Financial perspective of ford motors

Alexis
Beckford
Dora
Garcia
Maxine Brandt Elizabeth
Bento PRESENTED BY

COMPANY OVERVIEW
• A Global Automotive Industry Leader
• Based in Dearborn, Michigan
• A manufacturer and distributor of automobiles across six continents
• Employs approximately 187,000 persons
• Has 62 manufacturing plants worldwide
• Manufactures the Ford and Lincoln lines/Also parts and accessories
• Incorporated in Delaware in 1919
• Provides Financial Services through Ford Motor Credit
• Trades under the NYSE under the ticker: F
• Most recent stock price: $15.48 as of May 16, 2015
• Sales of $6,323,000 worldwide in 2014
• Global market share:7.2% in 2014

• Ford Motor Company has been in continuous family control for over 100 years
• In 1908 Ford introduced the first engine with a removable cylinder head, in the Model T
• In 1927, Ford introduced the Model A, the first car with safety glass in the windshield
• Ford launched the first low priced V8 engine powered car in 1932
• Ford owns Brazilian SUV manufacturer, Troller, and Australian performance car manufacturer FPV
• Ford owns a 2.1% stake in Mazda of Japan, an 8% stake in Aston Martin of the United Kingdom, and a 49%
stake in Jiangling of China
• It also has a number of joint-ventures, two in China (Changan Ford Mazda and Ford Lio Ho), one in Thailand
(AutoAlliance Thailand), one in Turkey (Ford Otosan), and one in Russia (Ford Sollers)
COMPANY OVERVIEW (cont’d)

• Ford introduced methods for large-scale manufacturing of cars and large-scale management of an
industrial workforce using elaborately engineered manufacturing sequences typified by moving
assembly lines; by 1914 these methods were known around the world as Fordism
• Ford is the second-largest U.S.-based automaker (preceded by General Motors) and the fifth-
largest in the world
• Ford is the eighth-ranked overall American-based company
• The company went public in 1956 but the Ford family, through special Class B shares, still retain
40 percent voting rights
COMPANY OVERVIEW (cont’d)

NEW INITIATIVES & OPPORTUNITIES

• In 2014, Ford Motor Company launched 24 all-new or significantly refreshed products globally,
including the all-new F-150, Mustang, Escort, Ka, Transit, and Lincoln MKC. Ford’s momentum
will continue in 2015 with 15 new global product launches.
• Ford Motor Company’s strategy is to serve customers in all markets with a full family of best in
class vehicles—small, medium and large; cars, utilities and trucks; each delivering the highest
quality, fuel efficiency, safety, smart design, and value—and delivering profitable growth for all.
• The Ford Edge was completely redesigned in 2014.
• The Edge was designed with 3 rows/seven seats to
meet the specific needs of drivers in China.

 Pre-Collision Assist with Pedestrian Detection – uses a camera and radar to help reduce the severity of, or even eliminate, some
frontal collisions involving vehicles and pedestrians. The pre-collision assist helps drivers avoid frontal collisions with other vehicles
at all speeds, while Pedestrian Detection helps drivers avoid pedestrians at lower speeds.
 Active Park Assist – uses ultrasonic sensors and electric power-assisted steering to help drivers parallel park. The sensors measure
the gap between two vehicles to determine if there is enough room for the vehicle. After confirming the vehicle can fit, the
vehicle automatically steers into the space, while the driver operates the accelerator and brake pedals.
 Adaptive Cruise Control / Collision Warning with Brake Support – uses a radar sensor in the front of the vehicle to measure the
distance and speed of vehicles ahead. Using this information, the vehicle can automatically slow to keep a consistent following
distance set by the driver. The slower speed will be maintained if adaptive cruise control is activated. Collision warning triggers
visual and audio alerts if the system detects the following distance is diminishing too quickly and a collision may occur. It also pre-
charges the brakes if the driver needs to stop suddenly.
 Lane Keeping – uses a camera to help prevent the driver from drifting outside of the intended driving lane. The system
automatically detects the left- or right- hand road lane markings. An alert, such as a vibration in the steering wheel, is used to
warn the driver. The system can also provide steering torque to help guide the vehicle back into the lane if needed.
 Enhanced Active Park Assist – uses ultrasonic sensors to help the driver reverse into a space side-to-side with other cars, and for
ease of parking going into and out of parking spaces.
 And Ford is researching many automated assist technologies, including Traffic Jam Assist, a further building block toward
automated driving in the future.

