##### 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 June 30, 2004

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 June 30, 2004, there were 561,192,179
outstanding shares of the registrants $0.01 par value
common stock.



---










DELPHI CORPORATION

INDEX

|                                                       |  |                                                                                                                  |    |      |    | 
|------------------------------------------------------ |  | ---------------------------------------------------------------------------------------------------------------- | -- | ---- | -- | 
|                                                       |  |                                                                                                                  |    | Page |   
|                                                       |  |                                                                                                                  |    |      |   
|Part I 
    Financial Information                    
|                                                      
|Item 1.                                                |  | Financial Statements                                                                                             |    |      |    | 
|                                                      
|                                                       |  | Consolidated Statements of
    Income (Unaudited) for the Three and Six Months Ended
    June 30, 2004 and 2003. |    |      | 3  | 
|                                                      
|                                                       |  | Consolidated Balance Sheets
    at June 30, 2004 (Unaudited) and December 31,
    2003.                          |    |      | 4  | 
|                                                      
|                                                       |  | Consolidated Statements of
    Cash Flows (Unaudited) for the Six Months
    Ended June 30, 2004 and 2003.       |    |      | 5  | 
|                                                      
|                                                       |  | Notes to Consolidated
    Financial Statements (Unaudited)                                                       |    |      | 6  | 
|                                                      
|Item 2.                                                |  | Managements Discussion
    and Analysis of Financial Condition and Results
    of Operations                    |    |      | 14 | 
|                                                      
|Item 3.                                                |  | Quantitative and Qualitative
    Disclosures About Market Risk                                                   |    |      | 25 | 
|                                                      
|Item 4.                                                |  | Controls and Procedures                                                                                          |    |      | 25 | 
|                                                      
|Part II 
    Other Information                       
|                                                      
|Item 1.                                                |  | Legal Proceedings                                                                                                |    |      | 26 | 
|                                                      
|Item 2.                                                |  | Changes in Securities, Use
    of Proceeds and Issuer Purchases of
    Equity Securities                         |    |      | 26 | 
|                                                      
|Item 4.                                                |  | Submission of Matters to a
    Vote of Security Holders                                                          |    |      | 27 | 
|                                                      
|Item 6.                                                |  | Exhibits and Reports on
    Form 8-K                                                                             |    |      | 28 | 
|                                                      
|Signature                                              |  |                                                                                                                  | 29 |     
|364-Day Sixth Amended & Restated Competitive Advance  
|5-Year Second Amended & Restated Competitive Advance  
|EX-31.(a) 302 Certification of Chief Executive Officer
|EX-31.(b) 302 Certification of Chief Financial Officer
|EX-32.(a) 906 Certification of Chief Executive Officer
|EX-32.(b) 906 Certification of Chief Financial Officer



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 Ended                      |      |       | Six Months Ended |  
|                                     |                                             | June 30,                                |      |       | June 30,         |  
|                                     |                                             |                                         |      |       |                  |  
|                                     |                                             | 2004                                    |      |       | 2003             |   |      | 2004  |       |   | 2003 |       
|                                     |                                             |                                         |      |       |                  |   |      |       |       |   |      |       
|                                     |                                             |                                        
|                                     |                                             | (in millions, except per share amounts) |     
|Net sales:                           |                                             |                                         |      |       |                  |   |      |       |       |   |      |        |        |   |      |       
|                                     | General Motors and affiliates               |                                         | $    | 4,134 |                  |   | $    | 4,313 |       |   | $    | 8,324  |        |   | $    | 8,868  |       
|                                     | Other customers                             |                                         |      | 3,415 |                  |   |      | 2,781 |       |   |      | 6,636  |        |   |      | 5,408  |       
|                                     |                                             |                                         |      |       |                  |   |      |       |       |   |      |       
|                                     |                                             | Total net sales                         |      |       | 7,549            |   |      |       | 7,094 |   |      |        | 14,960 |   |      |        | 14,276 | 
|                                     |                                             |                                         |      |       |                  |   |      |       |       |   |      |       
|Less: operating expenses             |                                             |                                         |      |       |                  |   |      |       |       |   |      |        |        |   |      |       
|                                     | Cost of sales, excluding items listed below |                                         |      | 6,637 |                  |   |      | 6,240 |       |   |      | 13,207 |        |   |      | 12,552 |       
|                                     | Selling, general and administrative         |                                         |      | 402   |                  |   |      | 422   |       |   |      | 805    |        |   |      | 811    |       
|                                     | Depreciation and amortization               |                                         |      | 282   |                  |   |      | 260   |       |   |      | 561    |        |   |      | 513    |       
|                                     | Employee and product line charges           |                                         |      | 32    |                  |   |      |      |       |   |      | 70     |        |   |      |       |       
|                                     |                                             |                                         |      |       |                  |   |      |       |       |   |      |       
|                                     |                                             | Total operating expenses                |      |       | 7,353            |   |      |       | 6,922 |   |      |        | 14,643 |   |      |        | 13,876 | 
|                                     |                                             |                                         |      |       |                  |   |      |       |       |   |      |       
|Operating income                     |                                             |                                         | 196  |       |                  |   | 172  |       |       |   | 317  |        |        |   | 400  |       
|Less: interest expense               |                                             |                                         | 52   |       |                  |   | 45   |       |       |   | 111  |        |        |   | 90   |       
|Other income, net                    |                                             |                                         | 5    |       |                  |   | 2    |       |       |   | 13   |        |        |   | 4    |       
|                                     |                                             |                                         |      |       |                  |   |      |       |       |   |      |       
|Income before income taxes           |                                             |                                         | 149  |       |                  |   | 129  |       |       |   | 219  |        |        |   | 314  |       
|Income tax expense                   |                                             |                                         | 18   |       |                  |   | 41   |       |       |   | 34   |        |        |   | 99   |       
|                                     |                                             |                                         |      |       |                  |   |      |       |       |   |      |       
|Net income                           |                                             | $                                       | 131  |       |                  | $ | 88   |       |       | $ | 185  |        |        | $ | 215  |       
|                                     |                                             |                                         |      |       |                  |   |      |       |       |   |      |       
|Basic and diluted earnings per share |                                             | $                                       | 0.23 |       |                  | $ | 0.16 |       |       | $ | 0.33 |        |        | $ | 0.38 |       
|                                     |                                             |                                         |      |       |                  |   |      |       |       |   |      |       

See notes to consolidated financial statements.

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##### Table of Contents



DELPHI CORPORATION



CONSOLIDATED BALANCE SHEETS


|                                           |                                                                                                                    |                               |                            |        |              |        |        |        |       |        | 
|------------------------------------------ | ------------------------------------------------------------------------------------------------------------------ | ----------------------------- | -------------------------- | ------ | ------------ | ------ | ------ | ------ | ----- | ------ | 
|                                           |                                                                                                                    | June 30,                      |                            |        |             
|                                           |                                                                                                                    | 2004                          |                            |        | December 31, |       
|                                           |                                                                                                                    | (Unaudited)                   |                            |        | 2003         |       
|                                           |                                                                                                                    |                               |                            |        |              |       
|                                           |                                                                                                                    |                              
|                                           |                                                                                                                    | (in millions)                 |                           
|ASSETS                                    
|Current assets:                            |                                                                                                                    |                               |                            |        |              |        |        |       
|                                           | Cash and cash equivalents                                                                                          |                               | $                          | 666    |              |        | $      | 880    |      
|                                           | Accounts receivable, net:                                                                                          |                               |                            |        |              |        |        |        |      
|                                           |                                                                                                                    | General Motors and affiliates |                            |        | 2,463        |        |        |        | 2,326 |       
|                                           |                                                                                                                    | Other customers               |                            |        | 1,618        |        |        |        | 1,438 |       
|                                           | Retained interest in receivables, net                                                                              |                               |                            | 586    |              |        |        | 717    |      
|                                           | Inventories, net                                                                                                   |                               |                            | 2,077  |              |        |        | 1,996  |      
|                                           | Deferred income taxes                                                                                              |                               |                            | 354    |              |        |        | 420    |      
|                                           | Prepaid expenses and other                                                                                         |                               |                            | 242    |              |        |        | 269    |      
|                                           |                                                                                                                    |                               |                            |        |              |       
|                                           |                                                                                                                    |                               | Total current assets       |        |              | 8,006  |        |        |       | 8,046  | 
|Long-term assets:                          |                                                                                                                    |                               |                            |        |              |        |        |       
|                                           | Property, net                                                                                                      |                               |                            | 5,938  |              |        |        | 6,167  |      
|                                           | Deferred income taxes                                                                                              |                               |                            | 3,963  |              |        |        | 3,835  |      
|                                           | Goodwill, net                                                                                                      |                               |                            | 791    |              |        |        | 776    |      
|                                           | Pension intangible assets                                                                                          |                               |                            | 1,167  |              |        |        | 1,167  |      
|                                           | Other                                                                                                              |                               |                            | 890    |              |        |        | 913    |      
|                                           |                                                                                                                    |                               |                            |        |              |       
|                                           |                                                                                                                    |                               | Total assets               |        | $            | 20,755 |        |        | $     | 20,904 | 
|                                           |                                                                                                                    |                               |                            |        |              |       
|                                          
|LIABILITIES AND STOCKHOLDERS
    EQUITY  
|Current liabilities:                       |                                                                                                                    |                               |                            |        |              |        |        |       
|                                           | Notes payable and current portion of long-term
    debt                                                            |                               | $                          | 527    |              |        | $      | 801    |      
|                                           | Accounts payable                                                                                                   |                               |                            | 3,306  |              |        |        | 3,158  |      
|                                           | Accrued liabilities                                                                                                |                               |                            | 1,997  |              |        |        | 2,232  |      
|                                           |                                                                                                                    |                               |                            |        |              |       
|                                           |                                                                                                                    |                               | Total current liabilities  |        |              | 5,830  |        |        |       | 6,191  | 
|Long-term liabilities:                     |                                                                                                                    |                               |                            |        |              |        |        |       
|                                           | Long-term debt                                                                                                     |                               |                            | 2,020  |              |        |        | 2,022  |      
|                                           | Junior subordinated notes due to Delphi Trust I
    and II                                                         |                               |                            | 412    |              |        |        | 412    |      
|                                           | Pension benefits                                                                                                   |                               |                            | 3,545  |              |        |        | 3,574  |      
|                                           | Postretirement benefits other than pensions                                                                        |                               |                            | 5,983  |              |        |        | 5,697  |      
|                                           | Other                                                                                                              |                               |                            | 1,360  |              |        |        | 1,438  |      
|                                           |                                                                                                                    |                               |                            |        |              |       
|                                           |                                                                                                                    |                               | Total liabilities          |        |              | 19,150 |        |        |       | 19,334 | 
|                                           |                                                                                                                    |                               |                            |        |              |       
|Stockholders equity:                      |                                                                                                                    |                               |                            |        |              |        |        |       
|                                           | Common stock, $0.01 par value, 1,350 million
    shares authorized, 565 million shares issued in 2004 and
    2003 |                               |                            | 6      |              |        |        | 6      |      
|                                           | Additional paid-in capital                                                                                         |                               |                            | 2,660  |              |        |        | 2,667  |      
|                                           | Retained earnings                                                                                                  |                               |                            | 1,348  |              |        |        | 1,241  |      
|                                           | Minimum pension liability                                                                                          |                               |                            | (2,118 | )            |        |        | (2,118 | )    
|                                           | Accumulated other comprehensive loss, excluding
    minimum pension liability                                      |                               |                            | (230   | )            |        |        | (151   | )    
|                                           | Treasury stock, at cost (3.8 million and
    4.7 million shares in 2004 and 2003, respectively)                    |                               |                            | (61    | )            |        |        | (75    | )    
|                                           |                                                                                                                    |                               |                            |        |              |       
|                                           |                                                                                                                    |                               | Total stockholders equity |        |              | 1,605  |        |        |       | 1,570  | 
|                                           |                                                                                                                    |                               |                            |        |              |       
|Total liabilities and stockholders equity |                                                                                                                    | $                             | 20,755                     |        |              | $      | 20,904 |       
|                                           |                                                                                                                    |                               |                            |        |              |       

See notes to consolidated financial statements.

