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Profitable Growth for All
Ford Motor Company 2012 Annual Report

Table of contents

  • Page 1
    Profitable Growth for All Ford Motor Company 2012 Annual Report

  • Page 2
    ... the stylish Ford Focus hatchback, the sporty subcompact Fiesta ST and the distinctive Escape utility vehicle. From left to right, lower photos illustrate the innovative new Lincoln MKZ, the family-friendly Ford B-MAX and the iconic F-150 pickup truck. Ford Motor Company | 2012 Annual Report

  • Page 3
    ...'s fastest-growing segment - small luxury utilities. The MKC Concept builds on the foundation of the Lincoln design DNA found in the new MKZ. For detailed product and financial information, view our full online annual report at: www.annualreport.ford.com Ford Motor Company | 2012 Annual Report 1

  • Page 4
    ...great products can help build a strong business as well as a better world. In 2012 we introduced six new electrified vehicles in North America, including hybrid, plug-in hybrid and pure battery electric models. By offering a variety of vehicles, we make it easier for customers to embrace fuel-saving...

  • Page 5
    ... as the Lincoln Motor Company, which will introduce an exciting new lineup of great luxury vehicles. Our plan is centered on serving customers in all markets around the world with a full family of vehicles - small, medium and large; cars, utilities and trucks - that offer the very best quality, fuel...

  • Page 6
    ... leadership team by announcing the appointment of our chief operating officer, a new chief financial officer, a new Global Product Development leader and senior leadership changes for the Americas, Europe, Asia Pacific, Ford Credit and our Lincoln Brand. 4 Ford Motor Company | 2012 Annual Report

  • Page 7
    ..., investors, suppliers, unions/councils and communities. ONE PLAN: • Aggressively restructure to operate profitably at the current demand and changing model mix. • Accelerate development of new products our customers want and value. • Finance our plan and improve our balance sheet. • Work...

  • Page 8
    ... Ford World Headquarters to celebrate the return of the "Blue Oval" and other assets that had been used as collateral to secure Ford's revolving credit facility. The celebration took place on May 22, 2012 after Fitch and Moody's Investor Service restored Ford's credit rating to investment grade...

  • Page 9
    ...President, Global Ford Customer Service Division Kenneth M. Czubay U.S. Marketing, Sales and Service Paul A. Mascarenas Chief Technical Officer, Research and Advanced Engineering Jeffery C. Wood Manufacturing, Ford of Europe *As of March 14, 2013 Ford Motor Company | 2012 Annual Report 7 Roelant...

  • Page 10
    ...: [email protected] Security analysts and institutional investors may contact: Ford Motor Company Investor Relations One American Road Dearborn, MI 48126 Telephone: (313) 390-4563 Fax: (313) 845-6073 E-mail: [email protected] Shareholder Account Assistance Computershare Trust Company, our transfer...

  • Page 11
    ... Control Over Financial Reporting New York Stock Exchange Required Disclosures * Financial information contained herein (pages 10-159) is excerpted from the Annual Report on Form 10-K for the year ended December 31, 2012 of Ford Motor Company (referred to herein as "Ford", the "Company", "we", "our...

  • Page 12
    ... business. For example, we offer special retail financing and lease incentives to dealers' customers who choose to finance or lease our vehicles from Ford Credit. The estimated cost for these incentives is recorded as revenue reduction to Automotive sales at the later of the date the related vehicle...

  • Page 13
    ... our business and improve profitability as we expand around the world, invest in new products and technologies, respond to increasing industry sales volume, and grow our market share. Automotive total costs and expenses for full-year 2012 was $121.6 billion. Material costs (including commodity costs...

  • Page 14
    ... 2012. Commodity prices have declined recently, but over the longer term prices are likely to trend higher given global demand growth. Vehicle Profitability. Our financial results depend on the profitability of the vehicles we sell, which may vary significantly by vehicle line. In general, larger...

  • Page 15
    ...to operate profitably at the current demand and changing model mix; Accelerate development of new products our customers want and value; Finance our plan and improve our balance sheet; and Work together effectively as one team, leveraging our global assets. Despite the external economic environment...

  • Page 16
    ...-class global network of engineering centers. We agree with external analysts that a sustained fresh showroom is a good indicator of long-term market share growth. We are making swift progress on our commitment to platform consolidation. In 2007, we utilized 27 different vehicle platforms. By 2014...

  • Page 17
    ... announced plans to enter China, the single largest car market in the world. Accelerate Development of New Products Our Customers Want and Value Our global product strategy is to serve our key geographic markets with a complete family of small, medium and large, cars, utilities and trucks that...

  • Page 18
    ... the next suite of new safety features and driver-assistance technologies - we introduced Lane-Keeping Aid and Driver Alert on the 2013 Ford Explorer and Fusion and Lincoln MKS, MKZ and MKT in North America and the Ford Mondeo and Focus in Europe. ® 16 Ford Motor Company | 2012 Annual Report 16

  • Page 19
    .... This overall combination of cost efficiency and revenue enhancement that is being realized from One Ford and our global product strategy will help us continue to profitably grow and Go Further. For more information visit www.annualreport.ford.com 17 Ford Motor Company | 2012 Annual Report 17

  • Page 20
    ... our One Ford plan has generated significant positive Automotive operating-related cash flow in recent years, which has allowed us to strengthen our balance sheet while continuing to invest in new products that customers want and value, transform and grow our business, pay our debts and obligations...

  • Page 21
    ... to the Financial Statements), less a related $19 million adjustment for sales in September 2012 of Ford-brand vehicles produced by AAI. Discussion of Automotive sector, Financial Services sector, and total Company results of operations below is on a pretax basis and excludes special items unless...

