DELPHI 2012 Annual Report Download - page 92

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Intangible Assets—We amortize definite-lived intangible assets over their estimated useful lives. We have definite-lived
intangible assets related to patents and developed technology, customer relationships, trade names and in-process research and
development. We do not amortize our indefinite-lived in-process research and development, but test for impairment annually, or
more frequently when indicators of potential impairment exist. Costs to renew or extend the term of acquired intangible assets
are recognized as expense as incurred.
Goodwill—Goodwill is the excess of the purchase price over the fair value of identifiable net assets acquired in business
combinations. We test goodwill for impairment annually or more frequently when indications of potential impairment exist. We
monitor the existence of potential impairment indicators throughout the fiscal year.
The Company tests for goodwill impairment at the reporting unit level. Our reporting units are the components of
operating segments which constitute businesses for which discrete financial information is available and is regularly reviewed
by segment management. No components were aggregated in arriving at our reporting units.
The impairment test involves first qualitatively assessing goodwill for impairment. If the qualitative assessment is not met
we then perform a quantitative assessment by first comparing the fair value of each reporting unit to its carrying value,
including goodwill. Fair value reflects the price a market participant would be willing to pay in a potential sale of the reporting
unit. If the fair value exceeds carrying value, then we conclude that no goodwill impairment has occurred. If the carrying value
of the reporting unit exceeds its fair value, a second step is required to measure possible goodwill impairment loss. The second
step includes hypothetically valuing the tangible and intangible assets and liabilities of the reporting unit as if the reporting unit
had been acquired in a business combination. Then, the implied fair value of the reporting unit's goodwill is compared to the
carrying value of that goodwill. If the carrying value of the reporting unit's goodwill exceeds the implied fair value of the
goodwill, we recognize an impairment loss in an amount equal to the excess, not to exceed the carrying value. Refer to Note
18. Acquisitions and Divestitures, for further information on the $454 million goodwill attributable to the MVL recorded in the
fourth quarter of fiscal 2012.
Goodwill Impairment—For each reporting unit, we determined that the fair value of goodwill remained substantially in
excess of carrying values. No goodwill impairments were recorded in fiscal 2012 or fiscal 2011. Refer to Note 7. Intangible
Assets and Goodwill for further information regarding the balances of intangibles and goodwill in fiscal 2012 and fiscal 2011.
Warranty—Expected warranty costs for products sold are recognized at the time of sale of the product based on its
estimate of the amount that eventually will be required to settle such obligations. These accruals are based on factors such as
past experience, production changes, industry developments and various other considerations. These estimates are adjusted
from time to time based on facts and circumstances that impact the status of existing claims. Refer to Note 9. Warranty
Obligations.
Foreign currency translation—Assets and liabilities of non-U.S. subsidiaries that use a currency other than U.S. dollars
as their functional currency are translated to U.S. dollars at end-of-period currency exchange rates. The consolidated statements
of operations of non-U.S. subsidiaries are translated to U.S. dollars at average-period currency exchange rates. The effect of
translation for non-U.S. subsidiaries is generally reported in OCI. The effect of remeasurement of assets and liabilities of non-
U.S. subsidiaries that use the U.S. dollar as their functional currency is primarily included in cost of sales. Also included in cost
of sales are gains and losses arising from transactions denominated in a currency other than the functional currency of a
particular entity. Net foreign currency transaction losses or (gains) of $24 million, $(3) million and $20 million were included
in the consolidated statements of operations for the years ended December 31, 2012, 2011 and 2010, respectively.
Restructuring—Delphi continually evaluates alternatives to align the business with the changing needs of its customers
and to lower operating costs. This includes the realignment of its existing manufacturing capacity, facility closures, or similar
actions, either in the normal course of business or pursuant to significant restructuring programs. These actions may result in
voluntary or involuntary employee termination benefits, which are mainly pursuant to union or other contractual agreements.
Voluntary termination benefits are accrued when an employee accepts the related offer. Involuntary termination benefits are
accrued upon the commitment to a termination plan and the benefit arrangement is communicated to affected employees, or
when liabilities are determined to be probable and estimable, depending on the existence of a substantive plan for severance or
termination. Contract termination costs are recorded when contracts are terminated or when Delphi ceases to use the leased
facility and no longer derives economic benefit from the contract. All other exit costs are expensed as incurred. Refer to Note
10. Restructuring.
Environmental liabilities—Environmental remediation liabilities are recognized when a loss is probable and can be
reasonably estimated. Such liabilities generally are not subject to insurance coverage. The cost of each environmental
remediation is estimated by engineering, financial, and legal specialists based on current law and considers the estimated cost
of investigation and remediation required and the likelihood that, where applicable, other responsible parties will be able to
fulfill their commitments. The process of estimating environmental remediation liabilities is complex and dependent primarily
on the nature and extent of historical information and physical data relating to a contaminated site, the complexity of the site,
the uncertainty as to what remediation and technology will be required, and the outcome of discussions with regulatory