Edgar Filing: FORD MOTOR CO

10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q



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

	For the quarterly period ended March 31, 2016

	or

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

	For the transition period from __________ to __________

	Commission file number 1-3950

Ford Motor Company

(Exact name of Registrant as specified in its charter)



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

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

313-322-3000

(Registrant’s telephone number, including area code)

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

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

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

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

As of April 21 2016, Ford had outstanding 3,901,983,082 shares of Common Stock and 70,852,076 shares of Class B Stock.

Exhibit Index begins on page

FORD MOTOR COMPANY

QUARTERLY REPORT ON FORM 10-Q

For the Quarter Ended March 31, 2016



	Table of Contents	Page
	Part I - Financial Information
Item 1	Financial Statements	1
	Consolidated Income Statement	1
	Consolidated Statement of Comprehensive Income	1
	Sector Income Statement	2
	Consolidated Balance Sheet	3
	Sector Balance Sheet	4
	Condensed Consolidated Statement of Cash Flows	5
	Condensed Sector Statement of Cash Flows	6
	Consolidated Statement of Equity	7
	Notes to the Financial Statements	8
	Report of Independent Registered Public Accounting Firm	26
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
	Results of Operations	27
	Automotive Sector	30
	Financial Services Sector	42
	Liquidity and Capital Resources	46
	Production Volumes	54
	Outlook	55
	Accounting Standards Issued But Not Yet Adopted	59
	Other Financial Information	59
Item 3	Quantitative and Qualitative Disclosures About Market Risk	59
	Automotive Sector	59
	Financial Services Sector	59
Item 4	Controls and Procedures	60

	Part II - Other Information
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	61
Item 6	Exhibits	61
	Signature	62
	Exhibit Index	63

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements.

FORD MOTOR COMPANY AND SUBSIDIARIES

CONSOLIDATED INCOME STATEMENT

(in millions, except per share amounts)



	For the periods ended March 31,
	2016		2015
	First Quarter
	(unaudited)
Revenues
Automotive	$	35,257	$	31,800
Financial Services	2,461		2,100
Total revenues	37,718		33,900

Costs and expenses
Automotive cost of sales	30,281		28,472
Selling, administrative, and other expenses	3,823		3,465
Financial Services interest expense	658		647
Financial Services provision for credit and insurance losses	141		73
Total costs and expenses	34,903		32,657

Automotive interest expense	200		165

Automotive interest income and other income/(loss), net (Note 12)	404		190
Financial Services other income/(loss), net (Note 12)	91		74
Equity in net income of affiliated companies	541		437
Income before income taxes	3,651		1,779
Provision for/(Benefit from) income taxes	1,196		625
Net income	2,455		1,154
Less: Income/(Loss) attributable to noncontrolling interests	3		1
Net income attributable to Ford Motor Company	$	2,452	$	1,153

EARNINGS PER SHARE ATTRIBUTABLE TO FORD MOTOR COMPANY COMMON AND CLASS B STOCK (Note 14)
Basic income	$	0.62	$	0.29
Diluted income	0.61		0.29

Cash dividends declared	0.40		0.15

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(in millions)



	For the periods ended March 31,
	2016			2015
	First Quarter
	(unaudited)
Net income	$	2,455		$	1,154
Other comprehensive income/(loss), net of tax (Note 11)
Foreign currency translation	(64		)	103
Marketable securities	6			—
Derivative instruments	246			(90		)
Pension and other postretirement benefits	22			(148		)
Total other comprehensive income/(loss), net of tax	210			(135		)
Comprehensive income	2,665			1,019
Less: Comprehensive income/(loss) attributable to noncontrolling interests	2			1
Comprehensive income attributable to Ford Motor Company	$	2,663		$	1,018

The accompanying notes are part of the financial statements.

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

SECTOR INCOME STATEMENT

(in millions)



	For the periods ended March 31,
	2016		2015
	First Quarter
	(unaudited)
AUTOMOTIVE
Revenues	$	35,257	$	31,800
Costs and expenses
Cost of sales	30,281		28,472
Selling, administrative, and other expenses	2,562		2,472
Total costs and expenses	32,843		30,944

Interest expense	200		165

Interest income and other income/(loss), net (Note 12)	404		190
Equity in net income of affiliated companies	534		429
Income before income taxes — Automotive	3,152		1,310

FINANCIAL SERVICES
Revenues	2,461		2,100
Costs and expenses
Interest expense	658		647
Depreciation on vehicles subject to operating leases	1,014		816
Operating and other expenses	247		177
Provision for credit and insurance losses	141		73
Total costs and expenses	2,060		1,713

Other income/(loss), net (Note 12)	91		74
Equity in net income of affiliated companies	7		8
Income before income taxes — Financial Services	499		469

TOTAL COMPANY
Income before income taxes	3,651		1,779
Provision for/(Benefit from) income taxes	1,196		625
Net income	2,455		1,154
Less: Income/(Loss) attributable to noncontrolling interests	3		1
Net income attributable to Ford Motor Company	$	2,452	$	1,153

The accompanying notes are part of the financial statements.

