Document


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

(Mark One)
 
R
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
 
 
For the quarterly period ended September 30, 2017
 
 
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  R   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  R   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 R     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  R

As of October 19, 2017, Ford had outstanding 3,901,450,116 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, 2017
 
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
 
 
Report of Independent Registered Public Accounting Firm
 
Item 2
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
 
Overview
 
 
Results of Operations
 
 
Automotive Segment
 
 
Financial Services Segment
 
 
All Other
 
 
Special Items
 
 
Taxes
 
 
Liquidity and Capital Resources
 
 
Credit Ratings
 
 
Production Volumes
 
 
Outlook
 
 
Non-GAAP Financial Measure Reconciliations
 
 
Supplemental Financial Information
 
 
Risk Factors
 
 
Accounting Standards Issued But Not Yet Adopted
 
 
Other Financial Information
 
Item 3
Quantitative and Qualitative Disclosures About Market Risk
 
Item 4
Controls and Procedures
 
 
 
 
 
 
Part II - Other Information
 
 
Item 1
Legal Proceedings
 
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,
 
2016
 
2017
 
2016
 
2017
 
Third Quarter
 
First Nine Months
 
(unaudited)
Revenues
 
 
 
 
 
 
 
Automotive
$
33,331

 
$
33,646

 
$
105,520

 
$
107,234

Financial Services
2,612

 
2,802

 
7,626

 
8,209

Other
—

 
3

 
—

 
7

Total revenues (Note 3)
35,943

 
36,451

 
113,146

 
115,450

 
 
 
 
 
 
 
 
Costs and expenses
 

 
 

 
 
 
 
Cost of sales
30,668

 
30,288

 
93,707

 
96,345

Selling, administrative, and other expenses
2,657

 
2,919

 
8,131

 
8,439

Financial Services interest, operating, and other expenses
2,200

 
2,273

 
6,518

 
6,722

Total costs and expenses
35,525

 
35,480

 
108,356

 
111,506

 
 
 
 
 
 
 
 
Interest expense on Automotive debt
238

 
284

 
650

 
840

 
 
 
 
 
 
 
 
Non-Financial Services other income/(loss), net (Note 4)
672

 
709

 
2,126

 
2,079

Financial Services other income/(loss), net (Note 4)
132

 
45

 
305

 
141

Equity in net income of affiliated companies
403

 
316

 
1,342

 
935

Income before income taxes
1,387

 
1,757


7,913


6,259

Provision for/(Benefit from) income taxes
426

 
186

 
2,525

 
1,044

Net income
961

 
1,571

 
5,388

 
5,215

Less: Income/(Loss) attributable to noncontrolling interests
4

 
7

 
9

 
22

Net income attributable to Ford Motor Company
$
957

 
$
1,564

 
$
5,379

 
$
5,193

 
 
 
 
 
 
 
 
EARNINGS PER SHARE ATTRIBUTABLE TO FORD MOTOR COMPANY COMMON AND CLASS B STOCK (Note 6)
Basic income
$
0.24

 
$
0.39

 
$
1.35

 
$
1.31

Diluted income
0.24

 
0.39

 
1.35

 
1.30

 
 
 
 
 
 
 
 
Cash dividends declared
0.15

 
0.15

 
0.70

 
0.50



CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(in millions)
 
For the periods ended September 30,
 
2016
 
2017
 
2016
 
2017
 
Third Quarter
 
First Nine Months
 
(unaudited)
Net income
$
961

 
$
1,571

 
$
5,388

 
$
5,215

Other comprehensive income/(loss), net of tax (Note 15)
 
 
 
 
 
 
 
Foreign currency translation
(184
)
 
102

 
(306
)
 
427

Marketable securities
—

 
(1
)
 
6

 
2

Derivative instruments
99

 
(171
)
 
456

 
(201
)
Pension and other postretirement benefits
14

 
27

 
53

 
24

Total other comprehensive income/(loss), net of tax
(71
)
 
(43
)
 
209

 
252

Comprehensive income
890

 
1,528

 
5,597

 
5,467

Less: Comprehensive income/(loss) attributable to noncontrolling interests
3

 
7

 
7

 
20

Comprehensive income attributable to Ford Motor Company
$
887

 
$
1,521

 
$
5,590

 
$
5,447


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,
2016
 
September 30,
2017
 
(unaudited)
ASSETS
 
 
 
