a6384925.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
 
SECURITIES EXCHANGE ACT OF 1934
   
 
For the quarterly period ended June 30, 2010
   
[  ]
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.  Yes R    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).  Yes R    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 the 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 £                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 £    No R

As of July 30, 2010, the registrant had outstanding 3,368,467,152 shares of Common Stock and 70,852,076 shares of Class B Stock.

Exhibit index located on page number 87.
 
 
 
 

PART I. FINANCIAL INFORMATION
ITEM 1.  Financial Statements.

FORD MOTOR COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS
For the Periods Ended June 30, 2010 and 2009
(in millions, except per share amounts)

   
Second Quarter
    
First Half
  
   
2010
    
2009
    
2010
    
2009
  
   
(unaudited)
    
(unaudited)
  
Sales and revenues
                        
Automotive sales
   $ 32,564     $ 23,610     $ 61,458     $ 44,590  
Financial Services revenues
     2,503       3,200       5,175       6,610  
Total sales and revenues
     35,067       26,810       66,633       51,200  
                                 
Costs and expenses
                                
Automotive cost of sales
     27,828       23,346       52,967       44,759  
Selling, administrative and other expenses
     3,137       3,110       6,226       6,802  
Interest expense
     1,636       1,679       3,337       3,600  
Financial Services provision for credit and insurance losses
     (131 )     419       (172 )     821  
Total costs and expenses
     32,470       28,554       62,358       55,982  
                                 
Automotive interest income and other non-operating income/(expense), net (Note 10)
     59       3,662       248       5,014  
Financial Services other income/(loss), net (Note 10)
     67       187       193       300  
Equity in net income/(loss) of affiliated companies
     124       136       266       47  
Income/(Loss) before income taxes
     2,847       2,241       4,982       579  
Provision for/(Benefit from) income taxes
     251       (15 )     301       (242 )
Income/(Loss) from continuing operations
     2,596       2,256       4,681       821  
Income/(Loss) from discontinued operations
     —       5       —       5  
Net income/(loss)
     2,596       2,261       4,681       826  
Less: Income/(Loss) attributable to noncontrolling interests
     (3 )     —       (3 )     (8 )
Net income/(loss) attributable to Ford Motor Company
   $ 2,599     $ 2,261     $ 4,684     $ 834  
 
NET INCOME/(LOSS) ATTRIBUTABLE TO FORD MOTOR COMPANY
                        
Income/(Loss) from continuing operations
   $ 2,599     $ 2,256     $ 4,684     $ 829  
Income/(Loss) from discontinued operations
     —       5       —       5  
Net income/(loss)
   $ 2,599     $ 2,261     $ 4,684     $ 834  
                                 
AMOUNTS PER SHARE ATTRIBUTABLE TO FORD MOTOR COMPANY COMMON AND CLASS B STOCK (Note 13)
                                
Basic income/(loss)
                                
Income/(Loss) from continuing operations
   $ 0.76     $ 0.75     $ 1.38     $ 0.31  
Income/(Loss) from discontinued operations
     —       —       —       —  
Net income/(loss)
   $ 0.76     $ 0.75     $ 1.38     $ 0.31  
Diluted income/(loss)
                                
Income/(Loss) from continuing operations
   $ 0.61     $ 0.69     $ 1.10     $ 0.30  
Income/(Loss) from discontinued operations
     —       —       —       —  
Net income/(loss)
   $ 0.61     $ 0.69     $ 1.10     $ 0.30  

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, 2010 and 2009
(in millions, except per share amounts)

   
Second Quarter
    
First Half
  
   
2010
    
2009
    
2010
    
2009
  
    (unaudited)    
(unaudited)
  
                         
AUTOMOTIVE
                        
Sales
   $ 32,564     $ 23,610     $ 61,458     $ 44,590  
Costs and expenses
                                
Cost of sales
     27,828       23,346       52,967       44,759  
Selling, administrative and other expenses
     2,424       2,056       4,644       4,065  
Total costs and expenses
     30,252       25,402       57,611       48,824  
Operating income/(loss)
     2,312       (1,792 )     3,847       (4,234 )
                                 
Interest expense
     518       359       1,060       828  
                                 
Interest income and other non-operating income/(expense), net (Note 10)
     59       3,662       248       5,014  
Equity in net income/(loss) of affiliated companies
     119       135       257       184  
Income/(Loss) before income taxes — Automotive
     1,972       1,646       3,292       136  
                                 
FINANCIAL SERVICES
                                
Revenues
     2,503       3,200       5,175       6,610  
Costs and expenses
                                
Interest expense
     1,118       1,320       2,277       2,772  
Depreciation
     494       964       1,154       2,399  
Operating and other expenses
     219       90       428       338  
Provision for credit and insurance losses
     (131 )     419       (172 )     821  
Total costs and expenses
     1,700       2,793       3,687       6,330  
                                 
Other income/(loss), net (Note 10)
     67       187       193       300  
Equity in net income/(loss) of affiliated companies
     5       1       9       (137 )
                                 
