Edgar Filing: FORD MOTOR CO

F 06.30.2012- 10Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q



(Mark One)
R	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

	For the quarterly period ended June 30, 2012

	or

o	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

	For the transition period from __________ to __________

	Commission file number 1-3950

Ford Motor Company

(Exact name of Registrant as specified in its charter)



Delaware	38-0549190
(State of incorporation)	(I.R.S. Employer Identification No.)

One American Road, Dearborn, Michigan	48126
(Address of principal executive offices)	(Zip Code)

313-322-3000

(Registrant’s telephone number, including area code)

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

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No R

As of July 27, 2012, Ford had outstanding 3,743,134,476 shares of Common Stock and 70,852,076 shares of Class B Stock.

Exhibit Index begins on page

FORD MOTOR COMPANY

QUARTERLY REPORT ON FORM 10-Q

For the Quarter Ended June 30, 2012



	Table of Contents	Page
	Part I - Financial Information
Item 1	Financial Statements	1
	Consolidated Statement of Operations	1
	Consolidated Statement of Comprehensive Income	1
	Sector Statement of Operations	2
	Consolidated Balance Sheet	3
	Sector Balance Sheet	4
	Condensed Consolidated Statement of Cash Flows	5
	Condensed Sector Statement of Cash Flows	6
	Consolidated Statement of Equity	7
	Notes to the Financial Statements	8
	Report of Independent Registered Public Accounting Firm	49
Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	50
	Results of Operations	50
	Automotive Sector	52
	Financial Services Sector	59
	Liquidity and Capital Resources	63
	Outlook	72
	Accounting Standards Issued But Not Yet Adopted	75
	Other Financial Information	75
Item 3	Quantitative and Qualitative Disclosures About Market Risk	75
	Automotive Sector	75
	Financial Services Sector	75
Item 4	Controls and Procedures	75

	Part II - Other Information
Item 1	Legal Proceedings	76
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	76
Item 6	Exhibits	76
	Signature	77
	Exhibit Index	78

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements.

FORD MOTOR COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS

For the Periods Ended June 30, 2012 and 2011

(in millions, except per share amounts)



	Second Quarter					First Half
	2012			2011		2012			2011
	(unaudited)
Revenues
Automotive	$	31,328		$	33,476	$	61,853		$	64,514
Financial Services	1,883			2,051		3,803			4,127
Total revenues	33,211			35,527		65,656			68,641

Costs and expenses
Automotive cost of sales	27,769			29,253		54,623			56,029
Selling, administrative and other expenses	2,979			2,907		5,865			5,641
Interest expense	986			1,127		1,997			2,301
Financial Services provision for credit and insurance losses	(20		)	21		(33		)	(33		)
Total costs and expenses	31,714			33,308		62,452			63,938

Automotive interest income and other non-operating income/(expense), net (Note 14)	(85		)	199		67			239
Financial Services other income/(loss), net (Note 14)	82			53		166			138
Equity in net income/(loss) of affiliated companies	101			135		196			302
Income/(Loss) before income taxes	1,595			2,606		3,633			5,382
Provision for/(Benefit from) income taxes (Note 15)	557			206		1,197			426
Net income/(loss)	1,038			2,400		2,436			4,956
Less: Income/(Loss) attributable to noncontrolling interests	(2		)	2		—			7
Net income/(loss) attributable to Ford Motor Company	$	1,040		$	2,398	$	2,436		$	4,949

AMOUNTS PER SHARE ATTRIBUTABLE TO FORD MOTOR COMPANY COMMON AND CLASS B STOCK (Note 17)
Basic income/(loss)	$	0.27		$	0.63	$	0.64		$	1.31
Diluted income/(loss)	$	0.26		$	0.59	$	0.61		$	1.20

Cash dividends declared	$	—		$	—	$	0.05		$	—

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the Periods Ended June 30, 2012 and 2011

(in millions)



	Second Quarter					First Half
	2012			2011		2012			2011
	(unaudited)
Net income/(loss)	$	1,038		$	2,400	$	2,436		$	4,956
Other comprehensive income/(loss), net of tax (Note 13)
Foreign currency translation	(778		)	248		(255		)	836
Derivative instruments	(89		)	17		(152		)	134
Pension and other postretirement benefits	253			183		213			105
Total other comprehensive income/(loss), net of tax	(614		)	448		(194		)	1,075
Comprehensive income/(loss)	424			2,848		2,242			6,031
Less: Comprehensive income/(loss) attributable to noncontrolling interests	(2		)	2		—			5
Comprehensive income/(loss) attributable to Ford Motor Company	$	426		$	2,846	$	2,242		$	6,026

The accompanying notes are part of the financial statements.

