Cost Reduction Fuels Record Margins in Second Quarter for Delphi
17 July 2000
Cost Reduction Fuels Record Margins in Second Quarter for Delphi
TROY, Mich. - Delphi Automotive Systems today reported second quarter 2000
earnings of $424 million, or $0.75 earnings per share, in line with analyst
consensus estimates. Strong cash flow from operations generated $455 million in
the second quarter.
"We achieved sales above last year's record levels and our continued focus
on portfolio management, cost reduction and new business bookings produced
another robust quarter," said Delphi Chief Financial Officer Alan S. Dawes.
"Structural cost reductions helped us achieve year-over-year net income margin
improvements in every quarter since our independence. In addition, new
business bookings in excess of $5 billion indicate top-line growth and margin
improvements in future years."
On sales of $7.8 billion, Delphi's earnings climbed 8 percent to $424
million from $394 million in the second quarter last year. Sales to customers
other than GM rose to $2.2 billion, or 24 percent on a comparable basis. Net
income margin grew to 5.5 percent from 5.1 percent for the same quarter last
year.
For the first half of the year Delphi is on track to meet 2000 financial
targets. Earnings for the first six months of 2000 rose 10 percent, excluding
a one-time charge of $32 million in the first quarter, versus 1999 levels.
Operating cash flow totaled $950 million, well on track for meeting the
$1.5-$2 billion 2000 target.
"Since our IPO we've had six quarters of very solid financial performance.
Delphi is consistently meeting the essential targets for delivering long-term
value to our shareholders," Delphi Chairman, Chief Executive Officer and
President J.T. Battenberg III said.
Cost Reduction
Manufacturing results improved in the second quarter due to implementation
of lean initiatives. Delphi's Dynamics & Propulsion Sector reported the best
rate of improvement with a 1.5 percentage-point gain in operating margin. The
sector continued execution of a number of lean enterprise initiatives from
turning around under-performing facilities to integrating Delphi Energy &
Engine Management Systems and Delphi Chassis Systems into one unit now called
Delphi Energy & Chassis Systems, an action that is expected to save more than
$30 million in 2000.
Delphi's Dynamics & Propulsion Sector President Donald L. Runkle said: "As
a result of our leadership in implementing common business processes and the
Delphi Manufacturing System across the sector, Delphi's largest operating unit
has shown that it can move fast and contribute to Delphi's success. Our
consolidation is on track and as we continue to improve our cost structure and
introduce high-tech products such as E*Steer, QUADRASTEER, common rail direct
injection system, diesel engine management and MagneRide, we expect to
capitalize on even more new business opportunities."
"In addition, exciting developments in fuel cells, non-thermal exhaust
aftertreatment and 42-volt systems will bode well for our technology
pipeline," he continued.
Also in the second quarter, Delphi executed several infrastructure
reduction actions that are expected to save more than $25 million annually.
These included the restructuring of Delphi South America staffs, planned
workforce reductions at several European manufacturing locations and the use
of contract support for several salaried activities at the world headquarters
in Troy, Mich.
Aggressive Growth Initiatives
Delphi continued to accelerate through the start-up of its aggressive
growth Mobile MultiMedia (MMM) product line. MMM sales leaped 625 percent to
$58 million from $8 million in the second quarter of 1999, attributed
primarily to sales of Delphi's telematics products.
"With over $3 billion in new business bookings this year for our Mobile
MultiMedia products, we are beginning to realize the potential of our
investments in engineering and research and development for this start-up
business line. These products are in high demand," stated Delphi Electronics
& Mobile Communication Sector President David B. Wohleen. "The industry is
trending toward the use of more mobile communications products as well as more
electronically enhanced products allowing us to achieve early leadership
positions in several segments."
New Business
Delphi customers continued to embrace its products with more than $5
billion in new business bookings. New business bookings by customers other
than General Motors were $2 billion, 36 percent of the total, for the second
quarter.
Major contracts* announced during the quarter included:
-- A contract to develop and supply the electrical wiring system for a
future Ford Motor Company vehicle
-- Contracts with three customers for engine management systems worth
about $350 million over the life of contracts
-- For brake product lines, 20 contracts booked with three customers
worth approximately $2 billion over the life of the contracts
-- Commitments from two major automakers for Delphi's Power Liftgates and
Power Sliding Doors worth $350 million over the life of the contract
The contracts for the quarter brought year-to-date business bookings to
$12 billion.
Other Highlights
During the quarter, Delphi celebrated one year as a fully independent
company and, on May 10, held its first annual shareholders meeting in Kokomo,
Ind. Delphi also announced in the second quarter the election of Patricia C.
Sueltz, senior vice president of Sun Microsystems and head of the Sun Software
Products and Platforms Division, to its board of directors. The board now
includes 13 members; ten are outside directors and three are inside directors.