Cash and cash equivalents (Note 7)
$
15,905

 
$
17,589

Marketable securities (Note 7)
22,922

 
20,492

Financial Services finance receivables, net (Note 8)
46,266

 
49,541

Trade and other receivables, less allowances of $392 and $407
11,102

 
10,277

Inventories (Note 10)
8,898

 
11,263

Other assets
3,368

 
3,570

Total current assets
108,461

 
112,732

 
 
 
 
Financial Services finance receivables, net (Note 8)
49,924

 
54,323

Net investment in operating leases
28,829

 
28,714

Net property
32,072

 
34,760

Equity in net assets of affiliated companies
3,304

 
3,344

Deferred income taxes
9,705

 
10,359

Other assets
5,656

 
7,041

Total assets
$
237,951

 
$
251,273

 
 
 
 
LIABILITIES
 

 
 

Payables
$
21,296

 
$
23,566

Other liabilities and deferred revenue (Note 11)
19,316

 
19,612

Automotive debt payable within one year (Note 13)
2,685

 
3,551

Financial Services debt payable within one year (Note 13)
46,984

 
47,623

Total current liabilities
90,281

 
94,352

 
 
 
 
Other liabilities and deferred revenue (Note 11)
24,395

 
24,819

Automotive long-term debt (Note 13)
13,222

 
12,633

Financial Services long-term debt (Note 13)
80,079

 
85,305

Deferred income taxes
691

 
804

Total liabilities
208,668

 
217,913

 
 
 
 
Redeemable noncontrolling interest
96

 
97

 
 
 
 
EQUITY
 

 
 

Common Stock, par value $.01 per share (3,986 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
21,630

 
21,804

Retained earnings
15,634

 
19,405

Accumulated other comprehensive income/(loss) (Note 15)
(7,013
)
 
(6,759
)
Treasury stock
(1,122
)
 
(1,253
)
Total equity attributable to Ford Motor Company
29,170

 
33,238

Equity attributable to noncontrolling interests
17

 
25

Total equity
29,187

 
33,263

Total liabilities and equity
$
237,951

 
$
251,273


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,
2016
 
September 30,
2017
 
(unaudited)
ASSETS
 
 
 
Cash and cash equivalents
$
3,047

 
$
2,511

Financial Services finance receivables, net
50,857

 
52,834

Net investment in operating leases
11,761

 
9,908

Other assets
25

 
60

LIABILITIES
 
 
 
Other liabilities and deferred revenue
$
5

 
$
2

Debt
43,730

 
43,302

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,
 
2016
 
2017
 
First Nine Months
 
(unaudited)
Cash flows from operating activities
 
 
 
Net cash provided by/(used in) operating activities
$
17,052

 
$
14,949

 
 
 
 
Cash flows from investing activities
 
 
 
Capital spending
(4,912
)
 
(4,936
)
Acquisitions of finance receivables and operating leases
(43,746
)
 
(43,054
)
Collections of finance receivables and operating leases
30,254

 
32,988

Purchases of equity and debt securities
(22,049
)
 
(20,550
)
Sales and maturities of equity and debt securities
22,022

 
22,953

Settlements of derivatives
330

 
62

Other
43

 
(5
)
Net cash provided by/(used in) investing activities
(18,058
)
 
(12,542
)
 
 
 
 
Cash flows from financing activities
 

 
 

Cash dividends
(2,780
)
 
(1,988
)
Purchases of common stock
(145
)
 
(131
)
Net changes in short-term debt
1,200

 
1,899

Proceeds from issuance of other debt
31,956

 
30,557

Principal payments on other debt
(30,019
)
 
(31,378
)
Other
(102
)
 
(124
)
Net cash provided by/(used in) financing activities
110

 
(1,165
)
 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
(36
)
 
442

 
 
 
 
Net increase/(decrease) in cash and cash equivalents
$
(932
)
 
$
1,684

 
 
 
 
Cash and cash equivalents at January 1
$
14,272

 
$
15,905

Net increase/(decrease) in cash and cash equivalents
(932
)
 
1,684

Cash and cash equivalents at September 30
$
13,340

 
$
17,589


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 15)
 
