Edgar Filing: FORD MOTOR CO

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q



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

	For the quarterly period ended March 31, 2018

or

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

	For the transition period from __________ to __________

	Commission file number 1-3950

Ford Motor Company

(Exact name of Registrant as specified in its charter)



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

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

313-322-3000

(Registrant’s telephone number, including area code)

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

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

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

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

As of April 20, 2018, Ford had outstanding 3,914,101,588 shares of Common Stock and 70,852,076 shares of Class B Stock.

Exhibit Index begins on page

FORD MOTOR COMPANY

QUARTERLY REPORT ON FORM 10-Q

For the Quarter Ended March 31, 2018



	Table of Contents	Page
	Part I - Financial Information
Item 1	Financial Statements	1
	Consolidated Income Statement	1
	Consolidated Statement of Comprehensive Income	1
	Consolidated Balance Sheet	2
	Condensed Consolidated Statement of Cash Flows	3
	Consolidated Statement of Equity	4
	Notes to the Financial Statements	5
	Report of Independent Registered Public Accounting Firm	29
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
	Overview	30
	Results of Operations	32
	Automotive Segment	34
	Mobility Segment	43
	Ford Credit Segment	44
	Corporate Other	47
	Interest on Debt	47
	Special Items	47
	Taxes	47
	Liquidity and Capital Resources	48
	Credit Ratings	55
	Outlook	56
	Non-GAAP Financial Measure Reconciliations	57
	Supplemental Information	60
	Cautionary Note on Forward-Looking Statements	64
	Accounting Standards Issued But Not Yet Adopted	65
	Review by Independent Registered Public Accounting Firm	65
Item 3	Quantitative and Qualitative Disclosures About Market Risk	66
Item 4	Controls and Procedures	66

	Part II - Other Information
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	67
Item 6	Exhibits	67
	Signature	68

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements.

FORD MOTOR COMPANY AND SUBSIDIARIES

CONSOLIDATED INCOME STATEMENT

(in millions, except per share amounts)



	For the periods ended March 31,
	2017		2018
	First Quarter
	(unaudited)
Revenues
Automotive	$	36,475	$	39,012
Ford Credit	2,669		2,943
Mobility	2		4
Total revenues (Note 3)	39,146		41,959

Costs and expenses
Cost of sales	32,700		35,753
Selling, administrative, and other expenses	2,764		2,747
Ford Credit interest, operating, and other expenses	2,218		2,338
Total costs and expenses	37,682		40,838

Interest expense on Automotive debt	279		275
Interest expense on Other debt	14		14

Other income/(loss), net (Note 4)	734		863
Equity in net income of affiliated companies	346		224
Income before income taxes	2,251		1,919
Provision for/(Benefit from) income taxes	652		174
Net income	1,599		1,745
Less: Income/(Loss) attributable to noncontrolling interests	7		9
Net income attributable to Ford Motor Company	$	1,592	$	1,736

EARNINGS PER SHARE ATTRIBUTABLE TO FORD MOTOR COMPANY COMMON AND CLASS B STOCK (Note 6)
Basic income	$	0.40	$	0.44
Diluted income	0.40		0.43

Cash dividends declared	0.20		0.28

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(in millions)



	For the periods ended March 31,
	2017			2018
	First Quarter
	(unaudited)
Net income	$	1,599		$	1,745
Other comprehensive income/(loss), net of tax (Note 16)
Foreign currency translation	242			295
Marketable securities	(1		)	(47		)
Derivative instruments	(168		)	33
Pension and other postretirement benefits	9			8
Total other comprehensive income/(loss), net of tax	82			289
Comprehensive income	1,681			2,034
Less: Comprehensive income/(loss) attributable to noncontrolling interests	5			8
Comprehensive income attributable to Ford Motor Company	$	1,676		$	2,026

The accompanying notes are part of the financial statements.

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

(in millions)



	December 31, 2017			March 31, 2018
	(unaudited)
ASSETS
Cash and cash equivalents (Note 7)	$	18,492		$	17,940
Marketable securities (Note 7)	20,435			22,131
Ford Credit finance receivables, net (Note 8)	52,210			54,680
Trade and other receivables, less allowances of $392 and $411	10,599			12,386
Inventories (Note 10)	11,176			12,371
Other assets	3,889			3,756
Total current assets	116,801			123,264

Ford Credit finance receivables, net (Note 8)	56,182			57,121
Net investment in operating leases	28,235			28,331
Net property	35,327			36,118
Equity in net assets of affiliated companies	3,085			3,213
Deferred income taxes	10,762			10,637
Other assets	8,104			8,546
Total assets	$	258,496		$	267,230

LIABILITIES
Payables	$	23,282		$	25,480
Other liabilities and deferred revenue (Note 12)	19,697			21,415
Automotive debt payable within one year (Note 14)	3,356			3,751
Ford Credit debt payable within one year (Note 14)	48,265			49,232
Total current liabilities	94,600			99,878

