Delphi Confidential
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 March 31, 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 ___ . No X We became subject to such
filing requirements on February 4, 1999 and have filed all required reports
since that date.
As of April 30, 1999, 565 million shares of the issuer's $0.01 par value common
stock were outstanding.
1
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
INDEX
Part I - Financial Information Page No.
--------
Item I. Financial Statements
Consolidated Statements of Income (Unaudited) for the three months
ended March 31, 1999 and 1998 3
Consolidated Balance Sheets at March 31, 1999 (Unaudited) and
December 31, 1998 4
Consolidated Statements of Cash Flows (Unaudited) for the three months
ended March 31, 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 13
Part II - Other Information
Item 1. Legal Proceedings 19
Item 6. Exhibits and Reports on Form 8-K 19
Signature 20
Exhibit Change in Control Agreement between Delphi and certain of its
10 (a) officers and other executives n/a
Exhibit 27 Financial Data Schedule (for SEC information only) n/a
2
PART I
ITEM 1. FINANCIAL STATEMENTS
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended
March 31,
1999 1998
---- ----
(in millions, expect per
share amounts)
Net sales:
General Motors and affiliates $ 5,853 $ 6,105
Other customers 1,616 1,518
------- -------
Total net sales 7,469 7,623
------- -------
Less operating expenses:
Cost of sales, excluding items listed below 6,391 6,789
Selling, general, and administrative 384 300
Depreciation and amortization 237 200
------- -------
Total operating expenses 7,012 7,289
------- -------
Operating income 457 334
Less interest expense 24 64
Other income, net 25 79
--------- -------
Income before income taxes 458 349
Income tax expense 174 113
------- -------
Net income $ 284 $ 236
======= =======
Earnings per share (Note 2)
Basic and diluted $ 0.55 $ 0.51
======= =======
See notes to consolidated financial statements.
3
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1999 1998
---- ----
(Unaudited)
(in millions)
ASSETS
Current assets:
Cash and cash equivalents $ 1,123 $ 995
Other marketable securities 11 5
------- ------
Total cash and marketable securities 1,134 1,000
Accounts receivable, net:
General Motors and affiliates 4,387 2,236
Other customer 1,312 977
Inventories, net (Note 3) 1,539 1,770
Deferred income taxes 268 285
Prepaid expenses and other assets 90 137
------- ------
Total current assets 8,730 6,405
Property, net 4,907 4,965
Deferred income taxes 3,026 2,813
Other assets 1,416 1,323
------- ------
Total assets $18,079 $15,506
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of
long-term debt (Note 8) $ 219 $ 359
Accounts payable:
General Motors and affiliates 147 89
Other suppliers 2,444 2,171
Accrued liabilities 1,708 1,438
------- ------
Total current liabilities 4,518 4,057
Long-term debt, including intracompany
note payable to General Motors in 1998 (Note 8) 1,667 3,141
Pension benefits 2,208 2,180
Postretirement benefits other than pensions 4,703 4,573
Other liabilities 1,632 1,546
------- ------
Total liabilities 14,728 15,497
------- ------
Stockholders' equity (Note 4):
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 shares outstanding 6 --
Additional paid in capital 3,233 --
Retained earnings 284 --
General Motors' net investment -- 77
Accumulated translation adjustments (172) (68)
-------- -------
Total stockholders' equity 3,351 9
------- -------
Total liabilities and stockholders' equity $18,079 $15,506
======= =======
See notes to consolidated financial statements.
4
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended
March 31,
1999 1998
---- ----
(in millions)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash $ 284 $ 236
provided by operating activities:
Depreciation and amortization 237 200
Deferred income taxes (162) 9
Changes in operating assets and liabilities:
Accounts receivable, net (4,174) (332)
Inventories, net 222 157
Prepaid expenses and other assets (106) 4
Accounts payable 256 (207)
Accrued liabilities 267 (171)
Other long-term liabilities 312 136
Other 28 217
------- ------
Net cash (used in) provided by operating activities (2,836) 249
------- ------
Cash flows from investing activities:
Capital expenditures (235) (297)
Acquisition of marketable securities (21) (213)
Liquidation of marketable securities 15 209
Other 75 3
----- ------
Net cash used in investing activities: (166) (298)
------ ------
Cash flows from financing activities:
Proceeds from issuance of common stock 1,621 --
Borrowings from credit facilities, net 1,527 --
Cash effect of assets and liabilities
transferred to General Motors -- 52
------ ------
Net cash provided by financing activities 3,148 52
------ ------
Effect of exchange rate fluctuations on cash
and cash equivalents (18) (7)
------- ------
Increase (decrease) in cash and cash equivalents 128 (4)
Cash and cash equivalents at beginning of period 995 989
------ ------
Cash and cash equivalents at end of period $ 1,123 $ 985
======= ======
See notes to consolidated financial statements.
5
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. BACKGROUND
Delphi Automotive Systems Corporation ("Delphi") was incorporated in late
1998 as a subsidiary of General Motors Corporation ("General Motors" or "GM").
During 1998, GM announced its intention to create and eventually divest of a
separate company consisting of the GM businesses and operations that now
comprise Delphi and the associated assets and liabilities of such businesses and
operations (the "Separation"). The divestiture is occurring in two stages, the
first of which involved an offering to the public of approximately 100 million
shares of Delphi's $0.01 par value common stock in February 1999 (the "IPO"). GM
currently owns approximately 82.3% of the Delphi common stock and the public
owns the rest as a result of the IPO.
