10-Q 1 f0331201610-q.htm 10-Q 10-Q


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

(Mark One)
 
R
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
 
 
For the quarterly period ended March 31, 2016
 
 
 
or
 
 
o
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
 
 
For the transition period from  __________ to __________
 
 
 
Commission file number 1-3950
 
Ford Motor Company
(Exact name of Registrant as specified in its charter)

Delaware
38-0549190
(State of incorporation)
(I.R.S. Employer Identification No.)
 
 
One American Road, Dearborn, Michigan
48126
(Address of principal executive offices)
(Zip Code)
313-322-3000
(Registrant’s telephone number, including area code)


Indicate by check mark if the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  R   No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes  R   No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.   Large accelerated filer R     Accelerated filer o     Non-accelerated filer o Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o   No  R
 
As of April 21 2016, Ford had outstanding 3,901,983,082 shares of Common Stock and 70,852,076 shares of Class B Stock.  
  


Exhibit Index begins on page


 



 


FORD MOTOR COMPANY
QUARTERLY REPORT ON FORM 10-Q
For the Quarter Ended March 31, 2016
 
Table of Contents
 
Page
 
Part I - Financial Information
 
 
Item 1
Financial Statements
 
 
Consolidated Income Statement
 
 
Consolidated Statement of Comprehensive Income
 
 
Sector Income Statement
 
 
Consolidated Balance Sheet
 
 
Sector Balance Sheet
 
 
Condensed Consolidated Statement of Cash Flows
 
 
Condensed Sector Statement of Cash Flows
 
 
Consolidated Statement of Equity
 
 
Notes to the Financial Statements
 
 
Report of Independent Registered Public Accounting Firm
 
Item 2
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
 
Results of Operations
 
 
Automotive Sector
 
 
Financial Services Sector
 
 
Liquidity and Capital Resources
 
 
Production Volumes
 
 
Outlook
 
 
Accounting Standards Issued But Not Yet Adopted
 
 
Other Financial Information
 
Item 3
Quantitative and Qualitative Disclosures About Market Risk
 
 
Automotive Sector
 
 
Financial Services Sector
 
Item 4
Controls and Procedures
 
 
 
 
 
 
Part II - Other Information
 
 
Item 2
Unregistered Sales of Equity Securities and Use of Proceeds
 
Item 6
Exhibits
 
 
Signature
 
 
Exhibit Index
 

i


PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements.
FORD MOTOR COMPANY AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENT
(in millions, except per share amounts)
 
For the periods ended March 31,
 
2016
 
2015
 
First Quarter
 
(unaudited)
Revenues
 
 
 
Automotive
$
35,257

 
$
31,800

Financial Services
2,461

 
2,100

Total revenues
37,718

 
33,900

 
 
 
 
Costs and expenses
 

 
 

Automotive cost of sales
30,281

 
28,472

Selling, administrative, and other expenses
3,823

 
3,465

Financial Services interest expense
658

 
647

Financial Services provision for credit and insurance losses
141

 
73

Total costs and expenses
34,903

 
32,657

 
 
 
 
Automotive interest expense
200

 
165

 
 
 
 
Automotive interest income and other income/(loss), net (Note 12)
404

 
190

Financial Services other income/(loss), net (Note 12)
91

 
74

Equity in net income of affiliated companies
541

 
437

Income before income taxes
3,651

 
1,779

Provision for/(Benefit from) income taxes
1,196

 
625

Net income
2,455

 
1,154

Less: Income/(Loss) attributable to noncontrolling interests
3

 
1

Net income attributable to Ford Motor Company
$
2,452

 
$
1,153

 
 
 
 
EARNINGS PER SHARE ATTRIBUTABLE TO FORD MOTOR COMPANY COMMON AND CLASS B STOCK (Note 14)
Basic income
$
0.62

 
$
0.29

Diluted income
0.61

 
0.29

 
 
 
 
Cash dividends declared
0.40

 
0.15



CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(in millions)
 
For the periods ended March 31,
 
2016
 
2015
 
First Quarter
 
(unaudited)
Net income
$
2,455

 
$
1,154

Other comprehensive income/(loss), net of tax (Note 11)
 
 
 
Foreign currency translation
(64
)
 
103

Marketable securities
6

 

Derivative instruments
246

 
(90
)
Pension and other postretirement benefits
22

 
(148
)
Total other comprehensive income/(loss), net of tax
210

 
(135
)
Comprehensive income
2,665

 
1,019

Less: Comprehensive income/(loss) attributable to noncontrolling interests
2

 
1

Comprehensive income attributable to Ford Motor Company
$
2,663

 
$
1,018


The accompanying notes are part of the financial statements.

