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 September 30, 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 every Interactive Data File required to be submitted 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 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 October 19, 2018, Ford had outstanding 3,907,051,309 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 September 30, 2018
 
Table of Contents
 
Page
 
Part I - Financial Information
 
 
Item 1
Financial Statements
 
 
Consolidated Income Statement
 
 
Consolidated Statement of Comprehensive Income
 
 
Consolidated Balance Sheet
 
 
Condensed Consolidated Statement of Cash Flows
 
 
Consolidated Statement of Equity
 
 
Notes to the Financial Statements
 
Item 2
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
 
Overview
 
 
Results of Operations
 
 
Automotive Segment
 
 
Mobility Segment
 
 
Ford Credit Segment
 
 
Corporate Other
 
 
Interest on Debt
 
 
Special Items
 
 
Taxes
 
 
Liquidity and Capital Resources
 
 
Credit Ratings
 
 
Outlook
 
 
Non-GAAP Financial Measure Reconciliations
 
 
Supplemental Information
 
 
Cautionary Note on Forward-Looking Statements
 
 
Accounting Standards Issued But Not Yet Adopted
 
Item 3
Quantitative and Qualitative Disclosures About Market Risk
 
Item 4
Controls and Procedures
 
 
 
 
 
 
Part II - Other Information
 
 
Item 1
Legal Proceedings
 
Item 2
Unregistered Sales of Equity Securities and Use of Proceeds
 
Item 6
Exhibits
 
 
Signature
 

i

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 September 30,
 
2017
 
2018
 
2017
 
2018
 
Third Quarter
 
First Nine Months
 
(unaudited)
Revenues
 
 
 
 
 
 
 
Automotive
$
33,646

 
$
34,660

 
$
107,234

 
$
109,577

Ford Credit
2,802

 
2,998

 
8,209

 
8,950

Mobility
3

 
8

 
7

 
18

Total revenues (Note 3)
36,451

 
37,666

 
115,450

 
118,545

 
 
 
 
 
 
 
 
Costs and expenses
 
 
 
 
 
 
 
Cost of sales
30,275

 
31,568

 
96,317

 
100,515

Selling, administrative, and other expenses
2,919

 
2,882

 
8,439

 
8,407

Ford Credit interest, operating, and other expenses
2,259

 
2,352

 
6,680

 
7,052

Total costs and expenses
35,453

 
36,802

 
111,436

 
115,974

 
 
 
 
 
 
 
 
Interest expense on Automotive debt
284

 
328

 
840

 
890

Interest expense on Other debt
14

 
15

 
42

 
43

 
 
 
 
 
 
 
 
Other income/(loss), net (Note 4)
754

 
605

 
2,220

 
2,472

Equity in net income of affiliated companies
316

 
(32
)
 
935

 
252

Income before income taxes
1,770

 
1,094


6,287


4,362

Provision for/(Benefit from) income taxes
191

 
101

 
1,054

 
555

Net income
1,579

 
993

 
5,233

 
3,807

Less: Income/(Loss) attributable to noncontrolling interests
7

 
2

 
22

 
14

Net income attributable to Ford Motor Company
$
1,572

 
$
991

 
$
5,211

 
$
3,793

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

 
$
0.25

 
$
1.31

 
$
0.95

Diluted income
0.39

 
0.25

 
1.30

 
0.95

 
 
 
 
 
 
 
 
Cash dividends declared
0.15

 
0.15

 
0.50

 
0.58



CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(in millions)
 
For the periods ended September 30,
 
2017
 
2018
 
2017
 
2018
 
Third Quarter
 
First Nine Months
 
(unaudited)
Net income
$
1,579

 
$
993

 
$
5,233

 
$
3,807

Other comprehensive income/(loss), net of tax (Note 16)
 
 
 
 
 
 
 
Foreign currency translation
102

 
(134
)
 
427

 
(434
)
Marketable securities
(1
)
 
(2
)
 
2

 
(57
)
Derivative instruments
(171
)
 
(103
)
 
(201
)
 
(18
)
Pension and other postretirement benefits
27

 
13

 
24

 
38

Total other comprehensive income/(loss), net of tax
(43
)
 
(226
)
 
252

 
(471
)
Comprehensive income
1,536

 
767

 
5,485

 
3,336

Less: Comprehensive income/(loss) attributable to noncontrolling interests
7

 
1

 
20

 
13

Comprehensive income attributable to Ford Motor Company
$
1,529

 
$
766

 
$
5,465

 
$
3,323

The accompanying notes are part of the financial statements.

