a6708785.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 March 31, 2011
   
[   ]
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 April 28, 2011, the registrant had outstanding 3,727,332,952 shares of Common Stock and 70,852,076 shares of Class B Stock.

Exhibit index located on page number 80.



 
 
 
 
 
FORD MOTOR COMPANY
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2011
     
 
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PART I. FINANCIAL INFORMATION
ITEM 1.  Financial Statements.

CONSOLIDATED STATEMENT OF OPERATIONS
For the Periods Ended March 31, 2011 and 2010
(in millions, except per share amounts)

   
First Quarter
 
   
2011
   
2010
 
   
(unaudited)
 
Sales and revenues
           
Automotive sales
  $ 31,038     $ 28,894  
Financial Services revenues
    2,076       2,672  
Total sales and revenues
    33,114       31,566  
                 
Costs and expenses
               
Automotive cost of sales
    26,776       25,139  
Selling, administrative and other expenses
    2,734       3,089  
Interest expense
    1,174       1,701  
Financial Services provision for credit and insurance losses
    (54 )     (41 )
Total costs and expenses
    30,630       29,888  
                 
Automotive interest income and other non-operating income/(expense), net (Note 12)
    40       189  
Financial Services other income/(loss), net (Note 12)
    85       126  
Equity in net income/(loss) of affiliated companies
    167       142  
Income/(Loss) before income taxes
    2,776       2,135  
Provision for/(Benefit from) income taxes
    220       50  
Income/(Loss) from continuing operations
    2,556       2,085  
Income/(Loss) from discontinued operations
           
Net income/(loss)
    2,556       2,085  
Less: Income/(Loss) attributable to noncontrolling interests
    5        
Net income/(loss) attributable to Ford Motor Company
  $ 2,551     $ 2,085  
                 
NET INCOME/(LOSS) ATTRIBUTABLE TO FORD MOTOR COMPANY
         
Income/(Loss) from continuing operations
  $ 2,551     $ 2,085  
Income/(Loss) from discontinued operations
           
Net income/(loss)
  $ 2,551     $ 2,085  
                 
AMOUNTS PER SHARE ATTRIBUTABLE TO FORD MOTOR COMPANY COMMON AND CLASS B STOCK (Note 15)
               
Basic income/(loss)
               
Income/(Loss) from continuing operations
  $ 0.68     $ 0.62  
Income/(Loss) from discontinued operations
           
Net income/(loss)
  $ 0.68     $ 0.62  
Diluted income/(loss)
               
Income/(Loss) from continuing operations
  $ 0.61     $ 0.50  
Income/(Loss) from discontinued operations
           
Net income/(loss)
  $ 0.61     $ 0.50  

The accompanying notes are part of the financial statements.
 
 
1

 
Item 1. Financial Statements (Continued)
 
FORD MOTOR COMPANY AND SUBSIDIARIES

SECTOR STATEMENT OF OPERATIONS
For the Periods Ended March 31, 2011 and 2010
(in millions, except per share amounts)
 
   
First Quarter
 
   
2011
   
2010
 
   
(unaudited)
 
AUTOMOTIVE
           
Sales
  $ 31,038     $ 28,894  
Costs and expenses
               
Cost of sales
    26,776       25,139  
Selling, administrative and other expenses
    2,143       2,220  
Total costs and expenses
    28,919       27,359  
Operating income/(loss)
    2,119       1,535  
                 
Interest expense
    251       542  
                 
Interest income and other non-operating income/(expense), net (Note 12)
    40       189  
Equity in net income/(loss) of affiliated companies
    162       138  
Income/(Loss) before income taxes — Automotive
    2,070       1,320  
                 
FINANCIAL SERVICES
               
Revenues
    2,076       2,672  
Costs and expenses
               
Interest expense
    923       1,159  
Depreciation
    430       660  
Operating and other expenses
    161       209  
Provision for credit and insurance losses
    (54 )     (41 )
Total costs and expenses
    1,460       1,987  
                 
