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 June 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 July 19, 2017, Ford had outstanding 3,900,903,065 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, 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 2
Unregistered Sales of Equity Securities and Use of Proceeds
 
Item 6
Exhibits
 
 
Signature
 
 
Exhibit Index
 

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,
 
2016
 
2017
 
2016
 
2017
 
Second Quarter
 
First Half
 
(unaudited)
Revenues
 
 
 
 
 
 
 
Automotive
$
36,932

 
$
37,113

 
$
72,189

 
$
73,588

Financial Services
2,553

 
2,738

 
5,014

 
5,407

Other
—

 
2

 
—

 
4

Total revenues (Note 3)
39,485

 
39,853

 
77,203

 
78,999

 
 
 
 
 
 
 
 
Costs and expenses
 

 
 

 
 
 
 
Cost of sales
32,522

 
33,349

 
63,039

 
66,057

Selling, administrative, and other expenses
2,784

 
2,756

 
5,474

 
5,520

Financial Services interest, operating, and other expenses
2,258

 
2,217

 
4,318

 
4,449

Total costs and expenses
37,564

 
38,322

 
72,831

 
76,026

 
 
 
 
 
 
 
 
Interest expense on Automotive debt
212

 
277

 
412

 
556

 
 
 
 
 
 
 
 
Non-Financial Services other income/(loss), net (Note 4)
686

 
658

 
1,454

 
1,370

Financial Services other income/(loss), net (Note 4)
82

 
74

 
173

 
96

Equity in net income of affiliated companies
398

 
273

 
939

 
619

Income before income taxes
2,875

 
2,259


6,526


4,502

Provision for/(Benefit from) income taxes
903

 
209

 
2,099

 
858

Net income
1,972

 
2,050

 
4,427

 
3,644

Less: Income/(Loss) attributable to noncontrolling interests
2

 
8

 
5

 
15

Net income attributable to Ford Motor Company
$
1,970

 
$
2,042

 
$
4,422

 
$
3,629

 
 
 
 
 
 
 
 
EARNINGS PER SHARE ATTRIBUTABLE TO FORD MOTOR COMPANY COMMON AND CLASS B STOCK (Note 6)
Basic income
$
0.50

 
$
0.51

 
$
1.11

 
$
0.91

Diluted income
0.49

 
0.51

 
1.11

 
0.91

 
 
 
 
 
 
 
 
Cash dividends declared
0.15

 
0.15

 
0.55

 
0.35



CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(in millions)
 
For the periods ended June 30,
 
2016
 
2017
 
2016
 
2017
 
Second Quarter
 
First Half
 
(unaudited)
Net income
$
1,972

 
$
2,050

 
$
4,427

 
$
3,644

Other comprehensive income/(loss), net of tax (Note 15)
 
 
 
 
 
 
 
Foreign currency translation
(58
)
 
84

 
(122
)
 
326

Marketable securities
—

 
4

 
6

 
3

Derivative instruments
111

 
137

 
357

 
(31
)
Pension and other postretirement benefits
17

 
(12
)
 
39

 
(3
)
Total other comprehensive income/(loss), net of tax
70

 
213

 
280

 
295

Comprehensive income
2,042

 
2,263

 
4,707

 
3,939

Less: Comprehensive income/(loss) attributable to noncontrolling interests
2

 
8

 
4

 
13

Comprehensive income attributable to Ford Motor Company
$
2,040

 
$
2,255

 
$
4,703

 
$
3,926


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

 
$
16,223

Marketable securities (Note 7)
22,922

 
22,886

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

 
49,888

Trade and other receivables, less allowances of $392 and $416
11,102

 
10,159

Inventories (Note 10)
8,898

 
11,092

Other assets
3,368

 
3,291

Total current assets
108,461

 
113,539

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

 
51,551

Net investment in operating leases
28,829

 
28,597

Net property
32,072

 
33,794

Equity in net assets of affiliated companies
3,304

 
3,241

Deferred income taxes
9,705

 
10,145

Other assets
5,656

 
6,602

Total assets
$
237,951

 
$
247,469

 
 
 
 
LIABILITIES
 

 
 

Payables
$
21,296

 
$
23,568

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

 
19,958

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

 
2,911

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

 
47,862

Total current liabilities
90,281

 
94,299

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

 
24,840

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

 
13,277

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

 
81,959

Deferred income taxes
691

 
735

Total liabilities
208,668

 
215,110

 
 
 
 
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

 
21,735

Retained earnings
15,634

 
18,437

Accumulated other comprehensive income/(loss) (Note 15)
(7,013
)
 
(6,716
)
Treasury stock
(1,122
)
 