About Delphi
Multi-national Delphi Automotive Systems, with headquarters in Troy,
Mich., USA, Paris, Tokyo and Sao Paulo, Brazil, is a world leader in mobile
electronics and transportation 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 216,000
employees and operates 179 wholly owned manufacturing sites, 41 joint
ventures, 53 customer centers and sales offices and 31 technical centers in 39
countries. Delphi can be found on the Internet at http://www.delphiauto.com .
* Delphi does not disclose the details of all contracts due to customer
confidentiality.
Three Months Ended
June 30,
2000 1999
(in millions, except per share amounts)
Net sales:
General Motors and affiliates $5,592 $5,986
Other customers 2,186 1,697
Total net sales. 7,778 7,683
Less operating expenses:
Cost of sales, excluding items listed below 6,456 6,453
Selling, general and administrative 410 394
Depreciation and amortization 229 207
Operating income 683 629
Less interest expense 45 36
Other income, net 34 42
Income before income taxes 672 635
Income tax expense 248 241
Net income $ 424 $ 394
Gross margin 17.0% 16.0%
Operating income margin 8.8% 8.2%
Net income margin 5.5% 5.1%
Basic earnings per share, 562 million shares
outstanding in 2000 and 565 million
shares outstanding in 1999 $ 0.75 $ 0.70
Diluted earnings per share, 566 million shares
outstanding in 2000 and 567 million
shares outstanding in 1999 $ 0.75 $ 0.69
HIGHLIGHTS -- Six months ended June 30, 2000 vs. six months ended June 30,
1999 comparison
Six Months Ended
June 30,
2000 1999
(in millions, except per
share amounts)
Net sales:
General Motors and affiliates $11,162 $11,839
Other customers 4,420 3,313
Total net sales. 15,582 15,152
Less operating expenses:
Cost of sales, excluding items listed below 13,052 12,844
Selling, general and administrative 869 778
Depreciation and amortization 461 444
Operating income 1,200(1) 1,086
Less interest expense 85 60
Other income, net 68 67
Income before income taxes 1,183 1,093
Income tax expense 437(1) 415
Net income $ 746(1) $ 678
Gross margin 16.2% 15.2%
Operating income margin 7.7%(1) 7.2%
Net income margin 4.8%(1) 4.5%
Basic earnings per share, 562 million
and 543 million shares outstanding
in 2000 and 1999, respectively $ 1.33 $ 1.25
Diluted earnings per share, 566 million
and 544 million shares outstanding
in 2000 and 1999, respectively $ 1.32 $ 1.25
Basic and diluted earnings per
share - pro forma (2) N/A $ 1.20
(1) Excludes the impact of a one-time, non-cash charge of $51 million
($32 million after-tax) resulting from acquisition-related in-process research
and development. Including the $51 million charge, net income was $714
million and diluted earnings per share was $1.26.
(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 (567 million on a diluted basis) during the
first six months of 1999.
HIGHLIGHTS - Sector financial results
Sector Three Months Ended June 30,
2000 1999 2000 1999
Sales Sales Operating Operating
Income(Loss) Income(Loss)
(in millions)
Operating
Income(Loss)
Electronics & Mobile Communication
Mobile MultiMedia $58 $8 $(8) $(7)
Other Electronics & Mobile
Communication 1,333 1,388 157 187
Total 1,391 1,396 149 180
Safety, Thermal & Electrical
Architecture 2,677 2,767 260 249
Dynamics & Propulsion 3,836 3,670 288 221
Other (126) (150) (14) (21)
Total $7,778 $7,683 $683 $629
Sector Six Months Ended June 30,
2000 1999 2000 1999
Sales Sales Operating Operating
Income(Loss) Income(Loss)
(in millions)
Electronics & Mobile Communication
Mobile MultiMedia $90 $15 $(16) $(15)
Other Electronics & Mobile
Communication 2,693 2,734 306 353
Total 2,783 2,749 290 338
Safety, Thermal & Electrical
Architecture 5,386 5,480 467 464
Dynamics & Propulsion 7,688 7,204 476(1) 346
Other (275) (281) (33) (62)
Total $15,582 $15,152 $1,200(1) $1,086
(1) Excludes the one-time, non-cash charge of $51 million resulting from
acquisition-related in-process research and development.
HIGHLIGHTS - Liquidity and capital resources
BALANCE SHEET DATA:
June 30, December 31, June 30,
2000 1999 1999
(in millions)
Cash and cash equivalents $755 $1,546 $1,232
Debt $3,004 $1,757 $1,830
Net liquidity $(2,249) $(211) $(598)
RECONCILIATION OF NET LIQUIDITY:
Net liquidity at December 31, 1999 $(211)
Net income 746
Depreciation and amortization 461
Capital expenditures (624)
Other, net 367
Operating cash flow less capital expenditures 950
Cash paid for acquisitions, net of cash acquired (897)
Pension contribution (1,125)
Amounts paid to GM for estimated pension
and other postretirement benefit adjustments (715)
Dividends and other non-operating (251)
Net liquidity at June 30, 2000 $(2,249)