XML 131 R23.htm IDEA: XBRL DOCUMENT v2.4.1.9
Derivative Financial Instruments and Hedging Activities
 12 Months Ended
Dec. 31, 2014
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

In the normal course of business, our operations are exposed to global market risks, including the effect of changes in foreign currency exchange rates, certain commodity prices, and interest rates. To manage these risks, we enter into various derivatives contracts:

•
Foreign currency exchange contracts, including forwards, that are used to manage foreign exchange exposure;
•
Commodity contracts, including forwards and options, that are used to manage commodity price risk;
•
Interest rate contracts, including swaps, that are used to manage the effects of interest rate fluctuations; and
•
Cross-currency interest rate swap contracts that are used to manage foreign currency and interest rate exposures on foreign-denominated debt.
 
Our derivatives are over-the-counter customized derivative transactions and are not exchange-traded. We review our hedging program, derivative positions, and overall risk management strategy on a regular basis.

Derivative Financial Instruments and Hedge Accounting. Derivatives are recorded on the balance sheet at fair value and presented on a gross basis. Derivative assets are reported in Other assets and derivative liabilities are reported in Payables and Other liabilities and deferred revenue.
 
We have elected to apply hedge accounting to certain derivatives. Derivatives that are designated in hedging relationships are evaluated for effectiveness using regression analysis at the time they are designated and throughout the hedge period.
 
Some derivatives do not qualify for hedge accounting; for others, we elect not to apply hedge accounting. Regardless, we only enter into transactions that we believe will be highly effective at offsetting the underlying economic risk.

Cash Flow Hedges. Our Automotive sector has designated certain forward contracts as cash flow hedges of forecasted transactions with exposure to foreign currency exchange and commodity price risks.

The effective portion of changes in the fair value of cash flow hedges is deferred in Accumulated other comprehensive income/(loss) and is recognized in Automotive cost of sales when the hedged item affects earnings. The ineffective portion is reported in Automotive cost of sales in the period of measurement. Our policy is to de-designate foreign currency exchange cash flow hedges prior to the time forecasted transactions are recognized as assets or liabilities on the balance sheet and report subsequent changes in fair value through Automotive cost of sales. If it becomes probable that the originally-forecasted transaction will not occur, the related amount included in Accumulated other comprehensive income/(loss) is reclassified and recognized in earnings. The majority of our cash flow hedges mature in two years or less.

NOTE 16.  DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Continued)

Fair Value Hedges. Our Financial Services sector uses derivatives to reduce the risk of changes in the fair value of debt. We have designated certain receive-fixed, pay-float interest rate swaps as fair value hedges of fixed-rate debt. The risk being hedged is the risk of changes in the fair value of the hedged debt attributable to changes in the benchmark interest rate. If the hedge relationship is deemed to be highly effective, we record the changes in the fair value of the hedged debt related to the risk being hedged in Financial Services debt with the offset in Financial Services other
income/(loss), net. The change in fair value of the related derivative (excluding accrued interest) also is recorded in Financial Services other income/(loss), net. Net interest settlements and accruals on fair value hedges are excluded from the assessment of hedge effectiveness and are reported in Interest expense. The cash flows associated with fair value hedges are reported in Net cash provided by/(used in) operating activities on our statement of cash flows. 

When a fair value hedge is de-designated, or when the derivative is terminated before maturity, the fair value adjustment to the hedged debt continues to be reported as part of the carrying value of the debt and is amortized over its remaining life.

Derivatives Not Designated as Hedging Instruments. Our Automotive sector reports changes in the fair value of derivatives not designated as hedging instruments through Automotive cost of sales. Cash flows associated with
non-designated or de-designated derivatives are reported in Net cash provided by/(used in) investing activities on our statements of cash flows.

Our Financial Services sector reports net interest settlements and accruals and changes in the fair value of interest rate swaps not designated as hedging instruments in Financial Services other income/(loss), net. Foreign currency revaluation on accrued interest along with gains and losses on foreign exchange contracts and cross currency interest rate swaps are reported in Financial Services other income/(loss), net. Cash flows associated with non-designated or
de-designated derivatives are reported in Net cash provided by/(used in) investing activities on our statements of cash flows.

Normal Purchases and Normal Sales Classification. We have elected to apply the normal purchases and normal sales classification for physical supply contracts that are entered into for the purpose of procuring commodities to be used in production over a reasonable period in the normal course of our business.

