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UNITED STATES

FORM 10-K

For the Fiscal Year Ended December 31, 2000

OR

For the Transition Period From                                      to                                       .

Commission File No. 1-14787

DELPHI AUTOMOTIVE SYSTEMS CORPORATION

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    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. 

     As of January 31, 2001, 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 $8.3 billion. The closing price of the Common Stock on January 31, 2001 as reported on the New York Stock Exchange was $14.76 per share. As of January 31, 2001, the number of shares outstanding of the registrant’s Common Stock was 559,790,288 shares.

Documents Incorporated by Reference

     Certain portions, as expressly described in this report, of the registrant’s Proxy Statement for the 2001 Annual Meeting of the Stockholders, to be filed within 120 days of December 31, 2000, are incorporated by reference into Part III, Items 10-13.

DELPHI AUTOMOTIVE SYSTEMS CORPORATION

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PART I

DELPHI AUTOMOTIVE SYSTEMS CORPORATION

ITEM 1.  BUSINESS

      Overview  Delphi Automotive Systems Corporation (“Delphi”) is a world leading supplier of vehicle electronics, transportation components, integrated systems and modules, with 2000 net sales of $29.1 billion. We have 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 vehicle manufacturers (“VMs”). 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 sell our products to the major VMs around the world. We operate our business along three major product sectors, which work closely together to coordinate 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 safety, thermal and power and signal distribution products; and Dynamics & Propulsion, which includes our energy and engine management, chassis and steering products. See Note 13 to our consolidated financial statements included elsewhere in this report for additional product sector and geographical information.

      We also sell our products to the worldwide aftermarket for replacement parts. Our select portfolio of high-quality aftermarket products falls under five key categories: under car, thermal systems, energy/engine management systems, electronics and remanufactured parts. By leveraging our strong electronics competency, technical knowledge, product portfolio and distribution network, we are able to offer a diversified line of aftermarket products.

      We are increasingly selling our products to non-VM customers. The growth in non-VM markets, which includes communications, military, aerospace, agriculture and construction, is fueled by our ability to leverage existing automotive technologies. We will continue to look for opportunities to use our base competencies beyond the automotive industry.

      History  Delphi was incorporated in Delaware in late 1998, as a wholly owned subsidiary of General Motors (“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 initial public offering (the “IPO”) on February 5, 1999, and the second of which involved the distribution of Delphi’s remaining shares owned by GM (the “Spin-Off”) on May 28, 1999.

      Acquisitions and Divestitures  On January 7, 2000, Delphi completed the purchase of Lucas Diesel Systems from TRW Inc. for $0.8 billion, net of cash acquired. Lucas Diesel Systems, now Delphi Diesel Systems, is the world’s second largest producer of diesel fuel-injection systems for light, medium and heavy-duty vehicles. This acquisition supports our key initiatives by adding new high-growth diesel product lines, increasing our European sales by more than 18%, complementing our gasoline engine management systems capabilities and increasing our non-GM sales by 10% to approximately $8.5 billion during 2000.

      On February 28, 2000, Delphi completed the acquisition of Automotive Products Distribution Services (“APDS”). APDS, now Delphi Lockheed Automotive, is a leading European distributor of automotive aftermarket products for passenger cars and commercial vehicles. We believe this acquisition strengthens our portfolio and distribution in the global aftermarket, providing distribution networks for our existing product lines as well as existing APDS products.

      We have recently completed an evaluation of our portfolio and are actively reviewing portfolio management options for our global generator business. Including generators, we are reviewing

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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 six key trends have been reshaping the automotive parts industry over the past several years:

      Increasing Electronic and Technological Content  The electronic and technological content of vehicles continues to expand, largely driven by increasingly stringent regulatory standards for automotive emissions and safety, as well as consumer demand for greater vehicle performance, functionality and convenience options with improved affordability. Electronics integration, which generally refers to products which combine computer chips, software algorithms, sensor technologies and mechanical components within the vehicle, allows VMs to achieve substantial reductions in weight and mechanical complexity, resulting in easier assembly, enhanced fuel economy, improved emissions control and better vehicle performance. The technology content of vehicles is also increasing, as consumers demand greater productivity, convenience and safety while driving. Mobile Multimedia, the technology that offers mobile voice and data communication coupled with global positioning sensors and in-vehicle entertainment, is making major inroads into the transportation industry. A high-growth product within Mobile Multimedia, telematics establishes links between the vehicle and a service center to enhance consumers’ safety, security and convenience.