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

(in millions)



	March 31, 2016			December 31, 2015
	(unaudited)
ASSETS
Cash and cash equivalents (Note 3)	$	15,917		$	14,272
Marketable securities (Note 3)	23,556			20,904
Finance receivables, net (Note 4)	94,280			90,691
Other receivables, net	11,252			11,284
Net investment in operating leases	28,234			27,093
Inventories (Note 6)	9,770			8,319
Equity in net assets of affiliated companies	3,820			3,224
Net property	31,164			30,163
Deferred income taxes	10,579			11,509
Other assets	8,716			7,466
Total assets	$	237,288		$	224,925

LIABILITIES
Payables	$	22,072		$	20,272
Other liabilities and deferred revenue (Note 7)	43,949			42,546
Automotive debt (Note 9)	13,022			12,839
Financial Services debt (Note 9)	127,973			120,015
Deferred income taxes	556			502
Total liabilities	207,572			196,174

Redeemable noncontrolling interest	95			94

EQUITY
Capital stock
Common Stock, par value $.01 per share (3,974 million shares issued of 6 billion authorized)	40			40
Class B Stock, par value $.01 per share (71 million shares issued of 530 million authorized)	1			1
Capital in excess of par value of stock	21,454			21,421
Retained earnings	15,278			14,414
Accumulated other comprehensive income/(loss) (Note 11)	(6,046		)	(6,257		)
Treasury stock	(1,122		)	(977		)
Total equity attributable to Ford Motor Company	29,605			28,642
Equity attributable to noncontrolling interests	16			15
Total equity	29,621			28,657
Total liabilities and equity	$	237,288		$	224,925

The following table includes assets to be used to settle liabilities of the consolidated variable interest entities (“VIEs”). These assets and liabilities are included in the consolidated balance sheet above.



	March 31, 2016		December 31, 2015
	(unaudited)
ASSETS
Cash and cash equivalents	$	2,602	$	3,949
Finance receivables, net	50,035		45,902
Net investment in operating leases	13,273		13,309
Other assets	51		85
LIABILITIES
Other liabilities and deferred revenue	$	26	$	19
Debt	43,258		43,086

The accompanying notes are part of the financial statements.

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

SECTOR BALANCE SHEET (in millions)



	March 31, 2016			December 31, 2015
ASSETS	(unaudited)
Automotive
Cash and cash equivalents (Note 3)	$	5,567		$	5,386
Marketable securities (Note 3)	18,684			18,181
Total cash and marketable securities	24,251			23,567
Receivables, less allowances of $366 and $372	5,423			5,173
Inventories (Note 6)	9,770			8,319
Deferred income taxes	2,443			3,664
Other current assets	1,791			1,851
Total current assets	43,678			42,574
Equity in net assets of affiliated companies	3,682			3,091
Net property	31,014			30,021
Net investment in operating leases	2,346			2,014
Deferred income taxes	11,409			10,687
Other assets	4,134			3,572
Total Automotive assets	96,263			91,959
Financial Services
Cash and cash equivalents (Note 3)	10,350			8,886
Marketable securities (Note 3)	4,872			2,723
Finance receivables, net (Note 4)	99,369			96,063
Net investment in operating leases	25,888			25,079
Equity in net assets of affiliated companies	138			133
Other assets	3,823			3,059
Receivable from Automotive	1,480			1,083
Total Financial Services assets	145,920			137,026
Intersector elimination	(1,480		)	(1,083		)
Total assets	$	240,703		$	227,902
LIABILITIES
Automotive
Payables	$	20,887		$	19,168
Other liabilities and deferred revenue (Note 7)	19,307			17,992
Deferred income taxes	130			13
Debt payable within one year (Note 9)	1,941			1,779
Current payable to Financial Services	874			694
Total current liabilities	43,139			39,646
Long-term debt (Note 9)	11,081			11,060
Other liabilities and deferred revenue (Note 7)	22,841			22,732
Deferred income taxes	302			287
Non-current payable to Financial Services	606			389
Total Automotive liabilities	77,969			74,114
Financial Services
Payables	1,185			1,104
Debt (Note 9)	127,973			120,015
Deferred income taxes	3,539			3,179
Other liabilities and deferred income (Note 7)	1,801			1,822
Total Financial Services liabilities	134,498			126,120
Intersector elimination	(1,480		)	(1,083		)
Total liabilities	210,987			199,151

Redeemable noncontrolling interest	95			94

EQUITY
Capital stock
Common Stock, par value $.01 per share (3,974 million shares issued of 6 billion authorized)	40			40
Class B Stock, par value $.01 per share (71 million shares issued of 530 million authorized)	1			1
Capital in excess of par value of stock	21,454			21,421
Retained earnings	15,278			14,414
Accumulated other comprehensive income/(loss) (Note 11)	(6,046		)	(6,257		)
Treasury stock	(1,122		)	(977		)
Total equity attributable to Ford Motor Company	29,605			28,642
Equity attributable to noncontrolling interests	16			15
Total equity	29,621			28,657
Total liabilities and equity	$	240,703		$	227,902

The accompanying notes are part of the financial statements.