  • Page 22
    ... product mix, including mix among vehicle lines and mix of trim levels and options within a vehicle line Net Pricing - Primarily measures profit variance driven by changes in wholesale prices to dealers and marketing incentive programs such as rebate programs, low-rate financing offers, and special...

  • Page 23
    ... profit primarily reflecting higher net pricing and lower compensation costs (primarily the non-repeat of 2011 UAW ratification bonuses), offset by higher costs, mainly structural, and unfavorable volume and mix. For more information visit www.annualreport.ford.com Ford Motor Company | 2012 Annual...

  • Page 24
    ... income statement, is shown below (in billions): 2012 Better/(Worse) 2011 Explanation of change: Volume and mix, exchange, and other Contribution costs (a) Commodity costs (incl. hedging) Material costs excluding commodity costs Warranty/Freight Other costs (a) Structural costs Other Special items...

  • Page 25
    ...a growing industry, a strong Ford brand, an outstanding product line-up driven by industry-leading refresh rates, continued discipline in matching our production with demand, and a lean cost structure. For more information visit www.annualreport.ford.com Ford Motor Company | 2012 Annual Report 23

  • Page 26
    ... profits adversely. In addition, government actions to incentivize local production and balance trade are driving trade frictions between South American countries and also with Mexico, resulting in business environment instability and new trade barriers. 24 Ford Motor Company | 2012 Annual Report

  • Page 27
    ... with 2011 by causal factor. All four key metrics declined for 2012 compared with 2011. The decline in wholesales and revenue primarily reflected lower industry sales and market share, and reductions in dealer stocks. Exchange was also a contributing factor adversely affecting net revenue. The...

  • Page 28
    ... of the all-new Kuga, EcoSport, and refreshed Fiesta across the region, as well as the launch of Mondeo and Explorer in China. This will be offset in large part by continued strong investment across the region to support our longer-range growth plans. 26 Ford Motor Company | 2012 Annual Report

  • Page 29
    ... effect of higher volumes, new product launches, and investments to support our future product, capacity, and brandbuilding plans), higher compensation costs in North America, and unfavorable exchange. For more information visit www.annualreport.ford.com Ford Motor Company | 2012 Annual Report 27

  • Page 30
    ...our income statement is shown below (in billions): 2011 Better/(Worse) 2010 Explanation of change: Volume and mix, exchange, and other Contribution costs (a) Commodity costs (incl. hedging) Material costs excluding commodity costs Warranty/Freight Other costs (a) Structural costs Other Special items...

  • Page 31
    ... unfavorable contribution costs reflecting higher commodity costs, higher material costs excluding commodities, and higher warranty and freight costs. Other costs reflect unfavorable structural costs. For more information visit www.annualreport.ford.com Ford Motor Company | 2012 Annual Report 29

  • Page 32
    ... earnings is more than explained by higher structural costs (driven primarily by local inflation), higher contribution costs (more than explained by commodity costs), and unfavorable exchange, offset partially by favorable net pricing and volume and mix. 30 Ford Motor Company | 2012 Annual Report

  • Page 33
    ... volume and mix. Other reflects our continued investment in the Craiova facility in Romania in preparation for the production volume ramp-up in 2012, as well as lower parts and accessories profits. For more information visit www.annualreport.ford.com Ford Motor Company | 2012 Annual Report 31

  • Page 34
    ... higher costs (primarily structural costs in support of Ford Asia Pacific Africa growth plans), unfavorable volume and mix (which includes the impact of events in Japan and Thailand), and unfavorable exchange, offset partially by higher net pricing. 32 Ford Motor Company | 2012 Annual Report

  • Page 35
    ... of 2011 foreign currency translation adjustments related to the discontinuation of financing in Australia, lower volume, and unfavorable lease residual performance, offset partially by higher financing margin. For more information visit www.annualreport.ford.com Ford Motor Company | 2012 Annual...

  • Page 36
    ... 9.1 10.6 18.1 1.4 1.1 60.1 15.5 1.1 1.0 56.0 13.3 1.1 0.8 54.3 $ 39.5 $ 38.4 $ 39.1 2011 2010 Receivables at December 31, 2012 increased from year-end 2011, primarily driven by increases in wholesale receivables and net investment in operating leases. 34 Ford Motor Company | 2012 Annual Report

  • Page 37
    ... as high risk at contract inception. For additional discussion, see "Critical Accounting Estimates - Allowance for Credit Losses" below. Residual Risk. Ford Credit is exposed to residual risk on operating leases and similar balloon payment products where the customer may return the financed vehicle...

  • Page 38
    ... incurred vehicle mix for vehicles returned in the respective periods. In 2012, Ford Credit's U.S. lease originations represented about 15% of total U.S. retail sales of Ford and Lincoln brand vehicles, and the U.S. operating lease portfolio accounted for about 89% of Ford Credit's total investment...

  • Page 39
    ... changes in Automotive gross cash into operating-related and other items (which includes the impact of certain special items, contributions to funded pension plans, certain tax-related transactions, 37 For more information visit www.annualreport.ford.com Ford Motor Company | 2012 Annual Report 37

  • Page 40
    ... the consolidation of AAI. With respect to "Changes in working capital," in general we carry relatively low trade receivables compared to our trade payables because the majority of our Automotive wholesales are financed (primarily by Ford Credit) immediately upon sale of vehicles to dealers, which...

  • Page 41
    ... are being used to fund costs for the research and development of fuel-efficient engines and commercial vehicles with lower emissions, and related upgrades to an engine manufacturing plant. The facility was fully drawn in the third quarter of 2010, and Ford of Britain had outstanding $729 million...