Other liabilities and deferred revenue (Note 12)	24,711			24,845
Automotive long-term debt (Note 14)	12,575			12,071
Ford Credit long-term debt (Note 14)	89,492			92,681
Other long-term debt (Note 14)	599			599
Deferred income taxes	815			622
Total liabilities	222,792			230,696

Redeemable noncontrolling interest	98			98

EQUITY
Common Stock, par value $.01 per share (3,998 million shares issued of 6 billion authorized)	40			40
Class B Stock, par value $.01 per share (71 million shares issued of 530 million authorized)	1			1
Capital in excess of par value of stock	21,843			21,841
Retained earnings	21,906			22,529
Accumulated other comprehensive income/(loss) (Note 16)	(6,959		)	(6,669		)
Treasury stock	(1,253		)	(1,342		)
Total equity attributable to Ford Motor Company	35,578			36,400
Equity attributable to noncontrolling interests	28			36
Total equity	35,606			36,436
Total liabilities and equity	$	258,496		$	267,230



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.
	December 31, 2017		March 31, 2018
	(unaudited)
ASSETS
Cash and cash equivalents	$	3,479	$	2,866
Ford Credit finance receivables, net	56,250		59,145
Net investment in operating leases	11,503		11,984
Other assets	64		63
LIABILITIES
Other liabilities and deferred revenue	$	2	$	5
Debt	46,437		50,366

The accompanying notes are part of the financial statements.

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(in millions)



	For the periods ended March 31,
	2017			2018
	First Quarter
	(unaudited)
Cash flows from operating activities
Net cash provided by/(used in) operating activities	$	4,336		$	3,514

Cash flows from investing activities
Capital spending	(1,706		)	(1,779		)
Acquisitions of finance receivables and operating leases	(13,467		)	(15,683		)
Collections of finance receivables and operating leases	10,695			12,956
Purchases of equity and debt securities	(8,878		)	(7,867		)
Sales and maturities of equity and debt securities	9,551			6,040
Settlements of derivatives	156			(61		)
Other	(3		)	(150		)
Net cash provided by/(used in) investing activities	(3,652		)	(6,544		)

Cash flows from financing activities
Cash dividends	(795		)	(1,113		)
Purchases of common stock	—			(89		)
Net changes in short-term debt	658			(909		)
Proceeds from issuance of other debt	13,253			16,953
Principal payments on other debt	(11,911		)	(12,360		)
Other	(85		)	(68		)
Net cash provided by/(used in) financing activities	1,120			2,414

Effect of exchange rate changes on cash, cash equivalents, and restricted cash	101			115

Net increase/(decrease) in cash, cash equivalents, and restricted cash	$	1,905		$	(501	)

Cash, cash equivalents, and restricted cash at January 1 (Note 7)	$	16,019		$	18,638
Net increase/(decrease) in cash, cash equivalents, and restricted cash	1,905			(501		)
Cash, cash equivalents, and restricted cash at March 31 (Note 7)	$	17,924		$	18,137

The accompanying notes are part of the financial statements.

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF EQUITY

(in millions, unaudited)



	Equity Attributable to Ford Motor Company
	Capital Stock		Cap. in Excess of Par Value of Stock			Retained Earnings			Accumulated Other Comprehensive Income/(Loss) (Note 16)			Treasury Stock			Total			Equity Attributable to Non-controlling Interests			Total Equity
Balance at December 31, 2016	$	41	$	21,630		$	16,193		$	(7,013	)	$	(1,122	)	$	29,729		$	17		$	29,746
Adoption of accounting standards	—		6			566			—			—			572			—			572
Net income	—		—			1,592			—			—			1,592			7			1,599
Other comprehensive income/(loss), net of tax	—		—			—			84			—			84			(2		)	82
Common stock issued (including share-based compensation impacts)	—		1			—			—			—			1			—			1
Treasury stock/other	—		—			—			—			—			—			—			—
Cash dividends declared	—		—			(795		)	—			—			(795		)	—			(795		)
Balance at March 31, 2017	$	41	$	21,637		$	17,556		$	(6,929	)	$	(1,122	)	$	31,183		$	22		$	31,205

Balance at December 31, 2017	$	41	$	21,843		$	21,906		$	(6,959	)	$	(1,253	)	$	35,578		$	28		$	35,606
Net income	—		—			1,736			—			—			1,736			9			1,745
Other comprehensive income/(loss), net of tax	—		—			—			290			—			290			(1		)	289
Common stock issued (including share-based compensation impacts)	—		(2		)	—			—			—			(2		)	—			(2		)
Treasury stock/other	—		—			—			—			(89		)	(89		)	—			(89		)
Cash dividends declared	—		—			(1,113		)	—			—			(1,113		)	—			(1,113		)
Balance at March 31, 2018	$	41	$	21,841		$	22,529		$	(6,669	)	$	(1,342	)	$	36,400		$	36		$	36,436

The accompanying notes are part of the financial statements.

