry leading sales position," said Battenberg.
Delphi won over 680 new business contracts with leading automotive and
non-automotive companies during 1999. Significant new contracts announced in
1999 include:
* Ford - Electrical Architecture
* Ferrari - HVAC
* Daimler Chrysler - Modular Door Systems and M-Class Modular Cockpits
* Caterpillar - Engine Electronics
* PSA Peugeot Citroen - Wiring Harnesses and Advanced Technology
Agreement
* Opel - Driver/Passenger Airbags
* Volkswagen - Future Airbag Program
* Seven different car and truck manufacturers - Communiport(R) Mobile
Multimedia
(Note: 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.)
Mobile Multimedia
"Besides the growing diversification of our customer base, the other
exciting feature of the new business being won at Delphi is the growth in our
mobile multimedia business," said Battenberg.
"Contracts for mobile multimedia accounted for roughly $2.5 billion of the
$33 billion in new booked business during 1999," said Battenberg. "This is a
tremendously exciting opportunity for Delphi, where our technological depth
and experience provides first-mover advantage in a market forecast to grow at
a 30 percent annual rate over the next five years. Mobile multimedia
increases content with GM -- expands non-GM sales, and helps us move into
other transport sectors, namely heavy trucks and mobile electronics," he said.
Cash Flow Exceeds Expectations
Strong income, effectively managed working capital and efficient capital
investment combined to deliver 1999 annual operating cash flow of
$2.5 billion. "This strong cash flow provided flexibility for $1.8 billion in
voluntary pension fund contributions since January, 1999, including the
$575 million contributed in January 2000," said Delphi Chief Financial Officer
Alan S. Dawes. "These pre-payments -- which exceed federal minimum
requirements for pension funding -- demonstrate Delphi's commitment to funding
the future retirement needs of our employees, with the added benefit of
reducing future pension expense and enhancing net income. These contributions
reduce our U.S. hourly underfunded pension fund liability to $0.7 billion,"
said Dawes.
Delphi made significant investments in its business worldwide in 1999.
Domestically, the company announced major investment in facilities in Kokomo,
Ind., Sandusky, Ohio, Saginaw, Mich., and Dayton, Ohio. Additionally, Delphi
made strategic investments in partnerships and equity positions in Asia
Pacific and Europe, expanding its manufacturing footprint and customer base.
Acquisitions
In addition to voluntary pension fund contributions, 1999 cash flow also
enabled Delphi to make several strategic acquisitions and partnerships,
including the purchase of Lucas Diesel Systems.
The Lucas Diesel transaction, which closed in early January, expands
Delphi's customer and technology presence in the strategically important
European diesel market, while generating over $1.1 billion in new sales at
strong profit levels, significantly enhancing margin expansion and shareholder
value in 2000 and beyond.
The acquisition is important to Delphi for the customer diversification it
provides outside the U.S., and the access it provides to a profitable European
diesel fuel injection systems aftermarket channel.
Technology
Delphi introduced 166 new products and processes during 1999, many which
demonstrate Delphi's commitment to technology through electronics integration.
These include Communiport(R) Mobile Multimedia, E-Steer(TM) electronic power
steering, MagneRide(TM) suspension control systems, and Forewarn Adaptive
Cruise Control. Delphi received wide acclaim during the year for E-Steer(TM)
and MagneRide(TM) from industry experts, including the PACE Award from
Automotive News and Popular Science's "Best of What's New" award.
About Delphi
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 Communication -- provide comprehensive
product solutions to complex customer needs. As of December 31, 1999, Delphi
had approximately 203,000 employees and operated 168 wholly owned
manufacturing sites, 39 joint ventures, 51 customer centers and sales offices
and 27 technical centers in 37 countries.
With the addition of Lucas Diesel Systems in January 2000, Delphi's
worldwide presence grew to approximately 213,500 employees, 180 wholly owned
manufacturing sites, 41 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
This press release, other than historical financial information, contains
forward-looking statements that involve a number of risks and uncertainties.
Important factors that could cause actual results to vary materially from
those anticipated in the forward-looking statements are set forth in Delphi's
Securities and Exchange filings, including without limitation, in Items 1 and
7 of Delphi's Annual Report on Form 10-K for the fiscal year ended December
31, 1998, and Item 2 of Delphi's Quarterly Reports on Form 10-Q for the
quarters ended March 31, June 30, and Sept. 30, 1999.
* See Financial Highlights - year-end 1999 income statement.
