UNITED STATES

FORM 10-K

Commission File No. 1-14787

DELPHI AUTOMOTIVE SYSTEMS CORPORATION

Delaware

5725 Delphi Drive, Troy, Michigan

38-3430473

48098

Registrant’s telephone number, including area code (248) 813-2000

     Securities registered pursuant to Section 12(b) of the Act:

     The notes and debentures identified above are also listed for trading on the Luxembourg Stock Exchange.

     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 and 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  [   ].

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  [X]

     As of January 31, 2000, the aggregate market value of the registrant’s Common Stock, $0.01 par value per share, held by non-affiliates of the registrant was approximately $9.7 billion. The closing price of the Common Stock on January 31, 2000 as reported on the New York Stock Exchange was $17.31 per share. As of January 31, 2000, the number of shares outstanding of the registrant’s Common Stock was 562 million shares.

Documents Incorporated by Reference

     Certain portions, as expressly described in this report, of the registrant’s Proxy Statement for the 2000 Annual Meeting of the Stockholders, to be filed within 120 days of December 31, 1999, are incorporated by reference into Part III, Items 10-13.

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INDEX

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DELPHI AUTOMOTIVE SYSTEMS CORPORATION

      Overview  Delphi Automotive Systems Corporation (“Delphi”) is a world leading supplier of automotive components, integrated systems and modules to the automotive industry, with 1999 net sales of $29.2 billion. We have both extensive technical expertise in a broad range of product lines and strong systems integration skills, which enable us to provide comprehensive, systems-based solutions to automotive vehicle manufacturers (“VMs”). We operate our business along three major product sectors, which work closely together to coordinate our product development and marketing efforts. Our three product sectors are: Electronics & Mobile Communication, which includes our automotive electronics and audio and communication systems; Safety, Thermal & Electrical Architecture, which includes our interior, thermal and power and signal distribution products; and Dynamics & Propulsion, which includes our energy and engine management, chassis and steering products. See Note 12 to our consolidated financial statements included elsewhere in this report for additional product sector information.

      We also sell our products to the worldwide aftermarket for replacement parts and to non-VM customers, including a broad portfolio of high-quality aftermarket products, such as air conditioning systems and thermal parts, security systems, batteries, shock absorbers and lubricants. By leveraging our technical knowledge, product portfolio and distribution network, we are able to offer a diversified line of aftermarket products that cover a wide range of vehicle makes.

      Several years ago, we began to transform our company from a North American-based, captive component supplier to General Motors Corporation (“General Motors” or “GM”) into a global supplier of components, integrated systems and modules for a wide range of customers. We have established an expansive global presence, with a network of manufacturing sites, technical centers, sales offices and joint ventures located in every major region of the world. We now sell our products to the major VMs around the world. Since 1995, our sales to customers other than GM have grown from 15.9% of our total sales to 24.1% in 1999. For this purpose, our total sales include all sales by entities in which we own a minority interest.

      History  Delphi was incorporated in Delaware in late 1998, as a wholly owned subsidiary of GM. Prior to January 1, 1999, GM conducted the business through various divisions and subsidiaries. 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”). We became an independent company during 1999 through a series of transactions (the “Separation”). The Separation 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 holders of record of GM $1 2/3 par value common stock in May 1999. The dividend resulted in a distribution of approximately 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.

      Current Developments  In January 2000, Delphi completed the acquisition of substantially all the assets of Lucas Diesel Systems and its related aftermarket activities from TRW Inc. for approximately $871 million, subject to adjustments for certain post-closing events. This entity, now Delphi Diesel Systems, a Paris-based company with fiscal 1999 sales of approximately $1.1 billion, is a worldwide producer of diesel fuel-injection systems for light, medium and heavy-duty vehicles. The acquisition is expected to support our key initiatives by:

	•	Strengthening our technology focus by adding new high-growth diesel product lines, including common rail and electronic unit injection (“EUI”)
	•	Boosting our European sales by more than 20% to more than $5 billion

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	•	Enhancing our system and product capabilities and complementing our gasoline engine management systems capabilities
	•	Increasing our reported non-GM sales by an estimated 16% to approximately $8  billion on an annualized basis

Industry

      The automotive parts industry provides components, systems, subsystems and modules to VMs for the manufacture of new vehicles, as well as to the aftermarket for use as replacement parts for current production and older vehicles. We believe that five key trends have been reshaping the automotive parts industry over the past several years:

      Increasing Electronic Content  The electronic content of vehicles continues to increase, largely driven by increasingly stringent regulatory standards for automotive emissions and safety, as well as consumer demand for increased vehicle performance and functionality at a lower cost. Electronics integration, which generally refers to replacing mechanical components with electronic components and integration of mechanical and electrical functions within the vehicle, allows VMs to achieve substantial reductions in the weight and mechanical complexity of automotive vehicles, resulting in easier assembly, enhanced fuel economy, improved emissions control and better vehicle performance.

      Globalization of Suppliers  The globalization of VMs, which reflects the broader global market for vehicle sales and the desire of VMs to adapt their products to satisfy regional and cultural variations, has driven the globalization of suppliers as they follow their customers. In order to serve multiple markets in a more cost-effective manner, many VMs are turning to global vehicle platforms such as “world cars,” which typically are designed in one location but produced and sold in many different geographic markets around the world.

      Increased Emphasis on Systems and Modules Sourcing   In order to simplify the vehicle design and assembly processes and reduce their costs, VMs increasingly look to their suppliers to provide fully engineered systems and pre-assembled combinations of components rather than individual components. By offering sophisticated systems and modules rather than individual components, Tier 1 suppliers have assumed many of the design, engineering, research and development and assembly functions traditionally performed by VMs. In addition, suppliers often manufacture and ship component parts to the general location of a VM’s assembly line and then provide local assembly of systems and modules.

      Ongoing Industry Consolidation  The worldwide automotive parts industry is consolidating as suppliers seek to achieve operating synergies through business combinations, build stronger customer relationships and follow their customers as they expand globally, acquire complementary technologies and shift production to locations with more flexible local work rules and practices. The need for suppliers to provide VMs with single-point sourcing of integrated systems and modules on a global basis has also fueled industry consolidation.

      Shorter Product Development Cycles  Suppliers are under pressure from VMs to respond more quickly with new designs and product innovations to support rapidly changing consumer tastes and regulatory requirements. For example, vehicle demand in North America has shifted from cars to light trucks and vans over the last several years, requiring suppliers to modify their operations to focus on parts for these vehicles. In developing countries, broad economic improvements have been and continue to be made, increasing demand for smaller, less expensive vehicles that satisfy basic transportation needs. In addition, increasingly stringent government regulations regarding vehicle safety and environmental standards are driving new product development.

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Strategy

      The key elements of our business strategy are:

      Supply High-Quality, Innovative Components, Systems and Modules  By building on our electronics integration expertise, our systems capabilities and the breadth of our product offerings, we are working to develop high-quality product offerings that will provide our customers with the ability to offer consumers enhanced vehicle control, superior occupant protection, collision avoidance systems, onboard communications systems, advanced energy and engine management systems, advanced electrical and electronic vehicle architecture and passenger entertainment and convenience features at competitive prices.

      Leverage Global Presence  We believe that we can provide significant manufacturing, engineering, technical and other support to our customers in every major market in which they operate. As of December 31, 1999, we had 166 wholly owned and leased manufacturing sites, 27 technical centers, 51 customer service centers and sales activity offices and 40 joint ventures or other strategic alliances in 37 countries on six continents. For financial information regarding the principal geographic areas in which we operate, see Note 12 to the consolidated financial statements included elsewhere in this report.

      Complete Strategic Acquisitions, Joint Ventures and Alliances  We intend to participate actively in the industry trend toward consolidation by pursuing strategic acquisitions and alliances in order to complement or fill gaps in our existing product portfolio, enhance our design and manufacturing capabilities, improve our geographic presence in selected areas and increase our access to new customers. As part of this strategy, in January 2000, we completed the acquisition of Lucas Diesel Systems from TRW Inc. With this acquisition, we expect to broaden our technology portfolio by adding new high growth diesel product lines, enhance our engine management system capabilities, increase our presence in Europe, and increase our non-GM sales by an estimated 16% to approximately $8 billion.

