DERIVATIVES AND HEDGING ACTIVITIES

Cash Flow Hedges

Delphi Technologies is exposed to market risk, such as fluctuations in foreign currency exchange rates, commodity prices and changes in interest rates, which may result in cash flow risks. To manage the volatility relating to these exposures, Delphi Technologies aggregates the exposures on a consolidated basis to take advantage of natural offsets. For exposures that are not offset within its operations, Delphi Technologies enters into various derivative transactions pursuant to its risk management policies, which prohibit holding or issuing derivative financial instruments for speculative purposes, and designation of derivative instruments is performed on a transaction basis to support hedge accounting. The changes in fair value of these hedging instruments are offset in part or in whole by corresponding changes in the fair value or cash flows of the underlying exposures being hedged. Delphi Technologies assesses the initial and ongoing effectiveness of its hedging relationships in accordance with its documented policy.

As of June 30, 2018, the Company had the following outstanding notional amounts related to foreign currency forward contracts designated as cash flow hedges that were entered into to hedge forecasted exposures:



Foreign Currency	Quantity Hedged	Unit of Measure	Notional Amount (USD Equivalent)
	(in millions)
Chinese Yuan Renminbi	704	RMB	$	110
Euro	46	EUR	50
Mexican Peso	626	MXN	30
Singapore Dollar	35	SGD	30
Turkish Lira	61	TRY	10
South Korean Won	10,751	KRW	10

As of June 30, 2018, Delphi Technologies has entered into derivative instruments to hedge cash flows extending out to June 2020.

Gains and losses on derivatives qualifying as cash flow hedges are recorded in accumulated other comprehensive income (“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. Net losses on cash flow hedges included in accumulated OCI as of June 30, 2018 were approximately $2 million (approximately $2 million, net of tax). Of this total, approximately $1 million of gains/losses are expected to be included in cost of sales within the next 12 months and $1 million of gains/losses are expected to be included in cost of sales in subsequent periods. Cash flow hedges are discontinued when Delphi Technologies determines it is no longer probable that the originally forecasted transactions will occur. Cash flows from derivatives used to manage foreign exchange risks are classified as operating activities within the consolidated statement of cash flows.

Net Investment Hedges

The Company is also exposed to the risk that adverse changes in foreign currency exchange rates could impact its net investment in non-U.S. subsidiaries. To manage this risk, the Company designated a qualifying non-derivative instrument, foreign currency-denominated debt, as a net investment hedge of certain non-U.S. subsidiaries. The gains or losses on instruments designated as net investment hedges are recognized within OCI to offset changes in the value of the net investment in these foreign currency-denominated operations. Gains and losses reported in accumulated other comprehensive income (loss) are reclassified to earnings only when the related currency translation adjustments are required to be reclassified, usually upon sale or liquidation of the investment.

Derivatives Not Designated as Hedges

On certain occasions the Company enters into certain foreign currency contracts that are not designated as hedges. When hedge accounting is not applied to derivative contracts, gains and losses are recorded to other income (expense), net and cost of sales in the consolidated statement of operations.

Fair Value of Derivative Instruments in the Balance Sheet

The following table includes the fair value of foreign currency derivatives recorded in the consolidated balance sheets as of June 30, 2018. There were no derivative financial instruments outstanding as of December 31, 2017.



Asset Derivatives			Liability Derivatives			Net Amounts of Assets and (Liabilities) Presented in the Balance Sheet
Balance Sheet Location*	June 30, 2018		Balance Sheet Location*	June 30, 2018		June 30, 2018

(in millions)
Designated as cash flow hedges:
Other current assets	$	2	Other current assets	$	1	$	1
Other long-term assets	2		Other long-term assets	1		1
Total designated as hedges	$	4		$	2

Derivatives not designated as hedges:
Other current assets	$	4	Other current assets	$	—	4
Total not designated as hedges	$	4		$	—

* Derivative instruments are subject to master netting arrangements and are presented on a net basis in the consolidated balance sheets in accordance with accounting guidance related to the offsetting of amounts related to certain contracts.

The fair value of Delphi Technologies’ derivative financial instruments was in a net asset position as of June 30, 2018.

Effect of Derivatives on the Statement of Operations and Statement of Comprehensive Income

The pre-tax effect of the foreign currency derivatives in the consolidated statement of operations and consolidated statement of comprehensive income for the three and six months ended June 30, 2018 is as follows:



Three Months Ended June 30, 2018	Gain (Loss) Recognized in OCI		Gain (Loss) Reclassified from OCI into Income

	(in millions)
Derivatives designated as cash flow hedges	$	3	$	—
Total	$	3	$	—

			Loss Recognized in Income

			(in millions)
Derivatives not designated			$	4
Total			$	4

Six Months Ended June 30, 2018	Gain (Loss) Recognized in OCI		Gain (Loss) Reclassified from OCI into Income

	(in millions)
Derivatives designated as cash flow hedges	$	2	$	—
Total	$	2	$	—

			Loss Recognized in Income

			(in millions)
Derivatives not designated			$	8
Total			$	8

The gain or loss recognized into income of designated and not designated derivative instruments were recorded to other income, net and cost of sales in the consolidated statements of operations for the three and six months ended June 30, 2018.