Ford 2005 Annual Report Download - page 99

Ford Motor Company Annual Report 2005 96 Ford Motor Company Annual Report 2005 97
Notes to the Financial Statements
NOTE 27. COMMITMENTS AND CONTINGENCIES (Continued)
Guarantees
The fair values of guarantees and indemnifications during 2005 and 2004 are recorded in the financial statements. At
December 31, 2005 and 2004, the following guarantees and indemnifications were issued and outstanding:
Guarantees related to affiliates and third parties. We guarantee debt and lease obligations of certain joint ventures as well as
certain financial obligations of outside third parties to support business and economic growth. Expiration dates vary, and
guarantees will terminate on payment and/or cancellation of the obligation. A payment would be triggered by failure of the
guaranteed party to fulfill its obligation covered by the guarantee. In some circumstances, we are entitled to recover from the third
party amounts paid by us under the guarantee. However, our ability to enforce these rights is sometimes stayed until the
guaranteed party is paid in full. The maximum potential payments under these guarantees total approximately $113 million for
2005 and were $471 million for 2004, the majority of which relates to the Automotive sector.
On December 21, 2005, we completed the sale of Hertz. As part of the transaction, we provided cash-collateralized letters of
credit in an aggregate amount of $200 million to support the asset-backed portion of the buyer's financing for the transaction. Our
commitment to provide the letters of credit expires no later than December 21, 2011 and supports the payment obligations of Hertz
Vehicle Finance LLC under one or more series of asset-backed notes ("asset-backed notes"). The letters of credit can be drawn
upon on any date funds allocated to pay interest on the asset-backed notes are insufficient to pay scheduled interest payments,
principal amounts due on the legal final maturity date, or when the balance of assets supporting the asset-backed notes is less than
the outstanding balance of the asset-backed notes. During the fourth quarter of 2005, we recognized a liability of $27 million
which represents the estimated fair value of our obligation under the letters of credit.
In 1996, we issued $500 million of 7.25% Notes due October 1, 2008. In 1999, we defeased our obligation as primary obligor
with respect to the principal of these notes. As part of this transaction, we placed certain financial assets into an escrow trust for
the benefit of the noteholders, and the trust became the primary obligor with respect to the principal (we became secondarily liable
for the entire principal amount).
We also have guarantees outstanding associated with a subsidiary trust, Trust II. For further discussion of Trust II, see Notes
16 and 18.
Indemnifications. In the ordinary course of business, we execute contracts involving indemnifications standard in the industry
and indemnifications specific to a transaction, such as the sale of a business. These indemnifications might include claims against
any of the following: environmental, tax, and shareholder matters; intellectual property rights; power generation contracts;
governmental regulations and employment-related matters; dealer, supplier, and other commercial contractual relationships; and
financial matters, such as securitizations. Performance under these indemnities would generally be triggered by a breach of terms
of the contract or by a third-party claim. We regularly evaluate the probability of having to incur costs associated with these
indemnifications and have accrued for expected losses that are probable. We are party to numerous indemnifications and many of
these indemnities do not limit potential payment; therefore, we are unable to estimate a maximum amount of potential future
payments that could result from claims made under these indemnities.
Product Performance
Warranty. Estimated warranty costs and additional service actions are accrued for at the time the vehicle is sold to a dealer.
Included in the warranty cost accruals are costs for basic warranty coverages on vehicles sold. Additional service actions such as
product recalls and other customer service actions are not included in the warranty reconciliation below, but are also accrued for at