On April 12, 1999, the GM Board of Directors approved the complete separation
of Delphi principally by means of a tax-free spin-off to holders of GM $1-2/3
common stock. To effect the spin-off of Delphi, the GM board declared a dividend
on GM $1-2/3 common stock consisting of approximately 80.1% of the Delphi
outstanding common stock, payable on May 28, 1999 to holders of record as of May
25, 1999. GM intends to contribute the remaining approximately 2.2% of the
Delphi common stock owned by it to a voluntary employees' beneficiary
association trust for GM's U.S. hourly retirees if GM receives confirmation from
the Internal Revenue Service (IRS) that such contribution will not affect the
tax-free status of the spin-off of Delphi. If GM does not receive such a
confirmation from the IRS on a timely basis, the remaining shares of the Delphi
common stock owned by GM will be distributed to the holders of the $1-2/3 common
stock as part of the spin-off.
2. BASIS OF PRESENTATION
General--The consolidated financial statements 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 months ended March 31, 1999 and the December 31, 1998 consolidated balance
sheet give effect to the terms of the Separation Agreement. The consolidated
statement of income and cash flows for the three months ended March 31, 1998
reflect the historical results of operations and cash flows of the businesses
that were considered part of the 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 the
Separation 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.
6
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 terms 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 balance sheet data has been prepared as
if the transactions described below and the IPO occurred on December 31, 1998.
The pro forma condensed consolidated statement of income data has been prepared
as if the Separation and the IPO had taken place on January 1, 1998. The pro
forma condensed consolidated balance sheet and statement of income 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 that we currently believe are reasonable. The pro forma
condensed consolidated balance sheet and statement of income 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.
Unaudited Pro Forma Condensed Consolidated Statement Income
For The Three Months Ended March 31, 1998
(in millions)
Historical Adjustments Pro Forma
---------- ----------- ---------
Net sales:
General Motors and affiliates $ 6,105 $ 6,105
Other customers 1,518 1,518
------- -------
Total net sales 7,623 7,623
Less operating expenses:
Cost of sales, excluding items listed below 6,789 $ (62) (1) 6,727
Selling, general and administrative 300 (4) (1)
38 (2) 334
Depreciation and amortization 200 200
------- -------- -------
Total operating expenses 7,289 (28) 7,261
------- -------- -------
Operating income 334 28 362
Less interest expense 64 64
Other income, net 79 79
------- -------- -------
Income before income taxes 349 28 377
Income tax expense 113 10 (3) 123
------- -------- --------
Net income $ 236 $ 18 $ 254
======= ======== =======
7
Unaudited Pro Forma Condensed Consolidated Balance Sheet
As of December 31, 1998
(in millions)
Historical Adjustments Pro Forma
---------- ----------- ---------
ASSETS
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 and affiliates 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:
General Motors and affiliates 89 89
Other suppliers 2,171 2,171
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 and 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 adjustments (68) -- (68)
------- ------- ---------
Total equity 9 3,162 3,171
-------- ------- ---------
Total liabilities and equity $ 15,506 $ 3,162 $ 18,668
======== ======== =========
8
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 pro forma adjustment for
the three months ended March 31, 1998 is summarized as follows (in
millions):
Pension related costs $ 53
Postretirement benefits other than pension (119)
-------
Total $ (66)
=======
Portion attributable to cost of sales $ (62)
=======
Portion attributable to selling, general
and administrative $ (4)
=======
(2)Reflects the estimated incremental selling, general and
administrative costs associated with operating Delphi as a
stand-alone publicly traded company. The pro forma adjustment for
the three months ended March 31, 1998 is as follows (in millions):
Incremental insurance and risk management $ 9
Incremental corporate costs* 12
Taxes other than income 13
Other 4
------
Total $ 38
======
* 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." Once Delphi is no
longer included in GM's consolidated income tax return, Delphi will
no longer benefit from GM's consolidated income tax environment. As
a result, Delphi expects effective income tax rates in future
periods generally to be higher than Delphi's historical effective
income tax rates. For purposes of this pro forma presentation only,
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 have been impacted by the change in
General Motors accounts receivable payment terms described 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.
9
(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. It is
expected that during the first half of 1999, Delphi will finance its
operations with third party funding of up to $3.1 billion.
(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.
Earnings Per Share
The historical basic earnings per share amounts were computed using only
weighted average shares outstanding for each respective period. Diluted earnings
per share also considers the impact of all potentially dilutive securities
during the periods presented unless the inclusion would have an antidilutive
effect. Actual weighted average shares outstanding used in calculating
historical basic and diluted earnings per share were:
Three Months ended
March 31,
1999 1998
---- ----
(in thousands)
Weighted average shares outstanding 520,555 465,000
Effect of dilutive securities 180 --
------- -------
Diluted shares outstanding 520,735 465,000
======= =======
If the 100 million shares issued in the IPO were assumed to be outstanding
since January 1, 1998, the weighted average shares outstanding would have been
565 million during the three months ended March 31, 1999 and 1998. On this
basis, basic and diluted earnings per share would have been $0.50 for the three
months ended March 31, 1999. On this same basis, basic and diluted earnings per
share, after considering the pro forma impact of the terms of Separation, would
have been $0.45 for the three months ended March 31, 1998.
