FORD UNIVERSITY
Stuart Rowley
Vice President and Controller
March 17, 2014
FORD UNIVERSITY
Agenda for today’s discussion
• Automotive Segment Reporting
• Production compared with Wholesales
• Automotive Segment and Joint Venture Profits
• Fixed Asset Depreciation and Impairment Policy
• Taxes
• Pension Sensitivities
• Annual Incentive Compensation Plan (AICP)
----Topics from prior Ford University Presentations are included in the reference
section at the end of the slide deck. Also posted for your reference is the
updated Ford Credit University deck
SLIDE 2
AGENDA
• Automotive Segment Reporting
• Production compared with Wholesales
• Automotive Segment and Joint Venture Profits
• Fixed Asset Depreciation and Impairment Policy
• Taxes
• Pension Sensitivities
• Annual Incentive Compensation Plan (AICP)
SLIDE 3
AUTOMOTIVE SEGMENT REPORTING
STRUCTURE CHANGE
Impact
• Beginning January 1, 2014 we have restructured our Automotive Segment
reporting structure
• We now have five Automotive segments that report on a “where sold” basis
Prior Structure (2013)
New Structure (2014)
North America
North America
South America
South America
Europe
Europe
Asia Pacific Africa
Middle East & Africa
Asia Pacific
Memo:
Direct Export Markets (included above on a
where produced basis)
Direct Export Markets (included above on a
“where sold” basis)
New Reporting Based On Five Automotive Segments
SLIDE 4
AUTOMOTIVE SEGMENT REPORTING
PRIOR STRUCTURE (2013)
North America
South America
Europe
Asia Pacific Africa
Direct Export Markets
Segments Not Aligned Geographically;
Multiple Regions Servicing Direct Export Markets
SLIDE 5
AUTOMOTIVE SEGMENT REPORTING
NEW STRUCTURE (2014)
Impact
We have reorganized our segments to increase focus on growth markets
and to ensure clear responsibility and accountability for all markets within
each geographic region
Beginning January 1, 2014, we:
• Established a fifth Automotive Segment, Middle East & Africa
-
Includes what were direct export markets in the Middle East & Africa
as well as South Africa which was previously included in
Asia Pacific Africa reporting
• Realigned remaining export markets on a geographic basis
-
Direct export markets located within each region are now included in
these segments
• Revenue and profits for direct export markets, previously reported as
part of the Automotive segment which was the production source, will
now be reported on a “where sold” basis
Direct Export Market Reporting Is Now On A “Where Sold” Basis
SLIDE 6
AUTOMOTIVE SEGMENT REPORTING
NEW STRUCTURE (2014)
North America
South America
Europe
Middle East & Africa
Asia Pacific
Reduces Complexity And Enhances Regional Focus For Profitable Growth
SLIDE 7
AUTOMOTIVE SEGMENT REPORTING
MIDDLE EAST & AFRICA SEGMENT
• Population -- 1.3 billion
• Average age -- 23 in Middle East;
19 in Africa
• 67 countries and currencies
• 1,000+ languages
• Three closed markets -- Iran, Syria,
and Sudan
• Industry size -- about 4 million units,
about 22% of which is closed
• Ford’s 2013 market share about 5.2%
• Ford 2013 unit sales about 200,000
Large, Complex, And Diverse Region
SLIDE 8
AUTOMOTIVE SEGMENT REPORTING
SEGMENT RESULTS IMPACT
Impact
• Based on 2013 results, the estimated directional impact of establishing
Middle East & Africa would have resulted in the following profit impacts
(none of the effects are considered material)
− North America -- about unchanged
− South America -- about unchanged
− Europe -- positive
− Asia Pacific Africa -- negative
• Revised 2013 results will be updated through the year
• Total Automotive sector bottom line reporting is unchanged
No Impact To Automotive Sector Bottom Line
SLIDE 9
AUTOMOTIVE SEGMENT REPORTING
Impact
INDUSTRY AND MARKET SHARE REPORTING
Industry and Market Share
2013 (Prior)
2014 (New)
North America
U.S.
U.S. (Retail)
South America
SA6*
Europe
Total Segment
U.S.
