FAIR VALUE OF FINANCIAL INSTRUMENTS

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 by counterparty 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 June 30, 2015 and December 31, 2014, Delphi was in a net derivative liability position of $116 million and $104 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 described in Note 17. Acquisitions and Divestitures, as of June 30, 2015, additional contingent consideration may be earned as a result of Delphi's acquisition agreement for Antaya. The measurement of the liability for this contingent consideration is based on significant inputs that are not observable in the market, and is therefore classified as a Level 3 measurement in accordance with ASU Topic 820-10-35. Examples of utilized unobservable inputs are estimated future earnings of Antaya and applicable discount rates. The estimate of the liability may fluctuate if there are changes in the forecast of Antaya's future earnings or as a result of actual earnings levels achieved. The liability was classified within other long-term liabilities in the consolidated balance sheet at June 30, 2015 and December 31, 2014. Adjustments to this liability for interest accretion are recognized in interest expense, and any other changes in the fair value of this liability will be recognized within other income (expense) in the consolidated statement of operations.

As of June 30, 2015 and December 31, 2014, Delphi had no assets measured at fair value on a recurring basis and 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 June 30, 2015:
Commodity derivatives	$	33	$	—	$	33	$	—
Foreign currency derivatives	83		—		83		—
Contingent consideration	12		—		—		12
Total	$	128	$	—	$	116	$	12
As of December 31, 2014:
Commodity derivatives	$	27	$	—	$	27	$	—
Foreign currency derivatives	77		—		77		—
Contingent consideration	11		—		—		11
Total	$	115	$	—	$	104	$	11

The changes in the contingent consideration liability classified as a Level 3 measurement for the six months ended June 30, 2015 were as follows:



	Contingent Consideration Liability

	(in millions)
Fair value at beginning of period	$	11
Additions	—
Payments	—
Interest accretion	1
Fair value at end of period	$	12

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 non-U.S. subsidiaries, the Tranche A Term Loan, the 2013 Senior Notes, the 2014 Senior Notes and the 2015 Senior Notes. The fair value of debt is based on quoted market prices for instruments with public market data or significant other observable inputs for instruments without a quoted public market price (Level 2). As of June 30, 2015 and December 31, 2014, total debt was recorded at $2,736 million and $2,451 million, respectively, and had estimated fair values of $2,744 million and $2,567 million, respectively. For all other financial instruments recorded at June 30, 2015 and December 31, 2014, fair value approximates book value.

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, assets held for sale, equity and cost method investments, intangible assets, asset retirement obligations, share-based compensation and liabilities for exit or disposal activities measured at fair value upon initial recognition. During the three and six months ended June 30, 2015, Delphi recorded non-cash asset impairment charges of $4 million and $6 million, respectively, in cost of sales related to declines in the fair values of certain fixed assets. During the three and six months ended June 30, 2014, Delphi recorded non-cash asset impairment charges of $2 million in cost of sales and $1 million in selling, general and administrative expense related to certain assets and capitalized software licenses no longer being utilized. 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.

Additionally, as further described in Note 21. Discontinued Operations, an after-tax impairment loss of approximately $88 million was recorded in income from discontinued operations in the six months ended June 30, 2015 based on the evaluation and estimate of the fair value of the Company's interest in KDAC of approximately $32 million, determined primarily based on the status of recent discussions with a third party and based on a non-binding offer from that potential buyer, in relation to the carrying value of this interest.