10-Q 1 f0630201810-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 June 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 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 July 20, 2018, Ford had outstanding 3,914,874,462 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 June 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 1A
Risk Factors
 
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 June 30,
 
2017
 
2018
 
2017
 
2018
 
Second Quarter
 
First Half
 
(unaudited)
Revenues
 
 
 
 
 
 
 
Automotive
$
37,113

 
$
35,905

 
$
73,588

 
$
74,917

Ford Credit
2,738

 
3,009

 
5,407

 
5,952

Mobility
2

 
6

 
4

 
10

Total revenues (Note 3)
39,853

 
38,920

 
78,999

 
80,879

 
 
 
 
 
 
 
 
Costs and expenses
 
 
 
 
 
 
 
Cost of sales
33,342

 
33,194

 
66,042

 
68,947

Selling, administrative, and other expenses
2,756

 
2,778

 
5,520

 
5,525

Ford Credit interest, operating, and other expenses
2,203

 
2,362

 
4,421

 
4,700

Total costs and expenses
38,301

 
38,334

 
75,983

 
79,172

 
 
 
 
 
 
 
 
Interest expense on Automotive debt
277

 
287

 
556

 
562

Interest expense on Other debt
14

 
14

 
28

 
28

 
 
 
 
 
 
 
 
Other income/(loss), net (Note 4)
732

 
1,004

 
1,466

 
1,867

Equity in net income of affiliated companies
273

 
60

 
619

 
284

Income before income taxes
2,266

 
1,349


4,517


3,268

Provision for/(Benefit from) income taxes
211

 
280

 
863

 
454

Net income
2,055

 
1,069

 
3,654

 
2,814

Less: Income/(Loss) attributable to noncontrolling interests
8

 
3

 
15

 
12

Net income attributable to Ford Motor Company
$
2,047

 
$
1,066

 
$
3,639

 
$
2,802

 
 
 
 
 
 
 
 
EARNINGS PER SHARE ATTRIBUTABLE TO FORD MOTOR COMPANY COMMON AND CLASS B STOCK (Note 6)
Basic income
$
0.51

 
$
0.27

 
$
0.92

 
$
0.70

Diluted income
0.51

 
0.27

 
0.91

 
0.70

 
 
 
 
 
 
 
 
Cash dividends declared
0.15

 
0.15

 
0.35

 
0.43



CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(in millions)
 
For the periods ended June 30,
 
2017
 
2018
 
2017
 
2018
 
Second Quarter
 
First Half
 
(unaudited)
Net income
$
2,055

 
$
1,069

 
$
3,654

 
$
2,814

Other comprehensive income/(loss), net of tax (Note 16)
 
 
 
 
 
 
 
Foreign currency translation
84

 
(595
)
 
326

 
(300
)
Marketable securities
4

 
(8
)
 
3

 
(55
)
Derivative instruments
137

 
52

 
(31
)
 
85

Pension and other postretirement benefits
(12
)
 
17

 
(3
)
 
25

Total other comprehensive income/(loss), net of tax
213

 
(534
)
 
295

 
(245
)
Comprehensive income
2,268

 
535

 
3,949

 
2,569

Less: Comprehensive income/(loss) attributable to noncontrolling interests
8

 
4

 
13

 
12

Comprehensive income attributable to Ford Motor Company
$
2,260

 
$
531

 
$
3,936

 
$
2,557

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
 
June 30,
2018
 
(unaudited)
ASSETS
 
 
 
Cash and cash equivalents (Note 7)
$
18,492

 
$
16,828

Marketable securities (Note 7)
20,435

 
19,648

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

 
51,354

Trade and other receivables, less allowances of $392 and $395
10,599

 
11,026

Inventories (Note 10)
11,176

 
12,565

Other assets
3,889

 
3,604

Total current assets
116,801

 
115,025

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

 
56,351

Net investment in operating leases
28,235

 
29,365

Net property
35,327

 
35,580

Equity in net assets of affiliated companies
3,085

 
3,087

Deferred income taxes
10,762

 
10,371

Other assets
8,104

 
8,300

Total assets
$
258,496

 
$
258,079

 
 