U.S. (Retail)
Total Segment
Brazil
EU19*
EU5 (Retail)**
Total Segment
EU20*
EU5 (Retail)**
Middle East & Africa
N/A
Total Segment
Asia Pacific
APA11*
Total Segment
China
N/A
Global
Total Automotive
* See detail of m ajor m arkets in reference section
** Passenger car
Industry And Market Share Reporting Revised To Include All Markets Globally
SLIDE 10
AGENDA
• Automotive Segment Reporting
• Production compared with Wholesales
• Automotive Segment and Joint Venture Profits
• Fixed Asset Depreciation and Impairment Policy
• Taxes
• Pension Sensitivities
• Annual Incentive Compensation Plan (AICP)
SLIDE 11
PRODUCTION COMPARED WITH WHOLESALES
Overall Company
Production
+/- Net Imports / Exports
+/- Changes in Company Stocks
Wholesales
1Q
2Q
3Q
4Q
FY
Base
~0
Base
~0
Base
~0
Base
~0
Base
~0
-
+/+/-
+/+/-
+
Base
Base
-
+/-
Lower
Higher
~0
Similar
Base
Base
Base
+/-
+
+/-
-
North America
Production
+/- Net Imports / Exports
+/- Changes in Company Stocks
Wholesales
Lower
Lower
Lower
~0
Lower
SLIDE 12
AGENDA
• Automotive Segment Reporting
• Production compared with Wholesales
• Automotive Segment and Joint Venture Profits
• Fixed Asset Depreciation and Impairment Policy
• Taxes
• Pension Sensitivities
• Annual Incentive Compensation Plan (AICP)
SLIDE 13
AUTOMOTIVE SEGMENT AND JOINT VENTURE
Impact
PROFITS
• Ford’s operations include investments in major unconsolidated joint
ventures
• Ford’s equity share of after-tax profit of the joint ventures is included in
the respective Automotive segment results
• Engineering and other costs for Ford’s global platforms are allocated to
our Automotive segments as they are incurred, based on expected
volumes over the vehicle’s cycle life. These costs are included in
Automotive segment results, but are not in joint venture results
• Joint ventures pay royalties to Ford for use of related intellectual
property as compensation for Ford’s investment in engineering
• In total, Ford’s Automotive segment results include the following related
to joint ventures:
-
Ford’s share of joint venture profits
Royalty income
Engineering and other costs incurred for Joint Venture products
and support
SLIDE 14
AGENDA
• Automotive Segment Reporting
• Production compared with Wholesales
• Automotive Segment and Joint Venture Profits
• Fixed Asset Depreciation and Impairment Policy
• Taxes
• Pension Sensitivities
• Annual Incentive Compensation Plan (AICP)
SLIDE 15
FIXED ASSET DEPRECIATION & IMPAIRMENT POLICY
Depreciation
• A systematic and rational manner to allocate costs of investments with
the benefits of their use
• Included in operating expense, even in situations where we accelerate
depreciation (Europe, Australia)
Impairment
• A write-off of a fixed asset group when significant “triggering events”
cause the fair value to fall below its carrying value
• Testing is performed at lowest grouping of assets where we have
independent cash flows. We use our segments -- North America,
South America, Europe, Middle East & Africa, Asia Pacific, and Ford Credit
• If segment cash flows do not support the level of related fixed assets -- we
record an impairment
• Impairments are infrequent; treated as special items
• Last recorded impairments* were in 2008 -- North America $5.3 billion and
Ford Credit $2.1 billion (related to investments in vehicles on lease)
* Excludes impairment on asset groups that were held for sale (Volvo, JLR, and ACH)
SLIDE 16
AGENDA
• Automotive Segment Reporting
• Production compared with Wholesales
• Automotive Segment and Joint Venture Profits
• Fixed Asset Depreciation and Impairment Policy
• Taxes
• Pension Sensitivities
• Annual Incentive Compensation Plan (AICP)
SLIDE 17
TAXES
OPERATING EFFECTIVE TAX RATE
2013 Actual
Operating results*
Pre-tax results
Less: Equity in net income of
affiliated companies**
Adjusted pre-tax results
(Provision for) / Benefit from
income taxes
Effective tax rate
1Q
(Mils.)
2Q
(Mils.)
3Q
(Mils.)
4Q
(Mils.)
FY
(Mils.)
