##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, DC 20549-1004


FORM 10-Q



|  |                                                                                             
|- | --------------------------------------------------------------------------------------------
|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
    THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2003

OR



|  |                                                                                      
|- | -------------------------------------------------------------------------------------
|o | TRANSITION REPORT PURSUANT TO SECTION 13 OF THE 
     SECURITIES EXCHANGE ACT OF 1934

For the transition period from

to
.

Commission file No. 1-14787

DELPHI CORPORATION

(Exact name of registrant as specified in its
charter)


|                                         |  |                       
|---------------------------------------- |  | ----------------------
|Delaware                                 |  | 38-3430473            
|(State or other jurisdiction of          |  | (IRS employer         
|incorporation or organization)           |  | identification number)
|                                        
|5725 Delphi Drive, Troy, Michigan        |  | 48098                 
|(Address of principal executive offices) |  | (Zip code)            

(248) 813-2000

(Registrants telephone number, including
area code)


Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for
the past 90 days.     Yes
X.     No .

Indicate by check mark whether the registrant is
an accelerated filer (as defined in Rule 12b-2 of the
Exchange Act).     Yes
X.     No .

As of September 30, 2003, there were
560,295,941 outstanding shares of the registrants
$0.01 par value common stock.



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TABLE OF CONTENTS



|                                                                                              |  |  |  |  |  |  |  | 
|--------------------------------------------------------------------------------------------- |  |  |  |  |  |  |  | 
|CONSOLIDATED STATEMENTS OF INCOME                                                            
|CONSOLIDATED BALANCE SHEETS                                                                  
|CONSOLIDATED STATEMENTS OF CASH FLOWS                                                        
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                                   
|ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           
|ITEM 4. CONTROLS AND PROCEDURES                                                              
|PART II. OTHER INFORMATION                                                                   
|ITEM 1. LEGAL PROCEEDINGS                                                                    
|ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                     
|SIGNATURE                                                                                    
|EX-31(a) Section 302 Certification                                                           
|EX-31(b) Section 302 Certification                                                           
|EX-32(a) Section 906 Certification                                                           
|EX-32(b) Section 906 Certification                                                           



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##### Table of Contents



DELPHI CORPORATION

INDEX

|                               |  |                                                                                                                   |    |      |    | 
|------------------------------ |  | ----------------------------------------------------------------------------------------------------------------- | -- | ---- | -- | 
|                               |  |                                                                                                                   |    | Page |   
|                               |  |                                                                                                                   |    |      |   
|Part I  Financial Information
|Item 1.                        |  | Financial Statements                                                                                              |    |      |    | 
|                               |  | Consolidated Statements of Income (Unaudited) for
    the Three and Nine Months Ended September 30, 2003 and 2002 |    |      | 3  | 
|                               |  | Consolidated Balance Sheets at September 30,
    2003 (Unaudited) and December 31, 2002                           |    |      | 4  | 
|                               |  | Consolidated Statements of Cash Flows (Unaudited)
    for the Nine Months Ended September 30, 2003 and 2002       |    |      | 5  | 
|                               |  | Notes to Consolidated Financial Statements
    (Unaudited)                                                        |    |      | 6  | 
|Item 2.                        |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations                         |    |      | 15 | 
|Item 3.                        |  | Quantitative and Qualitative Disclosures About
    Market Risk                                                    |    |      | 27 | 
|Item 4.                        |  | Controls and Procedures                                                                                           |    |      | 27 | 
|Part II  Other Information   
|Item 1.                        |  | Legal Proceedings                                                                                                 |    |      | 28 | 
|Item 6.                        |  | Exhibits and Reports on Form 8-K                                                                                  |    |      | 28 | 
|Signature                      |  |                                                                                                                   | 29 |     

2



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##### Table of Contents



PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

DELPHI CORPORATION






CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)


|                                  |                                             |                                         |      |       |               |   |     |       |       |   |      |        |        |   |     |        |        | 
|--------------------------------- | ------------------------------------------- | --------------------------------------- | ---- | ----- | ------------- | - | --- | ----- | ----- | - | ---- | ------ | ------ | - | --- | ------ | ------ | 
|                                  |                                             |                                         |      |      
|                                  |                                             | Three Months                            |      |       | Nine Months   |  
|                                  |                                             | Ended                                   |      |       | Ended         |  
|                                  |                                             | September 30,                           |      |       | September 30, |  
|                                  |                                             |                                         |      |       |               |  
|                                  |                                             | 2003                                    |      |       | 2002          |   |     | 2003  |       |   | 2002 |       
|                                  |                                             |                                         |      |       |               |   |     |       |       |   |      |       
|                                  |                                             |                                        
|                                  |                                             | (in millions, except per share amounts) |     
|Net sales:                        |                                             |                                         |      |       |               |   |     |       |       |   |      |        |        |   |     |       
|                                  | General Motors and affiliates               |                                         | $    | 3,927 |               |   | $   | 4,077 |       |   | $    | 12,795 |        |   | $   | 13,379 |       
|                                  | Other customers                             |                                         |      | 2,636 |               |   |     | 2,369 |       |   |      | 8,044  |        |   |     | 7,077  |       
|                                  |                                             |                                         |      |       |               |   |     |       |       |   |      |       
|                                  |                                             | Total net sales                         |      |       | 6,563         |   |     |       | 6,446 |   |      |        | 20,839 |   |     |        | 20,456 | 
|                                  |                                             |                                         |      |       |               |   |     |       |       |   |      |       
|Less operating expenses:          |                                             |                                         |      |       |               |   |     |       |       |   |      |        |        |   |     |       
|                                  | Cost of sales, excluding items listed below |                                         |      | 6,041 |               |   |     | 5,695 |       |   |      | 18,593 |        |   |     | 17,916 |       
|                                  | Selling, general and administrative         |                                         |      | 376   |               |   |     | 368   |       |   |      | 1,187  |        |   |     | 1,091  |       
|                                  | Depreciation and amortization               |                                         |      | 326   |               |   |     | 258   |       |   |      | 839    |        |   |     | 749    |       
|                                  | Employee and product line charges           |                                         |      | 348   |               |   |     |      |       |   |      | 348    |        |   |     | 225    |       
|                                  |                                             |                                         |      |       |               |   |     |       |       |   |      |       
|                                  |                                             | Total operating expenses                |      |       | 7,091         |   |     |       | 6,321 |   |      |        | 20,967 |   |     |        | 19,981 | 
|                                  |                                             |                                         |      |       |               |   |     |       |       |   |      |       
|Operating income (loss)           |                                             |                                         | (528 | )     |               |   | 125 |       |       |   | (128 | )      |        |   | 475 |       
|Less: interest expense            |                                             |                                         | 48   |       |               |   | 49  |       |       |   | 138  |        |        |   | 144 |       
|Other income, net                 |                                             |                                         | 8    |       |               |   | 9   |       |       |   | 12   |        |        |   | 27  |       
|                                  |                                             |                                         |      |       |               |   |     |       |       |   |      |       
|Income (loss) before income taxes |                                             |                                         | (568 | )     |               |   | 85  |       |       |   | (254 | )      |        |   | 358 |       
|Income tax expense (benefit)      |                                             |                                         | (215 | )     |               |   | 31  |       |       |   | (116 | )      |        |   | 135 |       
|                                  |                                             |                                         |      |       |               |   |     |       |       |   |      |       
|Net income (loss)                 |                                             | $                                       | (353 | )     |               | $ | 54  |       |       | $ | (138 | )      |        | $ | 223 |       
|                                  |                                             |                                         |      |       |               |   |     |       |       |   |      |       
|Earnings per share                |                                             |                                         |      |       |               |   |     |       |       |   |      |        |        |   |     |       
|                                  | Basic                                       |                                         | $    | (0.63 | )             |   | $   | 0.10  |       |   | $    | (0.25  | )      |   | $   | 0.40   |       
|                                  |                                             |                                         |      |       |               |   |     |       |       |   |      |       
|                                  | Diluted                                     |                                         | $    | (0.63 | )             |   | $   | 0.10  |       |   | $    | (0.25  | )      |   | $   | 0.39   |       
|                                  |                                             |                                         |      |       |               |   |     |       |       |   |      |       

See notes to consolidated financial statements.

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DELPHI CORPORATION






CONSOLIDATED BALANCE SHEETS


|                                           |                                                                                                                     |                               |                            |        |              |        |        |        |       |        | 
|------------------------------------------ | ------------------------------------------------------------------------------------------------------------------- | ----------------------------- | -------------------------- | ------ | ------------ | ------ | ------ | ------ | ----- | ------ | 
|                                           |                                                                                                                     | September 30,                 |                            |        |             
|                                           |                                                                                                                     | 2003                          |                            |        | December 31, |       
|                                           |                                                                                                                     | (Unaudited)                   |                            |        | 2002         |       
|                                           |                                                                                                                     |                               |                            |        |              |       
|                                           |                                                                                                                     |                              
|                                           |                                                                                                                     | (in millions)                 |                           
|ASSETS                                    
|Current assets:                            |                                                                                                                     |                               |                            |        |              |        |        |       
|                                           | Cash and cash equivalents                                                                                           |                               | $                          | 731    |              |        | $      | 1,014  |      
|                                           | Accounts receivable, net:                                                                                           |                               |                            |        |              |        |        |        |      
|                                           |                                                                                                                     | General Motors and affiliates |                            |        | 2,648        |        |        |        | 2,304 |       
|                                           |                                                                                                                     | Other customers               |                            |        | 1,282        |        |        |        | 1,712 |       
|                                           | Retained interest in receivables (Note 3)                                                                           |                               |                            | 791    |              |        |        |       |      
|                                           | Inventories, net (Note 4)                                                                                           |                               |                            | 1,742  |              |        |        | 1,769  |      
|                                           | Deferred income taxes                                                                                               |                               |                            | 468    |              |        |        | 502    |      
|                                           | Prepaid expenses and other                                                                                          |                               |                            | 174    |              |        |        | 241    |      
|                                           |                                                                                                                     |                               |                            |        |              |       
|                                           |                                                                                                                     |                               | Total current assets       |        |              | 7,836  |        |        |       | 7,542  | 
|Long-term assets:                          |                                                                                                                     |                               |                            |        |              |        |        |       
|                                           | Property, net                                                                                                       |                               |                            | 5,928  |              |        |        | 5,944  |      
|                                           | Deferred income taxes                                                                                               |                               |                            | 3,923  |              |        |        | 3,649  |      
|                                           | Goodwill, net                                                                                                       |                               |                            | 739    |              |        |        | 699    |      
|                                           | Other                                                                                                               |                               |                            | 1,508  |              |        |        | 1,482  |      
|                                           |                                                                                                                     |                               |                            |        |              |       
|                                           |                                                                                                                     |                               | Total assets               |        | $            | 19,934 |        |        | $     | 19,316 | 
|                                           |                                                                                                                     |                               |                            |        |              |       
|LIABILITIES AND STOCKHOLDERS
    EQUITY  
|Current liabilities:                       |                                                                                                                     |                               |                            |        |              |        |        |       
|                                           | Notes payable and current portion of long-term
    debt                                                             |                               | $                          | 709    |              |        | $      | 682    |      
|                                           | Employee and product line charge obligations                                                                        |                               |                            | 319    |              |        |        | 24     |      
|                                           | Accounts payable                                                                                                    |                               |                            | 3,221  |              |        |        | 3,060  |      
|                                           | Accrued liabilities                                                                                                 |                               |                            | 1,795  |              |        |        | 2,094  |      
|                                           |                                                                                                                     |                               |                            |        |              |       
|                                           |                                                                                                                     |                               | Total current liabilities  |        |              | 6,044  |        |        |       | 5,860  | 
|Long-term liabilities:                     |                                                                                                                     |                               |                            |        |              |        |        |       
|                                           | Long-term debt                                                                                                      |                               |                            | 2,025  |              |        |        | 2,084  |      
|                                           | Pension benefits                                                                                                    |                               |                            | 3,692  |              |        |        | 3,568  |      
|                                           | Postretirement benefits other than pensions                                                                         |                               |                            | 5,559  |              |        |        | 5,120  |      
|                                           | Other                                                                                                               |                               |                            | 1,362  |              |        |        | 1,405  |      
|                                           |                                                                                                                     |                               |                            |        |              |       
|                                           |                                                                                                                     |                               | Total liabilities          |        |              | 18,682 |        |        |       | 18,037 | 
|                                           |                                                                                                                     |                               |                            |        |              |       
|Stockholders equity (Note 7):             |                                                                                                                     |                               |                            |        |              |        |        |       
|                                           | Common stock, $0.01 par value, 1,350 million
    shares authorized, 565 million shares issued in 2003 and
    2002. |                               |                            | 6      |              |        |        | 6      |      
|                                           | Additional paid-in capital                                                                                          |                               |                            | 2,466  |              |        |        | 2,445  |      
|                                           | Retained earnings                                                                                                   |                               |                            | 1,273  |              |        |        | 1,530  |      
|                                           | Minimum pension liability                                                                                           |                               |                            | (2,098 | )            |        |        | (2,098 | )    
|                                           | Accumulated other comprehensive loss, excluding
    minimum pension liability                                       |                               |                            | (319   | )            |        |        | (493   | )    
|                                           | Treasury stock, at cost (4.7 million and
    6.9 million shares in 2003 and 2002, respectively)                     |                               |                            | (76    | )            |        |        | (111   | )    
|                                           |                                                                                                                     |                               |                            |        |              |       
|                                           |                                                                                                                     |                               | Total stockholders equity |        |              | 1,252  |        |        |       | 1,279  | 
|                                           |                                                                                                                     |                               |                            |        |              |       
|Total liabilities and stockholders equity |                                                                                                                     | $                             | 19,934                     |        |              | $      | 19,316 |       
|                                           |                                                                                                                     |                               |                            |        |              |       

See notes to consolidated financial statements.

