DELPHI 2015 Annual Report Download - page 41

Table of Contents
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be adversely affected if our third party suppliers lack sufficient quality control or if there are significant changes in their
financial or business condition. If our third-party manufacturers fail to deliver products, parts and components of sufficient
quality on time and at reasonable prices, we could have difficulties fulfilling our orders, sales and profits could decline, and our
commercial reputation could be damaged.
From time to time, we have underutilized our manufacturing lines. This excess capacity means we incur increased fixed
costs in our products relative to the net revenue we generate, which could have an adverse effect on our results of operations,
particularly during economic downturns. If we are unable to improve utilization levels for these manufacturing lines and
correctly manage capacity, the increased expense levels will have an adverse effect on our business, financial condition and
results of operations. In addition, some of our manufacturing lines are located in China or other foreign countries that are
subject to a number of additional risks and uncertainties, including increasing labor costs, which may result from market
demand or other factors, and political, social and economic instability.
We may not be able to respond quickly enough to changes in regulations, technology and technological risks, and to
develop our intellectual property into commercially viable products.
Changes in legislative, regulatory or industry requirements or in competitive technologies may render certain of our
products obsolete or less attractive. Our ability to anticipate changes in technology and regulatory standards and to successfully
develop and introduce new and enhanced products on a timely basis are significant factors in our ability to remain competitive
and to maintain or increase our revenues. We cannot provide assurance that certain of our products will not become obsolete or
that we will be able to achieve the technological advances that may be necessary for us to remain competitive and maintain or
increase our revenues in the future. We are also subject to the risks generally associated with new product introductions and
applications, including lack of market acceptance, delays in product development or production and failure of products to
operate properly. The pace of our development and introduction of new and improved products depends on our ability to
implement successfully improved technological innovations in design, engineering and manufacturing, which requires
extensive capital investment. Any capital expenditure cuts in these areas that we may determine to implement in the future to
reduce costs and conserve cash could reduce our ability to develop and implement improved technological innovations, which
may materially reduce demand for our products.
To compete effectively in the automotive supply industry, we must be able to launch new products to meet changing
consumer preferences and our customers’ demand in a timely and cost-effective manner. Our ability to respond to competitive
pressures and react quickly to other major changes in the marketplace including in the case of automotive sales, increased
gasoline prices or consumer desire for and availability of vehicles using alternative fuels is also a risk to our future financial
performance.
We cannot provide assurance that we will be able to install and certify the equipment needed to produce products for new
product programs in time for the start of production, or that the transitioning of our manufacturing facilities and resources to
full production under new product programs will not impact production rates or other operational efficiency measures at our
facilities. Development and manufacturing schedules are difficult to predict, and we cannot provide assurance that our
customers will execute on schedule the launch of their new product programs, for which we might supply products. Our failure
to successfully launch new products, or a failure by our customers to successfully launch new programs, could adversely affect
our results.
Changes in factors that impact the determination of our non-U.S. pension liabilities may adversely affect us.
Certain of our non-U.S. subsidiaries sponsor defined benefit pension plans, which generally provide benefits based on
negotiated amounts for each year of service. Our primary funded non-U.S. plans are located in Mexico and the United
Kingdom and were underfunded by $418 million as of December 31, 2015. The funding requirements of these benefit plans,
and the related expense reflected in our financial statements, are affected by several factors that are subject to an inherent
degree of uncertainty and volatility, including governmental regulation. In addition to the defined benefit pension plans, we
have retirement obligations driven by requirements in many of the countries in which we operate. These legally required plans
require payments at the time benefits are due. Obligations, net of plan assets, related to the defined benefit pension plans and
statutorily required retirement obligations totaled $823 million at December 31, 2015, of which $11 million is included in
accrued liabilities, $814 million is included in long-term liabilities and $2 million is included in long-term assets in our
consolidated balance sheet. Key assumptions used to value these benefit obligations and the cost of providing such benefits,
funding requirements and expense recognition include the discount rate and the expected long-term rate of return on pension
assets. If the actual trends in these factors are less favorable than our assumptions, this could have an adverse effect on our
results of operations and financial condition.