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Ford Motor Company 2013 Annual Report
Delivering Profitable Growth for All

Table of contents

  • Page 1
    Ford Motor Company 2013 Annual Report Delivering Profitable Growth for All

  • Page 2
    ... from the President and CEO 7 Board of Directors and Executives 8 Shareholder Information 9 Financial Content 149 Company Information On the Cover Ford Motor Company created a framework for the development of vehicles that customers truly want and value with its One Ford plan. The result is a full...

  • Page 3
    ... fuel-efficiency and performance. Hybrid and all-electric options have become an essential part of Ford's vehicle portfolio. Identifying what today's drivers want and creating vehicles that meet those demands positions Ford as one of the world's premier automakers. Ford Motor Company | 2013 Annual...

  • Page 4
    ... Executive Chairman Ford Motor Company completed one of its best years ever in 2013. Led by record profits in North America and Asia Pacific Africa, we achieved our fifth year in a row of positive net income. We are now rated investment grade by four of the major credit rating agencies. Our strong...

  • Page 5
    ...global sales increased 12 percent in 2013 compared with 2012, as customers took delivery of more than 6 million new Ford and Lincoln vehicles. Our strong global performance Great Products We will introduce the most vehicles in a single year in our history in 2014, with Ford and Lincoln launching 23...

  • Page 6
    .... Strong Business To meet this growth, we will continue our most ambitious manufacturing expansion in 50 years with two new plants in China, one new plant in Brazil and one new plant in Turkey, as well as increasing capacity or adding production in six of 4 Ford Motor Company | 2013 Annual Report

  • Page 7
    ... of operating profit. In 2013 we made $5 billion in cash contributions to our worldwide funded pension plans, and our underfunded position improved by about $10 billion compared with year-end 2012. We also made record profit-sharing payments to our U.S. hourly employees as part of the UAW-Ford...

  • Page 8
    ... year for Ford Motor Company and a critical building block as we invest around the world for profitable growth beyond 2014. As a result of our record number of new product launches, we expect North American pre-tax profit to be lower in 2014 than in 2013. The payoff will be higher volume and revenue...

  • Page 9
    ... Marketing, Sales and Service and Lincoln Bennie W. Fowler Group Vice President, Quality and New Model Launch Bernard B. Silverstone Group Vice President, Chairman and Chief Executive Officer, Ford Motor Credit Company John Fleming Executive Vice President, Global Manufacturing and Labor Affairs...

  • Page 10
    ... 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 together effectively as one team, leveraging our global assets. Stock Exchanges Ford Common Stock is listed and traded on...

  • Page 11
    ... York Stock Exchange Required Disclosures Market for Common Equity and Related Stockholder Matters * Financial information contained herein (pages 10 - 147) is excerpted from the Annual Report on Form 10-K for the year ended December 31, 2013 of Ford Motor Company, which is available on our website...

  • Page 12
    ... of model changeover and new product launches). As we have seen in recent years, annual production volumes are heavily impacted by external economic factors, including the pace of economic growth and factors such as the availability of consumer credit and cost of fuel. 10 Ford Motor Company | 2013...

  • Page 13
    ...of costs. Key Economic Factors and Trends Affecting the Automotive Industry Currency Exchange Rate Volatility. The U.S. Federal Reserve has begun reducing the pace of financial asset purchases, and the resulting shifts in capital flows have contributed to downward pressure on several emerging market...

  • Page 14
    ... and address developing issues around trade policy. Other Economic Factors. The eventual implications of higher government deficits and debt, with potentially higher long-term interest rates, could drive a higher cost of capital over our planning period. Higher interest rates and/or taxes to address...

  • Page 15
    ..., dealers, suppliers, employees, shareholders, and other key constituencies 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; and Work...

  • Page 16
    ... we will be launching through 2016 as part of our reinvention. The Lincoln MKZ was named 2013's best compact premium vehicle in the J.D. Power APEAL Study, with January 2014 sales in the United States up 368% year-over-year. In 2014, we are adding the Lincoln MKC to the Lincoln line-up, providing an...

  • Page 17
    ... and have won numerous awards. In the 2013 model year, we expanded the availability of these safety belts in North America to the Ford Flex and the Lincoln MKT and MKZ. The Lane Keeping System, a driver assist feature, was launched in 2011 in Europe on the Ford Focus. Its availability has been...

  • Page 18
    ... Balance Sheet Execution of 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...

  • Page 19
    ... gain from the consolidation of AAI (see Note 23 of the Notes to the Financial Statements), less a related $19 million adjustment for sales in September 2012 of Ford-brand vehicles produced by AAI. For more information visit www.annualreport.ford.com Ford Motor Company | 2013 Annual Report 17

  • Page 20
    ... against our net deferred tax assets in the United States, Canada, and Spain. Discussion of Automotive sector, Financial Services sector, and total Company results of operations below is on a pretax basis and excludes special items unless otherwise specifically noted. References to records by...