RISK FACTORS
• Decline in industry sales volume, particularly in the United States, Europe, or China, due to financial
crisis, recession, geopolitical events, or other factors.
• Decline in Ford’s market share or failure to achieve growth.
• Lower-than-anticipated market acceptance of Ford’s new or existing products.
• Market shift away from sales of larger, more profitable vehicles beyond Ford’s current planning
assumption, particularly in the United States.
• An increase in or continued volatility of fuel prices, or reduced availability of fuel.
• Continued or increased price competition resulting from industry excess capacity, currency
fluctuations, or other factors.
• Fluctuations in foreign currency exchange rates, commodity prices, and interest rates.
• Adverse effects resulting from economic, geopolitical, or other events.

RISK FACTORS (cont’d)
• Economic distress of suppliers that may require Ford to provide substantial financial support or take other
measures to ensure supplies of components or materials and could increase costs, affect liquidity, or cause
production constraints or disruptions.
• Work stoppages at Ford or supplier facilities or other limitations on production (whether as a result of labor
disputes, natural or man-made disasters, tight credit markets or other financial distress, production constraints or
difficulties, or other factors).
• Single-source supply of components or materials.
• Labor or other constraints on Ford’s ability to maintain competitive cost structure.
• Substantial pension and postretirement health care and life insurance liabilities impairing liquidity or financial
condition.
• Worse-than-assumed economic and demographic experience for postretirement benefit plans (e.g., discount rates
or investment returns).
• The discovery of defects in vehicles resulting in delays in new model launches, recall campaigns, or increased
warranty costs. Restriction on use of tax attributes from tax law “ownership change.”

• Increased safety, emissions, fuel economy, or other regulations resulting in higher costs, cash expenditures,
and/or sales restrictions.
• Unusual or significant litigation, governmental investigations, or adverse publicity arising out of alleged defects
in products, perceived environmental impacts, or otherwise.
• A change in requirements under long-term supply arrangements committing Ford to purchase minimum or
fixed quantities of certain parts, or to pay a minimum amount to the seller (“take-or-pay” contracts).
• Adverse effects on results from a decrease in or cessation or clawback of government incentives related to
investments.
• Inherent limitations of internal controls impacting financial statements and safeguarding of assets.
• Cybersecurity risks to operational systems, security systems, or infrastructure owned by Ford, Ford Credit, or a
third-party vendor or supplier.
• Failure of financial institutions to fulfill commitments under committed credit and liquidity facilities.

• Higher-than-expected credit losses, lower-than-anticipated residual values, or higher-than-expected return
volumes for leased vehicles.
• Increased competition from banks, financial institutions, or other third parties seeking to increase their
share of financing Ford vehicles.
• New or increased credit, consumer, or data protection or other regulations resulting in higher costs and/or
additional financing restrictions.

PRODUCT LIABILITY MATTERS
ASBESTOS MATTERS
ENVIRONMENTAL MATTERS
CLASS ACTIONS
OTHER MATTERS
RISK FACTORS: Legal Proceedings

Use of Estimates
Based on assumptions believed to be reasonable
Restricted Cash
Recorded in Other Assets section of balance sheet. Cash is restricted
for legal and regulatory requirements
Net Intangible Assets
Recognize and amortize finite intangibles over their useful lives
Indefinite life intangibles are not amortized, but tested for impairment
Long-Lived Assets Impairment
Asset groups are tested for recoverability and impairment as necessary
Sales and Marketing Incentives
Generally recognized in the automotive sector as reductions in
automotive revenues
ACCOUNTING POLICIES

Supplier Price Adjustments
Recognize when a final agreement with supplier is reached
Long-Lived Assets Impairment
Asset groups are tested for recoverability and impairment as necessary
Raw Material Arrangements
These arrangements are negotiated at arms’ length and do not involve
volume guarantees
Government Incentives
Receive in the form of tax rebates or credits, grants, and loans
Recorded when all conditions of agreements are filled
Selected Other Costs
Engineering and R&D are included in Automotive cost of sales
Advertising is included in SG&A expenses
ACCOUNTING POLICIES (cont’d)