      Global Capabilities of Suppliers  Broader global markets for vehicle sales and the desire of VMs to adapt their products to satisfy regional and cultural variations, have driven suppliers to establish capabilities within the major regions, 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. Additionally, VMs are also experiencing rapid consolidation which impacts customer/supplier relationships and provides opportunities and risks as suppliers attempt to secure global supply contracts across broader vehicle platforms.

      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,

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      Growth of e-Business  The growth of the Internet is transforming the marketplace for all industries, including the automotive industry. Many companies are using Internet based technology to speed the flow of material through the supply-chain, increase response to consumer demand and deliver new products to the market quickly. Increasingly, VMs are establishing Internet-based business-to-business integrated exchanges to facilitate their transactions with suppliers. The goal of these exchanges is to improve supply-chain management, support the e-business efforts of VMs and suppliers through collaborative solutions, improve competitive advantage by increasing speed and responsiveness and reduce costs at all levels of the value chain. These exchanges have the potential to allow VMs to work more effectively with their suppliers to satisfy consumer demands quickly and profitably.

      Delphi management believes that the Company is positioned to capitalize on these industry dynamics through our diversified product portfolio, our commitment to exceed customer expectations, our lean manufacturing practices and our global presence. While we believe that we can successfully execute business strategies to address the aforementioned industry trends, we cannot assure you in this regard.

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, 2000, we employed more than 16,000 engineers, scientists and technicians around the world with over one-third focused on electronic and high technology products, including software algorithm development. We introduced 103 new products and processes this year. 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 (including engineering) are critical to maintaining our pipeline of technologically advanced products. Our total expenditures for research and development activities (including engineering) were approximately $1.7 billion in each of the years ended December 31, 2000 and 1999 and $1.4 billion in 1998.

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 more than 5,000 patents and 4,000 patent applications worldwide. We expect this portfolio will continue to grow as we are actively pursuing additional technological innovation. The average age of our patents is less than 10 years. 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. Similarly, while our trademarks are important to identify Delphi’s position in the industry, and we have obtained certain licenses to use intellectual property owned by others, none is individually considered material to our business. We are actively pursuing marketing opportunities to license our technology to both automotive and non-automotive industries. This leveraging activity is expected to further enhance the value of our intellectual property portfolio.

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

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      Our product offerings are organized in three product sectors: Electronics & Mobile Communication; Safety, Thermal & Electrical Architecture; and Dynamics & Propulsion. To our knowledge, very few other Tier 1 suppliers compete across the full range of our product areas within the automotive industry and other transportation markets. Our product sector offerings and principal competitors are summarized below:

      Electronics & Mobile Communication  Our Electronics & Mobile Communication product sector accounted for $5.3 billion of our 2000 sales (16.7% 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., Motorola, Inc. and Siemens AG. Our principal Electronics & Mobile Communication product lines include the following:

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      Safety, Thermal & Electrical Architecture  Our Safety, Thermal & Electrical Architecture product sector accounted for $10.0 billion of our 2000 sales (33.9% 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 connectors, wiring harnesses, switches and sensors 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 $14.3 billion of our 2000 sales (49.4% excluding inter-sector sales). This sector offers a wide range of electronic 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 electronic 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, NSK Ltd., Siemens AG, Continental Teves and TRW Inc. Our principal Dynamics & Propulsion product lines include the following:

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Customers

      We primarily sell our products to the major global 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. While we expect to continue to compete effectively for GM business, our sales to GM have declined since our separation from GM and we expect our sales to GM to further decline over time. We currently supply parts to each regional sector

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

      Included in sales to other customers in the foregoing table, are sales to customers other than automotive and heavy duty truck (“non-automotive”). We are continuing our efforts to diversify our business by supplying certain products, including connection systems, flex-circuits wiring, instrumentation and pressure sensors, and engine controllers, to non-automotive customers within the recreational vehicles (e.g. boats), aerospace, motorcycle, construction, cellular phone and computer industries. Our non-automotive customers include Case New Holland, Caterpillar, Inc., Deere and Company, Ericsson, Harley-Davidson Inc., Lockheed Martin Corporation, Lucent Technologies, Nokia Corporation, and Silicon Graphics Inc. While growing rapidly, these non-automotive sales accounted for approximately $460 million, or 2%, of our total 2000 net sales.

