S-1 1 ds1.htm FORM S-1 Form S-1
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As filed with the Securities and Exchange Commission on May 25, 2011

Registration No. 333-            

 

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

DELPHI AUTOMOTIVE PLC

(Exact Name of Registrant as Specified in Its Charter)

 

Jersey   3714  

Not Applicable

(State or Other Jurisdiction of

Incorporation or Organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

 

Courtney Road

Hoath Way

Gillingham, Kent ME8 0RU

United Kingdom

011-44-163-423-4422

 

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

KEVIN P. CLARK

Vice President and Chief Financial

Officer

c/o Delphi Automotive LLP

5725 Delphi Drive

Troy, MI 48098

(248) 813-2000

(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent For Service)

Copies to:

 

David M. Sherbin

Vice President, General Counsel, Secretary and Chief Compliance Officer

c/o Delphi Automotive LLP

5725 Delphi Drive

Troy, MI 48098

(248) 813-2000

 

Michael Kaplan

Davis Polk & Wardwell LLP

450 Lexington Avenue

New York, New York 10017

(212) 450-4000

 

Richard B. Aftanas

Skadden, Arps, Slate, Meagher & Flom LLP

Four Times Square

New York, New York 10036

(212) 735-3000

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ¨

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨            

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨             

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨             

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer  ¨

   Accelerated filer  ¨

Non-accelerated filer  x  (Do not check if a  smaller reporting company)

   Smaller reporting company  ¨

 

 

Title Of Each Class

Of Securities To Be Registered

  Proposed Maximum
Aggregate Offering Price(1)
  Amount Of
Registration Fee(2)

Ordinary Shares, par value $0.01 per share

  $100,000,000   $11,610
 
 
(1) Includes offering price of additional shares, if any, that may be purchased by the underwriters.

 

(2) Calculated pursuant to Rule 457(o) under the Securities Act based on an estimate of the maximum aggregate offering price.

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

Subject to Completion. Dated May 25, 2011.

             SHARES

DELPHI AUTOMOTIVE PLC

Ordinary Shares

This is an initial public offering of ordinary shares of Delphi Automotive PLC.

Delphi Automotive PLC is offering              of the shares to be sold in the offering. The selling shareholders identified in this prospectus are offering an additional              shares. Delphi Automotive PLC will not receive any of the proceeds from the sale of the shares being sold by the selling shareholders.

Prior to this offering, there has been no public market for the ordinary shares. It is currently estimated that the initial public offering price per share will be between $             and $            . Delphi Automotive PLC intends to list the ordinary shares on the                      under the symbol “DLPH”.

See “Risk Factors” on page 16 to read about factors you should consider before buying ordinary shares.

 

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

 

 

 

    

Per Share

    

Total

 

Initial public offering price

   $                            $                

Underwriting discount

   $                    $                

Proceeds, before expenses, to Delphi Automotive PLC

   $                    $                

Proceeds, before expenses, to the selling shareholders

   $                    $                

To the extent that the underwriters sell more than              ordinary shares, the underwriters have the option to purchase up to an additional              shares from Delphi Automotive PLC and shares from the selling shareholders at the initial public offering price less the underwriting discount.

 

 

The underwriters expect to deliver the shares against payment in New York, New York on                     , 2011.

 

Goldman, Sachs & Co.    J.P. Morgan
BofA Merrill Lynch    Barclays Capital

Citi

  

Deutsche Bank Securities

Morgan Stanley

 

 

 

Credit Suisse   Lazard Capital Markets    UBS Investment Bank

 

 

Prospectus dated                     , 2011.


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TABLE OF CONTENTS

 

 

 

 

 

 

Through and including                     , 2011 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

 

 

ABOUT THIS PROSPECTUS

In this prospectus, “Delphi,” the “Company,” the “Successor,” “we,” “us” and “our” refer to Delphi Automotive PLC, a public limited company which was formed under the laws of Jersey on May 19, 2011, together with the entities that will become its subsidiaries following the completion of this offering. Delphi Automotive PLC will, in connection with this offering, acquire all membership interests in Delphi Automotive LLP, a limited liability partnership incorporated under the laws of England and Wales which was formed on August 19, 2009 for the purpose of acquiring certain assets of Delphi Corporation, together with its subsidiaries and affiliates, which we refer to herein as “Predecessor” or “Old Delphi”. As the context may require, references to “Delphi”, “the Company”, “us”, “we” and “our” may also include the Predecessor.

We and the selling shareholders have not authorized anyone to provide any information other than that contained in this prospectus or in any free writing prospectus prepared by or on behalf of us or to which we have referred you. We and the selling shareholders take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We and the selling shareholders are offering to sell, and seeking offers to buy, ordinary shares only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of the ordinary shares offered hereby.

The directors of the Company have taken all reasonable care to ensure that the facts stated in this prospectus are true and accurate in all material respects, and that there are no other facts the omission of which would make misleading any statement in this prospectus, whether of facts or of opinion. All the directors accept responsibility accordingly.

 

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A copy of this document has been delivered to the registrar of companies in Jersey in accordance with Article 5 of the Companies (General Provisions) (Jersey) Order 2002, and he has given, and has not withdrawn, his consent to its circulation. The Jersey Financial Services Commission has given, and has not withdrawn, its consent under Article 2 of the Control of Borrowing (Jersey) Order 1958 to the issue of the ordinary shares. It must be distinctly understood that, in giving these consents, neither the registrar of companies in Jersey nor the Jersey Financial Services Commission takes any responsibility for the financial soundness of the Company or for the correctness of any statements made, or opinions expressed, with regard to it.

If you are in any doubt about the contents of this prospectus, you should consult your stockbroker, bank manager, solicitor, lawyer, accountant or other financial advisor.

MARKET AND INDUSTRY DATA

In this prospectus, we refer to information regarding market data obtained from internal sources, market research, publicly available information and industry publications, including industry data derived from information provided by J. D. Power and Associates, which we refer to as J. D. Power and Associates, and The Freedonia Group, Inc., Cleveland, OH, which we refer to as The Freedonia Group. Market share data included in this prospectus about our product lines and segments is based in large part on internal analyses as there is limited public information about such market share. We estimate the size of the applicable market based on our general market knowledge of our competitors and their capacities. We further estimate our market share and position based on our understanding regarding business awards to our competitors. Accordingly, figures for our market share are estimates. While we believe our estimates of market share to be accurate in all material respects, because this data is based on a number of estimates there can be no assurance that the actual market share data will not be materially different. Estimates are inherently uncertain, involve risks and uncertainties and are subject to change based on various factors, including those discussed under the heading “Risk Factors” in this prospectus. We believe that these sources and estimates are reliable but have not independently verified them and cannot guarantee their accuracy or completeness.

 

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PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus. This summary may not contain all of the information that you should consider before deciding to invest in our ordinary shares. You should read this entire prospectus carefully, including the “Risk Factors” section and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and notes thereto included elsewhere in this prospectus.

Our Company

We are a leading global vehicle components manufacturer and provide electrical and electronic, powertrain, safety and thermal technology solutions to the global automotive and commercial vehicle markets. We are one of the largest vehicle component manufacturers, and our customers include the 25 largest automotive original equipment manufacturers (“OEMs”) in the world. We operate 110 manufacturing facilities and 14 major technical centers utilizing a regional service model that enables us to efficiently and effectively serve our global customers from low cost countries. We have a presence in 30 countries and have over 16,000 scientists, engineers and technicians focused on developing market relevant product solutions for our customers. In line with the growth in the emerging markets, we have been increasing our focus on these markets, in particular in China, where we have a major manufacturing base and strong customer relationships. We believe we are well-positioned for growth from increasing global vehicle production volumes, increased demand for our Safe, Green and Connected products which are being added to vehicle content, and new business wins with existing and new customers. For the three months ended March 31, 2011, we generated revenue of $4.0 billion, EBITDA (as defined in “Summary Historical Consolidated Financial Data” in this prospectus) of $529 million, and net income of $310 million, with gross margins of 16.1% and EBITDA margins of 13.2%, and for the year ended December 31, 2010, we generated revenue of $13.8 billion, EBITDA of $1.4 billion, and net income of $703 million, with gross margins of 14.8% and EBITDA margins of 9.9%.

We believe the automotive industry is being shaped by increasing government regulations for vehicle safety, fuel efficiency and emissions control, as well as rapidly increasing consumer demand for connectivity. These industry mega trends, which we refer to as “Safe,” “Green” and “Connected,” are driving higher growth in products that address these trends than growth in the automotive industry overall. We have reorganized our business into four diversified segments, which enable us to develop solutions and manufacture highly-engineered products that enable our customers to respond to these mega trends:

 

   

Electrical / Electronic Architecture—This segment provides complete design of the vehicle’s electrical architecture, including connectors, wiring assemblies and harnesses, electrical centers and hybrid power distribution systems. Our products provide the critical electrical and electronics backbone that supports increased vehicle content and electrification, reduced emissions and higher fuel economy through weight savings. For the three months ended March 31, 2011 and the year ended December 31, 2010, our revenues in this segment were $1,613 million and $5,620 million, respectively, and segment EBITDA was $240 million and $650 million, respectively, with EBITDA margins of 14.9% and 11.6%, respectively.

 

   

Powertrain Systems—This segment provides systems integration of full end-to-end gasoline and diesel engine management systems including fuel handling, fuel injection, combustion, electronic controls and test and validation capabilities. We design solutions to optimize powertrain power and performance while helping our customers meet new emissions and fuel economy regulations. For the three months ended March 31, 2011 and the year ended December 31, 2010, our revenues in this segment were $1,237 million and $4,086 million, respectively, and segment EBITDA was $132 million and $361 million, respectively, with EBITDA margins of 10.7% and 8.8%, respectively.

 

 

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Electronics and Safety—This segment provides critical components, systems and advanced software for passenger safety, security, comfort and infotainment, as well as vehicle operation, including body controls, reception systems, audio/video/navigation systems, hybrid vehicle power electronics, displays and mechatronics. Our products integrate and optimize electronic content, which improves fuel economy, reduces emissions, increases safety and provides occupant infotainment and connectivity. For the three months ended March 31, 2011 and the year ended December 31, 2010, our revenues in this segment were $762 million and $2,721 million, respectively, and segment EBITDA was $105 million and $247 million, respectively, with EBITDA margins of 13.8% and 9.1%, respectively.

 

   

Thermal Systems—This segment provides powertrain cooling and heating, ventilating and air conditioning (“HVAC”) systems, such as compressors, systems and controls, and heat exchangers for the vehicle markets. Our products improve the efficiency by which the powertrain and cabin temperatures are managed, which are critical factors in achieving increased fuel economy and reduced emissions. For the three months ended March 31, 2011 and the year ended December 31, 2010, our revenues in this segment were $449 million and $1,603 million, respectively, and segment EBITDA was $52 million and $109 million, respectively, with EBITDA margins of 11.6% and 6.8%, respectively.

Our business is diversified across end-markets, regions, customers, vehicle platforms and products. Our customer base includes the 25 largest automotive OEMs in the world, and, in 2010, 24% of our net sales came from emerging markets (Asia Pacific and South America). Our six largest platforms in 2010 were with six different OEMs. In addition, in 2010 our products were found in 17 of the 20 top-selling vehicle models in the United States, in all of the 20 top-selling vehicle models in Europe and in 13 of the 20 top-selling vehicle models in China. We have further diversified our business by increasing our sales in the commercial vehicle market, which is typically on a different business cycle than the light vehicle market and has grown to 8% of our 2010 net sales. In addition, approximately 8% of our net sales are to the aftermarket, which meets the ongoing need for replacement parts required for vehicle servicing.

LOGO

 

 

(1) Includes aftermarket sales, which comprised 8% of our 2010 revenue.

 

(2) General Motors North America (“GMNA”) and General Motors International Operations (“GMIO”) are segments of General Motors Company (“GM”) and together represent 21% of our 2010 revenue.

We have substantially restructured and transformed our business to achieve a lean cost structure and global footprint to compete profitably in our industry. Since 2005, we have reduced our product lines from 119 to 33, exited 11 businesses, closed over 70 sites, and decreased our global headcount, including temporary employees,

 

 

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by approximately 27%. As a result of our transformation, 91% of our hourly workforce is now located in low cost countries. In addition, approximately 30% of our hourly workforce is composed of temporary employees, making it easier for us to flex our workforce as volumes change. We no longer have any employees represented by the International Union, United Automobile, Aerospace, and Agricultural Implement Workers of America (“UAW”). In addition, we do not have any significant U.S. defined benefit pension or workforce postretirement health care benefits or employer-paid postretirement basic life insurance benefits (“OPEB”) obligations.

We have established a worldwide design and manufacturing footprint with a regional service model that enables us to efficiently and effectively serve our global customers from low cost countries. This regional model is structured primarily to service the North American market from Mexico, the South American market from Brazil, the European market from Eastern Europe and North Africa, and the Asia Pacific market from China. Our global scale and regional service model enables us to engineer globally and execute regionally to serve the largest OEMs, which are seeking suppliers that can serve them on a worldwide basis. Our footprint also enables us to adapt to the regional design variations the global OEMs require and serve the emerging market OEMs.

Together, our cost reductions and re-alignment of our manufacturing footprint have substantially increased our profit margins and operational flexibility. Our business model is now designed to be profitable at all points in the normal automotive business cycle. For example, in 2010, we would have maintained positive EBITDA even if volumes were 30% below actual industry production volumes (or global production of 55 million vehicles rather than 78 million vehicles), assuming constant product and regional mix. Our business model also has operating leverage, from which we believe we will benefit as our production volumes increase due to forecasted industry growth, content growth, and new business wins. We do not believe we will need to add substantial manufacturing capacity over the next several years to support this growth. We have had significant success winning new business with existing and new customers on both global platforms and on regional specific platforms. In 2010, we won business that we estimate will represent $20 billion of gross anticipated revenues based on expected volumes and assumed pricing. In the first quarter of 2011, this trend accelerated, with another $6.6 billion in new business awards. We believe our operating leverage will enable us to generate increased profitability and higher margins from these new business wins.

Our Industry

Demand for vehicle component parts from OEMs is generally a function of the number of vehicles produced and trends in content per vehicle, which can be affected by a number of factors including social, political and economic conditions.

 

 

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Recovery of Developed Markets and Continued Emerging Markets Growth

According to J.D. Power and Associates, global vehicle production is forecast to grow at a compound annual growth rate (“CAGR”) of 6.8% from 2010 to 2015. In the near term, the mature markets, including North America and Western Europe, are expected to grow at 3.3% from 2010 to 2015 for an increase of approximately 6.9 million units, while the emerging markets are forecast to grow at 10.3% during the same period, for an increase of approximately 22.2 million units. We expect that nearly half of our total future growth will be generated from emerging markets, especially China, which now represents a larger market for automotive components than either the United States or Japan. As a consequence of this shift in demand, many automotive manufacturing and supply companies have located operations in China and have entered into strategic partnerships and supply arrangements designed to support increased production. The total market and the relative growth in the emerging markets are shown in the illustrations below.

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LOGO   LOGO

 

Source: J.D. Power and Associates

Note: Vehicles in thousands. “Mature markets” refers to Australia, Japan, South Korea, North America (including Mexico) and Western Europe. “Emerging markets” refers to the rest of the world.

Demand for Increased Safety

OEMs continue to focus on improving occupant and pedestrian safety in order to meet increasingly stringent regulatory requirements in various markets, such as the recent proposal by the U.S. National Highway Traffic Safety Administration to mandate rear view cameras in all vehicles by 2014. As a result, suppliers are focused on developing technologies aimed at protecting vehicle occupants when a crash occurs, as well as those that proactively mitigate the risk of a crash occurring. Examples of new and alternative technologies are lane departure warning systems and collision avoidance technologies, which incorporate sophisticated electronics and advanced software. According to The Freedonia Group, the value of safety and security electronics content globally is expected to grow (based on increasing production and increased content per vehicle) in excess of 13% CAGR from 2009 to 2014, a trend which favors suppliers with the ability to fulfill demand for these important components and systems.

 

 

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Trend of Increased Fuel Efficiency and Reduced Emissions

OEMs also continue to focus on improving fuel efficiency and reducing emissions in order to meet increasingly stringent regulatory requirements in various markets. On a worldwide basis, the relevant authorities in the European Union, the United States, China, India, Japan, Brazil, South Korea and Argentina have already instituted regulations requiring further reductions in emissions and/or increased fuel economy through 2014. In many cases, the same authorities have initiated legislation that would further tighten the standards through 2020 and beyond. Based on proposed European legislation, we believe OEMs may be required to reduce fleet average CO2 emissions for passenger cars by nearly 40% from 140 grams/kilometer, or approximately 39 miles/gallon, in 2008 to 85 grams/kilometer, or over 60 miles/gallon, by 2020. Based on the current regulatory environment, we believe that OEMs in other parts of the world, including the U.S. and China, will be subject to even greater reductions in CO2 emissions from their current levels over the next ten years. These standards will require meaningful innovation as OEMs and suppliers are forced to find ways to improve thermal management, engine management, electrical power consumption, vehicle weight and integration of alternative powertrains (e.g., electric/hybrid engines). According to The Freedonia Group, the value of powertrain and emissions electronics systems content globally, including fuel injection systems and engine management systems, is expected to grow (based on increasing production and increased content per vehicle) in excess of 11% CAGR from 2009 to 2014.

Trend Towards Connectivity

The technology content of vehicles continues to increase as consumers demand greater safety, personalization, infotainment, productivity and convenience while driving. The automotive industry is focused on developing technologies designed to seamlessly integrate the highly complex electronic world in which automotive consumers live in the cars they drive, so that time in a vehicle is more productive and enjoyable. Advanced technologies offering mobile voice and data communication, while minimizing driver distraction, such as those used in our mobile electronics products coupled with global positioning systems and in-vehicle infotainment will continue to grow in importance. These and other related products are leading to higher electronic content per vehicle. According to The Freedonia Group, the value of OEM-installed infotainment systems globally, including communication and navigation equipment, backup monitors and heads up displays, entertainment systems, and other comfort and convenience systems are expected to increase (based on increasing production and increased content per vehicle) at CAGRs of approximately 20%, 28%, 10%, and 14%, respectively, from 2009 to 2014.