      Improve Operating Performance  Our primary initiatives to improve operating performance are to:

	•	Implement the Delphi Manufacturing System to maximize manufacturing flexibility, reduce total manufacturing costs and achieve lean production;
	•	Achieve structural cost reductions through infrastructure improvements and implementing a common organizational and management structure, common training programs and a common set of key metrics for measuring actual performance;
	•	Utilize the Delphi Global Purchasing process to ensure a consistent high-quality supply of goods and reduce our materials costs;
	•	Improve labor relations by sharing relevant information with our international and local union leadership worldwide and working with the unions to jointly develop competitive local work rules and practices;
	•	Actively manage our product portfolio to emphasize comprehensive integrated systems-based solutions for customers; and
	•	Apply our fix/sell/close process to identify operations or investments not performing at desired levels and improve our cost competitiveness. With input from our unions, management develops a specific plan to deal with each operation. However, our ability to eliminate product lines, close plants and divest businesses is subject to certain restrictions in agreements with our labor unions and General Motors. See “Arrangements Between Delphi and GM” for additional information.

      Exceed Existing Customers’ Expectations while Building New Relationships  Although we intend to pursue new business with GM and expect to continue to be a principal supplier to GM and its GM-North America operations, our strategy focuses on growing our business across a more diversified customer base, thereby making us less dependent on the volume of vehicles produced by GM-North America. Our goal has been and continues to be to increase our total sales to customers other than GM-North America to at least 50% of our total sales by the end of 2002. In establishing and measuring our progress towards achieving this goal, we include in “total sales” the sales from minority joint ventures and other investments

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      While we currently believe that we will be able to successfully execute the business strategies outlined above, we cannot assure you in this regard. Our ability to execute each of the business strategies discussed above is subject to numerous risks and uncertainties, including those described elsewhere in this report.

Research and Development

      Delphi maintains technical engineering centers in every major region of the world to develop and provide advanced products, processes and manufacturing support for all of our manufacturing sites and to provide our customers with local engineering capabilities and design development on a global basis. As of December 31, 1999, we employed more than 15,000 engineers, scientists and technicians around the world with more than one-third focused on electronic and high technology products. We believe that our engineering and technical expertise, together with our emphasis on continuing research and development, allows us to use the latest technologies, materials and processes to solve problems for our customers and to bring new, innovative products to market.

      We believe that continued research and development activities are critical to maintaining our pipeline of technologically advanced products. Our total expenditures for research and development activities were approximately $1.7 billion, $1.4 billion and $1.5 billion in 1999, 1998 and 1997, respectively.

Intellectual Property

      We have generated a large number of patents in the operation of our business. At present, we own full or partial interest in approximately 5,200 patents and 3,950 patent applications worldwide. We expect this portfolio will continue to grow as we are actively pursuing additional technological innovation and are filing an average of 5 to 6 patent applications each business day. While we believe that these patents and patent applications are, in the aggregate, important to the conduct of our business, none is individually considered material to our business.

      Under the terms of our separation from GM, we and GM have agreed that, subject to certain exceptions, GM’s Service Parts Operations (“GM-SPO”) will be the exclusive distributor of our products into the U.S. aftermarket and we will be the exclusive supplier of these products to GM-SPO through at least December 31, 2000. GM-SPO currently markets our products under a number of brand names, including ACDelco(R), FREEDOM(R) and VOYAGER(TM). In connection with our separation from GM, we have agreed with GM-SPO to split the ownership of these aftermarket brands. We own the Freedom brand, although we may not use the brand in the United States until the expiration of our arrangement with GM-SPO. GM-SPO owns the Voyager battery brand, but may only use it on batteries it purchases from us. GM-SPO also owns the ACDelco brand.

Products and Competition

      The global automotive parts industry principally involves the supply of components, systems and modules to VMs for the manufacture of new vehicles, to other suppliers for use in their product offerings and to the aftermarket for use as replacement parts for older vehicles. Although the overall number of our competitors has decreased due to ongoing industry consolidation, the automotive parts industry remains extremely competitive. VMs rigorously evaluate suppliers on the basis of product quality, price competitiveness, reliability and timeliness of delivery, product design capability, technical expertise and development capability, new product innovation, leanness of facilities, operational flexibility, customer service and overall management. Some of our competitors have substantial size and scale and some have lower cost structures, particularly lower hourly wage structures, than our company.

      Our product offerings are organized in three product sectors: Electronics & Mobile Communication; Safety, Thermal & Electrical Architecture; and Dynamics & Propulsion. We currently have approximately

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      Electronics & Mobile Communication  Our Electronics & Mobile Communication product sector accounted for $5.3 billion of our 1999 sales (16.8% excluding inter-sector sales). This sector is one of the leading global providers of automotive electronics products. The sector also offers a wide variety of audio and communication systems for vehicles. The automotive electronics capabilities of this sector are utilized in connection with some of the product offerings of our two other product sectors to produce systems, subsystems and modules designed to enhance vehicle safety, comfort, security and efficiency. Our principal competitors in the Electronics & Mobile Communication product sector include the following: Robert Bosch GmbH, Denso Inc., Mannesman VDO AG, Motorola, Inc. and Siemens AG. Our principal Electronics & Mobile Communication product lines include the following:

      Safety, Thermal & Electrical Architecture  Our Safety, Thermal & Electrical Architecture product sector accounted for $10.5 billion of our 1999 sales (35.3% excluding inter-sector sales). This sector offers a wide range of products relating to the vehicle interior as well as the expertise to integrate them into individual vehicle designs to simplify manufacturer assembly and enhance vehicle marketability. The sector also offers thermal products, including powertrain cooling systems and climate control systems that meet global mandates for alternative refrigerant capabilities. The sector is also a global leader in the production of wiring harnesses and connectors for electrical power and signal distribution. Our principal competitors in the Safety, Thermal & Electrical Architecture product sector include the following: Autoliv Inc., Denso Inc., TRW Inc., Valeo SA and Yazaki Corp. Our principal Safety, Thermal & Electrical Architecture product lines include the following:

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      Dynamics & Propulsion  Our Dynamics & Propulsion product sector accounted for $14.0 billion of our 1999 sales, (47.9% excluding inter-sector sales). This sector offers a wide range of energy and engine management systems designed to optimize engine performance and emissions control through management of vehicle air intake, fuel delivery, combustion and exhaust after-treatment. The sector also offers all major chassis control systems — steering, braking, suspension and engine, with a focus on providing superior ride and handling performance, high reliability, reduced mass and improved fuel efficiency. Our principal competitors in the Dynamics & Propulsion product sector include the following: Robert Bosch GmbH,

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Customers

      We currently sell our products to the major VMs. While we expect our business with customers other than GM to increase over time, we also expect that GM will remain our largest customer for a significant period of time due to the long-term nature of sales contracts in our industry, our strong customer-supplier relationship with GM and the supply agreement we entered into with GM in January 1999 in connection with our separation from GM (the “Supply Agreement“), as more fully described elsewhere in this report. However, GM has stated that it intends to increase competition for its business among its suppliers, thus reducing its reliance on any one supplier. We expect to continue to compete effectively for GM business; however, we expect our sales to GM to decline over time. We currently supply parts to each regional sector of GM’s Automotive Operations, including its automotive operations in the United States, Canada and Mexico (“GM-North America”), and to GM’s automotive operations throughout the rest of the world (“GM-International”). In addition, we sell our products to the worldwide aftermarket for replacement parts, including GM-SPO.

      The following table shows how our total sales were derived for each of the last three years. The percentages for 1998 were affected by work stoppages at certain GM and Delphi locations in the United States during June and July 1998.

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      For purposes of the preceding table, “total sales” include all of the sales from joint ventures and other investments in which we own a minority interest even though these sales are not reflected in our sales as reported in our consolidated financial statements included elsewhere in this report. This is how we have historically tracked our sales by customer for internal purposes. We include our minority joint venture sales for this purpose because, among other things, they principally relate to our joint ventures outside the United States where we frequently have significant influence over product design and technology and customer relationships but do not own more than 50%. In addition, many of these joint ventures use our technologies. If we did not include these sales, the percentages set forth above for GM generally would be higher.