ASC 235 - Notes to Financial Statements
Management is required to adopt and adhere to the highest quality of
accounting policies possible
Management must disclose the policies used, and the method of application
ACCOUNTING POLICIES (cont’d)

Venezuelan operations: Change from consolidation method to cost method of
accounting
• In 2013 the Venezuelan government effected a devaluation of their currency
which caused lack of exchangeability between currencies
• This caused a one time $800 million loss in the 4th quarter of 2014
ACCOUNTING CHANGES & ERROR CORRECTIONS
ASC 250

Disability accounting policies: switched from an event based model to a service based model
• Change was made because it better aligns the expense with the period the company benefits
from the employee’s service and will provide better compatibility
• The change was retroactively applied and had a cumulative effect on total equity of $250 million
ACCOUNTING CHANGES & ERROR CORRECTIONS (cont’d)

Other accounting changes that did not impact the financial statements or
disclosures:
Income Taxes
Presentation of an unrecognized tax benefit when a net operating loss
carryforward, a similar loss, or tax credit carryforward exists
Foreign Currency Matters
Parent’s accounting for cumulative translation adjustment
Liabilities
Obligations resulting from joint and several liability arrangements

ASC 250 Accounting changes are allowed if:
Management deems it to be preferable to change an existing principle versus
continued use of the one being used
Adoption of a and further information
Correcting an error previously made new accounting principle
Refining a prior estimate as a result of experience in issued financial statements

Sales of vehicles, parts, and accessories – to dealers and distributers
• Recorded when all risks and rewards of ownership are transferred to the
Majority when products ship from manufacturer
• If there is a right of return, related revenues are reduced by expected
returns
Sales to fleet customers
• Subject to guaranteed repurchase options
• Vehicles accounting for as operating leases with sale proceeds recorded
as deferred revenue
• The difference between the proceeds and guaranteed repurchase amount is
recognized in automotive revenues over the term of the lease
Average leases is 11 months
REVENUE RECOGNITION – AUTOMOTIVE SECTOR

Revenue is generated primarily from interest on finance receivables
• Recognized using the interest method
Revenue from rental payments received on operating leases is recognized
on a straight-line basis over the term of the lease
Accrued interest on finance revenue on operating lease is discontinued at the
time the account is determined to be uncollectable
REVENUE RECOGNITION – FINANCE SECTOR

REVENUE RECOGNITION
For the years ended December 31,
2014 2013 2012
Revenues
Automotive $ 135,782 $ 139,369 $ 126,567
Financial Services 8,295 7,548 6,992
Total revenues 144,077 146,917 133,559

ASC 605, Revenue for the sale of a product or provision of services is to be recognized
when earned.
To be earned, the following must be met:
• There is persuasive evidence that an arrangement exists
• Delivery has occurred or services have been rendered
• The seller’s price is determinable
• Collectability is reasonably assures
REVENUE RECOGNITION

To recognize revenue when there is a right of return:
• The seller’s price is fixed
• The buyer has paid the seller
• The buyer's obligation will not change in the event of product destruction
• The buyer has economic substance apart from the seller
• The seller does not have significant future obligations for the resale
• Future returns can be reasonably estimated
REVENUE RECOGNITION

 Receivables are made up of finance receivables and leases
 The finance receivables are composed of two segments consumer and non-consumer financing.
 The receivables are generally secured by the vehicles, inventory, or other property being financed.
 The consumer segment is vehicles financed for the use of businesses and people that use the vehicles for
commercial and personal use
 The non-consumer segment is made up of vehicles offered to dealers and parts and accessories. It also
includes financing available for dealers to make improvements to their dealerships facilities and to
purchase dealership real estate as well as for dealerships to use for working capital
RECIEVABLES
ASC 310

Consumer Portfolio
Receivables in this portfolio include products offered to individuals and businesses that finance the acquisition of
Ford and Lincoln vehicles from dealers for personal or commercial use. Retail financing includes retail installment
contracts for new and used vehicles and direct financing leases with retail customers, government entities, daily
rental companies, and fleet customers.
Finance receivables are recorded at the time of origination or purchase at fair value and are subsequently reported
at amortized cost, net of any allowance for credit losses.
Non-Consumer Portfolio
Receivables in this portfolio include products offered to automotive dealers. The products include:
• Dealer financing – includes wholesale loans to dealers to finance the purchase of vehicle inventory, also
known as floorplan financing, as well as loans to dealers to finance working capital and improvements to
dealership facilities, finance the purchase of dealership real estate, and finance other dealer programs.
Wholesale financing is approximately 94% of our dealer financing
• Other financing – primarily related to the sale of parts and accessories to dealers
2014: Finance receivables 3.6 billion
FINANCE RECIEVABLES

