S-1/A 1 d191007ds1a.htm AMENDMENT NO. 6 TO FORM S-1 Amendment No. 6 to Form S-1
Table of Contents

As filed with the Securities and Exchange Commission on November 7, 2011

Registration No. 333-174493

 

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Amendment No. 6

to

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

  Amount to be
Registered(1)
  Proposed Maximum
Offering Price Per Share(2)
  Proposed Maximum
Aggregate Offering Price(2)
  Amount Of
Registration Fee(2)(3)

Ordinary Shares, par value $0.01 per share

  27,690,651   $24.00   $664,575,624   $76,160.37

 

 

(1) Includes additional shares, if any, that may be purchased by the underwriters.

 

(2) Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(a) under the Securities Act.
(3) Filing fees in the amount of $11,610 were previously paid.

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.

 

 

 


Table of Contents

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 November 7, 2011.

24,078,827 SHARES

DELPHI AUTOMOTIVE PLC

Ordinary Shares

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

The selling shareholders identified in this prospectus are selling all of the shares offered hereby. Delphi Automotive PLC is not selling any shares in the offering and 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 $22.00 and $24.00. Delphi Automotive PLC intends to list the ordinary shares on The New York Stock Exchange 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 discounts and commissions (1)

   $                    $                

Proceeds, before expenses, to the selling shareholders (1)

   $                    $                

 

(1) The selling shareholders will not pay any underwriting discount on certain of the shares sold by them. In lieu thereof, Delphi Automotive PLC will pay a commission with respect to such shares to the underwriters. See “Underwriting.”

To the extent that the underwriters sell more than 24,078,827 ordinary shares, the underwriters have the option to purchase up to an additional 3,611,824 shares from certain of the selling shareholders at the initial public offering price less any commissions payable by Delphi Automotive PLC in respect of the shares sold by such selling shareholders.

 

 

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

Citigroup

  

Deutsche Bank Securities

Morgan Stanley

 

 

 

Baird   Credit Suisse   Lazard Capital Markets     UBS Investment Bank   

 

CRT Capital Group LLC   Guggenheim Securities   Houlihan Lokey     Scotia Capital   

 

Ticonderoga Securities   The Williams Capital Group, L.P.     UniCredit Capital Markets   

 

 

Prospectus dated                     , 2011.


Table of Contents

LOGO


Table of Contents

LOGO


Table of Contents

LOGO


Table of Contents

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 the former Delphi Corporation. The former Delphi Corporation and, as the context may require, its subsidiaries and affiliates, are referred to herein as the “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. 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.

 

i


Table of Contents

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 & Associates, which we refer to as J. D. Power & 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.

 

ii


Table of Contents

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 15 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. In order to transform its business portfolio and rationalize its cost structure, the former Delphi Corporation and certain of its U.S. subsidiaries filed for Chapter 11 protection in October 2005. As a result of the actions taken by the Predecessor and Delphi Automotive LLP’s continuing efforts following its acquisition of the majority of the Predecessor’s businesses in October 2009, we have substantially reduced our costs, aligned our product offerings with the faster-growing industry mega trends and re-aligned our manufacturing footprint into an efficient regional service model, allowing us to increase our profit margins. For the nine months ended September 30, 2011, we generated revenue of $12.1 billion, net income of $911 million, and EBITDA (as defined in “Summary Historical Consolidated Financial Data” in this prospectus) of $1,589 million, with gross margins of 16.3% and EBITDA margins of 13.1%, and for the year ended December 31, 2010, we generated revenue of $13.8 billion, net income of $703 million, and EBITDA of $1,361 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 nine months ended September 30, 2011 and the year ended December 31, 2010, our revenues in this segment were $5,012 million and $5,620 million, respectively, and segment EBITDA was $690 million and $650 million, respectively, with EBITDA margins of 13.8% 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

 

 

1


Table of Contents
 

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 nine months ended September 30, 2011 and the year ended December 31, 2010, our revenues in this segment were $3,729 million and $4,086 million, respectively, and segment EBITDA was $487 million and $361 million, respectively, with EBITDA margins of 13.1% and 8.8%, respectively.

 

   

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 nine months ended September 30, 2011 and the year ended December 31, 2010, our revenues in this segment were $2,245 million and $2,721 million, respectively, and segment EBITDA was $279 million and $247 million, respectively, with EBITDA margins of 12.4% 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 nine months ended September 30, 2011 and the year ended December 31, 2010, our revenues in this segment were $1,353 million and $1,603 million, respectively, and segment EBITDA was $133 million and $109 million, respectively, with EBITDA margins of 9.8% 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 2010 net sales were 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.

 

 

2


Table of Contents

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, by approximately 23%. 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 approximately 30% below actual industry production volumes (or global production of 55 million vehicles rather than 78 million vehicles), assuming constant pricing and product and regional mix and based on our fixed cost structure in 2010 of approximately $3.2 billion and our variable costs which approximated two-thirds of sales in 2010; actual pricing, product and regional mix would likely differ in any future downturn. 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 nine months of 2011, this trend accelerated, with another $19.1 billion in new business awards, based on expected volumes and assumed pricing. Actual results could vary if these assumptions prove incorrect. See “Risk Factors—Risks Related to Business Environment and Economic Conditions—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.” 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.

Recovery of Developed Markets and Continued Emerging Markets Growth

According to J.D. Power & Associates, global vehicle production is forecast to grow at a compound annual growth rate (“CAGR”) of 6.5% 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 6.8 million units, while the emerging markets are forecast to grow at 9.6% during the same period, for an increase of approximately 20.7 million units. However, current OEM production volumes in North America and

 

 

3


Table of Contents

Western Europe continue to be substantially less than OEM production volumes prior to the disruptions in the economic and credit markets experienced in 2008 and 2009. 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.

LOGO

 

LOGO   LOGO

 

Source: J.D. Power & 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.

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

 

 

4


Table of Contents

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 (i.e., the absolute dollar amount of demand, which may grow based on vehicle sales, more content per vehicle and higher prices for content) 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. We expect that as the market for these products expands, we will have the opportunity to obtain proportional growth in prices and margins in these areas, subject to competitive market dynamics.

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.

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

 

 

5


Table of Contents

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 represented 8% of our 2010 net sales. In addition, approximately 8% of our 2010 net sales were 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 15 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. 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.

 

 

6


Table of Contents

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 23,000 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 OEMs in China. As a result, we are a supplier to every major automotive OEM in China, with whom we have well-established relationships, including: Brilliance China, Changan, Chery, China FAW, Geely, Shanghai General Motors and Shanghai Volkswagen. The Delphi brand is recognized by OEMs in China as a leading supplier, and we estimate that we hold the #1 or #2 position in product categories representing over 75% of our 2010 China revenues. We conduct our business through fully consolidated, wholly-owned subsidiaries and joint ventures over which we have management control. Our local partners in the joint ventures are not our competitors. This legal entity structure gives us control over our strategy and operational activities in the region. We generated approximately $1.8 billion in revenue from China in 2010. In support of our growing revenue, we anticipate our facilities in China will expand their operations with the addition of four new manufacturing sites over the next two years. 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 September 30, 2011. We are focused on maintaining a low fixed cost base to minimize our EBITDA breakeven, which we estimate to be approximately 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 15 major technical centers in Brazil, China, France, Germany, India, Luxembourg, Mexico, Poland, South Korea, the United Kingdom 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.

