DELPHI 2013 Annual Report Download - page 80

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the market. For other derivatives, however, valuation inputs are not as readily observable in the market, and significant
management judgment may be required.
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. Our derivative exposures are with counterparties with long-term investment grade credit ratings. We
estimate the fair value of our 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. We also consider the risk of non-performance in the estimation of fair
value, and include an adjustment for non-performance risk in the measure of fair value of derivative instruments. The non-
performance risk adjustment reflects the full credit default spread (“CDS”) applied to the net commodity and foreign currency
exposures by counterparty. When we are in a net derivative asset position, the counterparty CDS rates are applied to the net
derivative asset position. When we are 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, we use 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, we generally survey investment banks and/or brokers and utilize the
surveyed prices and rates in estimating fair value.
As of December 31, 2013 and 2012, we were in a net derivative liability position of $2 million and net derivative asset
position of $14 million, respectively, and there were no adjustments 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.
Refer to Note 17. Derivatives and Hedging Activities to the audited consolidated financial statements included herein for more
information.
Share-Based Compensation
The Delphi Automotive PLC Long Term Incentive Plan (“PLC LTIP”) allows for the grant of share-based awards for
long-term compensation to the employees, directors, consultants and advisors of the Company (further discussed in Note 21.
Share-Based Compensation to the audited consolidated financial statements included herein). Grants of restricted stock units
(“RSUs”) to Delphi's executives were made under the PLC LTIP in 2012 and 2013 and are expected to be made annually. The
RSU awards include a time-based vesting portion and a performance-based vesting portion. The performance-based vesting
portion includes performance and market conditions in addition to service conditions. We determine the grant date fair value of
the RSUs based on the closing price of the Company's ordinary shares on the date of the grant of the award, including an
estimate for forfeitures, and a contemporaneous valuation performed by an independent valuation specialist with respect to
certain market conditions. We recognize compensation expense based upon the grant date fair value of the awards applied to
the Company's best estimate of ultimate performance against the respective targets on a straight-line basis over the requisite
vesting period of the awards. The performance conditions require management to make assumptions regarding the likelihood of
achieving certain performance goals. Changes in these performance assumptions, as well as differences in actual results from
management's estimates, could result in estimated or actual fair values different from previously estimated fair values, which
could materially impact the Company's future results of operations and financial condition.
We expensed the estimated fair value of the Value Creation Plan (the “VCP”), a long-term incentive plan for key
employees (as defined and further discussed in Note 21. Share-Based Compensation to the audited consolidated financial
statements included herein). Estimating the fair value for the VCP required us to make assumptions regarding the nature of the
payout of the award as well as changes in our share price during the post-initial public offering period. The awards vested on
December 31, 2012, the end of the performance period.
Refer to Note 21. Share-Based Compensation to the audited consolidated financial statements included herein for
additional information.
Recently Issued Accounting Pronouncements
Refer to Note 2. Significant Accounting Policies to the audited consolidated financial statements included herein for a
complete description of recent accounting standards which we have not yet been required to implement which may be
applicable to our operations. Additionally the significant accounting standards that have been adopted during the year ended
December 31, 2013 are described.