Ford 2012 Annual Report Download - page 81

Ford Motor Company | 2012 Annual Report 79
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 4. FAIR VALUE MEASUREMENTS
Cash equivalents, marketable securities, and derivative financial instruments are presented in our financial statements
on a recurring basis at fair value, while other assets and liabilities are measured at fair value on a nonrecurring basis,
such as when we have an asset impairment.
Fair Value Measurements
In measuring fair value, we use various valuation methodologies and prioritize the use of observable inputs. The use
of observable and unobservable inputs and their significance in measuring fair value are reflected in our fair value
hierarchy assessment.
• Level 1 - inputs include quoted prices for identical instruments and are the most observable
• Level 2 - inputs include quoted prices for similar instruments and observable inputs such as interest rates,
currency exchange rates, and yield curves
• Level 3 - inputs include data not observable in the market and reflect management judgment about the
assumptions market participants would use in pricing the instruments
We review the inputs to the fair value measurements to ensure they are appropriately categorized within the fair value
hierarchy. Transfers into and transfers out of the hierarchy levels are recognized as if they had taken place at the end of
the reporting period.
Valuation Methodologies
Cash and Cash Equivalents. Included in Cash and cash equivalents are highly liquid investments that are readily
convertible to known amounts of cash, and which are subject to an insignificant risk of change in value due to interest
rate, quoted price, or penalty on withdrawal. A debt security is classified as a cash equivalent if it meets these criteria and
if it has a remaining time to maturity of 90 days or less from the date of acquisition. Amounts on deposit and available
upon demand, or negotiated to provide for daily liquidity without penalty, are classified as Cash and cash equivalents.
Time deposits, certificates of deposit, and money market accounts that meet the above criteria are reported at par value
on our balance sheet and are excluded from the tables below.
Marketable Securities. Investments in securities with a maturity date greater than 90 days at the date of purchase
and other securities for which there is more than an insignificant risk of change in value due to interest rate, quoted price,
or penalty on withdrawal are classified as Marketable securities. We generally measure fair value using prices obtained
from pricing services. Pricing methodologies and inputs to valuation models used by the pricing services depend on the
security type (i.e., asset class). Where possible, fair values are generated using market inputs including quoted prices
(the closing price in an exchange market), bid prices (the price at which a buyer stands ready to purchase), and other
market information. For fixed income securities that are not actively traded, the pricing services use alternative methods
to determine fair value for the securities, including: quotes for similar fixed-income securities, matrix pricing, discounted
cash flow using benchmark curves, or other factors to determine fair value. In certain cases, when market data are not
available, we may use broker quotes to determine fair value.
A review is performed on the security prices received from our pricing services, which includes discussion and
analysis of the inputs used by the pricing services to value our securities. We also compare the price of certain securities
sold close to the quarter-end to the price of the same security at the balance sheet date to ensure the reported fair value
is reasonable.
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