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FORD MOTOR CO - Quarter Report: 2017 March (Form 10-Q)



 
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 March 31, 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 April 20, 2017, Ford had outstanding 3,911,134,231 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 March 31, 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 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 March 31,
 
2016
 
2017
 
First Quarter
 
(unaudited)
Revenues
 
 
 
Automotive
$
35,257

 
$
36,475

Financial Services
2,461

 
2,669

Other

 
2

Total revenues (Note 3)
37,718

 
39,146

 
 
 
 
Costs and expenses
 
 
 
Cost of sales
30,517

 
32,708

Selling, administrative, and other expenses
2,690

 
2,764

Financial Services interest, operating, and other expenses
2,060

 
2,232

Total costs and expenses
35,267

 
37,704

 
 
 
 
Interest expense on Automotive debt
200

 
279

 
 
 
 
Non-Financial Services other income/(loss), net (Note 4)
768

 
712

Financial Services other income/(loss), net (Note 4)
91

 
22

Equity in net income of affiliated companies
541

 
346

Income before income taxes
3,651


2,243

Provision for/(Benefit from) income taxes
1,196

 
649

Net income
2,455

 
1,594

Less: Income/(Loss) attributable to noncontrolling interests
3

 
7

Net income attributable to Ford Motor Company
$
2,452

 
$
1,587

 
 
 
 
EARNINGS PER SHARE ATTRIBUTABLE TO FORD MOTOR COMPANY COMMON AND CLASS B STOCK (Note 6)
Basic income
$
0.62

 
$
0.40

Diluted income
0.61

 
0.40

 
 
 
 
Cash dividends declared
0.40

 
0.20



CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(in millions)
 
For the periods ended March 31,
 
2016
 
2017
 
First Quarter
 
(unaudited)
Net income
$
2,455

 
$
1,594

Other comprehensive income/(loss), net of tax (Note 15)
 
 
 
Foreign currency translation
(64
)
 
242

Marketable securities
6

 
(1
)
Derivative instruments
246

 
(168
)
Pension and other postretirement benefits
22

 
9

Total other comprehensive income/(loss), net of tax
210

 
82

Comprehensive income
2,665

 
1,676

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

 
5

Comprehensive income attributable to Ford Motor Company
$
2,663

 
$
1,671


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
 
March 31,
2017
 
(unaudited)
ASSETS
 
 
 
Cash and cash equivalents (Note 7)
$
15,905

 
$
17,823

Marketable securities (Note 7)
22,922

 
22,166

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

 
48,605

Trade and other receivables, less allowances of $392 and $401
11,102

 
10,685

Inventories (Note 10)
8,898

 
10,535

Other assets
3,368

 
3,414

Total current assets
108,461

 
113,228

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

 
50,694

Net investment in operating leases
28,829

 
27,914

Net property
32,072

 
32,668

Equity in net assets of affiliated companies
3,304

 
3,642

Deferred income taxes
9,705

 
10,055

Other assets
5,656

 
5,893

Total assets
$
237,951

 
$
244,094

 
 
 
 
LIABILITIES
 

 
 

Payables
$
21,296

 
$
23,257

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

 
18,790

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

 
3,100

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

 
46,157

Total current liabilities
90,281

 
91,304

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

 
24,583

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

 
13,110

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

 
83,610

Deferred income taxes
691

 
749

Total liabilities
208,668

 
213,356

 
 
 
 
Redeemable noncontrolling interest
96

 
97

 
 
 
 
EQUITY
 

 
 

Common Stock, par value $.01 per share (3,984 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

 
21,637

Retained earnings
15,634

 
16,992

Accumulated other comprehensive income/(loss) (Note 15)
(7,013
)
 
(6,929
)
Treasury stock
(1,122
)
 
(1,122
)
Total equity attributable to Ford Motor Company
29,170

 
30,619

Equity attributable to noncontrolling interests
17

 
22

Total equity
29,187

 
30,641

Total liabilities and equity
$
237,951

 
$
244,094


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
 
March 31,
2017
 
(unaudited)
ASSETS
 
 
 
Cash and cash equivalents
$
3,047

 
$
2,645

Financial Services finance receivables, net
50,857

 
52,860

Net investment in operating leases
11,761

 
12,325

Other assets
25

 
29

LIABILITIES
 
 
 
Other liabilities and deferred revenue
$
5

 
$
4

Debt
43,730

 
42,960

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 March 31,
 
2016
 
2017
 
First Quarter
 
(unaudited)
Cash flows from operating activities
 
 
 
Net cash provided by/(used in) operating activities
$
4,149

 
$
4,336

 
 
 
 
Cash flows from investing activities
 
 
 
Capital spending
(1,511
)
 
(1,706
)
Acquisitions of finance receivables and operating leases
(12,677
)
 
(13,467
)
Collections of finance receivables and operating leases
9,674

 
10,695

Purchases of equity and debt securities
(8,231
)
 
(8,878
)
Sales and maturities of equity and debt securities
5,679

 
9,551

Settlements of derivatives
104

 
156

Other
(13
)
 
10

Net cash provided by/(used in) investing activities
(6,975
)
 
(3,639
)
 
 
 
 
Cash flows from financing activities
 

 
 

Cash dividends
(1,588
)
 
(795
)
Purchases of Common Stock
(145
)
 

Net changes in short-term debt
(121
)
 
658

Proceeds from issuance of other debt
15,623

 
13,253

Principal payments on other debt
(9,431
)
 
(11,911
)
Other
(59
)
 
(85
)
Net cash provided by/(used in) financing activities
4,279

 
1,120

 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
192

 
101

 
 
 
 
Net increase/(decrease) in cash and cash equivalents
$
1,645

 
$
1,918

 
 
 
 
Cash and cash equivalents at January 1
$
14,272

 
$
15,905

Net increase/(decrease) in cash and cash equivalents
1,645

 
1,918

Cash and cash equivalents at March 31
$
15,917

 
$
17,823


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

 

 
2,452

 

 

 
2,452

 
3

 
2,455

Other comprehensive income/(loss), net of tax

 

 

 
211

 

 
211

 
(1
)
 
210

Common stock issued (including share-based compensation impacts)

 
33

 

 

 

 
33

 

 
33

Treasury stock/other 

 

 

 

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

 

 
(1,588
)
 

 

 
(1,588
)
 

 
(1,588
)
Balance at March 31, 2016
$
41

 
$
21,454

 
$
15,278

 
$
(6,046
)
 
$
(1,122
)
 
$
29,605

 
$
16

 
$
29,621

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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

 

 
1,587

 

 

 
1,587

 
7

 
1,594

Other comprehensive income/(loss), net of tax

 

 

 
84

 

 
84

 
(2
)
 
82

Common stock issued (including share-based compensation impacts)

 
1

 

 

 

 
1

 

 
1

Treasury stock/other 

 

 

 

 

 

 

 

Cash dividends declared

 

 
(795
)
 

 

 
(795
)
 

 
(795
)
Balance at March 31, 2017
$
41

 
$
21,637

 
$
16,992

 
$
(6,929
)
 
$
(1,122
)
 
$
30,619

 
$
22

 
$
30,641


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 adjusted at vest, 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 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. Under the new revenue standard, 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.

