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80
NOTES TO FINANCIAL STATEMENTS
NOTE 17. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
FAIR VALUE HEDGES
We use derivative instruments designated as fair value hedges to hedge our exposure to interest rate risk. Changes in the
value of these derivatives, along with the changes in the fair value of the underlying hedged exposure, are recognized in net
income. The charge to net income from changes in hedging relationships and hedge ineffectiveness was $142 million and
$132 million for the years ended December 31, 2002 and 2001, respectively.
NET INVESTMENT HEDGES
We use forward foreign currency exchange contracts to hedge the net assets of certain foreign entities to offset the
translation and economic exposures related to our investment in these entities. Changes in the value of these derivative
instruments are included in other comprehensive income as a foreign currency translation adjustment. The net foreign
currency adjustment was a loss of $15 million in 2002 and a gain of $129 million in 2001.
OTHER DERIVATIVE INSTRUMENTS
In accordance with corporate risk management policies, we use derivative instruments, such as forward contracts,
swaps and options that economically hedge certain exposures (foreign currency, commodity, and interest rates). In
certain instances, we forgo hedge accounting, which results in unrealized gains and losses that are recognized currently
in net income.
During the fourth quarter of 2001, we reevaluated our plans with respect to certain forward purchase commitments for
various precious metals commodities that were previously excluded from the scope of SFAS No. 133 and determined that
they no longer qualify for exclusion. Accordingly, we recorded an unfavorable transition adjustment of $449 million as of
December 31, 2001.
NOTE 18. OPERATING CASH FLOWS BEFORE SECURITIES TRADING
The reconciliation of net income/(loss) to cash flows from operating activities before securities trading is as follows (in millions):
2002 2001 2000
Financial Financial Financial
Automotive Services Automotive Services Automotive Services
Net income/(loss) from continuing operations $ (987) $ 1,271 $ (6,155) $ 806 $ 3,664 $ 1,792
Depreciation and special tools amortization 4,897 10,240 4,999 10,164 5,087 9,059
Impairment charges (depreciation
and amortization) --3,828 - 1,100 -
Amortization of goodwill, intangibles 21 19 299 43 305 42
Net losses/(earnings) from equity investments
in excess of dividends remitted 134 13 845 (5) 86 17
Provision for credit/insurance losses - 3,276 - 3,661 - 1,957
Foreign currency adjustments 51 - (201) - (58) -
Loss on sale of business 519 - -- --
Provision for deferred income taxes (1,377) 595 (2,242) 538 706 1,449
Decrease/(increase) in accounts
receivable other current assets 2,570 (2,499) 1,201 (813) (523) (1,049)
Decrease/(increase) in inventory (650) - 1,122 - (1,369) -
Increase/(decrease) in accounts payable
and accrued and other liabilities 3,971 2,681 4,729 (969) 2,444 1,267
Other 338 (221) (969) (253) 567 (156)
Cash flows $ 9,487 $ 15,375 $ 7,456 $ 13,172 $12,009 $14,378
We consider all highly liquid investments with a maturity of three months or less, including short-term time deposits
and government, agency and corporate obligations, to be cash equivalents. Automotive sector cash equivalents at
December 31, 2002 and 2001 were $4.4 billion and $3.3 billion, respectively; Financial Services sector cash equivalents
at December 31, 2002 and 2001 were $5.3 billion and $2.2 billion, respectively.
Cash paid/(received) for interest and income taxes was as follows (in millions):
2002 2001 2000
Interest $ 7,737 $ 9,947 $ 10,318
Income taxes (1,883) 929 1,991