form10q.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

T
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2009

£
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)
(IRS 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 whether 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.
T           Yes
£           No

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           T
Accelerated filer           £
Non-accelerated filer           £
Smaller reporting company           £

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

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).
T           Yes
£           No

As of July 28, 2009, the registrant had outstanding 3,150,437,677 shares of Common Stock and 70,852,076 shares of Class B Stock.

Exhibit index located on page number 82.
 
 
 
 

PART I. FINANCIAL INFORMATION
ITEM 1.  Financial Statements

FORD MOTOR COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS
For the Periods Ended June 30, 2009 and 2008
(in millions, except per share amounts)


   
Second Quarter
   
First Half
 
   
2009
   
2008
   
2009
   
2008
 
   
(unaudited)
    
(unaudited)
  
Sales and revenues
                        
Automotive sales
   $ 23,989     $ 37,057     $ 45,357     $ 76,174  
Financial Services revenues
     3,200       4,045       6,610       8,220  
Total sales and revenues
     27,189       41,102       51,967       84,394  
                                 
Costs and expenses
                                
Automotive cost of sales
     23,446       39,994       45,108       75,450  
Selling, administrative and other expenses
     3,165       7,305       6,892       12,399  
Interest expense
     1,686       2,442       3,622       5,017  
Financial Services provision for credit and insurance losses
     419       598       821       942  
Total costs and expenses
     28,716       50,339       56,443       93,808  
                                 
Automotive interest income and other non-operating income/(expense), net (Note 9)
     3,652       (192 )     4,995       (100 )
Financial Services other income/(loss), net (Note 9)
     187       406       300       635  
Equity in net income/(loss) of affiliated companies
     59       (36 )     (68 )     106  
Income/(Loss) before income taxes
     2,371       (9,059 )     751       (8,773 )
Provision for/(Benefit from) income taxes
     25       (443 )     (179 )     (348 )
Income/(Loss) from continuing operations
     2,346       (8,616 )     930       (8,425 )
Income/(Loss) from discontinued operations (Note 12)
     5       8       5       9  
Net income/(loss)
     2,351       (8,608 )     935       (8,416 )
Less: Income/(Loss) attributable to noncontrolling interests
     90       89       101       211  
Net income/(loss) attributable to Ford Motor Company
   $ 2,261     $ (8,697 )   $ 834     $ (8,627 )
                                 
NET INCOME/(LOSS) ATTRIBUTABLE TO FORD MOTOR COMPANY
                                
Income/(Loss) from continuing operations
   $ 2,256     $ (8,705 )   $ 829     $ (8,636 )
Income/(Loss) from discontinued operations (Note 12)
     5       8       5       9  
Net income/(loss)
   $ 2,261     $ (8,697 )   $ 834     $ (8,627 )
                                 
AMOUNTS PER SHARE ATTRIBUTABLE TO FORD MOTOR COMPANY COMMON AND CLASS B STOCK (Note 13)
                                
Basic income/(loss)
                                
Income/(Loss) from continuing operations
   $ 0.75     $ (3.89 )   $ 0.31     $ (3.90 )
Income/(Loss) from discontinued operations
     —       —       —       —  
Net income/(loss)
   $ 0.75     $ (3.89 )   $ 0.31     $ (3.90 )
Diluted income/(loss)
                                
Income/(Loss) from continuing operations
   $ 0.69     $ (3.89 )   $ 0.30     $ (3.90 )
Income/(Loss) from discontinued operations
     —       —       —       —  
Net income/(loss)
   $ 0.69     $ (3.89 )   $ 0.30     $ (3.90 )

The accompanying notes are part of the financial statements

 
2
 
Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

SECTOR STATEMENT OF OPERATIONS
For the Periods Ended June 30, 2009 and 2008
(in millions, except per share amounts)

   
Second Quarter
   
First Half
 
   
2009
   
2008
   
2009
   
2008
 
   
(unaudited)
    
(unaudited)
  
AUTOMOTIVE
                        
Sales
   $ 23,989     $ 37,057     $ 45,357     $ 76,174  
Costs and expenses
                                
Cost of sales
     23,446       39,994       45,108       75,450  
Selling, administrative and other expenses
     2,111       2,955       4,155       6,064  
Total costs and expenses
     25,557       42,949       49,263       81,514  
Operating income/(loss)
     (1,568 )     (5,892 )     (3,906 )     (5,340 )
                                 
Interest expense
     366       515       850       1,073  
                                 
Interest income and other non-operating income/(expense), net (Note 9)
     3,652       (192 )     4,995       (100 )
Equity in net income/(loss) of affiliated companies
     58       (40 )     69       96  
Income/(Loss) before income taxes — Automotive
     1,776       (6,639 )     308       (6,417 )
                                 
FINANCIAL SERVICES
                                
Revenues
     3,200       4,045       6,610       8,220  
Costs and expenses
                                
Interest expense
     1,320       1,927       2,772       3,944  
Depreciation
     964       4,112       2,399       5,948  
Operating and other expenses
     90       238       338       387  
Provision for credit and insurance losses
     419       598       821       942  
Total costs and expenses
     2,793       6,875       6,330       11,221  
                                 
Other income/(loss), net (Note 9)
     187       406       300       635  
Equity in net income/(loss) of affiliated companies
     1       4       (137 )     10  
                                 
Income/(Loss) before income taxes — Financial Services
     595       (2,420 )     443       (2,356 )
                                 
TOTAL COMPANY
                                
Income/(Loss) before income taxes
     2,371       (9,059 )     751       (8,773 )
Provision for/(Benefit from) income taxes
     25       (443 )     (179 )     (348 )
Income/(Loss) from continuing operations
     2,346       (8,616 )     930       (8,425 )
Income/(Loss) from discontinued operations (Note 12)
     5       8       5       9  
Net income/(loss)
     2,351       (8,608 )     935       (8,416 )
Less: Income/(Loss) attributable to noncontrolling interests
     90       89       101       211  
Net income/(loss) attributable to Ford Motor Company
   $ 2,261     $ (8,697 )   $ 834     $ (8,627 )
                                 