  • Page 21
    ... operating leases Advertising and Sales Promotions - includes costs for advertising, marketing programs, brand promotions, customer mailings and promotional events, and auto shows Administrative and Selling - includes primarily costs for salaried personnel and purchased services related to our staff...

  • Page 22
    ... and pre-tax profit, at $6.9 billion, were also higher. Higher pretax profit primarily reflects favorable marketable factors across all regions, offset partially by higher costs, mainly structural, and unfavorable exchange, principally in South America. 20 Ford Motor Company | 2013 Annual Report

  • Page 23
    ... in South America, and a lower loss in Europe than last year. Other Automotive reflects net interest expense, offset partially by a favorable fair market value adjustment of our investment in Mazda. For more information visit www.annualreport.ford.com Ford Motor Company | 2013 Annual Report 21

  • Page 24
    ... about $400 million. The increase in pre-tax profit for 2013 compared with 2012 is more than explained by favorable market factors, offset partially by higher costs, mainly structural and warranty costs. For the full year, total U.S. market share was up 0.5 percentage points, more than explained by...

  • Page 25
    ... $34 million, both lower than positive results a year ago. The decrease in pre-tax profit for 2013 compared with 2012 is more than explained by higher costs and unfavorable exchange, offset partially by favorable market factors. The higher net pricing reflects partial recovery of the adverse effects...

  • Page 26
    ...vehicle market share for the full year, at 9.2%, was up 0.7 percentage points compared with the prior year, our highest share since 2007. In 2013, Ford was the fastest-growing commercial vehicle brand, and Transit nameplate was the leader in the commercial van segment. 24 Ford Motor Company | 2013...

  • Page 27
    ... in 2013 pre-tax results compared with 2012 by causal factor. Our strategy in Asia Pacific Africa continues to be to grow aggressively with an expanding portfolio of global One Ford products with manufacturing hubs in China, India, and ASEAN. As shown above, full-year wholesale volume and revenue...

  • Page 28
    ... for 2012 compared with 2011, with pre-tax 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. 26 Ford Motor Company | 2013 Annual Report

  • Page 29
    .... South America was profitable and Asia Pacific Africa incurred a small loss, while Europe reported a substantial loss. The loss in Other Automotive was more than explained by net interest expense. For more information visit www.annualreport.ford.com Ford Motor Company | 2013 Annual Report 27

  • Page 30
    ... increase in pre-tax profit for 2012 compared with 2011 primarily reflected favorable market factors, lower contribution costs, and lower compensation costs (primarily the non-repeat of 2011 UAW ratification bonuses), offset partially by higher structural cost. For the year, total U.S. market share...

  • Page 31
    ... 2012 compared with 2011. The decrease in pre-tax profit for 2012 compared with 2011 primarily reflects higher costs and unfavorable exchange, primarily in Brazil, offset partially by higher net pricing. For more information visit www.annualreport.ford.com Ford Motor Company | 2013 Annual Report...

  • Page 32
    ... lower industry sales and market share, and reductions in dealer stocks. Exchange was also a contributing factor adversely affecting net revenue. The decline in 2012 pre-tax results compared with 2011 primarily reflected unfavorable market factors. 30 Ford Motor Company | 2013 Annual Report

  • Page 33
    ... 2012 pre-tax results compared with 2011 is more than explained by higher net pricing, favorable volume and mix, and favorable exchange, offset partially by higher costs associated with new products and investments to support higher volumes and future growth. Our market share in the region increased...

  • Page 34
    ... Credit and Other Financial Services. Ford Credit, in turn, has two operations, North America and International. In general, we measure year-over-year changes in Ford Credit's pre-tax results using the causal factors listed below: • Volume: Volume primarily measures changes in net financing margin...

  • Page 35
    ...leasing reflecting changes in Ford's marketing programs, and higher non-consumer finance receivables due to higher dealer stocks. The full year increase in International pre-tax profit is primarily attributable to Europe, explained by higher financing margin primarily driven by lower borrowing costs...

  • Page 36
    ...to profit before income tax or net income. (d) The prior period was revised to conform to current year presentation. Managed receivables at December 31, 2013 increased from year-end 2012, driven by increases in non-consumer and consumer finance receivables in all operations and increases in leasing...

  • Page 37
    ... Termination volume measures the number of vehicles for which the lease has ended in a given period; and Return volume reflects the number of vehicles returned to Ford Credit by customers at lease end. For more information visit www.annualreport.ford.com Ford Motor Company | 2013 Annual Report 35

  • Page 38
    ...2011 relative to prior years. Its 2013 lease return rate was 71%, up 9 percentage points compared with 2012 reflecting lower auction values. In 2013, Ford Credit's auction values for both 24-month and 36-month vehicles declined, consistent with industry trends. Ford Credit's worldwide net investment...