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

 

 

7


Table of Contents

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 16.3% for the nine months ended September 30, 2011 as compared to 14.8% for the year ended December 31, 2010, and EBITDA margins of 13.1% as compared to 9.9% for the year ended December 31, 2010. Segment EBITDA margins were approximately 10% or greater in each of our operating segments for the nine months ended September 30, 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 gross debt of $2.2 billion and substantial liquidity of $2.7 billion as of September 30, 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 to sustain our financial flexibility throughout the industry cycle.

Experienced 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 64%, or 43 million square feet; and reducing total headcount by approximately 23%;

 

   

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

 

 

8


Table of Contents
   

Generating a record level of business bookings, including $20 billion in 2010 and $19.1 billion in the first nine months 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.

 

 

9


Table of Contents

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 15 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 Predecessor, which had filed for bankruptcy protection. 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 membership interests of Delphi Automotive LLP from its existing equity 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.

 

 

10


Table of Contents

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 (the “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. Additionally, on August 1, 2011, the Credit Agreement was further amended to increase the amount of commitments under the revolver to $1.3 billion.

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 and Regulation S 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.

In August 2011, the Board of Managers of Delphi Automotive LLP approved a repurchase program of Class B membership interests. As of September 30, 2011, 7,705 Class B membership interests were repurchased for a cumulative cost of approximately $140 million at an average price per membership interests unit of $18,261. Of the approximately $140 million, approximately $72 million was settled during the three months ended September 30, 2011, and the remaining approximately $68 million was settled in October 2011. Subsequent to September 30, 2011, an additional 2,300 Class B membership interests were repurchased at a cumulative cost of approximately $39 million at an average price of $16,709 per membership interests unit. All information in this prospectus as to the number of ordinary shares to be issued and outstanding on the closing date reflects the repurchases described in this section.

In October 2011, the Board of Managers of Delphi Automotive LLP approved the payment of a distribution of approximately $95 million on December 5, 2011, principally in respect of taxes, to members who hold membership interests as of the close of business on October 31, 2011.

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.

 

 

11


Table of Contents

THE OFFERING

 

Ordinary shares offered by the selling shareholders

   24,078,827 shares

Ordinary shares to be outstanding after this offering

   328,244,330 shares

Option to purchase additional shares

   3,611,824 shares from certain of the selling shareholders

Use of proceeds

   We will not receive any proceeds from the ordinary shares being sold in this offering.

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.

NYSE symbol

   We intend to list our ordinary shares on The New York Stock Exchange, or NYSE, under the symbol “DLPH”.

Unless we specifically state otherwise and except for historical financial information, the information in this prospectus reflects or assumes our issuance of 328,244,330 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 1,931,000 shares issued to our directors who are holders of its Class E-1 membership interests and 326,313,330 remaining shares issued to its other equityholders.

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

 

   

the sale by certain selling shareholders of an additional 3,611,824 ordinary shares to the underwriters pursuant to the underwriters’ option to acquire additional shares; and

 

   

8,545,812 shares reserved for issuance pursuant to outstanding awards under our existing Management Value Creation Plan, or Value Creation Plan (which provides for issuances of equity and/or cash, at our option, to members of our management based on the value of the Company at December 31, 2012, including the amounts used to repurchase membership interests of Delphi Automotive LLP 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. While we have reserved all such shares for potential issuance, we currently expect to settle a significant portion of such awards in cash instead of shares. A $1.00 increase (decrease) in the offering price, holding the number of ordinary shares offered constant, would (decrease) increase the number of ordinary shares reserved for issuance under this plan by 39,996 and 43,633, respectively.

 

 

12


Table of Contents

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 the 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)  
     Nine months
ended September 30,
    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 and shares in millions, except per share data)          (dollars in millions, except per
share data)
 

Statements of operations data:

                

Net sales

   $   12,141      $   10,165      $   13,817      $   3,421          $   8,334      $   16,808   

Depreciation and amortization

     356        311        421        139            540        822   

Operating income (loss)

     1,233        827        940        (10         (1,118     (1,425

Interest expense

     (84     (22     (30     (8                (434

Reorganization items, net

                                     10,210        5,147   

Income (loss) from continuing operations

     911        612        703        (3         9,391        3,163   

Net income (loss)

     911        612        703        (3         9,347        3,066   

Net income attributable to noncontrolling interests

     56        56        72        15            29        29   

Net income (loss) attributable to Successor/Predecessor

     855        556        631        (18         9,318        3,037   
 

Net income (loss) per membership interests unit and per share data: (actual)

                

Class A net income (loss) per membership interests unit

   $ 43.50      $ 55.58      $ 65.35      $ (1.80                  

Class B net income (loss) per membership interests unit

     2,119.04        1,019.02        1,156.98        (33.00                  

Class C net income (loss) per membership interests unit

     253.78        972.58        1,064.88        (31.50                  

Class E-1 net income per membership interests unit

     125.31                                          

Income (loss) per share from continuing operations attributable to Predecessor

                                   $ 16.58      $ 5.55   

Loss per share from discontinued operations attributable to Predecessor

                                     (0.08     (0.17
  

 

 

   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

 

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

                                   $ 16.50      $ 5.38   
 

Per share data: (pro forma)(2)

                

Income (loss) from continuing operations attributable to Successor

   $ 838      $      $ 556                            

Income (loss) per share attributable to Successor

                

Basic and diluted

     2.55               1.69                            

Weighted average shares outstanding

     328               328                            
 

Other financial data:

                

Cash and cash equivalents (as of period end)

   $ 1,386      $ 3,705      $ 3,219      $ 3,107          $      $ 959   

Capital expenditures

     454        281        500        88            321        771   

EBITDA(3)

     1,589        1,138        1,361        129            (514     (211

Adjusted EBITDA(3)

     1,609        1,291        1,633        313            (229     269   

EBITDA margin(4)

     13.1     11.2     9.9     3.8         (6.2 %)      (1.3 %) 

Adjusted EBITDA margin(4)

     13.3     12.7     11.8     9.1         (2.7 %)      1.6

Net cash provided by (used in) operating activities

   $ 909      $ 855      $ 1,142      $ 159          $ (257   $ 455   

Net cash provided by (used in) investing activities

     175        (148     (911     885            (1,052     (958

Net cash provided by (used in) financing activities

     (2,908     (117     (126     2,062            315        465   

 

 

13


Table of Contents
     Successor  
     As of September 30, 2011  
     Historical      As
adjusted(2)(5)
 
     (dollars in millions)  

Balance sheet and employment data:

     

Cash and cash equivalents(6)

   $ 1,386       $ 1,345   

Total assets

   $ 9,318       $ 9,275   

Total debt

   $ 2,173       $ 2,173   

Working capital(7)

   $ 1,405       $ 1,405   

Owners’ equity(6)(8)

   $ 2,098       $ 2,058   

Global employees(9)

     102,000         102,000   

 

(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) Reflects issuance of 328,244,330 ordinary shares in exchange for Delphi Automotive LLP membership interests immediately prior to the completion of this offering.

 

(3) Our management utilizes net income before depreciation and amortization (including long-lived asset and goodwill impairment), interest expense, other income (expense), net, income tax expense and equity income, net of tax (“EBITDA”) to evaluate performance. EBITDA was used as a performance indicator for the nine months ended September 30, 2011.

“Adjusted EBITDA” means net income before depreciation and amortization (including long-lived asset and goodwill impairment), interest expense, other income (expense), net, income tax expense, equity income, net of tax, 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 net income (loss) attributable to Successor/Predecessor, 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 nine months ended September 30, 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.