Treasury Stock
 
Total
 
Equity
Attributable
to Non-controlling Interests
 
Total
Equity
Balance at December 31, 2015
$
41

 
$
21,421

 
$
14,414

 
$
(6,257
)
 
$
(977
)
 
$
28,642

 
$
15

 
$
28,657

Net income
—

 
—

 
5,379

 
—

 
—

 
5,379

 
9

 
5,388

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

 
—

 
—

 
211

 
—

 
211

 
(2
)
 
209

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

 
177

 
—

 
—

 
—

 
177

 
—

 
177

Treasury stock/other 
—

 
—

 
—

 
—

 
(145
)
 
(145
)
 
(2
)
 
(147
)
Cash dividends declared
—

 
—

 
(2,780
)
 
—

 
—

 
(2,780
)
 
(5
)
 
(2,785
)
Balance at September 30, 2016
$
41

 
$
21,598

 
$
17,013

 
$
(6,046
)
 
$
(1,122
)
 
$
31,484

 
$
15

 
$
31,499

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2016
$
41

 
$
21,630

 
$
15,634

 
$
(7,013
)
 
$
(1,122
)
 
$
29,170

 
$
17

 
$
29,187

Adoption of accounting standards
(Note 2)
—

 
6

 
566

 
—

 
—

 
572

 
—

 
572

Net income
—

 
—

 
5,193

 
—

 
—

 
5,193

 
22

 
5,215

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

 
$
19,405

 
$
(6,759
)
 
$
(1,253
)
 
$
33,238

 
$
25

 
$
33,263


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
Financial Services Finance Receivables
Note 9
Financial Services Allowance for Credit Losses
Note 10
Inventories
Note 11
Other Liabilities and Deferred Revenue
Note 12
Retirement Benefits
Note 13
Debt
Note 14
Derivative Financial Instruments and Hedging Activities
Note 15
Accumulated Other Comprehensive Income/(Loss)
Note 16
Commitments and Contingencies
Note 17
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. 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, 2016 (“2016 Form 10-K Report”). We reclassified certain prior year amounts in our consolidated financial statements to conform to the current year presentation.

NOTE 2. NEW ACCOUNTING STANDARDS

Adoption of New Accounting Standards

Accounting Standards Update (“ASU”) 2016-09, Stock Compensation - Improvements to Employee Share-Based Payment Accounting. On January 1, 2017, we adopted the amendments to accounting standards codification (“ASC”) 718 which simplify accounting for share-based payment transactions. Prior to this amendment, excess tax benefits resulting from the difference between the deduction for tax purposes and the compensation costs recognized for financial reporting were not recognized until the deduction reduced taxes payable. Under the new method, we will recognize excess tax benefits in the current accounting period. In addition, prior to January 1, 2017, the employee share-based compensation expense was recorded net of estimated forfeiture rates and subsequently adjusted at the vesting date, as appropriate. As part of the amendment, we have elected to recognize the actual forfeitures by reducing the employee share-based compensation expense in the same period as the forfeitures occur. We have adopted these changes in accounting method using the modified retrospective method by recognizing one-time adjustments to retained earnings for excess tax benefits previously unrecognized and the change in accounting for forfeited awards.

ASU 2014-09, Revenue - Revenue from Contracts with Customers. On January 1, 2017, we adopted the new accounting standard ASC 606, Revenue from Contracts with Customers and all the related amendments (“new revenue standard”) to all contracts using the modified retrospective method. We recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of retained earnings. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. We do not expect the adoption of the new revenue standard to have a material impact to our net income on an ongoing basis.

A majority of our sales revenue continues to be recognized when products are shipped from our manufacturing facilities. For certain vehicle sales where revenue was previously deferred, such as vehicles subject to a guaranteed resale value recognized as a lease and transactions in which a Ford-owned entity delivered vehicles, we now recognize revenue when vehicles are shipped in accordance with the new revenue standard.

The new revenue standard also provided additional clarity that resulted in reclassifications to or from Revenue, Cost of sales, and Financial Services other income/(loss), net.


