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Fair Value Of Financial Instruments, Derivatives And Hedging Activities
 3 Months Ended
Mar. 31, 2012
Fair Value Of Financial Instruments, Derivatives And Hedging Activities [Abstract]  
Fair Value Of Financial Instruments, Derivatives And Hedging Activities

13. FAIR VALUE OF FINANCIAL INSTRUMENTS, DERIVATIVES AND HEDGING ACTIVITIES

Financial Instruments

Delphi's non-derivative financial instruments include debt which consists of its accounts receivable factoring arrangements, capital leases and other debt issued by Delphi's foreign subsidiaries, the Tranche A Term Loan, the Tranche B Term Loan and the Senior Notes. The fair value of debt is based on quoted market prices for instruments with public market data or the current book value for instruments without a quoted public market price (Level 2). As of March 31, 2012 and December 31, 2011, the total of debt was recorded at $2,085 million and $2,103 million, respectively, and had estimated fair values of $2,141 million and $2,125 million, respectively. For all other financial instruments recorded at March 31, 2012 and December 31, 2011, fair value approximates book value.

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, which may result in cash flow risks. To manage the volatility relating to these exposures, Delphi aggregates the exposures on a consolidated basis to take advantage of natural offsets. For exposures that are not offset within its operations, Delphi enters into various derivative transactions pursuant to its risk management policies, which prohibit holding or issuing derivative financial instruments for trading purposes, and designation of derivative instruments 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. Delphi assesses the initial and ongoing effectiveness of its hedging relationships in accordance with its documented policy. As of March 31, 2012, Delphi has entered into derivative instruments to hedge cash flows extending out to April 2014.

 

As of March 31, 2012, the Company had the following outstanding notional amounts related to commodity and foreign currency forward contracts that were entered into to hedge forecasted exposures:

 

Commodity

    Quantity
Hedged		      Unit of
Measure
     (in thousands)

Copper

      56,440       pounds

Primary Aluminum

      28,361       pounds

Secondary Aluminum

      15,602       pounds

Silver

      47       troy ounces

Gold

      1       troy ounces

Foreign Currency

            
     (in millions)

Hungarian Forint

      9,912       HUF

Mexican Peso

      5,689       MXN

South Korean Won

      2,466       KRW

Thai Baht

      608       THB

Chinese Yuan Renminbi

      457       CNY

Romanian Leu

      355       RON

Japanese Yen

      290       JPY

Euro

      162       EUR

New Turkish Lira

      159       TRY

Polish Zloty

      116       PLN

Brazilian Real

      51       BRL

British Pound

      28       GBP

Singapore Dollar

      4       SGD

The fair value of derivative financial instruments recorded in the consolidated balance sheets as of March 31, 2012 and December 31, 2011 are as follows:

 

   

Asset Derivatives

    

Liability Derivatives

  
   

Balance Sheet Location

   March 31,
2012		    

Balance Sheet Location

   March 31,
2012		  
    (in millions)  

Designated derivatives instruments:

  

Commodity derivatives

   Other Current Assets   $ 5      Accrued Liabilities   $ 7   

Foreign currency derivatives*

   Other Current Assets     12      Other Current Assets     4   

Foreign currency derivatives*

   Accrued Liabilities     1      Accrued Liabilities     5   

Commodity derivatives

   Other Long-Term Assets     2      Other Long-Term Liabilities     1   

Foreign currency derivatives*

   Other Long-Term Assets     5      Other Long-Term Assets     1   

Foreign currency derivatives

   Other Long-Term Liabilities     —      Other Long-Term Liabilities     1   
   

 

 

      

 

 

  

Total

     $ 25        $ 19   
   

 

 

      

 

 

  

Derivatives not designated:

        

None

        
   

Asset Derivatives

    

Liability Derivatives

  
   

Balance Sheet Location

   December 31,
2011		    

Balance Sheet Location

   December 31,
2011		  
    (in millions)  

Designated derivatives instruments:

  

