NOTES TO THE FINANCIAL STATEMENTS
Table of Contents
|
|
|
|
Footnote
|
|
Page
|
Note 1
|
Presentation
|
|
Note 2
|
Accounting Standards Issued But Not Yet Adopted
|
|
Note 3
|
Fair Value Measurements
|
|
Note 4
|
Financial Services Sector Finance Receivables
|
|
Note 5
|
Financial Services Sector Allowance for Credit Losses
|
|
Note 6
|
Inventories
|
|
Note 7
|
Variable Interest Entities
|
|
Note 8
|
Impairment of Equity in Net Assets of Affiliated Companies
|
|
Note 9
|
Other Liabilities and Deferred Revenue
|
|
Note 10
|
Retirement Benefits
|
|
Note 11
|
Debt
|
|
Note 12
|
Derivative Financial Instruments and Hedging Activities
|
|
Note 13
|
Redeemable Noncontrolling Interest
|
|
Note 14
|
Accumulated Other Comprehensive Income/(Loss)
|
|
Note 15
|
Other Income/(Loss)
|
|
Note 16
|
Employee Separation Actions and Exit and Disposal Activities
|
|
Note 17
|
Income Taxes
|
|
Note 18
|
Assets Held for Sale
|
|
Note 19
|
Capital Stock and Amounts Per Share
|
|
Note 20
|
Segment Information
|
|
Note 21
|
Commitments and Contingencies
|
|
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1. PRESENTATION
Our financial statements are presented in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and instructions to the Quarterly Report on Form 10-Q and Rule 10-01 of Regulation S-X. We show certain of our financial statements on both a consolidated and a sector basis for our Automotive and Financial Services sectors. Intercompany items have been eliminated in both the consolidated and sector balance sheets. Where the presentation of these intercompany eliminations or consolidated adjustments differs between the consolidated and sector financial statements, reconciliations of certain line items are explained below in this Note or in related footnotes.
In the opinion of management, these unaudited financial statements reflect a fair statement of the results of operations and financial condition of Ford Motor Company, its consolidated subsidiaries, and consolidated VIEs of which we are the primary beneficiary for the periods and at the dates presented. The results for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year. Reference should be made to the financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2013 (“2013 Form 10-K Report”). For purposes of this report, “Ford,” the “Company,” “we,” “our,” “us” or similar references mean Ford Motor Company, our consolidated subsidiaries, and our consolidated VIEs of which we are the primary beneficiary, unless the context requires otherwise.
We reclassified certain prior year amounts in our consolidated financial statements to conform to current year presentation.
Change in accounting.
We provide medical, life, and income benefits to hourly and salary employees when they become disabled. As of January 1, 2014, we changed our accounting policy for these benefits from an event-driven model to a service-accrual model, such that our obligation now includes an estimated cost to be incurred for individuals who are disabled at the time of measurement (which was the amount recorded under our previous policy) as well as an amount that considers the probability that active employees will become disabled in the future. We believe this change in accounting method is preferable because it better aligns the recognition of expense with the periods in which the Company receives the benefit of the employees’ services, and will allow for better comparability with the method used by other companies in our industry.
We have retroactively applied this change in accounting method to all prior period amounts. As of December 31, 2012, the cumulative effect of the change decreased
Total equity
by
$303 million
and increased
Other liabilities and deferred revenue
by
$468 million
, as well as increased
Deferred income taxes
by
$165 million
. As of December 31, 2013, the cumulative effect of the change decreased
Total equity
by
$271 million
and increased
Other liabilities and deferred revenue
by
$424 million
, as well as increased
Deferred income taxes
by
$153 million
. The effect of this change was immaterial on income statement and statement of cash flow amounts for the interim periods ended
June 30, 2014
, and had no impact for the interim periods ended
June 30, 2013
.
Adoption of New Accounting Standards
Income Taxes - Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.
On January 1, 2014, we adopted the new accounting standard that requires an unrecognized tax benefit to be presented as a decrease in a deferred tax asset when a net operating loss, a similar tax loss, or a tax credit carryforward exists, and certain criteria are met. The new accounting standard is consistent with our prior practice, thus the adoption did not impact our consolidated financial statements.
Foreign Currency Matters - Parent’s Accounting for Cumulative Translation Adjustment.
On January 1, 2014, we adopted the new accounting standard that clarifies the applicable guidance for a parent company’s accounting for the release of the cumulative translation adjustment into net income upon derecognition of certain subsidiaries or groups of assets within a foreign entity or of an investment in a foreign entity. The new accounting standard is consistent with our prior practice, thus the adoption did not impact our consolidated financial statements.
Liabilities - Obligations Resulting from Joint and Several Liability Arrangements.
On January 1, 2014, we adopted the new accounting standard that provides guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements. The adoption of this accounting standard did not impact our consolidated financial statements or financial statement disclosures.
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1. PRESENTATION
(Continued)
Reconciliations between Consolidated and Sector Financial Statements
Sector to Consolidated Deferred Tax Assets and Liabilities.
The difference between the total assets and total liabilities as presented on our sector balance sheet and consolidated balance sheet is the result of netting deferred income tax assets and liabilities. The reconciliation between the totals for the sector and consolidated balance sheets was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
June 30,
2014
|
|
December 31,
2013
|
Sector balance sheet presentation of deferred income tax assets
|
|
|
|
Automotive sector current deferred income tax assets
|
$
|
1,569
|
|
|
$
|
1,574
|
|
Automotive sector non-current deferred income tax assets
|
12,928
|
|
|
13,436
|
|
Financial Services sector deferred income tax assets (a)
|
186
|
|
|
184
|
|
Total
|
14,683
|
|
|
15,194
|
|
Reclassification for netting of deferred income taxes
|
(2,087
|
)
|
|
(1,726
|
)
|
Consolidated balance sheet presentation of deferred income tax assets
|
$
|
12,596
|
|
|
$
|
13,468
|
|
|
|
|
|
Sector balance sheet presentation of deferred income tax liabilities
|
|
|
|
|
|
Automotive sector current deferred income tax liabilities
|
$
|
355
|
|
|
$
|
267
|
|
Automotive sector non-current deferred income tax liabilities
|
456
|
|
|
430
|
|
Financial Services sector deferred income tax liabilities
|
1,864
|
|
|
1,627
|
|
Total
|
2,675
|
|
|
2,324
|
|
Reclassification for netting of deferred income taxes
|
(2,087
|
)
|
|
(1,726
|
)
|
Consolidated balance sheet presentation of deferred income tax liabilities
|
$
|
588
|
|
|
$
|
598
|
|
__________
|
|
(a)
|
Financial Services deferred income tax assets are included in
Financial Services Other assets
on our sector balance sheet.
|
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1. PRESENTATION
(Continued)
Sector to Consolidated Cash Flow
. We present certain cash flows from wholesale and other receivables and interest supplements and residual support differently on our sector and consolidated statements of cash flows. The reconciliation between totals for the sector and consolidated cash flows for the periods ended
June 30
was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
First Half
|
|
2014
|
|
2013
|
Automotive net cash provided by/(used in) operating activities
|
$
|
6,108
|
|
|
$
|
4,404
|
|
Financial Services net cash provided by/(used in) operating activities
|
2,553
|
|
|
2,349
|
|
Total sector net cash provided by/(used in) operating activities
|
8,661
|
|
|
6,753
|
|
Reclassifications between investing and operating cash flows
|
|
|
|
|
|
Purchases/Collections of wholesale receivables (a)
|
(3,101
|
)
|
|
(1,407
|
)
|
Purchases/Collections of other receivables (b)
|
(155
|
)
|
|
(179
|
)
|
Payments of interest supplements and residual support (c)
|
1,565
|
|
|
1,122
|
|
Consolidated net cash provided by/(used in) operating activities
|
$
|
6,970
|
|
|
$
|
6,289
|
|
|
|
|
|
Automotive net cash provided by/(used in) investing activities
|
$
|
(4,216
|
)
|
|
$
|
(5,217
|
)
|
Financial Services net cash provided by/(used in) investing activities
|
(9,139
|
)
|
|
(6,294
|
)
|
Total sector net cash provided by/(used in) investing activities
|
(13,355
|
)
|
|
(11,511
|
)
|
Reclassifications between investing and operating cash flows
|
|
|
|
|
|
Purchases/Collections of wholesale receivables (a)
|
3,101
|
|
|
1,407
|
|
Purchases/Collections of other receivables (b)
|
155
|
|
|
179
|
|
Payments of interest supplements and residual support (c)
|
(1,565
|
)
|
|
(1,122
|
)
|
Reclassifications between investing and financing cash flows
|
|
|
|
Elimination of investing activity to/(from) Financial Services in consolidation
|
(21
|
)
|
|
(16
|
)
|
Consolidated net cash provided by/(used in) investing activities
|
$
|
(11,685
|
)
|
|
$
|
(11,063
|
)
|
|
|
|
|
Automotive net cash provided by/(used in) financing activities
|
$
|
(2,138
|
)
|
|
$
|
136
|
|
Financial Services net cash provided by/(used in) financing activities
|
3,919
|
|
|
2,523
|
|
Total sector net cash provided by/(used in) financing activities
|
1,781
|
|
|
2,659
|
|
Reclassifications between investing and financing cash flows
|
|
|
|
|
|
Elimination of investing activity to/(from) Financial Services in consolidation
|
21
|
|
|
16
|
|
Consolidated net cash provided by/(used in) financing activities
|
$
|
1,802
|
|
|
$
|
2,675
|
|
__________
|
|
(a)
|
In addition to the cash flows from vehicles sold by us, the cash flow from wholesale finance receivables (being reclassified between investing and operating) includes dealer financing by Ford Credit of used and non-Ford vehicles.
One hundred
percent of cash flows from these wholesale finance receivables have been reclassified for consolidated presentation as the portion of these cash flows from used and non-Ford vehicles is impracticable to separate.
|
|
|
(b)
|
Includes cash flows of other receivables purchased/collected by the Financial Services sector from certain divisions and subsidiaries of the Automotive sector.
|
|
|
(c)
|
Payments from Automotive sector to Ford Credit on behalf of the retail customer that represent interest supplements and residual support.
|
Venezuelan Operations
On February 13, 2013, the Venezuelan government effected a devaluation of the bolivar, from an exchange rate of
4.3
bolivars to the U.S. dollar to an exchange rate of
6.3
bolivars to the U.S. dollar. This resulted in a remeasurement loss of
$186 million
in the first quarter of 2013.
Based on changes to Venezuelan currency exchange rate mechanisms in the first quarter of 2014, we changed the exchange rate we used to remeasure the financial statements of our Venezuelan subsidiaries in U.S. dollars. Beginning March 31, 2014, we now use the exchange rate determined by periodic auctions for U.S. dollars conducted under Venezuela’s Complementary System of Foreign Currency Administration (“SICAD I”). The exchange rate we used at March 31, 2014, was
10.8
bolivars to the U.S. dollar and resulted in a remeasurement loss of
$316 million
in the first quarter of 2014 (
$310 million
related to our Automotive sector and
$6 million
related to our Financial Services sector). At
June 30, 2014
, the SICAD I exchange rate was
10.6
bolivars to the U.S. dollar.
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1. PRESENTATION
(Continued)
The operating environment in Venezuela continues to be challenging. Foreign exchange control regulations have affected our Venezuelan operation’s ability to pay dividends and obligations denominated in U.S. dollars and are constraining parts availability and our ability to maintain normal production. At
June 30, 2014
, our investment in our Venezuelan subsidiaries (which includes undistributed earnings) was
$535 million
. Also, at
June 30, 2014
, they had
$281 million
of U.S. dollar currency exchange requests pending with and in transit to the governmental controlled currency exchanges, including
$275 million
payable to other Ford consolidated affiliates.
At
June 30, 2014
, our Venezuelan subsidiaries had a bolivar-denominated net monetary position of
$391 million
, including
$388 million
of bolivar-denominated cash and cash equivalents. A further devaluation from an exchange rate of
10.6
bolivars to the U.S. dollar would result in a balance sheet remeasurement loss.