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

SECTOR STATEMENT OF OPERATIONS

For the Periods Ended June 30, 2012 and 2011

(in millions, except per share amounts)



	Second Quarter					First Half
	2012			2011		2012			2011
	(unaudited)
AUTOMOTIVE
Revenues	$	31,328		$	33,476	$	61,853		$	64,514
Costs and expenses
Cost of sales	27,769			29,253		54,623			56,029
Selling, administrative and other expenses	2,233			2,345		4,368			4,488
Total costs and expenses	30,002			31,598		58,991			60,517
Operating income/(loss)	1,326			1,878		2,862			3,997

Interest expense	188			202		373			453

Interest income and other non-operating income/(expense), net (Note 14)	(85		)	199		67			239
Equity in net income/(loss) of affiliated companies	95			129		174			291
Income/(Loss) before income taxes — Automotive	1,148			2,004		2,730			4,074

FINANCIAL SERVICES
Revenues	1,883			2,051		3,803			4,127
Costs and expenses
Interest expense	798			925		1,624			1,848
Depreciation	599			378		1,199			808
Operating and other expenses	147			184		298			345
Provision for credit and insurance losses	(20		)	21		(33		)	(33		)
Total costs and expenses	1,524			1,508		3,088			2,968

Other income/(loss), net (Note 14)	82			53		166			138
Equity in net income/(loss) of affiliated companies	6			6		22			11
Income/(Loss) before income taxes — Financial Services	447			602		903			1,308

TOTAL COMPANY
Income/(Loss) before income taxes	1,595			2,606		3,633			5,382
Provision for/(Benefit from) income taxes (Note 15)	557			206		1,197			426
Net income/(loss)	1,038			2,400		2,436			4,956
Less: Income/(Loss) attributable to noncontrolling interests	(2		)	2		—			7
Net income/(loss) attributable to Ford Motor Company	$	1,040		$	2,398	$	2,436		$	4,949

The accompanying notes are part of the financial statements.

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

(in millions)



	June 30, 2012			December 31, 2011
	(unaudited)
ASSETS
Cash and cash equivalents	$	15,101		$	17,148
Marketable securities	20,499			18,618
Finance receivables, net (Note 5)	68,094			69,976
Other receivables, net	10,160			8,565
Net investment in operating leases	15,177			12,838
Inventories (Note 7)	7,289			5,901
Equity in net assets of affiliated companies	2,938			2,936
Net property	22,808			22,371
Deferred income taxes	14,064			15,125
Net intangible assets	95			100
Other assets	5,011			4,770
Total assets	$	181,236		$	178,348

LIABILITIES
Payables	$	19,661		$	17,724
Accrued liabilities and deferred revenue (Note 9)	44,004			45,369
Debt (Note 11)	99,897			99,488
Deferred income taxes	595			696
Total liabilities	164,157			163,277

EQUITY
Capital stock
Common Stock, par value $.01 per share (3,764 million shares issued)	38			37
Class B Stock, par value $.01 per share (71 million shares issued)	1			1
Capital in excess of par value of stock	20,920			20,905
Retained earnings/(Accumulated deficit)	15,230			12,985
Accumulated other comprehensive income/(loss) (Note 13)	(18,928		)	(18,734		)
Treasury stock	(225		)	(166		)
Total equity/(deficit) attributable to Ford Motor Company	17,036			15,028
Equity/(Deficit) attributable to noncontrolling interests	43			43
Total equity/(deficit)	17,079			15,071
Total liabilities and equity	$	181,236		$	178,348

The following table includes assets to be used to settle liabilities of the consolidated variable interest entities ("VIEs"). These assets and liabilities are included in the consolidated balance sheet above. See Note 8 for additional information on our VIEs.



	June 30, 2012		December 31, 2011
	(unaudited)
ASSETS
Cash and cash equivalents	$	3,273	$	3,402
Finance receivables, net	45,938		49,795
Net investment in operating leases	4,245		6,354
Other assets	10		157
LIABILITIES
Accrued liabilities and deferred revenue	108		97
Debt	36,996		41,421

The accompanying notes are part of the financial statements.