      Included in sales to other customers in the foregoing table, are sales to non-VM customers. We are continuing our efforts to diversify our business by supplying certain products, including connection systems, flex-circuits wiring, instrumentation and map sensors, and engine controllers, to non-VM customers within the aerospace, motorcycle, construction, cellular and computer industries. Our non-VM customers include Boeing Company, Caterpillar, Inc., Telefonaktiebolaget LM Ericsson, Harley-Davidson Inc., Nokia Corporation and Silicon Graphics Inc. These non-VM sales accounted for only a nominal amount of our total 1999 net sales.

Variability in Delphi’s Business

      Almost all of our business is directly related to automotive sales and production by our customers, which are highly cyclical and depend on general economic conditions, consumer spending and preferences. Any significant reduction in automotive production and sales by our customers would have a material adverse effect on our business. In addition, we have substantial operations in every major region of the world and economic conditions in these regions often differ, which may have varying effects on our business. Our business is moderately seasonal as our primary North American customers historically halt operations for approximately two weeks in July and approximately one week in December and our European customers generally reduce production during the month of August. In addition, third quarter automotive production is traditionally lower as new models enter production. Accordingly, third and fourth quarter results may reflect these trends.

Raw Materials

      We purchase various raw materials for use in our manufacturing processes. The principal raw materials we purchase include platinum group metals, copper, aluminum, steel, lead and resins and are for the most part used by all of our product sectors. All of these raw materials, except the platinum group metals, which we use to produce our catalytic converters, are available from numerous sources. Currently, all of the platinum group metals used by Delphi for catalytic converters produced for GM are procured directly from GM’s suppliers of these metals which are principally located in Russia and South Africa. In light of the potential political instability in these areas, Delphi maintains a two to three month inventory of platinum group metals. Delphi purchases the platinum group metals it uses in catalytic converters manufactured for its customers other than GM directly from suppliers. We have not experienced any significant shortages of raw materials and normally do not carry inventories of raw materials in excess of those reasonably required to meet our production and shipping schedules, except for the two to three month supply of platinum group metals.

Environmental Compliance

      We are subject to the requirements of U.S. federal, state, local and non-U.S. environmental and occupational safety and health laws and regulations. These include laws regulating air emissions, water discharge and waste management. We have an environmental management structure designed to facilitate and support our compliance with these requirements. We cannot assure you, however, that we are at all times in compliance with all such requirements. Although we have made and will continue to make capital and other expenditures to comply with environmental requirements, we do not expect such expenditures to be material in 2000 or 2001. Environmental requirements are complex, change frequently and have tended

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      We are also subject to environmental laws requiring the investigation and cleanup of environmental contamination. We are in various stages of investigation and cleanup at our manufacturing sites where contamination has been alleged. As of December 31, 1999, Delphi had recorded a reserve of approximately $20 million for such environmental investigation and cleanup. We cannot assure you that our eventual environmental cleanup costs and liabilities will not exceed the amount of our current reserve.

Arrangements Between Delphi and GM

      The separation of Delphi from GM was effective January 1, 1999, when we assumed the assets and related liabilities of GM’s automotive components group. In connection with the Separation, we entered into agreements allocating liabilities and responsibilities in a number of areas including taxes, environmental matters, intellectual property, product liability claims, employee matters, and general litigation claims. We also agreed to indemnify GM against substantially all losses, claims, damages, liabilities or actions arising, whether before or after the separation, out of or in connection with our business and/or our conduct of our business going forward.

      Before the separation, we depended upon other business sectors of GM and some of GM’s affiliates and suppliers for certain services. GM continues to provide a number of services to us, including accounting and information technology services, under various transition services agreements. However, GM recently entered into an agreement to sell the unit that provides a majority of the accounting services. As a result, these services will no longer be provided by GM.

      The Spin-Off was structured to qualify as a tax-free distribution under Section 355 of the Internal Revenue Code (the “Code”) to GM and its stockholders. On January 13, 1999, GM received from the IRS a private letter ruling (the “IRS Ruling”) to such effect. In connection with GM’s request for the IRS Ruling, we made certain representations and warranties to GM regarding our company and our business. We also agreed to certain covenants intended to preserve the tax-free status of the Spin-Off. We may take any action otherwise prohibited by these covenants only if GM has determined, in its sole and absolute discretion, that such action would not jeopardize the tax-free status of the Spin-Off or the qualification of our separation as a reorganization under Section 368 (a)(1)(D) of the Code (a “D Reorganization”). Some of these covenants are described in greater detail below:

	•	Acquisition Transactions  Until May 28, 2001, we have agreed not to enter into or permit any transaction or series of transactions which would result in a person or persons acquiring or having the right to acquire shares of our capital stock that would comprise 50% or more of either the value of all outstanding shares of our capital stock or the total combined voting power of our outstanding voting stock.
	•	Continuation of Active Trade or Business  Until May 28, 2001, we have agreed to continue to conduct the active trade or business, within the meaning of Section 355 of the Code, of our company as we conducted it immediately before the Spin-Off. During such time, we have agreed not to:

	•	liquidate, dispose of or otherwise discontinue the conduct of any portion of our active trade or business with a value in excess of $2.0  billion; or
	•	dispose of any business or assets that would cause our company to be operated in a manner inconsistent in any material respect with the business purposes for the Spin-Off as described to the IRS or tax counsel in connection with GM’s request for the IRS Ruling; or
	•	except in the ordinary course of business, sell, transfer, or otherwise dispose of or agree to dispose of assets, including any shares of capital stock of our subsidiaries, that, in the aggregate, constitute more than 60% of our gross assets; or 60% of the consolidated gross assets of us and our subsidiaries.

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      Cooperation on Tax Matters  We and GM have agreed to certain procedures with respect to the tax-related covenants described above. We are required to notify GM if we desire to take any action prohibited by the tax-related covenants described above. Upon such notification, if GM determines that such action might jeopardize the tax-free status of the Spin-Off or the qualification of our separation as a D Reorganization, GM has agreed to:

	•	use all commercially reasonable efforts to obtain a private letter ruling from the IRS or a tax opinion that would permit us to take the desired action, and we have agreed to cooperate in connection with such efforts; or
	•	provide all reasonable cooperation to us in connection with our obtaining such an IRS ruling or tax opinion.

      We agreed at the time of the Separation that we would not have any indebtedness to GM until May 28, 2001. However, GM has recently filed a supplemental private letter ruling request with the IRS to determine whether the existence of certain indebtedness of Delphi to GM would impact the tax-free status of the Spin-Off or the qualification of our separation as a D Reorganization. No response to the supplemental ruling request has been received as of the date of this filing.

      Supply Agreement  Our Supply Agreement with GM is intended to provide us the opportunity to capture future GM business over the next several years. Through December 31, 2001, we will have the ability to secure under competitive purchase order terms the first replacement cycle of all product programs in the United States and Canada which we were providing to GM as of January 1, 1999, and certain other product programs as described below. Thus, we will have the opportunity to match competitive bids from other suppliers on the next generation of the product programs we provided to GM in the United States and Canada as of January 1, 1999, provided those programs are sourced by GM before January 1, 2002. However, in order to utilize this ability to secure next generation business, we must be competitive in terms of design, quality, price, service and technology. Other suppliers’ bids to provide particular products may include offers of price reductions to GM on other current or future products, and GM may under the Supply Agreement consider the economic effect of such package proposals in assessing our competitiveness.

      Our ability to secure next generation business as described above, which is sometimes referred to as a “right of last refusal,” includes production in the United States and Canada of common global vehicle platforms to the extent that we can provide or execute designs that comply with the required form and function specifications determined by GM, as well as production in Mexico of vehicles intended for sale in the United States or Canada; provided that in all cases such programs must meet all of the other necessary criteria, including that such programs were programs in the United States and Canada which we were providing to GM as of January 1, 1999. Other than as described immediately above, our ability to secure next generation business will not apply to any programs of GM’s international automotive operations or to GM vehicle production in Mexico.

      Consistent with GM’s contracts with other suppliers, the Supply Agreement provides GM the right to re-source its business with us if we are not competitive in terms of quality, service, design and technology. Competitiveness is defined by demonstrable product and performance levels available to GM from other suppliers. The term “re-sourcing” refers to the process of moving existing business from Delphi to another supplier. However, if we are non-competitive with respect to a particular product, GM is required to notify us of any such non-competitiveness and provide us with a reasonable period of time during which to correct any such non-competitiveness before GM may re-source the business.