Variability in Delphi’s Business

      A significant portion of our business is directly related to automotive sales and production by our customers, which is highly cyclical and depends 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. The North American automotive market, our largest market, has recently experienced a downturn in new vehicle sales, a build-up in inventories and a reduction in production volumes. As such, our sales have declined in line with reduced volumes. To offset the reduction in production volumes, we are accelerating our structural cost reduction efforts and increasing our portfolio management initiatives.

      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. The recent downward trend of the euro relative to the U.S. dollar may continue to negatively impact Delphi’s operations. The escalation of the value of the Mexican peso over the past eighteen months, coupled with economic cost increases in Mexico, may continue to lead to higher costs for Delphi’s Mexican operations.

      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 this cyclicality.

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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. All of these raw materials, except the platinum group metals which we use primarily to produce our catalytic converters, are available from numerous sources. Currently, most of the platinum group metals used by Delphi for catalytic converters produced for GM are procured directly from GM. Delphi purchases the platinum group metals it uses in products manufactured for its customers other than GM directly from Delphi’s suppliers, which are principally located in Russia and South Africa. We have not experienced any significant shortages of other raw materials and normally do not carry inventories of such raw materials in excess of those reasonably required to meet our production and shipping schedules.

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 2001 or 2002. Environmental requirements are complex, change frequently and have tended to become more stringent over time. Accordingly, we cannot assure you that these requirements will not change or become more stringent in the future.

      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, 2000, Delphi had recorded a reserve of approximately $20 million for such environmental investigation and cleanup. Although we believe our reserves are adequate, 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 businesses. In connection with the Separation, we entered into agreements allocating assets, liabilities and responsibilities in a number of areas including taxes, environmental matters, intellectual property, product liability claims, warranty, 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 temporarily provide a number of services to us, including information technology services, under various transition services agreements.

      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

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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:

      We agreed at the time of the Separation that we would not have any indebtedness to GM until May 28, 2001. On May 9, 2000, GM received a supplemental private letter ruling from the IRS. The ruling held that the existence of certain indebtedness of Delphi to GM would not impact the tax-free status of the Spin-Off or the qualification of our separation as a D Reorganization.

      Supply Agreement  Our Supply Agreement with GM is intended to provide us the opportunity to capture future GM business. 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

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      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.

      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 GM’s concerns. 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.

      Aftermarket Sales  Service parts provided to GM pursuant to the Supply Agreement for sale to GM authorized dealers and distributors are covered by our purchase agreements for the production parts. Prior to January 1, 2001, we were party to a Business Relationship Agreement (as modified and as amended from time to time, the “Business Relationship Agreement”) with GM-SPO regarding aftermarket sales in the United States. We and GM-SPO entered into a Memorandum of Understanding which provided that the Business Relationship Agreement expired December 31, 2000. As a result, starting January 1, 2001, Delphi is entitled to directly sell and distribute our products to the aftermarket in the United States. In addition, the Memorandum of Understanding provides that we will continue to supply current volumes of

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      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 have assumed pension and OPEB obligations for U.S. hourly employees who retire after January 1, 2000.

      In accordance with the terms of the Separation Agreement, Delphi also assumed an obligation to GM for pension and other postretirement benefits for U.S. hourly employees who retired after the Separation but on or before a specified retirement date and accordingly, were treated as GM retirees. Under the Separation Agreement, this obligation was subject to a contingency provision to the extent certain terms negotiated on behalf of U.S. hourly represented employees and the actual number of Delphi U.S. hourly employees who retired, differed from the terms and number of retirements assumed at the time of Separation. Certain changes in assumptions, primarily as a result of both an extension of the specified retirement date to January 1, 2000 and a higher than anticipated number of retirements, did subsequently occur. Accordingly, an adjustment to GM’s initial investment in Delphi of $0.8 billion was recorded in 1999 and 2000. This adjustment was based upon Delphi’s best estimate of the ultimate resolution of this contingency given the facts available within one year of the Separation.