3. INVENTORIES, NET
Inventories, net consisted of:
March 31, December 31,
1999 1998
--------- ------------
(in millions)
Productive material, work-in-process and
supplies $ 1,726 $ 1,910
Finished goods 206 253
-------- --------
Total inventories at FIFO 1,932 2,163
Less allowances to adjust the carrying value
of certain inventories to LIFO (393) (393)
-------- --------
Total inventories, net $ 1,539 $ 1,770
======== ========
10
<TABLE>
<CAPTION>
4. STOCKHOLDERS' EQUITY
Changes in stockholders' equity for the three months ended March 31, 1999 were:
Additional Accumulated General Total
Common Stock Paid in Retained Translation Motors' Stockholders'
Shares Amount Capital Earnings Adjustments Net 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 $ 284 284
Foreign currency translation
adjustments (104) (104)
------ ------ ------- ------- -------- ------- ---------
Balance at March 31, 1999 565 $ 6 $ 3,233 $ 284 $ (172) $ -- $ 3,351
====== ====== ======= ======= ======== ======= =========
</TABLE>
11
5. COMPREHENSIVE INCOME
Delphi's comprehensive income was:
Three Months ended
March 31,
1999 1998
---- ----
(in millions)
Net income $ 284 $ 236
Other comprehensive (loss) income--foreign currency
translation adjustments, net of tax (104) 14
------ -----
Comprehensive income $ 180 $ 250
====== =====
6. SEGMENT REPORTING
Selected information regarding Delphi's product sectors is as follows:
<TABLE>
<CAPTION>
Safety
Electronics & Thermal & Dynamics
Mobile Electrical &
Communication Architecture Propulsion Other(a) Total
------------- ------------ ---------- -------- -----
<S> <C> <C> <C> <C> <C>
For the three months ended:
March 31, 1999 (in millions)
Net sales to GM and
affiliates $ 1,090 $ 1,937 $ 2,826 $ -- $ 5,853
Net sales to other
customers 187 723 706 -- 1,616
Inter-sector net sales 76 53 2 (131) --
------- ------- ------- ------ -------
Total net sales $ 1,353 $ 2,713 $ 3,534 $(131) $ 7,469
======= ======= ======== ====== =======
Operating income $ 158 $ 216 $ 124 $ (41) $ 457
======= ======= ======== ====== =======
March 31, 1998
Net sales to GM and
affiliates $ 1,068 $ 2,303 $ 2,734 $ -- $ 6,105
Net sales to other
customers 151 737 630 -- 1,518
Inter-sector net sales 64 50 2 (116) --
------- ------- ------- ------ -------
Total net sales $ 1,283 $ 3,090 $ 3,366 $(116) $ 7,623
======= ======= ======== ====== =======
Operating income (b) $ 139 $ 210 $ 73 $ (88) $ 334
======= ======= ======== ====== =======
</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 costs 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:
<TABLE>
<CAPTION>
Safety
Electronics & Thermal & Dynamics
Mobile Electrical &
Communication Architecture Propulsion Other(a) Total
------------- ------------ ---------- -------- -----
<S> <C> <C> <C> <C> <C>
Operating income $ 129 $ 211 $ 97 $ (75) $ 362
</TABLE>
12
7. COMMITMENTS AND CONTINGENCIES
Delphi is from time to time subject to various legal actions and claims
incidental to its 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 the consolidated
financial position, results of operations or cash flows of Delphi.
8. SUBSEQUENT EVENT
On May 4, 1999, we completed a public offering of unsecured debt securities
totaling $1.5 billion with maturities of five years, ten years and thirty years.
The offering consists of $500 million of securities bearing interest at 6.125%
and maturing on May 1, 2004, $500 million of securities bearing interest at 6.5%
and maturing on May 1, 2009, and $500 million of securities bearing interest at
7.125% and maturing on May 1, 2029. We intend to use the proceeds of the debt
offering for general corporate purposes, including the repayment of amounts
currently outstanding under the long term portion of our revolving credit
facilities. As a result of the term debt offering, the $4.9 billion previously
available under our revolving credit facilities was reduced to $3.4 billion in
available funds, generally split between 364-day and five year tranches.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
1999 marks a new beginning for our company. As we embarked on our new
beginning, we brought with us many years of experience and innovation in
supplying vehicle manufacturers from around the world. The 1999 first quarter
included several significant highlights, including the commencement of the
independent operations of Delphi Automotive Systems Corporation and a successful
initial public offering that generated net proceeds of about $1.6 billion. We
posted strong operating results and improved liquidity during the 1999 first
quarter while continuing to take cost out of our operations through reductions
in material and manufacturing costs and the realignment of our product
portfolio. In addition, we were awarded new contracts with customers such as
Volkswagen, Volvo, Isuzu and GM. These new contracts are indicative of non-GM
customer acceptance of products and technology from an independent Delphi and
demonstrates our largest customer's confidence in our ability to innovate and
provide product differentiation.
In an action that pushes us forward to realize our business objectives, on
April 12, 1999, the General Motors (GM) Board of Directors approved the complete
separation of Delphi from GM by means of a tax-free spin-off during the 1999
second quarter. Our complete separation from GM will allow Delphi to immediately
begin to execute a business strategy aimed at maximizing shareholder value.