1

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES
SECTOR INCOME STATEMENT
(in millions)
 
For the periods ended March 31,
 
2016
 
2015
 
First Quarter
 
(unaudited)
AUTOMOTIVE
 
 
 
Revenues
$
35,257

 
$
31,800

Costs and expenses
 
 
 
Cost of sales
30,281

 
28,472

Selling, administrative, and other expenses
2,562

 
2,472

Total costs and expenses
32,843

 
30,944

 
 
 
 
Interest expense
200

 
165

 
 
 
 
Interest income and other income/(loss), net (Note 12)
404

 
190

Equity in net income of affiliated companies
534

 
429

Income before income taxes — Automotive
3,152

 
1,310

 
 
 
 
FINANCIAL SERVICES
 

 
 

Revenues
2,461

 
2,100

Costs and expenses
 
 
 
Interest expense
658

 
647

Depreciation on vehicles subject to operating leases
1,014

 
816

Operating and other expenses
247

 
177

Provision for credit and insurance losses
141

 
73

Total costs and expenses
2,060

 
1,713

 
 
 
 
Other income/(loss), net (Note 12)
91

 
74

Equity in net income of affiliated companies
7

 
8

Income before income taxes — Financial Services
499

 
469

 
 
 
 
TOTAL COMPANY
 
 
 
Income before income taxes
3,651

 
1,779

Provision for/(Benefit from) income taxes
1,196

 
625

Net income
2,455

 
1,154

Less: Income/(Loss) attributable to noncontrolling interests
3

 
1

Net income attributable to Ford Motor Company
$
2,452

 
$
1,153


The accompanying notes are part of the financial statements.

2

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in millions)
 
March 31,
2016
 
December 31,
2015
 
(unaudited)
ASSETS
 
 
 
Cash and cash equivalents (Note 3)
$
15,917

 
$
14,272

Marketable securities (Note 3)
23,556

 
20,904

Finance receivables, net (Note 4)
94,280

 
90,691

Other receivables, net
11,252

 
11,284

Net investment in operating leases
28,234

 
27,093

Inventories (Note 6)
9,770

 
8,319

Equity in net assets of affiliated companies
3,820

 
3,224

Net property
31,164

 
30,163

Deferred income taxes
10,579

 
11,509

Other assets
8,716

 
7,466

Total assets
$
237,288

 
$
224,925

 
 
 
 
LIABILITIES
 

 
 

Payables
$
22,072

 
$
20,272

Other liabilities and deferred revenue (Note 7)
43,949

 
42,546

Automotive debt (Note 9)
13,022

 
12,839

Financial Services debt (Note 9)
127,973

 
120,015

Deferred income taxes
556

 
502

Total liabilities
207,572

 
196,174

 
 
 
 
Redeemable noncontrolling interest
95

 
94

 
 
 
 
EQUITY
 

 
 

Capital stock
 

 
 

Common Stock, par value $.01 per share (3,974 million shares issued of 6 billion authorized)
40

 
40

Class B Stock, par value $.01 per share (71 million shares issued of 530 million authorized)
1

 
1

Capital in excess of par value of stock
21,454

 
21,421

Retained earnings
15,278

 
14,414

Accumulated other comprehensive income/(loss) (Note 11)
(6,046
)
 
(6,257
)
Treasury stock
(1,122
)
 
(977
)
Total equity attributable to Ford Motor Company
29,605

 
28,642

Equity attributable to noncontrolling interests
16

 
15

Total equity
29,621

 
28,657

Total liabilities and equity
$
237,288

 
$
224,925

 
The following table includes assets to be used to settle liabilities of the consolidated variable interest entities (“VIEs”).  These assets and liabilities are included in the consolidated balance sheet above. 
 
March 31,
2016
 
December 31,
2015
 
(unaudited)
ASSETS
 
 
 
Cash and cash equivalents
$
2,602

 
$
3,949

Finance receivables, net
50,035

 
45,902

Net investment in operating leases
13,273

 
13,309

Other assets
51

 
85

LIABILITIES
 
 
 
Other liabilities and deferred revenue
$
26

 
$
19

Debt
43,258

 
43,086


The accompanying notes are part of the financial statements.

3

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES
SECTOR BALANCE SHEET (in millions) 
 
March 31,
2016
 
December 31,
2015
ASSETS
(unaudited)
Automotive
 
 
 
Cash and cash equivalents (Note 3)
$
5,567

 
$
5,386

Marketable securities (Note 3)
18,684

 
18,181

Total cash and marketable securities
24,251

 
23,567

Receivables, less allowances of $366 and $372
5,423

 
5,173

Inventories (Note 6)
9,770

 
8,319

Deferred income taxes
2,443

 
3,664

Other current assets
1,791

 
1,851

Total current assets
43,678

 
42,574

Equity in net assets of affiliated companies
3,682

 
3,091

Net property
31,014

 
30,021

Net investment in operating leases
2,346

 
2,014

Deferred income taxes
11,409

 
10,687

Other assets
4,134

 
3,572

Total Automotive assets
96,263

 
91,959

Financial Services
 

 
 

Cash and cash equivalents (Note 3)
10,350

 
8,886

Marketable securities (Note 3)
4,872

 
2,723

Finance receivables, net (Note 4)
99,369

 
96,063

Net investment in operating leases
25,888

 
25,079

Equity in net assets of affiliated companies
138

 
133

Other assets
3,823

 
3,059

Receivable from Automotive
1,480

 
1,083

Total Financial Services assets
145,920

 
137,026

Intersector elimination
(1,480
)
 
(1,083
)
Total assets
$
240,703

 
$
227,902

LIABILITIES
 

 
 