NOTE 16.  DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Continued)

Income Effect of Derivative Financial Instruments

The gains/(losses), by hedge designation, recorded in income for the years ended December 31 were as follows (in millions):
 
2014
 
2013
 
2012
Automotive Sector
 
 
 
 
 
Cash flow hedges (a)
 
 
 
 
 
Reclassified from AOCI to income
$
78

 
$
(80
)
 
$
(377
)
Ineffectiveness
—

 
(3
)
 
1

Derivatives not designated as hedging instruments
 
 
 
 
 
Foreign currency exchange contracts
193

 
(26
)
 
(138
)
Commodity contracts
(47
)
 
(84
)
 
(65
)
Other – warrants
—

 
—

 
(4
)
Total
$
224

 
$
(193
)
 
$
(583
)
 
 
 
 
 
 
Financial Services Sector
 
 
 
 
 
Fair value hedges
 
 
 
 
 
Interest rate contracts
 
 
 
 
 
Net interest settlements and accruals excluded from the assessment of hedge effectiveness
$
304

 
$
254

 
$
177

Ineffectiveness (b)
20

 
(44
)
 
16

Derivatives not designated as hedging instruments
 
 
 
 
 
Interest rate contracts
(41
)
 
(33
)
 
(14
)
Foreign currency exchange contracts
68

 
21

 
(70
)
Cross-currency interest rate swap contracts
161

 
(88
)
 
(150
)
Other
—

 
—

 
(81
)
Total
$
512

 
$
110

 
$
(122
)
__________
(a)
For 2014, 2013, and 2012, a $271 million loss, a $317 million gain, and a $371 million loss, respectively, were recorded in OCI.
(b)
For 2014, 2013, and 2012, hedge ineffectiveness reflects the net change in fair value on derivatives of $407 million gain, $658 million loss, and $228 million gain, respectively, and change in value on hedged debt attributable to the change in benchmark interest rate of $387 million loss, $614 million gain, and $212 million loss, respectively.

NOTE 16.  DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Continued)

Balance Sheet Effect of Derivative Financial Instruments

Derivative financial instruments are recorded on the balance sheet at fair value, presented on a gross basis, and include an adjustment for non-performance risk. Notional amounts are presented on a gross basis. The notional amounts of the derivative financial instruments do not necessarily represent amounts exchanged by the parties and, therefore, are not a direct measure of our financial risk exposure. We enter into master agreements with counterparties that may allow for netting of exposure in the event of default or termination of the counterparty agreement due to breach of contract.

The notional amount and estimated fair value of our derivative financial instruments at December 31 was as follows(in millions):
 
2014
 
2013
 
Notional
 
Fair Value of
Assets
 
Fair Value of
Liabilities
 
Notional
 
Fair Value of
Assets
 
Fair Value of
Liabilities
Automotive Sector
 
 
 
 
 
 
 
 
 
 
 
Cash flow hedges
 
 
 
 
 
 
 
 
 
 
 
Foreign currency exchange and commodity contracts
$
15,434

 
$
359

 
$
517

 
$
16,238

 
$
413

 
$
189

 
 
 
 
 
 
 
 
 
 
 
 
Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
Foreign currency exchange contracts
12,198

 
157

 
129

 
11,599

 
144

 
210

Commodity contracts
693

 
1

 
67

 
3,006

 
23

 
19

Total derivative financial instruments, gross
$
28,325

 
517

 
713

 
$
30,843

 
580

 
418

Counterparty netting and collateral (a)
 
 
(463
)
 
(463
)
 
 
 
(359
)
 
(359
)
Total derivative financial instruments, net
 
$
54

 
$
250

 


 
$
221

 
$
59

 
 
 
 
 
 
 
 
 
 
 
 
Financial Services Sector
 

 
 

 
 

 
 
 
 
 
 
Fair value hedges
 

 
 

 
 

 
 
 
 
 
 
Interest rate contracts
$
23,203

 
$
602

 
$
38

 
$
18,778

 
$
360

 
$
179

 
 
 
 
 
 
 
 
 
 
 
 
Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
56,558

 
168

 
89

 
69,863

 
224

 
126

Foreign currency exchange contracts
1,527

 
18

 
1

 
2,410

 
1

 
25

Cross-currency interest rate swap contracts
2,425

 
71

 
39

 
2,620

 
—

 
176

Total derivative financial instruments, gross
$
83,713

 
859

 
167

 
$
93,671

 
585

 
506

Counterparty netting and collateral (a)
 
 
(136
)
 
(136
)
 
 
 
(296
)
 
(296
)
Total derivative financial instruments, net
 
$
723

 
$
31

 


 
$
289

 
$
210

__________
(a)
At December 31, 2014 and 2013, we did not receive or pledge any cash collateral.