Specifically, the separation provides us with opportunities to increase sales to
non-GM customers, strengthen our ability to partner and acquire strategic
businesses and continue to improve relations with our employees around the
world.
Overall, we are off to a good start and we are focused on our customers and
meeting our near and long term business objectives.
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
March 31, 1999 financial statements. To facilitate analysis, the following table
sets forth the consolidated statement of income data as a percentage of net
sales, for each of the periods presented:
Three Months ended March 31,
----------------------------
1998 1998
1999 Pro forma Actual
---- --------- ------
Net Sales 100.0% 100.0% 100.0%
Less operating expenses:
Cost of sales 85.6 88.3 89.1
Selling, general and administrative 5.1 4.4 3.9
Depreciation and amortization 3.2 2.6 2.6
----- ----- -----
Operating income 6.1 4.7 4.4
Less interest expense 0.3 0.8 0.8
Other income, net 0.3 1.0 1.0
----- ----- -----
Income before income taxes 6.1 4.9 4.6
Income tax expense 2.3 1.6 1.5
----- ----- -----
Net income 3.8% 3.3% 3.1%
===== ===== =====
Three months ended March 31, 1999 versus three months ended March 31, 1998
Net Sales. Consolidated net sales and changes in net sales by product
sector and in total for the three months ended March 31, 1999 and 1998 were:
<TABLE>
<CAPTION>
Three Months Ended
March 31, Change
------------------ ---------------
Product Sector 1999 1998 $ %
-------------- ---- ---- ---- ----
(dollars in millions)
<S> <C> <C> <C> <C>
Electronics & Mobile Communication $ 1,353 $ 1,283 $ 70 5.5%
Safety, Thermal & Electrical Architecture 2,713 3,090 (377) (12.2)
Dynamics & Propulsion 3,534 3,366 168 5.0
Eliminations (131) (116) (15) n/a
------- -------- ------- -----
Consolidated net sales $ 7,469 $ 7,623 $ (154) (2.0)%
======== ======== ======= =====
</TABLE>
Net sales reflect growth in sales revenue from ongoing operations and strong
North American sales, offset by the impact of businesses divested in late 1998,
a decline in South American sales and continued price pressures. 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, while price reductions, totaling about $103 million, impacted all of our
product sectors. After considering the divested businesses, which had sales of
about $495 million during the first three months of 1998, our consolidated net
sales for the first three months of 1999 increased about 5% over the comparable
period of 1998. Our non-GM sales increased about 12% during the first three
months of 1999, after adjusting to eliminate the 1998 sales of our businesses
divested in 1998.
14
Operating Income. Operating income was $457 million for the first three
months of 1999 compared to $334 million for the first three months of 1998. Our
operating income, as reported 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 and in total was:
<TABLE>
<CAPTION>
Three Months Ended
March 31, Change
------------------ -------------
Product Sector 1999 1998 $ %
-------------- ---- ---- --- ---
(dollars in millions)
<S> <C> <C> <C> <C>
Electronics & Mobile Communication $ 158 $ 129 $ 29 22.5%
Safety, Thermal & Electrical Architecture 216 211 5 2.4
Dynamics & Propulsion 124 97 27 27.8
Others (41) (75) 34 n/a
------ ------ ----- -----
Total operating income $ 457 $ 362 $ 95 26.2%
====== ====== ===== ====
</TABLE>
Our gross margin was 14.4% for the first three months of 1999 compared to a
pro forma gross margin of 11.8% for the comparable period of 1998. The
improvement reflects the results of our continuing cost reduction efforts and
lean manufacturing initiatives that are being implemented in response to
industry pricing pressures. In fact, each of our product sectors achieved
material and manufacturing cost savings which, in the aggregate, exceeded total
price reductions during the first three months of 1999. Gross margin
improvements were partially offset by increased selling, general and
administrative and depreciation and amortization costs. The increase in selling,
general and administrative expenses, compared to 1998 pro forma amounts,
primarily represents incremental costs required as a result of our efforts to
pursue business with non-GM customers and expand our global operations. The
increase in depreciation and amortization reflects incremental costs associated
with our growth initiatives and the related capital requirements associated with
our lean manufacturing initiative.
In response to recessionary conditions and the related declining sales
volume in South America, we have reduced the size of our South America
organization and idled or sold selected manufacturing facilities in the area. In
addition, we are attempting to boost export sales out of the region to take
advantage of favorable exchange rates. Although year to date 1999 results are
unfavorable in this region, we believe South America remains a market of
significant long-term growth potential.
Net Income. Net income totaled $284 million for the first three months of
1999 compared to $236 million for the three months ended March 31, 1998. For
comparative purposes, after giving effect to the terms of the Separation
Agreement, our pro forma net income for the first three months of 1998 would
have been $254 million. Interest expense decreased by $40 million as 1999
average outstanding debt balances and interest rates were favorable compared to
1998. Our effective income tax rate increased to 38.0% for the first three
months of 1999 compared to a pro forma effective rate of 32.6% during the
comparable period of 1998. The increased effective income tax rate primarily
reflects the impact of our separation from GM and 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 full separation
from GM. Currently, we have 565 million shares outstanding, reflecting the 100
million shares issued in our initial public offering in February 1999, and 465
million shares owned by GM. Under generally accepted accounting principles, the
shares issued in connection with the initial public offering of our common stock
are excluded from the 1998 calculation of earnings per share and fractionally
included in the 1999 calculation. This results in weighted average shares
outstanding of 521 million in 1999, or basic and diluted earnings per share of
$0.55, and 465 million weighted average shares in 1998, or basic and diluted
earnings per share of $0.51.