Income/(Loss) before income taxes — Financial Services
     875       595       1,690       443  
                                 
TOTAL COMPANY
                                
Income/(Loss) before income taxes
     2,847       2,241       4,982       579  
Provision for/(Benefit from) income taxes
     251       (15 )     301       (242 )
Income/(Loss) from continuing operations
     2,596       2,256       4,681       821  
Income/(Loss) from discontinued operations
     —       5       —       5  
Net income/(loss)
     2,596       2,261       4,681       826  
Less: Income/(Loss) attributable to noncontrolling interests
     (3 )     —       (3 )     (8 )
Net income/(loss) attributable to Ford Motor Company
   $ 2,599     $ 2,261     $ 4,684     $ 834  
NET INCOME/(LOSS) ATTRIBUTABLE TO FORD MOTOR COMPANY
                        
Income/(Loss) from continuing operations
   $ 2,599     $ 2,256     $ 4,684     $ 829  
Income/(Loss) from discontinued operations
     —       5       —       5  
Net income/(loss)
   $ 2,599     $ 2,261     $ 4,684     $ 834  
                                 
AMOUNTS PER SHARE ATTRIBUTABLE TO FORD MOTOR COMPANY COMMON AND CLASS B STOCK (Note 13)
                                
Basic income/(loss)
                                
Income/(Loss) from continuing operations
   $ 0.76     $ 0.75     $ 1.38     $ 0.31  
Income/(Loss) from discontinued operations
     —       —       —       —  
Net income/(loss)
   $ 0.76     $ 0.75     $ 1.38     $ 0.31  
Diluted income/(loss)
                                
Income/(Loss) from continuing operations
   $ 0.61     $ 0.69     $ 1.10     $ 0.30  
Income/(Loss) from discontinued operations
     —       —       —       —  
Net income/(loss)
   $ 0.61     $ 0.69     $ 1.10     $ 0.30  

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,
2010
    
December 31,
2009
  
   
(unaudited)
  
ASSETS
            
Cash and cash equivalents
   $ 18,322     $ 20,894  
Marketable securities
     21,404       21,387  
Finance receivables, net (Note 4)
     70,975       76,996  
Other receivables, net
     7,985       7,257  
Net investment in operating leases
     14,723       17,270  
Inventories (Note 5)
     6,076       5,041  
Equity in net assets of affiliated companies
     2,523       2,428  
Net property
     22,210       22,637  
Deferred income taxes
     2,080       3,479  
Goodwill and other net intangible assets (Note 7)
     183       208  
Assets of held-for-sale operations (Note 12)
     7,529       7,618  
Other assets
     5,740       6,825  
Total assets
   $ 179,750     $ 192,040  
                 
LIABILITIES
                
Payables
   $ 15,976     $ 14,301  
Accrued liabilities and deferred revenue
     43,698       46,144  
Debt (Note 9)
     117,385       131,635  
Deferred income taxes
     901       2,421  
Liabilities of held-for-sale operations (Note 12)
     5,331       5,321  
Total liabilities
     183,291       199,822  
                 
EQUITY
                
Capital stock
                
Common Stock, par value $0.01 per share (3,375 million shares issued)
     34       33  
Class B Stock, par value $0.01 per share (71 million shares issued)
     1       1  
Capital in excess of par value of stock
     17,759       16,786  
Accumulated other comprehensive income/(loss)
     (12,277 )     (10,864 )
Treasury stock
     (176 )     (177 )
Retained earnings/(Accumulated deficit)
     (8,915 )     (13,599 )
Total equity/(deficit) attributable to Ford Motor Company (Note 17)
     (3,574 )     (7,820 )
Equity/(Deficit) attributable to noncontrolling interests (Note 17)
     33       38  
Total equity/(deficit) (Note 17)
     (3,541 )     (7,782 )
Total liabilities and equity
   $ 179,750     $ 192,040  
_________________
The following table includes assets to settle liabilities of the consolidated variable interest entities ("VIEs").  These assets and liabilities are included in the consolidated balance sheet above.  See Note 6 for additional information on our VIEs.
 
ASSETS
            
Cash and cash equivalents
   $ 4,802     $ 4,922  
Finance receivables, net
     52,609       57,353  
Other receivables, net
     22       34  
Net investment in operating leases
     8,911       10,246  
Inventories
     21       106  
Net property
     28       154  
Other assets
     33       56  
LIABILITIES
                
Payables
     20       23  
Accrued liabilities and deferred revenue
     346       560  
Debt
     45,525       46,167  

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,
2010
    
December 31,
2009
  
   
(unaudited)
  