Automotive
 

 
 

Payables
$
20,887

 
$
19,168

Other liabilities and deferred revenue (Note 7)
19,307

 
17,992

Deferred income taxes
130

 
13

Debt payable within one year (Note 9)
1,941

 
1,779

Current payable to Financial Services
874

 
694

Total current liabilities
43,139

 
39,646

Long-term debt (Note 9)
11,081

 
11,060

Other liabilities and deferred revenue (Note 7)
22,841

 
22,732

Deferred income taxes
302

 
287

Non-current payable to Financial Services
606

 
389

Total Automotive liabilities
77,969

 
74,114

Financial Services
 

 
 

Payables
1,185

 
1,104

Debt (Note 9)
127,973

 
120,015

Deferred income taxes
3,539

 
3,179

Other liabilities and deferred income (Note 7)
1,801

 
1,822

Total Financial Services liabilities
134,498

 
126,120

Intersector elimination
(1,480
)
 
(1,083
)
Total liabilities
210,987

 
199,151

 
 
 
 
Redeemable noncontrolling interest
95

 
94

 
 
 
 
EQUITY
 

 
 

Capital stock
 

 
 

Common Stock, par value $.01 per share (3,974 million shares issued of 6 billion authorized)
40

 
40

Class B Stock, par value $.01 per share (71 million shares issued of 530 million authorized)
1

 
1

Capital in excess of par value of stock
21,454

 
21,421

Retained earnings
15,278

 
14,414

Accumulated other comprehensive income/(loss) (Note 11)
(6,046
)
 
(6,257
)
Treasury stock
(1,122
)
 
(977
)
Total equity attributable to Ford Motor Company
29,605

 
28,642

Equity attributable to noncontrolling interests
16

 
15

Total equity
29,621

 
28,657

Total liabilities and equity
$
240,703

 
$
227,902

The accompanying notes are part of the financial statements.

4

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
 
For the periods ended March 31,
 
2016
 
2015
 
First Quarter
 
(unaudited)
Cash flows from operating activities
 
 
 
Net cash provided by/(used in) operating activities
$
4,092

 
$
2,413

 
 
 
 
Cash flows from investing activities
 
 
 
Capital spending
(1,511
)
 
(1,800
)
Acquisitions of finance receivables and operating leases
(12,677
)
 
(12,257
)
Collections of finance receivables and operating leases
9,674

 
9,251

Purchases of marketable securities
(8,231
)
 
(11,711
)
Sales and maturities of marketable securities
5,679

 
11,327

Settlements of derivatives
104

 
113

Other
(13
)
 
117

Net cash provided by/(used in) investing activities
(6,975
)
 
(4,960
)
 
 
 
 
Cash flows from financing activities
 

 
 

Cash dividends
(1,588
)
 
(593
)
Purchases of Common Stock
(145
)
 

Net changes in short-term debt
(121
)
 
488

Proceeds from issuance of other debt
15,623

 
13,624

Principal payments on other debt
(9,431
)
 
(8,686
)
Other
(2
)
 
(249
)
Net cash provided by/(used in) financing activities
4,336

 
4,584

 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
192

 
(426
)
 
 
 
 
Net increase/(decrease) in cash and cash equivalents
$
1,645

 
$
1,611

 
 
 
 
Cash and cash equivalents at January 1
$
14,272

 
$
10,757

Net increase/(decrease) in cash and cash equivalents
1,645

 
1,611

Cash and cash equivalents at March 31
$
15,917

 
$
12,368


The accompanying notes are part of the financial statements.

5

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES
CONDENSED SECTOR STATEMENT OF CASH FLOWS
(in millions)
 
For the periods ended March 31,
 
2016
 
2015
 
First Quarter
 
Automotive
 
Financial Services
 
Automotive
 
Financial Services
 
(unaudited)
Cash flows from operating activities
 
 
 
 
 
 
 
Net cash provided by/(used in) operating activities (a)
$
3,567

 
$
1,611

 
$
1,006

 
$
1,724

 
 
 
 
 
 
 
 
Cash flows from investing activities
 
 
 
 
 
 
 
Capital spending
(1,497
)
 
(14
)
 
(1,786
)
 
(14
)
Acquisitions of finance receivables and operating leases (excluding wholesale and other)

 
(12,677
)
 

 
(12,257
)
Collections of finance receivables and operating leases (excluding wholesale and other)

 
9,674

 

 
9,251

Net change in wholesale and other receivables (b)

 
(1,962
)
 

 
(973
)
Purchases of marketable securities
(5,649
)
 
(2,582
)
 
(7,161
)
 
(4,550
)
Sales and maturities of marketable securities
5,226

 
453

 
9,785

 
1,542

Settlements of derivatives
117

 
(13
)
 
70

 
43

Other
4

 
(17
)
 
44

 
73

Investing activity (to)/from Financial Services (c)
124

 

 
39

 

Interest supplements and residual value support from Automotive (a)

 
876

 

 
656

Net cash provided by/(used in) investing activities
(1,675
)

(6,262
)

991


(6,229
)
 
 
 
 
 
 
 
 
Cash flows from financing activities
 
 
 
