DELPHI 2013 Annual Report Download - page 55

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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.
We are focused on maintaining a low fixed cost structure that provides us flexibility to remain profitable despite decreases
in industry volumes and at all points of the traditional vehicle industry production cycle. We believe that our lean cost structure
will allow us to remain profitable at all points of the traditional vehicle industry production cycle. As a result, approximately
94% 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 32% of the hourly workforce as of
December 31, 2013. However, we will continue to adjust our cost structure and manufacturing footprint in response to
continued economic uncertainties, as evidenced by the restructuring activities, including the actions related to the integration of
MVL, we initiated in the fourth quarter of 2012 and first quarter of 2013, particularly in Europe, totaling approximately $375
million. As we continue to operate in a cyclical industry that is impacted by movements in the global economy, we continually
evaluate opportunities to further adjust our cost structure. Assuming constant product mix and pricing, based on our 2013
results, we estimate that our EBITDA breakeven level would be reached if we experienced a 43% downturn to current product
volumes.
We have a strong balance sheet with gross debt of approximately $2.4 billion and substantial liquidity of approximately
$2.9 billion of cash and cash equivalents and available financing under our Revolving Credit Facility (as defined below in
Liquidity and Capital Resources) as of December 31, 2013, and no significant U.S. defined benefit or workforce postretirement
health care benefits and employer-paid postretirement basic life insurance benefits (“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.
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.
Mexico Tax Reform. Delphi conducts its Mexican operations primarily through the maquiladora regime, which has
historically provided certain tax benefits. Mexican tax reform legislation was enacted on December 11, 2013 and became
effective on January 1, 2014 resulting in an increase of the statutory tax rate and changes to the VAT rules that apply to these
operations. The legislation also enacted limitations on certain deductions, but an executive order issued on December 26, 2013
substantially eliminated the impact of these limitations on the maquiladora regime. The Company does not expect the changes
resulting from this legislation to have a material impact on our results from operations or financial condition.
Our History and Structure
On August 19, 2009, Delphi Automotive LLP, a limited liability partnership organized under the laws of England and
Wales, was formed for the purpose of acquiring certain assets and subsidiaries of the former Delphi Corporation, our
Predecessor (“the Acquisition”), 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
and issued membership interests to a group of investors consisting of certain lenders to the Predecessor, General Motors
Company ("GM") and the Pension Benefit Guaranty Corporation (the “PBGC”).
On March 31, 2011, all of the outstanding Class A and Class C membership interests held by GM and the PBGC were
redeemed, respectively, for approximately $4.4 billion. The redemption transaction was funded by a $3.0 billion credit facility
entered into on March 31, 2011 and existing cash.
On May 19, 2011, Delphi Automotive PLC was formed as a Jersey public limited company, and had nominal assets, no
liabilities and had conducted no operations prior to its initial public offering. On November 22, 2011, in conjunction with the
completion of its initial public offering by the selling shareholders, all of the outstanding equity of Delphi Automotive LLP was
exchanged for ordinary shares by its equity holders in Delphi Automotive PLC. As a result, Delphi Automotive LLP became a
wholly-owned subsidiary of Delphi Automotive PLC.