  • Page 42
    ... pension assets relative to pension liabilities and the need for unplanned use of capital resources to fund the plans. The strategy will reduce balance sheet, cash flow, and income exposures and, in turn, reduce our risk profile. The key elements of this strategy include Limiting liability growth...

  • Page 43
    ... our balance sheet, primarily by working to ensure our underlying business generates positive Automotive operating-related cash flow, even as we continue to invest in the growth of our business. Financial Services Sector Ford Credit Funding Strategy. Ford Credit's funding strategy remains focused on...

  • Page 44
    ... Ford Interest Advantage program consists of Ford Credit's floating rate demand notes. (b) Obligations issued in securitization transactions that are payable only out of collections on the underlying securitized assets and related enhancements. (c) Excludes marketable securities related to insurance...

  • Page 45
    ... include committed securitization programs. Cash, cash equivalents, and marketable securities (excludes marketable securities related to insurance activities). Securitization cash is to be used only to support on-balance sheet securitization transactions. At December 31, 2012, Ford Credit had $42...

  • Page 46
    ... uses leverage, or the debt-to-equity ratio, to make various business decisions, including evaluating and establishing pricing for retail, wholesale, and lease financing, and assessing its capital structure. Ford Credit refers to its shareholder's interest as equity. 44 Ford Motor Company | 2012...

  • Page 47
    ... to support its operations and amounts to support on-balance sheet securitization transactions. Ford Credit makes derivative accounting adjustments to its assets, debt, and equity positions to reflect the impact of interest rate instruments Ford Credit uses in connection with its term-debt issuances...

  • Page 48
    ... Our One Ford plan - to aggressively restructure to operate profitably at current demand and changing model mix, accelerate development of new products our customers want and value, finance our plan and improve our balance sheet, and work together effectively as one team leveraging our global assets...

  • Page 49
    ... as well as an expanded product portfolio (which also now covers more vehicle segments in markets such as China). We also expect positive net pricing to continue in 2013, and we expect quality to improve. For more information visit www.annualreport.ford.com Ford Motor Company | 2012 Annual Report 47

  • Page 50
    ...for Ford Europe, which targets all areas of the business to return to profitability by mid-decade -- including new products and technologies, strengthened brand image, and improved cost efficiencies. Our plan includes an aggressive new product rollout for the region, with 15 global vehicles launched...

  • Page 51
    ... making today for future profitable growth. Our One Ford plan will continue to be our guide as we address head-on the diverse challenges and opportunities for our industry and our business worldwide. For more information visit www.annualreport.ford.com Ford Motor Company | 2012 Annual Report 49

  • Page 52
    ... competitive cost structure; • Substantial pension and postretirement health care and life insurance liabilities impairing our liquidity or financial condition; • Worse-than-assumed economic and demographic experience for postretirement benefit plans (e.g., discount rates or investment returns...

  • Page 53
    ... of high-quality bonds specific to the country of the plan. Benefit payments are discounted at the rates on the curve and a single discount rate specific to the plan is determined. Expected long-term rate of return on assets. The expected long-term rate of return on assets assumption reflects...

  • Page 54
    ... Assumption Discount rate Expected long-term rate of return on assets Other Postretirement Employee Benefits Nature of Estimates Required. The estimation of our obligations, costs, and liabilities associated with OPEB, primarily retiree health care and life insurance, requires that we make use of...

  • Page 55
    ... information regarding income taxes, see Note 24 of the Notes to the Financial Statements. Allowance for Credit Losses The allowance for credit losses is Ford Credit's estimate of the probable credit losses inherent in finance receivables and operating leases at the date of the balance sheet...

  • Page 56
    ... in Ford Credit's assumptions affect the Provision for credit and insurance losses on our income statement and the allowance for credit losses contained within Finance receivables, net and Net investment in operating leases on our balance sheet, in each case under the Financial Services sector...

  • Page 57
    ... we use in making cash flow projections: • Business projections. We make assumptions about the demand for our products in the marketplace. These assumptions drive our planning assumptions for volume, mix, and pricing. We also make assumptions about our Ford Motor Company | 2012 Annual Report 55...

  • Page 58
    ...cost of capital that we anticipate a potential market participant would use. Weightedaverage cost of capital is an estimate of the overall risk-adjusted after-tax rate of return required by equity and debt holders of a business enterprise. Economic projections. Assumptions regarding general economic...

  • Page 59
    .... For additional information regarding operating lease obligations, pension and OPEB obligations, and long-term debt, see Notes 8, 16, and 17, respectively, of the Notes to the Financial Statements. For more information visit www.annualreport.ford.com Ford Motor Company | 2012 Annual Report 57

  • Page 60
    ...: purchases and sales of finished vehicles and production parts, debt and other payables, subsidiary dividends, and investments in foreign operations. These expenditures and receipts create exposures to changes in exchange rates. We also are exposed to changes in prices of commodities used in our...

  • Page 61
    ... in order to manage this risk. Exposures primarily relate to investments in fixed income instruments and derivative contracts used for managing interest rate, foreign currency exchange rate and commodity price risk. We, together with Ford Credit, establish exposure limits for each counterparty...

  • Page 62
    .... Fixed-rate retail installment sale and lease contracts are originated principally with maturities ranging between two and six years and generally require customers to make equal monthly payments over the life of the contract. Wholesale receivables are originated to finance new and used vehicles...

  • Page 63
    ... sensitivity given a one percentage point decrease in interest rates requires an assumption of negative interest rates in markets where existing interest rates are below one percent. Ford Credit expects more assets than debt and liabilities to re-price in the next twelve months. Other things being...

  • Page 64
    This page intentionally left blank. 62 Ford Motor Company | 2012 Annual Report

  • Page 65
    Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of Ford Motor Company In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, comprehensive income, equity and cash flows, including pages 64 ...