 
 
 
 
Cash dividends
(1,588
)
 

 
(593
)
 

Purchases of Common Stock
(145
)
 

 

 

Net changes in short-term debt
113

 
(234
)
 
49

 
439

Proceeds from issuance of other debt
13

 
15,610

 
172

 
13,452

Principal payments on other debt
(215
)
 
(9,216
)
 
(778
)
 
(7,908
)
Other
42

 
(44
)
 
(213
)
 
(36
)
Financing activity to/(from) Automotive (c)

 
(124
)
 

 
(39
)
Net cash provided by/(used in) financing activities
(1,780
)
 
5,992

 
(1,363
)
 
5,908

 
 
 
 
 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
69

 
123

 
(127
)
 
(299
)
 
 
 
 
 
 
 
 
Net increase/(decrease) in cash and cash equivalents
$
181


$
1,464


$
507


$
1,104

 
 
 
 
 
 
 
 
Cash and cash equivalents at January 1
$
5,386

 
$
8,886

 
$
4,567

 
$
6,190

Net increase/(decrease) in cash and cash equivalents
181

 
1,464

 
507

 
1,104

Cash and cash equivalents at March 31
$
5,567


$
10,350


$
5,074


$
7,294

_________
(a)
Operating activities include outflows of $876 million and $656 million for the periods ended March 31, 2016 and 2015, respectively, of interest supplements and residual value support to Financial Services. Interest supplements and residual value support from Automotive to Financial Services are eliminated in the condensed consolidated statement of cash flows.
(b)
Reclassified to operating activities in the condensed consolidated statement of cash flows.
(c)
Eliminated in the condensed consolidated statement of cash flows.


The accompanying notes are part of the financial statements.

6

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EQUITY
(in millions, unaudited)
 
Equity Attributable to Ford Motor Company
 
 
 
 
 
Capital Stock
 
Cap. in
Excess of
Par Value 
of Stock
 
Retained Earnings
 
Accumulated Other Comprehensive Income/(Loss) (Note 11)
 
Treasury Stock
 
Total
 
Equity
Attributable
to Non-controlling Interests
 
Total
Equity
Balance at December 31, 2015
$
41

 
$
21,421

 
$
14,414

 
$
(6,257
)
 
$
(977
)
 
$
28,642

 
$
15

 
$
28,657

Net income

 

 
2,452

 

 

 
2,452

 
3

 
2,455

Other comprehensive income/(loss), net of tax

 

 

 
211

 

 
211

 
(1
)
 
210

Common stock issued (including share-based compensation impacts)

 
33

 

 

 

 
33

 

 
33

Treasury stock/other 

 

 

 

 
(145
)
 
(145
)
 
(1
)
 
(146
)
Cash dividends declared

 

 
(1,588
)
 

 

 
(1,588
)
 

 
(1,588
)
Balance at March 31, 2016
$
41

 
$
21,454

 
$
15,278

 
$
(6,046
)
 
$
(1,122
)
 
$
29,605

 
$
16

 
$
29,621

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2014
$
40

 
$
21,089

 
$
9,422

 
$
(5,265
)
 
$
(848
)
 
$
24,438

 
$
27

 
$
24,465

Net income

 

 
1,153

 

 

 
1,153

 
1

 
1,154

Other comprehensive income/(loss), net of tax

 

 

 
(135
)
 

 
(135
)
 

 
(135
)
Common stock issued (including share-based compensation impacts)
1

 
184

 

 

 

 
185

 

 
185

Treasury stock/other 

 

 

 

 

 

 
(1
)
 
(1
)
Cash dividends declared

 

 
(593
)
 

 

 
(593
)
 

 
(593
)
Balance at March 31, 2015
$
41

 
$
21,273

 
$
9,982

 
$
(5,400
)
 
$
(848
)
 
$
25,048

 
$
27

 
$
25,075


The accompanying notes are part of the financial statements.

7

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS

Table of Contents
Footnote
 
Page
Note 1
Presentation
Note 2
New Accounting Standards
Note 3
Cash, Cash Equivalents, and Marketable Securities
Note 4
Financial Services Sector Finance Receivables
Note 5
Financial Services Sector Allowance for Credit Losses
Note 6
Inventories
Note 7
Other Liabilities and Deferred Revenue
Note 8
Retirement Benefits
Note 9
Debt
Note 10
Derivative Financial Instruments and Hedging Activities
Note 11
Accumulated Other Comprehensive Income/(Loss)
Note 12
Other Income/(Loss)
Note 13
Income Taxes
Note 14
Capital Stock and Earnings Per Share
Note 15
Segment Information
Note 16
Commitments and Contingencies



8

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 the related financial statements and 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, 2015 (“2015 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.

