Ford 2012 Annual Report Download - page 113

Ford Motor Company | 2012 Annual Report 111
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 16. RETIREMENT BENEFITS (Continued)
Equities. Equity securities are valued based on quoted prices and are primarily exchange-traded. Securities for
which official close or last trade pricing on an active exchange is available are classified as Level 1 in the fair value
hierarchy. If closing prices are not available, securities are valued at the last quoted bid price or may be valued using the
last available price and typically are categorized as Level 2. Level 3 securities often are thinly traded or delisted, with
unobservable pricing data.
Derivatives. Exchange-traded derivatives for which market quotations are readily available are valued at the last
reported sale price or official closing price as reported by an independent pricing service on the primary market or
exchange on which they are traded and are categorized as Level 1. Over-the-counter derivatives typically are valued by
independent pricing services and categorized as Level 2. Level 3 derivatives typically are priced by dealers and pricing
services that use proprietary pricing models which incorporate unobservable inputs, including extrapolated or model-
derived assumptions such as volatilities and yield and credit spread assumptions.
Alternative Assets. Hedge funds generally hold liquid and readily priced securities, such as public equities in long/
short funds, exchange-traded derivatives in macro/commodity trading advisor funds, and corporate bonds in credit relative
value funds. Since hedge funds do not have readily available market quotations, they are valued using the NAV provided
by the investment sponsor or third party administrator. Hedge fund assets typically are categorized as Level 3 in the fair
value hierarchy due to the inherent restrictions on redemptions that may affect our ability to sell the investment at its NAV
in the near term. Valuations may be lagged 1 month - 3 months. For 2012 and 2011, we made adjustments of
$33 million, and $(10) million, respectively, to adjust for hedge fund lagged valuations.
Private equity and real estate investments are less liquid. External investment managers typically report valuations
reflecting initial cost or updated appraisals, which are adjusted for cash flows, and realized and unrealized gains/losses.
Private equity and real estate funds do not have readily available market quotations, and therefore are valued using the
NAV provided by the investment sponsor or third party administrator. These assets typically are categorized as Level 3 in
the fair value hierarchy, due to the inherent restrictions on redemptions that may affect our ability to sell the investment at
its NAV in the near term. Valuations may be lagged 1 month - 6 months. The NAV will be adjusted for cash flows
(additional investments or contributions, and distributions) through year-end. We may make further adjustments for any
known substantive valuation changes not reflected in the NAV. For 2012 and 2011, we made adjustments of $56 million
and $6 million, respectively, to adjust for private equity lagged valuations. For 2012 and 2011, we made adjustments of
$24 million and $13 million, respectively, to adjust for real estate lagged valuations.
The Ford Germany defined benefit plan is funded through a group insurance contract and exists in a pooled structure
with other policy holders. The contract value represents the value of the underlying assets held by the insurance
company (primarily bonds) at the guaranteed rate of return. The adjustment to fair value to recognize contractual returns
is a significant unobservable input; therefore the contract is Level 3.
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