Standardization of Sourcing by OEMs

Many OEMs are adopting global vehicle platforms to increase standardization, reduce per unit cost and increase capital efficiency and profitability. As a result, OEMs are selecting suppliers that have the capability to manufacture products on a worldwide basis as well as the flexibility to adapt to regional variations. Suppliers with global scale and strong design, engineering and manufacturing capabilities, are best positioned to benefit from this trend. OEMs are also increasingly looking to their suppliers to simplify vehicle design and assembly processes to reduce costs. As a result, suppliers that sell vehicle components directly to manufacturers (Tier I suppliers) have assumed many of the design, engineering, research and development and assembly functions traditionally performed by vehicle manufacturers. Suppliers that can provide fully-engineered solutions, systems and pre-assembled combinations of component parts are positioned to leverage the trend toward system sourcing.

 

 

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Our Competitive Strengths

Global Market Leader

We are one of the world’s largest vehicle component manufacturers. We estimate that we hold the #1 or #2 position in product categories representing over 70% of our 2010 net sales, including electrical/electronic distribution systems, automotive connection systems, diesel engine management systems, and infotainment & driver interface. In addition, in 2010 our products were found in 17 of the 20 top-selling vehicle models in the United States, in all of the 20 top-selling vehicle models in Europe and in 13 of the 20 top-selling vehicle models in China.

Product Portfolio Tied to the Key Industry Mega Trends

Our product offerings satisfy the OEMs’ need to meet increasingly stringent government regulations and fulfill consumer preferences for products that address the mega trends of Safe, Green and Connected, leading to increased content per vehicle, greater profitability and higher margins. With these offerings, we are well-positioned to capitalize on demand for increased safety, fuel efficiency, emissions control and connectivity to the global information network. There has been a substantial increase in vehicle content and electrification requiring a complex and reliable electrical architecture and systems to operate, such as hybrid power electronics, electrical vehicle monitoring, lane departure warning systems, integrated electronic displays, navigation systems and consumer electronics. Our ability to design a reliable electrical architecture that optimizes power distribution and/or consumption is key to satisfying the OEMs’ need to reduce emissions while continuing to meet the demands of consumers. Additionally, our Powertrain Systems and Thermal Systems segments are also focused on addressing the demand for increased fuel efficiency and emission control by controlling fuel consumption and heat dissipation, which are principal factors influencing fuel efficiency and emissions.

Global and Diverse Customer Base

Our customer base includes the 25 largest automotive OEMs in the world. Our long-standing relationships with both the leading global OEMs and regional OEMs position us to benefit from the cyclical recovery in North America and Europe and secular growth in emerging markets. Our six largest platforms in 2010 were with six different OEMs. Our top five customers are Daimler AG (“Daimler”), Ford Motor Company (“Ford”), General Motors Company (“GM”), PSA Peugeot Citroën (“Peugeot”) and Volkswagen Group (“VW”), collectively representing 49% of our 2010 revenue, with our largest customer representing only 21% of our 2010 revenue. We have further diversified our business by increasing our sales in the commercial vehicle market, which is typically on a different business cycle than the light vehicle market and now represents 8% of our 2010 net sales. In addition, approximately 8% of our sales are to the aftermarket.

We have substantially expanded our presence in emerging markets to enable us to capture the rapid growth principally in China, Brazil, India and Russia. Our presence in these countries will, for example, enable us to continue growing our market share among the regional automotive OEMs in these countries, including AVTOVAZ, Brilliance China, Changan, Chery, China FAW, Geely, Mahindra & Mahindra, Tata Motors and Ulyanovsk.

Global Manufacturing Footprint and Regional Service Model

We have a global manufacturing footprint and regional service model that enable us to efficiently and effectively operate from primarily low cost countries. We operate 110 manufacturing facilities and 14 major technical centers with a presence in 30 countries throughout the world. We have located these technical and manufacturing facilities in close proximity to our customers, enabling us to rapidly meet customer support requirements and satisfy regional variations in global vehicle platforms, while minimizing supply chain costs.

 

 

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Our global footprint enables us to serve the global OEMs on a worldwide basis along with gaining market share with the emerging market OEMs. This regional model has largely migrated to service the North American market out of Mexico, the South American market out of Brazil, the European market out of Eastern Europe and North Africa and the Asia Pacific market out of China.

Leading Supplier in the China Automotive Market

We have a strong presence in China, where we have operated for nearly 20 years. All of our business segments have operations and sales in China, where we employ approximately 21,000 people (including temporary workers), including approximately 2,800 scientists, engineers and technicians. Our strong engineering capabilities allow us to provide full product design and system integration to the regional OEMs. As a result, we have well-established relationships with all of the major automotive OEMs in China, including: Brilliance China, Changan, Chery, China FAW, Geely, Shanghai General Motors and Shanghai Volkswagen. We conduct our business through two wholly-owned subsidiaries and 12 majority controlled joint ventures. In support of our growing revenue, we anticipate these subsidiaries will expand their operations with the addition of four new manufacturing sites over the next two years. This legal entity structure gives us control over our strategy and operational activities in the region and results in consolidation of revenue and earnings in our financial statements. We generated approximately $1.8 billion in revenue from China in 2010. With only 21 of our 33 offered products currently locally manufactured, we believe we have the opportunity to expand additional product lines into China, and as a result, we see further growth potential.

Lean and Flexible Cost Structure

We have a world-class, lean manufacturing system that allows us to provide customers with quality products and just-in-time delivery at competitive costs. In 2010, we largely completed our restructuring activities, resulting in a lower fixed cost base, improved manufacturing footprint and reduced overhead. We dramatically reduced our U.S. and Western European footprints, realigned our selling, general and administrative cost structure and increased the variable nature of our employee base. As a result, 91% of our hourly workforce is located in low cost countries. Furthermore, we have substantial operational flexibility by leveraging a large workforce of temporary workers, which represented approximately 30% of the hourly workforce as of March 31, 2011. We are focused on maintaining a low fixed cost base to minimize our EBITDA breakeven, which we estimate to be 30% below the current production volumes, assuming constant product mix and based on 2010 results. We believe that our lean cost structure will allow us to remain profitable at all points of the traditional vehicle industry production cycle.

World-Class Engineering Capabilities

Our history and culture of innovation have enabled us to develop significant intellectual property and design and development expertise to provide advanced technology solutions that meet the demands of our customers. We have a team of more than 16,000 scientists, engineers and technicians focused on developing leading product solutions for our key markets, located at 14 major technical centers in Brazil, China, France, Germany, India, Luxembourg, Mexico, Poland, South Korea and the United States. We invest approximately $1 billion annually in engineering to maintain our portfolio of innovative products, and currently own approximately 6,000 patents. We also encourage “open innovation” and collaborate extensively with peers in the industry, government agencies and academic institutions. Our technology competencies are recognized by both customers and government agencies, who have co-invested approximately $300 million of additional funds annually in new product development, increasing our total spend accordingly, accelerating the pace of innovation and reducing the risk associated with successful commercialization of technological breakthroughs. One example of co-investment is that we received an $89 million grant from the U.S. Department of Energy for reimbursement for up to 50% of the project costs associated with the development and manufacturing of power electronics related to electric and hybrid electric vehicles.

 

 

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Our heritage includes the first factory installed radio, and we were a developer and designer of digital satellite radios, non-CFC refrigerant systems, high efficiency heat & mass exchangers, halogen free cables, dual mode electronically scanning radar, gas direct injection, power electronics & high voltage architectures for hybrid electric vehicles and electric vehicles. We have been recognized for our long history of innovation as a winner of the prestigious Automotive News PACE Award. The Automotive News PACE awards honor superior innovation, technological advancement and business performance in the automotive industry and is judged by an independent panel of industry experts. Over the past two years we have been a winner three times and over the 17-year history of the PACE awards, we have received more awards than any other automotive supplier. In 2010, we launched approximately 800 new product programs around the globe. Our future pipeline has promise in collision mitigation with auto braking, electric cam phasing, software defined radio, 2-step continuous variable valvetrain, ammonia and particulate sensors, high power density inverter switches for hybrid electric vehicles and other Safe, Green and Connected solutions.

Significant Operating Leverage Leading to Higher Margins

Our business model has generated strong margins. We believe our operating leverage will enable us to generate increased profitability from higher OEM production volumes, increased content per vehicle and new business wins, and our profitability has been increasing with these trends. We generated gross margins of 16.1% for the three months ended March 31, 2011 as compared to 14.8% for the year ended December 31, 2010, and EBITDA margins of 13.2% as compared to 9.9% for the year ended December 31, 2010. Segment EBITDA margins were greater than 10% in each of our operating segments for the three months ended March 31, 2011.

Strong Cash Flow Generation and Balance Sheet

Our margins have also translated to strong cash flow generation. In 2010, we generated $781 million in cash flow before financing (which is defined as cash flows from operating activities and cash flows from investing activities (excluding investments in time deposits)). Furthermore, we have a strong balance sheet with a prudent amount of gross debt, substantial liquidity of $2.5 billion as of March 31, 2011 (after giving effect to the modification of our credit agreement and issuance of Senior Notes on May 17, 2011), and no significant U.S. defined benefit or OPEB liabilities. We intend to maintain strong financial discipline targeting industry-leading earnings growth, cash flow generation and return on invested capital and to maintain sufficient liquidity and a prudent amount of leverage to sustain our financial flexibility throughout the industry cycle.

Experienced and Accomplished Management Team

Our management team has significant experience, a deep understanding of the vehicle components industry and a firm focus on sustaining our leadership and financial strength. This team has been responsible for implementing the key operational restructuring initiatives that have positioned us for sustainable leadership in our industry with a strong and competitive financial profile. Key accomplishments since 2005 have included:

 

   

Aligning our portfolio with the mega trends—Safe, Green and Connected—by reducing our business units from 27 to 10 and our product lines from 119 to 33;

 

   

Diversifying our geographic, product and customer mix, resulting in only 33% of our 2010 net sales generated in the North American market and 21% from our largest customer;

 

   

Reducing our cost structure by repositioning 91% of our hourly workforce in low cost countries; reducing our manufacturing space by 62%, or 42 million square feet; and reducing total headcount by approximately 27%;

 

   

Sustaining our commitment to innovation by investing approximately $1 billion annually in engineering; and

 

 

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Generating a record level of business bookings, including $20 billion in 2010 and $6.6 billion in the first quarter of 2011.

Our Strategy

Our strategy is to develop and manufacture innovative market-relevant products for a diverse base of customers around the globe and leverage our lean and flexible cost structure to achieve strong earnings growth and returns on invested capital. Through our culture of innovation and world class engineering capabilities we will continue to employ our rigorous, forward-looking product development process to deliver new technologies that provide solutions to OEMs.

Leverage Our Engineering and Technological Prowess

We will continue to leverage our strong product portfolio tied to the industry’s key mega trends with our global footprint to increase our revenues. We remain committed to sustaining our substantial annual investment in research and development to maintain and enhance our leadership in each of our product lines. We expect to introduce new products and customized solutions that enable OEMs to meet the increasing fuel economy and emissions regulations as well as consumer demand for increased connectivity and active safety features. We will continue to focus on identifying the next market trends that we believe will position us to capture new growth.

Capitalize on Our Scale, Global Footprint and Established Position in Emerging Markets

We intend to generate sustained growth by capitalizing on the breadth and scale of our operating capabilities, our global footprint that provides us the important proximity to our customers’ manufacturing facilities and allows us to serve them in every region of the world in which they operate, and our established presence in high growth emerging markets.

We are one of only a few vehicle component manufacturers with the resources and scale of operations to provide our customers with complete end-to-end systems solutions. From the development and design of innovative new products, to world class engineering, manufacturing and supply-chain management capabilities, we have significant resources that we use to help our customers meet the changing demands of the market. We have engineering and production capabilities in every major auto-producing market in the world, including North America, South America, Europe and Asia. As a result, we are able to capitalize on the global standardization of vehicle platforms by the largest OEMs, while adapting our products for regional variations and regional OEMs.

We continue to expand our significant presence in emerging markets, positioning us to benefit from the expected growth opportunities in these regions. We will accomplish this by capitalizing on our long-standing relationships with the global OEMs and further enhancing our positions with the emerging market OEMs, thereby continuing to expand our worldwide leadership. We will continue to build upon our extensive geographic reach to capitalize on the fast-growing automotive markets, particularly in China, Brazil, India and Russia. We believe that our presence in low cost countries positions us to realize incremental margin improvements as the global balance of automotive production shifts towards the emerging markets.

Leverage Our Lean and Flexible Cost Structure to Deliver Profitability and Cash Flow

We recognize the importance of maintaining a lean and flexible cost structure in order to deliver stable earnings and cash flow in a cyclical industry. We intend to focus on maximizing manufacturing output to meet increasing production requirements with minimal additions to our fixed-cost base. We will continue to utilize a meaningful amount of temporary workers to ensure we have the appropriate operational flexibility to scale our operations so that we maintain our profitability as industry production levels increase or contract.

 

 

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Target the Right Business with the Right Customers

We are strategic in pursuing new business and customers. We conduct in-depth analysis of market share and product trends by region in order to prioritize research, development and engineering spend for the customers that we believe will be successful. We collaborate with these customers in our 14 major technical centers around the world to help develop innovative product solutions for their needs. As more OEMs design vehicles for global platforms, where the same vehicle architecture is shared among different regions, we are well suited to provide global design and engineering support while manufacturing these products for a specific regional market. In addition we are disciplined in our pursuit of new business to ensure that we earn appropriate returns on capital. We have a rigorous internal approval process that requires senior executive review and approval to ensure consistency with our strategic and financial goals.

Pursue Selected Acquisitions and Strategic Alliances

Acquisitions and strategic alliances represent an important element of our business strategy and we believe we have the financial flexibility to pursue these opportunities with our current capital structure and liquidity profile. We believe that there are opportunities to grow through acquisitions, given the trend by OEMs to source globally and from a smaller number of suppliers, and that strategic alliances will allow us to pursue new opportunities faster and with less risk and investment. We intend to pursue selected transactions that leverage our technology capabilities, enhance our customer base, geographic penetration and scale to complement our current businesses. These complementary opportunities will provide us with access to new technologies, expand our presence in existing markets and enable us to establish a presence in adjacent markets.

Our History and Structure

On August 19, 2009, Delphi Automotive LLP, a limited liability partnership organized under the laws of England and Wales, was formed for the purpose of acquiring certain assets and subsidiaries of the former Delphi Corporation (the “Predecessor”), which had filed for bankruptcy protection, as discussed below. At this time, three firms, GM and affiliates of Silver Point Capital and Elliott Management, agreed to take a controlling stake in Delphi Automotive LLP. These three equity holders had jointly established a plan to fund the restructuring and repositioning of the business. As a part of this plan, these equityholders established a board of proven senior executives to assist the management team in the continued restructuring of the business.

On October 6, 2009, Delphi Automotive LLP acquired the major portion of the business of the Predecessor, other than the global steering business, the U.S. manufacturing facilities in which the hourly employees were represented by the UAW and certain non-productive U.S. assets, and Delphi Automotive LLP issued membership interests to a group of investors consisting of lenders to the Predecessor, GM and the Pension Benefit Guaranty Corporation (the “PBGC”).

On May 19, 2011, Delphi Automotive PLC, a Jersey public limited company, was formed. Delphi Automotive PLC has nominal assets and no liabilities and has conducted no operations prior to completion of this offering. Immediately prior to the closing of this offering, it will acquire all of the outstanding units of Delphi Automotive LLP from its existing unit holders in exchange for ordinary shares and, as a result, Delphi Automotive LLP will become a wholly-owned subsidiary of Delphi Automotive PLC. All historical financial information presented in this prospectus for periods subsequent to October 6, 2009 is that of Delphi Automotive LLP.

 

 

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Recent Developments

On March 31, 2011, Delphi Automotive LLP redeemed the membership interests owned by GM and the PBGC for $3.8 billion and $594 million, respectively. In addition, on April 26, 2011, Delphi Automotive LLP amended its limited liability partnership agreement to adjust the distribution rights among the holders of the remaining classes of membership interests and to modify and normalize governance rights by eliminating special control rights held by affiliates of Silver Point Capital and Elliott Management to more closely reflect a typical public company.

On March 31, 2011, Delphi Corporation, a wholly-owned U.S. subsidiary of Delphi Automotive LLP, entered into a credit agreement with JPMorgan Chase Bank, N.A. that provided for a $500 million undrawn revolver and $2.5 billion in funded term loans, guaranteed by Delphi Automotive LLP and certain of its existing and future subsidiaries. The $2.5 billion in term loan proceeds, along with existing cash, were utilized to finance the redemptions of the membership interests owned by GM and PBGC and repayment of our 12.00% unsecured notes due 2014. On May 17, 2011, the credit agreement was modified to increase the amount of commitments on the revolver to $1.2 billion, to reduce the amount of the term loans to $1.2 billion and to reduce certain interest rates applicable to the term loans.

On May 17, 2011, Delphi Corporation issued $500 million of 5.875% senior notes due 2019 and $500 million of 6.125% senior notes due 2021 (collectively, the “Senior Notes”) in a transaction exempt from registration under Rule 144A of the Securities Act of 1933, as amended (the “Securities Act”). The Senior Notes are fully and unconditionally guaranteed, jointly and severally, by Delphi Automotive LLP and certain of its existing and future subsidiaries. The net proceeds of approximately $1.0 billion, together with cash on hand, were used to pay down amounts outstanding under the credit agreement.

Risks Affecting Us

Investing in securities involves substantial risk, and our business is subject to numerous risks and uncertainties. Investors should carefully consider the information set forth in this prospectus and, in particular the information under the heading “Risk Factors.”

Company Information

Our principal executive offices are located at Courtney Road, Hoath Way, Gillingham, Kent ME8 0RU, United Kingdom and our telephone number is 011-44-163-423-4422. Our register of members is kept at our registered office, which is Queensway House, Hilgrove Street, St Helier, Jersey JE1 1ES, Channel Islands.

Our internet address is www.delphi.com. The information on our website and any other website that is referred to in this prospectus is not part of this prospectus.

 

 

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THE OFFERING

 

Ordinary shares offered by us

                shares

Ordinary shares offered by the selling shareholders

                shares

Total ordinary shares offered

                shares

Ordinary shares to be outstanding after this offering

                shares

Option to purchase additional shares

               shares from us and             shares from the selling shareholders

Use of proceeds

   Our net proceeds from the offering will be approximately $            , or approximately $             if the underwriters exercise their option to purchase additional shares in full. We intend to use the net proceeds for general corporate purposes, primarily to fund our operations, to acquire capital equipment and to repay debt. We will not receive any proceeds from the ordinary shares being sold by the selling shareholders.

Dividend policy

   We do not intend to pay dividends on our ordinary shares. We plan to retain any earnings for use in the operation of our business and to fund future growth.