NOTE 2. ACCOUNTING STANDARDS ISSUED BUT NOT YET ADOPTED
Revenue - Revenue from Contracts with Customers
. In May 2014, the Financial Accounting Standards Board (“FASB”) issued a new accounting standard that requires recognition of revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. The new standard supersedes virtually all present U.S. GAAP guidance on revenue recognition. The new standard requires the use of more estimates and judgments than the present standards and requires additional disclosures. The new accounting standard is effective as of January 1, 2017 and we are assessing the potential impact to our consolidated financial statements and financial statement disclosures.
Transfers and Servicing - Repurchase-to-Maturity Transactions, Repurchase Financings and Disclosures.
In June 2014, the FASB issued a new accounting standard that changes the accounting for repurchase-to-maturity transactions and repurchase financing arrangements. The new standard also requires additional disclosures for certain transfers of financial assets with agreements that both entitle and obligate the transferor to repurchase the transferred assets from the transferee. The new accounting standard is effective as of January 1, 2015 and we do not expect it to have an impact on our consolidated financial statements.
Stock Compensation - Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period.
In June 2014, the FASB issued a new accounting standard that requires performance targets that could be achieved after the requisite service period be treated as performance conditions that affect the vesting of the award. The new accounting standard is effective as of January 1, 2016 and we do not expect it to have an impact on our consolidated financial statements.
NOTE 3. FAIR VALUE MEASUREMENTS
Cash equivalents, marketable securities, and derivative financial instruments are presented on our financial statements on a recurring basis at fair value, while other assets and liabilities are measured at fair value on a nonrecurring basis, such as when we have an asset impairment. There have been no changes to the types of inputs used or the valuation techniques since year end. During the second quarter of 2014, we impaired our equity in net assets of Ford Sollers Netherlands B.V. (“Ford Sollers”), which resulted in a fair value measurement on a non-recurring basis. See Note 8 for additional information.
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 3. FAIR VALUE MEASUREMENTS
(Continued)
Input Hierarchy of Items Measured at Fair Value on a Recurring Basis
The following table categorizes the fair values of items measured at fair value on a recurring basis on our balance sheet (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2014
|
|
December 31, 2013
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Automotive Sector
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents – financial instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agencies
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
33
|
|
|
$
|
—
|
|
|
$
|
33
|
|
Non-U.S. government and agencies
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
200
|
|
|
—
|
|
|
200
|
|
Total cash equivalents (a)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
233
|
|
|
—
|
|
|
233
|
|
Marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agencies
|
2,212
|
|
|
5,815
|
|
|
—
|
|
|
8,027
|
|
|
3,752
|
|
|
6,596
|
|
|
—
|
|
|
10,348
|
|
Non-U.S. government and agencies
|
—
|
|
|
9,689
|
|
|
—
|
|
|
9,689
|
|
|
—
|
|
|
6,538
|
|
|
—
|
|
|
6,538
|
|
Corporate debt
|
—
|
|
|
2,690
|
|
|
—
|
|
|
2,690
|
|
|
—
|
|
|
2,623
|
|
|
—
|
|
|
2,623
|
|
Equities
|
310
|
|
|
—
|
|
|
—
|
|
|
310
|
|
|
341
|
|
|
—
|
|
|
—
|
|
|
341
|
|
Other marketable securities
|
—
|
|
|
360
|
|
|
—
|
|
|
360
|
|
|
—
|
|
|
307
|
|
|
—
|
|
|
307
|
|
Total marketable securities
|
2,522
|
|
|
18,554
|
|
|
—
|
|
|
21,076
|
|
|
4,093
|
|
|
16,064
|
|
|
—
|
|
|
20,157
|
|
Derivative financial instruments (b)
|
—
|
|
|
322
|
|
|
3
|
|
|
325
|
|
|
—
|
|
|
579
|
|
|
1
|
|
|
580
|
|
Total assets at fair value
|
$
|
2,522
|
|
|
$
|
18,876
|
|
|
$
|
3
|
|
|
$
|
21,401
|
|
|
$
|
4,093
|
|
|
$
|
16,876
|
|
|
$
|
1
|
|
|
$
|
20,970
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments (b)
|
$
|
—
|
|
|
$
|
474
|
|
|
—
|
|
|
$
|
474
|
|
|
$
|
—
|
|
|
$
|
416
|
|
|
$
|
2
|
|
|
$
|
418
|
|
Total liabilities at fair value
|
$
|
—
|
|
|
$
|
474
|
|
|
—
|
|
|
$
|
474
|
|
|
$
|
—
|
|
|
$
|
416
|
|
|
$
|
2
|
|
|
$
|
418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Services Sector
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents – financial instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agencies
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Non-U.S. government and agencies
|
—
|
|
|
365
|
|
|
—
|
|
|
365
|
|
|
—
|
|
|
24
|
|
|
—
|
|
|
24
|
|
Total cash equivalents (a)
|
—
|
|
|
365
|
|
|
—
|
|
|
365
|
|
|
—
|
|
|
24
|
|
|
—
|
|
|
24
|
|
Marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agencies
|
43
|
|
|
862
|
|
|
—
|
|
|
905
|
|
|
418
|
|
|
25
|
|
|
—
|
|
|
443
|
|
Non-U.S. government and agencies
|
—
|
|
|
519
|
|
|
—
|
|
|
519
|
|
|
—
|
|
|
184
|
|
|
—
|
|
|
184
|
|
Corporate debt
|
—
|
|
|
1,558
|
|
|
—
|
|
|
1,558
|
|
|
—
|
|
|
1,273
|
|
|
—
|
|
|
1,273
|
|
Other marketable securities
|
—
|
|
|
38
|
|
|
—
|
|
|
38
|
|
|
—
|
|
|
43
|
|
|
—
|
|
|
43
|
|
Total marketable securities
|
43
|
|
|
2,977
|
|
|
—
|
|
|
3,020
|
|
|
418
|
|
|
1,525
|
|
|
—
|
|
|
1,943
|
|
Derivative financial instruments (b)
|
—
|
|
|
673
|
|
|
—
|
|
|
673
|
|
|
—
|
|
|
585
|
|
|
—
|
|
|
585
|
|
Total assets at fair value
|
$
|
43
|
|
|
$
|
4,015
|
|
|
$
|
—
|
|
|
$
|
4,058
|
|
|
$
|
418
|
|
|
$
|
2,134
|
|
|
$
|
—
|
|
|
$
|
2,552
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments (b)
|
$
|
—
|
|
|
$
|
320
|
|
|
$
|
—
|
|
|
$
|
320
|
|
|
$
|
—
|
|
|
$
|
506
|
|
|
$
|
—
|
|
|
$
|
506
|
|
Total liabilities at fair value
|
$
|
—
|
|
|
$
|
320
|
|
|
$
|
—
|
|
|
$
|
320
|
|
|
$
|
—
|
|
|
$
|
506
|
|
|
$
|
—
|
|
|
$
|
506
|
|
__________
|
|
(a)
|
Excludes time deposits, certificates of deposit, money market accounts, and other cash equivalents reported at par value on our balance sheet totaling
$3.1 billion
and
$2.7 billion
for Automotive Sector and
$4.5 billion
and
$6.7 billion
for Financial Services Sector at
June 30, 2014
and
December 31, 2013
, respectively. In addition to these cash equivalents, we also had cash on hand totaling
$1.6 billion
and
$2 billion
for Automotive Sector and
$1.9 billion
and
$2.8 billion
for Financial Services Sector at
June 30, 2014
and
December 31, 2013
, respectively.
|
|
|
(b)
|
See Note 12 for additional information regarding derivative financial instruments.
|
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 4. FINANCIAL SERVICES SECTOR FINANCE RECEIVABLES
Our Financial Services sector finance receivables primarily relate to Ford Credit, but also include the Other Financial Services segment and certain intersector eliminations.
Our Financial Services sector segments our finance receivables into North America and International “consumer” and “non-consumer” portfolios. The receivables are generally secured by the vehicles, inventory, or other property being financed.
Finance receivables are recorded at the time of origination or purchase at fair value and are subsequently reported at amortized cost, net of any allowance for credit losses.
Consumer Portfolio.
Receivables in this portfolio include products offered to individuals and businesses that finance the acquisition of Ford and Lincoln vehicles from dealers for personal or commercial use. Retail financing includes retail installment contracts for new and used vehicles and direct financing leases with retail customers, government entities, daily rental companies, and fleet customers.
Non-Consumer Portfolio.
Receivables in this portfolio include products offered to automotive dealers. The products include:
|
|
•
|
Dealer financing
– includes wholesale loans to dealers to finance the purchase of vehicle inventory, also known as floorplan financing, as well as loans to dealers to finance working capital and improvements to dealership facilities, finance the purchase of dealership real estate, and finance other dealer programs. Wholesale financing is approximately
95%
of dealer financing
|
|
|
•
|
Other
– primarily related to the sale of parts and accessories to dealers
|
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 4. FINANCIAL SERVICES SECTOR FINANCE RECEIVABLES
(Continued)
Finance receivables, net were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2014
|
|
December 31, 2013
|
|
North
America
|
|
International
|
|
Total Finance Receivables
|
|
North
America
|
|
International
|
|
Total Finance Receivables
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
Retail financing, gross
|
$
|
41,674
|
|
|
$
|
11,857
|
|
|
$
|
53,531
|
|
|
$
|
40,902
|
|
|
$
|
10,797
|
|
|
$
|
51,699
|
|
Less: Unearned interest supplements
|
(1,355
|
)
|
|
(252
|
)
|
|
(1,607
|
)
|
|
(1,255
|
)
|
|
(247
|
)
|
|
(1,502
|
)
|
Consumer finance receivables
|
40,319
|
|
|
11,605
|
|
|
51,924
|
|
|
39,647
|
|
|
10,550
|
|
|
50,197
|
|
Non-Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dealer financing
|
23,372
|
|
|
9,828
|
|
|
33,200
|
|
|
22,072
|
|
|
7,833
|
|
|
29,905
|
|
Other
|
875
|
|
|
343
|
|
|
1,218
|
|
|
732
|
|
|
339
|
|
|
1,071
|
|
Non-Consumer finance receivables
|
24,247
|
|
|
10,171
|
|
|
34,418
|
|
|
22,804
|
|
|
8,172
|
|
|
30,976
|
|
Total recorded investment
|
$
|
64,566
|
|
|
$
|
21,776
|
|
|
$
|
86,342
|
|
|
$
|
62,451
|
|
|
$
|
18,722
|
|
|
$
|
81,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded investment in finance receivables
|
$
|
64,566
|
|
|
$
|
21,776
|
|
|
$
|
86,342
|
|
|
$
|
62,451
|
|
|
$
|
18,722
|
|
|
$
|
81,173
|
|
Less: Allowance for credit losses
|
(252
|
)
|
|
(75
|
)
|
|
(327
|
)
|
|
(280
|
)
|
|
(77
|
)
|
|
(357
|
)
|
Finance receivables, net (a)
|
$
|
64,314
|
|
|
$
|
21,701
|
|
|
$
|
86,015
|
|
|
$
|
62,171
|
|
|
$
|
18,645
|
|
|
$
|
80,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net finance receivables subject to fair value (b)
|
|
|
|
|
$
|
84,266
|
|
|
|
|
|
|
$
|
79,149
|
|
Fair value
|
|
|
|
|
86,011
|
|
|
|
|
|
|
80,838
|
|
__________
|
|
(a)
|
At
June 30, 2014
and
December 31, 2013
,
Finance receivables, net
on the consolidated balance sheet were
$80 billion
and
$77.5 billion
, respectively. The balance is comprised of Financial Services sector finance receivables of
$86 billion
and
$80.8 billion
, respectively, net of
$6 billion
and
$3.3 billion
, respectively, of receivables purchased by Financial Services sector from Automotive sector, which are reclassified to
Other receivables, net.
|
|
|
(b)
|
At
June 30, 2014
and
December 31, 2013
, excludes
$1.7 billion
and
$1.7 billion
, respectively, of certain receivables (primarily direct financing leases) that are not subject to fair value disclosure requirements.
|
Excluded from finance receivables at
June 30, 2014
and
December 31, 2013
, was
$182 million
and
$196 million
, respectively, of accrued uncollected interest, which we report in
Other assets
on the balance sheet.