NET INCOME/(LOSS) ATTRIBUTABLE TO FORD MOTOR COMPANY
                                
Income/(Loss) from continuing operations
   $ 2,256     $ (8,705 )   $ 829     $ (8,636 )
Income/(Loss) from discontinued operations (Note 12)
     5       8       5       9  
Net income/(loss)
   $ 2,261     $ (8,697 )   $ 834     $ (8,627 )
                                 
AMOUNTS PER SHARE ATTRIBUTABLE TO FORD MOTOR COMPANY COMMON AND CLASS B STOCK (Note 13)
                                
Basic income/(loss)
                                
Income/(Loss) from continuing operations
   $ 0.75     $ (3.89 )   $ 0.31     $ (3.90 )
Income/(Loss) from discontinued operations
     —       —       —       —  
Net income/(loss)
   $ 0.75     $ (3.89 )   $ 0.31     $ (3.90 )
Diluted income/(loss)
                                
Income/(Loss) from continuing operations
   $ 0.69     $ (3.89 )   $ 0.30     $ (3.90 )
Income/(Loss) from discontinued operations
     —       —       —       —  
Net income/(loss)
   $ 0.69     $ (3.89 )   $ 0.30     $ (3.90 )

The accompanying notes are part of the financial statements

 
3
 
Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET
(in millions)

   
June 30,
2009
   
December 31,
2008
 
   
(unaudited)
  
ASSETS
            
Cash and cash equivalents
   $ 24,011     $ 22,049  
Marketable securities
     17,123       17,411  
Finance receivables, net (Note 2)
     80,296       93,484  
Other receivables, net
     6,643       5,674  
Net investment in operating leases
     20,808       25,250  
Inventories (Note 3)
     6,603       6,988  
Equity in net assets of affiliated companies
     1,742       1,599  
Net property
     24,801       24,143  
Deferred income taxes
     3,015       3,108  
Goodwill and other net intangible assets (Note 5)
     235       246  
Assets of held-for-sale operations (Note 12)
     7,530       8,612  
Other assets
     7,383       9,734  
Total assets
   $ 200,190     $ 218,298  
                 
LIABILITIES
                
Payables
   $ 13,971     $ 13,145  
Accrued liabilities and deferred revenue
     55,798       59,526  
Debt (Note 7)
     133,066       152,577  
Deferred income taxes
     1,788       2,035  
Liabilities of held-for-sale operations (Note 12)
     4,985       5,542  
Total liabilities
     209,608       232,825  
                 
EQUITY
                
Capital stock
                
Common Stock, par value $0.01 per share (3,165 million shares issued)
     32       23  
Class B Stock, par value $0.01 per share (71 million shares issued)
     1       1  
Capital in excess of par value of stock
     13,929       10,875  
Accumulated other comprehensive income/(loss)
     (9,005 )     (10,085 )
Treasury stock
     (179 )     (181 )
Retained earnings/(Accumulated deficit)
     (15,521 )     (16,355 )
Total equity/(deficit) attributable to Ford Motor Company
     (10,743 )     (15,722 )
Equity/(Deficit) attributable to noncontrolling interests
     1,325       1,195  
Total equity/(deficit)
     (9,418 )     (14,527 )
Total liabilities and equity
   $ 200,190     $ 218,298  

The accompanying notes are part of the financial statements

 
4
 
Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

SECTOR BALANCE SHEET
(in millions)

   
June 30,
2009
   
December 31,
2008
 
   
(unaudited)
  
ASSETS
            
Automotive
            
Cash and cash equivalents
   $ 11,857     $ 6,377  
Marketable securities
     9,703       9,296  
Total cash and marketable securities
     21,560       15,673  
Receivables, net
     3,825       3,065  
Inventories (Note 3)
     6,603       6,988  
Deferred income taxes
     439       302  
Other current assets
     2,843       3,450  
Current receivable from Financial Services
     2,130       2,035  
Total current assets
     37,400       31,513  
Equity in net assets of affiliated companies
     1,380       1,076  
Net property
     24,603       23,930  
Deferred income taxes
     6,441       7,204  
Goodwill and other net intangible assets (Note 5)
     226       237  
Assets of held-for-sale operations (Note 12)
     7,530       8,414  
Other assets
     1,672       1,441  
Total Automotive assets
     79,252       73,815  
Financial Services
                
Cash and cash equivalents
     12,154       15,672  
Marketable securities
     7,777       8,607  
Finance receivables, net (Note 2)
     83,118       96,101  
Net investment in operating leases
     18,722       23,120  
Equity in net assets of affiliated companies
     362       523  
Goodwill and other net intangible assets (Note 5)
     9       9  
Assets of held-for-sale operations (Note 12)
     —       198  
Other assets
     5,425       7,437  
Total Financial Services assets
     127,567       151,667  
Intersector elimination
     (2,491 )     (2,535 )
Total assets
   $ 204,328     $ 222,947  
                 
LIABILITIES
                
Automotive
                
Trade payables
   $ 10,615     $ 9,193  
Other payables
     2,013       1,982  
Accrued liabilities and deferred revenue
     28,146       29,584  
Deferred income taxes
     2,797       2,790  
Debt payable within one year (Note 7)
     1,792       1,191  
Total current liabilities
     45,363       44,740  
Long-term debt (Note 7)
     24,307       23,036  
Other liabilities
     22,424       23,766  
Deferred income taxes
     521       614  
Liabilities of held-for-sale operations (Note 12)
     4,985       5,487  
Total Automotive liabilities
     97,600       97,643  
Financial Services
                
Payables
     1,343       1,970  
Debt (Note 7)
     107,324       128,842  
Deferred income taxes
     2,608       3,280  
Other liabilities and deferred income
     5,232       6,184  
Liabilities of held-for-sale operations (Note 12)
     —       55  
Payable to Automotive
     2,130       2,035  
Total Financial Services liabilities
     118,637       142,366  
Intersector elimination
     (2,491 )     (2,535 )
Total liabilities
     213,746       237,474  
                 
EQUITY
                
Capital stock
                
Common Stock, par value $0.01 per share (3,165 million shares issued)
     32       23  
Class B Stock, par value $0.01 per share (71 million shares issued)
     1       1  
Capital in excess of par value of stock
     13,929       10,875  
Accumulated other comprehensive income/(loss)
     (9,005 )     (10,085 )
Treasury stock
     (179 )     (181 )
Retained earnings/(Accumulated deficit)
     (15,521 )     (16,355 )
Total equity/(deficit) attributable to Ford Motor Company
     (10,743 )     (15,722 )
Equity/(Deficit) attributable to noncontrolling interests
     1,325       1,195  
Total equity/(deficit)
     (9,418 )     (14,527 )
Total liabilities and equity
   $ 204,328     $ 222,947  
The accompanying notes are part of the financial statements.