6
Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS

NOTE 2. NEW ACCOUNTING STANDARDS (Continued)

The cumulative effect of the changes made to our consolidated January 1, 2017 balance sheet for the adoption of ASU 2016-09, Stock Compensation - Improvements to Employee Share-Based Payment Accounting and ASU 2014-09, Revenue - Revenue from Contracts with Customers were as follows (in millions):
 
Balance at
December 31, 2016
 
Adjustments Due to
ASU 2016-09
 
Adjustments Due to
ASU 2014-09
 
Balance at
January 1, 2017
Balance Sheet
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
Trade and other receivables
$
11,102

 
$
—

 
$
(17
)
 
$
11,085

Inventories
8,898

 
—

 
(9
)
 
8,889

Other assets, current
3,368

 
—

 
307

 
3,675

Net investment in operating leases
28,829

 
—

 
(1,078
)
 
27,751

Deferred income taxes
9,705

 
536

 
(13
)
 
10,228

 
 
 
 
 
 
 


Liabilities
 
 
 
 
 
 


Payables
21,296

 
—

 
262

 
21,558

Other liabilities and deferred revenue, current
19,316

 
—

 
(1,429
)
 
17,887

Automotive debt payable within one year
2,685

 
—

 
326

 
3,011

Other liabilities and deferred revenue, non-current
24,395

 
—

 
(5
)
 
24,390

 
 
 
 
 
 
 


Equity
 
 
 
 
 
 


Capital in excess of par value of stock
21,630

 
6

 
—

 
21,636

Retained earnings
15,634

 
530

 
36

 
16,200


As part of ASU 2016-09, we retrospectively reclassified cash paid to taxing authorities related to shares withheld for tax purposes from operating activities to financing activities on our consolidated statement of cash flows. Cash paid to taxing authorities related to shares withheld for tax purposes was about $58 million and $56 million for the first nine months of 2016 and 2017, respectively. This standard did not have a material impact on our third quarter and first nine months 2017 consolidated income statement or September 30, 2017 consolidated balance sheet.

7
Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS

NOTE 2. NEW ACCOUNTING STANDARDS (Continued)

In accordance with the new revenue standard requirements, the disclosure of the impact of adoption on our consolidated income statement and balance sheet for the periods ended September 30, 2017 was as follows (in millions):
 
Third Quarter
 
First Nine Months
 
As
Reported
 
Balances Without Adoption of ASC 606
 
Effect of Change 
Higher/(Lower)
 
As
Reported
 
Balances Without Adoption of ASC 606
 
Effect of Change 
Higher/(Lower)
Income statement
 
 
 
 
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
 
 
 
 
Automotive
$
33,646

 
$
33,897

 
$
(251
)
 
$
107,234

 
$
106,937

 
$
297

Financial Services
2,802

 
2,709

 
93

 
8,209

 
7,930

 
279

 
 
 
 
 
 
 
 
 
 
 
 
Costs and expenses
 
 
 
 
 
 
 
 
 
 
 
Cost of sales
30,288

 
30,536

 
(248
)
 
96,345

 
96,166

 
179

Interest expense on Automotive debt
284

 
265

 
19

 
840

 
793

 
47

Non-Financial Services other income/(loss), net
709

 
731

 
(22
)
 
2,079

 
2,142

 
(63
)
Financial Services other income/(loss), net
45

 
138

 
(93
)
 
141

 
420

 
(279
)
Provision for/(Benefit from) income taxes
186

 
194

 
(8
)
 
1,044

 
1,040

 
4

Net income
1,571

 
1,607

 
(36
)
 
5,215

 
5,211

 
4

 
September 30, 2017
 
As
Reported
 
Balances Without Adoption of ASC 606
 
Effect of Change 
Higher/(Lower)
Balance Sheet
 
 
 
 
 
Assets
 
 
 
 
 
Trade and other receivables
$
10,277

 
$
10,300

 
$
(23
)
Other assets, current
3,570

 
3,233

 
337

Net investment in operating leases
28,714

 
29,510

 
(796
)
Deferred income taxes
10,359

 
10,376

 
(17
)
 
 
 
 
 
 
Liabilities
 
 
 
 
 
Payables
23,566

 
23,287

 
279

Other liabilities and deferred revenue, current
19,612

 
20,818

 
(1,206
)
Automotive debt payable within one year
3,551

 
3,158

 
393

Other liabilities and deferred revenue, non-current
24,819

 
24,824

 
(5
)
Deferred income taxes
804

 
804

 
—

 
 