HIGHLIGHTS - Year ended December 31, 1999 vs. pro forma year ended
December 31, 1998 comparison
Year Ended
December 31,
1999 1998 (1)
(in millions, except per share amounts)
Net sales:
General Motors $22,302 $22,322
Other customers 6,890 6,157
Total net sales 29,192 28,479
Less operating expenses:
Cost of sales, excluding
items listed below 25,035 25,351
Selling, general and
administrative 1,619 1,600
Depreciation and amortization 856 898
Operating income 1,682 630 (4)
Less interest expense 132 277
Other income, net 171 232
Income before income taxes 1,721 585
Less income tax expense 638 146
Net income $1,083 $439 (4)
Gross margin 14.2% 11.0%
Operating income margin 5.8% 2.2%
Net income margin 3.7% 1.5%
Basic earnings per share -
actual (2) $1.96 N/A
Diluted earnings per share -
actual (2) $1.95 N/A
Basic earnings per share -
pro forma (3) $1.92 $0.78
Diluted earnings per share -
pro forma (3) $1.91 $0.78
(1) Results of operations for the year ended December 31, 1998 have been
adjusted to reflect the impact of the terms of our separation from GM and to
exclude charges related to divestitures, underperforming assets and
postemployment benefits payable under contractual agreements. 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 unaudited pro forma results for the year ended
December 31, 1998 for additional information.
(2) Actual basic and diluted earnings per share are calculated using the
weighted average shares outstanding during the period, resulting in 553
million and 555 million shares outstanding, respectively, during the year
ended December 31, 1999.
(3) Pro forma basic and 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 564 million and 566 million shares outstanding,
respectively, for the year ended December 31, 1999 and 565 million shares
outstanding for the year ended December 31, 1998.
(4) After considering partial recovery of lost production in subsequent
periods, the impact of work stoppages at GM and Delphi during 1998 was as
follows:
Operating Income Net Income
Pro forma $630 $439
Work stoppage impact 726 450
Work stoppage impacted pro forma $1,356 $889
Work stoppage impacted earnings per share N/A $1.57
HIGHLIGHTS - Year ended December 31, 1998 - Reconciliation of actual to
pro forma results
Year Ended December 31, 1998
Actual Adjustments Pro forma
(in millions, except per share amounts)
Net sales:
General Motors $22,322 $22,322
Other customers 6,157 6,157
Total net sales 28,479 28,479
Less operating expenses:
Cost of sales, excluding
items listed below 26,135 $(248) (1)
(382) (2)
(154) (3) 25,351
Selling, general and
administrative 1,463 137 (1) 1,600
Depreciation and amortization 1,102 (48) (2)
(156) (3) 898
Operating income (loss) (221) 851 630
Less interest expense 277 277
Other income, net 232 232
Income (loss) before income taxes (266) 851 585
Less income tax expense (benefit) (173) 159 (2)
118 (3)
42 (4) 146
Net income (loss) $(93) $532 $439
Basic and diluted loss per
share with 465 million shares
outstanding $(0.20) N/A
Basic and diluted earnings per
share with 565 million shares
outstanding N/A $0.78
(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) Adjusted to exclude a loss of $430 million, or $271 million after-
tax, related to divestures 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.
(3) Adjusted to exclude charges of approximately $310 million, or $192
million after-tax, related to underperforming assets and postemployment
benefits payable under contractual agreements. These charges had the effect
of increasing cost of sales and depreciation and amortization by $154 million
and $156 million, respectively.
(4) 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 unaudited pro forma adjustments assumes a
combined federal and state income tax rate of 38%.
HIGHLIGHTS - Liquidity and capital resources (dollars in millions)
BALANCE SHEET DATA:
December 31, December 31, December 31,
1999 1998 1998
Actual Pro Forma Actual
Cash and marketable securities $1,556 $2,062 $1,000
Debt 1,757 3,500 3,500
Net liquidity $(201) $(1,438) $(2,500)
Long-term pension liability $858* $2,180 $2,180
Total stockholders' equity $3,200 $3,171 $ 9
RECONCILIATION OF 1999 NET LIQUIDITY:
Actual net liquidity at December 31, 1998 $(2,500)
Settlement of accounts receivable from GM (1,600)
Extension of payment terms for accounts
receivable from GM (2,100)
Settlement of 1998 note payable to GM 3,141
Initial public offering proceeds 1,621
Pro forma net liquidity at December 31, 1998 $(1,438)
Net income $1,083
Depreciation and amortization 856
Capital expenditures (1,200)
Other, net 1,771
Operating cash flow less capital expenditures 2,510
Dividends and other non-operating (48)
Pension contributions (1,225)
Net liquidity at December 31, 1999 $(201)
* Includes $0.7 billion related to the U.S. hourly pension plan.