 
 
LIABILITIES
 
 
 
Payables
$
23,282

 
$
22,743

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

 
21,234

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

 
3,968

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

 
46,916

Total current liabilities
94,600

 
94,861

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

 
24,107

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

 
11,642

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

 
89,718

Other long-term debt (Note 14)
599

 
599

Deferred income taxes
815

 
584

Total liabilities
222,792

 
221,511

 
 
 
 
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

 
21,953

Retained earnings
21,906

 
22,993

Accumulated other comprehensive income/(loss) (Note 16)
(6,959
)
 
(7,204
)
Treasury stock
(1,253
)
 
(1,342
)
Total equity attributable to Ford Motor Company
35,578

 
36,441

Equity attributable to noncontrolling interests
28

 
28

Total equity
35,606

 
36,469

Total liabilities and equity
$
258,496

 
$
258,079

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

 
$
3,079

Ford Credit finance receivables, net
56,250

 
55,600

Net investment in operating leases
11,503

 
12,207

Other assets
64

 
55

LIABILITIES
 
 
 
Other liabilities and deferred revenue
$
2

 
$
6

Debt
46,437

 
50,012

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 June 30,
 
2017
 
2018
 
First Half
 
(unaudited)
Cash flows from operating activities
 
 
 
Net cash provided by/(used in) operating activities
$
9,951

 
$
8,486

 
 
 
 
Cash flows from investing activities
 
 
 
Capital spending
(3,264
)
 
(3,688
)
Acquisitions of finance receivables and operating leases
(27,379
)
 
(32,273
)
Collections of finance receivables and operating leases
21,636

 
25,980

Purchases of marketable and other securities
(16,931
)
 
(11,725
)
Sales and maturities of marketable and other securities
16,906

 
12,756

Settlements of derivatives
154

 
109

Other
16

 
(181
)
Net cash provided by/(used in) investing activities
(8,862
)
 
(9,022
)
 
 
 
 
Cash flows from financing activities
 
 
 
Cash dividends
(1,392
)
 
(1,711
)
Purchases of common stock
(131
)
 
(89
)
Net changes in short-term debt
72

 
(1,735
)
Proceeds from issuance of long-term debt
20,467

 
28,135

Principal payments on long-term debt
(19,952
)
 
(25,299
)
Other
(102
)
 
(93
)
Net cash provided by/(used in) financing activities
(1,038
)
 
(792
)
 
 
 
 
Effect of exchange rate changes on cash, cash equivalents, and restricted cash
267

 
(289
)
 
 
 
 
Net increase/(decrease) in cash, cash equivalents, and restricted cash
$
318

 
$
(1,617
)
 
 
 
 
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
318

 
(1,617
)
Cash, cash equivalents, and restricted cash at June 30 (Note 7)
$
16,337

 
$
17,021


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

 

 
3,639

 

 

 
3,639

 
15

 
3,654

Other comprehensive income/(loss), net of tax

 

 

 
297

 

 
297

 
(2
)
 
295

Common stock issued (including share-based compensation impacts)

 
99

 

 

 

 
99

 

 
99

Treasury stock/other 

 

 

 

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

 

 
(1,392
)
 

 

 
(1,392
)
 
(11
)
 
(1,403
)
Balance at June 30, 2017
$
41

 
$
21,735

 
$
19,006

 
$
(6,716
)
 
$
(1,253
)
 
$
32,813

 
$
18

 
$
32,831

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2017
$
41

 
$
21,843

 
$
21,906

 
$
(6,959
)
 
$
(1,253
)
 
$
35,578

 
$
28

 
$
35,606

Net income

 

 
2,802

 

 

 
2,802

 
12

 
2,814

Other comprehensive income/(loss), net of tax

 

 

 
(245
)
 

 
(245
)
 

 
(245
)
Common stock issued (including share-based compensation impacts)

 
110

 

 

 

 
110

 

 
110

Treasury stock/other 

 

 

 

 
(89
)
 
(89
)
 

 
(89
)
Dividends and dividend equivalents declared

 

 
(1,715
)
 

 

 
(1,715
)
 
(12
)
 