15
Because of the change in shares outstanding 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 basis, first quarter 1999 earnings
of $284 million and pro-forma 1998 earnings of $254 million would have resulted
in basic and diluted earnings per share of $0.50 for 1999 and $0.45 for 1998.
Liquidity and Capital Resources
Liquidity
Our net liquidity, measured as cash and marketable securities less total
debt, was $(0.8) billion at March 31, 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 36% at March 31, 1999 and 100% at
December 31, 1998. If our Separation from GM and the IPO had occurred on
December 31, 1998, the 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 quarter of 1999. See "--Liquidity and Capital Resources--Cash
Flows". We expect that our improved net liquidity position allows 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 quarter
of 1999, we financed the short-term cash-flow gap through borrowings under our
revolving credit facilities.
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.
16
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. As of
March 31, 1999, borrowings under our third party credit facilities were about
$1.6 billion. On May 4, 1999, we completed a public offering of unsecured debt
securities totaling $ 1.5 billion in five year, ten year and thirty year
tranches. The proceeds are being used for general corporate purposes, including
payment of amounts outstanding under the long term portion of our revolving
credit facilities. As a result of the unsecured debt issuance, the $4.9 billion
previously available under of our revolving credit facilities was reduced to
$3.4 billion in available funds, generally split between 364-day and five year
tranches. See Note 8 to our consolidated financial statements for additional
information.
Cash Flows
Operating Activities. Net cash used in operating activities was $2.8 billion
for the first three months of 1999 compared to net cash provided by operating
activities of $249 million for the comparable period of 1998. The use of cash in
the 1999 first quarter 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 $864 million. Cash generated during the first
quarter of 1999 reflects our strong earnings and reductions in inventory levels
resulting from our lean manufacturing initiatives and the timing of payments for
accounts payable and certain accrued expenses.
Investing Activities. Cash flows used in investing activities totaled $166
million and $298 million for the three months ended March 31, 1999 and 1998,
respectively. The decrease in cash used in investing activities primarily
reflects decreased capital expenditures due to the timing of certain capital
programs and higher proceeds from asset disposals.
Financing Activities. Net cash provided by financing activities was $3.1
billion and $52 million for the three months ended March 31, 1999 and 1998,
respectively. Cash provided by financing activities for the first three months
of 1999 include net borrowings on our short term and long term revolving credit
facilities and the proceeds from our initial public offering in February. The
proceeds from our initial public offering were used for general corporate
purposes, including temporary repayment of amounts due under our revolving
credit facilities.
Year 2000
During the first three months 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 first quarter, we continued to address the
remediation of other systems on a prioritized basis, including implementation of
new enterprise software which is scheduled for completion later in 1999. In
addition, we are focusing on readiness testing of our integrated systems. 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 $14 million of Year 2000 expenses during the first quarter of
1999. Delphi currently expects its total Year 2000 spending to be about $106
million, which will be funded from operations.
17
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 or on behalf of the Delphi
Automotive Systems Corporation. 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 will
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.
18
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 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit
Number Exhibit Name
- --------------------------------------------------------------------------------
10 (a) Change in Control Agreement between Delphi and certain of its
officers and other executives
27 Financial data schedule (for SEC information only)
(b) REPORTS ON FORM 8-K
None.
19
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)
May 4, 1999 /s/ Paul R. Free
- ----------- ------------------------------------
Paul R. Free, Chief Accounting
Officer and Controller
20
DELPHI AUTOMOTIVE SYSTEMS CORPORATION
CHANGE IN CONTROL AGREEMENT
THIS CHANGE IN CONTROL AGREEMENT, dated as of ____, 1999, is entered
into between Delphi Automotive Systems Corporation, a Delaware corporation (the
"Company"), and [________________________] (the "Executive").