ASSETS
            
Automotive
            
Cash and cash equivalents
   $ 8,647     $ 9,762  
Marketable securities
     13,240       15,169  
Total cash and marketable securities
     21,887       24,931  
Receivables, net
     3,513       3,378  
Inventories (Note 5)
     6,076       5,041  
Deferred income taxes
     359       479  
Net investment in operating leases
     2,646       2,208  
Other current assets
     723       688  
Current receivable from Financial Services
     1,407       2,568  
Total current assets
     36,611       39,293  
Equity in net assets of affiliated companies
     2,397       2,307  
Net property
     22,047       22,455  
Deferred income taxes
     4,869       5,660  
Goodwill and other net intangible assets (Note 7)
     174       199  
Assets of held-for-sale operations (Note 12)
     7,529       7,618  
Other assets
     1,638       1,586  
Non-current receivable from Financial Services
     536       —  
Total Automotive assets
     75,801       79,118  
Financial Services
                
Cash and cash equivalents
     9,675       11,132  
Marketable securities
     8,478       6,864  
Finance receivables, net (Note 4)
     75,451       80,885  
Net investment in operating leases
     12,077       15,062  
Equity in net assets of affiliated companies
     126       121  
Goodwill and other net intangible assets (Note 7)
     9       9  
Other assets
     3,800       5,039  
Total Financial Services assets
     109,616       119,112  
Intersector elimination
     (2,261 )     (3,224 )
Total assets
   $ 183,156     $ 195,006  
LIABILITIES
                
Automotive
                
Trade payables
   $ 13,334     $ 11,607  
Other payables
     1,504       1,458  
Accrued liabilities and deferred revenue
     18,346       18,138  
Deferred income taxes
     2,261       3,091  
Debt payable within one year (Note 9)
     1,102       1,638  
Total current liabilities
     36,547       35,932  
Long-term debt (Note 9)
     26,202       31,972  
Other liabilities
     21,257       23,132  
Deferred income taxes
     365       561  
Liabilities of held-for-sale operations (Note 12)
     5,331       5,321  
Total Automotive liabilities
     89,702       96,918  
Financial Services
                
Payables
     1,138       1,236  
Debt (Note 9)
     90,395       98,671  
Deferred income taxes
     1,681       1,735  
Other liabilities and deferred income
     4,099       4,884  
Payable to Automotive
     1,943       2,568  
Total Financial Services liabilities
     99,256       109,094  
Intersector elimination
     (2,261 )     (3,224 )
Total liabilities
     186,697       202,788  
EQUITY
                
Capital stock
                
Common Stock, par value $0.01 per share (3,375 million shares issued)
     34       33  
Class B Stock, par value $0.01 per share (71 million shares issued)
     1       1  
Capital in excess of par value of stock
     17,759       16,786  
Accumulated other comprehensive income/(loss)
     (12,277 )     (10,864 )
Treasury stock
     (176 )     (177 )
Retained earnings/(Accumulated deficit)
     (8,915 )     (13,599 )
Total equity/(deficit) attributable to Ford Motor Company (Note 17)
     (3,574 )     (7,820 )
Equity/(Deficit) attributable to noncontrolling interests (Note 17)
     33       38  
Total equity/(deficit) (Note 17)
     (3,541 )     (7,782 )
Total liabilities and equity
   $ 183,156     $ 195,006  
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, 2010 and 2009
(in millions)

   
First Half
  
   
2010
    
2009
  
   
(unaudited)
  
Cash flows from operating activities of continuing operations
            
Net cash (used in)/provided by operating activities
   $ 6,457     $ 9,367  
                 
Cash flows from investing activities of continuing operations
                
Capital expenditures
     (2,027 )     (2,046 )
Acquisitions of retail and other finance receivables and operating leases
     (14,707 )     (13,322 )
Collections of retail and other finance receivables and operating leases
     19,613       20,184  
Purchases of securities
     (52,139 )     (37,138 )
Sales and maturities of securities
     52,118       37,845  
Settlements of derivatives
     (79 )     1,019  
Proceeds from sale of businesses
     —       171  
Cash change due to deconsolidation of joint ventures
     —       (343 )
Other
     65       (674 )
Net cash (used in)/provided by investing activities
     2,844       5,696  
                 
Cash flows from financing activities of continuing operations
                
Sales of Common Stock
     842       1,651  
Changes in short-term debt
     (700 )     (5,597 )
Proceeds from issuance of other debt
     15,282       25,262  
Principal payments on other debt
     (26,636 )     (33,890 )
Other
     39       (557 )
Net cash (used in)/provided by financing activities
     (11,173 )     (13,131 )
                 
Effect of exchange rate changes on cash
     (700 )     296  
Cumulative correction of Financial Services prior period error
     —       (630 )
                 
Net increase/(decrease) in cash and cash equivalents from continuing operations
     (2,572 )     1,598  
                 
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
   $ (2,572 )   $ 1,598  
                 
Cash and cash equivalents at January 1
   $ 20,894     $ 21,804  
Cash and cash equivalents of discontinued/held-for-sale operations at January 1
     —       —  
Net increase/(decrease) in cash and cash equivalents
     (2,572 )     1,598  
Less: cash and cash equivalents of discontinued/held-for-sale operations at June 30
     —       —  
Cash and cash equivalents at June 30
   $ 18,322     $ 23,402  