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

SECTOR BALANCE SHEET

(in millions)



	June 30, 2012			December 31, 2011
ASSETS	(unaudited)
Automotive
Cash and cash equivalents	$	7,180		$	7,965
Marketable securities	16,613			14,984
Total cash and marketable securities	23,793			22,949
Receivables, less allowances of $126 and $126	4,750			4,219
Inventories (Note 7)	7,289			5,901
Deferred income taxes	2,085			1,791
Net investment in operating leases	1,882			1,356
Other current assets	1,029			1,053
Current receivable from Financial Services	678			878
Total current assets	41,506			38,147
Equity in net assets of affiliated companies	2,808			2,797
Net property	22,673			22,229
Deferred income taxes	12,829			13,932
Net intangible assets	95			100
Non-current receivable from Financial Services	—			32
Other assets	2,037			1,549
Total Automotive assets	81,948			78,786
Financial Services
Cash and cash equivalents	7,921			9,183
Marketable securities	3,886			3,835
Finance receivables, net (Note 5)	72,323			73,330
Net investment in operating leases	13,295			11,482
Equity in net assets of affiliated companies	130			139
Other assets	3,564			3,605
Total Financial Services assets	101,119			101,574
Intersector elimination	(678		)	(1,112		)
Total assets	$	182,389		$	179,248
LIABILITIES
Automotive
Trade payables	$	15,820		$	14,015
Other payables	2,748			2,734
Accrued liabilities and deferred revenue (Note 9)	15,211			15,003
Deferred income taxes	26			40
Debt payable within one year (Note 11)	1,297			1,033
Total current liabilities	35,102			32,825
Long-term debt (Note 11)	12,893			12,061
Other liabilities (Note 9)	25,320			26,910
Deferred income taxes	134			255
Total Automotive liabilities	73,449			72,051
Financial Services
Payables	1,093			975
Debt (Note 11)	85,707			86,595
Deferred income taxes	1,588			1,301
Other liabilities and deferred income (Note 9)	3,473			3,457
Payable to Automotive	678			910
Total Financial Services liabilities	92,539			93,238
Intersector elimination	(678		)	(1,112		)
Total liabilities	165,310			164,177
EQUITY
Capital stock
Common Stock, par value $.01 per share (3,764 million shares issued)	38			37
Class B Stock, par value $.01 per share (71 million shares issued)	1			1
Capital in excess of par value of stock	20,920			20,905
Retained earnings/(Accumulated deficit)	15,230			12,985
Accumulated other comprehensive income/(loss) (Note 13)	(18,928		)	(18,734		)
Treasury stock	(225		)	(166		)
Total equity/(deficit) attributable to Ford Motor Company	17,036			15,028
Equity/(Deficit) attributable to noncontrolling interests	43			43
Total equity/(deficit)	17,079			15,071
Total liabilities and equity	$	182,389		$	179,248

The accompanying notes are part of the financial statements.

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

For the Periods Ended June 30, 2012 and 2011

(in millions)



	First Half
	2012			2011
	(unaudited)
Cash flows from operating activities of continuing operations
Net cash provided by/(used in) operating activities	$	5,979		$	6,226

Cash flows from investing activities of continuing operations
Capital expenditures	(2,284		)	(2,022		)
Acquisitions of retail and other finance receivables and operating leases	(18,799		)	(17,355		)
Collections of retail and other finance receivables and operating leases	15,992			17,052
Purchases of securities	(36,837		)	(41,761		)
Sales and maturities of securities	34,911			46,680
Proceeds from sale of business	64			144
Settlements of derivatives	(348		)	103
Other	(248		)	(18		)
Net cash provided by/(used in) investing activities	(7,549		)	2,823

Cash flows from financing activities of continuing operations
Cash dividends	(381		)	—
Purchases of Common Stock	(59		)	—
Changes in short-term debt	(3,013		)	662
Proceeds from issuance of other debt	20,157			18,513
Principal payments on other debt	(17,099		)	(26,292		)
Other	48			112
Net cash provided by/(used in) financing activities	(347		)	(7,005		)

Effect of exchange rate changes on cash and cash equivalents	(130		)	632

Net increase/(decrease) in cash and cash equivalents	$	(2,047	)	$	2,676

Cash and cash equivalents at January 1	$	17,148		$	14,805
Cash and cash equivalents of held-for-sale operations at January 1	—			—
Net increase/(decrease) in cash and cash equivalents	(2,047		)	2,676
Less: Cash and cash equivalents of held-for-sale operations at June 30	—			9
Cash and cash equivalents at June 30	$	15,101		$	17,472

The accompanying notes are part of the financial statements.

