Derivatives And Hedging Activities

3 Months Ended

Mar. 31, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities

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.

In December 2018, the Company entered into interest rate swap agreements, designated as cash flow hedges, with a combined notional amount of $400 million where the variable rates under the Term Loan A Facility have been exchanged for a fixed rate. These interest rate swap agreements mature in September 2022 and convert the nature of $400 million of the loan from LIBOR floating-rate debt to fixed-rate debt.

As of March 31, 2020, 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	653	RMB	$	90
Euro	37	EUR	40
Mexican Peso	1,046	MXN	40
Polish Zloty	169	PLN	40
British Pound	21	GBP	30
Singapore Dollar	36	SGD	30
Turkish Lira	62	TRY	10

As of March 31, 2020, Delphi Technologies has entered into derivative instruments to hedge cash flows extending out to September 2022.

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 March 31, 2020 were approximately $27 million (approximately $27 million, net of tax). Of this total, approximately $12 million of losses are expected to be included in cost of sales and interest expense within the next 12 months and $15 million of losses are expected to be included in cost of sales and interest expense 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 and interest rate 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.

In December 2018 and March 2019, as a means of managing foreign currency risk related to our significant operations in Europe, the Company executed fixed-for-fixed cross currency swaps, in which the Company will pay Euros and receive U.S. dollars with a combined notional amount of $600 million. These agreements are designated as net investment hedges and have a maturity date of September 2022.

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 derivative instruments recorded in the consolidated balance sheets as of March 31, 2020 and December 31, 2019:

	Asset Derivatives					Liability Derivatives
	Balance Sheet Location*	March 31, 2020		December 31, 2019		Balance Sheet Location*	March 31, 2020		December 31, 2019
	(in millions)
Designated as cash flow hedges:
Foreign currency derivatives*	Other current assets	$	3	$	6	Other current assets	$	2	$	—
Foreign currency derivatives*	Other long-term assets	1		2		Other long-term assets	1		—
Foreign currency derivatives*	Accrued liabilities	2		—		Accrued liabilities	5		—
Foreign currency derivatives*	Other long-term liabilities	—		—		Other long-term liabilities	2		—
Interest rate swaps*	Other long-term assets	—		—		Other long-term assets	22		11
Designated as net investment hedges:
Cross-currency swaps*	Other long-term assets	51		22		Other long-term assets	—		—
Total designated as hedges		$	57	$	30		$	32	$	11
Derivatives not designated as hedges:
Foreign currency derivatives*	Other current assets	$	1	$	3	Other current assets	$	1	$	1
Foreign currency derivatives*	Accrued liabilities	1		—		Accrued liabilities	—		—
Total not designated as hedges		$	2	$	3		$	1	$	1

* 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 March 31, 2020 and a net asset position as of December 31, 2019.

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

The pre-tax effect of the derivative financial instruments in the consolidated statement of operations and consolidated statement of comprehensive income for the three months ended March 31, 2020 and 2019 is as follows:

Three Months Ended March 31, 2020	Gain (Loss) Recognized in OCI			Gain Reclassified from OCI into Income
	(in millions)
Derivatives designated as cash flow hedges:
Foreign currency derivatives	$	(12	)	$	3
Interest rate swaps	(11		)	(1		)
Derivatives designated as net investment hedges:
Cross-currency swaps	29			—
Total	$	6		$	2
				Loss Recognized in Income
				(in millions)
Derivatives not designated				$	(1	)
Total				$	(1	)
Three Months Ended March 31, 2019	Gain Recognized in OCI			Gain Reclassified from OCI into Income
	(in millions)
Derivatives designated as cash flow hedges:
Foreign currency derivatives	$	2		$	2
Derivatives designated as net investment hedges:
Cross-currency swaps	16			—
Total	$	18		$	2
				Loss Recognized in Income
				(in millions)
Derivatives not designated				$	(2	)
Total				$	(2	)

The gain or loss recognized into income for designated and not designated derivative instruments were recorded to other income, net, interest expense and cost of sales in the consolidated statements of operations for the periods presented above.