 

 

14


Table of Contents

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 net income (loss) attributable to Successor/Predecessor follows:

 

    Successor          Predecessor  
    Nine months
ended September 30,
    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

  $     1,609      $     1,291      $     1,633      $     313          $ (229   $     269   

Transformation and rationalization charges:

               

Employee termination benefits and other exit costs

    (20)        (124     (224     (126         (235     (326

Other transformation and rationalization costs

           (29     (48     (58         (50     (154
 

 

 

   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

 

EBITDA

  $ 1,589      $ 1,138      $ 1,361      $ 129          $ (514   $ (211
 

 

 

   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

 

Depreciation and amortization

    (356     (311     (421     (139         (540     (822

Goodwill impairment charges

                                           (325

Discontinued operations

                                    (64     (67
 

 

 

   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

 

Operating income (loss)

  $ 1,233      $ 827      $ 940      $ (10       $ (1,118   $ (1,425
 

 

 

   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

 

Interest expense

    (84     (22     (30     (8                (434

Other (expense) income, net

    13        7        34        (17         24        9   

Reorganization items

                                    10,210        5,147   
 

 

 

   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

 

Income from continuing operations before income taxes and equity income

    1,162        812        944        (35             9,116            3,297   

Income tax (expense) benefit

    (276     (209     (258     27            311        (163

Equity income (loss), net of tax

    25        9        17        5            (36     29   

Loss from discontinued operations, net of tax

                                    (44     (97
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

   

 

 

 

Net income (loss)

  $ 911      $ 612      $ 703      $ (3       $ 9,347      $ 3,066   

Net income attributable to noncontrolling interest

    56        56        72        15            29        29   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

   

 

 

 

Net income (loss) attributable to Successor/Predecessor

  $ 855      $ 556      $ 631      $ (18       $ 9,318      $ 3,037   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

   

 

 

 

 

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

 

(5) Reflects the $35 million of estimated commissions payable by us to the underwriters in connection with the sale of ordinary shares by the selling shareholders in this offering, together with estimated offering expenses and certain IPO-related bonuses. We will not receive any proceeds from this offering. See “Unaudited Pro Forma Condensed Consolidated Financial Information.”

 

(6) Does not reflect the payment by Delphi Automotive LLP of $95 million in distributions to holders of record on October 31, 2011, which is payable on December 5, 2011, or repurchases of Class B membership interests in the amounts of $68 million for trades not settled prior to September 30, 2011 and $39 million for trades that occurred after September 30, 2011.

 

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

 

(8) Historical owners’ equity does not reflect $39 million of repurchases of Class B membership interests that occurred after September 30, 2011.

 

(9) Excludes approximately 40,000 temporary and contract workers.

 

 

15


Table of Contents

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.

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. The most recent example of this was the 2009 downturn in which North American and Western Europe automotive production declined approximately 43% and 26%, respectively, below production levels in 2007. While the industry is recovering from the 2009 downturn, production volumes in North America and Western Europe remain below levels experienced prior to 2009. 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

 

16


Table of Contents

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. As a result of changes impacting our customers, sales mix can shift which may have either favorable or unfavorable impact on revenue and would include shifts in regional growth, shifts in OEM sales demand, as well as shifts in consumer demand related to vehicle segment purchases and content penetration. For instance, a shift in sales demand favoring a particular OEM’s vehicle model for which we do not have a supply contract may negatively impact our revenue. A shift in regional sales demand toward certain markets could favorably impact the sales of those of our customers that have a large market share in those regions, which in turn would be expected to have a favorable impact on our revenue.

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

 

17


Table of Contents

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 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.

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.

 

18


Table of Contents

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. 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.

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, 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

 

19


Table of Contents

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 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.

 

20


Table of Contents

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 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 $310 million as of September 30, 2011. The funding requirements of

 

21


Table of Contents

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 $618 million at September 30, 2011, of which $13 million is included in accrued liabilities and $605 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.

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

 

22


Table of Contents

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 nine months ended September 30, 2011, approximately 69% 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;

 

   

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. These uncertainties could have a material adverse effect on the continuity of our business and our results of operations and financial condition.

 

23


Table of Contents

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 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

 

24


Table of Contents

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.

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 $23 million at September 30, 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.

 

25


Table of Contents

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. There is also a pending antitrust investigation in the European Union.

In addition, we conduct significant business operations in Brazil that are subject to the Brazilian federal labor, social security, environmental, tax and customs laws as well as a variety of state and local laws. While we believe we comply with such laws, they are complex, subject to varying interpretations, and we are often engaged in litigation with government agencies regarding the application of these laws to particular circumstances. As of September 30, 2011, related claims totaling approximately $230 million (using September 30, 2011 foreign currency rates) had been asserted against us. As of September 30, 2011, we maintained reserves for these asserted claims of approximately $40 million (using September 30, 2011 foreign currency rates). We are also subject to class action complaints filed in various U.S. federal district courts alleging violations of U.S. antitrust laws, and are subject to a pending antitrust investigation in the European Union related to the supply of wire harnesses to vehicle manufacturers, for which no accruals have been recorded as of September 30, 2011. For further information concerning these matters, see “Business—Legal Proceedings.” 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

 

26


Table of Contents

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 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.

 

27


Table of Contents

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 representatives 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 a substantial part or all of your investment in our ordinary shares. The initial public offering price will be negotiated between us and the 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;

 

28


Table of Contents
   

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.

Provisions of our Articles of Association could delay or prevent a takeover of us by a third party.

Our Articles of Association could delay, defer or prevent a third party from acquiring us, despite any possible benefit to our shareholders, or otherwise adversely affect the price of our ordinary shares. For example, our amended Articles of Association will:

 

   

permit our Board of Directors to issue one or more series of preferred shares with rights and preferences designated by our board;

 

   

impose advance notice requirements for shareholder proposals and nominations of directors to be considered at shareholder meetings;

 

   

limit the ability of shareholders to remove directors without cause; and

 

   

require that all vacancies on our Board of Directors be filled by our directors.

These provisions may discourage potential takeover attempts, discourage bids for our ordinary shares at a premium over the market price or adversely affect the market price of, and the voting and other rights of the holders of, our ordinary shares. These provisions could also discourage proxy contests and make it more difficult for you and other shareholders to elect directors other than the candidates nominated by our Board of Directors. See “Description of Share Capital” for additional information on the anti-takeover measures that may be applicable to us.

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 328,244,330 ordinary shares outstanding. This includes the 24,078,827 ordinary shares 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 304,165,503 ordinary shares, representing approximately 93% 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 all of our outstanding ordinary

 

29


Table of Contents

shares, are subject to lock-up agreements for a period of 180 days following the date of this prospectus; provided that 30% of such ordinary shares (other than shares owned by our directors and officers) will be released from lock-up restrictions on the 90th day following the date of this prospectus. The lock-up agreements are subject to extension in the case of an earnings release or material news or a material event relating to us. Goldman, Sachs & Co. and J.P. Morgan Securities LLC 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. We will be required to file a shelf registration statement upon expiration of these lock-up periods to permit the resale of such shares. 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.”

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 NYSE 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.

The rights of shareholders of Jersey corporations differ in some respects from those of shareholders of U.S. corporations.

We are incorporated under the laws of Jersey. The rights of holders of ordinary shares are governed by Jersey law, including the Companies (Jersey) Law 1991, as amended, and by our Articles of Association. These rights differ in some respects from the rights of shareholders in corporations incorporated in the United States. See “Description of Share Capital—Comparison of United States and Jersey Corporate Law.”

 

30


Table of Contents

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.

 

31


Table of Contents

USE OF PROCEEDS

The selling shareholders are selling all of the ordinary shares in this offering and we will not receive any proceeds from the sale of such shares.

