Ford 2006 Annual Report Download - page 60
Download and view the complete annual report
Please find page 60 of the 2006 Ford annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.58
Notes to the Financial Statements
58
NOTE 2. SUMMARY OF ACCOUNTING POLICIES (Continued)
Supplier Price Adjustments
We frequently negotiate price adjustments with our suppliers throughout a production cycle, even after receiving
production material. These price adjustments relate to changes in design specifications or to other commercial terms
such as economics, productivity, and competitive pricing. We recognize price adjustments when we reach final
agreement with our suppliers. In general, we avoid price changes in consideration of future business; however, when
these occur, our policy is to defer the financial statement impact of any such price change given explicitly in consideration
of future business where guaranteed volumes are specified.
Government Grants and Loan Incentives
We receive grants and loan incentives from domestic and foreign governments. They are recorded in the financial
statements as dictated by the grant agreement, either as a reduction of expenses or a reduction of the cost of the capital
investment. The benefit of grants and loan incentives is recorded when performance is complete and all conditions as
specified in the agreement are fulfilled. Grants and loan incentives are recorded as a reduction of expense in Automotive
cost of sales.
Selected Other Costs
Freight, engineering and research and development costs are included in Automotive cost of sales; advertising costs
are included in Selling, administrative and other expenses. Advertising, engineering and research and development costs
are expensed as incurred and were as follows (in billions):
$GYHUWLVLQJ
(QJLQHHULQJUHVHDUFKDQGGHYHORSPHQW
Foreign Currency Translation
The assets and liabilities of foreign subsidiaries using the local currency as their functional currency are translated to
U.S. dollars based on current exchange rates and any resulting translation adjustments are included in OCI.The net
translation adjustments for 2006 and 2005 were an increase in net assets and OCI of $2.6 billion and a decrease in net
assets and OCI of $3.7 billion (net of $524 million and $299 million of tax), respectively. The net translation adjustment
also reflects amounts transferred to net income as a result of the sale or liquidation of an entity, resulting in a gain of
$116 million (primarily from the sale of Hertz) in 2005.
Also included in Automotive cost of sales,Automotive interest income and other non-operating income/(expense), net,
and Financial Services revenues are the gains and losses arising from transactions denominated in a currency other than
the functional currency of a location, the effect of re-measuring assets and liabilities of foreign subsidiaries using U.S.
dollars as their functional currency, and the results of our foreign currency hedging activities. For additional discussion of
hedging activities, see Note 22. The net after-tax income effects of these adjustments were a loss of about $17 million in
2006, and gains of $621 million and $609 million in 2005 and 2004, respectively.
Presentation of Sales Taxes
We collect and remit taxes assessed by different governmental authorities that are both imposed on and concurrent
with a revenue-producing transaction between us and our customers. These taxes may include, but are not limited to,
sales, use, value-added, and some excise taxes. We report the collection of these taxes on a net basis (excluded from
revenues). The amounts of these taxes are not significant.