Company Generates Positive Operating Cash Flow of $112 Million
Non-GM Revenues Cross 50 Percent Threshold
TROY, Mich., May 13 /PRNewswire-FirstCall/ -- Delphi Corp. (NYSE: DPH)
today reported unaudited first quarter 2005 financial results with revenues of
$6.9 billion, and a GAAP net loss of $409 million or $0.74 per share. The
first quarter loss was significantly impacted by Delphi's inability to record
the non-cash deferred tax benefit of its U.S. losses. The company had
previously expected to record a tax benefit during 2005 of between 40 - 60
percent of its pre-tax losses. The company generated $112 million in operating
cash flow(1) in the first quarter. Delphi's net liquidity improved during the
quarter with a cash balance of $1.15 billion at March 31, 2005. Non-GM
revenues grew 8 percent year-over-year to $3.5 billion.
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"Versus our expectations for the first quarter, we were significantly
challenged by weaker-than-expected production volumes with some of our larger
North American customers," said J.T. Battenberg III, Delphi's chairman, and
chief executive officer. "We expect these pressures to continue for the
remainder of the year. Delphi's management team is focused on addressing these
issues while remaining committed to serving our customers' needs. At the same
time as we work to address our short-term challenges, we continue to grow our
business through our ongoing technology leadership, global expansion and
adjacent market growth. During the quarter, Delphi was able to reach a new
milestone with non-GM revenues reaching 51 percent of total sales."
First Quarter 2005 Financial Results
The unaudited financial results reflect adjustments for the effects of the
improper accounting for transactions identified as a result of Delphi's Audit
Committee's internal investigation. The unaudited results are preliminary and
subject to review by Delphi's independent auditors. Final results may differ
due to any activities occurring after March 31, 2005, but before their
finalization, which is planned to occur by June 30, 2005.
-- Revenue of $6.9 billion, down approximately 7 percent from $7.4 billion
in Q1 2004 (down 9 percent excluding the impact of foreign exchange).
-- Non-GM revenue for the quarter was $3.5 billion, up approximately 8
percent from $3.2 billion in Q1 2004 (up 5 percent excluding the impact
of foreign exchange). Non-GM business reached a record high of 51
percent of Q1 revenues, compared to year-ago levels of 43 percent.
-- Operating cash flow(1) was $112 million, as compared to $217 million
for Q1 2004.
-- Including $31 million in after-tax restructuring charges in 2005, GAAP
net loss of $409 million or $0.74 per share compared to Q1 2004 net
income of $53 million or $0.09 per share. The company's decision to no
longer record the tax benefit associated with its U.S. losses resulted
in the exclusion of approximately $190 million of tax benefit.
Excluding restructuring charges, the company reported a Q1 loss of $378
million or $0.68 per share, compared to positive earnings of $122
million or $0.22 per share in Q1 2004.
"Like many other companies in the automotive sector, Delphi's first
quarter performance was impacted by high commodity costs year-over-year and
low production volumes, particularly with GM North America," said John D.
Sheehan, Delphi's acting chief financial officer. "We are engaging our entire
global workforce to identify additional opportunities to reduce SG&A and
discretionary spending so that we can focus on our restructuring activities
and overall transformation. Concurrently, we are successfully growing our
non-GM revenues domestically, overseas and in adjacent markets, evidenced by
strong first quarter bookings. Additionally, 64 percent of Delphi's first
quarter bookings were from non-GM customers -- further proof that our
diversification efforts are working."
U.S. Deferred Tax Assets
In conjunction with Delphi finalizing its Dec. 31, 2004 financial
statements, the company was required to re-assess the recoverability of its
U.S. deferred tax assets, which amounted to approximately $4.7 billion. Due to
the company's history of U.S. losses over the past three years, combined with
its current U.S. operating outlook for the near to medium term, Delphi
determined that it could no longer support realization of such amounts under
current accounting guidelines. Accordingly, the company will record a charge
to establish a valuation allowance against its U.S. deferred tax assets in its
Dec. 31, 2004 financial statements when filed. This is not a cash charge;
therefore, there is no impact to Delphi's net liquidity position.
