UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549-1004
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
--
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from ____________ to _______________.
Commission file No. 1-14787
-------
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 38-3430473
(State or other jurisdiction of (IRS employer
incorporation or organization) identification number)
5725 Delphi Drive, Troy, Michigan 48098
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (248) 813-2000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X . No .
As of June 30, 1999, 565 million shares of the issuer's $0.01 par value common
stock were outstanding.
<PAGE>
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
INDEX
Page No.
Part I-Financial Information
Item 1. Financial Statements
Consolidated Statements of Income (Unaudited) for the
three and six months ended June 30, 1999 and 1998 3
Consolidated Balance Sheets at June 30, 1999 (Unaudited)
and December 31, 1998 4
Consolidated Statements of Cash Flows (Unaudited) for
the six months ended June 30, 1999 and 1998 5
Notes to Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Part II-Other Information
Item 1. Legal Proceedings 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
Signature 21
Exhibit 27 Financial Data Schedule (for SEC information only) n/a
Exhibit 99 Press Release dated July 19, 1999 n/a
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
(in millions, except per share amounts)
Net sales:
General Motors $ 5,986 $ 5,449 $ 11,839 $ 11,554
Other customers 1,697 1,592 3,313 3,110
-------- -------- --------- ---------
Total net sales 7,683 7,041 15,152 14,664
-------- -------- --------- ---------
Less operating expenses:
Cost of sales, excluding items
listed below 6,453 6,280 12,844 13,069
Selling, general and administrative 394 367 778 667
Depreciation and amortization 207 283 444 483
-------- -------- --------- ---------
Total operating expenses 7,054 6,930 14,066 14,219
-------- -------- --------- ---------
Operating income 629 111 1,086 445
Less interest expense 36 67 60 131
Other income, net 42 55 67 134
-------- -------- --------- ---------
Income before income taxes 635 99 1,093 448
Income tax expense 241 16 415 129
-------- -------- --------- ---------
Net income $ 394 $ 83 $ 678 $ 319
======== ========= ========= =========
Earnings per share (Note 2):
Basic $ 0.70 $ 0.18 $ 1.25 $ 0.69
======== ======== ========= ==========
Diluted $ 0.69 $ 0.18 $ 1.25 $ 0.69
======== ======== ========= =========
See notes to consolidated financial statements.
<PAGE>
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
CONSOLIDATED BALANCE SHEETS
June 30,
1999 December 31,
(Unaudited) 1998
----------- ------------
(in millions)
ASSETS
Current assets:
Cash and cash equivalents $ 1,232 $ 995
Other marketable securities 14 5
----------- ----------
Total cash and marketable securities 1,246 1,000
Accounts receivable, net:
General Motors 4,419 2,236
Other customers 1,490 977
Inventories, net (Note 3) 1,454 1,770
Deferred income taxes 271 285
Prepaid expenses and other assets 77 137
----------- ----------
Total current assets 8,957 6,405
Property, net 4,919 4,965
Deferred income taxes 2,871 2,813
Other assets 1,487 1,323
----------- ----------
Total assets $ 18,234 $ 15,506
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of
long-term debt (Note 4) $ 183 $ 359
Accounts payable 2,703 2,260
Accrued liabilities 1,853 1,438
----------- ----------
Total current liabilities 4,739 4,057
Long-term debt, including intracompany note
payable to General Motors in 1998 (Note 4) 1,647 3,141
Pension benefits (Note 5) 1,763 2,180
Postretirement benefits other than pensions
(Note 5) 4,818 4,573
Other liabilities 1,577 1,546
----------- ----------
Total liabilities 14,544 15,497
Stockholders' equity (Note 6):
Preferred stock, $0.10 par value,
650 million shares authorized, none
outstanding -- --
Common stock, $0.01 par value, 1,350 million
shares authorized, 565 million and 465
million shares outstanding, respectively 6 --
Additional paid in capital 3,233 --
Retained earnings 638 --
General Motors' net investment -- 77
Accumulated translation adjustments (187) (68)
----------- ----------
Total stockholders' equity 3,690 9
----------- ----------
Total liabilities and stockholders' equity $ 18,234 $ 15,506
=========== ==========
See notes to consolidated financial statements.
<PAGE>
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended
June 30,
1999 1998
---- ----
(in millions)
Cash flows from operating activities:
Net income $ 678 $ 319
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 444 483
Changes in operating assets and liabilities:
Accounts receivable, net (4,296) (55)
Inventories, net 316 6
Prepaid expenses and other assets (65) 19
Deferred income taxes 15 90
Accounts payable 443 (525)
Accrued liabilities 385 (178)
Other long-term liabilities (Note 5) (203) (574)
Other (144) 77
------ ------
Net cash used in operating activities (2,427) (338)
------ ------
Cash flows from investing activities:
Capital expenditures (493) (609)
Acquisition of marketable securities (53) (518)
Liquidation of marketable securities 44 517
Other 80 (37)
------ ------
Net cash used in investing activities (422) (647)
------ ------
Cash flows from financing activities:
Proceeds from issuance of common stock (Note 2) 1,621 --
Borrowings from credit facilities and other debt 1,477 --
Proceeds from issuance of debt securities (Note 4) 1,484 --
Repayments of credit facilities and other debt
(Note 4) (1,484) --
Cash effect of assets and liabilities transferred
to General Motors -- 998
------ ------
Net cash provided by financing activities 3,098 998
Effect of exchange rate fluctuations on cash and cash
equivalents (12) (14)
Increase (decrease) in cash and cash equivalents 237 (1)
Cash and cash equivalents at beginning of period 995 989
------ ------
Cash and cash equivalents at end of period $1,232 $ 988
====== ======
See notes to consolidated financial statements.
<PAGE>
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. BACKGROUND
Delphi Automotive Systems Corporation ("Delphi") is the world's largest and
most diversified supplier of automotive components, integrated systems and
modules to the automotive industry. We became an independent company during 1999
through a series of transactions (the "Separation") which are described in
further detail below. We were incorporated in late 1998 as a wholly owned
subsidiary of General Motors Corporation ("General Motors" or "GM"). Prior to
our incorporation we operated our business for several years as a captive
component supplier. The divestiture occurred in two stages, the first of which
involved an offering to the public of 100 million shares of Delphi's $0.01 par
value common stock in February 1999 (the "IPO"). The second stage involved the
distribution of Delphi's remaining shares owned by GM (the "Spin-Off"). To
effect the Spin-Off, a dividend was declared on GM $1-2/3 par value common stock
payable on May 28, 1999 to holders of record as of May 25, 1999. The dividend
resulted in a distribution of about 452.6 million shares, or 80.1%, of Delphi's
outstanding common stock. The remaining 12.4 million shares owned by GM were
contributed on May 28, 1999 to a voluntary employees' beneficiary association
trust for GM's U.S. hourly employees.
2. BASIS OF PRESENTATION
General--The consolidated financial statements and notes thereto included in
this report should be read in conjunction with our consolidated financial
statements and notes thereto included in our 1998 Annual Report on Form 10-K
filed with the Securities and Exchange Commission.
Effective January 1, 1999, the assets and liabilities of the Delphi business
sector were transferred to Delphi and its subsidiaries in accordance with the
terms of a master separation agreement to which Delphi and GM are parties (the
"Separation Agreement"). The consolidated financial statements as of and for the
three and six months ended June 30, 1999 and the December 31, 1998 consolidated
balance sheet give effect to the terms of the Separation Agreement. The
consolidated statements of income for the three and six months ended June 30,
1998 and cash flows for the six months ended June 30, 1998 reflect the
historical results of operations and cash flows of the businesses that were
considered part of GM's Delphi business sector during that period. As a result,
such 1998 financial data do not reflect the many significant changes that
occurred in the operation and funding of Delphi in connection with our
separation from GM and the IPO during 1999.