      GM is at all times permitted to adopt new technology, whether or not any such new technology is available through us. If GM wishes to introduce a technological change to a product covered by a then existing contract with us, we have a right of last refusal to implement the new technology or an equivalent technology acceptable to GM and continue production through the remaining term of the existing contractual commitment. If we are unable to provide the new technology or equivalent technology on a competitive basis, GM is free to re-source the business to another supplier.

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      If we propose to close a plant or eliminate a product line, we must keep GM informed of our decision-making process and in good faith reasonably consider modifying our plans in order to accommodate GM’s timing requirements with respect to re-sourcing the business. Also, if we propose to divest a business, we must keep GM informed of our decision-making process and in good faith reasonably consider GM’s concerns. Upon our selection of a qualified buyer, existing contracts with GM relating to the business being sold may be assigned to the buyer upon GM’s consent, which will not be unreasonably withheld. In such cases, GM will negotiate a new supply agreement with the buyer, which will contain substantially the same terms as our existing arrangements with GM with respect to the business being sold.

      The Supply Agreement also applies to service parts we provide to GM for sale to GM-authorized dealers worldwide. In general, unless otherwise provided in our existing contracts with GM, the unit pricing on service parts that are not “past model” will continue at the prices charged to GM until three years after such service parts go past model. The term “past model” refers to parts which are used on vehicle models which are no longer in production. Thereafter, unit prices for such service parts will be negotiated between the parties.

      Our underlying supply contracts with GM may be terminated by GM for a variety of factors, such as our non-competitiveness, cause, expiration and, in some cases, termination for convenience. Termination for convenience means GM can terminate the contract at any time for any reason. The majority of underlying contracts having termination for convenience provisions are shorter-term purchase orders. This right to terminate for convenience could be exercised by GM in connection with any change in control of Delphi. Certain change in control transactions could also give GM the right to terminate the Supply Agreement or the underlying contracts. Termination of the Supply Agreement would be likely to have a material adverse effect on our company.

      Employee Matters  We entered into several agreements with GM upon separation to allocate responsibility and liability for certain employee related matters. These arrangements made certain assumptions regarding negotiations with our unions. During 1999, we finalized national labor negotiations with our major unions and amended certain agreements with GM. These agreements generally provide for the following:

      Employee Transfers  As of January 1, 1999, all GM salaried and hourly employees, active and inactive, who were employees in our operations, were transferred to Delphi. However, the transfer of salaried and hourly employees at certain of our international operations, and of certain related pension and employee benefits plans, did not take place until the receipt of consents or approvals or the satisfaction of other applicable requirements. For all U.S. salaried employees who retired on or before January 1, 1999, GM retained responsibility for pension obligations and for other postretirement employee benefits (“OPEB”) obligations, consisting primarily of retiree medical obligations. With regard to our U.S. hourly employees, GM generally retained postretirement obligations for employees who retired on or before January 1, 2000. We will assume pension and OPEB obligations for employees who retire after January 1, 2000.

      The allocation of these obligations was initially based on certain estimated levels of U.S. hourly retirement on or before October 1, 1999 based on historical experience and conditions surrounding Delphi’s separation from GM. As part of the labor negotiations related to the effect of the Spin-Off on union-represented employees, this retirement date was extended to January 1, 2000. Under the Separation Agreement, Delphi agreed with GM to recalculate the allocation of these liabilities based on the actual level of retirements on or before January 1, 2000. Accordingly, if more than the assumed number of employees retire on or before January 1, 2000, we may be required to make a payment to GM. The amount of our pension and OPEB obligations are impacted by factors such as discount rate, asset returns, contributions and other factors. As of December 31, 1999, Delphi’s OPEB obligation was approximately $5.4 billion and the underfunded pension obligation was approximately $1.9 billion, which together included approximately $1.6 billion expected to be owed to GM.

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      In connection with GM’s disposition of certain businesses (including Delphi), GM granted the UAW guarantees covering benefits to be provided to certain former U.S. hourly employees who became our employees. We have entered into an agreement with GM that requires us to indemnify GM if GM is called on under this guarantee. As a means of mitigating the risk that the guarantee will be called upon, we have also agreed to consult with GM before taking certain fundamental corporate actions and obtain GM’s consent (not to be unreasonably withheld) before entering into transactions which might significantly adversely affect our ability to meet our pension and postretirement benefits (such as would cause our credit rating to be downgraded below B1 from Moody’s or B+ from Standard & Poors).

      Certain Flow-Back Rights  National union negotiations also resulted in some of our hourly employees in the United States being provided with certain opportunities to transfer to GM as appropriate job openings become available at GM and GM employees in the United States having similar opportunities to transfer to our company to the extent job openings become available at our company. In general, if an employee transfers from our company to GM and then retires from GM, or transfers from GM to our company and retires from our company, both our company and GM will be responsible for pension payments, which in total reflect such employee’s entire years of service. Responsibility for such pension payments will generally be allocated between the companies based on such employee’s entire pre-transfer or post-transfer service, respectively. In the case of employees transferring from Delphi to GM, pre-transfer service will include service with GM prior to our separation from GM and thus will be reflected in the portion of the pension payments we must bear. There will be no transfer of pension assets or liabilities between us and GM with respect to such employees that transfer between our companies.

      With respect to OPEB obligations for such transferring employees, the company to which an employee transfers will provide the OPEB benefits for such employee. We have entered into an agreement with GM, which provides for a mechanism for determining a cash settlement amount for OPEB obligations associated with employees that transfer between our company and GM during any year. Pursuant to this agreement, upon identification of the employees who transferred between GM and our company during the past year, an actuarial analysis determined an estimated pattern of employment cessation, including retirement, death, or voluntary termination of such employees. This estimated pattern of employment cessation will determine the timing of payments due between us and GM for the employees that transferred between our companies in a given year.

      Separate actuarial analysis was used for employees transferring from our company to GM and from GM to our company. The actuarial assumptions used in valuing the OPEB obligations associated with transferring employees were based on those used in conjunction with the receiving company’s annual OPEB valuation for the given period. The liability with respect to such transferring employees will be retained by the company from which the employee transferred until the cash settlement with respect thereto has been made, upon which such liability will be recognized by the company to which the employee transferred.

      All of the agreements that we entered into in connection with our separation from GM were made in the context of our parent-subsidiary relationship. The terms of these agreements may be more or less favorable to us than if they had been negotiated with unaffiliated third parties.

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Employees; Union Representation

      As of December 31, 1999, excluding our joint ventures and other investments, we employed approximately 203,000 people, of which approximately 34,000 were salaried employees and approximately 169,000 were hourly employees. Of our hourly employees, approximately 95% are represented by approximately 51 unions, including the United Automobile Workers (“UAW”), the International Union of Electronic, Electrical, Salaried Machine and Furniture Workers AFL-CIO (“IUE”) and the United Steel Workers (“USWA”). Our union representation by major region as of December 31, 1999 is indicated in the table below:

Union Representation

      We negotiated national bargaining agreements with the UAW and the IUE during the second half of 1999. The Delphi-UAW National Labor Agreement expires in September 2003. The Delphi-IUE National Labor Agreement expires in November 2003. We assumed the terms of existing collective bargaining agreements for our employees represented by other unions, including those represented by the USWA, in connection with the Separation. GM’s national agreement with the USWA expires in September 2007.

      Our world headquarters is located in Troy, Michigan and occupies approximately 264,000 square feet. We occupy this facility, as well as certain other facilities, under agreements with General Motors.

      We also maintain regional headquarters for our Asia/ Pacific region in Tokyo, Japan, for our Europe/ Middle East/ Africa region in Paris, France and for our South America region in São Paulo, Brazil. Excluding our joint ventures and other investments, we currently maintain approximately 244 sites in 37 countries throughout the world. The following table, excluding our joint ventures and other investments, shows our principal facilities as of December 31, 1999:

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      In some cases, our manufacturing sites, technical centers and/or customer service centers and sales activity offices are located at a single multiple-purpose site. The following table, excluding our joint ventures and other investments, shows our capabilities as of December 31, 1999:

      We are currently evaluating long-term plans to consolidate our worldwide engineering and technical resources, including our technical centers, into a more efficient, customer-focused global engineering support network. While we believe that this consolidation will enhance our ability to provide engineering and technical support to our customers around the world, we also expect that it will have the effect of reducing the overall number of our technical centers.