 
5
 
Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the Periods Ended June 30, 2009 and 2008
(in millions)

   
First Half
 
   
2009
   
2008
 
   
(unaudited)
  
       
Cash flows from operating activities of continuing operations
      
Net cash (used in)/provided by operating activities
   $ 9,779     $ 2,161  
                 
Cash flows from investing activities of continuing operations
                
Capital expenditures
     (2,388 )     (3,128 )
Acquisitions of retail and other finance receivables and operating leases
     (13,322 )     (25,483 )
Collections of retail and other finance receivables and operating leases
     20,184       22,150  
Purchases of securities
     (37,366 )     (33,015 )
Sales and maturities of securities
     38,065       28,390  
Settlements of derivatives
     1,019       1,630  
Proceeds from sale of businesses
     171       6,150  
Cash paid for acquisitions
     —       (13 )
Transfer of cash balances upon disposition of discontinued/held-for-sale operations
     —       (925 )
Other
     (661 )     239  
Net cash (used in)/provided by investing activities
     5,702       (4,005 )
                 
Cash flows from financing activities of continuing operations
                
Sales of Common Stock
     1,651       144  
Changes in short-term debt
     (5,652 )     (1,049 )
Proceeds from issuance of other debt
     25,282       20,726  
Principal payments on other debt
     (33,951 )     (23,396 )
Other
     (521 )     (267 )
Net cash (used in)/provided by financing activities
     (13,191 )     (3,842 )
                 
Effect of exchange rate changes on cash
     302       469  
Cumulative correction of Financial Services prior period error (Note 1)
     (630 )     —  
                 
Net increase/(decrease) in cash and cash equivalents from continuing operations
     1,962       (5,217 )
                 
Cash flows from discontinued operations
                
Cash flows from operating activities of discontinued operations
     —       —  
Cash flows from investing activities of discontinued operations
     —       —  
Cash flows from financing activities of discontinued operations
     —       —  
                 
Net increase/(decrease) in cash and cash equivalents
   $ 1,962     $ (5,217 )
                 
Cash and cash equivalents at January 1
   $ 22,049     $ 35,283  
Cash and cash equivalents of discontinued/held-for-sale operations at January 1
     —       —  
Net increase/(decrease) in cash and cash equivalents
     1,962       (5,217 )
Less: cash and cash equivalents of discontinued/held-for-sale operations at June 30
     —       —  
Cash and cash equivalents at June 30
   $ 24,011     $ 30,066  

The accompanying notes are part of the financial statements

 
6
 
Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

CONDENSED SECTOR STATEMENT OF CASH FLOWS
For the Periods Ended June 30, 2009 and 2008
(in millions)

   
First Half 2009
   
First Half 2008
 
   
Automotive
   
Financial
Services
   
Automotive
   
Financial
Services
 
   
(unaudited)
    
(unaudited)
  
Cash flows from operating activities of continuing operations
                        
Net cash (used in)/provided by operating activities
   $ (2,170 )   $ 2,639     $ (1,560 )   $ 5,151  
                                 
Cash flows from investing activities of continuing operations
                                
Capital expenditures
     (2,379 )     (9 )     (3,077 )     (51 )
Acquisitions of retail and other finance receivables and operating leases
     —       (13,373 )     —       (25,483 )
Collections of retail and other finance receivables and operating leases
     —       20,184       —       22,188  
Net (increase)/decrease of wholesale receivables
     —       8,234       —       (1,468 )
Purchases of securities
     (26,133 )     (12,288 )     (23,683 )     (9,332 )
Sales and maturities of securities
     26,067       12,133       23,349       5,041  
Settlements of derivatives
     71       948       887       743  
Proceeds from sale of businesses
     3       168       2,451       3,699  
Cash paid for acquisitions
     —       —       (13 )     —  
Transfer of cash balances upon disposition of discontinued/held-for-sale operations
     —       —       (925 )     —  
Investing activity from Financial Services
     15       —       —       —  
Investing activity to Financial Services
     —       —       —       —  
Other
     (673 )     12       27       212  
Net cash (used in)/provided by investing activities
     (3,029 )     16,009       (984 )     (4,451 )
                                 
Cash flows from financing activities of continuing operations
                                
Sales of Common Stock
     1,651       —       144       —  
Changes in short-term debt
     330       (5,982 )     —       (1,049 )
Proceeds from issuance of other debt
     10,401       14,881       78       20,648  
Principal payments on other debt
     (728 )     (31,176 )     (266 )     (23,130 )
Financing activity to Automotive
     —       (15 )     —       —  
Other
     (209 )     (312 )     (176 )     (91 )
Net cash (used in)/provided by financing activities
     11,445       (22,604 )     (220 )     (3,622 )
                                 
Effect of exchange rate changes on cash
     90       212       270       199  
Net change in intersector receivables/payables and other liabilities
     (856 )     856       (1,236 )     1,236  
Cumulative correction of prior period error (Note 1)
     —       (630 )     —       —  
Net increase/(decrease) in cash and cash equivalents from continuing operations
     5,480       (3,518 )     (3,730 )     (1,487 )
                                 