All intercompany transactions and balances between Delphi businesses have
been eliminated. In the opinion of management, all adjustments, consisting of
only normal recurring items, which are necessary for a fair presentation have
been included. The results for interim periods are not necessarily indicative of
results which may be expected from any other interim period or for the full year
and may not necessarily reflect the consolidated results of operations,
financial position and cash flows of Delphi in the future or that would have
occurred in the past had Delphi been a separate, stand-alone entity during the
periods presented.
1998 Pro Forma Financial Information--For comparative purposes, the following
financial data has been adjusted to give effect to the IPO and the terms of the
Separation Agreement, exclusive of arrangements relating to the transfer of the
assets and liabilities to Delphi, as such terms were considered in preparing the
December 31, 1998 historical consolidated balance sheet.
The pro forma condensed consolidated statement of income data has been
prepared as if our separation from GM and the IPO had taken place on January 1,
1998. The pro forma condensed consolidated balance sheet data has been prepared
as if the transactions described below and the IPO occurred on December 31,
1998. The pro forma condensed statement of income data and consolidated balance
sheet data do not purport to project our financial position or results of
operations for any future date. The pro forma adjustments are based upon
available information and certain assumptions believed to be reasonable. The pro
forma condensed statement of income data and consolidated balance sheet data
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," appearing elsewhere in this
report as well as our Annual Report on Form 10-K for the fiscal year ended
December 31, 1998.
<PAGE>
Unaudited Pro forma Condensed Consolidated Statement of Income
For the Three Months Ended June 30, 1998
Historical Adjustments Pro Forma
---------- ----------- ---------
(in millions)
Net sales $ 7,041 $ 7,041
Less operating expenses:
Cost of sales, excluding items
listed below 6,280 $ (62)(1) 6,218
Selling, general, and
administrative 367 (4)(1)
38 (2) 401
Depreciation and amortization 283 283
-------- ------- --------
Total operating expenses 6,930 (28) 6,902
-------- ------- --------
Operating income 111 28 139
Less interest expense 67 67
Other income, net 55 55
-------- ------- --------
Income before income taxes 99 28 127
Income tax expense 16 10 (3) 26
-------- ------- --------
Net income $ 83 $ 18 $ 101
======== ======= ========
Unaudited Pro forma Condensed Consolidated Statement of Income
For the Six Months Ended June 30, 1998
Historical Adjustments Pro Forma
---------- ----------- ---------
(in millions)
Net sales $ 14,664 $ 14,664
Less operating expenses:
Cost of sales, excluding items
listed below 13,069 $ (124)(1) 12,945
Selling, general, and
administrative 667 (8)(1)
76 (2) 735
Depreciation and amortization 483 483
-------- ------- --------
Total operating expenses 14,219 (56) 14,163
-------- ------- --------
Operating income 445 56 501
Less interest expense 131 131
Other income, net 134 134
-------- ------- --------
Income before income taxes 448 56 504
Income tax expense 129 20 (3) 149
-------- ------- --------
Net income $ 319 $ 36 $ 355
======== ======= ========
<PAGE>
Unaudited Pro Forma Condensed Consolidated Balance Sheet
As of December 31, 1998
ASSETS
Historical Adjustments Pro Forma
---------- ----------- ---------
(in millions)
Current assets:
Cash and marketable securities $ 1,000 $ 1,621 (4)
(2,100)(5)
3,141 (6)
(1,600)(7) $ 2,062
Accounts receivable, net:
General Motors 2,236 2,100 (5)
(1,600)(6)
1,600 (7) 4,336
Other customers 977 977
Inventories, net 1,770 1,770
Deferred income taxes 285 285
Prepaid expenses and other assets 137 137
-------- ------- --------
Total current assets 6,405 3,162 9,567
Property, net 4,965 4,965
Deferred income taxes 2,813 2,813
Other assets 1,323 1,323
-------- ------- --------
Total assets $ 15,506 $ 3,162 $ 18,668
======== ======= ========
LIABILITIES AND EQUITY
Current liabilities:
Notes payable and current
portion of long-term debt $ 359 $ 359
Accounts payable 2,260 2,260
Accrued liabilities 1,438 1,438
-------- ------- --------
Total current liabilities 4,057 4,057
Long-term debt, including
intracompany note payable to
General Motors 3,141 $ (3,141)(6)
3,141 (6) 3,141
Pension benefits 2,180 2,180
Postretirement benefits other
than pensions 4,573 4,573
Other liabilities 1,546 1,546
-------- ------- --------
Total liabilities 15,497 -- 15,497
-------- ------ --------
Equity:
Common stock -- 1 (4)
5 (8) 6
Additional paid in capital -- 1,620 (4)
1,613 (8) 3,233
General Motors' net investment 77 1,541 (6)
(1,618)(8) --
Accumulated translation adjustment (68) -- (68)
-------- ------- --------
Total equity 9 3,162 3,171
-------- ------- --------
Total liabilities and equity $ 15,506 $ 3,162 $ 18,668
========= ======= ========
<PAGE>
The following pro forma adjustments were made to reflect the terms of
the Separation Agreement and the IPO:
(1) Delphi and General Motors have entered into agreements regarding
certain employee benefit obligations. The resulting pro forma
increases (decreases) in pension and other postretirement benefit
costs for the three and six months ended June 30, 1998 are
summarized as follows:
Three Months Six Months
------------ ----------
(in millions)
Pension related costs $ 53 $ 106
Postretirement benefits other
than pension (119) (238)
Total $ (66) $ (132)
====== ======
Portion attributable to cost
of sales $ (62) $ (124)
====== ======
Portion attributable to selling,
general and administrative $ (4) $ (8)
====== ======
(2) Reflects the estimated incremental selling, general and
administrative costs associated with operating Delphi as a
stand-alone publicly traded company. The resulting pro forma
adjustments for the three and six months ended June 30, 1998 are
as follows:
Three Months Six Months
------------ ----------
(in millions)
Incremental insurance and risk
management $ 9 $ 18
Incremental corporate costs* 12 24
Taxes other than income 13 26
Other* 4 8
------ ------
Total $ 38 $ 76
====== ======
*Incremental corporate costs include additional personnel and
systems costs required to operate independently and reflect
transitional service arrangements with General Motors at terms
provided in the Separation Agreement. Other costs include certain
sales tax expenses associated with the Separation.
(3) Income taxes were determined in accordance with the provisions of
SFAS No. 109, "Accounting for Income Taxes." For purposes of this
pro forma presentation, adjustments necessary to record the income
tax effect of the pro forma adjustments assume a combined federal
and state income tax rate of 38%.
(4) Reflects the net proceeds from the sale of 100,000,000 shares of
common stock in the IPO at a price of $17.00 per share. The IPO
proceeds were used for general corporate purposes, including
working capital requirements that were impacted by the change in
General Motors accounts receivable payment terms describe in note
(5) below.
(5) Reflects the change in payment terms for intracompany accounts
receivable from General Motors in accordance with the terms of the
Separation Agreement. Such payment terms, which generally called
for payment in the month following shipment by Delphi, were
modified to require payment by General Motors on the second day of
the second month following shipment by Delphi.
(6) Reflects the settlement of certain intracompany accounts
receivable from GM with the intracompany note payable to GM. On
January 1, 1999, immediately prior to the transactions
contemplated by the Separation Agreement, certain intracompany
accounts receivable from GM, of about $1.6 billion, were settled
with the $3.1 billion outstanding intracompany note payable to
GM with the difference resulting in an increase in GM's net
investment in Delphi.
(7) Reflects the required adjustment, subsequent to the settlement of
intracompany accounts receivable described in note (6) above, to
adjust cash and accounts receivable balances to levels that are
indicative of amounts associated with ongoing operations.
(8) Reflects the adjustment to equity to reclassify GM's net
investment as common stock and additional paid-in capital.
<PAGE>
Earnings Per Share. The historical basic earnings per share amounts were
computed using weighted average shares outstanding for each respective period.