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DELPHI CORPORATION



CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)


|                                      |                                                                                         |                                                                    |                                           |      |      |      |   |       |      |      |  
|------------------------------------- | --------------------------------------------------------------------------------------- | ------------------------------------------------------------------ | ----------------------------------------- | ---- | ---- | ---- | - | ----- | ---- | ---- | -
|                                      |                                                                                         |                                                                   
|                                      |                                                                                         | Six Months Ended                                                   |                                          
|                                      |                                                                                         | June 30,                                                           |                                          
|                                      |                                                                                         |                                                                    |                                          
|                                      |                                                                                         | 2004                                                               |                                           |      | 2003 |     
|                                      |                                                                                         |                                                                    |                                           |      |      |     
|                                      |                                                                                         |                                                                   
|                                      |                                                                                         | (in millions)                                                      |                                          
|Cash flows from operating activities: |                                                                                         |                                                                    |                                           |      |      |      |   |      
|                                      | Net income                                                                              |                                                                    | $                                         | 185  |      |      | $ | 215   |     
|                                      | Adjustments to reconcile net income to net cash
    provided by operating activities:   |                                                                    |                                           |      |      |      |   |       |     
|                                      |                                                                                         | Depreciation and amortization                                      |                                           |      | 561  |      |   |       | 513  |     
|                                      |                                                                                         | Deferred income taxes                                              |                                           |      | (64  | )    |   |       | 15   |     
|                                      |                                                                                         | Employee and product line charges                                  |                                           |      | 70   |      |   |       |     |     
|                                      | Changes in operating assets and liabilities:                                            |                                                                    |                                           |      |      |      |   |       |     
|                                      |                                                                                         | Accounts receivable and retained interests in
    receivables, net |                                           |      | (186 | )    |   |       | (445 | )   
|                                      |                                                                                         | Inventories, net                                                   |                                           |      | (84  | )    |   |       | (68  | )   
|                                      |                                                                                         | Prepaid expenses and other                                         |                                           |      | 66   |      |   |       | (13  | )   
|                                      |                                                                                         | Accounts payable                                                   |                                           |      | 148  |      |   |       | 206  |     
|                                      |                                                                                         | Employee and product line charge obligations                       |                                           |      | (215 | )    |   |       | (24  | )   
|                                      |                                                                                         | Accrued and other long-term liabilities                            |                                           |      | 114  |      |   |       | (27  | )   
|                                      |                                                                                         | Other                                                              |                                           |      | (31  | )    |   |       | 3    |     
|                                      |                                                                                         |                                                                    |                                           |      |      |     
|                                      |                                                                                         |                                                                    | Net cash provided by operating activities |      |      | 564  |   |       |      | 375  |  
|                                      |                                                                                         |                                                                    |                                           |      |      |     
|Cash flows from investing activities: |                                                                                         |                                                                    |                                           |      |      |      |   |      
|                                      | Capital expenditures                                                                    |                                                                    |                                           | (403 | )    |      |   | (462  | )   
|                                      | Other                                                                                   |                                                                    |                                           |     |      |      |   | 23    |     
|                                      |                                                                                         |                                                                    |                                           |      |      |     
|                                      |                                                                                         |                                                                    | Net cash used in investing activities     |      |      | (403 | ) |       |      | (439 | )
|                                      |                                                                                         |                                                                    |                                           |      |      |     
|Cash flows from financing activities: |                                                                                         |                                                                    |                                           |      |      |      |   |      
|                                      | Repayment of debt securities                                                            |                                                                    |                                           | (500 | )    |      |   |      |     
|                                      | Net proceeds from (repayments of) borrowings
    under credit facilities and other debt |                                                                    |                                           | 231  |      |      |   | (171  | )   
|                                      | Dividend payments                                                                       |                                                                    |                                           | (78  | )    |      |   | (79   | )   
|                                      | Issuances of treasury stock                                                             |                                                                    |                                           | 2    |      |      |   | 1     |     
|                                      | Other                                                                                   |                                                                    |                                           | (16  | )    |      |   |      |     
|                                      |                                                                                         |                                                                    |                                           |      |      |     
|                                      |                                                                                         |                                                                    | Net cash used in financing activities     |      |      | (361 | ) |       |      | (249 | )
|                                      |                                                                                         |                                                                    |                                           |      |      |     
|                                      | Effect of exchange rate fluctuations on cash and
    cash equivalents                   |                                                                    |                                           | (14  | )    |      |   | 29    |     
|                                      |                                                                                         |                                                                    |                                           |      |      |     
|                                      | Decrease in cash and cash equivalents                                                   |                                                                    |                                           | (214 | )    |      |   | (284  | )   
|                                      | Cash and cash equivalents at beginning of period                                        |                                                                    |                                           | 880  |      |      |   | 1,014 |     
|                                      |                                                                                         |                                                                    |                                           |      |      |     
|                                      | Cash and cash equivalents at end of period                                              |                                                                    | $                                         | 666  |      |      | $ | 730   |     
|                                      |                                                                                         |                                                                    |                                           |      |      |     

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 2003 Annual Report on Form 10-K filed with the
Securities and Exchange Commission. The consolidated financial
statements include the accounts of Delphi and its 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 not have had a dilutive effect. Certain
outstanding stock options were not included in the computation
of diluted shares because the options underlying exercise
prices were greater than the average market prices for Delphi
stock on June 30, 2004 and 2003 (approximately
72 million stock options were not dilutive at
June 30, 2004). Actual weighted average shares
outstanding used in calculating basic and diluted earnings per
share were:

|                                    |  |                    |         |  |                  |  |         |      |  |  |         |  |  |  |         | 
|----------------------------------- |  | ------------------ | ------- |  | ---------------- |  | ------- | ---- |  |  | ------- |  |  |  | ------- | 
|                                    |  |                    |         | 
|                                    |  | Three Months Ended |         |  | Six Months Ended | 
|                                    |  | June 30,           |         |  | June 30,         | 
|                                    |  |                    |         |  |                  | 
|                                    |  | 2004               |         |  | 2003             |  |         | 2004 |  |  | 2003    | 
|                                    |  |                    |         |  |                  |  |         |      |  |  |         | 
|                                    |  |                   
|                                    |  | (in thousands)     |        
|Weighted average shares outstanding |  |                    | 560,893 |  |                  |  | 560,291 |      |  |  | 560,617 |  |  |  | 559,928 | 
|Effect of dilutive securities       |  |                    | 1,539   |  |                  |  | 148     |      |  |  | 1,541   |  |  |  | 59      | 
|                                    |  |                    |         |  |                  |  |         |      |  |  |         | 
|Diluted shares outstanding          |  |                    | 562,432 |  |                  |  | 560,439 |      |  |  | 562,158 |  |  |  | 559,987 | 
|                                    |  |                    |         |  |                  |  |         |      |  |  |         | 

The Board of Directors declared a dividend on
Delphi common stock of $0.07 per share on
June 22, 2004, which is payable on August 3, 2004
to holders of record on July 6, 2004. The dividend declared
on March 1, 2004 was paid on April 12, 2004.

Stock-Based
Compensation As
allowed under Statement of Financial Accounting Standards
(SFAS) No. 123, Accounting for
Stock-Based Compensation, Delphi accounts for a majority
of its 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 months ended June 30, 2004 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 all stock-based compensation
using the fair value recognition provisions of SFAS No. 123
and related amendments, our net income and basic and diluted
earnings per share would have been as follows:

|                                                                                                                                            |                                 |                                         |     |      |                  |   |    |      |  |   |      |      |  |   |     |      | 
|------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------- | --------------------------------------- | --- | ---- | ---------------- | - | -- | ---- |  | - | ---- | ---- |  | - | --- | ---- | 
|                                                                                                                                            |                                 |                                         |     |     
|                                                                                                                                            |                                 | Three Months Ended                      |     |      | Six Months Ended |  
|                                                                                                                                            |                                 | June 30,                                |     |      | June 30,         |  
|                                                                                                                                            |                                 |                                         |     |      |                  |  
|                                                                                                                                            |                                 | 2004                                    |     |      | 2003             |   |    | 2004 |  |   | 2003 |     
|                                                                                                                                            |                                 |                                         |     |      |                  |   |    |      |  |   |      |     
|                                                                                                                                            |                                 |                                        
|                                                                                                                                            |                                 | (in millions, except per share amounts) |    
|Net income, as reported                                                                                                                     |                                 | $                                       | 131 |      |                  | $ | 88 |      |  | $ | 185  |      |  | $ | 215 |     
|Less: Total stock-based employee compensation
    expense determined under fair value method for all awards, net
    of related tax effects |                                 |                                         | 4   |      |                  |   | 4  |      |  |   | 7    |      |  |   | 7   |     
|                                                                                                                                            |                                 |                                         |     |      |                  |   |    |      |  |   |      |     
|Pro forma net income                                                                                                                        |                                 | $                                       | 127 |      |                  | $ | 84 |      |  | $ | 178  |      |  | $ | 208 |     
|                                                                                                                                            |                                 |                                         |     |      |                  |   |    |      |  |   |      |     
|Earnings per share:                                                                                                                         |                                 |                                         |     |      |                  |   |    |      |  |   |      |      |  |   |     |     
|                                                                                                                                            | Basic and diluted  as reported |                                         | $   | 0.23 |                  |   | $  | 0.16 |  |   | $    | 0.33 |  |   | $   | 0.38 | 
|                                                                                                                                            |                                 |                                         |     |      |                  |   |    |      |  |   |      |     
|                                                                                                                                            | Basic and diluted  pro forma   |                                         | $   | 0.23 |                  |   | $  | 0.15 |  |   | $    | 0.32 |  |   | $   | 0.37 | 
|                                                                                                                                            |                                 |                                         |     |      |                  |   |    |      |  |   |      |     

In May 2004, Delphis existing outstanding
equity compensation plans expired and shareholders approved a
new equity compensation plan, which provides for issuances of up
to 36.5 million shares of common stock. During the second
quarter, we issued approximately 4.5 million restricted
stock units and approximately 6.8 million options. As of
June 30, 2004, there are approximately 25.2 million
shares available for future grants under this plan.



|   |                                  
|-- | ---------------------------------
|2. | EMPLOYEE AND PRODUCT LINE CHARGES

In the third quarter of 2003, Delphi approved
plans to reduce our U.S. hourly workforce by up to
approximately 5,000 employees, our U.S. salaried workforce
by approximately 500 employees, and our
non-U.S. workforce by approximately 3,000 employees. Based
on progress to date, we now anticipate 500 to 1,000 additional
hourly employees will leave Delphi bringing our total attrition
to 5,500 to 6,000. Our plans entail reductions to our
workforce through a variety of methods including regular
attrition and retirements, and voluntary and involuntary
separations, as applicable. Under certain elements of the plans,
the International Union, United Automobile, Aerospace, and
Agricultural Implement Workers of America (UAW)
hourly employees may flow back to General Motors
(GM). As required under generally accepted
accounting principles, we record the costs associated with the
flowback to GM as the employees accept the offer to exit Delphi.
Including $15 million of costs for additional
U.S. hourly employees, we expect to incur total charges
related to these initiatives of approximately $822 million
(pre-tax) through December 31, 2004, of which
$46 million ($14 million in cost of sales and
$32 million in employee and product line charges) and
$136 million ($66 million in cost of sales and
$70 million in employee and product line charges) were
recorded during the three and six months ended June 30,
2004, respectively, and $616 million was recorded in 2003.
The charges to cost of sales include costs for employees who are
idled prior to separation. We expect to incur the remaining
estimated charges of $70 million (pre-tax) related to the
hourly employee reductions and other structural cost initiatives
during the remainder of 2004. Plans to separate U.S. salaried
and non-U.S. salaried employees under a variety of programs were
met. During the second quarter of 2004, approximately 1,175
U.S. hourly employees flowed back to GM or retired.
Cumulatively through June 30, 2004, approximately 4,925
U.S. hourly employees have left the company pursuant to
these plans.

