DELPHI 2015 Annual Report Download - page 88

Table of Contents
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Currency Exchange Rate Risk
Currency exposures may impact future earnings and/or operating cash flows. We have currency exposures related to
buying, selling and financing in currencies other than the local functional currencies in which we operate ("transactional
exposure"). We also have currency exposures related to the translation of the financial statements of our foreign subsidiaries
that use the local currency as their functional currency into U.S. dollars, the Company's reporting currency ("translational
exposure"). As described in Note. 17. Derivatives and Hedging Activities to the audited consolidated financial statements
included herein, we have designated the 2015 Euro-denominated Senior Notes as a net investment hedge of the foreign
currency exposure of our investments in certain Euro-denominated subsidiaries. The impact of translational exposure is
recorded within currency translation adjustment in the Consolidated Statements of Comprehensive Income, with fluctuations in
the value of the 2015 Euro-denominated Senior Notes due to exchange rate changes offsetting changes in the value of our net
investment of these Euro-denominated operations. During the year ended December 31, 2015, the foreign currency translation
adjustment loss of $344 million was primarily due to the impact of a strengthening U.S. dollar, which increased approximately
10% in relation to the Euro from December 31, 2014.
In some instances, we choose to reduce our transactional exposures through financial instruments (hedges) that provide
offsets or limits to our exposures. Currently our most significant hedged currency exposures relate to the Mexican Peso,
Chinese Yuan (Renminbi), Polish Zloty, Turkish Lira and Hungarian Forint. As of December 31, 2015 and December 31, 2014
the net fair value asset of all financial instruments, including hedges and underlying transactions, with exposure to currency
risk was approximately $320 million and $688 million, respectively. The potential loss or gain in fair value for such financial
instruments from a hypothetical 10% adverse or favorable change in quoted currency exchange rates would be approximately
$38 million and $175 million at December 31, 2015 and 2014, respectively. The impact of a 10% change in rates on fair value
differs from a 10% change in the net fair value asset due to the existence of hedges. The model assumes a parallel shift in
currency exchange rates; however, currency exchange rates rarely move in the same direction. The assumption that currency
exchange rates change in a parallel fashion may overstate the impact of changing currency exchange rates on assets and
liabilities denominated in currencies other than the U.S. dollar.
Commodity Price Risk
Commodity swaps/average rate forward contracts are executed to offset a portion of our exposure to the potential change
in prices mainly for various non-ferrous metals used in the manufacturing of automotive components, primarily copper. As a
result of the divestiture of our Thermal Systems business in 2015, as further described in Note 25. Discontinued Operations to
the audited consolidated financial statements included herein, we no longer have significant exposure to aluminum, and as such
no longer enter into derivative transactions for this commodity. The net fair value of our contracts was a liability of
approximately $51 million and $27 million at December 31, 2015 and 2014, respectively. If the price of the commodities that
are being hedged by our commodity swaps/average rate forward contracts changed adversely or favorably by 10%, the fair
value of our commodity swaps/average rate forward contracts would decrease or increase by $15 million and $35 million at
December 31, 2015 and 2014, respectively. A 10% change in the net fair value liability differs from a 10% change in rates on
fair value due to the relative differences between the underlying commodity prices and the prices in place in our commodity
swaps/average rate forward contracts. These amounts exclude the offsetting impact of the price risk inherent in the physical
purchase of the underlying commodities.
Interest Rate Risk
Our exposure to market risk associated with changes in interest rates relates primarily to our debt obligations. We do not
use interest rate swap or other derivative contracts to manage our exposure to fluctuations in interest rates. As of December 31,
2015, we had approximately $400 million of floating rate debt principally related to the Credit Agreement. The Credit
Agreement carries an interest rate, at our option, of either (a) the ABR plus 0.00% per annum, or (b) LIBOR plus 1.00% per
annum.
The interest rate period with respect to the LIBOR interest rate option can be set at one-, two-, three-, or six-months as
selected by us in accordance with the terms of the Credit Agreement (or other period as may be agreed by the applicable
lenders), but payable no less than quarterly. We may elect to change the selected interest rate over the term of the Credit
Facilities in accordance with the provisions of the Credit Agreement. The applicable interest rates listed above for the
Revolving Credit Facility and the Tranche A Term Loan may increase or decrease from time to time in increments of 0.25% to
0.50%, up to a maximum of 1.0% based on changes to our corporate credit ratings. Accordingly, the interest rate will fluctuate
during the term of the Credit Agreement based on changes in the Alternate Base Rate, LIBOR or future changes in our
corporate credit ratings.