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 speculative 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 June 30, 2014, Delphi has entered into derivative instruments to hedge cash flows extending out to July 2016.

As of June 30, 2014, 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	Notional Amount (Approximate USD Equivalent)

	(in thousands)		(in millions)
Copper	80,671	pounds	$	250
Primary Aluminum	31,491	pounds	25
Secondary Aluminum	15,728	pounds	15



Foreign Currency	Quantity Hedged	Unit of Measure	Notional Amount (Approximate USD Equivalent)

	(in millions)
Mexican Peso	8,420	MXN	$	645
Euro	184	EUR	250
Brazilian Real	227	BRL	105
Polish Zloty	286	PLN	95
New Turkish Lira	183	TRY	85
Chinese Yuan Renminbi	519	CNY	85
Hungarian Forint	14,130	HUF	60
Romanian Leu	33	RON	10

The Company had additional commodity and foreign currency forward contracts with notional amounts that individually amounted to less than $10 million. Additionally, during the six months ended June 30, 2014, Delphi entered into and settled treasury rate lock agreements which were designated as cash flow hedges in anticipation of issuing the 2014 Senior Notes, as further discussed in Note 8. Debt. The impacts of these agreements and the related amount of hedge ineffectiveness were not material.

The fair value of derivative financial instruments recorded in the consolidated balance sheets as of June 30, 2014 and December 31, 2013 are as follows:



	Asset Derivatives			Liability Derivatives			Net Amounts of Assets and Liabilities Presented in the Balance Sheet
	Balance Sheet Location	June 30, 2014		Balance Sheet Location	June 30, 2014		June 30, 2014

	(in millions)
Designated derivatives instruments:
Commodity derivatives	Other Current Assets	$	2	Accrued Liabilities	$	8
Foreign currency derivatives*	Other Current Assets	15		Other Current Assets	3		12
Foreign currency derivatives*	Accrued Liabilities	2		Accrued Liabilities	5		(3	)
Commodity derivatives	Other Long-Term Assets	2		Other Long-Term Liabilities	—
Foreign currency derivatives*	Other Long-Term Assets	10		Other Long-Term Assets	3		7
Total		$	31		$	19
Derivatives not designated:
Foreign currency derivatives*	Other Current Assets	$	2	Other Current Assets	$	2	—
Total		$	2		$	2



	Asset Derivatives			Liability Derivatives			Net Amounts of Assets and Liabilities Presented in the Balance Sheet
	Balance Sheet Location	December 31, 2013		Balance Sheet Location	December 31, 2013		December 31, 2013

	(in millions)
Designated derivatives instruments:
Commodity derivatives	Other Current Assets	$	2	Accrued Liabilities	$	9
Foreign currency derivatives*	Other Current Assets	16		Other Current Assets	3		13
Foreign currency derivatives*	Accrued Liabilities	3		Accrued Liabilities	10		(7	)
Commodity derivatives	Other Long-Term Assets	1		Other Long-Term Liabilities	2
Foreign currency derivatives*	Other Long-Term Assets	5		Other Long-Term Assets	1		4
Foreign currency derivatives*	Other Long-Term Liabilities	2		Other Long-Term Liabilities	6		(4	)
Total		$	29		$	31
Derivatives not designated:
Foreign currency derivatives*	Other Current Assets	$	3	Other Current Assets	$	3	—
Total		$	3		$	3

* 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 was in a net asset position as of June 30, 2014 and a net liability position as of December 31, 2013. The change from a net liability as of December 31, 2013 to a net asset position at June 30, 2014 is primarily due to favorable movements in the forward rates of certain foreign currencies.

The effect of derivative financial instruments in the consolidated statement of operations and consolidated statement of comprehensive income for the three months ended June 30, 2014 is as follows:



Three Months Ended June 30, 2014	Gain Recognized in OCI (Effective Portion)		(Loss) 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	$	19	$	(6	)	$	—
Foreign currency derivatives	28		4			—
Total	$	47	$	(2	)	$	—



	Loss Recognized in Income

	(in millions)
Derivatives not designated:
Commodity derivatives	$	—
Foreign currency derivatives	(1		)
Total	$	(1	)

The effect of derivative financial instruments in the consolidated statement of operations and consolidated statement of comprehensive income for the three months ended June 30, 2013 is as follows:



Three Months Ended June 30, 2013	Loss Recognized in OCI (Effective Portion)			(Loss) 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	$	(40	)	$	(6	)	$	—
Foreign currency derivatives	(32		)	4			—
Total	$	(72	)	$	(2	)	$	—



	Gain Recognized in Income

	(in millions)
Derivatives not designated:
Commodity derivatives	$	—
Foreign currency derivatives	1
Total	$	1

The effect of derivative financial instruments in the consolidated statement of operations and consolidated statement of comprehensive income for the six months ended June 30, 2014 is as follows:



Six Months Ended June 30, 2014	(Loss) Gain Recognized in OCI (Effective Portion)			(Loss) 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	)	$	(10	)	$	—
Foreign currency derivatives	12			8			—
Total	$	6		$	(2	)	$	—



	Gain Recognized in Income

	(in millions)
Derivatives not designated:
Commodity derivatives	$	—
Foreign currency derivatives	—
Total	$	—

The effect of derivative financial instruments in the consolidated statement of operations and consolidated statement of comprehensive income for the six months ended June 30, 2013 is as follows:



Six Months Ended June 30, 2013	(Loss) Gain Recognized in OCI (Effective Portion)			(Loss) 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	$	(55	)	$	(9	)	$	—
Foreign currency derivatives	3			19			—
Total	$	(52	)	$	10		$	—



	Gain Recognized in Income

	(in millions)
Derivatives not designated:
Commodity derivatives	$	—
Foreign currency derivatives	—
Total	$	—

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 and other income in the consolidated statements of operations for the three and six months ended June 30, 2014 and 2013. The gain or loss recognized in income for non-designated derivative instruments was recorded in other income, net and cost of goods sold for the three and six months ended June 30, 2014 and 2013.

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. Losses included in accumulated OCI as of June 30, 2014 were approximately $12 million (approximately $9 million net of tax). Of this total, approximately $5 million of losses are expected to be included in cost of sales within the next 12 months, $1 million of gains are expected to be included in other income within the next 12 months and $8 million of losses are 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 and six months ended June 30, 2014 and 2013, respectively.