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

CONDENSED SECTOR STATEMENT OF CASH FLOWS

For the Periods Ended June 30, 2012 and 2011

(in millions)



	First Half 2012						First Half 2011
	Automotive			Financial Services			Automotive			Financial Services
	(unaudited)
Cash flows from operating activities of continuing operations
Net cash provided by/(used in) operating activities	$	2,656		$	2,625		$	5,744		$	2,133

Cash flows from investing activities of continuing operations
Capital expenditures	(2,269		)	(15		)	(2,017		)	(5		)
Acquisitions of retail and other finance receivables and operating leases	—			(19,084		)	—			(17,062		)
Collections of retail and other finance receivables and operating leases	—			15,992			—			17,052
Net collections/(acquisitions) of wholesale receivables	—			983			—			(1,944		)
Purchases of securities	(26,905		)	(9,932		)	(25,560		)	(16,201		)
Sales and maturities of securities	25,229			9,883			27,817			18,863
Settlements of derivatives	(345		)	(3		)	92			11
Proceeds from sale of business	54			10			135			9
Investing activity (to)/from Financial Services	541			—			1,859			—
Other	(153		)	(95		)	145			(163		)
Net cash provided by/(used in) investing activities	(3,848		)	(2,261		)	2,471			560

Cash flows from financing activities of continuing operations
Cash dividends	(381		)	—			—			—
Purchases of Common Stock	(59		)	—			—			—
Changes in short-term debt	(40		)	(2,973		)	(241		)	903
Proceeds from issuance of other debt	1,328			18,829			1,201			17,312
Principal payments on other debt	(360		)	(16,940		)	(6,136		)	(20,156		)
Financing activity to/(from) Automotive	—			(541		)	—			(1,859		)
Other	13			35			70			42
Net cash provided by/(used in) financing activities	501			(1,590		)	(5,106		)	(3,758		)

Effect of exchange rate changes on cash and cash equivalents	(94		)	(36		)	421			211

Net increase/(decrease) in cash and cash equivalents	$	(785	)	$	(1,262	)	$	3,530		$	(854	)

Cash and cash equivalents at January 1	$	7,965		$	9,183		$	6,301		$	8,504
Cash and cash equivalents of held-for-sale operations at January 1	—			—			—			—
Net increase/(decrease) in cash and cash equivalents	(785		)	(1,262		)	3,530			(854		)
Less: Cash and cash equivalents of held-for-sale operations at June 30	—			—			9			—
Cash and cash equivalents at June 30	$	7,180		$	7,921		$	9,822		$	7,650

The accompanying notes are part of the financial statements.

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF EQUITY

For the Periods Ended June 30, 2012 and 2011

(in millions, unaudited)



	Equity/(Deficit) Attributable to Ford Motor Company
	Capital Stock		Cap. in Excess of Par Value of Stock			Retained Earnings/ (Accumulated Deficit)			Accumulated Other Comprehensive Income/(Loss) (Note 13)			Treasury Stock			Total			Equity/(Deficit) Attributable to Non-controlling Interests			Total Equity/ (Deficit)
Balance at December 31, 2011	$	38	$	20,905		$	12,985		$	(18,734	)	$	(166	)	$	15,028		$	43		$	15,071
Net income/(loss)	—		—			2,436			—			—			2,436			—			2,436
Other comprehensive income/(loss), net of tax	—		—			—			(194		)	—			(194		)	—			(194		)
Common stock issued (including share- based compensation impacts)	1		15			—			—			—			16			—			16
Treasury stock/other	—		—			—			—			(59		)	(59		)	—			(59		)
Cash dividends declared	—		—			(191		)	—			—			(191		)	—			(191		)
Balance at June 30, 2012	$	39	$	20,920		$	15,230		$	(18,928	)	$	(225	)	$	17,036		$	43		$	17,079

Balance at December 31, 2010	$	38	$	20,803		$	(7,038	)	$	(14,313	)	$	(163	)	$	(673	)	$	31		$	(642	)
Net income/(loss)	—		—			4,949			—			—			4,949			7			4,956
Other comprehensive income/(loss), net of tax	—		—			—			1,077			—			1,077			(2		)	1,075
Common stock issued (including share- based compensation impacts)	—		(35		)	—			—			—			(35		)	—			(35		)
Treasury stock/other	—		(6		)	—			—			(3		)	(9		)	5			(4		)
Cash dividends declared	—		—			—			—			—			—			—			—
Balance at June 30, 2011	$	38	$	20,762		$	(2,089	)	$	(13,236	)	$	(166	)	$	5,309		$	41		$	5,350

The accompanying notes are part of the financial statements.

