DELPHI 2013 Annual Report Download - page 79

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reporting unit's fair value is less than its carrying amount. If not, no further goodwill impairment testing is performed. If so, we
perform the step 1 and step 2 tests discussed hereafter. If the fair value of the reporting unit is greater than its carrying amount
(step 1), goodwill is not considered to be impaired and the second step is not required. However, if the fair value of the
reporting unit is less than its carrying amount, an entity must perform the second step to measure the amount of the impairment
loss, if any. The second step requires a reporting unit to compare its implied fair value of goodwill to its carrying amount. If the
carrying amount of goodwill exceeds its implied fair value, the reporting unit would recognize an impairment loss for that
excess. We review indefinite lived intangible assets annually or more frequently if events or changes in circumstances indicate
the assets might be impaired. The company does not perform a qualitative assessment (step 0) for indefinite lived intangible
assets, but performs a quantitative review based upon forecasted cash flows similar to goodwill above. Other intangible assets
with definite lives are amortized over their useful lives and are subject to impairment testing only if events or circumstances
indicate that the asset might be impaired.
Inventories
Inventories are stated at the lower of cost, determined on a first-in, first-out basis, or market, including direct material
costs and direct and indirect manufacturing costs. Refer to Note 3. Inventories to the audited consolidated financial statements
included herein. Obsolete inventory is identified based on analysis of inventory for known obsolescence issues, and, as of
December 31, 2013, the market value of inventory on hand in excess of one year’s supply is generally fully-reserved.
From time to time, payments may be received from suppliers. These payments from suppliers are recognized as a
reduction of the cost of the material acquired during the period to which the payments relate. In some instances, supplier
rebates are received in conjunction with or concurrent with the negotiation of future purchase agreements and these amounts
are amortized over the prospective agreement period.
Income Taxes
Deferred tax assets and liabilities reflect temporary differences between the amount of assets and liabilities for financial
and tax reporting purposes. Such amounts are adjusted, as appropriate, to reflect changes in tax rates expected to be in effect
when the temporary differences reverse. A valuation allowance is recorded to reduce our deferred tax assets to the amount that
is more likely than not to be realized. Changes in tax laws or accounting standards and methods may affect recorded deferred
taxes in future periods.
When establishing a valuation allowance, we consider future sources of taxable income such as “future reversals of
existing taxable temporary differences, future taxable income exclusive of reversing temporary differences and carryforwards”
and “tax planning strategies.” A tax planning strategy is defined as “an action that: is prudent and feasible; an enterprise
ordinarily might not take, but would take to prevent an operating loss or tax credit carryforward from expiring unused; and
would result in realization of deferred tax assets.” In the event we determine it is more likely than not that the deferred tax
assets will not be realized in the future, the valuation adjustment to the deferred tax assets will be charged to earnings in the
period in which we make such a determination. The valuation of deferred tax assets requires judgment and accounting for the
deferred tax effect of events that have been recorded in the financial statements or in tax returns and our future projected
profitability. Changes in our estimates, due to unforeseen events or otherwise, could have a material impact on our financial
condition and results of operations.
We calculate our current and deferred tax provision based on estimates and assumptions that could differ from the actual
results reflected in income tax returns filed in subsequent years. Adjustments based on filed returns are recorded when
identified. The amount of income taxes we pay is subject to ongoing audits by federal, state and foreign tax authorities. Our
estimate of the potential outcome of any uncertain tax issue is subject to management’s assessment of relevant risks, facts, and
circumstances existing at that time. We use a more-likely-than-not threshold for financial statement recognition and
measurement of tax positions taken or expected to be taken in a tax return. We record a liability for the difference between the
benefit recognized and measured and tax position taken or expected to be taken on our tax return. To the extent that our
assessment of such tax positions changes, the change in estimate is recorded in the period in which the determination is made.
We report tax-related interest and penalties as a component of income tax expense. We do not believe there is a reasonable
likelihood that there will be a material change in the tax related balances or valuation allowance balances. However, due to the
complexity of some of these uncertainties, the ultimate resolution may be materially different from the current estimate. Refer
to Note 14. Income Taxes to the audited consolidated financial statements included herein for additional information.
Fair Value Measurement of Derivative Instruments
In determining the fair value of our derivatives, we utilize valuation techniques as prescribed by FASB ASC 820-10, Fair
Value Measurements and Disclosures, and also prioritize the use of observable inputs. The availability of observable inputs
varies amongst derivatives and depends on the type of derivative and how actively traded the derivative is. For many of our
derivatives, the valuation does not require significant management judgment as the valuation inputs are readily observable in