7



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Following is a summary of the activity in the
employee and product line reserve (in millions):

|                                  |                                           |                |     |      |            |   |   |       |  |   |     |      |     
|--------------------------------- | ----------------------------------------- | -------------- | --- | ---- | ---------- | - | - | ----- |  | - | --- | ---- | ----
|Employee and Product Line Charges |                                           | Employee Costs |     |      | Exit Costs |   |   | Total | 
|                                  |                                           |                |     |      |            |   |   |       | 
|Balance at January 1, 2004        |                                           | $              | 246 |      |            | $ | 5 |       |  | $ | 251 |     
|                                  | 2004 Charges                              |                |     | 70   |            |   |   |      |  |   |     | 70   |     
|                                  | Usage during the first six months of 2004 |                |     | (219 | )          |   |   |      |  |   |     | (219 | )(a)
|                                  |                                           |                |     |      |            |   |   |       | 
|Balance at June 30, 2004          |                                           | $              | 97  |      |            | $ | 5 |       |  | $ | 102 | (b) 
|                                  |                                           |                |     |      |            |   |   |       | 



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | 
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | 
| | (a) | The total cash paid for the six months ended
    June 30, 2004 was $215 million, as shown on our
    consolidated Statement of Cash Flows. The $219 million of
    usage for the first six months of 2004 includes
    $145 million and $74 million for the three months
    ended March 31, 2004 and June 30, 2004,
    respectively. The $145 million of usage for the first three
    months of 2004 includes $4 million of non-cash special
    termination pension and postretirement benefits. In addition, we
    incurred $14 million and $66 million of cash costs
    associated with the 2004 Charges for the three and six months
    ended June 30, 2004, respectively, which were recorded in
    cost of sales. | 
|
| | (b) | This amount is included in accrued liabilities in
    the accompanying consolidated balance sheet.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | 

The estimated cash impact of these initiatives is
approximately $0.7 billion, of which $88 million and
$281 million was paid during the three and six months ended
June 30, 2004, respectively, and $205 million was paid
in 2003. We expect that up to $0.1 billion will be paid in
subsequent quarters in 2004 and the remainder in 2005.



|   |                     
|-- | --------------------
|3. | ASSET SECURITIZATION

We maintain a 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 (Conduits). 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). The remaining undivided interest is
retained by DR. As of June 30, 2004, the retained
interest in receivables, net was $586 million. We assess
the recoverability of the retained interest on a quarterly basis
and adjust the carrying value as necessary.

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 1.5%), and the length of
time the receivables are expected to be outstanding. The loss on
sale was approximately $1.7 million and $2.4 million
for the three and six months ended June 30, 2004,
respectively.

The U.S. Facility Program, which is among Delphi,
DR, the Conduits, the sponsoring banks and their agents, was
renewed on March 29, 2004 and extended through
March 28, 2005. The terms and conditions are substantially
the same; however, the U.S. Facility Program has been increased
from $500 million to $600 million. The program can be
extended for additional 364-day periods based upon the mutual
agreement of the parties. The U.S. Facility Program contains a
financial covenant and certain other covenants similar to our
revolving credit facilities that, if not met, could result in a
termination of the program. At June 30, 2004, we were in
compliance with all such covenants.

8



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The table below summarizes certain cash flows
received from and paid to the Conduits under the revolving U.S.
Facility Program during the three and six months ended
June 30, 2004:

|                                                                          |  |                    |      |   |                  |   |        |  
|------------------------------------------------------------------------- |  | ------------------ | ---- | - | ---------------- | - | ------ | -
|                                                                          |  | Three Months Ended |      |   | Six Months Ended |  
|                                                                          |  | June 30, 2004      |      |   | June 30, 2004    |  
|                                                                          |  |                    |      |   |                  |  
|                                                                          |  |                   
|                                                                          |  | (in millions)      |     
|Undivided interests sold at beginning of period                           |  | $                  | 325  |   |                  | $ | 323    |  
|Proceeds from new securitizations (sale of
    undivided interests)       |  |                    | 960  |   |                  |   | 1,685  |  
|Collections related to undivided interests sold
    (a)                   |  |                    | (978 | ) |                  |   | (1,851 | )
|Collections reinvested through sale of additional
    undivided interests |  |                    | 293  |   |                  |   | 443    |  
|                                                                          |  |                    |      |   |                  |  
|Undivided interests sold                                                  |  | $                  | 600  |   |                  | $ | 600    |  
|                                                                          |  |                    |      |   |                  |  



| |     |                                                                                                                                                                                                                                                                                                                                            | 
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | 
| | (a) | Of the collections received on the undivided
    interests sold, for the three month period ended June 30,
    2004, $685 million was remitted to the Conduits and
    $293 million was reinvested; and for the six month period
    ended June 30, 2004, $1,408 million was remitted to
    the Conduits and $443 million was reinvested. | 



|   |                 
|-- | ----------------
|4. | INVENTORIES, NET

Inventories, net consisted of:

|                                                  |                   |               |       |       |              |   |       |       | 
|------------------------------------------------- | ----------------- | ------------- | ----- | ----- | ------------ | - | ----- | ----- | 
|                                                  |                   | June 30,      |       |       | December 31, |  
|                                                  |                   | 2004          |       |       | 2003         |  
|                                                  |                   |               |       |       |              |  
|                                                  |                   |              
|                                                  |                   | (in millions) |      
|Productive material, work-in-process and supplies |                   | $             | 1,613 |       |              | $ | 1,518 |      
|Finished goods                                    |                   |               | 464   |       |              |   | 478   |      
|                                                  |                   |               |       |       |              |  
|                                                  | Total inventories |               | $     | 2,077 |              |   | $     | 1,996 | 
|                                                  |                   |               |       |       |              |  



|   |                                              
|-- | ---------------------------------------------
|5. | PENSION AND OTHER POSTRETIREMENT
    BENEFITS

Pension plans covering unionized employees in the
U.S. generally provide benefits of negotiated stated
amounts for each year of service, as well as supplemental
benefits for employees who qualify for retirement before normal
retirement age. The benefits provided by the plans covering
U.S. salaried employees are generally based on years of
service and salary history. Certain Delphi employees also
participate in nonqualified pension plans covering executives,
which are not funded. Such plans are based on targeted wage
replacement percentages, and are generally not significant to
Delphi. Delphis funding policy with respect to its
qualified plans is to contribute at least the minimum amounts
required by applicable laws and regulations.

9



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##### Table of Contents



The 2004 and 2003 amounts shown below reflect the
defined benefit pension and other postretirement benefit expense
for the three and six months ended June 30 for each year
for U.S. salaried and hourly employees:

|                                   |                           |                             |      |                |                           |       |      |                  |                |   |          |     |       |      |     |     |      |   |      |      |  |   |      |     |  |   |     |     |  |   |     |     | 
|---------------------------------- | ------------------------- | --------------------------- | ---- | -------------- | ------------------------- | ----- | ---- | ---------------- | -------------- | - | -------- | --- | ----- | ---- | --- | --- | ---- | - | ---- | ---- |  | - | ---- | --- |  | - | --- | --- |  | - | --- | --- | 
|                                   |                           |                             |      |                |                           |       |      |                  |                |   |          |    
|                                   |                           |                             |      |                |                           | Other |      |                  |                |   |          |     | Other |     
|                                   |                           |                             |      | Postretirement |                           |       |      |                  | Postretirement |  
|                                   |                           | Pension Benefits            |      |                | Benefits                  |       |      | Pension Benefits |                |   | Benefits |    
|                                   |                           |                             |      |                |                           |       |      |                  |                |   |          |    
|                                   |                           |                             |      |               
|                                   |                           | Three Months Ended June 30, |      |                | Six Months Ended June 30, |      
|                                   |                           |                             |      |                |                           |      
|                                   |                           | 2004                        |      |                | 2003                      |       |      | 2004             |                |   | 2003     |     |       | 2004 |     |     | 2003 |   |      | 2004 |  |   | 2003 |    
|                                   |                           |                             |      |                |                           |       |      |                  |                |   |          |     |       |      |     |     |      |   |      |      |  |   |      |    
|                                   |                           |                            
|                                   |                           | (in millions)               |     
|Service cost                       |                           | $                           | 71   |                |                           | $     | 65   |                  |                | $ | 44       |     |       | $    | 42  |     |      | $ | 142  |      |  | $ | 130  |     |  | $ | 88  |     |  | $ | 84  |    
|Interest cost                      |                           |                             | 175  |                |                           |       | 161  |                  |                |   | 125      |     |       |      | 115 |     |      |   | 349  |      |  |   | 322  |     |  |   | 249 |     |  |   | 230 |    
|Expected return on plan assets     |                           |                             | (181 | )              |                           |       | (162 | )                |                |   |         |     |       |      |    |     |      |   | (362 | )    |  |   | (324 | )   |  |   |    |     |  |   |    |    
|Amortization of prior service cost |                           |                             | 35   |                |                           |       | 23   |                  |                |   | (1       | )   |       |      |    |     |      |   | 70   |      |  |   | 46   |     |  |   | (2  | )   |  |   |    |    
|Amortization of net loss           |                           |                             | 40   |                |                           |       | 31   |                  |                |   | 30       |     |       |      | 18  |     |      |   | 80   |      |  |   | 62   |     |  |   | 60  |     |  |   | 36  |    
|Special termination benefits       |                           |                             | 2    |                |                           |       |     |                  |                |   |         |     |       |      |    |     |      |   | 5    |      |  |   |     |     |  |   | 1   |     |  |   |    |    
|                                   |                           |                             |      |                |                           |       |      |                  |                |   |          |     |       |      |     |     |      |   |      |      |  |   |      |    
|                                   | Net periodic benefit cost |                             | $    | 142            |                           |       | $    | 118              |                |   | $        | 198 |       |      | $   | 175 |      |   | $    | 284  |  |   | $    | 236 |  |   | $   | 396 |  |   | $   | 350 | 
|                                   |                           |                             |      |                |                           |       |      |                  |                |   |          |     |       |      |     |     |      |   |      |      |  |   |      |    

During each of the six months ended June 30,
2004 and June 30, 2003, Delphi contributed
$0.6 billion to its U.S. pension plans. Certain of
Delphis non-U.S. subsidiaries also sponsor defined benefit
pension plans. The pension expense for these locations for the
three months ended June 30, 2004 and 2003 was
$19 million and $16 million, respectively, and for the
six months ended June 30, 2004 and 2003 was
$41 million and $32 million, respectively.