Included in the recorded investment in finance receivables at
June 30, 2014
and
December 31, 2013
were North America consumer receivables of
$20.8 billion
and
$21.8 billion
and non-consumer receivables of
$19.3 billion
and
$18.9 billion
, respectively, and International consumer receivables of
$5.9 billion
and
$5.9 billion
and non-consumer receivables of
$4.2 billion
and
$5 billion
, respectively, that secure certain debt obligations. The receivables are available only for payment of the debt issued by, and other obligations of, the securitization entities that are parties to those securitization transactions; they are not available to pay the other obligations of our Financial Services sector or the claims of Ford Credit’s other creditors. Ford Credit holds the right to receive the excess cash flows not needed to pay the debt issued by, and other obligations of, the securitization entities that are parties to those securitization transactions (see Notes 7 and 11).
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 4. FINANCIAL SERVICES SECTOR FINANCE RECEIVABLES
(Continued)
Aging
For all finance receivables, we define “past due” as
any payment, including principal and interest, that is at least 31 days past the contractual due date
. The recorded investment of consumer receivables greater than 90 days past due and still accruing interest was
$13 million
and
$14 million
at
June 30, 2014
and
December 31, 2013
, respectively. The recorded investment of non-consumer receivables greater than 90 days past due and still accruing interest was
$6 million
and
$21 million
at
June 30, 2014
and
December 31, 2013
, respectively.
The aging analysis of our finance receivables balances were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2014
|
|
December 31, 2013
|
|
North America
|
|
International
|
|
Total
|
|
North America
|
|
International
|
|
Total
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
31-60 days past due
|
$
|
588
|
|
|
$
|
41
|
|
|
$
|
629
|
|
|
$
|
715
|
|
|
$
|
39
|
|
|
$
|
754
|
|
61-90 days past due
|
75
|
|
|
19
|
|
|
94
|
|
|
88
|
|
|
17
|
|
|
105
|
|
91-120 days past due
|
17
|
|
|
8
|
|
|
25
|
|
|
18
|
|
|
9
|
|
|
27
|
|
Greater than 120 days past due
|
32
|
|
|
25
|
|
|
57
|
|
|
37
|
|
|
26
|
|
|
63
|
|
Total past due
|
712
|
|
|
93
|
|
|
805
|
|
|
858
|
|
|
91
|
|
|
949
|
|
Current
|
39,607
|
|
|
11,512
|
|
|
51,119
|
|
|
38,789
|
|
|
10,459
|
|
|
49,248
|
|
Consumer finance receivables
|
40,319
|
|
|
11,605
|
|
|
51,924
|
|
|
39,647
|
|
|
10,550
|
|
|
50,197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Consumer
|
|
|
|
|
|
|
|
|
|
|
|
Total past due
|
8
|
|
|
102
|
|
|
110
|
|
|
49
|
|
|
40
|
|
|
89
|
|
Current
|
24,239
|
|
|
10,069
|
|
|
34,308
|
|
|
22,755
|
|
|
8,132
|
|
|
30,887
|
|
Non-Consumer finance receivables
|
24,247
|
|
|
10,171
|
|
|
34,418
|
|
|
22,804
|
|
|
8,172
|
|
|
30,976
|
|
Total recorded investment
|
$
|
64,566
|
|
|
$
|
21,776
|
|
|
$
|
86,342
|
|
|
$
|
62,451
|
|
|
$
|
18,722
|
|
|
$
|
81,173
|
|
Credit Quality
Consumer Portfolio
. When originating all classes of consumer receivables, we use a proprietary scoring system that measures the credit quality of the receivables using several factors, such as credit bureau information, consumer credit risk scores (e.g., FICO score), and contract characteristics. In addition to our proprietary scoring system, we consider other individual consumer factors, such as employment history, financial stability, and capacity to pay.
Subsequent to origination, we review the credit quality of retail financing based on customer payment activity. As each customer develops a payment history, we use an internally-developed behavioral scoring model to assist in determining the best collection strategies which allows us to focus collection activity on higher-risk accounts. These models are used to refine our risk-based staffing model to ensure collection resources are aligned with portfolio risk. Based on data from this scoring model, contracts are categorized by collection risk. Our collection models evaluate several factors, including origination characteristics, updated credit bureau data, and payment patterns.
Credit quality ratings for consumer receivables are based on aging. Refer to the aging table above.
Consumer receivables credit quality ratings are as follows:
|
|
•
|
Pass
–
current to 60 days past due
|
|
|
•
|
Special Mention
–
61 to 120 days past due
and in intensified collection status
|
|
|
•
|
Substandard
–
greater than 120 days past due
and for which the uncollectible portion of the receivables has already been charged-off, as measured using the fair value of collateral
|
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 4. FINANCIAL SERVICES SECTOR FINANCE RECEIVABLES
(Continued)
Non-Consumer Portfolio
. We extend credit to dealers primarily in the form of lines of credit to purchase new Ford and Lincoln vehicles as well as used vehicles. Payment is required when the dealer has sold the vehicle. Each non-consumer lending request is evaluated by taking into consideration the borrower’s financial condition and the underlying collateral securing the loan. We use a proprietary model to assign each dealer a risk rating. This model uses historical dealer performance data to identify key factors about a dealer that we consider most significant in predicting a dealer’s ability to meet its financial obligations. We also consider numerous other financial and qualitative factors of the dealer’s operations including capitalization and leverage, liquidity and cash flow, profitability, and credit history with ourselves and other creditors. A dealer’s risk rating does not reflect any guarantees or a dealer owner’s net worth.
Dealers are assigned to one of four groups according to risk ratings as follows:
|
|
•
|
Group I
– strong to superior financial metrics
|
|
|
•
|
Group II
– fair to favorable financial metrics
|
|
|
•
|
Group III
– marginal to weak financial metrics
|
|
|
•
|
Group IV
– poor financial metrics, including dealers classified as uncollectible
|
We suspend credit lines and extend no further funding to dealers classified in Group IV.
We regularly review our model to confirm the continued business significance and statistical predictability of the factors and update the model to incorporate new factors or other information that improves its statistical predictability. In addition, we regularly audit dealer inventory and dealer sales records to verify that the dealer is in possession of the financed vehicles and is promptly paying each receivable following the sale of the financed vehicle. The frequency of on-site vehicle inventory audits depends on factors such as the dealer’s risk rating and our security position. Under our policies, on-site vehicle inventory audits of low-risk dealers are conducted only as circumstances warrant. Audits of higher-risk dealers are conducted with increased frequency based on risk ratings and our security position. We perform a credit review of each dealer at least annually and adjust the dealer’s risk rating, if necessary.
The credit quality of dealer financing receivables is evaluated based on our internal dealer risk rating analysis. A dealer has the same risk rating for its entire dealer financing regardless of the type of financing.
The credit quality analysis of our dealer financing receivables was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2014
|
|
December 31, 2013
|
|
North America
|
|
International
|
|
Total
|
|
North America
|
|
International
|
|
Total
|
Dealer Financing
|
|
|
|
|
|
|
|
|
|
|
|
Group I
|
$
|
19,972
|
|
|
$
|
4,962
|
|
|
$
|
24,934
|
|
|
$
|
18,357
|
|
|
$
|
5,051
|
|
|
$
|
23,408
|
|
Group II
|
3,118
|
|
|
3,285
|
|
|
6,403
|
|
|
3,289
|
|
|
2,092
|
|
|
5,381
|
|
Group III
|
277
|
|
|
1,488
|
|
|
1,765
|
|
|
424
|
|
|
649
|
|
|
1,073
|
|
Group IV
|
5
|
|
|
93
|
|
|
98
|
|
|
2
|
|
|
41
|
|
|
43
|
|
Total recorded investment
|
$
|
23,372
|
|
|
$
|
9,828
|
|
|
$
|
33,200
|
|
|
$
|
22,072
|
|
|
$
|
7,833
|
|
|
$
|
29,905
|
|
Impaired Receivables.
Impaired consumer receivables include accounts that have been rewritten or modified in reorganization proceedings pursuant to the U.S. Bankruptcy Code that are considered to be troubled debt restructurings (“TDRs”), as well as all accounts
greater than 120 days past due
. Impaired non-consumer receivables represent accounts with dealers that have weak or poor financial metrics or dealer financing that has been modified in TDRs. The recorded investment of consumer receivables that were impaired at
June 30, 2014
and
December 31, 2013
was
$419 million
, or
0.8%
of consumer receivables, and
$435 million
, or
0.9%
of consumer receivables, respectively. The recorded investment of non-consumer receivables that were impaired at
June 30, 2014
and
December 31, 2013
was
$125 million
, or
0.4%
of non-consumer receivables, and
$71 million
, or
0.2%
of the non-consumer receivables, respectively. Impaired finance receivables are evaluated both collectively and specifically. See Note 5 for additional information related to the development of our allowance for credit losses.
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 4. FINANCIAL SERVICES SECTOR FINANCE RECEIVABLES
(Continued)
Non-Accrual Receivables.
The accrual of revenue is discontinued at the earlier of the
time a receivable is determined to be uncollectible, at bankruptcy status notification, or greater than 120 days past due
. Accounts may be restored to accrual status only when a customer settles all past-due deficiency balances and future payments are reasonably assured. For receivables in non-accrual status, subsequent financing revenue is recognized only to the extent a payment is received. Payments are generally applied first to outstanding interest and then to the unpaid principal balance.
The recorded investment of consumer receivables in non-accrual status was
$216 million
, or
0.4%
of our consumer receivables at
June 30, 2014
, and
$238 million
, or
0.5%
of consumer receivables at
December 31, 2013
. The recorded investment of non-consumer receivables in non-accrual status was
$102 million
, or
0.3%
of our non-consumer receivables at
June 30, 2014
, and
$41 million
, or
0.1%
of non-consumer receivables at
December 31, 2013
.
Troubled Debt Restructurings.
A restructuring of debt constitutes a TDR if we grant a concession to a debtor for economic or legal reasons related to the debtor’s financial difficulties that we otherwise would not consider. Consumer and non-consumer receivables that have a modified interest rate below market rate or that were modified in reorganization proceedings pursuant to the U.S. Bankruptcy Code, except non-consumer receivables that are current with minimal risk of loss, are considered to be TDRs. We do not grant concessions on the principal balance of our receivables. If a receivable is modified in a reorganization proceeding, all payment requirements of the reorganization plan need to be met before remaining balances are forgiven. The outstanding recorded investment at time of modification for consumer receivables that are considered to be TDRs was
$96 million
, or
0.2%
of consumer receivables, and
$109 million
, or
0.2%
of consumer receivables, during the periods ended
June 30, 2014
and
2013
, respectively. The annualized subsequent default rate of TDRs that were previously modified in TDRs within the last 12 months and resulted in repossession for consumer receivable was
6.0%
and
6.0%
of TDRs at
June 30, 2014
and
2013
, respectively. There were no non-consumer receivables involved in TDRs during the periods ended
June 30, 2014
and
2013
.
Finance receivables involved in TDRs are specifically assessed for impairment. An impairment charge is recorded as part of the provision to the allowance for credit losses for the amount that the recorded investment of the receivable exceeds its estimated fair value. Estimated fair value is based on either the present value of the expected future cash flows of the receivable discounted at the contract’s original effective interest rate, or, for receivables where foreclosure is probable, the fair value of the collateral adjusted for estimated costs to sell. The allowance for credit losses related to all active consumer TDRs was
$22 million
and
$22 million
at
June 30, 2014
and
2013
, respectively. The allowance for credit losses related to all active non-consumer TDRs was de minimis at
June 30, 2014
and
2013
.