Other income/(loss), net (Note 12)
    85       126  
Equity in net income/(loss) of affiliated companies
    5       4  
Income/(Loss) before income taxes — Financial Services
    706       815  
                 
TOTAL COMPANY
               
Income/(Loss) before income taxes
    2,776       2,135  
Provision for/(Benefit from) income taxes
    220       50  
Income/(Loss) from continuing operations
    2,556       2,085  
Income/(Loss) from discontinued operations
           
Net income/(loss)
    2,556       2,085  
Less: Income/(Loss) attributable to noncontrolling interests
    5        
Net income/(loss) attributable to Ford Motor Company
  $ 2,551     $ 2,085  
                 
NET INCOME/(LOSS) ATTRIBUTABLE TO FORD MOTOR COMPANY
         
Income/(Loss) from continuing operations
  $ 2,551     $ 2,085  
Income/(Loss) from discontinued operations
           
Net income/(loss)
  $ 2,551     $ 2,085  
                 
AMOUNTS PER SHARE ATTRIBUTABLE TO FORD MOTOR COMPANY COMMON AND CLASS B STOCK (Note 15)
               
Basic income/(loss)
               
Income/(Loss) from continuing operations
  $ 0.68     $ 0.62  
Income/(Loss) from discontinued operations
           
Net income/(loss)
  $ 0.68     $ 0.62  
Diluted income/(loss)
               
Income/(Loss) from continuing operations
  $ 0.61     $ 0.50  
Income/(Loss) from discontinued operations
           
Net income/(loss)
  $ 0.61     $ 0.50  

The accompanying notes are part of the financial statements.

 
2

 
Item 1. Financial Statements (Continued)
 
FORD MOTOR COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET
(in millions)

   
March 31,
2011
   
December 31,
2010
 
   
(unaudited)
 
ASSETS
           
Cash and cash equivalents
  $ 21,318     $ 14,805  
Marketable securities
    13,548       20,765  
Finance receivables, net (Note 5)
    70,704       70,070  
Other receivables, net
    8,999       7,388  
Net investment in operating leases
    11,239       11,675  
Inventories (Note 7)
    7,414       5,917  
Equity in net assets of affiliated companies
    2,525       2,569  
Net property
    23,407       23,179  
Deferred income taxes
    1,962       2,003  
Net intangible assets (Note 9)
    98       102  
Other assets
    6,177       6,214  
Total assets
  $ 167,391     $ 164,687  
                 
LIABILITIES
               
Payables
  $ 19,984     $ 16,362  
Accrued liabilities and deferred revenue
    42,092       43,844  
Debt (Note 11)
    101,638       103,988  
Deferred income taxes
    1,212       1,135  
Total liabilities
    164,926       165,329  
                 
EQUITY
               
Capital stock
               
Common Stock, par value $0.01 per share (3,742 million shares issued)
    37       37  
Class B Stock, par value $0.01 per share (71 million shares issued)
    1       1  
Capital in excess of par value of stock
    20,723       20,803  
Accumulated other comprehensive income/(loss)
    (13,684 )     (14,313 )
Treasury stock
    (164 )     (163 )
Retained earnings/(Accumulated deficit)
    (4,487 )     (7,038 )
Total equity/(deficit) attributable to Ford Motor Company (Note 19)
    2,426       (673 )
Equity/(Deficit) attributable to noncontrolling interests (Note 19)
    39       31  
Total equity/(deficit) (Note 19)
    2,465       (642 )
Total liabilities and equity
  $ 167,391     $ 164,687  
 

 
The following table includes assets to be used to settle liabilities of the consolidated variable interest entities ("VIEs").  These assets and liabilities are included in the consolidated balance sheet above.  See Note 8 for additional information on our VIEs.
 
ASSETS
           
Cash and cash equivalents
  $ 4,375     $ 4,062  
Marketable securities
           
Finance receivables, net
    50,414       50,473  
Other receivables, net
          13  
Net investment in operating leases
    5,345       6,121  
Inventories
          19  
Net property
          31  
Deferred income taxes
           
Other assets
    44       28  
LIABILITIES
               
Payables
          16  
Accrued liabilities and deferred revenue
    105       222  
Debt
    41,379       40,247  

The accompanying notes are part of the financial statements.
 
