Deferred tax assets and the valuation allowance: the case of Ford Motor Company
Describe the differences between defined benefit and defined contribution plans.
Many companies are closing down their defined benefit plans and replacing them with defined contribution plans. Why?
Interest rates have sharply declined in most economies over the past 10 years. What effects would you expect this trend to have had on pension liabilities and pension expenses?
As a prospective employee, which type of plan (defined benefit or defined contribution) do you prefer, and why?
Define “underfunded” and “overfunded.”
What is the difference between “service cost” and “interest cost?”
Describe the effects on pension expense of changing expected returns on pension plan investments. What happens if we increase the expected returns? What happens if we decrease them? provides the income statements and balance sheets from Ford’s 2011 Annual Report. Excerpts from the note on deferred income taxes are provided in The statements of cash flow for Ford reveal cash flows provided by operations of $9.784 billion, $11.477 billion, and $15.477 billion in 2011, 2010, and 2009, respectively. In 2011, Ford reported its highest net income ever (over $20 billion), an improvement of nearly $14 billion from the previous year. But did Ford’s profitability really improve that much?
Ford Motor Company and subsidiaries income statements for the years ended December 31, 2011, 2010, and 2009 (in millions, except per share amounts)
|
2011 |
2010 |
2009 |
|
|
AUTOMOTIVE |
|||
|
Revenues |
$128,168 |
$119,280 |
$103,868 |
|
Costs and expenses |
|||
|
Cost of sales |
113,345 |
104,451 |
98,866 |
|
Selling administrative and other expenses |
9,060 |
9,040 |
8,354 |
|
Total costs and expenses |
122,405 |
113,491 |
107,220 |
|
Operating income/(loss) |
5,763 |
5,789 |
(3,352 |
|
Interest expense |
817 |
1,807 |
1,477 |
|
Interest income and other nonoperating income/ [expense), net (Note 19) |
825 |
(362) |
5,284 |
|
Equity in net income/(loss) of affiliated companies |
479 |
526 |
330 |
|
Income/(Loss) before income taxes – Automotive |
6,250 |
4,146 |
785 |
|
FINANCIAL SERVICES |
|||
|
Revenues |
8,096 |
9,674 |
12,415 |
|
Costs and expenses |
|||
|
Interest expense |
3,614 |
4,345 |
5,313 |
|
Depreciation |
1,843 |
2,024 |
3,937 |
|
Operating and other expenses |
675 |
845 |
738 |
|
Provision for credit and insurance losses |
(33) |
(216) |
1,030 |
|
Total costs and expenses |
6,099 |
6,998 |
11,018 |
|
Other income/(loss), net (Note 19) |
413 |
315 |
552 |
|
Equity in net income/(loss) of affiliated companies |
21 |
12 |
(135 |
|
Income/(Loss) before income taxes – Financial Services |
2,431 |
3,003 |
1,814 |
|
TOTAL COMPANY |
|||
|
Income/(Loss) before income taxes |
8,681 |
7,149 |
2,599 |
|
Provision for/(Benefit from) income taxes [Note 22) |
(11,541) |
592 |
(113 |
|
Income/(Loss) from continuing operations |
20,222 |
6,557 |
2,712 |
|
Income/(Loss) from discontinued operations |
– |
5 |
|
|
Net income/(loss) |
20,222 |
6,557 |
2,717 |
|
Less: Income/(Loss) attributable to noncontrolling interests |
9 |
(4) |
|
|
Net income/(loss) attributable to Ford Motor Company |
$20,213 |
$6,561 |
$2,717 |
|
NET INCOME/(LOSS) ATTRIBUTABLE TO FORD |
|||
|
MOTOR COMPANY |
|||
|
Income/(Loss) from continuing operations |
$20,213 |
$6,561 |
$2,712 |
|
Income/(Loss) from discontinued operations |
5 |
||
|
Net income/(loss) attributable to Ford Motor Company |
$20,213 |
$6,561 |
$2,717 |
|
Balance sheets (in millions) |
||
|
December |
December |
|
|
31,2011 |
31, 2010 |
|
|
ASSETS |
||
|
Cash and cash equivalents |
$17,148 |
514,805 |
|
Marketable securities [Note 6) |
18,618 |
20,765 |
|
Finance receivables, net (Note 7) |
69,976 |
70,070 |
|
Dther receivables, net |
8,565 |
8,381 |
|
Net investment in operating leases (Note 8) |
12,838 |
11,675 |
|
Inventories [Note 10) |
5,901 |
5,917 |
|
Equity in net assets of affiliated companies [Note 11) |
2,936 |
2,569 |
|
Net property [Note 14) |
22,371 |
23,179 |
|
Deferred income taxes [Note 22) |
15,125 |
2,003 |
|
Net intangible assets (Note 15) |
100 |
102 |
|
Dther assets |
4,770 |
5,221 |
|
Total assets |
$178,348 |
$164,687 |
|
LIABILITIES |
||
|
Payables |
$17,724 |
$16,362 |
|
Accrued liabilities and deferred revenue [Note 16) |
45,369 |
43,844 |
|
Debt (Note 18) |
99,488 |
103,988 |
|
Deferred income taxes (Note 22) |
696 |
1,135 |
|
Total liabilities |
163,277 |
165,329 |
|
EQUITY |
||
|
Capital stock [Note 24) |
||
|
Common stock, par value $.01 per share [3745 million shares issued) |
37 |
37 |
|
Class B stock, par value $.01 per share |
1 |
1 |
|
[71 million shares issued) |
||
|
Capital in excess of par value of stock |
20,905 |
20,803 |
|
Retained earnings/(Accumulated deficit) |
12,985 |
(7,038) |
|
Accumulated other comprehensive income/(loss) |
(18,734) |
[14,313) |
|
Treasury stock |
[166) |
(163) |
|
Total equity/(deficit) attributable to Ford Motor Company |
15,028 |
[673) |
|
Equity/(Deficit) attributable to noncontrolling interests |
43 |
31 |
|
Total equity/(deficit) |
15,071 |
[642) |
|
Total liabilities and equity |
$178,348 |
$164,687 |