DIVIDEND POLICY

Delphi Automotive PLC has never declared or paid any cash dividends on its 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.

In October 2011, the Board of Managers of Delphi Automotive LLP approved the payment of a distribution

of approximately $95 million on December 5, 2011, principally in respect of taxes, to members who hold membership interests as of the close of business on October 31, 2011.

 

32


Table of Contents

CAPITALIZATION

The following table sets forth as of September 30, 2011 the cash and capitalization of:

 

   

Delphi Automotive LLP, on an actual basis; and

 

   

us, on a pro forma as adjusted basis to reflect the transaction by which Delphi Automotive LLP becomes our wholly-owned subsidiary and the payment by us of estimated commissions to the underwriters for the ordinary shares sold by the selling shareholders in this offering and expenses.

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.

 

     September 30, 2011  
     Delphi
Automotive
LLP
    Delphi
Automotive
PLC
 
     Actual     Pro Forma As
Adjusted
 
     (in millions)  

Cash and cash equivalents(1)(2)

   $ 1,386      $ 1,345   

Restricted cash

     10        10   

Debt:

    

Accounts receivable factoring

   $ 70      $ 70   

Senior credit facility

     1,031        1,031   

5.875% senior notes due 2019

     500        500   

6.125% senior notes due 2021

     500        500   

Capital leases and other debt(3)

     72        72   
  

 

 

   

 

 

 

Less: current portion

     122        122   
  

 

 

   

 

 

 

Total long-term debt

     2,051        2,051   
  

 

 

   

 

 

 

Total debt

   $ 2,173      $ 2,173   
  

 

 

   

 

 

 

Pre-IPO owners’ equity:(4)

    

Membership interests

   $ 1,706      $   

Accumulated other comprehensive loss:

    

Employee benefit plans

     59          

Other

     (129       
  

 

 

   

 

 

 

Total accumulated other comprehensive income

     (70       
  

 

 

   

 

 

 

Total owners’ equity before noncontrolling interest

     1,636          

Noncontrolling interests

     462          
  

 

 

   

 

 

 

Total pre-IPO owners’ equity(4)

   $ 2,098      $   
  

 

 

   

 

 

 

 

33


Table of Contents
     September 30, 2011  
     Delphi
Automotive
LLP
     Delphi
Automotive
PLC
 
     Actual      Pro Forma As
Adjusted
 
     (in millions)  

Post-IPO shareholders’ equity:

     

Preferred shares, $0.01 par value per share, 50,000,000 shares authorized, 0 issued and outstanding

   $       $   

Ordinary shares, $0.01 par value per share, 1,200,000,000 shares authorized, 328,244,330 issued and outstanding(5)

             3   

Additional paid-in capital(5)

             1,710   

Retained deficit(6)

             (47

Accumulated other comprehensive loss:

     

Employee benefit plans

             59   

Other

             (129
  

 

 

    

 

 

 

Total accumulated other comprehensive income

             (70
  

 

 

    

 

 

 

Total shareholders’ equity before noncontrolling interest

             1,596   

Noncontrolling interests

             462   
  

 

 

    

 

 

 

Total post-IPO shareholders’ equity

   $       $ 2,058   
  

 

 

    

 

 

 

Total capitalization

   $ 4,271       $ 4,231   
  

 

 

    

 

 

 

 

(1) Does not reflect the payment by Delphi Automotive LLP of $95 million in distributions to holders of record on October 31, 2011, which is payable on December 5, 2011, or repurchases of Class B membership interests in the amount of $68 million for trades not settled prior to September 30, 2011 and $39 million for trades that occurred after September 30, 2011.
(2) Reflects the $35 million of estimated commissions payable by us to the underwriters in connection with the sale of ordinary shares by the selling shareholders in this offering, together with estimated offering expenses and certain IPO-related bonuses. We will not receive any proceeds from this offering. See “Unaudited Pro Forma Condensed Consolidated Financial Information.”
(3) Capital leases and other debt is comprised of $52 million of short-term debt and $20 million of long-term debt.
(4) Does not reflect $39 million of repurchases of Class B membership interests that occurred after September 30, 2011.
(5) Reflects the establishment of post-IPO shareholders’ equity of Delphi Automotive PLC from the existing membership interests in Delphi Automotive LLP of $1,706 million as a result of the transaction pursuant to which Delphi Automotive PLC becomes the owner of Delphi Automotive LLP and the vesting of the remaining Class E-1 membership interests of $8 million, less $1 million paid to retire a portion of the membership interests of certain members in lieu of their participation in this offering based on the terms and conditions of the Fourth LLP Agreement.
(6) Reflects $35 million of estimated commissions to the underwriters in connection with the sale of ordinary shares by the selling shareholders, $4 million of estimated expenses related to this offering, and $8 million related to the accelerated vesting of Class E-1 membership interests.

 

34


Table of Contents

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 September 30, 2011, for the nine months ended September 30, 2011 and for the year ended December 31, 2010 are derived from Delphi Automotive LLP’s unaudited consolidated financial statements for the nine months ended September 30, 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 nine months ended September 30, 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 “Debt 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 nine months ended September 30, 2011, and gives effect to the “IPO Adjustments” as if they had occurred on September 30, 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 September 30, 2011, as the case may be.

Pro Forma Adjustments

The “Debt 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 on March 31, 2011 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 original credit agreement executed on March 31, 2011 among Delphi Automotive LLP, Delphi Holdings, S.a.r.l., Delphi Corporation, 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 (the “Credit Facilities”), of which $2.5 billion in term loans were used to redeem all outstanding Class A and Class C membership interests of Delphi Automotive LLP, and the amendments and modifications to the credit agreement on May 17, 2011 and August 1, 2011 in connection with the syndication thereof and an increase to the revolving credit facility, respectively (the “Credit Agreement”). The modifications of the Credit Agreement increased the amount of the Tranche A Term Loan from $250 million to $258 million, increased the commitments under the revolving credit facility from $500 million to $1.3 billion, reduced the amount of the Tranche B Term Loan from $2.25 billion to $950 million, and adjusted the interest rate options for all commitments (see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources”); and

 

   

the issuance on May 17, 2011 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.

 

35


Table of Contents

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 membership interests of Delphi Automotive LLP from its existing equity holders in exchange for 328,244,330 ordinary shares immediately prior to the closing of this offering;

 

   

the accelerated vesting of the Class E-1 membership interests of Delphi Automotive LLP that will occur as a result of this offering; and

 

   

the estimated underwriters’ commissions to be paid by Delphi Automotive PLC (as the selling shareholders will not pay any underwriting discount on certain of the shares sold by them).