Diluted earnings per share also reflects the weighted average impact of all
potentially dilutive securities during the periods presented unless the
inclusion would have an antidilutive effect. Diluted shares outstanding include
the impact of:
o Dilutive securities issued concurrent with the IPO in February 1999.
o Stock options issued in connection with the concurrent cancellation of GM
stock options held by Delphi employees at the date of the Spin-Off.
For historical computations, dilutive securities are only weighted from the
date of issuance forward. Weighted average shares used in calculating historical
basic and diluted earnings per share were:
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
(in thousands)
Weighted average shares
outstanding 565,000 465,000 542,901 465,000
Effect of dilutive securities 2,013 -- 971 --
------- ------- ------- -------
Diluted shares outstanding 567,013 465,000 543,872 465,000
======= ======= ======= =======
Historical earnings per share for 1998 and the first six months of 1999 do
not reflect the full impact of the IPO in February 1999 or the transactions
resulting from the Spin-Off effective May 28, 1999. For comparative purposes,
management has calculated basic and diluted weighted average shares outstanding
as if shares issued in the IPO were outstanding since January 1, 1998. On this
basis, shares outstanding and the resulting diluted earnings per share, after
considering the pro forma impact of the terms of the Separation, were:
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
(in thousands, except per shar amounts)
Weighted average shares
outstanding 565,000 565,000 565,000 565,000
Effect of dilutive securities 2,013 -- 971 --
------- ------- ------- -------
Diluted shares outstanding 567,013 565,000 565,971 565,000
======= ======= ======= =======
Pro forma diluted earnings
per share $ 0.69 $ 0.18 $ 1.20 $ 0.63
========= ========= ======== =========
3. INVENTORIES, NET
Inventories, net consisted of:
June 30, December 31,
1999 1998
---- ----
(in millions)
Productive material, work-in process
and supplies $ 1,682 $ 1,910
Finished goods 165 253
------- -------
Total inventories at FIFO 1,847 2,163
Less allowances to adjust the
carrying value of certain
inventories to LIFO (393) (393)
------- -------
Total inventories, net $ 1,454 $ 1,770
======= =======
<PAGE>
4. DEBT
On May 4, 1999, we completed a public offering of unsecured term debt
securities totaling $1.5 billion with maturities of five years, ten years and
thirty years. The offering consisted of $500 million of securities bearing
interest at 6.125% and maturing on May 1, 2004, $500 million of securities
bearing interest at 6.50% and maturing on May 1, 2009, and $500 million of
securities bearing interest at 7.125% and maturing on May 1, 2029. We used the
proceeds of the debt offering to refinance amounts previously outstanding under
the long-term portion of our revolving credit facilities. Subsequent to the term
debt offering, the $4.9 billion previously available under our revolving credit
facilities was reduced to $3.0 billion in available funds, generally split
between 364-day and five year tranches. In May 1999, we entered into a
commercial paper program providing up to $1.0 billion of available borrowings.
As of June 30, 1999, no amounts were outstanding under this program.
5. PENSION AND OTHER POSTRETIREMENT BENEFITS
Until May 28, 1999, Delphi's U.S. hourly employees continued to participate
in the defined benefit pension plan and postretirement plans administered by GM.
Effective May 28, 1999, pension and other postretirement obligations under the
GM plans relating to Delphi's U.S. active and inactive employees were assumed by
Delphi plans subject to the provisions described below. The Delphi plans were
established and are being administered under the same terms that existed under
the GM plans. GM's pension plan assets will be divided between the pension
trusts for qualified plans of Delphi and GM so that each plan's trust receives
the legally required amount to meet the requirements set forth in applicable
benefit and tax regulations. Under the terms of the Separation Agreement, GM
will assume responsibility for the pension and postretirement benefit payments
to Delphi's U.S. hourly employees who retire on or before October 1, 1999. In
May 1999, Delphi, GM, and the United Auto Workers Union (UAW) agreed to extend
GM's responsibility to cover Delphi's UAW employees who retire on or before the
later of October 1, 1999 or the expiration of the current UAW National Agreement
between GM and the UAW, including any extensions of the agreement beyond the
current September 14, 1999 expiration date.
On June 14, 1999, we made a $600 million voluntary cash contribution to the
Delphi pension trust to further fund the plan obligations. During the second
quarter of 1998 we contributed $615 million to a Voluntary Employees'
Beneficiary Association (VEBA) trust. The contribution was made in connection
with GM's pre-funding of a portion of its other postretirement employee benefit
liability. In accordance with the terms of the Separation Agreement, GM retained
100% of the pre-funding and, accordingly, our other postretirement employee
benefit liability does not reflect an allocation of the VEBA trust assets.
6. STOCKHOLDERS' EQUITY
Changes in stockholders' equity for the six months ended June 30, 1999
were:
<PAGE>
<TABLE>
<CAPTION>
Additional Accumulated General Total
Common Stock Paid in Retained Translation Motors' net Stockholders'
Shares Amount Capital Earnings Adjustments Investment Equity
------ ------ ------- -------- ----------- ---------- ------
(in millions)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1999 $ (68) $ 77 $ 9
Stock split 465 $ 5 (5) --
Settlement of intracompany balances
(Note 2) 1,541 1,541
Reclassify GM's net investment $ 1,613 (1,613) --
Issuance of common shares 100 1 1,620 1,621
Net income $ 678 678
Dividends declared (40) (40)
Foreign currency translation
adjustments (119) (119)
--- ----- ------- ------ ------- -------- --------
Balance at June 30, 1999 565 $ 6 $ 3,233 $ 638 $ (187) $ -- $ 3,690
=== ===== ======= ====== ======= ======== ========
<PAGE>
</TABLE>
7. SEGMENT REPORTING
Selected information regarding our product sectors is as follows:
<TABLE>
<CAPTION>
Safety
Electronics & Thermal &
Mobile Electrical Dynamics &
Communication Architecture Propulsion Other (a) Total
------------- ------------ ---------- --------- -----
(in millions)
For the Three Months Ended:
June 30, 1999
<S> <C> <C> <C> <C> <C>
Net sales to GM $ 1,118 $ 1,939 $ 2,929 $ -- $ 5,986
Net sales to other customers 192 768 737 -- 1,697
Inter-sector net sales 86 60 4 (150) --
-------- ------- -------- ------ --------
Total net sales $ 1,396 $ 2,767 $ 3,670 $ (150) $ 7,683
======== ======== ======== ====== ========
Operating income $ 180 $ 249 $ 221 $ (21) $ 629
======== ======== ======== ====== ========
June 30, 1998
Net sales to GM $ 915 $ 2,047 $ 2,487 $ -- $ 5,449
Net sales to other customers 157 820 615 -- 1,592
Inter-sector net sales 62 40 2 (104) --
-------- -------- -------- ------ --------
Total net sales $ 1,134 $ 2,907 $ 3,104 $ (104) $ 7,041
======== ======== ======== ====== ========
Operating income (b) $ 54 $ 90 $ 38 $ (71) $ 111
======== ======== ======== ====== ========
Safety
Electronics & Thermal &
Mobile Electrical Dynamics &
Communication Architecture Propulsion Other (a) Total
------------- ------------ ---------- --------- -----
(in millions)
For the Six Months Ended:
June 30, 1999
Net sales to GM $ 2,208 $ 3,876 $ 5,755 $ -- $ 11,839
Net sales to other customers 379 1,491 1,443 -- 3,313
Inter-sector net sales 162 113 6 (281) --
-------- -------- -------- ------ --------
Total net sales $ 2,749 $ 5,480 $ 7,204 $ (281) $ 15,152
======== ======== ======== ====== ========
Operating income $ 338 $ 464 $ 346 $ (62) $ 1,086
======== ======== ======== ====== ========
June 30, 1998
Net sales to GM $ 1,983 $ 4,350 $ 5,221 $ -- $ 11,554
Net sales to other customers 308 1,557 1,245 -- 3,110
Inter-sector net sales 126 90 4 (220) --
-------- -------- -------- ------ --------
Total net sales $ 2,417 $ 5,997 $ 6,470 $ (220) $ 14,664
======== ======== ======== ====== ========
Operating income (b) $ 193 $ 300 $ 111 $ (159) $ 445
======== ======== ======== ====== ========
</TABLE>
(a) Other includes activity not allocated to the product
sectors and the elimination of inter-sector transactions.