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 reclassified cash paid to taxing authorities related to shares withheld for tax purposes of about $57 million and $55 million from operating activities to financing activities on our consolidated statement of cash flows for the first quarter of 2016 and 2017, respectively. This standard did not have a material impact to our first quarter consolidated income statement or March 31, 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 was as follows (in millions):
 
For the period ended March 31, 2017
 
As
Reported
 
Balances Without Adoption of ASC 606
 
Effect of Change 
Higher/(Lower)
Income statement
 
 
 
 
 
Revenues
 
 
 
 
 
Automotive
$
36,475

 
$
36,142

 
$
333

Financial Services
2,669

 
2,580

 
89

 
 
 
 
 
 
Costs and expenses
 
 
 
 
 
Cost of sales
32,708

 
32,446

 
262

Interest expense on Automotive debt
279

 
262

 
17

Non-Financial Services other income/(loss), net
712

 
732

 
(20
)
Financial Services other income/(loss), net
22

 
111

 
(89
)
Provision for/(Benefit from) income taxes
649

 
642

 
7

Net income
1,594

 
1,567

 
27

 
March 31, 2017
 
As
Reported
 
Balances Without Adoption of ASC 606
 
Effect of Change 
Higher/(Lower)
Balance Sheet
 
 
 
 
 
Assets
 
 
 
 
 
Trade and other receivables
$
10,685

 
$
10,691

 
$
(6
)
Other assets, current
3,414

 
3,082

 
332

Net investment in operating leases
27,914

 
28,680

 
(766
)
Deferred income taxes
10,055

 
10,075

 
(20
)
 
 
 
 
 
 
Liabilities
 
 
 
 
 
Payables
23,257

 
22,973

 
284

Other liabilities and deferred revenue, current
18,790

 
20,003

 
(1,213
)
Automotive debt payable within one year
3,100

 
2,689

 
411

Other liabilities and deferred revenue, non-current
24,583

 
24,588

 
(5
)
Deferred income taxes
749

 
749

 

 
 
 
 
 
 
Equity
 
 
 
 
 
Retained earnings
16,992

 
16,929

 
63



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 was as follows (in millions):
 
For the period ended March 31, 2016
 
As
Revised
 
Previously Reported
 
Effect of Change 
Higher/(Lower)
Income statement
 
 
 
 
 
Cost of sales
$
30,517

 
$
30,281

 
$
236

Selling, administrative, and other expenses
2,690

 
2,562

 
128

Non-Financial Services other income/(loss), net
768

 
404

 
364


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

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 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 liabilities, as well as additional disclosures. The new standard is effective as of January 1, 2019, and early adoption is permitted.  We are assessing the potential impact to our financial statements and disclosures.

NOTE 3. REVENUE

The following table disaggregates our revenue by major source (in millions):

 
For the period ended March 31, 2017
 
Automotive
 
Financial Services
 
All
Other
 
Consolidated
Vehicles, parts, and accessories
$
34,996

 
$

 
$

 
$
34,996

Sale of used vehicles
873

 

 

 
873

Extended service contracts
275

 

 

 
275

Other (a)
224

 
49

 
2

 
275

Revenues from sales and services
36,368

 
49

 
2

 
36,419

 
 
 
 
 
 
 
 
Leasing income
107

 
1,366

 

 
1,473

Financing income

 
1,214

 

 
1,214

Insurance income

 
40

 

 
40

Total revenues
$
36,475

 
$
2,669

 
$
2

 
$
39,146

__________
(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.

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 of $372 million during the period ended March 31, 2017.

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.


10

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS

NOTE 3. REVENUE (Continued)

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, $270 million of this was recognized as revenue during the first quarter. At March 31, 2017, the unearned amount was $3.6 billion. We expect to recognize approximately $823 million of the unearned amount in 2017, $981 million in 2018, and $1.8 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 $247 million in deferred costs as of March 31, 2017 and recognized $15 million of amortization during the three-month period ended March 31, 2017.

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.


11

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS

NOTE 4. OTHER INCOME/(LOSS)

Non-Financial Services

The amounts included in Non-Financial Services other income/(loss), net for the periods ended March 31 were as follows (in millions):
 
First Quarter
 
2016
 
2017
Net periodic pension and OPEB income/(cost), excluding service cost
$
364

 
$
390

Investment-related interest income
61

 
71

Interest income/(expense) on income taxes
(2
)
 
3

Realized and unrealized gains/(losses) on cash equivalents and marketable securities
72

 
49

Royalty income
183

 
154

Other
90

 
45

Total
$
768

 
$
712


Financial Services

The amounts included in Financial Services other income/(loss), net for the periods ended March 31 were as follows (in millions):
 
First Quarter
 
2016
 
2017
Investment-related interest income
$
19

 
$
21

Interest income/(expense) on income taxes
(2
)
 
(2
)
Insurance premiums earned
39

 

Other
35

 
3

Total
$
91

 
$
22


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.

