DELPHI 2015 Annual Report Download - page 99

Table of Contents
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Restricted cash—Restricted cash includes balances on deposit at financial institutions that have issued letters of credit in
favor of Delphi.
Accounts receivable—Delphi enters into agreements to sell certain of its accounts receivable, primarily in North
America and Europe. Sales of receivables are accounted for in accordance with FASB Topic ASC 860, Transfers and Servicing
("ASC 860"). Agreements which result in true sales of the transferred receivables, as defined in ASC 860, which occur when
receivables are transferred without recourse to the Company, are excluded from amounts reported in the consolidated balance
sheets. Cash proceeds received from such sales are included in operating cash flows. Agreements that allow Delphi to maintain
effective control over the transferred receivables and which do not qualify as a sale, as defined in ASC 860, are accounted for
as secured borrowings and recorded in the consolidated balance sheets within accounts receivable, net and short-term debt. The
expenses associated with receivables factoring are recorded in the consolidated statements of operations within interest
expense.
The Company exchanges certain amounts of accounts receivable, primarily in the Asia Pacific region, for bank notes with
original maturities greater than three months. The collection of such bank notes are included in operating cash flows based on
the substance of the underlying transactions, which are operating in nature. Bank notes held by the Company with original
maturities of three months or less are classified as cash and cash equivalents within the consolidated balance sheet, and those
with original maturities of greater than three months are classified as notes receivable within other current assets. The Company
may hold such bank notes until maturity, exchange them with suppliers to settle liabilities, or sell them to third party financial
institutions in exchange for cash.
The allowance for doubtful accounts is established based upon analysis of trade receivables for known collectability
issues, the aging of the trade receivables at the end of each period and, generally, all accounts receivable balances greater than
90 days past due are fully reserved. As of December 31, 2015 and 2014, the allowance for doubtful accounts was $26 million
and $21 million, respectively, and the provision for doubtful accounts was $11 million, $10 million, and $7 million for the
years ended December 31, 2015, 2014 and 2013, respectively.
Inventories—As of December 31, 2015 and 2014, 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 for additional information. Obsolete inventory is identified based on analysis of inventory for known obsolescence
issues, and, generally, the market value of inventory on hand in excess of one year’s supply is 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.
Property—Major improvements that materially extend the useful life of property are capitalized. Expenditures for
repairs and maintenance are charged to expense as incurred. Depreciation is determined based on a straight-line method over
the estimated useful lives of groups of property. Leasehold improvements under capital leases are depreciated over the period
of the lease or the life of the property, whichever is shorter. Refer to Note 6. Property, Net for additional information.
Pre-production costs related to long-term supply agreements—The Company incurs pre-production engineering and
development and tooling costs related to products produced for its customers under long-term supply agreements. Engineering,
testing and other costs incurred in the design and development of production parts are expensed as incurred, unless the costs are
reimbursable, as specified in a customer contract. As of December 31, 2015 and 2014, $98 million and $128 million of such
contractually reimbursable costs were capitalized, respectively. These amounts are recorded within other current and other
long-term assets in the consolidated balance sheets, as further detailed in Note 4. Assets.
Special tools represent Delphi-owned tools, dies, jigs and other items used in the manufacture of customer components
that will be sold under long-term supply arrangements, the costs of which are capitalized within property, plant and equipment
if the Company has title to the assets. Special tools also include capitalized unreimbursed pre-production tooling costs related
to customer-owned tools for which the customer has provided Delphi a non-cancellable right to use the tool. Delphi-owned
special tools balances are depreciated over the expected life of the special tool or the life of the related vehicle program,
whichever is shorter. The unreimbursed costs incurred related to customer-owned special tools that are not subject to
reimbursement are capitalized and depreciated over the expected life of the special tool or the life of the related vehicle
program, whichever is shorter. At December 31, 2015 and 2014, the special tools balance was $482 million and $421 million,
respectively, included within property, net in the consolidated balance sheets. As of December 31, 2015 and 2014, the Delphi-
owned special tools balances were $404 million and $345 million, respectively, and the customer-owned special tools balances
were $78 million and $76 million, respectively.
Valuation of long-lived assets—The carrying value of long-lived assets held for use, including definite-lived intangible
assets, is periodically evaluated when events or circumstances warrant such a review. The carrying value of a long-lived asset