DELPHI 2015 Annual Report Download - page 87

Table of Contents
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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, 2015 and 2014, we were in a net derivative liability position of $129 million and $104 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, as amended and restated effective April 23, 2015 (“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 2015, 2014
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 and a contemporaneous valuation performed by an independent valuation specialist
with respect to certain market conditions that impact the performance-based vesting portion of the RSUs. 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, adjusted for
an estimate for forfeitures. 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.
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, 2015 are described.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks from changes in currency exchange rates and certain commodity prices. In order to
manage these risks, we operate a centralized risk management program that consists of entering into a variety of derivative
contracts with the intent of mitigating our risk to fluctuations in currency exchange rates and commodity prices. We do not
enter into derivative transactions for speculative or trading purposes.
A discussion of our accounting policies for derivative instruments is included in Note 2. Significant Accounting Policies
to the audited consolidated financial statements included herein and further disclosure is provided in Note 17. Derivatives and
Hedging Activities to the audited consolidated financial statements included herein. We maintain risk management control
systems to monitor exchange and commodity risks and related hedge positions. Positions are monitored using a variety of
analytical techniques including market value and sensitivity analysis. The following analyses are based on sensitivity tests,
which assume instantaneous, parallel shifts in currency exchange rates and commodity prices. For options and instruments with
non-linear returns, appropriate models are utilized to determine the impact of shifts in rates and prices. Currently, we do not
have any options or instruments with non-linear returns.
We have currency exposures related to buying, selling and financing in currencies other than the local currencies in which
we operate. Historically, we have reduced our exposure through financial instruments (hedges) that provide offsets or limits to
our exposures, which are opposite to the underlying transactions. We also face an inherent business risk of exposure to
commodity prices risks, and have historically offset our exposure, particularly to changes in the price of various non-ferrous
metals used in our manufacturing operations, through fixed price purchase agreements, commodity swaps and option contracts.
We continue to manage our exposures to changes in currency rates and commodity prices using these derivative instruments.