 
3

 
Item 1. Financial Statements (Continued)
 
FORD MOTOR COMPANY AND SUBSIDIARIES
SECTOR BALANCE SHEET
(in millions)
 
ASSETS
 
March 31,
2011
   
December 31,
2010
 
    (unaudited)  
Automotive
           
Cash and cash equivalents
  $ 12,544     $ 6,301  
Marketable securities
    8,822       14,207  
Total cash and marketable securities
    21,366       20,508  
Receivables, less allowances of $218 and $228
    4,259       3,992  
Inventories (Note 7)
    7,414       5,917  
Deferred income taxes
    265       359  
Net investment in operating leases
    847       1,282  
Other current assets
    796       610  
Current receivable from Financial Services
    2,063       1,700  
Total current assets
    37,010       34,368  
Equity in net assets of affiliated companies
    2,386       2,441  
Net property
    23,261       23,027  
Deferred income taxes
    2,365       2,468  
Net intangible assets (Note 9)
    98       102  
Non-current receivable from Financial Services
    190       181  
Other assets
    2,241       2,019  
Total Automotive assets
    67,551       64,606  
Financial Services
               
Cash and cash equivalents
    8,774       8,504  
Marketable securities
    4,927       6,759  
Finance receivables, net (Note 5)
    75,199       73,265  
Net investment in operating leases
    10,392       10,393  
Equity in net assets of affiliated companies
    139       128  
Other assets
    3,739       4,221  
Total Financial Services assets
    103,170       103,270  
Intersector elimination
    (2,455 )     (2,083 )
Total assets
  $ 168,266     $ 165,793  
LIABILITIES
               
Automotive
               
Trade payables
  $ 16,756     $ 13,466  
Other payables
    1,712       1,544  
Accrued liabilities and deferred revenue
    15,942       17,065  
Deferred income taxes
    318       392  
Debt payable within one year (Note 11)
    2,011       2,049  
Total current liabilities
    36,739       34,516  
Long-term debt (Note 11)
    14,589       17,028  
Other liabilities
    22,977       23,016  
Deferred income taxes
    282       344  
Total Automotive liabilities
    74,587       74,904  
Financial Services
               
Payables
    1,516       1,352  
Debt (Note 11)
    85,239       85,112  
Deferred income taxes
    1,487       1,505  
Other liabilities and deferred income
    3,174       3,764  
Payable to Automotive
    2,253       1,881  
Total Financial Services liabilities
    93,669       93,614  
Intersector elimination
    (2,455 )     (2,083 )
Total liabilities
    165,801       166,435  
EQUITY
               
Capital stock (Note 15)
               
Common Stock, par value $0.01 per share (3,742 million shares issued)
    37       37  
Class B Stock, par value $0.01 per share (71 million shares issued)
    1       1  
Capital in excess of par value of stock
    20,723       20,803  
Accumulated other comprehensive income/(loss)
    (13,684 )     (14,313 )
Treasury stock
    (164 )     (163 )
Retained earnings/(Accumulated deficit)
    (4,487 )     (7,038 )
Total equity/(deficit) attributable to Ford Motor Company
    2,426       (673 )
Equity/(Deficit) attributable to noncontrolling interests
    39       31  
Total equity/(deficit)
    2,465       (642 )
Total liabilities and equity
  $ 168,266     $ 165,793  

The accompanying notes are part of the financial statements.
 