 
 
 
 
Equity
 
 
 
 
 
Retained earnings
19,405

 
19,365

 
40



8
Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS

NOTE 2. NEW ACCOUNTING STANDARDS (Continued)

ASU 2017-07, Retirement Benefits - Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. On January 1, 2017, we adopted the amendments to ASC 715 that improve the presentation of net periodic pension and postretirement benefit costs. We retrospectively adopted the presentation of service cost separate from the other components of net periodic costs. The interest cost, expected return on assets, amortization of prior service costs, net remeasurement, and other costs have been reclassified from Cost of Sales and Selling, administrative, and other expenses to Non-Financial Services other income/(loss), net. We elected to apply the practical expedient which allows us to reclassify amounts disclosed previously in the retirement benefits note as the basis for applying retrospective presentation for comparative periods as it is impracticable to determine the disaggregation of the cost components for amounts capitalized and amortized in those periods. On a prospective basis, the other components of net periodic benefit costs will not be included in amounts capitalized in inventory or property, plant, and equipment.

The effect of the retrospective presentation change related to the net periodic cost of our defined benefit pension and other postretirement employee benefits (“OPEB”) plans on our consolidated income statement for the periods ended September 30, 2016 was as follows (in millions):
 
Third Quarter
 
First Nine Months
 
As
Revised
 
Previously Reported
 
Effect of Change 
Higher/(Lower)
 
As
Revised
 
Previously Reported
 
Effect of Change 
Higher/(Lower)
Income statement
 
 
 
 
 
 
 
 
 
 
 
Cost of sales
$
30,668

 
$
30,446

 
$
222

 
$
93,707

 
$
93,075

 
$
632

Selling, administrative, and other expenses
2,657

 
2,535

 
122

 
8,131

 
7,758

 
373

Non-Financial Services other income/(loss), net
672

 
328

 
344

 
2,126

 
1,121

 
1,005


We also adopted the following standards during 2017, none of which had a material impact to our financial statements or financial statement disclosures:
Standard
 
Effective Date
2017-05
Gains and Losses from the Derecognition of Nonfinancial Assets - Clarifying the Scope of Asset Derecognition Guidance
 
January 1, 2017
2017-04
Goodwill and Other - Simplifying the Test for Goodwill Impairment
 
January 1, 2017
2017-03
Accounting Changes and Error Corrections and Investments - Equity Method and Joint Ventures
 
January 1, 2017
2017-01
Business Combinations - Clarifying the Definition of a Business
 
January 1, 2017
2016-17
Consolidation - Interests Held through Related Parties That Are under Common Control
 
January 1, 2017
2016-07
Equity Method and Joint Ventures - Simplifying the Transition to the Equity Method of Accounting
 
January 1, 2017
2016-06
Derivatives and Hedging - Contingent Put and Call Options in Debt Instruments
 
January 1, 2017
2016-05
Derivatives and Hedging - Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships
 
January 1, 2017
2016-04
Extinguishments of Liabilities - Recognition of Breakage for Certain Prepaid Stored-Value Products
 
January 1, 2017
2017-09
Stock Compensation - Scope of Modification Accounting
 
April 1, 2017

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 Financial Services finance receivables, net on our consolidated balance sheet and do not expect a material impact to our income statement.

9
Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS

NOTE 2. NEW ACCOUNTING STANDARDS (Continued)

ASU 2016-02, Leases.  In February 2016, the FASB issued a new accounting standard which provides guidance on the recognition, measurement, presentation, and disclosure of leases. The new standard supersedes the present U.S. GAAP standard on leases and requires substantially all leases to be reported on the balance sheet as right-of-use assets and lease obligations. We plan to adopt the new standard at 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 balance sheet and will not significantly impact pre-tax profit. 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 early stages of implementation.

ASU 2017-12, Derivatives and Hedging. In August 2017, the FASB issued a new accounting standard which aligns hedge accounting with risk management activities and simplifies the requirements to qualify for hedge accounting. We plan to adopt the new standard effective January 1, 2018 and are assessing the impact to our hedge accounting processes and financial statement disclosures. We anticipate adoption will not have a material impact to our financial statements.