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS

Table of Contents



Footnote		Page
Note 1	Presentation	9
Note 2	Accounting Standards Issued But Not Yet Adopted	12
Note 3	Fair Value Measurements	12
Note 4	Restricted Cash	19
Note 5	Finance Receivables	20
Note 6	Allowance for Credit Losses	26
Note 7	Inventories	29
Note 8	Variable Interest Entities	29
Note 9	Accrued Liabilities and Deferred Revenue	32
Note 10	Retirement Benefits	33
Note 11	Debt and Commitments	34
Note 12	Derivative Financial Instruments and Hedging Activities	35
Note 13	Accumulated Other Comprehensive Income/(Loss)	41
Note 14	Other Income/(Loss)	42
Note 15	Income Taxes	42
Note 16	Dispositions	43
Note 17	Amounts Per Share Attributable to Ford Motor Company Common and Class B Stock	44
Note 18	Segment Information	45
Note 19	Commitments and Contingencies	47

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS

NOTE 1. PRESENTATION

Our financial statements are presented in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and instructions to the Quarterly Report on Form 10-Q and Rule 10-01 of Regulation S-X. We show certain of our financial statements on both a consolidated and a sector basis for our Automotive and Financial Services sectors. Intercompany items and transactions have been eliminated in both the consolidated and sector balance sheets. Where the presentation of these intercompany eliminations or consolidated adjustments differs between the consolidated and sector financial statements, reconciliations of certain line items are explained below in this Note or in related footnotes.

In the opinion of management, these unaudited financial statements reflect a fair statement of the results of operations and financial condition of Ford Motor Company, its consolidated subsidiaries, and consolidated VIEs of which we are the primary beneficiary for the periods and at the dates presented. The operating results for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year. Reference should be made to the financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2011 ("2011 Form 10-K Report"). For purposes of this report, "Ford," the "Company," "we," "our," "us" or similar references mean Ford Motor Company, our consolidated subsidiaries, and our consolidated VIEs of which we are the primary beneficiary, unless the context requires otherwise.

We reclassified certain prior year amounts in our consolidated financial statements to conform to current year presentation.

Adoption of New Accounting Standards

Fair Value Measurement. On January 1, 2012, we adopted the new accounting standard that requires us to report the level in the fair value hierarchy of assets and liabilities not measured at fair value in the balance sheet but for which the fair value is disclosed, and to expand existing disclosures. See Note 3 for further disclosure regarding our fair value measurements.

Comprehensive Income - Presentation. On January 1, 2012, we adopted the new accounting standard that modifies the options for presentation of other comprehensive income. The new accounting standard requires us to present comprehensive income either in a single continuous statement or two separate but consecutive statements. We have elected to present comprehensive income in two separate but consecutive statements.

On January 1, 2012, we also adopted the 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.

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS

NOTE 1. PRESENTATION (Continued)

Reconciliations between Consolidated and Sector Financial Statements

Deferred Tax Assets and Liabilities. The difference between the total assets and total liabilities as presented in our sector balance sheet and consolidated balance sheet is the result of netting deferred income tax assets and liabilities. The reconciliation between the totals for the sector and consolidated balance sheets was as follows (in millions):



	June 30, 2012			December 31, 2011
Sector balance sheet presentation of deferred income tax assets
Automotive sector current deferred income tax assets	$	2,085		$	1,791
Automotive sector non-current deferred income tax assets	12,829			13,932
Financial Services sector deferred income tax assets (a)	303			302
Total	15,217			16,025
Reclassification for netting of deferred income taxes	(1,153		)	(900		)
Consolidated balance sheet presentation of deferred income tax assets	$	14,064		$	15,125

Sector balance sheet presentation of deferred income tax liabilities
Automotive sector current deferred income tax liabilities	$	26		$	40
Automotive sector non-current deferred income tax liabilities	134			255
Financial Services sector deferred income tax liabilities	1,588			1,301
Total	1,748			1,596
Reclassification for netting of deferred income taxes	(1,153		)	(900		)
Consolidated balance sheet presentation of deferred income tax liabilities	$	595		$	696

__________


(a)	Financial Services deferred income tax assets are included in Financial Services other assets on our sector balance sheet.