  • Page 66
    FORD MOTOR COMPANY AND SUBSIDIARIES CONSOLIDATED INCOME STATEMENT (in millions, except per share amounts) For the years ended December 31, 2012 Revenues Automotive Financial Services Total revenues Costs and expenses Automotive cost of sales Selling, administrative, and other expenses Financial ...

  • Page 67
    ... 6,010 113,345 9,060 122,405 817 825 479 6,250 104,451 9,040 113,491 1,807 (362) 526 4,146 $ 126,567 $ 128,168 $ 119,280 2011 2010 The accompanying notes are part of the financial statements. For more information visit www.annualreport.ford.com Ford Motor Company | 2012 Annual Report 65

  • Page 68
    ... consolidated balance sheet above. See Note 12 for additional information on our VIEs. December 31, 2012 ASSETS Cash and cash equivalents Finance receivables, net Net investment in operating leases Other assets LIABILITIES Accrued liabilities and deferred revenue Debt The accompanying notes are part...

  • Page 69
    ... 6) Finance receivables, net (Note 7) Net investment in operating leases (Note 8) Equity in net assets of affiliated companies (Note 11) Other assets Receivable from Automotive (Note 1) Total Financial Services assets Intersector elimination Total assets LIABILITIES Automotive Trade payables Other...

  • Page 70
    FORD MOTOR COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (in millions) For the years ended December 31, 2012 Cash flows from operating activities of continuing operations Net cash provided by/(used in) operating activities Cash flows from investing activities of continuing ...

  • Page 71
    FORD MOTOR COMPANY AND SUBSIDIARIES CONDENSED SECTOR STATEMENT OF CASH FLOWS (in millions) For the years ended December 31, 2012 Automotive Cash flows from operating activities of continuing operations Net cash provided by/(used in) operating activities (Note 27) $ Cash flows from investing ...

  • Page 72
    FORD MOTOR COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENT OF EQUITY (in millions) Equity/(Deficit) Attributable to Ford Motor Company Cap. in Excess of Par Value of Stock $ 16,786 - - 4,017 - - $ 20,803 Equity/ (Deficit) Attributable to Noncontrolling Interests Capital Stock Balance at December 31...

  • Page 73
    ... Summary of Accounting Policies Accounting Standards Issued But Not Yet Adopted Fair Value Measurements Restricted Cash Marketable and Other Securities Finance Receivables Net Investment in Operating Leases Allowance for Credit Losses Inventories Equity in Net Assets of Affiliated Companies Variable...

  • Page 74
    ...new accounting standards Intangibles - Goodwill and Other, Transfers and Servicing - Repurchase Agreements, and Financial Services - Insurance. The adoption of these new accounting standards did not impact our financial condition or results of operations. 72 Ford Motor Company | 2012 Annual Report

  • Page 75
    ...) 15,185 $ $ 1,791 13,932 302 16,025 (900) 15,125 December 31, 2011 _____ (a) Financial Services deferred income tax assets are included in Financial Services other assets on our sector balance sheet. For more information visit www.annualreport.ford.com Ford Motor Company | 2012 Annual Report 73

  • Page 76
    ...and operating activities on the sector statement of cash flows. (d) Cash inflows related to these transactions are reported as financing activities on the consolidated statement of cash flows and investing activities on the sector statement of cash flows. 74 Ford Motor Company | 2012 Annual Report

  • Page 77
    ..., net on our sector balance sheet. (b) We pay amounts to Ford Credit at the point of retail financing or lease origination that represent interest supplements and residual value support. (c) Primarily wholesale receivables with entities that are consolidated subsidiaries of Ford. (d) Sale-leaseback...

  • Page 78
    ...the right to return eligible parts for credit, we reduce the related revenue for expected returns. We sell vehicles to daily rental car companies subject to guaranteed repurchase options. These vehicles are accounted for as operating leases. At the time of sale, the proceeds are recorded as deferred...

  • Page 79
    ...incentive directly to Ford Credit when it originates the retail finance or lease contract with the dealer's customer. The Financial Services sector recognized revenue of $2.4 billion, $2.8 billion, and $3.2 billion in 2012, 2011, and 2010, respectively, for the special financing and leasing programs...

  • Page 80
    ... limited to, sales, use, value-added, and some excise taxes. We report the collection of these taxes on a net basis (excluded from revenues). NOTE 3. ACCOUNTING STANDARDS ISSUED BUT NOT YET ADOPTED Balance Sheet - Offsetting. In December 2011, the Financial Accounting Standards Board ("FASB") issued...

  • Page 81
    ... our securities. We also compare the price of certain securities sold close to the quarter-end to the price of the same security at the balance sheet date to ensure the reported fair value is reasonable. For more information visit www.annualreport.ford.com Ford Motor Company | 2012 Annual Report...

  • Page 82
    ... a net liability position. In certain cases, market data are not available and we use broker quotes and models (e.g., Black Scholes) to determine fair value. This includes situations where there is illiquidity for a particular currency or commodity or for longer-dated instruments. Ford Credit's two...

  • Page 83
    ... government agencies (a) Corporate debt Mortgage-backed and other asset-backed Equities Non-U.S. government Other liquid investments (d) Total marketable securities Derivative financial instruments Foreign currency exchange contracts Commodity contracts Other - warrants Total derivative financial...

  • Page 84
    ... agencies (a) Corporate debt Mortgage-backed and other asset-backed Non-U.S. government Other liquid investments (c) Total marketable securities Derivative financial instruments Interest rate contracts Foreign currency exchange contracts Cross-currency interest rate swap contracts Other (d) Total...