Commodity derivatives

   Other Current Assets   $ 1      Accrued Liabilities   $ 17   

Foreign currency derivatives

   Other Current Assets     3      Accrued Liabilities     —   

Foreign currency derivatives*

   Accrued Liabilities     9      Accrued Liabilities     35   

Commodity derivatives

   Other Long-Term Assets     —      Other Long-Term Liabilities     11   

Foreign currency derivatives*

   Other Long-Term Liabilities     2      Other Long-Term Liabilities     17   
   

 

 

      

 

 

  

Total

     $ 15        $ 80   
   

 

 

      

 

 

  

Derivatives not designated:

        

None

        

* Derivative instruments within this category are subject to master netting arrangements and are presented on a net basis in the consolidated balance sheets in accordance with accounting guidance related to the offsetting of amounts related to certain contracts.

The fair value of Delphi's derivative financial instruments increased from a net liability position at December 31, 2011 to a net asset position at March 31, 2012 primarily due to favorable movements in the forward rates of certain commodities and currencies.

The effect of derivative financial instruments in the consolidated statement of operations for the three months ended March 31, 2012 is as follows:

 

Three Months Ended

March 31, 2012

    Gain
Recognized in
OCI (Effective
Portion)		      Loss
Reclassified
from OCI
into Income
(Effective
Portion)		     Gain Recognized
in Income
(Ineffective
Portion Excluded
from Effectiveness
Testing)		  
     (in millions)  

Designated derivatives instruments:

        

Commodity derivatives

    $ 27       $ (2 )    $   —   

Foreign currency derivatives

      50         (1 )      —   
  

 

 

     

 

 

    

 

 

  

Total

    $ 77       $ (3 )    $ —   
  

 

 

     

 

 

    

 

 

  

 

     Loss
Recognized in
Income		  

Derivatives not designated:

   

Commodity derivatives

    $   —   

Foreign currency derivatives

      (1 ) 
  

 

 

  

Total

    $ (1 ) 
  

 

 

  

 

The effect of derivative financial instruments in the consolidated statement of operations for the three months ended March 31, 2011 is as follows:

 

Three Months Ended

March 31, 2011

    Gain
Recognized in
OCI (Effective
Portion)		      Gain
Reclassified
from OCI
into Income
(Effective
Portion)		      Gain Recognized
in Income
(Ineffective
Portion Excluded
from Effectiveness
Testing)		  
     (in millions)  

Designated derivatives instruments:

         

Commodity derivatives

    $ 6       $ 12       $     —   

Foreign currency derivatives

      12         8         —   
  

 

 

     

 

 

     

 

 

  

Total

    $ 18       $ 20       $     —   
  

 

 

     

 

 

     

 

 

  

 

     Gain
Recognized in
Income		  

Derivatives not designated:

   

Commodity derivatives

    $   —   

Foreign currency derivatives

      1   
  

 

 

  

Total

    $ 1   
  

 

 

  

The gain or loss reclassified from OCI into income for the effective portion of designated derivative instruments and the gain or loss recognized in income for the ineffective portion of designated derivative instruments excluded from effectiveness testing were recorded to cost of sales in the consolidated statements of operations for the three months ended March 31, 2012 and 2011. The gain or loss recognized in income for non-designated derivative instruments was recorded in other income, net for the three months ended March 31, 2012 and 2011.

Gains and losses on derivatives qualifying as cash flow hedges are recorded in OCI, to the extent that hedges are effective, until the underlying transactions are recognized in earnings. Unrealized amounts in accumulated OCI will fluctuate based on changes in the fair value of hedge derivative contracts at each reporting period. Net gains included in accumulated OCI as of March 31, 2012 were $6 million after-tax ($10 million pre-tax). Of this pre-tax total, a gain of approximately $5 million is expected to be included in cost of sales within the next 12 months and a gain of approximately $5 million is expected to be included in cost of sales in subsequent periods. Cash flow hedges are discontinued when Delphi determines it is no longer probable that the originally forecasted transactions will occur. The amount included in cost of sales related to hedge ineffectiveness was insignificant for the three months ended March 31, 2012 and 2011.

