DELPHI 2012 Annual Report Download - page 56

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2008 and 2009. Although our industry-leading and flexible cost structure enabled us to maintain strong gross margins and
operating earnings, we initiated various restructuring programs in the fourth quarter that are intended to further improve our
cost structure and margins and increase shareholder value. We expect these restructuring activities, including the actions related
to the integration of MVL, to total approximately $300 million through the end of 2013. In the fourth quarter of 2012, we
recorded restructuring charges totaling $154 million which includes employee related and other costs. Additionally, we
recognized non-cash asset impairment charges of $15 million, recognized in cost of sales. Approximately 75% of the
restructuring actions are in Europe, including workforce reductions as well as plant closures, and are expected to be
substantially completed by the end of 2013. The company incurred cash expenditures for these restructuring actions of
approximately $20 million in 2012, and expects future cash expenditures in 2013 of approximately $175 million. While we
continue to operate in a cyclical industry that is impacted by movements in both global as well as regional economies, we
believe our strong balance sheet coupled with our flexible cost structure will position us to capitalize on any strengthening of
global or regional economies and improvements in OEM production volumes.
Our total net sales during the year ended December 31, 2012 were $15.5 billion, or 3% lower compared to 2011.
Although Delphi's overall sales volumes were consistent with the prior year, reported sales were lower due to the negative
currency translation from Euro and Brazilian Real denominated sales to U.S. dollars. This compares to total global OEM
production increases of 6% in 2012. However, a significant portion of this production increase was attributable to Japanese
OEMs recovering from the March 2011 Japan earthquake and tsunami. As Delphi has a relatively limited content penetration
with the Japanese OEMs, as anticipated, our volume growth from our OEM customers in 2012 was slower than the overall
market.
Our improved total net sales during the year ended December 31, 2011 as compared to 2010 reflect the impacts of
increased OEM production volumes as well as the level of our content per unit, and, to a lesser extent, the impacts of foreign
currency exchange rate fluctuations. Although global OEM production volumes increased over 3%, for the year ended
December 31, 2011 versus 2010, excluding production decreases from Japan and Japanese OEM production in North America
of 9% resulting from the Japan earthquake and tsunami, global OEM production volumes increased 6%, for the year ended
December 31, 2011 as compared to 2010. We did not experience any significant adverse impacts resulting from the Japan
earthquake and tsunami, particularly given that the Japanese OEMs are not among our principal customers.
Delphi typically experiences fluctuations in revenue due to changes in OEM production schedules, vehicle sales mix and
the net of new and lost business (which we refer to collectively as volume), increased prices attributable to escalation clauses in
our supply contracts for recovery of increased commodity costs (which we refer to as commodity pass-through), fluctuations in
foreign currency exchange rates (which we refer to as FX), contractual reductions of the sales price to the OEM (which we
refer to as contractual price reductions) and engineering changes. Changes in sales mix can have either favorable or
unfavorable impacts on revenue. Such changes can be the result of shifts in regional growth, shifts in OEM sales demand, as
well as shifts in consumer demand related to vehicle segment purchases and content penetration. For instance, a shift in sales
demand favoring a particular OEM’s vehicle model for which we do not have a supply contract may negatively impact our
revenue. A shift in regional sales demand toward certain markets could favorably impact the sales of those of our customers
that have a large market share in those regions, which in turn would be expected to have a favorable impact on our revenue.
We typically experience (as described below) fluctuations in operating income due to:
• Volume, net of contractual price reductions—changes in volume offset by contractual price reductions (which
typically range from 1% to 3% of net sales) and changes in mix;
• Operational performance—changes to costs for materials and commodities or manufacturing variances; and
• Other—including restructuring costs and any remaining variances not included in Volume, net of contractual price
reductions or Operational performance.
The automotive component supply industry is subject to inflationary pressures with respect to raw materials and labor
which have placed and will continue to place operational and profitability burdens on the entire supply chain. We will continue
to work with our customers and suppliers to mitigate the impact of these inflationary pressures in the future. In addition, we
expect commodity cost volatility, particularly related to copper, aluminum and petroleum-based resin products, to have a
continual impact on future earnings and/or operating cash flows. As such, we continually seek to mitigate both inflationary
pressures and our material-related cost exposures using a number of approaches, including combining purchase requirements
with customers and/or other suppliers, using alternate suppliers or product designs, negotiating cost reductions and/or
commodity cost contract escalation clauses into our vehicle manufacturer supply contracts, and hedging.