DELPHI 2013 Annual Report Download - page 78

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Assumptions used to determine net expense for years ended December 31:
Pension Benefits
U.S. Plans Non-U.S. Plans
2013 2012 2011 2013 2012 2011
Weighted-average discount rate.............................................. 2.40% 3.30% 4.10% 4.41% 5.24% 5.69%
Weighted-average rate of increase in compensation levels.... N/A N/A N/A 3.50% 3.66% 3.88%
Expected long-term rate of return on plan assets.................... N/A N/A N/A 6.44% 6.43% 6.65%
We select discount rates by analyzing the results of matching each plan’s projected benefit obligations with a portfolio of
high-quality fixed income investments rated AA- or higher by Standard and Poor’s.
Delphi does not have any U.S. pension assets; therefore no U.S. asset rate of return calculation was necessary for 2013,
2012, or 2011. The primary funded non-U.S. plans are in the United Kingdom and Mexico. For the determination of 2013
expense, we assumed a long-term expected asset rate of return of approximately 6.25% and 8.50% for the United Kingdom and
Mexico, respectively. We evaluated input from local actuaries and asset managers, including consideration of recent fund
performance and historical returns, in developing the long-term rate of return assumptions. The assumptions for the United
Kingdom and Mexico are primarily conservative long-term, prospective rates.
Our pension expense for 2014 is determined at the December 31, 2013 measurement date. For purposes of analysis, the
following table highlights the sensitivity of our pension obligations and expense to changes in key assumptions:
Change in Assumption Impact on Pension Expense Impact on PBO
25 basis point (“bp”) decrease in discount rate.......................................................... + $8 million + $ 93 million
25 bp increase in discount rate................................................................................... - $5 million - $ 87 million
25 bp decrease in long-term expected return on assets.............................................. + $3 million —
25 bp increase in long-term expected return on assets............................................... - $3 million —
The above sensitivities reflect the effect of changing one assumption at a time. It should be noted that economic factors
and conditions often affect multiple assumptions simultaneously and the effects of changes in key assumptions are not
necessarily linear. The above sensitivities also assume no changes to the design of the pension plans and no major restructuring
programs.
Based on information provided by our actuaries and asset managers, we believe that the assumptions used are reasonable;
however, changes in these assumptions could impact our financial position, results of operations or cash flows. Refer to Note
12. Pension Benefits to the audited consolidated financial statements included herein for additional information.
Accounts Receivable Allowance
Establishing valuation allowances for doubtful accounts requires the use of estimates and judgment in regard to the risk
exposure and ultimate realization. The allowance for doubtful accounts is established based upon analysis of trade receivables
for known collectability issues, including bankruptcies, and aging of receivables at the end of each period. Changes to our
assumptions could materially affect our recorded allowance.
Valuation of Long-Lived Assets, Intangible Assets and Investments in Affiliates and Expected Useful Lives
We periodically review the recoverability of our long-lived and definite lived assets based on projections of anticipated
future cash flows, including future profitability assessments of various manufacturing sites when events and circumstances
warrant such a review. We estimate cash flows and fair value using internal budgets based on recent sales data, independent
automotive production volume estimates and customer commitments and review of appraisals. The key factors which impact
our estimates are (1) future production estimates; (2) customer preferences and decisions; (3) product pricing;
(4) manufacturing and material cost estimates; and (5) product life / business retention. Any differences in actual results from
the estimates could result in fair values different from the estimated fair values, which could materially impact our future
results of operations and financial condition. We believe that the projections of anticipated future cash flows and fair value
assumptions are reasonable; however, changes in assumptions underlying these estimates could affect our valuations.
Goodwill
We periodically review goodwill for impairment indicators. We review goodwill for impairment annually or more
frequently if events or changes in circumstances indicate that goodwill might be impaired. The company performs impairment
reviews at the reporting unit level. We perform a qualitative assessment (step 0) of whether it is more likely than not that a