DELPHI 2012 Annual Report Download - page 128

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of the performance period. In the event of a qualified termination, as defined in the VCP, prior to December 31, 2012, the
participant would have vested in a pro-rata percentage of their award as of the termination date. For any other termination, the
award would have been forfeited.
The amounts paid under the VCP were determined based on Delphi’s enterprise value plus $4.4 billion paid to repurchase
Class A and Class C membership interests (Refer to Note 15. Shareholders’ Equity and Net Income Per Share for more
information)), Class B membership interest repurchases, and distributions to Class B and Class E-1 membership interest
holders, all as of the end of 2012, compared to a target enterprise value of $8.25 billion. The minimum award payout was based
on an value of $2.5 billion and above this level, the payout was determined as a percentage of the target award. The authorized
target amount of the awards was $135 million. The vested value of the awards granted as of December 31, 2012 totaled $247
million. The enterprise value was calculated, pursuant to the terms of the VCP, based on the average daily capitalization of the
Company between November 17, 2011 (the date of the initial public offering) and December 14, 2012 plus any distributions to
holders of membership interests, the approximately $4.4 billion paid to repurchase Class A and Class C membership interests,
and Class B membership interest repurchases. Delphi recognized compensation expense based on estimates of the enterprise
value, over the requisite vesting periods of the awards. Compensation expense recognized during the years ended December 31,
2012, 2011 and 2010 totaled $140 million ($112 million, net of tax), $76 million ($61 million, net of tax) and $31 million ($21
million, net of tax), respectively. Approximately $200 million of the awards were settled in cash, during the year ended
December 31, 2012 (approximately $31 million (including $11 million of taxes to be paid)) remains in accrued liabilities as of
December 31, 2012 related to certain legal entities who will pay the awards in the first quarter of 2013). There were no cash
flow impacts for the years ended December 31, 2011 or 2010. Final settlement of the awards for Delphi's officers was
comprised of a combination of cash and ordinary shares. On December 31, 2012, 717,230 ordinary shares were issued to
Delphi's officers, of which 290,798 ordinary shares were withheld to cover U.S. withholding taxes.
The VCP awards were accounted for as liability awards pursuant to FASB ASC 718, Compensation-Stock Compensation.
Estimating the fair value of the liability awards under the VCP required assumptions regarding the Company’s enterprise value.
Prior to public quoted market prices for averages to determine fair value estimates for the VCP, the fair market value of the
liability awards was based on contemporaneous valuations performed by an independent valuation specialist, utilizing generally
accepted valuation approaches.
Significant Factors, Assumptions, and Methodologies Used in Estimating Fair Value of Enterprise Value for VCP
Awards and Fair Value of E-1 Membership Interests
The estimated fair value of the Class E-1 membership interests were based on a contemporaneous valuation performed as
of the grant date. The liability awards under the VCP were based on contemporaneous valuations performed periodically by an
independent valuation specialist. Both the Class E-1 membership interests and VCP valuations utilized appropriate weighting
of the market and income approaches.
Market Approach: The market approach measures the value of a company through analysis of recent sales or offerings of
comparable companies. Based on analysis of guideline public companies and guideline merged or acquired companies, Delphi
utilized 2010 EBITDA and 2011 EBITDA multiples of 4.5x-6.25x to value the Class E-1 membership interests and VCP
awards in periods prior to the completion of the initial public offering.
In addition to the guideline public company and guideline merged or acquired company approaches, the Company
considered the trading price of its Class B membership interests by qualified institutional investors in determining the
enterprise value of the Company in periods prior to the completion of the initial public offering.
Income Approach: The income approach derives the value of a company based on assumptions about the company’s
future stream of cash flows. Delphi provided its independent valuation specialist with projected net sales, expenses and cash
flows for the years ended December 31, 2010, 2011 and 2012 for the Class E-1 awards and for the years ended December 31,
2010, 2011, 2012 and 2013 for the VCP awards. These financial projections represented management’s best estimate at the time
of the contemporaneous valuations. Discount rates used to determine the present value of future cash flows were based on the
weighted average cost of capital which ranged from 11.6%-13.7%.