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 5. FINANCIAL SERVICES SECTOR ALLOWANCE FOR CREDIT LOSSES
Following is an analysis of the allowance for credit losses related to finance receivables for the periods ended
June 30
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter 2014
|
|
First Half 2014
|
|
Consumer
|
|
Non-Consumer
|
|
Total
|
|
Consumer
|
|
Non-Consumer
|
|
Total
|
Allowance for credit losses
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
$
|
307
|
|
|
$
|
27
|
|
|
$
|
334
|
|
|
$
|
327
|
|
|
$
|
30
|
|
|
$
|
357
|
|
Charge-offs
|
(58
|
)
|
|
(3
|
)
|
|
(61
|
)
|
|
(133
|
)
|
|
(5
|
)
|
|
(138
|
)
|
Recoveries
|
34
|
|
|
1
|
|
|
35
|
|
|
68
|
|
|
6
|
|
|
74
|
|
Provision for credit losses
|
17
|
|
|
—
|
|
|
17
|
|
|
40
|
|
|
(7
|
)
|
|
33
|
|
Other (a)
|
3
|
|
|
(1
|
)
|
|
2
|
|
|
1
|
|
|
—
|
|
|
1
|
|
Ending balance
|
$
|
303
|
|
|
$
|
24
|
|
|
$
|
327
|
|
|
$
|
303
|
|
|
$
|
24
|
|
|
$
|
327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Analysis of ending balance of allowance for credit losses
|
|
|
|
|
|
|
|
|
|
Collective impairment allowance
|
|
|
|
|
|
|
$
|
281
|
|
|
$
|
23
|
|
|
$
|
304
|
|
Specific impairment allowance
|
|
|
|
|
|
|
22
|
|
|
1
|
|
|
23
|
|
Ending balance
|
|
|
|
|
|
|
303
|
|
|
24
|
|
|
327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Analysis of ending balance of finance receivables
|
|
|
|
|
|
|
|
|
|
Collectively evaluated for impairment
|
|
|
|
|
|
|
51,505
|
|
|
34,293
|
|
|
85,798
|
|
Specifically evaluated for impairment
|
|
|
|
|
|
|
419
|
|
|
125
|
|
|
544
|
|
Recorded investment
|
|
|
|
|
|
|
51,924
|
|
|
34,418
|
|
|
86,342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance, net of allowance for credit losses
|
|
|
|
$
|
51,621
|
|
|
$
|
34,394
|
|
|
$
|
86,015
|
|
__________
|
|
(a)
|
Represents amounts related to translation adjustments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter 2013
|
|
First Half 2013
|
|
Consumer
|
|
Non-Consumer
|
|
Total
|
|
Consumer
|
|
Non-Consumer
|
|
Total
|
Allowance for credit losses
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
$
|
342
|
|
|
$
|
27
|
|
|
$
|
369
|
|
|
$
|
360
|
|
|
$
|
29
|
|
|
$
|
389
|
|
Charge-offs
|
(61
|
)
|
|
(9
|
)
|
|
(70
|
)
|
|
(141
|
)
|
|
(10
|
)
|
|
(151
|
)
|
Recoveries
|
38
|
|
|
2
|
|
|
40
|
|
|
77
|
|
|
3
|
|
|
80
|
|
Provision for credit losses
|
5
|
|
|
11
|
|
|
16
|
|
|
33
|
|
|
9
|
|
|
42
|
|
Other (a)
|
—
|
|
|
—
|
|
|
—
|
|
|
(5
|
)
|
|
—
|
|
|
(5
|
)
|
Ending balance
|
$
|
324
|
|
|
$
|
31
|
|
|
$
|
355
|
|
|
$
|
324
|
|
|
$
|
31
|
|
|
$
|
355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Analysis of ending balance of allowance for credit losses
|
|
|
|
|
|
|
|
|
|
Collective impairment allowance
|
|
|
|
|
|
|
$
|
302
|
|
|
$
|
27
|
|
|
$
|
329
|
|
Specific impairment allowance
|
|
|
|
|
|
|
22
|
|
|
4
|
|
|
26
|
|
Ending balance
|
|
|
|
|
|
|
324
|
|
|
31
|
|
|
355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Analysis of ending balance of finance receivables
|
|
|
|
|
|
|
|
|
|
Collectively evaluated for impairment
|
|
|
|
|
|
|
47,408
|
|
|
29,044
|
|
|
76,452
|
|
Specifically evaluated for impairment
|
|
|
|
|
|
|
420
|
|
|
67
|
|
|
487
|
|
Recorded investment
|
|
|
|
|
|
|
47,828
|
|
|
29,111
|
|
|
76,939
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance, net of allowance for credit losses
|
|
$
|
47,504
|
|
|
$
|
29,080
|
|
|
$
|
76,584
|
|
__________
|
|
(a)
|
Represents amounts related to translation adjustments.
|
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 6. INVENTORIES
All inventories are stated at the lower of cost or market. Cost for a substantial portion of U.S. inventories is determined on a last-in, first-out (“LIFO”) basis. LIFO was used for
26%
and
20%
of total inventories at
June 30, 2014
and
December 31, 2013
, respectively. Cost of other inventories is determined by costing methods that approximate a first-in, first-out (“FIFO”) basis.
Inventories were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
June 30,
2014
|
|
December 31,
2013
|
Raw materials, work-in-process, and supplies
|
$
|
4,055
|
|
|
$
|
3,628
|
|
Finished products
|
6,328
|
|
|
5,081
|
|
Total inventories under FIFO
|
10,383
|
|
|
8,709
|
|
LIFO adjustment
|
(1,018
|
)
|
|
(1,001
|
)
|
Total inventories
|
$
|
9,365
|
|
|
$
|
7,708
|
|
NOTE 7. VARIABLE INTEREST ENTITIES
VIEs of Which We are Not the Primary Beneficiary
We have invested in joint ventures that are VIEs and in which the power to direct economically significant activities is shared with the joint venture partner. Our investments in the joint ventures are accounted for as equity method investments. Our maximum exposure to any potential losses associated with these joint ventures is limited to our investment, and was
$343 million
and
$336 million
at
June 30, 2014
and
December 31, 2013
, respectively.
VIEs of Which We are the Primary Beneficiary
Through Ford Credit, we securitize, transfer, and service financial assets associated with consumer finance receivables, operating leases, and wholesale loans. Our securitization transactions typically involve the legal transfer of financial assets to bankruptcy remote special purpose entities. The third-party investors in these securitization entities have legal recourse only to the assets securing the debt and do not have recourse to us, except for the customary representation and warranty provisions. In addition, the cash flows generated by the assets are restricted only to pay such liabilities. We generally retain economic interests in the asset-backed securitization transactions, which are retained in the form of senior or subordinated interests, cash reserve accounts, residual interests, and servicing rights. For accounting purposes, we are precluded from recording the transfers of assets in securitization transactions as sales.
In most cases, the bankruptcy remote special purpose entities meet the definition of VIEs for which we have determined we have both the power to direct the activities of the entity that most significantly impact the entity’s performance and the obligation to absorb losses or the right to receive benefits of the entity that could be significant, and would therefore also be consolidated. We account for all securitization transactions as if they were secured financing and therefore the assets, liabilities and related activity of these VIEs are consolidated in our financial results and are included in amounts presented on the face of our consolidated balance sheet and in the related footnotes.
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 8.
IMPAIRMENT OF EQUITY IN NET ASSETS OF AFFILIATED COMPANIES
We formed the Ford Sollers joint venture in October 2011, through which we operate in the Russian market. Upon contribution of our then wholly-owned operations in Russia to the joint venture, in exchange for cash and notes receivable in the amount of
$307 million
and a
50%
equity ownership in the new joint venture, we deconsolidated the related assets and liabilities, recorded equity in net assets of Ford Sollers at its fair value of
$364 million
, and recognized a pre-tax gain of
$401 million
. The fair value was calculated using a discounted cash flow analysis with assumptions of relevant factors made at that time.
Recently, the Russian market has experienced a weaker ruble, lower industry volume, and industry segmentation changes that negatively impact sales of Focus. These factors have reduced expected cash flows for Ford Sollers in the near term, thereby reducing the fair value of our equity in net assets of affiliated companies. Accordingly, we recorded a
$329 million
pre-tax impairment at
June 30, 2014
. The non-cash charge was reported in
Equity in net income of affiliated companies
.
We measured the fair value of our equity in net assets of Ford Sollers using a discounted cash flow analysis. We used cash flows that reflect Ford Sollers present plan, aligned with assumptions a market participant would make. We assumed a discount rate of
15%
based on the appropriate weighted average cost of capital, adjusted for perceived business risks related to regulatory concerns, political tensions, foreign exchange volatility, and risk associated with the Russian automotive industry.
NOTE 9. OTHER LIABILITIES AND DEFERRED REVENUE
Other liabilities and deferred revenue were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
June 30,
2014
|
|
December 31,
2013
|
Automotive Sector
|
|
|
|
Current
|
|
|
|
Dealer and dealers’ customer allowances and claims
|
$
|
8,335
|
|
|
$
|
7,730
|
|
Deferred revenue
|
4,281
|
|
|
2,817
|
|
Employee benefit plans
|
1,997
|
|
|
1,706
|
|
Accrued interest
|
240
|
|
|
262
|
|
Other postretirement employee benefits (“OPEB”)
|
387
|
|
|
387
|
|
Pension (a)
|
352
|
|
|
327
|
|
Other
|
3,293
|
|
|
3,308
|
|
Total Automotive other liabilities and deferred revenue
|
18,885
|
|
|
16,537
|
|
Non-current
|
|
|
|
|
|
Pension (a)
|
8,613
|
|
|
9,288
|
|
OPEB
|
5,478
|
|
|
5,502
|
|
Dealer and dealers’ customer allowances and claims
|
2,396
|
|
|
2,028
|
|
Deferred revenue
|
2,641
|
|
|
2,534
|
|
Employee benefit plans
|
1,161
|
|
|
1,213
|
|
Other
|
1,225
|
|
|
1,524
|
|
Total Automotive other liabilities and deferred revenue
|
21,514
|
|
|
22,089
|
|
Total Automotive sector
|
40,399
|
|
|
38,626
|
|
Financial Services Sector
|
2,045
|
|
|
2,260
|
|
Total
|
$
|
42,444
|
|
|
$
|
40,886
|
|
__________
|
|
(a)
|
Balances at
June 30, 2014
reflect net pension liabilities at
December 31, 2013
, updated for service and interest cost, expected return on assets, separation expense, actual benefit payments, and cash contributions. The discount rate and rate of expected return assumptions are unchanged from year-end
2013
.