NOTE 3. REVENUE

The following table disaggregates our revenue by major source for the periods ended September 30, 2017 (in millions):

 
Third Quarter
 
Automotive
 
Financial Services
 
All
Other
 
Consolidated
Vehicles, parts, and accessories
$
32,401

 
$
—

 
$
—

 
$
32,401

Used vehicles
606

 
—

 
—

 
606

Extended service contracts
314

 
—

 
—

 
314

Other revenue (a)
197

 
55

 
3

 
255

Revenues from sales and services
33,518

 
55

 
3

 
33,576

 
 
 
 
 
 
 
 
Leasing income
128

 
1,395

 
—

 
1,523

Financing income
—

 
1,314

 
—

 
1,314

Insurance income
—

 
38

 
—

 
38

Total revenues
$
33,646

 
$
2,802

 
$
3

 
$
36,451

 
 
 
 
 
 
 
 
 
First Nine Months
 
Automotive
 
Financial Services
 
All
Other
 
Consolidated
Vehicles, parts, and accessories
$
103,143

 
$
—

 
$
—

 
$
103,143

Used vehicles
2,187

 
—

 
—

 
2,187

Extended service contracts
921

 
—

 
—

 
921

Other revenue (a)
623

 
159

 
7

 
789

Revenues from sales and services
106,874

 
159

 
7

 
107,040

 
 
 
 
 
 
 
 
Leasing income
360

 
4,142

 
—

 
4,502

Financing income
—

 
3,788

 
—

 
3,788

Insurance income
—

 
120

 
—

 
120

Total revenues
$
107,234

 
$
8,209

 
$
7

 
$
115,450

__________
(a)
Primarily includes commissions and vehicle-related design and testing services.


10
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 and field service actions continue to be recognized as expense when the products are sold (see Note 16). 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 (see Note 8). 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 recognized an increase to revenue from prior periods in the third quarter of 2017 of $33 million.

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 the inception of the contract and recognize revenue over the term of the agreement in proportion to the costs expected to be incurred in satisfying the obligations under the contract. At January 1, 2017, $3.5 billion of unearned revenue associated with outstanding contracts was reported in Other Liabilities and deferred revenue, $256 million and $797 million of this was recognized as revenue during the third quarter and first nine months of 2017, respectively. At September 30, 2017, the unearned amount was $3.7 billion. We expect to recognize approximately $300 million of the unearned amount in the remainder of 2017, $1 billion in 2018, and $2.4 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 $236 million in deferred costs as of September 30, 2017 and recognized $17 million and $46 million of amortization during the third quarter and first nine months of 2017, respectively.


11
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.

Financial Services Segment

Leasing Income. Ford Credit offers leasing plans to retail consumers through Ford and Lincoln brand dealers who originate the leases. Upon the purchase of a lease from the dealer, Ford Credit takes ownership of the vehicle and records an operating lease. 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 Financial Services 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)

Non-Financial Services

The amounts included in Non-Financial Services other income/(loss), net for the periods ended September 30 were as follows (in millions):
 
Third Quarter
 
First Nine Months
 
2016
 
2017
 
2016
 
2017
Net periodic pension and OPEB income/(cost), excluding service cost
$
344

 
$
365

 
$
1,005

 
$
1,144

Investment-related interest income
50

 
91

 
163

 
247

Interest income/(expense) on income taxes
9

 
(1
)
 
8

 
1

Realized and unrealized gains/(losses) on cash equivalents and marketable securities
(13
)
 
(14
)
 
52

 
11

Gains/(Losses) on changes in investments in affiliates

(1
)
 
(4
)
 
180

 
(6
)
Royalty income
174

 
171

 
494

 
475

Other
109

 
101

 
224

 
207

Total
$
672

 
$
709

 
$
2,126

 
$
2,079



12
Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS

NOTE 4. OTHER INCOME/(LOSS) (Continued)

Financial Services

The amounts included in Financial Services other income/(loss), net for the periods ended September 30 were as follows (in millions):
 
Third Quarter
 
First Nine Months
 
2016
 
2017
 
2016
 
2017
Investment-related interest income
$
18

 
$
33

 
$
57

 
$
78

Interest income/(expense) on income taxes
(2
)
 
(1
)
 
11

 
(2
)
Insurance premiums earned
38

 
—

 
118

 
—

Other
78

 
13

 
119

 
65

Total
$
132

 
$
45

 
$
305

 
$
141


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 2017, our effective tax rates were 10.6% and 16.7%, respectively. During the third quarter and first nine months of 2017 we recognized $266 million and $687 million of benefit for foreign tax credits expected to be realized in the foreseeable future. The tax benefit relates to investments in certain non-U.S. subsidiaries previously determined to be indefinitely reinvested in operations outside the United States. Our change in assertion for these investments is related to planned distributions in anticipation of potential U.S. corporate tax reform.