  • Page 39
    ... Factors," of our Annual Report on Form 10-K for year ended December 31, 2013, as well as Note 29 of the Notes to the Financial Statements regarding commitments and contingencies that could impact our liquidity. For more information visit www.annualreport.ford.com Ford Motor Company | 2013 Annual...

  • Page 40
    ...special items, contributions to funded pension plans, certain tax-related transactions, acquisitions and divestitures, capital transactions with the Financial Services sector, dividends paid to shareholders, and other-primarily financing-related). Our key liquidity metrics are operating-related cash...

  • Page 41
    ... flows Capital spending Proceeds from the exercise of stock options Net cash flows from non-designated derivatives Items not included in operating-related cash flows Separation payments Funded pension contributions Tax refunds, tax payments, and tax receipts from affiliates Settlement of outstanding...

  • Page 42
    ...Romania and guaranteed Ford of Britain's obligations to the government of the United Kingdom. Export-Import Bank of the United States ("Ex-Im") and Private Export Funding Corporation ("PEFCO") Secured Revolving Loan. At December 31, 2013, this working capital facility, which supports vehicle exports...

  • Page 43
    ...term strategy is to reduce the risk of our funded defined benefit pension plans, including minimizing the volatility of the value of our pension assets relative to pension liabilities and the need for unplanned use of capital resources to fund the plans. The strategy reduces balance sheet, cash flow...

  • Page 44
    ... original maturity of more than 12 months. Ford Credit sponsors a number of securitization programs that can be structured to provide both short- and long-term funding through institutional investors in the United States and international capital markets. 42 Ford Motor Company | 2013 Annual Report

  • Page 45
    ... short-term unsecured funding from the sale of floating rate demand notes under its Ford Interest Advantage program and by issuing unsecured commercial paper in the United States, Europe, Mexico, and other international markets. At December 31, 2013, the principal amount outstanding of Ford Interest...

  • Page 46
    ... and Analysis of Financial Condition and Results of Operations (Continued) Public Term Funding Plan. The following table illustrates Ford Credit's planned issuances for full-year 2014, and its public term funding issuances in 2013, 2012, and 2011 (in billions), excluding short-term funding programs...

  • Page 47
    ... banks, corporate investment-grade securities, A-1/P-1 (or higher) rated commercial paper, debt obligations of a select group of non-U.S. governments, non-U.S. government agencies, supranational institutions, and money market funds that carry the highest possible ratings. Within Ford Credit's cash...

  • Page 48
    ...31, 2013: Ford Credit's balance sheet is inherently liquid because of the short-term nature of its finance receivables, investment in operating leases, and cash. Maturities of investment in operating leases consist primarily of rental payments attributable to depreciation over the remaining life of...

  • Page 49
    ... manages its business. Ford Credit deducts cash, cash equivalents, and marketable securities (excluding marketable securities related to insurance activities) because they generally correspond to excess debt beyond the amount required to support its operations and amounts to support on-balance sheet...

  • Page 50
    ...excess of par value of stock, related to compensation-related equity issuances of about $400 million, and changes in Treasury stock, related to stock re-purchases of about $200 million. Credit Ratings. Our short-term and long-term debt is rated by four credit rating agencies designated as nationally...

  • Page 51
    ... vehicles produced by our unconsolidated affiliates. We expect first quarter production to be about 1.6 million units, up 43,000 units from a year ago, reflecting higher volume in Asia Pacific Africa. For more information visit www.annualreport.ford.com Ford Motor Company | 2013 Annual Report...

  • Page 52
    ... manufacturing, engineering, and spending-related costs to support the launches, as well as for products and capacity actions that will be launched in later periods. Finally, we will not benefit this year from dealer stock increases as we did in 2013. 50 Ford Motor Company | 2013 Annual Report

  • Page 53
    ... in 2015. Middle East and Africa Our new Middle East and Africa business unit is expected to approach breakeven results. Asia Pacific Asia Pacific pre-tax profit is expected to be about the same as 2013, reflecting continued investments to support growth in 2014 and beyond, a slower rate of revenue...

  • Page 54
    ...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. 52 Ford Motor Company | 2013...

  • Page 55
    ... ï†ï¯ï²ï­ï€ ï€±ï€°ï€­ï‹ï€ ï¦ï¯ï²ï€ ï¹ï¥ï¡ï²ï€ ï¥ï®ï¤ï¥ï¤ï€ ï„ï¥ï£ï¥ï­ï¢ï¥ï²ï€ ï€³ï€±ï€¬ï€ ï€²ï€°ï€±ï€³ï€®ï€ For more information visit www.annualreport.ford.com Ford Motor Company | 2013 Annual Report 53 

  • Page 56
    ...the future cash outflows for each major plan to a yield curve comprised 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 plan assets...

  • Page 57
    ... and active management excess returns), growth asset returns and changes in value of related insurance contracts. Other factors that impact net funded status (e.g., contributions) are not reflected. For more information visit www.annualreport.ford.com Ford Motor Company | 2013 Annual Report 55

  • Page 58
    ... and Analysis of Financial Condition and Results of Operations (Continued) Discount rates and the expected long-term rate of return on assets have the largest impact on pension expense. These assumptions are generally set at each year end for expense recorded throughout the following year. The...