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

 

36


Table of Contents

DELPHI AUTOMOTIVE PLC

PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

(Unaudited)

 

     Nine months ended September 30, 2011  
     Delphi Automotive LLP     Delphi Automotive PLC  
     Historical     Debt
Adjustments
    Pro Forma     IPO
Adjustments
    Pro Forma,
as Adjusted
 
     (dollars and shares in millions, except per share data)  

Net sales

   $ 12,141      $                     $ 12,141      $      $ 12,141   

Operating expenses:

          

Cost of sales

     10,165               10,165               10,165   

Selling, general and administrative

     667               667               667   

Amortization

     56               56               56   

Restructuring

     20               20               20   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     10,908               10,908               10,908   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     1,233               1,233               1,233   

Interest expense

     (84     (26 )(a)      (110            (110

Loss on extinguishment of debt

     (14            (14            (14

Other income, net

     52               52               52   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income tax benefit

     1,187        (26     1,161               1,161   

Income tax (expense) benefit

     (276     9 (b)      (267            (267
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     911        (17     894               894   

Net income attributable to noncontrolling interest

     56               56               56   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Delphi

   $ 855      $ (17   $ 838      $      $ 838   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average ordinary shares
outstanding

                          328 (c)      328   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) per share available to shareholders:

          

Basic and Diluted

                        $ 2.55 (c)    $ 2.55   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

37


Table of Contents

DELPHI AUTOMOTIVE PLC

PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

(Unaudited)

 

     Year ended December 31, 2010  
     Delphi Automotive LLP      Delphi Automotive PLC  
     Historical      Debt
Adjustments
    Pro Forma      IPO
Adjustments
    Pro Forma,
as
Adjusted
 
     (dollars and shares in millions, except per share data)  

Net sales

   $     13,817       $      $     13,817       $      $ 13,817   

Operating expenses:

            

Cost of sales

     11,768                11,768                11,768   

Selling, general and administrative

     815                815                815   

Amortization

     70                70                70   

Restructuring

     224                224                224   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total operating expenses

     12,877                12,877                12,877   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Operating income

     940                940                940   

Interest expense

     (30)         (116) (a)      (146)                (146)   

Other income, net

     51                51                51   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Income before income tax benefit

     961         (116)        845                845   

Income tax (expense) benefit

     (258)         41 (b)      (217)                (217)   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Net income

   $ 703       $ (75)      $ 628       $      $ 628   

Net income attributable to noncontrolling interest

     72                72                72   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Net income attributable to Delphi

   $ 631       $ (75)      $ 556       $      $ 556   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Weighted average ordinary shares outstanding

                            328 (c)      328   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Net income (loss) per share available to shareholders:

            

Basic and Diluted

                          $ 1.69 (c)    $ 1.69   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

38


Table of Contents

Notes to Unaudited Pro Forma Condensed Consolidated Statements of Operations

Debt Adjustments

(a) The interest expense adjustments from the Credit Agreement and the issuance of the Senior Notes resulted in a net increase of $26 million and $116 million for the nine months ended September 30, 2011 and the year ended December 31, 2010, respectively, and consists of the following (in millions):

 

     Nine
months ended
September 30,
2011
    Year ended
December 31, 2010
 

Senior Notes (i)

   $     45      $     60   

Credit Agreement (ii)

     31        41   

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

     14        18   

Elimination of interest expense and accretion on extinguished Old Notes (iv)

     (1     (3

Elimination of historical interest expense (including the amortization of debt issuance costs and OID) incurred pursuant to the modified Credit Agreement and Senior Notes (v)

     (63       
  

 

 

   

 

 

 

Total adjustment

   $ 26      $ 116   
  

 

 

   

 

 

 

 

(i) Reflects the issuance of the Senior Notes. Interest expense is based on the outstanding balance of $500 million of 5.875% senior notes due 2019 and $500 million of 6.125% senior notes due 2021.
(ii) Reflects the issuance of $250 million of Tranche A Term Loan and $2.25 billion of Tranche B Term Loan as entered into on March 31, 2011. In conjunction with the modified Credit Agreement on May 17, 2011, $1.3 billion of the Tranche B Term Loan was repaid and the Tranche A Term Loan was increased by $8 million. Subsequently, on August 1, 2011, the Credit Agreement was further amended to increase the amount of commitments under the revolver to $1.3 billion. The $1.3 billion revolving credit facility is undrawn.

Based on Delphi’s current elections pursuant to the terms of the modified Credit Agreement, the assumed interest rates were 3.00% per annum (adjusted LIBOR plus 2.75%) and 3.50% per annum (a LIBOR floor of 1.00% plus 2.50%) on the Tranche A Term Loan and the Tranche B Term Loan, respectively. On September 22, 2011, the adjusted LIBOR for the Tranche A Term Loan was 0.25% (0.23456% one-month LIBOR rounded to 0.25% pursuant to the terms of the Credit Agreement). See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.” Delphi may elect to change the selected interest rate over the term of the Credit Facilities in accordance with the provisions of the Credit Agreement. The applicable interest rates listed above for the revolving facility and the Tranche A Term Loan may increase or decrease from time to time by 0.25% based upon changes to Delphi’s corporate credit ratings. Accordingly, the interest rate will fluctuate during the term of the Credit Agreement based on changes in the Alternate Base Rate, LIBOR or future changes in Delphi’s corporate credit ratings.

 

(iii) Reflects amortization to interest expense of $87 million in debt issuance costs and $3 million of original issue discount pursuant to the Credit Agreement executed on March 31, 2011 and as subsequently modified on May 17, 2011 and August 1, 2011, as well as $20 million of debt issuance costs related to the Senior Notes. Deferred debt issuance costs and OID are recognized as additional interest expense over the life of the respective debt commitment(s) utilizing the effective interest method. The following table summarizes the adjustments to interest expense (in millions):

 

39


Table of Contents

Additional Interest Expense from Debt Issuance Costs and OID Amortization

 

                   Amortization  
     Issuance
Costs
     Debt
Maturity
(in months)
     Nine months ended
September 30,
2011
     Year ended
December 31, 2010
 

Revolving credit facility

   $         31         60       $             5       $             6   

Tranche A Term Loan

     7         60         1         2   

Tranche B Term Loan

     49         72         6         8   

8-Year Senior Notes

     10         96         1         1   

10-Year Senior Notes

     10         120         1         1   

Tranche A Term Loan OID

     1         60                   

Tranche B Term Loan OID

     2         72                   
  

 

 

       

 

 

    

 

 

 

Total

   $ 110          $ 14       $ 18   
  

 

 

       

 

 

    

 

 

 

 

(iv) Reflects the elimination of interest expense and accretion of the fair value premium previously recognized related to the $41 million senior unsecured five-year Old Notes. These Old Notes were issued in connection with the acquisition of certain assets of the Predecessor and had an Acquisition Date fair value of $49 million. The Old Notes paid 12% interest and were scheduled to mature on October 6, 2014. In addition, the $8 million fair value premium was being accreted as a credit to interest expense over the five year life of the Old Notes. The following table summarizes the adjustments to interest expense (in millions):

 

Elimination of Interest Expense and Accretion Related to Old Notes  
     Value     Nine months ended
September 30, 2011
    Year ended
December 31, 2010
 

Eliminate Interest Expense

      

12% Old Notes

   $ 41      $ (1   $ (5

Eliminate Accretion of Fair Value Premium

  

   

Fair Value Adjustment

     8               2   
    

 

 

   

 

 

 

Total

     $ (1   $ (3
    

 

 

   

 

 

 

 

(v) Reflects the elimination of interest expense (including the amortization of debt issuance costs and OID) related to the modified Credit Agreement and Senior Notes included in the historical amounts for the nine months ended September 30, 2011. The following table summarizes the adjustments to interest expense (in millions):

 

Elimination of Interest Expense  
     Interest Expense      Amortization      Total  

Revolving credit facility (1)

   $                     —       $                 3       $                 3   

Tranche A Term Loan (2)

     4         1         5   

Tranche B Term Loan (3)

     27         4         31   

8-year Senior Notes (4)

     11         1         12   

10-year Senior Notes (5)

     11         1         12   
  

 

 

    

 

 

    

 

 

 
   $ 53       $ 10       $ 63   
  

 

 

    

 

 

    

 

 

 

 

  (1) Interest related to the revolving facility was not significant during the period. Reflects amortization related to $31 million in debt issuance costs over the 60 month facility.
  (2) Reflects interest related to outstanding loan balances of $250 million from March 31 through May 16, $258 million from May 17 through June 21, $237 million from June 22 through June 28 and $222 million from June 29 through September 30. The average interest rate over the period was 3.4%. Reflects amortization related to $7 million in debt issuance costs and $1 million of OID over the 60 month term.
  (3) Reflects interest related to outstanding loan balances of $2.25 billion from March 31 through May 16, $950 million from May 17 through June 21, $871 million from June 22 through June 28 and $812 million from June 29 through September 30. The average interest rate over the period was 4.4%. Reflects amortization related to $49 million in debt issuance costs and $2 million of OID over the 72 month loan term.