(b) 1998 historical operating income does not reflect the
reductions in employee benefit costs and higher other cost
as a result of the Separation Agreement (see Note 2). After
giving effect to the terms of the Separation Agreement our
operating income by product sector would have been (in
millions):
<PAGE>
<TABLE>
<CAPTION>
Safety
Electronics & Thermal &
Mobile Electrical Dynamics &
Communication Architecture Propulsion Other (a) Total
------------- ------------ ---------- --------- -----
<S> <C> <C> <C> <C> <C>
Three months ended
June 30, 1998 $ 44 $ 91 $ 62 $ (58) $ 139
======== ======== ======== ====== ========
Six months ended
June 30, 1998 $ 173 $ 30 $ 159 $ (133) $ 501
======== ======== ======== ====== ========
</TABLE>
<PAGE>
8. COMPREHENSIVE INCOME
Our comprehensive income was:
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
(in millions)
Net income $ 394 $ 83 $ 678 $ 319
Other comprehensive (loss)
income-foreign currency translation
adjustments, net of tax (15) (8) (119) 6
---- ---- ---- -----
Comprehensive income $ 379 $ 75 $ 559 $ 325
===== ==== ===== =====
9. COMMITMENTS AND CONTINGENCIES
Delphi is from time to time subject to various legal actions and claims
incidental to our business, including those arising out of alleged defects,
breach of contracts, product warranties, employment-related matters and
environmental matters. Litigation is subject to many uncertainties, and the
outcome of individual litigated matters is not predictable with assurance. After
discussions with counsel, it is the opinion of management that the outcome of
such matters will not have a material adverse impact on our business or
consolidated financial position.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
It was another exciting quarter for Delphi as we continued to build on our
first quarter 1999 success. Our spin-off from General Motors was completed and
we realized our goal of independence on May 28, 1999. In addition, we posted
strong operating results during the second quarter of 1999 and we continued to
generate strong cash flow. Our strong cash flows have allowed us to pursue our
pension funding objectives while continuing to realize our growth initiatives
and meet our dividend commitments. In June 1999, we made a $600 million
voluntary cash contribution to the Delphi hourly pension plan and declared a
dividend of $0.07 per share payable in July. Our customers continue to
demonstrate their acceptance of products from an independent Delphi as evidenced
by our recently awarded contracts with Nissan, Ford, and Mack Trucks, to name a
few.
In summary, we believe we are on track to achieve our business objectives
while continuing to focus on the needs and expectations of our customers.
Results of Operations
The following management's discussion and analysis of financial condition and
results of operations (MD&A) should be read in conjunction with the MD&A
included in our Annual Report on Form 10-K for the fiscal year ended December
31, 1998 and the 1998 pro forma financial information included in Note 2 to the
June 30, 1999 financial statements.
Three Months Ended June 30, 1999 versus Three Months Ended June 30, 1998
Net Sales. Consolidated net sales and changes in net sales by product sector
for the three months ended June 30, 1999 and 1998 were:
<TABLE>
<CAPTION>
Three Months Ended
June 30, Change
-------- ------
1999 1998 $ %
---- ---- --- ---
(dollars in millions)
<S> <C> <C> <C> <C>
Electronics & Mobile Communication $ 1,396 $ 1,134 $ 262 23.1%
Safety, Thermal & Electrical Architecture 2,767 2,907 (140) (4.8)
Dynamics & Propulsion 3,670 3,104 566 18.2
Eliminations (150) (104) (46) n/a
------- ------- ----- -----
Consolidated net sales $ 7,683 $ 7,041 $ 642 9.1%
======= ======= ===== =====
</TABLE>
Net sales for the second quarter of 1999 increased $642 million over the
comparable period of 1998 and increased $214 million over the first quarter of
1999. Our increased net sales reflect continued growth in revenue from ongoing
operations, strong North American sales volume and the impact of work stoppages
at certain GM and Delphi locations during the second quarter of 1998. Increases
in net sales compared to 1998 were partially offset by the impact of businesses
divested in late 1998, which had average annual sales of about $2.0 billion, and
continued price pressures. After adjusting to eliminate the 1998 sales of
divested businesses, our consolidated net sales for the second quarter of 1999
increased about 16.8% over the comparable period of 1998. Our non-GM sales for
the second quarter of 1999 increased about 11.4% over the comparable period of
1998, after adjusting to eliminate the 1998 sales of divested businesses. The
sale of our seating, lighting, coil spring and several smaller businesses during
late 1998 primarily impacted our Safety, Thermal and Electrical Architecture
product sector. Price reductions totaling about $126 million for the second
quarter, or 1.6% of net sales, impacted all of our product sectors.
<PAGE>
Operating Income. Operating income was $629 million for the second quarter of
1999 compared to operating income of $111 million for the second quarter of 1998
and $457 million for the first quarter of 1999. Our reported operating income
for 1998 does not reflect the reductions in employee benefit costs and higher
other costs as a result of our separation agreement with GM (the "Separation
Agreement"). After giving effect to the terms of the Separation Agreement (see
Note 2 to our financial statements), our operating income by product sector for
the three months ended June 30, 1999 and 1998 was:
<TABLE>
<CAPTION>
Three Months Ended
June 30, Change
-------- ------
Pro Forma
1999 1998 $ %
---- ---- --- ---
(dollars in millions)
<S> <C> <C> <C> <C>
Electronics & Mobile Communication $ 180 $ 44 $ 136 309.1%
Safety, Thermal & Electrical Architecture 249 91 158 173.6
Dynamics & Propulsion 221 62 159 256.5
Other (21) (58) 37 n/a
------ ------ ------ -----
Total operating income $ 629 $ 139 $ 490 352.5%
====== ====== ====== =====
</TABLE>
The strong improvement in second quarter 1999 operating income reflects
increased volumes due to a strong North American market and the impact of work
stoppages at certain GM and Delphi locations during the second quarter of 1998.
The improvement also reflects the results of our continuing cost reduction
efforts and lean manufacturing initiatives that are being implemented in
response to industry pricing pressures. Our gross margin was 16.0% for the three
months ended June 30, 1999 compared to a pro forma gross margin of 11.7% for the
comparable period of 1998. Selling, general and administrative expenses during
the second quarter of 1999 decreased slightly compared to pro forma 1998 amounts
while depreciation and amortization expense decreased by $76 million. The
decrease in depreciation and amortization reflects reductions in expense due to
the asset impairment charges recognized in 1998, businesses divested during 1998
and the timing of various capital projects beginning in the second quarter of
1998.
Net Income. Net income totaled $394 million for the second quarter of 1999
compared to historical net income of $83 million for the second quarter of 1998
and $284 million for the first quarter of 1999. For comparative purposes, after
giving effect to the terms of the Separation Agreement, our pro forma net income
for the three months ended June 30, 1998 would have been $101 million. Interest
expense decreased by $31 million due to lower 1999 average outstanding debt
balances and favorable interest rates compared to 1998. Our lower debt balances
reflect the impact of strong cash flows during 1999. Our effective income tax
rate increased to 38% for the second quarter of 1999 compared to a pro forma
effective rate of 20% during the comparable period of 1998. The increased
effective income tax rate primarily reflects the impact of our separation from
GM and the resulting loss of certain tax credits which were previously available
to us.