Share symbol

   “DLPH”

Unless we specifically state otherwise and except for historical financial information, the information in this prospectus reflects or assumes our issuance of             ordinary shares to Delphi Automotive LLP’s equityholders (assuming that the offering is priced at the midpoint of the range set forth on the cover of this prospectus) in connection with this offering in exchange for all of the equity interests in Delphi Automotive LLP, including                  shares issued to our directors who are holders of its Class E-1 membership interests and             remaining shares issued to its other equityholders. A $1.00 increase (decrease) in the offering price, holding the number of shares offered constant, would increase (decrease) the number of shares issued to our existing equityholders to             and the number of shares issued to our directors who are holders of its Class E-1 membership interests to            .

Unless we specifically state otherwise, the information in this prospectus does not take into account:

 

   

the issuance of up to                      additional ordinary shares that the underwriters have the option to purchase from us; and

 

   

             shares reserved for issuance pursuant to awards under our existing Management Value Creation Plan, or Value Creation Plan (which provides for issuances of equity and/or cash to members of our management based on the value of the Company at December 31, 2012, including the amounts used to repurchase units prior to the date of this offering), based on an offering price at the midpoint of the range set forth on the cover of this prospectus. A $1.00 increase (decrease) in the offering price, holding the number of ordinary shares offered constant, would increase (decrease) the number of ordinary shares reserved for issuance under this plan by                    .

 

 

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SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA

Delphi Automotive PLC was formed on May 19, 2011, has nominal assets and no liabilities and will conduct no operations prior to completion of this offering. Accordingly, the following presents historical financial information for Delphi Automotive LLP, which will become a wholly-owned subsidiary of Delphi Automotive PLC immediately prior to completion of this offering.

The following selected consolidated financial data of the Successor and the Predecessor have been derived from the audited and unaudited consolidated financial statements of the Successor and the Predecessor and should be read in conjunction with, and are qualified by reference to, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Unaudited Pro Forma Condensed Consolidated Financial Information” and the consolidated financial statements and notes thereto included elsewhere in this prospectus.

 

     Successor           Predecessor(1)  
     Three months
ended March 31,
    Year ended
December 31,
2010
    Period from
August 19 to
December 31,
2009
          Period from
January 1 to
October 6, 2009
    Year ended
December 31,
2008
 
   2011     2010            
     (dollars in millions)           (dollars in millions)  

Statements of operations data:

                

Net sales

   $   3,997      $   3,410      $   13,817      $   3,421          $   8,334      $   16,808   

Depreciation and amortization

     117        99        421        139            540        822   

Operating income (loss)

     412        324        940        (10         (1,118     (1,425

Interest expense

     (6     (8     (30     (8                (434

Reorganization items, net

                                     10,210        5,147   

Income (loss) from continuing operations

     310        235        703        (3         9,391        3,163   

Net income (loss)

     310        235        703        (3         9,347        3,066   

Net income attributable to noncontrolling interests

     19        20        72        15            29        29   

Net income (loss) attributable to Successor/Predecessor

     291        215        631        (18         9,318        3,037   
 

Other financial data:

                

Cash and cash equivalents (as of period end)

   $ 1,633      $ 3,296      $ 3,219      $ 3,107          $ 862      $ 959   

Capital expenditures

     181        93        500        88            321        771   

EBITDA(2)

     529        423        1,361        129            (514     (211

Adjusted EBITDA(2)

     538        456        1,633        313            (229     269   

EBITDA margin(3)

     13.2     12.4     9.9     3.8         (6.2 %)      (1.3 %) 

Adjusted EBITDA margin(3)

     13.5     13.4     11.8     9.1         (2.7 %)      1.6

Net cash provided by (used in) operating activities

   $ 156      $ 246      $ 1,142      $ 159          $ (257   $ 455   

Net cash provided by (used in) investing activities

     433        (98     (911     885            (1,052     (958

Net cash provided by (used in) financing activities

     (2,204     52        (126     2,062            315        465   

 

 

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     Successor  
     As of March 31, 2011  
     Historical      As
adjusted(4)
     As further
adjusted(5)
 
     (dollars in millions)  

Balance sheet and employment data:

        

Cash and cash equivalents

   $ 1,633       $ 1,336       $     

Total assets

   $ 9,724       $ 9,420       $     

Total debt

   $ 2,751       $ 2,468       $     

Working capital(6)

   $ 1,453       $ 1,453       $     

Owners’ equity

   $ 1,907       $ 1,886       $     

Global employees

     100,630         100,630         100,630   

 

(1) The Predecessor adopted the accounting guidance in Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) 852, Reorganizations, effective October 8, 2005 and has segregated in the financial statements for all reporting periods subsequent to such date and through the consummation of the transactions pursuant to the Modified Plan (as defined in “Note 1. General and Acquisition of Predecessor Businesses” to the audited consolidated financial statements included herein), transactions and events that were directly associated with the reorganization from the ongoing operations of the business. Our consolidated financial statements are not comparable to the consolidated financial statements of the Predecessor due to the effects of the consummation of the Modified Plan and the change in the basis of presentation. For more information, please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

(2) Our management utilizes operating income before depreciation and amortization, including long-lived asset and goodwill impairment (“EBITDA”) to evaluate performance. EBITDA was used as a performance indicator for the three months ended March 31, 2011.

“Adjusted EBITDA” means operating income before depreciation and amortization, including long-lived asset and goodwill impairment, transformation and rationalization charges related to plant consolidations, plant wind-downs and discontinued operations. Through December 31, 2010, our management relied on Adjusted EBITDA as a key performance measure. Our management believed that Adjusted EBITDA was a meaningful measure of performance and it was used by management and the Board of Managers of Delphi Automotive LLP to analyze Company and stand-alone segment operating performance and for planning and forecasting purposes. Effective January 1, 2011, our management began utilizing EBITDA as a key performance measure because our restructuring was substantially completed in 2010. EBITDA and Adjusted EBITDA should not be considered substitutes for results prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and should not be considered alternatives to income from continuing operations before income taxes and equity income, which is the most directly comparable financial measure to EBITDA and Adjusted EBITDA that is in accordance with U.S. GAAP. EBITDA and Adjusted EBITDA, as determined and measured by us, should also not be compared to similarly titled measures reported by other companies.

In the three months ended March 31, 2011, we reached a final customer commercial settlement that resulted in an unusual warranty expense of $76 million. This amount adversely affected EBITDA and Adjusted EBITDA in such period.

 

 

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The reconciliation of Adjusted EBITDA to EBITDA includes other transformation and rationalization costs related to 1) the implementation of information technology systems to support finance, manufacturing and product development initiatives, 2) certain plant consolidations and closure costs and 3) consolidation of many staff administrative functions into a global business service group. The reconciliation of EBITDA and Adjusted EBITDA to income from continuing operations before income taxes and equity income follows:

 

    Successor           Predecessor  
    Three months
ended March 31,
    Year ended
December 31,
2010
    Period from
August 19 to
December 31,
2009
          Period from
January 1 to
October 6,
2009
    Year ended
December 31,
2008
 
  2011     2010            
    (in millions)           (in millions)  

Adjusted EBITDA

  $     538      $     456      $     1,633      $     313          $ (229   $     269   

Transformation and rationalization charges:

               

Employee termination benefits and other exit costs

    (9)        (26     (224     (126         (235     (326

Other transformation and rationalization costs

           (7     (48     (58         (50     (154
                                                   

EBITDA

  $ 529      $ 423      $ 1,361      $ 129          $ (514   $ (211
                                                   

Depreciation and amortization

    (117     (99     (421     (139         (540     (822

Goodwill impairment charges

                                           (325

Discontinued operations

                                    (64     (67
                                                   

Operating income (loss)

  $ 412      $ 324      $ 940      $ (10       $ (1,118   $ (1,425
                                                   

Interest expense

    (6     (8     (30     (8                (434

Other income, net

    3        2        34        (17         24        9   

Reorganization items

                                    10,210        5,147   
                                                   

Income from continuing operations before income taxes and equity income

  $ 409      $ 318      $ 944      $ (35       $     9,116      $     3,297   
                                                   

 

(3) EBITDA margin is defined as EBITDA as a percentage of revenues. Adjusted EBITDA margin is defined as Adjusted EBITDA as a percentage of revenues.

 

(4) Gives effect to the modification of our credit agreement and the issuance of senior notes on May 17, 2011. See “Unaudited Pro Forma Condensed Consolidated Financial Information” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”

 

(5) Gives effect to this offering and the application of proceeds therefrom. See “Unaudited Pro Forma Condensed Consolidated Financial Information.”

 

(6) Working capital is calculated herein as accounts receivable plus inventories less accounts payable.

 

 

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RISK FACTORS

An investment in our ordinary shares involves a high degree of risk. You should consider carefully the following information about these risks, and the other information included in this prospectus in its entirety before investing in our ordinary shares. Any of the risks we describe below could cause our business, financial condition and/or operating results to suffer. The market price of our ordinary shares could decline if one or more of these risks and uncertainties develop into actual events. You could lose all or part of your investment. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

Risks Related to Business Environment and Economic Conditions

The cyclical nature of automotive sales and production can adversely affect our business.

Our business is directly related to automotive sales and automotive vehicle production by our customers. Automotive sales and production are highly cyclical and, in addition to general economic conditions, also depend on other factors, such as consumer confidence and consumer preferences. Lower global automotive sales result in substantially all of our automotive OEM customers significantly lowering vehicle production schedules, which has a direct impact on our earnings and cash flows. In addition, automotive sales and production can be affected by labor relations issues, regulatory requirements, trade agreements, the availability of consumer financing and other factors. Economic declines that result in a significant reduction in automotive sales and production by our customers have in the past had, and may in the future have, an adverse effect on our business, results of operations and financial condition.

Our sales are also affected by inventory levels and OEMs’ production levels. We cannot predict when OEMs will decide to increase or decrease inventory levels or whether new inventory levels will approximate historical inventory levels. Uncertainty and other unexpected fluctuations could have a material adverse effect on our business and financial condition.

A prolonged economic downturn or economic uncertainty could adversely affect our business and cause us to require additional sources of financing, which may not be available.

Our sensitivity to economic cycles and any related fluctuation in the businesses of our customers or potential customers may have a material adverse effect on our financial condition, results of operations or cash flows. If global economic conditions deteriorate or economic uncertainty increases, our customers and potential customers may experience deterioration of their businesses, which may result in the delay or cancellation of plans to purchase our products. If vehicle production were to remain at low levels for an extended period of time or if cash losses for customer defaults rise, our cash flow could be adversely impacted, which could result in our needing to seek additional financing to continue our operations. There can be no assurance that we would be able to secure such financing on terms acceptable to us, or at all.

Any changes in consumer credit availability or cost of borrowing could adversely affect our business.

Declines in the availability of consumer credit and increases in consumer borrowing costs have negatively impacted global automotive sales and resulted in lower production volumes in the past. Substantial declines in automotive sales and production by our customers could have a material adverse effect on our business, results of operations and financial condition.

A drop in the market share and changes in product mix offered by our customers can impact our revenues.

We are dependent on the continued growth, viability and financial stability of our customers. Our customers generally are OEMs in the automotive industry. This industry is subject to rapid technological change, vigorous

 

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competition, short product life cycles and cyclical and reduced consumer demand patterns. When our customers are adversely affected by these factors, we may be similarly affected to the extent that our customers reduce the volume of orders for our products.

The mix of vehicle offerings by our OEM customers also impacts our sales. A decrease in consumer demand for specific types of vehicles where we have traditionally provided significant content could have a significant effect on our business and financial condition. Our sales of products in the regions in which our customers operate also depend on the success of these customers in those regions.

Declines in the market share or business of Daimler, Ford, GM, Peugeot and VW may have a disproportionate adverse impact on our revenues and profitability.

Daimler, Ford, GM, Peugeot and VW accounted for approximately 49% of our total net sales in the year ended December 31, 2010. Accordingly, our revenues may be disproportionately affected by decreases in any of their businesses or market share. Because our customers typically have no obligation to purchase a specific quantity of parts, a decline in the production levels of any of our major customers, particularly with respect to models for which we are a significant supplier, could disproportionately reduce our sales and thereby adversely affect our financial condition, operating results and cash flows. See “Business—Supply Relationships with Our Customers.”

Continued pricing pressures, OEM cost reduction initiatives and the ability of OEMs to re-source or cancel vehicle programs may result in lower than anticipated margins, or losses, which may have a significant negative impact on our business.

Cost-cutting initiatives adopted by our customers result in increased downward pressure on pricing. Our customer supply agreements generally require step-downs in component pricing over the period of production, typically one to two percent per year. In addition, our customers often reserve the right to terminate their supply contracts for convenience, which enhances their ability to obtain price reductions. OEMs have also possessed significant leverage over their suppliers, including us, because the automotive component supply industry is highly competitive, serves a limited number of customers, has a high fixed cost base and historically has had excess capacity. Based on these factors, and the fact that our customers’ product programs typically last a number of years and are anticipated to encompass large volumes, our customers are able to negotiate favorable pricing. Accordingly, as a Tier I supplier, we are subject to substantial continuing pressure from OEMs to reduce the price of our products. It is possible that pricing pressures beyond our expectations could intensify as OEMs pursue restructuring and cost cutting initiatives. If we are unable to generate sufficient production cost savings in the future to offset price reductions, our gross margin and profitability would be adversely affected. See “Business—Supply Relationships with Our Customers” for a detailed discussion of our supply agreements with our customers.

While we provide estimates of new business in this prospectus, these estimates could be materially different from actual results in light of the risks set forth above.

Our supply agreements with our OEM customers are generally requirements contracts, and a decline in the production requirements of any of our customers, and in particular our largest customers, could adversely impact our revenues and profitability.

We receive OEM purchase orders for specific components supplied for particular vehicles. In most instances our OEM customers agree to purchase their requirements for specific products but are not required to purchase any minimum amount of products from us. The contracts we have entered into with most of our customers have terms ranging from one year to the life of the model (usually three to seven years, although customers often reserve the right to terminate for convenience). Therefore, a significant decrease in demand for certain key models or group of related models sold by any of our major customers or the ability of a

 

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manufacturer to re-source and discontinue purchasing from us, for a particular model or group of models, could have a material adverse effect on us. To the extent that we do not maintain our existing level of business with our largest customers because of a decline in their production requirements or because the contracts expire or are terminated for convenience, we will need to attract new customers or win new business with existing customers, or our results of operations and financial condition will be adversely affected. See “Business—Supply Relationships with Our Customers” for a detailed discussion of our supply agreements with our customers.

We have invested substantial resources in markets where we expect growth and we may be unable to timely alter our strategies should such expectations not be realized.

Our future growth is dependent on our making the right investments at the right time to support product development and manufacturing capacity in areas where we can support our customer base. We have identified the Asia Pacific and South American regions, and China, Brazil and India, in particular, as key markets likely to experience substantial growth, and accordingly have made and expect to continue to make substantial investments, both directly and through participation in various partnerships and joint ventures, in numerous manufacturing operations, technical centers and other infrastructure to support anticipated growth in those regions. If we are unable to deepen existing and develop additional customer relationships in these regions, we may not only fail to realize expected rates of return on our existing investments, but we may incur losses on such investments and be unable to timely redeploy the invested capital to take advantage of other markets, potentially resulting in lost market share to our competitors. Our results will also suffer if these regions do not grow as quickly as we anticipate.

Our business in China is subject to aggressive competition and is sensitive to economic and market conditions.

Maintaining a strong position in the Chinese market is a key component of our global growth strategy. The automotive supply market in China is highly competitive, with competition from many of the largest global manufacturers and numerous smaller domestic manufacturers. As the size of the Chinese market continues to increase, we anticipate that additional competitors, both international and domestic, will seek to enter the Chinese market and that existing market participants will act aggressively to increase their market share. Increased competition may result in price reductions, reduced margins and our inability to gain or hold market share. In addition, our business in China is sensitive to economic and market conditions that drive sales volume in China. If we are unable to maintain our position in the Chinese market or if vehicle sales in China decrease or do not continue to increase, our business and financial results could be materially adversely affected.

As a result of the March 2011 earthquake and tsunami in Japan, we expect to experience some supply disruptions from Japanese and other suppliers, which could adversely affect our ability to meet our customers’ production requirements.

On March 11, 2011, an earthquake and tsunami occurred in Japan, causing severe damage to the region and resulting in a nuclear crisis at the Fukushima reactors and the surrounding region. These events have disrupted

 

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the production of suppliers based in Japan, some of which are our sole-source suppliers or are sole-source suppliers to other suppliers of ours, for certain products. We expect that we will experience some supply disruptions from our suppliers on account of the earthquake, tsunami and nuclear crisis in Japan, and if we are unable to adequately re-source these supplies in the near term, we may be forced to reduce or cease production of certain products, which may be for a prolonged period, or incur additional costs in order to avoid production interruptions. As a result, it is likely we will be unable to fulfill some customers’ orders. If we are able to obtain products from other sources, the quality of re-sourced products may make it more difficult for us to meet the stringent quality specifications of our customers, which could result in increased costs. We can provide no assurance that we will be able to locate any alternative sources of supply.

Moreover, we may be adversely affected if our OEM customers cease or slow production of vehicles on account of the Japanese crisis, which would negatively affect their purchase orders of our products.

Disruptions in the supply of raw materials and other supplies that we and our customers use in our products may adversely affect our profitability.

We and our customers use a broad range of materials and supplies, including copper, aluminum and other metals, petroleum-based resins, chemicals, electronic components and semiconductors. A significant disruption in the supply of these materials for any reason could decrease our production and shipping levels, which could materially increase our operating costs and materially decrease our profit margins.

We, as with other component manufacturers in the automotive industry, ship products to our customers’ vehicle assembly plants throughout the world so they are delivered on a “just-in-time” basis in order to maintain low inventory levels. Our suppliers also use a similar method. However, this “just-in-time” method makes the logistics supply chain in our industry very complex and very vulnerable to disruptions.

Such disruptions could be caused by any one of a myriad of potential problems, such as closures of one of our or our suppliers’ plants or critical manufacturing lines due to strikes, mechanical breakdowns, electrical outages, fires, explosions or political upheaval, as well as logistical complications due to weather, volcanic eruptions, or other natural or nuclear disasters, mechanical failures, delayed customs processing and more. For example, we expect to experience some supply disruptions on account of the March 2011 earthquake, tsunami and nuclear crisis in Japan. See “—As a result of the March 2011 earthquake and tsunami in Japan, we expect to experience some supply disruptions from Japanese and other suppliers, which could adversely affect our ability to meet our customers’ production requirements” above. Additionally, as we grow in low cost countries, the risk for such disruptions is heightened. The lack of even a small single subcomponent necessary to manufacture one of our products, for whatever reason, could force us to cease production, even for a prolonged period. Similarly, a potential quality issue could force us to halt deliveries while we validate the products. Even where products are ready to be shipped, or have been shipped, delays may arise before they reach our customer. Our customers may halt or delay their production for the same reason if one of their other suppliers fails to deliver necessary components. This may cause our customers, in turn to suspend their orders, or instruct us to suspend delivery, of our products, which may adversely affect our financial performance.

