Ford 2013 Annual Report Download - page 126

124 Ford Motor Company | 2013 Annual Report
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 16. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Continued)
Counterparty Risk and Collateral
The 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 our
derivative instruments in asset positions on December 31, 2013 was $1.2 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 may allow for netting of exposures in the event of default or termination of the counterparty agreement
due to breach of contract.
The gross and net amounts of derivative assets and liabilities were as follows (in millions):
December 31, 2013 December 31, 2012
Fair Value of
Assets
Fair Value of
Liabilities
Fair Value of
Assets
Fair Value of
Liabilities
Automotive Sector
Gross derivative amounts recognized in balance sheet $ 580 $418 $241 $610
Gross derivative amounts not offset in the balance sheet that are eligible
for offsetting (359)(359)(218) (218)
Net amount $ 221 $ 59 $ 23 $ 392
Financial Services Sector
Gross derivative amounts recognized in balance sheet $ 585 $506 $1,300 $381
Gross derivative amounts not offset in the balance sheet that are eligible
for offsetting (296)(296)(222) (222)
Net amount $ 289 $210 $1,078 $159
We may receive or pledge cash collateral with certain counterparties based on our net position with regard to foreign
currency and commodity derivative contracts, which is reported in Other Assets or Payables on our consolidated balance
sheet. As of December 31, 2013 and 2012, we did not receive or pledge any cash collateral.
We include an adjustment for non-performance risk in the measurement of 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, 2013 and 2012, our adjustment decreased derivative assets
by $1 million and $1 million, respectively, and decreased derivative liabilities by $1 million and $1 million, respectively. For
our Financial Services sector, at December 31, 2013 and 2012, our adjustment increased derivative assets by $2 million
and decreased derivative assets by $14 million, respectively, and decreased derivative liabilities by $25 million and
$5 million, respectively. See Note 4 for more detail on valuation methodologies.
NOTE 17. REDEEMABLE NONCONTROLLING INTEREST
AutoAlliance International, Inc. (“AAI”) is a 50/50 joint venture between Ford and Mazda Motor Corporation (“Mazda”)
that operates an automobile assembly plant in Flat Rock, Michigan. On September 1, 2012, we granted to Mazda a put
option to sell and received a call option to purchase from Mazda the 50% equity interest in AAI that is held by Mazda (“the
Option”). The Option is exercisable at a price of $339 million and is recorded as a redeemable noncontrolling interest in
the mezzanine section of our balance sheet. Mazda’s share in AAI is redeemable by Ford or Mazda for a three-year
period commencing on September 1, 2015. The following table summarizes the change in our redeemable noncontrolling
interest for the years ended December 31 (in millions):
2013 2012
Beginning balance (a) $ 322 $319
Accretion to the redemption value of noncontrolling interest (recognized in Interest expense) 9 3
Ending balance $ 331 $322
__________
(a) The 2012 beginning balance reflects the fair value of redeemable noncontrolling interest at September 1, 2012, the date of the AAI consolidation.
See Note 23 for additional information.