Earnings per share. Earnings per share calculations are complicated by the
changes in shares outstanding related to the steps involved in our separation
from GM. Currently, we have 565 million shares outstanding, consisting of the
100 million shares issued in our initial public offering in February 1999 and
465 million shares previously owned by GM. In connection with of the Spin-Off,
stock options held by Delphi employees on shares of GM common stock were
converted to equivalent stock options on Delphi common stock as of May 28, 1999.
Under generally accepted accounting principles, the shares issued in our IPO and
dilution associated with the converted options are excluded from the 1998
calculation of earnings per share and only included in the 1999 calculation for
the period of time outstanding. This results in historical diluted earnings per
share of $0.69 and $0.18 for the three months ended June 30, 1999 and 1998,
respectively.
Because of the change in outstanding shares since 1998 resulting from the
steps involved in our separation from GM, we believe that the current number of
shares outstanding, 565 million, will be widely used in computing our earnings
per share for comparative purposes. On this comparable basis, after giving
effect to the terms of the Separation Agreement, our pro forma diluted earnings
per share would remain at $0.18 for the three months ended June 30, 1998. See
Note 2 to our consolidated financial statements for additional information.
Six Months Ended June 30, 1999 versus Six Months Ended June 30, 1998
Net Sales. Consolidated net sales and changes in net sales by product sector
for the six months ended June 30, 1999 and 1998 were:
<TABLE>
<CAPTION>
Six Months Ended
June 30, Change
Product Sector 1999 1998 $ %
-------------- ---- ---- --- ---
(dollars in millions)
<S> <C> <C> <C> <C>
Electronics & Mobile Communication $ 2,749 $ 2,417 $ 332 13.7%
Safety, Thermal & Electrical Architecture 5,480 5,997 (517) (8.6)
Dynamics & Propulsion 7,204 6,470 734 11.3
Eliminations (281) (220) (61) n/a
-------- -------- ------ ---
Consolidated net sales $ 15,152 $ 14,664 $ 488 3.3%
======== ======== ====== ====
</TABLE>
The increase in net sales for the first six months of 1999 compared to 1998
reflects strong North American sales volumes partially due to work stoppages at
certain GM and Delphi locations during the second quarter of 1998. Volume
improvements over 1998 were partially offset by the impact of businesses
divested during 1998. After adjusting to eliminate 1998 sales from our divested
businesses, our 1999 year to date net sales increased 10.5% and year to date
sales to non-GM customers increased 11.6% over the comparable period of 1998.
Volume improvements over 1998 were also partially offset by continued price
reductions, which totaled $229 million, or 1.5% of net sales, for the first six
months of 1999.
Operating Income. Operating income was $1.1 billion for the first six
months of 1999 compared to operating income of $445 million for the first six
months of 1998. After giving effect to the terms of the Separation Agreement
(see Note 2 to our financial statements), our operating income by product
sector for the six months ended June 30, 1999 and 1998 was:
<TABLE>
<CAPTION>
Six Months Ended
June 30, Change
Pro Forma
Product Sector 1999 1998 $ %
-------------- ---- ---- --- ---
(dollars in millions)
<S> <C> <C> <C> <C>
Electronics & Mobile Communication $ 338 $ 173 $ 165 95.4%
Safety, Thermal & Electrical Architecture 464 302 162 53.6
Dynamics & Propulsion 346 159 187 117.6
Other (62) (133) 71 n/a
-------- ------ ------ -----
Total operating income $ 1,086 $ 501 $ 585 116.8%
======== ====== ====== =====
</TABLE>
Operating income for the first six months of 1999 increased $585 million over
the comparable period of 1998 reflecting strong volume growth, partially due to
work stoppages that impacted the second quarter of 1998, and the results of our
continuing cost reduction efforts and lean manufacturing initiatives that are
being implemented in response to industry pricing pressures. Our gross margin
was 15.2% for the first six months of 1999 compared to a pro forma gross margin
of 11.7% for the comparable period of 1998. Gross margin improvements were
partially offset by increased selling, general and administrative expenses due
to incremental costs required as a result of our efforts to pursue business with
non-GM customers and expand our global operations. Depreciation and amortization
expense for 1999 improved over 1998 reflecting reductions in expense due to the
asset impairment charge recognized in 1998 and businesses divested during 1998.
<PAGE>
Net Income. Net income for the first six months of 1999 was $678 million
compared to historical net income of $319 million for the first six months of
1998. For comparative purposes, after giving effect to the terms of the
Separation Agreement, our pro forma net income for the first six months of 1998
was $355 million. Interest expense decreased by $71 million as strong 1999 cash
flows reduced our average outstanding debt balances and interest rates were
favorable compared to 1998. Our effective income tax rate increased to 38% for
the first six months of 1999 compared to a pro forma effective rate of 30%
during the comparable period of 1998. The increased effective income tax rate
primarily reflects the impact of our separation from GM and the resulting loss
of certain tax credits which were previously available to us.
Earnings per share. Historical diluted earnings per share for the six months
ended June 30, 1999 were $1.25 compared to historical diluted earnings per share
of $0.69 for the six months ended June 30, 1998. For comparative purposes,
assuming the 100 million shares issued in our IPO were outstanding since January
1, 1998 and after giving effect to the terms of the Separation Agreement, our
earnings per share would have been $1.20 for the first half of 1999 compared to
$0.63 for the first half of 1998.
Liquidity and Capital Resources
Liquidity
Our net liquidity, measured as cash and marketable securities less total
debt, was $(0.6) billion at June 30, 1999 compared to $(2.5) billion at December
31, 1998. The ratio of our total debt to total capital, which consists of total
debt plus stockholders' equity, was 33% at June 30, 1999 and 100% at December
31, 1998. If our Separation from GM and the IPO had occurred on December 31,
1998, our pro forma net liquidity and ratio of total debt to total capital would
have been $(1.4) billion and 52% at December 31, 1998, respectively. The
improvements in our net liquidity and ratio of total debt to total capital,
after adjusting for the impact of the Separation Agreement and our initial
public offering, resulted from strong cash flows generated during the first half
of 1999. See "--Liquidity and Capital Resources--Cash Flows". As a result of our
strong cash flows, our Board of Directors approved a treasury stock program to
purchase up to 19 million shares of Delphi common stock from time to time to
pre-fund the requirements of incentive, stock option and stock purchase plans
over the next 12 months. Further, we expect that our improved net liquidity
position will allow for continuing pursuit of our objectives for pension
funding, while preserving flexibility for strategic growth initiatives.
Extension of Payment Terms
In accordance with our supply agreement with GM, effective January 1, 1999,
payment terms for our accounts receivable were modified such that payments are
generally due to us on the second day of the second month following the date of
shipment. These modified payment terms are consistent with those GM is currently
in the process of introducing to all of its suppliers. Previous payment terms
generally required GM to make accounts receivable payments in the month
following shipment by Delphi. Overall, the change in payment terms increased
accounts receivable by about $2.1 billion in 1999. While we are seeking an
extension of payment terms with our suppliers over time, we generally pay
suppliers on the 25th day of the month following the date a shipment is
received. The difference in the terms for accounts receivable and accounts
payable results in a monthly short-term cash flow gap. During the first half of
1999, we financed the short-term cash-flow gap, as needed, with available third
party borrowings. See "--Liquidity and Capital Resources--Cash Flows--Operating
Activities".
Debt Capitalization and Available Financing Sources
Immediately prior to the transactions contemplated by the Separation
Agreement, approximately $1.6 billion of certain intracompany accounts
receivable from GM were offset with a $3.1 billion outstanding intracompany note
payable to GM with the difference resulting in an increase in GM's net
investment in Delphi.