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS

NOTE 1. PRESENTATION (Continued)

Sector to Consolidated Cash Flow. We present certain cash flows from wholesale receivables, finance receivables and the acquisition of intersector debt differently on our sector and consolidated statements of cash flows. The reconciliation between totals for the sector and consolidated cash flows for the periods ended June 30 was as follows (in millions):



	First Half
	2012			2011
Automotive net cash provided by/(used in) operating activities	$	2,656		$	5,744
Financial Services net cash provided by/(used in) operating activities	2,625			2,133
Total sector net cash provided by/(used in) operating activities	5,281			7,877
Reclassifications from investing to operating cash flows
Wholesale receivables (a)	983			(1,944		)
Finance receivables (b)	(285		)	293
Consolidated net cash provided by/(used in) operating activities	$	5,979		$	6,226

Automotive net cash provided by/(used in) investing activities	$	(3,848	)	$	2,471
Financial Services net cash provided by/(used in) investing activities	(2,261		)	560
Total sector net cash provided by/(used in) investing activities	(6,109		)	3,031
Reclassifications from investing to operating cash flows
Wholesale receivables (a)	(983		)	1,944
Finance receivables (b)	285			(293		)
Reclassifications from investing to financing cash flows
Maturity of Financial Services sector debt held by Automotive sector	(201		)	—
Elimination of investing activity to/(from) Financial Services in consolidation	(541		)	(1,859		)
Consolidated net cash provided by/(used in) investing activities	$	(7,549	)	$	2,823

Automotive net cash provided by/(used in) financing activities	$	501		$	(5,106	)
Financial Services net cash provided by/(used in) financing activities	(1,590		)	(3,758		)
Total sector net cash provided by/(used in) financing activities	(1,089		)	(8,864		)
Reclassifications from investing to financing cash flows
Maturity of Financial Services sector debt held by Automotive sector	201			—
Elimination of investing activity to/(from) Financial Services in consolidation	541			1,859
Consolidated net cash provided by/(used in) financing activities	$	(347	)	$	(7,005	)

__________

(a)

In addition to the cash flow from vehicles sold by us, the cash flow from wholesale finance receivables (being reclassified from investing to operating) includes financing by Ford Credit of used and non-Ford vehicles. 100% of cash flows from wholesale finance receivables have been reclassified for consolidated presentation as the portion of these cash flows from used and non-Ford vehicles is impracticable to separate.


(b)	Includes cash flows of finance receivables purchased/collected by the Financial Services sector from certain divisions and subsidiaries of the Automotive sector.

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS

NOTE 1. PRESENTATION (Continued)

Venezuelan Operations

At June 30, 2012 and December 31, 2011, we had $460 million and $301 million, respectively, in net monetary assets (primarily cash and receivables partially offset by payables and accrued liabilities) denominated in Venezuelan bolivars. These net monetary assets included $542 million and $331 million in cash and cash equivalents at June 30, 2012 and December 31, 2011, respectively. As a result of regulation of foreign currency exchange in Venezuela, the official exchange rate of 4.3 bolivars to the U.S. dollar is used to re-measure the assets and liabilities of our Venezuelan operations for GAAP financial statement presentation. The Venezuelan government also controls securities transactions in the parallel exchange market. Our ability to obtain funds in the parallel exchange market has been limited. For any U.S. dollars that we obtain at a rate less favorable than the official rate, we realize a loss for the difference in the exchange rates at the time of the transaction. Based on our net monetary position at June 30, 2012, a devaluation equal to a 50% change in the official bolivar exchange rate would have resulted in a balance sheet translation loss of approximately $150 million. Continuing restrictions on the foreign currency exchange market could affect our Venezuelan operations' ability to pay obligations denominated in U.S. dollars as well as our ability to benefit from those operations.

NOTE 2. ACCOUNTING STANDARDS ISSUED BUT NOT YET ADOPTED

Balance Sheet - Offsetting. In December 2011, the Financial Accounting Standards Board issued a new accounting standard that requires disclosures about offsetting and related arrangements for recognized financial instruments and derivative instruments. The new accounting standard is effective for us as of January 1, 2013.

NOTE 3. FAIR VALUE MEASUREMENTS

Cash equivalents, marketable securities, and derivative instruments are presented in our financial statements on a recurring basis at fair value, while other assets and liabilities are measured at fair value on a nonrecurring basis such as when we have an asset impairment.

Fair Value Measurements

In measuring fair value, we use various valuation methodologies and prioritize the use of observable inputs. The use of observable and unobservable inputs and their significance in measuring fair value are reflected in our fair value hierarchy assessment.


•	Level 1 — inputs include quoted prices for identical instruments and are the most observable


•	Level 2 — inputs include quoted prices for similar instruments and observable inputs such as interest rates, currency exchange rates, and yield curves


•	Level 3 — inputs include data not observable in the market and reflect management judgment about the assumptions market participants would use in pricing the instruments

We review the inputs to the fair value measurements to ensure they are appropriately categorized within the fair value hierarchy. Transfers into and transfers out of the hierarchy levels are recognized as if they had taken place at the end of the reporting period.