When we fail to make timely deliveries in accordance with our contractual obligations, we generally have to absorb our own costs for identifying and solving the “root cause” problem as well as expeditiously producing replacement components or products. Generally, we must also carry the costs associated with “catching up,” such as overtime and premium freight.

Additionally, if we are the cause for a customer being forced to halt production, the customer may seek to recoup all of its losses and expenses from us. These losses and expenses could be significant, and may include consequential losses such as lost profits. Any supply-chain disruption, however small, could potentially cause the complete shutdown of an assembly line of one of our customers, and any such shutdown that is due to causes that are within our control could expose us to material claims of compensation. Where a customer halts production because of another supplier failing to deliver on time, it is unlikely we will be fully compensated, if at all.

 

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Adverse developments affecting one or more of our suppliers could harm our profitability.

Any significant disruption in our supplier relationships, particularly relationships with sole-source suppliers, could harm our profitability. Furthermore, some of our suppliers may not be able to handle the commodity cost volatility and/or sharply changing volumes while still performing as we expect. To the extent our suppliers experience supply disruptions, such as we expect to occur in the aftermath of the March 2011 earthquake, tsunami and nuclear crisis in Japan, there is a risk for delivery delays, production delays, production issues or delivery of non-conforming products by our suppliers. Even where these risks do not materialize, we may incur costs as we try to make contingency plans for such risks.

The loss of business with respect to, or the lack of commercial success of, a vehicle model for which we are a significant supplier could adversely affect our financial performance.

Although we receive purchase orders from our customers, these purchase orders generally provide for the supply of a customer’s requirements for a particular vehicle model and assembly plant, rather than for the purchase of a specific quantity of products. The loss of business with respect to, or the lack of commercial success of, a vehicle model for which we are a significant supplier could reduce our sales and thereby adversely affect our financial condition, operating results and cash flows.

We operate in the highly competitive automotive supply industry.

The global automotive component supply industry is highly competitive. Competition is based primarily on price, technology, quality, delivery and overall customer service. There can be no assurance that our products will be able to compete successfully with the products of our competitors. Furthermore, the rapidly evolving nature of the markets in which we compete may attract new entrants, particularly in low-cost countries such as China, Brazil, India and Russia. Additionally, consolidation in the automotive industry may lead to decreased product purchases from us. As a result, our sales levels and margins could be adversely affected by pricing pressures from OEMs and pricing actions of competitors. These factors led to selective resourcing of business to competitors in the past and may also do so in the future. In addition, any of our competitors may foresee the course of market development more accurately than us, develop products that are superior to our products, have the ability to produce similar products at a lower cost than us, or adapt more quickly than us to new technologies or evolving customer requirements. As a result, our products may not be able to compete successfully with their products. These trends may adversely affect our sales as well as the profit margins on our products.

Increases in costs of the materials and other supplies that we use in our products may have a negative impact on our business.

Significant changes in the markets where we purchase materials, components and supplies for the production of our products may adversely affect our profitability, particularly in the event of significant increases in demand where there is not a corresponding increase in supply, inflation or other pricing increases. In recent periods there have been significant fluctuations in the global prices of copper, aluminum and petroleum-based resin products, and fuel charges, which have had and may continue to have an unfavorable impact on our business, results of operations or financial condition. Continuing volatility may have adverse effects on our business, results of operations or financial condition. We will continue efforts to pass some supply and material cost increases onto our customers, although competitive and market pressures have limited our ability to do that, particularly with domestic OEMs, and may prevent us from doing so in the future, because our customers are generally not obligated to accept price increases that we may desire to pass along to them. Even where we are able to pass price increases through to the customer, in some cases there is a lapse of time before we are able to do so. The inability to pass on price increases to our customers when raw material prices increase rapidly or to significantly higher than historic levels could adversely affect our operating margins and cash flow, possibly resulting in lower operating income and profitability. We expect to be continually challenged as demand for our principal raw materials and other supplies, including electronic components, is significantly impacted by demand

 

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in emerging markets, particularly in China, Brazil, India and Russia, and by the anticipated global economic recovery. We cannot provide assurance that fluctuations in commodity prices will not otherwise have a material adverse effect on our financial condition or results of operations, or cause significant fluctuations in quarterly and annual results of operations.

Our hedging activities to address commodity price fluctuations may not be successful in offsetting future increases in those costs or may reduce or eliminate the benefits of any decreases in those costs.

In order to mitigate short-term volatility in operating results due to the aforementioned commodity price fluctuations, we hedge a portion of near-term exposure to certain raw materials used in production. The results of our hedging practice could be positive, neutral or negative in any period depending on price changes in the hedged exposures. Our hedging activities are not designed to mitigate long-term commodity price fluctuations and, therefore, will not protect from long-term commodity price increases. Our future hedging positions may not correlate to actual raw material costs, which could cause acceleration in the recognition of unrealized gains and losses on hedging positions in operating results.

We face manufacturing challenges.

The volume and timing of sales to our customers may vary due to: variation in demand for our customers’ products; our customers’ attempts to manage their inventory; design changes; changes in our customers’ manufacturing strategy; and acquisitions of or consolidations among customers. Due in part to these factors, many of our customers do not commit to long-term production schedules. Our inability to forecast the level of customer orders with certainty makes it difficult to schedule production and maximize utilization of manufacturing capacity.

We rely on third-party suppliers for the components used in our products, and we rely on third-party manufacturers to manufacture certain of our assemblies and finished products. Our results of operations, financial condition and cash flows could be adversely affected if our third party suppliers lack sufficient quality control or if there are significant changes in their financial or business condition. If our third-party manufacturers fail to deliver products, parts and components of sufficient quality on time and at reasonable prices, we could have difficulties fulfilling our orders, sales and profits could decline, and our commercial reputation could be damaged.

From time to time, we have underutilized our manufacturing lines. This excess capacity means we incur increased fixed costs in our products relative to the net revenue we generate, which could have an adverse effect on our results of operations, particularly during economic downturns. If we are unable to improve utilization levels for these manufacturing lines and correctly manage capacity, the increased expense levels will have an adverse effect on our business, financial condition and results of operations. In addition, some of our manufacturing lines are located in China or other foreign countries that are subject to a number of additional risks and uncertainties, including increasing labor costs and political, social and economic instability.

We may not be able to respond quickly enough to changes in regulations, technology and technological risks, and to develop our intellectual property into commercially viable products.

Changes in legislative, regulatory or industry requirements or in competitive technologies may render certain of our products obsolete or less attractive. Our ability to anticipate changes in technology and regulatory standards and to successfully develop and introduce new and enhanced products on a timely basis are significant factors in our ability to remain competitive and to maintain or increase our revenues. We cannot provide assurance that certain of our products will not become obsolete or that we will be able to achieve the technological advances that may be necessary for us to remain competitive and maintain or increase our revenues in the future. We are also subject to the risks generally associated with new product introductions and applications, including lack of market acceptance, delays in product development or production and failure of

 

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products to operate properly. The pace of our development and introduction of new and improved products depends on our ability to implement successfully improved technological innovations in design, engineering and manufacturing, which requires extensive capital investment. Any capital expenditure cuts in these areas that we may determine to implement in the future to reduce costs and conserve cash could reduce our ability to develop and implement improved technological innovations, which may materially reduce demand for our products.

To compete effectively in the automotive supply industry, we must be able to launch new products to meet changing consumer preferences and our customers’ demand in a timely and cost-effective manner. Our ability to respond to competitive pressures and react quickly to other major changes in the marketplace including in the case of automotive sales, increased gasoline prices or consumer desire for and availability of vehicles using alternative fuels is also a risk to our future financial performance.

We cannot provide assurance that we will be able to install and certify the equipment needed to produce products for new product programs in time for the start of production, or that the transitioning of our manufacturing facilities and resources to full production under new product programs will not impact production rates or other operational efficiency measures at our facilities. Development and manufacturing schedules are difficult to predict, and we cannot provide assurance that our customers will execute on schedule the launch of their new product programs, for which we might supply products. Our failure to successfully launch new products, or a failure by our customers to successfully launch new programs, could adversely affect our results.

Changes in factors that impact the determination of our non-U.S. pension liabilities may adversely affect us.

Certain of our non-U.S. subsidiaries sponsor defined benefit pension plans, which generally provide benefits based on negotiated amounts for each year of service. Our primary non-U.S. plans are located in Mexico and the United Kingdom and were underfunded by $326 million as of March 31, 2011. The funding requirements of these benefit plans, and the related expense reflected in our financial statements, are affected by several factors that are subject to an inherent degree of uncertainty and volatility, including governmental regulation. In addition to the defined benefit pension plans, we have retirement obligations driven by requirements in many of the countries in which we operate. These legally required plans require payments at the time benefits are due. Obligations related to the defined benefit pension plans and statutorily required retirement obligations totaled $640 million at March 31, 2011, of which $14 million is included in accrued liabilities and $626 million is included in long-term liabilities in our consolidated balance sheet. Key assumptions used to value these benefit obligations and the cost of providing such benefits, funding requirements and expense recognition include the discount rate and the expected long-term rate of return on pension assets. If the actual trends in these factors are less favorable than our assumptions, this could have an adverse effect on our results of operations and financial condition.

We may suffer future asset impairment and other restructuring charges.

We have taken restructuring actions in recent years to realign and resize our production capacity and cost structure to meet current and projected operational and market requirements. If we are required to take further restructuring actions, the charges related to these actions may have a material adverse effect on our results of operations and financial condition. We cannot assure that any future restructurings will be completed as planned or achieve the desired results. Additionally, from time to time in the past, we have recorded asset impairment losses relating to specific plants and operations. Generally, we record asset impairment losses when we determine that our estimates of the future undiscounted cash flows from an operation will not be sufficient to recover the carrying value of that facility’s building, fixed assets and production tooling. We cannot assure that we will not incur such charges in the future.

 

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Employee strikes and labor-related disruptions involving us or one or more of our customers or suppliers may adversely affect our operations.

Our business is labor-intensive and utilizes a number of work councils and other represented employees. A strike or other form of significant work disruption by our employees would likely have an adverse effect on our ability to operate our business. A labor dispute involving us or one or more of our customers or suppliers or that could otherwise affect our operations could reduce our sales and harm our profitability. A labor dispute involving another supplier to our customers that results in a slowdown or a closure of our customers’ assembly plants where our products are included in the assembled parts or vehicles could also adversely affect our business and harm our profitability. In addition, our inability or the inability of any of our customers, our suppliers or our customers’ suppliers to negotiate an extension of a collective bargaining agreement upon its expiration could reduce our sales and harm our profitability. Significant increases in labor costs as a result of the renegotiation of collective bargaining agreements could also adversely affect our business and harm our profitability.

We may lose or fail to attract and retain key salaried employees and management personnel.

An important aspect of our competitiveness is our ability to attract and retain key salaried employees and management personnel. Our ability to do so is influenced by a variety of factors, including the compensation we award and the competitive market position of our overall compensation package. We may not be as successful as competitors at recruiting, assimilating and retaining highly skilled personnel. The loss of the services of any member of senior management or a key salaried employee could have an adverse effect on our business.

We are exposed to foreign currency fluctuations as a result of our substantial global operations, which may affect our financial results.

We have currency exposures related to buying, selling and financing in currencies other than the local currencies of the countries in which we operate. Approximately 65% of our net revenue for the year ended December 31, 2010 was invoiced in currencies other than the U.S. dollar, and we expect net revenue from non-U.S. markets to continue to represent a significant portion of our net revenue. Price increases caused by currency exchange rate fluctuations may make our products less competitive or have an adverse effect on our margins. Currency exchange rate fluctuations may also disrupt the business of our suppliers by making their purchases of raw materials more expensive and more difficult to finance.

Historically, we have reduced our exposure by aligning our costs in the same currency as our revenues or, if that is impracticable, through financial instruments that provide offsets or limits to our exposures, which are opposite to the underlying transactions. However, any measures that we may implement to reduce the effect of volatile currencies and other risks of our global operations may not be effective. We cannot provide assurance that fluctuations in currency exposures will not otherwise have a material adverse effect on our financial condition or results of operations, or cause significant fluctuations in quarterly and annual results of operations.

We face risks associated with doing business in non-U.S. jurisdictions.

The majority of our manufacturing and distribution facilities are in countries outside of the U.S., including Mexico and countries in Asia Pacific, Eastern and Western Europe, South America and Northern Africa. We also purchase raw materials and other supplies from many different countries around the world. For the three months ended March 31, 2011, approximately 68% of our net revenue came from sales outside the United States. International operations are subject to certain risks inherent in doing business abroad, including:

 

   

exposure to local economic, political and labor conditions;

 

   

unexpected changes in laws, regulations, trade or monetary or fiscal policy, including interest rates, foreign currency exchange rates and changes in the rate of inflation in the U.S. and other foreign countries;

 

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tariffs, quotas, customs and other import or export restrictions and other trade barriers;

 

   

expropriation and nationalization;

 

   

difficulty of enforcing agreements, collecting receivables and protecting assets through non-U.S. legal systems;

 

   

reduced intellectual property protection;

 

   

limitations on repatriation of earnings;

 

   

withholding and other taxes on remittances and other payments by subsidiaries;

 

   

investment restrictions or requirements;

 

   

export and import restrictions;

 

   

violence and civil unrest in local countries; and

 

   

compliance with the requirements of applicable anti-bribery laws, including the U.S. Foreign Corrupt Practices Act.

Additionally, our global operations may also be adversely affected by political events, domestic or international terrorist events and hostilities or complications due to natural or nuclear disasters, including the March 2011 earthquake, tsunami and nuclear crisis in Japan. See “—As a result of the March 2011 earthquake and tsunami in Japan, we expect to experience some supply disruptions from Japanese and other suppliers, which could adversely affect our ability to meet our customers’ production requirements” above. These uncertainties could have a material adverse effect on the continuity of our business and our results of operations and financial condition.

Increasing our manufacturing footprint in Asian markets, including China, and our business relationships with Asian automotive manufacturers are important elements of our strategy. In addition, our strategy includes increasing revenue and expanding our manufacturing footprint in lower-cost regions. As a result, our exposure to the risks described above may be greater in the future. The likelihood of such occurrences and their potential impact on us vary from country to country and are unpredictable.

If we fail to manage our growth effectively or to integrate successfully any future acquisition or strategic alliance into our business, our business could be harmed.

We expect to pursue acquisitions and strategic alliances that leverage our technology capabilities, enhance our customer base, geographic penetration, and scale to complement our current businesses. While we believe that such transactions are an integral part of our long-term strategy, there are risks and uncertainties related to these activities. Such risks and uncertainties include difficulty in integrating acquired operations, technology and products and potential unknown liabilities associated with the acquired company.

Risks Related to Legal, Regulatory, Tax and Accounting Matters

We may incur material losses and costs as a result of warranty claims and product liability and intellectual property infringement actions that may be brought against us.

We face an inherent business risk of exposure to warranty claims and product liability in the event that our products fail to perform as expected and, in the case of product liability, such failure of our products results in bodily injury and/or property damage. The fabrication of the products we manufacture is a complex and precise

 

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process. Our customers specify quality, performance and reliability standards. If flaws in either the design or manufacture of our products were to occur, we could experience a rate of failure in our products that could result in significant delays in shipment and product re-work or replacement costs. Although we engage in extensive product quality programs and processes, these may not be sufficient to avoid product failures, which could cause us to:

 

   

lose net revenue;

 

   

incur increased costs such as warranty expense and costs associated with customer support;

 

   

experience delays, cancellations or rescheduling of orders for our products;

 

   

experience increased product returns or discounts; or

 

   

damage our reputation,

all of which could negatively affect our financial condition and results of operations.

If any of our products are or are alleged to be defective, we may be required to participate in a recall involving such products. Each vehicle manufacturer has its own practices regarding product recalls and other product liability actions relating to its suppliers. However, as suppliers become more integrally involved in the vehicle design process and assume more of the vehicle assembly functions, OEMs continue to look to their suppliers for contribution when faced with recalls and product liability claims. A recall claim brought against us, or a product liability claim brought against us in excess of our available insurance, may have a material adverse effect on our business. OEMs also require their suppliers to guarantee or warrant their products and bear the costs of repair and replacement of such products under new vehicle warranties. Depending on the terms under which we supply products to a vehicle manufacturer, a vehicle manufacturer may attempt to hold us responsible for some or all of the repair or replacement costs of defective products under new vehicle warranties when the OEM asserts that the product supplied did not perform as warranted. Although we cannot assure that the future costs of warranty claims by our customers will not be material, we believe our established reserves are adequate to cover potential warranty settlements. Our warranty reserves are based on our best estimates of amounts necessary to settle future and existing claims. We regularly evaluate the level of these reserves and adjust them when appropriate. However, the final amounts determined to be due related to these matters could differ materially from our recorded estimates.

In addition, as we adopt new technology, we face an inherent risk of exposure to the claims of others that we have allegedly violated their intellectual property rights. We cannot assure that we will not experience any material warranty, product liability or intellectual property claim losses in the future or that we will not incur significant costs to defend such claims.

We may be adversely affected by environmental regulation, litigation or other liabilities.

We are subject to various U.S. federal, state and local, and non-U.S., environmental, health and safety laws and regulations governing, among other things:

 

   

the generation, storage, handling, use, transportation, presence of, or exposure to hazardous materials;

 

   

the emission and discharge of hazardous materials into the ground, air or water;

 

   

the incorporation of certain chemical substances into our products, including electronic equipment; and

 

   

the health and safety of our employees.

 

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We are also required to obtain permits from governmental authorities for certain operations. We cannot assure you that we have been or will be at all times in complete compliance with such laws, regulations and permits. If we violate or fail to comply with these laws, regulations or permits, we could be fined or otherwise sanctioned by regulators. We could also be held liable for any and all consequences arising out of human exposure to hazardous substances or other environmental damage.