      We believe that our facilities are suitable and adequate, and have sufficient productive capacity, to meet our current anticipated needs. We are beginning the process of evaluating how the facilities acquired in January 2000 as part of the Lucas Diesel Systems transaction will be integrated into our overall facilities plan.

ITEM 3.  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.

      Although we do not believe any current litigation will have a material adverse effect on our business or financial condition, we face an inherent business risk of exposure to product liability claims in the event that the failure of our products results or is alleged to result in personal injury or death, and we cannot assure you that we will not experience any material product liability losses in the future. In addition, if any Delphi-designed products are or are alleged to be defective, we may be required to participate in a recall involving such products. Each VM has its own policy regarding product recalls and other product liability actions relating to its suppliers. As suppliers become more integrally involved in the vehicle design process and assume more of the vehicle assembly functions, VMs are increasingly looking to their suppliers for contribution when faced with product liability claims. Because this is a new trend in our industry and we have only limited experience in this regard, we cannot assure you that our costs associated with providing product warranties will not be material.

      In connection with our separation from General Motors, GM agreed to retain responsibility for all product liability actions relating to products we manufactured prior to January 1, 1999 and sold or otherwise supplied to GM either before or after that date. We are responsible for all product liability actions relating to products we sold at any time to customers other than GM. Responsibility for product liability actions relating to products manufactured on or after January 1, 1999 and sold to GM are determined in accordance with the agreements for such sales.

      From time to time, in the ordinary course of business, Delphi receives notices from customers that products may not function properly. The terms and conditions of the applicable contract generally govern our warranty responsibility for our products, which vary from contract to contract. Most of our contracts require that we make certain warranties to our customers regarding, among other things, conformity to specifications and freedom from defect.

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      VMs generally offer warranties to new vehicle purchasers, which cover the repair and replacement of defective parts on their vehicles for a specified period of time. Traditionally, VMs have borne the cost associated with such warranty programs, including costs related to the repair and replacement of parts supplied to the vehicle manufacturer by the supplier. VMs are increasingly requiring their outside suppliers to guarantee or warrant their products. Depending on the terms under which Delphi supplies products to a VM, a VM might seek to hold Delphi responsible for some or all of the repair or replacement costs of such products under new vehicle warranties, when the product supplied did not perform as represented. Due to limited experience in this regard, we cannot assure you that our costs associated with providing product warranties will not be material.

      We believe that we are adequately insured, including with respect to product liability coverage, at levels sufficient to cover the claims described above, subject to commercially reasonable deductible amounts. We have also established reserves in amounts we believe are reasonably adequate to cover any adverse judgments. However, any adverse judgment in excess of our insurance coverage and such reserves could have a material adverse effect on our business.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      During the fourth quarter of the fiscal year covered by this report on Form 10-K, no matters were submitted to a vote of security holders.

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      The name, position, age as of February 1, 2000 and a description of business experience for each of the executive officers of Delphi is listed below. There is no family relationship among the executive officers or between any executive officer and a director. Executive officers of Delphi are elected annually by the Board of Directors and hold office until their successors are elected and qualified or until their earlier resignation or removal.

      Mr. Battenberg has led Delphi and its precursor, the Automotive Components Group Worldwide (“ACG Worldwide”), since 1992. In July 1995, he was named President of Delphi. He was named Chief Executive Officer of Delphi in August 1998 and Chairman of the Board of Delphi in November 1998. Mr. Battenberg also serves as the Chairman of the Delphi Strategy Board. Mr. Battenberg held various positions with General Motors beginning in 1961, including Superintendent of Industrial Engineering, Comptroller, Production Manager and Plant Manager. In 1986, he was appointed Product Manager for the former Buick-Oldsmobile-Cadillac Group’s Flint Automotive Division. He later served as Vice President of the division, and then Vice President and Group Executive for the Buick-Oldsmobile-Cadillac Group. Mr. Battenberg was named Vice President and Group Executive of ACG Worldwide in 1992. Two years later, he was elected a Senior Vice President and President of ACG Worldwide. He also served as a member of GM’s President’s Council. In July 1995, he was elected Executive Vice President of GM and President of Delphi Automotive Systems, formerly ACG Worldwide. Mr. Battenberg is on the Board of Trustees of Kettering University, formerly known as General Motors Institute (“GMI”), the National Advisory Board for Chase Manhattan Corp and the Board of Overseers at Columbia Business School. He is also a member of the Council on Competitiveness, the Business Roundtable and the Business Council.

      Mr. Dawes was named Chief Financial Officer of Delphi Automotive Systems in August 1998 and Director and Executive Vice President in charge of Finance, Mergers & Acquisitions and Information

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      Mr. Runkle was named a Director, Executive Vice President of Delphi Automotive Systems and President of Delphi Dynamics and Propulsion sector in January 2000. He had been Vice President and President of Delphi Energy and Engine Management Systems since November 1998 and General Manager of Delphi Energy & Engine Management Systems since May 1996. Previously, Mr. Runkle had been a Vice President of GM and General Manager of Delphi Saginaw Steering Systems since August 1993. From 1992 to 1993, Mr. Runkle was in charge of GM’s North American Engineering Center and, from 1988 to 1992, he was in charge of GM’s former Advanced Engineering Staff. Prior thereto, Mr. Runkle served in a series of engineering positions with GM since 1968.

      Mr. O’Neal was named Executive Vice President of Delphi Automotive Systems and President of Delphi Safety, Thermal and Electrical Architecture sector in January 2000. He had been Vice President and President of Delphi Interior Systems since November 1998. Previously, he had been General Manager of the former Delphi Interior & Lighting Systems since May 1997. Since 1994, Mr. O’Neal had been General Director of Warehousing and Distribution for GM-SPO. From late 1992 to 1994, Mr. O’Neal served as Director of Manufacturing for ACG Worldwide. From 1991 to late 1992, Mr. O’Neal was first Director of Industrial Engineering for Chevrolet-Pontiac-GM of Canada (“C-P-C”) and later was named Director of Manufacturing Engineering with GM. Prior thereto, Mr. O’Neal held numerous engineering and manufacturing positions with GM since 1971.

      Mr. Weber was named Executive Vice President of Operations, Production Control & Logistics, Corporate Affairs and Human Resources Management for Delphi Automotive Systems in January 2000. He had been Vice President of Human Resources Management for Delphi Automotive Systems since November 1998 and Executive Director of Human Resources Management for Delphi since January 1995. Previously, he was General Director of Personnel and Public Affairs at the former Inland Fisher Guide since 1993. From 1991 to 1993, he was General Director of Personnel for the same. From 1988 to 1991, he was Director of Industrial Relations at C-P-C, and from 1986 to 1988, he served as Director of Human Resources for Salaried Personnel at C-P-C. From 1985 to 1986, he was Director of General Offices Personnel at C-P-C. Prior thereto, he held a number of human resource and personnel positions at GM since 1966.

      Mr. Wohleen was named a Delphi Automotive Systems Executive Vice President and President of Delphi Electronic and Mobile Communication sector in January 2000. He had been Vice President and President of Delphi Delco Electronics since November 1998 and General Manager of Delphi Delco Electronics since August 1998. Prior to his current position, he had been a General Director of Engineering with Delco Electronics, which is now Delphi Delco Electronics, since February 1997. In 1994, Mr. Wohleen was named Director of Electrical, Interior and HVAC for GM’s Midsize Car Division in Warren, Michigan, and in 1995, he assumed additional responsibility for general assembly, tools and process and powertrain coordination for GM’s MidLux Car Division in Warren. Prior thereto, Mr. Wohleen held a series of engineering and manufacturing positions with GM since 1978. Mr. Wohleen is a member of the Conference Board’s Council of Operating Executives.