Fair Value Measurements

Fair Value Measurements on a Recurring Basis

All derivative instruments are required to be reported on the balance sheet at fair value unless the transactions qualify and are designated as normal purchases or sales. Changes in fair value are reported currently through earnings unless they meet hedge accounting criteria. Delphi's derivative exposures are with counterparties with long-term investment grade credit ratings. Delphi estimates the fair value of its derivative contracts using an income approach based on valuation techniques to convert future amounts to a single, discounted amount. Estimates of the fair value of foreign currency and commodity derivative instruments are determined using exchange traded prices and rates. Delphi also considers the risk of non-performance in the estimation of fair value, and includes an adjustment for non-performance risk in the measure of fair value of derivative instruments. The non-performance risk adjustment reflects the credit default spread ("CDS") applied to the net commodity and foreign currency exposures by counterparty. When Delphi is in a net derivative asset position, the counterparty CDS rates are applied to the net derivative asset position. When Delphi is in a net derivative liability position, estimates of peer companies' CDS rates are applied to the net derivative liability position.

In certain instances where market data is not available, Delphi uses management judgment to develop assumptions that are used to determine fair value. This could include situations of market illiquidity for a particular currency or commodity or where observable market data may be limited. In those situations, Delphi generally surveys investment banks and/or brokers and utilizes the surveyed prices and rates in estimating fair value.

As of March 31, 2012 and December 31, 2011, Delphi was in a net derivative asset position of $6 million and a net derivative liability position of $65 million, respectively, and no significant adjustments were recorded for nonperformance risk based on the application of peer companies' CDS rates and because Delphi's exposures were to counterparties with investment grade credit ratings.

As of March 31, 2012 and December 31, 2011, Delphi had the following assets measured at fair value on a recurring basis:

 

            Total            Quoted Prices in
Active Markets
Level 1		      Significant Other
Observable Inputs
Level 2		      Significant
Unobservable
Inputs
Level 3		  
     (in millions)  

As of March 31, 2012:

   

Commodity derivatives

    $ 7       $     —       $ 7       $     —   

Foreign currency derivatives

      12         —         12         —   
  

 

 

     

 

 

     

 

 

     

 

 

  

Total

    $    19       $     —       $    19       $     —   
  

 

 

     

 

 

     

 

 

     

 

 

  

As of December 31, 2011:

            

Commodity derivatives

    $ 1       $     —       $ 1       $     —   

Foreign currency derivatives

      3         —         3         —   
  

 

 

     

 

 

     

 

 

     

 

 

  

Total

    $ 4       $     —       $ 4       $     —   
  

 

 

     

 

 

     

 

 

     

 

 

  

As of March 31, 2012 and December 31, 2011, Delphi had the following liabilities measured at fair value on a recurring basis:

 

            Total            Quoted Prices in
Active Markets
Level 1		      Significant Other
Observable Inputs
Level 2		      Significant
Unobservable
Inputs
Level 3		  
     (in millions)  

As of March 31, 2012:

   

Commodity derivatives

    $ 8       $     —       $ 8       $     —   

Foreign currency derivatives

      5         —         5         —   
  

 

 

     

 

 

     

 

 

     

 

 

  

Total

    $    13       $     —       $    13       $     —   
  

 

 

     

 

 

     

 

 

     

 

 

  

As of December 31, 2011:

            

Commodity derivatives

    $ 28       $     —       $ 28       $     —   

Foreign currency derivatives

      41         —         41         —   
  

 

 

     

 

 

     

 

 

     

 

 

  

Total

    $ 69       $     —       $ 69       $     —   
  

 

 

     

 

 

     

 

 

     

 

 

  

Fair Value Measurements on a Nonrecurring Basis

In addition to items that are measured at fair value on a recurring basis, Delphi also has items in its balance sheet that are measured at fair value on a nonrecurring basis. As these items are not measured at fair value on a recurring basis, they are not included in the tables above. Nonfinancial assets and liabilities that are measured at fair value on a nonrecurring basis include long-lived assets, intangible assets, asset retirement obligations and liabilities for exit or disposal activities measured at fair value upon initial recognition. No significant impairment charges were recorded during the three months ended March 31, 2012 and 2011. Fair value of long-lived assets is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved and a review of appraisals. As such, Delphi has determined that the fair value measurements of long-lived assets fall in Level 3 of the fair value hierarchy.