1
Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in millions)
 
December 31,
2017
 
September 30,
2018
 
(unaudited)
ASSETS
 
 
 
Cash and cash equivalents (Note 7)
$
18,492

 
$
18,562

Marketable securities (Note 7)
20,435

 
17,780

Ford Credit finance receivables, net (Note 8)
52,210

 
50,818

Trade and other receivables, less allowances of $392 and $368
10,599

 
11,244

Inventories (Note 10)
11,176

 
12,810

Other assets
3,889

 
3,629

Total current assets
116,801

 
114,843

 
 
 
 
Ford Credit finance receivables, net (Note 8)
56,182

 
57,043

Net investment in operating leases
28,235

 
29,540

Net property
35,327

 
35,762

Equity in net assets of affiliated companies
3,085

 
2,858

Deferred income taxes
10,762

 
10,553

Other assets
8,104

 
8,367

Total assets
$
258,496

 
$
258,966

 
 
 
 
LIABILITIES
 
 
 
Payables
$
23,282

 
$
23,273

Other liabilities and deferred revenue (Note 12)
19,697

 
20,714

Automotive debt payable within one year (Note 14)
3,356

 
3,216

Ford Credit debt payable within one year (Note 14)
48,265

 
47,547

Total current liabilities
94,600

 
94,750

 
 
 
 
Other liabilities and deferred revenue (Note 12)
24,711

 
24,228

Automotive long-term debt (Note 14)
12,575

 
11,448

Ford Credit long-term debt (Note 14)
89,492

 
90,620

Other long-term debt (Note 14)
599

 
600

Deferred income taxes
815

 
602

Total liabilities
222,792

 
222,248

 
 
 
 
Redeemable noncontrolling interest
98

 
99

 
 
 
 
EQUITY
 
 
 
Common Stock, par value $.01 per share (3,999 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

 
22,011

Retained earnings
21,906

 
23,384

Accumulated other comprehensive income/(loss) (Note 16)
(6,959
)
 
(7,429
)
Treasury stock
(1,253
)
 
(1,417
)
Total equity attributable to Ford Motor Company
35,578

 
36,590

Equity attributable to noncontrolling interests
28

 
29

Total equity
35,606

 
36,619

Total liabilities and equity
$
258,496

 
$
258,966

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
 
September 30,
2018
 
(unaudited)
ASSETS
 
 
 
Cash and cash equivalents
$
3,479

 
$
2,746

Ford Credit finance receivables, net
56,250

 
56,412

Net investment in operating leases
11,503

 
12,441

Other assets
64

 
55

LIABILITIES
 
 
 
Other liabilities and deferred revenue
$
2

 
$
2

Debt
46,437

 
50,564

The accompanying notes are part of the financial statements.

2
Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
 
For the periods ended September 30,
 
2017
 
2018
 
First Nine Months
 
(unaudited)
Cash flows from operating activities
 
 
 
Net cash provided by/(used in) operating activities
$
14,949

 
$
13,665

 
 
 
 
Cash flows from investing activities
 
 
 
Capital spending
(4,936
)
 
(5,669
)
Acquisitions of finance receivables and operating leases
(43,054
)
 
(48,227
)
Collections of finance receivables and operating leases
32,988

 
38,418

Purchases of marketable and other securities
(20,550
)
 
(14,547
)
Sales and maturities of marketable and other securities
22,953

 
17,341

Settlements of derivatives
62

 
290

Other
12

 
(201
)
Net cash provided by/(used in) investing activities
(12,525
)
 
