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Notes to the Financial Statements<br />
NOTE 25. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Continued)<br />
2010<br />
Automotive Sector<br />
Cash flow hedges:<br />
Foreign currency exchange contracts<br />
Notionals<br />
$ 1,324<br />
Fair Value of<br />
Assets<br />
$ 8<br />
Fair Value of<br />
Liabilities<br />
$ 15<br />
Derivatives not designated as hedging instruments:<br />
Foreign currency exchange contracts<br />
Commodity contracts<br />
Other – warrants<br />
Total derivatives not designated as hedging instruments<br />
Total Automotive sector derivative instruments<br />
6,100<br />
846<br />
12<br />
6,958<br />
$ 8,282<br />
50<br />
69<br />
5<br />
124<br />
$ 132<br />
78<br />
6<br />
—<br />
84<br />
$ 99<br />
Financial Services Sector<br />
Fair value hedges:<br />
Interest rate contracts<br />
$ 8,826<br />
$ 503<br />
$ 7<br />
Derivatives not designated as hedging instruments:<br />
Interest rate contracts<br />
Foreign currency exchange contracts<br />
Cross-currency interest rate swap contracts<br />
Total derivatives not designated as hedging instruments<br />
Total Financial Services sector derivative instruments<br />
52,999<br />
3,835<br />
1,472<br />
58,306<br />
$ 67,132<br />
709<br />
24<br />
25<br />
758<br />
$ 1,261<br />
322<br />
73<br />
189<br />
584<br />
$ 591<br />
On our consolidated balance sheet, derivative assets are reported in Other assets for Automotive and Financial<br />
Services sectors, and derivative liabilities are reported in Payables for our Automotive sector and in Accrued liabilities and<br />
deferred revenue for our Financial Services sector.<br />
The notional amounts of the derivative financial instruments do not represent amounts exchanged by the parties and,<br />
therefore, are not a direct measure of our exposure to the financial risks described above. Notional amounts are<br />
presented on a gross basis with no netting of offsetting exposure positions. The amounts exchanged are calculated by<br />
reference to the notional amounts and by other terms of the derivatives, such as interest rates, foreign currency exchange<br />
rates or commodity volumes and prices.<br />
Counterparty Risk and Collateral<br />
Use of derivatives exposes us to the risk that a counterparty may default on a derivative contract. We establish<br />
exposure limits for each counterparty to minimize this risk and provide counterparty diversification. Substantially all of our<br />
derivative exposures are with counterparties that have an investment grade rating. The aggregate fair value of derivative<br />
instruments in asset positions on December 31, 2011 was $1.6 billion, representing the maximum loss that we would<br />
recognize at that date if all counterparties failed to perform as contracted. We enter into master agreements with<br />
counterparties that generally allow for netting of certain exposures; therefore, the actual loss we would recognize if all<br />
counterparties failed to perform as contracted would be significantly lower.<br />
We include an adjustment for non-performance risk in the fair value of derivative instruments. Our adjustment for<br />
non-performance risk is relative to a measure based on an unadjusted inter-bank deposit rate (e.g., LIBOR). For our<br />
Automotive sector, at December 31, 2011 and 2010, our adjustment reduced derivative assets by $3 million and less than<br />
$1 million, respectively, and reduced derivative liabilities by $10 million and less than $1 million, respectively. For our<br />
Financial Services sector, at December 31, 2011 and 2010, our adjustment reduced derivative assets by $54 million and<br />
$10 million, respectively, and reduced derivative liabilities by $7 million and $4 million, respectively. See Note 4 for more<br />
detail on valuation methodologies.<br />
We post cash collateral with certain counterparties based on our net position with regard to foreign currency and<br />
commodity derivative contracts. We posted $70 million and $11 million as of December 31, 2011 and<br />
December 31, 2010, respectively, which is reported in Other assets on our consolidated balance sheet.<br />
Ford Motor Company | 2011 Annual Report 169