Ford 2011 Annual Report Download - page 168

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Notes to the Financial Statements
166 Ford Motor Company | 2011 Annual Report
NOTE 25. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Continued)
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, 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.
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.
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 designated 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. Presently, we have had no derivative instruments in an active net investment hedging relationship. We have elected
the spot to spot method.
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.