Additionally, at such time that Delphi's U.S. operations return to sustained
profitability, the company will reassess the potential to reverse the
valuation allowance being established.
First Quarter 2005 Financing Activities
During the quarter, Delphi amended certain provisions of its $3 billion
revolving credit facilities and intends to amend and increase its existing
$1.5 billion five-year revolving credit facility, while providing collateral
to lenders. These facilities would replace the company's existing one- and
five-year revolving credit facilities (maturing June 2005 and June 2009,
respectively), which today total $3.0 billion. Delphi is also seeking to put
in place secured term loans to preserve its liquidity position.
Under the first quarter amendment, the financial covenant ratio for
consolidated leverage was increased and Delphi obtained a waiver to provide
audited financial statements for the year ended December 31, 2004, by June 30,
2005. Also in the first quarter, the company increased the borrowing limit of
its U.S. trade receivables securitization program from $600 million to $731
million.
"The amended credit facilities and increased U.S. securitization program
facilitate Delphi maintaining an appropriate level of liquidity to manage its
ongoing operations as we proceed with financing activities to address the June
2005 expiration of the 364 day revolver. We continue to consider changes to
our liquidity sources to adapt to our current credit standing and ensure that
we have long-term access to liquidity to allow management to continue to
transform our business," Sheehan said.
Cost Structure Actions
One of Delphi's key value drivers of its transformation is reducing its
legacy cost structure by continuing global actions designed to address under-
performing operations and appropriately size the company's global workforce.
During the first quarter, Delphi continued to address its U.S. legacy sites
through further consolidations. Delphi has completed consolidation activities
at its Foley, Alabama, Tuscaloosa, Alabama and Anaheim, California sites.
In addition, manufacturing operations have ceased at Delphi's Olathe,
Kansas site. These latest actions bring Delphi's total to 78 business lines or
facilities that have been sold or closed since 1999.
Delphi is also making progress on its 2005 restructuring initiatives to
further reduce its workforce by 8,500 positions, as announced in Delphi's 2005
outlook in December 2004. In Q1, Delphi reduced its global workforce by
approximately 1,500 positions, including 870 U.S. hourly and 630 international
positions.
"In addition to these restructuring activities, Delphi is continuing to
refine our product portfolio by assessing the effectiveness of all of our
operations, which may include partnering, joint venturing or sale," Battenberg
said. "Most recently, Delphi signed a non-binding letter of intent with
Johnson Controls Inc. to sell our global lead-acid battery business for
approximately $212 million. Additionally, as previously disclosed, we continue
to pursue other divestitures / asset sales. We expect total proceeds from all
currently-identified transactions to approximate $400 million."
Second Quarter 2005 Outlook
Sheehan said second quarter revenues are projected to range between $7.2
billion and $7.4 billion. At these revenue levels, Delphi expects to generate
$100 million to $150 million in operating cash flow(2), excluding sale of
assets. Given the fixed-cost nature of Delphi's U.S. legacy business, the
company's cost structure will remain largely comparable to the first quarter.
Margins are expected to improve slightly due to the revenue increases from Q1
to Q2 2005. Also in Q2, Delphi is required to make a minimum contribution of
$0.6 billion to fund U.S. pensions.
CY05 Outlook Update
Sheehan reported that 2005 is becoming an extremely challenging year for
the U.S. automotive industry. For the remainder of the year, Delphi expects
to continue to be pressured by high commodity prices and lower production
volumes with its largest customer in the U.S. In addition, U.S. attrition is
expected to become more challenging in this low volume environment.
"We are currently forecasting GM North America calendar year production
volumes in the 4.5 - 4.6 million unit range -- a 6-8 percent decline from
Delphi's prior guidance -- which will impact revenues by $900 million to $1.1
billion versus prior guidance," Sheehan said. "Our earnings and operating cash
flow are certainly exposed to this revenue decline due to the fixed nature of
our U.S. cost structure, and we must look for ways to offset these declines.
