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Notes to the Financial Statements
NOTE 19. SHARE-BASED COMPENSATION (Continued)
Details on various stock option exercise price ranges are as follows:
Outstanding Options Exercisable Options
Range of Exercise Prices
Shares
(millions)
Weighted-
Average Life
(years)
Weighted-
Average
Exercise Price
Shares
(millions)
Weighted-
Average
Exercise Price
$ 7.40 - $10.58 ...................................................................................................
.
26.4 7.2 $ 7.97 16.5 $ 7.99
10.62 - 15.81 ...................................................................................................
.
80.2 6.0 12.81 37.9 12.86
15.91 - 23.88 ...................................................................................................
.
85.7 4.6 19.99 84.6 20.04
23.97 - 35.79 ...................................................................................................
.
52.3 4.3 30.85 52.3 30.85
41.03 - 42.52 ...................................................................................................
.
0.6 2.3 41.42 0.6 41.42
Total options..................................................................................................
.
245.2 191.9
Other Share-Based Compensation
Under the 1998 LTIP we also grant other share-based awards to select executives and other key employees, in addition to the
stock options above. These awards include Restricted Stock, Restricted Stock Equivalents, Performance Stock Rights,
Performance-based Restricted Stock Equivalents, and Stock Appreciation Rights. These awards have various vesting criteria
including service requirements, individual performance targets, and company-wide performance targets.
Other share-based compensation expense was $29.8 million for 2005, $7.6 million for 2004, and $46.2 million for 2003.
NOTE 20. DERIVATIVE FINANCIAL INSTRUMENTS
All derivative instruments, including embedded derivatives, are recorded at fair value on our balance sheet.
Our operations are exposed to global market risks, including the effect of changes in foreign currency exchange rates, certain
commodity prices and interest rates. The objective of our risk management program is to manage the financial and operational
exposure arising from these risks by offsetting gains and losses on the underlying exposures with gains and losses on derivatives
used to hedge them. We have hedge documentation that defines the hedging objectives, practices, procedures, and accounting
treatment. Our hedging program and our derivative positions and strategy are reviewed on a regular basis by our management.
We have elected to apply hedge accounting to a portion of our derivatives. Hedges that receive designated hedge accounting
treatment are evaluated for effectiveness at the time they are designated as well as throughout the hedge period. Some derivatives
do not qualify for hedge accounting; for others, we elect not to apply hedge accounting treatment. For both of these, the mark to
fair value is reported currently through earnings.
The use of derivatives to manage market risk results in counterparty risk, or the risk of a counterparty defaulting on a derivative
contract. We enter into master netting agreements with counterparties that usually allow for netting of certain exposures. We
establish exposure limits for each counterparty to minimize risk and provide counterparty diversification. Substantially all our
counterparty exposures are with counterparties that have long-term debt ratings of single-A or better.
Automotive Sector
Cash Flow Hedges. We use forward contracts and options, which qualify as cash flow hedges, to manage our 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) ("OCI") and is recognized in Cost of sales when the hedged item
affects earnings.
Derivatives used to manage financial exposures for foreign exchange and commodity price risks generally mature within three
years or less, with a maximum maturity of five years. Cash flow hedges are discontinued when it is probable that the original
forecasted transaction will not occur. The impact to earnings associated with hedge ineffectiveness from cash flow hedges was
recorded in Cost of sales as a loss of $1 million in 2005, a gain of $1 million in 2004 and a gain of $36 million in 2003.
Ford Motor Company Annual Report 2005 84 Ford Motor Company Annual Report 2005 85