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, 2010 and 2009
(in millions)

   
First Half 2010
    
First Half 2009
  
   
Automotive
    
Financial
Services
    
Automotive
    
Financial
Services
  
   
(unaudited)
    
(unaudited)
  
Cash flows from operating activities of continuing operations
                        
Net cash (used in)/provided by operating activities
   $ 3,004     $ 2,157     $ (3,278 )   $ 3,335  
                                 
Cash flows from investing activities of continuing operations
                                
Capital expenditures
     (2,018 )     (9 )     (2,037 )     (9 )
Acquisitions of retail and other finance receivables and operating leases
     —       (14,463 )     —       (13,373 )
Collections of retail and other finance receivables and operating leases
     —       19,613       —       20,184  
Net (acquisitions)/collections of wholesale receivables
     —       (248 )     —       8,234  
Purchases of securities
     (27,946 )     (24,384 )     (25,905 )     (12,288 )
Sales and maturities of securities
     29,894       22,756       25,847       12,133  
Settlements of derivatives
     (225 )     146       71       948  
Investing activity (to)/from Financial Services
     434       —       (145 )     —  
Proceeds from sale of businesses
     —       —       3       168  
Cash change due to deconsolidation of joint ventures
     —       —       (343 )     —  
Other
     100       (35 )     (686 )     12  
Net cash (used in)/provided by investing activities
     239       3,376       (3,195 )     16,009  
                                 
Cash flows from financing activities of continuing operations
                                
Sales of Common Stock
     842       —       1,651       —  
Changes in short-term debt
     182       (882 )     385       (5,982 )
Proceeds from issuance of other debt
     835       14,447       10,381       14,881  
Principal payments on other debt
     (6,094 )     (19,583 )     (667 )     (31,176 )
Financing activity (to)/from Automotive
     —       (434 )     —       145  
Other
     140       (101 )     (245 )     (312 )
Net cash (used in)/provided by financing activities
     (4,095 )     (6,553 )     11,505       (22,444 )
                                 
Effect of exchange rate changes on cash
     (263 )     (437 )     84       212  
Cumulative correction of prior period error
     —       —       —       (630 )
Net increase/(decrease) in cash and cash equivalents from continuing operations
     (1,115 )     (1,457 )     5,116       (3,518 )
                                 
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
   $ (1,115 )   $ (1,457 )   $ 5,116     $ (3,518 )
                                 
Cash and cash equivalents at January 1
   $ 9,762     $ 11,132     $ 6,132     $ 15,672  
Cash and cash equivalents of discontinued/held-for-sale operations at January 1
     —       —       —       —  
Net increase/(decrease) in cash and cash equivalents
     (1,115 )     (1,457 )     5,116       (3,518 )
Less: cash and cash equivalents of discontinued/held-for-sale operations at June 30
     —       —       —       —  
Cash and cash equivalents at June 30
   $ 8,647     $ 9,675     $ 11,248     $ 12,154  

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, 2010 and 2009
(in millions)
 
   
Second Quarter
    
First Half
  
   
2010
    
2009
    
2010
    
2009
  
   
(unaudited)
    
(unaudited)
  
Net income/(loss)
   $ 2,596     $ 2,261     $ 4,681     $ 826  
Other comprehensive income/(loss), net of tax:
                                
Foreign currency translation
     (1,240 )     2,106       (1,729 )     1,659  
Net gain/(loss) on derivative instruments
     (28 )     (36 )     (29 )     (123 )
Employee benefit-related
     190       (450 )     347       (455 )
Net holding gain/(loss)
     —       (2 )     (2 )     (3 )
Total other comprehensive income/(loss), net of tax
     (1,078 )     1,618       (1,413 )     1,078  
Comprehensive income/(loss)
     1,518       3,879       3,268       1,904  
Less: Comprehensive income/(loss) attributable to noncontrolling interests (Note 17)
     (3 )     —       (3 )     (8 )
Comprehensive income/(loss) attributable to Ford Motor Company
   $ 1,521     $ 3,879     $ 3,271     $ 1,912  

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
Fair Value Measurements
15
Note 3
Cash and Restricted Cash
24
Note 4
Finance Receivables – Financial Services Sector
24
Note 5
Inventories
25
Note 6
Variable Interest Entities
25
Note 7
Goodwill and Other Net Intangible Assets
29
Note 8
Retirement Benefits
30
Note 9
Debt and Commitments
31
Note 10
Other Income/(Loss)
40
Note 11
Income Taxes
40
Note 12
Held-For-Sale Operations, Discontinued Operations, Other Dispositions, and Acquisitions
41
Note 13
Amounts Per Share Attributable to Ford Motor Company Common and Class B Stock
43
Note 14
Derivative Financial Instruments and Hedging Activities
44
Note 15
Segment Information
49
Note 16
Commitments
51
Note 17
Equity/(Deficit) Attributable to Ford Motor Company and Noncontrolling Interests
52
 

 
 
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 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, 2009, updated by the revised disclosures in Exhibit 99 to our Current Report on Form 8-K dated May 7, 2010 showing retrospective application of the new accounting standard on VIE consolidation effective January 1, 2010 ("2009 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.

