DELPHI 2015 Annual Report Download - page 134

Table of Contents
112
Gain Recognized
in Income
(in millions)
Derivatives not designated:
Commodity derivatives .................................................................................................................................. $ —
Foreign currency derivatives.......................................................................................................................... 1
Total........................................................................................................................................................... $ 1
The gain or loss reclassified from OCI into income for the effective portion of designated derivative instruments and the
gain or loss recognized in income for the ineffective portion of designated derivative instruments excluded from effectiveness
testing were recorded to other income, net and cost of goods sold in the consolidated statements of operations for the years
ended December 31, 2015 and 2014. The gain or loss recognized in income for non-designated derivative instruments was
recorded in other income, net and cost of goods sold for the years ended December 31, 2015 and 2014.
Gains and losses on derivatives qualifying as cash flow hedges are recorded in OCI, to the extent that hedges are
effective, until the underlying transactions are recognized in earnings. Unrealized amounts in accumulated OCI will fluctuate
based on changes in the fair value of hedge derivative contracts at each reporting period. Losses included in accumulated OCI
as of December 31, 2015 were $136 million ($106 million, net of tax). Of this total, approximately $111 million is expected to
be included in cost of sales within the next 12 months and $25 million is expected to be included in cost of sales in subsequent
periods. Cash flow hedges are discontinued when Delphi determines it is no longer probable that the originally forecasted
transactions will occur. The amount included in cost of sales related to hedge ineffectiveness was insignificant for the years
ended December 31, 2015 and 2014, respectively.
Changes in the value of the Euro-denominated debt designated as a net investment hedge are recorded in cumulative
translation adjustment within OCI to offset changes in the value of the net investment in Euro-denominated operations. During
the year ended December 31, 2015, $5 million of losses were recognized in OCI. Gains or losses on net investment hedges are
reclassified to earnings only when the related currency translation adjustments are required to be reclassified, usually upon sale
or liquidation of the investment, and there were no amounts reclassified or recognized for ineffectiveness in the year
ended December 31, 2015. Cumulative losses included in accumulated OCI on the net investment hedge as of December 31,
2015 were approximately $5 million due to the strengthening of the Euro relative to the U.S. dollar over the term of this
arrangement.
18. FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value is defined as the exchange price that would be received to sell an asset or paid to transfer a liability (an exit
price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market
participants on the measurement date. Fair value measurements are based on one or more of the following three valuation
techniques:
Market—This approach uses prices and other relevant information generated by market transactions involving identical or
comparable assets or liabilities.
Income—This approach uses valuation techniques to convert future amounts to a single present value amount based on
current market expectations.
Cost—This approach is based on the amount that would be required to replace the service capacity of an asset
(replacement cost).
Delphi uses the following fair value hierarchy prescribed by GAAP, which prioritizes the inputs used to measure fair
value as follows:
Level 1—Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2—Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices
in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for
substantially the full term of the assets or liabilities.
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of
the assets or liabilities.
Typically, assets and liabilities are considered to be fair valued on a recurring basis if fair value is measured regularly.
However, if the fair value measurement of an instrument does not necessarily result in a change in the amount recorded on the