      Separately, we entered into an agreement with GM in September 2000, resolving certain issues, related primarily to changes in assumptions for employee benefit obligations, as well as certain pre-Separation warranty claims. The portion of such settlement related to employee benefit assumptions was accounted for as a change in actuarial assumptions. Such agreement increased our separation related obligation to GM by approximately $0.2 billion.

      Our separation related obligation to GM is currently estimated at $1.9 billion in total, of which $1.5 billion was paid in 2000. We expect to pay $0.2 billion of our remaining separation related obligation in June 2001, and the balance in June 2002 and 2003.

      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

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      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. If such a transfer occurs, in general, both our company and GM will be responsible for pension payments, which in total reflect such employee’s entire years of service. Allocation of responsibility between Delphi and GM will be on a pro rata basis depending on the length of service at each company (although service at Delphi includes service with GM prior to our separation from GM). The company to which the employee transfers, however, will be responsible for OPEB obligations. There will be no transfer of pension assets or liabilities between us and GM with respect to such employees that transfer between our companies. An agreement with GM 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. The settlement obligation for OPEB since the Separation is approximately $16 million, payable in 2001.

      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.

Employees — Union Representation

      As of December 31, 2000, excluding our joint ventures and other investments, we employed approximately 211,000 people, of which approximately 38,000 were salaried employees and approximately 173,000 were hourly employees. Of our hourly employees, approximately 163,000 or 94% are represented by approximately 56 unions, including the United Automobile Workers (“UAW”), the IUE-CWA-AFL-CIO-CLC (“IUE”) and the United Steel Workers (“USWA”). Our union representation by major region as of December 31, 2000 is indicated in the table below:

Union Representation

      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.

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ITEM 2.  PROPERTIES

      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 lease 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 Mexico/ South America region in São Paulo, Brazil. Excluding our joint ventures and other investments, we currently maintain approximately 351 sites in 42 countries throughout the world, including 190 manufacturing facilities, 15 technical centers and 31 customer centers and sales offices. The remaining facilities are primarily warehouses and administrative offices. In addition, we have certain technical centers, customer centers and sales offices that are housed in our manufacturing facilities. Of the 351 sites, 47 are owned and 77 are leased in the United States and Canada, 67 are owned and 44 are leased in Europe/ Middle East/ Africa, 50 are owned and 16 are leased in Mexico/ South America and 17 are owned and 33 are leased in Asia/ Pacific.

      Our Electronics & Mobile Communication sector has 12 manufacturing facilities, 3 technical centers and 2 customer centers and sales offices. Our Safety, Thermal & Electrical Architecture sector has 107 manufacturing facilities, 3 technical centers and 16 customer centers and sales offices. Our Dynamics & Propulsion sector has 68 manufacturing facilities, 3 technical centers and 4 customer centers and sales offices. The remaining manufacturing facilities, technical centers, customer centers and sales offices are sites that support multiple sectors.

      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.

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.

      On November 29, 2000, a federal district court jury in Phoenix, Arizona awarded Nelco Technology (“Nelco”), a subsidiary of Park Electrochemical Corporation, approximately $32 million in conjunction with a commercial dispute involving a requirements contract between Nelco and Delco Electronics Corporation (“Delco”), a subsidiary of Delphi. The dispute related to Nelco’s supply of mass laminate, a component used by Delco in the manufacture of printed circuit boards until Delco exited such business in 1998. We are vigorously appealing this judgment and if successful, the appeal may alter or eliminate the amount of the existing judgment. While legal proceedings are subject to inherent uncertainty, we believe that it is reasonably possible that this award will be substantially altered or eliminated by the appellate court. Consequently, in the opinion of management and counsel, it is not possible to estimate the outcome of such uncertainty at this time. Delphi will record a provision for any legal judgment, if and at the time that management and counsel conclude a loss is probable.