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS

Table of Contents



Footnote		Page
Note 1	Presentation	6
Note 2	New Accounting Standards	7
Note 3	Revenue	8
Note 4	Other Income/(Loss)	10
Note 5	Income Taxes	11
Note 6	Capital Stock and Earnings Per Share	11
Note 7	Cash, Cash Equivalents, and Marketable Securities	12
Note 8	Ford Credit Finance Receivables	15
Note 9	Ford Credit Allowance for Credit Losses	18
Note 10	Inventories	19
Note 11	Goodwill	19
Note 12	Other Liabilities and Deferred Revenue	19
Note 13	Retirement Benefits	20
Note 14	Debt	21
Note 15	Derivative Financial Instruments and Hedging Activities	22
Note 16	Accumulated Other Comprehensive Income/(Loss)	24
Note 17	Commitments and Contingencies	25
Note 18	Segment Information	27

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS

NOTE 1. PRESENTATION

For purposes of this report, “Ford,” the “Company,” “we,” “our,” “us,” or similar references mean Ford Motor Company, our consolidated subsidiaries, and our consolidated VIEs of which we are the primary beneficiary, unless the context requires otherwise. We also make reference to Ford Motor Credit Company LLC, herein referenced to as Ford Credit. Our financial statements are presented in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information, instructions to Quarterly Report on Form 10-Q, and Rule 10-01 of Regulation S-X.

In the opinion of management, these unaudited financial statements reflect a fair statement of our results of operations and financial condition for the periods, and at the dates, presented. The results for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year. Reference should be made to the financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2017 (“2017 Form 10-K Report”). We reclassified certain prior year amounts in our consolidated financial statements to conform to the current year presentation.

Change in Presentation

Effective January 1, 2018, we changed our reportable segments to reflect the manner in which we now manage our business. Based on recent changes to our organization structure and how our Chief Operating Decision Maker (CODM) reviews operating results and makes decisions about resource allocation, we now have three reportable segments that represent the primary businesses reported in our consolidated financial statements: Automotive, Mobility, and Ford Credit. See Note 18 for a description of our new segment presentation.

Change in Accounting

We carry inventory on our consolidated balance sheet that is comprised of finished products, raw materials, work-in-process, and supplies. As of January 1, 2018, we changed our accounting method for U.S. inventories to a first-in, first-out basis from a last-in, first-out basis. We believe this change in accounting method is preferable as it is consistent with how we manage our business, results in a uniform method to value our inventory across all regions in our business, and improves comparability with our peers. The effect of this change was immaterial on our consolidated income statement, balance sheet, and statement of cash flow amounts for the interim period ended March 31, 2018.

We have retrospectively applied this change in accounting method to all prior periods. As of December 31, 2016, the cumulative effect of the change increased Retained earnings by $559 million.

The effect of this change on our consolidated financial statements was as follows (in millions except for per share amounts):



	For the period ended March 31, 2017
	Previously Reported		As Revised		Effect of Change Higher/(Lower)
Income Statement

Cost of Sales	$	32,708	$	32,700	$	(8	)
Income before income taxes	2,243		2,251		8
Provision for/ (Benefit from) income taxes	649		652		3
Net income	1,594		1,599		5
Net income attributable to Ford Motor Company	1,587		1,592		5
Basic earning per share attributable to Ford Motor Company	0.40		0.40		—
Diluted earning per share attributable to Ford Motor Company	0.40		0.40		—



	December 31, 2017
	Previously Reported		As Revised		Effect of Change Higher/(Lower)
Balance Sheet

Inventories	$	10,277	$	11,176	$	899
Deferred income taxes (assets)	10,973		10,762		(211		)
Retained earnings	21,218		21,906		688

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS

NOTE 2. NEW ACCOUNTING STANDARDS

Adoption of New Accounting Standards

ASU 2017-12, Derivatives and Hedging. On January 1, 2018, we adopted the amendments to accounting standard codification 815 which aligns hedge accounting with risk management activities and simplifies the requirements to qualify for hedge accounting. Adoption did not have a material impact on our financial statements. We continue to assess opportunities enabled by the new standard to expand our risk management strategies.

ASU 2016-01, Financial Instruments - Recognition and Measurement of Financial Assets and Financial Liabilities. On January 1, 2018, we adopted ASU 2016-01 and the related amendments. This standard amends various aspects of the recognition, measurement, presentation, and disclosure of financial instruments. We adopted the measurement alternative for equity investments without readily determinable fair values (often referred to as cost method investments) on a prospective basis. As a result, these investments will be revalued upon occurrence of an observable price change for similar investments and for impairments. We anticipate adoption may increase the volatility on our consolidated income statement.

We also adopted the following standards during 2018, none of which had a material impact to our financial statements or financial statement disclosures:



Standard		Effective Date
2017-08	Nonrefundable Fees and Other Costs - Premium Amortization on Purchased Callable Debt Securities	January 1, 2018
2016-18	Statement of Cash Flows - Restricted Cash	January 1, 2018
2016-16	Income Taxes - Intra-Entity Transfers of Assets Other Than Inventory	January 1, 2018
2016-15	Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments	January 1, 2018

Accounting Standards Issued But Not Yet Adopted

The following represent the standards that will, or are expected to, result in a significant change in practice and/or have a significant financial impact to Ford.

