Delphi Earnings Increase 13% To $322 Million in First Quarter 2000
12 April 2000
Delphi Automotive Systems Earnings Increase 13 Percent To $322 Million in First Quarter 2000
Sales to Customers Other than GM Soar a Record 30 Percent -
Highlighting Success of Customer Diversification Efforts
Mobile Multimedia Sales Grow 357 Percent
TROY, Mich., April 12 Delphi Automotive Systems
today reported first quarter revenue of $7.8 billion and earnings
of $322 million, excluding a one-time acquisition-related charge.* These
results represent a 13 percent improvement in earnings over first quarter
1999, when net income was $284 million.
On a pro forma basis, earnings per share for the period were $0.57,
compared to $0.50 per share in the first quarter last year. First quarter net
income margin climbed from 3.8 percent in the first quarter 1999 to
4.1 percent in the first quarter 2000. Margin improvement was driven largely
by continued implementation of lean manufacturing initiatives through the
Delphi Manufacturing System, coupled with strong economic conditions in North
America and Europe. Strengths in these areas more than offset pressure on
margins resulting from exchange rate fluctuations and growth-related spending
in Delphi's high-growth business lines.
Delphi's sales to customers other than GM increased significantly, rising
a record 30 percent, to $2.2 billion during the quarter. "This sales trend
demonstrates that customers value our electronics and systems integration
capabilities and our ability to quickly bring advanced technology products to
market," said Delphi Chairman, Chief Executive Officer and President J.T.
Battenberg III.
Operating cash flow in the first quarter was $495 million, building upon
Delphi's strong 1999 performance in this key financial measure. "Continued
strong cash flow fuels the transformation of our product portfolio into
electronically enhanced systems. These products take advantage of Delphi's
electronic integration expertise and deliver an unequaled level of technology
solutions for our customers," said Battenberg.
High-Growth Initiatives
Delphi recently formed a new aggressive growth business line structure to
accelerate sales in high-growth markets. This structure enables Delphi to
move quickly and nimbly to secure its leading position in a rapidly growing
market segment.
The first Delphi business line placed in the new structure was mobile
multimedia (MMM). Delphi's MMM business line has a book of business
approaching $2.9 billion, $400 million of which was won in the first quarter.
Delphi's 1999 sales in mobile multimedia totaled $40 million with 2000 sales
projected in the $200 million range. For the first quarter of 2000, mobile
multimedia sales were $32 million, a 357 percent increase over the same
quarter last year.
Industry experts expect 50 percent of the 50 million vehicles produced
each year to have in-vehicle telematics and multimedia systems by 2005.
On Monday, Delphi announced a strategic partnership with Ericsson Mobile
Communications AB to bring plug-and-play telematics products to the vehicle
market. Plug and play technology provides a communications solution that will
help meet the strong demand for connectivity, mobile Internet, advanced
communications, information, and entertainment features for vehicles.
"Because of our electronics and vehicle integration capabilities, we were
an early entrant to this tremendously exciting market segment," said David B.
Wohleen, president, Delphi Electronics and Mobile Communication Sector. "We
were able to quickly recognize and enter the high-growth telematics segment,
where we are currently the market leader. We have identified several areas
where partnering and collaboration are key to future success, and agreements
like the one with Ericsson position Delphi to further leverage our first-mover
advantage in the mobile multimedia category," said Wohleen.
Acquisitions also play a role in seizing opportunities in high-growth
markets. During the quarter, Delphi acquired the rapidly growing next-
generation common rail fuel injector technology from Lucas Diesel Systems.
The $871 million transaction strengthens Delphi's product portfolio, will be
accretive to earnings in the first year, and provides geographic and customer
diversification.
New Business
"We are extremely excited about the level of new business bookings,
especially for our next generation products," said Battenberg. "The fact that
our customers are booking business with Delphi for these high-tech solutions
validates our move toward electronically enhanced products that deliver a
level of solutions unmatched in the industry today."
Notable new business contracts announced during the period included a
contract to supply Delphi's innovative QUADRASTEER(TM) four-wheel steering
system to General Motors. The technology will debut on a full-sized GM truck
in the 2002 model year, the first mass-market application of this technology
in the truck market.
QUADRASTEER by Delphi is an electronic four-wheel steering system that
enables significantly improved handling and maneuverability in full-size
vehicles. QUADRASTEER takes advantage of Delphi's unique combination of
advanced electronics technology and mechanical capability. The unique four-
wheel steering system electronically controls the direction of the rear
wheels, helping shorten the turning radius on full-size trucks. The smaller
radius allows full-size vehicles to maneuver as adeptly as compact cars.