Other postretirement benefits expense during the
three and six months ended June 30, 2004 increased by
$23 million and $46 million, respectively, compared to
the comparable periods in 2003. Such increase includes the
mitigating impact of the Medicare Prescription Drug,
Improvement and Modernization Act of 2003, (the
Act) which reduced expense by $16 million and
$32 million for the three and six months ended
June 30, 2004, respectively, including service cost,
interest cost and amortization of the actuarial experience gain.
The total impact of the Act on our actuarial liability was
$0.5 billion and is being accounted for as an actuarial
gain, in accordance with guidance from the Financial Accounting
Standards Board (FASB). As a result, the gain will
be amortized as a reduction of our periodic expense and balance
sheet liability over the next ten to twelve years, depending on
the plan.



|   |                                   
|-- | ----------------------------------
|6. | 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 June 30, 2004, were
$27 million after-tax ($42 million pre-tax). Of this
pre-tax total, a gain of approximately $37 million is
expected to be included in cost of sales within the next
12 months and a loss of approximately $1 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 $8 million
is expected to be included in interest expense over the term of
the related debt. The unrealized amounts in OCI will

10



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##### Table of Contents



fluctuate based on changes in the fair value of
open contracts at each reporting period. The amount included in
cost of sales related to hedge ineffectiveness and the time
value of options was not material.




|   |                     
|-- | --------------------
|7. | STOCKHOLDERS EQUITY

Changes in stockholders equity for the six
months ended June 30, 2004 were:

|                           |                                                                           |                            |     |   |            |   |   |          |  |               |          |    |   |           |       |          |       |   |               |       |  |   |        |     |   |   |     |    |  |   |       |     |       | 
|-------------------------- | ------------------------------------------------------------------------- | -------------------------- | --- | - | ---------- | - | - | -------- |  | ------------- | -------- | -- | - | --------- | ----- | -------- | ----- | - | ------------- | ----- |  | - | ------ | --- | - | - | --- | -- |  | - | ----- | --- | ----- | 
|                           |                                                                           |                            |     |   |            |   |   |          |  |               |          |    |   |          
|                           |                                                                           |                            |     |   |            |   |   |          |  | Accumulated   |          |    |   |           |      
|                           |                                                                           |                            |     |   |            |   |   |          |  | Other         |          |    |   |           |      
|                           |                                                                           |                            |     |   |            |   |   |          |  | Comprehensive |          |    |   |           |      
|                           |                                                                           |                            |     |   |            |   |   |          |  | 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, 2004 |                                                                           |                            | 565 |   |            | $ | 6 |          |  | $             | 2,667    |    |   | $         | 1,241 |          |       | $ | (2,118        | )     |  | $ | (151   | )   |   | $ | (75 | )  |  | $ | 1,570 |    
|                           | Net income                                                                |                            |     |  |            |   |   |         |  |               |          |   |   |           |       | 185      |       |   |               |      |  |   |        |    |   |   |     |   |  |   |       | 185 |      
|                           | Currency translation adjustments and other, net
    of tax                |                            |     |  |            |   |   |         |  |               |          |   |   |           |       |         |       |   |               |      |  |   |        | (75 | ) |   |     |   |  |   |       | (75 | )    
|                           | Net change in unrecognized gain on derivative
    instruments, net of tax |                            |     |  |            |   |   |         |  |               |          |   |   |           |       |         |       |   |               |      |  |   |        | (4  | ) |   |     |   |  |   |       | (4  | )    
|                           |                                                                           |                            |     |   |            |   |   |          |  |               |          |    |   |           |       |          |       |   |               |       |  |   |        |    
|                           |                                                                           | Total comprehensive income |     |   |            |   |   |          |  |               |          |    |   |           |       |          |       |   |               |       |  |   |        |     |   |   |     |    |  |   |       |     | 1,676 | 
|                           | Shares for employee benefit plans                                         |                            |     |  |            |   |   |         |  |               |          | (7 | ) |           |       |         |       |   |               |      |  |   |        |    |   |   |     | 14 |  |   |       | 7   |      
|                           | Dividends                                                                 |                            |     |  |            |   |   |         |  |               |          |   |   |           |       | (78      | )     |   |               |      |  |   |        |    |   |   |     |   |  |   |       | (78 | )    
|                           |                                                                           |                            |     |   |            |   |   |          |  |               |          |    |   |           |       |          |       |   |               |       |  |   |        |    
|Balance at June 30, 2004   |                                                                           |                            | 565 |   |            | $ | 6 |          |  | $             | 2,660    |    |   | $         | 1,348 |          |       | $ | (2,118        | )     |  | $ | (230   | )   |   | $ | (61 | )  |  | $ | 1,605 |    
|                           |                                                                           |                            |     |   |            |   |   |          |  |               |          |    |   |           |       |          |       |   |               |       |  |   |        |    



|   |                  
|-- | -----------------
|8. | SEGMENT REPORTING

Management reviews our sector operating results
for purposes of making operating decisions and assessing
performance, excluding certain charges in the second quarter of
2004 of $46 million, $14 million in cost of sales and
$32 million in employee and product line charges (the
Second Quarter 2004 Charges) and certain charges for
the first six months of 2004 of $136 million,
$66 million in cost of sales and $70 million in
employee and product line charges (the 2004
Charges). Accordingly, we have presented our sector
results excluding such charges. Included below are sales and
operating data for our sectors for the three and six months
ended June 30, 2004 and 2003, which were realigned in 2004.
The 2003 data has been reclassified to conform with the current
sector alignment.

11



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##### Table of Contents



Selected information regarding Delphis
product sectors is as follows:

|                            |                                |                 |                 |       |               |       |   |            |       |       |          |      |      |       |   |        |      |        |   |       |       |        | 
|--------------------------- | ------------------------------ | --------------- | --------------- | ----- | ------------- | ----- | - | ---------- | ----- | ----- | -------- | ---- | ---- | ----- | - | ------ | ---- | ------ | - | ----- | ----- | ------ | 
|                            |                                | Dynamics,       |                 |       |               |       |   |            |       |       |         
|                            |                                | Propulsion,     |                 |       | Electrical,   |       |   | Automotive |       |       |          |      |     
|                            |                                | Thermal &       |                 |       | Electronics & |       |   | Holdings   |       |       |          |      |     
|                            |                                | Interior        |                 |       | Safety        |       |   | Group      |       |       | Other(a) |      |      | Total |  
|                            |                                |                 |                 |       |               |       |   |            |       |       |          |      |      |       |  
|                            |                                |                
|                            |                                | (in millions)   |                
|For the Three Months Ended: |                                |                 |                 |       |               |       |   |            |       |       |          |      |      |       |   |        |      |        |   |      
|June 30, 2004               |                                |                 |                 |       |               |       |   |            |       |       |          |      |      |       |   |        |      |        |   |      
|                            | Net sales to GM and affiliates |                 | $               | 2,131 |               |       | $ | 1,593      |       |       | $        | 410  |      |       | $ |       |      |        | $ | 4,134 |      
|                            | Net sales to other customers   |                 |                 | 1,389 |               |       |   | 1,931      |       |       |          | 95   |      |       |   |       |      |        |   | 3,415 |      
|                            | Inter-sector net sales         |                 |                 | 235   |               |       |   | 94         |       |       |          | 193  |      |       |   | (522   | )    |        |   |      |      
|                            |                                |                 |                 |       |               |       |   |            |       |       |          |      |      |       |  
|                            |                                | Total net sales |                 | $     | 3,755         |       |   | $          | 3,618 |       |          | $    | 698  |       |   | $      | (522 | )      |   | $     | 7,549 |       
|                            |                                |                 |                 |       |               |       |   |            |       |       |          |      |      |       |  
|                            | Sector operating income (loss) |                 | $               | 81    | (b)           |       | $ | 316        | (b)   |       | $        | (134 | )(b) |       | $ | (21    | )(b) |        | $ | 242   | (b)  
|June 30, 2003(c)            |                                |                 |                 |       |               |       |   |            |       |       |          |      |      |       |   |        |      |        |   |      
|                            | Net sales to GM and affiliates |                 | $               | 2,191 |               |       | $ | 1,664      |       |       | $        | 458  |      |       | $ |       |      |        | $ | 4,313 |      
|                            | Net sales to other customers   |                 |                 | 1,196 |               |       |   | 1,484      |       |       |          | 101  |      |       |   |       |      |        |   | 2,781 |      
|                            | Inter-sector net sales         |                 |                 | 217   |               |       |   | 108        |       |       |          | 206  |      |       |   | (531   | )    |        |   |      |      
|                            |                                |                 |                 |       |               |       |   |            |       |       |          |      |      |       |  
|                            |                                | Total net sales |                 | $     | 3,604         |       |   | $          | 3,256 |       |          | $    | 765  |       |   | $      | (531 | )      |   | $     | 7,094 |       
|                            |                                |                 |                 |       |               |       |   |            |       |       |          |      |      |       |  
|                            | Sector operating income (loss) |                 | $               | 134   |               |       | $ | 256        |       |       | $        | (158 | )    |       | $ | (60    | )(d) |        | $ | 172   | (d)  
|                           
|For the Six Months Ended:   |                                |                 |                 |       |               |       |   |            |       |       |          |      |      |       |   |        |      |        |   |      
|June 30, 2004               |                                |                 |                 |       |               |       |   |            |       |       |          |      |      |       |   |        |      |        |   |      
|                            | Net sales to GM and affiliates |                 | $               | 4,287 |               |       | $ | 3,204      |       |       | $        | 833  |      |       | $ |       |      |        | $ | 8,324 |      
|                            | Net sales to other customers   |                 |                 | 2,714 |               |       |   | 3,730      |       |       |          | 192  |      |       |   |       |      |        |   | 6,636 |      
|                            | Inter-sector net sales         |                 |                 | 454   |               |       |   | 215        |       |       |          | 399  |      |       |   | (1,068 | )    |        |   |      |      
|                            |                                |                 |                 |       |               |       |   |            |       |       |          |      |      |       |  
|                            |                                |                 | Total net sales |       | $             | 7,455 |   |            | $     | 7,149 |          |      | $    | 1,424 |   |        | $    | (1,068 | ) |       | $     | 14,960 | 
|                            |                                |                 |                 |       |               |       |   |            |       |       |          |      |      |       |  
|                            | Sector operating income (loss) |                 | $               | 153   | (e)           |       | $ | 598        | (e)   |       | $        | (261 | )(e) |       | $ | (37    | )(e) |        | $ | 453   | (e)  
|June 30, 2003(c)            |                                |                 |                 |       |               |       |   |            |       |       |          |      |      |       |   |        |      |        |   |      
|                            | Net sales to GM and affiliates |                 | $               | 4,516 |               |       | $ | 3,388      |       |       | $        | 964  |      |       | $ |       |      |        | $ | 8,868 |      
|                            | Net sales to other customers   |                 |                 | 2,335 |               |       |   | 2,872      |       |       |          | 201  |      |       |   |       |      |        |   | 5,408 |      
|                            | Inter-sector net sales         |                 |                 | 415   |               |       |   | 218        |       |       |          | 422  |      |       |   | (1,055 | )    |        |   |      |      
|                            |                                |                 |                 |       |               |       |   |            |       |       |          |      |      |       |  
|                            |                                |                 | Total net sales |       | $             | 7,266 |   |            | $     | 6,478 |          |      | $    | 1,587 |   |        | $    | (1,055 | ) |       | $     | 14,276 | 
|                            |                                |                 |                 |       |               |       |   |            |       |       |          |      |      |       |  
|                            | Sector operating income (loss) |                 | $               | 268   |               |       | $ | 502        |       |       | $        | (296 | )    |       | $ | (74    | )(d) |        | $ | 400   | (d)  



|    |                                                                                                                                                                                                                                           
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Other includes activity not allocated to the
    product sectors and elimination of inter-sector transactions.                                                                                                                            
|   
|(b) | Excludes the Second Quarter 2004 Charges of
    $12 million for Dynamics, Propulsion, Thermal &
    Interior, $24 million for Electrical, Electronics &
    Safety, $7 million for Automotive Holdings Group and
    $3 million for Other.
|   
|(c) | As previously disclosed, amounts have been
    reclassified from prior presentation to conform to our new
    sector alignment.                                                                                                           
|   
|(d) | Includes the second quarter 2003 legal settlement
    with a former supplier of $38 million.                                                                                                                                              
|   
|(e) | Excludes the 2004 Charges of $56 million for
    Dynamics, Propulsion, Thermal & Interior,
    $44 million for Electrical, Electronics & Safety,
    $29 million for Automotive Holdings Group and
    $7 million for Other.              



|   |                              
|-- | -----------------------------
|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.

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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 currently being investigated 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. 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 our
share of the potential costs of capping and future monitoring of
the site plus the cost to complete the investigation 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. For each of the three
month periods ended June 30, 2004 and 2003, our
warranty expenses have been less than 0.4% of cost of sales.
Although we cannot ensure that the future costs of warranty
claims by 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. (Litex) filed suit against
Delphi in federal court in the District of Massachusetts
alleging infringement of certain patents regarding methods to
reduce engine exhaust emissions. On November 12, 2003,
during trial, the parties reached an agreement to dismiss the
litigation with prejudice in favor of an agreement to submit the
case to binding arbitration. Arbitration proceedings were held
during the first week of April and the parties are awaiting a
decision. Additionally, we are mediating patent infringement
disputes with subsidiaries of Takata Corporation concerning
vehicle occupant detection technologies. We believe we have
valid defenses against the claims by Takata as well as valid
claims against Takata for infringing our patents; however, the
outcomes of these matters are inherently uncertain. Although
each party has claims against the other, the extent to which
such claims may offset each other, if at all, will depend on the
relative strength of the parties claims and defenses.