 
4

 
Item 1. Financial Statements (Continued)
 
FORD MOTOR COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the Periods Ended March 31, 2011 and 2010
(in millions)

   
First Quarter
 
   
2011
   
2010
 
   
(unaudited)
 
Cash flows from operating activities of continuing operations
           
Net cash (used in)/provided by operating activities
  $ 2,497     $ 2,683  
                 
Cash flows from investing activities of continuing operations
               
Capital expenditures
    (929 )     (1,068 )
Acquisitions of retail and other finance receivables and operating leases
    (8,068 )     (6,979 )
Collections of retail and other finance receivables and operating leases
    8,444       9,602  
Purchases of securities
    (19,194 )     (18,341 )
Sales and maturities of securities
    26,479       17,987  
Settlements of derivatives
    15       46  
Other
    147       (80 )
Net cash (used in)/provided by investing activities
    6,894       1,167  
                 
Cash flows from financing activities of continuing operations
               
Sales of Common Stock
          530  
Changes in short-term debt
    561       (1,042 )
Proceeds from issuance of other debt
    9,268       8,827  
Principal payments on other debt
    (13,199 )     (8,506 )
Other
    88       79  
Net cash (used in)/provided by financing activities
    (3,282 )     (112 )
                 
Effect of exchange rate changes on cash
    404       (276 )
                 
Net increase/(decrease) in cash and cash equivalents from continuing operations
    6,513       3,462  
                 
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
  $ 6,513     $ 3,462  
                 
Cash and cash equivalents at January 1
  $ 14,805     $ 20,894  
Cash and cash equivalents of discontinued/held-for-sale operations at January 1
           
Net increase/(decrease) in cash and cash equivalents
    6,513       3,462  
Less: cash and cash equivalents of discontinued/held-for-sale operations at March 31
           
Cash and cash equivalents at March 31
  $ 21,318     $ 24,356  

The accompanying notes are part of the financial statements.
 
 
5

 
Item 1. Financial Statements (Continued)
 
FORD MOTOR COMPANY AND SUBSIDIARIES

CONDENSED SECTOR STATEMENT OF CASH FLOWS
For the Periods Ended March 31, 2011 and 2010
(in millions)

   
First Quarter 2011
   
First Quarter 2010
 
   
Automotive
   
Financial
Services
   
Automotive
   
Financial
Services
 
   
(unaudited)
   
(unaudited)
 
Cash flows from operating activities of continuing operations
                       
Net cash (used in)/provided by operating activities
  $ 2,963     $ 1,035     $ 20     $ 2,071  
                                 
Cash flows from investing activities of continuing operations
                               
Capital expenditures
    (926 )     (3 )     (1,064 )     (4 )
Acquisitions of retail and other finance receivables and operating leases
          (7,990 )           (6,979 )
Collections of retail and other finance receivables and operating leases
          8,444             9,673  
Net (acquisitions)/collections of wholesale receivables
          (1,579 )           521  
Purchases of securities
    (11,364 )     (7,830 )     (9,102 )     (9,239 )
Sales and maturities of securities
    16,815       9,664       11,917       6,284  
Settlements of derivatives
    35       (20 )     (128 )     174  
Investing activity (to)/from Financial Services
    838             375        
Other
    130       17       (7 )     (73 )
Net cash (used in)/provided by investing activities
    5,528       703       1,991       357  
                                 
Cash flows from financing activities of continuing operations
                               
Sales of Common Stock
                530        
Changes in short-term debt
    (110 )     671       269       (1,311 )
Proceeds from issuance of other debt
    574       8,694       310       8,517  
Principal payments on other debt
    (3,000 )     (10,199 )     (117 )     (8,603 )
Investing activity to/(from) Automotive
          (838 )           (375 )
Other
    59       29       116       (37 )
Net cash (used in)/provided by financing activities
    (2,477 )     (1,643 )     1,108       (1,809 )
                                 
Effect of exchange rate changes on cash
    229       175       (80 )     (196 )
Net increase/(decrease) in cash and cash equivalents from continuing operations
    6,243       270       3,039       423  
                                 
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
  $ 6,243     $ 270     $ 3,039     $ 423  
                                 
Cash and cash equivalents at January 1
  $ 6,301     $ 8,504     $ 9,762     $ 11,132  
Cash and cash equivalents of discontinued/held-for-sale operations at January 1
                       
Net increase/(decrease) in cash and cash equivalents
    6,243       270       3,039       423  
Less: cash and cash equivalents of discontinued/held-for-sale operations at March 31
                       
Cash and cash equivalents at March 31
  $ 12,544     $ 8,774     $ 12,801     $ 11,555  

The accompanying notes are part of the financial statements.
 