ASU 2016-13, Credit Losses - Measurement of Credit Losses on Financial Instruments. In June 2016, the Financial Accounting Standards Board (“FASB”) issued a new accounting standard which replaces the current incurred loss impairment method with a method that reflects expected credit losses. The new standard is effective as of January 1, 2020, and early adoption is permitted as of January 1, 2019. We will adopt the new credit loss guidance by recognizing the cumulative effect of initially applying the new standard as an adjustment to the opening balance of Retained earnings. We anticipate adoption will increase the amount of expected credit losses reported in Ford Credit finance receivables, net on our consolidated balance sheet and do not expect a material impact to our consolidated income statement.

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS

NOTE 2. NEW ACCOUNTING STANDARDS (Continued)

ASU 2016-02, Leases. In February 2016, the FASB issued a new accounting standard which provides guidance on the recognition, measurement, presentation, and disclosure of leases. The new standard supersedes the present U.S. GAAP standard on leases and requires substantially all leases to be reported on the balance sheet as right-of-use assets and lease obligations. We plan to adopt the new standard on its effective date of January 1, 2019. We anticipate adoption of the standard will add between $1.5 billion and $2 billion in right-of-use assets and lease obligations to our consolidated balance sheet and will not significantly impact results. We plan to elect the practical expedients upon transition that will retain the lease classification and initial direct costs for any leases that exist prior to adoption of the standard. We will not reassess whether any contracts entered into prior to adoption are leases. We are in the process of cataloging our existing lease contracts and implementing changes to our systems.

NOTE 3. REVENUE

The following table disaggregates our revenue by major source for the periods ended March 31 (in millions):



	First Quarter 2017
	Automotive		Mobility		Ford Credit		Consolidated
Vehicles, parts, and accessories	$	34,996	$	—	$	—	$	34,996
Used vehicles	873		—		—		873
Extended service contracts	275		—		—		275
Other revenue	224		2		49		275
Revenues from sales and services	36,368		2		49		36,419

Leasing income	107		—		1,366		1,473
Financing income	—		—		1,214		1,214
Insurance income	—		—		40		40
Total revenues	$	36,475	$	2	$	2,669	$	39,146



	First Quarter 2018
	Automotive		Mobility		Ford Credit		Consolidated
Vehicles, parts, and accessories	$	37,417	$	—	$	—	$	37,417
Used vehicles	928		—		—		928
Extended service contracts	329		—		—		329
Other revenue	219		4		55		278
Revenues from sales and services	38,893		4		55		38,952

Leasing income	119		—		1,415		1,534
Financing income	—		—		1,432		1,432
Insurance income	—		—		41		41
Total revenues	$	39,012	$	4	$	2,943	$	41,959

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS

NOTE 3. REVENUE (Continued)

Revenue is recognized when obligations under the terms of a contract with our customer are satisfied; generally this occurs with the transfer of control of our vehicles, parts, accessories, or services. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. Sales, value add, and other taxes we collect concurrent with revenue-producing activities are excluded from revenue. Incidental items that are immaterial in the context of the contract are recognized as expense. The expected costs associated with our base warranties continue to be recognized as expense when the products are sold. We recognize revenue for vehicle service contracts that extend mechanical and maintenance coverages beyond our base warranties over the life of the contract. We do not have any material significant payment terms as payment is received at or shortly after the point of sale.

Automotive Segment

Vehicles, Parts, and Accessories. For the majority of vehicles, parts, and accessories, we transfer control and recognize a sale when we ship the product from our manufacturing facility to our customer (dealers and distributors). We receive cash equal to the invoice price for most vehicle sales at the time of wholesale. When the vehicle sale is financed by our wholly-owned subsidiary Ford Credit, the dealer pays Ford Credit when it sells the vehicle to the retail customer. Payment terms on part sales to dealers, distributors, and retailers range from 30 days to 120 days. The amount of consideration we receive and revenue we recognize varies with changes in marketing incentives and returns we offer to our customers and their customers. When we give our dealers the right to return eligible parts and accessories, we estimate the expected returns based on an analysis of historical experience. We adjust our estimate of revenue at the earlier of when the most likely amount of consideration we expect to receive changes or when the consideration becomes fixed. As a result, we recorded a decrease to revenue recognized in prior periods of $610 million and $718 million in the first quarter of 2017 and 2018, respectively.

Depending on the terms of the arrangement, we may also defer the recognition of a portion of the consideration received because we have to satisfy a future obligation (e.g., free extended service contracts). We use an observable price to determine the stand-alone selling price for separate performance obligations or a cost plus margin approach when one is not available. We have elected to recognize the cost for freight and shipping when control over vehicles, parts, or accessories have transferred to the customer as an expense in Cost of sales.

We sell vehicles to daily rental companies and guarantee that we will pay them the difference between an agreed amount and the value they are able to realize upon resale. At the time of transfer of vehicles to the daily rental companies, we record the probable amount we will pay under the guarantee to Other liabilities and deferred revenue.

Used Vehicles. We sell used vehicles both at auction and through our consolidated dealerships. Proceeds from the sale of these vehicles are recognized in Automotive revenues upon transfer of control of the vehicle to the customer and the related vehicle carrying value is recognized in Cost of sales.