Certain environmental laws impose liability, sometimes regardless of fault, for investigating or cleaning up contamination on or emanating from our currently or formerly owned, leased or operated property, as well as for damages to property or natural resources and for personal injury arising out of such contamination. These environmental laws also assess liability on persons who arrange for hazardous substances to be sent to third party disposal or treatment facilities when such facilities are found to be contaminated. At this time, we are involved in various stages of investigation and cleanup related to environmental remediation matters at a number of present and former facilities in the U.S. and abroad. The ultimate cost to us of site cleanups is difficult to predict given the uncertainties regarding the extent of the required cleanup, the potential for ongoing environmental monitoring and maintenance that could be required for many years, the interpretation of applicable laws and regulations, alternative cleanup methods, and potential agreements that could be reached with governmental and third parties. While we have environmental reserves of approximately $24 million at March 31, 2011 for the cleanup of presently-known environmental contamination conditions, it cannot be guaranteed that actual costs will not significantly exceed these reserves. We also could be named a potentially responsible party at additional sites in the future and the costs associated with such future sites may be material.

In addition, environmental laws are complex, change frequently and have tended to become more stringent over time. While we have budgeted for future capital and operating expenditures to maintain compliance with environmental laws, we cannot assure that environmental laws will not change or become more stringent in the future. Therefore, we cannot assure that our costs of complying with current and future environmental and health and safety laws, and our liabilities arising from past or future releases of, or exposure to, hazardous substances will not adversely affect our business, results of operations or financial condition. For example, adoption of greenhouse gas rules in jurisdictions in which we operate facilities could require installation of emission controls, acquisition of emission credits, emission reductions, or other measures that could be costly, and could also impact utility rates and increase the amount we spend annually for energy.

We may identify the need for additional environmental remediation or demolition obligations relating to facility divestiture, closure and decommissioning activities.

As we sell, close and/or demolish facilities around the world, environmental investigations and assessments will continue to be performed. We may identify previously unknown environmental conditions or further delineate known conditions that may require remediation or additional costs related to demolition or decommissioning, such as abatement of asbestos containing materials or removal of polychlorinated biphenyls or storage tanks. Such costs could exceed our reserves.

We are involved from time to time in legal proceedings and commercial or contractual disputes, which could have an adverse impact on our profitability and consolidated financial position.

We are involved in legal proceedings and commercial or contractual disputes that, from time to time, are significant. These are typically claims that arise in the normal course of business including, without limitation, commercial or contractual disputes, including warranty claims and other disputes with customers and suppliers; intellectual property matters; personal injury claims; environmental issues; tax matters; and employment matters.

In addition, we conduct significant business operations in Brazil which are subject to the Brazilian federal, state and local labor, social security, environmental, tax and customs laws. While we believe we comply with such laws, they are complex, subject to varying interpretations, and we are often engaged in litigation regarding the application of these laws to particular circumstances. As of March 31, 2011, related claims totaling

 

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approximately $250 million had been asserted against us. As of March 31, 2011, we maintained reserves for these asserted claims that are substantially less than the amount of the claims asserted. While we believe our reserves are adequate, the final amounts required to resolve these matters could differ materially from our recorded estimates and our results of operations could be materially affected.

For further information regarding our legal matters, see “Business—Legal Proceedings.” No assurance can be given that such proceedings and claims will not have a material adverse effect on our profitability and consolidated financial position.

Developments or assertions by us or against us relating to intellectual property rights could materially impact our business.

We own significant intellectual property, including a large number of patents and tradenames, and are involved in numerous licensing arrangements. Our intellectual property plays an important role in maintaining our competitive position in a number of the markets we serve. Developments or assertions by or against us relating to intellectual property rights could negatively impact our business. Significant technological developments by others also could materially and adversely affect our business and results of operations and financial condition.

There is a significant risk that Delphi Automotive LLP and, as a result, Delphi Automotive PLC could be treated as a domestic corporation for U.S. federal income tax purposes, which could have a material impact on our future tax liability.

Delphi Automotive LLP, which acquired the automotive supply and other businesses of the Predecessor on October 6, 2009 (the “Acquisition Date”), was established on August 19, 2009 as a limited liability partnership incorporated under the laws of England and Wales. At the time of its formation, Delphi Automotive LLP elected to be treated as a partnership for U.S. federal income tax purposes. Prior to the Acquisition Date, the Internal Revenue Service (the “IRS”) issued Notice 2009-78 (the “Notice”) announcing its intent to issue regulations under Section 7874 of the Internal Revenue Code of 1986, as amended (the “Code”), with an effective date prior to the Acquisition Date. If regulations as described in the Notice are issued with the effective date indicated in the Notice and with no exceptions for transactions that were subject to binding commitments on that date, we believe there is a significant risk that Delphi Automotive LLP could be treated as a domestic corporation for U.S. federal income tax purposes, retroactive to the Acquisition Date. If Delphi Automotive LLP were treated as a domestic corporation for U.S. federal income tax purposes, we expect that, although we are incorporated under the laws of Jersey, we would also be treated as a domestic corporation for U.S. federal income tax purposes.

Delphi Automotive LLP filed an informational 2009 U.S. federal partnership tax return on September 15, 2010. In light of the Notice, the IRS is currently reviewing whether Section 7874 applies to Delphi Automotive LLP’s acquisition of the automotive supply and other businesses of the Predecessor. While we believe, based on the advice of counsel, that it is more likely than not that neither we, nor Delphi Automotive LLP, are a domestic corporation for U.S. federal income tax purposes, and therefore have not reserved any amounts on our financial statements in respect of this issue, no assurance can be given that the IRS will not contend that Delphi Automotive LLP, and therefore we, should each be treated as a domestic corporation for U.S. federal income tax purposes, or that, if we were to challenge any such contention by the IRS, that a court would not agree with the IRS.

If we were treated as a domestic corporation for U.S. federal income tax purposes, we would be subject to U.S. federal income tax on our worldwide taxable income, including some or all of the distributions from our subsidiaries as well as some of the undistributed earnings of our foreign subsidiaries that constitute “controlled foreign corporations.” This could have a material adverse impact on our future tax liability related to these distributions and earnings. Future cash distributions made by us to non-U.S. shareholders could be subject to U.S. income tax withholding at a rate of 30%, unless reduced or eliminated by a tax treaty. In addition, we could be

 

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liable for additional U.S. federal income taxes on such distributions and earnings, and for the failure by Delphi Automotive LLP to withhold U.S. income taxes on distributions to its non-U.S. members, for periods beginning on or after, the Acquisition Date, which liability could have a material adverse impact on our results of operations and financial condition.

Taxing authorities could challenge our historical and future tax positions.

The amount of tax we pay is subject to our interpretation of applicable tax laws in the jurisdictions in which we file. We have taken and will continue to take tax positions based on our interpretation of such tax laws. In particular, we will seek to run ourselves in such a way that we are and remain tax resident in the United Kingdom. While we believe that we have complied with all applicable tax laws, there can be no assurance that a taxing authority will not have a different interpretation of the law and assess us with additional taxes. Should additional taxes be assessed, this may result in a material adverse effect on our results of operations and financial condition.

Our application of acquisition accounting could result in additional asset impairments and may make comparisons of our financial position and results of operations to prior periods more difficult.

As required by U.S. GAAP, we recognized and measured the fair value of the identifiable assets acquired and the liabilities assumed from the Predecessor. This resulted in the recognition of significant identifiable intangible assets which could be impaired in future periods. Additionally, the consolidated financial statements of Delphi Automotive LLP are not comparable to the consolidated statements of the Predecessor due to the effects of the consummation of the First Amended Joint Plan of Reorganization of Delphi Corporation and Certain Affiliates, Debtors and Debtors-In Possession (As Modified) and the change in the basis of presentation. This lack of comparability could limit interest and investment in our securities, including the ordinary shares.

Our operating results are exposed to variability as a result of the currently designed Long-Term Incentive Program for our key employees.

The recognition of compensation costs on a U.S. GAAP basis resulting from the execution of our Value Creation Plan, our Long-Term Incentive Program for key employees, is based on a variable formula that is likely to result in fluctuations impacting operating results. No assurance can be given that such impacts will not have a material impact on our profitability and consolidated financial position.

Risks Related to this Offering

There is no existing market for our ordinary shares, and our ordinary shares may trade at a discount from its initial offering price.

Prior to this offering, there has not been a public market for our ordinary shares and we cannot predict the extent of investor interest in us. The initial public offering price for our ordinary shares will be determined by negotiations between us and the representative of the underwriters and may not be indicative of prices that will prevail in the open market following this offering. Consequently, you may not be able to sell ordinary shares at prices equal to or greater than the price you paid in this offering.

An active and liquid trading market for our ordinary shares may not develop.

Prior to this offering, our ordinary shares were not traded on any market. An active and liquid trading market for our ordinary shares may not develop or be maintained after this offering. Liquid and active trading markets usually result in less price volatility and more efficiency in carrying out investors’ purchase and sale orders. The market price of our ordinary shares could vary significantly as a result of a number of factors, some of which are beyond our control. In the event of a drop in the market price of our ordinary shares, you could lose

 

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a substantial part or all of your investment in our ordinary shares. The initial public offering price will be negotiated between us and representatives of the underwriters and may not be indicative of the market price of our ordinary shares after this offering. Consequently, you may not be able to sell our ordinary shares at prices equal to or greater than the price paid by you in the offering.

The market price and trading volume of our ordinary shares may be volatile, which could result in rapid and substantial losses for our shareholders.

The market price of our ordinary shares may be highly volatile and could be subject to wide fluctuations. In addition, the trading volume of our ordinary shares may fluctuate and cause significant price variations to occur. Some of the factors that could negatively affect the price of our ordinary shares, or result in fluctuations in the price or trading volume of our ordinary shares, include:

 

   

variations in our quarterly operating results;

 

   

failure to meet the market’s earnings expectations;

 

   

publication of research reports about us or the automotive parts industry, or the failure of securities analysts to cover our ordinary shares after this offering;

 

   

departures of key personnel;

 

   

adverse market reaction to any indebtedness we may incur or securities we may issue in the future;

 

   

changes in market valuations of similar companies;

 

   

changes or proposed changes in laws or regulations, or differing interpretations thereof, affecting our business, or enforcement of these laws and regulations, or announcements relating to these matters;

 

   

litigation and governmental investigations; and

 

   

general market and economic conditions.

Reports published by securities or industry analysts, including projections in those reports that exceed our actual results, could adversely affect our share price and trading volume.

We currently expect securities research analysts, including those affiliated with our underwriters, to establish and publish their own quarterly projections regarding our operating results. These projections may vary widely from one another and may not accurately predict the results we actually achieve. Our share price may decline if we fail to meet securities research analysts’ projections. Similarly, if one or more of the analysts who covers us downgrades our shares or publishes inaccurate or unfavorable research about our business, our share price could decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, our share price or trading volume could decline. Additionally, while we expect securities research analyst coverage, if no securities or industry analysts commence coverage of us, the trading price of our shares and the trading volume could decline.

Future sales of ordinary shares by existing shareholders could depress the market price of our ordinary shares.

After this offering, we will have              ordinary shares outstanding. This includes the              ordinary shares we and the selling shareholders are selling in this offering, which can be freely resold in the public market immediately after this offering unless purchased by any of our affiliates. We expect that the remaining             

 

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ordinary shares, representing     % of our total outstanding ordinary shares following this offering, will become available for resale in the public market as set forth under the heading “Shares Eligible for Future Sale.” All of our directors and executive officers, and the holders of                  of our ordinary shares, have signed lock-up agreements for a period of              days following the date of this prospectus, subject to extension in the case of an earnings release or material news or a material event relating to us. The underwriters may, in their sole discretion and without notice, release all or any portion of the ordinary shares subject to lock-up agreements. As restrictions on resale end, the market price of our ordinary shares could drop significantly if the holders of these shares sell them or are perceived by the market as intending to sell them. These factors could also make it more difficult for us to raise additional funds through future offerings of our ordinary shares or other securities.

The availability of ordinary shares for sale in the future could reduce the market price of our ordinary shares.

In the future, we may issue additional securities to raise capital. We may also acquire interests in other companies by using a combination of cash and our ordinary shares or just our ordinary shares. We may also issue securities convertible into our ordinary shares. Any of these events may dilute your ownership interest in our Company and have an adverse impact on the price of our ordinary shares. In addition, sales of a substantial amount of our ordinary shares in the public market, or the perception that these sales may occur, could reduce the market price of our ordinary shares. This could also impair our ability to raise additional capital through the sale of our securities.

You will suffer immediate and substantial dilution and may experience additional dilution in the future.

The initial public offering price per share of our ordinary shares will be substantially higher than the pro forma net tangible book value per share of our ordinary shares immediately after this offering. As a result, you will pay a price per share that substantially exceeds the book value of our assets after subtracting our liabilities. See “Dilution.”

Our board of directors and management have broad discretion in the use of our net proceeds from this offering and may not use them effectively.

Our management will have broad discretion in the application of the net proceeds from this offering and could spend the proceeds in ways that do not improve our operating results or enhance the value of our ordinary shares. Our shareholders may not agree with the manner in which our management chooses to allocate and spend the net proceeds. The failure by our management to apply these funds effectively could result in financial losses that could have a material adverse effect on our business and cause the price of our ordinary shares to decline. Pending their use, we may invest our net proceeds from this offering in a manner that does not produce income or that loses value. See “Use of Proceeds” in this prospectus.

We will incur increased costs as a result of being a publicly traded corporation.

We have no history operating as a publicly traded corporation. As a publicly traded corporation, we will incur additional legal, accounting and other expenses that we did not incur as a private company. This increase will be due to the increased accounting support services, filing annual and quarterly reports with the SEC, increased audit fees, investor relations, directors’ fees, directors’ and officers’ insurance, legal fees, stock exchange listing fees and registrar and transfer agent fees, which we expect to incur after the completion of this offering. In addition, we expect that complying with the rules and regulations implemented by the SEC and the                      will increase our legal and financial compliance costs and make activities more time-consuming and costly. In addition, we will incur additional costs associated with our publicly traded corporation reporting requirements.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus, as well as other presentations or statements made by us may contain forward-looking statements that reflect, when made, our current views with respect to current events and financial performance. Such forward-looking statements are subject to many risks, uncertainties and factors relating to our operations and business environment, which may cause our actual results to be materially different from any future results, express or implied, by such forward-looking statements. All statements that address future operating, financial or business performance or our strategies or expectations are forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “may,” “might,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “projects,” “potential,” “outlook” or “continue,” and other comparable terminology. Factors that could cause actual results to differ materially from these forward-looking statements include, but are not limited to, those discussed under the heading “Risk Factors” in this prospectus, such as the following:

 

   

global economic conditions, including conditions affecting the credit market and the cyclical nature of automotive sales and production;

 

   

the potential disruptions in the supply of and changes in the competitive environment for raw material integral to our products;

 

   

our ability to maintain contracts that are critical to our operations;

 

   

our ability to attract, motivate and/or retain key executives; and

 

   

our ability to attract and retain customers.

New risks and uncertainties arise from time to time, and it is impossible for us to predict these events or how they may affect us. It should be remembered that the price of the ordinary shares and any income from them can go down as well as up. We disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events and/or otherwise, except to the extent required by law.

 

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USE OF PROCEEDS

We will receive net proceeds from this offering of approximately $            , or approximately $             if the underwriters exercise their option to purchase additional shares in full. We intend to use the net proceeds for general corporate purposes, primarily to fund our operations, to acquire capital equipment and to repay debt. We will not receive any proceeds from the ordinary shares being sold by the selling shareholders.

DIVIDEND POLICY

We have never declared or paid any cash dividends on our share capital. We currently anticipate that we will retain all available funds for use in the operation and expansion of our business, and do not anticipate paying any cash dividends in the foreseeable future.

 

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CAPITALIZATION

The following table sets forth as of March 31, 2011 the cash and capitalization of:

 

   

Delphi Automotive LLP, on an actual basis; and

 

   

Delphi Automotive LLP, on a pro forma as adjusted basis to give effect to (a) extinguishment of the Old Notes, (b) the modification of the credit agreement and (c) the issuance of Senior Notes, in each case as described in “Unaudited Pro Forma Condensed Consolidated Financial Information”; and

 

   

us, on a pro forma as further adjusted basis to reflect the transaction by which Delphi Automotive LLP becomes our wholly-owned subsidiary and the sale by us of              ordinary shares pursuant to this offering at an assumed price of $              per share, the midpoint of the range set forth on the cover page of the prospectus.

This table should be read in conjunction with in “Unaudited Pro Forma Condensed Consolidated Financial Information”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements of Delphi Automotive PLC and Delphi Automotive LLP, including the accompanying notes thereto, appearing elsewhere in this prospectus.

 

     March 31, 2011  
     Delphi Automotive LLP      Delphi
Automotive
PLC
 
     Actual      Pro Forma As
Adjusted
     Pro Forma As
Further
Adjusted
 
     (in millions)  

Cash and cash equivalents

   $ 1,633       $ 1,336       $     

Restricted cash

     22         22      

Debt:

        

Accounts receivable factoring

   $ 159       $ 159       $     

Senior credit facility

     2,488         1,205      

5.875% senior notes due 2019

             500      

6.125% senior notes due 2021

             500      

Capital leases and other debt(1)

     104         104      
                          

Less: current portion

     272         261      
                          

Total long-term debt

     2,479         2,207      
                          

Total debt

   $ 2,751       $ 2,468       $     
                          

Pre-IPO owners’ equity

        

Membership interests

   $ 1,278       $ 1,257      

Accumulated other comprehensive loss:

        

Employee benefit plans

     61         61      

Other

     96         96      
                          

Total accumulated other comprehensive income

     157         157      
                          

Total owners’ equity before noncontrolling interest

     1,435         1,414      

Noncontrolling interests

     472         472      
                          

Total pre-IPO owners’ equity

   $ 1,907       $ 1,886      

 

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     March 31, 2011  
     Delphi Automotive LLP      Delphi
Automotive
PLC
 
     Actual      Pro Forma As
Adjusted
     Pro Forma As
Further
Adjusted
 
     (in millions)  

Post-IPO shareholders’ equity:

        

Preferred shares, $0.01 par value per share,             shares authorized,      issued and outstanding

                  

Ordinary shares, $0.01 par value per share,              shares authorized,              issued and outstanding

                  

Additional paid-in capital

                  

Accumulated other comprehensive loss:

        

Employee benefit plans

                  

Other

                  
                          

Total accumulated other comprehensive income

                  
                          

Total shareholders’ equity before noncontrolling interest

                  

Noncontrolling interests

                  
                          

Total post-IPO shareholders’ equity

   $       $       $     
                          

Total capitalization

   $ 4,658       $ 4,354       $     
                          

 

(1) Capital leases and other debt is comprised of $80 million of short-term debt and $24 million of long-term debt.