      Mr. Alapont was named a Delphi Automotive Systems Vice President and President of Delphi Europe in July 1999. With more than 20 years of international experience, Alapont joined Delphi as Executive Director of International Operations for Delphi Energy and Engine Management Systems in October 1997. Prior to joining Delphi, Mr. Alapont was the group Vice-President and General Manager for Valeo Worldwide Lighting. From 1990-1996, Mr. Alapont held various positions at Valeo, including Managing Director and Executive Operations Director.

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      Mr. Barth was named a Delphi Automotive Systems Vice President in November 1998 and President of Delphi South America in November 1996. He had been Executive Director of Worldwide Purchasing for Delphi since 1994. From 1993 to 1994, he was Executive Director of Worldwide Purchasing-Metallic. From 1992 to 1993, he was Director of Materials Management for GM do Brasil in São Paulo, and from 1991 to 1992, he was Director of Purchasing for the same organization. Prior thereto, he held several purchasing assignments for GM’s Adam Opel subsidiary since joining GM in 1963.

      Mr. Bertrand was named a Delphi Automotive Systems Vice President and President of Delphi Interior Systems in January 2000. He had been Vice President of Operations for Delphi Automotive Systems since November 1998 and Executive Director of Operations for Delphi since June 1997. Previously, he was Executive Director of Development for small cars at GM’s International Operations since 1995. From 1992 until 1995, he was Comptroller at Adam Opel AG in Russelsheim, Germany. From 1989 to 1992, he was Director of Financial Analysis and Planning for GM Europe. Prior thereto, he held finance, business and engineering positions for GM since 1979.

      Mr. Ebbert was named a Delphi Automotive Systems Vice President in November 1998 and President of Delphi Asia Pacific in July 1993. He had been Chairman and Managing Director of Vauxhall Motors Limited, UK, since 1988. Previously, Mr. Ebbert had been Group Director of Business Operations for Delphi Automotive Systems. Prior thereto, he held a number of senior assignments with Delphi Saginaw Steering Systems’ central office. He joined GM in 1965.

      Mr. Hachey was named President of Delphi Energy and Chassis Systems in January 2000. He remains a Delphi Automotive Systems Vice President, a title which he has held since November 1998. He had been President of Delphi Chassis Systems since November 1998 and General Manager of Delphi Chassis Systems since August 1998. Previously, Mr. Hachey had been Manufacturing Manager, Worldwide Operations, for the former Delphi Interior & Lighting Systems since 1995. From 1994 to 1995, he was Director of Manufacturing Operations for Delphi Automotive Systems and, from 1992 to 1994, he was Director of Manufacturing Operations for the heating, ventilation and air conditioning/heat exchangers business unit of what is now Delphi Harrison Thermal Systems. Prior thereto, Mr. Hachey held several manufacturing positions with GM since 1978.

      Mr. Heilman was named a Delphi Automotive Systems Vice President and President of Delphi Packard Electric Systems in November 1998. He had been General Manager of Delphi Packard Electric Systems since October 1994. From 1993 to 1994, Mr. Heilman served as Director of Delphi Packard Electric Systems’ North American Business Unit and from 1991 to 1993, he was Director of Packard International. Prior thereto, Mr. Heilman served in numerous engineering, manufacturing and product-related positions since joining Delphi Packard Electric Systems in 1964.

      Mr. Pirtle was named a Delphi Automotive Systems Vice President and President of Delphi Harrison Thermal Systems in November 1998. He had been General Manager of Delphi Harrison Thermal Systems since November 1996. Previously, Mr. Pirtle had been Director of North American Operations at Delphi Packard Electric Systems since 1994. From 1992 to 1994, Mr. Pirtle was Finance Director for AC Delco Systems and from 1990 to 1992, he was Executive-in-Charge of GM’s Corporate Strategic Planning Group. Prior thereto, Mr. Pirtle held various engineering and financial and planning positions with GM since 1972. Mr. Pirtle is a Board member of the Alumni Association of Kettering University, formerly GMI, and a Board member of the University of Pittsburgh School of Engineering.

      Mr. Spencer was named a Delphi Automotive Systems Vice President and President of Delphi Asia Pacific in February 2000. Previously, he was Director of Saginaw Steering Global Sales, Marketing, Ventures and Planning since 1996. From 1994 to 1995, he was Site Manager of Saginaw Steering’s Athens, Alabama operations. He was a Delphi Saginaw Steering Systems plant manager since 1992. Previously, he was Executive Vice President of Daewoo-HMS since 1989. He began his career in 1976 when he joined Delco Remy Division in Anderson, Indiana.

      Mr. Tosch was named a Delphi Automotive Systems Vice President and President of Delphi Saginaw Steering Systems in November 1998. He had been General Manager of Delphi Saginaw Steering Systems

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      Mr. Arle was named Vice President of Mergers, Acquisitions and Planning for Delphi Automotive Systems in November 1998. He had been Executive Director of Planning for Delphi since February 1998. Previously, he was Vice President and Chief Financial Officer for Saab Automobile AB since 1993. From 1992 to 1993, he was Vice President and Finance Manager for GM of Canada, Ltd. From 1988 to 1992, he was General Manager and Comptroller for the GM/ Toyota NUMMI joint venture. Prior thereto, he held several finance positions at GM since 1975.

      Mr. Blahnik was named Treasurer of Delphi Automotive Systems in August 1998 and a Delphi Vice President in November 1998. He had been Executive Director of Finance for Delphi since June 1996. Previously, he was Senior Vice President and Chief Financial Officer at Delco Electronics since 1995. From 1994 to 1995, he was Director of Finance for GM’s Lansing Automotive Division. From 1991 to 1994, he was Executive Director for GM’s Latin American Operations and President of Banco General Motors, and from 1988 until 1991, he was a Comptroller of GM do Brasil. Prior thereto, he held several finance positions at GM since 1978.

      Mr. Butler was named Vice President of Human Resources Management for Delphi Automotive Systems in January 2000. Previously, he was General Director, Human Resources for Delphi Delco Electronics Systems since he joined Delphi in 1997. Since 1995, he was General Director of GM’s Health Care Initiatives staff. From 1991 to 1994, he was Director of GM Health Care Plans. From 1989 to 1990, he was Director of Human Resources for GM’s former Hydramatic Division Ypsilanti operations. Prior thereto, Mr. Butler held several human resources and manufacturing positions at GM since 1976.

      Mr. Campbell was named Vice President of Purchasing for Delphi Automotive Systems in November 1998. He had been Executive Director of Worldwide Purchasing for Delphi since November 1996. Previously, he was Executive Director of Worldwide Purchasing, Quality/ Supplier Development, at GM’s North American Operations since 1995. From 1994 to 1995, he was Executive Director of Worldwide Purchasing, Strategic and Metallic Activities. Prior thereto, he held a variety of managerial and purchasing positions at GM since 1964.

      Ms. Healy was named Vice President of Corporate Affairs and Facilities for Delphi Automotive Systems in January 2000. She had been Vice President of Corporate Affairs since November 1998 and Executive Director of Communications since June 1997. From July 1996 to June 1997, she was Manufacturing Manager for Delphi’s Flint East Operations, Plants 6 and 7. From June 1995 to July 1996, she was Director of Corporate Communications at GM’s central office. From January 1995 to June 1995, she was Director of Communications for Delphi. Prior thereto, Ms. Healy held several personnel, labor relations and communications positions at GM since 1976. She serves on the Board of Trustees for the Music Hall Center for the Performing Arts in Detroit and the Executive Board for the Troy Chamber of Commerce.

      Mr. Janak was named Chief Information Officer for Delphi Automotive Systems in April 1998 and a Delphi Vice President in November 1998. He had been a Vice President and Chief Information Officer at TRW Inc., since February 1995. Previously, he was Vice President and General Manager of TRW’s Information Services Division. Prior thereto, he worked in propulsion engineering for NASA’s Apollo program and worked for Chrysler Corporation, Teledyne Brown Engineering, Planning Research Corporation and the German firm, Technologieforshung.

