DELPHI 2013 Annual Report Download - page 56

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Consolidated Results of Operations
In 2013, total global OEM production volumes increased 3% from 2012. Although total global OEM production volumes
increased, indicating a stabilization of the global economy, the economic recovery was uneven from a regional perspective.
While OEM vehicle production in China increased 13% in 2013, and in North America is now above pre-recession levels,
production in Europe continues to be impacted by the economic uncertainties in the region, and following a 6% decline from
2011 to 2012, declined further by 1% in 2013. In light of the continued economic uncertainties, particularly in Europe, and as
part of our continued efforts to optimize our industry leading cost structure and increase shareholder value, we initiated and
committed to approximately $75 million of further restructuring actions, primarily in Europe, during the first quarter of 2013.
These restructuring initiatives are in addition to approximately $300 million of restructuring programs initiated during the
fourth quarter of 2012, bringing the overall commitments of our restructuring programs to approximately $375 million. These
restructuring actions are principally focused on the European region, and are expected to be substantially completed in the first
half of 2014. Approximately $170 million of the total was recognized in the fourth quarter of 2012, with an additional $145
million recognized in the year ended December 31, 2013. As we continue to operate in a cyclical industry that is impacted by
movements in the global economy, we continually evaluate opportunities to further adjust our cost structure. However, we
believe our strong balance sheet coupled with our flexible cost structure will position us to capitalize on any strengthening of
the global economy and improvements in OEM production volumes.
Our total net sales during the year ended December 31, 2013 were $16.5 billion, or 6% higher compared to 2012. This
compares to total global OEM production increases of 3% in 2013. The increase in our total net sales is attributable to the
fourth quarter 2012 acquisition and successful integration of MVL, as well as due to increased sales in North America and Asia
Pacific, offset by continued OEM production volume reductions in Europe. The operating results of MVL are reported within
the Electrical/Electronic Architecture segment from the date of acquisition. Given the timing of the acquisition, it is not fully
reflected in our 2012 results and impacts comparability to 2013 results.
The slight decline in our total net sales of 3% during the year ended December 31, 2012 as compared to 2011 reflects the
impacts of negative currency translation from Euro and Brazilian Real denominated sales to U.S. dollars, which resulted in
lower reported sales despite the fact that Delphi's overall sales volumes in 2012 were consistent with those in 2011. Although
total global OEM production increased 6% in 2012 as compared to 2011, a significant portion of this production increase was
attributable to Japanese OEMs recovering from the March 2011 Japan earthquake and tsunami. As Delphi has a relatively
limited content penetration with the Japanese OEMs, as anticipated, our volume growth from our OEM customers in 2012 was
slower than the overall market.
Delphi typically experiences fluctuations in revenue due to changes in OEM production schedules, vehicle sales mix and
the net of new and lost business (which we refer to collectively as volume), increased prices attributable to escalation clauses in
our supply contracts for recovery of increased commodity costs (which we refer to as commodity pass-through), fluctuations in
foreign currency exchange rates (which we refer to as FX), contractual reductions of the sales price to the OEM (which we
refer to as contractual price reductions) and engineering changes. Changes in sales mix can have either favorable or
unfavorable impacts on revenue. Such changes can be the result of shifts in regional growth, shifts in OEM sales demand, as
well as shifts in consumer demand related to vehicle segment purchases and content penetration. For instance, a shift in sales
demand favoring a particular OEM’s vehicle model for which we do not have a supply contract may negatively impact our
revenue. A shift in regional sales demand toward certain markets could favorably impact the sales of those of our customers
that have a large market share in those regions, which in turn would be expected to have a favorable impact on our revenue.
We typically experience (as described below) fluctuations in operating income due to:
• Volume, net of contractual price reductions—changes in volume offset by contractual price reductions (which
typically range from 1% to 3% of net sales) and changes in mix;
• Operational performance—changes to costs for materials and commodities or manufacturing variances; and
• Other—including restructuring costs and any remaining variances not included in Volume, net of contractual price
reductions or Operational performance.
The automotive component supply industry is subject to inflationary pressures with respect to raw materials and labor
which have placed and will continue to place operational and profitability burdens on the entire supply chain. We will continue
to work with our customers and suppliers to mitigate the impact of these inflationary pressures in the future. In addition, we
expect commodity cost volatility, particularly related to copper, aluminum and petroleum-based resin products, to have a
continual impact on future earnings and/or operating cash flows. As such, we continually seek to mitigate both inflationary
pressures and our material-related cost exposures using a number of approaches, including combining purchase requirements
with customers and/or other suppliers, using alternate suppliers or product designs, negotiating cost reductions and/or
commodity cost contract escalation clauses into our vehicle manufacturer supply contracts, and hedging.