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DELPHI CORPORATION






CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)


|                                      |                                                                                              |                                                                    |                                           |       |      |      |   |      |      |      |  
|------------------------------------- | -------------------------------------------------------------------------------------------- | ------------------------------------------------------------------ | ----------------------------------------- | ----- | ---- | ---- | - | ---- | ---- | ---- | -
|                                      |                                                                                              |                                                                   
|                                      |                                                                                              | Nine Months                                                        |                                          
|                                      |                                                                                              | Ended                                                              |                                          
|                                      |                                                                                              | September 30,                                                      |                                          
|                                      |                                                                                              |                                                                    |                                          
|                                      |                                                                                              | 2003                                                               |                                           |       | 2002 |     
|                                      |                                                                                              |                                                                    |                                           |       |      |     
|                                      |                                                                                              |                                                                   
|                                      |                                                                                              | (in millions)                                                      |                                          
|Cash flows from operating activities: |                                                                                              |                                                                    |                                           |       |      |      |   |     
|                                      | Net income (loss)                                                                            |                                                                    | $                                         | (138  | )    |      | $ | 223  |     
|                                      | Adjustments to reconcile net income (loss) to net
    cash provided by operating activities: |                                                                    |                                           |       |      |      |   |      |     
|                                      |                                                                                              | Depreciation and amortization                                      |                                           |       | 839  |      |   |      | 749  |     
|                                      |                                                                                              | Deferred income taxes                                              |                                           |       | (238 | )    |   |      | 9    |     
|                                      |                                                                                              | Employee and product line charges                                  |                                           |       | 348  |      |   |      | 225  |     
|                                      | Changes in operating assets and liabilities:                                                 |                                                                    |                                           |       |      |      |   |      |     
|                                      |                                                                                              | Accounts receivable and retained interests in
    receivables, net |                                           |       | (732 | )    |   |      | (535 | )   
|                                      |                                                                                              | Inventories, net                                                   |                                           |       | 23   |      |   |      | (95  | )   
|                                      |                                                                                              | Prepaid expenses and other                                         |                                           |       | 33   |      |   |      | 40   |     
|                                      |                                                                                              | Accounts payable                                                   |                                           |       | 162  |      |   |      | 322  |     
|                                      |                                                                                              | Employee and product line charge obligations                       |                                           |       | (46  | )    |   |      | (279 | )   
|                                      |                                                                                              | Accrued liabilities                                                |                                           |       | (529 | )    |   |      | 134  |     
|                                      |                                                                                              | Other long-term liabilities                                        |                                           |       | 823  |      |   |      | 69   |     
|                                      |                                                                                              | Other                                                              |                                           |       | (9   | )    |   |      | (166 | )   
|                                      |                                                                                              |                                                                    |                                           |       |      |     
|                                      |                                                                                              |                                                                    | Net cash provided by operating activities |       |      | 536  |   |      |      | 696  |  
|                                      |                                                                                              |                                                                    |                                           |       |      |     
|Cash flows from investing activities: |                                                                                              |                                                                    |                                           |       |      |      |   |     
|                                      | Capital expenditures                                                                         |                                                                    |                                           | (704  | )    |      |   | (710 | )   
|                                      | Other                                                                                        |                                                                    |                                           | 36    |      |      |   | 58   |     
|                                      |                                                                                              |                                                                    |                                           |       |      |     
|                                      |                                                                                              |                                                                    | Net cash used in investing activities     |       |      | (668 | ) |      |      | (652 | )
|                                      |                                                                                              |                                                                    |                                           |       |      |     
|Cash flows from financing activities: |                                                                                              |                                                                    |                                           |       |      |      |   |     
|                                      | Net proceeds from (repayments of) borrowings
    under credit facilities and other debt      |                                                                    |                                           | (548  | )    |      |   | 102  |     
|                                      | Net proceeds from issuance of debt securities                                                |                                                                    |                                           | 492   |      |      |   |     |     
|                                      | Dividend payments                                                                            |                                                                    |                                           | (119  | )    |      |   | (117 | )   
|                                      | Issuance (purchase) of treasury stock, net                                                   |                                                                    |                                           | 1     |      |      |   | (22  | )   
|                                      |                                                                                              |                                                                    |                                           |       |      |     
|                                      |                                                                                              |                                                                    | Net cash used in financing activities     |       |      | (174 | ) |      |      | (37  | )
|                                      |                                                                                              |                                                                    |                                           |       |      |     
|                                      | Effect of exchange rate fluctuations on cash and
    cash equivalents                        |                                                                    |                                           | 23    |      |      |   | (57  | )   
|                                      |                                                                                              |                                                                    |                                           |       |      |     
|                                      | Decrease in cash and cash equivalents                                                        |                                                                    |                                           | (283  | )    |      |   | (50  | )   
|                                      | Cash and cash equivalents at beginning of period                                             |                                                                    |                                           | 1,014 |      |      |   | 757  |     
|                                      |                                                                                              |                                                                    |                                           |       |      |     
|                                      | Cash and cash equivalents at end of period                                                   |                                                                    | $                                         | 731   |      |      | $ | 707  |     
|                                      |                                                                                              |                                                                    |                                           |       |      |     

See notes to consolidated financial statements.

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DELPHI CORPORATION






NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


1. BASIS OF PRESENTATION

General
Delphi Corporation (Delphi) is a world-leading
supplier of vehicle electronics, transportation components,
integrated systems and modules and other electronic technology.
The consolidated financial statements and notes thereto included
in this report should be read in conjunction with our
consolidated financial statements and notes thereto included in
our 2002 Annual Report on Form 10-K filed with the
Securities and Exchange Commission. The consolidated financial
statements include the accounts of Delphi and its wholly-owned
and majority-owned subsidiaries.

All significant intercompany transactions and
balances between consolidated Delphi businesses have been
eliminated. In the opinion of management, all adjustments,
consisting of only normal recurring items, which are necessary
for a fair presentation have been included. The results for
interim periods are not necessarily indicative of results which
may be expected from any other interim period or for the full
year and may not necessarily reflect the consolidated results of
operations, financial position and cash flows of Delphi in the
future.

Certain prior period amounts have been
reclassified to conform to current period presentation.

Earnings Per
Share Basic earnings
per share amounts were computed using weighted average shares
outstanding for each respective period. Diluted earnings per
share also reflect the weighted average impact from the date of
issuance of all potentially dilutive securities, unless
inclusion would have had an antidilutive effect. Actual weighted
average shares outstanding used in calculating basic and diluted
earnings per share were:

|                                    |  |                    |         |                |                   |  |         |      |  |  |         |  |  |  |         | 
|----------------------------------- |  | ------------------ | ------- | -------------- | ----------------- |  | ------- | ---- |  |  | ------- |  |  |  | ------- | 
|                                    |  |                    |         |               
|                                    |  | Three Months Ended |         |                | Nine Months Ended | 
|                                    |  | September 30,      |         |                | September 30,     | 
|                                    |  |                    |         |                |                   | 
|                                    |  | 2003               |         |                | 2002              |  |         | 2003 |  |  | 2002    | 
|                                    |  |                    |         |                |                   |  |         |      |  |  |         | 
|                                    |  |                    |         |                |                   | 
|                                    |  |                    |         | (in thousands) |                   |  |        
|Weighted average shares outstanding |  |                    | 560,296 |                |                   |  | 559,187 |      |  |  | 560,052 |  |  |  | 560,091 | 
|Effect of dilutive securities       |  |                    |        |                |                   |  | 2,562   |      |  |  |        |  |  |  | 4,561   | 
|                                    |  |                    |         |                |                   |  |         |      |  |  |         | 
|Diluted shares outstanding          |  |                    | 560,296 |                |                   |  | 561,749 |      |  |  | 560,052 |  |  |  | 564,652 | 
|                                    |  |                    |         |                |                   |  |         |      |  |  |         | 

The Board of Directors declared a dividend on
Delphi common stock of $0.07 per share on September 3,
2003, which was paid on October 14, 2003, to holders of
record on September 15, 2003. The dividend declared on
June 18, 2003 was paid on July 29, 2003, to holders of
record on June 30, 2003.

Stock-Based
Compensation As
allowed under Statement of Financial Accounting Standards
(SFAS) No. 123, Accounting for
Stock-Based Compensation, Delphi accounts for stock-based
compensation using the intrinsic value method in accordance with
Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and
related interpretations. Stock options granted during the three
and nine months ended September 30, 2003 were exercisable
at prices equal to the fair market value of Delphi common stock
on the dates the options were granted; accordingly, no
compensation expense has been recognized for the stock options
granted.

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If we accounted for stock-based compensation
using the fair value recognition provisions of SFAS No. 123
and related amendments, our net income (loss) and basic and
diluted earnings per share would have been as follows:

|                                                                                                                                            |                       |                                         |      |       |               |   |    |      |  |   |      |       |   |   |     |      | 
|------------------------------------------------------------------------------------------------------------------------------------------- | --------------------- | --------------------------------------- | ---- | ----- | ------------- | - | -- | ---- |  | - | ---- | ----- | - | - | --- | ---- | 
|                                                                                                                                            |                       |                                         |      |      
|                                                                                                                                            |                       | Three Months                            |      |       | Nine Months   |  
|                                                                                                                                            |                       | Ended                                   |      |       | Ended         |  
|                                                                                                                                            |                       | September 30,                           |      |       | September 30, |  
|                                                                                                                                            |                       |                                         |      |       |               |  
|                                                                                                                                            |                       | 2003                                    |      |       | 2002          |   |    | 2003 |  |   | 2002 |      
|                                                                                                                                            |                       |                                         |      |       |               |   |    |      |  |   |      |      
|                                                                                                                                            |                       |                                        
|                                                                                                                                            |                       | (in millions, except per share amounts) |     
|Net income (loss), as reported                                                                                                              |                       | $                                       | (353 | )     |               | $ | 54 |      |  | $ | (138 | )     |   | $ | 223 |     
|Less: Total stock-based employee compensation
    expense determined under fair value method for all awards, net
    of related tax effects |                       |                                         | 5    |       |               |   | 11 |      |  |   | 12   |       |   |   | 32  |     
|                                                                                                                                            |                       |                                         |      |       |               |   |    |      |  |   |      |      
|Pro forma net income (loss)                                                                                                                 |                       | $                                       | (358 | )     |               | $ | 43 |      |  | $ | (150 | )     |   | $ | 191 |     
|                                                                                                                                            |                       |                                         |      |       |               |   |    |      |  |   |      |      
|Earnings per share:                                                                                                                         |                       |                                         |      |       |               |   |    |      |  |   |      |       |   |   |     |     
|                                                                                                                                            | Basic  as reported   |                                         | $    | (0.63 | )             |   | $  | 0.10 |  |   | $    | (0.25 | ) |   | $   | 0.40 | 
|                                                                                                                                            |                       |                                         |      |       |               |   |    |      |  |   |      |      
|                                                                                                                                            | Basic  pro forma     |                                         | $    | (0.64 | )             |   | $  | 0.08 |  |   | $    | (0.27 | ) |   | $   | 0.34 | 
|                                                                                                                                            |                       |                                         |      |       |               |   |    |      |  |   |      |      
|                                                                                                                                            | Diluted  as reported |                                         | $    | (0.63 | )             |   | $  | 0.10 |  |   | $    | (0.25 | ) |   | $   | 0.39 | 
|                                                                                                                                            |                       |                                         |      |       |               |   |    |      |  |   |      |      
|                                                                                                                                            | Diluted  pro forma   |                                         | $    | (0.64 | )             |   | $  | 0.08 |  |   | $    | (0.27 | ) |   | $   | 0.34 | 
|                                                                                                                                            |                       |                                         |      |       |               |   |    |      |  |   |      |      

During 1999, Delphi awarded certain employees
approximately 3 million restricted stock units, which were
delivered to them as stock during the first quarter of 2003 in
accordance with the original award terms. During the first
quarter of 2003, we also cancelled approximately 20 million
shares available for future grants under the terms of certain of
Delphis stock option plans. In April 2003, we granted
12 million options at a weighted average exercise price of
$8.43 per share and 3 million restricted stock units at a
weighted average fair market value of $8.43 per share. As of
September 30, 2003, there are approximately 9 million
shares available for future grants.