While we are beginning to gain traction on our material cost reduction
initiatives, to date, Delphi has had slower-than-expected success in these
areas. Given these factors, we do not believe that our prior calendar year
guidance from December 2004 of a GAAP net loss of $350 million (including $150
million in restructuring charges) is achievable."
"Our leadership fully understands the challenges before us and we are not
satisfied with where we are. We are evaluating all critical areas where we can
further reduce costs and are looking at the business very judiciously," said
Rodney O'Neal, Delphi's president and chief operating officer.
"We know that we must accelerate our transformation activities to get
ahead of these challenges and are engaging our key constituents to address our
U.S. legacy cost structure. Furthermore, by streamlining our operations
through restructuring actions while keeping a tight rein on staffing levels
and letting attrition reduce our workforce, we're positioning Delphi for
future growth."
Additional Information
Additional information concerning Delphi's unaudited Q1 2005 results and
outlook is available through the Investor Relations page of Delphi's website
at http://www.delphi.com. A briefing concerning Q1 financial results for news
media representatives, institutional investors and security analysts will be
held at 11:00 a.m. ET today. For the general public, the briefing will be
simultaneously webcast from the Investor Relations page of
http://www.delphi.com.
(1) Operating cash flow of $112 million for Q1 2005 represents GAAP cash
flow from operations of $500 million less capital expenditures of $194
million, plus cash paid for employee, product line and related charges
of $50 million, and less changes in the sale of accounts receivable
and supplier financing programs of $244 million. Operating cash flow
of $217 million for Q1 2004 represents GAAP cash flow from operations
of $7 million less capital expenditures of $214 million, plus cash
paid for employee, product line and related charges of $193 million,
and plus changes in the sale of accounts receivable and supplier
financing programs of $231 million.
(2) Forecast operating cash flow for Q2 2005 of $100 million - $150
million is based on forecast GAAP cash flow from operations of $(225)
million - $(275) million. Operating cash flow is internally defined as
GAAP cash flow from operations less capital expenditures, plus pension
contributions and cash paid for employee, product line and related
charges, and changes in the sale of accounts receivable and supplier
financing programs.
Forward Looking Statements
All statements contained or incorporated in this press release which
address operating performance, events or developments that we expect or
anticipate may occur in the future (including statements relating to future
sales, cash flow or earnings expectations, savings expected as a result of our
global restructurings or other initiatives, portfolio restructuring plans,
volume growth, awarded sales contracts and customer diversification or
statements expressing general optimism about future operating results) are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements are made on the basis of
management's current views and assumptions with respect to future events.
Important factors, risks and uncertainties which may cause actual results to
differ from those expressed in our forward-looking statements are discussed in
detail in our filings with the Securities and Exchange Commission, including
our annual report on Form 10-K for the year ended December 31, 2003 and our
disclosures filed regarding the status of the ongoing internal investigation
being conducted by the audit committee of the Company's board of directors.
In particular, the achievement of projected levels of revenue, earnings, cash
flow and debt levels will depend on our ability to execute our portfolio and
global restructuring plans in a manner which satisfactorily addresses any
resultant antitrust or labor issues and customer concerns, any contingent
liabilities related to divestitures or integration costs associated with
acquisitions, and other matters; our continued ability to diversify our
customer base and still maintain existing GM business; the continued
protection and exploitation of our intellectual property to develop new
products and enter new markets; and our ability to capture expected benefits
of our cost reduction initiatives so as to maintain flexibility to respond to
adverse and cyclical changes in general economic conditions and in the
automotive industry in each market we operate, including customer cost
reduction initiatives, potential increases in warranty and raw material costs,
pension contributions, healthcare costs, disruptions in the labor, commodities
or transportation markets caused by terrorism or war and other changes in the
political and regulatory environments where we do business. Delphi does not
intend or assume any obligation to update any of these forward-looking
statements.
SOURCE Delphi Corp.
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Related links:
http://www.delphi.com
http://www.delphi.com/media
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CONTACT:
Claudia Baucus of Delphi Corp.,
+1-248-813-2942
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