      Mr. Lorenz was named Vice President of Operations and Logistics for Delphi Automotive Systems in January 2000. He had been Vice President of Production Control and Logistics since November 1998 and Director of Production Control and Logistics since March 1996. Previously, he had been Director of Materials Management for GM’s North American Operations Prototype Shops since June 1993. From 1991 to 1993, he was Director of Materials Management, Experimental Manufacturing. From 1990 to

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      Mr. Robinson was named General Counsel and a Delphi Automotive Systems Vice President in December 1998. Previously, he was Of Counsel to the Corporate, Securities and Business Law group at Dickinson Wright PLLC, a Michigan law firm headquartered in Detroit, since April 1998. From February 1996 to April 1998, he was Senior Vice President, Secretary and General Counsel for ITT Automotive, Inc. From April 1987 to February 1996, he was a lawyer for Chrysler Corporation serving, among other positions, as Vice President and General Counsel for Chrysler International Corporation, a subsidiary of Chrysler Corporation, and Geschäftsführer, or Managing Director, of Chrysler Austria GmbH. Prior thereto, he held legal positions at TRW Inc. in Cleveland, Ohio, and at Coudert Brothers and Wender, Murase & White in New York City.

      For purposes of calculating the aggregate market value of Delphi’s common stock held by non-affiliates, as shown on the cover page of this report, it has been assumed that all the outstanding shares were held by non-affiliates, except for the shares held by directors and executive officers of Delphi. However, this should not be deemed to constitute an admission that all directors and executive officers of Delphi are, in fact, affiliates of Delphi, or that there are not other persons who may be deemed to be affiliates of Delphi. Further information concerning shareholdings of executive officers, directors and principal shareholders is included in Delphi’s definitive proxy statement filed or to be filed with the Securities and Exchange Commission.

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ITEM 5.  MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

      Our Common Stock is listed on the New York Stock Exchange under the symbol “DPH.” The Transfer Agent and Registrar for our Common Stock is BankBoston Equiserve. On January 31, 2000, there were 462,357 holders of record of our Common Stock.

      We declared dividends of $0.07 per share on June 9, September 8, and December 7, 1999. Our Board is free to change its dividend practices at any time and from time to time and to decrease or increase the dividend paid, or not to pay a dividend, on the Common Stock on the basis of the results of operations, financial condition, cash requirements and future prospects of our company and other factors deemed relevant by our Board.

      The following table sets forth the high and low sales price per share of Common Stock, as reported by the New York Stock Exchange, for the periods indicated. Because our shares were not publicly traded until our IPO on February 5, 1999, when our shares were offered at $17.00, there are no high and low price per share amounts to report for 1998.

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      The following selected financial data reflects the 1999 results of operations and cash flows. Selected financial data for periods prior to 1999 reflect the historical results of operations and cash flows of the businesses that were considered part of the Delphi business sector of GM during each respective period. In addition, the data for all periods include amounts relating to Delco Electronics, the electronics and mobile communication business that was transferred by GM to Delphi in December 1997. The historical consolidated statement of operations data set forth for the years 1995-1998 do not reflect many significant changes that have occurred in the operations and funding of our company as a result of our separation from GM and the IPO. The historical consolidated balance sheet data set forth below reflects the assets and liabilities transferred to our company in accordance with the Separation Agreement. In order to better evaluate our underlying operating performance, the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section includes 1998 results of operations on a pro forma basis.

      The selected financial data of Delphi should be read in conjunction with, and are qualified by reference to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and notes thereto included elsewhere in this report. Our consolidated statement of operations and cash flows for the years ended December 31, 1999, 1998, 1997, 1996 and 1995 and the consolidated balance sheets as of December 31, 1999, 1998, 1997 and 1996 have been audited. The consolidated balance sheet as of December 31, 1995 is unaudited; however, in our opinion, it includes all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the results for the period.

      The financial information presented below may not be indicative of our future performance and does not necessarily reflect what our financial position and results of operations would have been had we operated as a separate, stand-alone entity during the years 1995-1998. You should read the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section, which describes a number of factors which have affected our financial results, including significant price reductions as GM implemented its global sourcing initiative, labor disruptions at both GM and Delphi and charges associated with certain competitiveness initiatives.

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Overview

      1999 was a very exciting year for Delphi. Highlights from the year included our initial public offering (“IPO”) of 100 million shares of common stock, the completion of our separation from GM, the successful negotiation of our initial U.S. labor agreements and continued progress in reducing our structural costs and restructuring our product portfolio. In addition, we posted strong operating results and generated significant operating cash flow. On a comparable basis, our net income increased 22% to $1.1 billion. Similarly, sales to customers other than GM grew 13% and we generated $2.5 billion of operating cash flow after adjusting for the one-time effects associated with our separation from GM. Our strong operating cash flows enabled us to make voluntary pension contributions of $1.8 billion, including $575 million contributed in January 2000, and acquire Lucas Diesel Systems, a producer of diesel fuel-injection systems for light, medium and heavy-duty vehicles for approximately $871 million, subject to adjustments for certain post-closing events.

      Overall, our 1999 operating results validate the Delphi business model and demonstrate our ability to meet expectations established at the time of our IPO. While there is still much to be accomplished, we believe we are solidly on track to meet our long-term targets for non-GM sales growth, earnings growth and margin improvement.

History

      We became an independent company during 1999 through a series of transactions (the “Separation”). The Separation occurred in two stages, the first of which involved our IPO of 100 million shares of Delphi’s $0.01 par value common stock in February 1999. The second stage involved the distribution of Delphi’s remaining shares owned by GM (the “Spin-Off”) to holders of record of GM $1  2/3 par value common stock in May 1999. The dividend resulted in a distribution of approximately 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.

      The financial information for December 31, 1998 and 1997 reflected the historical results of operations and cash flows of the businesses that were considered part of the Delphi business sector of GM and the assets and liabilities transferred to Delphi in accordance with the terms of the Separation. We believe the assumptions underlying the 1998 and 1997 financial information are reasonable, although such financial information may not necessarily be indicative of the results of operations, financial position and cash flows of the company had we been a separate, independent company during 1998 and 1997.

      In order to better evaluate our underlying operating performance, our financial results for 1998 and 1997 have been adjusted for certain special items that management views as non-recurring. Such special items included charges for divestitures, asset impairments and postemployment benefits payable under contractual agreements, as well as the impact of work stoppages at certain GM and Delphi locations. For additional information, see “1998 versus 1997 Special Items and Work Stoppages” and “Adjusted Pro forma 1998”.

Results of Operations

      Certain 1998 financial information included in the section titled “1999 versus 1998” has been adjusted to reflect the impact of our separation from GM and exclude charges for special items and the impact of work stoppages. See “Adjusted Pro forma 1998” for additional information.

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     1999 versus 1998

      Net Sales. Consolidated net sales and changes in net sales by product sector and in total for the years ended December 31, 1999 and 1998 were:

      Net sales for 1998 included approximately $1.2 billion of sales by businesses divested in late 1998. After adjusting for 1998 sales of divested business (primarily seating and lighting businesses previously included in our Safety, Thermal, and Electrical Architecture product sector), our consolidated net sales increased 7% over 1998. This increase in net sales reflects continued growth in non-GM sales and strong North American and European sales volumes, partially offset by continued price pressures, soft demand in South America and some Asia Pacific markets and weakness in European currencies versus the U.S. dollar. Sales to non-GM customers increased 13% on a comparable basis, while sales to GM increased 6%, partially due to the fact that 1998 sales included the unfavorable impact of work stoppages at certain GM and Delphi locations. As for ongoing price pressures, each of our product sectors were impacted by price reductions associated with customer competitive sourcing initiatives and global vehicle platforms. Overall, price reductions decreased net sales by 1.6% in 1999.

      We expect consolidated net sales in 2000 to exceed 1999 sales, provided automotive production levels in North America and Europe remain relatively stable. Sales growth is expected from new business awarded to Delphi and the integration of the Delphi Diesel Systems business acquired in January 2000, partially offset by continued sales price reductions required by vehicle manufacturers. In addition, the impact of price reductions is expected to be mitigated by our ongoing cost reduction efforts and lean manufacturing initiatives. Although the foregoing describes our expectations regarding net sales and profitability in 2000, we cannot assure you that these expectations will be realized.

      Gross Margin. Our gross margin was 14.2% in 1999 compared to 8.2% in 1998. After giving effect to the terms of the Separation Agreement and excluding charges related to special items, our adjusted pro forma gross margin was 11.0% for 1998. The increased gross margin for 1999 primarily reflects our company-wide cost reduction initiatives through the implementation of lean manufacturing strategies and product line rationalization.