Adoption of New Accounting Standards

Fair Value Measurements.  During the first quarter of 2010, we adopted the new accounting standard on fair value measurements which both requires new disclosures and clarifies existing disclosure requirements.  The standard requires assets and liabilities measured at fair value to be further disaggregated by class in the disclosures.  The standard also requires expanded disclosures about the valuation techniques and inputs used to measure fair value.  Refer to Note 2 for further information regarding our fair value measurements.

Transfers of Financial Assets.  During the first quarter of 2010, we adopted the new accounting standard related to transfers of financial assets.  The standard provides greater transparency about transfers of financial assets and a company's continuing involvement in the transferred financial assets.  The standard also removes the concept of a qualifying special-purpose entity from U.S. GAAP and changes the requirements for derecognizing financial assets. The new accounting standard did not have a material impact on our financial condition, results of operations, or financial statement disclosures.

 
10
 
Item 1. Financial Statements (Continued)
 
NOTE 1.  PRINCIPLES OF PRESENTATION AND CONSOLIDATION

Variable Interest Entities.  During the first quarter of 2010, we adopted the new accounting standard on VIEs.  The standard requires ongoing assessments of whether an entity is the primary beneficiary of a VIE, and enhances the disclosures about an entity's involvement with a VIE.  This standard requires the consolidation of a VIE if an entity has both (i) the power to direct the activities of the VIE, and (ii) the obligation to absorb losses or the right to receive residual returns that potentially could be significant to the VIE.  Conversely, the standard does not permit consolidation if these two tests are not met.

In applying this new standard, we deconsolidated certain entities.  These entities were primarily Automotive joint ventures previously consolidated due to contractual agreements that resulted in a disproportionate relationship between our voting interest in these entities and our exposure to the economic risks and potential rewards of the entities.  We held a majority of the variable interests in the VIEs, and therefore, were deemed to be the primary beneficiary.  We did not, however, possess the power to direct the activities of the VIEs that most significantly impacted the VIEs' economic performance.  Due to the absence of this power, adoption of the new standard resulted in the deconsolidation of the majority of these Automotive joint ventures.  The most significant Automotive joint ventures deconsolidated were Ford Otomotiv Sanayi Anonim Sirketi ("Ford Otosan") and AutoAlliance, Inc. ("AAI").  Ford Otosan is a joint venture between Ford (41% partner), Koc Group of Turkey (41% partner), and public investors (18%).  AAI is a joint venture between Ford (50% partner) and Mazda Motor Corporation ("Mazda") (50% partner) in North America.  We concluded in each case that the power to direct the activities that most significantly impact the entity's economic performance was shared equally among unrelated parties.  As a result, we account for the ownership in each of these joint ventures as equity method investments.

The new accounting standard did not result in any deconsolidation or consolidation of new entities within our Financial Services sector.

Refer to Note 6 for further information regarding our VIEs.  We have retrospectively applied this new accounting standard and revised our prior year financial statements herein accordingly.

The following tables set forth selected financial data as the data would have appeared had we applied the new consolidation standard for the second quarter and first half of 2009, compared to the originally reported amounts in our Quarterly Report on Form 10-Q for the period ended June 30, 2009 (dollar amounts in millions, except for per share amounts).  As noted, 2009 data throughout this Report have been adjusted to reflect the new accounting standard on VIE consolidation.

   
Second Quarter 2009
  
   
Revised
    
As Originally Reported
    
Effect of Change
  
SUMMARY OF OPERATIONS
                  
Total Company
                  
Sales and revenues
   $ 26,810     $ 27,189     $ (379 )
                         
Income/(Loss) before income taxes
   $ 2,241     $ 2,371     $ (130 )
Provision for/(Benefit from) income taxes
     (15 )     25       (40 )
Income/(Loss) from continuing operations
     2,256       2,346       (90 )
Income/(Loss) from discontinued operations
     5       5       —  
Net income/(loss)
     2,261       2,351       (90 )
Less: Income/(Loss) attributable to noncontrolling interests
     —       90       (90 )
Net income/(loss) attributable to Ford Motor Company
   $ 2,261     $ 2,261     $ —  
                         
Automotive Sector
                        
Sales
   $ 23,610     $ 23,989     $ (379 )
Operating income/(loss)
     (1,792 )     (1,568 )     (224 )
Income/(Loss) before income taxes
     1,646       1,776       (130 )
                         
Amounts Per Share Attributable to Ford Motor Company Common and Class B Stock
                  
Basic:
                        
Income/(Loss) from continuing operations
   $ 0.75     $ 0.75     $ —  
Income/(Loss) from discontinued operations
     —       —       —  
Net income/(loss)
   $ 0.75     $ 0.75     $ —  
Diluted:
                        