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):
 
March 31,
2016
 
December 31,
2015
Sector balance sheet presentation of deferred income tax assets
 
 
 
Automotive sector current deferred income tax assets
$
2,443

 
$
3,664

Automotive sector non-current deferred income tax assets
11,409

 
10,687

Financial Services sector deferred income tax assets (a)
142

 
135

Total
13,994

 
14,486

Reclassification for netting of deferred income taxes
(3,415
)
 
(2,977
)
Consolidated balance sheet presentation of deferred income tax assets
$
10,579

 
$
11,509

 
 
 
 
Sector balance sheet presentation of deferred income tax liabilities
 

 
 

Automotive sector current deferred income tax liabilities
$
130

 
$
13

Automotive sector non-current deferred income tax liabilities
302

 
287

Financial Services sector deferred income tax liabilities
3,539

 
3,179

Total
3,971

 
3,479

Reclassification for netting of deferred income taxes
(3,415
)
 
(2,977
)
Consolidated balance sheet presentation of deferred income tax liabilities
$
556

 
$
502

__________
(a)
Included in Financial Services Other assets on our sector balance sheet.

9

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS

NOTE 2. NEW ACCOUNTING STANDARDS

Adoption of New Accounting Standards

We adopted the following standards during 2016, none of which have a material impact to our financial statements or financial statement disclosures:
Standard
 
Effective Date
2015-16
Business Combinations - Simplifying the Accounting for Measurement-Period Adjustments
 
January 1, 2016
2015-09
Insurance - Disclosures about Short-Duration Contracts
 
January 1, 2016
2015-05
Internal-Use Software - Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement
 
January 1, 2016
2015-02
Consolidation - Amendments to the Consolidation Analysis
 
January 1, 2016
2015-01
Extraordinary and Unusual Items - Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items
 
January 1, 2016
2014-12
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
 
January 1, 2016

Accounting Standards Issued But Not Yet Adopted

Accounting Standard Update (“ASU”) 2016-09, Stock Compensation - Improvements to Employee Share-Based Payment Accounting. In March 2016, the Financial Accounting Standards Board (“FASB”) issued a new accounting standard which simplifies accounting for share-based payment transactions, including income tax consequences and the classification of the tax impact on the statement of cash flows. The new standard is effective as of January 1, 2017, and early adoption is permitted.  We are assessing the potential impact to our financial statements and disclosures.

ASU 2016-02, Leases.  In February 2016, the FASB issued a new accounting standard which provides guidance on the recognition, measurement, presentation, and disclosure of leases. The new standard supersedes present U.S. GAAP guidance on leases and requires substantially all leases to be reported on the balance sheet as right-of-use assets and lease liabilities, as well as additional disclosures. The new standard is effective as of January 1, 2019, and early adoption is permitted.  We are assessing the potential impact to our financial statements and disclosures.

ASU 2014-09, Revenue - Revenue from Contracts with Customers. In May 2014, the 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 U.S. GAAP guidance on revenue recognition and requires the use of more estimates and judgments than the present standards, as well as additional disclosures. The FASB has issued several updates to the standard which i) defer the original effective date from January 1, 2017 to January 1, 2018, while allowing for early adoption as of January 1, 2017 (ASU 2015-14); ii) clarify the application of the principal versus agent guidance (ASU 2016-08); and iii) clarify the guidance on inconsequential and perfunctory promises and licensing (ASU 2016-10). The new accounting standard will impact the timing of when certain arrangements are recognized as revenue as we move from a risk and rewards model to a control model.  The new standard will also require a change in classification between revenue and costs relating to certain performance obligations within our sales arrangements. We are reviewing the method of adoption.



10

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS

NOTE 3. CASH, CASH EQUIVALENTS, AND MARKETABLE SECURITIES

The following tables categorize the fair values of cash, cash equivalents, and marketable securities measured at fair value on a recurring basis on our balance sheet (in millions):
 
Fair Value
 Level
 
March 31,
2016
 
December 31, 2015
Automotive Sector
 
 
 
 
 
Cash and cash equivalents
 
 
 
 
 
U.S. government
1
 
$

 
$
115

U.S. government agencies
2
 
109

 
22

Non-U.S. government and agencies
2
 
77

 
173

Corporate debt
2
 
130

 
20

Total marketable securities classified as cash equivalents
 
 
316

 
330

Cash, time deposits, and money market funds
 
 
5,251

 
5,056

Total cash and cash equivalents
 
 
$
5,567

 
$
5,386

 
 
 
 
 
 
Marketable securities
 
 
 
 
 
U.S. government
1
 
$
3,088

 
$
1,623

U.S. government agencies
2
 
4,752

 
5,240

Non-U.S. government and agencies
2
 
6,917

 
7,451

Corporate debt
2
 
3,323

 
3,279

Equities
1
 
257

 
240

Other marketable securities
2
 
347

 
348

Total marketable securities
 
 
$
18,684

 
$
18,181

 
 
 
 
 
 
Financial Services Sector
 
 
 
 
 
Cash and cash equivalents
 
 
 
 
 
U.S. government
1
 
$
450

 
$

U.S. government agencies
2
 
25

 

Non-U.S. government and agencies
2
 
500

 
266

Corporate debt
2
 
50

 

Total marketable securities classified as cash equivalents
 
 
1,025

 
266

Cash, time deposits, and money market funds
 
 
9,325

 
8,620

Total cash and cash equivalents
 
 
$
10,350

 
$
8,886

 
 
 
 
 
 
Marketable securities
 
 
 
 
 
U.S. government
1
 
$
1,594

 
$
298

U.S. government agencies
2
 
1,746

 
1,169

Non-U.S. government and agencies
2
 
1,194

 
832

Corporate debt
2
 
294

 
384

Other marketable securities
2
 
44

 
40

Total marketable securities
 
 
$
4,872

 
$
2,723




11

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, primarily Ford Credit, manages finance receivables as “consumer” and “non-consumer” portfolios.  The receivables are generally secured by the vehicles, inventory, or other property being financed.