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(in millions)



	For the periods ended March 31,
	2016			2015
	First Quarter
	(unaudited)
Cash flows from operating activities
Net cash provided by/(used in) operating activities	$	4,092		$	2,413

Cash flows from investing activities
Capital spending	(1,511		)	(1,800		)
Acquisitions of finance receivables and operating leases	(12,677		)	(12,257		)
Collections of finance receivables and operating leases	9,674			9,251
Purchases of marketable securities	(8,231		)	(11,711		)
Sales and maturities of marketable securities	5,679			11,327
Settlements of derivatives	104			113
Other	(13		)	117
Net cash provided by/(used in) investing activities	(6,975		)	(4,960		)

Cash flows from financing activities
Cash dividends	(1,588		)	(593		)
Purchases of Common Stock	(145		)	—
Net changes in short-term debt	(121		)	488
Proceeds from issuance of other debt	15,623			13,624
Principal payments on other debt	(9,431		)	(8,686		)
Other	(2		)	(249		)
Net cash provided by/(used in) financing activities	4,336			4,584

Effect of exchange rate changes on cash and cash equivalents	192			(426		)

Net increase/(decrease) in cash and cash equivalents	$	1,645		$	1,611

Cash and cash equivalents at January 1	$	14,272		$	10,757
Net increase/(decrease) in cash and cash equivalents	1,645			1,611
Cash and cash equivalents at March 31	$	15,917		$	12,368

The accompanying notes are part of the financial statements.

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

CONDENSED SECTOR STATEMENT OF CASH FLOWS

(in millions)



	For the periods ended March 31,
	2016						2015
	First Quarter
	Automotive			Financial Services			Automotive			Financial Services
	(unaudited)
Cash flows from operating activities
Net cash provided by/(used in) operating activities (a)	$	3,567		$	1,611		$	1,006		$	1,724

Cash flows from investing activities
Capital spending	(1,497		)	(14		)	(1,786		)	(14		)
Acquisitions of finance receivables and operating leases (excluding wholesale and other)	—			(12,677		)	—			(12,257		)
Collections of finance receivables and operating leases (excluding wholesale and other)	—			9,674			—			9,251
Net change in wholesale and other receivables (b)	—			(1,962		)	—			(973		)
Purchases of marketable securities	(5,649		)	(2,582		)	(7,161		)	(4,550		)
Sales and maturities of marketable securities	5,226			453			9,785			1,542
Settlements of derivatives	117			(13		)	70			43
Other	4			(17		)	44			73
Investing activity (to)/from Financial Services (c)	124			—			39			—
Interest supplements and residual value support from Automotive (a)	—			876			—			656
Net cash provided by/(used in) investing activities	(1,675		)	(6,262		)	991			(6,229		)

Cash flows from financing activities
Cash dividends	(1,588		)	—			(593		)	—
Purchases of Common Stock	(145		)	—			—			—
Net changes in short-term debt	113			(234		)	49			439
Proceeds from issuance of other debt	13			15,610			172			13,452
Principal payments on other debt	(215		)	(9,216		)	(778		)	(7,908		)
Other	42			(44		)	(213		)	(36		)
Financing activity to/(from) Automotive (c)	—			(124		)	—			(39		)
Net cash provided by/(used in) financing activities	(1,780		)	5,992			(1,363		)	5,908

Effect of exchange rate changes on cash and cash equivalents	69			123			(127		)	(299		)

Net increase/(decrease) in cash and cash equivalents	$	181		$	1,464		$	507		$	1,104

Cash and cash equivalents at January 1	$	5,386		$	8,886		$	4,567		$	6,190
Net increase/(decrease) in cash and cash equivalents	181			1,464			507			1,104
Cash and cash equivalents at March 31	$	5,567		$	10,350		$	5,074		$	7,294

_________


(a)	Operating activities include outflows of $876 million and $656 million for the periods ended March 31, 2016 and 2015, respectively, of interest supplements and residual value support to Financial Services. Interest supplements and residual value support from Automotive to Financial Services are eliminated in the condensed consolidated statement of cash flows.


(b)	Reclassified to operating activities in the condensed consolidated statement of cash flows.


(c)	Eliminated in the condensed consolidated statement of cash flows.

The accompanying notes are part of the financial statements.