Operating leases
North America accounted for 99% of Ford Credit’s total operating leases at December 31, 2013
Finance Receivables. Finance receivables are recorded at the time of origination or purchase at fair value and
are subsequently reported at amortized cost, net of any allowance for credit losses.
Ford measures finance receivables at fair value for purposes of disclosure 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 present value based on
assumptions regarding credit losses, pre-payment speed, and applicable spreads to approximate current
rates.
The fair value of collateral for retail receivables is calculated by multiplying the outstanding receivable balances
by the average recovery value percentage to determine the fair value adjustment. The fair value of collateral
for dealer loans is determined by reviewing various appraisals, which include total adjusted appraised value
of land and improvements, alternate use appraised value, broker’s opinion of value, and purchase offers. The
fair value adjustment is calculated by comparing the net carrying value of the dealer loan and the estimated
fair value of collateral.
RECIEVABLES

Ford generally suspends credit lines and extends no further funding to dealers classified in Group IV. They
regularly review their model to confirm the continued business significance and statistical predictability of the factors and
update the model to incorporate new factors or other information that improves its statistical predictability. In addition,
they regularly audit dealer inventory and dealer sales records to verify that the dealer is in possession of the financed
vehicles and is promptly paying each receivable following the sale of the financed vehicle. The credit quality of dealer
financing receivables is evaluated based on Ford’s internal dealer risk rating analysis. A dealer has the same risk rating for
its entire dealer financing regardless of the type of financing.
RECIEVABLES
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
Dealers are assigned to one of four groups according to risk ratings as follows:

• Ford Credit’s charge-offs were up from its record-low in 2013, primarily reflecting higher severity and
lower recoveries in North America, and higher losses in International.
• In purchasing retail finance and operating lease contracts, Ford Credit uses a proprietary scoring system
that classifies contracts using several factors, such as credit bureau information, consumer credit risk
scores (e.g., FICO score), and contract characteristics. In addition to Ford Credit’s proprietary scoring
system, it considers other factors, such as employment history, financial stability, and capacity to pay.
Consumer receivables credit quality ratings are as follows:
RECIEVABLES
 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. At December 31, 2013, Ford Credit had between 5% and 6% of the
outstanding U.S. retail finance and operating lease contracts in its portfolio as high risk
at contract inception.

Residual Risk:
 Ford Credit is exposed to residual risk on operating leases and similar balloon payment products where the
customer may return the financed vehicle to Ford Credit. Residual risk is the possibility that the amount Ford
Credit obtains from returned vehicles will be less than its estimate of the expected residual value for the
vehicle.
RECIEVABLES
Credit Loss:
 Credit loss measures changes in the provision for credit losses. For analysis purposes, management splits the
provision for credit losses primarily into net charge-offs and the change in the allowance for credit losses.
 Net charge-off changes are primarily driven by the number of repossessions, severity per repossession, and
recoveries. Changes in the allowance for credit losses are primarily driven by changes in historical trends in
credit losses and recoveries, changes in the composition and size of Ford Credit’s present portfolio, changes in
trends in historical used vehicle values, and changes in economic conditions.

Increased competition from banks, financial institutions, or other third parties seeking to increase their
share of financing Ford vehicles. No single company is a dominant force in the automotive finance
industry. Most of Ford Credit’s bank competitors in the United States use credit aggregation systems that
permit dealers to send, through standardized systems, retail credit applications to multiple finance sources
to evaluate financing options offered by these sources. Also, direct on-line or large dealer group financing
options provide consumers with alternative finance sources and/or increased pricing transparency. All of
these financing alternatives drive greater competition based on financing rates. Competition from such
institutions and alternative finance sources could adversely affect Ford Credit’s profitability and the
volume of its retail business. In addition, Ford Credit may face increased competition on wholesale
financing for Ford dealers.
RECIEVABLES