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):
 
First Quarter
 
2016
 
2017
Basic and Diluted Income Attributable to Ford Motor Company
 
 
 
Basic income
$
2,452

 
$
1,587

Diluted income
2,452

 
1,587

 
 
 
 
Basic and Diluted Shares
 

 
 

Basic shares (average shares outstanding)
3,970

 
3,976

Net dilutive options and unvested restricted stock units
26

 
23

Diluted shares
3,996

 
3,999


12

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

 
 
 
 
 
 
 
 
 
 
 
 
 
March 31, 2017
 
Fair Value
 Level
 
Automotive
 
Financial Services
 
All
Other
 
Consolidated
Cash and cash equivalents
 
 
 
 
 
 
 
 
 
U.S. government
1
 
$
75

 
$
749

 
$

 
$
824

U.S. government agencies
2
 
798

 
400

 

 
1,198

Non-U.S. government and agencies
2
 
268

 
283

 

 
551

Corporate debt
2
 
115

 

 

 
115

Total marketable securities classified as cash equivalents
 
 
1,256

 
1,432

 

 
2,688

Cash, time deposits, and money market funds
 
 
8,293

 
6,836

 
6

 
15,135

Total cash and cash equivalents
 
 
$
9,549

 
$
8,268

 
$
6

 
$
17,823

 
 
 
 
 
 
 
 
 
 
Marketable securities
 
 
 
 
 
 
 
 
 
U.S. government
1
 
$
5,194

 
$
1,894

 
$

 
$
7,088

U.S. government agencies
2
 
3,489

 
459

 

 
3,948

Non-U.S. government and agencies
2
 
5,195

 
649

 

 
5,844

Corporate debt
2
 
4,360

 
657

 

 
5,017

Equities
1
 
202

 

 

 
202

Other marketable securities
2
 
39

 
28

 

 
67

Total marketable securities
 
 
$
18,479

 
$
3,687

 
$

 
$
22,166



13

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS

NOTE 7. CASH, CASH EQUIVALENTS, AND MARKETABLE SECURITIES (Continued)

The 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

 
 
 
 
 
 
 
 

 
 
 
 
 
 
 
March 31, 2017
 
 
 
 
 
 
 
 
 
Fair Value of Securities with
Contractual Maturities
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
 
Within 1 Year
 
After 1 Year through 5 Years
 
After 5 Years through 10 Years
Automotive
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government
$
3,104

 
$
1

 
$
(12
)
 
$
3,093

 
$
522

 
$
2,430

 
$
141

U.S. government agencies
1,959

 

 
(3
)
 
1,956

 
834

 
1,107

 
15

Non-U.S. government and agencies
2,180

 
3

 
(8
)
 
2,175

 
248

 
1,927

 

Corporate debt
1,063

 

 

 
1,063

 
1,063

 

 

Total
$
8,306

 
$
4

 
$
(23
)
 
$
8,287

 
$
2,667

 
$
5,464

 
$
156


In the first quarter of 2016 and 2017, sales proceeds for investments classified as AFS and sold prior to maturity were $69 million and $1.3 billion, respectively. In the first quarter of 2016 and 2017, gross realized gains from the sale of AFS securities were $2 million and $1 million, respectively. In the first quarter of 2016 and 2017, gross realized losses from the sale of AFS securities were $0 and $2 million, respectively.

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 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
)
 
 

 
 
 
 
 
 
 
 
 
 
 
March 31, 2017
 
Less than 1 year
 
1 Year or Greater
 
Total
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
Automotive
 
 
 
 
 
 
 
 
 
 
 
U.S. government
$
1,547

 
$
(12
)
 
$

 
$

 
$
1,547

 
$
(12
)
U.S. government agencies
932

 
(3
)
 

 

 
932

 
(3
)
Non-U.S. government and agencies
1,164

 
(8
)
 

 

 
1,164

 
(8
)
Corporate debt

 

 

 

 

 

Total
$
3,643

 
$
(23
)
 
$

 
$

 
$
3,643

 
$
(23
)

We determine other-than-temporary impairments on cash equivalents and marketable securities using a specific identification method. During the three months ended March 31, 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 at December 31, 2016 and March 31, 2017.


15

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
 
March 31,
2017
Consumer
 
 
 
Retail financing, gross
$
68,121

 
$
69,217

Unearned interest supplements
(2,783
)
 
(2,882
)
Consumer finance receivables
65,338

 
66,335

Non-Consumer
 

 
 

Dealer financing
31,336

 
33,481

Non-Consumer finance receivables
31,336

 
33,481

Total recorded investment
$
96,674

 
$
99,816

 
 
 
 
Recorded investment in finance receivables
$
96,674

 
$
99,816

Allowance for credit losses
(484
)
 
(517
)
Finance receivables, net
$
96,190

 
$
99,299

 
 
 
 
Current portion
$
46,266

 
$
48,605

Non-current portion
49,924

 
50,694

Finance receivables, net
$
96,190

 
$
99,299

 
 
 
 
Net finance receivables subject to fair value (a)
$
94,066

 
$
97,042

Fair value
94,785

 
97,672

__________
(a)
At December 31, 2016 and March 31, 2017, Finance receivables, net includes $2.1 billion and $2.3 billion, respectively, of direct financing leases that are not subject to fair value disclosure requirements. The fair value of finance receivables is categorized within Level 3 of the fair value hierarchy.

Excluded from finance receivables at December 31, 2016 and March 31, 2017, was $223 million and $219 million, respectively, of accrued uncollected interest, which is reported as Other assets in the current assets section of our consolidated balance sheet.

Included in the recorded investment in finance receivables at December 31, 2016 and March 31, 2017 were consumer receivables of $32.5 billion and $33.4 billion, respectively, and non-consumer receivables of $26 billion and $26.4 billion, respectively, that have been sold for legal purposes in securitization transactions but continue to be reported in our consolidated financial statements. The receivables are available only for payment of the debt issued by, and other obligations of, the securitization entities that are parties to those securitization transactions; they are not available to pay the other obligations or the claims of Ford Credit’s other creditors. Ford Credit holds the right to receive the excess cash flows not needed to pay the debt issued by, and other obligations of, the securitization entities that are parties to those securitization transactions.


16

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS

NOTE 8. FINANCIAL SERVICES FINANCE RECEIVABLES (Continued)
Aging

For all finance receivables, we define “past due” as any payment, including principal and interest, that is at least 31 days past the contractual due date. The recorded investment of consumer receivables greater than 90 days past due and still accruing interest was $21 million and $18 million at December 31, 2016 and March 31, 2017, respectively. The recorded investment of non-consumer receivables greater than 90 days past due and still accruing interest was de minimis at December 31, 2016 and March 31, 2017.

The aging analysis of our finance receivables balances were as follows (in millions):
 
December 31,
2016
 
March 31,
2017
Consumer
 
 
 
31-60 days past due
$
760

 
$
654

61-90 days past due
114

 
85

91-120 days past due
34

 
29

Greater than 120 days past due
39

 
38

Total past due
947

 
806

Current
64,391

 
65,529

Consumer finance receivables
65,338

 
66,335

 
 
 
 
Non-Consumer
 
 
 
Total past due
107

 
106

Current
31,229

 
33,375

Non-Consumer finance receivables
31,336

 
33,481

Total recorded investment
$
96,674

 
$
99,816


Credit Quality

Consumer Portfolio. Credit quality ratings for consumer receivables are based on aging. Refer to the aging table above.