Litigation is subject to many uncertainties, and
the outcome of individual litigated matters is not predictable
with assurance. 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.

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Item 2. MANAGEMENTS DISCUSSION
AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS


Executive Summary

Our second quarter net sales were
$7.5 billion, up from $7.1 billion in the second
quarter of 2003. Non-GM revenues were $3.4 billion, or 45%
of sales, up 23% from the second quarter of 2003. Our second
quarter 2004 GM sales were $4.1 billion, down 4% from the
second quarter of 2003. Net income for the second quarter 2004
was $131 million. Our net sales for the first six months of
2004 were $15.0 billion, up from $14.3 billion in the
first six months of 2003. Non-GM revenues were
$6.6 billion, or 44% of sales, up 23% from the first six
months of 2003. Our GM sales for the first six months of 2004
were $8.3 billion, down 6% from the first six months of
2003. Net income for the first six months of 2004 was
$185 million. Year over year, we benefited from the steady
growth of our non-GM business and have continued to diversify
our customer base through sales of technology-rich products and
systems-based solutions for vehicles and other non-automotive
applications. In addition, net income benefited from a continued
decline in our effective tax rate.

A key strength of our business is our ability to
consistently generate cash. Our Board of Directors and
management use cash generated by the businesses as a measure of
our performance. Strong cash flow generation is critical to
increasing Delphis value. We use the cash that we generate
in our operations for strengthening our balance sheet, including
reducing legacy liabilities such as pensions, restructuring our
operations, generating growth, and paying dividends. We believe
that looking at our ability to generate cash provides investors
with additional insight into our performance. See further
discussion of cash flows in Liquidity and Capital
Resources below.

Consistent with the first quarter, we worked with
our suppliers to proactively manage cost pressures related to
the increasing costs of various commodities, including steel.
While our overall material prices have declined during the first
half of 2004, we have experienced higher commodity costs versus
the comparable period in 2003. We expect that raw material steel
supply will continue to be constrained during the second half of
the year and cannot ensure that we will not experience increased
costs or disruptions in supply over the remainder of the year or
longer term, or that increased costs for steel or other
commodities will not have a material adverse impact on earnings.

Our 2003 employee and product line initiatives
are ahead of schedule. We expect to see continued U.S. hourly
attrition through the end of the year, with total U.S. hourly
attrition in the range of 5,500 to 6,000. As a result of the
additional 500 to 1,000 person attrition, we expect to incur up
to $15 million of additional costs. Savings realized from
our restructuring plans combined with other operating
performance improvements have allowed us to continue to manage
the challenges of legacy costs associated with declining GM
revenues, rising wages, pension and healthcare costs, as well as
continued price pressures.

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, 2003. The information presented
below is based on our sector realignment which was effective
January 1, 2004.

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Three
Months Ended June 30, 2004 versus Three Months Ended
June 30, 2003

Net Sales.Consolidated net sales by product
sector and in total for the three months ended
June 30, 2004 and 2003 were:

|                                         |                        |                    |       |       |      |   |       |       | 
|---------------------------------------- | ---------------------- | ------------------ | ----- | ----- | ---- | - | ----- | ----- | 
|                                         |                        |                   
|                                         |                        | Three Months Ended |      
|                                         |                        | June 30,           |      
|                                         |                        |                    |      
|Product Sector                           |                        | 2004               |       |       | 2003 |  
|                                         |                        |                    |       |       |      |  
|                                         |                        |                   
|                                         |                        | (in millions)      |      
|Dynamics, Propulsion, Thermal & Interior |                        | $                  | 3,755 |       |      | $ | 3,604 |      
|Electrical, Electronics & Safety         |                        |                    | 3,618 |       |      |   | 3,256 |      
|Automotive Holdings Group                |                        |                    | 698   |       |      |   | 765   |      
|Other                                    |                        |                    | (522  | )     |      |   | (531  | )    
|                                         |                        |                    |       |       |      |  
|                                         | Consolidated net sales |                    | $     | 7,549 |      |   | $     | 7,094 | 
|                                         |                        |                    |       |       |      |  

Consolidated net sales for the second quarter of
2004 were $7.5 billion compared to $7.1 billion for
the same period of 2003. Our non-GM sales increased by
$634 million, including $92 million resulting from
favorable currency exchange rates. Excluding the effects of
favorable currency exchange rates, our non-GM sales increased
$542 million or 20%. This non-GM sales increase was due to
new business from diversifying our global customer base,
increased production volumes, and incremental sales due to our
recent acquisition, Delphi Grundig, partially offset by price
decreases. As a percent of our net sales for the second quarter
of 2004, our non-GM sales were 45%. Net sales to GM decreased by
$179 million, net of $24 million of favorable foreign
currency exchange rates. Excluding the effects of favorable
currency exchange rates, our GM sales decreased
$203 million or 5% primarily due to volume and price
decreases and decisions to exit certain businesses including
generators. As mentioned above, our net sales were impacted by
continued price pressures that resulted in price reductions of
approximately $136 million, or 1.9% for the second quarter
of 2004 compared to approximately $98 million or 1.3% for
the second quarter of 2003.

Gross Margin.Our
gross margin was 12.1% for the second quarter of 2004 compared
to gross margin of 12.0% for the second quarter of 2003. The
slight increase reflects higher volumes with non-GM customers,
lower material costs, and savings realized from our
restructuring plans partially offset by the impact of higher
wages, increased U.S. pension and healthcare expenses, and price
decreases.

Selling, General and Administrative.Selling, general and administrative
(SG&A) expenses of $402 million, 5.3% of
net sales for the second quarter of 2004, were slightly lower
than $422 million or 5.9% of total net sales for the second
quarter of 2003. The slight decrease is primarily due to the
2003 legal settlement discussed below, partially offset by
currency exchange rates. In 2003, SG&A expenses were
adversely impacted by a legal settlement in connection with a
commercial dispute with a former supplier of approximately
$38 million. Excluding the legal settlement, SG&A
expenses in the second quarter of 2003 were $384 million or
5.4% of net sales.

Depreciation and Amortization.Depreciation and amortization was
$282 million for the second quarter of 2004 compared to
$260 million for the second quarter of 2003; the increase
primarily reflects the impact of currency exchange rates as well
as the depreciation of assets newly placed in service. In 2003,
depreciation and amortization included $8 million of
portfolio related actions, principally facility closure costs.

Employee and Product Line Charges.The charges for the second quarter of
2004 are discussed below in the Six Months Ended
June 30, 2004 versus Six Months Ended June 30,
2003  Employee and Product Line Charges
analysis.

Operating Income.Operating income was $196 million
for the second quarter of 2004 compared to operating income of
$172 million for the second quarter of 2003. The second
quarter 2004 operating income includes charges of
$14 million in cost of sales and $32 million in
employee and product line charges (the Second Quarter 2004
Charges). Management reviews our sector operating income
results

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excluding the Second Quarter 2004 Charges.
Accordingly, we have separately presented such amounts in the
table below:


|                                         |                        |                    |      |     |      |   |      |     | 
|---------------------------------------- | ---------------------- | ------------------ | ---- | --- | ---- | - | ---- | --- | 
|                                         |                        |                   
|                                         |                        | Three Months Ended |     
|                                         |                        | June 30,           |     
|                                         |                        |                    |     
|Product Sector                           |                        | 2004               |      |     | 2003 |  
|                                         |                        |                    |      |     |      |  
|                                         |                        |                   
|                                         |                        | (in millions)      |     
|Dynamics, Propulsion, Thermal & Interior |                        | $                  | 81   |     |      | $ | 134  |    
|Electrical, Electronics & Safety         |                        |                    | 316  |     |      |   | 256  |    
|Automotive Holdings Group                |                        |                    | (134 | )   |      |   | (158 | )  
|Other                                    |                        |                    | (21  | )   |      |   | (60  | )  
|                                         |                        |                    |      |     |      |  
|                                         | Subtotal               |                    |      | 242 |      |   |      | 172 | 
|Second Quarter 2004 Charges (a)          |                        |                    | (46  | )   |      |   |     |    
|                                         |                        |                    |      |     |      |  
|                                         | Total operating income |                    | $    | 196 |      |   | $    | 172 | 
|                                         |                        |                    |      |     |      |  



| |     |                                                                                                                                                                                                                                              | 
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
| | (a) | Represents the Second Quarter 2004 Charges of
    $12 million for Dynamics, Propulsion, Thermal &
    Interior, $24 million for Electrical, Electronics &
    Safety, $7 million for Automotive Holdings Group and
    $3 million for Other. | 

The increase in operating income from the second
quarter of 2003 primarily reflected savings realized from our
restructuring plans, material cost savings, and the 2003 legal
settlement discussed above, partially offset by lower pricing
and increased pension, healthcare and wages.

Taxes.Our effective
tax rate for the second quarter of 2004 was 12% compared to
approximately 31% for the comparable period of 2003. During the
second quarter of 2004, the routine U.S. federal tax audit of
our tax returns for the portion of 1999 following spin-off from
GM and for 2000 was substantially completed. As a result of this
audit, we will be making a tax payment in the third quarter of
2004 of approximately $9 million (including interest). Upon
completion of the audit, we determined that approximately
$12 million of tax reserves were no longer required. An
adjustment to reduce the reserve was recorded during the
quarter. Excluding the benefit of this reduction in reserves on
income tax expense, our effective tax rate for the second
quarter of 2004 was 20%. During the past year we have been
experiencing a shift of our earnings to lower tax rate
jurisdictions. In addition, we effected entity reorganization
and tax planning activities, which is allowing increased amounts
of earnings from the Asia-Pacific region to be considered
indefinitely reinvested in foreign operations. Finally, our
effective tax rate benefited from lower statutory rates in
certain foreign jurisdictions and U.S. tax law changes. As a
result of the foregoing, our full year 2004 effective tax rate
may continue to decline.

Six
Months Ended June 30, 2004 versus Six Months Ended
June 30, 2003

Net Sales.Consolidated net sales by product
sector and in total for the six months ended
June 30, 2004 and 2003 were:

|                                         |                        |                  |        |        |      |   |        |        | 
|---------------------------------------- | ---------------------- | ---------------- | ------ | ------ | ---- | - | ------ | ------ | 
|                                         |                        |                 
|                                         |                        | Six Months Ended |       
|                                         |                        | June 30,         |       
|                                         |                        |                  |       
|Product Sector                           |                        | 2004             |        |        | 2003 |  
|                                         |                        |                  |        |        |      |  
|                                         |                        |                 
|                                         |                        | (in millions)    |       
|Dynamics, Propulsion, Thermal & Interior |                        | $                | 7,455  |        |      | $ | 7,266  |       
|Electrical, Electronics & Safety         |                        |                  | 7,149  |        |      |   | 6,478  |       
|Automotive Holdings Group                |                        |                  | 1,424  |        |      |   | 1,587  |       
|Other                                    |                        |                  | (1,068 | )      |      |   | (1,055 | )     
|                                         |                        |                  |        |        |      |  
|                                         | Consolidated net sales |                  | $      | 14,960 |      |   | $      | 14,276 | 
|                                         |                        |                  |        |        |      |  

Consolidated net sales for the first six months
of 2004 were $15.0 billion compared to $14.3 billion
for the same period of 2003. Our non-GM sales increased by
$1.2 billion including approximately $0.3 billion
resulting from favorable currency exchange rates. Excluding the
effects of favorable currency exchange

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rates, our non-GM sales increased approximately
$0.9 billion or 17%. This non-GM sales increase was due to
increased production volumes, new business from diversifying our
global customer base, and incremental sales due to our recent
acquisition, Delphi Grundig, partially offset by price
decreases. As a percent of our net sales for the six months
ended June 30, 2004, our non-GM sales were 44%. Net sales
to GM decreased by $544 million, net of $89 million
resulting from favorable currency exchange rates. Excluding the
effects of favorable currency exchange rates, our GM sales
decreased $633 million or 7%. This GM sales decrease was
due to volume and price decreases and decisions to exit certain
businesses. As mentioned above, our net sales were impacted by
continued price pressures that resulted in price reductions of
approximately $262 million, or 1.8% for the first six
months of 2004, compared to approximately $209 million or
1.5% for first six months of 2003.