 

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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION

The following unaudited pro forma condensed consolidated financial information (the “Pro Forma Financial Information”) sets forth selected historical consolidated financial information for Delphi Automotive LLP and its consolidated subsidiaries. The historical data provided as of March 31, 2011, for the three months ended March 31, 2011 and for the year ended December 31, 2010 are derived from Delphi Automotive LLP’s unaudited consolidated financial statements for the three months ended March 31, 2011 and the audited consolidated financial statements for the year ended December 31, 2010.

The Pro Forma Financial Information is provided for informational and illustrative purposes only. These tables should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the consolidated financial statements and related notes in the unaudited consolidated financial statements for the three months ended March 31, 2011 and the audited consolidated financial statements for the year ended December 31, 2010, included elsewhere in this prospectus.

The Pro Forma Financial Information gives effect to the transactions specified in “Pro Forma Adjustments” below as if they had occurred on January 1, 2010 for the unaudited pro forma condensed consolidated statements of operations for the year ended December 31, 2010 and the three months ended March 31, 2011, and on March 31, 2011 for the unaudited pro forma condensed consolidated balance sheet. The pro forma adjustments and certain assumptions underlying these adjustments are described in the accompanying notes, which should be read in conjunction with the unaudited pro forma condensed consolidated financial information.

The Pro Forma Financial Information does not purport to project our future financial position or operating results as of any future date or for any future period. The unaudited pro forma condensed consolidated financial information is also not necessarily indicative of what our actual results of operations or financial position would have been had the transactions occurred on January 1, 2010 or March 31, 2011, as the case may be.

Pro Forma Adjustments

The “Pre-IPO Adjustments” column in the Pro Forma Financial Information includes the effects of the following transactions, which have been completed prior to this offering:

 

   

the extinguishment of our outstanding $41 million in senior unsecured five-year notes (the “Old Notes”) issued in connection with our acquisition of certain assets of the Predecessor on the Acquisition Date at an aggregate purchase price of approximately $57 million;

 

   

the impact of the credit agreement executed on March 31, 2011 among Delphi Automotive LLP (for purposes of this description, “Parent”), Delphi Holdings, S.a.r.l., Delphi Corporation (for purposes of this description, the “Borrower”), JPMorgan Chase Bank, N.A. as administrative agent, and J.P. Morgan Securities LLC as sole bookrunner and sole lead arranger, with respect to $3.0 billion in senior secured credit facilities, of which $2.5 billion in term loans were used to repurchase certain membership interests, and the modification to the credit agreement in connection with the syndication thereof (see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources”); and

 

   

the issuance of $500 million in senior unsecured notes due 2019 and $500 million in senior unsecured notes due 2021 (collectively, the “Senior Notes”) which, together with cash on hand, were used to repay amounts outstanding under the credit agreement.

 

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The “IPO Adjustments” column in the Pro Forma Financial Information includes the effects of the following transactions in connection with this offering:

 

   

Delphi Automotive PLC’s acquisition of all outstanding units of Delphi Automotive LLP from its existing unit holders in exchange for              ordinary shares immediately prior to the closing of this offering; and

 

   

the issuance by us of              ordinary shares in this offering and our application of the proceeds therefrom.

For additional information regarding the foregoing pro forma adjustments, see the notes to the Pro Forma Financial Information.

 

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DELPHI AUTOMOTIVE PLC

PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

(Unaudited)

 

     Three months ended March 31, 2011  
     Delphi Automotive LLP      Delphi Automotive PLC  
     Historical      Pre-IPO
Adjustments
     Pro Forma      IPO
Adjustments
     Pro Forma,
as Further
Adjusted
 
     (dollars in millions, except share data)  

Net sales

   $ 3,997       $         $ 3,997       $         $     

Operating expenses:

              

Cost of sales

     3,353                 3,353         

Selling, general and administrative

     205                 205         

Amortization

     18                 18         

Restructuring

     9                 9         
                                            

Total operating expenses

     3,585                 3,585         
                                            

Operating income

     412                 412         

Interest expense

     (6)         (28)(a)         (34)         

Loss on extinguishment of debt

     (9)                 (9)         

Other income, net

     29                 29         
                                            

Income before income tax benefit

     426         (28)         398         

Income tax (expense) benefit

     (116)         10(b)         (106)         
                                            

Net income

     310         (18)         292         

Net income attributable to noncontrolling interest

     19                 19         
                                            

Net income attributable to Delphi

   $ 291       $ (18)       $ 273       $         $     
                                            

Weighted average ordinary shares outstanding:

              

Basic

              (c)      
                                            

Diluted

              (c)      
                                            

Net income (loss) per share available to shareholders:

              

Basic

              (c)      
                                            

Diluted

              (c)      
                                            

 

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DELPHI AUTOMOTIVE PLC

PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

(Unaudited)

 

     Year ended December 31, 2010  
     Delphi Automotive LLP      Delphi Automotive PLC  
     Historical      Pre-IPO
Adjustments
     Pro Forma      IPO
Adjustments
    Pro Forma,
as Further
Adjusted
 
     (dollars in millions, except share data)  

Net sales

   $     13,817       $         $     13,817       $                   $                

Operating expenses:

             

Cost of sales

     11,768                 11,768        

Selling, general and administrative

     815                 815        

Amortization

     70                 70        

Restructuring

     224                 224        
                                           

Total operating expenses

     12,877                 12,877        
                                           

Operating income

     940                 940        

Interest expense

     (30)         (113)(a)         (143)        

Other income, net

     51                 51        
                                           

Income before income tax benefit

     961         (113)         848        

Income tax (expense) benefit

     (258)         40(b)         (218)        
                                           

Net income

   $ 703       $ (73)       $ 630       $        $     

Net income attributable to noncontrolling interest

     72                 72        
                                           

Net income attributable to Delphi

   $ 631       $ (73)       $ 558       $        $     
                                           

Weighted average ordinary shares outstanding:

             

Basic

              (c  
                                           

Diluted

              (c  
                                           

Net income (loss) per share available to shareholders:

             

Basic

              (c  
                                           

Diluted

              (c  
                                           

 

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Notes to Unaudited Pro Forma Condensed Consolidated Statements of Operations

Pre-IPO Adjustments

(a) The interest expense adjustments from the credit agreement and the issuance of the Senior Notes resulted in a net increase of $28 million and $113 million for the three months ended March 31, 2011 and the year ended December 31, 2010, respectively, and consists of the following (in millions):

 

     Three months ended
March 31, 2011
    Year ended
December 31, 2010
 

Increased interest expense on credit agreement and the Senior Notes (i)

   $     25      $     101   

Issuance cost and original issue discount (“OID”) amortization (ii)

     4        15   

Elimination of interest expense and accretion on extinguished Old Notes

     (1     (3
                

Total adjustment

   $ 28      $ 113   
                

 

(i) Adjustments with respect to interest expense on indebtedness under the credit agreement and the Senior Notes:
  (a) Reflects a blended interest rate of approximately 4.57%.
  (b) Assumes the revolving credit facility remains undrawn.
(ii) Includes original issue discount on our new senior secured term loan credit facility.

(b) Income tax benefit related to the Pro Forma Adjustments is $10 million and $40 million, respectively, based on applying the U.S. statutory tax rate to the Pro Forma Adjustments.

IPO Adjustments

(c) Reflects issuance of             ordinary shares in exchange for Delphi Automotive LLP membership interests and             ordinary shares in this offering.

 

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DELPHI AUTOMOTIVE PLC

PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

(Unaudited)

 

    As of March 31, 2011  
    Delphi Automotive LLP     Delphi Automotive PLC  
        Historical         Pre-IPO
Adjustments
    Pro Forma     IPO
    Adjustments    
        Pro Forma,    
as Further
Adjusted
 
    (in millions)  

ASSETS

         

Current assets:

         

Cash and cash equivalents

  $ 1,633      $ (297 )(a)    $     1,336      $        $     

Restricted cash

    22               22       

Accounts receivable

    2,794               2,794       

Inventories

    1,088               1,088       

Other current assets

    596        (2 )(b)      594       
                                       

Total current assets

    6,133        (299     5,834       

Long-term assets:

         

Property, net

    2,162               2,162       

Investments in affiliates

    267               267       

Intangible assets, net

    655               655       

Other long-term assets

    507        (5 )(b)      502       
                                       

Total long-term assets

    3,591        (5     3,586       
                                       

Total assets

  $ 9,724      $ (304   $ 9,420      $        $     
                                       

LIABILITIES AND OWNERS’ EQUITY

         

Current liabilities:

         

Short-term debt

  $ 272      $ (11 )(c)    $ 261      $        $     

Accounts payable

    2,429               2,429       

Accrued liabilities

    1,312               1,312       
                                       

Total current liabilities

    4,013        (11     4,002       

Long-term liabilities:

         

Other long-term debt

    2,479        (272 )(c)      2,207       

Pension and other postretirement benefit obligations

    707               707       

Other long-term liabilities

    618               618       
                                       

Total long-term liabilities

    3,804        (272     3,532       
                                       

Total liabilities

    7,817        (283     7,534       
                                       

Pre-IPO owners’ equity

         

Membership interests

  $ 1,278      $ (21 )(d)    $ 1,257      $                      (e)    $     

Accumulated other comprehensive loss:

         

Employee benefit plans

    61               61       

Other

    96               96       
                                       

Total accumulated other comprehensive income

    157               157       
                                       

Total owners’ equity before noncontrolling interest

    1,435        (21     1,414       

Noncontrolling interests

    472               472       
                                       

Total Pre-IPO owners’ equity

    1,907        (21     1,886       
                                       

Post-IPO owners’ equity

         

Preferred shares, $0.01 par value per share,              shares authorized,      issued and outstanding

                   

Ordinary shares, $0.01 par value per share,              shares authorized,             issued and outstanding

                                         (f)   

Additional paid-in capital

                   

Accumulated other comprehensive loss:

         

Employee benefit plans

                   

Other

                   

Total accumulated other comprehensive income

                   
                                       

Total shareholders’ equity before noncontrolling interest

                   

Noncontrolling interests

                   
                                       

Total Post-IPO shareholders’ equity

  $             $        $     
                                       

Total liabilities and shareholders’ equity

  $ 9,724      $ (304   $ 9,420      $        $     
                                       

 

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Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet

Pre-IPO Adjustments

(a) The proceeds from the issuance of the Senior Notes and cash on hand were used to repay approximately $1.3 billion outstanding under the Tranche B Term Loan. Additionally, the adjustment reflects incremental net debt issuance costs related to the modification to the credit agreement and the issuance of the Senior Notes.

(b) Reflects the write off of debt issuance costs related to the Tranche B Term Loan partially offset by incremental debt issuance costs related to the modification of the credit agreement and the issuance of the Senior Notes.

(c) Reflects the net reduction in principal amounts due under the credit agreement and the Senior Notes.

(d) The reduction to owners’ equity is due to the adjustment to loss on extinguishment of debt.

IPO Adjustments

(e) Represents elimination of pre-IPO members’ equity to reflect transaction pursuant to which Delphi Automotive PLC becomes the owner of Delphi Automotive LLP.

(f) Represents creation of shareholders’ equity as a result of the transaction pursuant to which Delphi Automotive PLC becomes the owner of Delphi Automotive LLP.

 

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DILUTION

Our pro forma net tangible book value as of March 31, 2011 was $             or $             per ordinary share. Pro forma net tangible book value per share is determined by dividing our pro forma tangible net worth (which is equal to our total assets less total liabilities, calculated assuming we have acquired Delphi Automotive LLP), by the aggregate number of ordinary shares outstanding immediately prior to the offering but after giving effect to our issuance of shares to existing holders of Delphi Automotive LLP membership interests. After giving effect to our issuance and sale of the ordinary shares in this offering, at an assumed initial public offering price of $             per share, the midpoint of the range set forth on the cover page of this prospectus, and the receipt and application of the net proceeds therefrom, our pro forma net tangible book value at March 31, 2011 would have been $             or $             per share. This represents an immediate increase in pro forma net tangible book value to existing shareholders of $             per share and an immediate dilution to new investors of $             per share. The following table illustrates this per share dilution:

 

Assumed initial public offering price

   $                

Pro forma net tangible book value per share as of March 31, 2011

   $     

Increase in pro forma net tangible book value per share attributable to new investors

  

Pro forma net tangible book value per share after offering

  
        

Dilution per share to new investors

   $     
        

Dilution is determined by subtracting pro forma net tangible book value per share after the offering from the initial public offering price per share.

A $1.00 increase (decrease) in the assumed initial public offering price of $             per share (the midpoint of the range set forth on the cover page of this prospectus), would increase (decrease) our pro forma consolidated net tangible book value after this offering by $             and the dilution per share to new investors by $            , in each case assuming the number of shares offered, as set forth on the cover page of this prospectus, remains the same and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

The following table sets forth, on a pro forma basis, as of March 31, 2011, the number of ordinary shares purchased from us, the total consideration paid, or to be paid, and the average price per share paid, or to be paid, by existing shareholders and by the new investors, at an assumed initial public offering price of $             per share, the midpoint of the range set forth on the cover page of this prospectus, before deducting estimated underwriting discounts and commissions and offering expenses payable by us:

 

     Shares Purchased     Total Consideration     Average Price
Per Share
 
      Number     Percent     Amount     Percent    

Existing shareholders(1)

       %      $                     %     

New investors

          

Total

       100   $          100  

 

(1) Reflects the price paid by the initial equityholders of Delphi Automotive LLP in connection with its formation in 2009 (other than holders whose equity was repurchased in March 2011).

Sales by the selling shareholders in this offering will reduce the number of shares held by existing shareholders to             or approximately     %,             shares or approximately     % if the underwriters’ option is exercised in full, and will increase the number of shares to be purchased by new investors to             or approximately     %,             shares or approximately     % if the underwriters’ option is exercised in full, of the total ordinary shares outstanding after the offering.

 

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The foregoing tables assume no exercise of the underwriters’ option to purchase additional shares and no issuance of any shares pursuant to the Value Creation Plan described under “Executive Compensation.” Based on the midpoint of the range on the front cover and assuming that value is maintained on December 31, 2012,             shares would be issuable under the Value Creation Plan. At March 31, 2011, no options to purchase ordinary shares were outstanding. To the extent shares are issued under the Value Creation Plan, there will be further dilution to new investors.

A $1.00 increase (decrease) in the assumed initial public offering price of $            per share of ordinary shares (the midpoint of the price range set forth on the cover of this prospectus), would increase (decrease) total consideration paid by new investors in this offering and by all investors by $             million, and would increase (decrease) the average price per share paid by new investors by $            , in each case assuming the number of shares offered, as set forth on the cover page of this prospectus, remains the same and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

 

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SELECTED FINANCIAL AND OTHER DATA

Delphi Automotive PLC was formed on May 19, 2011, has nominal assets and no liabilities and will conduct no operations prior to completion of this offering. Accordingly, the following presents historical financial information for Delphi Automotive LLP, which will become a wholly-owned subsidiary of Delphi Automotive PLC immediately prior to completion of this offering.

The following selected consolidated financial data of the Successor and the Predecessor have been derived from the audited and unaudited consolidated financial statements of the Successor and the Predecessor and 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 prospectus.

 

    Successor           Predecessor(1)  
    Three months
ended March 31,
    Year ended
December 31,
2010
    Period
from
August 19
to
December 31,
2009
          Period from
January 1 to
October 6,
2009
    Year ended December 31,  
  2011     2010                 2008     2007     2006  
    (dollars in millions, except per share data)           (dollars in millions, except per share data)  

Statements of operations data:

                   

Net sales

  $     3,997      $     3,410      $     13,817      $     3,421          $     8,334      $     16,808      $     19,526      $     19,329   

Depreciation and amortization

    117        99        421        139            540        822        871        883   

Operating income (loss)

    412        324        940        (10         (1,118     (1,425     (1,557     (4,040

Interest expense

    (6     (8     (30     (8                (434     (764     (423

Reorganization items, net

                                    10,210        5,147        (163     (92

Income (loss) from continuing operations

    310        235        703        (3         9,391        3,163        (1,855     (4,598

Net income (loss)

    310        235        703        (3         9,347        3,066        (2,997     (5,427

Net income attributable to noncontrolling interests

    19        20        72        15            29        29        68        37   

Net income (loss) attributable to Successor/Predecessor

    291        215        631        (18         9,318        3,037        (3,065     (5,464
 

Per share data: (actual)

                   

Income (loss) from continuing operations attributable to Successor/Predecessor

                                  $ 16.58      $ 5.55      $ (3.41   $ (8.25

Loss from discontinued operations attributable to Successor/Predecessor

                                    (0.08     (0.17     (2.04     (1.49

Income from cumulative effect of accounting change attributable to Successor/Predecessor

                                                         0.01   
                                                                   

Basic and diluted income (loss) per share attributable to Successor/Predecessor

                                  $ 16.50      $ 5.38      $ (5.45   $ (9.73
 

Per share data: (pro forma)

                   

Income (loss) from continuing operations attributable to Successor/Predecessor

                                       

Income (loss) from discontinued operations attributable to Successor/Predecessor

                                       

Income (loss) from cumulative effect of accounting change attributable to Successor/Predecessor

                                       
                                                                   

Basic and diluted income (loss) per share attributable to Successor/Predecessor

                                       
 

Other financial data:

                   

Capital expenditures

  $ 181      $ 93      $ 500      $ 88          $ 321      $ 771      $ 577      $ 560   

EBITDA(2)

    529        423        1,361        129            (514     (211     (384     (3,214

Adjusted EBITDA(2)

    538        456        1,633        313            (229     269        731        (114

EBITDA margin(3)

    13.2     12.4     9.9     3.8         (6.2%     (1.3%     (2.0%     (16.6%

Adjusted EBITDA margin(3)

    13.5     13.4     11.8     9.1         (2.7%     1.6%        3.7%        (0.6%

Net cash provided by (used in) operating activities

    156        246        1,142        159            (257     455        (98     9   

Net cash provided by (used in) investing activities

    433        (98     (911     885            (1,052     (958     (530     (554

Net cash provided by (used in) financing activities

    (2,204     52        (126     2,062            315        465        (58     (122

 

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    Successor           Predecessor(1)  
    As of
March 31,
2011
    As of
December 31,
2010
    As of
December 31,
2009
          As of
December 31,
2008
    As of
December 31,
2007
    As of
December 31,
2006
 
    (dollars in millions)           (dollars in millions)  

Balance sheet and employment data:

               

Cash and cash equivalents

  $     1,633      $     3,219      $     3,107          $     959      $     1,036      $     1,608   

Total assets

  $ 9,724      $ 11,082      $ 10,307          $ 10,306      $ 13,667      $ 15,392   

Total debt

  $ 2,751      $ 289      $ 396          $ 4,229      $ 3,554      $ 3,340   

Working capital(4)

  $ 1,453      $ 1,059      $ 1,217          $ 1,838      $ 2,772      $ 3,446   

Liabilities subject to compromise

  $      $      $          $ 14,583      $ 16,197      $ 17,416   

Stockholders’ deficit

    N/A        N/A        N/A          $ (14,266   $ (13,284   $ (12,055

Owners’ equity (deficit)

  $ 1,907      $ 6,099      $ 5,366            N/A        N/A        N/A   

Global employees

    100,630        99,700        104,800            146,600        169,500        171,400   

 

(1) The Predecessor adopted the accounting guidance in FASB ASC 852, Reorganizations, effective October 8, 2005 and has segregated in the financial statements for all reporting periods subsequent to such date and through the consummation of the transactions pursuant to the Modified Plan (as defined in “Note 1. General and Acquisition of Predecessor Businesses” to the audited consolidated financial statements included herein), transactions and events that were directly associated with the reorganization from the ongoing operations of the business. Our consolidated financial statements are not comparable to the consolidated financial statements of the Predecessor due to the effects of the consummation of the Modified Plan and the change in the basis of presentation. For more information, please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

(2) Our management utilizes EBITDA to evaluate performance. EBITDA was used as a performance indicator for the three-months ended March 31, 2011.