HIGHLIGHTS - Three months ended December 31, 1999 vs. pro forma three
months ended December 31, 1998 comparison
Three Months Ended
December 31,
1999 1998 (1)
(in millions, except
per share amounts)
Net sales:
General Motors $5,361 $6,127
Other customers 1,889 1,673
Total net sales 7,250 7,800
Less operating expenses:
Cost of sales, excluding items listed below 6,211 6,699
Selling, general and administrative 439 485
Depreciation and amortization 210 215
Operating income 390 401
Less interest expense 38 78
Other income, net 56 108
Income before income taxes 408 431
Less income tax expense 139 133
Net income $269 $298
Gross margin 14.3% 14.1%
Operating income margin 5.4% 5.1%
Net income margin 3.7% 3.8%
Basic and diluted earnings per share-
actual (2) $0.48 N/A
Basic and diluted earnings per share-
pro forma (3) N/A $0.53
(1) Results of operations for the three months ended December 31, 1998
have been adjusted to reflect the impact of the terms of our separation from
GM and to exclude charges associated with underperforming assets and
postemployment benefits payable under contractual agreements. 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 unaudited pro forma results for the three months
ended December 31, 1998 for additional information.
(2) Actual basic and diluted earnings per share are calculated using the
weighted shares outstanding during the period, resulting in 562 million and
564 million shares outstanding, respectively, during the three months ended
December 31, 1999.
(3) 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 December 31, 1998 -- Reconciliation of
actual to pro forma results
Three Months Ended December 31, 1998
Actual Adjustments Pro forma
(in millions, except per share amounts)
Net sales:
General Motors $6,127 $6,127
Other customers 1,673 1,673
Total net sales 7,800 7,800
Less operating expenses:
Cost of sales, excluding items
listed below 6,915 $(62) (1)
(154) (2) 6,699
Selling, general and
administrative 451 34 (1) 485
Depreciation and amortization 371 (156) (2) 215
Operating income 63 338 401
Less interest expense 78 78
Other income, net 108 108
Income before income taxes 93 338 431
Less income tax expense 5 118 (2)
10 (3) 133
Net income $88 $210 $298
Basic and diluted earnings per share
with 465 million shares
outstanding $0.19 N/A
Basic and diluted earnings per share
with 565 million shares
outstanding N/A $0.53
(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) Adjusted to exclude charges of approximately $310 million, or
$192 million after-tax, related to underperforming assets and postemployment
benefits payable under contractual agreements. These charges had the effect
of increasing cost of sales and depreciation and amortization by $154 million
and $156 million, respectively.
(3) 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 unaudited pro forma adjustments assumes a
combined federal and state income tax rate of 38%.
HIGHLIGHTS - Liquidity and capital resources (dollars in millions)
BALANCE SHEET DATA:
December 31, September 30,
1999 1999
Actual Actual
Cash and marketable securities $1,556 $1,258
Debt 1,757 1,766
Net liquidity $(201) $(508)
Long-term pension liability $858* $1,543
Total stockholders' equity $3,200 $3,712
RECONCILIATION OF FOURTH QUARTER NET LIQUIDITY:
Net liquidity at September 30, 1999 $(508)
Net income $269
Depreciation and amortization 210
Capital expenditures (392)
Other, net 559
Operating cash flow less capital expenditures 646
Dividends and other non-operating (14)
Pension contribution (325)
Net liquidity at December 31, 1999 $(201)
* Includes $0.7 billion related to the U.S. hourly pension plan.
HIGHLIGHTS - Sector financial results (dollars in millions)
Year Ended December 31,
Sector 1999 1998
1999 1998 Operating Pro forma
Sales Sales Income Operating
Income (1,2)
Electronics & Mobile
Communication $5,296 $4,823 $577 $466
Safety, Thermal &
Electrical Architecture 10,512 11,226 687 702
Dynamics & Propulsion 13,975 12,862 563 408
Other (591) (432) (145) (220)
Total $29,192 $28,479 $1,682 $1,356
Sector Three Months Ended December 31,
1999 1998 1999 1998
Sales Sales Operating Pro forma
Income Operating
Income (1)
Electronics & Mobile
Communication $1,322 $1,411 $129 $177
Safety, Thermal &
Electrical Architecture 2,587 2,860 161 113
Dynamics & Propulsion 3,504 3,640 171 107
Other (163) (111) (71) 4
Total $7,250 $7,800 $390 $401
(1) Amounts for 1998 have been adjusted to reflect the impact of the
terms of our separation from GM and to exclude charges related to
divestitures, underperforming assets and postemployment benefits
payable under contractual agreements. Certain 1998 sector results
have also been reclassified to conform with the 1999 presentation.