Cash flows from discontinued operations
                                
Cash flows from operating activities of discontinued operations
     —       —       —       —  
Cash flows from investing activities of discontinued operations
     —       —       —       —  
Cash flows from financing activities of discontinued operations
     —       —       —       —  
                                 
Net increase/(decrease) in cash and cash equivalents
   $ 5,480     $ (3,518 )   $ (3,730 )   $ (1,487 )
                                 
Cash and cash equivalents at January 1
   $ 6,377     $ 15,672     $ 20,678     $ 14,605  
Cash and cash equivalents of discontinued/held-for-sale operations at January 1
     —       —       —       —  
Net increase/(decrease) in cash and cash equivalents
     5,480       (3,518 )     (3,730 )     (1,487 )
Less: cash and cash equivalents of discontinued/held-for-sale operations at June 30
     —       —       —       —  
Cash and cash equivalents at June 30
   $ 11,857     $ 12,154     $ 16,948     $ 13,118  

The accompanying notes are part of the financial statements

 
7
 
Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the Periods Ended June 30, 2009 and 2008
(in millions)

   
Second Quarter
   
First Half
 
   
2009
   
2008
   
2009
   
2008
 
   
(unaudited)
    
(unaudited)
  
                         
Net income/(loss)
   $ 2,351     $ (8,608 )   $ 935     $ (8,416 )
Other comprehensive income/(loss), net of tax:
                                
Foreign currency translation
     2,211       (1,425 )     1,696       (554 )
Net gain/(loss) on derivative instruments
     (36 )     (252 )     (123 )     (27 )
Employee benefit-related
     (451 )     1,184       (456 )     1,280  
Net holding gain/(loss)
     (2 )     (6 )     (3 )     (33 )
Total other comprehensive income/(loss), net of tax
     1,722       (499 )     1,114       666  
Comprehensive income/(loss)
     4,073       (9,107 )     2,049       (7,750 )
Less: Comprehensive income/(loss) attributable to noncontrolling interests (Note 19)
     193       116       135       188  
Comprehensive income/(loss) attributable to Ford Motor Company
   $ 3,880     $ (9,223 )   $ 1,914     $ (7,938 )

The accompanying notes are part of the financial statements

 
8
 
Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS


Footnote
  
Page
Note 1
Principles of Presentation and Consolidation
10
Note 2
Finance Receivables – Financial Services Sector
14
Note 3
Inventories
15
Note 4
Variable Interest Entities
15
Note 5
Goodwill and Other Net Intangibles
19
Note 6
Restricted Cash
20
Note 7
Debt and Commitments
20
Note 8
Impairments
26
Note 9
Other Income/(Loss)
27
Note 10
Employee Separation Actions and Exit and Disposal Activities
27
Note 11
Income Taxes
28
Note 12
Discontinued Operations, Held-For-Sale Operations, Other Dispositions, and Acquisitions
29
Note 13
Amounts Per Share Attributable to Ford Motor Company Common and Class B Stock
32
Note 14
Derivative Financial Instruments and Hedging Activities
32
Note 15
Retirement Benefits
36
Note 16
Fair Value Measurements
37
Note 17
Segment Information
40
Note 18
Guarantees
42
Note 19
Equity/(Deficit) Attributable to Ford Motor Company and Noncontrolling Interests
43

 
9
 
Item 1. Financial Statements (Continued)

NOTE 1.  PRINCIPLES OF PRESENTATION AND CONSOLIDATION

Our financial statements are presented in accordance with generally accepted accounting principles ("GAAP") in the United States 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.  All intercompany items and transactions have been eliminated in both the consolidated and sector basis financial statements.  Reconciliations of certain line items are explained below in this Note, where the presentation of these intercompany eliminations or consolidated adjustments differs between the consolidated and sector financial statements.

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 and its consolidated subsidiaries and consolidated variable interest entities ("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, 2008 ("2008 Form 10-K Report").  For purposes of this report, "Ford," the "Company," "we," "our," "us" or similar 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.  All held-for-sale assets and liabilities are excluded from the footnotes unless otherwise noted.  See Note 12 for details of held-for-sale operations.

In the first quarter of 2009, our wholly-owned subsidiary Ford Motor Credit Company LLC ("Ford Credit") recorded a $630 million cumulative adjustment to correct for the overstatement of Financial Services sector cash and cash equivalents and certain accounts payable that originated in prior periods.  The impact on previously-issued annual and interim financial statements was not material.

Subsequent Events.  We evaluated the effects of all subsequent events from the end of the second quarter through August 5, 2009, the date we filed our financial statements with the U.S. Securities and Exchange Commission ("SEC").

Noncontrolling Interests.  We adopted Statement of Financial Accounting Standards ("SFAS") No. 160, Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51 ("SFAS No. 160") on January 1, 2009.  This standard establishes accounting and reporting requirements for the noncontrolling interest (formerly "minority interest") in a subsidiary and for the deconsolidation of a subsidiary.  SFAS No. 160 clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements.  The presentation and disclosure requirements of this standard must be applied retrospectively for all periods.  This requirement changed the presentation of our consolidated and sector statements of operations and our consolidated and sector balance sheets.  It also required us to incorporate a consolidated statement of comprehensive income.  Footnote disclosures for our interim financial periods include separate reconciliations of our beginning-of-period to end-of-period equity/(deficit) for Ford and the noncontrolling interests.

Convertible Debt Instruments.  We adopted the Financial Accounting Standards Board ("FASB") Staff Position ("FSP") No. APB 14-1, Accounting for Convertible Debt Instruments that may be Settled in Cash upon Conversion (Including Partial Cash Settlement) ("FSP APB 14-1") on January 1, 2009.  FSP APB 14-1 applies to convertible debt securities that, upon conversion, may be settled in cash.  FSP APB 14-1 specifies that issuers of such instruments should separately account for the liability and equity components in a manner that will reflect the entity's nonconvertible debt borrowing rate resulting in higher interest expense over the life of the instrument due to amortization of the discount.  This new pronouncement applies to our 4.25% Senior Convertible Notes due December 15, 2036 ("Convertible Notes") issued in December 2006.  We have applied the pronouncement retrospectively to all periods presented.