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
 
2016
 
2017
 
2016
 
2017
Basic and Diluted Income Attributable to Ford Motor Company
 
 
 
 
 
 
 
Basic income
$
957

 
$
1,564

 
$
5,379

 
$
5,193

Diluted income
957

 
1,564

 
5,379

 
5,193

 
 
 
 
 
 
 
 
Basic and Diluted Shares
 

 
 

 
 
 
 
Basic shares (average shares outstanding)
3,974

 
3,972

 
3,972

 
3,975

Net dilutive options and unvested restricted stock units
26

 
24

 
25

 
21

Diluted shares
4,000

 
3,996

 
3,997

 
3,996


13
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, 2016
 
Fair Value
 Level
 
Automotive
 
Financial Services
 
All
Other
 
Consolidated
Cash and cash equivalents
 
 
 
 
 
 
 
 
 
U.S. government
1
 
$
888

 
$
924

 
$
—

 
$
1,812

U.S. government agencies
2
 
—

 
—

 
—

 
—

Non-U.S. government and agencies
2
 
200

 
142

 
—

 
342

Corporate debt
2
 
100

 
—

 
—

 
100

Total marketable securities classified as cash equivalents
 
 
1,188

 
1,066

 
—

 
2,254

Cash, time deposits, and money market funds
 
 
6,632

 
7,011

 
8

 
13,651

Total cash and cash equivalents
 
 
$
7,820

 
$
8,077

 
$
8

 
$
15,905

 
 
 
 
 
 
 
 
 
 
Marketable securities
 
 
 
 
 
 
 
 
 
U.S. government
1
 
$
8,099

 
$
1,634

 
$
—

 
$
9,733

U.S. government agencies
2
 
2,244

 
505

 
—

 
2,749

Non-U.S. government and agencies
2
 
4,751

 
632

 
—

 
5,383

Corporate debt
2
 
4,329

 
475

 
—

 
4,804

Equities
1
 
165

 
—

 
—

 
165

Other marketable securities
2
 
54

 
34

 
—

 
88

Total marketable securities
 
 
$
19,642

 
$
3,280

 
$
—

 
$
22,922

 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2017
 
Fair Value
 Level
 
Automotive
 
Financial Services
 
All
Other
 
Consolidated
Cash and cash equivalents
 
 
 
 
 
 
 
 
 
U.S. government
1
 
$
498

 
$
112

 
$
—

 
$
610

U.S. government agencies
2
 
150

 
200

 
—

 
350

Non-U.S. government and agencies
2
 
—

 
357

 
—

 
357

Corporate debt
2
 
—

 
—

 
—

 
—

Total marketable securities classified as cash equivalents
 
 
648

 
669

 
—

 
1,317

Cash, time deposits, and money market funds
 
 
8,105

 
8,166

 
1

 
16,272

Total cash and cash equivalents
 
 
$
8,753

 
$
8,835

 
$
1

 
$
17,589

 
 
 
 
 
 
 
 
 
 
Marketable securities
 
 
 
 
 
 
 
 
 
U.S. government
1
 
$
4,418

 
$
670

 
$
—

 
$
5,088

U.S. government agencies
2
 
2,990

 
384

 
—

 
3,374

Non-U.S. government and agencies
2
 
5,833

 
971

 
—

 
6,804

Corporate debt
2
 
3,958

 
1,051

 
—

 
5,009

Equities
1
 
160

 
—

 
—

 
160

Other marketable securities
2
 
32

 
25

 
—

 
57

Total marketable securities
 
 
$
17,391

 
$
3,101

 
$
—

 
$
20,492



14
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”) securities on our balance sheet were as follows (in millions):
 
December 31, 2016
 
 
 
 
 
 
 
 
 
Fair Value of Securities with
Contractual Maturities
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
 