Reference
$ 2,146
$ 2,555
$ 2,589
$ 1,279
$ 8,569
A
214
$ 1,932
273
$ 2,282
293
$ 2,296
$
289
990
1,069
$ 7,500
B
C
$
$
$
$
(19)
$ (2,010)
D
(503)
26.0
%
(721)
31.6
%
(767)
33.4
%
1.9
%
26.8
%
E
* Excludes special items; see reference section for detail and reconciliation to GAAP
** Available in Appendix 4 of Earnings Review and page FS-2 of 2013 Form 10-K
Calculation
Effective tax rate
=
(Provision for) / Benefit from income taxes
Adjusted pre-tax results
E=
D
C
Equity In Net Income Of Affiliated Companies Excluded From Denominator
In Our Calculation Of An Operating Effective Tax Rate
SLIDE 18
TAXES
CASH TAXES
• Worldwide cash taxes to remain low for a number of years
• Worldwide tax assets generated in prior periods reduce current period
cash tax liabilities
Cash Taxes Remain Low
SLIDE 19
AGENDA
• Automotive Segment Reporting
• Production compared with Wholesales
• Automotive Segment and Joint Venture Profits
• Fixed Asset Depreciation and Impairment Policy
• Taxes
• Pension Sensitivities
• Annual Incentive Compensation Plan (AICP)
SLIDE 20
PENSION SENSITIVITIES
GLOBAL PENSION FUNDED STATUS SENSITIVITY
TO INTEREST RATES
• Our strategy is to fully fund and de-risk global funded pension plans
• As plans de-risk, asset allocation will migrate to a higher percentage of
fixed income assets that better match plan liabilities
• At year-end 2013, the fixed income mix in our global plans was 60%, up
from 50% at year-end 2012, driven largely by our U.S. plans; the U.S. fixed
income mix was 70%, up from 55% at year-end 2012
• Commencing with our 2013 10-K, we are disclosing our global net funded
status sensitivity to changes in interest rates
− In the U.S., as our mix of fixed income assets has increased, our plans
are now less sensitive to changes in interest rates
− Non-U.S. plans remain more sensitive to interest rate changes, reflecting
a lower mix of fixed income assets
− Global funded status sensitivity will decrease as our de-risking strategy
progresses
SLIDE 21
PENSION SENSITIVITIES
GLOBAL PENSION FUNDED STATUS SENSITIVITY
TO INTEREST RATES
Increase / (Decrease) in Funded Status
2013 Year End
+ 100 bps
- 100 bps
(Bils.)
(Bils.)
2012 Year End
+ 100 bps
- 100 bps
(Bils.)
(Bils.)
U.S. Plans
Liabilities
$
Assets*
Net Sensitivity
4.3
$
(3.5)
(5.3)
$
5.2
$
(2.9)
4.3
(6.4)
3.6
$
0.8
$
(1.0)
$
2.3
$
(2.8)
$
4.2
$
(4.8)
$
4.0
$
(4.7)
Non-U.S. Plans
Liabilities
Assets*
Net Sensitivity
(1.2)
1.5
(1.1)
1.4
3.0
(3.3)
2.9
(3.3)
Global Net Sensitivity**
$
3.8
$
(4.3)
(Decrease) Global
Net Sensitivity
$
(1.4)
$
(1.8)
$
5.2
$
(6.1)
* Fixed income sensitivity only, excludes other assets
** Reflects impacts of interest rate changes only; other factors not included
Global Pension Sensitivity To Interest Rates Has Declined
Due To De-Risking Actions In Our U.S. Plans
SLIDE 22
AGENDA
• Automotive Segment Reporting
• Production compared with Wholesales
• Automotive Segment and Joint Venture Profits
• Fixed Asset Depreciation and Impairment Policy
• Taxes
• Pension Sensitivities
• Annual Incentive Compensation Plan (AICP)
SLIDE 23
AICP METRICS AND LINKAGE TO TSR
2013 METRICS
TSR DRIVERS
Market Share
Revenue
Growth
10%
2014 METRICS
20%
Automotive Operating
Margin*
30%
Corporate PBT*
35%
Corporate
Operating Margin
Cost Performance
35%
Ford Credit PBT
10%
10%
Automotive Operating-Related
Cash Flow*
Automotive
Revenue
Shareholder
Distributions /
Balance Sheet
Actions
Automotive Operating-Related
Cash Flow*
20%
Quality
Quality
10%
20%
* Excludes special items
2014 AICP Metrics More Directly Align With
The Drivers Of TSR And Elevate The Importance Of Quality
SLIDE 24
REFERENCE MATERIAL
Subjects from prior Ford University Presentations
• Auto University
 Major Markets Defined
 Automotive Operating Margin
 Special Items
 Reporting on a “Where Sold” Basis
 Treatment of Chinese Joint Ventures
 Production / Wholesales / Retail Sales
 Profit Variance Analysis
 Automotive Cost Details
 Automotive Cash and Balance Sheet
 Calendarization Factors
• Appendix
 Reconciliation to GAAP
SLIDE 25