Extended Service Contracts. We sell separately-priced service contracts that extend mechanical and maintenance coverages beyond our base warranty agreements to vehicle owners. The separately priced service contracts range from 12 months to 120 months. We receive payment at contract inception and recognize revenue over the term of the agreement in proportion to the costs we expect to incur in satisfying the contract obligations. At January 1, 2017 and December 31, 2017, $3.5 billion and $3.8 billion, respectively, of unearned revenue associated with outstanding contracts was reported in Other Liabilities and deferred revenue. We recognized $270 million and $298 million of the unearned amounts as revenue during the first quarter of 2017 and 2018, respectively. At March 31, 2018, the unearned amount was $3.9 billion. We expect to recognize approximately $900 million of the unearned amount in the remainder of 2018, $1 billion in 2019, and $2 billion thereafter.

We record a premium deficiency reserve to the extent we estimate the future costs associated with these contracts exceed the unrecognized revenue. Amounts paid to dealers to obtain these contracts are deferred and recorded as Other assets. These costs are amortized to expense consistent with how the related revenue is recognized. We had a balance of $232 million and $244 million in deferred costs as of December 31, 2017 and March 31, 2018, respectively, and recognized $15 million and $18 million of amortization during the first quarter of 2017 and 2018, respectively.

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS

NOTE 3. REVENUE (Continued)

Other Revenue. Other revenue consists primarily of net commissions received for serving as the agent in facilitating the sale of a third party’s products or services to our customers and payments for vehicle-related design and testing services we perform for others. We have applied the practical expedient to recognize Automotive revenues for vehicle-related design and testing services over the two to three year term of these agreements in proportion to the amount we have the right to invoice.

Leasing Income. We sell vehicles to daily rental companies with an obligation to repurchase the vehicles for a guaranteed amount, exercisable at the option of the customer. The transactions are accounted for as operating leases. Upon the transfer of vehicles to the daily rental companies, we record proceeds received in Other liabilities and deferred revenue. The difference between the proceeds received and the guaranteed repurchase amount is recorded in Automotive revenues over the term of the lease using a straight-line method. The cost of the vehicle is recorded in Net investment in operating leases on our consolidated balance sheet and the difference between the cost of the vehicle and the estimated auction value is depreciated in Cost of sales over the term of the lease.

Ford Credit Segment

Leasing Income. Ford Credit offers leasing plans to retail consumers through Ford and Lincoln brand dealers who originate the leases. Ford Credit records an operating lease upon purchase of a vehicle subject to a lease from the dealer. The retail consumer makes lease payments representing the difference between Ford Credit’s purchase price of the vehicle and the contractual residual value of the vehicle, plus lease fees that we recognize on a straight-line basis over the term of the lease agreement. Depreciation and the gain or loss upon disposition of the vehicle is recorded in Ford Credit interest, operating, and other expenses.

Financing Income. Ford Credit originates and purchases finance installment contracts. Financing income represents interest earned on the finance receivables (including direct financing leases). Interest is recognized using the interest method, and includes the amortization of certain direct origination costs.

Insurance Income. Income from insurance contracts is recognized evenly over the term of the agreement. Insurance commission revenue is recognized on a net basis at the time of sale of the third party’s product or service to our customer.

NOTE 4. OTHER INCOME/(LOSS)

The amounts included in Other income/(loss), net for the periods ended March 31 were as follows (in millions):



	First Quarter
	2017			2018
Net periodic pension and OPEB income/(cost), excluding service cost	$	390		$	477
Investment-related interest income	92			146
Interest income/(expense) on income taxes	1			1
Realized and unrealized gains/(losses) on cash equivalents and marketable securities	51			(5		)
Gains/(Losses) on changes in investments in affiliates	(1		)	58
Royalty income	154			143
Other	47			43
Total	$	734		$	863

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS

NOTE 5. INCOME TAXES

For interim tax reporting, we estimate one single effective tax rate for tax jurisdictions not subject to a valuation allowance, which is applied to the year-to-date ordinary income/(loss). Tax effects of significant unusual or infrequently occurring items are excluded from the estimated annual effective tax rate calculation and recognized in the interim period in which they occur.

For the first quarter of 2018, our effective tax rate was 9.1%. During the first quarter of 2018, we recognized $235 million of benefit for non-U.S. capital loss carryforwards expected to be realized in the foreseeable future.