|
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 10. RETIREMENT BENEFITS
Defined Benefit Plans - Expense
The pre-tax expense for our defined benefit pension and OPEB plans for the periods ended
June 30
was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter
|
|
Pension Benefits
|
|
|
|
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
Worldwide OPEB
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
Service cost
|
$
|
126
|
|
|
$
|
151
|
|
|
$
|
120
|
|
|
$
|
119
|
|
|
$
|
14
|
|
|
$
|
16
|
|
Interest cost
|
498
|
|
|
477
|
|
|
302
|
|
|
280
|
|
|
67
|
|
|
64
|
|
Expected return on assets
|
(678
|
)
|
|
(724
|
)
|
|
(383
|
)
|
|
(341
|
)
|
|
—
|
|
|
—
|
|
Amortization of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service costs/(credits)
|
39
|
|
|
44
|
|
|
13
|
|
|
16
|
|
|
(57
|
)
|
|
(71
|
)
|
(Gains)/Losses
|
52
|
|
|
195
|
|
|
148
|
|
|
170
|
|
|
25
|
|
|
40
|
|
Separation programs/other
|
1
|
|
|
3
|
|
|
23
|
|
|
142
|
|
|
(1
|
)
|
|
—
|
|
Recognition of (gains)/losses due to
settlements
|
—
|
|
|
294
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total expense/(income)
|
$
|
38
|
|
|
$
|
440
|
|
|
$
|
223
|
|
|
$
|
386
|
|
|
$
|
48
|
|
|
$
|
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Half
|
|
Pension Benefits
|
|
|
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
Worldwide OPEB
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
Service cost
|
$
|
253
|
|
|
$
|
303
|
|
|
$
|
238
|
|
|
$
|
241
|
|
|
$
|
27
|
|
|
$
|
32
|
|
Interest cost
|
996
|
|
|
955
|
|
|
602
|
|
|
567
|
|
|
134
|
|
|
129
|
|
Expected return on assets
|
(1,356
|
)
|
|
(1,448
|
)
|
|
(762
|
)
|
|
(690
|
)
|
|
—
|
|
|
—
|
|
Amortization of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service costs/(credits)
|
78
|
|
|
87
|
|
|
27
|
|
|
33
|
|
|
(114
|
)
|
|
(142
|
)
|
(Gains)/Losses
|
103
|
|
|
390
|
|
|
296
|
|
|
343
|
|
|
49
|
|
|
80
|
|
Separation programs/other
|
1
|
|
|
4
|
|
|
39
|
|
|
151
|
|
|
—
|
|
|
—
|
|
Recognition of (gains)/losses due to
settlements
|
—
|
|
|
294
|
|
|
14
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total expense/(income)
|
$
|
75
|
|
|
$
|
585
|
|
|
$
|
454
|
|
|
$
|
645
|
|
|
$
|
96
|
|
|
$
|
99
|
|
Pension Plan Contributions
In
2014
, we expect to contribute
$1.5 billion
from Automotive cash and cash equivalents to our worldwide funded pension plans (most of which are mandatory contributions), and to make
$400 million
of benefit payments to participants in unfunded plans, for a total of
$1.9 billion
. In the
first half
of
2014
, we contributed
$800 million
to our worldwide funded pension plans and made
$200 million
of benefit payments to participants in unfunded plans.
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 11. DEBT
The carrying value of debt was
$118.7 billion
and
$114.7 billion
at
June 30, 2014
and
December 31, 2013
, respectively. The following table details the carrying value of our debt by Automotive sector and Financial Services sector (in millions):
|
|
|
|
|
|
|
|
|
Automotive Sector
|
June 30,
2014
|
|
December 31,
2013
|
Debt payable within one year
|
|
|
|
Short-term
|
$
|
737
|
|
|
$
|
562
|
|
Long-term payable within one year
|
|
|
|
|
|
U.S. Department of Energy (“DOE”) Advanced Technology Vehicles Manufacturing (“ATVM”) Incentive Program
|
591
|
|
|
591
|
|
European Investment Bank (“EIB”) loans
|
546
|
|
|
—
|
|
Unamortized (discount)/premium
|
4
|
|
|
—
|
|
Other debt
|
283
|
|
|
104
|
|
Total debt payable within one year
|
2,161
|
|
|
1,257
|
|
Long-term debt payable after one year
|
|
|
|
|
|
Public unsecured debt securities
|
6,634
|
|
|
6,799
|
|
Unamortized (discount)/premium
|
(146
|
)
|
|
(148
|
)
|
Convertible notes
|
883
|
|
|
908
|
|
Unamortized (discount)/premium
|
(90
|
)
|
|
(110
|
)
|
DOE ATVM Incentive Program
|
4,128
|
|
|
4,424
|
|
EIB loans
|
767
|
|
|
1,295
|
|
Other debt
|
1,042
|
|
|
1,255
|
|
Unamortized (discount)/premium
|
(2
|
)
|
|
3
|
|
Total long-term debt payable after one year
|
13,216
|
|
|
14,426
|
|
Total Automotive sector
|
$
|
15,377
|
|
|
$
|
15,683
|
|
Fair value of Automotive sector debt (a)
|
$
|
17,937
|
|
|
$
|
17,301
|
|
|
|
|
|
Financial Services Sector
|
|
|
|
|
|
Short-term debt
|
|
|
|
|
|
Asset-backed commercial paper
|
$
|
—
|
|
|
$
|
3,364
|
|
Other asset-backed short-term debt
|
1,478
|
|
|
1,963
|
|
Floating rate demand notes
|
5,445
|
|
|
5,319
|
|
Commercial paper
|
2,289
|
|
|
2,003
|
|
Other short-term debt
|
2,396
|
|
|
2,345
|
|
Total short-term debt
|
11,608
|
|
|
14,994
|
|
Long-term debt
|
|
|
|
|
|
Unsecured debt
|
|
|
|
|
|
Notes payable within one year
|
8,363
|
|
|
4,475
|
|
Notes payable after one year
|
39,788
|
|
|
38,914
|
|
Asset-backed debt
|
|
|
|
|
|
Notes payable within one year
|
17,792
|
|
|
17,337
|
|
Notes payable after one year
|
25,513
|
|
|
23,273
|
|
Unamortized (discount)/premium
|
(68
|
)
|
|
(91
|
)
|
Fair value adjustments (b)
|
334
|
|
|
103
|
|
Total long-term debt
|
91,722
|
|
|
84,011
|
|
Total Financial Services sector
|
$
|
103,330
|
|
|
$
|
99,005
|
|
Fair value of Financial Services sector debt (a)
|
$
|
106,574
|
|
|
$
|
102,399
|
|
__________
|
|
(a)
|
The fair value of debt includes
$503 million
and
$377 million
of Automotive sector short-term debt and
$10.1 billion
and
$9.7 billion
of Financial Services sector short-term debt at
June 30, 2014
and
December 31, 2013
, respectively, carried at cost which approximates fair value. All debt is categorized within Level 2 of the fair value hierarchy. See Note 3 for additional information.
|
|
|
(b)
|
Adjustments related to designated fair value hedges of unsecured debt.
|
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 12. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
In the normal course of business, our operations are exposed to global market risks, including the effect of changes in foreign currency exchange rates, certain commodity prices, and interest rates. To manage these risks, we enter into various derivatives contracts:
|
|
•
|
Foreign currency exchange contracts, including forwards and options, that are used to manage foreign exchange exposure;
|
|
|
•
|
Commodity contracts, including forwards and options, that are used to manage commodity price risk;
|
|
|
•
|
Interest rate contracts including swaps, caps, and floors that are used to manage the effects of interest rate fluctuations; and
|
|
|
•
|
Cross-currency interest rate swap contracts that are used to manage foreign currency and interest rate exposures on foreign-denominated debt.
|
Our derivatives are over-the-counter customized derivative transactions and are not exchange-traded. We review our hedging program, derivative positions, and overall risk management strategy on a regular basis.
Derivative Financial Instruments and Hedge Accounting.
Derivatives are recorded on the balance sheet at fair value and presented on a gross basis.
We have elected to apply hedge accounting to certain derivatives. Derivatives that are designated in hedging relationships are evaluated for effectiveness using regression analysis at the time they are designated and throughout the hedge period.
Some derivatives do not qualify for hedge accounting; for others, we elect not to apply hedge accounting. Regardless, we only enter into transactions that we believe will be highly effective at offsetting the underlying economic risk.
Cash Flow Hedges.
Our Automotive sector has designated certain forward contracts as cash flow hedges of forecasted transactions with 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)
and is recognized in
Automotive cost of sales
when the hedged item affects earnings. The ineffective portion is reported in
Automotive cost of sales
in the period of measurement. Our policy is to de-designate foreign currency exchange cash flow hedges prior to the time forecasted transactions are recognized as assets or liabilities on the balance sheet and report subsequent changes in fair value through
Automotive cost of sales
. If it becomes probable that the originally-forecasted transaction will not occur, the related amount included in
Accumulated other comprehensive income/(loss)
is reclassified and recognized in earnings. The majority of our cash flow hedges mature in
two
years or less.
Fair Value Hedges.
Our Financial Services sector
uses derivatives to reduce the risk of changes in the fair value of debt. We have designated certain receive-fixed, pay-float interest rate swaps as fair value hedges of fixed-rate debt. The risk being hedged is the risk of changes in the fair value of the hedged debt attributable to changes in the benchmark interest rate. If the hedge relationship is deemed to be highly effective, we record the changes in the fair value of the hedged debt related to the risk being hedged in
Financial Services debt
with the offset in
Financial Services other income/(loss), net
.
The change in fair value of the related derivative (excluding accrued interest) also is recorded in
Financial Services other income/(loss), net.
Net interest settlements and accruals on fair value hedges are excluded from the assessment of hedge effectiveness and are reported in
Interest expense
. The cash flows associated with fair value hedges are reported in
Net cash provided by/(used in) operating activities
on our statement of cash flows.
Hedge ineffectiveness is the difference between the change in fair value of the derivative instrument and the change in fair value of the hedged item attributable to changes in the benchmark interest rate. Ineffectiveness is recorded directly to income.
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.
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 12. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
(Continued)
Derivatives Not Designated as Hedging Instruments.
Our Automotive sector reports changes in the fair value of derivatives not designated as hedging instruments through
Automotive cost of sales
. Cash flows associated with non-designated or de-designated derivatives are reported in
Net cash provided by/(used in) investing activities
on our statements of cash flows.
Our Financial Services sector reports net interest settlements and accruals and changes in the fair value of interest rate swaps not designated as hedging instruments in
Financial Services other income/(loss), net
. Foreign currency revaluation on accrued interest along with gains and losses on foreign exchange contracts and cross currency interest rate swaps are reported in
Financial Services other income/(loss), net
. Cash flows associated with non-designated or de-designated derivatives are reported in
Net cash provided by/(used in) investing activities
on our statements of cash flows
.
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 Financial Instruments
The following table summarizes 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 for the periods ended
June 30
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter 2014
|
|
First Half 2014
|
|
Gains/(Losses) Recorded
in OCI
|
|
Gains/(Losses)
Reclassified
from AOCI
to Income
|
|
Gains/(Losses) Recognized
in Income
|
|
Gains/(Losses) Recorded
in OCI
|
|
Gains/(Losses)
Reclassified
from AOCI
to Income
|
|
Gains/(Losses) Recognized
in Income
|
Automotive Sector
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange and commodity contracts
|
$
|
(338
|
)
|
|
$
|
92
|
|
|
$
|
—
|
|
|
$
|
(208
|
)
|
|
$
|
160
|
|
|
$
|
—
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange contracts
|
|
|
|
|
|
|
$
|
(17
|
)
|
|
|
|
|
|
|
|
$
|
(61
|
)
|
Commodity contracts
|
|
|
|
|
|
|
47
|
|
|
|
|
|
|
|
|
35
|
|
Total
|
|
|
|
|
|
|
$
|
30
|
|
|
|
|
|
|
|
|
$
|
(26
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Services Sector
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest settlements and accruals excluded from the assessment of hedge effectiveness
|
|
|
|
|
|
|
$
|
72
|
|
|
|
|
|
|
|
|
$
|
141
|
|
Ineffectiveness (a)
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
10
|
|
Total
|
|
|
|
|
|
|
$
|
77
|
|
|
|
|
|
|
|
|
$
|
151
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
|
|
|
|
|
$
|
(9
|
)
|
|
|
|
|
|
|
|
$
|
(27
|
)
|
Foreign currency exchange contracts
|
|
|
|
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
(30
|
)
|
Cross-currency interest rate swap contracts
|
|
|
|
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
(16
|
)
|
Total
|
|
|
|
|
|
|
$
|
(45
|
)
|
|
|
|
|
|
|
|
$
|
(73
|
)
|
__________
|
|
(a)
|
For the
second quarter
and
first half
of
2014
, hedge ineffectiveness reflects change in fair value on derivatives of
$162 million
gain and
$267 million
gain, respectively, and change in value on hedged debt attributable to the change in benchmark interest rate of
$157 million
loss and
$257 million
loss, respectively.