 

40


Table of Contents
  (4) Reflects interest related to outstanding loan balance of $500 million from May 17 through September 30 at 5.875%. Amortization related to $10 million in debt issuance costs over the 96 month term was not significant during the period.
  (5) Reflects interest related to outstanding loan balance of $500 million from May 17 through September 30 at 6.125%. Amortization related to $10 million in debt issuance costs over the 120 month term was not significant during the period.

(b) Income tax benefit related to the Pro Forma Adjustments for the nine months ended September 30, 2011 and the year ended December 31, 2010 is $9 million and $41 million, respectively, based on applying the U.S. statutory tax rate of 35% to the Pro Forma Adjustments.

IPO Adjustments

(c) Reflects issuance of 328,244,330 ordinary shares in exchange for Delphi Automotive LLP membership interests immediately prior to the completion of this offering.

 

41


Table of Contents

DELPHI AUTOMOTIVE PLC

PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

(Unaudited)

 

    As of September 30, 2011  
    Delphi Automotive
LLP
    Delphi Automotive PLC  
            Historical             IPO
    Adjustments    
        Pro Forma      
    (in millions)  

ASSETS

     

Current assets:

     

Cash and cash equivalents

  $ 1,386      $ (35 )(d)    $ 1,345   
      (1 )(e)   
      (2 )(f)   
      (3 )(g)   

Restricted cash

    10        —          10   

Accounts receivable

    2,644        —          2,644   

Inventories

    1,146        —          1,146   

Other current assets

    621        (2 )(f)       619   
 

 

 

   

 

 

   

 

 

 

Total current assets

    5,807        (43     5,764   

Long-term assets:

     

Property, net

    2,185        —          2,185   

Investments in affiliates

    259        —          259   

Intangible assets, net

    623        —          623   

Other long-term assets

    444        —          444   
 

 

 

   

 

 

   

 

 

 

Total long-term assets

    3,511        —          3,511   
 

 

 

   

 

 

   

 

 

 

Total assets

  $ 9,318      $ (43   $ 9,275   
 

 

 

   

 

 

   

 

 

 

LIABILITIES AND OWNERS’ EQUITY

     

Current liabilities:

     

Short-term debt

  $ 122      $ —        $ 122   

Accounts payable

    2,385        —          2,385   

Accrued liabilities

    1,374        (3 )(g)      1,371   
 

 

 

   

 

 

   

 

 

 

Total current liabilities

    3,881        (3     3,878   

Long-term liabilities:

     

Other long-term debt

    2,051        —          2,051   

Pension and other postretirement benefit obligations

    683        —          683   

Other long-term liabilities

    605        —          605   
 

 

 

   

 

 

   

 

 

 

Total long-term liabilities

    3,339        —          3,339   
 

 

 

   

 

 

   

 

 

 

Total liabilities

    7,220        (3     7,217   
 

 

 

   

 

 

   

 

 

 

Pre-IPO owners’ equity

     

Membership interests

  $ 1,706      $ (1,706 )(a)    $ —     

Accumulated other comprehensive loss:

     

Employee benefit plans

    59        (59     —     

Other

    (129     129        —     
 

 

 

   

 

 

   

 

 

 

Total accumulated other comprehensive income

    (70     70        —     
 

 

 

   

 

 

   

 

 

 

Total owners’ equity before noncontrolling interest

    1,636        (1,636     —     

Noncontrolling interests

    462        (462     —     
 

 

 

   

 

 

   

 

 

 

Total Pre-IPO owners’ equity

    2,098        (2,098     —     
 

 

 

   

 

 

   

 

 

 

Post-IPO owners’ equity

     

Preferred shares, $0.01 par value per share, 50,000,000 shares authorized, 0 issued and outstanding

  $      $ —        $ —     

Ordinary shares, $0.01 par value per share, 1,200,000,000 shares authorized, 328,244,330 issued and outstanding

           3 (b)      3   

Additional paid-in capital

           8 (c)      1,710   
      1,703 (b)   
      (1 )(e)   

Retained earnings (deficit)

           (8 )(c)      (47
      (35 )(d)   
      (4 )(f)   

Accumulated other comprehensive loss:

     

Employee benefit plans

           59        59   

Other

           (129     (129
 

 

 

   

 

 

   

 

 

 

Total accumulated other comprehensive income

           (70     (70
 

 

 

   

 

 

   

 

 

 

Total shareholders’ equity before noncontrolling interest

           1,596        1,596   

Noncontrolling interests

           462        462   
 

 

 

   

 

 

   

 

 

 

Total Post-IPO shareholders’ equity

  $      $ 2,058      $ 2,058   
 

 

 

   

 

 

   

 

 

 

Total liabilities and shareholders’ equity

  $ 9,318      $ (43   $ 9,275   
 

 

 

   

 

 

   

 

 

 

 

42


Table of Contents

Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet

IPO Adjustments

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

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

(c) Represents accelerated vesting of the Class E-1 membership interests in connection with this offering. The unvested membership interests will fully vest in the event of a completed initial public offering if the resulting total equity valuation of the Company (based on the average closing price of our shares during the 15-day period beginning on the 30th day after the closing of this offering), plus the value of prior distributions made under the Limited Liability Partnership Agreement of Delphi Automotive LLP (as amended and restated, the “LLP Agreement”) to holders of membership interests (as well as the $4.4 billion paid to repurchase Class A and C membership interests, any Class B membership interest repurchased, any additional distributions to Class B and E-1 membership interest holders and any amounts distributed or paid to holders of Class E-1 membership interest with respect to or to repurchase their Class E-1 membership interests), is at least $6 billion.

The fair value of the Class E-1 membership interests was estimated to be $19 million at the June 2010 grant date. The compensation expense related to the Class E-1 membership interests is recognized over the requisite service period on a straight-line basis with the amount of compensation cost recognized at any date equaling the portion of the grant-date value of the award that is vested at that date. Absent accelerated vesting, the Class E-1 membership interests are subject to continued service through the vesting dates as follows:

20% on November 1, 2010

40% on November 1, 2011

40% on November 1, 2012

The grant date fair value of $19 million is recognized as compensation expense over the vesting schedule as follows:

 

Vesting Period

   # of
Months in
Vesting
Period
     Initial
Award in
Millions
         Vesting Rate          Cost in
Millions
 

November 1, 2010

     4       $ 19.0      x                  20%      =    $ 3.8   

November 1, 2011

     12       $ 19.0      x      40%      =    $ 7.6   

November 1, 2012

     12       $ 19.0      x      40%      =    $ 7.6   
          

 

 

      

 

 

 
             100%         $         19.0   
          

 

 

      

 

 

 

Based on the vesting schedule through September 30, 2011, approximately $10.8 million of compensation expense has been recognized, which represents the first 12 months of vesting ($3.8 million as of November 1, 2010 plus $7 million for the period from November 1, 2010 through September 30, 2011 (eleven months of the vesting period ending November 1, 2011). Accordingly, at September 30, 2011, there was $8 million of unrecognized compensation expense.