(12,595
)
 
 
 
 
Cash flows from financing activities
 
 
 
Cash dividends
(1,988
)
 
(2,308
)
Purchases of common stock
(131
)
 
(164
)
Net changes in short-term debt
1,899

 
(1,268
)
Proceeds from issuance of long-term debt
30,557

 
37,211

Principal payments on long-term debt
(31,378
)
 
(33,935
)
Other
(124
)
 
(184
)
Net cash provided by/(used in) financing activities
(1,165
)
 
(648
)
 
 
 
 
Effect of exchange rate changes on cash, cash equivalents, and restricted cash
442

 
(305
)
 
 
 
 
Net increase/(decrease) in cash, cash equivalents, and restricted cash
$
1,701

 
$
117

 
 
 
 
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
1,701

 
117

Cash, cash equivalents, and restricted cash at September 30 (Note 7)
$
17,720

 
$
18,755


The accompanying notes are part of the financial statements.



3
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
—

 
—

 
5,211

 
—

 
—

 
5,211

 
22

 
5,233

Other comprehensive income/(loss), net of tax
—

 
—

 
—

 
254

 
—

 
254

 
(2
)
 
252

Common stock issued (including share-based compensation impacts)
—

 
168

 
—

 
—

 
—

 
168

 
—

 
168

Treasury stock/other 
—

 
—

 
—

 
—

 
(131
)
 
(131
)
 
(1
)
 
(132
)
Cash dividends declared
—

 
—

 
(1,988
)
 
—

 
—

 
(1,988
)
 
(11
)
 
(1,999
)
Balance at September 30, 2017
$
41

 
$
21,804

 
$
19,982

 
$
(6,759
)
 
$
(1,253
)
 
$
33,815

 
$
25

 
$
33,840

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2017
$
41

 
$
21,843

 
$
21,906

 
$
(6,959
)
 
$
(1,253
)
 
$
35,578

 
$
28

 
$
35,606

Net income
—

 
—

 
3,793

 
—

 
—

 
3,793

 
14

 
3,807

Other comprehensive income/(loss), net of tax
—

 
—

 
—

 
(470
)
 
—

 
(470
)
 
(1
)
 
(471
)
Common stock issued (including share-based compensation impacts)
—

 
168

 
—

 
—

 
—

 
168

 
—

 
168

Treasury stock/other 
—

 
—

 
—

 
—

 
(164
)
 
(164
)
 
—

 
(164
)
Dividends and dividend equivalents declared
—

 
—

 
(2,315
)
 
—

 
—

 
(2,315
)
 
(12
)
 
(2,327
)
Balance at September 30, 2018
$
41

 
$
22,011

 
$
23,384

 
$
(7,429
)
 
$
(1,417
)
 
$
36,590

 
$
29

 
$
36,619


The accompanying notes are part of the financial statements.




4
Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS

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



5
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 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 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 September 30, 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 periods ended September 30, 2017
 
 
Third Quarter
 
First Nine Months
 
 
Previously Reported
 
As Revised
 
Effect of Change
Higher/(Lower)
 
Previously Reported
 
As Revised
 
Effect of Change
Higher/(Lower)
Income Statement
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of Sales
 
$
30,288

 
$
30,275

 
$
(13
)
 
$
96,345

 
$
96,317

 
$
(28
)
Income before income taxes
 
1,757

 
1,770

 
13

 
6,259

 
6,287

 
28

Provision for/ (Benefit from) income taxes
 
186

 
191

 
5

 
1,044

 
1,054

 
10

Net income
 
1,571

 
1,579

 
8

 
5,215

 
5,233

 
18

Net income attributable to Ford Motor Company
 
1,564

 
1,572

 
8

 
5,193

 
5,211

 
18

Basic earnings per share attributable to Ford Motor Company
 
0.39

 
0.40

 
0.01

 
1.31

 
1.31

 
—

Diluted earnings per share attributable to Ford Motor Company
 
0.39

 
0.39

 
—

 
1.30

 
1.30

 
—

 
 
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


6
Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS

NOTE 1.  PRESENTATION (Continued)

Argentina

In June 2018, Argentina was classified as having a highly inflationary economy due to the three-year cumulative consumer price index exceeding 100%. As a result, we changed the functional currency for our operations in Argentina from the Argentine peso to the U.S. dollar as of July 1, 2018.