2. EMPLOYEE AND PRODUCT LINE
CHARGES

In September 2003, we entered into a new
four-year collective bargaining agreement with the International
Union, United Automobile, Aerospace, and Agricultural Implement
Workers of America (UAW). Upon conclusion of the UAW
labor collective bargaining, we initiated global actions
designed to address underperforming operations, appropriately
size our global hourly and salaried work forces and strengthen
our competitive position. As a result of those initiatives, we
expect to reduce our U.S. hourly work force by up to 5,000
employees, the U.S. salaried work force by approximately 500
employees, and our international employees by approximately
3,000 employees. These reductions will occur over the next
15 months through a variety of methods including regular
attrition and retirements, employees returning to GM
(flowbacks), and voluntary and involuntary
separations, as applicable. Also in the third quarter, we
received a ruling in our previously disclosed grievance
proceeding with the International Union of Electronic,
Electrical, Salaried, Machine & Furniture
Workers-Communication Workers of America, AFL-CIO
(IUE) over certain planned layoffs at one of our
manufacturing facilities. The arbitrator directed us to restore
the level of bargaining unit employees to 1,500 and to make the
recalled employees whole. In accordance with U.S. generally
accepted accounting principles, we were required to record, in
the third quarter of 2003, a charge for a portion of our plans
while the remaining costs not recorded will be recognized as
incurred over the next five quarters.

The plans recorded in the third quarter include
the attrition or idling of approximately 1,500 U.S. UAW hourly
employees, 300 IUE hourly employees at our Packard operations,
approximately 500 U.S. salaried employees, and approximately
3,000 non-U.S. employees. As of September 30, 2003,
approximately 150 employees have left principally from non-U.S.
locations. Employees at impacted locations have been informed
and we have communicated benefits available to them under
applicable benefit plans or related contractual provisions. In
addition, we recorded charges to make recalled employees whole
at the IUE manufacturing site in accordance with the arbitration
award discussed above.

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The employee cost component recorded for the U.S.
hourly plans represents the accruals required by SFAS
No. 112, Employers Accounting for
Postemployment Benefits. Such post-employment benefit
accruals are based upon certain assumptions regarding the status
and seniority of affected individuals, as well as the time frame
and the duration of the layoffs prior to final separation.


We also evaluated for impairment the carrying
value of the long-lived assets at sites impacted by our plans,
and recorded impairment losses of $56 million ($35 million
after-tax). The impairment losses, primarily related to
buildings held for use in the AHG sector, were recorded in
depreciation and amortization. The carrying value of a
long-lived asset is considered impaired when the anticipated
separately identifiable undiscounted cash flows from the asset
are less than the carrying value of the asset. The impairment
losses were determined based on the amount by which the carrying
value exceeded the fair market value of the asset. The fair
market value was determined primarily using the anticipated
discounted cash flows. Additionally, we recorded a charge to
cost of sales of $148 million ($94 million after-tax)
of which $25 million relates to retiree lump sum payments
to be paid pursuant to the National Labor Agreement with the
UAW, and the remaining amount is mainly attributable to
inventory and warranty matters relating principally to the
facilities discussed above.

Our plans entail reductions to our work force
through a variety of methods. Under certain elements of the
plans, employees may voluntarily accept offers to change their
employment to GM (flowback). We have not yet
recorded these charges but will record the charges when the
employee accepts the offer to exit Delphi. We currently expect
that we will incur charges in future quarters of approximately
$175 million ($110 million after-tax) related to these
hourly employee reductions, including employee costs during
periods they are idled prior to separation. In addition, we
expect to complete other structural cost initiatives totaling
approximately $80 million ($49 million after-tax). As
a result, we expect to incur total employee and product line
charges related to these initiatives of approximately
$603 million ($386 million after-tax) through
December 31, 2004, of which $348 million ($227 million
after-tax) was recorded in the third quarter of 2003.

The estimated cash impact of these initiatives is
approximately $700 million, of which $48 million was
paid in the third quarter. We expect that up to
$200 million will be paid in the fourth quarter, $450
million in 2004, and the remainder in 2005. See Note 8 for
the allocation of these initiatives by sector.

3. ASSET SECURITIZATIONS

In the first quarter of 2003, we entered into a
$500 million revolving accounts receivable securitization
program in the United States (U.S. Facility
Program). Under this U.S. Facility Program, we sell a
portion of our U.S. and Canadian trade receivables to Delphi
Receivables LLC (DR), a wholly-owned consolidated
special purpose entity. DR may then sell, on a non-recourse
basis (subject to certain limited exceptions), an undivided
interest in the receivables to asset-backed, multi-seller
commercial paper conduits (the Conduits). Neither
the Conduits nor the associated banks are related to Delphi or
DR. The Conduits typically finance the purchases through the
issuance of A1/P1 rated commercial paper. In the event that the
Conduits become unable to or otherwise elect not to issue
commercial paper and make purchases, the associated banks are
obligated to make the purchases. The sale of the undivided
interest in the receivables from DR to the Conduits is accounted
for as a sale under the provisions of SFAS No. 140,
Accounting for the Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities
(SFAS 140). When DR sells an undivided interest
to the Conduits, DR retains the remaining undivided interest.
The value of the undivided interest sold to the Conduits is
excluded from our consolidated balance sheet thereby reducing
our accounts receivable. The value of the retained interest in
receivables held by DR, which may include eligible undivided
interests that we elect not to sell, is shown separately on our
consolidated balance sheet and therefore is not included in our
accounts receivable. As of September 30, 2003, the retained
interest in receivables was $791 million. We assess the
recoverability of the retained interest on a quarterly basis and
adjust to the carrying value as necessary; to date no such
adjustments have been required.

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At the time DR sells the undivided interest to
the Conduits the sale is recorded at fair value with the
difference between the carrying amount and fair value of the
assets sold included in operating income as a loss on sale. This
difference between carrying value and fair value is principally
the estimated discount inherent in the U.S. Facility Program,
which reflects the borrowing costs as well as fees and expenses
of the Conduits (approximately 1.4% to 1.6%), and the length of
time the receivables are expected to be outstanding. The loss on
sale was approximately $2 million and $4 million for
the three months and nine months ended September 30, 2003,
respectively. Additionally, we perform collections and
administrative functions on the receivables sold similar to the
procedures we use for collecting all of our receivables,
including receivables that are not sold under the U.S. Facility
Program. We can elect to keep the collections and sell
additional receivables in exchange; or, we can transfer the cash
collections to the Conduits thereby reducing the amount of sales
of undivided interests to the Conduits. The nature of the
collection and administrative activities and the terms of the
U.S. Facility Program do not result in the recognition of a
servicing asset or liability under the provisions of
SFAS 140 because the benefits of servicing are just
adequate to compensate us for our servicing responsibilities.

The U.S. Facility Program, which is among Delphi,
DR, the Conduits, the sponsoring banks and their agents, expires
on March 29, 2004 and can be extended for two additional
364-day periods based upon the mutual agreement of the parties.
Additionally, the U.S. Facility Program contains financial and
other covenants similar to our revolving credit facilities that,
if not met, could result in a termination of the program. At
September 30, 2003, we were in compliance with all such
covenants.

The table below summarizes certain cash flows
received from and paid to the Conduits under the revolving
program during the three and nine-months ended
September 30, 2003 (in millions):

|                                                                          |  |                    |      |   |                    |   |        |  
|------------------------------------------------------------------------- |  | ------------------ | ---- | - | ------------------ | - | ------ | -
|                                                                          |  | Three Months Ended |      |   | Nine Months Ended  |  
|                                                                          |  | September 30, 2003 |      |   | September 30, 2003 |  
|                                                                          |  |                    |      |   |                    |  
|                                                                          |  |                   
|                                                                          |  | (in millions)      |     
|Undivided interests sold at beginning of period                           |  | $                  | 488  |   |                    | $ |       |  
|Proceeds from new securitizations (sale of
    undivided interests)       |  |                    | 235  |   |                    |   | 1,063  |  
|Collections related to undivided interest sold(a)                         |  |                    | (656 | ) |                    |   | (1,557 | )
|Collections reinvested through sale of additional
    undivided interests |  |                    | 296  |   |                    |   | 857    |  
|                                                                          |  |                    |      |   |                    |  
|Undivided interests sold at September 30,
    2003                        |  | $                  | 363  |   |                    | $ | 363    |  
|                                                                          |  |                    |      |   |                    |  



| |     |                                                                                                                                                                                                                                                                                                                                                        | 
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | 
| | (a) | Of the collections received on the undivided
    interests sold, for the three month period ended
    September 30, 2003, $360 million was remitted to the
    Conduits and $296 million was reinvested and for the nine
    month period ended September 30, 2003, $700 million
    was remitted to the Conduits and $857 million was
    reinvested. | 

4. INVENTORIES, NET

Inventories, net consisted of:

|                                                                                |                           |               |       |       |              |   |       |       | 
|------------------------------------------------------------------------------- | ------------------------- | ------------- | ----- | ----- | ------------ | - | ----- | ----- | 
|                                                                                |                           | September 30, |       |       | December 31, |  
|                                                                                |                           | 2003          |       |       | 2002         |  
|                                                                                |                           |               |       |       |              |  
|                                                                                |                           |              
|                                                                                |                           | (in millions) |      
|Productive material, work-in-process and supplies                               |                           | $             | 1,516 |       |              | $ | 1,587 |      
|Finished goods                                                                  |                           |               | 479   |       |              |   | 435   |      
|                                                                                |                           |               |       |       |              |  
|                                                                                | Total inventories at FIFO |               |       | 1,995 |              |   |       | 2,022 | 
|Less: allowance to adjust the carrying value of
    certain inventories to LIFO |                           |               | (253  | )     |              |   | (253  | )    
|                                                                                |                           |               |       |       |              |  
|                                                                                | Total inventories, net    |               | $     | 1,742 |              |   | $     | 1,769 | 
|                                                                                |                           |               |       |       |              |  

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5. DERIVATIVES AND HEDGING
ACTIVITIES

Delphi is exposed to market risk, such as
fluctuations in foreign currency exchange rates, commodity
prices and changes in interest rates. To manage the volatility
relating to these exposures, we aggregate the exposures on a
consolidated basis to take advantage of natural offsets. For
exposures that are not offset within our operations, we enter
into various derivative transactions pursuant to our risk
management policies. Designation is performed on a transaction
basis to support hedge accounting. The changes in fair value of
these hedging instruments are offset in part or in whole by
corresponding changes in the fair value or cash flows of the
underlying exposures being hedged. We assess the initial and
ongoing effectiveness of our hedging relationships in accordance
with our documented policy. We do not hold or issue derivative
financial instruments for trading purposes.

Gains and losses on derivatives qualifying as
cash flow hedges are recorded in other comprehensive income
(OCI) to the extent that hedges are effective until
the underlying transactions are recognized in earnings. Net
gains included in OCI as of September 30, 2003, were
$9 million after-tax ($14 million pre-tax). Of this
pre-tax total, a gain of approximately $4 million is
expected to be included in operating income within the next
12 months and a gain of approximately $3 million is
expected to be included in subsequent periods. A loss of
approximately $2 million is expected to be included in
depreciation and amortization expense over the lives of the
related fixed assets and a gain of approximately $9 million
is expected to partially offset interest expense over the term
of the related debt. The unrealized amounts in OCI will
fluctuate based on changes in the fair value of open contracts
at each reporting period. Cash flow hedges are discontinued when
it is probable that the original forecasted transactions will
not occur. The amount included in operating income related to
hedge ineffectiveness and the time value of options was not
material during the three and nine months ended
September 30, 2003 and 2002.

6. LONG-TERM DEBT

In July 2003, we issued 6.50% unsecured notes
(the Notes) with an aggregate principal amount of
$500 million, which mature on August 15, 2013. We will
pay interest on these Notes on February 15 and
August 15 of each year beginning February 15, 2004.
The proceeds from the Notes were used to reduce other
outstanding borrowings.

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7. STOCKHOLDERS EQUITY

Changes in stockholders equity for the nine
months ended September 30, 2003 were:

|                              |                                                                           |                            |     |   |            |   |   |          |  |               |          |    |  |           |       |          |       |   |               |       |  |   |        |     |  |   |      |    |  |   |       |      |    | 
|----------------------------- | ------------------------------------------------------------------------- | -------------------------- | --- | - | ---------- | - | - | -------- |  | ------------- | -------- | -- |  | --------- | ----- | -------- | ----- | - | ------------- | ----- |  | - | ------ | --- |  | - | ---- | -- |  | - | ----- | ---- | -- | 
|                              |                                                                           |                            |     |   |            |   |   |          |  |               |          |    |  |          
|                              |                                                                           |                            |     |   |            |   |   |          |  | Accumulated   |          |    |  |           |      
|                              |                                                                           |                            |     |   |            |   |   |          |  | Other         |          |    |  |           |      
|                              |                                                                           |                            |     |   |            |   |   |          |  | Comprehensive |          |    |  |           |      
|                              |                                                                           |                            |     |   |            |   |   |          |  | Income (Loss) |          |    |  |           |      
|                              |                                                                           |                            |     |   |            |   |   |          |  |               |          |    | 
|                              |                                                                           | Common Stock               |     |   | Additional |   |   |          |  | Minimum       |          |    |  |           |       |          | Total |  
|                              |                                                                           |                            |     |   | Paid-in    |   |   | Retained |  |               | Pension  |    |  |           |       | Treasury |       |   | Stockholders |      
|                              |                                                                           | Shares                     |     |   | Amount     |   |   | Capital  |  |               | Earnings |    |  | Liability |       |          | Other |   |               | Stock |  |   | Equity |    
|                              |                                                                           |                            |     |   |            |   |   |          |  |               |          |    |  |           |       |          |       |   |               |       |  |   |        |    
|                              |                                                                           |                           
|                              |                                                                           | (in millions)              |    
|Balance at January 1, 2003    |                                                                           |                            | 565 |   |            | $ | 6 |          |  | $             | 2,445    |    |  | $         | 1,530 |          |       | $ | (2,098        | )     |  | $ | (493   | )   |  | $ | (111 | )  |  | $ | 1,279 |     
|                              | Net loss                                                                  |                            |     |  |            |   |   |         |  |               |          |   |  |           |       | (138     | )     |   |               |      |  |   |        |    |  |   |      |   |  |   |       | (138 | ) 
|                              | Currency translation adjustments and other, net
    of tax                |                            |     |  |            |   |   |         |  |               |          |   |  |           |       |         |       |   |               |      |  |   |        | 154 |  |   |      |   |  |   |       | 154  |   
|                              | Net change in unrecognized gain on derivative
    instruments, net of tax |                            |     |  |            |   |   |         |  |               |          |   |  |           |       |         |       |   |               |      |  |   |        | 20  |  |   |      |   |  |   |       | 20   |   
|                              |                                                                           |                            |     |   |            |   |   |          |  |               |          |    |  |           |       |          |       |   |               |       |  |   |        |    
|                              |                                                                           | Total comprehensive income |     |   |            |   |   |          |  |               |          |    |  |           |       |          |       |   |               |       |  |   |        |     |  |   |      |    |  |   |       |      | 36 | 
|                              | Shares issued for employee benefit plans                                  |                            |     |  |            |   |   |         |  |               |          | 21 |  |           |       |         |       |   |               |      |  |   |        |    |  |   |      | 35 |  |   |       | 56   |   
|                              | Dividends                                                                 |                            |     |  |            |   |   |         |  |               |          |   |  |           |       | (119     | )     |   |               |      |  |   |        |    |  |   |      |   |  |   |       | (119 | ) 
|                              |                                                                           |                            |     |   |            |   |   |          |  |               |          |    |  |           |       |          |       |   |               |       |  |   |        |    
|Balance at September 30, 2003 |                                                                           |                            | 565 |   |            | $ | 6 |          |  | $             | 2,466    |    |  | $         | 1,273 |          |       | $ | (2,098        | )     |  | $ | (319   | )   |  | $ | (76  | )  |  | $ | 1,252 |     
|                              |                                                                           |                            |     |   |            |   |   |          |  |               |          |    |  |           |       |          |       |   |               |       |  |   |        |    

8. SEGMENT REPORTING

Management reviews our sector operating results
for 2003 and 2002 for purposes of making operating decisions and
assessing performance, excluding certain charges in the third
quarter of 2003 of $148 million in cost of sales,
$56 million in depreciation and amortization and
$348 million in employee and product line charges (the
2003 Charges) and the charges in the first quarter
of 2002 of $37 million in costs of sales and
$225 million in employee and product line charges (the
2002 Charges). Accordingly, we have presented our
sector results excluding such amounts:

|                                |                                |                 |   |             |              |  |   |            |       |  |          |      |      |       |   |      |      |   |   |       |       | 
|------------------------------- | ------------------------------ | --------------- | - | ----------- | ------------ |  | - | ---------- | ----- |  | -------- | ---- | ---- | ----- | - | ---- | ---- | - | - | ----- | ----- | 
|                                |                                |                 |   | Electrical, |              |  |   |            |       |  |         
|                                |                                | Dynamics,       |   |             | Electronics, |  |   | Automotive |       |  |          |      |     
|                                |                                | Propulsion      |   |             | Safety &     |  |   | Holdings   |       |  |          |      |     
|                                |                                | & Thermal       |   |             | Interior     |  |   | Group      |       |  | Other(a) |      |      | Total |  
|                                |                                |                 |   |             |              |  |   |            |       |  |          |      |      |       |  
|                                |                                |                
|                                |                                | (in millions)   |  
|For the Three Months
    Ended: |                                |                 |   |             |              |  |   |            |       |  |          |      |      |       |   |      |      |   |   |      
|September 30, 2003              |                                |                 |   |             |              |  |   |            |       |  |          |      |      |       |   |      |      |   |   |      
|                                | Net sales to GM and affiliates |                 | $ | 1,744       |              |  | $ | 1,767      |       |  | $        | 416  |      |       | $ |     |      |   | $ | 3,927 |      
|                                | Net sales to other customers   |                 |   | 1,013       |              |  |   | 1,537      |       |  |          | 86   |      |       |   |     |      |   |   | 2,636 |      
|                                | Inter-sector net sales         |                 |   | 184         |              |  |   | 99         |       |  |          | 182  |      |       |   | (465 | )    |   |   |      |      
|                                |                                |                 |   |             |              |  |   |            |       |  |          |      |      |       |  
|                                |                                | Total net sales |   | $           | 2,941        |  |   | $          | 3,403 |  |          | $    | 684  |       |   | $    | (465 | ) |   | $     | 6,563 | 
|                                |                                |                 |   |             |              |  |   |            |       |  |          |      |      |       |  
|                                | Sector operating income (loss) |                 | $ | 13          | (b)          |  | $ | 175        | (b)   |  | $        | (160 | )(b) |       | $ | (4   | )(b) |   | $ | 24    | (b)  
|                                |                                |                 |   |             |              |  |   |            |       |  |          |      |      |       |  
|                               
|September 30, 2002(c)           |                                |                 |   |             |              |  |   |            |       |  |          |      |      |       |   |      |      |   |   |      
|                                | Net sales to GM and affiliates |                 | $ | 1,760       |              |  | $ | 1,835      |       |  | $        | 482  |      |       | $ |     |      |   | $ | 4,077 |      
|                                | Net sales to other customers   |                 |   | 914         |              |  |   | 1,356      |       |  |          | 99   |      |       |   |     |      |   |   | 2,369 |      
|                                | Inter-sector net sales         |                 |   | 220         |              |  |   | 79         |       |  |          | 230  |      |       |   | (529 | )    |   |   |      |      
|                                |                                |                 |   |             |              |  |   |            |       |  |          |      |      |       |  
|                                |                                | Total net sales |   | $           | 2,894        |  |   | $          | 3,270 |  |          | $    | 811  |       |   | $    | (529 | ) |   | $     | 6,446 | 
|                                |                                |                 |   |             |              |  |   |            |       |  |          |      |      |       |  
|                                | Sector operating income (loss) |                 | $ | 68          |              |  | $ | 179        |       |  | $        | (107 | )    |       | $ | (15  | )    |   | $ | 125   |      
|                                |                                |                 |   |             |              |  |   |            |       |  |          |      |      |       |  

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|                               |                                |                 |   |             |              |  |   |            |        |  |          |       |       |       |   |        |        |   |   |        |        | 
|------------------------------ | ------------------------------ | --------------- | - | ----------- | ------------ |  | - | ---------- | ------ |  | -------- | ----- | ----- | ----- | - | ------ | ------ | - | - | ------ | ------ | 
|                               |                                |                 |   | Electrical, |              |  |   |            |        |  |         
|                               |                                | Dynamics,       |   |             | Electronics, |  |   | Automotive |        |  |          |       |      
|                               |                                | Propulsion      |   |             | Safety &     |  |   | Holdings   |        |  |          |       |      
|                               |                                | & Thermal       |   |             | Interior     |  |   | Group      |        |  | Other(a) |       |       | Total |  
|                               |                                |                 |   |             |              |  |   |            |        |  |          |       |       |       |  
|                               |                                |                
|                               |                                | (in millions)   |  
|For the Nine Months
    Ended: |                                |                 |   |             |              |  |   |            |        |  |          |       |       |       |   |        |        |   |   |       
|September 30, 2003             |                                |                 |   |             |              |  |   |            |        |  |          |       |       |       |   |        |        |   |   |       
|                               | Net sales to GM and affiliates |                 | $ | 5,699       |              |  | $ | 5,716      |        |  | $        | 1,380 |       |       | $ |       |        |   | $ | 12,795 |       
|                               | Net sales to other customers   |                 |   | 3,141       |              |  |   | 4,616      |        |  |          | 287   |       |       |   |       |        |   |   | 8,044  |       
|                               | Inter-sector net sales         |                 |   | 588         |              |  |   | 311        |        |  |          | 604   |       |       |   | (1,503 | )      |   |   |       |       
|                               |                                |                 |   |             |              |  |   |            |        |  |          |       |       |       |  
|                               |                                | Total net sales |   | $           | 9,428        |  |   | $          | 10,643 |  |          | $     | 2,271 |       |   | $      | (1,503 | ) |   | $      | 20,839 | 
|                               |                                |                 |   |             |              |  |   |            |        |  |          |       |       |       |  
|                               | Sector operating income (loss) |                 | $ | 256         | (b)          |  | $ | 702        | (b)    |  | $        | (456  | )(b)  |       | $ | (78    | )(b)   |   | $ | 424    | (b)   
|                               |                                |                 |   |             |              |  |   |            |        |  |          |       |       |       |  
|                              
|September 30, 2002(c)          |                                |                 |   |             |              |  |   |            |        |  |          |       |       |       |   |        |        |   |   |       
|                               | Net sales to GM and affiliates |                 | $ | 5,801       |              |  | $ | 5,995      |        |  | $        | 1,583 |       |       | $ |       |        |   | $ | 13,379 |       
|                               | Net sales to other customers   |                 |   | 2,869       |              |  |   | 3,890      |        |  |          | 318   |       |       |   |       |        |   |   | 7,077  |       
|                               | Inter-sector net sales         |                 |   | 620         |              |  |   | 267        |        |  |          | 791   |       |       |   | (1,678 | )      |   |   |       |       
|                               |                                |                 |   |             |              |  |   |            |        |  |          |       |       |       |  
|                               |                                | Total net sales |   | $           | 9,290        |  |   | $          | 10,152 |  |          | $     | 2,692 |       |   | $      | (1,678 | ) |   | $      | 20,456 | 
|                               |                                |                 |   |             |              |  |   |            |        |  |          |       |       |       |  
|                               | Sector operating income (loss) |                 | $ | 306         | (d)          |  | $ | 737        | (d)    |  | $        | (259  | )(d)  |       | $ | (47    | )(d)   |   | $ | 737    | (d)   
|                               |                                |                 |   |             |              |  |   |            |        |  |          |       |       |       |  



|    |                                                                                                                                                                                                                                 
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Other includes activity not allocated to the
    product sectors and elimination of inter-sector transactions.                                                                                                                  
|   
|(b) | Excludes the 2003 Charges of $101 million
    for Dynamics, Propulsion & Thermal, $129 million for
    Electrical, Electronics, Safety & Interior,
    $296 million for Automotive Holdings Group and
    $26 million for Other.
|   
|(c) | As previously disclosed, amounts have been
    reclassified from prior presentation to conform to our new
    sector alignment.                                                                                                 
|   
|(d) | Excludes the 2002 Charges of $78 million for
    Dynamics, Propulsion & Thermal, $64 million for
    Electrical, Electronics, Safety & Interior,
    $104 million for Automotive Holdings Group and
    $16 million for Other.  

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9. COMMITMENTS AND
CONTINGENCIES

Delphi is from time to time subject to various
legal actions and claims incidental to its business, including
those arising out of alleged defects, breach of contracts,
product warranties, intellectual property matters, environmental
matters, and employment-related matters. In the second quarter
of 2003, we disclosed the fact that we were engaged in an
arbitration regarding labor matters at our Moraine, Ohio site.
The results of the arbitration are disclosed in Note 2.

As previously disclosed, with respect to
environmental matters, Delphi received notices that it is a
potentially responsible party (PRP) in proceedings
at various sites, including the Tremont City Landfill Site
located in Tremont, Ohio. The Tremont City Landfill Site
proceeding, which is alleged to concern ground water
contamination, is in the early stages of investigation and
involves multiple other PRPs. Based on the information gathered
to date, Delphi has been identified as the largest
waste-generator PRP; however, we expect that other parties,
including landfill operator and transporter PRPs, will
ultimately have to share a significant portion of any overall
site costs. In September 2002, Delphi and other PRPs entered
into a Consent Order with the Environmental Protection Agency
(EPA) to perform a Remedial Investigation and
Feasibility Study concerning a portion of the site. The
investigation is expected to be completed during 2005, as
various EPA reviews are required through each phase of the
study. We have reserved approximately $2 million for our
share of the expected investigation costs. Current preliminary
assessments indicate that a reasonably possible outcome of the
investigative study is capping and future monitoring of this
site, which would substantially limit future remediation costs.
Based on cost estimates received to date, we have included an
estimate of the potential costs of capping and future monitoring
of the site in our overall reserve estimate. Because the scope
of the investigation and the extent of the required remediation
are still being determined, it is possible that the final
resolution of this matter may require that we make material
future expenditures for remediation, possibly over an extended
period of time and possibly in excess of our existing reserves.
As the investigation proceeds, we will periodically re-assess
any potential remediation costs and, as appropriate, our overall
environmental reserves.