(1,727
)
Balance at June 30, 2018
$
41

 
$
21,953

 
$
22,993

 
$
(7,204
)
 
$
(1,342
)
 
$
36,441

 
$
28

 
$
36,469


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 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 June 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 June 30, 2017
 
 
Second Quarter
 
First Half
 
 
Previously Reported
 
As Revised
 
Effect of Change
Higher/(Lower)
 
Previously Reported
 
As Revised
 
Effect of Change
Higher/(Lower)
Income Statement
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of Sales
 
$
33,349

 
$
33,342

 
$
(7
)
 
$
66,057

 
$
66,042

 
$
(15
)
Income before income taxes
 
2,259

 
2,266

 
7

 
4,502

 
4,517

 
15

Provision for/ (Benefit from) income taxes
 
209

 
211

 
2

 
858

 
863

 
5

Net income
 
2,050

 
2,055

 
5

 
3,644

 
3,654

 
10

Net income attributable to Ford Motor Company
 
2,042

 
2,047

 
5

 
3,629

 
3,639

 
10

Basic earning per share attributable to Ford Motor Company
 
0.51

 
0.51

 

 
0.91

 
0.92

 
0.01

Diluted earning per share attributable to Ford Motor Company
 
0.51

 
0.51

 

 
0.91

 
0.91

 

 
 
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, as a result of the three-year cumulative consumer price index exceeding 100%, Argentina was classified as having a highly inflationary economy. We are presently evaluating the impact of accounting for our Argentina operations as highly inflationary beginning on 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 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.

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.

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 June 30 (in millions):
 
Second Quarter 2017
 
Automotive
 
Mobility
 
Ford Credit
 
Consolidated
Vehicles, parts, and accessories
$
35,746

 
$

 
$

 
$
35,746

Used vehicles
708

 

 

 
708

Extended service contracts
332

 

 

 
332

Other revenue
202

 
2

 
55

 
259

Revenues from sales and services
36,988

 
2

 
55

 
37,045

 
 
 
 
 
 
 
 
Leasing income
125

 

 
1,381

 
1,506

Financing income

 

 
1,260

 
1,260

Insurance income

 

 
42

 
42

Total revenues
$
37,113

 
$
2

 
$
2,738

 
$
39,853

 
 
 
 
 
 
 
 
 
Second Quarter 2018
 
Automotive
 
Mobility
 
Ford Credit
 
Consolidated
Vehicles, parts, and accessories
$
34,569

 
$

 
$

 
$
34,569

Used vehicles
655

 

 

 
655

Extended service contracts
328

 

 

 
328

Other revenue
210

 
6

 
58

 
274

Revenues from sales and services
35,762

 
6

 
58

 
35,826

 
 
 
 
 
 
 
 
Leasing income
143

 

 
1,443

 
1,586

Financing income

 

 
1,465

 
1,465

Insurance income

 

 
43

 
43

Total revenues
$
35,905

 
$
6

 
$
3,009

 
$
38,920


 
First Half 2017
 
Automotive
 
Mobility
 
Ford Credit
 
Consolidated
Vehicles, parts, and accessories
$
70,742

 
$

 
$

 
$
70,742

Used vehicles
1,581

 

 

 
1,581

Extended service contracts
607

 

 

 
607

Other revenue
426

 
4

 
104

 
534

Revenues from sales and services
73,356

 
4

 
104

 
73,464

 
 
 
 
 
 
 
 
Leasing income
232

 

 
2,747

 
2,979

Financing income

 

 
2,474

 
2,474

Insurance income

 

 
82

 
82

Total revenues
$
73,588

 
$
4

 
$
5,407

 
$
78,999

 
 
 
 
 
 
 
 
 
First Half 2018
 
Automotive
 
Mobility
 
Ford Credit
 
Consolidated
Vehicles, parts, and accessories
$
71,986

 
$

 
$

 
$
71,986

Used vehicles
1,583

 

 

 
1,583

Extended service contracts
657

 

 

 
657

Other revenue
429

 
10

 
113

 
552

Revenues from sales and services
74,655

 
10

 
113

 
74,778

 
 