(1,253
)
Total equity attributable to Ford Motor Company
29,170

 
32,244

Equity attributable to noncontrolling interests
17

 
18

Total equity
29,187

 
32,262

Total liabilities and equity
$
237,951

 
$
247,469


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

 
$
2,608

Financial Services finance receivables, net
50,857

 
53,359

Net investment in operating leases
11,761

 
11,003

Other assets
25

 
39

LIABILITIES
 
 
 
Other liabilities and deferred revenue
$
5

 
$
2

Debt
43,730

 
43,051

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,
 
2016
 
2017
 
First Half
 
(unaudited)
Cash flows from operating activities
 
 
 
Net cash provided by/(used in) operating activities
$
11,891

 
$
9,951

 
 
 
 
Cash flows from investing activities
 
 
 
Capital spending
(3,206
)
 
(3,264
)
Acquisitions of finance receivables and operating leases
(27,501
)
 
(27,379
)
Collections of finance receivables and operating leases
19,732

 
21,636

Purchases of equity and debt securities
(16,757
)
 
(16,931
)
Sales and maturities of equity and debt securities
15,491

 
16,906

Settlements of derivatives
111

 
154

Other
21

 
16

Net cash provided by/(used in) investing activities
(12,109
)
 
(8,862
)
 
 
 
 
Cash flows from financing activities
 

 
 

Cash dividends
(2,184
)
 
(1,392
)
Purchases of common stock
(145
)
 
(131
)
Net changes in short-term debt
934

 
72

Proceeds from issuance of other debt
25,574

 
20,467

Principal payments on other debt
(21,104
)
 
(19,952
)
Other
(87
)
 
(102
)
Net cash provided by/(used in) financing activities
2,988

 
(1,038
)
 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
21

 
267

 
 
 
 
Net increase/(decrease) in cash and cash equivalents
$
2,791

 
$
318

 
 
 
 
Cash and cash equivalents at January 1
$
14,272

 
$
15,905

Net increase/(decrease) in cash and cash equivalents
2,791

 
318

Cash and cash equivalents at June 30
$
17,063

 
$
16,223


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
—

 
—

 
4,422

 
—

 
—

 
4,422

 
5

 
4,427

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

 
—

 
—

 
281

 
—

 
281

 
(1
)
 
280

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

 
125

 
—

 
—

 
—

 
125

 
—

 
125

Treasury stock/other 
—

 
—

 
—

 
—

 
(145
)
 
(145
)
 
(1
)
 
(146
)
Cash dividends declared
—

 
—

 
(2,184
)
 
—

 
—

 
(2,184
)
 
(5
)
 
(2,189
)
Balance at June 30, 2016
$
41

 
$
21,546

 
$
16,652

 
$
(5,976
)
 
$
(1,122
)
 
$
31,141

 
$
13

 
$
31,154

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
—

 
—

 
3,629

 
—

 
—

 
3,629

 
15

 
3,644

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

 
$
18,437

 
$
(6,716
)
 
$
(1,253
)
 
$
32,244

 
$
18

 
$
32,262


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 expect the impact of the adoption of the new revenue standard to be immaterial 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 $57 million and $56 million for the first half of 2016 and 2017, respectively. This standard did not have a material impact on our second quarter and first half 2017 consolidated income statement or June 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 June 30, 2017 was as follows (in millions):
 
Second Quarter
 
First Half
 
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
$
37,113

 
$
36,898

 
$
215

 
$
73,588

 
$
73,040

 
$
548

Financial Services
2,738

 
2,641

 
97

 
5,407

 
5,221

 
186

 
 
 
 
 
 
 
 
 
 
 
 
Costs and expenses
 
 
 
 
 
 
 
 
 
 
 
Cost of sales
33,349

 
33,184

 
165

 
66,057

 
65,630

 
427

Interest expense on Automotive debt
277

 
266

 
11

 
556

 
528

 
28

Non-Financial Services other income/(loss), net
658

 
679

 
(21
)
 
1,370

 
1,411

 
(41
)
Financial Services other income/(loss), net
74

 
171

 
(97
)
 
96

 
282

 
(186
)
Provision for/(Benefit from) income taxes
209

 
204

 
5

 
858

 
846

 
12

Net income
2,050

 
2,037

 
13

 
3,644

 
3,604

 
40

 
June 30, 2017
 
As
Reported
 
Balances Without Adoption of ASC 606
 
Effect of Change 
Higher/(Lower)
Balance Sheet
 
 
 
 
 
Assets
 
 
 
 
 
Trade and other receivables
$
10,159

 
$
10,199

 
$
(40
)
Other assets, current
3,291

 
2,951

 
340

Net investment in operating leases
28,597

 
29,553

 
(956
)
Deferred income taxes
10,145

 
10,170

 
(25
)
 
 
 
 
 
 
Liabilities
 
 
 
 
 
Payables
23,568

 
23,285

 
283

Other liabilities and deferred revenue, current
19,958

 
21,393

 
(1,435
)
Automotive debt payable within one year
2,911

 
2,511

 
400

Other liabilities and deferred revenue, non-current
24,840

 
24,845

 
(5
)
Deferred income taxes
735

 
735

 
—

 
 