NOTE 2. NEW ACCOUNTING STANDARDS

Adoption of New Accounting Standards

Accounting Standards Update (“ASU”) 2017-12, Derivatives and Hedging. On January 1, 2018, we adopted the amendments to Accounting Standards 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 ASUs during 2018, none of which had a material impact to our financial statements or financial statement disclosures:
ASU
 
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. We plan to adopt the new standard on its effective date of January 1, 2020, 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.

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 approximately $1 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.

7
Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS

NOTE 3. REVENUE

The following tables disaggregate our revenue by major source for the periods ended September 30 (in millions):
 
Third Quarter 2017
 
Automotive
 
Mobility
 
Ford Credit
 
Consolidated
Vehicles, parts, and accessories
$
32,401

 
$
—

 
$
—

 
$
32,401

Used vehicles
606

 
—

 
—

 
606

Extended service contracts
314

 
—

 
—

 
314

Other revenue
197

 
3

 
55

 
255

Revenues from sales and services
33,518

 
3

 
55

 
33,576

 
 
 
 
 
 
 
 
Leasing income
128

 
—

 
1,395

 
1,523

Financing income
—

 
—

 
1,314

 
1,314

Insurance income
—

 
—

 
38

 
38

Total revenues
$
33,646

 
$
3

 
$
2,802

 
$
36,451

 
 
 
 
 
 
 
 
 
Third Quarter 2018
 
Automotive
 
Mobility
 
Ford Credit
 
Consolidated
Vehicles, parts, and accessories
$
33,352

 
$
—

 
$
—

 
$
33,352

Used vehicles
620

 
—

 
—

 
620

Extended service contracts
333

 
—

 
—

 
333

Other revenue
201

 
8

 
53

 
262

Revenues from sales and services
34,506

 
8

 
53

 
34,567

 
 
 
 
 
 
 
 
Leasing income
154

 
—

 
1,463

 
1,617

Financing income
—

 
—

 
1,443

 
1,443

Insurance income
—

 
—

 
39

 
39

Total revenues
$
34,660

 
$
8

 
$
2,998

 
$
37,666


 
First Nine Months 2017
 
Automotive
 
Mobility
 
Ford Credit
 
Consolidated
Vehicles, parts, and accessories
$
103,143

 
$
—

 
$
—

 
$
103,143

Used vehicles
2,187

 
—

 
—

 
2,187

Extended service contracts
921

 
—

 
—

 
921

Other revenue
623

 
7

 
159

 
789

Revenues from sales and services
106,874

 
7

 
159

 
107,040

 
 
 
 
 
 
 
 
Leasing income
360

 
—

 
4,142

 
4,502

Financing income
—

 
—

 
3,788

 
3,788

Insurance income
—

 
—

 
120

 
120

Total revenues
$
107,234

 
$
7

 
$
8,209

 
$
115,450

 
 
 
 
 
 
 
 
 
First Nine Months 2018
 
Automotive
 
Mobility
 
Ford Credit
 
Consolidated
Vehicles, parts, and accessories
$
105,338

 
$
—

 
$
—

 
$
105,338

Used vehicles
2,203

 
—

 
—

 
2,203

Extended service contracts
990

 
—

 
—

 
990

Other revenue
630

 
18

 
166

 
814

Revenues from sales and services
109,161

 
18

 
166

 
109,345

 
 
 
 
 
 
 
 