 
 
 
 
 
 
Leasing income
262

 

 
2,858

 
3,120

Financing income

 

 
2,897

 
2,897

Insurance income

 

 
84

 
84

Total revenues
$
74,917

 
$
10

 
$
5,952

 
$
80,879


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 to revenue recognized in prior periods of $510 million and $220 million in the second 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 $271 million and $269 million of the unearned amounts as revenue during the second quarter of 2017 and 2018, respectively, and $541 million and $567 million in the first half of 2017 and 2018, respectively. At June 30, 2018, the unearned amount was $3.9 billion. We expect to recognize approximately $600 million of the unearned amount in the remainder of 2018, $1 billion in 2019, and $2.3 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 June 30, 2018, respectively. Amortization of $14 million and $19 million was recognized during the second quarter of 2017 and 2018, respectively, and $29 million and $37 million in the first half 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 June 30 were as follows (in millions):
 
Second Quarter
 
First Half
 
2017
 
2018
 
2017
 
2018
Net periodic pension and OPEB income/(cost), excluding service cost
$
389

 
$
429

 
$
779

 
$
906

Investment-related interest income
109

 
167

 
201

 
313

Interest income/(expense) on income taxes

 
32

 
1

 
33

Realized and unrealized gains/(losses) on cash equivalents, marketable securities, and other securities
(24
)
 
217

 
27

 
212

Gains/(Losses) on changes in investments in affiliates
(1
)
 

 
(2
)
 
58

Royalty income
150

 
129

 
304

 
272

Other
109

 
30

 
156

 
73

Total
$
732

 
$
1,004

 
$
1,466

 
$
1,867




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 second quarter and first half of 2018, our effective tax rates were 20.8% and 13.9%, respectively. 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):
 
Second Quarter
 
First Half
 
2017
 
2018
 
2017
 
2018
Basic and Diluted Income Attributable to Ford Motor Company
 
 
 
 
 
 
 
Basic income
$
2,047

 
$
1,066

 
$
3,639

 
$
2,802

Diluted income
2,047

 
1,066

 
3,639

 
2,802

 
 
 
 
 
 
 
 
Basic and Diluted Shares
 

 
 

 
 
 
 
Basic shares (average shares outstanding)
3,977

 
3,977

 
3,977

 
3,976

Net dilutive options, unvested restricted stock units, and restricted stock
19

 
22

 
21

 
22

Diluted shares
3,996

 
3,999

 
3,998

 
3,998


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 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 (a)
1
 
138

 

 

 
138

Other marketable securities
2
 
51

 

 
23

 
74

Total marketable securities
 
 
$
17,554

 
$

 
$
2,881

 
$
20,435

 
 
 
 
 
 
 
 
 
 
 
 
 
June 30, 2018
 
Fair Value
 Level
 
Automotive
 
Mobility
 
Ford Credit
 
Consolidated
Cash and cash equivalents
 
 
 
 
 
 
 
 
 
U.S. government
1
 
$
8

 
$

 
$
10

 
$
18

U.S. government agencies
2
 
3

 

 

 
3

Non-U.S. government and agencies
2
 
210

 

 
587

 
797

Corporate debt
2
 
225

 

 
460

 
685

Total marketable securities classified as cash equivalents
 
 
446

 

 
1,057

 
1,503

Cash, time deposits, and money market funds
 
 
7,284

 
19

 
8,022

 
15,325

Total cash and cash equivalents
 
 
$
7,730

 
$
19

 
$
9,079

 
$
16,828

 
 
 
 
 
 
 
 
 
 
Marketable securities
 
 
 
 
 
 
 
 
 
U.S. government
1
 
$
2,949

 
$

 
$
404

 
$
3,353

U.S. government agencies
2
 
1,992

 

 
164

 
2,156

Non-U.S. government and agencies
2
 
6,322

 

 
1,045

 
7,367

Corporate debt
2
 
5,306

 

 
516

 
5,822

Equities (a)
1
 
558

 

 

 
558

Other marketable securities
2
 
235

 

