Delphi reports $96 million third-quarter operating loss, expects access to liquidity 'at a slower pace'

By Caroline Salls

Pittsburgh, Nov. 12 - Delphi Corp. reported a $96 million operating loss for the quarter ended Sept. 30 on $4.377 billion of net sales, according to a 10-Q filed with the Securities and Exchange Commission.

The third-quarter operating loss was a significant improvement over the $663 million operating loss posted for the three months ended Sept. 30, 2007, but the third-quarter 2008 net sales total declined from $5.297 billion at Sept. 30, 2007.

The net income for the third quarter of this year was $5.218 billion, much improved from a $1.169 billion net loss for the same period of 2007.

Meanwhile, the company posted a $728 million operating loss for the first nine months of 2008 on $14.863 billion in net sales, compared with a $1.522 billion operating loss for the first nine months of 2007 on $16.961 billion in total net sales.

The net income for the first nine months of 2008 was $4.078 billion, up from a $2.523 billion net loss for the first nine months of last year.

Delphi had $1.866 billion in cash and cash equivalents at Sept. 30, compared with $1.036 billion at Dec. 31, 2007.

According to the 10-Q, Delphi recorded a net reorganization gain of $5.3 billion in the three and nine months ended Sept. 30 and received $641 million on Sept. 30 as a result of the effectiveness of its amended global settlement agreement.

Delphi said the increase in net sales primarily reflected the sale of its original equipment and aftermarket catalyst business in the third quarter of 2007 and the migration of its converter business to a non-consolidated venture during the fourth quarter of 2007.

Looking ahead

In light of the current economic climate in the global automotive industry, Delphi said it expects continued operating challenges because of lower global production volumes, streamlining its cost structure to address these volume declines and related pricing pressures stemming from increasingly competitive markets.

In addition, the company said constraints in the credit markets continue to impede its ability to obtain financing at reasonable rates and further delay its emergence from Chapter 11, "making us particularly vulnerable to changes in the overall economic climate."

As a result, the company said it believes revenue in 2008, as well as the first and second quarter of 2009, will be significantly lower compared to revenue in 2007, reflecting lower sales in North America, including GM, primarily as a result of lower forecast production volumes in North America as well as continued divestitures by Delphi of non-core operations and lower sales to other customers.

Because of the current constraints in the capital market and the potential for continued constraints, together with lower global volumes projected by the company's significant customers, Delphi said it is adopting cash conservation measures, including delaying some restructuring initiatives.

Delphi said it believes it will continue to have adequate access to liquidity to continue operations while implementing its transformation plan, "albeit at a slower pace."

The company said it also has some flexibility in further delaying restructuring and capital investment actions if revenues and cash flow from operations decrease significantly below expectations as a result of a further deterioration in the economic climate or global automotive industry.

However, if it does not secure required consents and court approval of a previously announced accommodation agreement or have the ability to obtain an extension or other amendment its debtor-in-possession credit facility, Delphi said it does not expect to have sufficient cash to pay the outstanding balances of the DIP facility if the DIP loan expires on the current Dec. 31 maturity date and still continue to fund its operations.

Delphi, a Troy, Mich.-based automotive electronics manufacturer, filed for bankruptcy on Oct. 8, 2005 in the U.S. Bankruptcy Court for the Southern District of New York. Its Chapter 11 case number is 05-44481.

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