Ford 2011 Annual Report Download - page 171

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