      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

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      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. Delphi may also be subject to significant financial and legal obligations with respect to certain divested businesses.

      As previously reported, Delphi received a draft complaint and proposed consent order in March 2000 from the Ohio Environmental Protection Agency and the Ohio Attorney General seeking civil penalties from Delphi and GM for air emission violations from boilers and an adhesive coating line at a Delphi plant in Ohio. Under the GM-Delphi Separation Agreement, Delphi must reimburse GM for environmental penalties it incurs related to plants which were transferred to Delphi. Delphi, GM and Ohio signed a consent agreement in December 2000 where Delphi agreed to pay a $172,000 penalty to the state general fund and $43,000 to the Ohio Department of Natural Resources Division of Forestry for their urban tree planting project to resolve all claims against Delphi and GM. Delphi also agreed to perform compliance tests, and when necessary make modifications on additional air pollution control equipment. The Montgomery County Circuit Court entered the order on December 28, 2000. The order also requires testing of an additional coating line in 2001.

      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.

      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. Notwithstanding Delphi’s improved product quality, a few VMs have advised Delphi that they intend to pursue warranty claims to a greater extent than previously. For additional discussion of GM’s assertion of higher levels of pre-Separation warranty claims, see “Management’s Discussion and Analysis — Trends.” We cannot assure you that the future costs of warranty claims 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 any of the other 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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SUPPLEMENTARY ITEM.  EXECUTIVE OFFICERS OF THE REGISTRANT

      The name, position, age as of January 12, 2001 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. He held various other positions with GM from 1961 through 1992, was elected an executive vice president of GM in 1995 and served as a member of its President’s Council. Mr. Battenberg was an officer at GM from 1988 through 1998. Mr. Battenberg is on the Board of Trustees of Kettering University, Columbia Business School and the National Advisory Board for J.P. Morgan Chase & Co. He is also a member of the Council on Competitiveness, the Business Roundtable and the Business Council. In addition, he is a member of the Board of Directors of Covisint, L.L.C.

      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 Technology in January 2000. He had been a Vice President of Delphi since November 1998. Previously, Mr. Dawes served as General Manager of Delphi Chassis Systems, formerly Delco Chassis Systems, a position to which he was named in 1994. From 1992 to 1994, he was appointed Executive-in-Charge of Operations for ACG Worldwide. Mr. Dawes joined General Motors in 1981, originally as a financial

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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. In addition, he has responsibility for Delphi Aftermarket business, Delphi Manufacturing, and is champion of the DaimlerChrysler AG and commercial vehicle accounts. He had been Vice President of Delphi and President of Delphi Energy and Engine Management Systems since November 1998 and General Manager of Delphi Energy & Engine Management Systems since May 1996. Mr. Runkle held a series of engineering, planning and management positions with GM from 1968 to 1993 when he was appointed General Manager of Delphi Saginaw Steering Systems. Mr. Runkle was an officer at GM from 1988 through 1998. Mr. Runkle is an advisor to the Lean Enterprise Institute.

      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. Mr. O’Neal was an officer at GM from 1997 through 1998. 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. O’Neal is a member of the Woodward Governor Board of Directors.

      Mr. Weber was named Executive Vice President of Operations, 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 1971.

      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 Systems since November 1998 and General Manager of Delphi Delco Electronics Systems since August 1998. Mr. Wohleen was an officer at GM in 1998. Prior to his current position, he had been a General Director of Engineering with Delco Electronics, which is now Delphi Delco Electronics Systems, 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.

      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 for GM-North American Operations. From 1992 to 1993, he was Director of Materials Management for

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      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. Chon was named a Delphi Automotive Systems Vice President and President of Delphi Asia-Pacific in November 2000. He had been President of Delphi Korea since 1999 and General Director of Delphi Interior Systems Asia-Pacific operations since 1998. From 1995 to 1998, he was Executive Vice President and board member of Ssangyong Motor Company. From 1988 to 1995, he was Executive Engineer at Chrysler Corporation. From 1978 through 1988, he was Principal Staff Engineer at Ford Motor Company.