Trade Receivables, recorded on their consolidated balance sheet in Other
receivables, net, consist primarily of Automotive sector receivables for
vehicles, parts, and accessories. Trade receivables initially are recorded at
the transaction amount. They record an allowance for doubtful accounts
representing their estimate of the probable losses. Each reporting period,
they assess the adequacy of their allowance for doubtful accounts taking
into consideration recoveries received during that period. Additions to the
allowance for doubtful accounts are made by recording charges to bad debt
expense reported in Automotive cost of sales. Receivables are charged to
the allowance for doubtful accounts when an account is deemed to be
uncollectible.
RECIEVABLES

Net Receivables Finance receivables - North America
Consumer - Retail financing 44.1
Dealer financing (a) 22.5
Other 1.0
Total finance receivables - North America 67.6
Finance receivables - International Consumer - Retail financing 11.8
Non-Consumer Dealer financing (a) 9.3 ; Other( 0.3) Total finance receivables - International (b) 21.4
Unearned interest supplements (1.8) Allowance for credit losses (0.4) Finance receivables, net 86.9
Net investment in operating leases (b) (c) 21.5
Total net receivables $ 108.4
RECIEVABLES
Ford Credit’s receivables, including finance receivables and operating leases, at December 31 were as
follows (in billions):
Managed receivables at December 31, 2014 increased from year-end 2013, driven by increases in non-
consumer and consumer finance receivables in all operations and increases in leasing in North America

Accounts Receivable is agreements by customers to pay for services received or merchandise obtained.
Under rule ASC 310 Receivables a financing receivable arrangement has both of the following characteristic:
RECIEVABLES
A. It represents a contractual right to receive money in either of the following ways:
1. On demand
2. On fixed or determinable dates
B. It is recognized as an asset in the entity’s statement of financial position
C. Ford follows these rules because they are giving some type of merchandise or service in
return for payment.

Property Plant and Equipment is made up of manufacturing and assembly facilities located in
different parts of the country.
The facilities are composed of assembly plants, engine plants, casting plants, metal stamping
plants, transmission plants, and other component plants
A good portion of the warehouse and sales office space is leased (they own approximately 51%
of the total square footage, and lease the balance). A substantial amount of our warehousing is
provided by third-party providers under service contracts.
Almost all of the engineering centers and other research centers are owned by Ford as well as
many engineering centers located outside of the United States
PROPERTY, PLANT, & EQUIPMENT
ASC 360

Ford uses eight regional engineering, research, and development centers, and 62 manufacturing plants as
stated below:
Segment Plants North America 30
South America 8
Europe 12
Middle East & Africa 2
Asia Pacific 10
Total 62

Assets are recorded at cost, net of accumulated depreciation and impairments.
New assets are capitalized when they are expected to be used for more than one
year. Routine maintenance and repair costs are expensed when incurred.
Property and equipment are depreciated primarily using the straight-line method
over the estimated useful life of the asset.

Property, Plant, and Equipment Cost considerations-initial acquisition:
Determination of costs is critical to proper accounting for property,
plant, and equipment. Upon acquisition, the reporting entity should
capitalize all the costs necessary to deliver the asset to its intended
location and prepare it for its productive use. Ford complies with this
because they capitalize all new assets when they will be used for more
than a year.

INVENTORY
“All inventories are stated at the lower of cost or market. Cost for a substantial portion of U.S. inventories is
determined on a last-in, first-out (“LIFO”) basis. LIFO was used for 26% and 20% of total inventories at June
30, 2014 and December 31, 2013, respectively. Cost of other inventories is determined by costing methods
that approximate a first-in, firstout (“FIFO”) basis”. (NOTE 9)
Raw materials, work-in-process, and supplies $ 3,822
Finished products 5,022
Total inventories under FIFO 8,844
LIFO adjustment (978)
Total inventories $7,866
ASC 340

INVENTORY
“Ford has entered into a number of long-term supply contracts that require them to purchase a fixed
quantity of parts to be used in the production of their vehicles. If their need for any of these parts were
to lessen, they could still be required to purchase a specified quantity of the part or pay a minimum
amount to the seller pursuant to the take-or-pay contract, which could have a substantial adverse effect
on their financial condition or results of operations”.
Raw Materials
 Ford purchases many raw materials from numerous suppliers around the world for use in production of their
vehicles.
 These materials include base metals (e.g., steel, iron castings, and aluminum), precious metals (e.g., palladium),
energy (e.g., natural gas), and plastics/resins (e.g., polypropylene).
 There always are risks and uncertainties with respect to the supply of raw materials, however, which could impact
availability in sufficient quantities to meet their needs.