Consumer receivables credit quality ratings are as follows:

Pass – current to 60 days past due
Special Mention – 61 to 120 days past due and in intensified collection status
Substandard – greater than 120 days past due and for which the uncollectible portion of the receivables has already been charged off, as measured using the fair value of collateral less costs to sell

Non-Consumer Portfolio. Dealers are assigned to one of four groups according to risk ratings as follows:

Group I – strong to superior financial metrics
Group II – fair to favorable financial metrics
Group III – marginal to weak financial metrics
Group IV – poor financial metrics, including dealers classified as uncollectible


17

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS

NOTE 8. FINANCIAL SERVICES FINANCE RECEIVABLES (Continued)
The credit quality analysis of our dealer financing receivables was as follows (in millions):
 
December 31,
2016
 
March 31,
2017
Dealer Financing
 
 
 
Group I
$
24,315

 
$
25,935

Group II
5,552

 
5,952

Group III
1,376

 
1,445

Group IV
93

 
149

Total recorded investment
$
31,336

 
$
33,481


Impaired Receivables. Impaired consumer receivables include accounts that have been rewritten or modified in reorganization proceedings pursuant to the U.S. Bankruptcy Code that are considered to be troubled debt restructurings (“TDRs”), as well as all accounts greater than 120 days past due. Impaired non-consumer receivables represent accounts with dealers that have weak or poor financial metrics or dealer financing that has been modified in TDRs. The recorded investment of consumer receivables that were impaired at December 31, 2016 and March 31, 2017 was $367 million, or 0.6% of consumer receivables, and $385 million, or 0.6% of consumer receivables, respectively. The recorded investment of non-consumer receivables that were impaired at December 31, 2016 and March 31, 2017 was $107 million, or 0.3% of non-consumer receivables, and $164 million, or 0.5% of non-consumer receivables, respectively. Impaired finance receivables are evaluated both collectively and specifically.


18

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS

NOTE 9. FINANCIAL SERVICES ALLOWANCE FOR CREDIT LOSSES

An analysis of the allowance for credit losses related to finance receivables for the periods ended March 31 was as follows (in millions):
 
First Quarter 2016
 
Consumer
 
Non-Consumer
 
Total
Allowance for credit losses
 
 
 
 
 
Beginning balance
$
357

 
$
16

 
$
373

Charge-offs
(102
)
 
1

 
(101
)
Recoveries
29

 
1

 
30

Provision for credit losses
102

 
1

 
103

Other (a)
4

 
1

 
5

Ending balance (b)
$
390

 
$
20

 
$
410

 
 
 
 
 
 
Analysis of ending balance of allowance for credit losses
Collective impairment allowance
$
371

 
$
13

 
$
384

Specific impairment allowance
19

 
7

 
26

Ending balance (b)
390

 
20

 
410

 
 
 
 
 
 
Analysis of ending balance of finance receivables
 
 
 
 
 
Collectively evaluated for impairment
60,581

 
33,587

 
94,168

Specifically evaluated for impairment
373

 
149

 
522

Recorded investment
60,954

 
33,736

 
94,690

 
 
 
 
 
 
Ending balance, net of allowance for credit losses
$
60,564

 
$
33,716

 
$
94,280

__________
(a)
Primarily represents amounts related to translation adjustments.
(b)
Total allowance, including reserves for operating leases, was $463 million.
 
First Quarter 2017
 
Consumer
 
Non-Consumer
 
Total
Allowance for credit losses
 
 
 
 
 
Beginning balance
$
469

 
$
15

 
$
484

Charge-offs
(123
)
 
(2
)
 
(125
)
Recoveries
34

 

 
34

Provision for credit losses
121

 

 
121

Other (a)
3

 

 
3

Ending balance (b)
$
504

 
$
13

 
$
517

 
 
 
 
 
 
Analysis of ending balance of allowance for credit losses
Collective impairment allowance
$
483

 
$
13

 
$
496

Specific impairment allowance
21

 

 
21

Ending balance (b)
504

 
13

 
517

 
 
 
 
 
 
Analysis of ending balance of finance receivables
 
 
 
 
 
Collectively evaluated for impairment
65,950

 
33,317

 
99,267

Specifically evaluated for impairment
385

 
164

 
549

Recorded investment
66,335

 
33,481

 
99,816

 
 
 
 
 
 
Ending balance, net of allowance for credit losses
$
65,831

 
$
33,468

 
$
99,299

__________
(a)
Primarily represents amounts related to translation adjustments.
(b)
Total allowance, including reserves for operating leases, was $584 million.


19

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS

NOTE 10. INVENTORIES

All inventories are stated at the lower of cost and net realizable value. Cost for a substantial portion of U.S. inventories is determined on a last-in, first-out (“LIFO”) basis. LIFO was used for 30% and 37% of total inventories at December 31, 2016 and March 31, 2017, respectively. Cost of other inventories is determined by costing methods that approximate a first-in, first-out (“FIFO”) basis.

Inventories were as follows (in millions):
 
December 31,
2016
 
March 31,
2017
Raw materials, work-in-process, and supplies
$
3,843

 
$
4,240

Finished products
5,943

 
7,190

Total inventories under FIFO
9,786

 
11,430

LIFO adjustment
(888
)
 
(895
)
Total inventories
$
8,898

 
$
10,535


NOTE 11. OTHER LIABILITIES AND DEFERRED REVENUE

Other liabilities and deferred revenue were as follows (in millions):
 
December 31,
2016
 
March 31,
2017
Current
 
 
 
Dealer and dealers’ customer allowances and claims
$
9,542

 
$
10,732

Deferred revenue
3,866

 
1,902

Employee benefit plans
1,469

 
1,287

Accrued interest
974

 
848

OPEB (a)
349

 
349

Pension (a)
247

 
247

Other
2,869

 
3,425

Total current other liabilities and deferred revenue
$
19,316

 
$
18,790

Non-current
 

 
 

Pension (a)
$
10,150

 
$
10,013

OPEB (a)
5,516

 
5,504

Dealer and dealers’ customer allowances and claims
2,564

 
2,788

Deferred revenue
3,687

 
3,699

Employee benefit plans
1,063

 
1,065

Other
1,415

 
1,514

Total non-current other liabilities and deferred revenue
$
24,395

 
$
24,583

__________
(a)
Balances at March 31, 2017 reflect pension and OPEB liabilities at December 31, 2016, updated (where applicable) for service and interest cost, expected return on assets, separation expense, actual benefit payments, and cash contributions. The discount rate and rate of expected return assumptions are unchanged from year-end 2016. Included in Other assets are pension assets of $1.5 billion and $1.8 billion at December 31, 2016 and March 31, 2017, respectively.