Through December 31, 2010, our management relied on Adjusted EBITDA as a key performance measure. Our management believed that Adjusted EBITDA was a meaningful measure of performance and it was used by management and the Board of Managers of Delphi Automotive LLP to analyze Company and stand-alone segment operating performance and for planning and forecasting purposes. Effective January 1, 2011, our management began utilizing EBITDA as a key performance measure because our restructuring was substantially completed in 2010. EBITDA and Adjusted EBITDA should not be considered substitutes for results prepared in accordance with U.S. GAAP and should not be considered alternatives to income from continuing operations before income taxes and equity income, which is the most directly comparable financial measure to EBITDA and Adjusted EBITDA that is in accordance with U.S. GAAP. EBITDA and Adjusted EBITDA, as determined and measured by us, should also not be compared to similarly titled measures reported by other companies.

In the three months ended March 31, 2011, we reached a final customer commercial settlement that resulted in an unusual warranty expense of $76 million. This amount adversely affected EBITDA and Adjusted EBITDA in such period.

 

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The reconciliation of Adjusted EBITDA to EBITDA includes other transformation and rationalization costs related to 1) the implementation of information technology systems to support finance, manufacturing and product development initiatives, 2) certain plant consolidations and closures costs and 3) consolidation of many staff administrative functions into a global business service group. The reconciliation of EBITDA and Adjusted EBITDA to income from continuing operations before income taxes and equity income follows:

 

    Successor           Predecessor(1)  
    Three months
ended March 31,
    Year ended
December 31,
2010
    Period from
August 19
to December 31,
2009
          Period from
January 1 to
October 6,
2009
    Year ended December 31,  
    2011     2010             2008     2007     2006  
    (dollars in millions)           (dollars in millions)  

Adjusted EBITDA

  $     538      $     456      $     1,633      $     313          $ (229   $     269      $     731      $ (114

Transformation and rationalization charges:

                   

Employee termination benefits and other exit costs

    (9     (26     (224     (126         (235     (326     (301     (242

Other transformation and rationalization costs

           (7     (48     (58         (50     (154     (814     (2,858
                                                                   

EBITDA

  $ 529      $ 423      $ 1,361      $ 129          $ (514   $ (211   $ (384   $ (3,214
                                                                   

Depreciation and amortization

    (117     (99     (421     (139         (540     (822     (871     (883

Goodwill impairment charges

                                           (325              

Discontinued operations

                                    (64     (67     (302     57   
                                                                   

Operating income (loss)

  $ 412      $ 324      $ 940      $ (10       $ (1,118   $ (1,425   $ (1,557   $ (4,040
                                                                   

Interest expense

    (6     (8     (30     (8                (434     (764     (423

Other income, net

    3        2        34        (17         24        9        47                    39   

Reorganization items

                                        10,210        5,147        (163     (92
                                                                   

Income from continuing operations before income taxes and equity income

  $ 409      $ 318      $ 944      $ (35       $ 9,116      $ 3,297      $ (2,437   $ (4,516
                                                                   

 

(3) EBITDA margin is defined as EBITDA as a percentage of revenues. Adjusted EBITDA margin is defined as Adjusted EBITDA as a percentage of revenues.

 

(4) Working capital is calculated herein as accounts receivable plus inventories less accounts payable.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following management’s discussion and analysis of financial condition and results of operations (“MD&A”) is intended to help you understand our business operations and financial condition.

Overview

We are a leading global vehicle components manufacturer and provide electrical and electronic, powertrain, safety and thermal technology solutions to the global automotive and commercial vehicle markets. We are one of the largest vehicle component manufacturers, and our customers include the 25 largest automotive OEMs in the world.

Within the MD&A, for the periods from August 19, 2009 to December 31, 2009, the year ended December 31, 2010 and the three months ended March 31, 2011, references to “Delphi,” the “Company,” the “Successor,” “we,” “us” or “our” refer to Delphi Automotive LLP and its subsidiaries. For the year ended December 31, 2008 and for the period from January 1, 2009 to October 6, 2009, references to the “Predecessor” refer to the former Delphi Corporation.

On August 19, 2009, Delphi Automotive LLP, a limited liability partnership organized under the laws of England and Wales, was formed for the purpose of acquiring certain assets and subsidiaries of the former Delphi Corporation, our Predecessor, which, along with certain of its U.S. subsidiaries, had filed voluntary petitions for bankruptcy in October 2005. On October 6, 2009, Delphi Automotive LLP acquired the major portion of the business of the Predecessor, other than the global steering business, the U.S. manufacturing facilities in which the hourly employees were represented by the UAW and certain non-productive U.S. assets, and Delphi Automotive LLP issued membership interests to a group of investors consisting of lenders to the Predecessor, GM and the PBGC. For additional information see “Note 1. General and Acquisition of Predecessor Business” to the audited consolidated financial statements included herein.

Our improved total net sales during 2010 and the first quarter of 2011 reflect increased OEM production volumes as compared to prior periods. Global OEM production increased nearly 7% for the three months ended March 31, 2011 versus the corresponding period in 2010, and continued improvements in OEM production volumes reflect the stabilization of the global economy. However, current OEM production volumes continue to be substantially less than OEM production volumes prior to the disruptions in the economic and credit markets experienced in 2008 and 2009. As a result of the significant restructuring actions implemented by the Predecessor and continued by us in 2010, our reduced cost structure is enabling us to translate the total net sales growth achieved in the first quarter of 2011 into strong gross margin and improved operating earnings. While we continue to operate in a cyclical industry that is impacted by movements in the macro economy, our strong balance sheet coupled with our reduced cost structure position us to capitalize on further strengthening of the global economy and continued improvements in OEM production volumes.

Significant issues affected the Predecessor’s financial performance in 2008 and 2009, including a depressed global vehicle production environment for OEMs, pricing pressures and increasingly volatile commodity prices. In addition, the Predecessor was adversely impacted by U.S. labor legacy liabilities, which included noncompetitive wage and benefit levels and restrictive collectively-bargained labor agreement provisions which historically have inhibited the Predecessor’s responsiveness to market conditions, including exiting non-strategic, non-profitable operations or flexing the size of the unionized workforce when volume decreases. Although the 2006 UAW and International Union of Electronic, Electrical, Salaried, Machine and Furniture Workers-Communication Workers of America (“IUE-CWA”) U.S. employee workforce transition programs and the U.S. labor settlement agreements entered into in 2007, together with the effectiveness of the Amended GSA and the Amended MRA (both as defined and further discussed in “Note 3. Elements of Predecessor Transformation Plan” to the audited consolidated financial statements included herein), allowed the Predecessor to begin

 

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reducing its legacy labor liabilities, transitioning its workforce to more competitive wage and benefit levels and exiting non-core product lines, these benefits were more than offset by the reductions in vehicle production. Also, during 2008 and 2009, the Predecessor’s operational challenges intensified as a result of the continued downturn in general economic conditions, including reduced consumer spending and confidence, high oil prices and the credit market crisis, all of which resulted in global vehicle manufacturers reducing production and taking other restructuring actions.

We benefited from the restructuring initiatives implemented throughout the last several years and in particular, in 2009 from the restructuring of the business that took place through the acquisition of the Predecessor’s global steering business and the UAW manufacturing facilities by GM, together with its subsidiaries and affiliates, in the U.S. as of the Acquisition Date, as defined and further discussed below. In addition, we benefited from the increase in OEM production volumes in the fourth quarter of 2009. Our results of operations are the result of the improvement in the cost structure and the operating leverage we can now employ with improvements in OEM production volumes versus the Predecessor. While production volume levels did improve in 2010 as compared to the production volume levels experienced in 2009, we may continue to face challenges, with production volumes globally still significantly lower than 2007 due to the lingering effects from the disruptions in the economy and credit markets in 2008 and 2009 and volatile commodity prices. Additionally, as a result of the Acquisition, beginning in 2010, we incurred and expect to incur incremental, annual non-cash amortization charges of approximately $70 million related to the recognition of acquired intangible assets.

We typically experience fluctuations in sales due to changes in customer production schedules, sales mix and the net of new and lost business (which we refer to collectively as volume), increased prices attributable to escalation clauses in our supply contracts for recovery of increased commodity costs (which we refer to as commodity pass-through), fluctuations in foreign currency exchange rates (which we refer to as FX), contractual reductions of the sales price to the customer (which we refer to as contractual price reductions) and design changes.

We typically experience (as described below) fluctuations in operating income due to:

 

   

Volume, net of contractual price reductions – changes in volume offset by contractual price reductions (which typically range from 1% to 3% of net sales);

 

   

Operational performance – changes to costs for materials and commodities or manufacturing variances; and

 

   

Other – including restructuring costs and any remaining variances not included in Volume, net of contractual price reductions or Operational performance.

We expect commodity cost volatility, particularly related to copper, aluminum and petroleum-based resin products, to have a continual impact on future earnings and/or operating cash flows. As such, we continually seek to mitigate our material-related cost exposures using a number of approaches, including combining purchase requirements with customers and/or other suppliers, using alternate suppliers or product designs, negotiating commodity cost contract escalation clauses into our vehicle manufacturer supply contracts, and hedging.

Trends, Uncertainties and Opportunities

Japan earthquake and tsunami. Our operations in Japan, which include primarily leased office space, suffered minor damage and interruption as a result of the earthquake and tsunami on March 11, 2011. We continue to assess the impact of the earthquake and resulting events in Japan on the supplier and customer base. Although we have no production facilities in Japan, we and our suppliers do obtain material and components from suppliers located in Japan. Approximately 200 of our suppliers are located in Japan, with approximately 20 located within 100 miles of the earthquake’s epicenter. While there have been disruptions across the industry, to date there have been only minor disruptions impacting us. We are closely monitoring the availability of critical parts and customer schedules. As the situation in Japan continues to develop, we expect that supply interruptions will impact our operations and/or our customers’ vehicle production. If an alternate supply of key material or components is not available, the resulting reduction in vehicle production could adversely affect our financial condition and operating results.

 

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Rate of economic recovery. Our business is directly related to automotive sales and automotive vehicle production by our customers. Automotive sales depend on a number of factors, including economic conditions. The economy is recovering slowly from a recession that began in late 2007 and became increasingly severe with the global credit crisis in 2008 and 2009. The weaker economic conditions led to a substantial industry-wide decline in vehicle sales in 2008 and 2009. However, global automotive vehicle production increased over 20% from 2009 to 2010 and is expected to increase by an additional 5% in 2011. Any future economic declines that result in a significant reduction in automotive sales and production by our customers would have an adverse effect on our business, results of operations and financial condition. Additionally, volatility in oil and gasoline prices negatively impacts consumer confidence and automotive sales, and the mix of future sales (from trucks and sport utility vehicles toward smaller, fuel-efficient passenger cars). While our diversified customer and geographic revenue base have well positioned us to withstand the impact of industry downturns and benefit from industry upturns, shifts to vehicles with less content would adversely impact our profitability.

Emerging markets growth. Rising income levels in the emerging markets of China, Brazil, India and Russia are resulting in stronger growth rates in these markets. Our strong global presence and presence in these markets have positioned us to experience above-market growth rates. We continue to expand our established presence in emerging markets, positioning us to benefit from the expected growth opportunities in these regions. We will accomplish this by capitalizing on our long-standing relationships with the global OEMs and further enhancing our positions with the emerging market OEMs to continue expanding our worldwide leadership. We will continue to build upon our extensive geographic reach to capitalize on the fast-growing automotive markets particularly China, Brazil, India and Russia. We believe that our presence in low cost countries positions us to realize incremental margin improvements as the global balance of automotive production shifts towards the emerging markets.

We have a strong presence in China, where we have operated for nearly 20 years. All of our business segments have operations and sales in China. As a result, we have well-established relationships with all of the major OEMs in China. We generated approximately $1.8 billion in revenue from China in 2010. With only 21 of our 33 offered products currently locally manufactured, we believe we have the opportunity to expand additional product lines into China, and as a result, we see further growth potential.

Market driven products. Our product offerings satisfy the OEMs’ need to meet increasingly stringent government regulations and fulfill consumer preferences for products that address the mega trends of Safe, Green and Connected, leading to increased content per vehicle, greater profitability and higher margins. With these offerings, we are well-positioned to capitalize on demand for increased safety, fuel efficiency, emissions control and connectivity to the global information network. There has been a substantial increase in vehicle content and electrification requiring a complex and reliable electrical architecture and systems to operate, such as hybrid power electronics, electrical vehicle monitoring, lane departure warning systems, integrated electronic displays, navigation systems and consumer electronics. Our ability to design a reliable electrical architecture that optimizes power distribution and/or consumption is key to satisfying the OEMs’ need to reduce emissions while continuing to meet the demands of consumers. Additionally, our Powertrain Systems and Thermal Systems segments are also focused on addressing the demand for increased fuel efficiency and emission control by controlling fuel consumption and heat dissipation, which are principal factors influencing fuel efficiency and emissions.

Global capabilities. Many OEMs are adopting global vehicle platforms to increase standardization, reduce per unit cost and increase capital efficiency and profitability. As a result, OEMs are selecting suppliers that have the capability to manufacture products on a worldwide basis as well as the flexibility to adapt to regional variations. Suppliers with global scale and strong design, engineering and manufacturing capabilities, are best positioned to benefit from this trend. Our global footprint enables us to serve the global OEMs on a worldwide basis along with gaining market share with the emerging market OEMs. This regional model has largely migrated to service the North American market from Mexico, the South American market from Brazil, the European market from Eastern Europe and North Africa and the Asia Pacific market from China.

 

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Product development. The automotive component supply industry is highly competitive, both domestically and internationally. Our ability to anticipate changes in technology and regulatory standards and to successfully develop and introduce new and enhanced products on a timely basis will be a significant factor in our ability to remain competitive. To compete effectively in the automotive supply industry, we must be able to launch new products to meet our customers’ demands in a timely manner. Our innovative technologies and robust global engineering and development capabilities have well positioned us to meet the increasingly stringent vehicle manufacturer demands.

OEMs are also increasingly looking to their suppliers to simplify vehicle design and assembly processes to reduce costs. As a result, suppliers that sell vehicle components directly to manufacturers (Tier I suppliers) have assumed many of the design, engineering, research and development and assembly functions traditionally performed by vehicle manufacturers. Suppliers that can provide fully-engineered solutions, systems and pre-assembled combinations of component parts are positioned to leverage the trend toward system sourcing.

Engineering, design & development. Our history and culture of innovation have enabled us to develop significant intellectual property and design and development expertise to provide advanced technology solutions that meet the demands of our customers. We have a team of more than 16,000 scientists, engineers and technicians focused on developing leading product solutions for our key markets, located at 14 major technical centers in Brazil, China, France, Germany, India, Luxembourg, Mexico, Poland, South Korea and the United States. We invest approximately $1 billion annually in engineering to maintain our portfolio of innovative products, and currently own approximately 6,000 patents. We also encourage “open innovation” and collaborate extensively with peers in the industry, government agencies and academic institutions. Our technology competencies are recognized by both customers and government agencies, who have co-invested approximately $300 million of additional funds annually in new product development, increasing our total spend accordingly, accelerating the pace of innovation and reducing the risk associated with successful commercialization of technological breakthroughs.

In the past, suppliers often incurred the initial cost of engineering, designing and developing automotive component parts, and recovered their investments over time by including a cost recovery component in the price of each part based on expected volumes. Recently, we and many other suppliers have negotiated for cost recovery payments independent of volumes. This trend reduces our economic risk.

Pricing. Cost-cutting initiatives adopted by our customers result in increased downward pressure on pricing. Our customer supply agreements generally require step-downs in component pricing over the periods of production and OEMs have historically possessed significant leverage over their outside suppliers because the automotive component supply industry is fragmented and serves a limited number of automotive OEMs. Our profitability depends in part on our ability to generate sufficient production cost savings in the future to offset price reductions.

In 2010, we largely completed our restructuring activities, resulting in a lower fixed cost base, improved manufacturing footprint and reduced overhead. We dramatically reduced our U.S. and Western European footprints, realigned our selling, general and administrative cost structure and increased the variable nature of our employee base. As a result, 91% of our hourly workforce is located in low cost countries. Furthermore, we have substantial operational flexibility by leveraging a large workforce of temporary workers, which represented approximately 30% of the hourly workforce as of March 31, 2011. We are focused on maintaining a low fixed cost base to minimize our EBITDA breakeven, which we estimate to be 30% below the current production volumes, assuming constant product mix and based on 2010 results. We believe that our lean cost structure will allow us to remain profitable at all points of the traditional vehicle industry production cycle.

Efficient use of capital. The global vehicle components industry is generally capital intensive and a portion of a manufacturer’s capital equipment is frequently utilized for specific customer programs. Lead times for procurement of capital equipment are long and typically exceed start of production by one to two years.

 

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Substantial advantages exist for suppliers that can leverage their prior investments in capital equipment or amortize the investment over higher volume global customer programs.