Ford manages their vehicle production schedule based on a number of factors, including retail sales
(i.e., units sold by our dealerships to their customers at retail) and dealer stock levels (i.e., the number of
units held in inventory by our dealerships for sale to their customers). Historically, they have experienced
some seasonal fluctuation in the business, with production in many markets tending to be higher in the
first half of the year to meet demand in the spring and summer (typically the strongest sales months of the
year).
INVENTORY

All inventories are listed at the lower of cost or market value: “as stated in ASC 340-10-20: market
shall not exceed the net realizable value and market shall not be less than net realizable value reduced
by an allowance for an approximately normal profit margin”. This rule states that if the replacement
cost (market) of the inventory is lower than the inventory cost, the lower figure should be used.
Valuation can be determined on an item-by-item or major category basis”. Ford complies with these
rules
INVENTORY

ASC 830
Fluctuations in foreign currency exchange rates, commodity prices, and interest rates.
• Affects both Automotive and Financial Services sectors
• Normal practice is to use derivative instruments, when available, to hedge economic exposure with respect to forecasted
revenues and costs, assets, liabilities, and firm commitments denominated in foreign currencies. (ASC 815)
Key Economic Factors and Trends Affecting the Automotive Industry
• Currency Exchange Rate Volatility. The U.S. Federal Reserve has ended financial asset purchases, and the resulting shifts in capital flows have
contributed to downward pressure on several emerging market currencies.
• The yen and euro have depreciated as a result of policy changes by the Bank of Japan, and European Central Bank. The weak yen, in particular,
adds significant potential downward pressure on vehicle pricing across many markets globally.
FOREIGN CURRENCY MATTERS

PRESENTATION
Venezuelan Operations
March 31, 2014 Exchange Rate Effect (Q1)
Automotive Sector $ (310,000,000)
Financial Services $ (6,000,000)
20132014
The exchange rate used at March 31, 2014 resulted in a re-measurement loss of $316 million in in the first
quarter of 2014
On February 13, 2013, a devaluation of the bolivar resulted in a re-measurement loss of
$186 million in Automotive cost of sales in the first quarter of 2013.
FORD MOTOR COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
Cash flows from operating activities
of continuing operations 2014 2013 2012
Foreign currency adjustments $ 825 $ 228 $ (116)

REMEASUREMENT
Foreign Currency
Re-measurement results and the results of foreign currency hedging activities- reported in Automotive cost of sales,
Selling, administrative, and other expenses, and Automotive interest income and other income, net:
Pre-Tax Losses
due to re-measurement
2014 2013 2012
$ 510 $ 349 $ 426
Changes in carrying values of assets and liabilities due to exchange rate fluctuations are recognized as
Foreign Currency Translations (component of Other comprehensive income/(Ioss) and are reclassified
upon sale or liquidation to Net income and recognized as part of the gain or loss on the investment.

RECLASSIFICATION OF FOREIGN CURRENCY TRANSLATION
Automotive Sector
Changes in Investments in Affiliates
During the third quarter of 2013, Ford liquidated a foreign subsidiary holding company, Ford LRH.
• reclassified a foreign currency translation loss of $103 million related to the investment from:
Accumulated other comprehensive income/(loss) Automotive interest income and other income/(loss), net.
PRESS RELEASE……..FORD MOTOR COMPANY ANNOUNCES AGREEMENT TO SELL
JAGUAR LAND ROVER TO TATA MOTORS

Income Effect of Derivative Financial Instruments
The gains/(losses), by hedge designation, recorded in income for the years ended December 31 were as follows
(in millions):
DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES ASC 815
Foreign currency exchange contracts 2014 2013 2012
Automotive Sector 193 (26) (138)
Financial Services Sector 68 21 (70)
Derivative: A security whose price is dependent upon or derived from one or more underlying assets. Its value is
determined by fluctuations in the underlying asset. The most common underlying assets include stocks, bonds,
commodities, currencies, interest rates and market indexes.
The Automotive sector designated certain forward contracts as cash flow hedges of forecasted
transactions with exposure to foreign currency exchange and commodity price risks.