      Selling, General and Administrative and Depreciation and Amortization. Selling, general and administrative expenses increased by $19 million during 1999 on an adjusted pro forma basis. Increased selling, general and administrative expenses are primarily due to our efforts to expand our non-GM sales and increase awareness of our brands and technological capabilities. Depreciation and amortization decreased by $246 million during 1999. The decrease in depreciation and amortization reflects reductions in expense due to the asset impairment charges recognized in 1998, businesses divested in 1998, and the timing of various capital projects.

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      Operating Income (Loss).  Our operating income was $1.7 billion for 1999 compared to an operating loss of $221 million in 1998. Our operating income by product sector, with 1998 on an adjusted pro forma basis and excluding the impact of work stoppages, was:

      The improvement in 1999 operating income reflects increased sales as discussed above, including the favorable impact of greater sales penetration of non-GM customers during 1999. The improvement also reflects the results of our continuing cost reduction efforts and lean manufacturing initiatives that are being implemented around the world.

      Interest Expense.  Interest expense decreased by $145 million, as 1999 debt levels were lower than 1998 due to strong current year cash flows.

      Other Income, Net.  Other income, net totaled $171 million for 1999 compared to $232 million for 1998. The decrease is primarily due to Delphi’s receipt of certain duty tax refunds during 1998.

      Taxes.  Our effective income tax rate for 1999 was 37.1% compared to 25.0% in 1998 on an adjusted pro forma basis. The increased effective income tax rate primarily reflects changes in our tax environment resulting from our separation from GM.

      Net Income (Loss).  Net income for 1999 totaled $1.1 billion compared to a historical net loss of $93 million for 1998. Our adjusted pro forma net income, excluding the impact of work stoppages, for 1998 was $889 million.

      Earnings (Loss) per Share.  Diluted earnings per share for 1999 were $1.95 compared to a historical diluted loss per share of $(.20) for 1998. If the shares issued in our IPO were outstanding since January 1, 1998, our 1999 earnings per share would have been $1.91 per share and our 1998 adjusted pro forma earnings per share, excluding the impact of work stoppages, would have been $1.57, which we believe is the most relevant comparison.

     1998 versus 1997

      The financial information in this section has not been adjusted for the terms of our separation from GM. Given that both 1998 and 1997 reflect our historical results as a product sector of GM, such financial information is presented on a comparable basis.

     Special Items and Work Stoppages

      The following is a summary of the special items that impacted our operating results during 1998 and 1997:

     1998

	•	During 1998, we recorded a $310 million charge, or $192 million after-tax, related to underperforming assets and postemployment benefits payable under contractual agreements. Overall, the charge had the effect of increasing cost of sales and depreciation and amortization by $154 million and $156 million, respectively.

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	•	During 1998, we recorded a loss of $430 million, or $271 million after-tax, related to divestitures involving our seating, lighting, and coil spring businesses. The charge had the effect of increasing cost of sales and depreciation and amortization by $382 million and $48  million, respectively.
	•	Work stoppages at GM and Delphi during 1998 reduced operating income by approximately $726 million, or $450 million after-tax, after considering partial recovery of lost production.

     1997

	•	During 1997, we recorded a $1.4 billion charge, or $870 million after-tax, related to underperforming assets, assets held for disposal and postemployment benefits payable under contractual agreements. Overall, the charge had the effect of increasing 1997 cost of sales and depreciation and amortization by $262 million and $1.1  billion, respectively.
	•	Work stoppages during 1997 reduced operating income by approximately $148  million, or $92 million after-tax, after considering partial recovery of lost production.
	•	During 1997, we recorded an $80 million charge, or $50 million after-tax, relating primarily to the cost of supplemental unemployment compensation under contractual agreements offered at a facility in Trenton, New Jersey. This charge had the effect of increasing cost of sales by $80 million.
	•	Other special items included gains aggregating $97 million, or $60 million after-tax. These gains primarily related to the sale of certain businesses and investments, none of which were material on an individual basis.

      Net Sales. Consolidated net sales and changes in net sales by product sector and in total for the years ended December 31, 1998 and 1997 were:

      The decrease in consolidated net sales reflects unfavorable volume associated with work stoppages, after considering partial recovery of lost production, divested businesses (primarily in our Safety, Thermal and Electrical Architecture product sector) and economic conditions in Asia and Latin America. In addition, our net sales continued to be impacted by pricing pressures as vehicle manufacturers reduced their cost structures through competitive sourcing initiatives and global vehicle platforms. Specifically, all of our product sectors were impacted by price reductions required by GM and other customers which totaled $465 million (or 1.6% of net sales). Overall, price reductions had the largest impact on our Electronics & Mobile Communication product sector (2.7% of net sales) due to the impact of GM-North America’s continued implementation of its global sourcing strategy and reflecting the overall price declines throughout the electronics industry. The unfavorable impact of lower volumes, as discussed above, and price reductions was partially offset by an increase in sales to customers other than GM. Sales to customers other than GM during 1998 increased approximately $620 million or 11% compared to 1997.

      Gross Margin. Gross margin represented 8.2% of consolidated net sales for 1998 compared to 11.9% for 1997. The decrease reflects the impact of special items and work stoppages along with other factors which are described in greater detail in the operating (loss) income discussion below.

      Selling, General and Administrative and Depreciation and Amortization. Selling, general and administrative expenses increased by $48 million during 1998 compared to 1997. Depreciation and

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      Operating (Loss) Income. Our operating loss was $221 million for 1998 compared to operating income of $352 million in 1997. Excluding the impact of special items and work stoppages, operating income totaled $1.2 billion and $1.9 billion for the years ended December 31, 1998 and 1997, respectively.

      Operating income by product sector and in total, excluding the impact of special items and work stoppages, was:

      Operating income, excluding the impact of special items and work stoppages, was unfavorably impacted by continuing price pressures, the economic downturn in Latin America and unfavorable design costs and product mix. These unfavorable items were offset by our aggressive cost reduction efforts as we have implemented several strategies to reduce our cost structure and maintain our desired level of profitability. Specifically, each of our product sectors achieved material and manufacturing cost savings which totaled approximately $945 million during 1998, exceeding price reductions and unrecovered design change costs by $110 million. Cost savings achieved primarily reflect the results of our global sourcing initiatives and continued implementation of lean manufacturing strategies. In addition, operating income was favorably impacted by greater sales penetration of non-GM customers during 1998.

      Interest Expense. Interest expense totaled $277 million and $287 million for the years ended December 31, 1998 and 1997, respectively. The decrease in interest expense reflects lower interest rates during 1998 in comparison to 1997 rates.

      Other Income, Net. Other income, net totaled $232 million for 1998, compared to $194 million in 1997. The increase primarily reflects improved profitability for certain non-consolidated ventures during 1998.

      Taxes. The effective income tax rate for 1998 was a 65.0% credit compared to an effective income tax rate of 17.0% for 1997. During 1998, certain deductions and tax credits remained constant while income decreased substantially, resulting in a greater effective tax benefit as a percentage of pretax income.

      Net (Loss) Income. Our historical net loss totaled $93 million in 1998 compared to net income of $215 million during 1997. Excluding special items and work stoppages, our income was $820 million and $1.2 billion for the years ended December 31, 1998 and 1997, respectively, reflecting the impact of items discussed above.

     Adjusted Pro forma 1998

      The unaudited pro forma condensed consolidated statement of operations data below has been prepared as if the Separation had taken place on January 1, 1998. The unaudited pro forma condensed consolidated balance sheet and statement of operations data presented below are intended to represent Delphi’s financial position and results of operations as if the IPO and certain other transactions occurred

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      After considering partial recovery of lost production, the impact of work stoppages at GM and Delphi during 1998 was as follows:

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      The following pro forma adjustments were made to reflect the terms of the Separation Agreement, the IPO and the impact of special items:

	(1)	Delphi and General Motors have entered into agreements regarding certain employee benefit obligations. The pro forma adjustment for the year ended December 31, 1998, $248 million of which relates to cost of sales and $15 million of which relates to selling, general and administrative expense, is summarized as follows (in millions):