  • Page 59
    ...in Ford Credit's assumptions affect the Provision for credit losses 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 60
    ... on vehicles subject to operating leases, in each case under the Financial Services sector. ACCOUNTING STANDARDS ISSUED BUT NOT YET ADOPTED For information on accounting standards issued but not yet adopted, see Note 3 of the Notes to the Financial Statements. 58 Ford Motor Company | 2013 Annual...

  • Page 61
    ... to long-term debt (c) Capital leases Pension funding (d) Off-balance sheet Purchase obligations Operating leases Total Automotive sector Financial Services Sector On-balance sheet Long-term debt (a) (b) (excluding capital leases) Interest payments relating to long-term debt (c) Capital leases Off...

  • Page 62
    ... in foreign currencies, including the following: 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...

  • Page 63
    ... that allow netting of certain exposures 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...

  • Page 64
    ... require customers to make equal monthly payments over the life of the contract. Wholesale receivables are originated to finance new and used vehicles held in dealers' inventory and generally require dealers to pay a floating rate. Debt consists primarily of securitizations and short- and long-term...

  • Page 65
    ... its market risk exposure relating to changes in currency exchange rates is insignificant. Derivative Fair Values. The net fair value of Ford Credit's derivative financial instruments as of December 31, 2013 was an asset of $79 million, compared to an asset of $856 million as of December 31, 2012...

  • Page 66
    This page intentionally left blank. 64 Ford Motor Company | 2013 Annual Report

  • Page 67
    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 66 ...

  • Page 68
    FORD MOTOR COMPANY AND SUBSIDIARIES CONSOLIDATED INCOME STATEMENT (in millions, except per share amounts) For the years ended December 31, 2013 Revenues Automotive Financial Services Total revenues Costs and expenses Automotive cost of sales Selling, administrative, and other expenses Financial ...

  • Page 69
    ... other income/(loss), net (Note 19) Equity in net income of affiliated companies Income before income taxes - Automotive FINANCIAL SERVICES Revenues Costs and expenses Interest expense Depreciation on vehicles subject to operating leases (Note 7) Operating and other expenses Provision for credit and...

  • Page 70
    ... Net investment in operating leases Other assets LIABILITIES Other liabilities and deferred revenue Debt The accompanying notes are part of the financial statements. $ 88 40,728 $ 134 40,245 $ 4,198 45,796 8,116 5 $ 2,911 47,515 6,308 4 December 31, 2012 68 Ford Motor Company | 2013 Annual Report

  • Page 71
    ...) Deferred income taxes Debt payable within one year (Note 15) Current payable to Financial Services (Note 1) Total current liabilities Long-term debt (Note 15) Other liabilities and deferred revenue (Note 13) Deferred income taxes Total Automotive liabilities Financial Services Payables Debt (Note...

  • Page 72
    ... operations Cash dividends Purchases of Common Stock Changes in short-term debt Proceeds from issuance of other debt Principal payments on other debt Other Net cash provided by/(used in) financing activities Effect of exchange rate changes on cash and cash equivalents Net increase/(decrease) in cash...

  • Page 73
    ...)/from Financial Services Elimination of cash balances upon disposition of discontinued/held-for-sale operations Other Net cash provided by/(used in) investing activities Cash flows from financing activities of continuing operations Cash dividends Purchases of Common Stock Changes in short-term debt...

  • Page 74
    ...(126) (126) - (573) (292) $ 15,947 $ Balance at December 31, 2012 Net income Other comprehensive income/(loss), net of tax Common stock issued (including sharebased compensation impacts) Treasury stock/other Cash dividends declared Balance at December 31, 2013 $ 40 - - - - - 40 $ 20,976 - - 446...

  • Page 75
    ...-Based Compensation Employee Separation Actions and Exit and Disposal Activities Income Taxes Dispositions, Changes in Investments in Affiliates, and Assets Held for Sale Capital Stock and Amounts Per Share Operating Cash Flows Segment Information Geographic Information Selected Quarterly Financial...

  • Page 76
    ... references mean Ford Motor Company and our consolidated subsidiaries and our consolidated VIEs of which we are the primary beneficiary, unless the context requires otherwise. We prepare our financial statements in accordance with generally accepted accounting principles in the United States ("GAAP...

  • Page 77
    ...13,315 $ $ 3,488 13,325 184 16,997 (1,812) 15,185 December 31, 2012 _____ (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 | 2013 Annual Report 75

  • Page 78
    ... from investing to operating) includes dealer financing by Ford Credit of used and non-Ford vehicles. One hundred percent of cash flows from these wholesale finance receivables have been reclassified for consolidated presentation as the portion of these cash flows from used and non-Ford vehicles is...