 
10
 
Item 1. Financial Statements (Continued)

NOTE 1.  PRINCIPLES OF PRESENTATION AND CONSOLIDATION (Continued)

The following financial statement line items from our sector statement of operations and sector balance sheet were affected by implementation of FSP APB 14-1 (in millions, except per share information):

Statement of Operations
  
Revised Second Quarter 2008
    
As Originally Reported Second Quarter 2008
   
Effect of Change
  
Automotive interest expense
   $ 515     $ 485     $ 30  
Income/(loss) from continuing operations attributable to Ford Motor Company
     (8,705 )     (8,675 )     (30 )
Net income/(loss) attributable to Ford Motor Company
     (8,697 )     (8,667 )     (30 )
Earnings per share attributable to Ford Motor Company
     (3.89 )     (3.88 )     (0.01 )

Statement of Operations
  
Revised First Half 2008
   
As Originally Reported First Half 2008
   
Effect of Change
 
Automotive interest expense
   $ 1,073     $ 1,013     $ 60  
Income/(loss) from continuing operations attributable to Ford Motor Company
     (8,636 )     (8,576 )     (60 )
Net income/(loss) attributable to Ford Motor Company
     (8,627 )     (8,567 )     (60 )
Earnings per share attributable to Ford Motor Company
     (3.90 )     (3.87 )     (0.03 )

Balance Sheet (a)
  
Revised December 31, 2008
   
As Originally Reported December 31, 2008
   
Effect of Change
 
Automotive other assets – noncurrent (b)
   $ 1,441     $ 1,512     $ (71 )
Automotive long-term debt
     23,036       24,655       (1,619 )
Capital in excess of par value of stock (c)
     10,875       9,076       1,799  
Retained earnings/(Accumulated deficit)
     (16,355 )     (16,145 )     (210 )
__________
(a)
As a result of the retrospective application of FSP APB 14-1, the December 31, 2008 column on our consolidated and sector balance sheets is "unaudited."
(b)
Effect of Change related to FSP APB 14-1 reflects capitalized charges of $30 million; the remaining $41 million relates to the assets of Volvo classified as held-for-sale operations (see Note 12 for discussion of Volvo).
(c)
Effect of Change represents the equity component under FSP APB 14-1 (i.e., $1,864 million), less those amounts previously recorded on conversions prior to adoption of the standard (i.e., $65 million).

The following shows the effect on the per share amounts attributable to Ford Common and Class B Stock for the second quarter and first half of 2009 before and after the adoption of FSP APB 14-1:

   
Second Quarter 2009
 
Basic income/(loss)
  
Before Adoption
   
After Adoption
    
Change
 
Income/(Loss) from continuing operations
   $ 0.75     $ 0.75     $ —  
Income/(Loss) from discontinued operations
     —       —       —  
Net income/(loss)
   $ 0.75     $ 0.75     $ —  
Diluted income/(loss)
                        
Income/(Loss) from continuing operations
   $ 0.69     $ 0.69     $ —  
Income/(Loss) from discontinued operations
     —       —       —  
Net income/(loss)
   $ 0.69     $ 0.69     $ —  

   
First Half 2009
 
Basic income/(loss)
  
Before Adoption
   
After Adoption
    
Change
 
Income/(Loss) from continuing operations
   $ 0.32     $ 0.31     $ (0.01 )
Income/(Loss) from discontinued operations
     —       —       —  
Net income/(loss)
   $ 0.32     $ 0.31     $ (0.01 )
Diluted income/(loss)
                        
Income/(Loss) from continuing operations
   $ 0.30     $ 0.30     $ —  
Income/(Loss) from discontinued operations
     —       —       —  
Net income/(loss)
   $ 0.30     $ 0.30     $ —  

 
11
 
Item 1. Financial Statements (Continued)

NOTE 1.  PRINCIPLES OF PRESENTATION AND CONSOLIDATION (Continued)

Presentation of Balance Sheet

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 of deferred income tax assets and liabilities.  The reconciliation between total sector and consolidated balance sheets is as follows (in millions):

   
June 30,
2009
   
December 31,
2008
 
Sector balance sheet presentation of deferred income tax assets:
            
Automotive sector current deferred income tax assets
   $ 439     $ 302  
Automotive sector non-current deferred income tax assets
     6,441       7,204  
Financial Services sector deferred income tax assets*
     273       251  
Total
     7,153       7,757  
Reclassification for netting of deferred income taxes
     (4,138 )     (4,649 )
Consolidated balance sheet presentation of deferred income tax assets
   $ 3,015     $ 3,108  
                 
Sector balance sheet presentation of deferred income tax liabilities:
                
Automotive sector current deferred income tax liabilities
   $ 2,797     $ 2,790  
Automotive sector non-current deferred income tax liabilities
     521       614  
Financial Services sector deferred income tax liabilities
     2,608       3,280  
Total
     5,926       6,684  
Reclassification for netting of deferred income taxes
     (4,138 )     (4,649 )
Consolidated balance sheet presentation of deferred income tax liabilities
   $ 1,788     $ 2,035  
__________
*      Financial Services deferred income tax assets are included in Financial Services other assets on our sector balance sheet.

Ford Acquisition of Ford Credit Debt.  In connection with our Registration Statement (No. 333-151355) filed on Form S-3 and the related prospectus dated June 2, 2008 and the prospectus supplements dated August 14, 2008 and October 2, 2008, we issued shares of Ford Common Stock from time to time in market transactions and used the proceeds therefrom to purchase outstanding Ford Credit debt securities maturing prior to 2012.  During 2008, we purchased $492 million of Ford Credit debt securities for $424 million in cash.  Debt securities with a face and fair value of $135 million matured on January 12, 2009.