With respect to warranty matters, as previously
disclosed, a few customers have advised Delphi that they intend
to pursue warranty claims vigorously. In particular, although in
2001 we settled or resolved most of our known pre-separation
warranty claims with GM, as previously disclosed, GM had
requested that Delphi agree to reimburse GM for the anticipated
costs of GMs voluntary recall campaign to repair certain
1996 to 1998 models which GM states could experience a failure
of the power steering gear lower pinion bearing. During the
third quarter of 2003, we resolved this issue with GM, together
with the remainder of known pre-separation warranty claims and
most outstanding pricing and sourcing disputes with GM. This
agreement included our using the remaining customer credits
obtained from GM in 2001. Although GM may assert additional
pre-separation claims in the future, we do not know of, nor has
GM communicated to us, any significant outstanding warranty,
pricing or sourcing disputes between the companies at this time.
Accordingly, although we cannot ensure that the future costs of
warranty claims by GM or other customers will not be material,
we believe our established reserves are adequate to cover
potential warranty settlements. However, the final amounts
determined to be due related to these matters could differ
materially from our recorded estimates. Additionally, in
connection with our separation from GM, we agreed to indemnify
GM against substantially all losses, claims, damages,
liabilities or activities arising out of or in connection with
our business post-separation. Due to the nature of such
indemnities we are not able to estimate the maximum amount.

With respect to intellectual property matters, in
May 2001, Litex, Inc. filed suit against Delphi in federal court
in the District of Massachusetts alleging infringement of
certain patents regarding methods to reduce engine exhaust
emissions. Litex is seeking substantial damages. Although Delphi
engaged in research and development activities relating to
technology for which Litex bases its claim, we found the
allegedly accused technology unworkable and abandoned all
activities concerning the allegedly accused technology in
October 2002. We do not believe we infringed any of Litexs
patents. We also believe Litexs patents are invalid.
Additionally, we believe Litexs claim for damages is
inappropriate and unsupportable because Delphi never
commercialized the allegedly accused technology. Trial is set
for November 3, 2003.

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Litigation is subject to many uncertainties, and
the outcome of individual litigated matters is not predictable
with assurance. After discussions with counsel, it is the
opinion of management that the outcome of such matters will not
have a material adverse impact on the consolidated financial
position, results of operations or cash flows of Delphi.

On a worldwide basis, Delphi has a concentration
of employees working under union collective bargaining
agreements representing approximately 91% of its hourly
workforce. Certain suppliers and customers of Delphi also have
union represented work forces. Future work stoppages by Delphi
employees or employees of Delphis suppliers or customers
could disrupt Delphis production of automotive components
and systems. Delphi finalized a new four-year collective
bargaining agreement with the UAW; see Item 2.
Managements Discussion and Analysis of Financial Condition
and Results of Operations  Overview of 2003 UAW Labor
Contract for further details of the new Labor Agreement.
In addition, Delphis agreement with the IUE expires in
November 2003; see Item 2. Managements Discussion and
Analysis of Financial Condition and Results of
Operations  Labor Matters.

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ITEM 2. MANAGEMENTS DISCUSSION AND
ANALYSIS OF FINANCIAL


CONDITION AND RESULTS OF OPERATIONS


Overview of 2003 UAW Labor Contract

The 2003 International Union, United Automobile,
Aerospace, and Agricultural Implement Workers of America
(UAW) labor contract was finalized, covering a
four-year term from 2003 to 2007. This contract provides Delphi
with favorable economics compared to the 1999 contract, and
includes moderate increases for pension and wages, as well as
some progress in reducing healthcare costs through modest
increases in some co-pays for prescription drugs and adjustments
to coverage networks to increase discounts. The 2003 contract
includes an up-front signing bonus of $3,000 per UAW employee, a
3% lump sum payment in year 2 of the contract, 2% and 3%
wage increases, respectively for years 3 and 4 of the
contract and cost of living adjustments, as applicable. In
addition, retirees will receive $800 per year in lump sum
payments and active employees will receive 2% per year increases
in future pension benefits. The impact of the 2003 contract on
the pension liability is a $0.5 billion increase to our
projected benefit obligation (PBO) but no material changes
in near-term ERISA funding requirements and a decrease in our
OPEB liability of about $0.1 billion. We have also
established a forum to review potential consolidation plans with
the UAW, including the AHG operations, gain cooperation on
meaningful opportunities for employees to accept voluntary
offers to change their employment to GM (flowback)
as well as discuss competitive wage and benefit agreements
consistent with other automotive suppliers for backfilling
flowback employees over the long-term. In addition, this is the
last agreement in which we are contractually bound to mirror the
UAWs agreement with GM.

Results of Operations

The following managements discussion and
analysis of financial condition and results of operations
(MD&A) should be read in conjunction with the
MD&A included in our Annual Report on Form 10-K for the
year ended December 31, 2002.

Three
Months Ended September 30, 2003 versus Three Months Ended
September 30, 2002

Net Sales.Consolidated net sales by product
sector and in total for the three months ended
September 30, 2003 and 2002 were:

|                                           |                        |               |       |       |      |   |       |       | 
|------------------------------------------ | ---------------------- | ------------- | ----- | ----- | ---- | - | ----- | ----- | 
|                                           |                        |              
|                                           |                        | Three Months  |      
|                                           |                        | Ended         |      
|                                           |                        | September 30, |      
|                                           |                        |               |      
|Product Sector                             |                        | 2003          |       |       | 2002 |  
|                                           |                        |               |       |       |      |  
|                                           |                        |              
|                                           |                        | (in millions) |      
|Dynamics, Propulsion & Thermal             |                        | $             | 2,941 |       |      | $ | 2,894 |      
|Electrical, Electronics, Safety & Interior |                        |               | 3,403 |       |      |   | 3,270 |      
|Automotive Holdings Group                  |                        |               | 684   |       |      |   | 811   |      
|Other                                      |                        |               | (465  | )     |      |   | (529  | )    
|                                           |                        |               |       |       |      |  
|                                           | Consolidated net sales |               | $     | 6,563 |      |   | $     | 6,446 | 
|                                           |                        |               |       |       |      |  

Consolidated net sales for the third quarter of
2003 were $6.6 billion compared to $6.4 billion for
the same period of 2002. Our non-GM sales increased by
$267 million principally due to $135 million of
favorable currency exchange rates, increased production volumes
and new business from diversifying our global customer base,
partially offset by price decreases. As a percent of our net
sales for the third quarter of 2003, our non-GM sales were 40%.
Net sales to GM decreased by $150 million, due to volume
and price decreases as well as our decision to exit certain
businesses, partially offset by favorable currency exchange
rates. Continued price pressures resulted in price reductions of
approximately $126 million, or 2.0% for the third quarter
of 2003 compared to approximately $115 million or 1.8% for
the third quarter of 2002.

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Gross Margin.Our
gross margin was 8.0% for the third quarter of 2003 compared to
gross margin of 11.7% for the third quarter of 2002. The
decrease reflected approximately $189 million of higher
wages and increased U.S. pension and healthcare expenses as well
as the impact of price decreases. In addition, our gross margin
in 2003 includes $148 million of retiree lump sum payments
and inventory and warranty charges related principally to our
decision to exit certain facilities and underperforming
operations.

Selling, General and Administrative.Selling, general and administrative
expenses (SG&A) of $376 million, 5.7% of
net sales for the third quarter of 2003, were consistent with
SG&A of $368 million or 5.7% of net sales for the third
quarter of 2002.

Depreciation and Amortization.Depreciation and amortization for the
third quarter of 2003 includes $56 million of charges
related to our decision to exit certain facilities. Excluding
these impairment charges, depreciation and amortization was
consistent with amounts for the comparable period of 2002.

Employee and Product Line Charges.In September 2003, we entered into a
new four-year collective bargaining agreement with the UAW. Upon
conclusion of the UAW labor collective bargaining, we initiated
global actions designed to address underperforming operations,
appropriately size our global hourly and salaried work forces
and strengthen our competitive position. As a result of those
initiatives, we expect to reduce our U.S. hourly work force by
up to 5,000 employees, the U.S. salaried work force by
approximately 500 employees, and our international
employees by approximately 3,000 employees. These
reductions will occur over the next 15 months through a
variety of methods including regular attrition and retirements,
flowbacks, and voluntary and involuntary separations, as
applicable. Also in the third quarter, we received a ruling in
our previously disclosed grievance proceeding with the
International Union of Electronic, Electrical, Salaried, Machine
& Furniture Workers-Communication Workers of America,
AFL-CIO (IUE) over certain planned layoffs at one of
our manufacturing facilities. The arbitrator directed us to
restore the level of bargaining unit employees to 1,500 and to
make the recalled employees whole. In accordance with U.S.
generally accepted accounting principles, we were required to
record, in the third quarter of 2003, a charge for a portion of
our plans while the remaining costs not recorded will be
recognized as incurred over the next five quarters.

The plans recorded in the third quarter include
the attrition or idling of approximately 1,500 U.S. UAW hourly
employees, 300 IUE hourly employees at our Packard operations,
approximately 500 U.S. salaried employees, and
approximately 3,000 non-U.S. employees. As of September 30,
2003, approximately 150 employees have left principally
from non-U.S. locations. Employees at impacted locations have
been informed and we have communicated benefits available to
them under applicable benefit plans or related contractual
provisions. In addition, we recorded charges to make recalled
employees whole at the IUE manufacturing site in accordance with
the arbitration award discussed above. The employee cost
component recorded for the U.S. hourly plans represents the
accruals required by SFAS No. 112, Employers
Accounting for Postemployment Benefits. Such
post-employment benefit accruals are based upon certain
assumptions regarding the status and seniority of affected
individuals, as well as the time frame and the duration of the
layoffs prior to final separation.

Our plans entail reductions to our work force
through a variety of methods. Under certain elements of the
plans, employees may voluntarily accept offers to change their
employment to GM (flowback). We have not yet
recorded these charges but will record the charges when the
employee accepts the offer to exit Delphi. We currently expect
that we will incur charges in future quarters of approximately
$175 million ($110 million after-tax) related to these
hourly employee reductions, including employee costs during
periods they are idled prior to separation. In addition, we
expect to complete other structural cost initiatives totaling
approximately $80 million ($49 million after-tax). As
a result, we expect to incur total employee and product line
charges related to these initiatives of approximately
$603 million ($386 million after-tax) through
December 31, 2004, of which $348 million
($227 million after-tax) was recorded in the third quarter
of 2003.

We expect to realize savings, principally payroll
and related costs, associated with these product line and
employee actions of approximately $125 million (after-tax).
We expect these savings to grow to approximately
$200 million (after-tax) by early 2005 with reductions of
approximately $150 million (after-

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tax) in cost of sales and approximately
$50 million (after-tax) in selling, general and
administrative expense. The after-tax breakdown of these savings
by sector in 2005 is expected to be approximately
$35 million for Dynamics, Propulsion & Thermal,
approximately $50 million for Electrical, Electronics,
Safety & Interior, and approximately $115 million
for Automotive Holdings Group.


Operating Income.Our operating loss was
$528 million for the third quarter of 2003 compared to
operating income of $125 million for the third quarter of
2002. The third quarter operating loss includes charges of $148
million in cost of sales, $56 million in depreciation and
amortization and $348 million in employee and product line
charges (the 2003 Charges). Management reviews our
sector operating results excluding the 2003 Charges.
Accordingly, we have separately presented such amounts in the
table below:

|                                           |                               |               |      |      |      |   |      |     | 
|------------------------------------------ | ----------------------------- | ------------- | ---- | ---- | ---- | - | ---- | --- | 
|                                           |                               |              
|                                           |                               | Three Months  |     
|                                           |                               | Ended         |     
|                                           |                               | September 30, |     
|                                           |                               |               |     
|Product Sector                             |                               | 2003          |      |      | 2002 |  
|                                           |                               |               |      |      |      |  
|                                           |                               |              
|                                           |                               | (in millions) |     
|Dynamics, Propulsion & Thermal             |                               | $             | 13   |      |      | $ | 68   |    
|Electrical, Electronics, Safety & Interior |                               |               | 175  |      |      |   | 179  |    
|Automotive Holdings Group                  |                               |               | (160 | )    |      |   | (107 | )  
|Other                                      |                               |               | (4   | )    |      |   | (15  | )  
|                                           |                               |               |      |      |      |  
|                                           | Subtotal                      |               |      | 24   |      |   |      | 125 | 
|2003 Charges (a)                           |                               |               | (552 | )    |      |   |     |    
|                                           |                               |               |      |      |      |  
|                                           | Total operating income (loss) |               | $    | (528 | )    |   | $    | 125 | 
|                                           |                               |               |      |      |      |  



| |     |                                                                                                                                                                                                                                    | 
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
| | (a) | Represents the 2003 Charges of $101 million
    for Dynamics, Propulsion & Thermal, $129 million for
    Electrical, Electronics, Safety & Interior,
    $296 million for Automotive Holdings Group and
    $26 million for Other. | 

The decrease in operating income from the third
quarter of 2002 primarily reflects the 2003 Charges, increased
pension, healthcare and wages and lower pricing, partially
offset by savings realized from our prior restructuring plans,
material cost savings and manufacturing performance. The
increase in net sales attributable to currency exchange rates
did not significantly impact our operating income, as we manage
our currency exposure through hedging techniques, including
derivative instruments.