Income/(Loss) from continuing operations
   $ 0.69     $ 0.69     $ —  
Income/(Loss) from discontinued operations
     —       —       —  
Net income/(loss)
   $ 0.69     $ 0.69     $ —  

 
 
11
 
Item 1. Financial Statements (Continued)
 
NOTE 1.  PRINCIPLES OF PRESENTATION AND CONSOLIDATION

   
First Half 2009
  
   
Revised
    
As Originally Reported
    
Effect of Change
  
SUMMARY OF OPERATIONS
                  
Total Company
                  
Sales and revenues
   $ 51,200     $ 51,967     $ (767 )
                         
Income/(Loss) before income taxes
   $ 579     $ 751     $ (172 )
Provision for/(Benefit from) income taxes
     (242 )     (179 )     (63 )
Income/(Loss) from continuing operations
     821       930       (109 )
Income/(Loss) from discontinued operations
     5       5       —  
Net income/(loss)
     826       935       (109 )
Less: Income/(Loss) attributable to noncontrolling interests
     (8 )     101       (109 )
Net income/(loss) attributable to Ford Motor Company
   $ 834     $ 834     $ —  
                         
Automotive Sector
                        
Sales
   $ 44,590     $ 45,357     $ (767 )
Operating income/(loss)
     (4,234 )     (3,906 )     (328 )
Income/(Loss) before income taxes
     136       308       (172 )
                         
Amounts Per Share Attributable to Ford Motor Company Common and Class B Stock
                  
Basic:
                        
Income/(Loss) from continuing operations
   $ 0.31     $ 0.31     $ —  
Income/(Loss) from discontinued operations
     —       —       —  
Net income/(loss)
   $ 0.31     $ 0.31     $ —  
Diluted:
                        
Income/(Loss) from continuing operations
   $ 0.30     $ 0.30     $ —  
Income/(Loss) from discontinued operations
     —       —       —  
Net income/(loss)
   $ 0.30     $ 0.30     $ —  

Exposure Drafts.  As of August 6, 2010, the date we filed our financial statements with the U.S. Securities and Exchange Commission ("SEC"), five exposure drafts were issued proposing new guidance on the accounting for financial instruments, presentation of the statement of comprehensive income, revenue recognition, fair value measurements, and loss contingencies.  Although the proposed standards are subject to further public comment and finalization by the Financial Accounting Standards Board ("FASB"), if adopted as proposed, these standards could require material changes to our financial statements and related disclosures.

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

   
June 30,
 2010
    
December 31,
2009
  
Sector balance sheet presentation of deferred income tax assets:
            
Automotive sector current deferred income tax assets
   $ 359     $ 479  
Automotive sector non-current deferred income tax assets
     4,869       5,660  
Financial Services sector deferred income tax assets*
     258       306  
Total
     5,486       6,445  
Reclassification for netting of deferred income taxes
     (3,406 )     (2,966 )
Consolidated balance sheet presentation of deferred income tax assets
   $ 2,080     $ 3,479  
                 
Sector balance sheet presentation of deferred income tax liabilities:
                
Automotive sector current deferred income tax liabilities
   $ 2,261     $ 3,091  
Automotive sector non-current deferred income tax liabilities
     365       561  
Financial Services sector deferred income tax liabilities
     1,681       1,735  
Total
     4,307       5,387  
Reclassification for netting of deferred income taxes
     (3,406 )     (2,966 )
Consolidated balance sheet presentation of deferred income tax liabilities
   $ 901     $ 2,421  
__________
*      Financial Services deferred income tax assets are included in Financial Services other assets on our sector balance sheet.

 
12
 
Item 1. Financial Statements (Continued)
 
NOTE 1.  PRINCIPLES OF PRESENTATION AND CONSOLIDATION (Continued)

Debt Reduction Actions

Automotive Acquisition of Financial Services Debt.  During 2008 and 2009, we issued 159,913,115 shares of Ford Common Stock through an equity distribution agreement and used the proceeds of $1 billion to purchase $1,048 million of Ford Credit debt and related interest of $20 million.  We recognized a gain on extinguishment of debt of $68 million on the transactions, recorded in Automotive interest income and other non-operating income/(expense), net.  During the second quarter of 2010, we utilized cash of $192 million to purchase $200 million of Ford Credit debt and related interest of about $1 million.  We recorded a gain on extinguishment of debt of $9 million on the transaction, in Automotive interest income and other non-operating income/(expense), net. As of June 30, 2010, approximately $667 million of the debt purchased has matured ($532 million in the first half of 2010 and $135 million in the first quarter of 2009), and $267 million was repurchased (during the third quarter of 2009) from us by Ford Credit.

On our consolidated balance sheet, we net together the remaining debt purchased by us with the outstanding debt of Ford Credit, reducing our consolidated marketable securities and debt balances by $314 million and $646 million at June 30, 2010 and December 31, 2009, respectively.  On our sector balance sheet, the acquisition is reported separately as Automotive marketable securities and Financial Services debt as it has not been retired or cancelled by Ford Credit.