      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. 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. Mr. Pirtle was an officer at GM from 1996 through 1998. 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 President of Delphi Packard Electric Systems in November 2000 and a Delphi Automotive Systems Vice President in February 2000. Previously, he had been President of Delphi Asia Pacific since February 2000. Prior thereto, he was Director of Delphi Saginaw Steering Systems Global Sales, Marketing, Ventures and Planning since 1996. From 1994 to 1995, he was Site Manager of Delphi Saginaw Steering Systems 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 since May 1997. Previously, Mr. Tosch had been General Manager of the former Delphi Interior & Lighting Systems since October 1994. Mr. Tosch was an officer at GM from 1994 through 1998. From 1991 to 1994, Mr. Tosch was General Manager of Delphi Harrison Thermal Systems. From 1987 to 1991, he was Managing Director of Vauxhall Motors Limited. Prior thereto, Mr. Tosch held various engineering and managerial positions with GM since 1963.

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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. Blahnik is a member of the Conference Board.

      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. Janak sits on the External Research Advisory Board of Mississippi State University and the Information Technology Council of the Conference Board.

      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 1991, he was Manager of Synchronous Organization, and from 1989 to 1990, he was Advisor, C-P-C production systems. Prior thereto, he held various manufacturing and materials management positions at GM since 1973.

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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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PART II

      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 The Bank of New York. On January 31, 2001, there were 417,341 holders of record of our Common Stock.

      We declared dividends of $0.07 per share on March 15, June 14, September 6, and December 6, 2000 and 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 our Common Stock, as reported by the New York Stock Exchange, for the last two years. Our shares were not publicly traded prior to our IPO on February 5, 1999.

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ITEM 6.  SELECTED FINANCIAL DATA

      The following selected financial data reflects the results of operations and cash flows. Selected financial data for the 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 for the years 1996-1998 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 our IPO. The historical consolidated balance sheet data reflects the assets and liabilities transferred to our company in accordance with the Separation Agreement.

      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 statements of operations and cash flows for the years ended December 31, 2000, 1999, 1998, 1997 and 1996 and the consolidated balance sheets as of December 31, 2000, 1999, 1998, 1997 and 1996 have been audited.

      The financial information presented 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 1996-1998. 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 the acquisitions of Delphi Diesel Systems and Delphi Lockheed Automotive, significant price reductions as GM implemented its global sourcing initiative, work stoppages at both GM and Delphi and charges associated with underperforming assets. 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.

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Overview

      Delphi has consistently delivered strong operating results since becoming an independent company. Sales to customers other than GM were 29% of consolidated sales, a 19.5% increase, on a comparable basis, over 1999. Our strong cash flows during 2000 allowed us to accomplish our pension funding objectives eighteen months earlier than planned, complete the majority of our true-up payments to GM, and make strategic acquisitions. During 2000, we acquired Delphi Diesel Systems and Delphi Lockheed Automotive for an aggregate of $0.9 billion. In addition we established an aggressive growth business line structure to support business lines with annual growth of 25%-30%, such as Mobile MultiMedia, our high-tech business line that develops products designed to bring the internet, telematics, entertainment and mobile communication technologies into vehicles.

History

      Delphi is a world-leading supplier of automotive components, integrated systems and modules to the automotive industry. We became a publicly held company on February 5, 1999 through an initial public offering (the “IPO”), and became independent from GM on May 28, 1999 through the distribution of Delphi shares owned by GM (the “Spin-Off”).

      The financial information for December 31, 1998 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 a Master Separation Agreement to which Delphi and GM are parties (the “Separation Agreement”). We believe the assumptions underlying the 1998 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.

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

Results of Operations

      Net Sales.  Consolidated net sales and changes in consolidated net sales by product sector and in total for the years ended December 31, 2000 and 1999 were:

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      Our consolidated net sales for 2000 declined $53 million, or 0.2% from 1999. Our reduced sales primarily reflect the decline in the value of the euro and weak North American vehicle and aftermarket sales in the second half of 2000 which impacted our North American customers, offset by continued growth in revenue from non-GM vehicle manufacturers, as well as acquired operations. Our non-GM sales increased $1.6 billion, 19.5% on a comparable basis, over 1999, while sales to GM declined, due to lower volumes as well as our elimination of approximately $0.5 billion of marginally profitable and unprofitable product lines. Our sales were also impacted by continued price pressures that resulted in price reductions of approximately $524 million, or 1.8% for 2000. Mobile MultiMedia, an aggressive growth business line, generated sales growth of 705%, increasing sales from $40 million in 1999 to $322 million in 2000.