  • Page 79
    ...Credit at the point of retail financing or lease origination that represent interest supplements and residual support. (c) Primarily wholesale receivables with entities that are consolidated subsidiaries of Ford. (d) Sale-leaseback agreement between Automotive and Financial Services sectors relating...

  • Page 80
    ...Other Assets on our balance sheet. Pre-tax amortization expense was $11 million, $10 million, and $12 million at December 31, 2013, 2012, and 2011, respectively. Amortization for intangible assets is forecasted to be $11 million in 2014 and each year thereafter. 78 Ford Motor Company | 2013 Annual...

  • Page 81
    ... to the ultimate customer. When we give our dealers 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...

  • Page 82
    ...guarantees. When we pass the risks and rewards of ownership to our suppliers, including inventory risk, market price risk, and credit risk for the raw material, we record both the cost of the raw material and the income from the subsequent sale to the supplier in Automotive cost of sales. Government...

  • Page 83
    FORD MOTOR COMPANY AND SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS NOTE 3. ACCOUNTING STANDARDS ISSUED BUT NOT YET ADOPTED Income Taxes - Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. In July 2013, the ...

  • Page 84
    ... values are generated using market inputs including quoted prices (the closing price in an exchange market), bid prices (the price at which a buyer stands ready to purchase), and other market information. For fixed income securities that are not actively traded, the pricing services use alternative...

  • Page 85
    ...we estimate fair value using discounted cash flows and market-based expectations for interest rates, credit risk, and the contractual terms of the debt instruments. For certain short-term debt with an original maturity date of one year or less, we assume that book value is a reasonable approximation...

  • Page 86
    ...by non-U.S. government agencies, as well as notes issued by supranational institutions. (b) Excludes time deposits, certificates of deposit, money market accounts, and other cash equivalents reported at par value on our balance sheet totaling $2.7 billion and $3 billion at December 31, 2013 and 2012...

  • Page 87
    ... MOTOR COMPANY AND SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS NOTE 4. FAIR VALUE MEASUREMENTS (Continued) December 31, 2013 Level 1 Level 2 Level 3 Total Level 1 December 31, 2012 Level 2 Level 3 Total Financial Services Sector Assets Cash equivalents - financial instruments U.S. government...

  • Page 88
    ... the purchase of dealership real estate, and finance other dealer programs. Wholesale financing is approximately 95% of our dealer financing Other financing - purchased receivables primarily related to the sale of parts and accessories to dealers • 86 Ford Motor Company | 2013 Annual Report

  • Page 89
    ...to receive the excess cash flows not needed to pay the debt issued by, and other obligations of, the securitization entities that are parties to those securitization transactions (see Notes 11 and 15). For more information visit www.annualreport.ford.com Ford Motor Company | 2013 Annual Report 87

  • Page 90
    FORD MOTOR COMPANY AND SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS NOTE 6. FINANCIAL SERVICES SECTOR FINANCE RECEIVABLES (Continued) Contractual maturities of total finance receivables outstanding at December 31, 2013 reflect contractual repayments due from customers or borrowers as follows (in ...

  • Page 91
    ... and leverage, liquidity and cash flow, profitability, and credit history with ourselves and other creditors. A dealer's risk rating does not reflect any guarantees or a dealer owner's net worth. For more information visit www.annualreport.ford.com Ford Motor Company | 2013 Annual Report 89

  • Page 92
    ... with increased frequency based on risk ratings worldwide. We perform a credit review of each dealer at least annually and adjust the dealer's risk rating, if necessary. The credit quality of non-consumer receivables is evaluated based on our internal dealer risk rating analysis. A dealer has...

  • Page 93
    ... 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 customers. Assets subject to operating leases are depreciated using the straight-line method over the term...

  • Page 94
    FORD MOTOR COMPANY AND SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS NOTE 7. NET INVESTMENT IN OPERATING LEASES (Continued) Financial Services Sector Operating lease depreciation expense (which includes gains and losses on disposal of assets) for the years ended December 31 was as follows (in ...

  • Page 95
    ...of the expected future cash flows of the receivable discounted at the loan's original effective interest rate or the fair value of the collateral adjusted for estimated costs to sell. After establishing the collective and the specific allowance for credit losses, if management believes the allowance...

  • Page 96
    FORD MOTOR COMPANY AND SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS NOTE 8. FINANCIAL SERVICES SECTOR 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 ...

  • Page 97
    ...("Ford Romania") (a) Changan Ford Mazda Engine Company, Ltd. DealerDirect LLC OEConnection LLC Blue Diamond Truck, S. de R.L. de C.V. Percepta, LLC Ford Performance Vehicles Pty Ltd. Automotive Fuel Cell Cooperation Corporation Blue Diamond Parts, LLC Other Total Automotive sector Financial Services...

  • Page 98
    ... 31, Summarized Income Statement Total revenue Income before income taxes Net income $ 2013 38,736 2,815 2,587 $ 2012 33,051 1,896 1,616 $ 2011 31,178 1,822 1,512 Related Party Transactions In the ordinary course of business we buy/sell various products and services including vehicles, parts, and...