Financial Services Acquisition of Automotive Debt.  During the second quarter of 2010, Ford Credit acquired $1.3 billion principal amount of Note A owed by Ford (and recorded as Automotive debt) to the UAW Retiree Medical Benefits Trust (the "UAW VEBA Trust") (see "Notes Due to UAW VEBA Trust" within the Automotive sector section of Note 9 for further discussion) for a cost of $1.3 billion.  This transaction settled on June 30, 2010, following which Ford Credit immediately transferred the repurchased note to us in satisfaction of $1.3 billion of Ford Credit's tax liabilities to us.  At June 30, 2010, the debt acquired is no longer outstanding.

During the first quarter of 2009, Ford Credit acquired $2.2 billion principal amount of Automotive secured 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 secured 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.  At June 30, 2010, the debt acquired is no longer outstanding.

During the second quarter of 2009, Ford Credit acquired $3.4 billion principal amount of Automotive 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.  At June 30, 2010, the debt acquired is no longer outstanding.

 
13
 
Item 1. Financial Statements (Continued)
 
NOTE 1.  PRINCIPLES OF PRESENTATION AND CONSOLIDATION (Continued)

See the table below for the reconciliation between total sector and consolidated cash flows.

Sector to Consolidated Cash Flow Reconciliation.  We present certain cash flows from the wholesale receivables, finance receivables and the debt reduction actions differently on our sector and consolidated statements of cash flows.  The reconciliation between total sector and consolidated cash flows is as follows (in millions):

   
First Half
  
   
2010
    
2009
  
Automotive cash flows from operating activities of continuing operations
   $ 3,004     $ (3,278 )
Financial Services cash flows from operating activities of continuing operations
     2,157       3,335  
Total sector cash flows from operating activities of continuing operations
     5,161       57  
Reclassifications from investing to operating cash flows:
                
Wholesale receivables (a)
     (248 )     8,234  
Finance receivables (b)
     244       (51 )
Reclassifications from operating to financing cash flows:
                
Payments on notes to the UAW VEBA Trust (Note 9) (c)
     1,300       —  
Financial Services sector second quarter 2009 acquisition of Automotive sector debt (d)
     —       1,127  
Consolidated cash flows from operating activities of continuing operations
   $ 6,457     $ 9,367  
                 
Automotive cash flows from investing activities of continuing operations
   $ 239     $ (3,195 )
Financial Services cash flows from investing activities of continuing operations
     3,376       16,009  
Total sector cash flows from investing activities of continuing operations
     3,615       12,814  
Reclassifications from investing to operating cash flows:
                
Wholesale receivables (a)
     248       (8,234 )
Finance receivables (b)
     (244 )     51  
Reclassifications from investing to financing cash flows:
                
Automotive sector acquisition of Financial Services sector debt (e)
     (341 )     (134 )
Financial Services sector first quarter 2009 acquisition of Automotive sector debt (d)
     —       1,054  
Elimination of investing activity to/(from) Financial Services in consolidation
     (434 )     145  
Consolidated cash flows from investing activities of continuing operations
   $ 2,844     $ 5,696  
                 
Automotive cash flows from financing activities of continuing operations
   $ (4,095 )   $ 11,505  
Financial Services cash flows from financing activities of continuing operations
     (6,553 )     (22,444 )
Total sector cash flows from financing activities of continuing operations
     (10,648 )     (10,939 )
Reclassifications from investing to financing cash flows:
                
Automotive sector acquisition of Financial Services sector debt (e)
     341       134  
Financial Services sector first quarter 2009 acquisition of Automotive sector debt (d)
     —       (1,054 )
Reclassifications from operating to financing cash flows:
                
Financial Services sector second quarter 2009 acquisition of Automotive sector debt (d)
     —       (1,127 )
Payments on notes to the UAW VEBA Trust (Note 9) (c)
     (1,300 )     —  
Elimination of financing activity to/(from) Financial Services in consolidation
     434       (145 )
Consolidated cash flows from financing activities of continuing operations
   $ (11,173 )   $ (13,131 )
_________
(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 from certain divisions and subsidiaries of the Automotive sector.
(c) 
See "Notes Due to UAW VEBA Trust" section of Note 9 for further discussion of this transaction.  Cash outflows related to this transaction are reported as financing activities on the consolidated statement of cash flows and operating activities on the sector statement of cash flows.
(d) 
See "2009 Debt Repurchases" within the "Public Unsecured Debt Securities" section and "First Half 2009 Secured Term Loan Actions" within the "Secured Term Loan and Revolving Loan" section of Note 9 for further discussion of these transactions.  Cash outflows related to these transactions are reported as financing activities on the consolidated statement of cash flows and either investing or operating activities on the sector statement of cash flows.
(e) 
See "Debt Reduction Actions" above for further discussion.  Cash flows related to these transactions are reported as financing activities on the consolidated statement of cash flows and investing activities on the sector statement of cash flows.
 