Finance receivables, net were as follows (in millions):
 
March 31,
2016
 
December 31,
2015
Consumer
 
 
 
Retail financing, gross
$
63,185

 
$
62,068

Unearned interest supplements
(2,231
)
 
(2,119
)
Consumer finance receivables
60,954

 
59,949

Non-Consumer
 

 
 

Dealer financing
37,791

 
35,529

Other financing
1,034

 
958

Non-Consumer finance receivables
38,825

 
36,487

Total recorded investment
$
99,779

 
$
96,436

 
 
 
 
Recorded investment in finance receivables
$
99,779

 
$
96,436

Allowance for credit losses
(410
)
 
(373
)
Finance receivables, net (a)
$
99,369

 
$
96,063

 
 
 
 
Net finance receivables subject to fair value (b)
$
97,379

 
$
94,248

Fair value
98,771

 
95,420

__________
(a)
On the consolidated balance sheet at March 31, 2016 and December 31, 2015, $5.1 billion and $5.4 billion, respectively, are reclassified to Other receivables, net, resulting in Finance receivables, net of $94.3 billion and $90.7 billion, respectively.
(b)
At March 31, 2016 and December 31, 2015, excludes $2 billion and $1.8 billion, respectively, of certain receivables (primarily direct financing leases) that are not subject to fair value disclosure requirements. The fair value of finance receivables is categorized within Level 3 of the hierarchy.

Excluded from finance receivables at March 31, 2016 and December 31, 2015, was $219 million and $209 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 March 31, 2016 and December 31, 2015 were consumer receivables of $30.7 billion and $27.6 billion, respectively, and non-consumer receivables of $26.8 billion and $26.1 billion, respectively, that have been sold for legal purposes in securitization transactions but continue to be reported in our consolidated financial statements. 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 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.


12

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 $16 million at March 31, 2016 and December 31, 2015. The recorded investment of non-consumer receivables greater than 90 days past due and still accruing interest was $1 million at March 31, 2016 and December 31, 2015.

The aging analysis of our finance receivables balances were as follows (in millions):
 
March 31,
2016
 
December 31,
2015
Consumer
 
 
 
31-60 days past due
$
611

 
$
708

61-90 days past due
81

 
108

91-120 days past due
27

 
27

Greater than 120 days past due
40

 
38

Total past due
759

 
881

Current
60,195

 
59,068

Consumer finance receivables
60,954

 
59,949

 
 
 
 
Non-Consumer
 
 
 
Total past due
104

 
117

Current
38,721

 
36,370

Non-Consumer finance receivables
38,825

 
36,487

Total recorded investment
$
99,779

 
$
96,436


Credit Quality

Consumer Portfolio. 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 less costs to sell

Non-Consumer Portfolio. 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


13

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS

NOTE 4. FINANCIAL SERVICES SECTOR FINANCE RECEIVABLES (Continued)
The credit quality analysis of our dealer financing receivables was as follows (in millions):
 
March 31,
2016
 
December 31,
2015
Dealer Financing
 
 
 
Group I
$
28,606

 
$
26,560

Group II
7,204

 
7,175

Group III
1,853

 
1,683

Group IV
128

 
111

Total recorded investment
$
37,791

 
$
35,529


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 March 31, 2016 and December 31, 2015 was $373 million, or 0.6% of consumer receivables, and $375 million, or 0.6% of consumer receivables, respectively. The recorded investment of non-consumer receivables that were impaired at March 31, 2016 and December 31, 2015 was $149 million, or 0.4% of non-consumer receivables, and $134 million, or 0.4% of non-consumer receivables, respectively. Impaired finance receivables are evaluated both collectively and specifically.


14

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS

NOTE 5. FINANCIAL SERVICES SECTOR ALLOWANCE FOR CREDIT LOSSES

An analysis of the allowance for credit losses related to finance receivables for the periods ended March 31 was as follows (in millions):
 
First Quarter 2016
 
Consumer
 
Non-Consumer
 
Total
Allowance for credit losses
 
 
 
 
 
Beginning balance
$
357

 
$
16

 
$
373

Charge-offs
(102
)
 
1

 
(101
)
Recoveries
29

 
1

 
30

Provision for credit losses
102

 
1

 
103

Other (a)
4

 
1

 
5

Ending balance (b)
$
390

 
$
20

 
$
410

 
 
 
 
 
 
Analysis of ending balance of allowance for credit losses
Collective impairment allowance
$
371

 
$
13

 
$
384

Specific impairment allowance
19

 
7

 
26

Ending balance (b)
390

 
20

 
410

 
 
 
 
 
 
Analysis of ending balance of finance receivables
 
 
 
 
 
Collectively evaluated for impairment
60,581

 
38,676

 
99,257

Specifically evaluated for impairment
373

 
149

 
522

Recorded investment
60,954

 
38,825

 
99,779

 
 
 
 
 
 
Ending balance, net of allowance for credit losses
$
60,564

 
$
38,805

 
$
99,369

__________
(a)
Primarily represents amounts related to translation adjustments.
(b)
Total allowance, including reserves for operating leases, was $463 million.
 