  • Page 85
    ...increase in availability of observable data. (c) Recorded in Interest expense. (d) Represents derivative features included in the FUEL Notes. (e) Reflects exchange of the FUEL Notes to unsecured notes. For more information visit www.annualreport.ford.com Ford Motor Company | 2012 Annual Report 83

  • Page 86
    ... Fair value changes related to retail and dealer loan finance receivables that have been written down based on the fair value of collateral adjusted for estimated costs to sell are recorded in Financial Services provision for credit and insurance losses. 84 Ford Motor Company | 2012 Annual Report

  • Page 87
    ... Approach Income Approach POD percentage ARV percentage Estimated fair value $38 - $52 $25 - $27 $1 - $3 NOTE 5. RESTRICTED CASH Cash and cash equivalents that are restricted as to withdrawal or use under the terms of certain contractual agreements are recorded in Other assets on our balance sheet...

  • Page 88
    ... significant influence are recorded at cost and included in Other assets. These cost method investments were as follows (in millions): December 31, 2012 Automotive sector Financial Services sector Total Company $ $ 21 5 26 $ December 31, 2011 $ 21 5 26 86 Ford Motor Company | 2012 Annual Report

  • Page 89
    ... 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...

  • Page 90
    ... and $180 million, respectively, of accrued uncollected interest receivable, which we report in Other assets on the balance sheet. Included in the recorded investment in finance receivables at December 31, 2012 and 2011 were North America consumer receivables of $23 billion and $29.4 billion and...

  • Page 91
    ...rental payments due from direct financing leases at December 31, 2012 were as follows (in millions): 2013 North America International $ 21 571 $ 2014 12 430 $ 2015 13 317 $ 2016 9 136 $ Thereafter 3 12 For more information visit www.annualreport.ford.com 89 Ford Motor Company | 2012 Annual Report...

  • Page 92
    ... quality of retail and direct financing lease receivables 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. Based on data from this scoring model, contracts...

  • Page 93
    FORD MOTOR COMPANY AND SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS NOTE 7. FINANCE RECEIVABLES (Continued) Non-Consumer Credit Quality. 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. Each non-consumer ...

  • Page 94
    ... for credit losses related to consumer TDRs was $19 million and $16 million at December 31, 2012 and 2011, respectively. The allowance for credit losses related to non-consumer TDRs was de minimis during the years ended December 31, 2012 and 2011. 92 Ford Motor Company | 2012 Annual Report 92

  • Page 95
    FORD MOTOR COMPANY AND SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS NOTE 8. NET INVESTMENT IN OPERATING LEASES Net investment in operating leases on our balance sheet consists primarily of lease contracts for vehicles with retail customers, daily rental companies, government entities, and fleet ...

  • Page 96
    ... Loss severity - expected difference between the amount of money a customer owes when the finance contract is charged off and the amount received, net of expenses from selling the repossessed vehicle, including any recoveries from the customer 94 Ford Motor Company | 2012 Annual Report

  • Page 97
    ... allowance does not reflect all losses inherent in the portfolio due to changes in recent economic trends and conditions or other relevant factors, an adjustment is made based on management judgment. For more information visit www.annualreport.ford.com Ford Motor Company | 2012 Annual Report 95

  • Page 98
    FORD MOTOR COMPANY AND SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS NOTE 9. ALLOWANCE FOR CREDIT LOSSES (Continued) Following is an analysis of the allowance for credit losses related to finance receivables and net investment in operating leases for the years ended December 31 (in millions): 2012 ...

  • Page 99
    ... work-in-process, and supplies Finished products Total inventories under FIFO Less: LIFO adjustment Total inventories $ December 31, 2011 2,847 3,982 6,829 (928) 5,901 $ 3,697 $ 4,614 8,311 (949) 7,362 $ For more information visit www.annualreport.ford.com Ford Motor Company | 2012 Annual Report...

  • Page 100
    ...de C.V. Changan Ford Mazda Engine Company, Ltd. DealerDirect LLC OEConnection LLC Percepta, LLC Blue Diamond Truck, S. de R.L. de C.V. Ford Performance Vehicles Pty Ltd. Blue Diamond Parts, LLC Automotive Fuel Cell Cooperation Corporation Other Total Automotive sector Financial Services Sector Forso...

  • Page 101
    ... type of funding structure, including Retail - consumer credit risk and pre-payment risk Wholesale - dealer credit risk Net investments in operating lease - vehicle residual value risk, consumer credit risk, and pre-payment risk Ford Motor Company | 2012 Annual Report 99 For more information visit...

  • Page 102
    ... Wholesale Total finance receivables Net investment in operating leases Total (a) $ $ 2.5 0.5 3.0 0.4 3.4 Debt 26.0 11.2 37.2 4.2 41.4 _____ (a) Certain notes issued by the VIEs to affiliated companies served as collateral for accessing the ECB open market operations program. This external funding...

  • Page 103
    ... Asset 157 81 238 $ $ Derivative Liability 97 63 160 Derivative expense/(income) related to consolidated VIEs that support Ford Credit's securitization programs for the years ended December 31 was as follows (in millions): 2012 VIEs Related to the VIEs Total derivative expense/(income) related...

  • Page 104
    ...NOTES TO THE FINANCIAL STATEMENTS NOTE 13. NET PROPERTY AND LEASE COMMITMENTS Net Property Net property includes land, buildings and land improvements, machinery and equipment, special tools, and other assets that we use in our normal operations. These assets are recorded at cost, net of accumulated...