In January 1999, we entered into two financing arrangements with a syndicate
of lenders providing for an aggregate of $4.9 billion in available revolving
credit facilities. In general, the facilities provided up to $4.9 billion of
available credit to be used for general corporate purposes through January 3,
2000, after which $1.5 billion would be available through January 3, 2004. On
May 4, 1999, we completed a public offering of unsecured term debt securities
totaling $1.5 billion in equal five year, ten year and thirty year tranches. The
proceeds were used to refinance amounts previously outstanding under the
long-term portion of our revolving credit facilities. Subsequent to the
unsecured debt issuance, the $4.9 billion previously available under our
revolving credit facilities was reduced to $3.0 billion in available funds,
generally split between 364-day and five year tranches. See Note 4 to our
consolidated financial statements for additional information. In May 1999, we
entered into a commercial paper program providing up to $1.0 billion of
available borrowings. As of June 30, 1999, we had no amounts outstanding under
our revolving credit facilities or commercial paper program.
Cash Flows
Operating Activities. Net cash used in operating activities was $2.4
billion and $338 million for the six months ended June 30, 1999 and 1998,
respectively. The use of cash during 1999 reflects the settlement of certain
accounts receivable with GM and the change in payments terms in accordance with
the terms of the Separation Agreement. Net cash provided by operating activities
for 1999, excluding the impact of the settlement of accounts receivable and
change in payment terms, would have been $1.3 billion. Cash generated during the
first half of 1999 reflects our strong earnings, reductions in inventory levels
resulting from our lean manufacturing initiatives and the timing of payments for
accounts payable and certain accrued expenses. These favorable cash flows were
partially offset by a $600 million voluntary pension contribution made in June
1999. In response to the change in accounts receivable payment terms as a result
of the Separation Agreement, we have successfully extended payment terms with
many of our suppliers. We expect to continue to negotiate these extended terms
with our suppliers over time.
Investing Activities. Cash flows used in investing activities totaled $422
million and $647 million for the six months ended June 30, 1999 and 1998,
respectively. Cash used in investing activities primarily relates to our capital
expenditure program. The decrease in cash used in investing activities primarily
reflects differences in the timing of project spending for new product programs.
Financing Activities. Net cash provided by financing activities was $3.1
billion and $1.0 billion for the six months ended June 30, 1999 and 1998,
respectively. Cash provided by financing activities for the first six months of
1999 include the proceeds from our initial public offering in February 1999 and
the proceeds from our public offering of unsecured term debt securities in May
1999. The proceeds from our initial public offering were used for general
corporate purposes, including working capital requirements which were initially
impacted by the change in General Motors accounts receivable payment terms
described above. The proceeds from our debt offering were used to refinance
amounts previously borrowed under our revolving credit facilities.
Dividends. On June 9, 1999, the Delphi Board declared a quarterly dividend on
Delphi common stock, payable on July 20, 1999 to holders of record as of June
21, 1999.
Our Other Postretirement Employee Benefits and Pension Obligations
Until May 28, 1999, Delphi's U.S. hourly employees continued to participate
in the defined benefit pension plan and postretirement plans administered by GM.
Effective May 28, 1999, pension and other postretirement obligations under the
GM plans relating to Delphi's U.S. active and inactive employees were assumed by
Delphi plans subject to the provisions described below. The Delphi plans were
established and are being administered under the same terms that existed under
the GM plans. GM's pension plan assets will be divided between the pension
trusts for qualified plans of Delphi and GM so that each plan's trust receives
the legally required amount to meet the requirements set forth in applicable
benefit and tax regulations. Under the terms of the Separation Agreement, GM
will assume responsibility for the pension and postretirement benefit payments
to Delphi's U.S. hourly employees who retire on or before October 1, 1999. In
May 1999, Delphi, GM, and the United Auto Workers Union (UAW) agreed to extend
GM's responsibility to cover Delphi's UAW employees who retire on or before the
later of October 1, 1999 or the expiration of the current UAW National Agreement
between GM and the UAW, including any extensions of the agreement beyond the
current September 14, 1999 expiration date.
As part of our capital planning process, we may make voluntary contributions
to our hourly pension plan in excess of federal regulatory minimum requirements
to improve the funded status of our pension plans. In this regard, on June 14,
1999, we made a $600 million voluntary cash contribution to the newly
established Delphi hourly pension plan. Our intent continues to be to fully fund
our current hourly pension benefits over the next few years on an economic
basis.
<PAGE>
Year 2000
During the second quarter of 1999 we continued our efforts to minimize the
risk of disruption from the Year 2000 issue. Our overall plan to address the
Year 2000 problem is described more fully in our 1998 Annual Report on Form
10-K, and the following is an update of the information included therein. We
have substantially completed the remediation, testing and implementation of our
critical systems. During the second quarter, we continued to address the
remediation of other systems on a prioritized basis, including implementation of
new enterprise software to address Year 2000 issues. The enterprise software
implementation was successfully completed during the second quarter of 1999. We
have continued to work with our suppliers and GM in our supplier assessment
program including our own on-site review of suppliers considered to be critical
to Delphi. These supplier assessment efforts have been substantially completed
with respect to our critical supplier sites. We also expect that our contingency
planning efforts will address any critical suppliers that we still identify as
being at high risk of encountering Year 2000 problems upon completion of the
supplier assistance program.
The cost of our Year 2000 program is being expensed as incurred with the
exception of capitalizable replacement hardware and computer software costs
developed for internal use. Total incremental spending by Delphi is not expected
to be material to our company's operations, liquidity or capital resources. We
incurred about $12 million of Year 2000 expenses during the second quarter of
1999. Delphi currently expects its total Year 2000 spending to be about $104
million, which will be funded from operations.
We do not currently anticipate that we will experience a significant
disruption of our business as a result of the Year 2000 issue. However, there is
still uncertainty about the broader scope of the Year 2000 issue as it may
affect Delphi and third parties, including our customers, that are critical to
Delphi's operations. If we are unable to complete our remedial actions as
described above and are unable to implement adequate contingency plans in the
event that problems are encountered, there could be a material adverse effect on
our business, results of operations or financial condition.
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. Delphi
and its representatives may periodically make written or oral statements that
are "forward-looking," including statements included in this report and other
filings with the Securities and Exchange Commission and in reports to our
stockholders. 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.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are involved in routine litigation incidental to the conduct of our
business. We do not believe that any of the litigation to which we are currently
a party will have a material adverse effect on our business or financial
condition.
ITEM 5. OTHER INFORMATION
Shareholders' proposals intended to be presented at the 2000 Annual Meeting
of Stockholders must be received between the close of business on November 2,
1999 and the close of business on December 2, 1999, for inclusion in the
Company's proxy statement and form of proxy for that meeting. Any such proposal
should be mailed to the attention of the Corporate Secretary.
Attached, as Exhibit 99 to the Form 10-Q, is the Company's press release
dated July 19, 1999 regarding second quarter 1999 earnings which is incorporated
herein.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit
Number Exhibit Name Page No.
4.1 Instruments defining the rights of holders of debt of the
registrant have been omitted from this exhibit index
because the amount of debt authorized under any such
instrument does not exceed 10% of the total assets of
the registrant and its subsidiaries. The registrant agrees
to furnish a copy of any such instrument to the Commission
upon request.
27 Financial data schedule (for SEC information only) n/a
99 Press release dated July 19, 1999 regarding quarterly earnings n/a
(b) REPORTS ON FORM 8-K
The following reports on Form 8-K were filed during the quarter ended June 30,
1999 reporting matters under Item 5, Other Events:
April 12, 1999
Reporting that the Company had issued a press release stating that GM's board
of directors approved complete separation of Delphi from GM.
April 15, 1999
Reporting that the Company had issued a press release with earnings for the
three months ended March 31, 1999.
April 28, 1999
Filing certain documents related to the Company's term debt offering.