20

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS

NOTE 12. RETIREMENT BENEFITS

Defined Benefit Plans - Expense

The pre-tax net periodic benefit cost for our defined benefit pension and OPEB plans for the periods ended March 31 was as follows (in millions):
 
First Quarter
 
Pension Benefits
 
 
 
 
 
U.S. Plans
 
Non-U.S. Plans
 
Worldwide OPEB
 
2016
 
2017
 
2016
 
2017
 
2016
 
2017
Service cost
$
128

 
$
133

 
$
118

 
$
134

 
$
12

 
$
12

Interest cost
381

 
381

 
195

 
159

 
48

 
49

Expected return on assets
(673
)
 
(683
)
 
(339
)
 
(330
)
 

 

Amortization of prior service costs/(credits)
42

 
36

 
10

 
9

 
(35
)
 
(30
)
Separation programs/other

 
3

 
7

 
16

 

 

Net periodic benefit cost/(income)
$
(122
)
 
$
(130
)
 
$
(9
)
 
$
(12
)
 
$
25

 
$
31


The service cost component is included in Cost of sales and Selling, administrative and other expenses. Other components of net periodic benefit cost/(income) are included in Non-Financial Services other income/(loss), net of our consolidated income statement.

Pension Plan Contributions

During 2017, we expect to contribute about $1 billion from cash and cash equivalents to our worldwide funded pension plans (most of which are mandatory), and to make about $300 million of benefit payments to participants in unfunded plans, for a total of about $1.3 billion. In the first three months of 2017, we contributed about $200 million to our worldwide funded pension plans and made about $100 million of benefit payments to participants in unfunded plans.


21

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS

NOTE 13. DEBT

The carrying value of Automotive and Financial Services debt was as follows (in millions):
Automotive Segment
December 31,
2016
 
March 31,
2017
Debt payable within one year
 
 
 
Short-term
$
1,324

 
$
1,320

Long-term payable within one year
 

 
 

U.S. Department of Energy Advanced Technology Vehicles Manufacturing Incentive Program
591

 
591

Other debt
827

 
1,237

Unamortized (discount)/premium
(57
)
 
(48
)
Total debt payable within one year
2,685

 
3,100

Long-term debt payable after one year
 

 
 

Public unsecured debt securities
9,394

 
9,394

DOE ATVM Incentive Program
2,651

 
2,504

Other debt
1,573

 
1,620

Adjustments
 
 
 
Unamortized (discount)/premium
(320
)
 
(328
)
Unamortized issuance costs
(76
)
 
(80
)
Total long-term debt payable after one year
13,222

 
13,110

Total Automotive Segment
$
15,907

 
$
16,210

 
 
 
 
Fair value of Automotive Segment debt (a)
$
17,433

 
$
17,781

 
 
 
 
Financial Services Segment
 

 
 

Debt payable within one year
 

 
 

Short-term
$
15,330

 
$
16,165

Long-term payable within one year
 

 
 

Unsecured debt
12,369

 
11,777

Asset-backed debt
19,286

 
18,228

Adjustments
 
 
 
Unamortized (discount)/premium
(2
)
 
(1
)
Unamortized issuance costs
(16
)
 
(16
)
Fair value adjustments (b)
17

 
4

Total debt payable within one year
46,984

 
46,157

Long-term debt payable after one year
 
 
 
Unsecured debt
49,912

 
53,495

Asset-backed debt
30,112

 
30,155

Adjustments
 
 
 
Unamortized (discount)/premium
(9
)
 
(10
)
Unamortized issuance costs
(197
)
 
(210
)
Fair value adjustments (b)
261

 
180

Total long-term debt payable after one year
80,079

 
83,610

Total Financial Services Segment
$
127,063

 
$
129,767

 
 
 
 
Fair value of Financial Services Segment debt (a)
$
128,777

 
$
132,499

__________
(a)
The fair value of debt includes $1.1 billion and $1.1 billion of Automotive segment short-term debt and $14.3 billion and $15.6 billion of Financial Services segment short-term debt at December 31, 2016 and March 31, 2017, respectively, carried at cost, which approximates fair value. All other debt is categorized within Level 2 of the fair value hierarchy.
(b)
Adjustments related to designated fair value hedges of unsecured debt.

22

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS

NOTE 14. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

In the normal course of business, our operations are exposed to global market risks, including the effect of changes in foreign currency exchange rates, certain commodity prices, and interest rates. To manage these risks, we enter into highly effective derivative contracts. We have elected to apply hedge accounting to certain derivatives. Derivatives that are designated in hedging relationships are evaluated for effectiveness using regression analysis at the time they are designated and throughout the hedge period. Some derivatives do not qualify for hedge accounting; for others, we elect not to apply hedge accounting.

Income Effect of Derivative Financial Instruments

The gains/(losses), by hedge designation, recorded in income for the periods ended March 31 were as follows (in millions):
 
First Quarter
 
2016
 
2017
Cash flow hedges (a)
 
 
 
Reclassified from AOCI to net income
$
87

 
$
118

Fair value hedges
 
 
 
Interest rate contracts
 
 
 
Net interest settlements and accruals excluded from the assessment of hedge effectiveness
99

 
70

Ineffectiveness (b)
17

 
(4
)
Derivatives not designated as hedging instruments
 
 
 
Foreign currency exchange contracts
(139
)
 
(208
)
Cross-currency interest rate swap contracts
195

 
58

Interest rate contracts
(48
)
 
7

Commodity contracts
(5
)
 
42

Total
$
206

 
$
83

__________
(a)
For the first quarter of 2016 and 2017, a $363 million gain and a $112 million loss, respectively, were recorded in Other comprehensive income.
(b)
For the first quarter of 2016 and 2017, hedge ineffectiveness reflects the net change in fair value on derivatives of $610 million gain and$89 million loss, respectively, and a change in value on hedged debt attributable to the change in benchmark interest rates of $593 million loss and $85 million gain, respectively.