  • Page 99
    ... 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 For more information visit www.annualreport.ford.com Ford Motor Company...

  • Page 100
    ... to the excess cash flows from the assets that are not needed to pay liabilities of the consolidated VIEs. The assets and debt reflected on our consolidated balance sheet were as follows (in billions): December 31, 2013 Finance Receivables, Net and Net Investment in Operating Leases $ 22.9 22.9 45...

  • Page 101
    FORD MOTOR COMPANY AND SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS NOTE 11. VARIABLE INTEREST ENTITIES (Continued) Interest expense on securitization debt related to consolidated VIEs was $563 million, $760 million, and $994 million in 2013, 2012, and 2011, respectively. VIEs that are exposed to ...

  • Page 102
    ... AND SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS NOTE 12. NET PROPERTY AND LEASE COMMITMENTS Net Property Net property includes land, buildings and land improvements, machinery and equipment, tooling, and other assets that we use in our normal operations. These assets are recorded at cost, net of...

  • Page 103
    FORD MOTOR COMPANY AND SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS NOTE 12. NET PROPERTY AND LEASE COMMITMENTS (Continued) The liability for our conditional asset retirement obligations which are recorded in Other liabilities and deferred revenue was as follows (in millions): December 31, 2013 ...

  • Page 104
    ... life insurance benefits, in the United States, Canada, and other locations covering hourly and salaried employees. The largest portion of our worldwide obligation is associated with our U.S. plans. Our OPEB plans are unfunded and the benefits are paid from general Company cash. Defined Contribution...

  • Page 105
    ... 2013 Weighted Average Assumptions at December 31 Discount rate Expected long-term rate of return on assets Average rate of increase in compensation Assumptions Used to Determine Net Benefit Cost for the Year Ended December 31 Discount rate Expected long-term rate of return on assets Average rate...

  • Page 106
    FORD MOTOR COMPANY AND SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS NOTE 14. RETIREMENT BENEFITS (Continued) The year-end status of these plans was as follows (in millions): Pension Benefits U.S. Plans Non-U.S. Plans 2013 2012 2013 2012 Change in Benefit Obligation Benefit obligation at January 1 ...

  • Page 107
    ...income) during 2014 are as follows (in millions): Pension Benefits U.S. Plans Prior service cost/(credit) (Gains)/Losses For more information visit www.annualreport.ford.com Non-U.S. Plans $ 56 598 $ Worldwide OPEB (231) $ 98 Total (20) 903 105 $ 155 207 Ford Motor Company | 2013 Annual Report

  • Page 108
    FORD MOTOR COMPANY AND SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS NOTE 14. RETIREMENT BENEFITS (Continued) Pension Plan Asset Information Investment Objective and Strategies. Our investment objectives for the U.S. plans are to minimize the volatility of the value of our U.S. pension assets ...

  • Page 109
    ... for long-term capital market returns, inflation, bond yields, and other variables, adjusted for specific aspects of our investment strategy by plan. Historical returns also are considered where appropriate. At December 31, 2013, our actual 10-year annual rate of return on pension plan assets was...

  • Page 110
    ... ("Ford-Werke") funded defined benefit plan is funded through a group insurance contract and exists in a pooled structure with other policy holders. The contract value represents the value of the underlying assets held by the insurance company (primarily bonds) at the guaranteed rate of return. The...

  • Page 111
    ...(c) Investment grade High yield Other credit Mortgage/other asset-backed Commingled funds Derivative financial instruments (a) Total fixed income Alternatives Hedge funds (d) Private equity (e) Real estate (f) Total alternatives Cash and cash equivalents (g) Other (h) Total assets at fair value 273...

  • Page 112
    ...-term investment funds to provide liquidity to plan investment managers and cash held to pay benefits. (h) For U.S. Plans, primarily cash related to net pending trade purchases/sales and net pending foreign exchange purchases/sales. For non-U.S. Plans, primarily Ford-Werke, plan assets (insurance...

  • Page 113
    ... government Corporate bonds Investment grade High yield Other credit Mortgage/other asset-backed Derivative financial instruments Total fixed income Alternatives Hedge funds Private equity Real estate Total alternatives Other Total Level 3 fair value Fair Value at January 1, 2013 Net Purchases...

  • Page 114
    ... government Corporate bonds Investment grade High yield Other credit Mortgage/other asset-backed Derivative financial instruments Total fixed income Alternatives Hedge funds Private equity Real estate Total alternatives Other Total Level 3 fair value Fair Value at January 1, 2012 Net Purchases...

  • Page 115
    ...-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 to designated fair value hedges (see Note 16 for policy...

  • Page 116
    ...value of our debt by Automotive sector and Financial Services sector (in millions): Interest Rates Average Contractual (a) Average Effective (b) December 31, December 31, December 31, December 31, 2013 2012 2013 2012 1.5% 1.5% 1.5% 1.5% Automotive Sector Debt payable within one year Short-term Long...