 
6

 
Item 1. Financial Statements (Continued)
 
FORD MOTOR COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the Periods Ended March 31, 2011 and 2010
(in millions)

   
First Quarter
 
   
2011
   
2010
 
   
(unaudited)
 
Net income/(loss)
  $ 2,556     $ 2,085  
Other comprehensive income/(loss), net of tax:
               
Foreign currency translation
    588       (489 )
Net gain/(loss) on derivative instruments
    117       (1 )
Employee benefit-related
    (78 )     157  
Net holding gain/(loss)
          (2 )
Total other comprehensive income/(loss), net of tax
    627       (335 )
Comprehensive income/(loss)
    3,183       1,750  
Less: Comprehensive income/(loss) attributable to noncontrolling interests (Note 19)
    3        
Comprehensive income/(loss) attributable to Ford Motor Company
  $ 3,180     $ 1,750  

The accompanying notes are part of the financial statements.
 
 
7

 
Item 1. Financial Statements (Continued)
 
FORD MOTOR COMPANY AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS

Table of Contents

Footnote
     
Page
 
           
Note 1
Presentation
    9  
Note 2
Accounting Standards Issued But Not Yet Adopted
    11  
Note 3
Fair Value Measurements
    11  
Note 4
Restricted Cash
    20  
Note 5
Finance Receivables
    20  
Note 6
Allowance for Credit Losses
    27  
Note 7
Inventories
    30  
Note 8
Variable Interest Entities
    30  
Note 9
Net Intangible Assets
    34  
Note 10
Retirement Benefits
    35  
Note 11
Debt and Commitments
    35  
Note 12
Other Income/(Loss)
    43  
Note 13
Income Taxes
    44  
Note 14
Dispositions and Acquisitions
    44  
Note 15
Amounts Per Share Attributable to Ford Motor Company Common and Class B Stock
    45  
Note 16
Derivative Financial Instruments and Hedging Activities
    46  
Note 17
Segment Information
    50  
Note 18
Commitments and Contingencies
    51  
Note 19
Equity/(Deficit) Attributable to Ford Motor Company and Noncontrolling Interests
    52  

 
8

 
Item 1. Financial Statements (Continued)
 
NOTE 1.  PRESENTATION

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.  Intercompany items and transactions have been eliminated in both the consolidated and sector balance sheets.  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, 2010 ("2010 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. 

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

Adoption of New Accounting Standards

Business Combinations.  On January 1, 2011 we adopted the new standard on business combinations.  The new standard requires public entities that present comparative financial statements to disclose the revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the prior annual reporting period.  The new accounting standard did not have a material impact on our financial statement 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 the total sector and consolidated balance sheets is as follows (in millions):

   
March 31,
 2011
   
December 31,
2010
 
Sector balance sheet presentation of deferred income tax assets:
           
Automotive sector current deferred income tax assets
  $ 265     $ 359  
Automotive sector non-current deferred income tax assets
    2,365       2,468  
Financial Services sector deferred income tax assets*
    207       282  
Total
    2,837       3,109  
Reclassification for netting of deferred income taxes
    (875 )     (1,106 )
Consolidated balance sheet presentation of deferred income tax assets
  $ 1,962     $ 2,003  
                 
Sector balance sheet presentation of deferred income tax liabilities:
               
Automotive sector current deferred income tax liabilities
  $ 318     $ 392  
Automotive sector non-current deferred income tax liabilities
    282       344  
Financial Services sector deferred income tax liabilities
    1,487       1,505  
Total
    2,087       2,241  
Reclassification for netting of deferred income taxes
    (875 )     (1,106 )
Consolidated balance sheet presentation of deferred income tax liabilities
  $ 1,212     $ 1,135  
__________
*     Financial Services deferred income tax assets are included in Financial Services other assets on our sector balance sheet.

 
9

 
Item 1. Financial Statements (Continued)

NOTE 1.  PRESENTATION (Continued)

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.  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.  As of March 31, 2011, approximately $780 million of the debt purchased has matured, and $267 million was repurchased from us by Ford Credit.