23

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS

NOTE 14. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Continued)

Balance Sheet Effect of Derivative Financial Instruments

Derivative assets and liabilities are recorded on the balance sheet at fair value and are presented on a gross basis. The notional amounts of the derivative instruments do not necessarily represent amounts exchanged by the parties and are not a direct measure of our financial exposure. We also enter into master agreements with counterparties that may allow for netting of exposures in the event of default or breach of the counterparty agreement. Collateral represents cash received or paid under reciprocal arrangements that we have entered into with our derivative counterparties which we do not use to offset our derivative assets and liabilities.

The fair value of our derivative instruments and the associated notional amounts, presented gross, were as follows (in millions):
 
December 31, 2016
 
March 31, 2017
 
Notional
 
Fair Value of
Assets
 
Fair Value of
Liabilities
 
Notional
 
Fair Value of
Assets
 
Fair Value of
Liabilities
Cash flow hedges
 
 
 
 
 
 
 
 
 
 
 
Foreign currency exchange contracts
$
19,091

 
$
620

 
$
257

 
$
18,641

 
$
370

 
$
238

Fair value hedges
 

 
 

 
 

 
 
 
 
 
 
Interest rate contracts
33,175

 
487

 
80

 
35,904

 
372

 
175

Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
Foreign currency exchange contracts
17,227

 
379

 
194

 
17,923

 
201

 
235

Cross-currency interest rate swap contracts
3,201

 
242

 
8

 
3,230

 
298

 

Interest rate contracts
61,689

 
156

 
74

 
56,414

 
136

 
71

Commodity contracts
531

 
11

 
6

 
544

 
44

 
2

Total derivative financial instruments, gross (a) (b)
$
134,914

 
$
1,895

 
$
619

 
$
132,656

 
$
1,421

 
$
721

 
 
 
 
 
 
 
 
 
 
 
 
Current portion
 
 
$
1,108

 
$
371

 
 
 
$
811

 
$
368

Non-current portion
 
 
787

 
248

 
 
 
610

 
353

Total derivative financial instruments, gross
 
 
$
1,895

 
$
619

 
 
 
$
1,421

 
$
721

__________
(a)
At December 31, 2016 and March 31, 2017, we held collateral of $15 million and $19 million, and we posted collateral of $12 million and $10 million, respectively.
(b)
At December 31, 2016 and March 31, 2017, the fair value of assets and liabilities available for counterparty netting was $554 million and $564 million, respectively. All derivatives are categorized within Level 2 of the fair value hierarchy.


24

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS

NOTE 15. ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS)

The changes in the balances for each component of accumulated other comprehensive income/(loss) attributable to Ford Motor Company for the periods ended March 31 were as follows (in millions):
 
First Quarter
 
2016
 
2017
Foreign currency translation
 
 
 
Beginning balance
$
(3,570
)
 
$
(4,593
)
Gains/(Losses) on foreign currency translation
(30
)
 
189

Less: Tax/(Tax benefit)

 
(54
)
Net gains/(losses) on foreign currency translation
(30
)
 
243

(Gains)/Losses reclassified from AOCI to net income (a)
(33
)
 

Other comprehensive income/(loss), net of tax
(63
)
 
243

Ending balance
$
(3,633
)
 
$
(4,350
)
 
 
 
 
Marketable securities
 
 
 
Beginning balance
$
(6
)
 
$
(14
)
Gains/(Losses) on available for sale securities
11

 
1

Less: Tax/(Tax benefit)

 
3

Net gains/(losses) on available for sale securities
11

 
(2
)
(Gains)/Losses reclassified from AOCI to net income
(1
)
 
1

Less: Tax/(Tax benefit)
4

 

Net (gains)/losses reclassified from AOCI to net income
(5
)
 
1

Other comprehensive income/(loss), net of tax
6

 
(1
)
Ending balance
$

 
$
(15
)
 
 
 
 
Derivative instruments
 
 
 
Beginning balance
$
64

 
$
283

Gains/(Losses) on derivative instruments
363

 
(112
)
Less: Tax/(Tax benefit)
59

 
(34
)
Net gains/(losses) on derivative instruments
304

 
(78
)
(Gains)/Losses reclassified from AOCI to net income
(87
)
 
(118
)
Less: Tax/(Tax benefit)
(29
)
 
(29
)
Net (gains)/losses reclassified from AOCI to net income (b)
(58
)
 
(89
)
Other comprehensive income/(loss), net of tax
246

 
(167
)
Ending balance
$
310

 
$
116

 
 
 
 
Pension and other postretirement benefits
 
 
 
Beginning balance
$
(2,745
)
 
$
(2,689
)
Amortization and recognition of prior service costs/(credits)
17

 
15

Less: Tax/(Tax benefit)
3

 
5

Net prior service costs/(credits) reclassified from AOCI to net income
14

 
10

Translation impact on non-U.S. plans
8

 
(1
)
Other comprehensive income/(loss), net of tax
22

 
9

Ending balance
$
(2,723
)
 
$
(2,680
)
 
 
 
 
Total AOCI ending balance at March 31
$
(6,046
)
 
$
(6,929
)
__________
(a)
Reclassified to Non-Financial Services other income/(loss), net.
(b)
Reclassified to Cost of sales. During the next twelve months we expect to reclassify existing net losses on cash flow hedges of $189 million. See Note 14 for additional information.

25

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS

NOTE 16. COMMITMENTS AND CONTINGENCIES

Commitments and contingencies primarily consist of guarantees and indemnifications, litigation and claims, and warranty.

Guarantees and Indemnifications

The maximum potential payments and the carrying value of recorded liabilities related to guarantees and limited indemnities were as follows (in millions):
 
December 31,
2016
 
March 31,
2017
Maximum potential payments
$
177

 
$
1,373

Carrying value of recorded liabilities related to guarantees and limited indemnities
23

 
396


Guarantees and indemnifications are recorded at fair value at their inception. We regularly review our performance risk under these arrangements, and in the event it becomes probable we will be required to perform under guarantee or indemnity, the amount of probable payment is recorded.

We guarantee the resale value of vehicles sold in certain arrangements to daily rental companies. The maximum potential payment of $1.2 billion as of March 31, 2017 included in the table above represents the total proceeds we guarantee the rental company will receive on re-sale.  Reflecting our present estimate of proceeds the rental companies will receive on resale from third parties, we have recorded $374 million as our best estimate of the amount we will have to pay under the guarantee.  See Note 2 for additional information on the adoption of the new revenue standard.