May 28, 1999
Reporting that the Company had issued a press release stating that Delphi was
fully divested from GM, and that, as a result, GM executives had resigned
from Delphi's Board of Directors.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
(Registrant)
July 19, 1999 /s/ Paul R. Free
- ------------- ------------------------------
Paul R. Free, Chief Accounting
Officer and Controller
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Delphi
Automotive Systems June 30, 1999 Consolidated Financial Statements and is
qualified in its entirety by reference to the Second QTR 1999 Form 10-Q.
</LEGEND>
<CIK> 0001072342
<NAME> Delphi Automotive Systems
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 1,232
<SECURITIES> 14
<RECEIVABLES> 5,909
<ALLOWANCES> 20
<INVENTORY> 1,454
<CURRENT-ASSETS> 8,957
<PP&E> 13,018
<DEPRECIATION> 8,099
<TOTAL-ASSETS> 18,234
<CURRENT-LIABILITIES> 4,739
<BONDS> 1,647
0
0
<COMMON> 6
<OTHER-SE> 3,684
<TOTAL-LIABILITY-AND-EQUITY> 18,234
<SALES> 7,683
<TOTAL-REVENUES> 7,683
<CGS> 6,453
<TOTAL-COSTS> 7,054
<OTHER-EXPENSES> (42)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36
<INCOME-PRETAX> 635
<INCOME-TAX> 241
<INCOME-CONTINUING> 394
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 394
<EPS-BASIC> 0.70
<EPS-DILUTED> 0.69
</TABLE>
DELPHI'S ROBUST SECOND QUARTER RESULTS
DRIVEN BY STRONG VOLUMES AND AGGRESSIVE PORTFOLIO MANAGEMENT
Earnings Per Share Climb 283 Percent - In Line With Expectations
Significant Cash Generation Continues
TROY, MICH. - Driven by strong revenue growth, the favorable impact of
the strategic sale of underperforming assets in 1998, and continuing significant
cash flow, Delphi Automotive Systems today reported second quarter earnings of
$394 million, or $0.69 per share on a fully diluted basis*.
"Growth in sales to all customers, coupled with the results from our
aggressive portfolio management, generated significant value to our
shareholders," said J.T. Battenberg III, Delphi's chairman, chief executive
officer and president. "The results from our second quarter validate our plan to
grow profitability by reducing costs and diversifying our customer base."
The results represent an increase of 290 percent over pro forma,
strike-impacted, second quarter 1998 earnings of $101 million,** and a 283
percent increase over pro forma 1998 second quarter diluted earnings per share
of $0.18**.
Sales revenue climbed 17 percent over 1998 strike-impacted levels, from
$6.6 billion to $7.7 billion, after adjusting for the impact of businesses
divested in late 1998 (divested businesses had average annual sales of about $2
billion).
* Delphi CFO Alan Dawes will host a media conference call to discuss earnings
beginning at 10:15 a.m. today. See bottom of release for details.
**See attached highlights for description of 1998 pro forma net income and 1998
shares outstanding calculations.
- - more -
<PAGE>
Sales to customers other than General Motors Corp. (GM) increased $174
million, or 11.4 percent, from $1.523 billion in the second quarter of 1998
(excluding the impact of divestitures) to $1.697 billion during the comparable
period in 1999. This is the second consecutive quarter where the company has
exceeded the stated goal of a 10 percent annual increase in non-GM sales growth.
Sales to GM rose 18.4 percent (adjusted for the impact of divestitures) from
strike depressed 1998 levels.
Cash Generation Enhances Capital Structure
Delphi generated $751 million in operating cash during the quarter,
resulting from working capital improvements, timing of capital expenditures, and
strong profitability.
This strong year-to-date cash flow provided Delphi the flexibility to
make a $600 million voluntary contribution to its hourly pension fund on June
14, while improving its overall liquidity position. Additionally, the Delphi
Board of Directors on June 9 declared a quarterly dividend on Delphi $0.01 par
value common stock of $0.07 per share. The dividend - Delphi's first - is
payable July 20, 1999 to shareholders of record as of June 21, 1999.
Taking into account the strong cash flow during the quarter, Delphi's
Board of Directors approved a treasury stock program to purchase up to 19
million shares of Delphi Common Stock from time to time to pre-fund the
requirements of employee incentive, stock option and stock purchase plans over
the next 12 months.
New Business
Booked business for the six-month period ending June 30, 1999, totaled
$15 billion over an average 5-year contract life. The impact of these sales will
be reflected in the revenue base from 2001 forward. Contracts signed during the
quarter include significant expansion of business with Nissan Motor Co., Ltd.,
which awarded Delphi a contract to provide STEER-LITETM lightweight integral
steering gears for all Nissan trucks, including the Nissan Frontier and Xterra
sport utility vehicles, beginning with Nissan's 2000 model year.
- more -
Additional agreements - among others* - signed during the quarter
include:
o A contract with Ford Motor Company to serve as the electrical/electronic
vehicle system integrator for a future Ford vehicle.
o The award of 21 occupant protection system contracts totaling over $750
million, and the expansion of five existing contracts to incorporate
Delphi's Adaptive Restraint TechnologiesTM or "smart" airbag technology.
o A contract with Ferrari to provide complete HVAC responsibility on the
new 360 Modena model.
o A contract to provide wiring for Mack Trucks, Inc.'s entire fleet of Clas
8 heavy-duty trucks.
o The $28 million award of new contracts to supply brake and suspension
components, modules and systems to two vehicle manufacturers in the Asian
markets and one in Europe.
o A contract to supply complete thermal management systems for a vehicle
program Daewoo Motor Polska Corporation will build in Europe.
*Delphi respects customer confidentiality, and therefore does not disclose all
contracts received. Unless Delphi receives customer permission, it does not
discuss customer business information with any external audience.
Delphi Independence
On May 28, GM completed the full separation of Delphi via a spin-off of
452.6 million Delphi shares to GM stockholders, and the contribution of another
12.4 million shares to a GM retiree benefit trust. In the $9.3 billion tax-free
distribution, GM stockholders received about 0.70 Delphi shares for each GM
common share they owned. Following the spin-off, all GM executives resigned from
Delphi's Board of Directors. Also, Thomas G. Labrecque, former chairman of The
Chase Manhattan Corporation, joined the board effective July 15, 1999.
During the quarter, Delphi stock was added to the Standard & Poor's
500, the Russell 1000 and 3000, and the Wilshire 5000 indices.
- more -
<PAGE>
Sector Financial Results ($ millions)
<TABLE>
<CAPTION>
Q2 1998
Q2 1999 Q2 1998 Q2 1999 (Pro-Forma Basis)
Sector Sales Sales Operating Income Operating Income
------ ------- ------- ---------------- ----------------
<S> <C> <C> <C> <C>
Electronics & Mobile
Communication $ 1,396 $ 1,134 $ 180 $ 44
Safety, Thermal & Electrical
Architecture 2,767 2,907 249 91
Dynamics & Propulsion 3,670 3,104 221 62
Other* (150) (104) (21) (58)
Sales, Divested Business - (463) - -
------- ------- ----- -----
Total $ 7,683 $ 6,578 $ 629 $ 139
======= ======= ===== =====
*Corporate and intra-company items
</TABLE>
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 Communications - provide comprehensive
product 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 36 countries.
Regional headquarters are located in Paris, Tokyo and Sao Paulo. Delphi can be
found on the Internet at http://www.delphiauto.com. HIGHLIGHTS ATTACHED
- more -
<PAGE>
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.
Media Conference Call
Delphi Chief Financial Officer Alan Dawes will host a media conference call to
discuss Delphi's earnings from 10:15-11:00 a.m. EDT the same day. The call will
include remarks by Dawes followed by an opportunity for participants to ask
questions. North American media, including Canada and Mexico, should call (800)
374-2370 to participate. A replay of the call will be available from 12:30 p.m.
EDT on July 19 to 12:30 p.m. EDT on July 20. To listen to the replay, members of
the press calling from North America should call (800) 642-1687 and, when
prompted, enter the conference identification number, 442973.