NOTE 6. CAPITAL STOCK AND EARNINGS PER SHARE

Earnings Per Share Attributable to Ford Motor Company Common and Class B Stock

Basic and diluted income per share were calculated using the following (in millions):



	First Quarter
	2017		2018
Basic and Diluted Income Attributable to Ford Motor Company
Basic income	$	1,592	$	1,736
Diluted income	1,592		1,736

Basic and Diluted Shares
Basic shares (average shares outstanding)	3,976		3,974
Net dilutive options, unvested restricted stock units, and restricted stock	23		23
Diluted shares	3,999		3,997

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS

NOTE 7. CASH, CASH EQUIVALENTS, AND MARKETABLE SECURITIES

The fair values of cash, cash equivalents, and marketable securities measured at fair value on a recurring basis on our balance sheet were as follows (in millions):



		December 31, 2017
	Fair Value Level	Automotive		Mobility		Ford Credit		Consolidated
Cash and cash equivalents
U.S. government	1	$	913	$	—	$	—	$	913
U.S. government agencies	2	433		—		300		733
Non-U.S. government and agencies	2	—		—		703		703
Corporate debt	2	55		—		25		80
Total marketable securities classified as cash equivalents		1,401		—		1,028		2,429
Cash, time deposits, and money market funds		7,529		4		8,530		16,063
Total cash and cash equivalents		$	8,930	$	4	$	9,558	$	18,492

Marketable securities
U.S. government	1	$	5,580	$	—	$	966	$	6,546
U.S. government agencies	2	2,484		—		384		2,868
Non-U.S. government and agencies	2	5,270		—		660		5,930
Corporate debt	2	4,031		—		848		4,879
Equities	1	138		—		—		138
Other marketable securities	2	51		—		23		74
Total marketable securities		$	17,554	$	—	$	2,881	$	20,435

		March 31, 2018
	Fair Value Level	Automotive		Mobility		Ford Credit		Consolidated
Cash and cash equivalents
U.S. government	1	$	55	$	—	$	44	$	99
U.S. government agencies	2	150		—		50		200
Non-U.S. government and agencies	2	225		—		556		781
Corporate debt	2	54		—		274		328
Total marketable securities classified as cash equivalents		484		—		924		1,408
Cash, time deposits, and money market funds		8,675		15		7,842		16,532
Total cash and cash equivalents		$	9,159	$	15	$	8,766	$	17,940

Marketable securities
U.S. government	1	$	4,808	$	—	$	1,116	$	5,924
U.S. government agencies	2	2,511		—		265		2,776
Non-U.S. government and agencies	2	5,548		—		1,517		7,065
Corporate debt	2	5,198		—		680		5,878
Equities	1	154		—		—		154
Other marketable securities	2	204		—		130		334
Total marketable securities		$	18,423	$	—	$	3,708	$	22,131

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS

NOTE 7. CASH, CASH EQUIVALENTS, AND MARKETABLE SECURITIES (Continued)

The cash equivalents and marketable securities accounted for as available-for-sale (“AFS”) debt securities on our balance sheet were as follows (in millions):



	December 31, 2017
										Fair Value of Securities with Contractual Maturities
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Within 1 Year		After 1 Year through 5 Years		After 5 Years through 10 Years
Automotive
U.S. government	$	3,669	$	—	$	(18	)	$	3,651	$	1,377	$	2,274	$	—
U.S. government agencies	1,915		—		(15		)	1,900		265		1,620		15
Non-U.S. government and agencies	4,021		—		(28		)	3,993		197		3,771		25
Corporate debt	1,716		1		(8		)	1,709		194		1,509		6
Other marketable securities	17		—		—			17		—		16		1
Total	$	11,338	$	1	$	(69	)	$	11,270	$	2,033	$	9,190	$	47

	March 31, 2018
										Fair Value of Securities with Contractual Maturities
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Within 1 Year		After 1 Year through 5 Years		After 5 Years through 10 Years
Automotive
U.S. government	$	3,120	$	—	$	(23	)	$	3,097	$	2,168	$	929	$	—
U.S. government agencies	2,010		—		(24		)	1,986		385		1,583		18
Non-U.S. government and agencies	4,047		—		(56		)	3,991		2		3,989		—
Corporate debt	2,189		1		(29		)	2,161		198		1,954		9
Other marketable securities	168		—		(1		)	167		—		110		57
Total	$	11,534	$	1	$	(133	)	$	11,402	$	2,753	$	8,565	$	84

Sales proceeds and gross realized gains/(losses) from the sale of AFS debt securities prior to maturity, recorded in the income statement for the periods ended March 31 were as follows (in millions):



	First Quarter
	2017		2018
Automotive
Sales proceeds	$	1,301	$	1,339
Gross realized gains	1		—
Gross realized losses	2		6

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS

NOTE 7. CASH, CASH EQUIVALENTS, AND MARKETABLE SECURITIES (Continued)

The present fair values and gross unrealized losses for cash equivalents and marketable securities accounted for as AFS debt securities that were in an unrealized loss position, aggregated by investment category and the length of time that individual securities have been in a continuous loss position, were as follows (in millions):



	December 31, 2017
	Less than 1 year					1 Year or Greater					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses

Automotive
U.S. government	$	2,382	$	(9	)	$	903	$	(9	)	$	3,285	$	(18	)
U.S. government agencies	1,625		(12		)	260		(3		)	1,885		(15		)
Non-U.S. government and agencies	3,148		(20		)	510		(8		)	3,658		(28		)
Corporate debt	1,396		(8		)	—		—			1,396		(8		)
Total	$	8,551	$	(49	)	$	1,673	$	(20	)	$	10,224	$	(69	)

	March 31, 2018
	Less than 1 year					1 Year or Greater					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Automotive
U.S. government	$	2,065	$	(13	)	$	976	$	(10	)	$	3,041	$	(23	)
U.S. government agencies	1,384		(16		)	538		(8		)	1,922		(24		)
Non-U.S. government and agencies	3,345		(46		)	483		(10		)	3,828		(56		)
Corporate debt	1,956		(29		)	—		—			1,956		(29		)
Other marketable securities	148		(1		)	—		—			148		(1		)
Total	$	8,898	$	(105	)	$	1,997	$	(28	)	$	10,895	$	(133	)

We determine other-than-temporary impairments on cash equivalents and marketable securities using a specific identification method. During the three months ended March 31, 2017 and 2018, we did not recognize any other-than-temporary impairment loss.

