DELPHI 2014 Annual Report Download - page 95

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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
20. Acquisitions and Divestitures, for further information on the goodwill attributable to the Company's acquisitions in 2014
and of the Motorized Vehicles Division of FCI (“MVL”) in the fourth quarter of 2012.
Goodwill impairment—For each reporting unit, we determined that the fair value of the reporting unit remained
substantially in excess of its carrying values. No goodwill impairments were recorded in 2014 or 2013. Refer to Note 7.
Intangible Assets and Goodwill for further information.
Warranty and product recalls—Expected warranty costs for products sold are recognized at the time of sale of the
product based on an 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. Costs of
product recalls, which may include the cost of the product being replaced as well as the customer’s cost of the recall, including
labor to remove and replace the recalled part, are accrued as part of our warranty accrual at the time an obligation becomes
probable and can be reasonably estimated. 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.
Income taxes—Deferred tax assets and liabilities reflect temporary differences between the amount of assets and
liabilities for financial and tax reporting purposes. Such amounts are adjusted, as appropriate, to reflect changes in tax rates
expected to be in effect when the temporary differences reverse. The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in earnings in the period that includes the enactment date. A valuation allowance is recorded to reduce
our deferred tax assets to the amount that is more likely than not to be realized. In the event we determine it is more likely than
not that the deferred tax assets will not be realized in the future, the valuation adjustment to the deferred tax assets will be
charged to earnings in the period in which we make such a determination. In determining the provision for income taxes for
financial statement purposes, the Company makes certain estimates and judgments which affect its evaluation of the carrying
value of its deferred tax assets, as well as its calculation of certain tax liabilities.
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 of $5 million, $16 million and $24 million were included in the
consolidated statements of operations for the years ended December 31, 2014, 2013 and 2012, 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
agencies and, if applicable, other responsible parties at multi-party sites. In future periods, new laws or regulations, advances in
remediation technologies and additional information about the ultimate remediation methodology to be used could significantly
change estimates by Delphi. Refer to Note 13. Commitments and Contingencies for more information.