Gross Margin.Our
gross margin was 11.7% for the first six months of 2004 compared
to gross margin of 12.1% for the first six months of 2003. The
slight decrease reflects the impact of higher wages, increased
U.S. pension and healthcare expenses, and price decreases
partially offset by higher volumes with non-GM customers, lower
material costs as well as savings realized from our
restructuring plans.

Selling, General and Administrative.Selling, general and administrative
expenses of $805 million, 5.4% of total net sales for the
first six months of 2004, were slightly lower than
$811 million or 5.7% of total net sales for the first six
months of 2003. The decrease is primarily due to the 2003 legal
settlement discussed below, partially offset by currency
exchange rates. In 2003, SG&A expenses were adversely
impacted by a legal settlement in connection with a commercial
dispute with a former supplier of approximately
$38 million. Excluding the legal settlement, SG&A
expenses were $773 million or 5.4% of net sales.

Depreciation and Amortization.Depreciation and amortization was
$561 million for the first six months of 2004 compared to
$513 million for the first six months of 2003; the increase
primarily reflects the impact of currency exchange rates as well
as the depreciation of assets newly placed in service. In 2003,
depreciation and amortization included $8 million of
portfolio related actions, principally facility closure costs.

Employee and Product Line Charges.In the third quarter of 2003, Delphi
approved plans to reduce our U.S. hourly workforce by up to
approximately 5,000 employees, our U.S. salaried workforce by
approximately 500 employees, and our non-U.S. workforce by
approximately 3,000 employees. Based on progress to date, we now
anticipate 500 to 1,000 additional hourly employees will leave
Delphi bringing our total attrition to 5,500 to 6,000. Our plans
entail reductions to our workforce through a variety of methods
including regular attrition and retirements, and voluntary and
involuntary separations, as applicable. Under certain elements
of the plans, the International Union, United Automobile,
Aerospace, and Agricultural Implement Workers of America
(UAW) hourly employees may flow back to GM. As
required under generally accepted accounting principles, we
record the costs associated with the flowback to GM as the
employees accept the offer to exit Delphi. Including the
$15 million of costs for additional U.S. hourly employees,
we expect to incur total charges related to these initiatives of
approximately $822 million (pre-tax) through
December 31, 2004, of which $46 million
($14 million in cost of sales and $32 million in
employee and product line charges) and $136 million
($66 million in cost of sales and $70 million in
employee and product line charges) were recorded during the
three and six months ended June 30, 2004, respectively, and
$616 million was recorded in 2003. The charges to cost of
sales include costs for employees who are idled prior to
separation. We expect to incur the remaining estimated charges
of $70 million (pre-tax) related to the hourly employee
reductions and other structural cost initiatives during the
remainder of 2004. Plans to separate U.S. salaried and non-U.S.
salaried employees under a variety of programs were met. During
the second quarter of 2004, approximately 1,175 U.S. hourly
employees flowed back to GM or retired. Cumulatively through
June 30, 2004, approximately 4,925 U.S. hourly
employees have left the company pursuant to these plans.

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Following is a summary of the activity in the
employee and product line reserve (in millions):

|                                  |                                           |                |     |      |            |   |   |       |  |   |     |      |     
|--------------------------------- | ----------------------------------------- | -------------- | --- | ---- | ---------- | - | - | ----- |  | - | --- | ---- | ----
|Employee and Product Line Charges |                                           | Employee Costs |     |      | Exit Costs |   |   | Total | 
|                                  |                                           |                |     |      |            |   |   |       | 
|Balance at January 1, 2004        |                                           | $              | 246 |      |            | $ | 5 |       |  | $ | 251 |     
|                                  | 2004 Charges                              |                |     | 70   |            |   |   |      |  |   |     | 70   |     
|                                  | Usage during the first six months of 2004 |                |     | (219 | )          |   |   |      |  |   |     | (219 | )(a)
|                                  |                                           |                |     |      |            |   |   |       | 
|Balance at June 30, 2004          |                                           | $              | 97  |      |            | $ | 5 |       |  | $ | 102 | (b) 
|                                  |                                           |                |     |      |            |   |   |       | 



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | 
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | 
| | (a) | The total cash paid for the six months ended
    June 30, 2004 was $215 million, as shown on our
    consolidated Statement of Cash Flows. The $219 million of
    usage for the first six months of 2004 includes $145 million and
    $74 million for the three months ended
    March 31, 2004 and June 30, 2004, respectively.
    The $145 million of usage for the first three months of
    2004 includes $4 million of non-cash special termination
    pension and postretirement benefits. In addition, we incurred
    $14 million and $66 million of cash costs associated
    with the 2004 Charges for the three and six months ended
    June 30, 2004, respectively, which were recorded in cost of
    sales. | 
|
| | (b) | This amount is included in accrued liabilities in
    the accompanying consolidated balance sheet.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | 

The estimated cash impact of these initiatives is
approximately $0.7 billion, of which $88 million and
$281 million was paid during the three and six months ended
June 30, 2004, respectively, and $205 million was paid
in 2003. We expect that up to $0.1 billion will be paid in
subsequent quarters in 2004 and the remainder in 2005.

Operating Income.Operating income was $317 million
for the first six months of 2004 compared to operating income of
$400 million for the first six months of 2003. The
operating income for the first six months of 2004 includes
charges of $66 million in cost of sales and
$70 million in employee and product line charges (the
2004 Charges). Management reviews our sector
operating income results excluding the 2004 Charges.
Accordingly, we have separately presented such amounts in the
table below:

|                                         |                        |                  |      |     |      |   |      |     | 
|---------------------------------------- | ---------------------- | ---------------- | ---- | --- | ---- | - | ---- | --- | 
|                                         |                        |                 
|                                         |                        | Six Months Ended |     
|                                         |                        | June 30,         |     
|                                         |                        |                  |     
|Product Sector                           |                        | 2004             |      |     | 2003 |  
|                                         |                        |                  |      |     |      |  
|                                         |                        |                 
|                                         |                        | (in millions)    |     
|Dynamics, Propulsion, Thermal & Interior |                        | $                | 153  |     |      | $ | 268  |    
|Electrical, Electronics & Safety         |                        |                  | 598  |     |      |   | 502  |    
|Automotive Holdings Group                |                        |                  | (261 | )   |      |   | (296 | )  
|Other                                    |                        |                  | (37  | )   |      |   | (74  | )  
|                                         |                        |                  |      |     |      |  
|                                         | Subtotal               |                  |      | 453 |      |   |      | 400 | 
|2004 Charges(a)                          |                        |                  | (136 | )   |      |   |     |    
|                                         |                        |                  |      |     |      |  
|                                         | Total operating income |                  | $    | 317 |      |   | $    | 400 | 
|                                         |                        |                  |      |     |      |  



| |     |                                                                                                                                                                                                                                | 
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | 
| | (a) | Represents the 2004 Charges of $56 million
    for Dynamics, Propulsion, Thermal & Interior,
    $44 million for Electrical, Electronics & Safety,
    $29 million for Automotive Holdings Group and
    $7 million for Other. | 

The increase in operating income from the first
six months of 2003 primarily reflected savings realized from our
restructuring plans, material savings, and the 2003 legal
settlement discussed above, partially offset by lower pricing
and increased pension, healthcare and wages.

Taxes.Our effective
tax rate for the first six months of 2004 was 16% compared to
approximately 31% for the comparable period of 2003. During the
second quarter of 2004, the routine U.S. federal tax audit of
our tax returns for the portion of 1999 following spin-off from
GM and for 2000 was substantially completed. As a result of this
audit, we will be making a tax payment in the third quarter of
2004 of approximately $9 million (including interest). Upon
completion of the audit, we determined that

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approximately $12 million of tax reserves
were no longer required. An adjustment to reduce the reserve was
recorded during the quarter. Excluding the benefit of this
reduction in reserves on income tax expense, our effective tax
rate for the first six months of 2004 was 21%. During the past
year we have been experiencing a shift of our earnings to lower
tax rate jurisdictions. In addition, we effected entity
reorganization and tax planning activities, which is allowing
increased amounts of earnings from the Asia-Pacific region to be
considered indefinitely reinvested in foreign operations.
Finally, our effective tax rate benefited from lower statutory
rates in certain foreign jurisdictions and U.S. tax law changes.
As a result of the foregoing, our full year 2004 effective tax
rate may continue to decline.


Liquidity and Capital Resources

Overview
of Capital Structure

Our objective is to appropriately finance our
business through a mix of long-term and short-term debt, and to
ensure that we have adequate access to liquidity. Of our
$3.0 billion of outstanding debt at
June 30, 2004, $2.0 billion was senior, unsecured
debt with maturities ranging from 2006 to 2029 and approximately
$0.4 billion was junior subordinated notes due to Delphi
Trust I and II. This long-term debt primarily finances our
long-term fixed assets. As of June 30, 2004, we have
approximately $0.6 billion of short-term and other debt. We
have highly varying needs for short-term working capital
financing as a result of the nature of our business. Our cash
flows during the year are impacted by the volume and timing of
vehicle production, which includes a halt in certain operations
of our North American customers for approximately two weeks in
July and one week in December and reduced production in July and
August for certain European customers. We finance our working
capital through a mix of committed facilities, including
receivables securitization programs, uncommitted facilities
including bank lines, factoring lines and to a limited extent,
commercial paper. Although the latter group is not committed, we
expect these facilities typically would be available to us, if
and when needed. We also maintain $3.0 billion of committed
Credit Facilities, which we have had in place since our
separation from GM. We have never used any of the
$3.0 billion of committed Credit Facilities. We view these
facilities as providing an ample source of back-up liquidity
that is available in case of an unanticipated event and do not
expect to utilize these facilities in the near term.

Our capital planning process is focused on
ensuring that we use our cash flow generated from our operations
in ways that enhance the value of our company. For the first six
months of 2004, we used our cash flow to generate revenue
growth, reduce structural costs, make a pension contribution,
and pay dividends. Our pension contribution of $0.6 billion
in June 2004 more than fulfills our ERISA pension funding
minimums for 2004. We anticipate $0.4 billion of payments
from our restructuring programs announced in October 2003, and
$0.2 billion of dividends for the calendar year 2004. We
expect that we will be able to fund these amounts with cash flow
from operations. We further expect that we will be able to fund
our longer-term requirements, including repayments of debt
securities and payments for residual value guarantees and
purchase options on operating leases, if exercised, as they
become due.

Available
Credit Facilities

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), reduced by the amount of any
outstanding letters of credit. The terms of the Credit
Facilities provide for a five-year revolving credit line in the
amount of $1.5 billion, which expires in June 2009, and a
364-day revolving credit line in the amount of
$1.5 billion, which expires in June 2005. Both revolving
credit lines were renewed in the second quarter of 2004. Except
for the extension of expiration date, the terms of these credit
facilities remain substantially unchanged. We have never
borrowed under either of these Credit Facilities. Our Credit
Facilities also contain certain affirmative and negative
covenants including a financial covenant requirement for a debt
to EBITDA coverage ratio not to exceed 3.25 to 1. In addition,
certain of our lease facilities discussed below contain
cross-default provisions to our Credit Facilities. We were in
compliance with the financial covenant and all other covenants
as of June 30, 2004.

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Other
Financing Transactions

We maintain a revolving accounts receivable
securitization program in the United States (U.S. Facility
Program). This program has been accounted for as the sale
of accounts receivable. As of June 30, 2004, we had
$600 million of accounts receivable sold under this
program. The U.S. Facility Program has $600 million
available and expires March 28, 2005. We currently
anticipate that we will renew this program annually, with the
potential for further increases to the program as our non-GM
receivables continue to grow. The U.S. Facility Program contains
a financial covenant and certain other covenants similar to our
revolving Credit Facilities that, if not met, could result in a
termination of the agreement. At June 30, 2004, we were in
compliance with the financial covenant and all other covenants.
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.