Valuation Methodologies

Cash and Cash Equivalents. Included in Cash and cash equivalents are highly liquid investments that are readily convertible to known amounts of cash, and which are subject to an insignificant risk of change in value due to interest rate, market price, or penalty on withdrawal. A debt security is classified as a cash equivalent if it meets these criteria and if it has a remaining time to maturity of 90 days or less from the date of acquisition. Amounts on deposit and available upon demand, or negotiated to provide for daily liquidity without penalty, are classified as Cash and cash equivalents. Time deposits, certificates of deposit, and money market accounts that meet the above criteria are reported at par value and excluded from the tables below.

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS

NOTE 3. FAIR VALUE MEASUREMENTS (Continued)

Marketable Securities. Investments in securities with a maturity date greater than 90 days at the date of purchase and other securities for which there is more than an insignificant risk of change in value due to interest rate, market price, or penalty on withdrawal are classified as Marketable securities. We generally measure fair value using prices obtained from pricing services. Pricing methodologies and inputs to valuation models used by the pricing services depend on the security type (i.e., asset class). Where possible, fair 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 methods to determine fair value for the securities, including: quotes for similar fixed-income securities, matrix pricing, discounted cash flow using benchmark curves, or other factors to determine fair value. In certain cases, when market data are not available, we use broker quotes to determine fair value.

A review is performed on the security prices received from our pricing services, which includes discussion and analysis of the inputs used by the pricing services to value 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.

Derivative Financial Instruments. Our derivatives are over-the-counter customized derivative transactions and are not exchange traded. We estimate the fair value of these instruments using industry-standard valuation models such as a discounted cash flow. These models project future cash flows and discount the future amounts to a present value using market-based expectations for interest rates, foreign exchange rates, commodity prices, and the contractual terms of the derivative instruments. The discount rate used is the relevant interbank deposit rate (e.g., LIBOR) plus an adjustment for non-performance risk. The adjustment reflects the full credit default swap ("CDS") spread applied to a net exposure, by counterparty, considering the master netting agreements and posted collateral. We use our counterparty's CDS spread when we are in a net asset position and our own CDS spread when we are in 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 Ford Upgrade Exchange Linked securitization transactions ("FUEL Notes") had derivative features which included a mandatory exchange to Ford Credit unsecured notes when Ford Credit's senior unsecured debt received two investment grade credit ratings among Fitch, Moody's, and S&P, and a make-whole provision. Ford Credit estimated the fair value of these features by comparing the market value of the FUEL Notes to the value of a hypothetical debt instrument without these features.

In the second quarter of 2012, Ford Credit received two investment grade credit ratings thereby triggering the mandatory exchange feature and the FUEL Notes derivatives were extinguished.

Finance Receivables. The fair value of finance receivables is measured for purposes of disclosure (see Note 5). We measure the fair value of finance receivables using internal valuation models. These models project future cash flows of financing contracts based on scheduled contract payments (including principal and interest). The projected cash flows are discounted to a present value based on assumptions regarding credit losses, pre-payment speed, and our discount rate. Our assumptions regarding pre-payment speed and credit losses are based on historical performance. The fair value of finance receivables is categorized within Level 3 of the hierarchy.

On a nonrecurring basis, when retail contracts are greater than 120 days past due or deemed to be uncollectible, or if individual dealer loans are probable of foreclosure, we use the fair value of collateral, adjusted for estimated costs to sell, to determine the fair value adjustment to our receivables. The collateral for retail receivables is the vehicle financed, and for dealer loans is real estate or other property.

The fair value measurements for retail receivables are based on the number of contracts multiplied by the loss severity and the probability of default ("POD") percentage, or the outstanding receivable balances multiplied by the average recovery value ("ARV") percentage to determine the fair value adjustment.

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS

NOTE 3. FAIR VALUE MEASUREMENTS (Continued)

The fair value measurements for dealer loans are based on an assessment of the estimated market value of collateral. The assessment is performed by reviewing various appraisals, which include total adjusted appraised value of land and improvements, alternate use appraised value, broker's opinion of value, and purchase offers. The fair value adjustment is determined by comparing the net carrying value of the dealer loan and the estimated market value of collateral.

Debt. We measure debt at fair value for purposes of disclosure (see Note 11) using quoted market prices for our own debt with approximately the same remaining maturities, where possible. Where market prices are not available, we estimate fair value using discounted cash flows and market-based expectations for interest rates, our own 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 of the debt's fair value. For asset-backed debt issued in securitization transactions, the principal payments are based on projected payments for specific assets securing the underlying debt considering historical pre-payment speeds. The fair value of debt is categorized within Level 2 of the hierarchy.