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF EQUITY

(in millions, unaudited)



	Equity Attributable to Ford Motor Company
	Capital Stock		Cap. in Excess of Par Value of Stock		Retained Earnings			Accumulated Other Comprehensive Income/(Loss) (Note 11)			Treasury Stock			Total			Equity Attributable to Non-controlling Interests			Total Equity
Balance at December 31, 2015	$	41	$	21,421	$	14,414		$	(6,257	)	$	(977	)	$	28,642		$	15		$	28,657
Net income	—		—		2,452			—			—			2,452			3			2,455
Other comprehensive income/(loss), net of tax	—		—		—			211			—			211			(1		)	210
Common stock issued (including share-based compensation impacts)	—		33		—			—			—			33			—			33
Treasury stock/other	—		—		—			—			(145		)	(145		)	(1		)	(146		)
Cash dividends declared	—		—		(1,588		)	—			—			(1,588		)	—			(1,588		)
Balance at March 31, 2016	$	41	$	21,454	$	15,278		$	(6,046	)	$	(1,122	)	$	29,605		$	16		$	29,621

Balance at December 31, 2014	$	40	$	21,089	$	9,422		$	(5,265	)	$	(848	)	$	24,438		$	27		$	24,465
Net income	—		—		1,153			—			—			1,153			1			1,154
Other comprehensive income/(loss), net of tax	—		—		—			(135		)	—			(135		)	—			(135		)
Common stock issued (including share-based compensation impacts)	1		184		—			—			—			185			—			185
Treasury stock/other	—		—		—			—			—			—			(1		)	(1		)
Cash dividends declared	—		—		(593		)	—			—			(593		)	—			(593		)
Balance at March 31, 2015	$	41	$	21,273	$	9,982		$	(5,400	)	$	(848	)	$	25,048		$	27		$	25,075

The accompanying notes are part of the financial statements.

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS

Table of Contents



Footnote		Page
Note 1	Presentation	9
Note 2	New Accounting Standards	10
Note 3	Cash, Cash Equivalents, and Marketable Securities	11
Note 4	Financial Services Sector Finance Receivables	12
Note 5	Financial Services Sector Allowance for Credit Losses	15
Note 6	Inventories	16
Note 7	Other Liabilities and Deferred Revenue	16
Note 8	Retirement Benefits	17
Note 9	Debt	18
Note 10	Derivative Financial Instruments and Hedging Activities	19
Note 11	Accumulated Other Comprehensive Income/(Loss)	21
Note 12	Other Income/(Loss)	22
Note 13	Income Taxes	22
Note 14	Capital Stock and Earnings Per Share	22
Note 15	Segment Information	23
Note 16	Commitments and Contingencies	23

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS

NOTE 1. PRESENTATION

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

In the opinion of management, these unaudited financial statements reflect a fair statement of the results of operations and financial condition of Ford Motor Company, its consolidated subsidiaries, and consolidated VIEs of which we are the primary beneficiary for the periods and at the dates presented. The 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, 2015 (“2015 Form 10-K Report”). For purposes of this report, “Ford,” the “Company,” “we,” “our,” “us” or similar references mean Ford Motor Company, our consolidated subsidiaries, and our consolidated VIEs of which we are the primary beneficiary, unless the context requires otherwise.

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

Reconciliations between Consolidated and Sector Financial Statements

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



	March 31, 2016			December 31, 2015
Sector balance sheet presentation of deferred income tax assets
Automotive sector current deferred income tax assets	$	2,443		$	3,664
Automotive sector non-current deferred income tax assets	11,409			10,687
Financial Services sector deferred income tax assets (a)	142			135
Total	13,994			14,486
Reclassification for netting of deferred income taxes	(3,415		)	(2,977		)
Consolidated balance sheet presentation of deferred income tax assets	$	10,579		$	11,509

Sector balance sheet presentation of deferred income tax liabilities
Automotive sector current deferred income tax liabilities	$	130		$	13
Automotive sector non-current deferred income tax liabilities	302			287
Financial Services sector deferred income tax liabilities	3,539			3,179
Total	3,971			3,479
Reclassification for netting of deferred income taxes	(3,415		)	(2,977		)
Consolidated balance sheet presentation of deferred income tax liabilities	$	556		$	502

__________


(a)	Included in Financial Services Other assets on our sector balance sheet.

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS

NOTE 2. NEW ACCOUNTING STANDARDS

Adoption of New Accounting Standards

We adopted the following standards during 2016, none of which have a material impact to our financial statements or financial statement disclosures:



Standard		Effective Date
2015-16	Business Combinations - Simplifying the Accounting for Measurement-Period Adjustments	January 1, 2016
2015-09	Insurance - Disclosures about Short-Duration Contracts	January 1, 2016
2015-05	Internal-Use Software - Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement	January 1, 2016
2015-02	Consolidation - Amendments to the Consolidation Analysis	January 1, 2016
2015-01	Extraordinary and Unusual Items - Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items	January 1, 2016
2014-12	Stock Compensation - Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period	January 1, 2016

Accounting Standards Issued But Not Yet Adopted

Accounting Standard Update (“ASU”) 2016-09, Stock Compensation - Improvements to Employee Share-Based Payment Accounting. In March 2016, the Financial Accounting Standards Board (“FASB”) issued a new accounting standard which simplifies accounting for share-based payment transactions, including income tax consequences and the classification of the tax impact on the statement of cash flows. The new standard is effective as of January 1, 2017, and early adoption is permitted. We are assessing the potential impact to our financial statements and disclosures.