  • Page 105
    ... (in millions): 2012 Pre-tax amortization expense $ 10 $ 2011 12 $ 2010 97 Amortization for current intangible assets is forecasted to be approximately $10 million in 2013 and each year thereafter. For more information visit www.annualreport.ford.com Ford Motor Company | 2012 Annual Report 103

  • Page 106
    ... Non-current Pension OPEB Dealer and customer allowances and claims Deferred revenue Employee benefit plans Other Total Automotive other liabilities Total Automotive sector Financial Services Sector Total sectors Intersector elimination (a) Total Company _____ (a) Accrued interest related to Ford...

  • Page 107
    FORD MOTOR COMPANY AND SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS NOTE 16. RETIREMENT BENEFITS We provide pension benefits and OPEB, such as health care and life insurance, to employees in many of our operations around the world. Plan obligations are measured based on the present value of ...

  • Page 108
    ... was as follows (in millions): Pension Benefits U.S. Plans 2012 Service cost Interest cost Expected return on assets Amortization of Prior service costs/(credits) (Gains)/Losses Separation programs/other (Gains)/Losses from curtailments and settlements Net expense/(income) $ 220 425 7 250 758 $ 343...

  • Page 109
    ... plan assets at December 31 Funded status at December 31 Amounts Recognized on the Balance Sheet Prepaid assets Accrued liabilities Total Amounts Recognized in Accumulated Other Comprehensive Loss (pre-tax) Unamortized prior service costs/(credits) Unamortized net (gains)/losses Total Pension Plans...

  • Page 110
    ...), and to make $400 million of benefit payments to participants in unfunded plans, for a total of about $5.4 billion. Based on current assumptions and regulations, we do not expect to have a legal requirement to fund our major U.S. pension plans in 2013. 108 Ford Motor Company | 2012 Annual Report

  • Page 111
    ... in fixed income assets while reducing the present value of the liabilities. Conversely, rate decreases will increase fixed income assets, partially offsetting the related increase in the liabilities. For more information visit www.annualreport.ford.com Ford Motor Company | 2012 Annual Report 109

  • Page 112
    ... as Level 3 typically are priced by dealers and pricing services that use proprietary pricing models which incorporate unobservable inputs. These inputs primarily consist of prepayment curves, discount rates, default assumptions, and recovery rates. 110 Ford Motor Company | 2012 Annual Report

  • Page 113
    ... insurance company (primarily bonds) at the guaranteed rate of return. The adjustment to fair value to recognize contractual returns is a significant unobservable input; therefore the contract is Level 3. For more information visit www.annualreport.ford.com Ford Motor Company | 2012 Annual Report...

  • Page 114
    ... 2012 Level 2 Level 3 Total _____ (a) Net derivative position. (b) Debt securities primarily issued by U.S. government-sponsored enterprises ("GSEs"). (c) "Investment grade" bonds are those rated Baa3/BBB or higher by at least two rating agencies; "High yield" bonds are those rated below investment...

  • Page 115
    ... 2012 Level 2 Level 3 Total _____ (a) Net derivative position. (b) Debt securities primarily issued by GSEs. (c) "Investment grade" bonds are those rated Baa3/BBB or higher by at least two rating agencies; "High yield" bonds are those rated below investment grade; "Other credit" refers to non-rated...

  • Page 116
    ... (36%). (g) Primarily short-term investment funds to provide liquidity to plan investment managers and cash held to pay benefits. (h) Primarily cash related to net pending trade purchases/sales and net pending foreign exchange purchases/sales. 114 Ford Motor Company | 2012 Annual Report

  • Page 117
    ... managers. (h) Primarily Ford-Werke plan assets (insurance contract valued at $3,406 million) and cash related to net pending trade purchases/sales and net pending foreign exchange purchases/sales. For more information visit www.annualreport.ford.com Ford Motor Company | 2012 Annual Report...

  • Page 118
    ...government Corporate bonds Investment grade High yield Other credit Mortgage/other asset-backed Derivative financial instruments Interest rate contracts Credit contracts Other contracts Total fixed income Alternatives Hedge funds Private equity Real estate Total alternatives Other Total Level 3 fair...

  • Page 119
    ... Plans Return on plan assets Fair Value at January 1, 2012 Asset Category Equity U.S. companies International companies Total equity Fixed Income U.S. government U.S. government-sponsored enterprises Non-U.S. government Corporate bonds Investment grade High yield Other credit Mortgage/other asset...

  • Page 120
    ...government Corporate bonds Investment grade High yield Other credit Mortgage/other asset-backed Derivative financial instruments Interest rate contracts Credit contracts Other contracts Total fixed income Alternatives Hedge funds Private equity Real estate Total alternatives Other Total Level 3 fair...

  • Page 121
    ... Credit sponsors securitization programs that provide short-term and long-term asset-backed financing through institutional investors in the U.S. and international capital markets. Debt is recorded on our balance sheet at par value adjusted for unamortized discount or premium and adjustments related...

  • Page 122
    ...discount DOE ATVM Incentive Program EIB Credit Facilities Other debt Unamortized discount Total long-term debt payable after one year Total Automotive sector Fair value of Automotive sector debt (d) Financial Services Sector Short-term debt Asset-backed commercial paper Other asset-backed short-term...

  • Page 123
    ... Based on contractual payment date of related debt. (b) Primarily non-U.S. affiliate debt and includes the EIB secured loan. (c) Adjustments related to designated fair value hedges of unsecured debt. For more information visit www.annualreport.ford.com Ford Motor Company | 2012 Annual Report 121

  • Page 124
    ... on the New York Stock Exchange; this debt was redeemed as of February 4, 2013. (d) Excludes 9.215% Debentures due September 15, 2021 with an outstanding balance at December 31, 2012 of $180 million. The proceeds from these securities were on-lent by Ford to Ford Holdings to fund Financial Services...