Taxes.Our effective
tax rate for the third quarter of 2003 was a benefit of 38%
compared to an expense of 36% for the third quarter of 2002. The
effective tax rate for the 2003 Charges recorded in the third
quarter of 2003 was 36%. The 2003 Charges were substantially
composed of charges recorded in the United States. The tax
benefits on the 2003 Charges were reduced somewhat by charges
recorded in jurisdictions with lower effective tax rates than in
the United States and by the inability to tax benefit the
initiatives in certain jurisdictions. The effective tax rate for
the third quarter of 2003 excluding the 2003 Charges was 119%,
including the effect of the adjustment discussed below. The rate
for the third quarter of 2003 was further affected by entity
restructuring, which allowed substantial earnings from the
Asia-Pacific region to be considered indefinitely reinvested in
foreign operations. In addition, during the first nine months of
2003 we have experienced higher than expected earnings outside
of the United States (where effective tax rates in certain
jurisdictions are lower than the effective U.S. tax rate).
Accordingly, we currently expect our 2003 effective tax rate,
excluding the 2003 Charges, to approximate 27%. As a result, we
reduced our overall effective tax rate for the nine months ended
September 30, 2003, excluding the 2003 Charges, to 27%. The
third quarter effective tax rate includes approximately
$14 million of tax benefit resulting from reducing, in the
third quarter, the tax expense on pre-tax earnings for the first
six months of 2003 to 27% from the previously recorded 31-32%.

Net Income.As a
result of the factors referred to above, our net loss was
$353 million for the third quarter of 2003 as compared to
net income of $54 million for the third quarter of 2002.

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Earnings Per Share.Basic and diluted loss per share was
$0.63 for the third quarter of 2003 compared to basic and
diluted earnings per share of $0.10 for the third quarter
of 2002.

Nine
Months Ended September 30, 2003 versus Nine Months Ended
September 30, 2002

Net Sales.Consolidated net sales by product
sector and in total for the nine months ended September 30,
2003 and 2002 were:

|                                           |                        |                   |        |        |      |   |        |        | 
|------------------------------------------ | ---------------------- | ----------------- | ------ | ------ | ---- | - | ------ | ------ | 
|                                           |                        |                  
|                                           |                        | Nine Months Ended |       
|                                           |                        | September 30,     |       
|                                           |                        |                   |       
|Product Sector                             |                        | 2003              |        |        | 2002 |  
|                                           |                        |                   |        |        |      |  
|                                           |                        |                  
|                                           |                        | (in millions)     |       
|Dynamics, Propulsion & Thermal             |                        | $                 | 9,428  |        |      | $ | 9,290  |       
|Electrical, Electronics, Safety & Interior |                        |                   | 10,643 |        |      |   | 10,152 |       
|Automotive Holdings Group                  |                        |                   | 2,271  |        |      |   | 2,692  |       
|Other                                      |                        |                   | (1,503 | )      |      |   | (1,678 | )     
|                                           |                        |                   |        |        |      |  
|                                           | Consolidated net sales |                   | $      | 20,839 |      |   | $      | 20,456 | 
|                                           |                        |                   |        |        |      |  

Consolidated net sales for the first nine months
of 2003 were $20.8 billion compared to $20.5 billion
for the same period of 2002. Our non-GM sales increased by
$967 million, including $555 million resulting from
favorable currency exchange rates. Excluding the effects of
favorable currency exchange rates, our non-GM sales increased
$412 million. This non-GM sales increase was due to
increased production volumes and new business from diversifying
our global customer base, partially offset by price decreases.
As a percent of our net sales for the nine months ended
September 30, 2003, our non-GM sales were 39%. Net sales to
GM decreased by $584 million, including $131 million
of favorable foreign currency exchange rates. Excluding the
effects of favorable currency exchange rates, our GM sales
decreased $715 million. This GM sales decrease was due to
lost production in North America, price decreases and our
decision to exit certain businesses. Continued price pressures
resulted in price reductions of approximately $335 million,
or 1.6% for the first nine months of 2003 compared to
approximately $382 million or 1.9% for the first nine
months of 2002.

Gross Margin.Our
gross margin was 10.8% for the first nine months of 2003
compared to gross margin of 12.4% for the first nine months of
2002. The decrease reflected approximately $560 million of
higher wages and increased U.S. pension and healthcare costs and
price decreases, partially offset by lower material costs, as
well as manufacturing performance and savings realized from our
restructuring plans. Our gross margin for the first nine months
for 2003 includes $148 million of retiree lump sum
payments, inventory and warranty charges related principally to
our decision to exit certain facilities and underperforming
operations. The gross margin for the first nine months of 2002
included a charge of $37 million related to our generator
product line.

Selling, General and Administrative.Selling, general and administrative
expense was $1.2 billion, 5.7% of total net sales for the
first nine months of 2003, compared to $1.1 billion or 5.3%
of total net sales for the first nine months of 2002. Selling,
general and administrative expense was adversely impacted by a
legal settlement to one of our former suppliers of approximately
$38 million ($25 million after-tax), in connection
with a commercial dispute. Excluding the legal settlement,
selling, general and administrative expenses were
$1.1 billion or 5.5% of net sales.

Depreciation and Amortization.Depreciation and amortization for the
first nine months of 2003 includes $56 million of charges
related to product line impairments. Excluding these impairment
charges, depreciation and amortization for the first nine months
of 2003 was consistent with amounts for the comparable period of
2002.

Employee and product line charge.The charges for 2003 are discussed in
the Three Months Ended September 30, 2003 versus
Three Months Ended September 30, 2002 above.

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In the first quarter of 2002, Delphi approved
restructuring plans to eliminate approximately 6,100 positions
from our global workforce, which included 3,100 U.S. employees
and 3,000 employees in non-U.S. locations, downsize more than 25
selected facilities in the United States and Europe, and exit
certain other activities by the end of the first quarter of
2003. The restructuring charge totaled $231 million with
$222 million of employee costs (including postemployment
benefits and special termination pension benefits) and
$9 million in other exit costs (lease and contract
cancellation fees). This charge, when netted against a
$6 million reversal for the 2001 restructuring reserve,
resulted in a net restructuring charge of $225 million
($150 million after-tax) in the first quarter of 2002. The
restructuring actions were completed as planned in the first
quarter of 2003. Total cash paid for restructuring was
$200 million, with $191 million for employee costs and
$9 million for other exit costs. The cash outflows for the
first quarter of 2003 were $24 million, with
$17 million for employee costs and $7 million for
other exit costs. We are currently realizing savings,
principally payroll and related costs, associated with these
restructuring actions and we expect these savings to grow to
more than $125 million (after-tax) by early 2004 with
reductions of approximately $90 million in cost of sales
and approximately $35 million in selling, general and
administrative expense. The after-tax breakdown of these savings
by sector is expected to be approximately $43 million for
Dynamics, Propulsion & Thermal, approximately
$36 million for Electrical, Electronics, Safety &
Interior, approximately $37 million for Automotive Holdings
Group and approximately $9 million for Other.

Following is a summary of our actions related to
our 2002 restructuring charge (in millions):

|                                        |                           |                |      |   |            |   |     |            |  |   |       |   |  |   |      |       | 
|--------------------------------------- | ------------------------- | -------------- | ---- | - | ---------- | - | --- | ---------- |  | - | ----- | - |  | - | ---- | ----- | 
|                                        |                           |                |      |   |            |  
|                                        |                           | Employee Costs |      |   |            |   |    
|                                        |                           |                |      |   | Other Cash |   |     |           
|Restructuring Actions                   |                           | Cash           |      |   | Non Cash   |   |     | Exit Costs |  |   | Total |  
|                                        |                           |                |      |   |            |   |     |            |  |   |       |  
|First quarter 2002 restructuring charge |                           | $              | 191  |   |            | $ | 31  |            |  | $ | 9     |   |  | $ | 231  |      
|Usage in 2002                           |                           |                | (174 | ) |            |   | (31 | )          |  |   | (2    | ) |  |   | (207 | )    
|                                        |                           |                |      |   |            |   |     |            |  |   |       |  
|Balance at December 31, 2002            |                           | $              | 17   |   |            | $ |    |            |  | $ | 7     |   |  | $ | 24   |      
|Usage in first quarter 2003             |                           |                | (17  | ) |            |   |    |            |  |   | (7    | ) |  |   | (24  | ) (a)
|                                        |                           |                |      |   |            |   |     |            |  |   |       |  
|                                        | Balance at March 31, 2003 |                | $    |  |            |   | $   |           |  |   | $     |  |  |   | $    |      | 
|                                        |                           |                |      |   |            |   |     |            |  |   |       |  

Following is a summary of our 2003 employee and
product line charges (in millions):

|                                  |                                |                |     |     |            |   |    |       |  |   |     |      | 
|--------------------------------- | ------------------------------ | -------------- | --- | --- | ---------- | - | -- | ----- |  | - | --- | ---- | 
|                                  |                                |               
|                                  |                                | Cash Costs     |    
|                                  |                                |                |    
|Employee and Product Line Charges |                                | Employee Costs |     |     | Exit Costs |   |    | Total | 
|                                  |                                |                |     |     |            |   |    |       | 
|Third quarter 2003 charge         |                                | $              | 333 |     |            | $ | 15 |       |  | $ | 348 |     
|Usage in third quarter            |                                |                | (19 | )   |            |   | (3 | )     |  |   | (22 | )(a)
|Transfer to long-term liabilities |                                |                |    |     |            |   | (7 | )     |  |   | (7  | )   
|                                  |                                |                |     |     |            |   |    |       | 
|                                  | Balance at September 30, 2003. |                | $   | 314 |            |   | $  | 5     |  |   | $   | 319  | 
|                                  |                                |                |     |     |            |   |    |       | 



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                           | 
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
| | (a) | The total of the 2002 restructuring charge paid
    in 2003 and the 2003 employee and product line charges paid in
    2003 was $46 million, as shown on our consolidated statement of
    cash flows. In addition, we incurred $26 million of cash
    costs associated with the 2003 Charges, which were recorded in
    cost of sales. The total cash costs incurred for the nine months
    ended September 30, 2003 was $72 million. | 

Operating Income.Operating loss was $128 million
for the first nine months of 2003 compared to operating income
of $475 million for the first nine months of 2002. The
operating loss for the first nine months of 2003 includes the
2003 Charges. Similarly, the operating income for the first nine
months of 2002 includes charges of $37 million in costs of
sales and $225 million in employee and product line charges
(the 2002 Charges). Management reviews our sector
operating results excluding the 2003

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Charges and the 2002 Charges. Accordingly, we
have separately presented such amounts in the table below:


|                                           |                               |               |      |      |      |   |      |     | 
|------------------------------------------ | ----------------------------- | ------------- | ---- | ---- | ---- | - | ---- | --- | 
|                                           |                               |              
|                                           |                               | Nine Months   |     
|                                           |                               | Ended         |     
|                                           |                               | September 30, |     
|                                           |                               |               |     
|Product Sector                             |                               | 2003          |      |      | 2002 |  
|                                           |                               |               |      |      |      |  
|                                           |                               |              
|                                           |                               | (in millions) |     
|Dynamics, Propulsion & Thermal             |                               | $             | 256  |      |      | $ | 306  |    
|Electrical, Electronics, Safety & Interior |                               |               | 702  |      |      |   | 737  |    
|Automotive Holdings Group                  |                               |               | (456 | )    |      |   | (259 | )  
|Other                                      |                               |               | (78  | )    |      |   | (47  | )  
|                                           |                               |               |      |      |      |  
|                                           | Subtotal                      |               |      | 424  |      |   |      | 737 | 
|2003 Charges (a) and 2002
    Charges (b)  |                               |               | (552 | )    |      |   | (262 | )  
|                                           |                               |               |      |      |      |  
|                                           | Total operating income (loss) |               | $    | (128 | )    |   | $    | 475 | 
|                                           |                               |               |      |      |      |  



| |     |                                                                                                                                                                                                                                     | 
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
| | (a) | Represents the 2003 Charges of $101 million
    with Dynamics, Propulsion & Thermal, $129 million for
    Electrical, Electronics, Safety & Interior,
    $296 million for Automotive Holdings Group and
    $26 million for Other. | 
|
| | (b) | Represents the 2002 Charges with $78 million
    for Dynamics, Propulsion & Thermal, $64 million for
    Electrical, Electronics, Safety & Interior,
    $104 million for Automotive Holdings Group and
    $16 million for Other.  | 

The decrease in operating income from the nine
months of 2002 primarily reflects the 2003 Charges in excess of
the 2002 Charges, increased pension, healthcare and wages, lower
pricing, the legal settlement in connection with a commercial
dispute and the acceleration of portfolio-related actions,
including costs associated with closure of a facility and
voluntary early retirements, partially offset by savings
realized from our restructuring plans, material cost savings and
manufacturing performance. The increase in net sales
attributable to currency exchange rates did not significantly
impact our operating income, as we manage our currency exposure
through hedging techniques, including derivative instruments.

Taxes.Our effective
tax rate for the first nine months of 2003 was a benefit of 46%
compared to an expense of 38% for the comparable period of 2002.
Our effective tax rate excluding the 2003 Charges and the 2002
Charges was 27% for the nine months ended
September 30, 2003 compared to 36% for the nine months
ended September 30, 2002. The rate for the first nine
months of 2003 was affected by entity restructuring, which
allowed substantial earnings from the Asia-Pacific region to be
considered indefinitely reinvested in foreign operations. In
addition, during the first nine months of 2003 we experienced
higher than expected earnings outside of the United States
(where effective tax rates in certain jurisdictions are lower
than the effective U.S. tax rate). We expect this trend to
continue for the remainder of 2003.

Net Income.As a
result of the factors referred to above, our net loss was
$138 million for the first nine months of 2003 as compared
to net income of $223 million for the first nine months of
2002.

Earnings Per Share.Basic and diluted loss per share was
$0.25 for the nine months of 2003 compared to basic and diluted
earnings per share of $0.40 and $0.39, respectively, for the
first nine months of 2002.