The Company and the Executive, intending to be legally bound hereby,
agree that upon a Change in Control and upon a subsequent termination of
employment, the Company shall take the actions described in Sections 4 and 5
below:
SECTION 1. Change in Control. As used in this Agreement, a "Change
in Control" shall be deemed to have occurred if, during the three-year period
following the date on which General Motors Corporation distributes to its
shareholders all shares of the Company's common stock then held by it (the
"Distribution"):
(a) any person or group of persons (within the meaning of
Section 13(d) of the Securities Exchange Act of 1934 as amended (the
"Act")), other than the Company or a subsidiary of the Company or an
employee benefit plan sponsored by the Company or a subsidiary of
the Company, acquires beneficial ownership (as defined in Section
13(d) (directly or indirectly) of (i) 50 percent or more of the
outstanding securities of the Company entitled to vote in the
elections of directors (or securities or rights convertible into or
exchangeable for such securities) ("Stock") of the Company, or (ii)
of Stock having a total number of votes that may be cast and elect a
majority of the directors of the Company;
(b) members of the "Incumbent Board" (as defined below) cease
for any reason to constitute a majority of the Board of Directors of
the Company; for this purpose, the "Incumbent Board" shall consist
of the individuals who, as of the date of the Distribution,
constitute the entire Board of Directors of the Company and any new
director whose election by the Board or nomination for election by
the shareholders of the Company was approved by a vote of at least
2/3rds of the directors then still in office who either were
directors at the beginning of the period or whose election or
nomination for election was previously so approved, but excluding
for all purposes any director (i) designated or nominated by, or
affiliated with, a person who has entered into an agreement with the
Company to effect a transaction described in subsection (a) above,
or (ii) who initially assumed office as a result of either an actual
or threatened "Election Contest" (as described in Rule 14a-11 under
the Act) or other actual or threatened solicitation of proxies or
contests by or on behalf of a person other than the Board (a "Proxy
Contest"), including by reason of any agreement intended to avoid or
settle any Election Contest or Proxy Context or (iii) who was
designated or renominated by any such person (or by any person
designated or renominated by any such person);
(c) the stockholders of the Company shall approve (i) any
consolidation, merger, or other reorganization of the Company in
which the Company is not the continuing or surviving corporation or
pursuant to which shares of Stock would be converted into cash,
securities, or other property, other than a merger of the Company in
which holders of Stock immediately prior to the merger have either
the same proportionate ownership of common stock of the surviving
corporation immediately after the merger as immediately before or
have more than 50 percent of the ownership of voting common stock of
the surviving corporation immediately after the merger, or (ii) any
sale, lease, exchange, or other transfer in one transaction or a
series of related transactions of 50 percent or more of the assets
of the Company; or
(d) there shall occur a liquidation or dissolution of the
Company.
SECTION 2. Term of Agreement. This Agreement shall commence on the
date first set forth above and shall remain in effect until the third
anniversary of a Change in Control.
SECTION 3. Termination of Employment
(a) Entitlement. The Executive shall be entitled to the payments and
benefits provided under Section 5 below if, during the three-year period
following a Change in Control, the Executive ceases to be employed by the
Company or its successor for either of the following reasons:
(1) Except as provided in subsection (b) below, the Company
terminates the Executive's employment; or
(2) The Executive terminates his or her employment after one
or more of the following events occurs without the Executive's
express written consent,
(A) Executive's annual base salary and/or annual bonus is
reduced or any other material compensation or benefits
arrangement for the Executive is reduced (and such reduction
is unrelated to Company or individual performance); or
(B) the Executive's duties or responsibilities are negatively,
and materially changed in a manner inconsistent with the
Executive's position (including status, offices, titles, and
reporting requirements) or authority;
(C) the Company requires the Executive's work location or
residence to be relocated more than 25 miles from its location
as of the Change in Control;
(D) the Company or its successor fails to offer the Executive
a comparable position after the Change in Control.
(b) Termination for Cause. Notwithstanding subsection (a)
above, the Executive shall not be entitled to the payments and benefits provided
under Section 5 below if the Executive's employment with the Company is
terminated for one or more of the following reasons: (i) the willful and
continued failure of the Executive to perform substantially the Executive's
duties owed to the Company or its affiliates after a written demand for
substantial performance is delivered to the Executive specifically identifying
the nature of such unacceptable performance, or (ii) the conviction of the
Executive for a felony.
(c) Termination Due to Death or Incapacity. If the Executive's
employment is terminated by reason of the Executive's death or incapacity during
the term, this Agreement shall terminate automatically on the date of death or
the date of determination by the Board that the incapacity of the Executive has
occurred, as the case may be. "Incapacity" means any physical or mental illness
or disability of the Executive which continues for a period of six consecutive
months or more and which at any time after such six-month period the Board shall
reasonably determine renders the Executive incapable of performing his or her
duties during the remainder of the term.
(d) Notice of Termination. Any termination by the Company for cause
or incapacity, or by the Executive for a reason described in Section 3(b) above,
shall be communicated by a notice to the other party given in accordance with
Section 9 below. The notice shall be in writing and shall (i) state the specific
termination provision in the Agreement relied upon, (ii) to the extent
applicable, set forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination under such provision, and (iii) specify the
termination date (not more than 30 days after the giving of the notice).
SECTION 4. Obligations of the Company upon a Change in Control. As
of a Change in Control, the Executive shall be entitled to receive the following
payments and benefits from the Company:
(a) all outstanding unvested stock options held by the Executive
shall fully vest as of the Change in Control and become immediately exercisable
in accordance with their terms;
(b) all long-term incentive awards earned by the Executive as of the
Change in Control under the Delphi Automotive Systems Performance Achievement
Plan, calculated at current forecasted payouts shall be fully "funded" by the
Company by contribution of an amount equal to such awards to a "rabbi trust" no
later than the Change in Control;
(c) all compensation previously deferred at the election of the
Executive, together with accrued interest or earnings, shall be fully "funded"
by the Company by contribution of an amount equal to such deferrals and accrued
interest or earnings to a "rabbi trust" no later than the Change in Control; and
(d) all benefits accrued by the Executive under the terms of the
Supplemental Executive Retirement Program and the Benefit Equalization Plan
Retirement maintained by the Company, or any successor plans, shall be fully
"funded" by the Company by contribution of an amount equal to the then total
present value of such benefits to a "rabbi trust" no later than the Change in
Control; such amount to be calculated using a discount rate equal to the annual
rate of interest on 30-year Treasury securities for the month before the month
in which occurs the Change in Control.