First Quarter 2015
 
Consumer
 
Non-Consumer
 
Total
Allowance for credit losses
 
 
 
 
 
Beginning balance
$
305

 
$
16

 
$
321

Charge-offs
(80
)
 
1

 
(79
)
Recoveries
30

 
2

 
32

Provision for credit losses
53

 
(4
)
 
49

Other (a)
(7
)
 
(2
)
 
(9
)
Ending balance (b)
$
301

 
$
13

 
$
314

 
 
 
 
 
 
Analysis of ending balance of allowance for credit losses
Collective impairment allowance
$
280

 
$
12

 
$
292

Specific impairment allowance
21

 
1

 
22

Ending balance (b)
301

 
13

 
314

 
 
 
 
 
 
Analysis of ending balance of finance receivables
 
 
 
 
 
Collectively evaluated for impairment
53,135

 
32,356

 
85,491

Specifically evaluated for impairment
396

 
126

 
522

Recorded investment
53,531

 
32,482

 
86,013

 
 
 
 
 
 
Ending balance, net of allowance for credit losses
$
53,230

 
$
32,469

 
$
85,699

__________
(a)
Primarily represents amounts related to translation adjustments.
(b)
Total allowance, including reserves for operating leases, was $355 million.


15

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 and net realizable value. Cost for a substantial portion of U.S. inventories is determined on a last-in, first-out (“LIFO”) basis. LIFO was used for 31% and 27% of total inventories at March 31, 2016 and December 31, 2015, 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):
 
March 31,
2016
 
December 31,
2015
Raw materials, work-in-process, and supplies
$
4,356

 
$
4,005

Finished products
6,367

 
5,254

Total inventories under FIFO
10,723

 
9,259

LIFO adjustment
(953
)
 
(940
)
Total inventories
$
9,770

 
$
8,319


NOTE 7. OTHER LIABILITIES AND DEFERRED REVENUE

Other liabilities and deferred revenue were as follows (in millions):
 
March 31,
2016
 
December 31,
2015
Automotive Sector
 
 
 
Current
 
 
 
Dealer and dealers’ customer allowances and claims
$
9,013

 
$
8,122

Deferred revenue
5,020

 
4,559

Employee benefit plans
1,526

 
1,528

Accrued interest
233

 
255

Other postretirement employee benefits (“OPEB”)
358

 
354

Pension (a)
266

 
248

Other
2,891

 
2,926

Total Automotive other liabilities and deferred revenue
19,307

 
17,992

Non-current
 

 
 

Pension (a)
9,483

 
9,541

OPEB
5,411

 
5,347

Dealer and dealers’ customer allowances and claims
2,734

 
2,731

Deferred revenue
2,989

 
2,833

Employee benefit plans
1,043

 
1,041

Other
1,181

 
1,239

Total Automotive other liabilities and deferred revenue
22,841

 
22,732

Total Automotive sector
42,148

 
40,724

Financial Services Sector
1,801

 
1,822

Total Company
$
43,949

 
$
42,546

__________
(a)
Balances at March 31, 2016 reflect net pension liabilities at December 31, 2015, 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 2015.


16

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS

NOTE 8. RETIREMENT BENEFITS

Defined Benefit Plans - Expense

The pre-tax expense for our defined benefit pension and OPEB plans for the periods ended March 31 was as follows (in millions):
 
First Quarter
 
Pension Benefits
 
 
 
 
 
U.S. Plans
 
Non-U.S. Plans
 
Worldwide OPEB
 
2016
 
2015
 
2016
 
2015
 
2016
 
2015
Service cost
$
128

 
$
147

 
$
118

 
$
135

 
$
12

 
$
15

Interest cost
381

 
454

 
195

 
239

 
48

 
60

Expected return on assets
(673
)
 
(732
)
 
(339
)
 
(375
)
 

 

Amortization of prior service costs/(credits)
42

 
39

 
10

 
12

 
(35
)
 
(51
)
Net remeasurement (gain)/loss

 

 

 

 

 

Separation programs/other

 
2

 
7

 
7

 

 

Settlements and curtailments

 

 

 

 

 

Net periodic benefit cost/(income)
$
(122
)
 
$
(90
)
 
$
(9
)
 
$
18

 
$
25

 
$
24

 
 
 
 
 
 
 
 
 
 
 
 
Beginning in 2016, we changed the method used to estimate the service and interest costs for pension and OPEB plans that utilize a yield curve approach. We now apply the specific spot rates along the yield curve to the relevant cash flows instead of using a single effective discount rate. Service and interest costs in the first quarter were about $145 million lower with the new method than they would have been under the prior method.