In November 2003, we entered into a
300 million
($363 million at June 30, 2004 currency exchange
rates) and £30 million ($54 million at
June 30, 2004 currency exchange rates) trade receivable
securitization program for certain of our European accounts
receivable. Accounts receivable transferred under this program
are accounted for as short-term debt. As of June 30, 2004,
we had no significant accounts receivable transferred under this
program. The program expires on November 4, 2004 and can be
extended, based upon the mutual agreement of the parties.
Additionally, the European program contains a financial covenant
and certain other covenants similar to our revolving Credit
Facilities (discussed above) that, if not met, could result in a
termination of the agreement. At June 30, 2004, we were in
compliance with all such covenants.

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 $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 June 30,
2004, the aggregate fair value of these properties exceeds the
minimum value guaranteed upon exercise of the remarketing
option. Upon entering into the agreement, 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 is accounted for as an operating lease under
generally accepted accounting principles. Our purchase price
option on this facility is $28 million and we have a
guaranteed residual value of $22 million.

Customer
Financing Programs

We maintain a program with General Electric
Capital Corporation (GECC) that allows our some of
suppliers to factor their receivables from us to GECC for early
payment. This program also allows us to have GECC pay our
suppliers on our behalf, providing extended payment terms to us.
Delphi has decided to discontinue this program in the future.
Thus, we are minimizing our involvement in the program
throughout the remainder of this year.

Our June 30, 2004 short-term debt balance
includes $45 million of accounts payable that were factored
by our suppliers to GECC but which are still within our stated
payment terms to our suppliers. There were no payables beyond
their stated terms at June 30, 2004.

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Some of our customers have similar arrangements
with GECC, which allows us to sell certain of our customer
receivables, at a discount, to GECC on a non-recourse basis.
When we participate in one of these programs, our receivables
are reduced and our cash balances are increased. We did not
participate in any of these programs at June 30, 2004.

Credit
Ratings

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. Our goal is to
maintain solid investment grade credit ratings. Although not
currently anticipated, if we were downgraded by Moodys to
Baa3, our facility fee and borrowing costs under our existing
five-year Credit Facility would increase, although availability
would be unaffected. 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 would further increase
and our ability to tap certain financial markets may be limited.

Cash
Flows

Operating Activities.Net cash provided by operating
activities totaled $0.6 billion and $0.4 billion for
the six months ended June 30, 2004 and 2003, respectively.
Net cash provided by operating activities in the first six
months of 2004 and 2003 were impacted by contributions to our
U.S. pension plans of $0.6 billion in each year. In
addition, net cash provided by operating activities for the
first six months of 2004 was impacted by cash paid for employee
and product line initiatives totaling approximately
$.3 billion.

Investing Activities.Cash flows used in investing
activities totaled $0.4 billion for each of the six months
ended June 30, 2004 and 2003. The use of cash in the first
six months of 2004 and 2003 reflected capital expenditures
related to ongoing operations.

Financing Activities.Net cash used in financing activities
was $0.4 billion and $0.2 billion for the six months
ended June 30, 2004 and 2003, respectively. Net cash used
in financing activities during the six months ended
June 30, 2004 reflected a repayment of the 6.125% senior
notes due May 1, 2004, partially offset by proceeds
received from short-term borrowings. Net cash used in financing
activities during the first six months of 2003 reflected
repayments of short-term borrowings. Both periods also reflect
the payments of dividends.

Dividends.The Board
of Directors declared a dividend on Delphi common stock of
$0.07 per share on June 22, 2004, which is payable on
August 3, 2004 to holders of record on July 6, 2004.
The dividend declared on March 1, 2004 was paid on
April 12, 2004.

Stock-Based Compensation.In May 2004, Delphis
existing equity compensation plans expired and shareholders
approved a new equity plan. The plan provides for the issuances
of up to 36.5 million shares of common stock to named
executive officers and other employees, pursuant to stock
options and other equity awards, such as restricted stock and
restricted stock units. During the second quarter, we issued
approximately 4.5 million restricted stock units and
approximately 6.8 million options. The table below reflects
the impact of our newly adopted equity compensation plan on
total options and rights outstanding and shares available for
future awards against all plans as of June 30, 2004 and
December 31, 2003.

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|                                                           |       |                      |        |        |                     |   |                      |                     |  |  |        |        | 
|---------------------------------------------------------- | ----- | -------------------- | ------ | ------ | ------------------- | - | -------------------- | ------------------- |  |  | ------ | ------ | 
|                                                           |       | Number of Securities |        |        |                     |   | Number of Securities |                    
|                                                           |       | to be Issued upon    |        |        | Weighted-Average    |   |                      | Remaining Available | 
|                                                           |       | Exercise of          |        |        | Exercise Price of   |   |                      | for Future Issuance | 
|                                                           |       | Outstanding Options  |        |        | Outstanding Options |   |                      | Under Equity        | 
|Plan Category                                              |       | and Rights(a)        |        |        | and Rights(b)       |   |                      | Compensation Plans  | 
|                                                           |       |                      |        |        |                     |   |                      |                     | 
|                                                           |       | (in thousands)       |        |        |                     |   | (in thousands)       |                    
|June 30, 2004                                              |       |                      |        |        |                     |   |                      |                     |  |  |        |       
|Equity compensation plans approved by stockholders         |       |                      | 73,199 |        |                     | $ | 12.35                |                     |  |  | 25,165 |       
|Equity compensation plans not approved by
    stockholders |       |                      | 25,357 |        |                     | $ | 16.47                |                     |  |  |       |       
|                                                           |       |                      |        |        |                     |   |                      |                     | 
|                                                           | Total |                      |        | 98,556 |                     |   | $                    | 13.41               |  |  |        | 25,165 | 
|                                                           |       |                      |        |        |                     |   |                      |                     | 

|                                                           |       |                      |        |        |                     |   |                      |                     |  |  |        |        | 
|---------------------------------------------------------- | ----- | -------------------- | ------ | ------ | ------------------- | - | -------------------- | ------------------- |  |  | ------ | ------ | 
|                                                           |       | Number of Securities |        |        |                     |   | Number of Securities |                    
|                                                           |       | to be Issued Upon    |        |        | Weighted-Average    |   |                      | Remaining Available | 
|                                                           |       | Exercise of          |        |        | Exercise Price of   |   |                      | for Future Issuance | 
|                                                           |       | Outstanding Options  |        |        | Outstanding Options |   |                      | Under Equity        | 
|Plan Category                                              |       | and Rights(a)        |        |        | and Rights(b)       |   |                      | Compensation Plans  | 
|                                                           |       |                      |        |        |                     |   |                      |                     | 
|                                                           |       | (in thousands)       |        |        |                     |   | (in thousands)       |                    
|December 31, 2003                                          |       |                      |        |        |                     |   |                      |                     |  |  |        |       
|Equity compensation plans approved by stockholders         |       |                      | 64,536 |        |                     | $ | 12.87                |                     |  |  | 15,154 |       
|Equity compensation plans not approved by
    stockholders |       |                      | 25,900 |        |                     | $ | 16.48                |                     |  |  |       |       
|                                                           |       |                      |        |        |                     |   |                      |                     | 
|                                                           | Total |                      |        | 90,436 |                     |   | $                    | 13.95               |  |  |        | 15,154 | 
|                                                           |       |                      |        |        |                     |   |                      |                     | 



| |     |                                                                                                                                                                                                                                                                                                 | 
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
| | (a) | Includes approximately 65.8 million
    outstanding options and approximately 7.4 million
    outstanding restricted stock units as of June 30, 2004 and
    60.5 million outstanding options and approximately
    4.0 million outstanding restricted stock units as of
    December 31, 2003. | 
|
| | (b) | Includes weighted-average exercise price of
    outstanding options only.                                                                                                                                                                                                                       | 

Outlook

Consistent with the automotive supply industry
generally, we continue to experience significant competitive
pressure and expect to face continued downward pricing pressures
from vehicle manufacturers. We seek to meet our customer price
expectations through the continued transformation of our
manufacturing footprint and application of lean enterprise
principles. As discussed in more detail below, our GM sales have
declined since our separation from GM. However, our non-GM
revenue is expected to continue to grow, up 23% in the first six
months of 2004 over the comparable period of 2003 and
representing 44% of our sales for the first six months of 2004.

We expect our third quarter 2004 sales to be in
the range of $6.4 billion to $6.8 billion. These 2004
sales reflect favorable currency effects of approximately
$120 million to $140 million; excluding such favorable
effects, expected revenue would be $6.3 billion to
$6.7 billion, $0.3 billion less than to
$0.1 billion more than the third quarter 2003 sales of
$6.6 billion. The lower sales in 2004 versus 2003 reflect
our expectations for lower vehicle manufacturers
(VM) production levels in the third quarter of 2004
versus the comparable quarter in 2003. Due to lower VM
production levels, we expect to incur a net loss in the third
quarter, including expected employee and product line charges,
between $10 million and $40 million. Excluding
expected employee and product line charges of up to
$20 million (after-tax) under the programs announced in
October 2003, we expect our earnings (loss) in the third
quarter to range from a net loss of $20 million to positive
net income of $10 million. As discussed under Results of
Operations  Taxes, we are currently evaluating our
annual effective tax rate and may revise the rate downward in
the third quarter. Such a revision, if any, would have the
effect of recording a tax benefit in

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the third quarter to cumulatively adjust our tax
rate for the year to the appropriate rate and has been
contemplated in the earnings guidance range set forth above.


Delphi continues to implement productivity
improvements and related activities designed to reduce overhead,
improve manufacturing processes and streamline our value stream.
In addition, we continue to rationalize 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. We are achieving and anticipate continued hourly
attrition as well as flowback of UAW represented Delphi
employees to GM. In addition, we are engaged in dialogue with
our unions regarding our plans for consolidation of four AHG
sites: Olathe, Kansas; Tuscaloosa, Alabama; Flint West,
Michigan; and Anaheim, California. Also, in April 2004, Delphi
and the UAW finalized a seven-year Supplement to the 2003
UAW-Delphi National Agreement, setting new wage and benefit
levels for future hires. These future hires are expected to be
phased into our operations over the next several years.

As stated earlier, we have been successful in
managing commodity cost pressures, in part by leveraging our
contractual rights and negotiating commercial accommodations,
related to increased commodity costs including steel. We expect
that these pressures will continue during the remainder of the
year. Accordingly, while we will continue to take actions as
necessary to manage these risks and proactively work with our
supply and customer base, we cannot ensure that we will not
experience increased commodity costs or disruptions in the
supply of steel over the remainder of the year or longer term,
or that such increased costs will not have a material adverse
impact on earnings.

In addition to conditions in our market and the
economy as a whole, we depend on GM as a customer. GM accounted
for 56% of our net sales for the first six months of 2004. Our
sales to GM have declined since our separation from GM;
principally due to lower GM production, 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 ongoing changes in our vehicle content and the product
mix supplied to them. We 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 GM business, our
revenues may decline further. In the fourth quarter of 2003,
Delphi and GM reached an agreement on a growth and opportunity
process that provides for advanced review of sourcing
opportunities, which should stabilize business at Delphis
U.S. legacy sites. 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 second quarter of 2004 was $2,577. We
continue to project our sales beyond the second quarter of 2004
to grow modestly assuming projected production levels, with
non-GM sales increasing and GM sales decreasing.

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

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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
level of these reserves, and adjust them when appropriate.
However, the final amounts determined to be due related to these
matters could differ materially from our recorded estimates.