ASU 2016-02, Leases. In February 2016, the FASB issued a new accounting standard which provides guidance on the recognition, measurement, presentation, and disclosure of leases. The new standard supersedes present U.S. GAAP guidance on leases and requires substantially all leases to be reported on the balance sheet as right-of-use assets and lease liabilities, as well as additional disclosures. The new standard is effective as of January 1, 2019, and early adoption is permitted. We are assessing the potential impact to our financial statements and disclosures.

ASU 2014-09, Revenue - Revenue from Contracts with Customers. In May 2014, the FASB issued a new accounting standard that requires recognition of revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. The new standard supersedes U.S. GAAP guidance on revenue recognition and requires the use of more estimates and judgments than the present standards, as well as additional disclosures. The FASB has issued several updates to the standard which i) defer the original effective date from January 1, 2017 to January 1, 2018, while allowing for early adoption as of January 1, 2017 (ASU 2015-14); ii) clarify the application of the principal versus agent guidance (ASU 2016-08); and iii) clarify the guidance on inconsequential and perfunctory promises and licensing (ASU 2016-10). The new accounting standard will impact the timing of when certain arrangements are recognized as revenue as we move from a risk and rewards model to a control model. The new standard will also require a change in classification between revenue and costs relating to certain performance obligations within our sales arrangements. We are reviewing the method of adoption.

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS

NOTE 3. CASH, CASH EQUIVALENTS, AND MARKETABLE SECURITIES

The following tables categorize the fair values of cash, cash equivalents, and marketable securities measured at fair value on a recurring basis on our balance sheet (in millions):



	Fair Value Level	March 31, 2016		December 31, 2015
Automotive Sector
Cash and cash equivalents
U.S. government	1	$	—	$	115
U.S. government agencies	2	109		22
Non-U.S. government and agencies	2	77		173
Corporate debt	2	130		20
Total marketable securities classified as cash equivalents		316		330
Cash, time deposits, and money market funds		5,251		5,056
Total cash and cash equivalents		$	5,567	$	5,386

Marketable securities
U.S. government	1	$	3,088	$	1,623
U.S. government agencies	2	4,752		5,240
Non-U.S. government and agencies	2	6,917		7,451
Corporate debt	2	3,323		3,279
Equities	1	257		240
Other marketable securities	2	347		348
Total marketable securities		$	18,684	$	18,181

Financial Services Sector
Cash and cash equivalents
U.S. government	1	$	450	$	—
U.S. government agencies	2	25		—
Non-U.S. government and agencies	2	500		266
Corporate debt	2	50		—
Total marketable securities classified as cash equivalents		1,025		266
Cash, time deposits, and money market funds		9,325		8,620
Total cash and cash equivalents		$	10,350	$	8,886

Marketable securities
U.S. government	1	$	1,594	$	298
U.S. government agencies	2	1,746		1,169
Non-U.S. government and agencies	2	1,194		832
Corporate debt	2	294		384
Other marketable securities	2	44		40
Total marketable securities		$	4,872	$	2,723

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS

NOTE 4. FINANCIAL SERVICES SECTOR FINANCE RECEIVABLES

Our Financial Services sector, primarily Ford Credit, manages finance receivables as “consumer” and “non-consumer” portfolios. The receivables are generally secured by the vehicles, inventory, or other property being financed.

Finance receivables, net were as follows (in millions):



	March 31, 2016			December 31, 2015
Consumer
Retail financing, gross	$	63,185		$	62,068
Unearned interest supplements	(2,231		)	(2,119		)
Consumer finance receivables	60,954			59,949
Non-Consumer
Dealer financing	37,791			35,529
Other financing	1,034			958
Non-Consumer finance receivables	38,825			36,487
Total recorded investment	$	99,779		$	96,436

Recorded investment in finance receivables	$	99,779		$	96,436
Allowance for credit losses	(410		)	(373		)
Finance receivables, net (a)	$	99,369		$	96,063

Net finance receivables subject to fair value (b)	$	97,379		$	94,248
Fair value	98,771			95,420

__________


(a)	On the consolidated balance sheet at March 31, 2016 and December 31, 2015, $5.1 billion and $5.4 billion, respectively, are reclassified to Other receivables, net, resulting in Finance receivables, net of $94.3 billion and $90.7 billion, respectively.


(b)	At March 31, 2016 and December 31, 2015, excludes $2 billion and $1.8 billion, respectively, of certain receivables (primarily direct financing leases) that are not subject to fair value disclosure requirements. The fair value of finance receivables is categorized within Level 3 of the hierarchy.

