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Notes to the Financial Statements
Ford Motor Company | 2010 Annual Report 165
NOTE 26. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Continued)
Net Investment Hedges. We have used foreign currency exchange derivatives to hedge the net assets of certain
foreign entities to offset the translation and economic exposures related to our investment in these entities. The effective
portion of changes in the value of these derivative instruments is included in Accumulated other comprehensive
income/(loss) as a foreign currency translation adjustment until the hedged investment is sold or liquidated. When the
investment is sold or liquidated, the hedge gains and losses previously reported in Accumulated other comprehensive
income/(loss) are recognized in Automotive interest income and other non-operating income/(expense), net as part of the
gain or loss on sale. We have had no derivative instruments in an active net investment hedging relationship since the
first quarter of 2007.
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.
Income Effect of Derivative Instruments
The following tables summarize by hedge designation the pre-tax gains/(losses) recorded in Other comprehensive
income/(loss) ("OCI"), reclassified from Accumulated other comprehensive income/(loss) ("AOCI" ) to income and/or
recognized directly in income (in millions):
2010
20102010
2010
2009
20092009
2009
Gain/(Loss)
Gain/(Loss) Gain/(Loss)
Gain/(Loss)
Recorded
Recorded Recorded
Recorded
in OCI
in OCIin OCI
in OCI
Gain/(Loss)
Gain/(Loss) Gain/(Loss)
Gain/(Loss)
Reclassified
Reclassified Reclassified
Reclassified
from AOCI
from AOCI from AOCI
from AOCI
to Income
to Income to Income
to Income
Gain/(Loss
Gain/(LossGain/(Loss
Gain/(Loss)
) )
)
Recognized
Recognized Recognized
Recognized
in Income
in Income in Income
in Income
Gain/(Loss)
Gain/(Loss) Gain/(Loss)
Gain/(Loss)
Recorded
Recorded Recorded
Recorded
in OCI
in OCIin OCI
in OCI
Gain/(Loss)
Gain/(Loss) Gain/(Loss)
Gain/(Loss)
Reclassified
Reclassified Reclassified
Reclassified
from AOCI
from AOCI from AOCI
from AOCI
to Income
to Income to Income
to Income
Gain/(Loss)
Gain/(Loss) Gain/(Loss)
Gain/(Loss)
Recognized
Recognized Recognized
Recognized
in Income
in Income in Income
in Income
Automotive Sector
Automotive SectorAutomotive Sector
Automotive Sector
Designated cash flow hedges:
Foreign exchange contracts
................................
$ (7) $ 17 $ - $ (86) $ 37(a) $ (1)
Commodity contracts
................................
- - - - 4 -
Total................................
................................
$ (7) $ 17 $ - $ (86) $ 41 $ (1)
Derivatives not designated as hedging
instruments:
Foreign exchange contracts -
operating exposures
................................
$ (183)
$ (120)
Foreign exchange contracts -
investment portfolios
................................
-
(11)
Commodity contracts
................................
68 (4)
Other – warrants................................
................................
2 (12)
Total................................
................................
$ (113) $ (147)
Financial Services Sector
Financial Services SectorFinancial Services Sector
Financial Services Sector
Fair value hedges:
Interest rate contracts
Net interest settlements and accruals
excluded from the assessment of
hedge effectiveness
................................
$ 225
$ 164
Ineffectiveness (b)................................
................................
(6) (13)
Total................................
................................
$ 219 $ 151
Derivatives not designated as hedging
instruments:
Interest rate contracts
................................
$ 38 $ (63)
Foreign exchange contracts
................................
(88) (268)
Cross-currency interest rate swap
contracts................................
................................
(1)
12
Total................................
................................
$ (51) $ (319)
(a) Includes $4 million gain reclassified from AOCI to income in first quarter 2009 attributable to transactions no longer probable to occur, primarily
related to Volvo.
(b) For 2010 and 2009, hedge ineffectiveness reflects change in fair value on derivatives of $117 million gain and $46 million loss, respectively,
and change in fair value on hedged debt of $123 million loss and $33 million gain, respectively.