      Gross Margin.  Our gross margin was 15.1% in 2000 compared to 14.2% in 1999. 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 and aggressive inventory management. Our gross margin was unfavorably impacted by exchange rate fluctuations, primarily related to the euro, which weakened when compared to the U.S. dollar, and the Mexican peso, which strengthened when compared to the U.S. dollar.

      Selling, General and Administrative.  Selling, general and administrative expenses, which represented 5.9% of total sales, increased by $96 million. The increase in selling, general and administrative expenses is entirely related to acquired businesses. Excluding the incremental costs related to acquired businesses, selling, general and administrative expenses were level with 1999 amounts.

      Depreciation and Amortization.  Depreciation and amortization increased by $80 million during 2000. The increase in depreciation and amortization, compared to 1999 amounts, primarily represents incremental costs related to Delphi Diesel Systems and the impact of ongoing capital expenditures.

      Operating Income.  Operating income for 2000 increased $11 million over 1999 despite the slight decline in sales. Excluding the first quarter 2000 one-time, non-cash charge of $51 million resulting from acquisition-related in-process research and development, operating income was $1,744 million, up 3.7% from 1999. Operating income (loss) by product sector, excluding this one-time charge included in the Dynamics & Propulsion sector, was:

      The improvement in operating income in 2000 reflects continuing cost reduction efforts and the results of the continued rollout of lean manufacturing initiatives around the world. These favorable items were partially offset by unfavorable exchange rate fluctuations. Mobile MultiMedia reported an operating loss of $(23) million, reflective of the ongoing high level of investment in engineering and research and development related to the start up of this high-tech business line.

      Interest Expense.  Interest expense increased by $51 million primarily attributable to higher debt levels and higher interest rates during 2000.

      Other Income, Net.  Other income, net of $157 million in 2000 is level with 1999 amounts.

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      Taxes.  Our effective income tax rate for 2000 was 36.3% compared to 37.1% in 1999. The decrease in the effective tax rate was primarily the result of New York State investment tax credits recognized in the fourth quarter of 2000.

      Net Income.  Net income for 2000 totaled $1,062 million compared to $1,083 million for 1999. Excluding the one-time, non-cash charge of $51 million ($32 million after-tax) resulting from acquisition-related in-process research and development, our net income margin of 3.8% expanded from our 1999 margin of 3.7% as a result of aggressive inventory management, implementation of lean manufacturing initiatives and other cost reduction initiatives. Excluding the charge described above, net income for 2000 would have been $1,094 million, an $11 million increase over 1999.

      Earnings Per Share.  Basic and diluted earnings per share were $1.89 and $1.88, respectively, for 2000. Excluding the one-time, non-cash charge of $51 million ($32 million after-tax) resulting from acquisition-related in-process research and development, diluted earnings per share would have been $1.94 per share compared to $1.95 in 1999. If the 100 million shares issued in the IPO were assumed to be outstanding since January 1, 1999, the diluted shares outstanding would have been 566 million during 1999. On this basis, diluted earnings per share would have been $1.91 for 1999; therefore, after the adjustments described above, diluted earnings per share for 2000 of $1.94, represents a 1.6% increase over 1999.

      Certain 1998 financial information included in this section 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.

      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 reflected 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.

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      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.

      Operating Income (Loss).  Our operating income was $1,682 million 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 of approximately $726 million, was:

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

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

      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 diluted 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.

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      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, and are intended to represent Delphi’s results of operations as if the IPO and certain other transactions occurred on such date. The unaudited pro forma condensed consolidated statement of operations data does not, however, purport to project Delphi’s results of operations for any future date. The unaudited pro forma adjustments were based upon available information and certain assumptions that Delphi believes to be reasonable.

Unaudited Pro Forma Condensed Consolidated Statement of Operations