On our consolidated balance sheet, we net the remaining debt purchased by Ford with the outstanding debt of Ford Credit, reducing our consolidated marketable securities and debt balances by $201 million at March 31, 2011 and December 31, 2010, respectively.  On our sector balance sheet, the debt is reported separately as Automotive marketable securities and Financial Services debt as it has not been retired or cancelled by Ford Credit.

Sector to Consolidated Cash Flow Reconciliation.  We present certain cash flows from wholesale receivables, finance receivables and the Automotive acquisition of Financial Services debt 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 Quarter
 
   
2011
   
2010
 
Automotive cash flows from operating activities of continuing operations
  $ 2,963     $ 20  
Financial Services cash flows from operating activities of continuing operations
    1,035       2,071  
Total sector cash flows from operating activities of continuing operations
    3,998       2,091  
Reclassifications from investing to operating cash flows:
               
Wholesale receivables (a)
    (1,579 )     521  
Finance receivables (b)
    78       71  
Consolidated cash flows from operating activities of continuing operations
  $ 2,497     $ 2,683  
                 
Automotive cash flows from investing activities of continuing operations
  $ 5,528     $ 1,991  
Financial Services cash flows from investing activities of continuing operations
    703       357  
Total sector cash flows from investing activities of continuing operations
    6,231       2,348  
Reclassifications from investing to operating cash flows:
               
Wholesale receivables (a)
    1,579       (521 )
Finance receivables (b)
    (78 )     (71 )
Reclassifications from investing to financing cash flows:
               
Automotive sector acquisition of Financial Services sector debt (c)
          (214 )
    Elimination of investing activity to/(from) Financial Services in consolidation
    (838 )     (375 )
Consolidated cash flows from investing activities of continuing operations
  $ 6,894     $ 1,167  
                 
Automotive cash flows from financing activities of continuing operations
  $ (2,477 )   $ 1,108  
Financial Services cash flows from financing activities of continuing operations
    (1,643 )     (1,809 )
Total sector cash flows from financing activities of continuing operations
    (4,120 )     (701 )
Reclassifications from investing to financing cash flows:
               
Automotive sector acquisition of Financial Services sector debt (c)
          214  
    Elimination of investing activity to/(from) Financial Services in consolidation
    838       375  
Consolidated cash flows from financing activities of continuing operations
  $ (3,282 )   $ (112 )


(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 "Debt Reduction Actions" above for further discussion.  Cash inflows 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.

 
10

 
Item 1. Financial Statements (Continued)
 
NOTE 2.  ACCOUNTING STANDARDS ISSUED BUT NOT YET ADOPTED

Troubled Debt Restructurings. In April 2011, the Financial Accounting Standards Board ("FASB") issued a new standard to clarify the accounting for and disclosures about troubled debt restructurings by creditors.  The new standard was issued to address concerns about the diversity in practice related to identifying troubled debt restructurings and provides additional guidance as to whether a restructuring meets the criteria to be considered a troubled debt restructuring for purposes of recording an impairment and related disclosures.  The standard is effective for us as of July 1, 2011 and will be applied prospectively to troubled debt restructurings occurring on or after January 1, 2011.  We do not expect this standard will have a material impact on our financial condition, results of operations, and financial statement disclosures.

Financial Services - Insurance. In October 2010, the FASB issued a new standard addressing the deferral of acquisition costs within the insurance industry.  The new standard modifies which types of costs can be capitalized in the acquisition and renewal of insurance contracts.  The standard is effective for us as of January 1, 2012.  We do not expect this standard to have a material impact on our financial condition, results of operations, and financial statement disclosures.

NOTE 3.  FAIR VALUE MEASUREMENTS

Cash equivalents, marketable securities, and derivative financial instruments are presented on our financial statements at fair value.  The fair value of finance receivables and debt, together with the related carrying value, is disclosed in Notes 5 and 11, respectively.  Certain other assets and liabilities are measured at fair value on a nonrecurring basis and vary based on specific circumstances such as impairments.