Within 1 Year
 
After 1 Year through 5 Years
 
After 5 Years through 10 Years
Automotive
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government
$
3,703

 
$
2

 
$
(14
)
 
$
3,691

 
$
727

 
$
2,776

 
$
188

U.S. government agencies
308

 
—

 
(2
)
 
306

 
—

 
306

 
—

Non-U.S. government and agencies
1,443

 
1

 
(11
)
 
1,433

 
148

 
1,285

 
—

Corporate debt
1,079

 
—

 
—

 
1,079

 
1,031

 
48

 
—

Total
$
6,533

 
$
3

 
$
(27
)
 
$
6,509

 
$
1,906

 
$
4,415

 
$
188

 
 
 
 
 
 
 
 

 
 
 
 
 
 
 
September 30, 2017
 
 
 
 
 
 
 
 
 
Fair Value of Securities with
Contractual Maturities
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
 
Within 1 Year
 
After 1 Year through 5 Years
 
After 5 Years through 10 Years
Automotive
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government
$
3,228

 
$
—

 
$
(8
)
 
$
3,220

 
$
1,268

 
$
1,952

 
$
—

U.S. government agencies
1,795

 
—

 
(5
)
 
1,790

 
228

 
1,547

 
15

Non-U.S. government and agencies
3,392

 
6

 
(7
)
 
3,391

 
99

 
3,242

 
50

Corporate debt
1,542

 
1

 
(1
)
 
1,542

 
530

 
1,012

 
—

Total
$
9,957

 
$
7

 
$
(21
)
 
$
9,943

 
$
2,125

 
$
7,753

 
$
65


Sales proceeds from investments classified as AFS and sold prior to maturity were $0 and $491 million in the third quarter of 2016 and 2017, respectively, and $69 million and $3.1 billion in the first nine months of 2016 and 2017, respectively. Gross realized gains from the sale of AFS securities in both the third quarter of 2016 and 2017 were $0, and in the first nine months of 2016 and 2017 were $1 million and $3 million, respectively. Gross realized losses from the sale of AFS securities in both the third quarter of 2016 and 2017 were $0, and in the first nine months of 2016 and 2017 were $0 and $8 million, respectively.


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 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, 2016
 
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
$
1,474

 
$
(14
)
 
$
—

 
$
—

 
$
1,474

 
$
(14
)
U.S. government agencies
261

 
(2
)
 
—

 
—

 
261

 
(2
)
Non-U.S. government and agencies
1,137

 
(11
)
 
—

 
—

 
1,137

 
(11
)
Corporate debt
—

 
—

 
—

 
—

 
—

 
—

Total
$
2,872

 
$
(27
)
 
$
—

 
$
—

 
$
2,872

 
$
(27
)
 
 

 
 
 
 
 
 
 
 
 
 
 
September 30, 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
$
2,674

 
$
(7
)
 
$
49

 
$
(1
)
 
$
2,723

 
$
(8
)
U.S. government agencies
1,608

 
(4
)
 
49

 
(1
)
 
1,657

 
(5
)
Non-U.S. government and agencies
1,956

 
(7
)
 
39

 
—

 
1,995

 
(7
)
Corporate debt
543

 
(1
)
 
—

 
—

 
543

 
(1
)
Total
$
6,781

 
$
(19
)
 
$
137

 
$
(2
)
 
$
6,918

 
$
(21
)

We determine other-than-temporary impairments on cash equivalents and marketable securities using a specific identification method. During the nine months ended September 30, 2016 and 2017, we did not recognize any other-than-temporary impairment loss.

Other Securities

Investments in entities that we do not control and over which we do not have the ability to exercise significant influence are recorded at cost and reported in Other assets in the non-current assets section of our consolidated balance sheet. These cost method investments were $219 million and $326 million at December 31, 2016 and September 30, 2017, respectively.


16
Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS

NOTE 8. FINANCIAL SERVICES FINANCE RECEIVABLES

Our Financial Services segment, primarily 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,
2016
 
September 30,
2017
Consumer
 
 
 
Retail financing, gross
$
68,121

 
$
75,452

Unearned interest supplements
(2,783
)
 
(3,136
)
Consumer finance receivables
65,338

 
72,316

Non-Consumer
 

 
 

Dealer financing
31,336