 
14
 
Item 1. Financial Statements (Continued)
 
NOTE 2.  FAIR VALUE MEASUREMENTS

Certain assets and liabilities are presented on our financial statements at fair value.  Assets and liabilities measured at fair value on a recurring basis on our balance sheet include cash equivalents, marketable securities, derivative financial instruments and retained interest in securitized assets.  Assets and liabilities measured at fair value on a recurring basis for disclosure only include finance receivables and debt.  Fair value of these items are presented together with the related carrying value in Notes 4 and 9, respectively.  Assets and liabilities measured at fair value on a recurring basis vary based on specific circumstances such as impairments.

Fair Value Measurements

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  The fair value should be based on assumptions that market participants would use, including a consideration of non-performance risk.  In determining fair value, we use various valuation methodologies and prioritize the use of observable inputs.  We assess the inputs used to measure fair value using a three-tier hierarchy based on the extent to which inputs used in measuring fair value are observable in the market:

·  
Level 1 – inputs include quoted prices for identical instruments and are the most observable.
·  
Level 2 – inputs include quoted prices for similar assets and observable inputs such as interest rates, currency exchange rates and yield curves.
·  
Level 3 – inputs are not observable in the market and include management's judgments about the assumptions market participants would use in pricing the asset or liability.

For instruments measured using Level 3 inputs, a reconciliation of the beginning and ending balances is disclosed.

Valuation Methodologies

Cash, Cash Equivalents and Marketable Securities.  Cash and all highly liquid investments with a maturity of 90 days or less at date of purchase are classified as Cash and cash equivalents. Investments in securities with a maturity date greater than 90 days at the date of purchase are classified as Marketable securities.  Cash on hand, time deposits, certificates of deposit, and money market accounts are reported at par value, which approximates fair value. For other investment securities, we generally measure fair value based on a market approach using prices obtained from pricing services. We review all pricing data for reasonability and observability of inputs. 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 dealer stands ready to purchase) and other market information.  For securities that are not actively traded, the pricing services obtain quotes for similar fixed-income securities or utilize matrix pricing, benchmark curves or other factors to determine fair value. In certain cases, when observable pricing data is not available, we estimate the fair value of investment securities based on an income approach using industry standard valuation models and estimates regarding non-performance risk.

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 based on an income approach using industry standard valuation models.  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 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 effects of 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 management judgment to develop assumptions which are used to determine fair value.  This includes situations where there is illiquidity for a particular currency or commodity or for longer-dated instruments.   Also, for interest rate swaps and cross-currency interest rate swaps used in securitization transactions, the notional amount of the swap is based on actual payments on the securitized contracts. We use management judgment to estimate the timing and amount of the swap cash flows based on historical pre-payment speeds.

 
15
 
Item 1. Financial Statements (Continued)
 
NOTE 2.  FAIR VALUE MEASUREMENTS (Continued)

Retained Interests in Securitized Assets.  We estimate the fair value of retained interests based on an income approach using internal valuation models. These models project future cash flows of the monthly collections on the sold finance receivables in excess of amounts needed for payment of the debt and other obligations issued or arising in the securitization transactions. The projected cash flows are discounted to a present value based on market inputs and our own assumptions regarding credit losses, pre-payment speed, and discount rate.  Our assumptions regarding pre-payment speed and credit losses are based on historical performance.

Finance Receivables.  We estimate the fair value of finance receivables based on an income approach using internal valuation models. These models project future cash flows of financing contracts incorporating appropriate funding pricing and enhancement requirements.  The projected cash flows are discounted to a present value based on market inputs and our own assumptions regarding credit losses, pre-payment speed, and discount rate.  Our assumptions regarding pre-payment speed and credit losses are based on historical performance.

Debt.  We estimate the fair value of debt based on a market approach using quoted market prices or current market rates for similar debt with approximately the same remaining maturities, where possible.  Where market prices are not available, we estimate fair value based on an income approach using discounted cash flow models. These models project future cash flows and discount the future amounts to a present value using market-based expectations for interest rates, our own credit risk and the contractual terms of the debt instruments.  For asset-backed debt issued in securitization transactions, the principal payments are based on the actual payments on the securitized contracts.  We use management judgment to estimate the timing and amount of the debt cash flows based on historical pre-payment speeds.
 
 
16
 
Item 1. Financial Statements (Continued)
 
NOTE 2.  FAIR VALUE MEASUREMENTS (Continued)

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

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

   
June 30, 2010
  
   
Level 1
    
Level 2
    
Level 3
    
Total
  
Automotive Sector
                        
Assets
                        
Cash equivalents – financial instruments (a)
                        
U.S. government
   $ 1     $ —     $ —     $ 1  
Government-sponsored enterprises
     —       647       —       647  
Government – non-U.S.
     —       122       —       122  
Corporate debt (b)
     —       1,584       —       1,584  
Total cash equivalents – financial instruments
     1       2,353       —       2,354  
Marketable securities (c)
                                
U.S. government
     2,510       —       —       2,510  
Government-sponsored enterprises
     —       6,481       —       6,481  
Corporate debt (b)
     —       2,219