  • Page 125
    FORD MOTOR COMPANY AND SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS NOTE 17. DEBT AND COMMITMENTS (Continued) We may terminate the conversion rights related to the 2016 Convertible Notes at any time on or after November 20, 2014 if the closing price of Ford Common Stock exceeds 130% of the then-...

  • Page 126
    ...$5.6 billion (including $683 million maturing in 2010) of its unsecured debt and asset-backed debt. As a result, we recorded a pre-tax loss of $139 million, net of unamortized premiums and discounts, in Financial Services other income/ (loss), net in 2010. 124 Ford Motor Company | 2012 Annual Report

  • Page 127
    ... assets to be used to settle liabilities of the consolidated VIEs. See Note 12 for additional information on Financial Services sector VIEs. Certain debt issued by the VIEs to affiliated companies served as collateral for accessing the ECB open market operations program. This external funding...

  • Page 128
    ... than planned renewal rates. At December 31, 2012, $12.3 billion of these commitments were in use. These programs are free of material adverse change clauses, restrictive financial covenants (for example, debt-to-equity limitations and minimum net worth requirements), and generally, credit rating...

  • Page 129
    ... Automotive cost of sales. Cash flows associated with nondesignated or de-designated derivatives are reported in Net cash provided by/(used in) investing activities in our statements of cash flows. For more information visit www.annualreport.ford.com Ford Motor Company | 2012 Annual Report 127

  • Page 130
    ... 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. 128 Ford Motor Company | 2012 Annual Report

  • Page 131
    ...Recorded in OCI 2010 Gain/(Loss) Reclassified from AOCI to Income Gain/(Loss) Recognized in Income Automotive Sector Cash flow hedges Foreign currency exchange contracts Derivatives not designated as hedging instruments Foreign currency exchange contracts Commodity contracts Other - warrants Total...

  • Page 132
    ... terms of the derivatives, such as interest rates, foreign currency exchange rates, or commodity volumes and prices. On our consolidated balance sheet, derivative assets are reported in Other assets for Automotive and Financial Services sectors, and derivative liabilities are reported in Payables...

  • Page 133
    ... NONCONTROLLING INTEREST On September 1, 2012, with respect to the business combination of AAI, we recognized a redeemable noncontrolling interest related to Mazda Motor Corporation's ("Mazda's") 50% equity interest in AAI. Mazda's share in AAI is redeemable by Ford or Mazda for a three-year period...

  • Page 134
    .... See Note 16 for additional details. (e) We expect to reclassify existing net losses of $265 million from Accumulated other comprehensive income/(loss) to Automotive cost of sales during the next twelve months as the underlying exposures are realized. 132 Ford Motor Company | 2012 Annual Report

  • Page 135
    .../(losses) on cash equivalents and marketable securities Gains/(Losses) on the sale of held-for-sale operations, equity and cost investments, business combinations, and other dispositions Gains/(Losses) on extinguishment of debt Insurance premiums earned, net Other Total $ $ 70 16 (8) (14) 105 200...

  • Page 136
    ..., 2011, and 2010 were as follows (in millions, except RSU per unit amounts): 2012 Fair value Granted Weighted average for multiple grant dates (per unit) Vested Intrinsic value Vested 329 478 522 $ 102 12.43 109 $ 123 14.47 141 $ 130 12.69 112 2011 2010 134 Ford Motor Company | 2012 Annual Report

  • Page 137
    ... December 31 was as follows (in millions): 2012 Compensation cost (a) _____ (a) Net of tax benefit of $16 million, $17 million, and $0 in 2012, 2011, and 2010, respectively. $ 26 $ 2011 30 $ 2010 34 For more information visit www.annualreport.ford.com Ford Motor Company | 2012 Annual Report 135

  • Page 138
    ...grant using the Black-Scholes option-pricing model was as follows: 2012 Fair value per stock option Assumptions: Annualized dividend yield Expected volatility Risk-free interest rate Expected stock option term (in years) 2% 53.8% 1.6% 7.2 -% 53.2% 3.2% 7.1 -% 53.4% 3.0% 6.9 $ 5.88 $ 2011 8.48 $ 2010...

  • Page 139
    FORD MOTOR COMPANY AND SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS NOTE 23. EMPLOYEE SEPARATION ACTIONS As part of our plan to realign our vehicle assembly capacity to operate profitably at the current demand and changing model mix, we have implemented a number of different employee separation ...

  • Page 140
    ...Total current Deferred Federal Non-U.S. State and local Total deferred Total Reconciliation of effective tax rate U.S. statutory rate Non-U.S. tax rates under U.S. rates State and local income taxes General business credits...$ $ 4,057 2,554 6,611 2011 2010 138 Ford Motor Company | 2012 Annual Report

  • Page 141
    ... tax assets for our South American operations. Components of Deferred Tax Assets and Liabilities The components of deferred tax assets and liabilities were as follows (in millions): December 31, 2012 Deferred tax assets Employee benefit plans Net operating loss carryforwards Tax credit carryforwards...

  • Page 142
    ..., $77 million, and $45 million in taxrelated interest income for the years ended December 31, 2012, 2011, and 2010. As of December 31, 2012 and 2011, we had recorded a net payable of $120 million and $171 million, respectively, for tax-related interest. 140 Ford Motor Company | 2012 Annual Report

  • Page 143
    ...a royalty of 5% of the joint venture's net sales revenue. Upon contribution of our wholly-owned operations in Russia to the joint venture in exchange for a 50% equity interest, we deconsolidated the assets and liabilities, recorded an equity method investment in FordSollers at its fair value of $364...