We also guarantee debt and lease obligations of certain joint ventures, as well as certain financial obligations of outside third parties, including suppliers, to support our business and economic growth. Expiration dates vary through 2033, and guarantees will terminate on payment and/or cancellation of the underlying obligation. A payment by us would be triggered by failure of the joint venture or other third party to fulfill its obligation covered by the guarantee. In some circumstances, we are entitled to recover from a third party amounts paid by us under the guarantee. However, our ability to enforce these rights is sometimes stayed until the guaranteed party is paid in full, and may be limited in the event of insolvency of the third party or other circumstances.

In the ordinary course of business, we execute contracts involving indemnifications standard in the industry and indemnifications specific to a transaction, such as the sale of a business. These indemnifications might include and are not limited to claims relating to any of the following: environmental, tax, and shareholder matters; intellectual property rights; power generation contracts; governmental regulations and employment-related matters; dealer, supplier, and other commercial contractual relationships; and financial matters, such as securitizations. Performance under these indemnities generally would be triggered by a breach of terms of the contract or by a third-party claim. While some of these indemnifications are limited in nature, many of them do not limit potential payment. Therefore, we are unable to estimate a maximum amount of future payments that could result from claims made under these unlimited indemnities.

Litigation and Claims

Various legal actions, proceedings, and claims (generally, “matters”) are pending or may be instituted or asserted against us. These include but are not limited to matters arising out of alleged defects in our products; product warranties; governmental regulations relating to safety, emissions, and fuel economy or other matters; government incentives; tax matters; alleged illegal acts resulting in fines or penalties; financial services; employment-related matters; dealer, supplier, and other contractual relationships; intellectual property rights; environmental matters; shareholder or investor matters; and financial reporting matters. Certain of the pending legal actions are, or purport to be, class actions. Some of the matters involve or may involve claims for compensatory, punitive, or antitrust or other treble damages in very large amounts, or demands for field service actions, environmental remediation programs, sanctions, loss of government incentives, assessments, or other relief, which, if granted, would require very large expenditures.

The extent of our financial exposure to these matters is difficult to estimate. Many matters do not specify a dollar amount for damages, and many others specify only a jurisdictional minimum. To the extent an amount is asserted, our historical experience suggests that in most instances the amount asserted is not a reliable indicator of the ultimate outcome.

26

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS

NOTE 16. COMMITMENTS AND CONTINGENCIES (Continued)

We accrue for matters when losses are deemed probable and reasonably estimable. In evaluating matters for accrual and disclosure purposes, we take into consideration factors such as our historical experience with matters of a similar nature, the specific facts and circumstances asserted, the likelihood that we will prevail, and the severity of any potential loss. We reevaluate and update our accruals as matters progress over time.

For the majority of matters, which generally arise out of alleged defects in our products, we establish an accrual based on our extensive historical experience with similar matters. We do not believe there is a reasonably possible outcome materially in excess of our accrual for these matters.

For the remaining matters, where our historical experience with similar matters is of more limited value (i.e., “non-pattern matters”), we evaluate the matters primarily based on the individual facts and circumstances. For non-pattern matters, we evaluate whether there is a reasonable possibility of a material loss in excess of any accrual that can be estimated. Our estimate of reasonably possible loss in excess of our accruals for all material matters currently reflects indirect tax and customs matters, for which we estimate the aggregate risk to be a range of up to about $2.8 billion.

As noted, the litigation process is subject to many uncertainties, and the outcome of individual matters is not predictable with assurance. Our assessments are based on our knowledge and experience, but the ultimate outcome of any matter could require payment substantially in excess of the amount that we have accrued and/or disclosed.

Warranty and Field Service Actions

We accrue obligations for warranty costs and field service actions (i.e., safety recalls, emission recalls, and other product campaigns) at the time of sale using a patterned estimation model that includes historical information regarding the nature, frequency, and average cost of claims for each vehicle line by model year. Warranty and field service action obligations are reported in Other liabilities and deferred revenue. We reevaluate the adequacy of our accruals on a regular basis.

We recognize the benefit from a recovery of the costs associated with our warranty and field service actions when specifics of the recovery have been agreed with our supplier and the amount of the recovery is virtually certain. Recoveries are reported in Trade and other receivables and Other assets.

The estimate of our future warranty and field service action costs, net of supplier recoveries, for the periods ended March 31 were as follows (in millions):
 
First Quarter
 
2016
 
2017
Beginning balance
$
4,558

 
$
4,960

Payments made during the period
(797
)
 
(840
)
Changes in accrual related to warranties issued during the period
612

 
608

Changes in accrual related to pre-existing warranties
59

 
475

Foreign currency translation and other
52

 
34

Ending balance
$
4,484

 
$
5,237


Revisions to our estimated costs are reported as changes in accrual related to pre-existing warranties in the table above.


27

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS

NOTE 17. SEGMENT INFORMATION

Key operating data for the periods ended or at March 31 were as follows (in millions):

 
Automotive
 
Financial
Services
 
All Other
 
Special
Items
 
Adjustments
 
Total
First Quarter 2016
 

 
 

 
 

 
 
 
 

 
 

Revenues
$
35,257

 
$
2,461

 
$

 
$

 
$

 
$
37,718

Pre-tax results - income/(loss)
3,464

 
499

 
(126
)
 
(186
)
 

 
3,651

Equity in net income/(loss) of affiliated companies
534

 
7

 

 

 

 
541

Cash, cash equivalents, and marketable securities
24,251

 
15,222

 

 

 

 
39,473

Total assets
96,263

 
145,920

 

 

 
(4,895
)
(a)
237,288

Debt
13,022

 
127,973

 

 

 

 
140,995

Operating cash flows
2,727

 
525

 

 

 
897

(b)
4,149

 
 
 
 
 
 
 
 
 
 
 
 
First Quarter 2017
 

 
 

 
 

 
 
 
 

 
 

Revenues
$
36,475

 
$
2,669

 
$
2

 
$

 
$

 
$
39,146

Pre-tax results - income/(loss)
1,965

 
466

 
(212
)
 
24

 

 
2,243

Equity in net income/(loss) of affiliated companies
340

 
7

 
(1
)
 

 

 
346

Cash, cash equivalents, and marketable securities
28,028

 
11,955

 
6

 

 

 
39,989

Total assets
101,092

 
149,648

 
76

 

 
(6,722
)
(a)
244,094

Debt
16,210

 
129,767

 

 

 

 
145,977

Operating cash flows
2,016

 
1,084

 
(10
)
 

