Ford 2002 Annual Report Download - page 91

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NOTES TO FINANCIAL STATEMENTS
SEPARATION AGREEMENTS
We entered into various agreements with Visteon and Rouge Steel in connection with separation of these former affiliates
from Ford. Pursuant to these agreements, we have agreed to allocate certain liabilities related to each other’s business and
have agreed to share liabilities based upon certain allocations and thresholds. For example, hourly employees working for
Visteon and Rouge Steel who were represented by the UAW remain Ford employees, with the former affiliate agreeing to
reimburse Ford for the costs of those employees. Ford retains certain pension and postretirement benefit obligations for
qualified salaried and hourly employees who are working or who have worked for Visteon.
GUARANTEES
On November 26, 2002, FASB issued Interpretation No. 45 (FIN 45), Guarantor’s Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of Others. FIN 45 clarifies the requirements of SFAS No. 5,
Accounting for Contingencies, relating to a guarantor’s accounting for, and disclosure of, the issuance of certain types of
guarantees. For certain guarantees issued after December 31, 2002, FIN 45 requires a guarantor to recognize, upon issuance
of a guarantee, a liability for the fair value of the obligations it assumes under the guarantee. Guarantees issued prior to
January 1, 2003, are not subject to liability recognition, but are subject to expanded disclosure requirements.
At December 31, 2002, the following guarantees were issued and outstanding:
Guarantees of unconsolidated affiliate and third party debt: We guarantee debt and lease obligations of certain joint ven-
tures as well as certain financial obligations of outside third parties to support business and economic growth. Expiration
dates vary from March 2003 to July 2011 or 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 guaran-
tees is approximately $486 million, substantially all of which relates to the Automotive sector.
Sales to third parties of Automotive receivables, with recourse: From time to time, the Automotive sector sells receivables
to third parties with recourse. Receivables are sold on a rolling basis and individual sales liquidate at different times. A pay-
ment would be triggered by failure of the obligor to fulfill its obligations covered by the contract. The maximum potential
amount of future payments is approximately $27 million.
Indemnifications: In the ordinary course of business, we execute contracts involving indemnifications standard in the indus-
try and indemnifications specific to a transaction such as sale of a business. These indemnifications might include claims
against any of the following: environmental, tax and shareholder matters; intellectual property rights; governmental regula-
tions and employment-related matters; dealer, supplier, and other commercial contractual relationships; and financial mat-
ters, 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. The types of indemnifications for which payments
are possible are as follows:
Environmental: We have indemnified various parties for the costs associated with remediating numerous hazardous
substance storage, recycling or disposal sites in many states and, in some instances, for natural resource damages.
The amount of any such costs or damages for which we may be held responsible could be substantial. The contingent
losses that we expect to incur in connection with many of these sites have been accrued and those losses are reflected
in our financial statements in accordance with generally accepted accounting principles. The aggregate amount
accrued for environmental indemnification liabilities reflected in our financial statements is $101 million. The accrual
represents the estimated cost to study potential environmental issues at sites deemed investigation or cleanup activi-
ties, and the estimated cost to implement remediation actions, including on-going maintenance, as required. Cost esti-
mates are developed by site. Initial cost estimates are based on historical experience at similar sites and are refined
over time on the basis of in-depth studies of the site.
For many sites, the remediation costs and other damages for which we ultimately may be responsible are not reason-
ably estimable because of uncertainties with respect to factors such as our connection to the site, the materials there,
the involvement of other potentially responsible parties, the application of laws and other standards or regulations, site
conditions, and the nature and scope of investigations, studies, and remediation to be undertaken (including the tech-
nologies to be required and the extent, duration, and success of remediation). As a result, we are unable to estimate a
maximum amount for costs or other damages for which we are potentially responsible in connection with these indem-
nifications, which are generally uncapped.
Tax: We provide various tax-related indemnifications as part of transactions. The indemnified party typically is protected
from certain events that result in a tax treatment different from that originally anticipated. In some cases, tax indemnifi-
cations relate to representations or warranties given by us. Our liability typically is fixed when a final determination of
the indemnified party’s tax liability is made. In some cases, a payment under a tax indemnification may be offset in
whole or in part by refunds from the applicable governmental taxing authority. We are party to numerous tax indemnifi-
cations 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.