We expect our full year 2004 effective tax rate,
excluding the $12 million reduction of income tax reserves,
to be in the range of 15% to 21%. The next routine U.S. federal
tax audit of our tax returns (covering the 2001 and 2002 years)
has now commenced and is expected to be completed sometime in
2005. In addition, legislation currently pending in the U.S.
Congress could have the effect of reducing the tax rate
applicable to certain portions of our income and, accordingly,
could cause a reduction in the value of certain deferred tax
assets. The amount of this reduction, if any, cannot be
quantified until the legislation is enacted and the tax and
accounting rules applicable thereto are clarified. Additional
legislation is currently pending that could positively impact
the tax cost of repatriating earnings by our non-U.S.
subsidiaries to the U.S. We continue to monitor these
legislative matters, as well as our expected capital
requirements in the U.S., to ensure our deferred tax assets are
appropriate.

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 currently being investigated 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. 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 our
share of the potential costs of capping and future monitoring of
the site plus the cost to complete the investigation 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.

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

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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 or other factors, 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, 2003 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.






|        |                                                               
|------- | --------------------------------------------------------------
|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
    MARKET RISK

There have been no material changes to our
exposures to market risk since December 31, 2003.





|        |                        
|------- | -----------------------
|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 June 30, 2004, 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. Although
our evaluation showed no significant deficiencies or material
weaknesses in the design or operation of internal control over
financial reporting, as we refine our procedures in preparation
for the assessment of effectiveness under Section 404 of
Sarbanes-Oxley Act of 2002, we consider the evaluation an
important tool to identify areas to improve the operation of
such controls, either by increasing their effectiveness or
improving their efficiency.

We have been and continue to deploy SAPs
enterprise software solution to replace legacy software systems
in our businesses at various global locations. We believe that
SAP provides us with enhanced data quality and process
efficiency over our current legacy systems by improving the
systematic processing, internal controls and availability of
both financial and non-financial information for managing our
businesses. We expect to continue deployment of SAP throughout
2004 and beyond.

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PART II. OTHER INFORMATION



ITEM 1. LEGAL PROCEEDINGS

We are involved in three patent infringement
suits with subsidiaries of Takata Corporation, all concerning
vehicle occupant detection technologies; two filed against
Delphi by Automotive Systems Laboratory, Inc. and Takata Seat
Belts, Inc. in Federal Court in Delaware and the Western
District of Texas, respectively, and a third filed by Delphi
against Automotive Systems Laboratory, Inc. and TK Holdings,
Inc., in Federal Court in the Eastern District of Michigan. The
parties have agreed to pursue mediation of these cases. We
believe we have valid claims and defenses in all three suits,
however the outcomes of these matters are inherently uncertain.
Although each party has claims against the other, the extent to
which such claims may offset each other, if at all, will depend
on the relative strength of each parties claims and
defenses.

Except as discussed in Note 9 
Commitments and Contingencies, there have been no other
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,
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 2. | CHANGES IN SECURITIES, USE OF PROCEEDS AND
    ISSUER PURCHASES OF EQUITY SECURITIES

Purchase
of Equity Securities by the Issuer and Affiliated
Purchasers

The following table sets forth, for each of the
months indicated, the total number of shares purchased by Delphi
or on our behalf by any affiliated purchaser, the average price
paid per share, the number of shares purchased as part of a
publicly announced repurchase plan or program, and the maximum
number of shares or approximate dollar value that may yet be
purchased under the plans or programs.

|                                         |  |                  |           |         |            |                        |                      |                      |                     |                    |              |  |  |  |            | 
|---------------------------------------- |  | ---------------- | --------- | ------- | ---------- | ---------------------- | -------------------- | -------------------- | ------------------- | ------------------ | ------------ |  |  |  | ---------- | 
|                                         |  |                  |           |         |            |                        |                      | Maximum Number of    |                    
|                                         |  |                  |           |         |            | Total Number of Shares |                      |                      | Shares that May Yet |                   
|                                         |  |                  |           | Average |            |                        | Purchased as Part of |                      |                     | Be Purchased Under |             
|                                         |  | Total Number of  |           |         | Price Paid |                        |                      | Publicly Announced   |                     |                    | the Plans or | 
|Period                                   |  | Shares Purchased |           |         | Per Share  |                        |                      | Plans or Programs(a) |                     |                    | Programs(a)  | 
|                                         |  |                  |           |         |            |                        |                      |                      |                     |                    |              | 
|April 1, 2004 through
    April 30, 2004 |  |                  | 603,000   | (b)     |            | $                      | 9.99                 |                      |                     |                    |             |  |  |  | 19,000,000 | 
|                                        
|May 1, 2004 through
    May 31, 2004     |  |                  | 1,463,166 | (b)(c)  |            | $                      | 10.17                |                      |                     |                    |             |  |  |  | 19,000,000 | 
|                                        
|June 1, 2004 through
    June 30, 2004   |  |                  | N/A       |         |            |                        | N/A                  |                      |                     |                    |             |  |  |  | 19,000,000 | 
|                                         |  |                  |           |         |            |                        |                      |                      |                     |                    |              | 
|                                        
|Total                                    |  |                  | 2,066,166 |         |            | $                      | 10.12                |                      |                     |                    |             |  |  |  | 19,000,000 | 
|                                         |  |                  |           |         |            |                        |                      |                      |                     |                    |              | 



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                      | 
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
| | (a) | As part of Delphis stock repurchase
    program, in January of 2004, the board of directors authorized
    the repurchase of up to an aggregate of 19 million shares
    of our common stock through the first quarter of 2005 to fund
    obligations for our stock options and other awards issued under
    its equity based compensation plan. To date no repurchases have
    been made pursuant to that plan. | 
|
| | (b) | Includes open-market purchases by the trustee of
    Delphis 401(k) plans to fund investments by employees
    in our common stock, one of the investment options available
    under such plans.                                                                                                                                                                                                                   | 
|
| | (c) | Amount also includes 338,166 shares of common
    stock that were withheld to satisfy our tax withholding
    obligations arising upon vesting of restricted stock units
    issued pursuant to our equity based compensation plan.                                                                                                                                                                                  | 

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ITEM 4. SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS

The Annual Meeting of Stockholders of Delphi was
held on May 6, 2004. At the meeting, the following matters
were submitted to a vote of the stockholders of Delphi:



| |     |                                                                                                                                                                                                                                           
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | The election of three directors to serve for a
    three-year term beginning at the 2004 Annual Stockholders
    Meeting and expiring at the 2007 Annual Stockholders
    Meeting. The vote with respect to each nominee was as follows:

|                              |  |     |             |  |          |  |             | 
|----------------------------- |  | --- | ----------- |  | -------- |  | ----------- | 
|Nominee                       |  | For |             |  | Withheld | 
|                              |  |     |             |  |          | 
|Oscar de Paula Bernardes Neto |  |     | 366,508,610 |  |          |  | 119,614,018 | 
|Dr. Bernd Gottschalk          |  |     | 367,044,788 |  |          |  | 119,077,840 | 
|John D. Opie                  |  |     | 367,204,719 |  |          |  | 118,917,909 | 



| |     |                                                                                                                                                       
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------
| | (2) | The ratification of the appointment of Deloitte
    & Touche LLP as Delphis independent public accountants
    for the year ending December 31, 2004:

|    |             |  |         |  |            |         |  |  |           | 
|--- | ----------- |  | ------- |  | ---------- | ------- |  |  | --------- | 
|For |             |  | Against |  |            | Abstain | 
|    |             |  |         |  |            |         | 
|    | 469,342,498 |  |         |  | 11,503,999 |         |  |  | 5,276,126 | 



| |     |                                                                  
| | --- | -----------------------------------------------------------------
| | (3) | The approval of the Delphi Corporation Annual
    Incentive Plan:

|    |             |  |         |  |            |         |  |  |           | 
|--- | ----------- |  | ------- |  | ---------- | ------- |  |  | --------- | 
|For |             |  | Against |  |            | Abstain | 
|    |             |  |         |  |            |         | 
|    | 373,007,639 |  |         |  | 42,940,408 |         |  |  | 6,567,969 | 



| |     |                                                                     
| | --- | --------------------------------------------------------------------
| | (4) | The approval of the Delphi Corporation Long-Term
    Incentive Plan:

|    |             |  |         |  |             |         |  |  |           | 
|--- | ----------- |  | ------- |  | ----------- | ------- |  |  | --------- | 
|For |             |  | Against |  |             | Abstain | 
|    |             |  |         |  |             |         | 
|    | 271,925,179 |  |         |  | 144,127,233 |         |  |  | 6,463,598 | 



| |  |                                                                                                                                                                                                                           
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | See Managements Discussion and
    Analysis  Stock-Based Compensation disclosure for a
    summary of shares available for issuance under the new Plan as
    compared to the previous plans, which expired in May 2004.



| |     |                                                                                                                                                   
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------
| | (5) | A stockholder proposal requesting the Board of
    Directors to approve the proposal for the redemption of
    Delphis stockholders rights plan:

|    |             |  |         |  |             |         |  |  |           | 
|--- | ----------- |  | ------- |  | ----------- | ------- |  |  | --------- | 
|For |             |  | Against |  |             | Abstain | 
|    |             |  |         |  |             |         | 
|    | 300,327,973 |  |         |  | 114,814,663 |         |  |  | 7,372,379 | 



| |     |                                                                                                                               
| | --- | ------------------------------------------------------------------------------------------------------------------------------
| | (6) | A stockholder proposal requesting the Board of
    Directors to approve the proposal for the annual election of
    directors:

|    |             |  |         |  |             |         |  |  |           | 
|--- | ----------- |  | ------- |  | ----------- | ------- |  |  | --------- | 
|For |             |  | Against |  |             | Abstain | 
|    |             |  |         |  |             |         | 
|    | 315,009,485 |  |         |  | 100,335,866 |         |  |  | 7,170,735 | 



| |     |                                                                                                                                                           
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------
| | (7) | A stockholder proposal requesting the Board of
    Directors to approve the proposal for the adoption of a code for
    Delphis international operations:

|    |            |  |         |  |             |         |  |  |            | 
|--- | ---------- |  | ------- |  | ----------- | ------- |  |  | ---------- | 
|For |            |  | Against |  |             | Abstain | 
|    |            |  |         |  |             |         | 
|    | 85,669,629 |  |         |  | 290,884,679 |         |  |  | 45,959,781 | 

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##### Table of Contents






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).                                                                                       
|       
|        | 10(a) |  |              | 364-Day Sixth Amended and Restated Competitive
    Advance and Revolving Credit Facility dated June 18, 2004.                                                                                                                                                             
|       
|        | 10(b) |  |              | 5-Year Second Amended and Restated Competitive
    Advance and Revolving Credit Facility dated June 18, 2004.                                                                                                                                                             
|       
|        | 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.                                                                                                                                              

(a) REPORTS ON FORM 8-K

During the three months ended June 30, 2004
for which this report is filed, Delphi filed the following
reports on Form 8-K:

April 16, 2004, Form 8-K reporting
under Item 12. Disclosure of Results of Operations
and Financial Condition the filing of financial
information containing highlighted financial data for the three
months ended March 31, 2004.

April 30, 2004, Form 8-K reporting
under Item 9. Regulation FD Disclosure
disclosing the finalization of a seven-year Supplement to the
2003 UAW-Delphi National Agreement.

May 18, 2004, Form 8-K reporting under
Item 5. Other Events and Regulation FD
Disclosure disclosing supplemental information pertaining
to the Supplement to the 2003 UAW  Delphi National
Agreement.

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##### Table of Contents






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)                         
|             
|             
|             
|July 16, 2004 |  |  |  | /s/ JOHN D. SHEEHAN                                         
|              |  |  |  | John D. Sheehan, Chief Accounting
    Officer and Controller

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##### Table of Contents



EXHIBIT INDEX

|        |       |  |              |                                                                                                                                                                                                                                                                           
|------- | ----- |  | ------------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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).                                                                                       
|       
|        | 10(a) |  |              | 364-Day Sixth Amended and Restated Competitive
    Advance and Revolving Credit Facility dated June 18, 2004.                                                                                                                                                             
|       
|        | 10(b) |  |              | 5-Year Second Amended and Restated Competitive
    Advance and Revolving Credit Facility dated June 18, 2004.                                                                                                                                                             
|       
|        | 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.