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS

NOTE 3. FAIR VALUE MEASUREMENTS (Continued)

Input Hierarchy of Items Measured at Fair Value on a Recurring Basis

The following tables categorize the fair values of items measured at fair value on a recurring basis on our balance sheet (in millions):



	June 30, 2012								December 31, 2011
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Automotive Sector
Assets
Cash equivalents – financial instruments
U.S. government	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
U.S. government-sponsored enterprises	—		583		—		583		—		319		—		319
Non-U.S. government	—		74		—		74		—		168		—		168
Non-U.S. government agencies (a)	—		51		—		51		—		820		—		820
Corporate debt	—		9		—		9		—		2		—		2
Total cash equivalents – financial instruments (b)	—		717		—		717		—		1,309		—		1,309
Marketable securities (c)
U.S. government	3,915		—		—		3,915		2,960		—		—		2,960
U.S. government-sponsored enterprises	—		4,476		—		4,476		—		4,852		—		4,852
Non-U.S. government agencies (a)	—		4,529		—		4,529		—		4,558		—		4,558
Corporate debt	—		1,970		—		1,970		—		1,631		—		1,631
Mortgage-backed and other asset-backed	—		23		—		23		—		38		—		38
Equities	100		—		—		100		129		—		—		129
Non-U.S. government	—		1,571		—		1,571		—		598		—		598
Other liquid investments (d)	—		29		—		29		—		17		—		17
Total marketable securities	4,015		12,598		—		16,613		3,089		11,694		—		14,783
Derivative financial instruments
Foreign currency exchange contracts	—		128		—		128		—		198		14		212
Commodity contracts	—		3		—		3		—		1		1		2
Other – warrants	—		—		—		—		—		—		4		4
Total derivative financial instruments (e)	—		131		—		131		—		199		19		218
Total assets at fair value	$	4,015	$	13,446	$	—	$	17,461	$	3,089	$	13,202	$	19	$	16,310
Liabilities
Derivative financial instruments
Foreign currency exchange contracts	$	—	$	575	$	—	$	575	$	—	$	442	$	6	$	448
Commodity contracts	—		257		78		335		—		289		83		372
Total derivative financial instruments (e)	—		832		78		910		—		731		89		820
Total liabilities at fair value	$	—	$	832	$	78	$	910	$	—	$	731	$	89	$	820

__________


(a)	Includes notes issued 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 $4.9 billion and $4.6 billion at June 30, 2012 and December 31, 2011, respectively, for the Automotive sector. In addition to these cash equivalents, our Automotive sector also had cash on hand totaling $1.6 billion and $2.1 billion at June 30, 2012 and December 31, 2011, respectively.


(c)	Excludes an investment in Ford Credit debt securities held by the Automotive sector with a carrying value of $201 million and an estimated fair value of $201 million at December 31, 2011.


(d)	Includes certificates of deposit and time deposits subject to changes in value.


(e)	See Note 12 for additional information regarding derivative financial instruments.

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS

NOTE 3. FAIR VALUE MEASUREMENTS (Continued)



	June 30, 2012								December 31, 2011
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Financial Services Sector
Assets
Cash equivalents – financial instruments
U.S. government	$	2	$	—	$	—	$	2	$	1	$	—	$	—	$	1
U.S. government-sponsored enterprises	—		75		—		75		—		75		—		75
Non-U.S. government	—		5		—		5		—		15		—		15
Non-U.S. government agencies (a)	—		1		—		1		—		150		—		150
Corporate debt	—		9		—		9		—		—		—		—
Total cash equivalents – financial instruments (b)	2		90		—		92		1		240		—		241
Marketable securities
U.S. government	770		—		—		770		619		—		—		619
U.S. government-sponsored enterprises	—		1,043		—		1,043		—		713		—		713
Non-U.S. government agencies (a)	—		577		—		577		—		778		—		778
Corporate debt	—		1,276		—		1,276		—		1,186		—		1,186
Mortgage-backed and other asset-backed	—		80		—		80		—		88		—		88
Non-U.S. government	—		123		—		123		—		444		—		444
Other liquid investments (c)	—		17		—		17		—		7		—		7
Total marketable securities	770		3,116		—		3,886		619		3,216		—		3,835
Derivative financial instruments
Interest rate contracts	—		1,316		—		1,316		—		1,196		—		1,196
Foreign currency exchange contracts	—		15		—