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Notes to the Financial Statements
166 Ford Motor Company | 2010 Annual Report
NOTE 26. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Continued)
In 2010, a net gain of $7 million of foreign currency translation on net investment hedges related to Volvo was
transferred from Accumulated other comprehensive income/(loss) to earnings due to the sale of investments in foreign
affiliates.
For our Financial Services sector, net interest settlements and accruals on fair value hedges are excluded from the
assessment of hedge effectiveness. We report net interest settlements and accruals on fair value hedges in Interest
expense on our consolidated statement of operations, with the exception of foreign currency revaluation on accrued
interest, which is reported in Selling, administrative, and other expenses. Ineffectiveness on fair value hedges and gains
and losses on interest rate contracts not designated as hedging instruments are reported in Financial Services other
income/(loss), net. Gains and losses on foreign exchange and cross currency interest rate swap contracts not designated
as hedging instruments are reported in Selling, administrative, and other expenses.
Accumulated Other Comprehensive Income/(Loss) Activity
The following table summarizes activity on a pre-tax basis in Accumulated other comprehensive income/(loss) related
to designated cash flow hedges for the period ended December 31 (in millions):
2010
20102010
2010
2009
20092009
2009
Beginning of year: net unrealized gain/(loss) on derivative financial instruments ................................
................................
$ 2 $ 129
Increase/(Decrease) in fair value of derivatives ................................................................
................................
(7) (86)
Gains reclassified from
Accumulated other comprehensive income/(loss)................................
................................
(17) (41)
End of year: net unrealized gain/(loss) on derivative financial instruments................................
................................
$ (22) $ 2
We expect to reclassify existing net losses of $21 million from Accumulated other comprehensive income/(loss) to
Automotive cost of sales during the next twelve months as the underlying exposures are realized.
Balance Sheet Effect of Derivative Instruments
The following tables summarize the estimated fair value of our derivative financial instruments (in millions):
December 31, 2010
December 31, 2010December 31, 2010
December 31, 2010
Fair Value of
Fair Value ofFair Value of
Fair Value of
Fair Value of
Fair Value ofFair Value of
Fair Value of
Notionals
NotionalsNotionals
Notionals
Assets
AssetsAssets
Assets
Liabilities
LiabilitiesLiabilities
Liabilities
Automotive Sector
Automotive SectorAutomotive Sector
Automotive Sector
Cash flow hedges:
Foreign exchange contracts................................................................
................................
$ 664 $ 8 $ 15
Derivatives not designated as hedging instruments:
Foreign exchange contracts................................................................
................................
2,434 50 78
Commodity contracts ................................................................
................................
846 69 6
Other – warrants................................................................................................
................................
12 5 —
Total derivatives not designated as hedging instruments................................
................................
3,292 124 84
Total Automotive sector derivative instruments ................................
................................
$ 3,956 $ 132 $ 99
Financial Services Sector
Financial Services SectorFinancial Services Sector
Financial Services Sector
Fair value hedges:
Interest rate contracts ................................................................
................................
$ 8,826 $ 503 $ 7
Derivatives not designated as hedging instruments:
Interest rate contracts ................................................................
................................
52,999 709 322
Foreign exchange contracts................................................................
................................
3,835 24 73
Cross-currency interest rate swap contracts ................................
................................
1,472 25 189
Total derivatives not designated as hedging instruments................................
................................
58,306 758 584
Total Financial Services sector derivative instruments................................
................................
$ 67,132 $ 1,261 $ 591