Cash, Cash Equivalents, and Restricted Cash

Cash, cash equivalents, and restricted cash as reported in the consolidated statement of cash flows are presented separately on our consolidated balance sheet as follows (in millions):



	December 31, 2017		March 31, 2018
Cash and cash equivalents	$	18,492	$	17,940
Restricted cash (a)	146		197
Total cash, cash equivalents, and restricted cash	$	18,638	$	18,137

__________


(a)	Included in Other assets in the non-current assets section of our consolidated balance sheet.

Other Securities

We have investments in entities for which we do not have the ability to exercise significant influence and fair values are not readily available. We have elected to record these investments at cost (less impairment, if any), adjusted for changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. We report the carrying value of these investments in Other assets in the non-current assets section of our consolidated balance sheet. These investments were $363 million and $369 million at December 31, 2017 and March 31, 2018, respectively. There were no material adjustments to the fair values of these investments during the period ended March 31, 2018.

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS

NOTE 8. FORD CREDIT FINANCE RECEIVABLES

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

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



	December 31, 2017			March 31, 2018
Consumer
Retail financing, gross	$	78,331		$	79,484
Unearned interest supplements	(3,280		)	(3,258		)
Consumer finance receivables	75,051			76,226
Non-Consumer
Dealer financing	33,938			36,175
Non-Consumer finance receivables	33,938			36,175
Total recorded investment	$	108,989		$	112,401

Recorded investment in finance receivables	$	108,989		$	112,401
Allowance for credit losses	(597		)	(600		)
Finance receivables, net	$	108,392		$	111,801

Current portion	$	52,210		$	54,680
Non-current portion	56,182			57,121
Finance receivables, net	$	108,392		$	111,801

Net finance receivables subject to fair value (a)	$	105,106		$	108,297
Fair value	104,521			107,650

__________


(a)	At December 31, 2017 and March 31, 2018, Finance receivables, net includes $3.3 billion and $3.5 billion, respectively, of direct financing leases that are not subject to fair value disclosure requirements. The fair value of finance receivables is categorized within Level 3 of the fair value hierarchy.

Excluded from finance receivables at December 31, 2017 and March 31, 2018, was $240 million and $243 million, respectively, of accrued uncollected interest, which is reported as Other assets in the current assets section of our consolidated balance sheet.

Included in the recorded investment in finance receivables at December 31, 2017 and March 31, 2018, were consumer receivables of $38.9 billion and $39.3 billion, respectively, and non-consumer receivables of $24.5 billion and $26.6 billion, respectively, that have been sold for legal purposes in securitization transactions but continue to be reported in our consolidated financial statements. The receivables are available only for payment of the debt issued by, and other obligations of, the securitization entities that are parties to those securitization transactions; they are not available to pay the other obligations or the claims of Ford Credit’s other creditors. Ford Credit holds the right to receive the excess cash flows not needed to pay the debt issued by, and other obligations of, the securitization entities that are parties to those securitization transactions.

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS

NOTE 8. FORD CREDIT FINANCE RECEIVABLES (Continued)

Aging

For all finance receivables, we define “past due” as any payment, including principal and interest, that is at least 31 days past the contractual due date. The recorded investment of consumer receivables greater than 90 days past due and still accruing interest was $24 million and $23 million at December 31, 2017 and March 31, 2018, respectively. The recorded investment of non-consumer receivables greater than 90 days past due and still accruing interest was $1 million and de minimus at December 31, 2017 and March 31, 2018, respectively.

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



	December 31, 2017		March 31, 2018
Consumer
31-60 days past due	$	748	$	667
61-90 days past due	113		85
91-120 days past due	36		33
Greater than 120 days past due	37		41
Total past due	934		826
Current	74,117		75,400
Consumer finance receivables	75,051		76,226

Non-Consumer
Total past due	122		95
Current	33,816		36,080
Non-Consumer finance receivables	33,938		36,175
Total recorded investment	$	108,989	$	112,401

Credit Quality

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

Consumer receivables credit quality ratings are as follows:


•	Pass – current to 60 days past due;


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


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

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


•	Group I – strong to superior financial metrics;


•	Group II – fair to favorable financial metrics;


•	Group III – marginal to weak financial metrics; and


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

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS

NOTE 8. FORD CREDIT FINANCE RECEIVABLES (Continued)