|
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 12. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter 2013
|
|
First Half 2013
|
|
Gains/(Losses) Recorded
in OCI
|
|
Gains/(Losses)
Reclassified
from AOCI
to Income
|
|
Gains/(Losses) Recognized
in Income
|
|
Gains/(Losses) Recorded
in OCI
|
|
Gains/(Losses)
Reclassified
from AOCI
to Income
|
|
Gains/(Losses) Recognized
in Income
|
Automotive Sector
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange contracts
|
$
|
240
|
|
|
$
|
(53
|
)
|
|
$
|
—
|
|
|
$
|
295
|
|
|
$
|
(125
|
)
|
|
$
|
(3
|
)
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange contracts
|
|
|
|
|
|
|
$
|
33
|
|
|
|
|
|
|
|
|
$
|
45
|
|
Commodity contracts
|
|
|
|
|
|
|
(33
|
)
|
|
|
|
|
|
|
|
(75
|
)
|
Total
|
|
|
|
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
$
|
(30
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Services Sector
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest settlements and accruals excluded from the assessment of hedge effectiveness
|
|
|
|
|
|
|
$
|
62
|
|
|
|
|
|
|
|
|
$
|
123
|
|
Ineffectiveness (a)
|
|
|
|
|
|
|
(24
|
)
|
|
|
|
|
|
|
|
(30
|
)
|
Total
|
|
|
|
|
|
|
$
|
38
|
|
|
|
|
|
|
|
|
$
|
93
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
|
|
|
|
|
$
|
(7
|
)
|
|
|
|
|
|
|
|
$
|
(6
|
)
|
Foreign currency exchange contracts
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
92
|
|
Cross-currency interest rate swap contracts
|
|
|
|
|
|
|
(44
|
)
|
|
|
|
|
|
|
|
94
|
|
Total
|
|
|
|
|
|
|
$
|
(40
|
)
|
|
|
|
|
|
|
|
$
|
180
|
|
__________
|
|
(a)
|
For the
second quarter
and
first half
of
2013
, hedge ineffectiveness reflects change in fair value on derivatives of
$477 million
loss and
$568 million
loss, respectively, and change in value on hedged debt attributable to the change in benchmark interest rate of
$453 million
gain and
$538 million
gain, respectively.
|
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 12. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
(Continued)
Balance Sheet Effect of Derivative Financial Instruments
The following table summarizes the notional amount and estimated fair value of our derivative financial instruments (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2014
|
|
December 31, 2013
|
|
Notional
|
|
Fair Value of
Assets
|
|
Fair Value of
Liabilities
|
|
Notional
|
|
Fair Value of
Assets
|
|
Fair Value of
Liabilities
|
Automotive Sector
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange and commodity contracts
|
$
|
16,090
|
|
|
$
|
158
|
|
|
$
|
326
|
|
|
$
|
16,238
|
|
|
$
|
413
|
|
|
$
|
189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange contracts
|
12,200
|
|
|
103
|
|
|
145
|
|
|
11,599
|
|
|
144
|
|
|
210
|
|
Commodity contracts
|
2,611
|
|
|
64
|
|
|
3
|
|
|
3,006
|
|
|
23
|
|
|
19
|
|
Total derivatives not designated as hedging instruments
|
14,811
|
|
|
167
|
|
|
148
|
|
|
14,605
|
|
|
167
|
|
|
229
|
|
Total derivative financial instruments
|
$
|
30,901
|
|
|
$
|
325
|
|
|
$
|
474
|
|
|
$
|
30,843
|
|
|
$
|
580
|
|
|
$
|
418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Services Sector
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
$
|
22,559
|
|
|
$
|
479
|
|
|
$
|
61
|
|
|
$
|
18,778
|
|
|
$
|
360
|
|
|
$
|
179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
60,108
|
|
|
192
|
|
|
91
|
|
|
69,863
|
|
|
224
|
|
|
126
|
|
Foreign currency exchange contracts
|
2,082
|
|
|
2
|
|
|
20
|
|
|
2,410
|
|
|
1
|
|
|
25
|
|
Cross-currency interest rate swap contracts
|
2,754
|
|
|
—
|
|
|
148
|
|
|
2,620
|
|
|
—
|
|
|
176
|
|
Total derivatives not designated as hedging instruments
|
64,944
|
|
|
194
|
|
|
259
|
|
|
74,893
|
|
|
225
|
|
|
327
|
|
Total derivative financial instruments
|
$
|
87,503
|
|
|
$
|
673
|
|
|
$
|
320
|
|
|
$
|
93,671
|
|
|
$
|
585
|
|
|
$
|
506
|
|
Notional amounts are presented on a gross basis. The notional amounts of the derivative financial instruments do not represent amounts exchanged by the parties and, therefore, are not a direct measure of our exposure to the financial risks described above. The amounts exchanged are calculated by reference to the notional amounts and by other terms of the derivatives, such as interest rates, foreign currency exchange rates, or commodity volumes and prices.
On our sector balance sheet, derivative assets are reported in
Other current assets
and
Other assets
for
our
Automotive sector and in
Other assets
for our Financial Services sector. Derivative liabilities are reported in
Payables
and
Other liabilities and deferred revenue
for our Automotive sector and in
Other liabilities and deferred income
for our Financial Services sector.
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 12. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
(Continued)
Counterparty Risk and Collateral
The use of derivatives exposes us to the risk that a counterparty may default on a derivative contract. We establish exposure limits for each counterparty to minimize this risk and provide counterparty diversification. Substantially all of our derivative exposures are with counterparties that have an investment grade rating. The aggregate fair value of our derivative instruments in asset positions on
June 30, 2014
was
$1 billion
, representing the maximum loss that we would recognize at that date if all counterparties failed to perform as contracted. We enter into master agreements with counterparties that may allow for netting of exposures in the event of default or termination of the counterparty agreement due to breach of contract.
The gross and net amounts of derivative assets and liabilities were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2014
|
|
December 31, 2013
|
|
Fair Value of Assets
|
|
Fair Value of Liabilities
|
|
Fair Value of Assets
|
|
Fair Value of Liabilities
|
Automotive Sector
|
|
|
|
|
|
|
|
Gross derivative amounts recognized in balance sheet
|
$
|
325
|
|
|
$
|
474
|
|
|
$
|
580
|
|
|
$
|
418
|
|
Gross derivative amounts not offset in the balance sheet that are eligible for offsetting
|
(267
|
)
|
|
(267
|
)
|
|
(359
|
)
|
|
(359
|
)
|
Net amount
|
$
|
58
|
|
|
$
|
207
|
|
|
$
|
221
|
|
|
$
|
59
|
|
|
|
|
|
|
|
|
|
Financial Services Sector
|
|
|
|
|
|
|
|
Gross derivative amounts recognized in balance sheet
|
$
|
673
|
|
|
$
|
320
|
|
|
$
|
585
|
|
|
$
|
506
|
|
Gross derivative amounts not offset in the balance sheet that are eligible for offsetting
|
(236
|
)
|
|
(236
|
)
|
|
(296
|
)
|
|
(296
|
)
|
Net amount
|
$
|
437
|
|
|
$
|
84
|
|
|
$
|
289
|
|
|
$
|
210
|
|
We may receive or pledge cash collateral with certain counterparties based on our net position with regard to foreign currency and commodity derivative contracts, which is reported in
Other assets
or
Payables
on our consolidated balance sheet. As of
June 30, 2014
and
December 31, 2013
, we did not receive or pledge any cash collateral.
We include an adjustment for non-performance risk in the measurement of fair value of derivative instruments. Our adjustment for non-performance risk is relative to a measure based on an unadjusted inter-bank deposit rate (e.g., LIBOR). For our Automotive sector, at
June 30, 2014
and
December 31, 2013
, our adjustment decreased derivative assets by
$1 million
and
$1 million
, respectively, and decreased derivative liabilities by
$1 million
and
$1 million
, respectively. For our Financial Services sector, at
June 30, 2014
and
December 31, 2013
, our adjustment increased derivative assets by
$1 million
and
$2 million
, respectively, and decreased derivative liabilities by
$5 million
and
$25 million
, respectively. See Note 3 for more detail on valuation methodologies.
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 13. REDEEMABLE NONCONTROLLING INTEREST
AutoAlliance International, Inc. (“AAI”) is a
50
/
50
joint venture between Ford and Mazda Motor Corporation (“Mazda”) that owns an automobile assembly plant in Flat Rock, Michigan. On September 1, 2012, we granted to Mazda a put option to sell and received a call option to purchase from Mazda the
50%
equity interest in AAI that is held by Mazda (the “Option”). The Option is exercisable at a price of
$339 million
and is recorded as a redeemable noncontrolling interest in the mezzanine section of our balance sheet. As a result of an amendment in the
second quarter
of
2014
, Mazda’s share in AAI is now redeemable by Ford or Mazda for a
three
-year period commencing in the fourth quarter of 2014, instead of September 1, 2015. The change in timing does not change the Option exercise price. The following table summarizes the change in our carrying value of the redeemable noncontrolling interest for the periods ended
June 30
(in millions):
|
|
|
|
|
|
|
|
|
|
First Half
|
|
2014
|
|
2013
|
Beginning balance
|
$
|
331
|
|
|
$
|
322
|
|
Accretion to the redemption value of noncontrolling interest (a)
|
9
|
|
|
5
|
|
Payments (b)
|
(3
|
)
|
|
—
|
|
Ending balance
|
$
|
337
|
|
|
$
|
327
|
|
__________
|
|
(a)
|
At
June 30, 2014
and
2013
, respectively,
$5 million
and
$5 million
were recognized in
Interest expense
and
$4 million
and
$0
were recognized in
Income/(Loss) attributable to noncontrolling interests
.
|
|
|
(b)
|
Represents a return of Mazda’s investment in AAI that we are contractually obligated to pay as long as Mazda retains its ownership in AAI.