  • Page 144
    ... 1, 2012 and we consolidated AAI under the acquisition method of accounting. We measured the fair value of AAI using the income approach and used cash flows that reflect our approved business plan for AAI. We assumed a discount rate of 10% based on an appropriate weighted average cost of capital...

  • Page 145
    ...), net. Financial Services Sector Dispositions Asia Pacific Markets. In 2011, Ford Credit recorded foreign currency translation adjustments of $60 million (including $72 million recorded in the fourth quarter of 2011), related to the strategic decision to exit retail and wholesale financing in...

  • Page 146
    ... on our consolidated and sector balance sheets as being outstanding at December 31, 2012. No warrants are presently outstanding. Dividend Declaration On January 10, 2013, our Board of Directors declared a first quarter 2013 dividend on our Common and Class B Stock of $0.10 per share payable on March...

  • Page 147
    ... warrants exercised. In total, by the deadline for exercise of December 31, 2012, 362 million warrants were exercised on a net share settlement basis, resulting in the issuance of 106 million shares. For more information visit www.annualreport.ford.com Ford Motor Company | 2012 Annual Report 145

  • Page 148
    ...2011 Automotive Net income attributable to Ford Motor Company Depreciation and special tools amortization Other amortization Provision for credit and insurance losses Net (gain)/loss on extinguishment of debt Net (gain)/loss on investment securities Equity investment earnings in excess of dividends...

  • Page 149
    ... STATEMENTS NOTE 27. OPERATING CASH FLOWS (Continued) 2010 Automotive Net income attributable to Ford Motor Company Depreciation and special tools amortization Other amortization Provision for credit and insurance losses Net (gain)/loss on extinguishment of debt Net (gain)/loss on investment...

  • Page 150
    ...profit/(loss) on the sale within the segment making the ultimate sale to an external entity. This presentation generally eliminates the effect of legal entity transfer prices within the Automotive sector for vehicles, components, and product engineering. 148 Ford Motor Company | 2012 Annual Report

  • Page 151
    ...: 1) Ford Credit, and 2) Other Financial Services. Ford Credit provides vehicle-related financing, leasing, and insurance. Other Financial Services includes a variety of businesses including holding companies, real estate, and the financing and leasing of some Volvo vehicles in Europe. Special Items...

  • Page 152
    ... MOTOR COMPANY AND SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS NOTE 28. SEGMENT INFORMATION (Continued) Key operating data for our business segments for the years ended or at December 31 were as follows (in millions): Automotive Sector Operating Segments Ford North America 2012 Revenues External...

  • Page 153
    ... on this line for Financial Services sector is non-financing related. Interest income in the normal course of business for Financial Services sector is reported in Financial Services revenues. For more information visit www.annualreport.ford.com Ford Motor Company | 2012 Annual Report 151

  • Page 154
    ... Long-Lived Assets (a) 2011 Revenues Long-Lived Assets (a) 2010 Revenues Long-Lived Assets (a) _____ (a) Includes Net property from our consolidated balance sheet and Financial Services Net investment in operating leases from the sector balance sheet. 152 Ford Motor Company | 2012 Annual Report

  • Page 155
    ...salaried lump sum pension buyout program (see Note 16), and 2) a $625 million gain related to the reorganization of our equity investment in CFMA (see Note 25). The pre-tax income of $1.5 billion in the fourth quarter of 2011 includes a $401 million gain related to the sale of our Russian operations...

  • Page 156
    ... were issued and outstanding: Guarantees related to affiliates and third parties. 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...

  • Page 157
    ...translation and other Ending balance $ $ 3,915 (2,254) 1,885 49 61 3,656 $ $ 2011 3,855 (2,799) 2,215 690 (46) 3,915 Excluded from the table above are costs accrued for customer satisfaction actions. For more information visit www.annualreport.ford.com Ford Motor Company | 2012 Annual Report 155

  • Page 158
    ...$ Cash dividends declared Common Stock price range (NYSE Composite Intraday) High Low Average number of shares of Ford Common and Class B Stock outstanding (in millions) SECTOR BALANCE SHEET DATA AT YEAR-END Assets Automotive sector Financial Services sector Intersector elimination Total assets Debt...

  • Page 159
    ... 41,000 employees, and maintains our progress on improving competitiveness in the United States. Excluding profit-sharing, compensation-related terms - including lump-sum payments (in lieu of general wage increases and cost of living increases) and continuation of an entry-level wage structure - are...

  • Page 160
    ... 31, 2012. The effectiveness of the Company's internal control over financial reporting as of December 31, 2012 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in its report included herein. 158 Ford Motor Company | 2012 Annual Report

  • Page 161
    ... New York Stock Exchange in the United States, and on certain stock exchanges in Belgium and France. The table below shows the high and low sales prices for our Common Stock, and the dividends we paid per share of Common and Class B Stock, for each quarterly period in 2011 and 2012: 2011 Ford Common...

  • Page 162
    ...dividends) Company / Index FORD MOTOR COMPANY S&P 500 INDEX Dow Jones Automobiles & Parts Titans 30 Index Base Period Dec. 2007 Dec. 2008 100 34 100 63 100 42 Dec. 2009 149 80 81 Years Ending Dec. 2010 Dec. 2011 249 160 92 94 125 94 Dec. 2012 196 109 111 160 Ford Motor Company | 2012 Annual Report

  • Page 163
    ... variety of dealer and customer financing products and services globally in support of Ford Motor Company vehicle sales • As of year-end 2012, Ford Credit was financing about 5,200 Ford and Lincoln dealers and more than 3.6 million retail customers around the world Customer Assistance 1.800.727...

  • Page 164
    Ford Motor Company Ford Motor Company One American Road Dearborn, MI 48126 www.corporate.ford.com 2012 Annual Report