Excluded from finance receivables at March 31, 2016 and December 31, 2015, was $219 million and $209 million, respectively, of accrued uncollected interest, which we report in Other assets on the balance sheet.

Included in the recorded investment in finance receivables at March 31, 2016 and December 31, 2015 were consumer receivables of $30.7 billion and $27.6 billion, respectively, and non-consumer receivables of $26.8 billion and $26.1 billion, respectively, that have been sold for legal purposes in securitization transactions but continue to be reported in our consolidated financial statements. The receivables are available only for payment of the debt issued by, and other obligations of, the securitization entities that are parties to those securitization transactions; they are not available to pay the other obligations or the claims of Ford Credit’s other creditors. Ford Credit holds the right to receive the excess cash flows not needed to pay the debt issued by, and other obligations of, the securitization entities that are parties to those securitization transactions.

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS

NOTE 4. FINANCIAL SERVICES SECTOR FINANCE RECEIVABLES (Continued)

Aging

For all finance receivables, we define “past due” as any payment, including principal and interest, that is at least 31 days past the contractual due date. The recorded investment of consumer receivables greater than 90 days past due and still accruing interest was $16 million at March 31, 2016 and December 31, 2015. The recorded investment of non-consumer receivables greater than 90 days past due and still accruing interest was $1 million at March 31, 2016 and December 31, 2015.

The aging analysis of our finance receivables balances were as follows (in millions):



	March 31, 2016		December 31, 2015
Consumer
31-60 days past due	$	611	$	708
61-90 days past due	81		108
91-120 days past due	27		27
Greater than 120 days past due	40		38
Total past due	759		881
Current	60,195		59,068
Consumer finance receivables	60,954		59,949

Non-Consumer
Total past due	104		117
Current	38,721		36,370
Non-Consumer finance receivables	38,825		36,487
Total recorded investment	$	99,779	$	96,436

Credit Quality

Consumer Portfolio. Credit quality ratings for consumer receivables are based on aging. Refer to the aging table above.

Consumer receivables credit quality ratings are as follows:


•	Pass – current to 60 days past due


•	Special Mention – 61 to 120 days past due and in intensified collection status


•	Substandard – greater than 120 days past due and for which the uncollectible portion of the receivables has already been charged off, as measured using the fair value of collateral less costs to sell

Non-Consumer Portfolio. Dealers are assigned to one of four groups according to risk ratings as follows:


•	Group I – strong to superior financial metrics


•	Group II – fair to favorable financial metrics


•	Group III – marginal to weak financial metrics


•	Group IV – poor financial metrics, including dealers classified as uncollectible

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS

NOTE 4. FINANCIAL SERVICES SECTOR FINANCE RECEIVABLES (Continued)

The credit quality analysis of our dealer financing receivables was as follows (in millions):



	March 31, 2016		December 31, 2015
Dealer Financing
Group I	$	28,606	$	26,560
Group II	7,204		7,175
Group III	1,853		1,683
Group IV	128		111
Total recorded investment	$	37,791	$	35,529

Impaired Receivables

Impaired consumer receivables include accounts that have been rewritten or modified in reorganization proceedings pursuant to the U.S. Bankruptcy Code that are considered to be troubled debt restructurings (“TDRs”), as well as all accounts greater than 120 days past due. Impaired non-consumer receivables represent accounts with dealers that have weak or poor financial metrics or dealer financing that has been modified in TDRs. The recorded investment of consumer receivables that were impaired at March 31, 2016 and December 31, 2015 was $373 million, or 0.6% of consumer receivables, and $375 million, or 0.6% of consumer receivables, respectively. The recorded investment of non-consumer receivables that were impaired at March 31, 2016 and December 31, 2015 was $149 million, or 0.4% of non-consumer receivables, and $134 million, or 0.4% of non-consumer receivables, respectively. Impaired finance receivables are evaluated both collectively and specifically.

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS

NOTE 5. FINANCIAL SERVICES SECTOR ALLOWANCE FOR CREDIT LOSSES

An analysis of the allowance for credit losses related to finance receivables for the periods ended March 31 was as follows (in millions):



	First Quarter 2016
	Consumer			Non-Consumer		Total
Allowance for credit losses
Beginning balance	$	357		$	16	$	373
Charge-offs	(102		)	1		(101		)
Recoveries	29			1		30
Provision for credit losses	102			1		103
Other (a)	4			1		5
Ending balance (b)	$	390		$	20	$	410

Analysis of ending balance of allowance for credit losses
Collective impairment allowance	$	371		$	13	$	384
Specific impairment allowance	19			7		26
Ending balance (b)	390			20		410

Analysis of ending balance of finance receivables
Collectively evaluated for impairment	60,581			38,676		99,257
Specifically evaluated for impairment	373			149		522
Recorded investment	60,954			38,825		99,779

Ending balance, net of allowance for credit losses	$	60,564		$	38,805	$	99,369

__________


(a)	Primarily represents amounts related to translation adjustments.