Liquidity and Capital Resources

Liquidity

The following are some key metrics that we use
when we internally monitor our liquidity and capital resources.
We believe that these metrics provide a consistent, objective
measure of our cash and financing position and the changes from
period to period highlight the impacts of our operating results,
capital expenditures and working capital management on our
liquidity. Our net liquidity, which is calculated as cash and
cash equivalents less total debt, was $(2,003) million at
September 30, 2003 as compared to

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$(1,752) million at December 31, 2002. The
change in net liquidity at September 30, 2003 results
primarily from our pension contributions of $600 million
during the first nine months of 2003, partially offset by our
strong cash flow. The negative balance reflects our intended
capital structure and we expect that we will be able to meet our
future obligations as they become due. At September 30,
2003, our ratio of debt to total capital (which consists of debt
plus stockholders equity) was 68.6%, as compared to 68.4%
at December 31, 2002.


Requirements for working capital, acquisitions,
capital expenditures, pension funding, dividends, repayment of
debt securities and product line and employee obligations are
expected to be funded from operations, supplemented as needed by
short-term or long-term borrowings available under our
commercial paper programs, our Credit Facilities as defined
below, sales of receivables under accounts receivable
securitization facilities, proceeds from any future bond
offerings, proceeds from any future offering of preferred
securities, all of which are described below, and other
available financing sources as necessary. The estimated cash
impact of the 2003 Charges discussed above is approximately
$700 million, of which $48 million was paid in the
third quarter. We expect that up to $200 million will be
paid in the fourth quarter, $450 million in 2004, and the
remainder in 2005.

Debt
Capitalization and Available Financing Sources

Delphi has two financing arrangements with a
syndicate of lenders providing for an aggregate of
$3.0 billion in available revolving credit facilities (the
Credit Facilities), subject to certain limitations.
The terms of the Credit Facilities provide for a five-year
revolving credit line in the amount of $1.5 billion, which
expires June 2005, and a 364-day revolving credit line in the
amount of $1.5 billion, which expires in June 2004. As of
September 30, 2003 there were no amounts outstanding under
the Credit Facilities. Utilizing the Credit Facilities as back
up, Delphi maintains $2.5 billion of worldwide commercial paper
programs, under which $0.1 billion was outstanding as of
September 30, 2003. Delphi also has approximately $40
million available under uncommitted lines of credit. As of
September 30, 2003 there were no amounts outstanding under
uncommitted lines of credit.

In July 2003, we issued 6.50% unsecured notes
(the Notes) with an aggregate principal amount of
$500 million, which mature on August 15, 2013. We will
pay interest on these Notes on February 15 and
August 15 of each year beginning February 15, 2004.
The proceeds from the Notes were used to reduce other
outstanding borrowings.

In the first quarter of 2003, we entered into a
$500 million revolving accounts receivable securitization
program in the United States (U.S. Facility
Program). As of September 30, 2003, we had
approximately $363 million of accounts receivable sold
under this program. The U. S. Facility Program expires on
March 29, 2004 and can be extended on an annual basis for
two additional 364-day periods, based upon the mutual agreement
of the parties. Additionally, the U.S. Facility Program contains
financial and other covenants similar to our revolving credit
facilities that, if not met, could result in a termination of
the agreement. At September 30, 2003, we were in compliance
with all such covenants.

During June 2003, we signed a letter of mandate
to enter into a trade receivable securitization program of up to
320 million
for certain of our European accounts receivable. We expect to
finalize the transaction in the near term. In the interim, we
have entered into a $330 million bridge loan agreement with
a LIBOR based interest rate, which is available through October
31, 2003. As of September 30, 2003, we had no amounts
outstanding. From time to time, certain subsidiaries may also
sell receivables in the normal course of their operations. Such
sales are generally consistent year to year and do not
significantly impact our liquidity.

We lease certain property, primarily land and
buildings that are used in our operations, under leases commonly
known as synthetic leases. These leases, which are accounted for
as operating leases, provide us tax treatment equivalent to
ownership, and also give us the option to purchase these
properties at any time during the term or to cause the
properties to be remarketed upon lease expiration. In June 2003,
we entered into new five-year leases with a bank for our
corporate headquarters and two manufacturing sites. In
aggregate, our purchase price under such leases, if we choose to
exercise such option, approximates

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$100 million. The leases also provide that
if we do not exercise our purchase option upon expiration of the
term and instead elect our remarketing option we will pay any
difference between the $100 million purchase option amount
and the proceeds of remarketing, up to a maximum of
approximately $67 million. At September 30, 2003, the
aggregate fair value of these properties exceeds the minimum
value guaranteed upon exercise of the remarketing option and we
recorded our estimate of the fair value of the residual value
guarantee of $3 million as a long-term liability. Under the
leases we also provide certain indemnities to the lessor,
including environmental indemnities. Due to the nature of such
potential obligations, it is not possible to estimate the
maximum amount of such exposure or the fair value. However, we
do not expect such amounts, if any, to be material. In addition,
the leases contain certain covenants and cross-default
provisions to our Credit Facility, which would require us to pay
the full $100 million if we default on our obligations
under the leases. We have an additional synthetic lease, for an
operation in Ohio, which continues to qualify as an operating
lease under the generally accepted accounting principles after
the adoption of Financial Accounting Standards Board
(FASB) Interpretation No. 46,
Consolidation of Variable Interest Entities,
(FIN 46). Our purchase price on this facility is
$28 million and we have a guaranteed residual value of $22
million.


In order to provide financial flexibility to
Delphi and our suppliers, we maintain a program through General
Electric Capital Corporation (GECC) pursuant to a
trade payables agreement. When a Delphi supplier elects to
participate in the program, GECC pays the supplier the amount
due from Delphi, prior to the due date of the accounts payable.
In exchange for the early payment, our suppliers accept a
discounted payment. On the original due date of the payables, we
pay GECC the full amount. These amounts are classified as
accounts payable in the consolidated balance sheet of Delphi; at
September 30, 2003 we had approximately $180 million
due to GECC under this program. Starting in the fourth quarter
of 2002, we exercised our right under our trade payables
agreement with GECC, whereby we are permitted to defer payment
on these accounts payable discussed above to GECC for a period
of up to 30 days, and in exchange we pay GECC a fee for the
period of such deferral. As of September 30, 2003, we have
not elected to defer payment on such payables. Also in the
fourth quarter of 2002, we entered into a program where GECC
paid certain suppliers, on our behalf, the regularly scheduled
payment according to the terms of our purchase orders with those
suppliers. We elect, for a fee, to pay GECC at a date generally
30 days later than the regularly scheduled payment terms.
At September 30, 2003, we have not elected to delay any
such payments.

We had previously guaranteed the borrowings of
one venture for approximately $15 million; this guarantee
has been settled. There has been no impact on our financial
statements. We have no other financial commitments (such as
lines of credit, standby lines of credit, standby repurchase
obligations, or guarantees of such items) to or on behalf of
entities that are excluded from our consolidated financial
statements. As of September 30, 2003, there have been no
material changes to our unsecured debt and leasing arrangements
as described in our Annual Report on Form 10-K for the year
ended December 31, 2002. From time to time we enter into
purchase commitments with our suppliers under customary purchase
order terms. Any significant losses implicit in these contracts
would be recognized in accordance with generally accepted
accounting principles.

The company continues to evaluate alternative
pension funding scenarios, including a public offering of
preferred securities in our wholly-owned subsidiary, Delphi
Properties, Inc., a real estate investment trust
(REIT) pursuant to the registration statement
currently on file with the Securities and Exchange Commission
(SEC) or one or more issuances of securities
pursuant to our existing shelf registration statement. Our
decision on instrument and timing will be based on what is most
cost-effective and likely to be viewed favorably by both debt
and equity holders. Timing and details, including the use of
proceeds, of any future transaction will be subject to market
conditions and would be disclosed in a prospectus, and in the
case of a public offering of preferred securities by Delphi
Properties, Inc., favorable SEC review of an amendment updating
the applicable registration statement.

Delphi is rated by Standard & Poors,
Moodys and Fitch Ratings. We currently have long-term
credit ratings of BBB-/Baa2/BBB, respectively, and short-term
credit ratings of A3/P2/F2, respectively. Although not currently
anticipated, if we were downgraded by Moodys to Baa3, our
facility fee and

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borrowing costs under our existing five-year
Credit Facility would increase. However, we currently have no
amounts outstanding under such facilities and do not expect that
we will need to draw on these facilities even in the event of
such a downgrade. In the event of a further downgrade to BB+/
Baa3/BBB-, we believe we would continue to have access to
sufficient liquidity; however, our cost of borrowing may further
increase and our ability to raise unsecured debt in the public
bond markets may be limited. In addition, as a result of our
short-term credit ratings, our access to the commercial paper
market has been limited as compared to historical levels. As
further described above, we were able to refinance commercial
paper using a number of programs. To the extent that current
levels of commercial paper become unavailable, these alternative
financing programs as well as other means of financing, would be
utilized.


Cash
Flows

Operating Activities.Net cash provided by operating
activities totaled $0.5 billion for the nine months ended
September 30, 2003 compared to net cash provided by
operating activities of $0.7 billion for the nine months
ended September 30, 2002. Cash provided by operating
activities in the first nine months of 2003 was impacted by
voluntary contributions to our U.S. pension plans of
$600 million. Sales under our new accounts receivable U.S.
Facility Agreement effectively replaced sales under another
program, which permitted us to sell certain accounts receivable,
on a non-recourse basis, to GECC. As a result, the new Facility
Agreement did not have a significant impact on our cash flow
from operations. Cash provided by operating activities in the
first nine months of 2002 was impacted by a $400 million
voluntary contribution to our U.S. pension plans and a
$143 million second quarter payment to GM for previously
recorded separation related obligations for other postretirement
benefits.

Investing Activities.Cash flows used in investing
activities totaled $0.7 billion for the nine months ended
September 30, 2003 and 2002. The use of cash in the first
nine months of 2003 and 2002 reflects capital expenditures
related to ongoing operations.

Financing Activities.Net cash used in financing activities
totaled $174 million and $37 million for the nine months
ended September 30, 2003 and 2002, respectively. Cash
used in financing activities during the first nine months of
2003 represented proceeds from our 6.50% unsecured notes of
$500 million offset by repayments of borrowings under
credit facilities and other debt as well as payments of
dividends. Cash used in financing activities during the first
nine months of 2002 represented dividend and treasury stock
purchases partially offset by increased borrowings of short-term
debt.

Dividends.The Board
of Directors declared a dividend on Delphi common stock of $0.07
per share on September 3, 2003, which was paid on
October 14, 2003, to holders of record on
September 15, 2003. The dividend declared on June 18,
2003 was paid on July 29, 2003, to holders of record on
June 30, 2003.

Outlook

General.We continue
to experience softness in the major automotive markets and
expect to face continued price pressures from vehicle
manufacturers. However, our non-GM revenue is expected to
continue to grow. It is up approximately 14% in the first nine
months of 2003 over the comparable period of 2002 and represents
39% of our total sales for the first nine months of 2003. We
expect compounded annual non-GM revenue growth of at least 10%
on a constant exchange rate basis over time. Given the current
uncertainty inherent in the world economy and the automotive
industry in particular, we expect our fourth quarter 2003 sales
to be between $6.8 billion and $7.1 billion and our net
income to be approximately $125 million assuming revenues
of $7.0 billion. The expected net income amount for the
fourth quarter does not include the impact, if any, of the
upcoming labor negotiations with the IUE or the costs related to
flowbacks that may occur in the fourth quarter of 2003,
estimated to be $40 million after-tax.

Delphi continues to implement productivity
improvements and streamline activities designed to reduce
overhead and improve manufacturing processes. In addition, we
continue to streamline our portfolio, reduce excess capacity and
operating costs, and respond to global industry conditions and
increased employee related costs such as U.S. health care and
pensions as well as wages in non-U.S. locations. AHG is designed
to provide a better environment for all of our stakeholders.
Each of the product lines and sites

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within AHG has its own unique set of challenges
that require us to be flexible and creative in our ongoing
efforts to find solutions. We have notified the UAW that it is
our intent to raise the issue of potential consolidation of
three AHG sites: Olathe, Kansas; Tuscaloosa, Alabama; and Flint
West, Michigan.


In addition to conditions in our market and the
economy as a whole, we depend on GM as a customer. GM accounted
for 61% of our net sales for the first nine months of 2003. Our
sales to GM have declined since our separation from GM;
principally reflecting the impact of customer driven price
reductions and the elimination of non-profitable businesses, as
well as GMs diversification of its supply base and recent
changes in our vehicle content and the product mix supplied to
them. We also continue to exit some businesses as part of our
portfolio review process. Reflecting these and other factors, we
expect our sales to GM to decline over time. If we are unable to
compete effectively for new business with GMs other
suppliers, our revenues may decline further. While we intend to
continue to focus on retaining and winning GMs business,
we cannot ensure that we will succeed in doing so. Additionally,
our revenues may be affected by increases or decreases in
GMs business or market share as well as cost-reduction
initiatives. Our GM North America content per vehicle for the
third quarter of 2003 was $2,746 and based on the better than
expected performance in the first nine months of 2003, we
anticipate that our full year 2003 content per vehicle may trend
higher than the $2,675 which was previously expected.