European Aftermarket
To strengthen Delphi's aftermarket presence in Europe, the company
acquired the AP Distribution Services (APDS) business of AP Group Limited for
approximately $63 million. The company, Delphi Lockheed Automotive, is being
integrated into Delphi's European Aftermarket Operations, and is expected to
play a key role in helping drive Delphi's European aftermarket business from
its 1999 base of $200 million to a forecast $500 million within two years.
About Delphi
Multi-national Delphi Automotive Systems, with headquarters in Troy,
Mich., USA, Paris, Tokyo and Sao Paulo, Brazil, is a world leader in
transportation and mobile electronics 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. Delphi has
approximately 213,000 employees and operates 176 wholly owned manufacturing
sites, 41 joint ventures, 53 customer centers and sales offices and 30
technical centers in 38 countries. Delphi can be found on the Internet at
http://www.delphiauto.com.
* In conjunction with the acquisition of Lucas Diesel Systems, Delphi
took a one-time charge of $32 million after-tax, reflecting the value of
research and development efforts that were in process at the time of the
acquisition. This charge is in accordance with Generally Accepted Accounting
Principles.
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 1999 Annual Report on Form 10-K filed
with the Securities and Exchange Commission.
HIGHLIGHTS - Three months ended March 31, 2000 vs. three months ended
March 31, 1999 comparison
Three Months Ended
March 31,
2000 1999
(in millions, except per share amounts)
Net sales:
General Motors and affiliates $5,570 $5,853
Other customers 2,234 1,616
Total net sales 7,804 7,469
Less operating expenses:
Cost of sales, excluding items
listed below: 6,596 6,391
Selling, general and administrative 459 384
Depreciation and amortization 232 237
Operating income 517 (1) 457
Less interest expense 40 24
Other income, net 34 25
Income before income taxes 511 458
Income tax expense 189 (1) 174
Net income $322 (1) $284
Gross margin 15.5% 14.4%
Operating income margin 6.6% (1) 6.1%
Net income margin 4.1% (1) 3.8%
Basic and diluted earnings per share,
563 million and 566 million shares
outstanding in 2000 and 521 million
shares outstanding in 1999 $0.57 $0.55
Basic and diluted earnings per share -
pro forma (2) N/A $0.50
(1) Excludes the impact of a one-time, non-cash charge of $51 million
($32 million after-tax) related to acquired in-process research and
development. Including the $51 million charge, net income was $290 million
and earnings per share was $0.51.
(2) Pro forma earnings per share are presented as if the initial public
stock offering of 100 million shares took place on January 1, 1999, resulting
in 565 million shares outstanding during the first quarter of 1999.
HIGHLIGHTS - Liquidity and capital resources
BALANCE SHEET DATA:
March 31, December 31, March 31,
2000 1999 1999
(in millions)
Cash and marketable securities $927 $1,556 $1,134
Debt $2,927 $1,757 $1,886
Net liquidity $(2,000) $(201) $(752)
Total stockholders' equity $3,434 $3,200 $3,351
RECONCILIATION OF NET LIQUIDITY:
Net liquidity at December 31, 1999 $(201)
Net income 322
Depreciation and amortization 232
Capital expenditures (275)
Other, net 216
Operating cash flow less capital expenditures 495
Cash paid for acquisitions, net of cash acquired (897)
Pension Contribution (575)
Amounts paid to GM for estimated pension
and other postretirement benefit allocation
adjustments (715)
Dividends and other non-operating (107)
Net liquidity at March 31, 2000 $(2,000)
HIGHLIGHTS - Sector financial results
Sector Three Months Ended March 31,
2000 1999
2000 1999 Operating Operating
Sales Sales Income Income
(in millions)
Electronics & Mobile
Communication $1,392 $1,353 $141 $158
Safety, Thermal &
Electrical Architecture 2,709 2,713 207 216
Dynamics & Propulsion 3,852 3,534 188 (1) 124
Other (149) (131) (19) (41)
Total $7,804 $7,469 $517 (1) $457
(1) Excludes the one-time, non-cash charge of $51 million related to
acquired in-process research and development.
2000 First Quarter Highlights:
* Consistency continues
- Continued margin improvement
>> Net income increase of 13% over Q1'99
- Strong cash flow generation
* Non-GM revenue accelerated
- 30% growth
>> 16% organic growth
* Acquisitions providing growth opportunities
- Common rail diesel systems
- European aftermarket
* E-Commerce
* Mobile MultiMedia opportunities in focus!