(b)	Total allowance, including reserves for operating leases, was $463 million.



	First Quarter 2015
	Consumer			Non-Consumer			Total
Allowance for credit losses
Beginning balance	$	305		$	16		$	321
Charge-offs	(80		)	1			(79		)
Recoveries	30			2			32
Provision for credit losses	53			(4		)	49
Other (a)	(7		)	(2		)	(9		)
Ending balance (b)	$	301		$	13		$	314

Analysis of ending balance of allowance for credit losses
Collective impairment allowance	$	280		$	12		$	292
Specific impairment allowance	21			1			22
Ending balance (b)	301			13			314

Analysis of ending balance of finance receivables
Collectively evaluated for impairment	53,135			32,356			85,491
Specifically evaluated for impairment	396			126			522
Recorded investment	53,531			32,482			86,013

Ending balance, net of allowance for credit losses	$	53,230		$	32,469		$	85,699

__________


(a)	Primarily represents amounts related to translation adjustments.


(b)	Total allowance, including reserves for operating leases, was $355 million.

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS

NOTE 6. INVENTORIES

All inventories are stated at the lower of cost and net realizable value. Cost for a substantial portion of U.S. inventories is determined on a last-in, first-out (“LIFO”) basis. LIFO was used for 31% and 27% of total inventories at March 31, 2016 and December 31, 2015, respectively. Cost of other inventories is determined by costing methods that approximate a first-in, first-out (“FIFO”) basis.

Inventories were as follows (in millions):



	March 31, 2016			December 31, 2015
Raw materials, work-in-process, and supplies	$	4,356		$	4,005
Finished products	6,367			5,254
Total inventories under FIFO	10,723			9,259
LIFO adjustment	(953		)	(940		)
Total inventories	$	9,770		$	8,319

NOTE 7. OTHER LIABILITIES AND DEFERRED REVENUE

Other liabilities and deferred revenue were as follows (in millions):



	March 31, 2016		December 31, 2015
Automotive Sector
Current
Dealer and dealers’ customer allowances and claims	$	9,013	$	8,122
Deferred revenue	5,020		4,559
Employee benefit plans	1,526		1,528
Accrued interest	233		255
Other postretirement employee benefits (“OPEB”)	358		354
Pension (a)	266		248
Other	2,891		2,926
Total Automotive other liabilities and deferred revenue	19,307		17,992
Non-current
Pension (a)	9,483		9,541
OPEB	5,411		5,347
Dealer and dealers’ customer allowances and claims	2,734		2,731
Deferred revenue	2,989		2,833
Employee benefit plans	1,043		1,041
Other	1,181		1,239
Total Automotive other liabilities and deferred revenue	22,841		22,732
Total Automotive sector	42,148		40,724
Financial Services Sector	1,801		1,822
Total Company	$	43,949	$	42,546

__________


(a)	Balances at March 31, 2016 reflect net pension liabilities at December 31, 2015, updated for service and interest cost, expected return on assets, separation expense, actual benefit payments, and cash contributions. The discount rate and rate of expected return assumptions are unchanged from year-end 2015.

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS

NOTE 8. RETIREMENT BENEFITS

Defined Benefit Plans - Expense

The pre-tax expense for our defined benefit pension and OPEB plans for the periods ended March 31 was as follows (in millions):



	First Quarter
	Pension Benefits
	U.S. Plans						Non-U.S. Plans						Worldwide OPEB
	2016			2015			2016			2015			2016			2015
Service cost	$	128		$	147		$	118		$	135		$	12		$	15
Interest cost	381			454			195			239			48			60
Expected return on assets	(673		)	(732		)	(339		)	(375		)	—			—
Amortization of prior service costs/(credits)	42			39			10			12			(35		)	(51		)
Net remeasurement (gain)/loss	—			—			—			—			—			—
Separation programs/other	—			2			7			7			—			—
Settlements and curtailments	—			—			—			—			—			—
Net periodic benefit cost/(income)	$	(122	)	$	(90	)	$	(9	)	$	18		$	25		$	24

Beginning in 2016, we changed the method used to estimate the service and interest costs for pension and OPEB plans that utilize a yield curve approach. We now apply the specific spot rates along the yield curve to the relevant cash flows instead of using a single effective discount rate. Service and interest costs in the first quarter were about $145 million lower with the new method than they would have been under the prior method.

Pension Plan Contributions

During 2016, we expect to contribute about $1.5 billion from Automotive cash and cash equivalents to our worldwide funded pension plans (including discretionary contributions of about $400 million), and to make about $300 million of benefit payments to participants in unfunded plans, for a total of about $1.8 billion. In the first three months of 2016, we contributed about $400 million to our worldwide funded pension plans and made about $100 million of benefit payments to participants in unfunded plans.