|
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 14. ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS)
The following table summarizes the changes in the accumulated balances for each component of AOCI attributable to Ford Motor Company for the periods ended
June 30
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter
|
|
First Half
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
Foreign currency translation
|
|
|
|
|
|
|
|
Beginning balance
|
$
|
(1,981
|
)
|
|
$
|
(1,611
|
)
|
|
$
|
(1,746
|
)
|
|
$
|
(1,245
|
)
|
Gains/(Losses) on foreign currency translation
|
298
|
|
|
(430
|
)
|
|
116
|
|
|
(787
|
)
|
Less: Tax/(Tax benefit)
|
—
|
|
|
—
|
|
|
53
|
|
|
—
|
|
Net gains/(losses) on foreign currency translation
|
298
|
|
|
(430
|
)
|
|
63
|
|
|
(787
|
)
|
(Gains)/Losses reclassified from AOCI to income (a)
|
19
|
|
|
—
|
|
|
19
|
|
|
(9
|
)
|
Other comprehensive income/(loss), net of tax
|
317
|
|
|
(430
|
)
|
|
82
|
|
|
(796
|
)
|
Ending balance
|
$
|
(1,664
|
)
|
|
$
|
(2,041
|
)
|
|
$
|
(1,664
|
)
|
|
$
|
(2,041
|
)
|
|
|
|
|
|
|
|
|
Derivative instruments (b)
|
|
|
|
|
|
|
|
Beginning balance
|
$
|
132
|
|
|
$
|
(78
|
)
|
|
$
|
40
|
|
|
$
|
(175
|
)
|
Gains/(Losses) on derivative instruments
|
(338
|
)
|
|
240
|
|
|
(208
|
)
|
|
295
|
|
Less: Tax/(Tax benefit)
|
(42
|
)
|
|
87
|
|
|
(90
|
)
|
|
94
|
|
Net gains/(losses) on derivative instruments
|
(296
|
)
|
|
153
|
|
|
(118
|
)
|
|
201
|
|
(Gains)/Losses reclassified from AOCI to income
|
(92
|
)
|
|
53
|
|
|
(160
|
)
|
|
125
|
|
Less: Tax/(Tax benefit)
|
(101
|
)
|
|
17
|
|
|
(83
|
)
|
|
40
|
|
Net gains/(losses) reclassified from AOCI to net income (c)
|
9
|
|
|
36
|
|
|
(77
|
)
|
|
85
|
|
Other comprehensive income/(loss), net of tax
|
(287
|
)
|
|
189
|
|
|
(195
|
)
|
|
286
|
|
Ending balance
|
$
|
(155
|
)
|
|
$
|
111
|
|
|
$
|
(155
|
)
|
|
$
|
111
|
|
|
|
|
|
|
|
|
|
Pension and other postretirement benefits
|
|
|
|
|
|
|
|
Beginning balance
|
$
|
(16,341
|
)
|
|
$
|
(20,847
|
)
|
|
$
|
(16,524
|
)
|
|
$
|
(21,438
|
)
|
Gains/(Losses) arising during the period
|
—
|
|
|
694
|
|
|
(13
|
)
|
|
694
|
|
Less: Tax/(Tax benefit)
|
(2
|
)
|
|
236
|
|
|
(5
|
)
|
|
236
|
|
Net gains/(losses) arising during the period
|
2
|
|
|
458
|
|
|
(8
|
)
|
|
458
|
|
Amortization of prior service costs/(credits) (d)
|
(5
|
)
|
|
(11
|
)
|
|
(9
|
)
|
|
(22
|
)
|
Amortization of (gains)/losses (d)
|
225
|
|
|
405
|
|
|
448
|
|
|
813
|
|
Recognition of (gains)/losses due to settlements (d)
|
—
|
|
|
294
|
|
|
14
|
|
|
294
|
|
Less: Tax/(Tax benefit)
|
66
|
|
|
226
|
|
|
133
|
|
|
340
|
|
Net amortization and (gains)/losses reclassified from AOCI
to net income
|
154
|
|
|
462
|
|
|
320
|
|
|
745
|
|
Translation impact on non-U.S. plans
|
(103
|
)
|
|
20
|
|
|
(76
|
)
|
|
328
|
|
Other comprehensive income/(loss), net of tax
|
53
|
|
|
940
|
|
|
236
|
|
|
1,531
|
|
Ending balance
|
$
|
(16,288
|
)
|
|
$
|
(19,907
|
)
|
|
$
|
(16,288
|
)
|
|
$
|
(19,907
|
)
|
|
|
|
|
|
|
|
|
Total AOCI ending balance at June 30
|
$
|
(18,107
|
)
|
|
$
|
(21,837
|
)
|
|
$
|
(18,107
|
)
|
|
$
|
(21,837
|
)
|
__________
|
|
(a)
|
Accumulated translation adjustments related to investments in foreign subsidiaries are reclassified to
Automotive interest income and other income/(loss), net,
Financial Services other income/(loss), net,
or
Equity in net income of affiliated companies.
|
|
|
(b)
|
We expect to reclassify existing net losses of
$138 million
from
Accumulated other comprehensive income/(loss)
to
Automotive cost of sales
during the next twelve months as the underlying exposures are realized.
|
|
|
(c)
|
Gains/(losses) on cash flow hedges are reclassified from AOCI to income when the hedged item affects earnings and is recognized in
Automotive cost of sales.
See Note 12 for additional information.
|
|
|
(d)
|
These AOCI components are included in the computation of total pension and OPEB expense and are recorded in
Automotive cost of sales
and
Selling, administrative and other expenses
. See Note 10 for additional information.
|
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 15. OTHER INCOME/(LOSS)
Automotive Sector
The following table summarizes amounts included in
Automotive interest income and other income/(loss), net
for the periods ended
June 30
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter
|
|
First Half
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
Investment-related interest income
|
$
|
41
|
|
|
$
|
43
|
|
|
$
|
80
|
|
|
$
|
87
|
|
Interest income/(expense) on income taxes
|
11
|
|
|
—
|
|
|
37
|
|
|
—
|
|
Realized and unrealized gains/(losses) on cash equivalents and marketable securities
|
33
|
|
|
5
|
|
|
—
|
|
|
80
|
|
Gains/(Losses) on changes in investments in affiliates
|
—
|
|
|
2
|
|
|
1
|
|
|
(10
|
)
|
Gains/(Losses) on extinguishment of debt
|
—
|
|
|
—
|
|
|
(5
|
)
|
|
(18
|
)
|
Royalty income
|
148
|
|
|
148
|
|
|
302
|
|
|
261
|
|
Other
|
37
|
|
|
43
|
|
|
69
|
|
|
86
|
|
Total
|
$
|
270
|
|
|
$
|
241
|
|
|
$
|
484
|
|
|
$
|
486
|
|
Financial Services Sector
The following table summarizes amounts included in
Financial Services other income/(loss), net
for the periods ended
June 30
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter
|
|
First Half
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
Investment-related interest income
|
$
|
10
|
|
|
$
|
14
|
|
|
$
|
21
|
|
|
$
|
28
|
|
Interest income/(expense) on income taxes
|
(2
|
)
|
|
—
|
|
|
(10
|
)
|
|
—
|
|
Realized and unrealized gains/(losses) on cash equivalents and marketable securities
|
5
|
|
|
(8
|
)
|
|
8
|
|
|
(7
|
)
|
Insurance premiums earned
|
31
|
|
|
30
|
|
|
63
|
|
|
59
|
|
Other
|
43
|
|
|
38
|
|
|
73
|
|
|
90
|
|
Total
|
$
|
87
|
|
|
$
|
74
|
|
|
$
|
155
|
|
|
$
|
170
|
|
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 16. EMPLOYEE SEPARATION ACTIONS AND EXIT AND DISPOSAL ACTIVITIES
We record costs associated with voluntary separations at the time of employee acceptance, unless the acceptance requires explicit approval by the Company. We record costs associated with involuntary separation programs when management has approved the plan for separation, the affected employees are identified, and it is unlikely that actions required to complete the separation plan will change significantly. When a plan of separation requires approval by or consultation with the relevant labor organization or government, the costs are recorded after the required approval or consultation process is complete. Costs associated with benefits that are contingent on the employee continuing to provide service are accrued over the required service period.
Automotive Sector
Business Restructuring - Europe
In October 2012, we committed to commence a transformation plan for our Europe operations. As part of this plan, we closed two manufacturing facilities in the United Kingdom in 2013 and are in the process of closing our assembly plant in Genk, Belgium at the end of 2014. The Genk closure was subject to an information and consultation process with employee representatives, which was completed in June 2013. The costs related to these closures were recorded beginning in the second quarter of 2013.
Separation-related costs, recorded in
Automotive cost of sales
and
Selling, administrative and other expenses
, include both the costs associated with voluntary separation programs in the United Kingdom and involuntary employee actions at Genk, as well as payments to suppliers. The following table summarizes the separation-related activity recorded in
Other liabilities and deferred revenue
, for the periods ended
June 30
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter
|
|
First Half
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
Beginning balance
|
$
|
588
|
|
|
$
|
—
|
|
|
$
|
497
|
|
|
$
|
—
|
|
Changes in accruals (a)
|
107
|
|
|
287
|
|
|
219
|
|
|
287
|
|
Payments
|
(47
|
)
|
|
(2
|
)
|
|
(69
|
)
|
|
(2
|
)
|
Foreign currency translation
|
(5
|
)
|
|
2
|
|
|
(4
|
)
|
|
2
|
|
Ending balance
|
$
|
643
|
|
|
$
|
287
|
|
|
$
|
643
|
|
|
$
|
287
|
|
__________
|
|
(a)
|
Excludes
$6 million
and
$12 million
for the
second quarter
and
first half
of 2014, respectively, and
$132 million
and
$132 million
for the second quarter and first half of 2013, respectively, of pension related costs.
|
Our current estimate of total separation-related costs for the U.K. and Genk facilities is approximately
$1 billion
, excluding approximately
$200 million
of pension-related costs. The separation related costs not yet recorded will be expensed as the employees and suppliers continue to support Genk plant operations.
NOTE 17. INCOME TAXES
For interim tax reporting we estimate one single effective tax rate for tax jurisdictions not subject to a valuation allowance, which is applied to the year-to-date ordinary income/(loss). Tax effects of significant unusual or extraordinary items are excluded from the estimated annual effective tax rate calculation and recognized in the interim period in which they occur.
NOTE 18. ASSETS HELD FOR SALE
Financial Services Sector
Assets Held for Sale
Other Financial Services Segment.
During April 2013, we executed an agreement to sell certain Volvo-related retail financing receivables to a third-party financing company. The first tranche of receivables was sold in June 2013. We received cash proceeds of
$250 million
and we recognized a pre-tax gain of
$5 million
, which is reported in
Financial Services other income/(loss), net.
All servicing obligations transferred to the third party upon sale of the receivables.
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 19. CAPITAL STOCK AND AMOUNTS PER SHARE
We present both basic and diluted earnings per share (“EPS”) amounts in our financial reporting. Basic EPS excludes dilution and is computed by dividing income available to Common and Class B Stock holders by the weighted-average number of Common and Class B Stock outstanding for the period. Diluted EPS reflects the maximum potential dilution that could occur from our share-based compensation, including “in-the-money” stock options and unvested restricted stock units, and conversion into Ford Common Stock of our outstanding convertible notes. Potential dilutive shares are excluded from the calculation if they have an anti-dilutive effect in the period.
Share Repurchase Program
In May 2014, our board of directors approved a repurchase program for up to approximately
116 million
shares of Ford Common Stock, which will offset share dilution and help improve shareholder returns. Up to
12.6 million
shares will be repurchased to offset the dilutive effect of share-based employee incentive compensation granted in 2014. In addition, up to
103 million
shares will be repurchased to offset the dilutive effect of potential conversions of our
4.25%
Senior Convertible Notes due November 15, 2016. Beginning November 20, 2014, and subject to certain limitations relating to the price of Ford Common Stock, we can terminate holders’ conversion rights. In that event, holders would have
30 days
after notice to convert their shares. We have the right to settle any conversion with shares, cash, or a combination of shares and cash. Share repurchases under this program are intended to offset the dilutive effect of any shares we elect to issue to settle these potential conversions.
As of June 30, 2014, we have repurchased
57.6 million
shares of Ford Common Stock under this program.
Amounts Per Share Attributable to Ford Motor Company Common and Class B Stock
Basic and diluted income per share were calculated using the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter
|
|
First Half
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
Basic and Diluted Income Attributable to Ford Motor Company
|
|
|
|
|
|
|
|
Basic income
|
$
|
1,311
|
|
|
$
|
1,233
|
|
|
$
|
2,300
|
|
|
$
|
2,844
|
|
Effect of dilutive 2016 Convertible Notes (a)
|
12
|
|
|
11
|
|
|
24
|
|
|
24
|
|
Effect of dilutive 2036 Convertible Notes (a) (b)
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
Diluted income
|
$
|
1,323
|
|
|
$
|
1,244
|
|
|
$
|
2,324
|
|
|
$
|
2,869
|
|
|
|
|
|
|
|
|
|
Basic and Diluted Shares
|
|
|
|
|
|
|
|
|
|
Basic shares (average shares outstanding)
|
3,940
|
|
|
3,933
|
|
|
3,943
|
|
|
3,928
|
|
Net dilutive options
|
47
|
|
|
50
|
|
|
46
|
|
|
49
|
|
Dilutive 2016 Convertible Notes
|
101
|
|
|
98
|
|
|
100
|
|
|
97
|
|
Dilutive 2036 Convertible Notes (b)
|
—
|
|
|
3
|
|
|
—
|
|
|
3
|
|
Diluted shares
|
4,088
|
|
|
4,084
|
|
|
4,089
|
|
|
4,077
|
|
__________
|
|
(a)
|
As applicable, includes interest expense, amortization of discount, amortization of fees, and other changes in income or loss that would result from the assumed conversion.
|
|
|
(b)
|
In December 2013, we elected to terminate the conversion rights of holders under the 2036 Convertible Notes in accordance with their terms effective as of the close of business on January 21, 2014. As a result, any 2036 Convertible Notes remaining after January 21, 2014 cannot be converted to shares and are no longer dilutive.
|
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 20. SEGMENT INFORMATION
Effective January 1, 2014, we changed our Automotive sector reportable segments to establish a fifth Automotive segment—Middle East & Africa—which includes South Africa and markets that were previously direct export markets in the Middle East and Africa regions. Previously, South Africa results were included in Asia Pacific Africa and direct export markets were reflected in the results of the producing region or segment. We have realigned reporting of our direct export markets on a geographic basis. Results for prior periods are presented on the new basis.
