DELPHI 2014 Annual Report Download - page 94

72
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, 2014 and 2013, the allowance for doubtful accounts was $22 million
and $18 million, respectively, and the provision for doubtful accounts was $11 million, $7 million, and $22 million for the
years ended December 31, 2014, 2013 and 2012, respectively.
Inventories—As of December 31, 2014 and 2013, 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, with the depreciation applied directly to the asset account.
At December 31, 2014 and 2013, the special tools balance was $487 million and $442 million, respectively, included
within property, net in the consolidated balance sheets. Special tools balances represent Delphi-owned tools, dies, jigs and other
items used in the manufacture of customer components. Special tools also include unreimbursed pre-production tooling costs
related to customer-owned tools for which the customer has provided 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. 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, 2014 and
2013, the Delphi-owned special tools balances were $391 million and $370 million, respectively, and the customer-owned
special tools balances were $96 million and $72 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
held for use is considered impaired when the anticipated separately identifiable undiscounted cash flows from the asset are less
than the carrying value of the asset. In that event, a loss is recognized based on the amount by which the carrying value exceeds
the fair value of the long-lived asset. Impairment losses on long-lived assets held for sale are recognized if the carrying value of
the asset is in excess of the asset's fair value, reduced for the cost to dispose of the asset. Fair value of long-lived assets is
determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved and Delphi’s
review of appraisals. Refer to Note 6. Property, Net for more information.
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 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.
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,