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



	December 31, 2017		March 31, 2018
Dealer Financing
Group I	$	26,252	$	27,533
Group II	5,908		6,690
Group III	1,640		1,844
Group IV	138		108
Total recorded investment	$	33,938	$	36,175

Impaired Receivables. Impaired consumer receivables include accounts that have been rewritten or modified in reorganization proceedings pursuant to the U.S. Bankruptcy Code that are considered to be Troubled Debt Restructurings (“TDRs”), as well as all accounts greater than 120 days past due. Impaired non-consumer receivables represent accounts with dealers that have weak or poor financial metrics or dealer financing that has been modified in TDRs. The recorded investment of consumer receivables that were impaired at December 31, 2017 and March 31, 2018 was $386 million, or 0.5% of consumer receivables, and $380 million, or 0.5% of consumer receivables, respectively. The recorded investment of non-consumer receivables that were impaired at December 31, 2017 and March 31, 2018 was $138 million, or 0.4% of non-consumer receivables, and $108 million, or 0.3% of non-consumer receivables, respectively. Impaired finance receivables are evaluated both collectively and specifically.

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS

NOTE 9. FORD CREDIT ALLOWANCE FOR CREDIT LOSSES

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



	First Quarter 2017
	Consumer			Non-Consumer			Total
Allowance for credit losses
Beginning balance	$	469		$	15		$	484
Charge-offs	(123		)	(2		)	(125		)
Recoveries	34			—			34
Provision for credit losses	121			—			121
Other (a)	3			—			3
Ending balance (b)	$	504		$	13		$	517

Analysis of ending balance of allowance for credit losses
Collective impairment allowance	$	483		$	13		$	496
Specific impairment allowance	21			—			21
Ending balance (b)	504			13			517

Analysis of ending balance of finance receivables
Collectively evaluated for impairment	65,950			33,317			99,267
Specifically evaluated for impairment	385			164			549
Recorded investment	66,335			33,481			99,816

Ending balance, net of allowance for credit losses	$	65,831		$	33,468		$	99,299

__________


(a)	Primarily represents amounts related to translation adjustments.


(b)	Total allowance, including reserves for operating leases, was $584 million.



	First Quarter 2018
	Consumer			Non-Consumer			Total
Allowance for credit losses
Beginning balance	$	582		$	15		$	597
Charge-offs	(131		)	(2		)	(133		)
Recoveries	39			1			40
Provision for credit losses	92			2			94
Other (a)	2			—			2
Ending balance (b)	$	584		$	16		$	600

Analysis of ending balance of allowance for credit losses
Collective impairment allowance	$	563		$	15		$	578
Specific impairment allowance	21			1			22
Ending balance (b)	584			16			600

Analysis of ending balance of finance receivables
Collectively evaluated for impairment	75,846			36,067			111,913
Specifically evaluated for impairment	380			108			488
Recorded investment	76,226			36,175			112,401

Ending balance, net of allowance for credit losses	$	75,642		$	36,159		$	111,801

__________


(a)	Primarily represents amounts related to translation adjustments.


(b)	Total allowance, including reserves for operating leases, was $671 million.

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS

NOTE 10. INVENTORIES

Inventories were as follows (in millions):



	December 31, 2017		March 31, 2018
Raw materials, work-in-process, and supplies	$	4,397	$	4,710
Finished products	6,779		7,661
Total inventories	$	11,176	$	12,371

NOTE 11. GOODWILL

The net carrying amount of goodwill was $75 million and $274 million at December 31, 2017 and March 31, 2018, respectively, and is reported in Other Assets in the non-current section of our consolidated balance sheet . In the first quarter of 2018, Mobility completed the acquisition of Autonomic and TransLoc which resulted in $199 million of goodwill.

NOTE 12. OTHER LIABILITIES AND DEFERRED REVENUE

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



	December 31, 2017		March 31, 2018
Current
Dealer and dealers’ customer allowances and claims	$	10,902	$	12,496
Deferred revenue	2,107		2,336
Employee benefit plans	1,661		1,352
Accrued interest	1,057		924
OPEB (a)	348		347
Pension (a)	229		232
Other	3,393		3,728
Total current other liabilities and deferred revenue	$	19,697	$	21,415
Non-current
Pension (a)	$	9,932	$	9,980
OPEB (a)	5,821		5,755
Dealer and dealers’ customer allowances and claims	2,471		2,286
Deferred revenue	3,829		3,895
Employee benefit plans	1,139		1,156
Other	1,519		1,773
Total non-current other liabilities and deferred revenue	$	24,711	$	24,845

__________

(a)

Balances at March 31, 2018 reflect pension and OPEB liabilities at December 31, 2017, updated (where applicable) for service and interest cost, expected return on assets, separation expense, interim remeasurement expense, actual benefit payments, and cash contributions. The discount rate and rate of expected return assumptions are unchanged from year-end 2017. Included in Other assets are pension assets of $3.5 billion and $3.9 billion at December 31, 2017 and March 31, 2018, respectively.

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS

NOTE 13. RETIREMENT BENEFITS

Defined Benefit Plans - Expense

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

First Quarter

Pension Benefits