Ford Earnings 2018-09-30

F 10Q Quarterly Report

Balance Sheet	Income Statement	Cash Flow

10-Q 1 f0930201810-q.htm 10-Q 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	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
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
	Overview	29
	Results of Operations	31
	Automotive Segment	33
	Mobility Segment	42
	Ford Credit Segment	43
	Corporate Other	46
	Interest on Debt	46
	Special Items	46
	Taxes	47
	Liquidity and Capital Resources	48
	Credit Ratings	56
	Outlook	57
	Non-GAAP Financial Measure Reconciliations	58
	Supplemental Information	61
	Cautionary Note on Forward-Looking Statements	65
	Accounting Standards Issued But Not Yet Adopted	66
Item 3	Quantitative and Qualitative Disclosures About Market Risk	66
Item 4	Controls and Procedures	66

	Part II - Other Information
Item 1	Legal Proceedings	67
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 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.

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.

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.

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.

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 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

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.

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

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.

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

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

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.

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

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	)	$

Closing Price ($)	Shares Out (MM)	Market Cap ($MM)
$8.80	3,978	$35,010

10-Q	2018-09-30	Quarter: 2018-09-30
10-Q	2018-06-30	Quarter: 2018-06-30
10-Q	2018-03-31	Quarter: 2018-03-31
10-K	2017-12-31	Annual: 2017-12-31
10-Q	2017-09-30	Quarter: 2017-09-30
10-Q	2017-06-30	Quarter: 2017-06-30
10-Q	2017-03-31	Quarter: 2017-03-31
10-K	2016-12-31	Annual: 2016-12-31
10-Q	2016-09-30	Quarter: 2016-09-30
10-Q	2016-06-30	Quarter: 2016-06-30
10-Q	2016-03-31	Quarter: 2016-03-31
10-K	2015-12-31	Annual: 2015-12-31

8-K	2019-01-23	Earnings, Regulation FD, Exhibits
8-K	2019-01-23	Earnings, Regulation FD, Exhibits
8-K	2019-01-16	Earnings, Regulation FD, Exhibits
8-K	2019-01-15	Regulation FD, Exhibits
8-K	2019-01-03	Other Events, Exhibits
8-K	2018-12-03	Other Events, Exhibits
8-K	2018-11-15	Regulation FD, Exhibits
8-K	2018-11-14	Regulation FD, Exhibits
8-K	2018-11-01	Other Events, Exhibits
8-K	2018-10-24	Earnings, Regulation FD, Exhibits
8-K	2018-10-02	Other Events, Exhibits
8-K	2018-09-14	Regulation FD, Exhibits
8-K	2018-09-13	Enter Agreement, Shareholder Rights, Exhibits
8-K	2018-09-06	Regulation FD
8-K	2018-09-04	Other Events, Exhibits
8-K	2018-08-08	Regulation FD, Exhibits
8-K	2018-08-01	Other Events, Exhibits
8-K	2018-07-25	Earnings, Regulation FD, Exhibits
8-K	2018-07-03	Other Events, Exhibits
8-K	2018-06-01	Other Events, Exhibits
8-K	2018-05-16	Regulation FD, Exhibits
8-K	2018-05-15	Officers, Shareholder Vote
8-K	2018-05-09	Regulation FD, Exhibits
8-K	2018-05-01	Other Events, Exhibits
8-K	2018-04-25	Earnings, Regulation FD, Exhibits
8-K	2018-04-03	Other Events, Exhibits
8-K	2018-03-01	Other Events, Exhibits
8-K	2018-02-22	Officers, Other Events, Exhibits
8-K	2018-02-07	Officers, Exhibits
8-K	2018-02-01	Other Events, Exhibits
8-K	2018-01-24	Earnings, Regulation FD, Exhibits
8-K	2018-01-16	Earnings, Regulation FD, Exhibits
8-K	2018-01-03	Other Events, Exhibits

GM	General Motors
TSLA	Tesla
RACE	Ferrari
TTM	Tata Motors
WBC	Wabco Holdings
OSK	Oshkosh
FSS	Federal Signal
REVG	REV Group
SPAR	Spartan Motors
WKHS	Workhorse Group

EX-12	f09302018exhibit12.htm
EX-31.1	f09302018exhibit311.htm
EX-31.2	f09302018exhibit312.htm
EX-32.1	f09302018exhibit321.htm
EX-32.2	f09302018exhibit322.htm