First Quarter Results (pro forma comparison):
Q1 '00
F / (U)
$ Millions Q1 '00 Q1 '99 Q1 '99
Net Sales $7,804 $7,469 $335
Gross Margin (%) 15.5% 14.4% +1.1 pts
Operating Income/(Loss) 517 457 60
Operating Margin (%) 6.6% 6.1% +0.5 pts
Less: Interest Expense 40 24 (16)
Other Income / (Expense) 34 25 9
Pre-tax Income / (Loss) 511 458 53
Income Taxes 189 174 (15)
Net Income / (Loss) 322 284 38
Net Margin (%) 4.1% 3.8% +0.3 pts
Tax Rate 37% 38%
Diluted EPS $0.57 $0.50
Avg. Outstanding Shares 566 565
First Quarter Revenue: Non-GM
* Accelerated growth
- 30% growth
>> Includes 16% organic growth
* Record quarterly revenue level
- Q1 '00 non-GM revenues: $2,234 million
- 29% of total revenues
* Quarterly track record:
Non-GM revenues as a percentage of total revenues:
Q1 '99 Q2 '99 Q3 '99 Q4 '99 Q1 '00
21.6% 22.1% 24.9% 26.1% 28.6%
First Quarter New Business:
Represents estimated revenue over an average five year contract life
* Customers other than GM -- $4.0 billion
* General Motors -- $2.5 billion
* Total -- $6.5 billion
Sales and Operating Income by Sector (pro forma basis):
Sales Operating Income Operating Margin
F/(U) F/(U) F/(U)
$ Millions Q1 '00 Q1 '99 Q1 '00 Q1 '99 Q1 '00 Q1 '99
Dynamics &
Propulsion $3,852 $318 $188 $64 4.9% +1.4 pts
Safety, Thermal &
Elec.
Architecture 2,709 (4) 207 (9) 7.6% -0.4 pts
Electronics & Mobile
Communication 1,392 39 141 ($17) 10.1% -1.6 pts
Other / Elim. (149) (18) (19) 22
Total $7,804 $335 $517 $60 6.6% +0.5 pts
First Quarter Operating Cash Flow (pro forma basis):
$ Millions
Net Income $322
Depreciation & amortization 232
Capital expenditures (275)
Other, net 216
Operating cash flow $495
(before pension contribution)
Balance Sheet Data:
3/31/00 12/31/99
Cash $927 $1,556
Debt 2,927 1,757
Net Liquidity ($2,000) ($201)
Net Unfunded Pension Liability $700 $1,463
Stockholders' Equity $3,434 $3,200
Acquisition Update:
* Delphi Diesel Systems
- Common rail roll-out on schedule
- Integration on track
>> 15 member team in place
>> Exceeding synergy projections
- Profitability in line with expectations
* APDS
- $63 million transaction announced / completed February 2000
- Strengthens European aftermarket business
>> Distribution channel for Delphi existing products
>> E-commerce aftermarket solutions
E-Commerce Activities:
* Delphi: Auto supplier with most on-line auction experience
- 63 events to date
- $590 million bid volume
>> Over 20 commodities bid
- $90 million in savings identified
* Auctionable content = low-value add purchases
- Estimate 30% of Delphi's purchase value provides opportunities for
auction
* Based on experience and understanding, Delphi positive on auction
process (both customer and supplier)
- OEMs use auction process today (not automated)
* Auto supplier E-Commerce collaboration
Mobile MultiMedia:
* Market potential: 50% vehicle penetration rate by 2006
* Early entrant: Delphi Automotive Systems
- Products:
>> Telematics
>> Rear Entertainment Systems
>> Infotainment Systems
- Sales:
>> 1999 sales at $40 million
>> 2000 sales expected at $200 million
(Chart constitutes forward-looking information as to which risk factors
identified at commencement of presentation apply.)
* New business structure to capitalize on growth opportunities
- Be fast / nimble to market
- Innovative culture
- WIN in rapidly changing market
* Alliances to increase market opportunities
- Ericsson telematics agreement
* Service opportunities
Mobile MultiMedia Sales:
$ Millions Q1 Q2 Q3 Q4 Total
1999 $7 $8 $13 $12 $40
2000 $32
Growth 357%
Mobile MultiMedia sales and operating margin disclosed Q2 '00
2000 Outlook:
* Non-GM revenue growth: 20%++
* Net Income Margin: 4%
* EPS growth: 10%
* Operating cash flow: $1.5 B - $2.0 B
(Chart constitutes forward-looking information as to which risk factors
identified at commencement of presentation apply.)