Leasing income
416

 
—

 
4,321

 
4,737

Financing income
—

 
—

 
4,340

 
4,340

Insurance income
—

 
—

 
123

 
123

Total revenues
$
109,577

 
$
18

 
$
8,950

 
$
118,545


8
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 related to revenue recognized in prior periods of $182 million and $240 million in the third 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 $256 million and $262 million of the unearned amounts as revenue during the third quarter of 2017 and 2018, respectively, and $797 million and $829 million in the first nine months of 2017 and 2018, respectively. At September 30, 2018, the unearned amount was $4 billion. We expect to recognize approximately $300 million of the unearned amount in the remainder of 2018, $1.1 billion in 2019, and $2.6 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 $242 million in deferred costs as of December 31, 2017 and September 30, 2018, respectively. Amortization of $17 million and $18 million was recognized during the third quarter of 2017 and 2018, respectively, and $46 million and $55 million in the first nine months of 2017 and 2018, respectively.


9
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 September 30 were as follows (in millions):
 
Third Quarter
 
First Nine Months
 
2017
 
2018
 
2017
 
2018
Net periodic pension and other postretirement employee benefits (OPEB) income/(cost), excluding service cost
$
365

 
$
378

 
$
1,144

 
$
1,284

Investment-related interest income
124

 
169

 
325

 
482

Interest income/(expense) on income taxes
(2
)
 
(5
)
 
(1
)
 
28

Realized and unrealized gains/(losses) on cash equivalents, marketable securities, and other securities
(13
)
 
(76
)
 
14

 
136

Gains/(Losses) on changes in investments in affiliates
(21
)
 
(14
)
 
(23
)
 
44

Royalty income
171

 
115

 
475

 
387

Other
130

 
38

 
286

 
111

Total
$
754

 
$
605

 
$
2,220

 
$
2,472




10
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 third quarter and first nine months of 2018, our effective tax rates were 9.2% and 12.7%, respectively. During the third quarter of 2018, we recognized $101 million of benefit from settlements of tax controversies in various jurisdictions. In addition, 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):
 
Third Quarter
 
First Nine Months
 
2017
 
2018
 
2017
 
2018
Basic and Diluted Income Attributable to Ford Motor Company
 
 
 
 
 
 
 
Basic income
$
1,572

 
$
991

 
$
5,211

 
$
3,793

Diluted income
1,572

 
991

 
5,211

 
3,793

 
 
 
 
 
 
 
 
Basic and Diluted Shares
 

 
 

 
 
 
 
Basic shares (average shares outstanding)
3,972

 
3,976

 
3,975

 
3,976

Net dilutive options, unvested restricted stock units, and restricted stock
24

 
24

 
21

 
23

Diluted shares
3,996

 
4,000

 
3,996

 
3,999


11
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 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 (a)
1
 
138

 
—

 
—

 
138

Other marketable securities
2
 
51

 
—

 
23

 
74

Total marketable securities
 
 
$
17,554

 
$
—

 
$
2,881

 
$
20,435

 
 
 
 
 
 
 
 
 
 
Restricted cash
 
 
$
15

 
$
7

 
$
124

 
$
146

 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2018
 
Fair Value
 Level
 
Automotive
 
Mobility
 
Ford Credit
 
Consolidated
Cash and cash equivalents
 
 
 
 
 
 
 
 
 
U.S. government
1
 
$
674

 
$
—

 
$
569

 
$
1,243

U.S. government agencies
2
 
375

 
—

 
422

 
797

Non-U.S. government and agencies
2
 
201

 
—

 
565

 
766

Corporate debt
2
 
460

 
—

 
889

 
1,349

Total marketable securities classified as cash equivalents
 
 
1,710

 
—

 
2,445

 
4,155

Cash, time deposits, and money market funds
 
 
5,829

 
26

 
8,552

 
14,407

Total cash and cash equivalents
 
 
$
7,539

 
$
26

 
$
10,997

 
$
18,562

 
 
 
 
 
 
 
 
 
 
Marketable securities
 
 
 
 
 
 
 
 
 