SECTION 5. Obligations of the Company Upon Termination of Employment
Following a Change in Control. Upon termination of the Executive subsequent to a
Change in Control, the Executive shall be entitled to receive, in addition to
the payments and benefits provided in Section 4 above, payments and benefits
from the Company as follows:
(a) Termination Due to a Qualifying Event. If the Executive's
employment with the Company is terminated as the result of an event described in
Section 3(a) above, the Executive shall be entitled to receive the following
payments and benefits from the Company:
(1) the Company shall pay the Executive in a single sum in
cash, within five business days after his or her termination date,
the aggregate of the following amounts:
(A) the sum of the Executive's currently effective annual base
salary through the termination date and any accrued vacation
pay;
(B) an amount equal to ______ times the sum of the Executive's
annual base salary plus his or her target bonus.
(2) the Company shall continue, for a period of 36 months from
the termination date, health insurance coverage for the Executive
and the Executive's eligible family members and life insurance
coverage for the Executive, in both cases at least equal to the
coverage that would have been provided to such person(s) under the
Company's health and life insurance plans if the Executive's
employment had not been terminated;
(3) the Company shall, at its sole expense as incurred,
reimburse the Executive up to $50,000 for expenses and costs related
to outplacement services, the provider of which shall be selected by
the Executive in his or her sole discretion;
(4) the Company shall continue to provide the Executive with
use of the Executive's company car (if any) for one year following
the termination date; and
(5) the Company shall pay or reimburse the Executive for legal
fees and expenses incurred as a result of any dispute resolution
process entered into by the Executive to enforce this Agreement.
(b) Termination Due to Death or Incapacity. If the Executive's
employment is terminated by reason of the Executive's death or incapacity during
the term, this Agreement shall terminate without further obligations to the
Executive or to the Executive's legal representatives under this Agreement other
than for the timely payment of the Executive's currently effective annual base
salary through the termination date, any accrued vacation pay, and any
compensation that the Executive previously elected to defer.
(c) Termination For Cause or Without Good Reason. If the Executive's
employment is terminated for a reason described in Section 3(b) above during the
term or if the Executive voluntarily terminates employment during the term
(other than for a reason described in Section 3(a)(2) above), this Agreement
shall terminate without further obligations to the Executive under this
Agreement other than for the timely payment to the Executive of his or her
currently effective annual base salary through the termination date and of any
compensation that the Executive previously elected to defer.
(d) Possible Reduction in Payments and Benefits. Following any
Change in Control, to the extent that any amount of pay or benefits provided
under to the Executive under this Agreement would cause the Executive to be
subject to excise tax under sections 280G and 4999 of the Internal Revenue Code
of 1986, as amended (the "Code"), and after taking into consideration all other
amounts payable to the Executive under other Company plans, programs, policies,
and arrangements, then the amount of pay and benefits provided under this
Agreement shall be reduced (first by any pay, and then, to the extent necessary,
by any benefits), to the extent necessary to avoid imposition of any such excise
taxes. However, if it shall be determined that the Executive would not receive a
net after-tax benefit (taking into account income, employment, and any excise
taxes) resulting from application of the reduction, then no reduction shall be
made with respect to pay or benefits due the Executive. All determinations of
the amount of the reduction shall be made by tax counsel selected by the
Company's independent auditors, and the cost of making such determination shall
be borne entirely by the Company.
SECTION 6. Termination of Noncompetition Restrictions; Nondisclosure
(a) Termination of Noncompetition Restrictions. If the Executive
terminates his or her employment with the Company for a reason described in
Section 3(a)(2) above during the first three years following the Change in
Control, or if the Company terminates the Executive's employment other than for
a reason described in Section 3(b) above during such first three years, then,
effective as of the termination date, the Executive shall cease to be subject to
the terms of any noncompetition agreement with the Company previously entered
into. If the Executive voluntarily terminates his or her employment during the
three years following a Change in Control for a reason not covered in Sections
3(a), (b) or (c) then, effective as of the termination date, the Executive shall
be subject to the terms of any noncompetition agreement with the Company
previously entered into for two years thereafter.
(b) Nondisclosure. The Executive shall not (other than in the good
faith performance of his or her services to the Company before termination of
employment) disclose or make known to anyone other than employees of the
Company, or use for the benefit of himself or herself or any other person, firm,
operation, or entity unrelated to the Company, any knowledge, information, or
materials, whether tangible or intangible, belonging to the Company, about the
products, services, know-how, customers, business plans, or financial,
marketing, pricing, compensation, and other proprietary matters relating to the
Company. On or before the Executive's termination of employment with the
Company, the Executive shall deliver to the Company any and all confidential
information in his or her possession.
SECTION 7. Successors. The Company shall require any successor
(whether direct or indirect, by purchase, merger, consolidation, or otherwise)
to all or substantially all of the business or assets of the Company, by
agreement in form and substance satisfactory to the Executive, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform if no such succession had
taken place. Failure of the Company to obtain such assumption and agreement
prior to the effectiveness of any such succession will be a breach of this
Agreement and entitle the Executive to compensation from the Company in the same
amount and on the same terms as the Executive would be entitled to had the
Company terminated the Executive for any reason other than cause or incapacity
on the succession date (and assuming a Change in Control had occurred prior to
such succession date).