 
 
 
 
Equity
 
 
 
 
 
Retained earnings
18,437

 
18,361

 
76



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 June 30, 2016 was as follows (in millions):
 
Second Quarter
 
First Half
 
As
Revised
 
Previously Reported
 
Effect of Change 
Higher/(Lower)
 
As
Revised
 
Previously Reported
 
Effect of Change 
Higher/(Lower)
Income statement
 
 
 
 
 
 
 
 
 
 
 
Cost of sales
$
32,522

 
$
32,348

 
$
174

 
$
63,039

 
$
62,629

 
$
410

Selling, administrative, and other expenses
2,784

 
2,661

 
123

 
5,474

 
5,223

 
251

Non-Financial Services other income/(loss), net
686

 
389

 
297

 
1,454

 
793

 
661


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 are assessing the potential impact to our financial statements and disclosures.
 


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 are in the early stages of implementation.

NOTE 3. REVENUE

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

 
Second Quarter
 
Automotive
 
Financial Services
 
All
Other
 
Consolidated
Vehicles, parts, and accessories
$
35,746

 
$
—

 
$
—

 
$
35,746

Sale of used vehicles
708

 
—

 
—

 
708

Extended service contracts
332

 
—

 
—

 
332

Other (a)
202

 
55

 
2

 
259

Revenues from sales and services
36,988

 
55

 
2

 
37,045

 
 
 
 
 
 
 
 
Leasing income
125

 
1,381

 
—

 
1,506

Financing income
—

 
1,260

 
—

 
1,260

Insurance income
—

 
42

 
—

 
42

Total revenues
$
37,113

 
$
2,738

 
$
2

 
$
39,853

 
 
 
 
 
 
 
 
 
First Half
 
Automotive
 
Financial Services
 
All
Other
 
Consolidated
Vehicles, parts, and accessories
$
70,742

 
$
—

 
$
—

 
$
70,742

Sale of used vehicles
1,581

 
—

 
—

 
1,581

Extended service contracts
607

 
—

 
—

 
607

Other (a)
426

 
104

 
4

 
534

Revenues from sales and services
73,356

 
104

 
4

 
73,464

 
 
 
 
 
 
 
 
Leasing income
232

 
2,747

 
—

 
2,979

Financing income
—

 
2,474

 
—

 
2,474

Insurance income
—

 
82

 
—

 
82

Total revenues
$
73,588

 
$
5,407

 
$
4

 
$
78,999

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

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 beyond our base warranties over the life of the contract.


10
Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS

NOTE 3. REVENUE (Continued)

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). 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 a decrease to revenue from prior periods in the second quarter of 2017 of $259 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.

Sale of 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, $271 million and $541 million of this was recognized as revenue during the second quarter and first half of 2017, respectively. At June 30, 2017, the unearned amount was $3.7 billion. We expect to recognize approximately $550 million of the unearned amount in 2017, $950 million in 2018, and $2.2 billion thereafter. We record a premium deficiency reserve to the extent we estimate the future costs associated with these contracts exceed the unrecognized revenue. Amounts paid to dealers to obtain these contracts are deferred and recorded as Other assets. These costs are amortized to expense consistent with how the related revenue is recognized. We had a balance of $239 million in deferred costs as of June 30, 2017 and recognized $14 million and $29 million of amortization during the second quarter and first half of 2017, respectively.

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.


11
Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS

NOTE 3. REVENUE (Continued)

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 June 30 were as follows (in millions):
 
Second Quarter
 
First Half
 
2016
 
2017
 
2016
 
2017
Net periodic pension and OPEB income/(cost), excluding service cost
$
297

 
$
389

 
$
661

 
$
779

Investment-related interest income
52

 
85

 
113

 
156

Interest income/(expense) on income taxes
1

 
(1
)
 
(1
)
 
2

Realized and unrealized gains/(losses) on cash equivalents and marketable securities
(7
)
 
(24
)
 
65

 
25

Gains/(Losses) on changes in investments in affiliates

147

 
(1
)
 
181

 
(2
)
Royalty income
137

 
150

 
320

 
304

Other
59

 
60

 
115

 
106

Total
$
686

 
$
658

 
$
1,454

 
$
1,370


Financial Services

The amounts included in Financial Services other income/(loss), net for the periods ended June 30 were as follows (in millions):
 
Second Quarter
 
First Half
 
2016
 
2017
 
2016
 
2017
Investment-related interest income
$
20

 
$
24

 
$
39

 
$
45

Interest income/(expense) on income taxes
15

 
1

 
13

 
(1
)
Insurance premiums earned
41

 
—

 
80

 
—

Other
6

 
49

 
41

 
52

Total
$
82

 
$
74

 
$
173

 
$
96



12
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 of 2016 and 2017, our effective tax rates were 31.4% and 9.3%, respectively. During the second quarter of 2017, we recognized a $421 million 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):
 