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS

NOTE 9. DEBT

The carrying value of Automotive sector and Financial Services sector debt was as follows (in millions):



Automotive Sector	March 31, 2016			December 31, 2015
Debt payable within one year
Short-term	$	977		$	818
Long-term payable within one year
U.S. Department of Energy (“DOE”) Advanced Technology Vehicles Manufacturing (“ATVM”) Incentive Program	591			591
Other debt	373			370
Total debt payable within one year	1,941			1,779
Long-term debt payable after one year
Public unsecured debt securities	6,594			6,594
DOE ATVM Incentive Program	3,095			3,242
Other debt	1,868			1,696
Adjustments
Unamortized (discount)/premium	(417		)	(412		)
Unamortized issuance costs	(59		)	(60		)
Total long-term debt payable after one year	11,081			11,060
Total Automotive sector	$	13,022		$	12,839

Fair value of Automotive sector debt (a)	$	14,669		$	14,199

Financial Services Sector
Short-term debt
Unsecured debt	$	10,850		$	10,268
Asset-backed debt	1,064			1,855
Total short-term debt	11,914			12,123
Long-term debt
Unsecured debt
Notes payable within one year	13,655			10,241
Notes payable after one year	52,756			49,193
Asset-backed debt
Notes payable within one year	20,231			18,855
Notes payable after one year	28,638			29,390
Adjustments
Unamortized (discount)/premium	(27		)	(29		)
Unamortized issuance costs	(240		)	(216		)
Fair value adjustments (b)	1,046			458
Total long-term debt	116,059			107,892
Total Financial Services sector	$	127,973		$	120,015

Fair value of Financial Services sector debt (a)	$	129,429		$	121,170

__________


(a)	The fair value of debt includes $676 million and $560 million of Automotive sector short-term debt and $10.8 billion and $10.3 billion of Financial Services sector short-term debt at March 31, 2016 and December 31, 2015, respectively, carried at cost, which approximates fair value. All other debt is categorized within Level 2 of the fair value hierarchy.


(b)	Adjustments related to designated fair value hedges of unsecured debt.

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS

NOTE 10. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

In the normal course of business, our operations are exposed to global market risks, including the effect of changes in foreign currency exchange rates, certain commodity prices, and interest rates. To manage these risks, we enter into highly effective derivative contracts. We have elected to apply hedge accounting to certain derivatives. Derivatives that are designated in hedging relationships are evaluated for effectiveness using regression analysis at the time they are designated and throughout the hedge period. Some derivatives do not qualify for hedge accounting; for others, we elect not to apply hedge accounting.

Income Effect of Derivative Financial Instruments

The gains/(losses), by hedge designation, recorded in income for the periods ended March 31 were as follows (in millions):



	First Quarter
	2016			2015
Automotive Sector
Cash flow hedges (a)
Reclassified from AOCI to net income	$	87		$	(46	)
Derivatives not designated as hedging instruments
Foreign currency exchange contracts	(172		)	261
Commodity contracts	(5		)	(10		)
Total	$	(90	)	$	205

Financial Services Sector
Fair value hedges
Interest rate contracts
Net interest settlements and accruals excluded from the assessment of hedge effectiveness	$	99		$	88
Ineffectiveness (b)	17			6
Derivatives not designated as hedging instruments
Interest rate contracts	(48		)	(43		)
Foreign currency exchange contracts	33			65
Cross-currency interest rate swap contracts	195			89
Total	$	296		$	205

__________


(a)	For the first quarter of 2016 and 2015, a $363 million gain and a $150 million loss, respectively, were recorded in Other comprehensive income.


(b)	For the first quarter of 2016 and 2015, hedge ineffectiveness reflects the net change in fair value on derivatives of $610 million gain and $221 million gain, respectively, and a change in value on hedged debt attributable to the change in benchmark interest rates of $593 million loss and $215 million loss, respectively.

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS

NOTE 10. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Continued)

Balance Sheet Effect of Derivative Financial Instruments

Derivative assets and liabilities are recorded on the balance sheet at fair value and are presented on a gross basis. The notional amounts of the derivative instruments do not necessarily represent amounts exchanged by the parties and are not a direct measure of our financial exposure. We also enter into master agreements with counterparties that may allow for netting of exposures in the event of default or breach of the counterparty agreement.

The fair value of our derivative instruments and the associated notional amounts, presented gross, were as follows (in millions):



	March 31, 2016						December 31, 2015
	Notional		Fair Value of Assets		Fair Value of Liabilities		Notional		Fair Value of Assets		Fair Value of Liabilities
Automotive Sector
Cash flow hedges
Foreign currency exchange and commodity contracts	$	16,076	$	666	$	235	$	12,593	$	522	$	366

Derivatives not designated as hedging instruments
Foreign currency exchange contracts	18,152		280		331		19,395		404		238
Commodity contracts	643		4		17		643