(d) Represents $35 million of estimated underwriters’ commissions to be paid by Delphi Automotive PLC (as the selling shareholders will not pay any underwriting discount on certain of the shares sold by them).

(e) Represents $1 million paid in cash to retire a portion of the membership interests of certain members in lieu of their participation in this offering based on the terms and conditions of the Fourth LLP Agreement.

(f) Represents estimated expenses of $4 million related to this offering. As of September 30, 2011 approximately $2 million of this total estimate has been paid.

 

43


Table of Contents

(g) Represents $3 million of IPO incentive awards payable to all current members of the Board of Managers upon an initial public offering if the implied company value, at the time of the initial public offering, is greater than $6 billion.

 

44


Table of Contents

DILUTION

Our net tangible book value as of September 30, 2011 was $1,475,000,000 or $4.49 per ordinary share. Net tangible book value per share is determined by dividing our 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 the issuance of our shares to existing holders of Delphi Automotive LLP membership interests. After giving effect to the sale of the ordinary shares in this offering by the selling shareholders, at an assumed initial public offering price of $23.00 per share, the midpoint of the range set forth on the cover page of this prospectus, our pro forma net tangible book value at September 30, 2011 would have been $1,435,000,000 or $4.37 per share. This represents an immediate decrease in pro forma net tangible book value to existing shareholders of $0.12 per share and an immediate dilution to new investors of $18.63 per share. The following table illustrates this per share dilution:

 

Assumed initial public offering price

   $ 23.00   

Net tangible book value per share as of September 30, 2011

     4.49   

Decrease in net tangible book value per share attributable to new investors(1)

     (0.12
  

 

 

 

Pro forma net tangible book value per share after offering

     4.37   
  

 

 

 

Dilution per share to new investors

   $ 18.63   
  

 

 

 

 

(1) Decrease attributable to payment by us of estimated commissions to the underwriters in respect of ordinary shares sold by the selling shareholders.

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 $23.00 per share (the midpoint of the range set forth on the cover page of this prospectus), would (decrease) increase our pro forma consolidated net tangible book value after this offering by $0.00 and $0.01, respectively, and the dilution per share to new investors by $1.00, 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 commissions payable by us on behalf of the selling shareholders and estimated offering expenses.

The following table sets forth, on a pro forma basis, as of September 30, 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 $23.00 per share, the midpoint of the range set forth on the cover page of this prospectus, before deducting estimated underwriting commissions and offering expenses payable by us:

 

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

Existing shareholders(1)

     304,165,503         92.7   $ 203,101,424         26.8     0.67   

New investors

     24,078,827         7.3        553,813,021         73.2        23.00   
  

 

 

    

 

 

   

 

 

    

 

 

   

Total

     328,244,330         100   $ 756,914,445         100  

 

(1) Reflects the cash consideration 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 300,553,679 shares or approximately 91.6% if the underwriters’ option is exercised in full and

 

45


Table of Contents

will increase the number of shares to be purchased by new investors to 27,690,651 shares or approximately 8.4% if the underwriters’ option is exercised in full of the total ordinary shares outstanding after the offering.

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, 8,545,812 shares would be issuable under the Value Creation Plan, assuming settlement in shares. At September 30, 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 $23.00 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 $24.1 million and would increase (decrease) the average price per share paid by new investors by $1.00, 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 commissions and estimated offering expenses payable by us.

 

46


Table of Contents

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 the 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)  
    Nine months
ended September 30,
    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 and shares in millions, except per share data)          (dollars in millions, except per share data)  

Statements of operations data:

                   

Net sales

  $     12,141      $     10,165      $     13,817      $     3,421          $     8,334      $     16,808      $     19,526      $     19,329   

Depreciation and amortization

    356        311        421        139            540        822        871        883   

Operating income (loss)

    1,233        827        940        (10         (1,118     (1,425     (1,557     (4,040

Interest expense

    (84     (22     (30     (8                (434     (764     (423

Reorganization items, net

                                    10,210        5,147        (163     (92

Income (loss) from continuing operations

    911        612        703        (3         9,391        3,163        (1,855     (4,598

Net income (loss)

    911        612        703        (3         9,347        3,066        (2,997     (5,427

Net income attributable to noncontrolling interests

    56        56        72        15            29        29        68        37   

Net income (loss) attributable to Successor/Predecessor

    855        556        631        (18         9,318        3,037        (3,065     (5,464
 

Net income (loss) per membership interests unit and per share data: (actual)

                   

Class A net income (loss) per membership interests unit

  $ 43.50      $ 55.58      $ 65.35      $ (1.80                                

Class B net income (loss) per membership interests unit

    2,119.04        1,019.02        1,156.98        (33.00                                

Class C net income (loss) per membership interests unit

    253.78        972.58        1,064.88        (31.50                                

Class E-1 net income per membership interests unit

    125.31                                                        

Income (loss) per share from continuing operations attributable to Predecessor

                                  $ 16.58      $ 5.55      $ (3.41   $ (8.25

Loss per share from discontinued operations attributable to Predecessor

                                    (0.08     (0.17     (2.04     (1.49

Income per share from cumulative effect of accounting change attributable to Predecessor

                                                         0.01   
 

 

 

   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

 

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

                                  $ 16.50      $ 5.38      $ (5.45   $ (9.73
 

Per share data: (pro forma)(2)

                   

Income (loss) from continuing operations attributable to Successor

  $ 838             $ 556                                          

Income (loss) per share attributable to Successor

                   

Basic and diluted

    2.55               1.69                                          

Weighted average shares outstanding

    328               328                                          

 

47


Table of Contents
    Successor          Predecessor(1)  
    Nine months
ended September 30,
    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)  
 

Other financial data:

                   

Capital expenditures

  $ 454      $ 281      $ 500      $ 88          $ 321      $ 771      $ 577      $ 560   

EBITDA(3)

    1,589        1,138        1,361        129            (514     (211     (384     (3,214

Adjusted EBITDA(3)

    1,609        1,291        1,633        313            (229     269        731        (114

EBITDA margin(4)

    13.1     11.2     9.9     3.8         (6.2%     (1.3%     (2.0%     (16.6%

Adjusted EBITDA margin(4)

    13.3     12.7     11.8     9.1         (2.7%     1.6%        3.7%        (0.6%

Net cash provided by (used in) operating activities

    909        855        1,142        159            (257     455        (98     9   

Net cash provided by (used in) investing activities

    175        (148     (911     885            (1,052     (958     (530     (554

Net cash provided by (used in) financing activities

    (2,908     (117     (126     2,062            315        465        (58     (122

 

    Successor          Predecessor(1)  
    As of
September 30,
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

  $     1,386      $     3,219      $     3,107          $     959      $     1,036      $     1,608   

Total assets

  $ 9,318      $ 11,082      $ 10,307          $ 10,306      $ 13,667      $ 15,392   

Total debt

  $ 2,173      $ 289      $ 396          $ 4,229      $ 3,554      $ 3,340   

Working capital(5)

  $ 1,405      $ 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)

  $ 2,098      $ 6,099      $ 5,366            N/A        N/A        N/A   

Global employees(6)

    102,000        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) Reflects issuance of 328,244,330 ordinary shares in exchange for Delphi Automotive LLP membership interests immediately prior to the completion of this offering.

 

(3) Our management utilizes EBITDA to evaluate performance. EBITDA was used as a performance indicator for the nine months ended September 30, 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 net income (loss) attributable to Successor/Predecessor, 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.

 

48


Table of Contents

In the nine months ended September 30, 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.