Pension Plan Contributions

During 2016, we expect to contribute about $1.5 billion from Automotive cash and cash equivalents to our worldwide funded pension plans (including discretionary contributions of about $400 million), and to make about $300 million of benefit payments to participants in unfunded plans, for a total of about $1.8 billion. In the first three months of 2016, we contributed about $400 million to our worldwide funded pension plans and made about $100 million of benefit payments to participants in unfunded plans.


17

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS

NOTE 9. DEBT

The carrying value of Automotive sector and Financial Services sector debt was as follows (in millions):
Automotive Sector
March 31,
2016
 
December 31,
2015
Debt payable within one year
 
 
 
Short-term
$
977

 
$
818

Long-term payable within one year
 

 
 

U.S. Department of Energy (“DOE”) Advanced Technology Vehicles Manufacturing (“ATVM”) Incentive Program
591

 
591

Other debt
373

 
370

Total debt payable within one year
1,941

 
1,779

Long-term debt payable after one year
 

 
 

Public unsecured debt securities
6,594

 
6,594

DOE ATVM Incentive Program
3,095

 
3,242

Other debt
1,868

 
1,696

Adjustments
 
 
 
Unamortized (discount)/premium
(417
)
 
(412
)
Unamortized issuance costs
(59
)
 
(60
)
Total long-term debt payable after one year
11,081

 
11,060

Total Automotive sector
$
13,022

 
$
12,839

 
 
 
 
Fair value of Automotive sector debt (a)
$
14,669

 
$
14,199

 
 
 
 
Financial Services Sector
 

 
 

Short-term debt
 

 
 

Unsecured debt
$
10,850

 
$
10,268

Asset-backed debt
1,064

 
1,855

Total short-term debt
11,914

 
12,123

Long-term debt
 

 
 

Unsecured debt
 

 
 

Notes payable within one year
13,655

 
10,241

Notes payable after one year
52,756

 
49,193

Asset-backed debt
 

 
 

Notes payable within one year
20,231

 
18,855

Notes payable after one year
28,638

 
29,390

Adjustments
 
 
 
Unamortized (discount)/premium
(27
)
 
(29
)
Unamortized issuance costs
(240
)
 
(216
)
Fair value adjustments (b)
1,046

 
458

Total long-term debt
116,059

 
107,892

Total Financial Services sector
$
127,973

 
$
120,015

 
 
 
 
Fair value of Financial Services sector debt (a)
$
129,429

 
$
121,170

__________
(a)
The fair value of debt includes $676 million and $560 million of Automotive sector short-term debt and $10.8 billion and $10.3 billion of Financial Services sector short-term debt at March 31, 2016 and December 31, 2015, respectively, carried at cost, which approximates fair value. All other debt is categorized within Level 2 of the fair value hierarchy.
(b)
Adjustments related to designated fair value hedges of unsecured debt.

18

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS

NOTE 10. 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 highly effective derivative contracts. 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.

Income Effect of Derivative Financial Instruments

The gains/(losses), by hedge designation, recorded in income for the periods ended March 31 were as follows (in millions):
 
First Quarter
 
2016
 
2015
Automotive Sector
 
 
 
Cash flow hedges (a)
 
 
 
Reclassified from AOCI to net income
$
87

 
$
(46
)
Derivatives not designated as hedging instruments
 
 
 
Foreign currency exchange contracts
(172
)
 
261

Commodity contracts
(5
)
 
(10
)
Total
$
(90
)
 
$
205

 
 
 
 
Financial Services Sector
 
 
 
Fair value hedges
 
 
 
Interest rate contracts
 
 
 
Net interest settlements and accruals excluded from the assessment of hedge effectiveness
$
99

 
$
88

Ineffectiveness (b)
17

 
6

Derivatives not designated as hedging instruments
 
 
 
Interest rate contracts
(48
)
 
(43
)
Foreign currency exchange contracts
33

 
65

Cross-currency interest rate swap contracts
195

 
89

Total
$
296

 
$
205

__________
(a)
For the first quarter of 2016 and 2015, a $363 million gain and a $150 million loss, respectively, were recorded in Other comprehensive income.
(b)
For the first quarter of 2016 and 2015, hedge ineffectiveness reflects the net change in fair value on derivatives of $610 million gain and $221 million gain, respectively, and a change in value on hedged debt attributable to the change in benchmark interest rates of $593 million loss and $215 million loss, respectively.

19

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS

NOTE 10. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Continued)

Balance Sheet Effect of Derivative Financial Instruments

Derivative assets and liabilities are recorded on the balance sheet at fair value and are presented on a gross basis. The notional amounts of the derivative instruments do not necessarily represent amounts exchanged by the parties and are not a direct measure of our financial exposure. We also enter into master agreements with counterparties that may allow for netting of exposures in the event of default or breach of the counterparty agreement.

The fair value of our derivative instruments and the associated notional amounts, presented gross, were as follows (in millions):
 
March 31, 2016
 
December 31, 2015
 
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
$
16,076

 
$
666

 
$
235

 
$
12,593

 
$
522

 
$
366

 
 
 
 
 
 
 
 
 
 
 
 
Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
Foreign currency exchange contracts
18,152

 
280

 
331

 
19,395

 
404

 
238

Commodity contracts
643

 
4

 
17

 
643

 
2

 
26