Second Quarter
 
First Half
 
2016
 
2017
 
2016
 
2017
Basic and Diluted Income Attributable to Ford Motor Company
 
 
 
 
 
 
 
Basic income
$
1,970

 
$
2,042

 
$
4,422

 
$
3,629

Diluted income
1,970

 
2,042

 
4,422

 
3,629

 
 
 
 
 
 
 
 
Basic and Diluted Shares
 

 
 

 
 
 
 
Basic shares (average shares outstanding)
3,973

 
3,977

 
3,972

 
3,977

Net dilutive options and unvested restricted stock units
24

 
19

 
24

 
21

Diluted shares
3,997

 
3,996

 
3,996

 
3,998


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

 
 
 
 
 
 
 
 
 
 
 
 
 
June 30, 2017
 
Fair Value
 Level
 
Automotive
 
Financial Services
 
All
Other
 
Consolidated
Cash and cash equivalents
 
 
 
 
 
 
 
 
 
U.S. government
1
 
$
300

 
$
182

 
$
—

 
$
482

U.S. government agencies
2
 
624

 
100

 
—

 
724

Non-U.S. government and agencies
2
 
270

 
342

 
—

 
612

Corporate debt
2
 
—

 
75

 
—

 
75

Total marketable securities classified as cash equivalents
 
 
1,194

 
699

 
—

 
1,893

Cash, time deposits, and money market funds
 
 
7,659

 
6,667

 
4

 
14,330

Total cash and cash equivalents
 
 
$
8,853

 
$
7,366

 
$
4

 
$
16,223

 
 
 
 
 
 
 
 
 
 
Marketable securities
 
 
 
 
 
 
 
 
 
U.S. government
1
 
$
5,365

 
$
977

 
$
—

 
$
6,342

U.S. government agencies
2
 
3,677

 
663

 
—

 
4,340

Non-U.S. government and agencies
2
 
6,036

 
790

 
—

 
6,826

Corporate debt
2
 
4,284

 
854

 
—

 
5,138

Equities
1
 
177

 


 
—

 
177

Other marketable securities
2
 
36

 
27

 
—

 
63

Total marketable securities
 
 
$
19,575

 
$
3,311

 
$
—

 
$
22,886



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

 
 
 
 
 
 
 
 

 
 
 
 
 
 
 
June 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
$
2,587

 
$
—

 
$
(7
)
 
$
2,580

 
$
524

 
$
2,056

 
$
—

U.S. government agencies
1,982

 
1

 
(4
)
 
1,979

 
677

 
1,237

 
65

Non-U.S. government and agencies
2,961

 
5

 
(5
)
 
2,961

 
248

 
2,688

 
25

Corporate debt
1,398

 
—

 
(2
)
 
1,396

 
756

 
633

 
7

Total
$
8,928

 
$
6

 
$
(18
)
 
$
8,916

 
$
2,205

 
$
6,614

 
$
97


Sales proceeds from investments classified as AFS and sold prior to maturity were $0 and $1.3 billion in the second quarter of 2016 and 2017, respectively, and $69 million and $2.6 billion in the first half of 2016 and 2017, respectively. The gross realized gains from the sale of AFS securities were $0 and $2 million in the second quarter of 2016 and 2017, respectively, and $1 million and $3 million in the first half of 2016 and 2017, respectively. Gross realized losses from the sale of AFS securities were $0 and $6 million in the second quarter of 2016 and 2017, respectively, and $0 and $8 million in the first half of 2016 and 2017, 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
)
 
 

 
 
 
 
 
 
 
 
 
 
 
June 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
$
2,580

 
$
(7
)
 
$
—

 
$
—

 
$
2,580

 
$
(7
)
U.S. government agencies
1,172

 
(4
)
 
—

 
—

 
1,172

 
(4
)
Non-U.S. government and agencies
1,555

 
(5
)
 
—

 
—

 
1,555

 
(5
)
Corporate debt
517

 
(2
)
 
—

 
—

 
517

 
(2
)
Total
$
5,824

 
$
(18
)
 
$
—

 
$
—

 
$
5,824

 
$
(18
)

We determine other-than-temporary impairments on cash equivalents and marketable securities using a specific identification method. During the six months ended June 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 $221 million at December 31, 2016 and June 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
 
June 30,
2017
Consumer
 
 
 
Retail financing, gross
$
68,121

 
$
71,079

Unearned interest supplements
(2,783
)
 
(2,926
)
Consumer finance receivables
65,338

 
68,153

Non-Consumer
 

 
 

Dealer financing
31,336

 
33,808

Non-Consumer finance receivables
31,336

 
33,808