(2) In addition to the items listed above, operating income for the year
ended December 31, 1998 has been adjusted for the impact of work
stoppages during 1998 at GM and Delphi.
1999 Fourth Quarter and Year End Results Chart Package
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 10-K filed with
the Securities and Exchange Commission.
1999: Exceeding Our Commitments!
Commitment Results
Non-GM Revenue Growth 10% 13%
Earnings Growth 10% 22%
Net Margin 3.5% 3.7%
Operating Cash Flow $1.5 B - $2.0 B $2.5 B
1999 Achievements
* Delphi established as an independent entity
-- IPO: February 5, 1999
-- Spin-off completed May 28, 1999
* Exceeded financial commitments
-- Solid calendar year results
* Significant new business won
* U.S. labor agreements successfully completed
* Portfolio activity continues
-- Troubled plant process continues
-- Acquisition activity
* New organization created
-- Formalized sector organization
-- Addition of aftermarket division
1999 New Business
Represents estimated revenue over an average five-year contract life
Q-1 '99 Q-2 '99 Q-3 '99 Q-4 '99 1999
Non-GM $2 B $3 B $2 B $2 B $9 B
GM $4 B $6 B $8 B $6 B $24 B
Total $6 B $9 B $10 B $8 B $33 B
1999 New Business Wins
Customer Product
* Freightliner Communiport(R) Mobile MultiMedia
* Ford Electrical Architecture
* Heavy Duty Truck Mfr. Audio Systems
* Ferrari HVAC
* Daimler Chrysler Modular Door Systems (MB Actros)
M-Class Modular Cockpits
* Caterpillar Engine Electronics Systems
* PSA Peugeot Citroen Wiring Harnesses
Advanced Technology Agreement
* Opel Driver/Passenger Airbags
* Volkswagen Future Airbag Program
* Ericsson Connection Systems
* Volvo Truck Wiring Systems
* Various Other OEMs Communiport(R) Mobile MultiMedia
In 1999, Delphi won over 600 contracts with 30 OEMs
1999 Non-GM Revenue
* 1999 growth rate: 13%
* Achieved record level $6.9 billion in revenue
* Represents 24% of total revenue
2000 Goals
* Market volume outlook
* Non-GM revenue growth (includes Diesel Systems)
* Delphi earnings growth
* Delphi net income margin
* Operating cash flow
1999 Fourth Quarter Highlights
* Solid net income margin: 3.7%
-- Solid Q4 '99 earnings: $269 million
* Non-GM revenue growth: 12%
-- Electronics & Mobile Communication sector's non-GM revenue growth
tops 40%
* Continued robust operating cash flow: $646 million
* Portfolio restructuring continues to drive bottom-line results
Fourth Quarter Results (pro forma comparison)
$ Millions Q4 '99 Pro Forma Q4 '99
Q4 '98 F/(U)
Q4 '98
Net Sales $7,250 $7,800 ($550)
Gross Margin (%) 14.3%* 14.1% +0.2 pts
Operating Income 390 401 (11)
Operating Margin (%) 5.4% 5.1% +0.3 pts
Less: Interest Expense 38 78 40
Other Income/ (Expense) 56 108 (52)
Pre-tax Income 408 431 (23)
Income Taxes 139 133 (6)
Net Income 269 298 (29)
Net Margin 3.7% 3.8% -0.1 pts
Tax Rate 34.1%* 30.9%
Diluted EPS $0.48 $0.53
Avg. Outstanding Shares 564 565
* Argentina Closure: $19 M income tax savings offsets $20 M COGS Charge
1999 Fourth Quarter Operating Cash Flow
$ Millions
Net Income $ 269
Depreciation & amortization 210
Capital expenditures (392)
Other, net 559
Operating cash flow $646
(before pension contribution)
1999 vs. 1998 (pro forma comparison)
1999
Pro Forma F/(U)
$ Millions 1999 19981 1998
Net Sales $29,192 $28,479 $713
Gross Margin(%) 14.2% 13.5% +0.7 pts
Operating Income/(Loss) 1,682 1,356 326
Operating Margin(%) 5.8% 4.8% +1.0 pts
Net Income/(Loss) 1,083 889 194
Net Margin(%) 3.7% 3.1% 0.6 pts
Earnings Per Share $1.91 $1.57
Avg. Outstanding Shares 566M 565M
Earnings Per Share climbs 22% year-over-year
(1) 1998 results excluding strike impact