U.S. government
1
 
$
2,859

 
$
—

 
$
257

 
$
3,116

U.S. government agencies
2
 
1,953

 
—

 
139

 
2,092

Non-U.S. government and agencies
2
 
5,309

 
—

 
888

 
6,197

Corporate debt
2
 
5,189

 
—

 
305

 
5,494

Equities (a)
1
 
484

 
—

 
—

 
484

Other marketable securities
2
 
246

 
—

 
151

 
397

Total marketable securities
 
 
$
16,040

 
$
—

 
$
1,740

 
$
17,780

 
 
 
 
 
 
 
 
 
 
Restricted cash
 
 
$
16

 
$
30

 
$
147

 
$
193

__________
(a) Net unrealized gains/losses on equities were a $27 million loss and a $84 million gain at December 31, 2017 and September 30, 2018, respectively.

12
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 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
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

 
 
 
 
 
 
 
 

 
 
 
 
 
 
 
September 30, 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
Automotive
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government
$
2,909

 
$
—

 
$
(19
)
 
$
2,890

 
$
1,926

 
$
964

 
$
—

U.S. government agencies
1,930

 
—

 
(26
)
 
1,904

 
514

 
1,372

 
18

Non-U.S. government and agencies
3,960

 
—

 
(68
)
 
3,892

 
144

 
3,748

 
—

Corporate debt
2,911

 
1

 
(33
)
 
2,879

 
199

 
2,678

 
2

Other marketable securities
209

 
—

 
(1
)
 
208

 
1

 
131

 
76

Total
$
11,919

 
$
1

 
$
(147
)
 
$
11,773

 
$
2,784

 
$
8,893

 
$
96


Sales proceeds and gross realized gains/(losses) from the sale of AFS debt securities for the periods ended September 30 were as follows (in millions):
 
Third Quarter
 
First Nine Months
 
2017
 
2018
 
2017
 
2018
Automotive
 
 
 
 
 
 
 
Sales proceeds
$
491

 
$
1,327

 
$
3,107

 
$
4,173

Gross realized gains
—

 
—

 
3

 
1

Gross realized losses
—

 
4

 
8

 
15


13
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
)
 
 

 
 
 
 
 
 
 
 
 
 
 
September 30, 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
$
869

 
$
(3
)
 
$
1,869

 
$
(16
)
 
$
2,738

 
$
(19
)
U.S. government agencies
476

 
(4
)
 
1,386

 
(22
)
 
1,862

 
(26
)
Non-U.S. government and agencies
2,110

 
(39
)
 
1,453

 
(29
)
 
3,563

 
(68
)
Corporate debt
2,161

 
(24
)
 
374

 
(9
)
 
2,535

 
(33
)
Other marketable securities
170

 
(1
)
 
—

 
—

 
170

 
(1
)
Total
$
5,786

 
$
(71
)
 
$
5,082

 
$
(76
)
 
$
10,868

 
$
(147
)

During the nine months ended September 30, 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 were as follows (in millions):
 
December 31,
2017
 
September 30,
2018
Cash and cash equivalents
$
18,492

 
$
18,562

Restricted cash (a)
146

 
193

Total cash, cash equivalents, and restricted cash
$
18,638

 
$
18,755

__________
(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 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 $199 million at December 31, 2017 and September 30, 2018, respectively. There were no material adjustments to the fair values of these investments held at September 30, 2018.



14
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
 
September 30,
2018
Consumer
 
 
 
Retail financing, gross
$
78,331

 
$
80,136

Unearned interest supplements
(3,280
)
 
(3,442
)
Consumer finance receivables
75,051

 
76,694

Non-Consumer
 

 
 

Dealer financing
33,938

 
31,753

Non-Consumer finance receivables
33,938

 
31,753

Total recorded investment
$
108,989

 
$
108,447

 
 
 
 
Recorded investment in finance receivables
$
108,989

 
$
108,447

Allowance for credit losses
(597
)
 
(586
)
Finance receivables, net
$
108,392

 
$
107,861

 
 
 
 
Current portion
$
52,210

 
$
50,818

Non-current portion
56,182

 
57,043

Finance receivables, net
$
108,392