Fair Value Measurements

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 include data not observable in the market and reflect management's judgments about the assumptions market participants would use in pricing the asset or liability.
 
The use of observable and unobservable inputs and their significance in measuring fair value are reflected in our hierarchy assessment.

Valuation Methodologies

Cash and Cash Equivalents.  Included in Cash and cash equivalents are highly liquid investments that are readily convertible to known amounts of cash, and which are subject to an insignificant risk of changes in value due to interest rate, market price, or penalty on withdrawal.  A debt security is classified as a cash equivalent if it meets these criteria and if it has a remaining time to maturity of 90 days or less from the date of acquisition.  Amounts on deposit and available upon demand, or negotiated to provide for daily liquidity without penalty, are classified as Cash and cash equivalents.  At March 31, 2011 these include $1.8 billion of demand deposits with financial institutions which were previously classified as Marketable securities, and this amount is reported in Sales and maturities of securities in the first quarter 2011 consolidated statement of cash flows.

Time deposits, certificates of deposit, and money market accounts that meet the above criteria are classified as Cash and cash equivalents, reported at par value, and excluded from the tables below.

Marketable Securities.  Investments in securities with a maturity date greater than 90 days at the date of purchase and other securities for which there is a more than insignificant risk of changes in value because of interest rate, market price, or penalty on withdrawal are classified as Marketable securities.  For marketable 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 are 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.
 
 
11

 
Item 1. Financial Statements (Continued)
 
NOTE 3.  FAIR VALUE MEASUREMENTS (Continued)
 
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 the master netting agreements and posted collateral.  We use our counterparty's CDS spread when we are in a net asset position and our own CDS spread when we are in a net liability position.

In certain cases, market data are not available and we develop assumptions or use models (e.g., Black Scholes) 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 reset 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.

Finance Receivables.  We generally 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 based on scheduled contract payments (including principal and interest).  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 the 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 or current market rates 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 projected payments for specific assets securing the underlying debt considering historical prepayment speeds.

 
12

 
Item 1. Financial Statements (Continued)
 
NOTE 3.  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):

   
March 31, 2011
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Automotive Sector
                       
Assets
                       
Cash equivalents – financial instruments (a)
                       
U.S. government
  $ 368     $     $     $ 368  
U.S. government-sponsored enterprises
          1,448             1,448  
Government –non-U.S.
          392             392  
Foreign government agencies (b)
          3,567             3,567  
Corporate debt
          43             43  
Total cash equivalents – financial instruments
    368       5,450             5,818  
Marketable securities (c)
                               
U.S. government
    2,442                   2,442  
U.S. government-sponsored enterprises
          1,795             1,795  
Foreign government agencies (b)
          2,623             2,623  
Corporate debt
          944             944  
Mortgage-backed and other asset-backed
          53       1       54  
Equity
    158                   158  
Government –non-U.S.
          578             578  
Other liquid investments (d)
          27             27  
Total marketable securities
    2,600       6,020       1       8,621  
Derivative financial instruments
                               
Foreign exchange contracts
          222             222  
Commodity contracts
          48       8       56  
Other – warrants
                5       5  
Total derivative financial instruments (e)
          270       13       283  
Total assets at fair value
  $ 2,968     $ 11,740     $ 14     $ 14,722  
Liabilities
                               
Derivative financial instruments
                               
Foreign exchange contracts
  $     $ 117     $     $ 117  
Commodity contracts
          6       11       17  
Total derivative financial instruments (e)
          123       11       134  
Total liabilities at fair value
  $     $ 123     $ 11     $ 134  


(a)
"Cash equivalents –financial instruments" in this table exclude time deposits, certificates of deposit, money market accounts, and other cash equivalents reported at par value totaling $5.3 billion as of March 31, 2011 for the Automotive sector.  In addition to these cash equivalents, our Automotive sector also had cash on hand totaling $1.4 billion as of March 31, 2011.
(b)
Includes notes issued by foreign government agencies that include implicit and explicit guarantees, as well as notes issued by supranational institutions.
(c)
Excludes an investment in Ford Credit debt securities held by the Automotive sector with a carrying value of $201 million and an estimated fair value of $203 million as of March 31, 2011; see Note 1 for additional detail.
(d)
Other liquid investments include certificates of deposit and time deposits.
(e)
See Note 16 for additional information regarding derivative financial instruments.
 