On our consolidated balance sheet, the remaining debt is no longer reported in our Debt balances.  On our sector balance sheet, the debt is reported as outstanding as it has not been retired or cancelled by Ford Credit.  Accordingly, on our sector balance sheet, $357 million and $492 million of debt are reported as Financial Services debt at June 30, 2009 and December 31, 2008, respectively.  Likewise, included in Automotive marketable securities are $357 million and $492 million at June 30, 2009 and December 31, 2008, respectively, related to Ford's purchase of the Ford Credit debt securities.  Consolidating elimination adjustments for these debt securities and related accrued interest of $4 million and $8 million at June 30, 2009 and December 31, 2008, respectively, are included in the Intersector elimination lines on the sector balance sheet.

Presentation of Cash Flows

The reconciliation between total sector and consolidated cash flows from operating activities of continuing operations is as follows (in millions):

   
First Half
 
   
2009
   
2008
 
Sum of sector cash flows from operating activities of continuing operations
   $ 469     $ 3,591  
Reclassification of wholesale receivable cash flows from investing to operating for consolidated presentation (a)
     8,234       (1,468 )
Reclassification of finance receivable cash flows from investing to operating for consolidated presentation (b)
     (51 )     38  
Reclassification of Ford Credit's cash outflow related to the acquisition of Ford's public unsecured debt securities from operating to financing for consolidated presentation (c)
     1,127       —  
Consolidated cash flows from operating activities of continuing operations
   $ 9,779     $ 2,161  
__________
(a)
In addition to vehicles sold by us, the cash flows from wholesale finance receivables being reclassified from investing to operating include 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 from certain divisions and subsidiaries of the Automotive sector.
(c)
See discussion of "Ford Credit Acquisition of Ford Debt" below.

 
12
 
Item 1. Financial Statements (Continued)

NOTE 1.  PRINCIPLES OF PRESENTATION AND CONSOLIDATION (Continued)

Ford Credit Acquisition of Ford Debt.  During the second quarter of 2009, Ford Credit conducted a cash tender offer for Ford's public unsecured debt securities.  Pursuant to this offer, Ford Credit purchased $3.4 billion principal amount of public unsecured debt securities for an aggregate cost of $1.1 billion (including transaction costs and accrued and unpaid interest payments for such tendered debt securities).  This transaction settled on April 8, 2009, following which Ford Credit transferred the repurchased debt securities to us in satisfaction of $1.1 billion of Ford Credit's tax liabilities to us.  As a result, we recorded a gain on extinguishment of debt in the amount of $2.2 billion, net of unamortized discounts, premiums and fees, in Automotive interest income and other non-operating income/(expense), net.  Approximately $5.6 billion aggregate principal amount of our public unsecured debt securities (including about $100 million of industrial revenue bonds) remains outstanding.

On our consolidated statement of cash flows, the $1.1 billion cash outflow related to Ford Credit's purchase of our public unsecured debt securities is presented as a principal payment on debt within Cash flows from financing activities of continuing operations.  On our sector statement of cash flows, the cash outflow is presented as a decrease in taxes payable by our Financial Services sector within Cash flows from operating activities of continuing operations.

During the first quarter of 2009, Ford Credit conducted a cash tender offer for our secured term loan under the secured credit agreement that we entered into with various banks and financial institutions on December 15, 2006 (the "Credit Agreement").  Pursuant to this offer, Ford Credit purchased from lenders thereof $2.2 billion principal amount of term loan for an aggregate cost of $1.1 billion (including transaction costs).  This transaction settled on March 27, 2009, following which Ford Credit distributed the term loan to its immediate parent, Ford Holdings LLC ("Ford Holdings"), whereupon the debt was forgiven.  As a result, we recorded a gain on extinguishment of debt in the amount of $1.1 billion, net of transaction costs, in Automotive interest income and other non-operating income/(expense), net.  Approximately $4.6 billion aggregate principal amount of term loan remains outstanding.

On our consolidated statement of cash flows, the $1.1 billion cash outflow related to Ford Credit's purchase of our secured term loan is presented as a principal payment on debt within Cash flows from financing activities of continuing operations.  On our sector statement of cash flows, the cash outflow is presented as a purchase of securities by our Financial Services sector within Cash flows from investing activities of continuing operations.

Ford Acquisition of Ford Credit Debt.  On our consolidated statement of cash flows, the $135 million cash payment from Ford Credit to us related to the maturity of Ford Credit's debt securities discussed in "Presentation of Balance Sheet" above is not shown as a cash outflow because the debt was not reported as outstanding on our consolidated balance sheet.  On our sector statement of cash flows, the $135 million cash payment is presented as a cash inflow from Automotive sales and maturities of securities within Cash flows from investing activities of continuing operations and a cash outflow from Financial Services principal payments on debt within Cash flows from financing activities of continuing operations.

Liquidity

At June 30, 2009, our Automotive sector had total cash, cash equivalents, and marketable securities of $21.6 billion (including about $400 million of Temporary Asset Account securities ("TAA"), and about $200 million of marketable securities for which the cash settlement was not made by June 30, 2009 and for which there was a payable or receivable recorded on the balance sheet).

We have experienced substantial negative cash flows in recent periods, and had negative equity of $9.4 billion at June 30, 2009.  Based on our current planning assumptions, we expect net Automotive cash flows from operating activities of continuing operations in 2009 to be significantly improved from 2008.  The dramatic decline in industry sales volume that began in 2008, and our reduced production to match demand, had a substantial negative effect on cash flows.  Trade payables and other elements of working capital have improved in the first half of 2009 contributing to the improvement in operating cash flow.

We continue to face many risks and uncertainties, however, related to the global economy, our industry in particular, and the credit environment which could materially impact our plan.  Of these potentialities, we believe that the two risks that are reasonably possible to have a material impact on us are (i) a decline in industry sales volume to levels below our current planning assumptions, and (ii) actions necessary to ensure an uninterrupted supply of materials and components.