 
1,246

(b)
4,336

__________
(a)
Includes eliminations of intersegment transactions occurring in the ordinary course of business and deferred tax netting.
(b)
We measure and evaluate our Automotive segment operating cash flow on a different basis than Net cash provided by/(used in) operating activities in our consolidated statement of cash flows. Automotive segment operating cash flow includes additional elements management considers to be related to our Automotive operating activities, primarily capital spending and non-designated derivatives, and excludes outflows for funded pension contributions, separation payments, and other items that are considered operating cash flows under U.S. GAAP. The table below quantifies these reconciling adjustments to Net cash provided by/(used in) operating activities for the periods ended March 31 (in millions):
 
 
First Quarter
 
 
2016
 
2017
 
Automotive capital spending
$
1,497

 
$
1,696

 
Net cash flows from non-designated derivatives
(117
)
 
(134
)
 
Funded pension contributions
(368
)
 
(236
)
 
Separation payments
(10
)
 
(28
)
 
Other
(105
)
 
(52
)
 
Total operating cash flow adjustments
$
897

 
$
1,246



28



Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of
Ford Motor Company

We have reviewed the accompanying consolidated balance sheet of Ford Motor Company and its subsidiaries as of March 31, 2017, and the related consolidated statements of income and comprehensive income for the three-month periods ended March 31, 2017 and 2016 and the consolidated statement of equity and the condensed consolidated statement of cash flows for the three-month periods ended March 31, 2017 and 2016. These interim financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the accompanying consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.
 
We previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet as of December 31, 2016, and the related consolidated statements of income, comprehensive income, equity, and cash flows for the year then ended (not presented herein), and in our report dated February 9, 2017, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet information as of December 31, 2016, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP
Detroit, Michigan
April 27, 2017



29


ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

OVERVIEW

Non-GAAP Financial Measures That Supplement GAAP Measures

We use both generally accepted accounting principles (“GAAP”) and non-GAAP financial measures for operational and financial decision making, and to assess Company and segment business performance. The non-GAAP measures listed below are intended to be considered by users as supplemental information to their equivalent GAAP measures, to aid investors in better understanding our financial results. We believe that these non-GAAP measures provide useful perspective on underlying business results and trends, and a means to assess our period-over-period results. These non-GAAP measures should not be considered as a substitute for, or superior to measures of financial performance prepared in accordance with GAAP. These non-GAAP measures may not be the same as similarly titled measures used by other companies due to possible differences in method and in items or events being adjusted.

Total Company Adjusted Pre-tax Profit (Most Comparable GAAP Measure: Net Income Attributable to Ford) – The non-GAAP measure is useful to management and investors because it allows users to evaluate our pre-tax results excluding pre-tax special items. Pre-tax special items consist of (i) pension and other postretirement employee benefits (“OPEB”) remeasurement gains and losses that are not reflective of our underlying business results, (ii) significant restructuring actions related to our efforts to match production capacity and cost structure to market demand and changing model mix, and (iii) other items that we do not necessarily consider to be indicative of earnings from ongoing operating activities. When we provide guidance for adjusted pre-tax profit, we do not provide guidance on a net income basis because the GAAP measure will include potentially significant special items that have not yet occurred and are difficult to predict with reasonable certainty prior to year-end, specifically pension and OPEB remeasurement gains and losses.

Adjusted Earnings Per Share (Most Comparable GAAP Measure: Earnings Per Share) – Measure of Company’s diluted net earnings per share adjusted for impact of pre-tax special items (described above) and tax special items. The measure provides investors with useful information to evaluate performance of our business excluding items not indicative of the underlying run rate of our business. When we provide guidance for adjusted earnings per share, we do not provide guidance on an earnings per share basis because the GAAP measure will include potentially significant special items that have not yet occurred and are difficult to predict with reasonable certainty prior to year-end, specifically pension and OPEB remeasurement gains and losses.

Adjusted Effective Tax Rate (Most Comparable GAAP Measure: Effective Tax Rate) – Measure of Company’s tax rate excluding pre-tax special items (described above) and tax special items. The measure provides an ongoing effective rate which investors find useful for historical comparisons and for forecasting. When we provide guidance for adjusted effective tax rate, we do not provide guidance on an effective tax rate basis because the GAAP measure will include potentially significant special items that have not yet occurred and are difficult to predict with reasonable certainty prior to year-end, specifically pension and OPEB remeasurement gains and losses.

Ford Credit Managed Receivables (Most Comparable GAAP Measure: Net Finance Receivables plus Net Investment in Operating Leases) – Measure of Ford Credit’s total net receivables, excluding unearned interest supplements and residual support, allowance for credit losses, and other (primarily accumulated supplemental depreciation). The measure is useful to management and investors as it closely approximates the customer’s outstanding balance on the receivables, which is the basis for earning revenue.

Ford Credit Managed Leverage (Most Comparable GAAP Measure: Financial Statement Leverage) – Ford Credit’s debt-to-equity ratio adjusted (i) to exclude cash, cash equivalents, and marketable securities (other than amounts related to insurance activities), and (ii) for derivative accounting. The measure is useful to investors because it reflects the way Ford Credit manages its business. Cash, cash equivalents, and marketable securities are deducted because they generally correspond to excess debt beyond the amount required to support operations and on-balance sheet securitization transactions. Derivative accounting adjustments are made to asset, debt, and equity positions to reflect the impact of interest rate instruments used with Ford Credit’s term-debt issuances and securitization transactions. Ford Credit generally repays its debt obligations as they mature, so the interim effects of changes in market interest rates are excluded in the calculation of managed leverage.

30

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

 

RESULTS OF OPERATIONS

Total Company

Net income attributable to Ford. The chart below shows our first quarter 2017 net income attributable to Ford.

q12017totconetinc5a.jpg

Net income attributable to Ford in the first quarter of 2017 was $1.6 billion or $0.40 diluted earnings per share of Common and Class B Stock, a decrease of $0.9 billion or $0.21 per share compared with the first quarter of 2016. First quarter 2017 pre-tax results of our Automotive segment, Financial Services segment, All Other, and Special Items, as well as Taxes are discussed in the following sections in “Results of Operations.”

Revenue. Company revenue in the first quarter of 2017 was $39.1 billion, $1.4 billion higher than a year ago.

Cost of sales and Selling, administrative, and other expenses for the first quarter of 2017 was $35.5 billion, an increase of $2.3 billion compared with the first quarter of 2016. The detail for the change is shown below (in billions):
 
First Quarter
 
2017
Lower/(Higher)
2016
Volume and mix, exchange, and other
$
(1.3
)
Contribution costs
 
Material excluding commodities
(0.2