 
13

 
Item 1. Financial Statements (Continued)
 
NOTE 3.  FAIR VALUE MEASUREMENTS (Continued)

   
March 31, 2011
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Financial Services Sector
                       
Assets
                       
Cash equivalents – financial instruments (a)
                       
U.S. government
  $     $     $     $  
U.S. government-sponsored enterprises
          250             250  
Government –non-U.S.
          314             314  
Foreign government agencies (b)
          308             308  
Corporate debt
          1             1  
Total cash equivalents – financial instruments
          873             873  
Marketable securities
                               
U.S. government
    828                   828  
U.S. government-sponsored enterprises
          1,521             1,521  
Foreign government agencies (b)
          1,188             1,188  
Corporate debt
          1,187             1,187  
Mortgage-backed
          176             176  
Government –non-U.S.
          10             10  
Other liquid investments (c)
          17             17  
Total marketable securities
    828       4,099             4,927  
Derivative financial instruments (d)
                               
Interest rate contracts
          784       118       902  
Foreign exchange contracts
          70             70  
Cross currency interest rate swap contracts
                       
Total derivative financial instruments
          854       118       972  
Total assets at fair value
  $ 828     $ 5,826     $ 118     $ 6,772  
Liabilities
                               
Derivative financial instruments (d)
                               
Interest rate contracts
  $     $ 101     $ 125     $ 226  
Foreign exchange contracts
          25             25  
Cross-currency interest rate swap contracts
                54       54  
Total derivative financial instruments
          126       179       305  
Total liabilities at fair value
  $     $ 126     $ 179     $ 305  


(a)
"Cash equivalents –financial instruments" in this table excludes time deposits, certificates of deposit, money market accounts, and other cash equivalents reported at par value on our balance sheet totaling $5.6 billion as of March 31, 2011 for the Financial Services sector.  In addition to these cash equivalents, our Financial Services sector also had cash on hand totaling $2.3 billion as of March 31, 2011.
(b)
Includes notes issued by foreign government agencies that include implicit and explicit guarantees, as well as notes issues by supranational institutions.
(c)
Other liquid investments include certificates of deposit and time deposits.
(d)
See Note 16 for additional information regarding derivative financial instruments.

 
14

 
Item 1. Financial Statements (Continued)

NOTE 3.  FAIR VALUE MEASUREMENTS (Continued)

   
December 31, 2010
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Automotive Sector
                       
Assets
                       
Cash equivalents – financial instruments (a)
                       
U.S. government
  $     $     $     $  
U.S. government-sponsored enterprises
          224             224  
Government –non-U.S.
          133             133  
Foreign government agencies (b)
          1,619             1,619  
Corporate debt
          199             199  
Total cash equivalents – financial instruments
          2,175             2,175  
Marketable securities (c)
                               
U.S. government
    2,718                   2,718  
U.S. government-sponsored enterprises
          4,809             4,809  
Foreign government agencies (b)
          3,215       1       3,216  
Corporate debt
          517             517  
Mortgage-backed and other asset-backed
          20             20  
Equity
    203                   203  
Government –non-U.S.
          818       1       819  
Other liquid investments (d)
          1,704             1,704  
Total marketable securities
    2,921       11,083       2       14,006  
Derivative financial instruments
                               
Foreign exchange contracts
          58             58  
Commodity contracts
          36       33       69  
Other – warrants
                5       5  
Total derivative financial instruments (e)
          94       38       132  
Total assets at fair value
  $ 2,921     $ 13,352     $ 40     $ 16,313  
Liabilities
                               
Derivative financial instruments
                               
Foreign exchange contracts
  $     $ 93     $     $ 93  
Commodity contracts
          6             6  
Total derivative financial instruments (e)
          99             99  
Total liabilities at fair value
  $     $ 99