<PAGE>
-6-
HIGHLIGHTS - Three months ended June 30, 1999 vs. pro forma three
months ended June 30, 1998 comparison
<TABLE>
<CAPTION>
Three Months Ended
June 30,
1999 1998 (1)
---- --------
(in millions, except per share
amounts)
Net sales:
<S> <C> <C>
General Motors....................... $ 5,986 $ 5,449
Other customers...................... 1,697 1,592
------- -------
Total net sales.................... 7,683 7,041
Less operating expenses:
Cost of sales, excluding items listed below 6,453 6,218
Selling, general and administrative.. 394 401
Depreciation and amortization........ 207 283
------- -------
Operating income ...................... 629 139
Less interest expense.................. 36 67
Other income, net ..................... 42 55
------- -------
Income before income taxes............. 635 127
Income tax expense .................... 241 26
------- -------
Net income ............................ $ 394 $ 101
====== =======
Gross margin 16.0% 11.7%
Operating income margin 8.2% 2.0%
Net income margin 5.1% 1.4%
.............................................................................................
Diluted earnings per share (2) $ 0.69 $ 0.18
======= ========
.............................................................................................
</TABLE>
(1)Results of operations for the three months ended June 30, 1998 have
been adjusted to reflect the impact of the terms of our separation
from GM. Overall the adjusted results reflect the net effect of 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 June 30, 1999
for additional information.
(2)Diluted earnings per share are presented as if the initial public
stock offering (IPO) of 100 million shares took place on January 1,
1998, resulting in 567 million and 565 million diluted shares
outstanding during the three months ended June 30, 1999 and 1998,
respectively.
-7 -
HIGHLIGHTS - Three months ended June 30, 1998 -
Reconciliation of actual to pro forma results
<TABLE>
<CAPTION>
Three Months Ended June 30, 1998
Actual Adjustments Pro forma
------ ----------- ---------
(in millions, except per share amounts)
Net sales:
<S> <C> <C>
General Motors....................... $ 5,449 $ 5,449
Other customers...................... 1,592 1,592
------- -------
Total net sales.................... 7,041 7,041
Less operating expenses:
Cost of sales, excluding items listed below 6,280 $ (62) (1) 6,218
Selling, general and administrative.. 367 34 (1) 401
Depreciation and amortization........ 283 283
------- ------- -------
Operating income ...................... 111 28 139
Less interest expense................... 67 67
Other income, net ..................... 55 55
------- ------- -------
Income before income taxes............. 99 28 127
Income tax expense .................... 16 10 (2) 26
------- ------- -------
Net income ............................ $ 83 $ 18 $ 101
======= ======= =======
..........................................................................................
Diluted earnings per share with 465 million
shares outstanding (3)............... $ 0.18 N/A
=======
Diluted earnings per share with 565 million
shares outstanding (3)............... N/A $ 0.18
=======
</TABLE>
................................................................................
(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)Currently, Delphi has 565 million shares outstanding reflecting 100
million shares issued in the IPO in February 1999 and 465 million
shares previously outstanding. Under Generally Accepted Accounting
Principles (GAAP) the shares issued in connection with the IPO would
be excluded from the 1998 earnings per share calculation, resulting in
the use of 465 million shares. For comparative purposes, 1998 earnings
per share are calculated as if the IPO took place on January 1, 1998,
resulting in 565 million shares outstanding.
-8-
HIGHLIGHTS - Six months ended June 30, 1999 vs. pro forma six
months ended June 30, 1998 comparison
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1999 1998 (1)
---- --------
(in millions, except per share
amounts)
Net sales:
<S> <C> <C>
General Motors....................... $ 11,839 $ 11,554
Other customers...................... 3,313 3,110
-------- --------
Total net sales.................... 15,152 14,664
Less operating expenses:
Cost of sales, excluding items listed below 12,844 12,945
Selling, general and administrative.. 778 735
Depreciation and amortization........ 444 483
-------- --------
Operating income ...................... 1,086 501
Less interest expense.................. 60 131
Other income, net ..................... 67 134
-------- --------
Income before income taxes............. 1,093 504
Income tax expense .................... 415 149
-------- --------
Net income ............................ $ 678 $ 355
======== ========
Gross margin 15.2% 11.7%
Operating income margin 7.2% 3.4%
Net income margin 4.5% 2.4%
...................................................................................................
Diluted earnings per
share - actual (2) $ 1.25 N/A
=========
Diluted earnings per
share - pro forma (3) $ 1.20 $ 0.63
========= ========
...................................................................................................
</TABLE>
(1)Results of operations for the six months ended June 30, 1998 have been
adjusted to reflect the impact of the terms of our separation from GM.
Overall the adjusted results reflect the net effect of 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 six months ended June 30, 1998 for additional
information.
(2)Actual diluted earnings per share are calculated using the weighted
average shares outstanding during the period, resulting in 544 million
diluted shares outstanding during the six months ended June 30, 1999.
(3)Pro forma diluted earnings per share are presented as if the IPO of
100 million shares took place on January 1, 1998, resulting in 566
million and 565 million diluted shares outstanding for the six month
periods ended June 30, 1999 and 1998, respectively.
-9-
HIGHLIGHTS - Six months ended June 30, 1998 - Reconciliation of actual
to pro forma results
<TABLE>
<CAPTION>
Six Months Ended June 30, 1998
Actual Adjustments Pro forma
(in millions, except per share amounts)
Net sales:
<S> <C> <C>
General Motors....................... $11,554 $11,554
Other customers...................... 3,110 3,110
------- -------
Total net sales.................... 14,664 14,664
Less operating expenses:
Cost of sales, excluding items listed below 13,069 $ (124) (1) 12,945
Selling, general and administrative.. 667 68 (1) 735
Depreciation and amortization........ 483 483
------- ------- -------
Operating income ...................... 445 56 501
Less interest expense.................. 131 131
Other income, net ..................... 134 134
------- ------- -------
Income before income taxes............. 448 56 504
Income tax expense .................... 129 20 (2) 149
------- ------- -------
Net income ............................ $ 319 $ 36 $ 355
======= ======= =======
.............................................................................................
Diluted earnings per share with 465 million
shares outstanding (3)............... $ 0.69 N/A
=======
Diluted earnings per share with 565 million
shares outstanding (3)............... N/A $ 0.63
=======
.....................................................................................................
</TABLE>
(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)Currently, Delphi has 565 million shares outstanding reflecting 100
million shares issued in the IPO in February 1999 and 465 million
shares previously outstanding. Under GAAP the shares issued in
connection with the IPO would be excluded from the 1998 earnings per
share calculation, resulting in the use of 465 million shares. For
comparative purposes, 1998 earnings per share are calculated as if the
IPO took place on January 1, 1998, resulting in 565 million shares
outstanding.
<PAGE>
-10-
HIGHLIGHTS - Liquidity and capital resources (dollars in millions)
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
June 30, 1999 March 31, 1999 December 31, 1998
Actual Actual Pro forma
------ ------ ---------
<S> <C> <C> <C>
Cash and marketable securities.................. $ 1,246 $ 1,134 $ 2,062
Debt............................................ 1,830 1,886 3,500
------- ------- --------
Net Liquidity................................. $ (584) $ (752) $ (1,438)
======= ======= ========
Pension obligations........................... $ 1,763 $ 2,208 $ 2,180
Total stockholders' equity.................... $ 3,690 $ 3,351 $ 3,171
</TABLE>
RECONCILIATION OF SECOND QUARTER NET LIQUIDITY:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Net liquidity at March 31, 1999............................. $ (752)
Net income................................................ $ 394
Depreciation and amortization............................. 207
Capital expenditures...................................... (258)
Other, net................................................ 408
Operating cash flow less capital expenditures............... 751
Non-operating activities.................................. 17
Pension contribution...................................... (600)
-------
Net liquidity at June 30, 1999.............................. $ (584)
=======
</TABLE>