Our current planning assumptions forecast full-year 2009 U.S. industry sales volume in the range of 10.5 million units to 11 million units, and industry sales volume for the 19 markets we track in Europe in the range of 15 million units to 15.5 million units.  Based on our analysis of the market, we believe that these assumptions are reasonable.  There is a risk, however, that full-year industry sales volume may fall below these levels.  Based on actual first half 2009 and projected second half industry sales volume, we believe that the likelihood of full-year industry sales volume declining by more than about 10% from the low end of our forecasted range is remote.  Thus we have evaluated the impact on our liquidity of industry sales volume falling to these levels.

 
13
 
Item 1. Financial Statements (Continued)

NOTE 1.  PRINCIPLES OF PRESENTATION AND CONSOLIDATION (Continued)

In addition to the risk related to industry sales volume, our plan also could be negatively impacted by pressures affecting our supply base.  Our suppliers have experienced increased economic distress due to the sudden and substantial drop in industry sales volume that affected all automobile manufacturers.  Dramatically lower industry sales volumes have made existing debt obligations and fixed cost levels difficult for many suppliers to manage, especially with the tight credit market, resulting in an increase in distressed suppliers and supplier bankruptcies.  As a result, it is reasonably possible that our costs to ensure an uninterrupted supply of materials and components could be higher than our present planning assumptions by a material amount.

We believe that even a combination of these two reasonably possible scenarios, however, would not exhaust our presently available liquidity.  We have measured these two reasonably possible scenarios by a decline in industry sales volume as described above (using a similar decline with regard to projected first half 2010 industry sales volume), combined with our assessment of the necessary cost to ensure an uninterrupted supply of materials and components (absent a significant industry event such as the uncontrolled bankruptcy of important suppliers to Ford, which we believe is remote). Therefore, we do not believe that these reasonably possible scenarios cause substantial doubt about our ability to continue as a going concern for the next year.

With regard to our Financial Services sector, Ford Credit expects a significant portion of its funding in 2009 will consist of eligible issuances pursuant to government-sponsored securitization funding programs.  It is reasonably possible that credit markets could continue to constrain Ford Credit's funding or that Ford Credit will not be, or not continue to be, eligible for these government-sponsored programs.  In these circumstances, Ford Credit could mitigate these funding risks by reducing the amount of finance receivables and operating leases it purchases or originates.  At our current industry sales volume assumption, this would not have a material impact on our going concern analysis.  If industry sales volume were to decline to the reduced levels described above, the risk of Ford Credit not being able to support the sale of Ford products would be remote.

Accordingly, we have concluded that there is no substantial doubt about our ability to continue as a going concern, and our financial statements have been prepared on a going concern basis.

Notwithstanding this conclusion, in this environment a number of scenarios could put severe pressure on our short- and long-term Automotive liquidity, including a worsening of the scenarios described above.  We presently believe that the likelihood of such an event is remote.  In such a scenario, however, or in response to other unanticipated circumstances, we could take additional mitigating actions or require additional financing to improve our liquidity.

NOTE 2.  FINANCE RECEIVABLES – FINANCIAL SERVICES SECTOR

Net finance receivables at June 30, 2009 and December 31, 2008 were as follows (in millions):

   
June 30,
2009
   
December 31,
2008
 
Retail (including direct financing leases)
   $ 62,976     $ 67,316  
Wholesale
     19,535       27,483  
Other finance receivables
     3,858       4,057  
Total finance receivables
     86,369       98,856  
Unearned interest supplements
     (1,687 )     (1,343 )
Allowance for credit losses
     (1,585 )     (1,417 )
Other
     21       5  
Net finance receivables – sector balance sheet
   $ 83,118     $ 96,101  
                 
Net finance receivables subject to fair value
   $ 77,850     $ 91,584  
Fair Value
   $ 76,477     $ 84,615  
                 
Net finance receivables – sector balance sheet
   $ 83,118     $ 96,101  
Reclassification of receivables purchased from Automotive sector and Other Financial Services to Other receivables, net
     (2,822 )     (2,617 )
Net finance receivables – consolidated balance sheet
   $ 80,296     $ 93,484  

The fair value of finance receivables is generally calculated by discounting future cash flows using an estimated discount rate that reflects the current credit, interest rate and prepayment risks associated with similar types of instruments.

 
14
 
Item 1. Financial Statements (Continued)

NOTE 3.  INVENTORIES

Inventories are summarized as follows (in millions):

   
June 30,
    
December 31,
  
   
2009
   
2008
 
Raw materials, work-in-process and supplies
   $ 2,978     $ 2,747  
Finished products
     4,469       5,091  
Total inventories under first-in, first-out method ("FIFO")
     7,447       7,838  
Less: Last-in, first-out method ("LIFO") adjustment
     (844 )     (850 )
Total inventories
   $ 6,603     $ 6,988  

Inventories are stated at lower of cost or market.  About one-fourth of inventories were determined under the LIFO method.

NOTE 4.  VARIABLE INTEREST ENTITIES

We consolidate VIEs of which we are the primary beneficiary.  The liabilities recognized as a result of consolidating these VIEs do not necessarily represent additional claims on our general assets; rather, they represent claims against the specific assets of the consolidated VIEs.  Conversely, assets recognized as a result of consolidating these VIEs do not necessarily represent additional assets that could be used to satisfy claims against our general assets.

Automotive Sector

VIEs of which we are the primary beneficiary:

Activities with the joint ventures described below include purchasing substantially all of the joint ventures' output under a cost-plus-margin arrangement and/or volume dependent pricing.  These contractual arrangements may require us to absorb joint venture losses when production volume targets are not met or allow us, in some cases, to receive bonuses when production volume targets are exceeded.  Described below are the significant VIEs that we consolidated as of June 30, 2009.

AutoAlliance International, Inc. ("AAI") is a 50/50 joint venture with Mazda Motor Corporation ("Mazda") in North America.  AAI is engaged in the manufacture of automobiles on behalf of Ford and Mazda, primarily for sale in North America.

Ford Otomotiv Sanayi Anonim Sirketi ("Ford Otosan") is a 41/41/18 joint venture in Turkey with the Koc Group of Turkey and public investors.  Ford Otosan is the single-source supplier of the Ford Transit Connect model, and an assembly supplier of the Ford Transit van model, both of which we sell primarily in Europe.