  • Page 117
    ... including capital leases at December 31, 2013 (in millions): 2014 Automotive Sector Public unsecured debt securities Convertible notes DOE ATVM Incentive Program Short-term and other debt (a) Total (b) Financial Services Sector Unsecured debt Asset-backed debt Total (b) Total Company (b) $ 14...

  • Page 118
    ... 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-applicable conversion price for 20 trading days during the consecutive 30-trading-day period prior to notice of termination. 116 Ford Motor Company | 2013 Annual...

  • Page 119
    ...AND SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS NOTE 15. DEBT AND COMMITMENTS (Continued) In December 2013, we elected to terminate the conversion rights of holders under the 2036 Convertible Notes in accordance with their terms effective as of the close of business on January 21, 2014. Liability...

  • Page 120
    ...cash, cash equivalents, and loaned and marketable securities and/or availability under the revolving credit facility. If our senior, unsecured, long-term debt does not maintain at least two investment grade ratings from Fitch, Moody's, and S&P, the guarantees of certain subsidiaries will be required...

  • Page 121
    ... receivables Net investment in operating leases Total $ $ 2.6 0.4 3.0 $ 0.1 $ $ 2.5 0.4 2.9 Related Debt 36.0 4.2 40.2 3.3 39.3 4.2 43.5 _____ (a) (b) Includes assets to be used to settle liabilities of the consolidated VIEs. See Note 11 for additional information on Financial Services sector...

  • Page 122
    ... transactions and are not exchange-traded. We review our hedging program, derivative positions, and overall risk management strategy on a regular basis. Derivative Financial Instruments and Hedge Accounting. Derivatives are recorded on the balance sheet at fair value and presented on a gross...

  • Page 123
    ...is reported in Automotive cost of sales in the period of measurement. Our policy is to de-designate cash flow hedges prior to the time forecasted transactions are recognized as assets or liabilities on the balance sheet and report subsequent changes in fair value through Automotive cost of sales. If...

  • Page 124
    ... 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 Financial Services Sector Fair value hedges Interest rate contracts Net interest...

  • Page 125
    ... and Financial Services sectors, and derivative liabilities are reported in Payables for our Automotive sector and in Other liabilities and deferred revenue for our Financial Services sector. For more information visit www.annualreport.ford.com Ford Motor Company | 2013 Annual Report 123

  • Page 126
    ...AAI") is a 50/50 joint venture between Ford and Mazda Motor Corporation ("Mazda") that operates an automobile assembly plant in Flat Rock, Michigan. On September 1, 2012, we granted to Mazda a put option to sell and received a call option to purchase from Mazda the 50% equity interest in AAI that is...

  • Page 127
    ... COMPANY AND SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS NOTE 18. ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS) The following table summarizes the changes in the accumulated balances for each component of AOCI attributable to Ford Motor Company for the years ended December 31 (in millions): 2013...

  • Page 128
    ... grants in future years. At December 31, 2013 the number of unused shares carried forward was 217 million shares. We primarily issue two types of share-based compensation awards: restricted stock units ("RSUs") and stock options. We grant time-based and performance-based RSUs to our employees. RSUs...

  • Page 129
    FORD MOTOR COMPANY AND SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS NOTE 20. SHARE-BASED COMPENSATION (Continued) We also grant stock options to our employees. We measure the fair value of our stock options using the BlackScholes option-pricing model, using historical volatility and our ...

  • Page 130
    ... fair value of the Common Stock issued and the respective exercise price was $188 million, $44 million, and $54 million, respectively. Compensation cost for stock options for the years ended December 31 was as follows (in millions): 2013 Compensation cost (a) $ 18 $ _____ (a) Net of tax benefit of...

  • Page 131
    ...MOTOR COMPANY AND SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS NOTE 20. SHARE-BASED COMPENSATION (Continued) The estimated fair value of stock options at the time of grant using the Black-Scholes option-pricing model was as follows: 2013 Fair value per stock option Assumptions: Annualized dividend...

  • Page 132
    ... of pension-related costs. The separation related costs not yet recorded will be expensed as the employees and suppliers continue to support Genk plant operations. NOTE 22. INCOME TAXES In accordance with GAAP, we have elected to recognize accrued interest related to unrecognized tax benefits and...

  • Page 133
    ... source income, retroactive to January 1, 2012. As a result, the tax provision for the period ended December 31, 2013 reflects a $233 million tax benefit related to the retroactive provisions of the Act. For more information visit www.annualreport.ford.com Ford Motor Company | 2013 Annual Report...

  • Page 134
    ... that this record of cumulative profitability in recent years, our ten consecutive quarters of pre-tax operating profits, our successful completion of labor negotiations with the UAW, and our business plan showing continued profitability provided assurance that our future tax benefits more likely...