 
157

 
392

Total marketable securities
 
 
$
17,362

 
$

 
$
2,286

 
$
19,648

__________
(a) Net unrealized gains/losses on equities were a $27 million loss and a $158 million gain at December 31, 2017 and June 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 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
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

 
 
 
 
 
 
 
 

 
 
 
 
 
 
 
June 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
$
2,634

 
$

 
$
(21
)
 
$
2,613

 
$
1,777

 
$
836

 
$

U.S. government agencies
1,871

 

 
(26
)
 
1,845

 
309

 
1,518

 
18

Non-U.S. government and agencies
4,178

 

 
(63
)
 
4,115

 
6

 
4,109

 

Corporate debt
2,628

 
1

 
(33
)
 
2,596

 
190

 
2,404

 
2

Other marketable securities
200

 

 
(1
)
 
199

 

 
140

 
59

Total
$
11,511

 
$
1

 
$
(144
)
 
$
11,368

 
$
2,282

 
$
9,007

 
$
79


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 June 30 were as follows (in millions):
 
Second Quarter
 
First Half
 
2017
 
2018
 
2017
 
2018
Automotive
 
 
 
 
 
 
 
Sales proceeds
$
1,315

 
$
1,507

 
$
2,616

 
$
2,846

Gross realized gains
2

 
1

 
3

 
1

Gross realized losses
6

 
5

 
8

 
11


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
)
 
 

 
 
 
 
 
 
 
 
 
 
 
June 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
$
544

 
$
(5
)
 
$
1,968

 
$
(16
)
 
$
2,512

 
$
(21
)
U.S. government agencies
966

 
(14
)
 
848

 
(12
)
 
1,814

 
(26
)
Non-U.S. government and agencies
2,450

 
(43
)
 
1,120

 
(20
)
 
3,570

 
(63
)
Corporate debt
2,033

 
(29
)
 
190

 
(4
)
 
2,223

 
(33
)
Other marketable securities
156

 
(1
)
 

 

 
156

 
(1
)
Total
$
6,149

 
$
(92
)
 
$
4,126

 
$
(52
)
 
$
10,275

 
$
(144
)

We determine other-than-temporary impairments on cash equivalents and marketable securities using a specific identification method. During the six months ended June 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 are presented separately on our consolidated balance sheet as follows (in millions):
 
December 31,
2017
 
June 30,
2018
Cash and cash equivalents
$
18,492

 
$
16,828

Restricted cash (a)
146

 
193

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

 
$
17,021

__________
(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 $188 million at December 31, 2017 and June 30, 2018, respectively. There were no material adjustments to the fair values of these investments held at June 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
 
June 30,
2018
Consumer
 
 
 
Retail financing, gross
$
78,331

 
$
78,826

Unearned interest supplements
(3,280
)
 
(3,245
)
Consumer finance receivables
75,051

 
75,581

Non-Consumer
 

 
 

Dealer financing
33,938

 
32,711

Non-Consumer finance receivables
33,938

 
32,711

Total recorded investment
$
108,989

 
$
108,292

 
 
 
 
Recorded investment in finance receivables
$
108,989

 
$
108,292

Allowance for credit losses
(597
)
 
(587
)
Finance receivables, net
$
108,392

 
$
107,705

 
 
 
 
Current portion
$
52,210

 
$
51,354

Non-current portion
56,182

 
56,351

Finance receivables, net
$
108,392

 
$
107,705

 
 
 
 
Net finance receivables subject to fair value (a)
$
105,106

 
$
104,145

Fair value
104,521

 
103,517

__________
(a)
At December 31, 2017 and June 30, 2018, Finance receivables, net includes $3.3 billion and $3.6 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 June 30, 2018, was $240 million and $242 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 June 30, 2018, were consumer receivables of $38.9 billion and $39.3 billion, respectively, and non-consumer receivables of $24.5 billion and $22.3 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.


15

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 $27 million at December 31, 2017 and June 30, 2018, respectively. The recorded investment of non-consumer receivables greater than 90 days past due and still accruing interest was $1 million and de minimis at December 31, 2017 and June 30, 2018, respectively.

The aging analysis of our finance receivables balances was as follows (in millions):
 
December 31,
2017