We face an inherent business risk of exposure to
product liability and warranty claims in the event that our
products fail to perform as expected and such failure of our
products results, or is alleged to result, in bodily injury
and/or property damage. In addition, as we actively pursue
additional technological innovation in both automotive and
non-automotive industries and enhance the value of our
intellectual property portfolio, we incur ongoing costs to
enforce and defend our intellectual property and face an
inherent risk of exposure to the claims of other suppliers and
parties that we have allegedly violated their intellectual
property rights. We cannot ensure 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. In addition, 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, vehicle manufacturers are
increasingly looking 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. Vehicle manufacturers are also
increasingly requiring their outside 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 product supplied did not perform as represented.
Accordingly, although we cannot ensure that the future costs of
warranty claims by our customers will not be material, we
believe our established reserves are adequate to cover potential
warranty settlements. Our warranty reserves are based upon our
best estimates of amounts necessary to settle future and
existing claims. We regularly evaluate the appropriateness 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 the normal course of business, we extend
credit on open account to our customers. From time to time, we
also invest in joint ventures with a variety of business
partners. Although Delphi is affected by the financial
well-being of the automotive industry as a whole, we believe
that our risk associated with trade receivables and
recoverability of investments in our joint ventures is mitigated
by our customer base and ongoing control procedures to monitor
the credit-worthiness of customers and viability of joint
venture business partners. As part of our ongoing procedures, we
regularly review our joint venture investments for potential
impairments or permanent declines in value.

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U.S. Pension Plans.
Delphi sponsors defined benefit pension plans covering certain
hourly and salaried employees in the United States. At
December 31, 2002, the projected benefit obligation
exceeded the market value of plan assets by $4.1 billion.
We are not required by employee benefit and tax laws to make
contributions to our pension plans prior to 2004; however, we
contributed $600 million to date in 2003 to our U.S. pension
plans. While contributions subsequent to 2003 are dependent on
asset returns and a number of other factors, if we make no
further contributions in 2003, we expect to be required by
employee benefit and tax laws to make contributions of
$1.7 billion through 2005. However, legislation currently
pending in Congress may reduce these amounts. Changes in
interest rates and the market values of the securities held by
the plans during 2003 could materially, positively or
negatively, change our underfunded status and affect the level
of pension expense and required contributions in 2004 and
beyond. For example, every 100 basis point difference in our
actual 2003 asset returns versus our assumed 9% long-term asset
return rate would increase or decrease the underfunded status of
our plans by approximately $60 million and increase or
decrease our 2004 pension expense by approximately
$7 million to $10 million. Similarly, a 25 basis point
change in the discount rate used to value pension liabilities at
December 31, 2003, could increase or decrease the
underfunded status of our plans by approximately
$0.3 billion and increase or decrease our 2004 pension
expense by approximately $20 million to $30 million.
We believe that the recently ratified UAW contract will increase
the underfunded status of our plans by approximately
$0.5 billion and 2004 pension expense by approximately $0.1
billion. The previously discussed modifications to the UAW
contract, actual investment returns, and changes in the discount
rate occurring in 2003 will not impact our 2003 pension expense.

Environmental Matters

As previously disclosed, with respect to
environmental matters, Delphi received notices that it is a
potentially responsible party (PRP) in proceedings
at various sites, including the Tremont City Landfill Site
located in Tremont, Ohio. The Tremont City Landfill Site
proceeding, which is alleged to concern ground water
contamination, is in the early stages of investigation and
involves multiple other PRPs. Based on the information gathered
to date, Delphi has been identified as the largest
waste-generator PRP, however, we expect that other parties,
including landfill operator and transporter PRPs, will
ultimately have to share a significant portion of any overall
site costs. In September 2002, Delphi and other PRPs entered
into a Consent Order with the Environmental Protection Agency
(EPA) to perform a Remedial Investigation and
Feasibility Study concerning a portion of the site. The
investigation is expected to be completed during 2005, as
various EPA reviews are required through each phase of the
study. We have reserved approximately $2 million for our
share of the expected investigation costs. Current preliminary
assessments indicate that a reasonably possible outcome of the
investigative study is capping and future monitoring of this
site, which would substantially limit future remediation costs.
Based on cost estimates received to date, we have included an
estimate of the potential costs of capping and future monitoring
of the site in our overall reserve estimates. Because the scope
of the investigation and the extent of the required remediation
are still being determined, it is possible that the final
resolution of this matter may require that we make material
future expenditures for remediation, possibly over an extended
period of time and possibly in excess of our existing reserves.
As the investigation proceeds, we will periodically re-assess
any potential remediation costs and, as appropriate, our overall
environmental reserves.

Labor Matters

On a worldwide basis, Delphi has a concentration
of employees working under union collective bargaining
agreements representing approximately 91% of its hourly
workforce. Certain suppliers and customers of Delphi also have
union represented work forces. Future work stoppages by Delphi
employees or employees of Delphis suppliers or customers
could disrupt Delphis production of automotive components
and systems. Delphi and the UAW finalized a new four-year
collective bargaining agreement; see Item 2.
Managements Discussion and Analysis of Financial Condition
and Results of Operations  Overview of 2003 UAW Labor
Contract. As previously disclosed, we have been involved
in arbitration proceedings with the IUE in connection with
employment obligations at one of our manufacturing sites in
Moraine, Ohio. In August 2003, the arbitrator directed Delphi to
restore the level of bargaining unit

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employees to 1,500 and to make the recalled
employees whole, stating that the determination of whether the
facility would be closed or subject to an impairment plan should
be determined through the collective bargaining process not
through arbitration proceedings. The parties expect to engage in
negotiations in connection with the November 2003 expiration of
the existing national collective bargaining agreement.
Delphis ability to fix certain sites and businesses that
have been placed in the AHG, including the Moraine, Ohio
facility will continue to depend, in part, on our ability to
satisfactorily address labor issues through the collective
bargaining process.


Forward-Looking Statements

The Private Securities Litigation Reform Act of
1995 provides a safe harbor for forward-looking statements made
by us or on our behalf. Delphi and its representatives may
periodically make written or oral statements that are
forward-looking, including statements included in
this report and other filings with the Securities and Exchange
Commission and in reports to our stockholders. All statements
contained or incorporated in this report which address operating
performance, events or developments that we expect or anticipate
may occur in the future (including statements relating to future
sales, earnings expectations, savings expected as a result of
our global product line and employee initiatives, portfolio
restructuring plans, volume growth, awarded sales contracts and
earnings per share expectations or statements expressing general
optimism about future operating results) are forward-looking
statements. These statements are made on the basis of
managements current views and assumptions with respect to
future events. Important factors, risks and uncertainties which
may cause actual results to differ from those expressed in our
forward-looking statements are set forth in this Quarterly
Report on Form 10-Q. In particular, the achievement of
projected levels of revenue, earnings, cash flow and debt levels
will depend on our ability to execute our portfolio and other
global product line and employee plans in a manner which
satisfactorily addresses any resultant antitrust or labor issues
and customer concerns, any contingent liabilities related to
divestitures or integration costs associated with acquisitions,
and other matters; the success of our efforts to diversify our
customer base and still maintain existing GM business; the
continued protection and exploitation of our intellectual
property to develop new products and enter new markets; and our
ability to capture expected benefits of our cost reduction
initiatives so as to maintain flexibility to respond to adverse
and cyclical changes in general economic conditions and in the
automotive industry in each market in which we operate,
including customer cost reduction initiatives, potential
increases in warranty costs, funding requirements and pension
contributions, healthcare costs, disruptions in the labor,
commodities or transportation markets caused by terrorism, war
or labor unrests, other changes in the political and regulatory
environments where we do business; and other factors, risks and
uncertainties discussed in our Annual Report on Form 10-K
for the year ended December 31, 2002 and other filings with
the Securities and Exchange Commission. Delphi does not intend
or assume any obligation to update any of these forward-looking
statements.

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ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK


There have been no material changes to our
exposures to market risk since December 31, 2002.






ITEM 4. CONTROLS AND PROCEDURES


We have designed our disclosure controls and
procedures to ensure that material information related to
Delphi, including our consolidated subsidiaries, is made known
to our Disclosure Committee, including our principal executive
officer and principal financial officer on a regular basis, in
particular during the period in which the quarterly reports are
being prepared. As required, we evaluate the effectiveness of
these disclosure controls and procedures as of the end of each
quarter. As of the end of the third quarter, we believe that
such controls and procedures are operating effectively as
designed.

We presented the results of our most recent
evaluation to our independent auditors, Deloitte & Touche
LLP, and the Audit Committee of the Board of Directors. Based on
such evaluation, the Companys management, including the
principal executive officer and principal financial officer,
concluded that the Companys disclosure controls and
procedures are adequate to ensure the clarity and material
completeness of the Companys disclosure in its periodic
reports required to be filed with the SEC and there are no
significant deficiencies or material weaknesses in the design or
operation of internal controls over financial reporting which
are reasonably likely to adversely affect our ability to record,
process, summarize and report financial information.

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PART II. OTHER INFORMATION







ITEM 1. LEGAL PROCEEDINGS


Other than the patent litigation with Litex, Inc.
discussed in Note 9 and the arbitration remedy awarded to
the IUE discussed in Item 2. Managements
Discussion and Analysis of Financial Condition and Results of
Operations  Labor Matters, there have been no
material developments in legal proceedings involving Delphi or
its subsidiaries since those reported in Delphis Annual
Report on Form 10-K for the year ended December 31,
2002 and Forms 10-Q for the quarters ended March 31,
2003 and June 30, 2003.

We are involved in routine litigation incidental
to the conduct of our business. We do not believe that any of
the litigation to which we are currently a party will have a
material adverse effect on our business or financial condition.






ITEM 6. EXHIBITS AND REPORTS ON FORM
8-K


(a) EXHIBITS

|        |       |  |              |                                                                                                                                                                                                                                                                           
|------- | ----- |  | ------------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |  |             
|Number  |       |  | Exhibit Name
|        |       |  |             
|        | 3(a)  |  |              | Amended and Restated Certificate of Incorporation
    of Delphi Automotive Systems Corporation, incorporated by
    reference to Exhibit 3(a) to Delphis Quarterly Report
    on Form 10-Q for the quarter ended June 30, 2002.                                          
|       
|        | 3(b)  |  |              | Certificate of Ownership and Merger, dated
    March 13, 2002, Merging Delphi Corporation into Delphi
    Automotive Systems Corporation, incorporated by reference to
    Exhibit 3(b) to Delphis Quarterly Report on
    Form 10-Q for the quarter ended June 30, 2002.
|       
|        | 3(c)  |  |              | By-laws of Delphi Automotive Systems Corporation,
    incorporated by reference to Exhibit 3.2 to Delphis
    Registration Statement on Form S-1 (Registration
    No. 333-67333).                                                                                       
|       
|        | 31(a) |  |              | Certification Pursuant to Exchange Act
    Rules 13a-14(a)/15d-14(a), adopted pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                              
|       
|        | 31(b) |  |              | Certification Pursuant to Exchange Act
    Rules 13a-14(a)/15d-14(a), adopted pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                              
|       
|        | 32(a) |  |              | Certification Pursuant to 18 U.S.C.
    Section 1350, adopted pursuant to Section 906 of the
    Sarbanes-Oxley Act of 2002.                                                                                                                                              
|       
|        | 32(b) |  |              | Certification Pursuant to 18 U.S.C.
    Section 1350, adopted pursuant to Section 906 of the
    Sarbanes-Oxley Act of 2002.                                                                                                                                              

(b) REPORTS ON FORM 8-K

During the three months ended September 30,
2003 for which this report is filed, Delphi filed the following
reports on Form 8-K:



| |                                                                                                                                                                                                                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | July 17, 2003, Form 8-K reporting under
    Item 12. Disclosure of Results of Operations and
    Financial Condition (furnished under Item 9 in
    accordance with interim guidance provided by the Securities and
    Exchange Commission) the filing of financial information
    containing highlighted financial data for the three and six
    months ended June 30, 2003.
|
| | July 25, 2003, Form 8-K reporting under
    Item 5. Other Events the sale of debt
    securities and under Item 7. Financial Statements and
    Exhibits providing the related financing documents,
    including the underwriting agreement.                                                                                                                                 

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SIGNATURE


Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned thereunto duly
authorized.



| |                   
| | ------------------
| | DELPHI CORPORATION
| |                   
| | (Registrant)      

|                 |  |                                                                                                                                               
|---------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------
|October 16, 2003 |  | /s/ JOHN D. SHEEHAN
    -----------------------------------------------------
    John D. Sheehan, Chief Accounting
    Officer and Controller

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EXHIBIT INDEX

|        |       |  |             |                                                                                                                                             
|------- | ----- |  | ----------- | --------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |  |            
|Number  |       |  | Description
|        |       |  |            
|       
|        | 31(a) |  |             | Certification Pursuant to Exchange Act
    Rules 13a-14(a)/15d-14(a), adopted pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.
|       
|        | 31(b) |  |             | Certification Pursuant to Exchange Act
    Rules 13a-14(a)/15d-14(a), adopted pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.
|       
|        | 32(a) |  |             | Certification Pursuant to 18 U.S.C.
    Section 1350, adopted pursuant to Section 906 of the
    Sarbanes-Oxley Act of 2002.                
|       
|        | 32(b) |  |             | Certification Pursuant to 18 U.S.C.
    Section 1350, adopted pursuant to Section 906 of the
    Sarbanes-Oxley Act of 2002.                

30