SECTION 8. Non-Assignability. This Agreement is personal in nature
and neither of the parties shall, without the consent of the other, assign or
transfer this Agreement or any rights or obligations under it, except as
provided in Section 7. Without limiting the foregoing, the Executive's right to
receive payments under this Agreement shall not be assignable or transferable,
whether by pledge, creation of a security interest, or otherwise, other than a
transfer by his or her will or by the laws of descent or distribution, and, in
the event of any attempted assignment or transfer by the Executive contrary to
this Section, the Company shall have no liability to pay any amount so attempted
to be assigned or transferred.
SECTION 9. Notices. For the purpose of this Agreement, notices and
all other communications provided for shall be in writing and shall be deemed to
have been given when delivered or mailed by United States registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive: [name]
[address]
If to the Company: Delphi Automotive Systems Corporation
5725 Delphi Drive
Troy, Michigan 48098
Attention: General Counsel
or to such other address as either party may have furnished to the other in
writing. Notices of change of address shall be effective only upon receipt.
SECTION 10. Governing Law. The validity, interpretation,
construction, and performance of this Agreement shall be governed by the laws of
the State of Michigan without reference to principles of conflict of laws.
SECTION 11. Settlement of Disputes; Arbitration. If there has been a
Change in Control and any dispute arises between the Executive and the Company
as to the validity, enforceability, and/or interpretation of any right or
benefit afforded by this Agreement, at the Executive's option, such dispute
shall be resolved by binding arbitration proceedings in accordance with the
rules of the American Arbitration Association. The arbitrators shall presume
that the rights and/or benefits afforded by this Agreement that are in dispute
are valid and enforceable and that the Executive is entitled to such rights
and/or benefits. The Company shall be precluded from asserting that such rights
and/or benefits are not valid, binding, and enforceable and shall stipulate
before such arbitrators that the Company is bound by all the provisions of this
Agreement. The burden of overcoming by clear and convincing evidence the
presumption that the Executive is entitled to such rights and/or benefits shall
be on the Company. The arbitrators shall have discretion to award punitive
damages to the Executive if it is found that the Company's actions or failures
to act which led to the Executive's submitting a dispute to arbitration and/or
the Company's actions or failures to act during the pendency of the arbitration
proceeding make such an award appropriate in the circumstances. The results of
any arbitration shall be conclusive on both parties and shall not be subject to
judicial interference or review on any ground whatsoever, including without
limitation any claim that the Company was wrongfully induced to enter into this
Agreement to arbitrate such a dispute.
SECTION 12. Miscellaneous
(a) This Agreement contains the entire understanding with the
Executive with respect to its subject matter and supersedes any and all prior
agreements or understandings, written or oral, relating to the subject matter.
No provisions of this Agreement may be amended unless such amendment is agreed
to in writing signed by the Executive and the Company.
(b) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(c) This Agreement may be executed in one or more counterparts, each
of which shall be deemed to be an original but all of which together will
constitute one and the same Agreement.
(d) The Company may withhold from any benefits payable under this
Agreement all Federal, state, local, or other taxes as shall be required
pursuant to any law or governmental regulation or ruling.
(e) The captions of this Agreement are not part of its provisions
and shall have no force or effect.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered as of the day and year first above set forth.
DELPHI AUTOMOTIVE SYSTEMS
CORPORATION
___________________________________ By: ________________________________
[Signature of Executive]
Name: Harry W. Wagner II
Title: Director, Salaried Personnel
Appendix
--------
The Company has entered into Change in Control Agreements with the
twenty-one (21) officers identified in Part III of the Company's Annual Report
on Form 10-K for the year ended December 31, 1998 (the "Annual Report"). These
agreements are substantially similar to the form of the agreement set forth as
Exhibit 10(a), provided that: in the case of Mr. Battenberg, the payment amount
is three times his base salary and target bonus amount; in the case of each
other officer named in the Summary Compensation Table included in the Annual
Report and certain other officers, the payment amount is two times base salary
and target bonus amount; and in the case of certain other officers, the payment
amount is one times base salary and target bonus amount.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Delphi
Automotive Systems March 31, 1999 Consolidated Financial Statements and is
qualified in its entirety by reference to the First 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> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 1,123
<SECURITIES> 11
<RECEIVABLES> 5,699
<ALLOWANCES> 20
<INVENTORY> 1,539
<CURRENT-ASSETS> 8,730
<PP&E> 12,966
<DEPRECIATION> 8,059
<TOTAL-ASSETS> 18,079
<CURRENT-LIABILITIES> 4,518
<BONDS> 1,667
0
0
<COMMON> 6
<OTHER-SE> 3,345
<TOTAL-LIABILITY-AND-EQUITY> 18,079
<SALES> 7,469
<TOTAL-REVENUES> 7,469
<CGS> 6,391
<TOTAL-COSTS> 7,012
<OTHER-EXPENSES> (25)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24
<INCOME-PRETAX> 458
<INCOME-TAX> 174
<INCOME-CONTINUING> 284
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 284
<EPS-PRIMARY> 0.55
<EPS-DILUTED> 0.55
</TABLE>