Getrag Ford Transmissions GmbH ("GFT") is a 50/50 joint venture with Getrag Deutsche Venture GmbH and Co. KG.  GFT is the primary supplier of manual transmissions for use in our European vehicles.

Getrag All Wheel Drive AB is a 40/60 joint venture between Volvo Cars and Getrag Dana Holding GmbH.  The joint venture produces all-wheel-drive components.  The assets and liabilities associated with this joint venture that were classified during the first quarter of 2009 as held for sale are shown in the table below and are included in the assets and liabilities of Volvo classified as held-for-sale operations in Note 12.

Tekfor Cologne GmbH ("Tekfor") is a 50/50 joint venture with Neumayer Tekfor GmbH.  Tekfor produces transmission and chassis components for use in our vehicles.

Pininfarina Sverige, AB is a 40/60 joint venture between Volvo Cars and Pininfarina, S.p.A.  The joint venture was established to engineer and manufacture niche vehicles.  The assets and liabilities associated with this joint venture that were classified during the first quarter of 2009 as held for sale are shown in the table below and are included in the assets and liabilities of Volvo classified as held-for-sale operations in Note 12.

First Aquitaine Industries SAS ("First Aquitaine") is our Bordeaux transmission plant in France, which manufactures automatic transmissions for the Ford Explorer, Ranger, and Mustang vehicles.  During the second quarter of 2009, we transferred legal ownership of First Aquitaine to HZ Holding France.  We also entered into a volume-dependent pricing agreement with the new owner to purchase all of the plant's output.  As a result, we are continuing to consolidate the entity and now consider this entity to be a VIE of which we are the primary beneficiary.  See Note 8 for discussion of the impairment of our investment in this plant.

 
15
 
Item 1. Financial Statements (Continued)

NOTE 4.  VARIABLE INTEREST ENTITIES (Continued)

We also hold interests in certain dealerships in North America.  At June 30, 2009 there were approximately 62 dealerships consolidated as part of our Dealer Development program.  We supply and finance the majority of vehicles and parts for these dealerships, and the operators have a contract to buy our equity interest over a period of time.  See Note 8 for discussion of the impairment of our investment in these assets.

The total consolidated VIE assets and liabilities reflected on our June 30, 2009 and December 31, 2008 balance sheets are as follows (in millions):

   
June 30,
    
December 31,
  
Assets
  
2009
   
2008
 
Cash and cash equivalents
   $ 667     $ 665  
Receivables
     556       518  
Inventories
     900       1,117  
Net property
     2,351       2,136  
Assets of held-for-sale operations
     310       318  
Other assets
     237       297  
Total assets
   $ 5,021     $ 5,051  
                 
Liabilities
                
Trade payables
   $ 580     $ 516  
Accrued liabilities
     344       324  
Debt
     929       972  
Liabilities of held-for-sale operations
     96       97  
Other liabilities
     190       167  
Total liabilities
   $ 2,139     $ 2,076  
                 
Equity attributable to noncontrolling interests
   $ 1,301     $ 1,168  

The financial performance of the consolidated VIEs reflected on our statements of operations for the second quarters and first half of 2009 and 2008 are as follows (in millions):

   
Second Quarter
   
First Half
 
   
2009
   
2008
   
2009
   
2008
 
Sales
   $ 1,137     $ 1,748     $ 2,063     $ 3,801  
Costs and expenses
                                
Cost of sales
     824       1,344       1,671       3,009  
Selling, administrative and other expenses
     115       185       224       378  
Total costs and expenses
     939       1,529       1,895       3,387  
Operating income/(loss)
     198       219       168       414  
                                 
Interest expense
     7       16       22       33  
                                 
Interest income and other non-operating income/(expense), net
     7       9       23       28  
Equity in net income/(loss) of affiliated companies
     1       1       (2 )     3  
Income/(Loss) before income taxes – Automotive
     199       213       167       412  
                                 
Provision for/(Benefit from) income taxes
     41       52       64       120  
Income/(Loss) from continuing operations
     158       161       103       292  
                                 
Income/(Loss) from discontinued operations
     —       —       —       —  
Net income/(loss)
     158       161       103       292  
                                 
Less: Income/(loss) attributable to noncontrolling interests
     90       89       102       209  
Net income/(loss) attributable to Ford Motor Company
   $ 68     $ 72     $ 1     $ 83  

VIEs of which we are not the primary beneficiary:

In 2005, as part of the transaction to sell our interest in The Hertz Corporation ("Hertz"), we provided cash-collateralized letters of credit to support the payment obligations of Hertz Vehicle Financing LLC, a VIE which is wholly owned by Hertz and of which we are not the primary beneficiary.  The carrying value of our obligation related to these letters of credit, which will expire no later than December 21, 2011, was approximately $11 million at June 30, 2009.  For additional discussion of these letters of credit, see Note 18.

We also have investments in unconsolidated subsidiaries determined to be VIEs of which we are not the primary beneficiary.  These investments, described below, are accounted for as equity method investments and are included in Equity in net assets of affiliated companies.

 
16
 
Item 1. Financial Statements (Continued)

NOTE 4.  VARIABLE INTEREST ENTITIES (Continued)

Formed in 1995, AutoAlliance (Thailand) Co., Ltd ("AAT") is a 50/50 joint venture with Mazda in Thailand.  AAT is engaged in the manufacturing of automobiles on behalf of Ford and Mazda for both the Thai domestic market and for export markets through Ford and Mazda.  Ford and Mazda share equally the risks and rewards of the joint venture.

In 2002, we established the Ford Motor Company Capital Trust II ("Trust II").  We own 100% of Trust II's common stock which is equal to 5% of Trust II's total equity.  The risks and rewards associated with our interests in this entity are based primarily on ownership percentage.

Our maximum exposure to VIEs of which we are not the primary beneficiary is as follows (in millions):

   
June 30,
2009
   
December 31,
2008
   
Change in Maximum Exposure
 
Investments
   $ 435     $ 413     $ 22