Industry consolidation. Consolidation among worldwide suppliers is expected to continue as suppliers seek to achieve operating synergies and value stream efficiencies, acquire complementary technologies, and build stronger customer relationships as OEMs continue to expand globally. We believe companies with strong balance sheets and financial discipline are in the best position to take advantage of the industry consolidation trend. We have a strong balance sheet with a prudent amount of gross debt, substantial liquidity of approximately $2.5 billion of cash and cash equivalents and available financing under our revolving credit facility as of March 31, 2011 (after giving effect to the modification of our credit agreement and issuance of Senior Notes on May 17, 2011), and no significant U.S. defined benefit or OPEB liabilities. We intend to maintain strong financial discipline targeting industry-leading earnings growth, cash flow generation and return on invested capital and to maintain sufficient liquidity and a prudent amount of leverage to sustain our financial flexibility throughout the industry cycle.

Disposition of the Predecessor and Acquisition Accounting

On October 6, 2009 (the “Acquisition Date”), the Predecessor (i) consummated the transactions contemplated by the Modified Plan (as defined in “Note 1. General and Acquisition of Predecessor Businesses” to the audited consolidated financial statements included herein) and (ii) exited chapter 11 as DPH Holdings Corp. and its subsidiaries and affiliates (“DPHH”), except that two of the Predecessor’s debtor subsidiaries became subsidiaries of Delphi Automotive LLP. A summary of significant terms of the Modified Plan follows:

 

   

We acquired the businesses (other than the global steering business and the manufacturing facilities in the U.S. at which the hourly employees are represented by the UAW of the Predecessor pursuant to the master disposition agreement (including all schedules and exhibits thereto, the “MDA”), and received $1,833 million from GM, of which $1,689 million was received on the Acquisition Date and $144 million was received during the Successor period from August 19 to December 31, 2009, and $209 million, net from certain of the debtor-in-possession (“DIP”) lenders to the Predecessor (collectively, the “Acquisition”).

 

   

GM acquired substantially all of the Predecessor’s global steering business and the manufacturing facilities in the U.S. at which the hourly employees were represented by the UAW.

 

   

The Predecessor’s debtor-in-possession financing was settled.

 

   

The Predecessor’s liabilities subject to compromise were extinguished.

 

   

If cumulative distributions to the members of Delphi Automotive LLP under certain provisions of our limited liability partnership agreement exceed $7.2 billion, we, as disbursing agent on behalf of DPHH, are required to pay to the holders of allowed general unsecured claims against the Predecessor, $32.50 for every $67.50 in excess of $7.2 billion distributed to the members, up to a maximum of $300 million.

 

   

The Predecessor’s equity holders did not receive recoveries on their claims.

As a result of the Acquisition, we acquired the major portion of the business of the Predecessor and this business constituted the entirety of the operations of the Successor. Accordingly, as required under the applicable accounting guidance, the financial information set forth herein reflects the consolidated results of operations of the Successor for the year ended December 31, 2010 and the period from its incorporation on August 19, 2009 to December 31, 2009 and of the Predecessor for the period from January 1, 2009 to October 6, 2009 and the year ended December 31, 2008. Delphi Automotive LLP had no material or substantive transactions from its organization on August 19, 2009 to the Acquisition Date.

In 2009, the Predecessor recognized a gain of approximately $10.2 billion for reorganization items as a result of the process of reorganizing the Debtors (as defined and further discussed in “Note 1. General and

 

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Acquisition of Predecessor Businesses” to the audited consolidated financial statements included herein) under chapter 11 of the United States Bankruptcy Code. This gain reflects the extinguishment of liabilities subject to compromise, OPEB settlement and the sale/ disposition of the Predecessor, offset by the PBGC termination of the U.S. pension plans and professional fees directly related to the reorganization.

We have recorded the assets acquired and the liabilities assumed from the Predecessor at estimated fair values in accordance with the guidance in FASB ASC 820, Fair Value Measurements and Disclosures. The fair values were estimated based on valuations performed by an independent valuation specialist utilizing three generally accepted business valuation approaches. For additional information see “Note 1. General and Acquisition of Predecessor Businesses” to the audited consolidated financial statements included herein.

In connection with the Acquisition, we did not acquire all of the assets or assume all of the liabilities of the Predecessor. As noted above, the assets we acquired and the liabilities we assumed from the Predecessor were generally recorded at fair value, resulting in a change from the Predecessor’s basis. Accordingly, our consolidated financial statements are not comparable to the consolidated financial statements of the Predecessor due to the effects of the consummation of the Modified Plan. For these reasons, we do not generally present financial information on a combined basis for the Predecessor period from January 1 to October 6, 2009 and the Successor period from August 19 to December 31, 2009 (“Full Year 2009”), except as noted below. We have compared consolidated net sales and operating income before depreciation and amortization, including long-lived asset and goodwill impairment (“EBITDA”) of the Successor for the year ended December 31, 2010 to the total net sales and Adjusted EBITDA for the Full Year 2009, and the Full Year 2009 net sales and EBITDA to net sales and EBITDA of the Predecessor for the year ended December 31, 2008. We believe these comparisons are most meaningful and useful in providing a thorough understanding of the financial statements. Where applicable, “Operations Not Acquired” is included in the tables below explaining the variance attributable to the acquisition by GM on October 6, 2009 of the manufacturing facilities in the U.S. at which the hourly employees were represented by the UAW.

Consolidated Results of Operations

Three Months Ended March 31, 2011 versus Three Months Ended March 31, 2010

Consolidated Results of Operations

The results of operations for the three months ended March 31, 2011 and 2010 were as follows:

 

     Three months ended March 31,  
     2011           2010           Favorable/
(unfavorable)
 
     (dollars in millions)  

Net sales

   $     3,997        $     3,410        $ 587   

Cost of sales

     3,353          2,848          (505
                            

Gross margin

     644        16.1     562        16.5     82   

Selling, general and administrative

     205          198          (7

Amortization

     18          14          (4

Restructuring

     9          26          17   
                            

Operating income

     412          324          88   

Interest expense

     (6       (8       2   

Other income, net

     3          2          1   
                            

Income before income taxes and equity income

     409          318          91   

Income tax expense

     (116       (85       (31
                            

Income before equity income

     293          233          60   

Equity income, net of tax

     17          2          15   
                            

Net income

     310          235          75   

Net income attributable to noncontrolling interest

     19          20          (1
                            

Net income attributable to Delphi

   $ 291        $ 215        $ 76   
                            

 

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Total Net Sales

Below is a summary of our total net sales for the three months ended March 31, 2011 versus March 31, 2010.

 

     Three months ended March 31,            Variance due to:  
     2011      2010      Favorable/
(unfavorable)
           Volume, net
of
contractual
price
reductions
     FX      Commodity
pass-
through
     Other      Total  
     (in millions)            (in millions)  

Total net sales

   $     3,997       $     3,410       $ 587           $ 599       $     31       $ 60       $     (103)       $     587   

Total net sales for the three months ended March 31, 2011 increased 17% compared to the three months ended March 31, 2010. The increase in total net sales resulted primarily from increased volume as a result of improved OEM production schedules in the first quarter of 2011. Excluding 2010 sales related to the occupant protection systems business, which was sold March 31, 2010, sales increased 21% in 2011.

Operating Results

The information below summarizes the operating results for the three months ended March 31, 2011 as compared to the three months ended March 31, 2010.

Gross Margin

Gross margin increased $82 million for the three months ended March 31, 2011 compared to the three months ended March 31, 2010, as summarized below.

 

     Three months ended March 31,           Variance due to:  
     2011     2010     Favorable/
  (unfavorable)  
          Volume, net
of contractual
price
reductions
     Operational
  performance  
     Other     Total  
     (dollars in millions)           (in millions)  

Gross margin

   $ 644      $ 562      $     82          $     183       $     20       $     (121   $     82   

Percentage of net sales

         16.1         16.5                

The increase in gross margin was driven by increases in volume, as well as improved operational performance. Offsetting these favorable variances were the following items:

 

   

$76 million due to an unusual warranty expense in 2011 as a result of the settlement related to certain components supplied by our Powertrain segment;

 

   

Increased depreciation of fixed assets, including tooling of $12 million; and

 

   

$11 million related to the divestiture of the occupant protection systems business on March 31, 2010.

Selling, General and Administrative Expense

 

     Three months ended March 31,  
           2011                 2010           Favorable/
  (unfavorable)  
 
     (dollars in millions)  

Selling, general and administrative expense

   $     205      $     198      $      (7) 

Percentage of net sales

     5.1     5.8  

 

 

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Selling, general and administrative expense includes administrative expenses, information technology costs and incentive compensation related costs, and continues to decline as a percent of sales during the first quarter of 2011 due to the positive effects of cost savings initiatives on administrative costs and improved OEM volumes, partially offset by increased accruals for incentive compensation.

Amortization

 

     Three months ended March 31,  
           2011                  2010            Favorable/
  (unfavorable)  
 
     (in millions)  

Amortization

   $     18       $     14       $      (4) 

Amortization expense reflects the non-cash charge related to definite-lived intangible assets recognized as part of the Acquisition.

Restructuring

 

     Three months ended March 31,  
           2011                 2010           Favorable/
  (unfavorable)  
 
     (dollars in millions)  

Restructuring

   $ 9      $ 26      $     17   

Percentage of net sales

         0.2         0.8  

The decrease in restructuring expense is due to a decline in workforce reductions and programs related to the rationalization of manufacturing and engineering processes, including plant closures, in the three months ended March 31, 2011 as compared to the three months ended March 31, 2010, as we had largely completed our restructuring by the end of 2010.

Refer to “Note 7. Restructuring” to the unaudited consolidated financial statements included herein for additional information.

Interest Expense

 

     Three months ended March 31,  
           2011                  2010            Favorable/
  (unfavorable)  
 
     (in millions)  

Interest expense

   $     6       $     8       $     2   

The decrease in interest expense for the three months ended March 31, 2011 as compared to the three months ended March 31, 2010 is due to changes in debt balances, primarily related to various accounts receivable factoring facilities in Europe, which are all accounted for as short-term financings.

Other Income, Net

 

     Three months ended March 31,  
           2011                  2010            Favorable/
  (unfavorable)  
 
     (in millions)  

Other income, net

   $     3       $     2       $     1   

The increase in other income, net is primarily related to an increase in interest income of $4 million and net foreign exchange gains related to intercompany loans of $4 million; offset by a debt extinguishment loss of $9 million.

 

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Refer to “Note 14. Other income, net” to the unaudited consolidated financial statements included herein for additional information.

Income Taxes

 

     Three months ended March 31,  
           2011                  2010            Favorable/
  (unfavorable)  
 
     (in millions)  

Income tax expense

   $     116       $     85       $      (31) 

Our tax rate in both periods is affected by tax rates in the U.S. and non-U.S. jurisdictions, the relative amount of income we earn in such jurisdictions and the relative amount of losses for which no tax benefit was recognized due to a valuation allowance. Income tax expense in the three months ended March 31, 2011 was also impacted unfavorably by a $10 million withholding tax expense related to the redemption of all the outstanding Class A and Class C membership interests on March 31, 2011 (for more information on this redemption, see “Relationships and Related Party Transactions—Redemption Agreements”).

Equity Income

 

     Three months ended March 31,  
           2011                  2010            Favorable/
  (unfavorable)  
 
     (in millions)  

Equity income, net of tax

   $ 17       $ 2       $ 15   

Equity income reflects our interest in the results of ongoing operations of entities accounted for as equity-method investments. Equity income increased during the three months ended March 31, 2011 as compared to the three months ended March 31, 2010 primarily due to the recognition of $8 million of gain on the sale of our 49.5% interest in Daesung Electric, Co., Ltd on January 31, 2011 (for more information on this transaction, see “Relationships and Related Party Transactions—Other Related Party Transactions”).

Results of Operations by Segment

We operate our core business along the following operating segments, which are grouped on the basis of similar product, market and operating factors:

 

   

Electronics and Safety, which includes component and systems integration expertise in audio and infotainment, body controls and security systems, displays, mechatronics, safety electronics and electric and hybrid electric vehicle power electronics, as well as advanced development of software.

 

   

Powertrain Systems, which includes extensive systems integration expertise in gasoline, diesel and fuel handling and full end-to-end systems including fuel injection, combustion, electronics controls, exhaust handling, test and validation capabilities, diesel and automotive aftermarket, and original equipment service.

 

   

Electrical/Electronic Architecture, which includes complete electrical architecture and component products.

 

   

Thermal Systems, which includes heating, ventilating and air conditioning systems, components for multiple transportation and other adjacent markets, and powertrain cooling and related technologies.

 

   

Eliminations and Other, which includes i) the elimination of inter-segment transactions, and ii) certain other expenses and income of a non-operating or strategic nature.

 

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Through December 31, 2010, we evaluated performance based on stand-alone segment Adjusted EBITDA and accounted for inter-segment sales and transfers as if the sales or transfers were to third parties, at current market prices. Our management believed that Adjusted EBITDA was a meaningful measure of performance and it was used by management to analyze Company and stand-alone segment operating performance. Management also used Adjusted EBITDA for planning and forecasting purposes. Effective January 1, 2011, our management began utilizing segment EBITDA as a key performance measure because its restructuring was substantially completed by the end of 2010. Segment EBITDA and Adjusted EBITDA should not be considered substitutes for results prepared in accordance with U.S. GAAP and should not be considered alternatives to income before income taxes and equity income, which is the most directly comparable financial measure to EBITDA and Adjusted EBITDA that is in accordance with U.S. GAAP. Segment EBITDA and Adjusted EBITDA, as determined and measured by us, should also not be compared to similarly titled measures reported by other companies.

The reconciliation of EBITDA to income before income taxes and equity income for the three months ended March 31, 2011 is as follows:

 

     Electronics
and Safety
    Powertrain
Systems
    Electrical/
Electronic
Architecture
    Thermal
Systems
    Eliminations
and Other
     Total  
     (in millions)  

For the three months ended March 31, 2011:

             

EBITDA

   $     105      $     132      $     240      $     52      $     —       $     529   

Depreciation and amortization

     (27     (47     (32     (11             (117
                                                 

Operating income

   $ 78      $ 85      $ 208      $ 41      $       $ 412   
                                           

Interest expense

                (6

Other income, net

                3   
                   

Income before income taxes and equity income

              $ 409   
                   

For the three months ended March 31, 2010, the reconciliation of Adjusted EBITDA to EBITDA includes other restructuring costs related to 1) the implementation of information technology systems to support finance, manufacturing and product development initiatives, 2) certain plant consolidations and closures costs, and 3) consolidation of many staff administrative functions into a global business service group, and 4) employee benefit plan settlements in Mexico.

 

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The reconciliation of EBITDA to income before income taxes and equity income for the three months ended March 31, 2010 is as follows:

 

     Electronics
and Safety
    Powertrain
Systems
    Electrical/
Electronic
Architecture
    Thermal
Systems
    Eliminations
and Other
     Total  
     (in millions)  

For the three months ended March 31, 2010:

             

Adjusted EBITDA

   $     74      $     128      $     205      $     49      $     —       $     456   

Restructuring charges:

             

Employee termination benefits and other exit costs

     (2     (12     (11     (1             (26

Other restructuring costs

     (4     (1     (2                    (7
                                                 

EBITDA

   $ 68      $ 115      $ 192      $ 48      $         423   
                                                 

Depreciation and amortization

     (20     (42     (28     (9             (99
                                                 

Operating income

   $ 48      $ 73      $ 164      $ 39      $       $ 324   
                                           

Interest expense

                (8

Other income, net

                2   
                   

Income before income taxes and equity income

              $ 318   
                   

Net sales, gross margin as a percentage of net sales and EBITDA by segment for the three months ended March 31, 2011 and 2010 are as follows:

Net Sales by Segment

 

     Three months ended March 31,           Variance due to:  
     2011     2010     Favorable/
(unfavorable)
          Volume, net
of contractual
price
reductions
    Commodity
pass-through
     FX     Other     Total  
     (in millions)           (in millions)  

Electronics and Safety

   $ 762      $ 720      $ 42          $ 131      $       $ (3   $ (86   $ 42   

Powertrain Systems

         1,237        970        267            261                12        (6     267   

Electrical/Electronic Architecture

     1,613            1,378            235                158            58             17                2                235   

Thermal Systems

     449        392        57            50        2         5               57   

Eliminations and Other

     (64     (50     (14         (1                    (13     (14
                                                                     

Total

   $ 3,997      $ 3,410      $ 587          $ 599      $ 60       $ 31      $ (103   $ 587   
                                                                     

 

  Included in Other above are decreased sales of approximately $90 million related to divestitures that occurred during 2010.

 

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Gross Margin Percentage by Segment

 

     Three months ended
March 31,
 
           2011                 2010        

Electronics and Safety

     16.0     12.5

Powertrain Systems

     13.6     16.5

Electrical/Electronic Architecture

     18.1     18.2

Thermal Systems

     13.8     14.5

Eliminations and Other

     0.0     (8.0 )% 
                

Total

     16.1     16.5

EBITDA by Segment

 

     Three months ended March 31,           Variance due to:  
     2011      2010      Favorable/
(unfavorable)
          Volume, net of
contractual
price
reductions
     Operational
performance
    Other     Total  
     (in millions)           (in millions)  

Electronics and Safety

   $ 105       $ 68       $ 37          $ 40       $ 8      $ (11   $ 37   

Powertrain Systems

     132         115         17            91         (5     (69     17   

Electrical/Electronic Architecture

     240         192         48            45         19        (16     48   

Thermal Systems

     52         48         4            7         (2     (1     4   

Eliminations and Other

                                                     —              —   
                                                               

Total

   $       529       $       423       $       106          $       183       $       20      $ (97   $ 106   
                                                               

As noted in the table above, EBITDA for the three months ended March 31, 2011 as compared to the three months ended March 31, 2010 was impacted by volume and contractual price reductions and operational performance improvements, as well as the following items included in Other in the table above:

 

   

$76 million due to an unusual warranty expense in 2011 related to certain components supplied by our Powertrain segment. Refer to “Note 10. Commitments and Contingencies” to the unaudited consolidated financial statements included herein for further information;

 

   

$17 million due to increased accruals for incentive compensation in 2011 related to our salaried workforce; and

 

   

Offset by reduced restructuring of $17 million in 2011 related to reduced employee termination benefits and other exit costs.

 

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Consolidated Results of Operations

2010 versus 2009

The results of operations for the year ended December 31, 2010 and the periods from August 19 to December 31, 2009 (“Successor Period of 2009”) and January 1 to October 6, 2009 (“Predecessor Period of 2009”) were as follows:

 

     Successor                 Predecessor        
     Year ended
December 31, 2010
    Period from August 19 to
December 31, 2009
          Period from January 1 to
October 6, 2009
 
     (dollars in millions)           (dollars in millions)  

Net sales

   $       13,817        $       3,421            $         8,334     

Cost of sales

     11,768          3,047              8,480