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 net income (loss) attributable to Successor/Predecessor follows:

 

    Successor          Predecessor(1)  
    Nine months ended
September 30,
    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

  $     1,609        1,291      $     1,633      $     313          $ (229   $     269      $     731      $ (114

Transformation and rationalization charges:

                   

Employee termination benefits and other exit costs

    (20     (124     (224     (126         (235     (326     (301     (242

Other transformation and rationalization costs

           (29     (48     (58         (50     (154     (814     (2,858
 

 

 

   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

  $ 1,589      $ 1,138      $ 1,361      $ 129          $ (514   $ (211   $ (384   $ (3,214
 

 

 

   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

 

Depreciation and amortization

    (356     (311     (421     (139         (540     (822     (871     (883

Goodwill impairment charges

                                           (325              

Discontinued operations

                                    (64     (67     (302     57   
 

 

 

   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

  $ 1,233      $ 827      $ 940      $ (10       $ (1,118   $ (1,425   $ (1,557   $ (4,040
 

 

 

   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

 

Interest expense

    (84     (22     (30     (8                (434     (764     (423

Other income (expense), net

    13        7        34        (17         24        9        47                    39   

Reorganization items

                                        10,210        5,147        (163     (92
 

 

 

   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations before income taxes and equity income

    1,162        812        944        (35         9,116        3,297        (2,437     (4,516

Income tax (expense) benefit

    (276     (209     (258     27            311        (163     547        (115

Equity income (loss), net of tax

    25        9        17        5            (36     29        35        33   

Loss from discontinued operations, net of tax

                                    (44     (97     (1,142     (835
 

 

 

   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ 911      $ 612      $ 703      $ (3       $ 9,347      $ 3,066      $ (2,997   $ (5,433

Net income attributable to noncontrolling interest

    56        56        72        15            29        29        68        34   

Cumulative effect of accounting change, net of tax

                                                         3   
 

 

 

   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Successor/Predecessor

  $ 855      $ 556      $ 631      $ (18       $ 9,318      $ 3,037      $ (3,065   $ (5,464
 

 

 

   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

 

 

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

 

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

 

(6) Excludes temporary and contract workers. As of September 30, 2011, we employed approximately 40,000 temporary and contract workers.

 

49


Table of Contents

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 and nine months ended September 30, 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 the three and nine months ended September 30, 2011 as compared to the same periods of 2010 reflect the impacts of increased OEM production volumes as well as the level of our content per unit, and, to a lesser extent, the impacts of foreign currency exchange rate fluctuations. Although global OEM production volumes increased 4% and 3%, respectively, for the three and nine months ended September 30, 2011 versus 2010, excluding production decreases from Japan and Japanese OEM production in North America of almost 18% resulting from the Japan earthquake and tsunami, global OEM production volumes increased 6% and 8%, respectively, for the three and nine month periods of 2011 as compared to 2010. As further described below, we did not experience any significant adverse impacts resulting from the Japan earthquake and tsunami, particularly given that the Japanese OEMs are not among our principal customers. To the extent that the Japanese OEMs grow faster than others as they make up for lost production in 2011, we would expect that our volume growth from our OEM customers could be slower than the market. These improvements in OEM production volumes continue to indicate a stabilization of the global economy. However, current OEM production volumes in North America and Western Europe 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 nine months 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

 

50


Table of Contents

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 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 (as defined below), 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 revenue due to changes in OEM production schedules, vehicle 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 OEM (which we refer to as contractual price reductions) and engineering changes. Changes in sales mix can have either favorable or unfavorable impact on revenue. Such changes can be the result of shifts in regional growth, shifts in OEM sales demand, as well as shifts in consumer demand related to vehicle segment purchases and content penetration. For instance, a shift in sales demand favoring a particular OEM’s vehicle model for which we do not have a supply contract may negatively impact our revenue. A shift in regional sales demand toward certain markets could favorably impact the sales of those of our customers that have a large market share in those regions, which in turn would be expected to have a favorable impact on our revenue.

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.

 

51


Table of Contents

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. Although we have no production facilities in Japan, we and our suppliers do obtain material and components from suppliers located in Japan. By the end of the third quarter of 2011, our suppliers as well as the Japanese OEMs that were affected by the earthquake and tsunami in Japan had returned to normal or near normal production levels. During the periods of disruption, we were able to obtain key components from alternate suppliers, and did not experience any material adverse impacts as a result of the earthquake and tsunami.

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 3 to 4% 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

 

52


Table of Contents

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 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.

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 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 15 major technical centers in Brazil, China, France, Germany, India, Luxembourg, Mexico, Poland, South Korea, the United Kingdom 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.

 

53


Table of Contents

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 September 30, 2011. We are focused on maintaining a low fixed cost base to minimize our net income before depreciation and amortization (including long-lived asset and goodwill impairment), interest expense, other income (expense), net, income tax expense and equity income, net of tax (“EBITDA”) breakeven, which we estimate to be approximately 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 supplier’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. 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 gross debt of approximately $2.2 billion and substantial liquidity of approximately $2.7 billion of cash and cash equivalents and available financing under our Revolving Credit Facility (as defined in “—Liquidity and Capital Resources” below) as of September 30, 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 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.

 

54


Table of Contents

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 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 EBITDA of the Successor for the year ended December 31, 2010 to the total net sales and net income before depreciation and amortization (including long-lived asset and goodwill impairment), interest expense, other income (expense), net, income tax expense, equity income, net of tax, transformation and rationalization charges related to plant consolidations, plant wind-downs and discontinued operations (“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.

 

55


Table of Contents

Consolidated Results of Operations

Three and Nine Months Ended September 30, 2011 versus Three and Nine Months Ended September 30, 2010

Consolidated Results of Operations

The results of operations for the three and nine months ended September 30, 2011 and 2010 were as follows:

 

    Three months ended September 30,          Nine months ended September 30,  
    2011           2010           Favorable/
(unfavorable)
         2011           2010           Favorable/
(unfavorable)
 
    (dollars in millions)          (dollars in millions)  

Net sales

  $     3,931        $     3,309        $ 622          $     12,141        $     10,165        $     1,976   

Cost of sales

    3,294          2,807          (487         10,165          8,558          (1,607
 

 

 

     

 

 

     

 

 

       

 

 

     

 

 

     

 

 

 

Gross margin

    637        16.2     502        15.2     135            1,976        16.3     1,607        15.8     369   

Selling, general and administrative

    222          207          (15         667          604          (63

Amortization

    19          21          2            56          52          (4

Restructuring

    3          68          65            20          124          104   
 

 

 

     

 

 

     

 

 

       

 

 

     

 

 

     

 

 

 

Operating income

    393          206          187            1,233          827          406   

Interest expense

    (37       (6       (31         (84       (22       (62

Other income, net

    14          5          9            13          7          6   
 

 

 

     

 

 

     

 

 

       

 

 

     

 

 

     

 

 

 

Income before income taxes and equity income

    370          205          165            1,162          812          350   

Income tax expense

    (87       (62       (25         (276       (209       (67
 

 

 

     

 

 

     

 

 

       

 

 

     

 

 

     

 

 

 

Income before equity income

    283          143          140            886          603          283   

Equity income, net of tax

    2          1          1            25          9          16   
 

 

 

     

 

 

     

 

 

       

 

 

     

 

 

     

 

 

 

Net income

    285          144          141            911          612          299   

Net income attributable to noncontrolling interests

    19          17          (2         56          56            
 

 

 

     

 

 

     

 

 

       

 

 

     

 

 

     

 

 

 

Net income attributable to Delphi

  $ 266        $ 127        $ 139          $ 855        $ 556        $ 299