  • Page 135
    FORD MOTOR COMPANY AND SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS NOTE 22. INCOME TAXES (Continued) Other A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows for the years listed (in millions): 2013 Beginning balance Increase - tax positions in prior ...

  • Page 136
    ... the fair value of Ford Romania using the income approach. We used cash flows that reflect our approved business plan for Ford Romania and align with assumptions a market participant would make. We assumed a discount rate of 8% based on an appropriate weighted-average cost of capital, adjusted for...

  • Page 137
    ...'s assets and liabilities, recorded an equity method investment in Ford Sollers at fair value, and recognized a pre-tax gain of $401 million reported in Automotive interest income and other income/(loss), net. Financial Services Sector Dispositions Asia Pacific Markets. In 2011, Ford Credit recorded...

  • Page 138
    FORD MOTOR COMPANY AND SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS NOTE 24. CAPITAL STOCK AND AMOUNTS PER SHARE (Continued) Dividend Declaration On January 9, 2014, our Board of Directors declared a first quarter 2014 dividend on our Common and Class B Stock of $0.125 per share payable on March ...

  • Page 139
    FORD MOTOR COMPANY AND SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS NOTE 25. OPERATING CASH FLOWS The reconciliation of Net income attributable to Ford Motor Company to Net cash provided by/(used in) operating activities for the years ended December 31 was as follows (in millions): 2013 Automotive...

  • Page 140
    ... operations for the years ended December 31 was as follows (in millions): 2013 Interest Automotive sector Financial Services sector Total interest paid Income taxes $ $ $ 746 2,755 3,501 538 $ $ $ 693 3,003 3,696 344 $ $ $ 1,012 3,357 4,369 268 2012 2011 138 Ford Motor Company | 2013 Annual Report

  • Page 141
    ..., and product engineering. Financial Services Sector The Financial Services sector includes the following segments: 1) Ford Credit, and 2) Other Financial Services. Ford Credit provides vehicle-related financing and leasing. Other Financial Services includes a variety of businesses including holding...

  • Page 142
    FORD MOTOR COMPANY AND SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS NOTE 26. 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 North America 2013 Revenues Income/(...

  • Page 143
    ... 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 | 2013 Annual Report 141

  • Page 144
    ... $ 2011 Revenues $ 70,839 9,479 9,415 8,493 1,920 35,459 135,605 $ Long-Lived Assets (a) $ 18,514 1,721 2,424 2,996 1,419 5,817 32,891 _____ (a) Includes Net property from our consolidated balance sheet and Financial Services Net investment in operating leases from the sector balance sheet. NOTE...

  • Page 145
    ... in our products; product warranties; governmental regulations relating to safety, emissions, and fuel economy or other matters; government incentives; tax matters; alleged illegal acts resulting in fines or penalties; financial services; employment-related matters; dealer, supplier, and other...

  • Page 146
    ... notification programs) on products sold. These costs are estimates based primarily on historical warranty claim experience. Warranty accruals accounted for in Other liabilities and deferred revenue for the years ended December 31 were as follows (in millions): 2013 Beginning balance Payments made...

  • Page 147
    ... Average number of shares of Ford Common and Class B Stock outstanding 3,935 (in millions) Basic income/(loss) Diluted income/(loss) Cash dividends declared Common Stock price range (NYSE Composite Intraday) High Low SECTOR BALANCE SHEET DATA AT YEAR-END Assets Automotive sector Financial Services...

  • Page 148
    ..., Thailand, United Kingdom, and Venezuela. In 2014, we will negotiate collective bargaining agreements (covering wages, benefits and/or other employment provisions) with labor unions in Argentina, Brazil, France, Germany, Italy, Mexico, and Thailand. 146 Ford Motor Company | 2013 Annual Report

  • Page 149
    ...the price history database available at www.NYSEnet.com. As of February 7, 2014, stockholders of record of Ford included approximately 143,770 holders of Common Stock and 39 holders of Class B Stock. For more information visit www.annualreport.ford.com Ford Motor Company | 2013 Annual Report 147

  • Page 150
    ...500 Stock Index and the Dow Jones Automobiles & Parts Titans 30 Index. ComPaRISon of CumulaTIvE fIvE-YEaR ToTal RETuRn $800 $700 $600 $500 $400 $300 $200 $100 $0 2008 2009 2010 2011 2012 2013 2009 Total Return To Shareholders (Includes reinvestment of dividends) Company / Index FORD MOTOR COMPANY...

  • Page 151
    ... • Parts engineered to Ford Motor Company specifications • Technicians trained and certified specifically on Ford, Lincoln and Mercury vehicles • One-stop service for all vehicle maintenance and repair needs Quick Lane Tire & Auto Center Ford Motor Company's all-makes quick service brand...

  • Page 152
    Ford Motor Company One American Road Dearborn, MI 48126 www.corporate.ford.com Printed in U.S.A. 10% post-consumer waste paper. Ford encourages you to please recycle this document.