Balance Sheet Effect of Derivative Financial Instruments
• Recorded on the balance sheet at fair value
• Presented on a gross basis
• Includes an adjustment for non-performance risk
• Notional amounts are presented on a gross basis.
2014 2013
Automotive Sector Notional
Fair Value of
Assets
Fair Value of
Liabilities
Notional
Fair Value
of Assets
Fair Value of
Liabilities
Cash Flow Hedges
Foreign currency exchange & commodity contracts
$ 15,434 $ 359 $ 517 $ 16,238 $ 413 $ 189
Derivatives not designated as hedging instruments
Foreign currency exchange contracts
$ 12,198 $ 157 $ 129 $ 11,599 $ 144 $ 210
Financial Services Sector Notional
Fair Value of
Assets
Fair Value of
Liabilities
Notional
Fair Value
of Assets
Fair Value of
Liabilities
Derivatives not designated as hedging instruments
Foreign currency exchange contracts
$ 1,527 $ 18 $ 1 $ 2410 $ 1 $ 25
* Notional Amount is a specific unit of measure (e.g., currency units, shares, pounds, etc)
DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (cont)
The *notional amount and estimated fair value of our derivative financial instruments at December 31 was as follows(in millions):

ASC 840
OPERATING LEASES RECORDED
Initial sale transaction Other Liabilities & Deferred Revenue
Difference between proceeds and the guaranteed repurchase amount
Automotive Revenues
(using Straight line Method)
Initial vehicle cost Net Investment in Operating Leases
Depreciation Automotive Cost of Sales
Proceeds from sale at auction Automotive Revenues
Vehicles are sold to fleet customers, primarily daily rental car
companies, and are subject to guaranteed repurchase options.
These vehicles are accounted for as operating leases.
LEASES

NET INVESTMENT IN OPERATING LEASES (ASC 840-20)
The net investment in operating leases at December 31 was as follows (in millions):
NET INVESTMENT 2014 2013
Automotive Sector
Vehicles, net of depreciation $ 1,699 $ 1,384
Financial Services Sector
Vehicles and other equipment, at cost (a) $ 24,952 $ 21,738
Accumulated depreciation (3,396) (3,115)
Allowance for credit losses 38 23
Total Financial Services sector $ 21,518 $ 18,600
Total Company $ 23,217 $ 19,984
2014 2013 2012
Operating lease depreciation expense $ 3,098 $ 2,411 $ 1,795

Benefit plans impose and will require additional cash contributions
ASC 405
 Recall campaigns
 Warranty costs
 Product development
 Restructuring
 Growth
 Pension and postretirement health care and life insurance
 Close participation to new participants to limit liability growth
 Reducing plan deficits through discretionary cash contributions
 Progressively re-balancing assets to more fixed income investments to better match assets to the characteristics of liabilities
 Strategic actions such as the voluntary lump sum payout program
 Infrastructure
 Income Taxes
 Dealer and dealers’ customer allowances and claims
 Employee benefit plans
 Accrued interest
LIABILITIES

DEFERRED TAX LIABILITIES
• Leasing transactions
• Deferred income
• Depreciation and amortization (excluding leasing transactions)
• Finance receivables
• Other foreign deferred tax liabilities
“The amount of deferred income tax is based
on the tax rates expected to be in effect during
the periods in which the temporary differences
reverse. It is a balance-sheet-oriented
approach. It emphasizes the usefulness of
financial statements in evaluating financial
position and predicting future cash flows.”
(investopedia.com)
Asset-liability Method

ASC 405
FAIR VALUE MEASUREMENT
 Measured at fair value on a nonrecurring
basis
 Translated into functional currency
 Liabilities of foreign subsidiaries are translated from
their respective functional currencies to U.S. dollars
using end-of-period exchange rates where they are
recognized in Foreign currency translation, a
component of Other comprehensive income/(Ioss).
 Upon sale or upon complete or substantially
complete liquidation of an investment in a foreign
subsidiary, the amount of accumulated foreign
currency translation related to the entity is
reclassified to Net income and recognized as part of
the gain or loss on the investment.
LIABILITIES

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