Our Automotive sector is comprised of the following segments:
North America, South America, Europe, Middle East & Africa, and Asia Pacific.
Included in each segment, described below, are the associated costs to develop, manufacture, distribute, and service vehicles and parts.
North America segment primarily includes the sale of Ford and Lincoln brand vehicles and related service parts and accessories in North America.
South America segment primarily includes the sale of Ford brand vehicles and related service parts and accessories in South America.
Europe segment primarily includes the sale of Ford brand vehicles, components, and related service parts and accessories in Europe, Turkey, and Russia.
Middle East & Africa segment primarily includes the sale of Ford and Lincoln brand vehicles and related service parts and accessories in the Middle East and Africa region.
Asia Pacific segment primarily includes the sale of Ford brand vehicles and related service parts and accessories in the Asia Pacific region.
Automotive segment results are presented on a “where-sold,” absolute-cost basis, which reflects the profit/(loss) on the sale within the segment in which the ultimate sale is made to our external customer.
This presentation generally eliminates the effect of legal entity transfer prices within the Automotive sector for vehicles, components, and product engineering.
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 20. SEGMENT INFORMATION
(Continued)
Key operating data for our business segments for the periods ended or at
June 30
were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive Sector
|
|
Operating Segments
|
Reconciling Items
|
|
|
|
|
North
America
|
|
South
America
|
|
Europe
|
|
Middle East & Africa
|
|
Asia
Pacific
|
|
Other
Automotive
|
|
Special
Items
|
|
Total
|
Second Quarter 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
21,108
|
|
|
$
|
2,111
|
|
|
$
|
8,082
|
|
|
$
|
1,172
|
|
|
$
|
2,892
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
35,365
|
|
Income/(Loss) before income taxes
|
2,440
|
|
|
(295
|
)
|
|
14
|
|
|
23
|
|
|
159
|
|
|
(171
|
)
|
|
(481
|
)
|
|
1,689
|
|
Total assets at June 30
|
61,263
|
|
|
7,238
|
|
|
16,240
|
|
|
1,300
|
|
|
8,516
|
|
|
—
|
|
|
—
|
|
|
94,557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
21,845
|
|
|
$
|
3,014
|
|
|
$
|
7,359
|
|
|
$
|
1,211
|
|
|
$
|
2,650
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
36,079
|
|
Income/(Loss) before income taxes
|
2,321
|
|
|
151
|
|
|
(306
|
)
|
|
13
|
|
|
130
|
|
|
(205
|
)
|
|
(736
|
)
|
|
1,368
|
|
Total assets at June 30
|
58,536
|
|
|
6,745
|
|
|
16,107
|
|
|
1,140
|
|
|
7,466
|
|
|
—
|
|
|
—
|
|
|
89,994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive Sector
|
|
Operating Segments
|
Reconciling Items
|
|
|
|
|
North
America
|
|
South
America
|
|
Europe
|
|
Middle East & Africa
|
|
Asia
Pacific
|
|
Other
Automotive
|
|
Special
Items
|
|
Total
|
First Half 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
41,553
|
|
|
$
|
4,002
|
|
|
$
|
15,836
|
|
|
$
|
2,327
|
|
|
$
|
5,523
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
69,241
|
|
Income/(Loss) before income taxes
|
3,940
|
|
|
(805
|
)
|
|
(180
|
)
|
|
77
|
|
|
450
|
|
|
(393
|
)
|
|
(603
|
)
|
|
2,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Half 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
43,338
|
|
|
$
|
5,322
|
|
|
$
|
13,928
|
|
|
$
|
2,490
|
|
|
$
|
4,859
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
69,937
|
|
Income/(Loss) before income taxes
|
4,713
|
|
|
(67
|
)
|
|
(731
|
)
|
|
60
|
|
|
102
|
|
|
(330
|
)
|
|
(759
|
)
|
|
2,988
|
|
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 20. SEGMENT INFORMATION
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Services Sector
|
|
Company
|
|
Operating Segments
|
|
Reconciling Item
|
|
|
|
|
|
|
|
Ford
Credit
|
|
Other
Financial
Services
|
|
Elims
|
|
Total
|
|
Elims (a)
|
|
Total
|
Second Quarter 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
2,137
|
|
|
$
|
33
|
|
|
$
|
(124
|
)
|
|
$
|
2,046
|
|
|
$
|
—
|
|
|
$
|
37,411
|
|
Income/(Loss) before income taxes
|
434
|
|
|
(5
|
)
|
|
—
|
|
|
429
|
|
|
—
|
|
|
2,118
|
|
Total assets at June 30
|
120,441
|
|
|
5,527
|
|
|
(6,330
|
)
|
|
119,638
|
|
|
(3,250
|
)
|
|
210,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
1,907
|
|
|
$
|
53
|
|
|
$
|
(116
|
)
|
|
$
|
1,844
|
|
|
$
|
—
|
|
|
$
|
37,923
|
|
Income/(Loss) before income taxes
|
454
|
|
|
(3
|
)
|
|
—
|
|
|
451
|
|
|
—
|
|
|
1,819
|
|
Total assets at June 30
|
107,114
|
|
|
7,193
|
|
|
(6,893
|
)
|
|
107,414
|
|
|
(2,404
|
)
|
|
195,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Services Sector
|
|
Company
|
|
Operating Segments
|
|
Reconciling Item
|
|
|
|
|
|
|
|
Ford
Credit
|
|
Other
Financial
Services
|
|
Elims
|
|
Total
|
|
Elims (a)
|
|
Total
|
First Half 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
4,213
|
|
|
$
|
68
|
|
|
$
|
(235
|
)
|
|
$
|
4,046
|
|
|
$
|
—
|
|
|
$
|
73,287
|
|
Income/(Loss) before income taxes
|
933
|
|
|
(42
|
)
|
|
—
|
|
|
891
|
|
|
—
|
|
|
3,377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Half 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
3,761
|
|
|
$
|
113
|
|
|
$
|
(239
|
)
|
|
$
|
3,635
|
|
|
$
|
—
|
|
|
$
|
73,572
|
|
Income/(Loss) before income taxes
|
961
|
|
|
(7
|
)
|
|
—
|
|
|
954
|
|
|
—
|
|
|
3,942
|
|
__________
|
|
(a)
|
Includes intersector transactions occurring in the ordinary course of business and deferred tax netting.
|
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 21. COMMITMENTS AND CONTINGENCIES
Commitments and contingencies consist primarily of guarantees and indemnifications, litigation and claims, and warranty.
Guarantees and Indemnifications
Guarantees and indemnifications are recorded at fair value at their inception. We regularly review our performance risk under these arrangements, and in the event it becomes probable we will be required to perform under the guarantee or indemnification, the amount of probable payment is recorded.
We guarantee debt and lease obligations of certain joint ventures, as well as certain financial obligations of outside third parties, including suppliers, to support our business and economic growth. Expiration dates vary through 2033, and guarantees will terminate on payment and/or cancellation of the obligation. A payment by us would be triggered by failure of the joint venture or other third party to fulfill its obligation covered by the guarantee. In some circumstances, we are entitled to recover from the third party amounts paid by us under the guarantee. However, our ability to enforce these rights is sometimes stayed until the guaranteed party is paid in full, and may be limited in the event of insolvency of the third party or other circumstances.
In the ordinary course of business, we execute contracts involving indemnifications standard in the industry and indemnifications specific to a transaction, such as the sale of a business. These indemnifications might include and are not limited to claims relating to any of the following: environmental, tax, and shareholder matters; intellectual property rights; power generation contracts; governmental regulations and employment-related matters; dealer, supplier, and other commercial contractual relationships; and financial matters, such as securitizations. Performance under these indemnities generally would be triggered by a breach of terms of the contract or by a third-party claim. While some of these indemnifications are limited in nature, many of them do not limit potential payment. Therefore, we are unable to estimate a maximum amount of future payments that could result from claims made under these unlimited indemnities.
The maximum potential payments and the carrying value of recorded liabilities related to guarantees and limited indemnities were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
June 30,
2014
|
|
December 31,
2013
|
Maximum potential payments
|
$
|
637
|
|
|
$
|
659
|
|
Carrying value of recorded liabilities related to guarantees and limited indemnities
|
3
|
|
|
5
|
|
Litigation and Claims
Various legal actions, proceedings, and claims (generally, “matters”) are pending or may be instituted or asserted against us. These include but are not limited to matters arising out of alleged defects in our products; product warranties; governmental regulations relating to safety, emissions, and fuel economy or other matters; government incentives; tax matters; alleged illegal acts resulting in fines or penalties; financial services; employment-related matters; dealer, supplier, and other contractual relationships; intellectual property rights; environmental matters; shareholder or investor matters; and financial reporting matters. Certain of the pending legal actions are, or purport to be, class actions. Some of the matters involve or may involve claims for compensatory, punitive, or antitrust or other treble damages in very large amounts, or demands for field service actions, environmental remediation programs, sanctions, loss of government incentives, assessments, or other relief, which, if granted, would require very large expenditures.
The extent of our financial exposure to these matters is difficult to estimate. Many matters do not specify a dollar amount for damages, and many others specify only a jurisdictional minimum. To the extent an amount is asserted, our historical experience suggests that in most instances the amount asserted is not a reliable indicator of the ultimate outcome.
Litigation and claims are accrued when losses are deemed probable and reasonably estimable. In evaluating matters for accrual and disclosure purposes, we take into consideration factors such as our historical experience with matters of a similar nature, the specific facts and circumstances asserted, the likelihood that we will prevail, and the severity of any potential loss. We reevaluate and update our accruals as matters progress over time.
Item 1. Financial Statements (Continued)
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 21. COMMITMENTS AND CONTINGENCIES
(Continued)
For the majority of matters, which generally arise out of alleged defects in our products, we establish an accrual based on our extensive historical experience with similar matters, and we do not believe that there is a reasonably possible outcome materially in excess of our accrual.
For the remaining matters, where our historical experience with similar matters is of more limited value (i.e., “non-pattern matters”), we evaluate matters primarily based on the individual facts and circumstances. For non-pattern matters, we evaluate whether there is a reasonable possibility of a material loss in excess of any accrual that can be estimated. Our estimate of reasonably possible loss in excess of our accruals for all material matters currently reflects indirect tax and customs matters, for which we estimate the aggregate risk to be a range of up to a
bout
$3.2 billion
.
As noted, the litigation process is subject to many uncertainties, and the outcome of individual matters is not predictable with assurance. Our assessments are based on our knowledge and experience, but the ultimate outcome of any matter could require payment substantially in excess of the amount that we have accrued and/or disclosed.
Warranty
Estimated warranty costs are accrued for at the time the vehicle is sold to a dealer. Included in warranty cost accruals are the costs for basic warranty coverages and field service actions (i.e., safety recalls, emission recalls, and other product campaigns) on products sold. These costs are estimates based primarily on historical warranty claim experience. Warranty accruals accounted for in
Other liabilities and deferred revenue
for the periods ended
June 30
were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
First Half
|
|
2014
|
|
2013
|
Beginning balance
|
$
|
3,927
|
|
|
$
|
3,656
|
|
Payments made during the period
|
(1,310
|
)
|
|
(1,124
|
)
|
Changes in accrual related to warranties issued during the period
|
1,121
|
|
|
1,048
|
|
Changes in accrual related to pre-existing warranties
|
763
|
|
|
157
|
|
Foreign currency translation and other
|
17
|
|
|
(68
|
)
|
Ending balance
|
$
|
4,518
|
|
|
$
|
3,669
|
|
Excluded from the table above are costs accrued for customer satisfaction actions.